Created By

There is an old adage, I don’t know who to attribute it to (probably Norman Lear), that theater is for actors, movies for directors, and television for producers. The logic behind it is fairly straight-forward and compelling.

No matter how much the director works to make their vision come to life on the stage, when the curtain rises the production succeeds or fails based on the choices the actors make that night, in that moment. They have all the power. Cinema is a different animal, granting considerably more influence to the director. They place the camera, and therefore the audience, wherever they want. They can demand take after take until they fill the frame with the vision they hold in their mind. They can lean over the shoulder of the editor at every step, telling the story they want to tell. The director does not, by any means, hold unchecked power, but they are the high-leverage determinant of a project’s success or failure.

Television as a producer’s medium is, in my opinion, slightly out of date. When people spoke of the power of producers within television, they were speaking of network television; a landscape with limited channels where few would ever be so foolish to dismiss the power of the median voter theorem. Producers thrived because they made the high leverage decision: what gets to be on television. The actors, the writing, the (ha!) cinematography, those were all 2nd-order concerns, trivial concerns really, that lived in the shadow of the one decision that truly mattered: did you get to be on television?

Whole lines of economic research and theory center on the economies of scale and network effects. If you’ve ever wondered why books about old Hollywood have some of the craziest stories you’ve ever heard, it all comes back to the simple, but rich, economics of a marketplace with massive network effects for consumers (you want to watch what everyone else is watching), enormous fixed costs for setting up a network that absolutely trivialize the marginal costs of producing a show, the nearly zero marginal costs of broadcasting, and the enormous barriers to entry for potential rival networks. Coupled with the enormous status of associated with “being on television”, you arrive at an outcome where the artistic quality of content is almost irrelevant to market success, labor is willing to work for peanuts, and your capital inputs are almost exclusively fixed costs. Who’s the high leverage determinant of outcomes? The person who gets to decide what gets to be put on television.

That world is gone and I am grateful for it. Television is now the medium for writers.

We live in an endless wonderland of channels and content. The median viewer is still well served by a multitude of outlets, but it is within the microbiomes of this new ecology of entertainment that most of us are lured towards. If the defining attribute of the supply of entertainment has become its specificity, then the defining attribute of our demand is its depth. We demand 32 film superstructures with fully fleshed out worlds within worlds within worlds. We demand 6 seasons and a movie exploring the relationships between a community college study group and their metacommentary on film and television and how it has come to define how we view relationships. We demand 10th season callbacks to a sight gag from season 2 that was originally an homage something Truffaut did (which was itself an homage to Hitchcock). We want the story to keep going and going and going, and if has to end, it sure as hell had better not all been a dream.

Showrunners, who are typically the final typewriter that most scripts go through, and their teams of writers are producing the content that we voraciously binge. I don’t (want to) know how many hours of television I watch a year. but I have no doubt that I’m consuming 1000’s of manhours of writing, which makes it hard to complain about the price of HBOMax when I’m effectively paying pennies per hour for good writing. Maybe good writing has always been in short supply, but for the first time it is the the high leverage determinant of the success and failure of outcomes– good writing is the short side of the market. So if you want to make it as a writer, keep writing! But if you want to make a career and pay a mortgage as a writer, I suggest you bone up on your television story structure.

NB: for the couple dozen or so of you who read this, be advised that I am Mike Makowsky, the economics professor, not Mike Makowsky the talented screenwriter. Please do not blame him for my opinions, though I do encourage you to watch his movie Bad Education, which is excellent.

On Cylindrical Revolutions

The three technological innovations new to my life in the last year with the greatest impact are:

  1. Pfizer mRNA vaccines (price = $19.50, input costs: no less than $2 Billion, probably more)
  2. Amazon Basics Foam Roller (price $18.99, input costs: $4.44 per ounce of styrofoam)
  3. Zoom teleconferencing (price: $no idea what my school pays for it, input costs: $146 Million in venture funding)

The vaccine, of which I am scheduled to receive my first dose of tomorrow, will allow me to (sort-of) return to my pre-pandemic life. The introduction and regular use of a cylinder of high-density styrofoam has given me a better functioning left leg than I’ve enjoyed in 5 years. Zoom has arguably done more to maintain my the short-term integrity of my income (i.e. it’s allowed me to teach online effectively).

That is a very oddly shaped distribution of investments in high-utility yield innovations.

