Tag: economics

The End of Average (book review)

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If markets have a limited supply but high demand then prices will be high. Disney vacations are one example. Human capital is another. Computer science majors earn the highest salary out of college and humanities majors earn the least. Employers distinguish students (supply) by their degrees.

But how do you distinguish among the computer science majors? The answer is included in Todd Rose’s 2017 book, The End of Average.

Rose’s big idea is economic – society overpays for talent!

Throughout the 1800s and 1900s, modernization has been an experience of measurement. At first, the outcomes were crude because the measures were crude. Take the twenty years of Moneyball progress and stretch that through two centuries. In the same way that baseball teams overpaid for home runs, society overpays for talent.

Rose offers three explanations for our mistake.

1/ Jaggedness. What makes a good first baseman? That depends. What makes a good leader? That depends too. Unfortunately, nuance is neglected in our day-to-day functions. We tend to use loss-aversion-based heuristics. When you evolve from mammals focused on danger, food, and sex there’s only so much digging our default allows.

Winston Churchill is an example of a jagged leader. He excelled in oration and “stature” but less in collaboration. During the war, certain skills were more important than others. This brings us to…

2/ Context. Brent Beshore’s people are messy comment summarizes Rose’s idea. Instead, think of people as complicated creatures who act using If/Then statements. Someone may be honest or careful or diligent based on the situation.

We miss this, Rose writes, because our samples of other people aren’t wide enough. Jessica from the office may act snooty or kind at work – the only place we see her. But does that encompass her at church, at home, and with her family?

3/ Paths. There are not a million ways to do something, Rose writes, but there’s also not one. Think of a situation like being lost in the forest. The goal is to get out. One option is to find the path and follow it. But one could forge their own as well. Too often the focus is on the path and not forging a way out.

If a group undervalues these explanations then it restricts the possible outcomes. Imagine a rule that in order to start a business someone had to give up listening to podcasts. There are a lot of great business podcasts and the budding entrepreneur would be worse off – and so would we, missing out on the upside of their creation.

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The End of Average is a Bob Moesta book suggestion and reading it from his point of view offers additional information.

Moesta is a product designer, researcher, and marketer. Put on that POV and we can see how products fit within Rose’s explanations as well. Our hunger is jagged, hence the difference between Snickers and Milky Way. Our purchases are context-based, Moesta comments that hot dogs and steaks are both the right meal for the right context. Lastly, consumers end up at a product in a variety of ways, there’s not a single sequence of “I need a new car”, but there’s not an infinite either.

My first impression of The End of Average was that I kinda already understood these topics and didn’t need to spend time on the macro-educational angle. Both impressions were true but there were deeper ideas too and giving names to jaggedness, context, and paths is and will be helpful.

Meth COGS

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In profession problem solving we looked at how careers craft thinking. Let’s add DEA agents.

In his podcast with Jocko Willink, Joe Piersante talks about his time working in Arizona and dealing with hundreds of meth labs. If I told you I was in 500 labs, Joe says, it would be an understatement. Meth was the drug of choice in Joe’s region and between the cost to create, the large rural area, and proximity with Mexico it was difficult to police.

“It was bad at first because there was so many,” Joe says. It was too easy. What “put a dent into it,” was the 2005 Combat Methamphetamine Epidemic Act, which restricted access to pseudoephedrine, a precursor chemical to meth.

The COGS increase changed the business model.

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Later in his career and the episode Joe talks about his time in Afghanistan. “We would not go after the poppy farmers because they were made to grow the opium,” Joe said, “The Taliban came in and they had the biggest stick at the time. It was a case of ‘you’re going to grow this or you’re going to get killed.'”

There were no better incentives to offer this group of laborers. “We knew they weren’t reaping the benefits so we tried to find the people getting the money.”

