On Manufacturing Collectability

Topps lost the the licensing rights to Major League Baseball which, prior to it actually happening, is a thing that your typical baseball fan would not have previously acknowledged as even possible. Topps makes baseball cards. Not the only baseball cards, but for most of the history of baseball cards, Topps were the baseball cards. How can baseball cards exist without Topps?

Major League Baseball (MLB), of course, simply sold the licensing rights to someone else: Fanatics. Now, to be perfectly clear, I don’t care abou, any of the corporate entities involved here, imaging rights, or even baseball cards. What I am interested in is the concept of a purposely designed collectible–not something that becomes collectible, an item designed solely to exist as a collectible.

The markets for baseball cards rise and fall, and there was one definitive bubble in the early 90s. Like any commodity, prices are an emergent outcome of supply and demand, and while in the short run price movements are associated with fad and event driven demand, in the long run a collectible item’s price ascent begins and ends with supply. For an item to exist as a collectible with investment-grade price growth potential, it’s supply must be short-term limited and long-term fixed.

Fanatics just paid a lot of money for the MLB imaging rights, more than Topps was willing to bring to the table as a 70-year producer and stake holder. Part of Fanatics reasoning in committing so many resources to the rights is their ambition to produce non-fungible tokens (NFTS), which they will no doubt restrict the supply of to a profit maximizing level. NFTs, I suspect, offer Fanatics the opportunity to pursue a parallel product distribution that will allow them a new channel for price discrimination. Specifically, I expect the physical cards to be relatively inexpensive, sold at a price comparable to recent historical prices in an effort to serve price sensitive kids and hobbyists. The NFTs, on the other hand, I expect to be greatly limited in supply, a promise to hardcore collectors that the assets in question will offer the investment-grade inelasticity of supply that collectors covet in their aspiration to hold collectible items that hold value as art-adjacent consumption value while also being long term lottery tickets.

Fanatics believe the key to unlocking this is the image rights to Major League Baseball. Their cards and NFTs are the real ones, the official ones.

But that begs the question: why does the market care that they are officially sanctioned? The value of the image rights was to be able to use the names and logos of Major League Baseball without getting sued. The only way to profit off baseball cards previously was to produce at scale – you couldn’t capture the future collectible value nearly as well as the present consumption value. And there was no way to produce at scale without the imaging rights – there’s no good way to secretly print and sell a million baseball cards with images you lack the rights for. A person or company can’t sell a million black market bootleg cards without getting caught.

But someone could sell three.

A person can sell three cards without getting caught. A person could sell an unlicensed NFT without getting caught. And so can it’s next owner, and the one after that, ad infinitum. In the crypto world of NFTs these transactions, especially in the long term, are feasibly untraceable. If anyone can sell three baseball cards and associated NFTs, then anyone can make them as well.

Remember zines? Actually, maybe you don’t. In the before-times, aficionados of musical, artistic, or even just aesthetic subcultures would print their own magazines at home, pay for a 100 copies at Kinko’s, and then distribute them independently on their own through the mail or at small local bookstores. Not dissimilarly, many artists have for years produced “Art Cards, Editions and Originals” (ACEOs). Essentially baseball cards, but with small collectible works of art instead.

An independent artist that tried to produce baseball ACEOs and sell them on eBay would probably fly below the radar. But in the unlikely event that their card did become the card that the market chose as the most sought after, then yes, MLB and Fanatics would likely pursue legal action. The thing about pursuing a copyright so vigorously is, like many consumer goods for which distribution is illegal, restricted supply only increases their value. And an NFT transaction is considerably harder to trace than a physical or even traditional software good. It’s called “crypto” for a reason.

Sure, Fanatics will be the only company that can sell the “official” baseball card, the “real” one. But who’s to say that they’ll be selling the best one? In a world without enforceable image rights, the market is likely to care a lot less about the what’s official, and a lot more what’s the, always ephemeral and hard to anticipate, best. When you’re talking about a commodity where limiting supply is the key to unlocking value, NFTs and crypto technologies change the entire landscape, because copyright and image rights are only only enforceable to limit production at scale, which means any effort to do so just creates great incentive for small scale independent production.