Biotechnology and medicine as a high investment, high risk, big payoff innovation game is well understood. Less known was whether or not a rapid “innovation on demand” vaccine project was an achievable outcome, no matter how much money was thrown at it. Turns out it was, and we’re left with what might be the most impressive feat of willed innovation since the moon landing. High-resolution teleconferencing technology, on the other hand, is exactly the kind of product we’ve grown accustomed to modern tech firms producing– the supply of such innovative products via the private capital-entrepreneurship pipeline is almost always less in question than the eventual demand it may or may not find in the marketplace.

But what of treating your muscles like sugar cookie dough? This is neither a sophisticated new composition of materials nor, at face value, a particularly complex theory of musculature. But, to my knowledge, this is not something even professional athletes were doing 7 years ago, yet now is both the bleeding edge of physical maintenance and such common knowledge that everyone who’s strained a muscle in the last 6 months currently has one of these cylinders leaning against a wall in their home. And, while I don’t mean to oversell it, the introduction of foam rolling has massively improved the quality of my life, not just when I try to play any sort of sport, but when I walk down a flight of stairs. It’s not crazy to suggest it may buy me an extra decade of easy use of my preferred mode of transportation, and while using my natural knees at that.

Investment in innovation is an interesting thing – there appears to be significant returns to scale at the micro, meso, and macro levels. Firms flush with capital can focus teams on single problems, fill them with talent, and grant them the keys to every piece of equipment deemed to hold even the slightest possibility of aid en route to an end product. There are simply innovative outcomes on the horizon for the Pfizers of the world that will never be available to scrappy new start-ups. At the same time, we can see the network-driven returns to scale in markets, a la Silicon Valley or Hollywood, that only begin to appear when a critical mass of agents all find themselves drawn to the bubbling creative soups that appears in the diners, salons, and coffee shops of whatever place has become the place.

But there are scale returns at the most macro of macro levels as well, and that is where we get miraculous cylinders of foam, as well as wheels on suitcases and the polymerase chain reaction. People are many things. Occupiers of space. Emitters of carbon dioxide. Consumers of fried dough. Sometimes while doing all three they also come up with ideas.

Humans as idea machines lies at the core of Michael Kremer’s theory of economic growth, and it is perhaps my favorite idea within economics in the last 40 years. Simply put, more people leads to more ideas. Population growth is not just a product of innovation, it is a source of it. Every individual is a lottery ticket that we hope pays off with a world changing eureka moment that the rest of us can benefit from and build on for all time going forward. More people, more lottery tickets.

Those organic globules of cognitive betting slips coalesce into the long tail of innovation return on investment. We take the brightest minds, throwing them and piles of cash at our biggest problems, hoping that for the closest thing to a assured payoff. But it’s within the billions of people, and their billions of bad ideas that sometimes aren’t, within which we get countless miracles that change our lives for the better bit by bit, one smoothened middle-aged stride at a time.

Berkson’s Paradox nay Bias and Spring Break Blogging

You may be tempted to observe a negative correlation between the length of my blog posts and fraction of the previous 7 days that can be accounted for as “Spring Break”, but I submit that you may simply be omitting from the sample all of the short blog posts I could hypothetically be writing in crisp fall months.

Do read Lionel’s whole thread though. It’s good.

Consumption as Inflation Hedge

The emerging market in digital art as nonfungible tokens is the strongest signal of expected inflation I’ve seen to date.

Let’s back up.

Digital art is being sold as nonfungible tokens (NFTs). Is this a bubble? Don’t know. Is this art? Don’t care. Is a piece of digital art as an NFT harder easier or harder to duplicate? I imagine it is easier for the artist, but they have an incentive not to issue duplicates, because doing so erodes the market value of all future digital art NFTs the producer might issue. Is a piece of digital art as NFT harder to duplicate for a forger? I imagine so. The NFT as both art and artists signature is certainly harder to duplicate than traditional media and penmanship. Which is to say we have little reason to worry about the value of a piece of art being inflated away by the artist or criminal forgers.

Now that’s interesting.

The general rule of thumb is that the more consumption value a good offers, the worse it will perform, on average, as an investment. Art, baseball cards, comic books, vinyl records, memorabilia, homes – these are all generally inferior to equities as investments. It stands to reason, though I certainly haven’t checked, that the same logic applies to hedging against inflation as well. Precious metals, while less fun, should offer a superior hedge against inflation than art, particular in relation to art by living artists, where the supply is anything but fixed.

