Michael Eriksson's Blog

A Swede in Germany

Posts Tagged ‘Economics

Sabotage and criticize/abolish/whatnot

with one comment

Trying to keep myself distracted during construction noise:

I have long contemplated the possibility that some groups, especially Leftist politicians and decision makers, could follow a strategy of “sabotage and X”, where X can be “criticize”, “abolish”, “use as an excuse to get funding”, etc. Two unfortunate hitches is that plain incompetence is often a reasonable alternate explanation and that the planning horizon often would need to be decades into the future.*

*Which does not rule out after-the-fact opportunism, e.g. with nuclear power below, or with the many, many cases of governmental incompetence causing a problem that the government then tries to solve—and takes credit even for attempts that ultimately fail.

Consider the following potential examples:

  1. Recently, the nit-wits around Joe Biden have pushed through an (almost) global regulation of a 15-percent minimum corporate tax. The true reason for this is almost certainly to remove the ability for other countries to compete over tax rates—and the result will be a (further) distortion of markets and market forces, which will reduce growth and, I suspect, is more likely to hit poor countries the harder.

    In a next bonus step, capitalism* and globalization** (the two things sabotaged), or even imperialism and old colonialism, can be used as scape-goats for the lack of growth and the “inequitable” distribution of international wealth—you must vote Left, so that we noble knights of the Left can fight these problems caused by the evil capitalists on the Right (except that we on the Left are really to blame, but you stupid voters are not supposed to understand that).

    *It might be better to speak of “free markets”, here and elsewhere, but I stick with “capitalism” as this is the term typically used in Leftist attacks.

    **With some reservations for what country we discuss. In the current U.S., the Democrats might be keener on globalization than the Republicans, but in e.g. my native Sweden “globalization is evil” and “globalization exploits poor countries” have been long standing Leftist mantras. (A similar, but weaker, U.S. drift seems to apply to capitalism too.)

    Generally, most modern Western nations contain absurd market distortions that cost virtually everyone in the long term, through preventing growth and wealth creation. Some are on the international level, like the above or the EU-wide minimum VAT of 15 percent; some on the national, like overly* high minimum wages, artificial monopolies, subsidies for unprofitable businesses, etc.

    *Any minimum wage is an example, but a sufficiently low minimum wage might be acceptable in the big picture. Even the > 8 Euro German one is too high, however; and the suggested 15 (?) Dollar U.S. one is a complete insanity.

  2. COVID is a potential source of multiple examples, e.g. that the lockdowns and other countermeasures cause immense damage, which is then blamed on COVID (instead of the decision makers and their countermeasures), which is then used to argue how bad COVID is and how vital continued countermeasures are. A very good potential example, depending on future developments, is the risk that lockdowns and leaky vaccines lead to more dangerous versions of COVID, where a more relaxed approach would have led to less dangerous versions. (See [1] and an outgoing link for a little more information.)
  3. Various aptitude tests, especially for academic entry, usually profit from having a high “g loading”. This in particular when we compare with school grades as a predictor of college success, because school knowledge, literacy, and similar are already reflected in the school grades (even if less so today than in the past).

    However, again and again, there is fiddling with e.g. the U.S. SATs or the Swedish Högskoleprovet to remove unpopular (but usually fair) differences in outcome between groups. This leads to a continual lowering of the g loading, because the correlation with g is what causes most of the group differences. With the lowering of the g loading, the tests become worse predictors, and the additional predictive capability over school grades is reduced.

    But now that the additional predictive capability is reduced, the tests can safely be maligned for bringing little value, which makes it easier to abolish them. (This often combined with claims like grades being a “fairer” criterion, which is dubious even today and outright idiotic when a strongly g-loaded test is allowed.)

  4. Let us say that we do have a problem with too much greenhouse gases and whatnots. Why is that? Largely, because nuclear power has been unfairly maligned, to the point that nuclear capacity has been reduced instead of increased. Who has done the maligning? Mostly various “green” parties (notably, in Germany). Who do now, with success, cry for more votes so that they can combat the greenhouse gases? The very same “green” parties!

    (Here we see the problem of the planning horizon: This maligning has been going on since at least the 1970s, while greenhouse gases might have grown into a non-trivial topic in the 1980s or 1990s, and has only taken off as that single, all-important, nothing else matters environmental question in, possibly, the last ten years.)