This isn’t just relevant to baseball cards, either. This is relevant to anyone designing a product with the intention of it becoming collectible, where some portion of its value today is it’s predictable scarcity tomorrow. Twenty years ago downloadable music changed the entire market for music. Musicians at the highest levels of popularity found themselves returned to a world where the bulk of their income came from live performance, which had of course been the norm for musicians for most of human history prior to the vinyl record. It would be interesting if baseball cards, and other portable pieces of functional art (such as Magic or Pokémon cards) found themselves on a similar path, where large scale production of collectibles becomes outflanked by anonymous independent artists.

You’ll probably never own a $5.2 million Mickey Mantle 1952 rookie card. But you maybe you’ll paint Shohei Ohtani as a half-man, half-Gundam neo-noir warrior prince pitching a no-hitter the same night he hit three grand-slams. And maybe the market will say that the official photo cards of Ohtani are nice, but your image, and your NFT, are the one true image that captured the moment he became the greatest baseball player ever. Maybe the market will select your card.

(What I’m saying is…maybe the market will say your card is….topps. Yeah, sorry, I’ll see myself out).

We need City-States

What happens when the world changes sufficiently that a subset of the institutions that laid the groundwork for the most successful nation of the last 200 years becomes becomes maladapted to their context? Well, thanks to a couple billion year of evolutionary biology, we know the possible outcomes. The classic evolutionary answer is that the species in question will either adapt, migrate, or die. Repurposed for the modern nation-state, the country in question will either:

  1. Adapt it institutions
  2. Change the context (i.e. whole nations can’t migrate)
  3. Steadily decline into some combination of irrelevance or chaos

Omar Wasow put together a nice thread, where each individual tweet stands wholly on it’s own as an acute observation, on the current state of the Senate as an elected institution:

So let’s think about our options here.

Decline into Irrelevance and Chaos

I mean, it’s a choice, but it’s not one I’m particularly excited about.

Adaptation

We could amend the constitution to change how the Senate is apportioned in some clever way that still maintains the mandated suffrage of every state. We could change/abolish the electoral college. I’ll be blunt: I don’t ever see a path forward for constitutional change that will entirely undermine the political power of the one of the major parties (good luck getting 2/3 of Senators to push through an Amendment that will undercut the careers of at least half of them). The resistance to it, at every level, will be extreme. The last time we tried to make an institutional change with that much impact on the balance of power, we had to fight a war to resolve it. There may be a path forward here, but not on a timescale that I’m interested in. I’m only interested in solutions that could be feasibly enacted in my lifetime.

Change the Circumstances

Unlike your typical seed-eating bird of the Galapagos Islands, we do have the means to change the map upon which the Senate is selected. In other words, more states. I don’t mean just granting statehood to Puerto Rico and DC (though it is mildly unconscionable that we haven’t done so already). And I don’t just mean (the very good and perfectly reasonable idea) of splitting California and Texas into 5 and 3 states. I mean a lot more states.

Let’s think about the underlying problem for a second. The Senate biasing representation towards a small minority of voters is a symptom of a larger phenomenon: the continued movement of Americans to dense urban areas. People keep moving to cities, and often from states without a major urban center, and into states with multiple large cities. The rural areas that they are emptying out from maintain their pool of slots for elected Senators, while the cities gain none. So what’s the answer?

Welcome to the great state of Seattle! [state motto: “If it’s not caffeinated, send it back”]

The Vinegar-Tomato Sauce State of Raleigh! [state color: halfway between Duke blue and UNC blue]

The Beechwood Aged State of St. Louis![ state left fielder: Lou Brock]

The Always Hustling State of Atlanta [state anthem: written and performed by Outkast]

City-states. Remember city-states!? Yes, I know, when we speak historically of city-states we mean entities independent of any other nation state – classic Venice, current Singapore or Monaco, but that doesn’t mean we can’t piggyback on their awesomeness. Texans already joke about the “People’s Republic of Austin” – let’s make it official! We can set a size minimum as either an explicit population threshold (e.g. 500k) or a moving bar, such as the population of the smallest state in the previous census. It’s essentially adding another option for a city to apply for inclusion in the next tier of our federalist system.

