Category — Economics

The social ethics of value are being displaced in the name of efficiency, reports Jonathan V. Last in a Wall Street Journal review of What Money Can’t Buy, by Michael J. Sandel (4/21/12). Traditionally, value has been defined in terms of the inherent value of the thing itself — a gift is meant to maximize "sympathy, generosity, thoughtfulness and attentiveness," for instance. This has become less true over the past several decades with the rise, for example of gift cards, which instead maximize efficiency. The advent of naming rights has similarly diluted the "inherent worth" of everything from stadiums to public parks to subway stops and even police cars. Announcers for the Arizona Diamondbacks are now "required to call home runs ‘Bank One Boomers’."

It gets a bit creepier in the insurance industry, specifically where life insurance is concerned. Originally, life insurance was "meant as a safety net for families," but over time it has become "a ghoulish investment vehicle … today companies routinely take out life-insurance policies on their employees because the policies are an excellent revenue stream, whether traded or held until collection. In recent years there has arisen an entire ‘life settlement’ industry in which investors buy life-insurance policies from the elderly. The quicker people kick the bucket, the higher the rate of return." This represents a change of attitude, a changing market morality, where anything becomes a commodity the moment we decide it can be bought or sold.

This can, of course, lead to bribery — because it is more efficient. When this happens, Michael writes, "it is important to remember that it is bribery we are engaged in, a morally compromised practice that substitutes a lower norm … for a higher one." And where does it end? Why not an auction for a spot in a top college, rather than getting in on merit? It would be more efficient and also ensure that the spots go to those who value them the most. However, it would also "change the meaning of ‘value’ as it relates to the idea of a university." In this view, "every tension can be resolved by seeking the maximally efficient outcome." Michael acknowledges that efficiency can in fact be "both necessary and useful," but warns that we need to be aware of its potential corrosive effect on our established values.

"… The competitive spirit capitalism engenders can sometimes inhibit the creativity it requires," writes David Brooks in the New York Times (4/24/12). David is encapsulating a view expressed by Peter Thiel, founder of PayPal and an early investor in Facebook. Peter is currently teaching a course at Stanford, the premise of which is that "we tend to confuse capitalism with competition. We tend to think that whoever competes best comes out ahead. In the race to be more competitive, we sometimes confuse what is hard with what is valuable. The intensity of competition becomes a proxy for value."

His argument is that "we often shouldn’t seek to be really good competitors. We should seek to be really good monopolists. Instead of being slightly better than everybody else in a crowded and established field, it’s often more valuable to create a new market and totally dominate it. The profit margins are much bigger, and the value to society is often bigger, too." He’s not talking about a monopoly in the traditional sense, though: "He’s talking about doing something so creative that you establish a distinct market, niche and identity. You’ve established a creative monopoly and everybody has to come to you if they want that service, at least for a time."

Unfortunately, our competitive environment undermines this. We compete to get into the best schools instead of the schools that are best for us, where we "have to jump through ever-more demanding, pre-assigned academic hoops" instead of "developing a passion for one subject … Instead of wandering across strange domains" we apportion our time, allocating it most efficiently. We similarly take aim for the top employment opportunities, "regardless of their appropriateness," where the job is "to beat the competition … the competitive juices take control and gradually obliterate other goals." Competition trumps value creation and "the competitive arena undermines innovation." But "you don’t have to compete; you can invent."

“It’s hard to check responsible consumption at the door and go back to mass-produced things that have no stories to tell,” says Bradford Shane Shellhammer in a Wall Street Journal piece by David Sokol (4/21/12). Bradford is co-founder and chief creative officer of Fab dot-com, a flash-sale website specializing in simple designs for household items. For example, Fab recently featured “garden tools created by a Montana blacksmith and forged-steel lighting made in Illinois that the site described as having an ‘unpretentious, minimalist sensibility with a rough-hewn edge’.”

David McFadden, curator of the Museum of Art and Design, says the appeal is a “lingering response to the economics of the past few years.” Ruth Storc, who keeps a blog called Design Patriot, agrees: “People are interested in all things artisanal, because they want to know where the things they live with are being made and by whom,” adding: “Perhaps there is a bit of backlash against globalization and technology.” Tyler Hays, founder of BDDW, a furniture designer, also notes that American labor costs are now more competitive with Chinese, and besides, “you can spend $4 in fossil fuel for shipping a $10 item overseas.”

Such forces are fueling a design trend becoming known as New American Minimalism that features “reserved shapes, natural materials, apparent construction and hand finishing.” For consumers, says designer Kimberly Ayres, the “basic yet refined lines allow more whimsical furniture pieces to stand out” while “the handmade quality is grounding.” For BDDW, it’s also smart business. “We’re making a bigger profit on pieces made in America than stuff made in China, and there’s huge, huge interest at the Anthropologie price point,” Tyler says. “It’s green and good for the economy,” he adds. “Local fits everybody’s agenda.”