Of course, this could extend into many other areas, e.g. that a company that wishes to get rid of a certain product (possibly, in favor of one with a higher markup) could drop quality artificially, so that sales numbers will decrease over time, after which the lower sales numbers can be used as an excuse.

Excursion on game theory and the Left:
A partial explanation for idiocies like e.g. a minimum 15 percent tax is that the Leftist leaders and/or their voters do not understand how a changing situation leads to changes in behavior. A common attitude seems to be that “if we raise corporate taxes, corporate profits will grow smaller, and no-one else will be hurt”. In reality, chances are that corporate profits will not change very much, while prices rise, low-level workers are replaced by automation, wage increases are held back, quality compromises are made, etc. (Of course, not all of this is negative to a Leftist politician, as e.g. reduced employment can be used as a welcome argument for why the Leftist should be re-elected, so that they can fight the unemployment they caused the last time around. From Biden’s point of view, rising prices in other countries might be a very good thing, as it would increase U.S. competitiveness relative them. Etc.)

Then again, if profits do sink, this could lead to bankruptcies or investors moving their money somewhere else, as well as a drop in the stock market. Would the country at hand and its citizens truly be better off, compared to unchanged taxes?

Excursion on trade restrictions:
Trade restrictions, as suggested by e.g. Trump, are an interesting example of market disturbances in two regards. Firstly, they are themselves such disturbances. Secondly, the many other disturbances might imply that they are a good idea in at least some situations. (But not as good an idea as removing the other disturbances!) For instance, if two countries (A and B) manufacture and trade a certain product, then (all other factors equal) the one (A) with the lower minimum wages, lower taxes, weaker unions, less pointless or excessive regulation,* whatnot, will have a competitive advantage. The industry of country A will then tend to out-compete the industry of country B, country B will need to import more, will see unemployment rise, and likely a move of e.g. manufacturing plants to country A. If country B sets up an import tax on the products in question, this might well be to the net-benefit of country B (but not country A).

*Which is not to say that all regulation is either of the two. However, such problems are very common and can be very detrimental. Interestingly, areas where more regulation might make sense are usually absent or for show, as e.g. with consumer protection and “truth in advertising”.

Excursion on global taxes and self-serving politicians:
A strongly contributing reason why so many countries have fallen for this nonsense is the self-interest of the politicians: If the tax rate was already above 15 percent, it costs them nothing to agree, while they reap the benefits of other countries weakening their competitiveness. If the tax rate was lower, they now have an excuse to raise the taxes, which politicians seem to love. (Even be it through a naive or absent understanding of economics.)

Excursion on global taxes and democracy:
This looks like a major democracy fail to me. Effectively, the current rulers of this-or-that country make a bargain, while by-passing normal democratic procedures, and knowing that they will very often get a rubber-stamp later because voiding the agreement would look bad. (Similarly, there are rumors that many governments have entered legal agreements with COVID-vaccine makers to even institute new laws, should it become necessary to protect the makers from legal risks. While I do not vouch for this being true, such actions could also subvert democracy—and an already three-quarters dead democracy at that.)

Written by michaeleriksson

October 13, 2021 at 6:47 pm

Posted in Uncategorized

Tagged with , , , ,

A few thoughts on charity and helpfulness

leave a comment »

Since writing a few earlier texts ([1], [2]) negative towards charity, I have repeatedly seen, with some early puzzlement, the claim that charity would be a major evolutionary benefit—even when directed towards strangers.

To outline my resulting thoughts on this topic:

  1. It is important to make a distinction between cooperation, reciprocal* help, and one-sided help. The first often** allows humans to accomplish more than they can individually or in a more timely manner. The second leaves the “helpee” better off without harming the helper.*** The third is good for the helpee but bad for the helper, risks that the undeserving are helped, risks abuse, and risks a dysgenic effect through allowing the lazy, unfit, stupid, whatnot, to afford children.

    *Where the reciprocation need not be immediate or even short term, and might also, in an extended sense, be indirect e.g. through A helping B, who helps C, who helps A. In a further extension, parents helping children might be included: the parents received help from their own parents and the children will someday help their own children, in a chain of “paying it forward”. Note that there can be some overlap with cooperation.

    **Team-work in schools often provide counter-examples. Among the problems, note that the more intellectual the task, the more the result tends to be determined by the best individual brain, who might even be held back by the team.