In this regard, however, NFTs are a bit of a game changer. The supply of any given Beeple NFT is fixed forever at one, and there is as yet no reason to believe otherwise. Storage and security costs approach zero, which is something that can’t be said about a 20-foot tall metallic balloon dog. The consumption value is subjective and I’ll leave it to market auctions to suss that out. The inflationary hedge value, however – in this manner NFTs may be an game-changing innovation for prominent living artists, allowing them to capture rents from the value they create that has previously eluded them prior to shedding their mortal coil.

The bond market isn’t giving unambiguous signals of inflationary pressures yet, but signs are creeping in, and among those signs I include seemingly rabid excitement for mixing cultural-status consumption with cryptocurrency-enabled hedges against the prospect of what would be the first real wave of inflation we’ve seen in 40 years.

Which is a long winded way of saying I’m not rooting for inflation, but I’d also be happy to sell my mint-condition complete set of 1987 Fleer baseball cards if you’re looking to hedge your portfolio.

Political Poverty is a Choice

Political drama was about to happen and then it didn’t. Across the country, deep and insightful thinkpieces were left unfinished, relegated to the folder for things writers hope will become future brilliance but definitely never will.

The Big Covid Stimulus Bill was about to fall short by a single vote, with Senator Joe Manchin (D-West Virginia) threatening to break against party lines. It was a disaster… until it wasn’t. A political catastrophe, evidence that the Democrats were a failed coalition once again humbled by their ruthless coordinated opposition… until it wasn’t.

So what was the source of this unforeseeable political miracle? Joe Biden’s long-running political strategy of asking people what they wanted, keeping promises, and not being a d*ck.

As much as I want to roll with three paragraphs of clever wordplay referencing stratagems and gambits, the obvious point to be made is that Biden has decades of political capital that the entire Democratic party is currently able to leverage. In contrast, the Republican Party is currently fronted by a Senator who has broken every political norm for short/medium run political gain, while bearing the brand of a career grifter who spent decades opting not to pay his contractors, employees, or lenders.

I’m not much for making forecasts or predictions, so here’s my predictive forecast for the Republican party: they don’t matter and won’t for years.

Make no mistake: their politics still matter a great deal. White ethno-nationalism has a real foothold in chunks of the electorate all over the country, evangelical Christians remains one of the most influential voting blocks, and the US system remains weighted towards the preferences of rural voters. Rather, what I mean is that the institution of the Republican Party no longer brings much to the political bargaining table. The party has spent down decades of political capital and no recourse to trust in their reputation to solve collective action problems. The bill has finally come due for their spendthrift and short-sighted culture. As much as it may hurt our sympathetic sensibilities, we owe it to them to let them learn from this experience and, after a few decades of trustworthy behavior and political saving, they should be able to pull their party up by their bootstraps.

In four years, two with control of all three branches, the GOP was never ever able to pass legislation as impactful on the US landscape as what the Democrats pulled off this week. The Republican party remains an efficient fundraising organizing and cultural brand for running a campaign, no doubt. There’s not going to be a third-party usurping of their status as one of the two dominant parties, at least not any time particularly soon. But as far as the legislative marketplace is concerned, the Republican party is dead broke.

Dolly Parton and the Danger of Doing What You Love

Let’s get through the easy parts quick. This Vox feature does its best to argue for, without ever explicitly stating or committing to, the thesis that Dolly Parton should be canceled because she has never said or done anything controversial, let alone anything justifying cancelation.

It is not good and is largely unworthy of comment. As much as some of you crave dunking on the proponents of cancel culture with a an intensity that sometimes feels a lot like, well…cancel culture, I’m bored with the whole family of skirmishes, vendettas, and public identity burnings.

I want to talk about sh*t jobs.

I don’t mean unpleasant, dangerous, or low status jobs. There are positive compensating wage differentials for such things. No, I submit to you that the new sh*t jobs of the modern developed economy are relatively pleasant, safe, and within the appropriate social circles, quite high status. And therein lies the trap. Let me set the scene.

