#vibecession

The Fat Hypothesis

@slatestarscratchpad did a round up of responses to his Vibecession pos that led to two main conclusions AFAICT:

We are really talking about two phenomenon.  a.One is around 2022, American public sentiment started not tracking with economic indicators like it used to, in a way that pointed to larger than expected caring about not only inflation, but also absolute price level. This has had a pretty damaging impact on both Biden’s and Trump 2’s approval. b. Beginning much closer to 2008, the developed world has had a widespread malaise about opportunity and the future, even while their country’s living standards are the highest they have ever been. (We’re going to talk about this one, because it is more interesting.)

Less emphasized, but one commenter mentioned having to apply to 500 jobs to get one offer, and how that has likely had a negative psychological impact.

I felt that point 2 was pretty important, and was disappointed Scott’s response was only “I hadn’t considered that.” I realize it would be hard to measure, but if you are asking why a phenomenon started, and someone offers an answer that doesn’t have obvious falsities, maybe it deserves to get taken a little more substantively.

However, a cultural seachange based on just the process of applying to stuff, sounds like a pretty weak cause. So I’m generalizing it to a larger theory, that we’ll call the Fat Hypothesis.

One reason I like this hypothesis, is that it is a phenomenon we can all easily agree has been going on well before this particularly argument. Here is Peter Thiel discussing it in his book, Zero to One, back in 2014.

The problem with a competitive business goes beyond lack of profits. Imagine you’re running one of those restaurants in Mountain View. You’re not that different from dozens of your competitors, so you’ve got to fight hard to survive. If you offer affordable food with low margins, you can probably pay employees only minimum wage. And you’ll need to squeeze out every efficiency: That is why small restaurants put Grandma to work at the register and make the kids wash dishes in the back. A monopoly like Google is different. Since it doesn’t have to worry about competing with anyone, it has wider latitude to care about its workers, its products and its impact on the wider world. Google’s motto—”Don’t be evil”—is in part a branding ploy, but it is also characteristic of a kind of business that is successful enough to take ethics seriously without jeopardizing its own existence. 

To Thiel, the lesson is don’t be in a commodity, where anyone can compete with you, and thus will drive profits to zero, and eventually make you be the most penny-pinching version your company can be. As Jeff Bezos said in a similar context, “Your margin is my opportunity.” Any attempt to make a profit is the door your next competitor will come in through.

Instead, Thiel says becoming a monopoly is the only way to have stable profits, and therefore to have choices about how you operate - ethically, aestheticly, personally - rather than just the cheapest, most short-term methods.

Ignoring the business-hype speak, we have a really simple and interesting assumption: there is a tradeoff between efficiency and “fat” - the surplus that you can use to express your values, such as paying staff well, working less, choosing what jobs to take, good healthcare plans, etc.

Why do people so often consider the 50’s and 60’s the heyday of the industrial workforce in the US? A good leftist will say “because we had unions that negotiated good deals for their members”, which is true by *why* were those unions able to negotiate fat deals in the first place? Because for a couple decades after WW2 the US was the only country able to provide certain industry capacities, and so our car companies etc made so much profits they could afford to spread it around. Some for shareholders, some for unions, some for the government etc. There was fat.

What’s the most dysfunctional, important sector in America right now? Well a lot of analysts will tell you it’s construction costs in NYC, other people will tell you its public transit costs, and those are pretty close to the same thing. Why does it cost $2 billion to build a single subway stop in Manhattan, vs you can build a whole kilometer of subway in inner Tokyo for just $250 million? Permits, zoning, and union contracts in NYC mean there’s a whole lot of fat to go around, and everyone involved eats well. Which is why NYC is basically getting zero new public transit, even as congestion pricing has increased the amount of funding it gets. This is the cost of fat.

I don’t think anyone denies the above? Fat and efficiency trade off. This is very repetitive I know, but it’s important here to try to get universal agreement.