This is more feasible than you might think and vastly more feasible than amending the constitution.

Consider:

  1. These cities already have government infrastructures. The governor on day 1 is the current sitting mayor.
  2. The citizens of most medium- and large-sized cities derive the bulk of their regional identity from their city, not their state. Most urbanites will be thrilled at the notion of elevating the political status of their city while losing the affiliation of their previous state.
  3. New state coffers will be heavily subsidized with flag and swag sales the first few years (only mostly kidding)
  4. The remaining rural states will have the far more manageable task of trying to serve rural citizens without having to serve an urban voter base with radically different needs and preferences. Public goods will be better matched with the citizens of rural states as well.
  5. States will often look like Swiss cheese, which will be both hilarious and, slightly less importantly, will allow for constituents to even more easily vote with their feet when elected officials fall short in their duties.

Are there downsides? Sure.

  1. The speed traps before you enter and as you exit city-states into their rural envelopers will be aggressively extractive. There will be rampant attempts at exporting taxes across borders.
  2. Reconstituting water supplies as special districts supporting multiple states will be tricky.
  3. Coordinating interstate public goods will, no doubt, at times become even more farcical than the status quo.
  4. Decent chance this turns into a Neal Stephenson novel within 100 years.

But, in the medium and long run, I believe the benefits will greatly outweigh the costs. Throughout the pandemic there has been a constant tension, particularly in “red states”, between the public goods desired by the citizens in cities versus rural areas. While urbanites have been desperate for mask and vaccine mandates, rural citizens have been far more interested in consuming personal liberty and symbolic group-identity goods, at the expense of greater Covid cases and deaths for those in denser areas.

I’ve said it before and I’ll keep saying it tomorrow: there isn’t a red-blue divide, a religious divide, or a class divide. America is currently defined by an urban-rural divide. If we don’t adapt our institutions to reflect it and balance the equal political enfranchisement of people on both sides of that divide, it will continue to erode the integrity of our political infrastructure.

I imagine I don’t have to persuade many people that the integrity of the franchise is not something to be taken lightly. Regardless of the mathematical salience of an individual vote to any election, the fact remains that the less people believe their vote has at least the potential to be realized in the form of representation that serves them, the more they will look to alternative channels to the political process. And maybe, for the libertarian inside of you, the alternative you imagine might exist in the private marketplace for goods and services. But history informs us that the dominant alternatives to democracy are heritable lineage and bloodshed, and I don’t see any benevolent American scions laying in wait.

Inequality VS the Environment

What do we know?

We know that density is good for most environmental measures. With greater density comes less water runoff, less carbon emissions, less burned fossil fuel. With density, fewer people own vehicles, implements of yard curation, and we require fewer roofs per person.

What else do we know?

We know that in a static economy, progressive taxation makes after-tax incomes more equal. There are formal models that say the same thing about dynamic economies. Progressive taxation results in more income equality, and regressive taxation results in less. For clarity, income tax progressivity is determined by percent of income paid in taxes. When the rich pay a higher percent tax rate, that’s more progressive.

Are you ready?

Wealthy people tend to have more valuable land. That is, they improve the land and the things built on it. Do you want to tax land progressively? Then what you want is a property tax with a sliding tax rate. This way, you can make those rich people pay their ‘fair share‘. Even without a sliding scale, rich people will pay more dollars for their improved land.

Uh-oh.

Now that we are taxing property on land proportionally, rich people are seeking alternatives. They’re trying to avoid taxes! What do they do? Well, a smaller and cheaper house is a nonstarter. What is all that wealth for, if not to enjoy it partly through one’s home environment? The rich are going to find a place to live where they can be comfortable and where their property taxes are lower. Maybe a place where the land is not so expensive. Hello rural estate!

Do you want a proportional property tax so that rich people pay for the value of their property? Be ready to say hello to suburbanization and sprawl. All those benefits of urbanization mentioned above? Invert all of them to see the results.

Okay…

I see the attraction of taxing immovable property. Taxing a residence is nice for the government because the tax revenues are nice and stable, given the relatively inelastic demand for real property.

If only there were a real property tax scheme that provided stable revenues and encouraged urbanization… Well, the answer is not to try taxing the value of the land without taxing the value of property. What am I? A Georgist?

