WEBVTT - Everyone Else Admits We Were Right About Inflation 0:00:05.200 --> 0:00:09.240 Pod cast. It it's a podcast that you're listening to. 0:00:09.320 --> 0:00:13.120 It's it could happen here. It's the the show where 0:00:13.119 --> 0:00:14.720 things fall apart and so as you put them back 0:00:14.760 --> 0:00:20.040 together again. And actually, okay, you know, I really should 0:00:20.040 --> 0:00:21.480 have checked the calendar before I did it, before I 0:00:21.520 --> 0:00:23.360 tried to do this introduction where I've referenced the thing 0:00:23.400 --> 0:00:26.239 that I'm saying came out last week but might actually 0:00:26.239 --> 0:00:30.760 have come out like no, no, no, okay, okay, I got 0:00:30.800 --> 0:00:32.159 it right. I got it right. It should never have 0:00:32.159 --> 0:00:35.919 doubted myself. Last week we did an episode about inflation, 0:00:36.520 --> 0:00:42.680 and we told maybe half that story and the part 0:00:42.720 --> 0:00:45.080 of it that we didn't tell. You know, we got 0:00:45.120 --> 0:00:47.360 through the most of the part about like, you know 0:00:47.400 --> 0:00:50.760 what this sort of theory of inflation that the people 0:00:50.760 --> 0:00:52.640 are trangged better to fellows. We got through what it was. 0:00:53.320 --> 0:00:57.200 What we didn't really talk about was what happened next, 0:00:57.200 --> 0:01:00.400 which is a very very interesting set of sort of 0:01:00.960 --> 0:01:04.160 maneuvers that happened where this theory started spreading through a 0:01:04.200 --> 0:01:08.680 bunch of very disparate academic circles and you know, sort 0:01:08.680 --> 0:01:13.200 of like economic circles and different political circles that usually 0:01:13.240 --> 0:01:15.240 don't have anything to do with each other. But we're all, 0:01:16.000 --> 0:01:18.720 I don't know, taking taking things in very interesting directions 0:01:18.800 --> 0:01:22.280 and to talk about how how how this sort of 0:01:22.280 --> 0:01:25.720 supply Chaine theory of inflation like spread through the world 0:01:26.040 --> 0:01:30.039 and all of this very very interesting, somewhat bizarre stuff 0:01:30.080 --> 0:01:32.400 that happened. Next, we once again have Steve Mann and 0:01:32.480 --> 0:01:36.080 John Michael Cologne, who are co editors of Strange Matters. Yeah, 0:01:36.920 --> 0:01:38.640 Steve jmc welcome back to the show. 0:01:39.560 --> 0:01:40.559 Thanks for having us. 0:01:42.280 --> 0:01:44.399 Yeah, I'm glad, glad glad we could have YouTube back, 0:01:44.400 --> 0:01:49.040 and glad we get to talk about the really really interesting, 0:01:49.280 --> 0:01:54.680 somewhat strange things that happened next, which was, Yeah, a 0:01:54.720 --> 0:02:00.360 lot of people started picking up your theories and starting 0:02:00.360 --> 0:02:01.280 to work with them. 0:02:01.600 --> 0:02:01.800 Yeah. 0:02:01.800 --> 0:02:03.960 I worrying if you talk a bit about I guess 0:02:03.960 --> 0:02:05.760 like how that kind of first started and how people 0:02:05.800 --> 0:02:07.600 first started sort of coming to you for stuff. 0:02:08.800 --> 0:02:15.280 Yeah, like last year. So last year when the first 0:02:15.360 --> 0:02:18.600 of these pieces came out notes toward the theory of inflation, 0:02:19.919 --> 0:02:22.960 we got like a really good response in general from it, 0:02:23.000 --> 0:02:27.079 and it was kind of provoking discussions between groups of 0:02:28.639 --> 0:02:33.040 economists and like readers of econ stuff on Twitter and 0:02:33.080 --> 0:02:36.680 stuff like that. Who otherwise wouldn't have really been talking 0:02:36.720 --> 0:02:41.560 to each other, but suddenly having a different theory of inflation, 0:02:42.320 --> 0:02:44.639 one that was like a lot different than what sort 0:02:44.639 --> 0:02:46.160 of like the people who thought it would be super 0:02:46.200 --> 0:02:49.480 transitory or the people who thought it was like purely 0:02:49.520 --> 0:02:53.320 a monetary phenomenon or something like that. Like having that 0:02:53.440 --> 0:03:00.120 option sparked good conversations, and it eventually led to some 0:03:00.160 --> 0:03:04.040 writers approaching us who are sort of inspired by those conversations, 0:03:04.560 --> 0:03:08.919 and particularly a few of them really wanted to follow 0:03:09.000 --> 0:03:12.920 up on like specific key like either points from the 0:03:12.919 --> 0:03:19.280 paper or follow some of the implications as far as 0:03:19.320 --> 0:03:23.440 they think they could take them. So one such paper. 