Next thing there should be universal agreement on: America has made leaps and bounds in efficiency.

We’ve got mega-chains crushing small businesses with their economies of scale. We’ve got private equity buying up any company that is not maximizing stock price enough and laying off people till it is lean and efficient. We’ve got the internet and automation that allows anyone to know the best available price - for airplane tickets, for gig workers, for index funds - in a moment. 

The great Tech Layoffs of 2023 to 2025 were the return of efficiency to a sector that had gone on a wild hiring spree for two decades and never needed to trim down until now. Giants like Walmart and Amazon and Tyson pre-emptively cut costs by putting the screws to their suppliers to subsistence level, even before any competition makes them.

And as a result, our GDP growth has soared ahead of our European peers, cementing our lead as the richest nation of all time. Efficiency is great for growing your economy!

But more efficiency than ever - ceteris parebus - means *less fat than ever.* And as Thiel said, fat is what makes us happy. Fat is the ability to choose to be ethical, to only source from countries that have labor and environmental regulations, to give employees better benefits than the legal minimum, to keep veteran workers around till retirement, to invest in long term research, to pay enough so that one income can raise a family.

A friend likes to say “what do you call a body with no fat? A corpse.”

Which solves the mystery of our apparent paradox. Why are Americans unhappy when our GDP is at its highest ever? Because the efficiency needed to attain that means we actually have no fat. I don’t want to romanticize the mom-and-pop store that was actually a local monopoly, but at this point there’s no choice in what to do with your income. If you aren’t part of the elite, you earn just enough money to get by and no more. Of course people are unhappy!

One of the comments Scott quotes, is about a rural butcher who has a good income and no one to pass onto. Well, that butcher is only staying open until Walmart moves to the area, which will sell beef at half the price he does. Does anyone think a small local business is a stable future? If they were, we would just start one ourselves. But we have and they’re dying like flies.

@balioc points out that an overlooked part of the discussion is how much modern jobs suck. More micromanagement, harder hiring funnels, open offices, no perks and meaner benefits, and social patrolling of having the right attitude at all times. It’s very hard to measure the effect of that, but it’s the same across the board efficiency.

Local newspapers were basically a monopoly on ads that used that profit to pay for reporters. Google and Facebook took all those ads, and now we have no community intelligence function. Of course, an investigative reporter who uncovered corruption in a small town was, economically speaking, fat that added nothing to shareholder value.

It's incredibly insulting that economist and media pundits are calling the current economic stress of 70% of the population the "vibecession".

Since names matter, we should call it what it is. The middle class squeeze. As capital owner interests squeeze ever more profits out of a middle class that can ill afford it at this point.

The tipping point already happened long ago in the early 1970's. That every subsequent generation is going to be worse off economically than the generation before it and we're 4 generations in now.

To say it's all in your head because the top 20% are doing OK and the top 1% actually is seeing 60% gains is really disingenuous and does not match the lived reality of the 70% majority.

The macro economic numbers are good, the economy didn't shrink/contract. So therefor we are not in a recession according to the macro numbers. That is meaningless to 70% of the US population living paycheck to paycheck who are under major economic stress having to make ugly decisions about debt vs children vs education vs food vs housing vs medical.

It doesn't matter that inflation has come down. The already applied massive increases in prices for medical, child care, education, groceries, gas, and rent already tipped this 70% of the US into often being insolvent. This group can't cover all the cost of living multiple months of the year not just once and a while.

Driving an economy on macro numbers is incredibly myopic if they don't represent the majority of your population. Macro economic numbers are incredibly skewed due to 80% of wealth of the US belonging to the top 20% of earners in the US. So the top 20% distort macro numbers making it look like average earnings are in the $70k/year range. Looking at that number misses the massive opportunity inequality leading to 70% of the US population living in scarcity at sub $55k annual earnings pay while the top 20% live at $120k+ annual earnings PLUS the ability to invest.