Matt Nolan on the Top 10 economics Christmas dinner discussion topics

Today's Top 10 is a guest post from Matt Nolan*. This is our last guest Top 10 for 2015. Merry Christmas and Happy New Year to all our readers.

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Top 10 economics Christmas dinner discussion topics

Christmas is a busy time of year, with family, friends, and advertisers all busily vying for our attention.  As a result, I’m keen to help save you some time this silly season – by coming up with a quick list of 10 economics topics you can bring up at the Christmas dinner table in order to avoid a conversation about the weather. 

These questions have been tailor picked to be interesting and hopefully not too contentious (note the lack of climate change, poverty/inequality, and monetary policy) – however, tread with care given that if economic topics are raised in an imprecise way they can lead to heated arguments. If these questions get you into an argument please don’t blame me!

1)What will future jobs looks like?

Jobs can be a contentious issue – so I’d suggest picking your audience carefully when it comes to discussing this one.

The world is changing (as it always is) and as technology progresses the way we can use it to produce also changes – with the skills we need constantly evolving. This issue is gigantic, so let me just give you a taste of the different types of conversations you could all have.

• With increasing roboticisation and mechanisation what is happening to manufacturing jobs?
   
  • Are machines replacing people by doing the job more cheaply?
     
  • Are machines complementing other types of workers (eg the people who fix machines, or the people who have the intellectual property behind the designs the machines make)? Is this type of work more skilled?
     
  • How does niche/small scale manufacturing fit in, due to the high fixed costs of mechanisation? Is niche manufacturing the future of manufacturing work?
     
• What about skilled service jobs? As programs are developed that provide business services (accounting, law, and even economics) what do the people who invested in these skills do?
   
• As machines can take on more nuanced tasks at lower and lower costs, what happens to the jobs available to those who do not own machines/capital? Do we all end up as service providers to people who own robots? Does this lead to society seeing itself as separate capital and non-capital owner groups?
   
• How does this change the nature of the work we all do – does the increasingly casual “gig economy” become more and more important?  Does this hurt people’s job security?

There are types of mechanisation. The assembly line destroyed the return to skills for many skilled workers, but also increased the value of people who would have undertaken less skilled work. In the long run there was greater wealth and some benefited immediately, but people whose skills were made worthless suffered in the transition.

However, prior to this innovations such as the seed drill directly replaced the role of many lower skilled agricultural workers but increased demand for skilled farm hands that could operate machinery. A similar pattern of improvement tinged with lifetime costs to those who were forced to change what they were doing occurred – but the people who were winners and losers differed.

Changes in the types of jobs available have a large impact on the opportunity of individuals, and can hurt people with specific skills that are no longer valuable. An empathetic discussion of these changes would make an interesting Christmas table discussion.

2) What will future consumption look like?

If you find the job discussion getting too heated, or too boring, luckily what we discussed above neatly segues into another issue – patterns of consumption.

As we mentioned above, lower employment in manufacturing sectors (mirroring farm employment during the agricultural revolution) does not imply a drop in manufactured goods produced – in fact, this technological improvement implies that manufactured products are become less scarce and as a result become easier for people to purchase.

With the physical products we are used to now becoming less scarce, there are two areas where consumption may appear to shift:

• Material products that we haven’t come up with yet
• Services that we provide for each other

I’ll leave the types of things that might fit into these categories up to your imagination!

However, the patterns of demand depend in part of what we mentioned in the job category. If capital owners gain a larger share of resources, due to labour saving technology and a shift to more “casual” and less secure options for work, the types of products sold would be the things capital owners prefer (an issue you can move onto later if you go to discussion point 4). This is related to the recent blockbuster “Capital in the 21st Century”.

But if policy or technology instead give non-capital owners power this may not be the case. For example the growth of the “gig economy” and an increase in easily transferable skills may give people more options to work flexibly, forcing capital owners to pay peak prices to workers when they really want to produce things.

Both a situation with powerful capital owners and a situation with powerful workers would be associated with greater spending on services – but would also lead to a very different type of world. As a result, this is a lesson that even if we accept that consumption will become more “service based” in the future, who that benefits and why is still an open question! Fascinating!

3) What will the retail industry look like?

It is Christmas, so the industry on our minds is the retail industry – conveniently this industry is one of the core areas dealing with changes in the types of jobs and the patterns of consumption given above. If you are getting bored of talking about these issues individually, you can swing around and talk about retailers.

The retail sector is already showing that it may be dealing with technological change in terms of employment. Unemployment is disproportionately high, and may be even higher if we included secondary workers in a family who may be willing to work a retail job if it was available. Self-service checkouts are increasingly prevalent, while online retailing is a lot less labour intensive and accounts for a growing proportion of the sector.

Some interesting conversations you could have here are:

• What happens to physical stores? Will they remain popular for some products? Will they increasingly become simply advertising arms for online stores or will they disappear completely?

• Who is hurt by the reduction in store-front retail jobs? Will it be harder for students to get summer work? Will it become harder for second earners in the family to find income? Will it increase barriers to entering the labour market for some people – or will other jobs appear for those who would prefer to learn on the job rather than undertaking paid education?

