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The Field Notes Bubble

If you do a quick search of eBay, you’ll find a surprising thing: packs of limited edition Field Notes notebooks that once retailed for $20, listed — and selling! — for hundreds of dollars. This has led some people to wonder if there’s an emerging bubble in Field Notes and so today, we’ll have a look at whether there is and what (if anything) should be done about it. 

For those of you who don’t know about Field Notes, it’s a brand of pocket notebooks with a quarterly, limited edition release with some awesomely creative designs. The notebooks aren’t my thing — on the whole, they don’t suit broad, wet nibs — but they have become crazy popular over the last few years and many people have gotten into collecting sets of the limited editions. 

This came to my attention in this week’s Pen Addict podcast, when the guys mentioned a complete set of Field Notes that listed for US$4000 and later sold for an undisclosed sum (likely less than the full price). In the chatroom, one user called it a bubble and was surprised when I said that I wasn’t sure if bubbles existed. Although this is a mainstream position in economics, it certainly didn’t feel mainstream in that discussion and, when I followed up with some non-econ friends, it became clear that the public’s view is much more certain than the academic one. 

While my position is mainstream in economics, it’s by no means uncontested. There are plenty of economists who believe in bubbles and the 2013 Economics Nobel went to three guys for their work in this area: Eugene Fama, who argues that bubbles don’t exist, and Robert Schiller, who says they do. (Only in economics would our highest prize go to two guys with completely contradictory views.) The third winner, Alvin Hansen, developed some statistical tools for interpreting the data.

So it’s a contested idea, and one where we don’t yet have a good definition of what a bubble is. Without a definition, it’s hard to prove whether something exists. But most economists agree that a bubble is when actual price detaches from fundamental (supply and demand) factors and is artificially high. A bubble can burst and have prices crash, it can deflate gradually, or simply sustain itself indefinitely. The popular understanding of a bubble — high prices inevitably followed by a crash — can be a perfectly natural, non-bubble phenomenon. 

We can understand a bubble by breaking down the benefits of owning something (like a rare Field Notes pack) into two categories: use value and asset value. The use value is how much pleasure or satisfaction we take from using a product (or having it as part of our collection) while the asset value is how much it is worth as an investment. Estimating the use value is easy — how much would you pay to be able to own or use the product — but estimate asset value is a little more complicated. 

To do it properly, we need to think about future supply and demand and estimate what we think the price will be at a certain future date. By comparing the future price to the current price, we can estimate the return on the investment, and therefore the asset value. When people skip this step and make guesses or unrealistic assumptions about future value, things start to get a bit iffy. 

Let’s use the example of an old, rare Field Notes edition. On the supply side, we can say that production has been discontinued and that most collectors are unwilling to part with their set. On the demand side, we might see that the number of collectors are increasing and they’d like to own our edition. That means it’s likely future value will increase in the next year, and maybe we’ll estimate how much more new collectors will be willing to pay. Another 5%? 10%? These kinds of estimates are basic but reasonable. On the other hand, it’s unreasonable if we skip this step and just look at prices from the last few years and assume that they will continue rising as they have in the past. If we make this assumption, our estimates of the asset value will be exaggerated and that might lead us to start buying up editions — even at unreasonably high prices — so we can profit from future increases in value. That’s when the bubble is born. 

So two conditions must be satisfied for a bubble to occur. First, there must be some limit on supply — if there weren’t, Field Notes would reprint issues whenever the future price rose and they would capture all the profits from that increase in demand. There would be no return for anyone else. Second, a bubble depends on the irrationality we saw in the previous paragraph. But it can’t just beone person’s irrationality as one person is unlikely to have the funds (or willingness) to buy up enough product to cause a bubble. Instead, the irrationality has to be (somewhat) widespread. This is why the term ‘mania’ is often associated with periods of apparent bubbles (e.g. Tulipmania). 

Rationality is the stumbling block for the idea of bubbles. It’s a fundamental assumption in economics. All of the mainstream models assume that people behave rationally (to some degree) in the choices they make with money. This can just mean that they think through their choices and decide to do what’s best in each situation. (In my opinion, economics is at it’s best when it tries to understand and explain things from the perspective that people are behaving rationally. It forces you to really think about things from the point of view of the decision maker, and doesn’t allow you to take a shortcut and say that people are making mistakes. This can give you some useful insights into behaviour.)

