Innovation in Consumption Goods will Never Stagnate

Was there a Great Stagnation in technological development? Definitely maybe! Are we still in one? Definitely maybe not! Am I the correct person to adjudicate such things? Absolutely not.

When we talk about stagnation, we focus on the sort of innovation that is most pertinent to economic growth, which means technology as it relates to production. More than just important, with any small amount of reflection on the human condition and how far we have come as a species, in a certain light the technology underlying production is very nearly the only thing that matters.

Only, in a far more comfortable and modern way, it’s not. With all due respect to the protests of those who used to hike 10 miles to three jobs, uphill all 4 ways, every day through the snow, our lives are about consumption. And before you cast me into The Pit of a Thousand Shopping Malls, I mean consumption in a very broad sense. Consumption of time with family and friends; consumption of the 5 senses; of active introspection and passive entertainment; of every new Zelda game they can possibly create.

And all I’d really like to do today is cheer you with a delightful reminder that there will never be a great stagnation of consumption goods. There really won’t be! Not because human genius is unlimited (though maybe it is, if you include exponential AI learning). Rather, it is because our wants are infinite, and from those wants we can fabricate a cheery synthesis of Say’s Law and the unrelenting optimism of Endogenous Technical Change – that Demand Creates its Own Innovation.

That might be overly cute, but I’m not taking the “infinity” in play here lightly. That infinity of wants is not a product of our imagination or the broad dimensions in which we can consume. That infinity is born of our capacity for niche refinement, for variation. If you don’t believe me, go a farmers market. Go a Wegmans. Go to your local Asian grocery store. Google “heirloom tomatoes.”

Our consumptive lives will never stop improving because each new good brings with it the infinite possibilities of small changes, of bigger/narrower/weirder/quieter/redder/hotter/faster/easier/drowsier/friendlier/adjective/adjective… And with each new variation comes a roll of the dice that just might send us down forking paths of inspiration and radical departure from past convention, toward that new way of living our lives that no one had thought possible before.

There was a time when we didn’t have enough calories, so we innovated ways to make more calories. Once we had enough calories, we invented better calories. Then we invented foods. Then meals. Then experiences. Then stories. Then identities. Each stage of innovation brings with it not the disappearing of low-hanging fruit, but an expanding horizon of all the possible ways our life-sustaining caloric consumption goods might evolve, and the infinite stories they might help us tell through the lives we live. And we will never run out of stories to tell.

Learning is FUNdamental

Two items came across my radar this week that were absolutely not boring and also got me thinking. Up front, the links are Alexander the Grate on CWT and a guest Slow Boring on Chad.

Something that stood out to me about the two sources above are that the entertainment aspect made more people push through to the end and learn as a result. Right now, after my kids are asleep, I’m splitting my time between reading The Property Species and watching The Good Place on Netflix. The Property Species is really good, but it’s not catnip for my brain like The Good Place.

My son was home for most of the past week, so one of the things I forced him to do was read out loud. He needs to learn to read, and I know reading simple books out loud is good for him. It was clear that he would have chosen a painful burn over learning in this way.

Alexander the Grate is homeless, but I learned that he prefers the term No Fixed Address (NFA). He and Tyler discuss what it is like to live in DC as a homeless person. Policy is mixed in with interesting stories.

Matt Y’s guest on Slow Boring, Jeff Maurer, delivers information on Chad. As he points out, 16 million people live in Chad, so we should educate ourselves about the political situation and how our own policies would affect the fate of the citizens. He, the self-proclaimed Lady Gaga of Chad, is irreverent for a cause.

Alabama Demographic Change

According to the 2020 Census, Alabama’s population grew by 5% since 2010. Recently, the death rate started to exceed the birth rate in Alabama, as I think it has in most states. Tom Spencer of PARCA reports that most of the population growth in Alabama was driven by people migrating to the state. From 2011 to 2016, those new people were mostly immigrants from other countries. International migration slowed down in 2017, but that is exactly when Alabama experienced a surge (well, a few tens of thousands of people) in domestic migration. I arrived, as it happens, precisely at the start of the domestic migration surge. See my earlier post on the nice weather here.

It’s pretty humid currently in mid-summer. Could that be why Alabamians take summer vacation so seriously? This place really shuts down around the 4th of July so that people can be undisturbed at “the lake”.

