More Thoughts on Falling Surplus
In a previous post, I proposed that one potential explanation for everyone[0] feeling poor despite statistics suggesting they are richer than ever before is that the unmeasured portion—consumer surplus—has been falling. Strictly speaking I don't think this is true. Companies have gotten better at pricing generally and price discrimination in particular, which reduces consumer surplus, but increased competition and commoditization have had the opposite—and almost certainly larger—effect.
However, I propose a different mechanism: consumers have less opportunity to realize surplus. So much consumer surplus is automatic—you don't notice the uniform drop in prices for clothes or food or utilities relative to income. In contrast, more bespoke goods and services get bid up by consumers who are better-informed than was previously possible. The unknown neighborhood restaurant disappeared with Yelp. The underappreciated artist disappeared with the explosion of the art market. Instagram killed the unspoiled off-the-beaten-path vacation spot. Dynamic pricing and resale platforms have allowed live event prices to explode. The floor may be (much) higher, but this is mostly invisible to us, while what is visible is that it is so much harder to better yourself in the market.
And the same principle applies even more strongly on the producer side. Companies face fiercer competition and lower margins than ever before. In the past, with more low-hanging fruit and less competition, a hard-working and competent person could plausibly start a successful business doing almost anything. Now we are much more efficient, but both a cause and an effect of this is that the opportunities for success are much narrower. This is the so-called "superstar economy": you either do exactly what the most profitable companies need, or open a business in the area where you have the largest comparative advantage.
If this outweighs the benefits of absolute economic prosperity, the implications are enormous and difficult. The significance of economic growth is reversed—it's borrowing against our future happiness in order to enjoy the present more. Intentionally delaying or temporarily reversing growth for the benefit of future generations seems laughably unlikely.
The only realistic way I see to improve future growth, without realizing it in the present, is to make fundamental advances in science and technology—things like discovering the structure of DNA, inventing the transistor or creating the first laser. These take decades to become economically significant and even longer to reach the point of diminishing returns. The obvious next candidate is AI, but for reasons beyond the scope of this post I expect its diffusion to look different.
I don't entirely buy this thesis. It is too neat and basically unfalsifiable. But I think this is likely one of several factors contributing to our current age of discontent.
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meaning upper and upper-middle class professionals in the US who post on Twitter