Elf Sternberg

The Kroger grocery chain recently held a shareholder teleconference where they discussed replacing all of the price badges on their shelves with digitial badges. The idea is that the stocker can just scan the product’s bar code and the digital badge will automagically update with the current price. Using e-paper, very low energy comm chips, and a sliver of solar strip along the top, the badges will be self-powering, self-maintaining, even self-identifying. IPV6 means there’s enough IP addresses for every badge in the store, they won’t be very busy most of the time so they won’t saturate the network, etc. etc. Technologically, the challenges of this plan are not that big. And this is not a terrible idea.

During the call, however, one of the presenters said that these badges also introduced the possibility of surge pricing, in the same way that Uber does surge pricing: when a product is scarce, they can instantly raise the price to reflect its scaricity, ensuring that only those who are willing to pay more for the product, those who truly demand the product, will pay for it.

If I was a shareholder in this deal, I’d be pulling out of Kroger the second they start rolling out their surge pricing idea.

My degree was in accounting, because in 1986 my parents thought “There’s no money in computers.” So I minored in CS. At the time I was doing so, formal “cybernetics” was a big part of the curriculum, thanks to Ronald Reagan. You see, the Soviets were still trying to cyrbernize their entire economy using computers, and for some reason the Americans became convinced that cybernetics was about computers.

It’s not. “Cybernetics” has become so corrupted as a word that a whole new discipline has been created to take its place: “Systems Thinking.” Either way, what they these terms mean has little to do with computers. Cybernetics is the study and modeling of a complex system, focusing on the flow of materials into the system over time and analyzing how those flows can be optimized to produce the best possible outcomes. The Soviets hoped to model the entire economy, every raw material and every factory and every individual need, to create a cornucopia machine. Needless to say, that was a bigger job than any computer they had could possibly have managed.

A forest is a system. The inflows are, well, water and sunlight and soil. The durable events over time are rain and sun and the seasons and the ocassional forest fire. A forest has evolved to grow at an optimal rate under its local conditions.

In the US Pacific Northwest, forestry is in a sustainable mode; the USDA (Department of Agriculture) and private forestry companies work together to harvest wood at a sustainable level. The forest recovers at a rate that is less than optimal (because humans are removing some of it), but which produces wood at a steady rate which USDA arborists regularly adjust, seeking an optimal rate. This works because the USDA owns a lot of the forest land in the Pacific Northwest.

In the US Atlantic Northeast, the story is very different, a cycle of boom and collapse. Most of the forests are privately owned. If a private forestry company does not harvest its forest to collapse, and another does, the one that does ends the cycle with more money than the one that still has a viable forest, and it ends the cycle with the power to buy out the poorer business. If they go bust, newcomers to the game with shiny MBAs leap in and hedge fund that sucker. But the forest is still there; ruined but arable. Replanting happens, and within 15 to 20 years the cycle begins again. It’s a classic prisoner’s dilemma: if anyone cheats, the system goes into overdrive and heads toward collapse again.

The Pacific Northwest arborists are always watching out for oscillations. Oscillation states are between “sustainable” and “headed for collapse”; take too much and the forest gets hurt, and recovers more slowly, and is unharvestable for a longer period. Collapse is considered different from oscillation because it’s both almost total and because recovery probably won’t happen within the timeframe of a business’s survival.

Grocery logistics is a similar system. There is still “time” in the Just-in-Time inventory and logistics systems of the 21st century. When a shortage occurs in a system, that’s an oscillation. Accounts who know their systems know that the way to figure out how to handle the shortage is to increase the amount of time inventory sits in a warehouse, maybe from one week to three, and then to start backing off until the rate of delivery from supplier to warehouse to retail outlet stabilizes. If you shorten the rate, try to push more inventory into the system in a short period of time to make up the shortage, you make the oscillations bigger as the system experiences a blockage of more product, less processors at the warehouses, and an inelastic amount of shelf space on which to sell it. You get these pulses of days when you have too much product, and days of not enough.