“Food snobbery is pessimistic, paternalistic and most of all it is anti-innovation,” writes Tyler Cowen in An Economist Gets Lunch, reports Damon Darlin in the New York Times (4/11/12). Tyler, who also tends to a pair of blogs — Marginal Revolution and Tyler Cowen’s Ethnic Dining Guide — knocks foodies and notes that “the local farmer’s truck can use far more energy per pound of produce than the ship bringing in food from overseas.” He says this “is a sign of how much of the debate is about image.” A similar sensibility informs Tyler’s choice of grocery stores and restaurants.

Tyler favors shopping “in Asian supermarkets” because the “greens are a loss leader there … like milk at Safeway, and so are cheap, even as they are varied and of high quality.” With restaurants, he favors “immigrant restaurants” packed into strip malls, “like the ones along El Camino Real in Silicon Valley or on Main Street and Northern Boulevard in Flushing, Queens.” Or the mall “wedged between Falls Church and Alexandria” which is home to a total of 12 such eateries. He says he’s tried them all, and they prove that stiff competition helps ensure a quality meal.

The best food, according to Tyler, is “not the most expensive and is rarely found in Midtown Manhattan” (where, of course, there is no competition at all). The worst food, he contends, is largely a result of Prohibition and children. Restaurant food was better before Prohibition, he argues, “because the cost of alcohol helped subsidize the food. Restaurants that survived Prohibition were better at bribery and making connections than at cooking … Cheap food, and restaurants that catered to children, prospered.” Those children have also dictated “our food choices since the 1950s,” and are “one reason so much food is bland and not very nutritious.”

Rising levels of education and income were among the "hard metrics" prompting Whole Foods to build a new store in downtown Detroit, reports John Bussey in the Wall Street Journal (3/9/12). The area would seem an unlikely spot for Whole Foods, given that it "remains one of America’s hardest hit urban centers." But the Detroit section known as "Midtown" also "encompasses some important demographic anchors — Wayne State University, the Detroit Institute of Arts, and the Detroit Medical Center." Quicken Loans recently relocated 3,000 employees there and new shops, housing and restaurants are slowly attracting "more urban pioneers."

Eager to build on this momentum, Detroit gave Whole Foods significant tax breaks, and the retailer will lease its new 20,000 square-foot location for something less than the going rate. Whole Foods was further attracted by the "more than 800 community gardens," made possible by Detroit’s arson-created vacant lots. It also liked "the city’s bustling Eastern Market, one of the oldest and biggest farmers markets in the country. It draws in produce from throughout the region and sells it to supermarkets and restaurants. Up to 40,000 people shop at its Saturday Market. The new Whole Foods plans to buy there as well."

A focus group study by a local non-profit meanwhile showed demand for organic food among Detroiters,who were already spending big money at Whole Foods locations in the suburbs. So, for Whole Foods, it just feels right: "The market studies and the demographics get you a certain distance to your conclusion," says Red Elk Banks, operations chief for Whole Foods in Michigan, "but then you have to have a gut check." Independent supermarkets already in the area aren’t real happy, though, and some say that previous attempts to subsidize national grocers have failed. Whole Foods says its prices will be lower than those of its competitors, adding that it plans to hold "classes for residents on how to shop at the store on a budget."

Betsey Stevenson and Justin Wolfers "have become the go-to pair on the economics of marriage, divorce and child-rearing," reports Motoko Rich in the New York Times (2/12/12). The couple — who have a child but remain unmarried for tax reasons — met at Harvard and are now Wharton faculty and visiting fellows at Princeton. They have gained notice for the ways in which "economics pervades their personal lives." For example: "They sifted through unemployment statistics to find the optimal population of potential nannies" for their daughter, Matilda, and view the "low cost of two big teddy bears" in terms of "productivity gains."

Betsey and Justin remain unmarried because their analysis of the tax code found that it treats "a working couple’s dual income just as it treats the same amount of income earned by a working married person whose spouse stays home." Their problem with this is that a "married working couple often pays for child care and, if they’re relatively affluent, they may also buy many meals out and hire a house cleaner. Such expenses effectively lower their income. Their tax rate, however, remains unchanged." Betsey thinks the system is biased toward convincing "women to stay out of the labor force."

They also outsource domestic chores by hiring a nanny as well as "someone who drives them to work, cooks and does other chores. They use their extra time to do work that helps pay for all this." But there is one aspect of their personal lives where economics don’t necessarily apply: time spent with their daughter. Justin finds that his experience with fatherhood contradicts data showing that adults with children are less happy. "It’s visceral; it’s real; it’s hormonal and it’s not in our economic models," he says. However, Justin does see his time spent with Matilda as an investment, and has "learned new ways to value time — accounting for lessons in self-reliance, for example."

David Owen explores "the hypocrisies and paradoxes of living green" in The Conundrum, reports Michael Rosenwald in Bloomberg Businessweek (2/13/12). David’s essential argument is based on "an economic principle known as the ‘rebound effect’," which posits that efficiency gains are more than offset by the resulting increase in activity. For example: "Efficiency gains made beer cans cheaper to produce, transport and dispose of. The cost of popping a brew declined so that more people can do it, using up more aluminum cans."