0:03:24.560 --> 0:03:27.320 Oh and by the way, just as a refresher, the 0:03:27.360 --> 0:03:29.880 original theory that is laid out in part one of 0:03:29.919 --> 0:03:35.119 this series that we're doing is essentially saying that inflation 0:03:35.400 --> 0:03:40.240 has a tendency to propagate along supply chains first and 0:03:40.280 --> 0:03:46.680 then through supply chain networks secondarily. And so it's it's 0:03:46.680 --> 0:03:49.280 saying it's essentially that that's that's how it propagates. It 0:03:49.320 --> 0:03:54.240 starts in supply chains. Things like bottlenecks along production processes 0:03:54.840 --> 0:03:59.000 have give the price setters, who are people at companies 0:03:59.640 --> 0:04:04.280 social acceptable reasons to eventually if they need to raise prices, 0:04:04.880 --> 0:04:09.160 and but they but that generally pricing managers refrained from 0:04:09.280 --> 0:04:13.160 raising prices unless that us like every other lever they've pulled, 0:04:13.680 --> 0:04:17.160 essentially has not worked. So like people took that theory 0:04:17.279 --> 0:04:19.839 and wanted to follow up on it, and so one 0:04:19.839 --> 0:04:23.680 author who did that was Alex Vacolo who approached us, 0:04:23.720 --> 0:04:26.960 and we essentially wanted to do an updated version of 0:04:27.000 --> 0:04:32.720 the pricing manager survey that we found really helpful in 0:04:32.760 --> 0:04:37.400 writing those initial pieces. So we like in my piece 0:04:37.400 --> 0:04:40.359 and that sort of theory of inflation, I relied upon 0:04:42.000 --> 0:04:46.680 like a wealth of pricing manager surveys that showed that 0:04:46.920 --> 0:04:49.560 where they asked these pricing managers under what circumstances would 0:04:49.560 --> 0:04:53.600 you raise prices? And they sort of went through each 0:04:53.880 --> 0:04:57.839 scenario of that over the decades, starting in the thirties 0:04:57.880 --> 0:05:01.800 and going into the nineties, and do that in order 0:05:01.839 --> 0:05:05.360 to not have a replication crisis, Like we need more 0:05:05.400 --> 0:05:08.760 and more studies, right, Like this is a that's phenomenon 0:05:08.760 --> 0:05:11.919 across social sciences and elsewhere, So you want to have 0:05:11.960 --> 0:05:14.839 good replication studies. One way to do that is to 0:05:14.880 --> 0:05:17.719 have an updated pricing manager survey that talks to like 0:05:17.800 --> 0:05:21.800 sort of modern corporations in the twenty twenties, So are 0:05:21.880 --> 0:05:24.240 they still concerned about some of the same things, are 0:05:24.240 --> 0:05:27.480 they not? Are there innovations and pricing that we should 0:05:27.520 --> 0:05:31.520 know about? And so Alex Paccolo, who's a financial journalist 0:05:32.640 --> 0:05:37.920 by trade, he went and interviewed some managers at Walmart 0:05:37.960 --> 0:05:45.440 and other big companies and some smaller ones and found that, like, 0:05:45.760 --> 0:05:48.520 broadly speaking, a lot of the same issues are at play. 0:05:48.920 --> 0:05:53.039 So companies have cost plus market pricing as kind of 0:05:53.040 --> 0:05:58.000 their bedrock, and from there they developed some innovations such 0:05:58.040 --> 0:06:01.720 as like so called dynamic pricing, where they have the 0:06:03.960 --> 0:06:06.720 like if you're a larger company who knows that they 0:06:06.760 --> 0:06:14.240 are viewed as a price leader, you have some leeway 0:06:14.440 --> 0:06:17.920 in responding to sales forecasts and changing your pricing, like 0:06:18.080 --> 0:06:20.800 Walmart does what they have like everyday low prices, that 0:06:20.839 --> 0:06:25.599 type of thing. And if you're a grocery store and 0:06:26.000 --> 0:06:28.919 one of your competitors is Walmart, Serve on the flip side, 0:06:29.800 --> 0:06:34.680 you might start developing indexes of prices set by Walmart 0:06:34.800 --> 0:06:37.720 or like one of the other big like behemoth chains, 0:06:38.240 --> 0:06:41.320 knowing how important they are to the overall supply chain network. 