Shoeconomics: The surprising upsides to looking down

In a somewhat silly attempt to post-rationalise spending large amounts of time with my neck at a right angle to the floor, I thought I would investigate whether there is in fact any upside to looking down. By that I mean, could we possibly learn anything of value about economics, society and life in general from such a seemingly blinkered and narrow activity?

The moment to do so also seemed apt given the recent release of a star-studded asteroid-cum-climate catastrophe Netflix film, Don’t look up.

A sole-less science?

Let’s start with a little-known economist called Terry Pratchett:

“The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

“Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

“But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.”

Pratchett labelled this phenomenon “Boots' theory of socioeconomic unfairness”. We all know it simply as a ‘false economy’, yet routinely forget large chunks of society are continually trapped within its wretched claws; the JAMs (just-about-managing) struggling to un-stir themselves from a sticky and porridge-like poverty trap. So often, literary greats strike to the heart of giant disciplines like economics through deep insight into human nature, leaping off the page in ways economists could only dream of.

Thankfully, a thread using Pratchett’s idea went viral recently. Anti-poverty campaigner Jack Monroe raged about how inflation measures fail to capture the true cost-of-living challenges faced by the less privileged. In a series of tweets detailing the price increases of grocery items, she beautifully highlighted how flawed the methods used by economic statisticians to measure inflation really are; how their basket of goods isn’t properly adjusted to account for people whose weekly food bills make-up a much higher proportion of their discretionary income. The ensuing social media furore has led to a proposal to create the Vimes Boots Poverty Index.[1]

Veblen the ‘sneakerhead’

Scarcity is a key concept in economics. So much so that in his landmark essay on the nature of economics, Lionel Robbins defined the subject as: “The science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.”[2]

Adam Smith famously coined something called the ‘diamond-water paradox’. By this, he vividly pointed out water commands a low market price despite being a widely used public good and essential to life, while diamonds are luxury goods with a low use value but a high market price.

This dichotomy is another example of the flawed nature of economic models: so much of value, price and cost are bound up in moral judgements. Who decides what is a ‘public good’? And which goods and services should be subsidised?

Like Smith, the Norwegian-American economist and sociologist Thorstein Veblen understood this contradiction. He also realised that demand for some luxury goods can actually increase as the price increases – contradicting a key axiom of economics, that supply and demand always find equilibrium through trade-offs in price. Products behaving this way have become known as ‘Veblen goods’.

So, what does any of this have to do with shoes?

Well, it turns out that one brand in particular, Nike, has managed to achieve something close to Veblen good status with some of its limited-edition trainers. Using the American vernacular, collectors and fanatics are affectionately known as ‘sneakerheads’ and such extreme enthusiasts often camp outside shops on hyped-up days of release.

Nike figured out – and it is mainly Nike as it accounts for around 96 per cent of second-hand sneaker sales[3] – that the secondary market effectively becomes a marketing platform. By controlling the scarcity of its product, it made certain limited-edition shoes more coveted and in-demand.

Here’s a stylised example of what is going on. Let’s say demand is 100 and, and Nike decides to produce 96 (priced at $200). The shoes will definitely sell-out; there will be more people wanting pairs than have been produced, creating excess demand in the secondary market and pushing their value above the $200 retail price. But what if Nike produced 102 (and demand is still 100). In this case, it will likely sell considerably less than?96 and have excess supply.

The reason, as Josh Luber, founder of StockX, explains “is because once that demand-supply match crosses and now there's more supply than there is demand, sneakerheads don't necessarily?want?those shoes anymore. They are not worth more than the $200 they are going to pay for it. They are not rare: anybody can walk in the store and get a pair.”[4]

Producing more doesn't therefore cater to the sneakerhead’s desire to own trainers no one else has. Nike wants to produce as many pairs as it possibly can without crossing this delicate line and it must try to predict demand that is not a known quantity. Instead, demand is heavily tied to supply as scarcity can drive demand.

Sustainable sneakers?