A Georgist I am not. But, I do have an affinity for lump sum taxes.

If, as a polity, you want urbanization, then impose lump sum taxes per area of land owned. Doesn’t matter if it’s a house. Doesn’t matter if it’s commercial. Doesn’t matter if it’s unimproved farm land. Just sit back and watch the skyline rise, our environmental footprint shrink, and plenty of land being turned into wildlife preserves and parks.

Oh dear.

People have feelings. Consider a beautiful multi story single-family home on an acre. Now consider a mobile home with a large yard and some trees – also on an acre. With a standard, flat proportional property tax, the owner of the big pricey house pays more. With lump sum taxes per square foot of land, they pay the same dollar figure. In other words, the less wealthy person pays a higher proportion of his properties value in taxes. In case you missed it, this beautiful solution to sprawl and environmental degradation comes hand-in-hand with proportional regressivity.

BTW:

I live in Collier County Florida. If all of the land, excluding surface water, in the county was taxed at the same lump sum per square foot, then we would need to pay about $1,600 per acre in order to replace all revenues currently collected from a variety of sources. If we assume that government property is excluded from the tax and we assume that the government owns a very liberal 10% of all property, then it is more like $1,780.

I haven’t even discussed all of the improved economic performance that an already developed counties might enjoy by eliminating the distortionary excise taxes and ad valorem taxes. I don’t know about you, but $1,600 doesn’t sound too bad in exchange for eliminating all the other nickel and dimes that add up to quite a bit.

(Just as I am not a Georgist, I am also not a revolutionary. We need not jump in head-first. We could ease our way into such a system. We’d just add a fixed lump-sum portion to existing property tax bills that increases over time. Property taxes bills would be calculated slope-intercept style with a portion being constant and a portion being dependent of property value.)

Scrolling Alone

Robert Putnam’s Bowling Alone was one of those high brow academic-ish books that, for a few months at least, made the leap to coffee and bedside tables across America, bringing a simple thesis that Americans had dropped out of the traditional social organizations that served, directly and indirectly, as the bedrock of civic life. It was a great read and made a compelling argument.

It was the book that introduced me, then still a grad student, to the concept of social capital to me. It had lots of stylized facts and broad theories, and was seemingly comfortable being at war with itself when the facts didn’t play nice. For a simple run down (and it’s been more than 10 years since I read the book, so take the accuracy here with a grain of salt)

  • Americans bowled more than they used to, but were less frequently members of leagues.
  • Americans didn’t join new associations when they moved to new towns, but they also moved towns less than they used to.
  • We worked a lot more, so there was less social-leisure time to dedicate to local associations.
  • Political and activist groups had sacrificed in-person meetings and local cohesion for greater national scale

You get the idea. Pushing his logic, Americans had become solitary households, islands held together less by social identities than work affiliations. The book, published in 2000, arrived while the internet was still in a pre-social media, pre-smart phone construct, but essentially warned that the growing dearth of social capital would undermine civic engagement and eventually democracy.

It might seem odd, but I think picking up (and picking on) a 20-year old book gives some insight into what we are frequently overlooking today.

  1. Bowling alleys are not filled with loners. They are filled with groups of friends bowling together. What changed wasn’t interest in social activities, it was how we schedule our lives. Work may be both more flexible for many of us, but also less predictable in the hours we work, and with (perhaps) more total hours. Combined with the predominance of two-earner households, its just that much harder for a casual bowler to lock down 2.5 hours every week for a league obligation. Remember, total bowlers increased– they didn’t actually start bowling alone, they just did it on their own schedule.

This a good thing to remember when we’re wringing our hands over the latest thing that the current generation is destroying (television, movies, cereal) or, ahem, abstaining from. What looks like the end of something central to human existence is more often than not just a refitting to new economic incentives and constraints. Humans are clever and we are well-advised not to mistake basic adaptation and re-optimization for massive generational divides.

2. We don’t need to make new friends as much when we move to new towns because we can actually stay friends with people in our old town.