0:06:42.240 --> 0:06:47.280 And knowing how important they are for the demand for groceries. 0:06:47.760 --> 0:06:51.600 Like if wherever Walmart goes, many people have no choice 0:06:51.640 --> 0:06:54.000 but to follow them in terms of their pricing schedules. 0:06:54.640 --> 0:06:56.839 And so that's another thing that is going on, Like 0:06:56.880 --> 0:07:00.200 people are developing just entire price indices of like Walmart 0:07:01.080 --> 0:07:03.800 or Costco or Sam's Club or whoe have you. 0:07:04.760 --> 0:07:08.120 Yeah, that was something that's I think interesting in terms 0:07:08.120 --> 0:07:14.760 of like the the difference between the way that like 0:07:14.840 --> 0:07:17.320 economists think about sort of price, the difference between and 0:07:17.760 --> 0:07:20.040 how it's actually getting set, which is like a lot 0:07:20.080 --> 0:07:22.280 of it, a lot of it. Very much seems to 0:07:22.320 --> 0:07:25.080 be like if you are if you are like the 0:07:25.200 --> 0:07:28.360 largest company in a market, like if you are like Walmart, right, 0:07:28.440 --> 0:07:31.800 you have this incredible ability to sort of like like 0:07:31.840 --> 0:07:36.920 you have this ability to like like force people force 0:07:37.000 --> 0:07:40.520 your like downstream or like I guess upstream suppliers to 0:07:40.880 --> 0:07:43.120 like sell it to you at low at lower prices, 0:07:43.160 --> 0:07:45.400 because you have this enormous sort of like you know, 0:07:45.400 --> 0:07:48.320 amount of buying power that like, you know, if you're 0:07:48.440 --> 0:07:50.960 like if you're like a smaller thing, you don't necessarily 0:07:51.080 --> 0:07:54.640 like you know, like like the same company will charge 0:07:54.640 --> 0:07:58.040 like another grocery store more for like the same thing, 0:07:58.120 --> 0:08:00.040 because Walmart, Walmart has the ability to sell it a 0:08:00.080 --> 0:08:04.160 lower price than if I'm remembering this right, I'm gonting, 0:08:04.160 --> 0:08:05.480 I'm gonna I'm getting strange looks. 0:08:05.960 --> 0:08:09.200 Yeah, well it's it's it's important not to mix up 0:08:09.200 --> 0:08:12.280 two separate things. One is Walmart's relationships to suppliers and 0:08:12.320 --> 0:08:14.800 the other one is relationship to its competitors. Right, So 0:08:15.200 --> 0:08:18.560 the supplier bit, you're totally right on the right track. 0:08:18.560 --> 0:08:22.320 It's like, you know, like people who supply Walmart with 0:08:22.520 --> 0:08:25.080 products because Walmart is such a big customer, you get 0:08:25.080 --> 0:08:27.480 the Walmart contract and you're a small producer or a 0:08:27.520 --> 0:08:30.440 medium sized producer, like you're set right because like you know, 0:08:30.520 --> 0:08:33.000 then you can basically just like you know, they can 0:08:33.040 --> 0:08:35.520 even be your only customer in many cases. But that 0:08:35.600 --> 0:08:37.959 comes at a cost, which is that you sell at 0:08:37.960 --> 0:08:40.320 the price that Walmart dictates. Otherwise they'll just tell you 0:08:40.360 --> 0:08:44.000 to fuck off basically. And you know, it's not only price, 0:08:44.080 --> 0:08:46.720 it's also the quality. You have to hit the standards. 0:08:46.880 --> 0:08:49.480 And oftentimes what these firms that are like the big 0:08:49.520 --> 0:08:53.040 important firms, so called nuclear firms in a supply chain 0:08:53.080 --> 0:08:55.880 do is that they set those standards like very rigidly, 0:08:55.920 --> 0:08:58.319 and you have to be certified with them. So McDonald's 0:08:58.320 --> 0:09:00.640 does this for example, you know, like all those poultry 0:09:00.640 --> 0:09:03.680 farmers or whatever who supply the chickens for the chicken 0:09:03.720 --> 0:09:06.040 mc nuggets, they have to go through this extremely rigid 0:09:06.120 --> 0:09:08.440 process in order to be able to qualify to be 0:09:08.480 --> 0:09:11.679 a McDonald's certified supplier or whatever, because that's how they 0:09:11.720 --> 0:09:14.160 keep the product standardized even though they're not in house. 