A Simple Model of Why Everyone is Overpaid Except You

I could include as an alternative title: “Labor Theory of Value for Me, Compensating Differentials for Thee”, but alternative titles are kind of pretentious.

The market for art is, for all but the most famous artists, incredibly thin, where transactions for a given artist are sufficiently far between that there is rarely a “market price” to simply point to when setting a bid or ask price. If you’ve ever purchased art, you will be aware of the urge to feel like artist asking prices are always more expensive than they should be. This could be because we, as failed aesthetic creatures, undervalue art. It could be because non-artists rarely understand the cost of inputs (paints, brushes, metals, wood, plaster, etc…). It could be because we underestimate the total hours of labor that go into a piece of art, so even if we assess the market value of the artist’s time appropriately, we fail to appreciate how many hours a piece represents. Those are all reasonable guesses, but I tend to think that those phenomena are at work in how we estimate the value of just about anything.

Instead, what I think is at work here is that we tend to impute “compensating differentials” into the bid prices we internally calculate. “Compensating differentials” is the term economists use when referencing the additional (reduced) pay individuals receive in the market for unpleasant (fun) jobs.

I suspect that when consider original pieces of art for non-famous artists we have a tendency to factor a negative compensating differential in our bid that boils down to “Lucky, you, you get to be an artist. Part of your payment is my letting you be artist.” Many of us have a tendency to do this when grousing about the wages of professional athletes, tavern musicians, or the lady selling birdhouses at a craft market. If a job looks like it is fun, or at least more fun than your job, then the product of their labor should be relatively cheap. And it’s not just artists, either. When complaining about the price of landscapers (they get to work in the fresh air!) or furniture makers (it’s a hobby!) or really anyone that grumpy old person inside of you wants to scream at “They’re lucky they get paid at all!”

We rarely think this way when considering our own wages. When it’s our time and energy, we are quick to eschew not only any concept of market pricing, but also any compensating differentials for the fun or high status aspects of our work. To make matters more hilariously self-serving, while we are uninterested in acknowledging the value of the non-pecuniary delights that we benefit from in our own work, we actively go hunting for any negative aspect that might be unappreciated in our wages. Sure, my job is safe, reliably paid, and absent social stigma, but what about my emotional labor*? Why am I not being paid more given the FOMO, shame, and generalized anxiety I feel every day in this cowardly office job when I should have been an artist? Why am I not being paid more to compensate for doing something I would prefer my hobbies to?

When we value our own work, our labor has intrinsic value that should be compensated. If the market fails to meet our own valuation (and it almost always does), it is a market failure. It should therefore be with some shame that when we wade into a labor pool as buyers of products absent a well-defined market price, we abandon any since of intrinsic value, quickly transforming into villainous music producers agitating to pay the naïve and aspirational in everything but money, because they should be grateful that you’re enabling their art. They’re lucky you’re paying them anything at all.

Fortunately for all of us, most of our individual grousing is lost in the wash of countless transactions setting prices for the products of all our labor. If the majority of goods we consumed were subject to the ridiculously self-serving logic behind what we (at least try) to pay artists, we’d all be in the same unemployment line, making plans to apply for the job the person behind you got fired from. Sure, they hated it, but to you it sounds pretty sweet– definitely nicer than your old crappy job.

* I know a more correct use of “emotional labor” is in reference to the comfort and therapy service industries, but this is term that is regularly abused and stretched into meaning anything the writer wants, which is the appropriate caricature for my purposes here.

** P.S. If you’re curious about what to offer an artist who’s work doesn’t yet have a established market, I work with something akin to this simple rule:

1) Guess what you think a fair price is, X

2) Double it. This is your offer price, 2X.

3) Ask the artist for the price, P. If X<P<2.5X ,shake hands and enjoy your art. If P > 2.5X, tell them that is a completely reasonable price but it’s out of your price range. Art is a luxury good, we can’t always afford everything we want.

4) If P < X, just give them X. They are likely young and are undervaluing their own work. Don’t be a cheap bastard.

The Top Shot Blockchain Phenomenon

Samford Business student Wes Crane writes: Remember when people used to buy and sell physical sports trading cards? Recently the NBA has partnered with Dapper Labs, a company that specializes in blockchain (the same technology used for Bitcoin and Ethereum), to create and sell a digital art form of non-fungible tokens, or “NFT”s, that contain video clips of highlight moments which can be traded online at https://nbatopshot.com.

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Joy’s Cartoon is in a French Textbook

This is my day in the sun. A decade ago, I started ecoNomNomNomics.com. Back then, I knew that my dream job was “economics professor”, but I was years away and also thousands of miles away from where I am now. I have barely updated the site since 2011, but every now and then new people find it. My hope has always been that it would be both helpful and happy.

A French publisher reached out to me and asked for permission to use one of my cartoons in their workbooks that will reach actual French students. I was delighted to say yes.

Allons-y! With their permission, I reproduce the page that has my picture:

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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.