Archive for the ‘economics’ Category
Clayton Childress is an Assistant Professor of Sociology at University of Toronto. While making the case for examining the relationships between fields and reuniting the sociological studies of production and reception, Under the Cover empirically follows a works of fiction from start to finish: all the way from its creation, through its production, selling, and reading.
Three Reasons Independent Bookstores Are Coming Back
A couple weeks ago, Fabio had a post about the recent rise in brick-and-mortar independent bookstores, suggesting that perhaps they have successfully repositioned themselves as “artisanal organizations” that thrive through the specialized curation of their stock, and through providing “authentic,” and maybe even somewhat bespoke, book buying experiences for their customers.
There’s some truth to this, but in my forthcoming book, I spend part of a chapter discussing the other factors. Here’s several of them.
Why the return:
1) The Demise of the Borders Group, and Shifting Opportunity Space in Brick-and-Mortar Bookselling.
This graph from Statista in Fabio’s original post starts in 2009, lopping off decades of retrenchment in the number of American Bookseller Association member stores. Despite the recent uptick, independent bookstores have actually declined by about 50% since their peak. More importantly, it’s worth noting that even in the graph we see independent bookstores mostly holding steady from 2009 to 2010, with their rise starting in 2011. Why does this matter? As Dan Hirschman rightly hypothesizes in the comments section of the original post, the bankruptcy and liquidation of the Borders Group began in February of 2011, and is key to any story about the return of independent bookstores. To put some numbers to it, between 2010 and 2011 the Borders Group closed its remaining 686 stores, and between 2010 and 2016 – after spending decades in decline –651 independent bookstores were opened. It’s a pretty neat story of nearly one-to-one replacement between Borders and independents since 2011.*
Yet, if anything, this isn’t as much a surprising story about the continued prevalence of independent bookstores themselves, but rather, a story about the continued prevalence of paper as a medium through which people like to consume the types of books that are mostly sold in independent bookstores. When Borders liquated people didn’t predict that independents would take their place, but that’s because they had mostly misattributed the bankruptcy of Borders to the rise of eBook technology and Amazon. That story was never quite right, though. Borders last year of turning a profit, 2006, mostly predated these supposed causal factors. Instead, Borders’ rise to prominence came through a competitive advantage in their back-end logistics operations, which they then never really updated, and by the mid-2000s they had turned from a market leader to a market trailer. Borders also invested more floor space in selling CDs right when that market started to decline, and then turned that floor space into the selling of DVDs right when that market started to decline – their stores were always too big, and they seemed to have a preternatural ability to keep on filling them with the wrong things. As for the rise of Amazon and online book sales in the decline of Borders, they did play a role, but not the one that people think. In perhaps one of the least prescient moves in the history of American bookselling, as online bookselling started to take off, Borders decided to not spend resources investing in that market, and instead contracted their online bookselling out to Amazon, helping them on their way to dominance of the market. Oh, you dummies.
So, while it was mostly back-end distribution problems, stores that were too big, and a series of bad bets that tanked Borders, its demise was never really about a lack of demand for print books, which allowed independents to fill that market space after Borders disappeared. For independent used book stores (which have always had as much of a supply problem as a demand problem), advances in back end supply systems have in fact made them more viable.
2) Independent Bookstores are the Favored Trading Partners of the Publishing Industry.
Starting during the Great Depression, in order to keep bookstores in business, book publishers began letting them return any (damaged or undamaged) unsold books, meaning that for nothing more than the cost of freight bookstores could pack books up to the ceiling without taking on much financial risk on stocking decisions (if you’ve ever been curious why so many bookstores seem so overstuffed with product, here’s your answer).
It was the beginning of a long history of cooperation between publishers and sellers, and the cooperation has never been more friendly than it is between publishers and independent stores. Publishers and bookstores want the same thing: for people to go into bookstores looking for the books that are actually in stock. With about 300,000 new industry-published books coming out per year, that’s no small feat. For this reason, cooperation between publishers and independents is key, and they rely on an informal system of gift exchange, the details of which I go into in my book.