When you moved to a new state, or even a new town in your state, that used to mean going years or decades without seeing or hearing from old acquaintances. That is not the case anymore. Between twitter, instagram, facebook, and zoom, I am in regular contact with people scattered both geographically and temporally (autobiographically?) from my life. Some fall in and out of touch, much the way they would if we lived down the street from each other, but the point is that there isn’t the same pressure to find local social institutions to rebuild a social network from scratch like there use to be.

I’m not sure this a good thing, by the way. I think it has removed important sources of noise and variation in our social networks. I think it was made them far too centered on the groups we formed during schooling, leading to homogeneity within networks and distrust across educational strata. But it doesn’t mean we are alone, but it does mean that shape of our social lives have changed in important ways.

3. Political activism as a source of social identity remains strong. But does it bring community or just conformity?

The clubs or group-identities that dominate our life are relatively unchanged: religion, politics, profession, ethnicity, sports, etc. But the manner in which those social groups cultivate identities has changed. As Putnam noted, politics has become considerably less local, a trend exacerbated by the rise of social media as a tool not just for promoting an identity, but for regulating that identity and assigning status within it.

There is no shortage of people that have noted the rising pressures to conform within groups. This is where I think Putnam’s original thesis has some unexpected bite: I don’t think our social capital has eroded, but it has become a lot less local. It is subject to standards less tailored to your currently lived experience. Further, as any good Orwellian knows, the rewards to successfully identifying in-group traitors and purging them scales with network size. With social media technology exponentially scaling the number of people monitoring us, it has brought with it tremendous pressure to conform. If the nuclear families in the small town 1950s lived in terror of what will the neighbors think, consider the pressure that extremely online millennial professionals are under. One mistake and a lifetime’s social capital can go poof as the hordes move in to shame, excommunicate, and (occupationally) terminate.

If you’re wondering why there seems to be so much in-group signaling on twitter, so much group think and obviously disingenuous mutual affirmation of seemingly ludicrous affronts against common sense and empirical reality, and so much viciousness, just remember what’s at stake. I tend to fall back on a simple model of human utility functions:

Utility = Stuff x Friends

What’s important is that it’s multiplicative, which means loneliness is deadly. In the modern world, our associations are in many ways less robust than previously – one false move and you’re being pushed out on an ice float. Maybe that’s why we should all join a sports league or a religious organization, why we should start volunteering twice a month at the YMCA, join the Rotary Club, help register people to vote. Because its great that you still have your old tribe, but it’s always nice to have a backup plan. A last resort. A set of associations you can keep in a glass box to “Break in Case of Purging”.

Neighbors.

Lightning Strike Out My Back Door

I know the Big News at the moment is how to evacuate people from Kabul who should have been evacuated weeks ago; as with Vietnam fifty years ago, there never was realistic hope that the U.S. backed regime could withstand an utterly determined foe without our military support. I am old enough to remember the frantic Vietnamese trying to cling to the last helicopters leaving the roof of the U.S. embassy in Saigon, because again the American authorities did not evacuate in time. But I have nothing special to offer on this topic except deepest sympathies for all the poor Afghan progressives who will be rounded up, killed or (if they are lucky), “reeducated” by the Islamic fundamentalists. And who knows what the thousands of Al Qaeda aligned operatives, captured at the cost of thousands of American soldiers’ lives, will do now that they have been freed from detention.

So, shamelessly turning inward – – a couple of nights ago during a thunderstorm we heard a loud crack of thunder which was simultaneous with a bright flash of lighting. Either our house or some nearby tree had been struck. I stuck my head out the window to look for fire, but saw none.

Later, we saw long vertical rips in the bark of a pine tree right beside our row of houses. I’ll share photos below. Here is what we see from the house side. There are vertical rips in the bark near the base of the tree, and also visible going up about 30 feet to a fork in the trunk. I could not see any marks or broken branches above that.

On the far side of the trunk at the base there was an even wider gash, with shredded bark on its sides, and also trench in the ground extending away from the tree. Presumably the lighting instantly boiled the moisture in the bark and dirt, and the sudden steam made the bark and soil explode.

Since it does not take much of an electrical jolt to paralyze your diaphragm, these markers of the lightning strike are a good reminder as to why we are advised to NOT stand under a tall tree during a thunderstorm.

