Monday, March 18, 2024

Surge Pricing Is Coming to More Menus Near You

Restaurants experiment with technology that can move prices up and down based on demand and staffing; ‘a little sales boost to offset our costs’

By Heather Haddon of The WSJ

Since price is determined by the intersection of supply and demand, it makes sense that the price would be higher when demand is higher (and yesterday at an Irish pub my wife and I went to there was a very long line just to get in-maybe if they had higher prices when they knew demand was going to be higher the wait time would have been much less).

Excerpts from the article:

"If you are hungry for barbecue on a Saturday night this month, a delivery of a pulled-pork sandwich from Cali BBQ could cost you around $18. 

Or you could hold off a few days and order the same sandwich delivered on a weekday afternoon for around $12. 

Restaurants like San Diego-based Cali BBQ are experimenting with a form of the dynamic pricing long used by airlines, hotels and ride-hailing services. Technology providers are pitching services that enable restaurants to change prices weekly or monthly, increasing or slashing the cost of a taco or sandwich between a few quarters to several dollars, depending on demand and sales patterns."

"Dynamic pricing—charging higher rates at peak times and dropping them at slower ones—has become commonplace in industries such as e-commerce, and mobile apps have made it easier for companies to study consumers’ buying and browsing and quickly adapt. Rising costs in recent years have led more retailers to implement it."

"Wendy’s drew public scrutiny after the burger chain said in a mid-February earnings call that it was looking to test dynamic pricing. The chain said it would invest around $20 million in its U.S. restaurants to install digital menu boards by 2025 that could suggest items to customers and present different offerings depending on the time of day."

"Inflation-fatigued consumers protested the possibility of surge pricing hitting their burgers, and Wendy’s last week said it wouldn’t raise prices at the busiest times. New digital menus could instead allow the chain to offer discounts during slower hours, Wendy’s said.

Drew Patterson, co-founder of restaurant dynamic pricing provider Juicer, said restaurants need to reference “happy hour” and other known promotions when explaining variable pricing to customers."

"Dave & Buster’s and other chains are dabbling with the technology to help spread out customer visits over a broader part of the day and better capitalize on rush periods."

"An estimated 61% of adults support variable pricing where a restaurant lowers or raises prices based on business, with younger consumers more in favor of the approach than older ones, according to an online survey of 1,000 people by the National Restaurant Association trade group. 

While some consumers tend to resent surge pricing, as Wendy’s discovered last month, they like happy-hour discounts and other deals at slow times, industry consultants said."

Related posts:

How elasticities affect Uber passengers and drivers (2019)

Concert promoters are using Airline-style dynamic pricing to increase revenue (2019) 

Amusement Park Changes Its Pricing Strategy (2016) (Disneyland 'demand pricing' will cost you $5 less on slow days and $20 more when it's busy)

Wow, The World Series Sure Is Expensive-It Costs $140 . . . Just To Park! (2012)

Saturday, March 16, 2024

You Think You’re Doing Fine in Life, Until You Hear a Friend Is Doing Better

We tend to measure our financial health based on our friends—and what they post on social media

By Julia Carpenter of The WSJ. Excerpts:

"How we measure up against our friends and peers has an outsize effect on our financial perception, economists and researchers say—especially as people spend more time scrolling social media. These comparisons can make our finances seem inadequate even when things are going fairly well. 

This effect is playing a part in the disconnect leading many consumers to feel dour about the economy despite several promising factors, such as cooling inflation, a strong labor market and a U.S. economy that grew 3.1% over the past year."

"many of them [friends] present only the rosiest view of their finances and families on social media."

"Around a quarter said they feel less satisfied with the amount of money they have because of social media, and a third said they have spent more than they could afford to “keep up with the Joneses” on Instagram and other apps."

"Time on social media creates more opportunities to feel bad about ourselves and our financial picture, said Isabel Barrow, director of financial planning at Edelman Financial Engines. The survey found a strong link between overspending and time spent on social media, Barrow said."

"New research shows we are also always calibrating how high our perceived income is relative to them [those we know], too."

"People [from a study] were happier when they thought they were doing better than their peer group. When they felt that they were at the top of this ranking, they felt less need to branch out and make other comparisons."