With the rise of chain bookstores such as Walden, Crown, Barnes & Noble, and Borders, this cooperation became formalized as “co-op,” a system in which publishers nominate their books, and if they are chosen for co-op by the seller, then pay to have their books placed on front tables and endcaps across the country. The basic shorthand is that it costs a publisher about a dollar per copy to get their book on a front table at Barnes & Noble, which is very roughly the same amount that an author gets paid per copy to write the book in her advance (talk to any publisher for long enough and they’ll grind their teeth while noting this).
From the cooperation system with independents the chains developed “co-op”, but a publisher’s relationship with Amazon is closer to coercion. With the chains, publishers can decide to nominate for “co-op” or not, but as soon as publisher sells a book on Amazon they’ve already entered into an enforced “co-op” agreement, in which usually around 6-8% of all of their revenue from selling on Amazon is then withheld, and must be used to advertise on Amazon for future titles. This tends to gets talked about less as “coercion”, and more as “just the way things are” –it’s what happens when you have a retailer that dominates the space enough to set its own terms.
As a result, while book publishers like independent bookstores because they believe them to be owned and staffed by true book lovers (Jeff Bezos was famously disinterested in books when launching Amazon – books are just fairly durable objects of standard size and shape and therefore ship well, making them a good test market for the early days of ecommerce), they also do everything they can to support independent bookstores because their trading terms with them are most favorable to publishers. In their most extreme forms, we can see publishing professionals collaborate in opening their own independent bookstores, but more generally, they engage in subtler forms of support: getting their big name authors to smaller places, and maybe over-donating a little bit to the true cost of printing flyers, and covering the cost of wine and cheese for when the author gets there. Rather than doing this out of the goodness of their hearts, however, publishers do it because independent bookstores are good for them to have around, as they’re the only booksellers who are too small and diffuse to make publishers do things.
3) A Further Reorientation to Niche Specialization at Independents
Here we get to artisanal organizations, and the independent bookstores that are sticking around (or even more importantly, opening) have mostly given up aspirations of being generalists. In Toronto, we’ve got an independent bookstore which specializes in aviation, another for medieval history, and a third which has found a niche for discount-priced theology.* They’re like the Cascade sour beers to Barnes & Noble’s pilsners. While it’s definitely a trend, it’s not one I’d trace back just to 2010, as instead, the artisanal organization market position is one that independent bookstores have been relying on at least back into the 1980s.
In addition to just being niche, while independent hardware stores and grocers were going the way of the dodo, independent bookstores were also able to both capture and foment the formation of the “buy independent” social movements of the 1990s. It’s not many retail outlets that can successfully advocate for their mere existence as a public good. For instance, when was the last time that the New York Times unironically quoted somebody referring to the closing of an independent laundromat halfway across the country as a civic tragedy? As generalist independent bookstores have come to terms with their inability to compete on breadth with Barnes & Noble and Amazon, we see not only a transition to niche sellers, but also more sellers overall, as each one tends to take up a smaller footprint and have lower overhead costs than the independents of the past.
Of course, while there has been a rise in the number of independent bookstores in the 2010s, we shouldn’t overstate it, or be certain that it will continue. At the end of the day –and nobody likes to admit this –we’re talking about a segment that makes up less than 10% of industry sales and is still way down from its peak. It took one of the two major brick-and-mortar chains going out of business for this return to happen, but if Barnes & Noble goes under, it will upend any balance left between Amazon and everyone else. Yet unlike the industries for music and journalism, a preference for analog books among a major segment of the market doesn’t seem to be going away. Maybe if Barnes goes under we’ll instead be graphing the rise of brick-and-mortar bookstores by Amazon, and romantically pine for the good old days of Barnes as the industry villain.
