This is a post about a weird and interesting space in economic theory, but it starts with a short anecdote.
Today, I went to my local barbershop and sat for an extra half hour browsing terrible magazines so that I could get my hair cut, specifically, by the owner of the place, an older man with blazing white hair and a thick Greek accent that he still retains from his boyhood in Samos. I feel subjectively that I look better when I get my haircut by the owner, as compared to the other barbers. But as a good junior social scientist, I always try to be skeptical of subjective impressions. Objective social science has been very good at obliterating a lot of our pious impressions about the superior quality of goods produced by lofty artisans and craftsmen — in blind taste tests connoisseurs can’t distinguish a fine wine/cheese from an ordinary one, etc. So what about my haircut? Is there any objective basis for my belief that the owner gives me a better one? What could explain my impression?
I have a couple of hypotheses:
#1: My first was that it’s is that it’s totally an illusion and I’ve just been primed by the owner’s foreign accent, old age, etc., to trust him as a craftsman. I.e., perhaps when the other barbers, with thick south Boston accents, cut my hair, prejudice leads me to watch their work with an overly-critical eye. I look in the mirror afterwards seeking to identify their mistakes and misjudgments and find them for this very reason. The owner’s wise-old-man aesthetic primes me to discover the evidence of his excellent good taste when I look in the mirror, and I see it for this very reason.
Is hypothesis #1 correct? Maybe — perhaps even probably. But my girlfriend, who is a fairly unbiased intellect and never present when I get haircuts, has agreed that my haircuts with the old man have been better. So I want to investigate the possibility that his haircuts really do look better. What in turn could explain this?
#2: The main objective difference I can observe in the barbershop is that the old owner of the place uses only scissors, while the other barbers use the modern electric tools. Could this explain the difference? It’d be really easy to say something like this: “Modern electric scissors save time but sacrifice quality. They impose uniform lengths and increments on men’s hair, while a truly good look depends on the layered textures, and smooth, non-discrete cuts that come only from scissors and the experienced judgments of a craftsman.”
This story could be true, but I’m skeptical. The reason I’m skeptical is that in an alternative universe people might be telling the exact opposite story just as plausibly. Supposed we lived in a world in which fine electric-mechanical devices were prohibitively expensive and rare. Scissors were abundant, but electric scissors were a luxury that only elites could afford. In this world, I’d bet that the electric look would be vaunted as desirable and superior. People in this world would probably say things like: “The electric haircut is a huge improvement over its pre-industrial equivalents. It allows the highly trained electric-scissor-certified barber to cut the hair in fine and exact geometries, as opposed to the rough, shabby, hastily layered looks of the past. A buzz cut is chic, crisp art deco on your head. Such a pity that only a few can afford it…”
See the problem? Our story about how the truly authentic scissored haircuts are better sounds nice; but there’s no way to objectively confirm it, so a person who is a critical outsider to our culture would argue that we’re just reverse-engineering a rationalization for our prejudices. If this is true, my impression makes a lot of sense: I don’t like the look my head gets when electric-scissored because of the cultural/affiliational/class-based reactions that have been ingrained into all of us. In my city, the buzzed, electric-scissored look is associated with the military, chains, Budget Cuts, etc. The look of hair cut by scissors, by contract, is associated with people and places that are willing to pay and wait extra to achieve a more fashionable appearance. And so the old-fashioned-scissored look seems more attractive not because of anything inhering in its geometry, but because of associations inhering in our culture and affiliations.
So the theory here is that there’s a kind of circular process going on: (1) Aesthetics and taste are not objective. (2) Electric scissors take less time and training to operate properly, so haircuts done with them are cheaper. (3) Therefore, aesthetics aside, income-constrained people will be more disposed to get electric-scissor haircuts; the hairstyles of elite people and elite urban areas will disproportionately be drafted by real scissors. (4) Therefore, the culture will come to associate electric-scissor haircuts with low social standing and regular-scissor haircuts with high social standing. (5) Therefore, the old-fashioned scissor haircuts will be upheld as “objective good taste” and self-conscious elites will be willing to pay more and wait longer for them, which will reinforce the distinction.