"Social media sometimes gives people the false impression that your sphere of influence is larger and more diverse than it actually is"

Related posts:

Has social media increased the demand for wedding party activities? (2019)

Conspicuous Consumption, Conspicuous Virtue, Thorstein Veblen (and Adam Smith, too!)
(2007)

Payless sold its discount shoes for $600 a pair at mock luxury influencer event (2018)

Federal Reserve Economists May Have Discovered Another Cause Of Bankruptcy (2016) (if a neighbor wins the lottery people start spending more on consumption to keep up) 

China's Government Cracks Down On Displays Of Wealth On Social Media (2022) 

Are TikTok influencers changing consumers' tastes? (2023)

Is Venmo Affecting Friendships? (2017)

If It Pays To Have Friends, Can You Pay To Have Friends? (2013)

The Incredibly True Story of Renting a Friend in Tokyo (2020)

Would You Pay $250,000 To Get Your Friends' Respect? (2011)

Excerpt: But here is something interesting about one student, who is now $250,000 in debt:

"Mr. Wallerstein, for his part, is not complaining. Once you throw in the intangibles of having a J.D., he says, he is one of law schools' satisfied customers.

"It's a prestige thing," he says. "I'm an attorney. All of my friends see me as a person they look up to. They understand I'm in a lot of debt, but I've done something they feel they could never do and the respect and admiration is important.""

Thursday, March 14, 2024

Powell is wrong about inflation

By Scott Sumner.  If the price of good A goes up, it means people have less money to spend on good B. So demand for good B falls and then so would its price. With one good going up in price and the other going down, the overall inflation rate does not necessarily go up. But, if people have more money to spend because the Fed increased the money supply, demand for good B won't fall.

"The New York Times suggests that rising insurance costs help to explain stubbornly high inflation:

“Insurance of various different kinds — housing insurance, but also automobile insurance, and things like that — that’s been a significant source of inflation over the last few years,” Jerome H. Powell, the Federal Reserve chair, said during congressional testimony last week. “And it’s to do with a million different factors.”

Vehicle insurance is the one adding notably to overall inflation, said Omair Sharif, founder of the research firm Inflation Insights. Part of the increase in car insurance comes from the fact that parts and replacement vehicles have become a lot more expensive over recent years, and that is slowly feeding through to insurance premiums, he said.

These comments confuse relative and absolute prices.  More expensive auto parts might cause the relative price of auto insurance to rise, but they do not cause a rise in the overall cost of living.  

There are cases where “supply shocks” cause both an increase in the relative price of one good, and also an increase in the overall Consumer Price Index.  That occurs when the adverse supply shock reduces real output—say a sharp cutback in global oil production.  For any given rise in nominal spending, lower real output leads to a higher price level.

But that is not what is happening in the US.  Recent economic growth has been quite robust.  Inflation remains above the Fed’s 2% target because nominal GDP growth is running at 5.8% over the past year, way too high.  

In any economy, some prices will rise faster than others.  Instead of singling out the prices of various goods and services, the Fed needs to look in the mirror.  We have high inflation because monetary policy has pushed NGDP growth up to a rate that is not consistent with “price stability” (even if defined as 2% inflation.)  The Fed is the institution that created the high inflation of the 2020s, not supply chain problems.  The excess inflation since 2019 is very similar in magnitude to the excess NGDP growth."

Tuesday, March 12, 2024

The Seasonally Adjusted CPI Was up 0.44% in January, Highest Increase In Six Months

See Consumer Price Index for All Urban Consumers: All Items in U.S. City Average from FRED (Federal Reserve Economic Data) compiled by the Research Division at the Federal Reserve Bank of St. Louis for data on the seasonally adjusted CPI.

That site shows a graph but if you click on the Download button you will get the actual numbers in Microsoft Excel.

The Consumer Price Index for All Urban Consumers: All Items in U.S. City Average (CPIAUCSL) was 309.685 in Jan. and 311.054 in Feb. Since 311.054/309.685 = 1.0044, that means it was up 0.44% in Feb. If we had that every month for 12 months it would be up 5.4%.

It was 301.509 in Feb. 2023. Since 311.054/301.509 = 1.0317, that means it was up 3.17% over the last 12 months.