*If you’re a cynic, or even just a careful optimist, you’re also going to want to factor in the 80 stores Barnes & Noble has closed since 2010. So, since 2010 that’s a loss of 766 big brick-and-mortar bookstores which were selling a lot of books, and a gain of 655 generally much smaller brick-and-mortar bookstores which are generally selling many fewer books. Yet the number of physical books sold hasn’t really declined, and has actually increased for three years running (for reasons that are the subject of another post). In any case, the difference has been made up by Amazon.
**H/T to Christina Hutchinson and Chanmin Park, two undergraduate students in my Culture, Creativity, and Cities course, for these examples. You can see some of their work on bookstores, as well as other students’ great (and in progress!) work from this semester on Toronto martial arts studios, Korean and Indian restaurants, religious centers, food festivals, and so on here.
The New York Times – the Upshot, no less – is feeling the love for sociology today. Which is great. Neil Irwin suggests that sociologists have a lot to say about the current state of affairs in the U.S., and perhaps might merit a little more attention relative to you-know-who.
Irwin emphasizes sociologists’ understanding “how tied up work is with a sense of purpose and identity,” quotes Michèle Lamont and Herb Gans, and mentions the work of Ofer Sharone, Jennifer Silva, and Matt Desmond.
Which all reinforces something I’ve been thinking about for a while—that ethnography, that often-maligned, inadequately scientific method—is the sociology most likely to break through to policymakers and the larger public. Besides Evicted, what other sociologists have made it into the consciousness of policy types in the last couple of years? Of the four who immediately pop to mind—Kathy Edin, Alice Goffman, Arlie Hochschild and Sara Goldrick-Rab—three are ethnographers.
I think there are a couple reasons for this. One is that as applied microeconomics has moved more and more into the traditional territory of quantitative sociology, it has created a knowledge base that is weirdly parallel to sociology, but not in very direct communication with it, because economists tend to discount work that isn’t produced by economics.
And that knowledge base is much more tapped into policy conversations because the status of economics and a long history of preexisting links between economics and government. So if anything I think the Raj Chettys of the world—who, to be clear, are doing work that is incredibly interesting—probably make it harder for quantitative sociology to get attention.
But it’s not just quantitative sociology’s inability to be heard that comes into play. It’s also the positive attraction of ethnography. Ethnography gives us stories—often causal stories, about the effects of landlord-tenant law or the fraying safety net or welfare reform or unemployment policy—and puts human flesh on statistics. And those stories about how social circumstances or policy changes lead people to behave in particular, understandable ways, can change people’s thinking.
Indeed, Robert Shiller’s presidential address at the AEA this year argued for “narrative economics”—that narratives about the world have huge economic effects. Of course, his recommendation was that economists use epidemiological models to study the spread of narratives, which to my mind kind of misses the point, but still.
The risk, I suppose, is that readers will overgeneralize from ethnography, when that’s not what it’s meant for. They read Evicted, find it compelling, and come up with solutions to the problems of low-income Milwaukeeans that don’t work, because they’re based on evidence from a couple of communities in a single city.
But I’m honestly not too worried about that. The more likely impact, I think, is that people realize “hey, eviction is a really important piece of the poverty problem” and give it attention as an issue. And lots of quantitative folks, including both sociologists and economists, will take that insight and run with it and collect and analyze new data on housing—advancing the larger conversation.
At least that’s what I hope. In the current moment all of this may be moot, as evidence-based social policy seems to be mostly a bludgeoning device. But that’s a topic for another post.
I recently had the opportunity to read a whole boat load of F.A. Hayek. Constitution of Liberty; The Use of Knowledge in Society; Law, Legislation and Liberty; and more. This in depth rereading of Hayek helped me resolve a certain sociological puzzle concerning the Austrian economist’s reputation. How could he be the patron saint of laissez-faire while saying very nice things about welfare states and attracting positive commentary from a range of liberal and radical thinkers, such as Foucault?