0:09:15.480 --> 0:09:17.400 And then the other thing that you were alluding to, 0:09:17.440 --> 0:09:20.200 which is a vocalos piece, is the relationship to competitors. 0:09:20.240 --> 0:09:23.120 So obviously Walmart's able to keep things cheap all the 0:09:23.160 --> 0:09:26.160 time in their famous every day low prices beca because 0:09:26.320 --> 0:09:29.960 basically those they have economies of scale. You know, there's 0:09:29.960 --> 0:09:32.720 this notion, I think common sense for a lot of people, 0:09:32.840 --> 0:09:35.160 especially those who don't have a lot of business experience, 0:09:35.520 --> 0:09:37.720 is that the more that you make of something, the 0:09:37.760 --> 0:09:41.360 more expensive it's going to be. But actually it's almost 0:09:41.360 --> 0:09:46.280 the exact opposite. Any firm that has survived, like over 0:09:46.320 --> 0:09:48.880 a period of time being able to make more and 0:09:48.920 --> 0:09:51.880 more of something has generally found ways of making more 0:09:51.880 --> 0:09:54.400 and more of the same thing using fewer inputs and 0:09:54.480 --> 0:09:57.680 less labor like you know, and that's something that happens 0:09:57.720 --> 0:10:00.000 through automation, but it's also something that happens through administers 0:10:00.040 --> 0:10:03.440 rate of innovation and through and sometimes through less than 0:10:03.720 --> 0:10:07.240 the nice things, right through through through you know, Amazon 0:10:07.360 --> 0:10:10.280 warehouses where people aren't allowed to take bathroom breaks, or 0:10:10.320 --> 0:10:13.080 through sort of like you know, coercive measures that they 0:10:13.120 --> 0:10:15.920 can do because they've found a nice little spot in 0:10:15.960 --> 0:10:17.680 the economy that lots of people are depending on them 0:10:17.720 --> 0:10:20.280 and they can dictate terms. But whatever it is, you know, 0:10:20.280 --> 0:10:22.520 as firms get bigger, it actually gets cheaper to make 0:10:22.600 --> 0:10:25.480 more of their kind of thing. So people in a 0:10:25.480 --> 0:10:29.679 bodega can't match Walmart's prices for everything from like hamburgers 0:10:29.720 --> 0:10:32.640 to detergent right because for them, it's more expensive to 0:10:32.720 --> 0:10:36.040 produce or to acquire. So what they do instead, knowing 0:10:36.080 --> 0:10:38.400 this and they're able to survive, is that they do 0:10:38.480 --> 0:10:42.360 Walmart's price, and then they do a markup over Walmart's price. 0:10:42.400 --> 0:10:44.480 So in the same way that like by themselves they 0:10:44.480 --> 0:10:47.319 would do a markup over their costs, Walmart's costs are 0:10:47.360 --> 0:10:50.480 lower and they do a markup, so they do a 0:10:50.520 --> 0:10:54.840 percentage over Walmart's markup. And as long as it basically 0:10:55.000 --> 0:10:57.680 is something that's doable in terms of cost, they do that, 0:10:57.880 --> 0:11:00.920 which means that they're basically advertising them selves to customers 0:11:00.920 --> 0:11:04.280 as the slightly more expensive but more local you know, 0:11:04.400 --> 0:11:08.520 more you know, more reliable or easier to get to 0:11:08.559 --> 0:11:10.640 you can just walk to the corner store or whatever, 0:11:10.760 --> 0:11:13.679 you know, whatever conveniences. They're kind of like justifying themselves 0:11:13.679 --> 0:11:15.880 with to the customer base. And in cities, this can 0:11:15.920 --> 0:11:18.200 be enough to keep you know, small to medium sized 0:11:18.840 --> 0:11:21.240 you know sort of retailers in business, although in the 0:11:21.280 --> 0:11:25.240 suburbs the competition is basically just all other all gobbalistic 0:11:25.320 --> 0:11:29.280 firms on Walmart's scale, like you know, Wegman's, or in 0:11:29.640 --> 0:11:31.559 Florida it will be something like Public's, you know, and 0:11:31.840 --> 0:11:38.719 that kind of thing. So generally, uh Vacola was discovering, 0:11:39.080 --> 0:11:42.600 was I want to just emphasize Steve's point about replication, Like, 0:11:43.040 --> 0:11:45.440 you know, if if a lot of the supply chain 0:11:45.440 --> 0:11:48.480 theory depends upon a story about prices that most economists 0:11:48.520 --> 0:11:51.760 just don't believe in. Economists believe that supply and demand 0:11:51.800 --> 0:11:54.520 are automatically adjusting based on changing prices, and that those 0:11:54.559 --> 0:11:59.880 adjustments determine in turn how we spend and how we produce. 