Same thing with air conditioners — as they became “more efficient and cheap” more people used air conditioners. The list goes on: “The more affordable lightbulbs get, the more they’re left on. Airplanes are more energy efficient and faster than at any point in history, and therefore cheaper to fly longer distances.” And about that Prius — “as government officials have moved to increase automobile fuel efficiency, our gas consumption has gone up.” The problem with things like apps to find parking spaces, says David, is “they make drivers happier with their cars.”

As for farmer’s markets and locavores, David says: “If all the world’s groceries traveled from farm to fork in minivans, two bags at a time, we’d have exhausted many of the world’s resources years ago.” His solution is that more people should live in cities and car-makers should re-discover the Model T, reasoning, “If the only motor vehicles available today were 1920 Model T’s,” he writes, “how many miles do you think you’d drive each year, and how far do you think you’d live from work?”

Zappos founder Tony Hseih is investing $350 million of his own money in a bid to revitalize downtown Las Vegas, reports Brad Stone in Bloomberg Businessweek (2/6/12). The core of his plans involve funding housing, schools, tech startups and other new businesses via the Downtown Project, a for-profit venture. In addition, Tony will move his "1,400 local employees from suburban offices" to a downtown office building. "We decided on an approach that was more like NYU [New York University], where the campus blends into the city and you don’t know where one begins and the other ends," says Tony.

Indeed, the new Zappos headquarters will have "less space per employee than with the current setup." Tony’s idea is "that instead of holing up in conference rooms, employees will stream outside, into coffee shops and restaurants, to interact with their environment." He, himself, has "abandoned his Vegas mansion" for the top floor of a downtown condo, "turning part of it into a command center for his revitalization efforts."

Tony’s thinking aligns with that of Harvard professor Edward Glaeser, author of Triumph of the City, who noted that "when cities grow, productivity increases because of the serendipitous connections between people. When companies grow, they tend to become stodgy and bureaucratic." Tony admits he has no experience in city planning but he and his team say "they’re simply mapping out what they do know — how to build technology companies — into urban planning." Stephen Brown of the University of Nevada thinks Tony just might succeed: "Nevada is still a place where individual audacity can be really successful," he says.

James Livingston thinks Americans should stop saving for a rainy day because it’s already raining, reports Michael Rosenwald in Bloomberg Businessweek (11/28/11). James is a Rutgers University historian, whose new book, Against Thrift, makes the case that consumers should spend more and save less. He rails against what he calls the "new Puritans," or those "who regularly admonish us to stop being slaves to consumerism and recommend practicing austerity on an individual level."

Instead, he posits that consumer spending is what "drives jobs, economic growth, and the general fiscal happiness that causes GDP charts to show nice, steady upward curves." He writes: "We should now be empowering consumers by ensuring that they can earn, or rather receive, incomes sufficient to make their demands for goods and services effective." He thinks corporations should stop pouring profits into "speculative bubbles" and spend the money "on salaries (not just executive bonuses)" so that people can go shopping.

Most important, says James, we need to loosen up. "We apologize to ourselves, among others, for buying things we didn’t really need, or for indulging a child’s ad-induced desire for a molded plastic toy that will never decompose," he writes. Advertising, he says "sells freedom." Saving represses us, he argues, while spending liberates our identities. And so, his advice to consumers is this: "I’m urging them to see that saving for a rainy day — treating this life as an austere probation for another — is a soul-crushing emotional trap as well as an economic dead end."

Homely people should be protected against discrimination, writes Daniel S. Hamermesh in the New York Times (8/28/11). Daniel, an economics professor at the University of Texas, Austin, is author of a book called "Beauty Pays," in which he documents the many ways in which one’s looks determines one’s success. For example, "one study showed that an American worker who was among the bottom one-seventh in looks … earned 10 to 15 percent less per year than a similar worker whose looks were assessed in the top third — a lifetime difference, in a typical case, of about $230,000."

According to Daniel, this unfortunate fact is "a matter of simple prejudice. Most of us, regardless of our professed attitudes, prefer as customers to buy from better-looking salespeople, as jurors to listen to better-looking attorneys, as voters to be led by better-looking politicians, as students to learn from better-looking professors." And because of this, he thinks that ugly people should enjoy the same legal protections against discrimination as "racial, ethnic and religious minorities, women and handicapped individuals."

Such protections already are in place in California and the District of Columbia, and could be enacted nationwide "by small extensions in the Americans With Disabilities Act." Daniel also says that classifying people by looks is "not as difficult as you might think." He cites studies showing that "when it comes to differentiating classes of attractiveness, we all view beauty similarly." The only downside, he admits, is that given limited resources, "expanding rights to yet another protected group would reduce protection" for others. However, he adds, "you shouldn’t be surprised to see the United States headed toward this new legal frontier."