Cars Are Likely to Stay Expensive for Years

Yesterday Jeremy discussed what spiking car prices mean for overall inflation.

Today I’ll discuss the outlook for car prices themselves, based on what I heard at the Philly Fed’s conference on auto lending yesterday. Some (approximate) quotes:

The used market is red hot

Used prices are likely to stay elevated for a few years

Because used prices are so high, “If you can find the car you are looking for new right now, there’s a good chance it makes sense to buy it instead of going used.” But it could be hard to find that new car you want because inventories are so low, and even then you probably won’t be able to bargain the price down like you normally would- “75% of new cars now sell for MSRP or above, vs 36% last year”

The average new car now sells for $40k, partly because SUVs are increasingly popular, and partly to bother those who care about financial responsibility, like fellow Temple Econ PhD Adam Ozimek:

Because of manufacturing disruptions from Covid and the chip shortage, “We’re at least a year out before we start to restock to normal dealer inventory levels” in the new market. Supply in the used market could stay low for 4-5 years because of the lower production of new cars and lower turnover of existing ones. Normally cars coming off lease & out of rental car fleets are a big sources of used cars for sale, but fleet purchases & leases are down from 40% of new car purchases to 25%. Reposessions, another source of used cars, actually decreased slightly through Covid despite the huge spike in unemployment.

All in all, its a good time to own a car and a bad time to try to buy one, and this state of affairs could persist for years absent an unexpected drop in demand or spike in supply.

Electric cars, though, seemed poised to take over much more of the market- the forecast was about 1/3 of new sales by 2030, driven by improvements in the technology, continued subsidies to new EV purchases & EV infrastructure, and car companies offering electric models in popular categories like SUVs and trucks where they are currently rare.

Cars, Inflation, and the Quantity Theory of Money

You have probably seen the latest inflation data. The headline number is 5.4% increase in prices in the past year as measured by the CPI-U. That’s a lot! Even the Core CPI (removing volatile food and energy) is up 4.5%.

If you follow the data closely, you may also have heard that a big chunk of that increase comes from prices related to automobiles: new cars, used cars, rental cars, car parts. All way up!

If you are in the market to buy a car, or if you really need a rental, it’s a bad time for prices. (Conversely, if you have an extra car sitting around, it’s a great time to sell!)

But what if you aren’t in the market for a car? What does the inflation data look like? The White House CEA tweeted out this chart to deconstruct the factors in the recent CPI release.

What does it all mean?

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Three Things I Have Learned About Growing Sprouts

Last month, we visited my daughter and her family, which includes a three-year-old and a six-year-old. We were only there for a week, so I thought a neat activity which we could complete in that timeframe would be to grow some sprouts to eat. It turns out I didn’t really know what I was getting into. My idea of sprouts was the light, crunchy bundle of hair-like alfalfa sprouts that nearly all of us have garnished a salad or a sandwich with at some point in our lives.

I did a quick read-up on sprout growing. The basic mechanics are quite simple: get some sort of screened or mesh lid for a Mason jar, put a couple tablespoons of sprouting seeds in there, cover them with a couple inches of water, and let them sit overnight. Then pour that water off, and every morning and every night run some fresh water in through the mesh, swirl it around a little bit to moisten the seeds and wash off bacteria, and pour that new water off. Keep the jars inverted, but a little tilted, so air can get in through the mesh. Keep the jars out of direct or reflected light. In about three days total you are done.

What could possibly go wrong, you ask? Well, I got seduced by all the glowing claims and enthusiastic comments online by sprout devotees about various types of seeds for sprouting. Instead of sticking to just plain alfalfa, I ended up buying a suite of sprouting seed mixtures which was highly rated on Amazon. What came was about 20 little plastic bags, each with a mixture of seeds for sprouting.

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It’s a Trap!

When I was 22 I applied to the MFA programs in creative writing at the Iowa Writers Workshop and Columbia. They summarily rejected me with a minimum of fuss. They were right to do so, but it is also without question one of the greatest pieces of good fortune to ever befall me.

Let’s talk about “trap” degrees – expensive, often multi-year endeavors that rarely lead to salaries commensurate with the investment and arguably carry negative signal value in the labor market. We could all dunk on the aspiring filmmakers and puppeteers who look as though they were sent from central casting to play exactly the sort of dude who forks over >$100K for the shortest path to becoming the next Spielberg without doing all the messy fundraising, friend-haranguing, lighting improvising, actor recruiting, writing, and film festival peddling that looks an awful lot like high-risk hard work. We could dunk on them, but…but I can’t think of a way to finish that sentence that isn’t arrogant and condescending.