But guessing about future prices isn’t rational at all, it doesn’t fit with how we think about behaviour, and that leads most mainstream economists to conclude that bubbles don’t exist. If prices go up and down sharply, that can be explained because of some sudden, unexpected changes in supply or demand. Perhaps prices are high because demand is high and supply low. Perhaps they will fall suddenly when people decide it’s not worth collecting. 

On the other hand, behavioural economists disagree with the idea that we behave rationally. This makes it easier for them to support the view that bubbles can exist. They complement the work of Hyman Minsky, who claimed a cyclical effect exists with bubbles: successful investments create optimism, that leads people to become more comfortable taking risks with their investments, that pushes up asset prices, and even more people join in. This continues until prices stop rising for some reason and investors — particularly those carrying a fair bit of debt — suddenly freak out and start selling. Confidence disappears and the market collapses. (Which then creates the conditions for successful investments, restarting the cycle.)

While this view fits the popular idea of bubbles, there are some bubbles that deflate gradually and don’t seem to have a spark (a ‘Minsky moment’) that leads prices to crash. We don’t have good explanations for why that might be the case, or why they even deflate in the first place. So the idea of bubbles is incomplete at best, and that makes it somewhat unconvincing: when you can’t define something or explain why it happens, it’s hard to convince someone that that thing is a real phenomenon. 

It all reminds me of a story I heard from Brian Anderson. He and his now-wife, Lisa, were competing collectors of vintage Esterbrook pens. That demand pushed the price of some rare and sought-after pens to enormously high levels; since they married and combined their collections, that level of demand has subsided and Brian says that prices are unlikely to ever reach those heights again. Although many people would have seen the steady increase in prices as a sign of a bubble, prices only rose in line with demand — actual price remained true to fundamental price — and so we must conclude there was no bubble, only a temporary increase in demand.

In the same way, when we are looking at high or increasing prices with Field Notes, we cannot automatically assume there is a bubble. If there is a legitimate increase in the number of people willing to pay a high price for some packs — perhaps because they are collectors who really value having a complete set, or speculators who reasonably believe prices will be higher in the future — then the higher prices are justified by fundamentals, and no bubble exists. But if most people are only buying because they hope or assume prices will continue to rise, then there certainly could be a bubble. 

Not being a Field Notes person, I can’t make a judgement. But my prior beliefs about economics make me think a bubble is unlikely: I suspect that the market for the rarer editions is actually incredibly small, few people with spare copies they are willing to sell (except at a massive premium) and only a few collectors who are willing to pay high prices. In many cases, a handful of additional copies in the market might be enough for prices of some editions to drop significantly. This isn’t a bubble bursting, just changing fundamentals. Of course, that’s my opinion — and my prior belief is that bubbles don’t exist — and you should make up your own mind.

But whichever side you come down on, it’s an important question for collectors and investors. Partly because it should shape their view about where prices will go in the future: if you don’t believe there’s a bubble, it’s possible prices will continue to stay high — or even rise — in the future. If there is a bubble, prices are likely to decline at some point, possibly very sharply. 

It’s also an important question for Field Notes themselves. If there is a bubble, it’s probably pushing up demand for their new releases as speculators buy at the retail price and prepare to sell in several years time. Once the bubble bursts, that demand will disappear — and a business that has built itself around selling 20-30,000 copies of each release may find they can only sell 10-15,000. That means investments in equipment could go bad and employees might be laid off. It would also impact their brand and reputation; customers who have been burned in the secondary market might abandon the brand. 

If they feel there is a bubble, they can take action now to flood the market with new editions and reprints of old editions to eliminate the scarcity that drives high prices. While this eliminates the bubble, it may also alienate genuine collectors who have built a set of something rare — only for it to become much less rare. It’s not obvious to me if the benefits of this are greater than the costs, but I strongly feel that any business interested in sticking around for the long term should put products users first and speculators second. 

So, ultimately, economists are much less certain bubbles exist than most other people and the Field Notes market doesn’t convince me otherwise. But it’s nonetheless a question that has consequences for how the brand should operate, and therefore well worth consideration.