Posts Tagged ‘free markets’

Cheryl Strayed: Wild

April 16, 2014

imagesThis best-selling memoir relates Cheryl Strayed’s 1995 1100-mile Pacific Crest Trail hike, from lower California through Oregon. I’d urged it on one of my book groups, but an outdoorsy member objected vehemently: “You don’t go on such a hike as unprepared as she was. It’s just stupid.”

I finally persuaded her that the stupidity was actually what the book was partly about, so we read it.Unknown-2

Strayed, then 26, was kind of messed up, from her mother’s death, her recent divorce, and a heavy heroin bout. She embarked on this extreme hike – without much relevant experience – hoping to find herself. Or something.

Well, she wasn’t totally unprepared; in fact, did quite a lot of planning and prep work, including acquiring a ton of gear, and arranging a series of resupply boxes to be mailed to her along the route. But for all the actually meticulous planning, she did stupidly omit something obvious: a trial run.

“Ton of gear” was a slight overstatement, but only slight. The book describes her organizing it in her motel room the day before starting out, cataloguing all the items. While reading, I’m thinking, “how much does all this weigh?”

Unknown-1So she gets it all packed into (and dangling from) her huge backpack, which is sitting on the floor, and only now, for the first time, tries to lift it. Guess what? Can’t budge it an inch.

Well, somehow Strayed did manage to maneuver what she dubbed “Monster” onto her back, and even to stand up, and walk with it. Eventually a more experienced hiker she meets on the trail persuades her to offload some of her excess burden.

The other obvious (even to me) thing you’d want to test out beforehand is how the boots fit. Fairly critical, you’d think. They seemed to fit fine, in the store. On the trail, not so much.

In fact, the book startlingly opens with her accidentally losing a boot over a cliff edge. One boot being useless, she then throws the other over too.images-1

But later we learn this wasn’t as disastrous as it might seem. The ill-fitting boots were from a company called REI, and after suffering in them for hundreds of miles, wrecking her feet, another hiker tells Strayed to call REI and they’ll send her a larger pair, free. She did, and they did. So after losing the first pair, she managed to hobble on makeshift duct-taped sandals to the next settlement to collect the replacement boots.

Unsurprisingly, Strayed has some glowing words for REI and its customer service. This points up something I’ve stressed often. With all the “corporate-this, corporate-that” invective, many people view businesses in general as impersonal malefactors caring only for profits. And admittedly some are. But this ignores a basic aspect of the human character, and businesses are human enterprises. Most people don’t want to see themselves as evil but, rather, as doing good.

Thus REI’s kind of customer service is not in fact uncommon. (I’ve mentioned my terrific experience with 48 Hour Books.) Many businesses realize it’s actually good for the bottom line. In the long run, it’s those behaving like REI and 48 Hour that succeed and prosper. And, if you think about it, the great majority of your interactions with businesses are altogether positive.

But competition is a crucial factor here. I’ve also written of my less-than-terrific experience with enterprises that don’t really have to compete for my dollar (eBay and the Postal Service). That’s why I’m a believer in free market economics. Any government intervention should aim at greater competition, but too often actually undermines it (by aiding some businesses to the detriment of others).

Unknown-3Another company Strayed lauds is Snapple, whose lemonade was a sublime treat at civilization stops after long hiking stretches. Likewise she makes the reader almost salivate at how luscious a cheeseburger tasted on such occasions. images-2This points up another of my pet themes: how we take civilization and its benefits for granted. Cheryl Strayed, after a couple of weeks roughing it, most certainly did not. Coming out of the woods, a Snapple lemonade and a cheeseburger were for her a Very Big Deal.

So, did the hike straighten out her life? As we used to say in grade school book reports, read Wild and find out.

Finally, you might ask, is there any sex in it? There is. Only one episode, really. But hot enough that it made me put the book down and go looking for my wife.

Belief in Economics

October 26, 2013

UnknownEconomics has been called “the dismal science.” And calling it a “science” at all is arguable. Yet to me it’s the essence of understanding how the world works. As author Tim Harford puts it, economics is really about how people live.

I discovered his book, The Undercover Economist, at a used book sale. It proved a nice surprise.

A key theme is scarcity power. Economic power comes from control of something people need or want. The book starts with an illustration: a coffee kiosk at a busy train station. Coffee is not fundamentally a scarce commodity but, in that location, rushing commuters have no other source for their fix. Unknown-1That gives the kiosk scarcity power; so its prices are steep, and it does a roaring business.

You’d think that means high profits. Not so! The kiosk ekes out only a small profit. How can that be? Well, there’s a supervening scarcity power: the rail authority controlling the space. Vendors must bid for it, so it goes to the one willing to accept the smallest profit after paying the highest rent. So most of the profits from those high priced coffees actually go to the rail authority.

Scarcity power is one way in which markets can be less than perfect. In a perfect market, sellers compete freely, which drives prices down close to costs, minimizing profits and maximizing what economists call “consumer surplus” – the additional amount buyers would have been willing to pay if they had to. imagesCapitalism’s critics love to scoff that this “perfect market” picture is a fantasy. But in fact, many markets do approximate it. A major example is the airline industry, which generates little profit and hence much consumer surplus.

But meantime, a huge cause of markets being less than perfect is government intervention. Government can create scarcity power in many ways – such as protectionist restrictions on imports, or onerous licensing requirements for trades like hairdressers – as if it’s important to protect consumers from bad haircuts. images-1It’s actually existing hair salons that are protected, from competition by upstarts. And of course businesses use political power, and what amounts to bribery, to get such government thumbs on the scales.

But despite all that, don’t forget that no one is really forced to buy anything. Most goods have substitutes, which limits scarcity power. And buyers buy only when they value the purchase more than the money paid (or more than whatever they could buy instead). This leads to Harford’s second key theme – the world of truth. When pricing and purchase decisions are made in a free market, that creates information about what things are really worth; and that, in turn, dictates what is produced, how it’s distributed, and how resources get utilized. The result is economic efficiency, meaning nobody can be made better off without someone else made worse off to an equal or greater degree. Thus, an optimization of aggregate economic welfare.

images-3Having written in 2006, Harford could not directly answer another critique that has since become quite fashionable: debunking the idea of “homo economicus” making choices based on rational calculation of self-interest. Such rationality is another fantasy, we’re told – consumer decisions are subject to a host of weird biases — so market economics supposedly rests on a faulty premise. Yet the answer to this is clear from Harford’s analysis. The point is that people’s money is valuable to them, if only because of all the alternative ways they could spend it. And even if sometimes (or often) individual spending choices might seem irrational, it’s absurd to deny the rationality of purchases in the aggregate. Whatever might be said of a single $4 coffee buy, thousands of them tell us something indisputably true about how coffee is valued in relation to the myriad alternatives – again, “the world of truth” that market economics incorporates.

And, indeed, that’s the only way we can talk about value at all. “Value” has no meaning except insofar as people make choices among alternatives. Any other system for assigning value (like wage and price controls) is bound to be arbitrary and to result in less economic efficiency than people making choices in spending their own money. The market’s truth is the prime means for making the greatest number better off and fewer worse off.Unknown-2

I’m not an economist. But I don’t see economics as a body of abstruse knowledge; it comes down to logic and common sense. However, many people, who say they believe in science, don’t seem to believe in economics (at least not when it gets in the way of policies they favor).