Daniel Sutter: Cupcakes, YouTube, and home production

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Daniel SutterHome or small-scale production of goods and services is surging in the U.S. Examples include YouTube videos, blogging and self-published books, craft beer, cupcakes, and home schooling. This craft production boom, I think, foreshadows our economy’s future.

Craft production has become quite substantial. People watch over three billion hours of YouTube per month, with 300 hours of video uploaded every minute. Over 700,000 books were self-published in 2015. We now have over 5,200 craft breweries, 2,800 commercial bakeries, and 6,000 retail bakeries. Over 1.7 million children (3.4 percent of students) are homeschooled.

This activity is generating substantial income. PewDiePie topped Forbes’ list of the top 10 YouTube earners for 2015 at $12 million, and cracking the list required $2.5 million in earnings. Google earns $4 billion in advertising revenue (6 percent of its total ad revenue) from YouTube.

And yet can home production truly make economic sense? England’s living standards rose in the 19th Century when manufacturers harnessed steam power to mass produce things like clothes and furniture. Mass production delivered these goods using far less total labor than home production.

Let’s consider some reasons why YouTubers, craft brewers and specialty bakeries are succeeding. Technology clearly matters; YouTube only came into existence in 2005. The internet allows customers to find craft producers and enables almost anyone to blog or self-publish books.

Craft producers make new variants on traditional products. Economists call such variants product differentiation; craft production is differentiation on steroids. Top YouTube earner PewDiePie, for example, specializes in videos of himself playing video games. Craft breweries pioneered flavored beers. Small bakeries provide the distinctive treats seen on Food Network’s “Cupcake Wars.”

And for many people, home production is a labor of love. People generate income from turning their passions and interests into products, services or videos, and accordingly will accept less than traditional jobs would pay. Home production also involves a challenge: seeing if your cupcakes, beers, or videos can attract customers.

Economists frequently assume that people buy the lowest priced product or take the highest paying job. But this is only true when two products or jobs are otherwise identical. Everything else is rarely equal, and a tradeoff has long existed between price and quality.

Craft beer can sell for up to $15 for a six pack, while major brands sell for less than a dollar a beer (especially if purchased by the case). Someone might quit a high paying job to bake cupcakes. The market economy allows people the freedom to do such things. Indeed, we do not have to justify purchases and job choices to government bureaucrats or even our parents. People have long made such choices; the self-employed, for example, earn about 35 percent less than they would working for a company.

Competition against the big brands helps ensure that the craft producers create value. Consumers who prefer big brands can patronize Budweiser or Coors, and craft beers must provide enough value to be worth their higher price. Similarly, Entemann’s and Hostess help ensure that $6 specialty cupcakes are worth the higher price.

The automation of manufacturing jobs and potential automation of jobs from taxi and truck drivers to news reporters and lawyers via artificial intelligence makes some fear the disappearance of jobs. Craft production, however, more accurately previews the future. Standardized jobs in large-scale production are most readily automated, while humans have an advantage over robots on new and unfamiliar tasks. Consequently, the production of big brands may be largely automated, leaving jobs predominantly in unique, high end products and services which people are passionate about. And inexpensive big brand products provided by automation help people afford craft beer and distinctive clothes.

After ensuring our survival, the market economy primarily provides us what we want. To date, most of what we want has come in consumption, but automation is helping produce the goods and services of modern prosperity. Increasingly we will take what we want on the production side, with more people getting to make videos and bake for a living.

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Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.

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