0:12:00.320 --> 0:12:03.559 You know, that's that's supposedly how everything works. They believe 0:12:03.559 --> 0:12:06.319 in this thing called the price mechanism. The supply chain 0:12:06.360 --> 0:12:08.520 theory depends upon a story where the vast majority of 0:12:08.520 --> 0:12:10.920 prices in the economy are a markup over costs or 0:12:11.280 --> 0:12:15.320 you know, beyond that some kind of strategic decision being 0:12:15.320 --> 0:12:19.160 made in pursuit of a certain strategy. But like, you know, 0:12:19.679 --> 0:12:23.440 if some studies had verified that, but then other studies 0:12:23.440 --> 0:12:26.599 refuted it, then you would have a situation like psychology 0:12:26.640 --> 0:12:29.640 where you know, the psychologists are always saying all human 0:12:29.720 --> 0:12:33.520 beings really have a neck fetish. But then you know, 0:12:33.559 --> 0:12:36.160 because some study of like some college students you know, 0:12:36.679 --> 0:12:40.080 said this, and then six months later it'll be like, actually, 0:12:40.160 --> 0:12:42.880 that failed to replicate this. It turns out that human 0:12:42.920 --> 0:12:44.959 beings don't have a neck fetish. You know. And I'm 0:12:44.960 --> 0:12:47.400 being rude to psychology, but this is a real crisis 0:12:47.440 --> 0:12:51.240 that happened there, called the replication crisis. Now. Fred Lee 0:12:51.400 --> 0:12:54.160 that the economists who kind of like started us along 0:12:54.200 --> 0:12:57.160 this track in his famous book POSTKINSI and Price Theory, 0:12:57.320 --> 0:13:00.760 found seventy one pricing studies and they form Appendix called 0:13:00.800 --> 0:13:03.079 Appendix B in his book, which ought to be legendary, 0:13:03.080 --> 0:13:04.800 but it's not, because all this stuff is very obscure. 0:13:05.120 --> 0:13:09.079 The seventy one studies from very different book length studies 0:13:09.080 --> 0:13:12.400 from very different people with very different like political and 0:13:12.440 --> 0:13:15.679 economic commitments. Some of them are business school literature. Some 0:13:15.720 --> 0:13:18.520 of them are empirical studies commissioned by states or by 0:13:18.600 --> 0:13:21.520 corporations on how corporate management works. Some of them are 0:13:21.559 --> 0:13:24.600 by like Marxist economists, some of them are by neoclassical economists 0:13:24.640 --> 0:13:27.320 like and they all converge, no matter what the biases 0:13:27.320 --> 0:13:30.000 of of the people involved, upon this same kind of 0:13:30.000 --> 0:13:35.560 similar cost plus administered prices model. Vocolo writing now in 0:13:35.600 --> 0:13:38.160 the present day, not in the period that Lee was 0:13:38.200 --> 0:13:41.280 talking about, which is roughly from the thirties to roughly 0:13:41.360 --> 0:13:44.559 the nineties, Like you know, he is talking about the 0:13:44.600 --> 0:13:46.880 twenty twenties. He just went out and started talking to 0:13:46.920 --> 0:13:49.640 pricing managers and capitalists and all this other stuff, and 0:13:49.840 --> 0:13:53.720 lo and behold he found the exact same thing. So 0:13:54.760 --> 0:13:58.920 the evidence base, the empirical evidence base, for the underlying 0:13:58.960 --> 0:14:02.440 basis of the supply chain theory is very very sound. 