Tracing consequences both seen and unseen.
Josh SmithPonynomics: Economic Lessons from My Little Pony
Posted at 8:02 am on January 19, 2013, by Josh Smith

There are a number of important economic concepts illuminated by the excellent My Little Pony: Friendship is Magic episode “The Super Speedy Cider Squeezy 6000” (season 2, episode 15). I want to talk about them here, but warning, there are some pretty heavy spoilers within.

First off, here’s an episode summary from wikipedia(NB, the Apples are a family of ponies who live in Ponyville):

Cider season has arrived but the Apples cannot make cider fast enough by traditional methods to satisfy everyone. The Flim Flam Brothers (Samuel Vincent and Scott McNeil) arrive with their “Super Speedy Cider Squeezy 6000”, claiming they can make as good a cider in a faster time. When the Apples refuse to accept a lopsided partnership, Flim and Flam instead challenge them to a cider making contest for rights to sell cider to Ponyville. The contest starts with the brothers in a strong lead, but Applejack’s friends offer their help to speed up production. With their lead quickly diminishing, Flim and Flam speed up their machine, disabling the quality control. They ultimately win the contest with the most barrels of cider but the cider is undrinkable and they quickly flee town. With all the cider made in the contest, the Apples celebrate with everyone else in town.

 

My Analysis

Before the Flim Flam Brothers arrive with their machine, we see that every day there is a long line of ponies waiting to buy cider, and each day when the cider made that day is gone, there is still a long line of unserved customers. These long lines mean a lot of idle, wasted time for ponies who might rather be doing something else. Time has value, and time spent wasted in a line is a non-monetary cost of buying Sweet Apple Orchard Cider, even for ponies who do get served. An economist observing a line of unserved customers would immediately suggest that the supplier should raise their price so that the market clears. (Even ponies who get cider wait in a long line. A solution to that might be to hire some ponies to run a second or even a third serving station.)

Remember, a “cleared market” is not one in which everyone gets what they want, but one in which everyone who is willing to pay the market price gets the amount they want at a price they are willing to pay. If the Apples keep their prices low, there is an incentive for someone else to enter the market and sell — at any price the pony customers will pay, above or below the Apples’ price — to all the thirsty and under-served ponies.

Making Cider

Later in the episode we see that the process of making cider works thusly:

  1. Applejack kicks a tree in Sweet Apple Orchard, and the apples fall off the tree.
  2. Before they hit the ground, Apple Bloom scurries under with a basket and catches them.
  3. When a basket is full, Apple Bloom takes the full basket to Granny Smith
  4. Granny Smith sorts through the apples, discarding the ones she considers unfit for cider making, and sends the rest on down a chute, where they slide under a stone wheel, spinning under the power of . . .
  5. Big McIntosh, who trots on a treadmill next to the stone grinding-wheel.
  6. Cider comes out of a spout at the base of the tub in which the grinding wheel sits. When a cask is full, Big McIntosh must cap it, and replace it with an empty cask.

When the Flim Flam Brothers arrive, we see that they have a machine which does the following:

  1. Automatically retrieves apples from the trees via a large vacuum hose.
  2. Sorts the apples for quality
  3. Mashes the apples into cider
  4. Outputs cider and seals the casks

The only input involved in operating this machine — the titular Super Speedy Cider Squeezy 6000 — is some magic from the Flim Flams, who are unicorns (in the world of MLP:FIM, there are three types of ponies: unicorns, who have the power of magic; pegasi, who can fly and also control the weather; and earth ponies, who till the hard earth). It is certainly worth noting that not only is no direct labor involved in any of the steps of cider production for the machine, but it also saves steps, such as transporting from one stage to the next.

Quality of Product

Once the Apples’ see the SSCS6K in action, they insist that the cider it produces must be of inferior quality to their more labor-intensive cider. Let us assume that the Apples’ cider is in fact far superior to that put out by the machine. Assuming a sufficiently discerning customer base throughout Equestria, this means that the Apples can sell their cider for a higher price than the Flim Flams can. This is a good time to apply the Alchian-Allen Theorem.