Anyway, we really should put aside the “they did this to themselves” schadenfreude, at least for a second, because regardless of blame, a lot of high opportunity cost human life years are being scammed with the siren song of “look at this great investment in yourself that will feel just like consumption while you are doing it!” There’s nothing new here, mind you. “Eat yourself thin” diets cycle through the zeitgeist with regularity, conveniently next to the book/video/3-week courses that will help you get rich in real estate with no money down. But we should be concerned when an entire sub-industry appears to be selling a human capital investment with negative real value. They may not be the modal or flagship product of higher education, but neither was the Pinto.

There’s similarly no shortage of people eager to point out that a lot of undergraduate education looks like a 4 year cruise, a pretirement if you’ll excuse a shameless attempt at coining unnecessarily cute terminology. We shouldn’t be shocked that purveyors are bundling consumption within an investment where, by design, the check-writers face high monitoring costs — part of the point of college is leaving the nest, right? Think about it from the other side of the equation– higher education is a scammer’s dream. The money folks are out of sight and desperately credulous to believe their child is on the path to status and financial independence. The customer is naïve and unworldly, eager to follow any external entity (other than their parents) that will do their decision-making for them. But the best part is the con’s mark won’t know for sure they’ve been scammed until well after the check is cleared (but not before they’ll receive their first solicitation for alumni donations).

But, you might be saying, graduate and professional schools are meant to be different. This is focused preparation for a narrow field of endeavor. These programs are decidedly not pretirement cruises. This is training. Why would anyone pay for training in something that has no payoff? I’ll offer a couple possibilities:

  1. This isn’t training, it’s consumption, and the buyers are fully aware of it.

I’m sure this accounts for a fair amount of fine arts training, particularly for retirees and hobbyists attending local community colleges, as well on the children of wealthy parents who have no intention of ever pursuing a vocation. More on them in a second.

2. This is training for aspiring men and women of leisure.

Remember gentlemen and ladies of leisure? They used to have their own Census occupation code! This might seem redundant with the previous point, but if your intention is to hob-nob with the rich and more-rich, there is something very much to be said for being able to discuss certain artistic fields at more esoteric levels. There’s also a modern middle-class version of this as well, what in an earlier, more coldly misogynistic, male-dominated time would have been referred to as an “MRS” degree. I imagine there are plenty of men and women who view school as a way of biding their time until a partner emerges who will be the primary earner. profiles and fix-ups are likely to be more economically fruitful for students mid-pursuit of a graduate degree than those working unimpressive jobs.

We also shouldn’t dismiss those opting for a graceful slide down the economic ladder. Generous families, perhaps a universal basic income, a rich artistic education, and comfortably living in a bohemian southern university town are for many the formula for a quiet, comfortable life unencumbered by the toils of a career. I’ve always enjoyed the company of such folks, at least until they try to tell me how the economy really works. Never follow these people to a second location.

3. This is a scam, and one with potentially far reaching costs.

Like so many scams, you could write a pithy story about well-dressed con-artists who open a “college” in an abandoned strip mall, throw on a coat of paint, and scam the spoiled children of upper-middle class social climbers by offering fake degrees that promise a shortcut to white collar riches and bohemian prestige. It’d be a two-act romp followed by a third where everyone ends up ok and kids learn the value of hard work.

In reality, though, no small number of the victims will be kids from higher education information deserts, who emerge from their undergraduate years with a relatively weak career they were guided towards after they struggled their first semester. Facing grim job prospects, they’re hoping two more years will thin the competition in the rarefied air of the applicants with “graduate education”. It is for these students that I fear the most.

It gives me pause when I see overly narrow masters’ programs that target a specific job rather than training in a set of tools. In service to my own cowardice, I won’t name specific programs, but suggest caution when considering a degree where the only job you’ll be qualified for is in the name of the degree.

I similarly worry about third- and fourth-tier MBA programs (especially if your employer isn’t paying for it). So much of the value of an MBA is the social network it will wire you into. If your parents haven’t heard of the school, it’s probably not much of a network.

Aspiring masters degree students, my advice is this: look up the individual courses you’ll be taking and then explain to the mirror what you’ll learn in each one and the market in which those skills are in demand. If you can’t do that, I advise reconsideration.