It is the superior price efficiency of the electric scissors that causes the look they produce to be associated with low social-standing, which causes it to be devalued. A generalization of this insight is that in matters of ‘taste’ (which is to say: in markers of social distinction) democratizing, price-lowering innovations are at least partly self-defeating.
This basic idea is key to understanding a lot of markets based around taste, cultural affiliations, etc., and is also troubling to the general optimistic picture of how markets work. Normally, we hope markets work something like this: When we all really want and/or need something, we bid up the price of it; the high price attracts entrepreneurs who want to make a lot of money meeting this demand; entrepreneurs uncover new technologies and production processes to make the thing more cheaply; the entrepreneurs compete with each other to market the good, driving their prices down; and so now everyone can get the thing they want on the cheap. See, e.g., automobiles, computers, etc. But for goods whose value comes at least partially from social distinction (i.e., “positional goods”), entrepreneurs can’t do quite so much good for us, because the technology and production processes that broaden access to the good will, ipso facto, reduce the value of the good (and be panned by cultural arbiters as ‘bad taste’). The value that electric scissors could provide to the world has been partially limited by the fact that their efficiency created a new distinction.
I find this interesting purely as a theoretical contrast to classical economic theory: In these domains, technology improves the objective features of a good, but in doing so detracts from its value as a token in human social hierarchies. In the supply-and-demand curves we saw in Econ 101, the demand for a good increases as its price declines; for these positional goods, the relationship is more ambiguous. But beyond theory, there are a couple interesting implications:
(1) Right now, Apple enjoys famously high margins on and earnings from its products. As Apple faces increasing competition and loses market share, it might be tempted to lower its prices, the natural response for any company fighting off competitors. As an economist, I should love this decision — more individuals could buy more great Apple products more easily. But if I were a consultant to the company, I might be hesitant: It seems to me that a large part of Apple’s brand value comes from the price distinction itself. Today, buying a non-iPhone smartphone labels you as someone who’s too eager to save a couple hundred bucks, a gaffe among yuppies. So Apple lowering its prices might not unambiguously raise its sales. What can Apple do? Personally, I think there’s just realistically no way Apple can keep up its current earnings and margins and so the company warrants its very low PE ratio. But this is not what consultants are hired to say.
(2) This theory provides some hope for an “artisanal economy” in the future. The basic idea, which I first heard proposed by Adam Davidson, is this: Throughout human history, improvements in technology have improved human welfare overall, even though technological disruptions caused short-term harm to the workers whom they made obsolete. But now some really smart people are starting to worry that this time is different. Once artificial intelligence advances sufficiently that robots can do literally anything that humans can do, there will be no way that we humans can complement technology and we’ll all start to be replaced by it instead. So who will have jobs in the future? Well, people who are part of protected licensing cartels might: As long as the government says you need to see a human doctor to get XYZ prescription, doctors will still have jobs. The people who own the capital and intellectual property used to make the robots will also still have plenty of income. But what about the rest of us?
Davidson has proposed that the future looks like Brooklyn, NY, in whose hip neighborhoods you can find artisinal offerings of just about anything. How is this economy supported? Mostly by people across the river, in Manhattan, whose incomes are either directly or indirectly tied to financial services. Are artisanal versions of goods better than their mass-produced industrial counterparts? A lot of artisanal foods probably wouldn’t come out ahead in a blind taste test, but artisanal goods in general are useful for us for expressing cultural affiliations and in-the-know-ness, or adding a unique quality to a dinner party or a unique aesthetic to an interior design. Artisanal goods are mostly useful as social tokens. And that’s a good thing. As such, they’re largely protected from competition from technology, because getting them cheap and efficiently is not the point — the point is having the experience of visiting the artisan’s boutique shop in a hip neighborhood, and telling the story of the good when you bring it home. I wonder if the economy of the future will look a bit like the economy that currently crosses the East River: technology does all the real work in satisfying our objective basic needs; the owners of capital and intellectual property earn huge profits as a result; and the rest of us are employed in vaguely creative professions, doing things that objectively robots could do, but which some rich capitalists want a unique human fingerprint on. I will let the reader decide whether that is utopia or dystopia.