Literature, Creative Destruction and Supermarkets

Sunday July 11, 2021

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Transcript

My name is Larry Bernstein.

What Happens Next offers listeners an in-depth analysis of the most pressing issues of the day.

Our experts are given just SIX minutes to present. This is followed by a Q&A period for deeper engagement.

This week’s topics include Literature, Creative Destruction, and Supermarkets.
The first speaker today will be Angus Fletcher who is a Professor at Ohio State University. I first met Angus when I listened to his screenwriting class offered online by The Teaching Company. The course was fantastic. I loved Angus’s passion for methods to write a great screenplay. Angus has a new book entitled Wonderworks: the 25 Most Powerful Inventions in the History of Literature that applies modern psychology and neuroscience to understand techniques that authors use in the art of storytelling.

A few weeks ago, on What Happens Next, we had a conversation with Aljean Harmetz about the making of the movie Casablanca, and I plan to ask Angus about the screenwriting methods in that Hollywood classic.

Our second speaker is Philippe Aghion who is a Professor at the College de France and at the London School of Economics. His research focuses on the economics of growth and in particular his pioneering work on the application of the economist Joseph Schumpeter’s work on creative destruction to explain the economy’s endogenous growth. Today, Phillipe will be discussing his new book entitled The Power of Creative Destruction: Economic Upheaval and the Wealth of Nations.

Our final speaker today will be Benjamin Lorr who is the author of The Secret Life of Groceries: The Dark Miracle of the American Supermarket. Ben explores the economics and inner workings of the American supermarket. He will cover how entrepreneurs fight for shelf space and the mechanics for food distribution.

Since the beginning of What Happens Next, I have commented on the monthly employment report because it includes the most important economic statistics. The volatility of these employment numbers has been unprecedented and they help us understand what is going on in the real economy. The Bureau of Labor statistics report was released a week ago, but I took the 7/4 holiday off, so my analysis is unusually tardy.

I want to focus our listeners on the surprising differences between the two employment measures calculated each month. The BLS employs two different surveys to estimate the changes in employment. The first is the Establishment that surveys large firms that include around 150k businesses and asks them the number of new hires and fires. The Household surveys 60,000 and asks over the phone how many people in that home got hired, fired or left the labor force. Each survey has their respective benefits and problems. The Household survey covers many types of employment that are not covered by our largest firms but the Household survey has a variance that is 5 times more.

Betsey Stevenson who was the former chief economist at the US Department of Labor in the Obama Administration who spoke on this podcast previously, mentioned that when she analyzes trends in US employment, she uses an estimate based on the three month average of employment change in the Household survey and the current month for the Establishment survey. Betsey uses weights of 60% for Household and 40% for Establishment because she believes the Household trends more but uses an average because of its higher variance.

Let me get to the punch line. The Establishment Survey is showing solid growth in employment but the Household is Not. The question is why and which survey is telling us the true story.
Here are the numbers. The Establishment survey shows employment growth of 850k in June and 1.7mm for the past three months.

The Household survey showed ZERO growth last month and 750k for the last three months or a difference of a million jobs.

Which survey is more accurate now, who knows, but it is important to consider because it will impact Fed policy and the pace of the recovery?

Here is what we know, there are over 9 million Americans looking for work and even more job openings. Economists like Casey Mulligan who spoke on our podcast several times, thinks that his chasm is caused by very high unemployment benefits. Casey hopes that these distortions will be reduced after September when the Federal government’s extra benefits are scheduled to end.
Many small businesses were forced to close because of COVID and most of them will never reopen. Those workers from these closed firms will end up working for either large established firms or newly formed companies. It is possible that this shift of workers from closed small businesses to large established firms explains the rosy establishment survey employment results.
The Establishment survey uses a historic model to estimate job gains and losses from small firms and newly established firms who are not surveyed, but we are living in unprecedented times, so that model may be wildly off.

I have not seen a discussion about the different survey results in the business press, but I expect it to become a big story if these different survey results are ongoing. One last point is that we hear from small businesses that they are having a very difficult time hiring and keeping workers which is consistent with the idea that workers are drifting away from small businesses to larger established firms.

I would like to expand the What Happens Next audience so that more people can enjoy our programming. I started a social media outreach using Twitter to increase listener engagement. Please use twitter or email me to ask questions during the live discussion. Our twitter username is whathappensin6, where six is the number. I want to hear from you. You can always email me at larrybernstein1@gmail.com.