The non-seasonally adjusted CPI was 310.326 in Feb. and 300.840 in Feb. 2023. That was up 3.16%. So pretty close to the seasonally adjusted CPI. This is still above the Fed's target of 2.0% (although they prefer to use the Personal Consumption Expenditures Price Index which was 2.4% higher in Jan. 2024 than Jan. 2023).  

For more information, see Consumer prices rose 0.4% in February and 3.2% from a year ago by Jeff Cox of CNBC. Excerpts:

"Inflation rose again in February, keeping the Federal Reserve on course to wait at least until the summer before starting to lower interest rates.

The consumer price index, a broad measure of goods and services costs, increased 0.4% for the month and 3.2% from a year ago, the Labor Department’s Bureau of Labor Statistics reported Tuesday. The monthly gain was in line with expectations, but the annual rate was slightly ahead of the 3.1% forecast from the Dow Jones consensus.

Excluding volatile food and energy prices, the core CPI rose 0.4% on the month and was up 3.8% on the year. Both were one-tenth of a percentage point higher than forecast.

While the 12-month pace is off the inflation peak in mid-2022, it remains well above the Fed’s 2% goal as the central bank approaches its two-day policy meeting in a week.

A 2.3% increase in energy costs helped boost the headline inflation number. Food costs were flat on the month, while shelter rose another 0.4%.

The BLS reported that the increases in energy and shelter amounted to more than 60% of the total gain. Gasoline jumped 3.8% on the month while owners’ equivalent rent, a hypothetical gauge of what homeowners could get renting their properties, rose 0.4%."

The article also discusses what is going up and what is going on. There is a graph of the monthly year-over-year percent change in prices and core prices going back almost 3 years.

Other related links:

Consumer Price Index Data from 1913 to 2023

Personal Consumption Expenditures Price Index 

The Bureau of Labor Statistics makes seasonal adjustments. See Consumer Price Index Summary.

Monday, March 11, 2024

You Can Now Buy Shares in Music by Beyoncé or Taylor Swift

Startup JKBX is offering securities backed by the royalty streams from songs recorded by popular artists

By Alexander Osipovich of The WSJ. Excerpts:

"It’s the latest musical mashup: Top 40 hits meet financial engineering.

A startup is offering securities backed by the royalty streams from songs recorded by such artists as Beyoncé, Taylor Swift and the pop-rock band OneRepublic. Its goal is to bring music investing to the masses.

JKBX, pronounced “jukebox,” opened its new marketplace after the Securities and Exchange Commission signed off on its first offering last week. Individual investors can visit its website to buy slices of the income generated by dozens of songs—effectively, bonds backed by beats."

"Wall Street has been turning music rights into financial products for decades"

"JKBX is now aiming to bring such deals to the little guy. Founded in 2022, the company plans to keep listing more investments and ultimately build music royalties into a new asset class"

"JKBX operates a platform that allows holders of music rights to issue securities based on their royalties and sell those securities to investors. It makes money from executing transactions. 

Here’s how it works. Suppose you buy shares in the sound-recording rights to Beyoncé’s “Halo,” which are available on JKBX for $6.78 apiece. Holding those shares entitles you to a quarterly distribution of fees paid to the rights holder. Such fees could come from several sources: revenue from streaming services such as Spotify, album sales, satellite-radio royalties or fees from use in movies and TV shows. The size of those payments could vary from quarter to quarter. Recently they have worked out to an annual yield of about 3% for the “Halo” shares, according to JKBX data.

Yields of 3% to 4% are common among JKBX’s initial crop of listings. Such yields aren’t particularly attractive at a time when money-market funds are offering yields of about 5%."

Related post:

Rod Stewart Sells Song Catalog as Music-Rights Fundraising Surges (2024)

Katy Perry Sells Catalog to Litmus Music (2023)

Why Are More Performers Selling The Rights To Their Music? Maybe Tax Laws  (2022) 

Excerpt from that post:

"Bruce Springsteen, for example, recently sold his master recordings and music publishing rights to Sony for $500 million. I assume an artist would not sell their music for less than the amount of future income it would generate.