0:14:02.640 --> 0:14:06.760 The ball is in other people's court in mainstream economists 0:14:06.760 --> 0:14:09.200 court who want to defend the supply and demand bullshit 0:14:09.360 --> 0:14:12.600 and the price mechanism bullshit to to prove us wrong, 0:14:12.840 --> 0:14:16.280 because frankly, the weight of the evidence is so strong 0:14:16.360 --> 0:14:20.360 that they're the ones who have the who have to 0:14:20.400 --> 0:14:22.520 prove their case, not the other way around. You know 0:14:22.560 --> 0:14:25.760 that the what's it called when you when you've got 0:14:25.760 --> 0:14:29.200 the you know, the the I think the burdensump the 0:14:29.240 --> 0:14:31.680 burden of proof, thank you. The burden of proof is 0:14:31.720 --> 0:14:32.400 on their side. 0:14:33.400 --> 0:14:33.600 Yeah. 0:14:33.600 --> 0:14:35.600 And so something also I think is really interesting from 0:14:35.600 --> 0:14:39.880 the color pieces that like, you know, there is a 0:14:39.920 --> 0:14:42.520 bit in there about firms that try to do this 0:14:42.600 --> 0:14:46.000 sort of like like in real time reacting to supply 0:14:46.040 --> 0:14:48.800 and demand stuff. And it's like Uber and if you 0:14:48.800 --> 0:14:51.080 look at Uber's like, okay, so Uber has a couple 0:14:51.120 --> 0:14:55.800 of things. One they don't have, like the thing that 0:14:55.800 --> 0:14:59.400 they're like they don't really have the supply chain really, 0:14:59.440 --> 0:15:01.600 a B. They don't make any money. They never make money, 0:15:01.600 --> 0:15:03.720 They will never make money. And the third thing that's 0:15:03.720 --> 0:15:05.960 really interesting about is that like that kind of pricing, 0:15:06.240 --> 0:15:08.880 like you know, if if if you have some people 0:15:08.920 --> 0:15:11.200 who go in ideologically and like we're gonna build an 0:15:11.200 --> 0:15:14.720 algorithm to like try to have pricing respond to demand 0:15:14.760 --> 0:15:17.680 or whatever it like. It fucking sucks and everyone hates 0:15:17.720 --> 0:15:21.640 it because it means that, like, you know, suddenly, like 0:15:21.800 --> 0:15:25.280 when you actually need a thing, it's unbelievably expensive, and 0:15:25.480 --> 0:15:29.000 it pisses people off. Like most most people who have 0:15:29.080 --> 0:15:31.960 to deal with actual like the normal things that a 0:15:32.040 --> 0:15:34.480 business do don't do. And the only people who do 0:15:34.560 --> 0:15:39.320 it are like the insane tech people who are like like, 0:15:39.920 --> 0:15:42.920 I don't know it. I almost want to call it 0:15:42.920 --> 0:15:46.160 like intensely ideological, and also assholes and also don't make 0:15:46.200 --> 0:15:49.320 any money, which is just I don't know, it's it's 0:15:49.360 --> 0:15:51.200 I think it's kind of a coincidence. But it is 0:15:51.240 --> 0:15:53.760 just very funny to me that the people who actually 0:15:53.760 --> 0:15:57.640 try to use the neoclassical like pricing theory, it sucks 0:15:57.880 --> 0:15:59.160 and everyone hates them. 0:16:00.560 --> 0:16:06.040 Yeah, and uh, the Colo kind of summarizes like the 0:16:07.360 --> 0:16:12.920 several different pricing procedures that he witnessed and to just say, 0:16:13.000 --> 0:16:19.320 like on both on both determining your company's costs and 0:16:19.520 --> 0:16:22.800 determining what market markup you should have, so the cost 0:16:22.840 --> 0:16:24.760 plus markup you need to you need to figure out 0:16:24.800 --> 0:16:29.520 both of those pieces. It's anything but automatic. Yeah, it's 0:16:29.560 --> 0:16:33.000 a very manual process. And even I would I would 0:16:33.040 --> 0:16:35.960 go so far as to say, like Walmart has teams 0:16:35.960 --> 0:16:40.520 of tech people, Yes, but they're liaising heavily with the 0:16:40.560 --> 0:16:45.200 finance department and sales and marketing to determine what is 0:16:45.200 --> 0:16:49.720 an appropriate margin based on historical like in industry and 0:16:49.760 --> 0:16:53.840 sub industry trends and like what is our historical cost 0:16:53.880 --> 0:16:57.920 structure for each product down to the product level. And 0:16:57.960 --> 0:17:01.240 they have so many different products that they might actually say, well, 0:17:01.280 --> 0:17:04.439 because we're selling everything to everyone, maybe some things can 0:17:04.560 --> 0:17:06.600 just be what are called lost leaders and have a 0:17:06.640 --> 0:17:09.399 negative margin because they get people in the store and 0:17:09.400 --> 0:17:11.200 then those people are