• If stores go, what happens to all this retail space in central cities?

4) A world of status goods – do we care about our car/house because we like it, or because of how it compares to what other people have?

If there is anything people like to talk about more during Christmas than their house and car, I haven’t heard of it. So be a bit careful with this topic – as you of course don’t want to upset people’s sensibilities.

For this question, start off by stating that we value goods and services for two overarching reasons – in an absolute sense as an innate product with a set of features, and in a relative sense as a set of features that has value in reference to what others have (this is termed a Veblen good).

For example, we may value a car for its speed, fuel efficiency, and colour directly. However, we also value the car for how it achieves these things relative to our neighbours car. In this example it may be that we get some value from saying we have better things than others. The push to have “better” things than others is termed status competition.

The first innate way of valuing a good is neat, the second way is a characteristic of a status good and competition between people based on status goods is a zero sum game.

Status goods undeniably exist. And when our material needs are met, much of what remains in what we consume has a status element. This raises the questions:

• Isn’t status competition “wasteful” as we are consuming resources but no-one gets happier?

• Is there intrinsic worth in economic growth due to status competition, as Boris Johnson thinks?

• Does income inequality due to status competition matter? If all that has happened is that wealthy people are now spending more on pointless status goods, and this is not detracting from the availability of resources to the poor, does it matter?

• How does the type of relative value matter? Eg what happens if we value having the same thing as others, rather than having something better than others?

These are interesting questions – although I will go out on a limb and say I think Boris Johnson’s position that economic activity has value outside of the satisfaction associated with consuming that activity is nonsensical, but others may disagree with me.

5) A world of status jobs.

A related topic, which I find interesting, is the idea of status jobs. When I use a term like status jobs it is common to think solely of jobs that people think of as having a level of fandom eg rockstars, rugby players, or actors on Shortland Street. This is partially true, however status in the way I think about it points to jobs that include high remuneration (either through occupational prestige or payment – or often both) when you are seen as successful in that occupation.

At first brush such a distinction will seem like a waste of time at the dinner table, and people will probably think you are being a bit wonkish. But for the sake of the conversation, this is actually very important.

Take the example of a rockstar. You may be able to tell people you are a rockstar and in a band, and you may well get some social kudos. But your band may not be very successful. On some level you may continue with the band because you enjoy intimate gigs and love the music, but on another level your band may believe your band is the next best thing – and that the respect and money involved with becoming the next best thing is worth the sacrifice now.

Now you are in an environment where there are many bands, but only a limited number of them will become “the next best thing” – there is a limited amount of “value” to be earned once artists are competing sufficiently. Here many people are investing in the skills associated with being a rockstar in order to take on the bet of becomes the next best thing – but only a limited number of them will in turn perform this service. The other rockstars simply fade into obscurity.

Robert Frank terms this the “winner-takes-all” society, where too many people are investing to take part in these (close to) zero sum games, and as a result some of this investment is socially wasteful.

Frank states that these sorts of industries permeate society, occurring in entertainment, finance and law. Although I find his argument compelling as a partial explanation for entertainment industries, I do not buy it for finance and law – for the argument to work there must be a large group of individuals who invest heavily in the occupational skills but then who fail to make a “reasonable” salary due to a lack of opportunities. However, it is a fascinating talking point!

6) Why does Christmas keep starting earlier every year?

Above we have covered some broad issues that raise many questions. Now we are going to concentrate on some specifics!

As a starting point, Christmas probably isn’t getting earlier every year – it just feels like it because everything turns up in the shops in October and we feel like that is “too early”. So the real question is, why do the Christmas celebrations start earlier than we feel is appropriate each year.

Much of the concern with early Christmas celebrations has to do with retailers putting out stock early. My best explanation is that it is a prisoner's dilemma game – retailers all want to beat each other to the punch in order to get the Christmas customers, and so want to start their Christmas stock up just before their competitors. However, since they all want to do this they all end up putting out their stock early and no-one gets the advantage. Furthermore, since it is “too early” this just annoys some customers and forces retailers to take on the cost of more limited shelf space for other products for a longer period of time. This is called a prisoner's dilemma.

But I’m also not sure that the early Christmas is necessarily a failure. There is another important reason lying in the background – price discrimination. My Facebook feed tells me that there are some people who love Christmas, and some people who hate it. The people who hate Christmas aren’t going to spend much in any case, until they have to buy things for family – their demand in stores will fall when Christmas cheer is everywhere. The people who love Christmas will be willing to spend while the Christmas decorations are up.

The timing of Christmas decorations has a clear reasoning in this case. Seeing that they have two different types of consumers retailers will time Christmas stock and decorations in a way that they feel will work well for this split client base. Specifically, if there are sales close to Christmas the early Christmas stocking period will allow retailers to price discriminate between eager Christmas shoppers who will pay full price early and who want to buy all the Christmas things, and reluctant Christmas shoppers who will pick up something for their family on a deal but want to stay away from the Christmas cheer.