When to weigh in on human suffering

The US began the process of pulling out of Afghanistan. The Taliban has begun rapidly retaking in cities. In doing so, it quickly has become apparent that conditions on the ground are not safe for anyone who aided the US military, journalistic, or perhaps even humanitarian efforts. People are rightfully terrified and the rapid evacuation of hundreds of thousands of Afghani’s is at this moment a global priority.

I am extremely comfortable and confident in the belief that the US should, without question, expedite the emergency accommodation and resettlement of several hundred thousand Afghani families, much in the way we resettled roughly 130,000 Vietnamese after the war in Vietnam (only faster). Yes, I believe it would be a boon to our economy and our society in the long run, but that is largely besides the point. We should welcome these men and women into our society because it is unequivocally the right thing to do, it is a moral responsibility we took on when we put boots on the ground there and left them there for a decade.

But that’s pretty much the limit of any insight I could possibly hope to have and, as such, it’s not what I want to talk about. I want to talk about the egregious smattering of take, hot takes, re-takes, W-taking takes, and L-giving takes that is currently proliferating on social media and the standard outlets at the moment. No, I am not going to link to any. No, I am not going to refer to anyone by name. Yes, this is one big, long-form subtweet.

Unless you are a bona fide expert in military incursions, occupations, or exit strategies, I do not care about what you have to say. Unless you have spent a non-trivial portion of your career covering or studying how to cope with a humanitarian crisis, I don’t value your opinion. Unless you can lend genuine insight into what the best course of action is at this moment, nobody needs to hear from you.

While they may be trivial in effect, you are well within your rights to express sympathy for the victims of this terrible moment and to extoll your leaders to ease and prevent as much suffering as possible. But trying to raise your status in this moment with anything remotely resembling an “I told you so” or claim to “victory” for your political identity du jour is horrifying. Please don’t equate this with pro-gun reprisals of “Now is not the time for politics” every time there is a gun-related tragedy, either. Rather, consider this a reminder that this moment, like nearly everything else, is not about you, your politics, or what you tweeted in 2011. We are all better served when we keep that in mind.

Maybe I’m overreacting. It’s easy to write such things when the crisis of the moment puts you squarely on the sidelines. And it’s not like an 800 word scolding calling out exactly no one is going to help anyone. But there are expert, scholarly, and journalistic voices that are being drowned out by the droning, self-congratulatory thirst for public approbation and status. And if this snotty little post rings in ears and reminds just one person that “this isn’t about you,”, and they choose to leave even one bad tweet in drafts, then it’ll be worth it.

But please, support any and all of your representatives that want to take action to bring as many refugees from Afghanistan to the US as is possible. I don’t know much about Afghanistan or wars, but I am confident it is the right thing to do.

Liquid Smoke Flavorings Give Less Carcinogens Than Smoked Meat and Fish

Someone forwarded me this article by Superfoodly, Is Liquid Smoke Flavor Safe or Cancer in a Bottle? This article seems to have useful health information. I will unpack the physical basis for this below, but the key takeaway is:  smoked foods (i.e., have been exposed to actual smoke) like smoked turkey, and especially fatty meat/fish like salmon, have appreciably more carcinogens than food flavored by “liquid smoke” type flavorings.

Continue reading

A Canned-Beer Kind of Guy

An  ex-co-worker was once complaining to me that the prices of things that he liked kept going up.

He was an economics major. Of course he knew that wages also increase. He wasn’t simply cantankerous about inflation. He knew all about improving productivity, income, and price level changes. He was being more specific. The *particular* items that *he* liked were getting more expensive. He was complaining about what, to everyone else, were relative price changes.

Unrelatedly, I was floating around the bls.gov website and examining their Producer Price Index (PPI) FAQs (I learned a bunch). The content is extensive. CPI is broken up into some subcategories. But PPI, being used by multiple industries and trade groups for real-life costs and benefits, is excitingly granular.

You want to know what happened to the price of red, white, rose, and carbonated wines each in particular?  They’ve got you covered. It really is amazing.

Back to my co-worker. I tried to explain that relative price changes reflected underlying economic value and scarcities. We wasn’t having any of it. He just didn’t want his prices to go up. We economists are known for being kind of dispassionate. We see relative prices change and we shrug. Man-on-the-street sees a relative price change and, boy, does he care about it – if it’s the purchasing price that *he* faces.