there and they see other things 0:17:11.200 --> 0:17:13.800 which have higher markups and then they buy those and 0:17:13.800 --> 0:17:16.320 then overall they've made more of a profit because they 0:17:16.920 --> 0:17:21.520 use something's a negative margin on them. And it's like 0:17:21.600 --> 0:17:24.240 it's a really complex process. And even if an algorithm 0:17:24.320 --> 0:17:28.600 is being developed by say by say Uber to like 0:17:29.400 --> 0:17:32.879 dynamically priced things up and down based upon events like 0:17:32.920 --> 0:17:34.879 a baseball game or something they're going on in a 0:17:34.880 --> 0:17:37.680 city so you can get more revenue, that was still 0:17:37.680 --> 0:17:39.200 a people. It was a group of people in a 0:17:39.280 --> 0:17:43.040 room in a very extremely manual process. Coding is extremely 0:17:43.040 --> 0:17:48.280 manual still, and like liasing with like sales, marketing, finance 0:17:48.320 --> 0:17:49.520 people all at once. 0:17:51.800 --> 0:17:54.200 Yeah. 0:17:54.200 --> 0:17:58.119 And the other thing is that it's like supply and 0:17:58.160 --> 0:18:02.960 demand is afraid that gets thrown around anytime that there's 0:18:03.080 --> 0:18:10.119 any kind of interaction between like the amount of people 0:18:10.800 --> 0:18:13.800 who want something and the amount of people and the 0:18:13.800 --> 0:18:16.600 amount of stuff that there is, right, which is a 0:18:16.640 --> 0:18:21.720 lot of different situations. But the specific supply demand price 0:18:21.840 --> 0:18:25.200 theory that's at the core of neoclassical economics is this 0:18:25.359 --> 0:18:30.360 price mechanism story whereby you know, companies basically all make 0:18:30.400 --> 0:18:33.639 one thing. The price of that thing is not something 0:18:33.680 --> 0:18:36.680 that is really under their control. It automatically fluctuates based 0:18:36.680 --> 0:18:38.960 on demand, which I guess you can roughly measure as 0:18:39.000 --> 0:18:43.680 sales and like the UH and in turn, like what 0:18:43.720 --> 0:18:45.840 the price of that thing is determines how much they 0:18:45.880 --> 0:18:49.560 produce and how much of it people buy, because people's 0:18:49.640 --> 0:18:53.600 buying decisions are in some fixed functional way, and people's 0:18:53.600 --> 0:18:57.000 production decisions in some fixed functional way are tied to 0:18:57.040 --> 0:19:01.080 that price. Like if you want to create an algorithm 0:19:01.440 --> 0:19:05.040 that includes as a consideration doing a discount when you 0:19:05.080 --> 0:19:08.000 haven't yet sold all the seats in an airplane in 0:19:08.040 --> 0:19:10.280 the hopes that you'll get some last minute sales, which, 0:19:10.320 --> 0:19:13.680 by the way, statistically is shown to not actually help 0:19:13.720 --> 0:19:16.119 that much. Those kinds of last minute sales and discounts. 0:19:16.920 --> 0:19:19.280 I mean, I suppose in a flight where there's a 0:19:19.280 --> 0:19:21.119 time limited thing, it might work better. But for a 0:19:21.160 --> 0:19:23.760 typical product, it doesn't move the dial very much in 0:19:23.840 --> 0:19:26.640 terms of sales, which is why Walmart pursues an every 0:19:26.720 --> 0:19:29.919 day low prices strategy, just keeping prices down in general, 0:19:29.960 --> 0:19:31.800 so you don't do sales and discounts which don't move 0:19:31.840 --> 0:19:35.080 the dial much. But like you know, that's a strategic 0:19:35.160 --> 0:19:37.600 pricing decision that you've chosen to make because you think 0:19:37.600 --> 0:19:39.520 that it might move the dial in some way, and 0:19:39.560 --> 0:19:41.840 you experiment it with it and see if it works 0:19:41.880 --> 0:19:47.119 or whatever. That's not the automatic lawlike functional relationship that 0:19:47.240 --> 0:19:50.200 is supposed to exist according to neoclassical theory between supply 0:19:50.440 --> 0:19:54.520 demand and prices. People will say that the algorithm is 0:19:54.560 --> 0:19:59.520 about supplying demand, but that's not really how it works. 