…

A lotta problems are multi-dimensional. Think about the field of addiction, said David Nutt, it’s about the drug, the person, and the society. Each of those is a lever. Profession problem solving is too. How would an economist solve this? How would a marketer? How would a coder? Each leads to a different island in the archipelago of thought. DEA agents think a bit like business owners, and we can add this approach to the set.

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I also learned what Smurfing is/was, a unique JTBD.

The economics of iPhone cases

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I tried, and failed, to get a photo of this issue.

For Christmas my youngest daughter got an iPhone. It was BOGO when you add a line, so I got a new iPhone too. For simplicity sake I ordered us Apple cases with the phones. And my case sucks. The silicon marigold iPhone 13 case is the worst I’ve ever owned.

But why?

Apple products are good. The computer I’m typing this on is an Apple product. If it’s read on a phone odds are one-in-three it’s an iPhone. Apple is one of the most valuable companies in the world – and has been for many years. What’s going on?

Well first, value is relative. If something is bad, it’s bad relative to what? My previous Smartish and Speck ($12 & $8 respectively) cases were more durable and provided prolonged protection on earlier inferior designed products. I think Apple cases are bad because they lack competition.

Apple, like Aldi, competes in a special way. Both are A+ companies and both compete outside the store. The goal is to get people inside, and if customers come in, they’ve got them. So Apple doesn’t convince me to buy the silicon marigold case rather than the leather case. No, Apple just wants me to buy Apple.

Aldi cereal is a visual example of this model, the boxes are bland (here in B&W) because they don’t have to grab the customer’s attention in the store. Contrast this with Walmart or Amazon where the competition is both inside and outside.

Smartish or Speck compete in the bedlam of Amazon. These cases have to throw sharp elbows in the arena of good, fast, and cheap. I found the Smartish case via a Wirecutter review, so it has to stand out as well. Ditto for Speck.

That said, I don’t know if the Apple case should even be good. Apple’s advantage is packaged hardware and software, not being best in class on accessories. Apple doesn’t sell a great phone case, instead the JTBD is ease and brand.

Cowen’s Chow Choices

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One local topic during COVID has been motor homes. Some fellow dog walkers want one, some don’t. The obstacle, as often the case, is cost.

A few friends have them and universally they mention the deal they got. It was either a family friend, a distressed seller or a trade-up-buy-out-sale. For us, the math doesn’t work. Thirty-thousand dollars is a lot of nights at a Hampton Inn.

“Buying good things can’t be the secret to success in investing. It has to be the price you pay. It’s not what you buy, it’s what you pay. There’s no asset so good it can’t become overpriced.” – Howard Marks

Great rewards come where value diverges from price. This is the moneyball insight. This is the JTBD insight. This is Tyler Cowen’s Dining Guide insight too.

Where are the wrong metrics being used?

Consider the name of a restaurant suggests Cowen. Would you eat at an Ethiopian restaurant called EYO Sports Bar? Cowen commented: “When I heard that name I thought, this place must be great. When Americans want to eat Ethiopian food what kind of name are they looking for? The Red Sea? Queen of Sheba? Fine. But when it’s EYO Sports bar you know it’s really for Ethiopians.”

In general, better food will be at places with bad names.

Also avoid places on the beaten path, full of beautiful people, and with famous chefs. These are all metrics some people use to choose a restaurant but that don’t necessarily contribute to the quality of the food. It might be good food, but won’t be a good deal.

Instead, use the economic Cowen espouses. Like the name Rus-Uz, a place that serves Russian and Uzbekistan food (and caters!) in Arlington Virginia. Ask, “‘What is the appeal to the masses?’ In relative terms it’s the Russians, so of course that means the Uzbek dishes are better.”

One way to think about metrics is to consider anything that has been quantified, counted, or numbered. It’s easy to count units but hard to count quality.

Part of the reason personal productivity has been an internet subject for so long is that it’s hard to measure. How does someone measure their work? Ask anyone who creates content online and they’ll tell you that it’s the oddest posts that get shared the most. The best productivity advice might just be: don’t give up.

Like this idea? Read more here.