Here is my answer: I think Hayek’s work resides on a boundary between libertarian social theory and modern liberalism. I’m going to argue that Hayek is the least libertarian you can be and still be, sort of, a libertarian. Because he is not a libertarian in the modern sense of grounding things strongly in terms of individual rights, it’s easy for non-libertarians to find a connection.
Exhibit A: Hayek never lays out a theory of freedom based on individual rights the way many libertarians do. For example, in Constitution of Liberty, he doesn’t start with natural rights and he doesn’t start with a utilitarian justification of freedom. Rather, for him, freedom is about autonomy. Given certain choices, does someone have a sphere of independent judgment free from coercion from others? Thus, this version of freedom is compatible with state policies that try to increase this private sphere of judgment. Also, he frequently emphasizes equality under the law and rule of law as prime virtues, even if they don’t enhance freedom in the everyday sense of the word.
Exhibit B: The Road to Serfdom. It’s a text that is more talked about than read. But if you read it, you discover that it is not an argument against every single form of state intervention. Rather, it’s mainly an argument against Soviet style command economies and Westerners who want to nationalize various industries in the name of equality. Secondarily, he also wants to reign in state regulators who wish to wish to coerce people for their own bureaucratically determined goals.
Exhibit C: In other writings, he endorsed a basic income. And he does argue for the legitimacy of taxation. See Matt Zwolinski’s essay on this topic. He argues that these policies were likely justified for Hayek because they increase personal autonomy (see Exhibit A) and I think they were ok in Hayek’s view because they were less about top down ordering of the economy or administrative tyranny and more about allocating resources to everyone in ways that could help them expand their freedom (Exhibit B).
Exhibit D: Spontaneous order theory. Basically, a whole lot of Hayek’s later social theory is about arguing why social structures can still work and are desirable if they are not top down command structures. That doesn’t lead immediately to libertarianism because you can have spontaneous order that has nothing to do with freedom in either Hayek’s view or the more modern libertarian view. For example, systems of race relations are not top down structures, but they often restrain people in cruel ways.
Taken together, Exhibits A, B, C and D paint an intellectual who has the following traits: (a) Very, very anti-socialist; (b) has a version of freedom that is very agnostic with respect to the wide range of policies that are not socialist; (c) provides grounds for both conservative and liberal policies via a respect for tradition/spontaneous order and freedom/autonomy expansion. It’s a very modest form of libertarianism that gives away a lot of ground to other philosophies.
Does that mean that we’ve all misunderstood Hayek? It depends. If you think that Hayek was this evil economist who advocated the most strict version of libertarianism, then that’s probably mistaken. But if you think of Hayek as a very mellow form of libertarianism that has overlap with other political traditions, you’re probably on target.
Hi, everyone! As the year winds up, I’d like to announce two book fora:
- March 2017: Catherine Turco’s Conversational Firm.
- May 2017: Mark Granovetter’s Society and Economy.*
Please order the books now!**
* Holy smokes, yes, the Granovetter book is coming out. We have heard of this sacred text for years and now… my precious… my precious…
** And yes, editors who read this blog should send me free copies!!
Sears Holdings, which owns Sears and Kmart, reported on Thursday a loss of $748 million for the three months ending on Oct. 29. This is the company’s 20th consecutive quarterly loss, and worse than the $454 million loss the company posted in the same period last year. Revenue fell nine percent last quarter to $5.21 billion. Same-store sales, a key retail metric, dropped 10 percent at Sears and 4 percent at Kmart. The company lost $1.6 billion in the first ten months of the year, compared to $549 million in the same period last year, according to its regulatory filing.
These grim numbers were announced a week after the departure of two top-level executives: James Balagna, an executive vice president in charge of the company’s home-repair services and technology backbone, and Joelle Maher, the company’s president and chief member officer. Former Goldman Sachs banker Steve Mnuchinalso resigned from the Sears board last week after President-elect Donald Trump nominated him to head the Treasury Department.