See the below graph. What kind of consumer are you? Since the start of the pandemic, canned, bottled, and kegged beer have all changed in price. Or maybe you’re a teetotaler and you’ve noticed the increasing price of bottled water.  For interpretability, let’s consider what had cost $10 at the start of the year 2020. Bottled water has gone up to $10.50 and bottled beer has gone up to almost $10.30.  You may not blink at a 3% price increase – unless it’s for 6 bottles of your favorite craft beer.

The price of canned beer, on the other hand, hardly increased at all. And in the last couple of months, the price *fell*. I sure hope that my co-worker is a canned-beer kind of guy. Otherwise, someone is sure to hear a lot of belly-aching.

What happens when you can’t pay your employees in cool anymore

I’ve previously written about the dangers of trying to make a career out of something 19-year-olds think is cool. There are risks on the other side of the paycheck as well, though.

There’s been a flurry of media attention paid to the difficulties restaurants are facing trying to re-staff their kitchens and servers. This piece is my favorite so far, for the simple reason that it pays less attention to policy and politics, and more to the actual jobs in question and what restaurants can actually do to convince employees to return. Rather than condescend to the service industry as a petri-dish for wage policy experiments in “unskilled” labor markets, it dares to recommend employers investigate both the goods they are selling and the value proposition to employees they are trying to hire.

The restaurant and service industries have long been a haven for employees who might otherwise find resistance in the labor market. St. Anthony Bourdain first found his way into our hearts with his love letters to the kitchen as pirate ship, and in doing so contributed as much as anyone to making the restaurant industry cool. Really cool. 2nd-tier rock star cool. Not Beatles cool, but more than few chefs found their way to third-to-last-band at Lollapalooza cool.

And from this pirate ship rebel identity and willingness to hire employees of fringe legality, the restaurant industry found itself with a capacity enviable for any employer: it could pay people with something other than money. It could pay you with a willingness to overlook, ahem…questionable work histories or I-9 employment eligibility. It could pay you in enabling a contrived identity. It could pay you in “No, you’re not selling out trying build a career in a kitchen and yes, you can totally reaffirm that to yourself with two full sleeves of ink.” It could (unfortunately) also pay you through tolerance of workplace aggression, misogyny, and sundry behaviors otherwise on their way out of the office Overton window of acceptable behavior.

There is risk, however, in growing reliant on paying people in non-pecuniary rewards, especially “coolness”. What happens when, whether via a pandemic or just, well, aging, employees realize they can’t pay their rent with cool? What happens if working in your industry stops being cool? What if the world changes, and it broadly stops tolerating the workplace hostility attractive to some of your previous employees? Absent such variously fleeting, juvenile, or outright terrible non-pecuniary indulgences, they’re going to demand higher pay. In money.

The restaurant industry was, quite likely, in exactly the kind of equilibria that major exogenous shocks can shake us out of, sometimes forever. And make no mistake – this isn’t just something that restaurant owners are going to have a tough time adjusting to. I expect a lot us frequent restaurant customers are in for a rude awakening as well. Increased restaurant labor costs pass directly into higher prices. By 2010 the average household in the United States had grown accustomed to dining out more than at home, a luxury enabled by prices kept lower in no small part by a labor force paid in non-pecuniary benefits. I am very much part of that average. Growing up in a family that dined out less than once a month (and that was usually at Pizza Hut), constantly eating out at an endless variety of restaurants has become my single favorite luxury enabled by my employment.

Yes, I’ll probably get a little wistful for the days when I could afford to eat-out almost every night. But it’s also exciting to imagine what a new and different restaurant industry might look like. As an economist, I’ll admit a bit of ironic amusement if it is not the $15 minimum wage that makes way for the oft-prognosticated wave of automated kiosks and labor displacement, but rather the end of a labor pool mythos that leads to a labor exodus. The sudden and collective realization that while, yes, we all concede that a 14-inch scimitar and a flask of Fernet Branca on your hip are cool, they’re not nearly as cool as health insurance and a 401k from a job where the sous chef doesn’t hump your leg every shift.