By what is almost certainly an enormous coincidence of an example product, AAT is often abbreviated as “ship the good apples out.” Here’s my summary of AAT: Assume you are a producer of a good that has differing levels of quality, like apples in an orchard. You quality grade some of your apples as High Quality and some as Low Quality. Further assume that you produce more apples than you can sell locally. Which apples should you ship out, the High Quality or the Low Quality? AAT postulates that, other things being equal, you should ship out the thing that sells for more money, as your shipping costs are the same either way, and this way you make the highest return on your shipping costs. (for more on this, I recommend the wikipedia article on it.)

What I am getting at here is that the Apples’ should ship their Sweet Apple Orchard Cider out to Canterlot, Cloudsdale, Appleloosa, Manehattan, etc., while the people of Ponyville drink the less expensive cider produced by the Super Speedy Cider Squeezy 6000. However, this proposal assumes that there are enough apples to meet both competing needs.

There Isn’t Enough to Go Around

On the one hand, the Apples make cider because that’s what the ponies in town want, but they’re not doing it for free. They make several dark and cryptic references to “losing the farm” if they somehow do not manage to sell all of their product. The incentive for them should be to make as much money as possible with their limited resources. If the people of Ponyville have sufficient demand, they can buy cider elsewhere (perhaps from the Flim Flam Brothers, as I suggested above, and provided the Flim Flams can get a supply of apples).

If the end goal is serving every pony in Ponyville, it’s clear that the scenario we have now is not optimal. There should be some middle ground in between the extremes of

  • the Apples leave a huge line of thirst ponies at the end of every day and
  • the Flim Flam Brothers and drive the Apples into the poorhouse

Perhaps a temporary lease at the beginning of the season to accumulate a store of cider for especially busy days when the artisanal cider supply runs dry, and hand-crafting for other times.

But these options are never on the table in the episode. Instead, Granny Smith foolishly puts her ancestral homestead and the livelihood of all those dear to her on the line against new-fangled machinery in a head-to-head, speed-based competition. So they battle: and may the ponies who produce the most cider in an hour have exclusive rights to sell cider in Ponyville.

The Faceoff

Once they begin the competition, the Flim Flam brothers rest on a couch while their machine rapidly out-produces the Apples’ fastest efforts. Applejack’s friends step in to help the Apples, and they begin to outpace the Flim Flams, so the Flim Flams turn off their quality control and begin outputting cider barrels that contain not only rotten apples, but leaves, sticks and liquified wood pulp from entire apple trees that get sucked into their input nozzle.

Once the time runs out on the competition, Flim and Flam have more barrels of cider stacked up than the Apples and are declared the winners with exclusive rights to sell cider to Ponyville. The Apples dejectedly declare that they must pack up and prepare to leave town.

Gresham’s Law

But of course, once any pony gets a taste of the Flim Flams most recently packaged brew, they spit the contents of their tankard right back in Flim and Flam’s faces. No pony wants to drink cider that is 80% wood pulp.

Should the brothers have even been declared the winner? Why was there not a quality floor set on what would constitute “cider” for purposes of the competition?

Here another economics concept rears its head: Gresham’s Law. Gresham’s law as initially conceived applies to money. If the government issues coins with silver in them, and says that the coins are worth $1, and they have 80 cents worth of silver in them, everyone will use them as dollars in their day-to-day life, spending them when necessary. If there are other government issued coins that the government says are worth $1 which have $1.10 worth of silver, people will hold on to those coins and spend the others instead. Some people will even melt down those more valuable coins and sell the silver for it’s higher value (even though melting down coins or otherwise destroying government-issued money is often illegal). Gresham’s Law is often summarized as “bad money chases out good.” That is, the coinage which has the lower alternative value will be used as money, while coinage with a higher alternative value will leave the economy and sit idly or be destroyed for it’s alternative-valued use.