0:19:59.680 --> 0:20:03.000 That's it's it's not the same thing as the theory, right, 0:20:03.200 --> 0:20:06.600 It's just a pricing system that takes into account among 0:20:06.840 --> 0:20:09.240 many other variables and usually not as the primary thing 0:20:09.600 --> 0:20:15.760 whether or not for example, there is available available slack 0:20:16.040 --> 0:20:19.560 in the in the you know, in what you're producing 0:20:19.600 --> 0:20:21.560 to be able to get some last minute sales if 0:20:21.600 --> 0:20:23.840 you do a discount or something like that, like or 0:20:24.040 --> 0:20:25.800 like Steve was saying, like, you know, there's a there's 0:20:25.840 --> 0:20:28.440 a game today, so you can do surge pricing because 0:20:28.440 --> 0:20:30.320 people are gonna you know that a bunch of people 0:20:30.359 --> 0:20:32.240 are going to want to get in the game, So 0:20:32.240 --> 0:20:36.320 you're basically just price gouging based on this opportunistically based 0:20:36.359 --> 0:20:39.960 on this event that's happening or whatever, like like, yeah, 0:20:40.000 --> 0:20:42.760 you can do that, and you can say that it's 0:20:43.080 --> 0:20:46.000 pricing that tries to take into account supply and demand, 0:20:46.280 --> 0:20:50.040 but it's not the supply demand price mechanism of neoclassical theory. 0:20:50.240 --> 0:20:55.600 And also, as McColo like you know, finds out it 0:20:55.680 --> 0:20:59.160 attempts to do this are very very mixed in their 0:20:59.200 --> 0:21:03.280 success at best. You know. Basically, people who are trying 0:21:03.320 --> 0:21:06.160 to do it are like, yeah, maybe it could work, 0:21:06.359 --> 0:21:08.800 and then they try it, and nine times out of 0:21:08.880 --> 0:21:11.119 ten it doesn't work very well. So they go back 0:21:11.359 --> 0:21:13.800 to some variation on a cost plus model, you know, 0:21:14.240 --> 0:21:17.000 or a price leadership model or something like that. You know, 0:21:17.040 --> 0:21:18.960 the kinds of methods that Lee discusses. 0:21:21.600 --> 0:21:24.400 Yeah, I mean the customer good will that you kind 0:21:24.400 --> 0:21:27.280 of put at risk with these more dynamic pricing models 0:21:28.000 --> 0:21:31.320 is like often a little too risky, like even for 0:21:31.400 --> 0:21:34.160 big companies like Uber, Like there's been a backlash against 0:21:34.200 --> 0:21:35.000 Uber for doing that. 0:21:35.960 --> 0:21:39.000 Absolutely the only reason they can maybe get away with 0:21:39.040 --> 0:21:42.360 it has been because they have access to infinite finance. 0:21:42.600 --> 0:21:44.320 But yeah, how long is that gonna last? 0:21:44.440 --> 0:21:44.640 Yeah? 0:21:44.680 --> 0:21:47.840 Like, and that's an everything's interesting, Like you know this 0:21:47.560 --> 0:21:50.119 is this is to some extent like a different economic question, 0:21:50.280 --> 0:21:52.800 but like you do at some point have to ask 0:21:52.840 --> 0:21:55.800 the question, like to to what extent can you learn 0:21:55.840 --> 0:22:00.520 things about the economy based on companies that don't have 0:22:00.600 --> 0:22:03.080 a revenue model or the revenue model is they will 0:22:03.119 --> 0:22:06.080 continue to be headed piles of money by like the 0:22:06.119 --> 0:22:10.440 same seven billionaires they've conned. And that's like a I 0:22:10.480 --> 0:22:14.040 think there's an interesting interplay of how dependent you are 0:22:14.200 --> 0:22:19.359 on actually making like actually having revenue be the source 0:22:19.440 --> 0:22:22.360 of like the continuing existence of your company, and how 0:22:22.400 --> 0:22:25.920 ideological you can be about running do you have a gameshom. 0:22:26.600 --> 0:22:29.240 Yeah, Well, it's actually very funny that You say this 0:22:29.400 --> 0:22:32.480 because one of the people that Vocolo talks to is 0:22:32.520 --> 0:22:35.959 this guy Cohen. I can't find his first name right now, 0:22:36.000 --> 0:22:38.320 and I don't want to scroll up. But somebody whose 0:22:38.400 --> 0:22:42.280 last name is Cohen is quote unquote more skeptical of 0:22:42.320 --> 0:22:45.240 the of the dynamical pricing, and he says, I think 0:22:45.280 --> 0:22:48.160 it's a sexy idea, and probably it has a lot 0:22:48.160 --> 0:22:51.879