You’re at a top 100 undergraduate university. English is your first language, you’re accustomed to receiving high grades, and are sufficiently socially adept that attending college parties is at least moderately enjoyable. In choosing your major, you are persuaded that you should choose the subject within which you experience the greatest pleasure executing your assignments and participating in class. While math is by no means beyond your capacity, studying it brings you little pleasure, and there is no similar mechanism for you to earn approbation from your professor or impress you classmates. You don’t get excited about telling your friends you are planning to become an engineer or chemist, and, perhaps most importantly, imagining your future self as an employee in sensible work slacks fills you with an almost crippling amount of ennui.

So you start on the path to become a writer. You know that fiction writing is a brutally competitive field, dominated by a handful of (what you imagine to be) supernovas of talent. You’re practical, you tell yourself, and imagine a career in journalism or journalism adjacent publications where you research beat stories and features, allowing yourself to get excited about climbing the ladder and eventually writing a regular column where you blow our collective minds with your insight and pith. It only takes six months into your first gig that you realize the problem. The really big problem.

Every other English major in the country had exactly the same idea. A lot of sociology, history, critical theory, and field studies majors, too. The field is flooded. But it gets worse. It’s also filled with engineers, economists, psychologists, biologists – people with specialized knowledge, often with advanced degrees, all competing with you for space in a brutally selection selective ecosystem where every ounce of attention and influence is measured to the last eyeball.

But it gets so much worse.

Thousands of those people are willing to do the job– your job — for free. For nothing. Hell, some of them are willing to pay the publisher for the opportunity to do what you considered the vocation that you were you going to use to pay your rent. How can you compete with that? It’s beyond our fears of being underbid by people willing to take less pay, of our job being outsourced to workers in another country with a lower standard of living and weaker labor laws. Nobody’s worried about the execs at their company discovering a sweatshop in Vietnam full of employees willing to pay your boss for the right to do your job.

But that is exactly what’s happened to everyone who wanted to write about sports, music, partisan politics, or, for that matter, any subculture where being a tastemaker or cultural curator is catnip for the teenage soul. There’s been a revival of unionization in the digital print business and its easy to see why: they need to close shop. Everyone who’s gotten their foot in the door and ridden the elevator up to their new 6th floor cubicle has been greeted with the same horrifying sight. Teeming masses, as far as the eye can see, all desperate for their job, for their identity, as a writer. So desperate they’ll do it for free. Some want a chance to prove themselves, but many of them just want a hobby. They competently teach 7th grade band during the day for a pay package that includes health and dental insurance, all while wearing a very sensible skort from Costco. But by night they write fiery, in-depth, shockingly well-informed features about their favorite North London soccer team, Icelandic DJ subculture, or how to get the most bang for your buck shopping at Costco. The research, the writing, the promotion, they do all of this for free.

Which means every assignment could be your last. Which means you need to get attention, no matter what. Most days it’s not that big a risk. You churn out 1-2 posts per day, mostly just recapping news or taking a few shots at someone who wrote something you don’t like or, at least, you think other people won’t like. But every now and then you shoot the moon on a big feature, going through old sources, putting together a collage of links that you think will jar readers into not only reading your work, but responding to it and, most importantly, sharing it with others on Facebook, Twitter, or even Instagram. A viral hit is the kind of thing that your overlords will remember the next time your writing hits a fallow period.

But if your feature doesn’t pan out, that could be a problem. If a beloved country singer with a reputation for virtuoso talent, kindness, and often overwhelming generosity that actually makes the world a measurably better place, well, you don’t have the luxury of letting three weeks go to waste. If you can’t find evidence that she’s a bad person, well, you’ll have to go with your gut. And your gut tells you that everyone who is successful is a bad person. Lack of evidence to their secret depravity is itself only evidence to how much they have invested to hide said depravity.

That’s the problem with trying to make what you love at 19 into a career. You’re a kid, you don’t know that much about what you’re going to like in 10 years, all you know is what is fun and what is hard. And, in rough approximation, the same things are fun and hard for all of us. Only studying the things that are fun, dodging whenever possible the things that are hard, will leave you with nothing to rely on but your talent. And, ample as that talent may be, it is unaugmented by the skills and tools that are harder and less fun to come by, tools which would differentiate you from the teaming oceans of talent sloshing against the sides of that cubicle, all desperate to do your job. For free.