How do we get from there to “bad cider chases out good”? Well, the money aspect of Gresham’s Law can be analogized for other situations where something is asked for. Without what David Friedman calls “the discipline of constant dealings” — that is, the incentive to be nice, knowing that you will meet the person you are being nice to again and want them to be nice back —  the Flim Flams have no incentive to produce cider of any particular quality. Just as how the law calls for people to accept any legal tender for their debts, and so people use the lowest silver-content coins the can; similarly, when the bet calls for who produces the most “cider,” there is an incentive to produce the worst cider that can possibly be produced quickly.

Quality Again

What usually is, and should be, the arbiter of what is produced and sold on the market is customer demand. And we see in the episode that the Flim Flams can’t sell their lousy cider at any price. But this is a highly artificial outcome that has nothing to do with a real market. The owners of the two cider-producing firms made a bet that had nothing to do with actually pleasing their customers. They may as well have had a jet ski race to see who should sell cider (though it’s probably hard for a horse to operate the throttle).

If the Flim Flam brothers had not turned off their quality control, perhaps they would have produced something that ponies wanted to drink, even if not as fast as the Apples (with help from Applejack’s friends).

Competition

This episode is largely a bad example of market competition, in that the two firms chose to compete with something other than sales. Even typical market competition is not over who can produce the fastest, or who can sell the most, or anything as simple as that. All that matters to any individual firm is whether their revenue covers their costs, and that there is enough profit to encourage them to keep doing what they are doing rather than changing (to making something else or to producing in a different way, etc).

In then end, Apple Bloom observes that because of the race, the Apples have produced enough cider for everyone to get some (today). This illustrates that competition (even market competition) motivates producers to work harder than they otherwise might in order to satisfy their customers.

Final Lesson

Episodes of My Little Pony: Friendship Is Magic usually end with a character writing a letter to Princess Celestia to illustrate what they learned that week (usually a lesson about friendship). Despite the many opportunities for learning in this episode, Applejack writes in her letter that she learned nothing. This is also contrary to Princess Celestia’s request that she get a letter from whichever pony learned something.

“From this day forth, I would like you all to report to me your findings on the magic of friendship, when, and only when, you happen to discover them. ”
— Princess Celestia (season 2, episode 3)

I will conclude with one final lesson that I feel that Applejack could have learned about capital. Capital is a blessing and not something that should be dismissed or disregarded. The apparatus that Big McIntosh uses to smash the apples to cider is capital; if not for that, they’d be crushing apples into cider by hoof. The baskets that Applebloom use to carry the apples around are capital; if not for those, she couldn’t carry as many, and each load of apples would take lots more work to move. Even the method the Apples use to manufacture their cider is a form of capital; if someone had not taken the time in the past to develop that method, they’d be serving apples alone to their customers, instead of delicious Sweet Apple Orchard brand cider. It’s easy to take the things we have around us for granted, but many of those minor things that make our lives more pleasant or convenient are the result of someone who came before doing lots of extra work — after their normal day’s work was completed — in order to find ways to make life better in the future. Inventors and enterprising individuals have to invest labor up front for an uncertain future payoff, but when they come up with something that increases convenience for themselves and others, it pays labor-saving dividends for years to come.

The Super Speedy Cider Squeezy 6000 is one such example. Equestria is a better place because there is a machine that can do the work of four hard-working ponies at once, with no additional labor input. Embracing technological change means more free time to plant trees, make things, and even sit and drink cider while enjoying a beautiful day. Work can be it’s own reward, but that is no reason to squander our precious and limited time by swearing off conveniences. Machines that make things easier mean more time to figure out and do whatever is most important to us.

Even though Applejack did not learn this (or any other) lesson, we still can.


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Henry Hazlitt"[T]he whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."
Henry Hazlitt, Economics in One Lesson
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