                                                              
 
 
 
 
 
 

Angus Fletcher

Topic: Literary Inventions
Bio: Professor of English at The Ohio State University and teacher for the Great Courses: Screenwriting 101: Mastering the Art of Story is here.
Reading: Wonderworks: the 25 Most Powerful Inventions in the History of Literature is here

Transcript

Larry Bernstein:
Our first speaker today is Angus Fletcher, an English Professor at The Ohio State University.

Angus Fletcher:
I’m here to tell you that what’s next in our future is literature because literature is the most powerful technology that we humans have ever invented. More powerful than computers, rocket ships, and artificial intelligence. By literature, I mean the classics like Sappho, and Shakespeare, and Maya Angelou, but I also mean Winnie the Pooh and comic books like Alison Bechdel’s Fun Home, and TV shows like Tina Fey’s 30 Rock, and films like Casablanca. All that is literature, all that is the most powerful technology ever invented.

Now, when I say that literature is the most powerful of all technologies, people sometimes think that I’m being metaphorical or over the top, but it’s a literal, scientific fact. Which is why, to give you one example from my recent research, I’m doing a joint study with the United States Army in which we’re testing a specific literary invention on 800 of the Army’s top officers, majors and colonels, to help them boost creative thinking in pressurized situations. So, in other words, we’re testing how a literary technology can increase your performance in life and death environments, to think fast and devise original solutions to rapidly changing problems that computers and artificial intelligence can’t solve. And the data is solid enough that we’ve already got strong interest from other sectors of the Department of Defense and a half-dozen Fortune 50 companies.

The scientific reason that literature is so powerful is that it allows us to get more out of our brain. And the human brain is, as we all know, the most powerful thing on earth, for good or for ill. So, by helping us get more of the good, and less of the ill, literature can transform the globe, giving us more medicine and innovation, and less prejudice and hate.

We’ve all experienced those literary benefits firsthand. We’ve all read a book and felt better, or read a poem and felt uplifted, or watched a play and felt our imagination spark, inspiring us to dream up new possibilities. And what our research at Project Narrative does is take the next step. It identified the specific nuts and bolts, the specific technological innovations, the specific invention blueprints that literature uses to generate its psychological benefits. Then we run experiments to quantify those psychological benefits, to help you get more of the good stuff waiting on your bookshelves.

So, for example, if you wanted to boost your optimism, availing yourself of the mental benefits that Martin Seligman and other psychologists have associated with a shift out of pessimism, we can point you toward what fairy tales are most likely to help and also which fairy tales to avoid. Hint, avoid most of the stuff made by Disney. With that scientific know-how, you can read more intentionally, targeting your reading to get more of what you want now and changing your reading to shift as your own personal wants and needs evolve. So, if you want to get more creative, there’s a technology from Shakespeare. If you want to help recover from trauma, there’s a technology from ancient Greek tragedy. If you want to get over anger, there’s a technology from the Hebrew Bible. If you want to become a better problem solver, there’s a technology from Edgar Allan Poe. If you want personal growth, there’s a technology from Maya Angelou. If you want more courage, or life purpose, or any of dozens of other psychological benefits, there are technologies for them too.

I’m able to do this work because I have dual training in neuroscience and literature, but I don’t do my research alone. I do most of it in collaboration with neuroscientists, psychologists, and doctors. And that interdisciplinary focus is why our research has attracted interest outside of university literature departments, inside of hospitals, engineering labs, and as you might have seen at JP Morgan and McKinsey. But our research also has revolutionary consequences for the way that we teach literature at school.

A scientific approach to literature’s technology can access more of the practical potential of the humanities. It can help undergraduate engineers invent more creative technologies and science PhDs imagine new experiments, and students of all kinds boost their mental wellbeing. But to do all this, we have to change the way that we teach literature in our schools. We have to stop telling students to interpret books and write argumentative essays. That is the same pre-scientific approach that was taken to literature in the Middle Ages and that is recycled today through institutions like the Common Core.

Instead, we need to bring psychology, and neuroscience, and medicine into literature classrooms, marrying cutting-edge lab research with classic novels, plays, and poetry. Empowering students from kindergarten to college to tap into the parts of literature that their brains intuitively respond to. The characters, the stories, the worlds, the emotions. Hopefully that sounds intriguing, even exciting, but because it’s a radical change, I often get questions and skepticism. So, if you have concerns, I’d love to talk them through.