Academia as tax shelter

A very brief story:

My advisor was Laurence Iannaccone, student of Gary Becker, seminal and in many ways founding contributor to the economic study of religion, now of Chapman University. His observation is a common one in academia, a point of pride for some even, though that varies greatly by discipline, as does their market options outside of the academy. And, yes, flexible work schedules, post-tenure job security, and sometimes picturesque campuses all should be counted towards the total compensation of those fortunate enough to secure a faculty appointment. But the power of the observation goes far beyond proper labor market accounting.

As I find so often to be the case, there is good sociology to be done, but the best first step in doing so is a little bit of economics. To wit:

The academy is, on average, considerably to the left of the population at large. Now this difference, mind you, is grossly exaggerated by your typical right-wing windbag who seems to think that universities begin and end in the English department, but the difference remains. So why would your typical economics, chemistry, or architecture professor tend to be left of the popular center? Well, if the median self-identified lefty got to choose the federal and state tax rates, what would they be? Ok, and how much of that will I have to pay out of my non-pecuniary income? Until they figure out how to tax the thrill of pursuing my own self-determined research agenda, not very much. Taxes are cheap when half of your compensation is non-pecuniary.

The academy is a club.

Scratch that.

The academy is a hierarchy of nested clubs. Which means that we often suffer from exclusionary FOMO akin to fourth tier English gentry trying to marry off five daughter in the early 19th century. Membership in those clubs– those famed research groups, donor-named centers, or even (god forbid) schools of thought — they become more than just sources of funding, workshop critique, and coauthor match-making sock hops. These clubs become the well springs from which ever increasing portions of our non-pecuniary income come from. They become our social networks, our friends, and even ,with a handful of co-authors you’ve gone into scientific battle alongside, a second family. The next time you see someone dig in their heels, seemingly denying the mounting evidence that they were on the wrong side of a scientific argument, don’t just blindly assume they are too stubborn and arrogant to acknowledge they might have been wrong. Consider how unfunded or, more importantly, how lonely they stand to be if they’re the first to give up the fight.

It’s why we covet tenure so much. Don’t get me wrong, everyone wants job security. But for most of us, the prospect of being laid off doesn’t necessarily include the possibility of being jettisoned from what you’ve slowly constructed as a separate parallel universe within which you have carefully curated the technical, educational, and social capital necessary to produce your career and life. If you get laid off from programming for Netflix, the next few weeks or months will be unpleasant, scary even. You may begin to doubt your ability or life choices. But that next job will come, and you will as often as not find yourself with a nearly identical life on the other side.

There are those in the academy though for whom this is all they’ve ever known. Bachelors, doctorate, tenure-track academic placement. Throw in a post-doc and that’s 20 years, and you’re entire adult life, in and around universities. Even if they’re from a field fortunate enough to have robust private sector options, how much will doubling your salary really soften the blow for such a person?

I say all of this now not as a critique of academia, or even to lead to prescriptions or advice. You want my advice? Fine, here: don’t go straight to grad school. Dip your toe in the real world, see how you like it. Come back in a few years with a little experience and distaste for office life. It’ll serve you well when your dissertation hits one of its many inevitable nadirs.

Rather, I invite you to consider this: what does the world start to look like when our utility comes less from the goods that we buy and the experiences we have, and more from the clubs we are members of? What does it look like when those clubs find newer and better ways to monitor our behavior and our expressed beliefs? What does it look like when the purging of membership rolls becomes a part of the culture of those clubs?

You’ll Never Walk Alone…to the Moon🚀?

As a dedicated supporter of Tottenham Hotspur Football Club, it is with much shame that I have referenced the anthem of Liverpool FC, but the sentiment implied by their club slogan is a powerful one.* To promise someone they will never have to suffer the torments of loneliness is to promise them a lifetime of riches. When we soft, vulnerable human beings find a source of community and support, we are loathe to give it up. Which is to say the promise of membership and threat of banishment are powerful means of solving collective action problems.

The promise of forever walking within columns of lockstep compatriots is a big part of why Gamestop (GME) went to the moon 🚀🚀🚀, but also why it came back down to earth. As Scott noted in his post, the story of the last, and most meteoric, stage of the Gamestop saga was the “short-squeeze”– short-sellers suddenly desperate to cover their positions found themselves needing more shares than existed, while the “unsophisticated” gamblers of r/wallstreetbets refused to sell their shares. Specifically, the large, but uncoordinated institutional short-position holders all pursued their independent self-interest, while the seemingly disaggregated redditors managed to solve their collective action problem. Which raises what, to me, is the most interesting question of the whole saga: if coordinating a short-squeeze is so lucrative, why doesn’t it happen more often? Put another way, why were a large number of strangers able to coordinate a complex financial gambit rarely pulled off by sophisticated institutional investors?