Both these arguments are far from perfect, and give you plenty of scope to build upon in your own discussions!

7) Pre-Christmas sales – why do some retailers slash prices before Christmas?

I was browsing Mighty Ape the other day and there were some massive specials in place. Now this website always has specials, but when we are so close to Christmas large discounts seem – at first glance – counterintuitive.

Our natural logic would be that Christmas is a time of high demand, a time where households have to buy presents for a specific point in time. In such a situation surely firms should be charging more not sending out discounts!

However, not so fast. First off, we’ve already established the price discrimination mentioned above as a potential reason for these sales.

Furthermore, these firms are not monopolies; instead they compete with other firms on a repeated basis – a factor that can either lead to implicit collusion when demand is high or when demand is low. The explanation consistent with this observation is given in this quote:

Rotemberg and Saloner said that there was a greater “prize from deviating” when demand is high, and so times of high demand see collusion break down!

When I was a student I worked at The Warehouse. Apart from having customers constantly make insulting comments about me and my work colleagues (seriously don’t be that shopper this Christmas) one thing I remember is the managers telling me how important the Christmas period was – and how much more important competition and monitoring of competitors became.

8) Perpetual sales/the end of sales – will there be “real” big Boxing Day sales this year?

On Christmas day the Boxing Day adverts have kicked off on TV. But as we mentioned above, there are already a lot of sales prior to Christmas.

More so, there appears to be sales nearly constantly – New Zealand joined in Black Friday this year, while the website I use to buy running gear appears to have left their Black Friday sales going all the way until Christmas. I am planning to wait until Boxing Day to get a “cheap” jacket – but with sales taking place all year around I’m starting to wonder if I will even be able to get a jacket particularly cheaply.

The old rationale behind Boxing Day sales was two-fold: Stock management and then high demand. Initially, stock would be built up for the high demand Christmas period, and products that did not sell well would need to be cleared out. With people buying gift cards and “waiting” for these sales, this became a high demand period itself – which retailers then competed with each other over by slashing prices.

But to my mind two things have undermined this model – improvements in stock management and the existence of perpetual sales. Just-in-time manufacturing/inventories (made possible through international trade and manufacturing overseas) has removed much of the need for Boxing Day sales. Furthermore, much of the additional demand during Boxing Day takes the form of returns and gift cards – which imply that the consumer has to spend at the store where a good was purchased for them. As a result, the purchases during Christmas sales increase demand for specific stores during Boxing Day, implying that there is less need for retailers to give discounts!!

When I lay out the argument in this way, I’m very nervous about getting a cheap jacket. I might have to pop down to my local Bivouac store now to see if they’ve got any good deals!

9) Christmas gifts – the money or the bag?

A common refrain by economists who want attention during Christmas (this very much includes me) is that “cash is better than gifts”. Of course, the issue of gift giving is far more complicated than that – especially given we value a gift differently than we would value the product by itself. The fact it is a gift gives it value (or sometimes subtracts value from it) irrespective of the actual physical characteristics of the good.

If you want to talk through this one, I’d suggest reading through this article by Mieke Welvaert to get the key points!

10) The decision to drink – am I going to be time inconsistent with my alcohol consumption at dinner?

One question that is especially relevant to me during Christmas is whether I will drink too much and embarrass myself in front of my family. Now people may say “just don’t drink”, but I think it is a bit more useful to discuss the issue in detail in order to understand why we may inadvertently drink too much at a Christmas function.

Some people that drink too much will say “I was driven to it”, or “you try hanging out with my family without drinking”. But I don’t like these explanations – especially as they don’t explain my particular experience. I enjoy seeing my family, and as a result there must be another reason why this may happen.

Essentially, the most persuasive explanation I have for my Christmas drinking is what economists’ term time inconsistency – specifically my consumption of alcohol has a present bias and fails to appropriately take into account how such consumption makes me feel in the future.

Let me give an example. Before turning up to Christmas dinner I think through the amount I can drink and enjoy without embarrassing myself. This is likely to be two beers.

However, I can’t commit to this optimal path as once I’ve had two beers I think to myself “two more beers can’t hurt”. At the end of four beers, I once again decide two more beers would be a good idea.

Assuming that other people at your dinner table are also facing time inconsistent preferences, it could be neat to discuss with them how they are aiming to commit to limiting their alcohol consumption. Some potential answers are:

• Forcing myself not to drink – as even though this is worse than having just a couple, I don’t believe I can commit to just a couple.

• Loudly announcing to everyone that you are only having two beers – so that you face social pressure and other costs if you try to consume more.

• Limiting the availability of alcohol so you can practically only get your hands on two beers. 

The other answer is just to accept that the “best” outcome might not be attainable, and that it might be better to drink too much and embarrass myself than to not drink at all. I hope my family doesn’t mind!

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* Matt Nolan is an economist at Infometrics, and an author at the blog TVHE. He specialises in looking at the household sector, and household economic data, but will offer an opinion on pretty much anything related to business and the social sciences.