I’m not here to force science on anyone, but I believe that we have an opportunity in front of us to use science to unlock more of the power that’s in our favorite books and films, to make a happier, mentally healthier, more resilient, more courageous, more joyful, and more creative future. The future, I hope, that’s what’s next.

Discussion with Fletcher

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Philippe Aghion

Topic: Creative Destruction
Bio: Professor at INSEAD, Centennial Professor of Economics at LSE, and Professor at College de France.
Reading: The Power of Creative Destruction: Economic Upheaval and the Wealth of Nations is here

Transcript

Larry Bernstein:
We’re going to go onto our second speaker, Philippe Aghion. You’re going to be talking about your new book, The Power of Creative Destruction: Economic Upheaval and the Wealth of Nations. Philippe, tell us about creative destruction.

Philippe Aghion:
Creative destruction is a process whereby new innovations replace old technologies, whereby continuously new innovations make old technologies obsolete. For example, the steam engine replacing carts on wheels, electricity replacing steam engine, robots replacing Fordian assembly lines, this is all about creative destruction. The history of growth is all about creative destruction. Now the problem, creative destruction involves a contradiction. On the one hand, you want innovation rents to encourage innovation. We innovate because we pursue rents, we get rents when you innovate. But on the other hand, yesterday’s innovators will be tempted to use their rents to prevent subsequent innovations, because they don’t want to be subject to creative destruction. And you see regulating capitalism, it’s all about how to manage this contradiction. On the one hand, you give rents, you need rents, but you must make sure they are not used to prevent subsequent innovation.

Schumpeter himself was pessimistic about the future of capitalism, because he thought that the first innovators would tell me to conglomerate that would prevent subsequent innovations. We are in this book instead, we are optimistic, but it’s an optimism of the wheel. And we explain how we can avail Schumpeter’s pessimistic prediction. What we do in this book is to use the lens of creative destruction to do three main things. First, to solve historical enigmas about growth, second, to question some common wisdoms, some wrong policy advice, and three, guidelines to rethink capitalism. So let me talk briefly about the three. What enigma is the secret of stagnation? Since the early 2000’s productivity growth in U.S. has declined, in spite of the IT revolution and the AI revolution. Why with these revolutions that should boost growth, do you see growth declining?

And we explained in the book that in fact what happened is that the IT way, you have big firms that develop through merger and acquisition. First when they develop growth went up, and that’s what you see in the U.S. between 1995 and 2005, growth goes up. But then when these firms begin, they discouraged growth and innovation by other firms. But there is a way out that’s Schumpeter pessimism. There is a way out, it’s competition for you, so Biden yesterday taking steps to improve competition in the U.S., and that’s exactly what you need to do to reverse and to deal with the secular stagnation problem.

So that’s the first kind of thing we do in the book, to deal with enigma, any possibility of the enigma of secular stagnations. The second thing we do is to question some wrong policy ideas. First, one of them is to tax robots. There is the view that robots eliminates jobs, and because it eliminates jobs the way to solve that problem is to tax robots. But we explain in the book that firms that automate and robotize, in fact, they create employment.

Why? Because it might be true that some jobs, some manpower is replaced by machines. But in fact, the firms that automate, they become more productive. Because they become more productive they can lower their price, so they can expand their market. And because they expand their markets, there is more demand for their product and therefore they can demand more employment. And that productivity effect more than counteracts the substitution effects of manpower by machines. So taxing robots would be counterproductive because you would prevent those firms from innovating, from becoming more productive and at the end of the day from creating jobs.

The third thing the book does is to rethink capitalism. You see, what we explained in the book is that the U.S. Is a fantastic ecosystem for innovation. We saw that with the vaccine, the best vaccines came from the U.S., Because they have the whole ecosystem for vaccine. They have the top Pharma firms, they have the NSF, the NIH. They have venture capital, they have institutional investors, and the whole ecosystem of innovation is fantastic. Nobody does nearly as well as the U.S. When it comes to innovation. But on protection, the U.S. is not good. When you lose your job in the U.S. and you are white or Hispanic, middle-aged, you go through a lot of stress. That’s why you observe the increase in mortality of middle aged, white, non-Hispanic men.