The answer, in part, is that they weren’t strangers. They may be anonymous to one another, absent recognition or connection in real life (IRL aka meatspace), but that doesn’t make them strangers. These men and women had built a community so deep they had their own (often incredibly offensive) language. Their own jokes. They had a culture and sources of status, going so far as to create their own within-group celebrities. And, absent any visible coordination, that culture had evolved in this moment toward a single idea: hold the stock. They were playing a massive prisoner’s dilemma game with each other. Can you form a group for the express purpose of creating a short-squeeze? Probably not – the very action of creating an identity around profit from financial speculation belies the prospect of building an identity valued more than pure profit by its members. That’s the rub – if you want to pull off a massive collective financial action, you’re going to have to build a group of people interested in financial collective action that nonetheless values the identity of the group above the profits of collective financial action. That’s what makes this Planet Money podcast about Gamestop so special– more than anyone anyone else, they seemed to understand that the absurdist emoji usage and language, the elaborate memes, the actual freaking sea-shanties, those weren’t just color for the story, they were the story. Hedge funds weren’t losing tens (hundreds?) of millions of dollars in a zero sum game to a bunch of idiots obsessed with chicken tender-centric memes and sea shanties. They were losing a millions of dollars in a zero sum game because of the memes and sea shanties.

Put succinctly, at every stage leading up to and during the short-squeeze, each and every holder of Gamestock shares would have been better “defecting” on their r\wallstreetbets comrades-in-arms. Yes, the group is better off if everyone holds, but everyone knows the incentives faced by everyone else, which creates a seemingly irresistible economic gravity of self-interest (defect, defect). So how do we solve these collective action problems? Well, first and foremost, we change the payoffs. That’s what we do in successful families, mafias, and religious groups. It’s what we fail to do in our misfiring coups, cooperatives, and communes.

Yes, your bank account balance will increment upwards if you defect and sell your stock. But that also means you’re no longer a true Son of Gondor. Sure, no one else on the subreddit knows it, but you’ll know it. You’ll know it in your cold, lonely, traitorous heart. Sure, you can use the words and participate in the jokes, but will you ever know the same sense of fellow-feeling within the community as you knew before. That’s a real cost. Is it worth cashing in $5000 in profit a week early, especially knowing it might be worth more next week? Remember – the benefit of group identity doesn’t have to be greater than the profit at hand, it only has to be greater than the risk holding the stock bears for your future profit. Combined with a little motivated reasoning, and it quickly becomes clear how a community, formed independent of profit-via-collective-action, now suddenly becomes an engine of pro-social decision-making sufficient to create an existential threat to any institution over-leveraged on a short position.

The same payoff matrix, however, also demonstrates that a short-squeeze built around a group identity is living on borrowed time. With every short position that gets closed out, the price climbs both higher and closer to its (actually) inevitable peak. There are a finite number of short positions, and there is a finite number of days their share lenders will allow them to hold out, all of which mean a peak will be reached, after that point the price will begin to rapidly decline. Which all means that as the price rises the risk to holding also rises, both of which are increasing the opportunity costs of holding the stock, shifting the payoffs back to a classic Prisoner’s Dilemma. Sure, your group identity might be worth $5K, or even $50K, but there’s a point at which anonymous community is dominated by the prospect of material wealth. I’m not saying you can buy true friends, but eventually you can buy something that offers a close substitute for anonymous friends. Or an island.

*I mean, I personally believe “To Dare is to Do” is a far smarter and sexier slogan.

I Miss Paying Rent

I’ve been a homeowner not quite long enough to watch the entire run of Parker Lewis Can’t Lose in one sitting, but I have already arrived at the incontrovertible conclusion that being a landlord is foolish. Renting is a blissful paradise that I am wistfully nostalgic for, a glorious time when I had only one job: feasibly above-average economist. Now I’m also the worst plumber, woodworker, mason, electrician, and landscaper I’ve ever met. To be clear, none of that is true. Rather, I am a poor home inspector and over-qualified errand boy who moonlights as the manager of a hastily assembled team of contractors to whom I write a litany of checks.

