Following up on the Marc
Andreessen piece (seriously), the bit where he says:
“It has become absolutely conventional wisdom in
Silicon Valley that the way to succeed is to price your product as low
as possible and then, under the theory that if it’s low-priced everybody
can buy it, and that’s how you get to volume,” he said. “And we just
see over and over and over again people failing with that … They don’t
charge enough for their product to be able to afford the sales and
marketing required to actually get anybody to buy it.”
“By the way,” he added, “it’s like, is your product any good if people won’t pay more for it?”
From ZeroHedge, May 7:
Submitted by Nick Colas of Convergex
Supermodels And Other Productivity Measures
One of the livelier debates in economics at the moment relates to the
intersection of productivity growth and the role of technology in
modern society. At its core, the problem is a simple one: for all the
smartphones, Internet access, apps and other technological advancements
of the last decade, productivity growth is close to zero (0.3% in Q4
2016). One popular rebuttal from tech land is essentially “You
economists are doing it wrong – missing critical items like free apps
and other benefits of an interconnected world.”
Today we look this problem through a novel lens, measuring the
inflation adjusted price of productivity-enhancing consumer items from
the 1920s. The idea is that these products – cars, washing machines,
electric refrigerators, sewing machines and typewriters – helped play a
role in forming the golden age of U.S. productivity growth (1939-2000).
Our conclusion: if current day technology is so helpful to productivity, why is it so cheap?
* * *
Audrey Munson was the world’s first supermodel, but unlike
her modern day counterparts, hers was a life of genuine trouble and
suffering. She worked in the first years of the 20th century,
modeling primarily for sculptors who were creating works for both public
display and private homes. She had three things going for her which
made her an extremely popular model with the artists of the day:
- She closely resembled the classical Greco-Roman ideal of beauty, with a symmetrical face and what was deemed at the time an appropriately proportional body type.
- She was very entrepreneurial, going from door to door looking for work with New York’s very best artists.
- She would work in the nude but purely in a professional capacity, which engendered tremendous respect among her peers.
Sadly, as modernism shifted artistic tastes away from classical forms she eventually fell on hard times. By
her 40s, mental illness set in and she was committed to a psychiatric
hospital. She died at the age of 104, in 1996, having spent the
majority of her life in the St Lawrence State Hospital for the Insane in
upstate New York.
There is a recent book out about Audrey’s life – aptly called
“The Curse of Beauty” – which I can recommend if you want to learn
more. If you want to see a few images of the sculptures she inspired, here is a small sample:
We know what Audrey made as a model: $0.50/hour, or $12.03 adjusted for inflation today.
Compare that to Linda Evangelista, who once famously proclaimed “I
don’t get out of bed for less than $10,000/day”, and you have a bit of
an economic conundrum. Why are models worth so much more today? After
all, they aren’t any more “productive”…
The answer, or at least “an” answer, is that photography is a
more scalable medium than sculpture and less open to the artist’s
interpretation of the model. Audrey was famous in her time, to
be sure, but Kate Moss and Adriana Lima have the benefit of thousands
of photographic images to build and maintain their brands on a global
basis. And while a good photographer can help, in the end “The camera
never lies”.
All of this reminds me of the current debate in economic
circles: why is U.S. productivity growth so slow (all of 0.3% in Q4
2014, and well below post-War trends of 2% since the Great Recession)
when we have so much new technology around? This puzzle even
has a name – Solow’s paradox – after Nobel Prize winner Robert Solow’s
offhand comment “You can see the computer age everywhere but in the
productivity statistics”. Explanations from Silicon Valley, who aren’t
fans of this line of reasoning, range from “You’re measuring
productivity incorrectly” to “wait for it, it’s coming” to “it’s
concentrated in the services sector”.
You can read a good review of the debate here, in a 2014 article in The Economist: http://www.economist.com/news/special-report/21621237-digital-revolution-has-yet-fulfil-its-promise-higher-productivity-and-better
One way to consider the question is to look at what
productivity-enhancing technology cost in the 1920s and compare it to
popular consumer products today. The idea is simple:
technology that truly boosts productivity should be expensive since
buyers will happily pay a price premium for that benefit.
Take one nearly antediluvian example: the sewing machine. In the
1850s one of these devices cost $100 – about $2,700 in today’s dollars.
Why so much? First, they increased household productivity dramatically
since most clothes were homemade. Second, the better designs enjoyed
strong patent protection. Fun fact, and not surprising given these
numbers: sewing machines were the first product sold in the U.S. on an
installment plan. After all, who could afford $100 all at once?
Fast forward a bit to the 1920s, and consider the prices of other household appliances:
- A washing machine for $81.50. That is $970.39 today. Actual current price of a nice GE or Whirlpool top loading washer (courtesy of PC Richard’s website): $450.
- A vacuum cleaner for $28.95, or $344.70 today. Actual current price of a Shark Navigator on Amazon: $179.00
- An electric refrigerator for $285.00, or $3,393.38 today. A nice chrome one from Best Buy today: $899.99.
- If you are feeling nostalgic, here are the ads: http://www.thepeoplehistory.com/20selectrical.html
As for office productivity, the typewriter was all the rage
at the turn of the 20th century, costing all of $39.80 around 1915. That is $627.66 today. Funny enough, a medium range Dell desktop with screen costs $699 today on Amazon.
Now, if we are getting so much productivity out of the
current range of offerings from Silicon Valley, I have a question: why
aren’t these products really expensive, as the technology of the 1920s
clearly was? In fairness, a cell phone is costly – good
monthly deals from major carriers usually make you pay about $600 for
the phone. Which, funny enough, is what the typewriter cost (inflation
adjusted) exactly 100 years ago....MORE
