April 22, 2016

Gold Tops, Globalism, and Marginal Benefits

Kranz's Law: Economics can always be explained by guitars. There is a guitar example for every important economic concept. I'd write a book but the opportunity cost is too high.

Feast thine eyes upon my new Epiphone Gold Top Les Paul. That would have been called a copy back in the day, but Gibson owns Epiphone and has decided sales of the inexpensive Epis outweigh branding concerns.

My first good guitar was a Goldtop 1974 Gibson Les Paul Deluxe. I paid $400 for it used. My Father tried to dissuade me, then folded and loaned me half the money. He came to my room to see it saying "I just want to see what a $400 guitar looks like." We were out of Bretton Woods, but Arthur Burns's Fed Policies had not yet wrought their havok: $400 was a lot of money.

My Facebook friends may have seen that I picked up the Epiphone last Monday for $299 with Free Shipping. Using a general PCI deflator, the 1975 equivalent of $299 2016 dollars is . . . round down, carry the one . . .nothing. No, I'll be nice. This site says $66.98.

But here's the thing: You could not get a very good guitar in 1975 for $66.98. The less expensive instruments were constructed poorly, were difficult to play, and didn't sound very good. You might score a cool used item from a pawn shop. My buddy got a Fender Mustang that either of us would kill to have today. But the bargain hunting beginner faced a hard slog. Thanks to globalization and exciting musical advances like supply chain management, the stores and websites are flooded with really nice $200-500 guitars. I've seem some for $89 or $99 that a kid could learn on.

Nobody loves nice expensive guitars more than me. Most superlatives require qualifiers, but this statement does not. I loves me some nice guitars. Here is the real Gibson equivelent for $2799. They have more expensive and less expensive models, but the Epiphone - Gibson spread is roughly $300 against $3000. (The ES-359 next to it in the picture cost about $3500).

And worth every penny (well, the ES-359 is -- I an't payin' no three grand for a gorram Les Paul!) That's what marginal utility is. You could hand both guitars to a great player or to a blind Venusian and they'd pick out the more expensive instrument in a couple minutes. And yet, the cheap one is cool. I glowed after playing it last night. I'll hot rod the electronics a bit and it badly needs a professional set up. But it is great.

And that brings us to income inequality. Russ Roberts likes to say "Bill Gates has 70,000 times as much money as me -- but does he eat 70,000 times more food? His car is nicer. Is it 70,000 times nicer?" In 1975, the difference between Les Pauls and knock-offs was big, Generic food, when introduced, was inferior in quality to name brands. Now the grocers sell premium store brands of many items. I suppose Gordon Ramsey can tell them apart, but I'm not sure I can. And I'd rather spend the difference on guitars.

In as much as "the poor" are starving, lets fix it. But if they're playing Epiphone Les Pauls and using iPhone 4's instead of Gibsons and iPhone 6's -- sign me up for "heartless."

Economics and Markets Posted by John Kranz at April 22, 2016 11:01 AM

"That's all well and good, for those of us who are rich enough that we can afford ONE guitar, not to mention THREE. [I know you have many, many more, but I'm role playing here.] Some of us can't afford to miss a day of work when we're sick, or have a sick kid, or pay for unexpected car repairs, or pay rent without working because we have to take care of our mom, without our Earned Income Tax Credit. And it really is heartless to crow that luxury items have come down in cost, since everybody knows that the necessities have gone nowhere but up!"

Posted by: johngalt at April 22, 2016 6:59 PM

Well yeah, there's that. But "Let them play Epiphones!"

Posted by: jk at April 23, 2016 1:48 PM | What do you think? [2]