I just went to a play. They were selling peanut M&Ms for $2 at the concession table in the theater lobby. But then it turned out you could get the same M&Ms for a buck from the vending machines near the washroom. I could have cleaned up.
Economics & Finance
Are Things Looking Up?
Krugman is a contrary indicator. The combination of this column and the fact that Intrade now shows Republicans as having >50% odds to take over the House in 2010, gives hope. Political gridlock would be great for the economy.
Mini-Book Review — Ridley — The Rational Optimist
Ridley, Matt, The Rational Optimist: How Prosperity Evolves
Matt Ridley is a well-known British science writer who, in recent years, has specialized in writing books for the general public on new research in biology … evolutionary biology
For well over a decade I’ve enjoyed his books and been very impressed with the quality of his writing, so “on spec” I put a library hold on Ridley’s latest without paying much attention to what it was about. That decision turned out to be a wonderful piece of serendipity. I’ve been reading about European “trading republics” (ancient and modern) for a few years, and trying to assemble an amateur theory about how economic dynamism and technological innovation follow, or are reinforced by, republican values. Whether Athens, Rome, Venice, Genoa, Antwerp, Amsterdam, London, Liverpool, Glasgow, Boston, or New York and Montreal, trade under republican regimes creates massive relative wealth and huge leaps in human knowledge and standards of living.
Now Matt Ridley looks at the innate human capacity for “exchange” … and how that unique capacity affected the course of prehistory, the introduction of agriculture and “civilization,” and more latterly, the shape of the industrial revolution and the modern world. Underlying the politics of republicanism, and individual freedom, we can see the human appetite for exchange creates persistent economic advantage. Trade flows from comparative advantage, in the words of David Ricardo, and comparative advantage relentlessly rewards more specialized use of the natural environment … from the labor of humans carrying sea shells inland for trade 80,000 years ago, to the labor of domesticated horse and sheep and dogs largely for human benefit, to the use of vast quantities of ancient vegetable matter (in the form of petrochemicals), to extend the efforts of humans out of all proportion. Our species is most prosperous when most specialized, when most dependent on the differentiated talents of thousands of others. We now can live lives like the Sun King, without a retinue of thousands.
In this book I have tried to build on both Adam Smith and Charles Darwin: to interpret human society as the product of a long history of what the philosopher Dan Dennett calls ‘bubble-up’ evolution through natural selection among cultural rather than genetic variations, and as an emergent order generated by an invisible hand of individual transactions, not the product of a top-down determinism. I have tried to show that, just as sex made biological evolution cumulative, so exchange made cultural evolution cumulative and intelligence collective, and that there is therefore an inexorable tide in the affairs of men and women discernible beneath the chaos of their actions. A flood tide, not an ebb tide. p. 350
Car Dealer Economics
Recently I purchased a car and came face to face again with the befuddling economics of car dealerships. My brother, who is an expert car negotiator, helped me out a lot doing research and negotiating with them in the crazy, we-aren’t-ever-going-to-see-each-other-again style necessary not to get ripped off at the dealer.
The car dealership that we were working with had masses of cars on his lot. A co-worker of mine said his buying power was increased because while he was haggling a big rig came onto the lot full of cars to unload and it was so packed that there literally was nowhere to put the newly arrived autos.
While every other industry in the world seems to be moving to a just-in-time model or some sort of centralized distribution warehouse (Amazon), the car dealer industry uses the sad, old-fashioned methods of packing their lots with autos and then cutting each others’ throats to get an incremental sale. Rather than having the exact car you want by having you order it and wait for its arrival (BMW still does this, at least according to a friend of mine who recently bought one, and Scion does this, too) – my dealer just tried to sell me the closest one to what I wanted on the lot.
My brother, being a crazed car buyer, actually uses the technique of 1) determining the car you want 2) asking for a different, similar car to what you want that you KNOW the dealer doesn’t have on the lot 3) threatening to walk away because they don’t have the car that you knew they didn’t have in the first place and instead having to “settle” by having them offer you to take the car you wanted in the first place, for a discount.
One major problem with this methodology is that the car buyer (me) leaves this experience with a terrible feel for the brand rather than a positive view, based upon interaction with the dealer. This sort of marketing is suicide given that a repeat customer is critical to the long-term success of a car brand. The second major problem is that having all this inventory on the lot causes all the dealers to drive down prices since they need to move these cars quickly which isn’t the most profitable outcome.
It’s easy to have a disciplined euro, but nobody would want to join.
Reading Gerard Baker’s speculations on Germany leaving the euro I got somewhat bored halfway through. The solution was as obvious as the fact that Mr. Baker, and perhaps most of Europe’s luminaries, are blind to it.
Europe is a hodge-podge of buried irredentist sentiment and maximalist territorial dreams. Do you want Greek discipline in paying its debts? No problem, force it to put up the islands that Turkey has wanted for a very long time and suggest that insufficient fiscal discipline will lead to an auction sale of the territory collateral complete with loss of sovereignty. Not only will this instill fiscal discipline in countries that have to put up parts of their own territory, it will induce their neighbors to save up “wishful thinking” funds to bid the real estate up high enough.
Is the UK spendthrift? Have them put up Gibraltar as collateral and watch the Spanish suddenly start saving like mad in hopes of an auction. No doubt Moroccan finances would tilt towards fiscal surpluses as well.
The utter national humiliation of dismembering your own country to finance social spending should set things right. And if not, well, other hands would take over their country’s ultimate assets, national sovereignty.