But that future income would get taxed at 37%. Selling it now means they only get taxed 20%. So that is a good deal for the artists.

The company buying the music could come out ahead if they pay a little less than what the music is worth because the artist does not need the full price. Why not? Because they are getting such a good tax deal they can sell it for less than it is worth.

If your music is worth $100 but you sell it for, say, $90, you still come out ahead. If you earned $100 by keeping the music, you pay $37 in taxes and you are left with $63. But if you sell it for $90 and only get taxed 20%, you pay $18 in taxes. That leaves you with $72, more than $63."

Sunday, March 10, 2024

Does Evolutionary Psychology Support Joseph Campbell's Belief In The Need For A World Mythology?

(First posted in 2009)

The mythologist Joseph Campbell wrote a book called The Hero With A Thousand Faces which inspired George Lucas to make the Star Wars movies. Campbell often talked about the need for a new world mythology. This issue came up in a fascinating article in yesterday’s New York Times called a “A Grand Bargain Over Evolution” by Robert Wright. It discusses how “religion and science are actually compatible” because “evolutionary psychologists have developed a plausible account of the moral sense.” The part of the article that reminded me of Campbell is below. Then that is followed by quotes from him that are very similar. He died in 1987, so his remarks were very prophetic.

Here is the NY Times quote:

“Clearly, this evolutionary narrative could fit into a theology with some classic elements: a divinely imparted purpose that involves a struggle toward the good, a struggle that even leads to a kind of climax of history. Such a theology could actually abet the good, increase the chances of a happy ending. A more evolved religion could do what religion has often done in the past: use an awe-inspiring story to foster social cohesion — except this time on a global scale.

Of course, religion doesn’t have a monopoly on awe and inspiration. The story that science tells, the story of nature, is awesome, and some people get plenty of inspiration from it, without needing the religious kind. What’s more, science has its own role to play in knitting the world together. The scientific enterprise has long been on the frontiers of international community, fostering an inclusive, cosmopolitan ethic — the kind of ethic that any religion worthy of this moment in history must also foster.”

Now what Campbell had to say. From page 112 of the book An Open Life: Joseph Campbell In Conversation With Michael Toms.

Michael Toms often interviewed Campbell at KQED in San Francisco for the radio program New Dimensions. Here they discussed social fragmentation. The following two paragraphs are from Campbell.

“And there's going to be [social fragmentation] for a long time. Unfortunately, many of the new mystically motivated movements are reactionary against other peoples. We have this "Power" and that "Power" and the other "Power." These are delaying actions. People are afraid to move into the free fall of a totally new way of looking at others. So the new mythology to come must be a global mythology, and it's got to solve the problem of the in-group by showing that there's no out-group. We're all members of a society of the planet, not of one particular place, and the fact that the three main religions of the Western world-Judaism, Christianity, and Islam-can't live together in Beruit is a refutation of all three in terms of their value for the contemporary world. They're monstrous! We must begin to realize that each is saying in his own language what the other is trying to say in his. There must be brotherhood and cooperation. Because unless that comes, we're going to blow ourselves to smithereens.

Every single one of the old horizon-bound mythologies reserved love for the in-group, and aggression and denigration were reserved for the out-group. Now, something's got to break that. And when we see that picture of our planet taken from the moon, the question arises: What are we going to do with our aggression? How is it going to be absorbed into love and transmuted from gross matter to gold? I think teaching "I-thou" relationships, rather than the "I-it" relationships, which [theologian Martin] Buber spoke about, is the first step. The teaching of humanity rather than the teaching of in-group appreciations is what's important.”

I think that Campbell clearly talked about the same thing as what Robert Wright did in the Times article. He mentioned narrative and awe-inspiring story as something that could foster social cohesion. This is the mythology that Campbell discussed.

If you are wondering why an economist is discussing this, click on the link above which explains the name of this blog. It has to with entrepreneurs being like heroes from mythology. Campbell thought so, too and you can read about that at Joseph Campbell on Entrepreneurship

Related posts:

Adam Smith And Joseph Campbell On The Dangers Of "The Man Of System"

Joseph Campbell Meets Joseph Schumpeter (The Entrepreneur As Hero)

Adam Smith Meets Joseph Campbell 

Does Neuroscience Prove That You Should Follow Your Bliss?

