I paid $12.50 for an average burrito from a big chain the other day, at a place where, in recent memory, that burrito cost was less than $10. It was smaller, too. The fajita veggies were doled out as if they were gold-plated, and by a man in a nicely pressed white shirt with a haggard look — the store manager. Familiar, friendly employees were nowhere to be found.
I’ve seen stories like this repeatedly in past months, and I’m sure you’ve lived them. We’re being told inflation is around 3% or so. But that’s hardly capturing the price increases and degradation of services we’re all experiencing in real life. (Yes, inflation by degradation is real). In comments, I’d like to hear yours.
This is not the beginning of some new trend. It’s the conclusion of a trend. Nearly two decades ago I began writing and talking about what I called the Death of the Price Tag. I believe one day soon, but not soon enough, Ivy League economists will win Nobel Prizes explaining what the heck has happened to price tags in our time using lovely charts, graphs and formulas. But this I know: large, monopolistic companies have spent years pushing the boundaries of normal pricing mechanisms, and now, they’ve hit the jackpot. We’ve never seen pricing power like this.
The virus that killed prices spread during the pandemic, with its “transitory inflation.” Before then, a New York City pub didn’t dare charge more than $10 for a pint of Guinness. Who wants to be the first pub breaking that kind of glass ceiling? But once that ceiling was indeed pierced, once consumers showed they were willing to pay anything just to be outside … that they’d dig deep and find $10 or $11 or $12 for a pint — well, corporations were off to the races. The sky was the limit.
Pricing theory is fascinating, and not just a little complex. In healthy markets, there’s always tension between buyers and their “willingness to pay,” and sellers and their “willingness to accept.” Those are fancy economics terms, but from a seller’s perspective, the calculation is simply this: you never want to underprice an item so you’ve left money on the table, but you never want to charge so much that you scare off buyers. For years, companies struggled with price tags that flirted around these edges. Starbucks, for example, created various price points (tall, venti, grande) for what is essentially the same product so it could accommodate both price-sensitive coffee drinkers and careless ones. These are very inexact tools, however. In some magical world, you would charge the exact price that makes one (and only one!) person reject your item because it costs too much. That would mean you’ve grabbed every penny you can from everyone else.
Enter dynamic pricing. Companies armed with billion-dollar research futz with prices constantly; some moment by moment. The carnival game that is airline ticket purchasing now applies to almost everything we buy. And if it doesn’t, it’s certainly influenced by these dynamic (higher, always higher) prices.
If it feels like everything you do today is a video game with surprise gremlins attacking at every turn, that’s because — it is. Booby traps are everywhere. You can’t so much as buy a coffee, an avocado, or a curtain rod without you and your data being entered into a cynical value extraction experiment.
When I wrote Gotcha Capitalism almost 20 years ago, many firms accomplished “dynamic” pricing through asterisks, tack-on fees, and gotcha penalties for small transgressions. These all still apply, of course, but they feel like the minor leagues compared to digital grocery store shelf price tags that can change based on how many tubes of toothpaste the prior customer bought.
Despite all this doom and gloom, there still exists a ready-made mechanism to rein in out-of-control prices: competition. This is the beauty of the free market. Sadly, to paraphrase Gandhi, I’d believe in free markets if I could find them.
See, the antidote to my $12.50 burrito is a new shop opening down the block that charges $11 and loads it up with fajita veggies. Bonus points if it’s family-owned and curated. That’s a lovely thought. But in an age when real estate is hoarded by gigantic corporations, often backed by private equity, there is little chance a plucky mom-and-pop from Latin America can get a lease in this neighborhood. If there’s any competition at all, it’ll be from another chain which knows darn well not to undercut its “competitor.” Monopoly power is exerted all over our economy now, ruining industry after industry — from dentists to veterinarians to youth sports leagues. The downward pressure on prices is disappearing. The sky’s the limit.
When some people read screeds like this about pricing power and consumer rights, they immediately plop the writer into the liberal bin and toss out the ideas. That’s tragic. It persuades struggling middle-class folks to defend the very people who are making their lives miserable.
There is a group of people who hate the American way of life, the middle class, and free markets more than any socialist (or Communist!) ever could — these monopolists.
And now they come armed with a monster army of AI bots designed to grab as many pennies and lay off as many workers as they can. It should be clear as day: The business model of AI is to lay off workers. The only thing that could possibly justify the trillion-dollar valuations of this industry is the massive slashing of labor costs. It’s naive to imagine anything else. For a great exposition of this, watch the testimony of economist Richard Denniss before Australia’s Joint Select Committee on Artificial Intelligence rec
I don’t actually believe AI will replace workers on that kind of scale. Already, many firms that use AI technology have learned they need a human workforce to babysit it and correct its mistakes. That won’t stop firms trying, of course.
In the meantime, AI will be most helpful screwing consumers on a scale even I didn’t imagine with Gotcha Capitalism. It is taking speedbump-laden “customer service” call roadblock tactics to a new level. (Think you can press # or zero a hundred times and get a human? Ha!). It’ll automatically deny healthcare claims, getting around the pesky conscience that human employees can exhibit. It’ll make a $100 train ticket cost $200 when it discovers your train has just been canceled. The possibilities are endless! Let your mind wander to what happens when a completely morals-free machine is making life-and-death decisions for you. Yes, killer robots are scary. But so are killer robot pricing tools.
If you need more convincing, you should read Cory Doctorow’s book Enshitification. In it, he explains what I call atrophy in the marketplace. After an initial honeymoon period, everything tends towards suckier. Your new Internet provider is great until it’s not. The new chain restaurant employs a ton of happy workers until it doesn’t. Your new smartphone is designed to go obsolete. Your social media company is designed to be fun but eventually make your kids hate themselves. And we, frogs in a boiling pot that we are, tend to accept this — particularly since there are so few alternatives.
And sure, the final argument against my diatribe is the “resilient consumer,” who continues to buy those average $12.50 burritos. With a credit card, no doubt. Sure, corporate earnings are holding up, and the stock market is at a record high. So is consumer debt. Nearly 1 in 10 Americans with a car loan is making payments north of $1,000 a month. The bill is going to come due.
And so, if your life feels like a video game with ever-increasing levels of difficulty, with new monsters jumping out from behind every obstacle — that’s because it’s been designed that way. And until we come up with another design, until we actively force things to get better through requiring free markets with rules that enforce fairness, things are only going to atrophy, to enshitify. Now, a question: Do you trust people like Elon Musk to fix this? Why?
For further reading: There’s a great essay making the rounds this week by a business school professor who is calling for the end of business schools. It’s about time! Business schools today teach the bleeding edge of monopoly techniques: how to corner markets; how to lock in customers; how to avoid regulatory scrutiny; how to avoid competition altogether. We’re not teaching the virtues of capitalism or competition. We’re teaching corporate welfare. We’re not helping people enter the middle class or climb up the ladder of prosperity. We’re teaching entitlement and winner-take-all cosplay. I’d like to think an ethics class here or there might help, but I fear Chris Marquis is right: the entire notion of MBA training is beyond repair.
Another great read in this vein is Binyamin Appelbaum’s The Economists’ Hour. We’ve been running a decades-long experiment to prove that spreadsheets can make everyone happier. Instead, they are often used by governments and management to cut corners and cause misery. You might backdate our current AI folly to the rise of business schools and the dawn of this Economists’ Hour. Marquis’ essay is the logical conclusion.
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