Whereas in Denmark, it’s much more protected. When you lose your job in Denmark, no negative effects on your health at all because they created a system that really ensures you. When you lose a job, you get very generous supplemental insurance, and the state helps you find a new job and retrain. And so now the challenge is to construct the capitalism that would be as innovative as the U.S. capitalism and as protective and inclusive as the Danish or Scandinavian capitalism. Some people believe that if you choose to be innovative, you need not to not be productive. You see that not being protected in the U.S. is the price to pay for the U.S. to be innovative, and I don’t believe so.

For example, I mentioned the secular stagnation and the need for more competition to help creative destruction and growth resuming the U.S. Well, if you put more competition in the U.S., it will not only spur creative destruction and growth, but it will make growth more inclusive because you can have new entrants, new people can come in. So you can see that first during competition in the U.S. will make capitalism in the U.S. both more innovative and more inclusive.

Another example is education. We show in the book that the probability of inventing depends on your parents and income. Why? Because it depends on your parents’ education. If you invest massively in good quality education, you will make the economy much more innovative, many more people can become innovators. But you will also make growth more inclusive. We have many lost Einsteins in the U.S. of people who are very smart but they are born to poor families, whose parents did not give them the education and the aspiration. And making up with a good education system would make the economy more inclusive, but also much more innovative. And at the end of the day, to avert some better specialism that innovators would turn into conglomerates that would hinder innovation. You need a triangle, what we call the magic triangle.

The magic triangle is first, you need first to innovate. You need the state to regulate firms, for example, to impose more competition or greener innovation. But you need also civil society, because if you don’t have civil society, there is very much the tendency for incumbent firms to collude with the states. And to prevent that collusion, or to minimize the scope for collusion between existing enterprises, incumbent enterprises, and the state, you need the civil society, the media, the unions. To check on the voters, to check on the state, to make sure that the state is not in the hands of incumbent firms, and therefore, creative destruction can continue. And that’s what we believe this triangle is the response to Schumpeter’s specialism and it’s also the key for making creative destruction produce more inclusive and greener growth.

Questions for Aghion


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Benjamin Lorr

Topic: Disruption in Supermarkets
Bio: Author of Hell-Bent and The Secret Life of Groceries
Reading: The Secret Life of Groceries: The Dark Miracle of the American Supermarket is here

Transcript

Larry Bernstein:
All right, with that, we’re now going to go into an example of where creative destruction is going on right now, which is the supermarket industry. Our next speaker is Ben Lorr. He is the previously the author of Hell-Bent. And he is most currently the author of the Secret Life of Groceries, the Dark Miracle of the American supermarket. Ben, take it away.

Benjamin Lorr:
Let’s talk about ways the American supermarket is a miracle like you said, but some of its miraculous qualities contain tragic flaws that lead to consequences nobody wants and are kind of horrified by you have to understand just how enormous the grocery industry is, its sheer size. We spend $700 billion per year. By far our largest food expenditure, pre COVID and fast casual. We spend 2% of our lives in it, wandering aisles and buying. It’s also the cheapest system of groceries on the planet, the American grocery system, we spend the least amount of our income on food and also the lowest amount of our income in the history of the world. And the stores themselves are only taking tiny margins and all this like 1.5 to 3.5% to put this in perspective in 1900, our great grandparents were spending 40% of their budget on food.

And every year as the century advanced, that fell so that by the 50’s, our grandparents were spending 30% of their budget. And in 2019 Americans spent roughly 8% of their budget, just enormous amounts of saving. And it partly because it delivers this bounty with such incredible precision convenience regularity, it’s almost boring. The size and complexity gets completely ignored. And I think for people before Covid they didn’t give a thought to grocery stores. It’s just this miraculous engine of abundance, convenience, and low prices we’d completely taken for granted, which of course wasn’t always true. When the first supermarkets opened, they were greeted like circuses. The first one opens in Queens and people are driving 50 miles away to visit it. Housewives report, feeling faint, dizzy at it. And this is like a 9,000 square ft store, by the way, roughly the equivalent of convenience store today.

So you can imagine a housewife feeling faint and busy in one of those stores being transported to a Sam’s Club. And the echoing effects would be probably pretty profound. And I’m reinforcing all of this about the miracle of the supermarket both its range of offerings options that are available on our whims that weren’t available to the greatest Kings or pharaohs or emperors. And also the systems of logistics that are backing it up because, it’s so big that much like geological time or astronomical distances, it actually boggles the mind. Meaning our comprehension of the size actually gets in the way of intervening in it. The human brain is just used to much smaller numbers, simplify and localize, adding in abstractions to smooth out trade and or focus on what they can see right in front of them.