I know the rent is too d*mn high, but the interesting question is why? Thinking about high rise apartments, rowhouses, or detached homes, its seems pretty clear that there are significant returns to specialization and scale. Whether its 212 apartments or 25 detached homes, a team of salaried handymen, inspectors, and property managers offers considerable efficiency gains, a reality borne out by the inexorable rise of HOAs and their continuing growing reach into their constituents lives. But as anyone who’s ever attended an HOA meeting can attest, the limits to contracting and the value of our time provides the opportunity for an industrious individual or firm to bundle collective ownership and services into a single entity, selling the turnkey solution that is the modern rental residence, at considerable potential savings to the tenant in a competitive market.

So why are we so mad at our landlords? I see a couple possible answers:

  1. The rent isn’t too high, we’re all just greedy and would complain about the purveyor of any good that represented 40% of household expenses, regardless of how much value we were or were not receiving for the price.
  2. Landlords have considerable market power, allowing them to reduce supply and jack up the price, leaving us little recourse but to either nationalize housing or apply that sweet, never-ever-backfired rent control.
  3. The market is relatively well-functioning, but with incomplete contracts, leaving us all nervous that our tenants are going to bankrupt us while our landlords cast us out into the streets.

(1) likely has some behavioral truth to it, but isn’t a very satisfying explanation*, while (2) has likely more merit in the short run or in areas where landlords have solved their collective action problem sufficiently to stymie growth of the housing supply at every turn (<cough> San Francisco <cough>).

But perhaps (3) is underappreciated. Everyone who’s ever lived in a major city, especially when they were young, has a story about how they were screwed over by their landlord. At the same time, landlords (particularly smaller, independent ones) live in terror of tenants arriving at a cost-benefit conclusion that paying their rent is a suboptimal decision. Plenty of states and cities have enacted tenant bills of rights, creating considerable variation across states, often making it incredibly difficult and costly to evict someone. Regardless of state laws, however, I am comfortable saying without any evidence or additional research that landlords and tenants continue to have a strained relationship. Tenants think landlords are getting rich off their backs without any labor, only the property their wealthy parents no doubt handed them on a silver platter, property they themselves acquired by exploiting their employees while running a puppy mill. Landlords, meanwhile, find out real quick they’re not actually making that much profit trying to keep a home intact as their hippie tenants burn sofas and flush paper towels while the bathtubs been flooding the 2nd floor for a month.

The interesting question, to my mind, isn’t whether landlords are exploiting tenants or vice versa, but rather why have property tenant laws evolved to such an inefficient equilibrium, where there doesn’t seem to be any satisfied parties?** If no one feels protected by a contract, then it’s likely not a very good one.

* The behavioral answer in (1) shouldn’t be dismissed too quickly, to be fair. Given that size of rent as a fraction of most household budgets combined with profits to be had churning tenants in supply-restricted cities, its possible that all parties are constantly trying to scam each other, leading to the observed acrimony.

**Yes, I know people have become quite wealthy as landlords, but my read on that market outcome is not the profitability of property management but rather of property speculation, with equal parts winners and losers. Rental management is principally in service of subsidizing said speculation and lower property tax rates.

The Matriculant Theory of Value

The Labor Theory of Value goes like this: the value of a good, and the price it should command in the market, will (should) reflect the amount of labor it takes to produce it. It’s a classic fallacy, but not one we should mock. Yes, Marxist thought still often cling to it as it chases its own Hegelian dragon, but Adam Smith and David Ricardo both struggled with understanding why something that yields so little predictive value could still feel so right.

Which brings me to the updated credentialist version of this fallacy:

Now, I apologize for picking on this person, and this tweet, in particular. Similar gripes appear appear regularly in social media and The Chronicle of Higher Education on a regular basis. The formula runs as such: I, and people such of myself, have spent many years in school, have successfully been credentialed with a BA/MA/MFA/PhD, but the labor market refuses to reward us appropriately.

To be clear, I understand the deeply intuitive appeal of the Labor Theory of Value– the more labor I put into making something, the more people should pay me for the product of my labor. The problem with this logic is the very core of the economic puzzle: goods are only worth what people are willing to exchange for them. If you spend a year molding rotting eggshells into a 25-foot statue of Mickey Mouse, it might earn you something at an art auction, but probably not as much as you would have earned working an equivalent number of hours at Taco Bell. At the same time, you could take an art class at a local community college, paint a soft focus acrylic of the local high school, and sell it to an alum for $100. Or you could find a dinosaur egg in your backyard the day after you bought the house and sell it for $2000. Which is the more compelling artistic statement or mantle centerpiece is debatable, but the price each commands in the market is entirely objective, and has nothing to do with the hours of labor that went into them.