Surge pricing will damage the ability of acocuntants to determine that optimal rate. The market signal that something is wrong comes from a number of places, but one of them is a drop in the income from a given product. If you adjust the product price, you damage the system’s information flow. America throws away megatons of food every year; we overproduce by ridiculous amounts, and the same is true of many other necessary products: diapers, toothpaste, aspirin. A shortage in any of these is not a case of supply and demand; we are, as a civilization, oversupplied with all of them. It is a case of logistics failure.

Surge pricing is not an attempt to price something in short supply in order to meet consumer demand for a steady supply of a product. It is an attempt to paper over a logistics failure in order to meet shareholder demand for a steady supply of a profit.

Which brings us to the prisoner’s dilemma and the quarter-by-quarter punish-or-reward system of our current stock market. If Kroger tries this and shows even modest increases in profitability over two or three quaters, all of their competitors will follow suit. At which point, consumers will get deeply annoyed at unpredictable pricing with seemingly random changes day-by-day. Consumers will seek out alternative outlets and pull back on their interactions with big-chain grocery stores until the stores relent or collapse. Or Congress steps in and tells them to cut out the bullshit.

Surge pricing in a heavily oversupplied commodity market is a sign of MBA brain: logistics failures are an opportunity to reap profits, not fix the system. It will make the experience of buying groceries more anxious and miserable, so you know the psychopaths will love it.

Every morning, there's a ten-minute drive between my house and the local light rail station that takes me into the city and my day job. It's not long enough to be memorable, or short enough to avoid, so I tend to flip through the radio on the way to work, and since out of the give talk show stations in Seattle three are conservative, one is "conservative," and one is NPR (which is about as liberal as its corporate sponsors want it to be), I tend to get an earful of the right's zeitgeist.

They were really depressed this morning. Not one of them can see a way out of the mess Donald Trump's primary supporters have gotten them into. One guy, though, was putting on a brave face.

It's a common trope on the left that right-wing talkers take their own worst sins and project them onto others. It's well-documented that white people see racial equality as a zero-sum game: the granting of privilege to minorities is seen as a loss for white people. (And it's quite real; in all of the "he says what we're all thinking" commentary on Donald Trump, one thing these people feel deeply is the pain of not being allowed to mistreat minorities or women without obloquy. They miss that, a lot.) So when I heard a right-wing talker use the phrase "zero sum," I let the radio dial lie.

"Leftists believe in the zero-sum fallacy," he said. "They believe that if one group is making a lot of money, they must be taking it away from others. They don't believe in growth. This is why the right doesn't care about the 1%. You shouldn't care about the 1%. Fear of the 1% exists only because of the zero-sum fallacy."

Well, no, I wanted to explain. There are actually worse things than a zero-sum game. We could have growth, and the 1% could be sucking up all of the newly-generated returns, leaving nothing for the rest, which is exactly what's been happening for 40 years. Because r > g (The rate of return on capital is greater than the rate of economic growth, and regulatory capture dictates that it will stay that way for the foreseeable future), money generated through growth gravitates toward the biggest deposits, resulting in corporate fiefdoms, massive index pools, and more regulatory capture.

The 1% own 36.4 of the wealth. And here's the real problem: The rest of us simply don't believe the 1% generate the kind of economic growth that justifies allocating that much of the nation's ongoing income toward them. We don't believe that the CEO really generates 200 times the amount of wealth for a company as a factory floor worker. There are only so many hours in a day; the CEO can't create 200 times as much money per day, every day, compared to the steady output of labor.

Rich people don't really create jobs. Entrepreneurs do, but they're not "rich" people; they're entrepreneurs, who could be anywhere in the cash cycle from wealthy to indebted. It is the middle class, not the rich, that make the economy grow.

All of which is to say that one shouldn't listen to right-wing radio.

People seem genuinely perplexed by this report about how forcing a more capitalist consumption pattern to health care has led to sick people getting even more sick while consuming even less health care.