    ***At least to some approximation and when accumulating help given and received over a life-time and all actors: that the exact “value” of the overall help in each direction, for two given individuals, will be equal is unlikely.

    For an example of cooperation, consider an Amish barn-raising as portrayed in fiction*: the entire village comes to perform the work that a single man,** or even a single family, would be extremely hard pressed to manage on his own. There is a bit of hard work, then a bit of a feast, and then everybody goes home happy.

    *Reality might or might not be different.

    **In my recollection, these scenes have been heavily dominated by bearded men, but feel free to include women and children.

    For an example of reciprocal help, take the same barn-raising and the understanding that those who helped today will themselves be helped in the future, when they have a barn to raise.

    For an example of one-sided help, with a dose of abuse and the undeserving being helped, take a barn-raising for someone who sees his fellow villagers as dupes, whom he has no intention of helping in return.

    (The barn-raising can be varied further, e.g. that a family with fewer working men might, non-abusively, be net-recipients of help and a family with more working men net-givers of help, or that an old widow might be unable to repay in kind, having either to find other means of repayment or be a non-abusive charity case.)

  2. What is good (general sense) for society, what is good (general or evolutionary* sense) for the individual human, and what is good (evolutionary sense) for the individual gene are not necessarily the same. For instance, help given from a parent to a child is often good in both senses and for society, both individuals, and the genes that they both share. However, help given to a complete stranger is likely to be bad for the genes, good for the individual stranger, and the result for the individual helper and society will depend on the circumstances (including the degree of future reciprocal help).

    *In the below, I will not be exact with this differentiation and mostly work with the implicit assumption that an evolutionary advantage is an objective good. This for two reasons, viz. to keep the discussion simple and because this type of discussion often is used in an evolutionary context and my motivation is partially from an evolutionary claim (cf. the first paragraph). However, this is not the only perspective on the issue.

    This might be a clue to charity-towards-strangers as an evolutionary benefit: it might, within some limits, be beneficial to society, and a more successful society might bring sufficient benefit to the individual that a lesser fitness within the group is overcome. (Cf. my, usually anti-Leftist, analogy that a smaller slice of a larger cake might be better than a larger slice of a smaller cake.) However, this with both a “might” and caveats like “assuming that sufficiently many others are sufficiently charitable” and “assuming that society has had enough time to benefit” (which might rule out a net benefit for a “first generation” helper).

  3. In sufficiently small and tight groups, charitable actions are likely to be to one’s own benefit, through factors like a higher chance of helping a relative and the higher chance of repeated interactions, in turn, with a greater chance at later reciprocation, the greater risk that today’s helpee might be the only possible helper when today’s helper needs help, and the greater ability to judge whether someone is worthy of help. (Compare e.g. a decrepit old man who has hunted for the tribe for decades with a spoiled girl who absorbs help without ever reciprocating and prefers to spend her days watching her reflection in the nearest pond.)

    In larger and looser groups the opposite applies. Indeed, someone needing help on the subway in New York might not be someone the helper will ever see again, whose worthiness is impossible to judge, etc.

  4. A charitable attitude that does make sense in a certain evolutionary setting does not necessarily make sense in another. For instance, humans living in small and tight groups might have benefited even from entirely selfless and uncalculated charity (cf. above), and might have been rewarded by evolution for being unselfishly charitable. Move such humans into a larger and looser group, and the impulse might now be unfit, because more calculation and deliberation is needed to get a sufficient payback, to not reward the undeserving, etc. Move one of these selflessly charitable humans to a big city, and the result might be horrible.
  5. A charitable attitude that uses someone else’s money, work, resources whatnot, can be a very bad thing. Contrast, on the one hand, a wish to help the needy and the resolution to donate money and spend a few hours a week in a soup-kitchen with, on the other, the same wish and the resolution to press for higher taxes to fund a government program, often in the abused name of “solidarity” (cf. excursion).

    From such attitudes*, the horribly inefficient and abused well-fare state has arisen, where the undeserving are helped as much as or more than the deserving (who are less likely to need help), where laziness and dumbness are rewarded by the state, while hard work and intelligence are punished, where the list of those who are to be helped is extended further and further,** where there is less and less personal responsibility, etc.