Which is a long way of saying:

Beware dependence on monopsony power born of coolness, for it is fleeting and full of bankruptcies. Just ask every magazine or media company staring down a writer’s union who’s members have hit their early 30s and realize they can’t pay Brooklyn rent with Williamsburg street cred.

Another marginal cost bites the dust?

The story of renewable energy changing the world for the better has always been about solving two parallel concerns: figuring out 1) how to produce clean, renewable power cheaply and 2)how to store the power generated for long periods of time. Over the last decade the cost of solar and wind power generation has plummeted. It’s not just that its cheaper per megawatt than fossil fuels, its also that the rate of cost decline shows not signs of slowing. But to fully displace fossil fuels also requires solving the “intermittency problem”. You can store piles of coal and barrels of oil, but how do store solar power for use when the sun doesn’t shine?

If we allow ourselves a moment’s credulous excitement and believe the press releases from Form Energy, a major step towards solving the intermittency problem has been made. I am in no position to judge the credibility of their technology or their capacity to effectively scale its development and distribution, but I find the opportunity to engage in a little futurism too exciting to resist. (Warning: I’m an economist, not an engineer. But even if I have the specifics wrong here, it’s still a fun exercise.)

The new technology in question is an iron-based battery that stores power for upwards of 100 hours. This reads to me as meaning two things:

  1. Power is going to become very cheap
  2. The batteries are going to be heavy

The second part is important. These aren’t the batteries that Tesla wants to put in their cars. They are, however, the batteries that can make for a local power station…or perhaps enable a perpetually self-powered large train?

If you’ve been daydreaming about high-speed rail remaking day-to-day American life, today is potentially a very big day for you. If you want to see millions of travelers speeding along rails in the 21st century, however, you need to lure them out of their cars and business-class flights with a speed and cost proposition that is not just better, but irresistible. Even more, you need to lure them in numbers sufficiently vast that cities (states? nations?) face a value proposition so great that its worth making fixed cost investments measured in hundreds of billions of dollars. A 10% reduction in cost isn’t going to do that. Appeals to community, civic duty, environmental stewardship — I’m pretty sure that will have much effect. What I think might do it, however, is cutting travel costs in half.

Why stop at half though? What happens if a $500 billion investment means urban residents can travel for a twentieth of the cost we associate with cars and planes today? What if that investment only truly pays off if other cities on a route make commensurate investments? It’s easy to point out the challenges of multi-state coordination in a country with highly polarized politics. What’s maybe easier to forget are the challenges that success might bring.

In a world where public transit pushes the marginal cost of travel to a tiny fraction of that faced by travelers in regions without similar fixed cost investments, the urban-rural divide becomes all the starker. Furthermore, its not every urban center that participates – it’s only the ones in the network. Automobiles, while not necessarily inexpensive, evolved into a relatively democratic mode of travel. Combined with the interstate highway system, hamlets and towns could pop up all over the country, and sometimes hang around long after local industry had dissipated or fled. In a world extraordinarily low-cost transit, the gravity of the dense urban areas could become irresistible. Pick a side in a congress heavily gerrymandered along urban-rural lines, and imagine you’re a representative from either side, and it doesn’t take much reflection to realize that no one will be on the sidelines for these votes. If you’re from a rural district, your political life and the future of your party depends on stopping free high speed rail from ever seeing the light of day. Perhaps ironically, though, if the costs per mile of NYC subway are a relevant metric, union negotiated prices may be an even bigger obstacle.

We’ve spent the last year adapting to technologies that left us thinking half of us could work from home, that we could live anywhere, dispersing us to every corner of the globe in a thin layer of extremely online exurbanites. Today we got a glimpse of a different technology, one that might pull us closer together again while taking a major step towards addressing global climate change and increasing the wealth of billions of people at every decile of the income distribution. We’ve lived our lives on landscapes defined by the maps first drawn by sailors, caravans, and indigenous peoples. Maps full of rivers, mountains, and intricate webs of roads. If the next round of massive fixed costs investments allows those along its chosen network to enjoy the benefits of near costless travel, don’t be surprised when the defining maps of the future look like the London Tube.