The scenario is one of low deductibles vs. high deductibles. Economists expected the patients with high deductibles to seek out competitive medical providers on the assumption that they would want to save money. The punchline to the study is that both groups actually had the same out-of-pocket expenses, since the high-deductibles group were being compensated with an employer-sponsored health savings account.

I don't see why this is a surprise. People are genuinely aware of how much "money" they have, even when it's in an HSA and isn't really "theirs" in a long-term sense, and are reluctant to spend it if they don't have to. This reluctance can even change the definition of "have to" upward.

But more importantly, nobody buys health care the way one shops for other things. Most people have an innate sense of what their weekly food budget looks like. They know the rhythms of income and expenditure on a monthly basis for rent and gas. They learn what it means at an annual pace to pay taxes, refresh their wardrobes, fix up their cars.

But one thing we know is that as we get older, we get sicker. And we have *no experience* to guide us. We can look at other people's numbers all day, but we have no innate feel for the problem ourselves. So we hoard money "just in case this is the year it all falls apart." This is the year cancer raises its fatal head, or a mangling car accident happens in the last fiscal week, or whatever.

This is why I'm for a single-payer system. It keeps people healthy.

Someone wrote, "I am a bad woman, because I am happy with my local Starbucks."

No, you're not. You're making the best of a lousy situation.

It became a lousy situation because you, and everyone like you, who lives in that neighborhood, each and individually, made a self-interested short-view decision about what you wanted, and Starbucks met that need well enough.

Starbucks is a corporation, a soulless, sociopathic entity in a struggle with other soulless, sociopathic entities for control of a niche within an ecology we call "the marketplace." It is made up of human beings, but no more cares about them than we do about the bacteria and mites that colonize and even maintain our bodies. Their marketplace ecology is made up of human beings, but human beings notoriously make short-term decisions that in the long run can ruin an ecology-- the classical example being the denuding of Easter Island-- and publicly traded corporations are pressured to make decisions about their short-term stock price over long-term viability that lead to "self"-interested decision making that can trash their own ecology just as much.

A Starbucks cafe' is a box owned by one of these corporations, and stocked with the tools of a uniform experience. That experience looks and smells like a law library, and when it's not sounding like a distant but automated railyard it's filled with music chosen by an algorithm and approved by a committee, the bulk of which is packaged as "edgy" or "innovative" but is generally inoffensive, nondisruptive, and occasionally ethnic enough to re-assure the listener that he doesn't just listen to white people singing to other white people.

You make the best of that situation as you can. The people in that box are still people, and they're people from your neighborhood. Their struggle is to find and maintain a personal, local identity within that uniformity, and to somehow maintain the neighborhood. The owner of that Starbucks struggles to maintain her neighborhood even as franchise and distribution costs mean that local dollars flow to stockholders rather than neighborhood grocers.

I'm not ragging on Starbucks particularly here. The same thing is true of McDonald's, or the Olive Garden, or Home Depot. I'm particularly sensitive to restaurants and cafes because eating is one of those super-intimate things human beings do with their bodies, often in public, that I really dislike seeing distorted into a uniform experience by the leveraging opportunities of an economy of scale.

But we've reached the point where even our vocabulary has become distorted by our market experience. We talk about solutions as "stakeholders" and "stockholders," we have a single notion about money and currency that's not a fiat of God or nature but a convenience of government. Corporations evolve strategies to take advantage of our narrowed worldview and the innate, natural, short-term thinking of the human brain, not out of any conspiracy but because that's the natural evolution of a successful corporation.

Sure, lots of people like their local Starbucks. There are two Starbucks within walking distance of my home. But nowadays I have no alternative without getting into my car: Starbucks successfully drove the local roaster out of business last year. Their location was poor compared to the one Starbucks could afford, they were two blocks further away from the concentration of the local population, and they tried to compete with the chains by imitating the chain's flavor rather than having any distinctiveness of their own.

If I want expensive coffee, Starbucks is where I go, too. But I can't help but wonder if a local cafe', with good coffee, where the place smells like a roaster, where each barista gets to set the music, and where the owner got to choose his own wallpaper, wouldn't be a more local, more intimate, more neighborly experience.