Which me brings to me the Matriculant Theory of Value: the more labor and tuition money I put towards producing a more credentialed version of myself, the more people should pay for the product of my labor. I’m sorry to report that the market doesn’t care about your degrees, it cares about what you can produce and the value the market places on that product. If you didn’t acquire any skills valued by the labor market, then your degree is only worth however much the firm values any marginal prestige it might enjoy from your credentials or the interesting conversation you may offer in the break room. If I’m an academic drawing a salary from an institution of higher education (and I am), then I’m reading not as a sign that I should be angry we’re not getting paid enough, but as a sign that I should be terrified that employers don’t value educational product I am currently producing.

Now, unlike a lot of scolds, I am sympathetic to the academic misinformation that students often find themselves marinating in. Professors enjoy telling students who might be wary of joining the glut of PhDs applying for scarce academic jobs, “Don’t worry, you’ll get a job. You’re special and brilliant and you deserve a job.” Given that these professors need cheap labor, but often lack resources, they are all to happy to pay “in trade” i.e. with an advanced degree. For that deal to work though, you have to convince students that the degree has value. They are all too quick to valorize a “life of the mind” not unlike acolytes being invited to take a vow of poverty, and with more than a little implied denigration of more proletarian endeavors.

We also have a tendency to grossly overemphasize grades, academic status, and completion. Rarely do I see a student told that it might be better to get a C in a challenging technical class than dodge it for the sake of their GPA. Who is going to be better valued in the market: a 3.9 GPA student who glided on fluff for four years, or a student who took 5 challenging technical courses over 4 years, failing 2 of them, and collapses at the finish line with a 2.1 GPA and hard earned BS?

What I am less sympathetic to is the frequent failure to admit the other allures of degrees less valued by the market: they’re fun. For a certain type of person, there is pleasure bordering on euphoric to sitting in a comfortable chair and reading histories, grand theories, and poetics for 8 hours a day. If you love your job, you don’t have to work a day in your life. True, but that doesn’t mean anyone has to pay you for it. It should worry you if your anticipated vocation is what other people do on their vacation. Not that it doesn’t have social value (it may have significant social value), but you should be terrified of trying to make a career doing what someone else is willing to do for free. You’ll not be surprised to learn no one is paying me to write these rambling diatribes.

So, yes, $38k a year for 9 months of work giving 10 hours of lectures a week, plus prep, grading, and office hours maybe doesn’t seem like much in the way of wages to you. I was paid $34k (2003 dollars) for 10 months a year teaching 19 hours of lectures a week, plus prep, grading, and parent meetings when I was a high school teacher, so I guess I could make a snarky case that the professor in question is being overpaid, especially since I hold to the belief that public K-12 teachers are underpaid relative to the social value they produce, but that is another post. But I also have enough awareness to know not to complain too much about how an indoor job with no heavy lifting is underpaid, particularly if we are resorting to any version of the labor theory of value. I dare you to walk into any professional kitchen and tell them these exact contract details, the nature of your work, and then explain to them that you’re the one who deserves to be paid more.

One last gripe. If you are sufficiently talented, conscientious, and privileged to complete a PhD, but your field of study offers you no option better than $38k/year to teach, my guess is that you’ve been not just unlucky, but proactively diligent in dodging every bit of coursework that could lead to a higher wage in the market. And I don’t just mean all of that unpleasant math you hate. Or statistics. Or java/C++/Python/etc. I mean even the adjacent courses of study or research projects where the skill acquisition path is that much more taxing or unpleasant. You didn’t study computational anthropology or physical anthropology or field anthropology. You studied cultural anthropology, fine…but you were also careful to avoid data at every step, opting instead you to memorize soft theory jargon and write the kind of dissertation that tells everyone exactly how smart you are, but not much else. Make no mistake, if you spend 5-8 years getting a PhD you may have gotten bad advice, you may have suffered the fallacy of sunk costs, you may have been done a gratuitous disservice by the faculty guiding your education, and may have been deluded by the matriculant theory of value, but on the bright side you chose a safe and comfortable line of work.

And make no mistake, you did choose it.