And this begins at the cash register where despite all the good intentions that we consumers elevate a few key qualities above all, mainly low price, high quality, lots of options and convenience, which if you pause and reflect on and squint, you’ll notice they’re all in tension with one another. And also as the supply chain and the deeper in the supply chain, we see these abstractions spring up around the notion of commodity goods and which, which are really the engine by which our, our food system runs. I think everyone here understands commodity, but it’s worth dwelling on for a second. These are goods that can be traded freely, fungible swap without worry. The commodity, the word is etymologically derived from the French word for convenience, like many conveniences it’s enabled by simplifying things, right?

So to play the commodity game, your goods must be interchangeable with one another certain characteristics get selected and elevated to define the product on the scale, maybe the pH of an apple set for juicing, maybe the aggregate protein content of a fish set to become fishmeal for farmed salmon and other qualities, quite intentionally vanish, maybe the precise species of those fish or how exactly the juicing apple was harvested.

In some ways thinking about commodity goods can be thought of like agreement around nuance and how deeply we’re going to look at something and what we’re going to elevate and what we’re going to kind of let vanish, this is all a great thing in many regards and responsible for that miracle. With commodity, we get the blessings of trade uniformity purchasing at scale stability, through advanced buying, industrial engineering, predicated on regularity as consumers, we get the comfort of consistency, but there are certain qualities, less empirical ones like wages paid to employees, requests for overtime housing standards for live onsite employees and farm workers, wages withheld six months ago that are particularly hard to abstract in a reliable manner. They’re hard to select and elevate into commodity goods and the commodity buyer, which is again, this guy who’s kind of the engine of, of our food system in the commercial kitchens are co-packing spaces or manufacturing centers where food made has a really hard time selecting for them.

Even if everyone in the system wants to elevate things like wages paid to employees and housing standards, it’s just hard to elevate them. And so while the global commodity structure can be very good at mandating some things like cooking temperatures and ensuring that frozen fish are held at a constant temperature it’s really bad at things like labor and working standards and coercion, which poses a problem, giving those pressures and those tension points. I mentioned at the checkout register as the market searches endlessly for low prices, commodity markets create a certain standard to play the game. So if you’re a producer, many aspects of your cost structure are very rigid. Like those freezers that you’re using to freez fish, but others like labor are not. And so when a buyer was faced with those tensions comes to ask for lower prices. Labor is the place where the costs ended up coming.

And the popular phrase for this is the race to the bottom. The results are fairly horrendous and they compound farther down the commodity chain. You go so dismal things like stagnating retail in the U S are high turnover of driving trucks are actually dwarfed by real human miseries, human bondage, modern slavery work in forced through beating violence. That’s endemic at the very bottom of the supply chain. And in my book, I go into great detail here. It gets extremely dark. I’m not going to dwell on it now, but again, size really gets in the way of intervention. Even with the best intentions grocery buyers can’t intervene into the supply chains. If they want to, the chains are so big, aggravators of aggregators, multiple layers of brokers that knowing the supply chain is impossible for a single person or even a a grocery buyer can’t uncover them without embarking on a full-time job, which of course is not their job.

It’s not their area of expertise. I would to NGOs who specialize in reforming some of these supply chains who admit they are learning as they’re doing. So it’s not something that you can expect them to learn. Despite prior conversations perhaps about retraining, this is not public facing information. And in fact, there’s a great deal of precarity and people willing to lie about me to maintain an image of virtue around this. But it’s very real in terms of the ability for suppliers in the grocery industry to control their supply chain. And I guess I’ll wrap it up by saying this is all really dismal stuff, but I want to highlight the opportunities, I guess, in the spirit of the creative destruction conversation that nobody wants the system. It’s not the case of greedy corporations who are willing to engage in the lowest level of trades.

It’s those grocery stores fighting for the 3.5% margins that I was talking about at the beginning in fierce competition. And they’ve heavily invested in solutions. They just happened to be solutions like the $50 billion, a year certification industry that just aren’t getting the job done and are huge waste. Consumers obviously don’t want images of slavery, child labor in their food. So there’s a tremendous opportunity for people who can either create value by creating smaller, more human scale supply chains or raise worker standards, which everyone says they want to a place where they can be seen and valued throughout the global chain.

Questions for Lorr


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