Happy Thanksgiving

by Greg Rosalsky

Being the econ nerds that we are here at Planet Money and The Indicator, this Thanksgiving we want to give thanks for economic insights that improved our lives, solved a problem, or just plain fascinated us.

So, here you go, and Happy Thanksgiving!

John Moore/Getty Images

Nick Fountain is grateful for an economics paper titled "Car Seats as Contraception": “I think about this paper all the time. My wife and I have two young children, and we don't want more. But, whenever the thought crosses my mind, I think of this paper, and how, because of car seat laws, we would have to ditch our teeny Prius and buy a much bigger and more expensive minivan. The researchers found that I'm not the only one facing this dilemma, and that car-seat laws and the stubbornly high prices of three-row cars has led to something like 145,000 fewer births in the U.S. since 1980. Fascinating. Plus, the title of the paper makes me chuckle every time.”

Wailin Wong, co-host of The Indicator, is grateful for a recent disclosure by the new CEO of Panera Bread, who recently admitted — and regretted — that his company, under different leadership, had basically resorted to sneaky forms of inflation, shrinkflation and skimplation, and that strategy had backfired. Shrinkflation is when companies shrink the amount of stuff they provide in packages or meals, which effectively raises the per-unit cost of what they’re selling. Skimpflation — a term we coined in this newsletter — is when companies skimp on what they sell by degrading its quality. Recently, the new Panera boss, Paul Carbone, seemed to admit that his company had basically resorted to both shrinkflation and skimplation, as well as standard price hikes. “In some instances, we shrunk portions, so guests would walk into our cafe to buy a sandwich that has gone up significantly in price, with lower-quality ingredients, in a smaller size,” Carbone told CNBC. “There are other examples of skimpflation in this story,” Wong says. “He says they tried to sub in iceberg for romaine because it's cheaper, but it turns out people hate iceberg. And also they stopped cutting cherry tomatoes in half to save on labor costs, but then people would have to chase tomatoes around their salad bowls with their forks and it was super annoying.” Carbone now wants Panera Bread to reverse course with a strategy they’re calling “Panera RISE.”

Jess Jiang is “grateful for advice I once got when I was doing research for an episode about the birth and death of the price tag. I was talking to a bunch of people about airline ticket pricing. And one economist told me that if you’ve never missed a flight, that means you’ve been spending too much time in airports. I don’t remember who said this, but the advice always stuck with me and freed me from the stress of getting to the airport extra early.”

Keith Romer is thankful for the classic gambling dictum “scared money don’t make money”: “As NPR’s self-appointed chief gambling correspondent, I’m bringing my economic lesson straight from the poker table. Poker, at its core, is a game about risk: each bet you make is either money you won’t get back or an investment that will pay off at the end of the hand when you pull in the entire pot. A lot of the game comes down to correctly evaluating the price you are being offered for a particular risk (and setting difficult prices for your opponents with your own bets.) But we humans are really bad at evaluating risk! One of the big ways we are bad at risk assessment is that we tend to be loss averse. For a lot of people it feels way worse to lose ten dollars than it feels good to win that same ten dollars. At a poker table this shows up with people giving up and folding hands that they should probably call with. And, so, to counteract this bias, poker players have come up with the following dictum (often offered up as a taunt): Scared money don’t make money. Which is to say, to make the best investment decisions (be they financial….or just gambling), it’s important to assess the risks and rewards dispassionately and mathematically rather than from a place of fear and loss aversion.”

Darian Woods, co-host of The Indicator, is grateful for diversified index funds: “In a stock market that’s increasingly looking like a casino, these funds will just follow the overall market, with minimal management fees. Money managers, on average, rarely do better than the market, especially once you take into account hefty fees. I learned about this by reading Burton Malkiel’s classic A Random Walk Down Wall Street. I’d also recommend listening to Planet Money’s episode Brilliant Vs. Boring.”

Greg Rosalsky, your humble newsletter author, is thankful for the economic concept of “consumption smoothing”: “Sure, it’s good to be financially prudent and save and invest and build a nest egg. Take advantage of the magic of compound interest, as they say! But there are certain periods of life where saving is much harder, and the temptation is to live an ascetic lifestyle, scrimp, and deny yourself all joys. Like when you’re in college, or when you have young kids and you’re paying exorbitant amounts for childcare. And in moments like those, I like to think of the economic concept of consumption smoothing. The basic idea is that, actually, if you’re behaving rationally, it makes sense to maintain a healthy balance of consumption over the course of your life, not be living like a king during certain periods and a pauper in others. Your goal should be to maximize your lifetime pleasure and happiness, not delay all the fun for your future self. After all, your future self is going to be old and maybe not get as much happiness from that extra dollar you can spend now. If you expect your household’s income to go up and your costs to fall (like, for example, your childcare costs), it actually can sometimes make sense to save a little less and spend more now. At least, that’s what I tell myself (and my wife, haha) to justify splurges once in a while. Thank you, economics.

Mary Childs is grateful for the intellectual delights provided by the bond market (she happens to be the author of a book titled The Bond King): “I got to visit a money management company’s ‘investor day’ in Dallas last week (when senior management presents to clients), and I gave a talk about bonds to an audience of people deeply interested in bonds — with a specific passion for mortgage-backed securities. So, during the Q&A portion, when I accidentally went into a little too much detail about a specific trade structure (this does happen to me from time to time, I'm working on it) — I realized I was in the exact right room for such a digression. I said so, and the audience laughed because where else can we delight in this stuff if not a room with each other? I thought some more about why that was so magical to me about bonds. I think it’s because I love seeing in the specificity of bond structures the most tangible expression of our own priorities; we may say we value something, but a prospectus or term sheet is where we prove it. It’s all in its own language, of waterfalls and indentures and triggers, and it’s not entirely an easy language to acquire. A part of our job at Planet Money is to act as translator, and I think that job is easier and more fun when you love the original text too.”

Alex Mayyasi is thankful for the economic concept of costly signals, which has helped him understand fashion. “For a long time, I avoided wearing white sneakers. I didn’t want to spend tons of time fearing puddles and cleaning my shoes. Then economics taught me the value of white sneakers — they are a costly signal. A costly signal is the opposite of cheap talk. You can tell someone you love them, but an expensive engagement ring is a costly signal of your love. You can tell a professor that you really, really want to work in their lab, but flying across the country to ask for a chance in-person is a costly signal of your passion for neuroscience or entomology. It's an intuitive concept, but I'm thankful that economics coined the term. Costly signals (and thinking about how to avoid cheap talk) are everywhere, including in your sneaker and clothing choices. The fact that white sneakers, dresses, and shirts are a pain to keep clean gives them a rarified air. Much like how doctors' white coats make a statement about a hospitals' cleanliness and professionalism. I really do appreciate that economics helped me understand a fashion choice in my native language of econ nerd.”

Lastly, we’re all grateful for you, the listeners to our podcasts and the readers of this newsletter. You give us purpose (and some of you give us financial support by subscribing to PM+ — and, of course, we’re also grateful for that). Thank you!

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