That’s all great, but what should we do?

I have no policy solutions, but I do have a piece of pedagogical advice. We need to update the standard operating procedure of guidance counselors in schools everywhere. We’ve been working so hard to convince kids they should go to college, we forgot to teach them how to be discerning customers of higher education. I’m all about caveat emptor as life advice, but if we want to hit people with it as an ex post I-told-you-so, we have to teach it to them ex ante, especially when we’re talking about 17-year-old and (ahem, perhaps mildly infantilized) 21-year-old kids. Just because you’ll walk away with a degree doesn’t mean that degree will be worth the time and tuition.

My guess is that we should up the status of community college, technical certificates, and not going to college at all. At the same time, we should probably lower the status of arts degrees for for artistic fields that are better suited to learning by doing and autodidacts.

Or maybe we just need guidance counselors to bring college seniors on field trips to carnivals across the country. Nothing will teach you the cold truth of scams faster than losing your last 20 bucks pursuing a fluffy bit of googly-eyed asbestos shooting on a bent basketball hoop in front of someone you planned on asking to prom but could never see value in you again after missing 10 shots in a row.

Trust me, that’ll stick with them.

Scale and Online Learning

A simplistic view that I have heard about online learning is that it is of worse quality but cheaper than traditional classroom learning.

We should take the cheaper part seriously. Cheaper can mean new opportunities for many people. Delivering a lecture online can mean that, once the fixed cost of creating the video is incurred, the marginal cost of adding a student is nearly zero. The average cost of delivering instruction goes down with every student who joins the course. Economy of scale is a wonderful thing.

Now, let’s assume a family that has a quiet home and reliable internet service. Assume that a mom, m, signed up for a rock/geology class, r, for her school-aged son who cannot read. It’s me. I signed my son up for an online “rock camp”. I thought it would give me 45 minutes of time to get work done while my son was distracted in a Zoom room.

This week I got an email from the online school company about how to get ready for rock camp. I’m instructed to assemble a supply kit of about 30 items so that my kid can do a hands-on science experiment every day of the camp. This is not what I thought I was signing up for, and I no longer think rock camp is going to save me any time.  It gets me thinking about scale and online education for kids.

All the parents of rock campers will have to separately assemble a kit of supplies. The economies of scale would come from having the children in a physical school. Buy the supplies in bulk and hand out a pack to each kid all at the same time. It would be great to have a *classroom* where the students could *go*. Even though many classes do not involve vinegar and magnets, the point can generalize.

We should take scale seriously. I support experimenting with different kinds of education and giving students choices. Personally, I benefitted from getting to pilot an experimental program at my high school that allowed me to take microeconomics for college credit online. I also participate in online education sometimes as an educator.

However, it’s overly simplistic to say that the scale idea always points us in the direction of online education. Even at the university level, some products/services can be cheaper to deliver in a traditional class setting.

CEA on Inflation Today and WWII

This week the Biden Council of Economic Advisers blogged about “Historical Parallels to Today’s Inflationary Episode”.

Consumer demand in 2021 is roaring back after pandemic shutdowns. Demand for airline travel is exceeding expectations. Car dealer lots are empty.

The authors argue that, of all the periods of rapid inflation in American history, the boom after WWII has the most parallels to today.

During WWII, Americans were obviously in war mode. Price controls and supply shortages led to deprivation on the Homefront. Families had trouble buying cars, just like today.

Instead of focusing on consumer or industrial durable goods, manufacturing capabilities were concentrated on military production. Today’s shortage of durable goods is similar—a national crisis necessitated disrupting normal production processes. Instead of redirecting resources to support a war effort, however, manufacturing capabilities were temporarily shut down or reduced to avoid COVID contagion.

Remember when oil had a negative price in 2020? While people in the US were staying home, many were building up personal savings. As soon as the “war” ends, consumers compete as buyers and drive up the prices of the limited available goods.

They present the post-war inflationary episode as dramatic but temporary, because it only lasted for two years. It’s short compared to inflation of the late ‘70’s. They are standing behind the Powell “transitory” story, in their conclusion.

On the other hand, they say that the most comparable moment in history to today involved the price level spiking 20% and taking two years to come down. I’m pondering a very expensive repair on our car, just make sure I don’t have to buy a new one soon.