Out of fashion

Technology is sucking the glamour out of the economy

Photo by freestocks on Unsplash

Hello,

Welcome to Known Unknowns, a newsletter that’s always in fashion even as the industry isn’t.

The last fashion girl

In the early 2000s, New York, you could probably find me in a corner of the library quietly sobbing to myself out of frustration, as I worked my way through Kolmogorov and Fomin without ever having taken calculus. I would not recommend it, and I am still angry the preface says no mathematics training is necessary to understand the book. Russians can be so cruel!

The odd time I ventured outside I might see a fashion girl. They were everywhere in New York back then—slim, chain-smoking, well-dressed, a little stressed out, but always having much more fun than I was having. They worked in elite fashion houses or glossy magazines. They were, at the time, the complement to finance bros. The pay was poor, but there were the parties and the glamour. But they are not really a thing anymore; young women might work in fashion, but the industry does not offer the perks and glamour it once did.

I thought of this in the midst of the Carolyn Bessette Kennedy nostalgia wave. I think we are not just a longing for a time before smartphones; it is also for an economy that no longer exits. It was an economy where big institutions came first to individuals who worked there. They offered security, camaraderie, training, and a career path. People worked as a team not for individual glory but to build the institution. Many of these jobs don’t exist anymore. E-commerce and the collapse of print changed the economics of the industry. Today fashion girls are influencers instead.

And this is not because we’ve become more narcissistic (though that may be part of it). The economy has changed. Glossy magazines no longer have the big budgets, if they exist at all. Many of the great department stores that set trends have closed. Can you name a celebrity designer under 45?

Why give your labor to an institution when it offers so little? An influencer makes more sense. In many ways Bessette was the last fashion girl.

We are saving enough for retirement

Look, I agree we all need to save more. There is so much debt both at the individual and government level. But I am also not convinced we have a retirement-saving crisis either. It would be better if people saved more, but they have more than ever before, so if previous generations were OK, odds are Boomers and Gen X will be too.

My other controversial opinion is the move to DC plans from DB worked. It expanded access and retirement wealth because they are cheaper to administer, fund, and are more portable. They also benefited from a great run in the stock market. Can we expect that for the next 45 years? Who knows? That’s why we need to think about better insurance options rather than pushing riskier assets or another government hand-out to the wealthiest cohort in America.

I feel like we are losing the plot when it comes to financial regulation. DC plans were successful because they steered individuals to well-diversified, low-fee funds. But now there is a movement to get people into much riskier assets: betting markets, sports betting, private equity, and the like. I don’t understand why we can’t regulate anything anymore. It is either totally a free-for-all, or total prohibition. We regulate public markets and it works all right. We regulate alcohol consumption and that works kind of. We regulate when there are negative externalities or problems with information. Yet we have so many asset classes that fall into these categories and there’s almost no regulation at all. Or not good regulation.

The terrible hidden costs of NAFTA

A new research paper estimates that NAFTA and the China shock increased the mortality rate in communities that lost jobs due to trade. We talk a lot about compensating the losers from trade, but how can you do that when entire communities are negatively impacted, and a way of life disappears? Sending everyone checks is not sufficient. I am still a free-trader, but we don’t do ourselves any favors if we don’t acknowledge the costs that are not evenly felt.

Odds are we won’t experience a trade shock like that again. But we will face more technology shocks. Many manufacturing jobs were also lost to technology and it’s not clear it had the same impact on health and life expectancy. That could be because the change was more gradual. Or that the factories stayed open and just employed fewer people. This raises the question: will AI behave like a trade or standard technology shock? We can’t know for sure. But odds are it will be more like a technology shock. Also, it will impact younger workers, where NAFTA was bad for older workers. Younger workers are more able to adapt, train, and move.

Wealth taxes are stupid part 10,0000

And you thought the California plan was dumb. There is also a plan for a large regular federal wealth tax. I swear these proposals are written by an 8th grade social studies class, not imminent French economists. I wrote for City Journal how destructive it has the potential to be. Why are people so against evidence these days?

I also went on the Manhattan Institute podcast with Raf Mangual to talk about what our economic philosophy is. Not wealth taxes.

Until next time, Pension Geeks!

Allison