I am left wondering about all those shoes, and all the natural resources that went into making them. Surely owning hundreds or even thousands of pairs of trainers (which in some cases they do), however beautiful, is not good for nature and Mother Earth. After all, our planetary resources are also scarce.

Rory Sutherland offers up a useful parable. In his book Alchemy, he explains that in nineteenth-century Prussia, the exchequer was grappling with how to fund the war effort against France. To help, Princess Marianne asked wealthy and aristocratic women to donate their gold ornaments. In return, they were given iron replicas with the words ‘Gold gab ich für Eisen’ (translation: ‘I gave gold for iron’) inscribed. From then on, the social status associated with wearing and displaying iron jewellery was far greater than wearing gold.

What if we collectively made eco-produced trainers the new gold, using the power of status and branding to create positive consumerist, behavioural and ultimately commercial feedback loops? Could they become a luxury Veblen good? It would likely take influencers to use their fame for good, and it wouldn’t remove the need for people to waste less, but it might represent a start. Now, there’s a circular thought.

Shoe Event Horizon

Ok. Let’s assume you got hold off those coveted and comfy Nikes – or even better, the eco-branded ones. The all-night camp-a-thon proved worth it. With laces firmly tied, it is time to swagger off in a different direction.

“Many years ago this was a thriving, happy planet – people, cities, shops, a normal world. Except that on the high streets of these cities there were slightly more shoe shops than one might have thought necessary. And slowly, insidiously, the number of the shoe shops were increasing. It’s a well-known economic phenomenon but tragic to see it in operation, for the more shoe shops there were, the more shoes they had to make and the worse and more unwearable they became. And the worse they were to wear, the more people had to buy to keep themselves shod, and the more the shops proliferated, until the whole economy of the place passed what I believe is termed the Shoe Event Horizon, and it became no longer economically possible to build anything other than shoe shops.”

In his unique absurdist way, Douglas Adams goes on to explain the result is famine, collapse and ruin.

Adams is clearly not an economist. However, on reading his five-part trilogy (and just as with Pratchett) you find provocative gems throughout; insights about money, inflation and how best to organise societies. And his creative description of SEPs (‘someone else’s problem’) is as good a definition of externalities, free riders and the tragedy of the commons as I have come across. If only I had been aware of The Hitchhiker’s Guide to the Galaxy in my teens – maybe I too would have found fertile and imaginative territory woven between the gaps in my shoelaces.

Tunnel vision: Walking the evolutionary line

Maybe there is an evolutionary benefit to looking down – perhaps that might help explain things?

The biology is best understood through the lens of tunnel vision. We know that under stress our world shrinks, our senses narrow to shut off all non-essential information and bodily functions. No need to worry about that mortgage payment when you have a lion running straight at you. Danger heightens our core senses and focuses the mind.

But what about longer-term threats?

It feels like something similar is at play. Computing, absorbing, let alone caring about everything that happens on the planet is impossible. To achieve this, our brains would have to be ginormous and consume way too much energy. Instead, we have to filter and forget. All the terrible things happening in the world today are too much to cope with. Much of the good stuff is beyond our cognitive capacities too.

Denial and tunnelled perception allow us to function and get on with life. Janan Ganesh recently pointed this out in the Financial Times, arguing constant engagement with the bleakness of reality is debilitating. He said: “You know something bad is at work but you teach yourself to ignore it for the sake of momentary relief or (which flows from that) long-term survival. People end up living successful lives in this way.”

None of this is irrational, either. In defending his fellow human’s tendency to look down (rather than up at the proverbial comet about to hit us), Ganesh goes on to say, “It is a subtle and humane choice that allows so much of practical life to go on”.[5]

Another person’s shoes

At an individual level, a degree of narrow-mindedness can make sense. But what about at a collective, societal level? Surely not. And what might be the collective noun for a group that falls foul of such evolutionary trickery? Yep, you guessed it: economists (sorry – I couldn’t resist![6]).