Saturday, March 09, 2024

Economics and Shakespeare's Merchant of Venice

This is a guest post by wife Kim Endres.

Summary

The Merchant of Venice is a romantic comedy with an important secondary plot line involving a loan and default on the loan. Antonio, the merchant, borrows money from Shylock to help his friend Bassanio to woo Portia. Shylock is a Jewish moneylender who lives and works in Venice, but is considered an “alien.” Antonio insulted and even spat upon Shylock in the past. So, when Shylock accepts Antonio’s “bond,” he asks not for interest, but for a “pound of flesh” should he default.

When Antonio’s fleet of ships is lost at sea, he must default on the loan and Shylock brings him to the Court of the Duke of Venice to demand his due.

Controversy

Jews had been expelled on pain of death from England in 1290. Jews were informally allowed back into England in the mid 1600’s, but many Elizabethans had never met or seen a Jew. The prejudices against Jews and the stereotypes of Jews persisted. When Jews were portrayed in the theater, actors used props and costumes to allow the audience to recognize them as Jewish. Jews in plays were usually villains or clowns. The actor would wear a red and bulbous nose and a bright red wig, and otherwise render the actor hideous. Audiences would hiss and boo when a Jewish character came on stage.

In the Anti-Defamation League’s guide to The Merchant of Venice for presenting the play to students they write: “Over four hundred years after The Merchant of Venice was first written, the debate rages on about Shakespeare’s intentions regarding the character of Shylock, whether the play is anti-Semitic or a criticism of the Christian anti-Semitism of Shakespeare’s time, and even whether the play should be taught in schools.”

In its article “Shylock, the Merchant of Venice,” No Sweat Shakespeare writes: “It was forbidden to employ Jews and they were not allowed to enter the professions or conduct legitimate business and so, in order to survive they had to live on their wits. Many of them became money lenders, lending out money for interest. Jews therefore became associated with money-lending and those who borrowed from them accused them of charging unreasonable rates so the prejudice of their being thieves and swindlers took root and lasted for centuries.”

Over the centuries, the play has been used by antisemitic people and organizations to justify their biases. Hitler used the play as propaganda to promote his views on Jews.

Shylock as a humanized character

Shylock is not a sympathetic character by any estimate. He is bitter from his abuse by Venetians. He disdains the pleasures of life, music and dancing, and wants to lock his daughter Jessica away in his house.

But some critics have argued that Shakespeare humanizes Shylock. The Stage Milk article “The Merchant of Venice: Shylock Monologue (Act 3 Scene 1)” states: “Shylock is a deeply oppressed man, corrupted by the discrimination he has faced. All the injustice he has been subjected to has culminated in this climactic moment: he has been ostracized, his daughter has abandoned him [stolen his money,] and converted to Christianity and he is about to find out whether Antonio will be able to pay him back in full. Shylock challenges his Christian audience with this speech, asking if not all humans are created equal.” In the scene, two young Venetian men mock him and ask what he would do with Antonio’s pound of flesh.

SHYLOCK:    To bait fish withal; if it will feed nothing else,

it will feed my revenge. He hath disgraced me and

hindered me half a million, laughed at my losses,

mocked at my gains, scorned my nation, thwarted

my bargains, cooled my friends, heated mine enemies—

and what’s his reason? I am a Jew. Hath not

a Jew eyes? Hath not a Jew hands, organs, dimensions,

senses, affections, passions? Fed with the

same food, hurt with the same weapons, subject to

the same diseases, healed by the same means,

warmed and cooled by the same winter and summer

as a Christian is? If you prick us, do we not

bleed? If you tickle us, do we not laugh? If you

poison us, do we not die? And if you wrong us, shall

we not revenge? If we are like you in the rest, we will

resemble you in that. If a Jew wrong a Christian,

what is his humility? Revenge. If a Christian wrong

a Jew, what should his sufferance be by Christian

example? Why, revenge! The villainy you teach me I

will execute, and it shall go hard but I will better the

instruction.

Shylock then acts to have Antonio arrested.

Venice as a Center of Commerce

Venice in Shakespeare’s time was a center of commerce and international trade. Shipping was the source of much of its wealth. It was also a place that operated under the rule of law.