When we discussed Sears, CKD suggested the issue wasn’t firm profitability. It was the relative benefits of bankruptcy court vs. a massive real estate sell off. If so, then the pattern of executive hires and behaviors makes sense. But that raises a deeper point. Why didn’t Sears keep up with the rest of the retail market?
Jeff Sward, founding partner of retail consultant Merchandising Metrics, doesn’t share Hollar’s optimism.
“What does Sears stand for?” Sward told Salon. “Sears unfortunately stands for so many different things that I don’t think there’s anything that’s a standout. I would go to Sears for appliances and tools, but I’ve certainly never thought of them as a headquarters for apparel.”
Sward says the issue isn’t that Sears doesn’t have good products and competitive prices. Instead, he said, the problem facing Sears is that it isn’t the first choice for buyers of any of its core product categories. If consumers need tools, they go to Home Depot or Lowe’s. If they want outdoor or work apparel, it’s Dick’s Sporting Goods, not Sears. Electronics and home appliances? That’s for Best Buy. And who’s buying apparel and shoes at Sears?
The bottom line is that the department store model of the early 1900s is incredibly hard to sustain in the modern environment. Where discovery of the “big box model” by Home Depot and the online model of Amazon, a lot of department store chains either folded or refocused. Sear, with way too much real estate and sluggish executive team, couldn’t make the pivot. Not surprisingly, you then attract investors who are more interested in hollowing out the firm, like the Sears/Kmart holding group that also took on Borders before it died.
Yesterday the New Republic wrote about how little attention has been paid to policy in the current election. In 2008, the network news programs devoted 220 minutes to policy; this year, it’s been a mere 32 minutes.
The piece goes on to bemoan the decline of the public-interest obligation once held by broadcasters (and which still remains, in vestigial form) in exchange for their use of the airwaves, and to connect the dots between the gradual removal of those restrictions and the toxic media environment we find ourselves in today. While — I think appropriately — the article doesn’t overemphasize the causal effects, it does highlight a broader shift that was going on in the 1970s and is still echoing today.
The 1970s saw a wide, bipartisan embrace of the deregulatory spirit in many areas. The transportation industries — air, rail, trucking — were one chief target. Banking was in there. So was energy. More controversial, and less bipartisan, was the push for the removal of new social regulations—rules meant improve the environment, health, and safety. But even when it came to social regulation, both sides believed in regulatory reform. (I’ve recently written about some of this history.)
Economists were one group that made a strong case for economic deregulation — the removal of price and entry barriers in industries like transportation, energy, and finance. (For the definitive account, see Martha Derthick and Paul Quirk’s 1985 book.) Their role in airline deregulation, led by the colorful Alfred “To me, they’re all just marginal costs with wings” Kahn, is probably best known. But economists also had something to say about the Federal Communications Commission.
Perhaps the most famous — certainly one of the earliest — critics of the FCC was Ronald Coase. Coase argued in 1959 that there was no good reason, technical or economic, for the government to own the airwaves, and made the case for auctioning off the radio spectrum. He was not at all impressed with the argument that licenses should be distributed according to the “public interest”, and emphasized not only the legal ambiguity of that standard, but the fact that the FCC’s decisions reflected “a degree of inconsistency which defies generalization.”
At the time, the idea of the airwaves as a public trust was so universally accepted that Coase’s views seemed quite radical, even to other economists. When, in 1962, he extended his argument into a 200-page RAND report, coauthored with Bill Meckling and Jora Mirasian, RAND quashed it for being too incendiary. Later, recalling these events, Coase quoted an internal review of the paper: “I know of no country on the face of the globe—except for a few corrupt Latin American dictatorships—where the ‘sale’ of the spectrum could even be seriously proposed.”