Several studies show economics is particularly insular, with professors and researchers the least willing to interact with and learn from other disciplines. Indeed, an academic paper called “The Superiority of Economists” attempted to quantify whether economists see themselves as superior to other intellectuals in the social sciences. The authors cite an article that shows how, of all the social sciences, economics has the strongest lack of interdisciplinarity.

This equates to self-isolation. The authors state: “In a 2006 survey, over 57 per cent of economists disagreed or strongly disagreed with the statement ‘In general, interdisciplinary knowledge is better than knowledge obtained by a single discipline’ – well over twice as many as in most other social sciences. Economists are the least likely of any social scientists to cite journals outside their field, and within the field, citations are predominantly to a handful of journals closely aligned with the leading schools of economics.”

It should be noted the survey was over 15 years’ ago, so one would hope things have improved. Also, the sample size of 100 individuals per field was not necessarily representative.

However, to give you an example of this myopia in action, physicist and popular science writer Geoffrey West recently conducted an experiment. “Indeed, I once did a little exercise: I took about half a dozen economics books, the big fat ones like Samuelson’s, and so on, and I looked up in the index: do the words ‘energy’, ‘entropy’, or ‘thermodynamics’ ever occur? Not once in any of them”.

The same sort of realisation is probably what prompted Friedrich von Hayek, Austrian and British economist and philosopher, recipient of the 1974 Nobel Memorial Prize in Economic Sciences, to say: “A poor economist would be someone who was only an economist.” Doing and being interested in a variety of things naturally expands our horizons, whether that be through learning new skills or meeting new people.

In addition to these limits of humility, part of the explanation for economists’ failure is a distinct lack of empathy and imagination. If they read Marcel Proust, the dogmatic among them would surely realise: “The only true voyage of discovery … [would be] to possess other eyes, to behold the universe through the eyes of another.”

In a world that faces a series of existential and hugely complex problems, these trends in economics are worrying. For if ever we needed to be open-minded, to harness the power of cognitive diversity and to imagine ourselves in the shoes of others, it is now. After all, constantly looking down gives you neck ache in the end. Doing so must be balanced with the occasional craning upwards (and remedial yoga classes, as in my case).

New Balance

In trying to figure out how to end this post, I realised there was only one thing I could do: look down. I gaze at my trainers in search of inspiration (my defence for wearing shoes inside is that it is extremely cold, and I have only just come in – mind fizzing with useless ideas).

What gem of insight or train of thought could possibly help me round this somewhat random post off with a flourish? I think about the particular brand of my trainers, New Balance, and see the answer has been staring me in the face all along. (I swear I have not made this up).

Enlightened economists – mainly female, though not all – are all calling for exactly this; a new way of finding balance and equilibrium within society and together with nature. Kate Raworth asks us to visualise a ring doughnut whereby the inner layer represents the minimum viable societal demands (standard of living etc…) and the outer ring represents our resource and planetary boundaries. Mariana Mazzucato in turn asks us to completely rethink the nature of value; how and who produces it, and who gets the spoils. Both are railing against the prevailing norms. Both are inspiring a new generation of economists and thinkers.

Unfortunately, I’ve yet to see anyone camping outside their lecture theatres but wouldn’t it be great if their insights and ideas turned into some sort of Veblen goods? Perhaps so much in demand the state would have to intervene – like with water – and subsidise their dissemination. But then I realise my error. That’s the beauty of ideas and education; through state intervention and the digital revolution, access to them is already largely free. If only we would pay attention.

[1] Terry Pratchett estate backs Jack Monroe’s idea for ‘Vimes Boots’ poverty index, The Guardian, Jan 26, 2022.

[2] Robbins, 1935, p. 16

[3] Josh Luber on Sneakers, Sneakerheads, and the Second-hand Market, EconTalk podcast. Jan 18, 2016

[4] Ibid

[5] No, really, don’t look up, Financial Times, Jan 29, 2022.

[6] Please note: I am aware that not all economists should be tarred with the same brush. However, as a collective they do have a lot to answer for and the incompleteness of their models is routinely overlooked by those who use and interpret them.