At that time, much of Europe was still ruled by hereditary kings and nobles, whose personal word was the law. Such laws were applied unevenly and even capriciously. This would not work for a city which depended on its good reputation for fair dealing. Laws were needed to enforce contracts (or bonds as they were called) between people of different nations and cultures.

So, when Shylock has Antonio arrested, the Duke feels he has no choice but to apply the law impartially. But note: Shylock despite being a Venetian, is considered an “alien.”

The quality of mercy is not strained

In Act 4, Scene 1, Shylock has brought Antonio to Court to claim his pound of flesh. Portia, disguised as a male lawyer named Balthazar, delivers this monologue to Shylock. Portia says that Shylock must be merciful, and Shylock asks by what compulsion he must show mercy.

PORTIA (as Balthazar): The quality of mercy is not strained;

It droppeth as the gentle rain from heaven

Upon the place beneath. It is twice blest;

It blesseth him that gives and him that takes:

'T is mightiest in the mightiest; it becomes

The throned monarch better than his crown:

His sceptre shows the force of temporal power,

The attribute to awe and majesty,

Wherein doth sit the dread and fear of kings;

But mercy is above this sceptred sway;

It is enthronèd in the hearts of kings,

It is an attribute to God himself;

And earthly power doth then show likest God's

When mercy seasons justice. Therefore, Jew,

Though justice be thy plea, consider this,

That, in the course of justice, none of us

Should see salvation: we do pray for mercy;

And that same prayer doth teach us all to render

The deeds of mercy. I have spoke thus much

To mitigate the justice of thy plea;

Which if thou follow, this strict court of Venice

            Must needs give sentence 'gainst the merchant there.

Shylock answers that he craves “the law, The penalty and forfeit of my bond.” In other words, he still wants his pound of flesh from Antonio.

Bassanio implores the Duke to override the law in order to right a wrong. But Portia says that the Duke cannot, because to do so would establish a precedent that might lead to injustice.

Portia asks to read the bond. Again, Portia asks Shylock to be merciful and accept three times the amount of the loan. Again, Shylock refuses. Portia asks if he has a surgeon to stop Antonio’s wounds lest he bleed to death. Shylock answers that it is not required by the bond and asks that the sentence be executed.

Then, at the last moment, Portia says to the effect, “not quite so fast.”

PORTIA (as Balthazar): This bond doth give thee here no jot of blood.

The words expressly are “a pound of flesh.”

Take then thy bond, take thou thy pound of flesh,

But in the cutting it, if thou dost shed

One drop of Christian blood, thy lands and goods

Are by the laws of Venice confiscate

Unto the state of Venice.

Portia says to Shylock “Thou shalt have justice more than thou desir’st.” At this, Shylock wants to take it back and accept the money. But Portia says it is too late, that Shylock shall have only justice. Thwarted, Shylock tries to leave, but Portia stops him.

PORTIA (as Balthazar):  Tarry, Jew.

The law hath yet another hold on you.

It is enacted in the laws of Venice,

If it be proved against an alien

That by direct or indirect attempts

He seek the life of any citizen,

The party ’gainst the which he doth contrive

Shall seize one half his goods; the other half

Comes to the privy coffer of the state,

And the offender’s life lies in the mercy

Of the Duke only, ’gainst all other voice.

The Duke pardons Shylock’s life, but agrees he must forfeit his wealth. Portia asks Antonio to render mercy to Shylock. Antonio says that Shylock will forfeit half of his wealth to Antonio to use, but that upon Shylock’s death, all of Shylock’s money will go to his daughter and her husband. Further, Shylock must agree to convert to Christianity.

Discussion Questions

In today’s language, it might be said that Shylock was a “victim of institutional racism.” Do you agree or disagree?

It seems like Antonio got off on a technicality without any penalty, while Shylock lost everything. If you were a trader from another country, what would you think of the Venetian justice system?

In the play, justice is contrasted with mercy. Did Shylock receive mercy? Did he receive justice?

In the end, Shylock is forced to convert to Christianity. In Elizabethan times, this would look like a happy ending to the audience. What do you think?

How “Christian” are the Christians in the play?