By the early 1970s, though, a new consensus had emerged in economics around questions of regulation, and this consensus saw FCC demands that broadcasters behave in unprofitable ways not as acting in the “public interest,” but as a source of efficiency losses that should, at a minimum, be regarded skeptically. This aligned with increasingly loud arguments from outside of economics (as well as within) about regulatory capture, which implied that the “public interest” pursued by executive agencies would never be more than a sham, anyhow.
Eventually, this shift in mood led to a change in how the FCC regulated broadcasters. The public interest standard was loosened, and in 1981 the agency began to shift from using hearings to allocate spectrum licenses — in theory to the applicants that best served the public interest — to lottery. In 1994, it moved another step closer to Coase’s prescription, beginning to auction off the licenses — a move that stimulated a great deal of research in auction theory as well as generating substantial revenue.
The “public interest” goal, which had initially been baked into the allocation process (however poorly it was pursued in practice) became increasingly marginalized. Or perhaps it was subsumed within the assumed public interest in encouraging efficient use of the spectrum. The process echoes the one that took place in antitrust policy, in which historically significant goals other than allocative efficiency — goals that often conflicted with efficiency and even with each other — were gradually defined as being simply beyond the scope of what could be considered. (Indeed, Coase’s criticism of the inconsistency of the FCC’s behavior sounds quite similar to Justice Stewart’s scathing critique of merger law, written around the same time: “the sole consistency I can find is that under Section 7 [the merger section of the Clayton Act], the Government always wins.”)
I don’t know enough about the history of the FCC to have an informed opinion on whether the public interest standard as it stood circa 1970 was redeemable or if the agency was irreparably captured. And I definitely don’t think the decline of that standard is the main explanation for the current media environment, which goes far beyond television.
But I do think that the demise of the idea that we should expect media to have obligations beyond profit — which is bound up with the ideal, if not the practice, of the public interest standard — is a big contributor. Individual journalists — that increasingly rare breed — may remain professionally committed to an ethical code and a sense of mission that isn’t primarily about sales. But at the corporate level, any such qualms were abandoned long ago, and the journalistic wall between “church and state” — editorial and advertising — continues to crumble.
What this means is that we get political news that is just horse race coverage, and endless examination of the ugliest aspects of politics — which, unsurprisingly, encourages more of the same. Actually expecting media to pursue the “public interest”, whether through regulatory means or professional commitment, may be unrealistically idealistic. But giving up on the concept entirely seems certain to take us further down the path in which objective lies merit just as much attention as truth.
Roger E. Farmer has a blog post on why economists should not use complexity theory. At first, I though he was going to argue that complexity models have been dis-proven or they use unreasonable assumptions. Instead, he simply says we don’t have enough data:
The obvious question that Buzz asked was: are economic systems like this? The answer is: we have no way of knowing given current data limitations. Physicists can generate potentially infinite amounts of data by experiment. Macroeconomists have a few hundred data points at most. In finance we have daily data and potentially very large data sets, but the evidence there is disappointing. It’s been a while since I looked at that literature, but as I recall, there is no evidence of low dimensional chaos in financial data.
Where does that leave non-linear theory and chaos theory in economics? Is the economic world chaotic? Perhaps. But there is currently not enough data to tell a low dimensional chaotic system apart from a linear model hit by random shocks. Until we have better data, Occam’s razor argues for the linear stochastic model.
If someone can write down a three equation model that describes economic data as well as the Lorentz equations describe physical systems: I’m all on board. But in the absence of experimental data, lots and lots of experimental data, how would we know if the theory was correct?
On one level, this is a fair point. Macro-economics is notorious for having sparse data. We can’t re-run the US economy under different conditions a million times. We have quarterly unemployment rates and that’s it. On another level, this is an extremely lame criticism. One thing that we’ve learned is that we have access to all kinds of data. For example, could we have m-turker participate in an online market a million times? Or, could we mine eBay sales data? In other words, Farmer’s post doesn’t undermine the case for complexity. Rather, it suggests that we might search harder and build bigger tools. And, in the end, isn’t that how science progresses?