    *Combined with the self-serving votes of many who look for help for themselves, obviously.

    **Where, indeed, many only need help because their income is eroded by the money that they pay to the government …

  6. Overall, I would at a minimum recommend calculated help over selfless help, once we move outside family and close relatives: I help you today, so that you can help me tomorrow; resp. I help you today, because you helped me yesterday.

    Reservation: I am a little on the fence when it comes to close (non-relative) friends, but would tend towards calculation, as there is a considerable risk that one “friend” or another will otherwise turn into a free-loader. This with the further reservation that someone who has proven himself in the past might be helped in a blanket manner.

Excursion on money:
Much of reciprocal help could be handled wonderfully and even more fairly through use of money and paid services—well in line with my earlier texts. (At least, had it not been for those pesky taxes, today, and the low availability of money or money-equivalents, in the past.) For instance, the barn-raising families with more men could have been paid more than those with few men for their help, while someone who carelessly burns his barn down and needs a new one has to pay twice (once for raising the original barn, once for the new). In addition, those paid in money today do not need to wait for ten years to be repaid with a reciprocal barn-raising.

Excursion on solidarity and “The Farmer Paavo”:
The abuse of the word “solidarity” by e.g. the Swedish Left (“solidaritet”) is outrageous: “we” must show solidarity—by taxing others and giving to ourselves or our voters.*

*Depending on whether the statement is made by a Leftist working-class voter or a Leftist politician.

This is to be contrasted with the very well-know Swedish–Finnish* poem Bonden Paavo (“The Farmer Paavo”):

*The author, Johan Ludvig Runeberg, was of Finnish nationality and the setting is Finnish, but he was a member of the native Swedish minority and wrote in Swedish.

The poem has a repeating pattern of something going wrong with Paavo’s: farming activities (floods through melting snow in the spring, hail in the summer, cold in the autumn), his wife despairing and exclaiming that God* has abandoned them, and Paavo resolutely pushing through with hard work, ditch digging, and bark bread, while selling of cattle to pay for new seeds. At the end, the two first steps are reversed in character: the intended harvest survives the three misfortunes and his wife rejoices over the newfound happy days and bread without bark; however, in the last step, Paavo insists on bark bread, as his neighbors field is frozen. (With the implication that a portion of Paavo’s harvest will be going to the neighbor.)

*Runeberg was a priest and Paavo’s contrasting confidence in God is another theme of the poem,

That is solidarity.

(Whether it is selfless or calculating, resp. one-sided or reciprocal, help will depend on unstated circumstances. There is no mention of the neighbor helping Paavo in the past, but that might very well be because he has suffered the same set of misfortunes in the prior years.)

Written by michaeleriksson

July 30, 2020 at 3:22 pm

Follow-up: Speculations on the negative influence of female attitudes

with one comment

Preamble: This began as a brief clarification, but the clarification spun off footnotes that turned into excursions and then the excursions spun off other excursions. There is material enough to build a “regular” text around the excursions, but I prefer to keep them as excursions to reduce the time spent—which is already about ten times longer than I had intended.

Thinking back on a recent text dealing partially with topics like paying for services, I suspect that the superficial reader could misinterpret (or the politically hostile distort) it. To reduce the risk, a brief clarification:

These parts of the text are directed mostly at the recipient, not the performer, of the service: I do not necessarily argue that the performer should require payment. Whether he does is up to him and whether I would do so in his shoes would depend on the circumstances (see excursion). The main point is that the recipient should not have a “something for nothing” mentality and, at a minimum, make a genuine*offer to pay (see another excursion)—the antithesis of “the woman with many friends” from the original text. A secondary point is that a society which works on a “something for something” basis is fairer and more likely to be successful than a “something for nothing” society, an “I am entitled/I deserve” society, an “I am pretty and smile a lot, so do things for me” society, a “those who can are legally obligated to help those who can’t” society, etc.

*As opposed to an insincere offer made in the knowledge that it will be turned down.

Excursion on forms of payment:
Payment need not be in money. (Here, I might have been a little short-sighted during writing. However, without money, advantages like potential new businesses disappear.) Trading favors are an obvious alternative and it is possible that the lawn-mowing boy would have seen a piece of cake as fair payment. Indeed, even a token payment is better than no payment in terms of fostering the right attitudes. To some, performing a perceived (cf. excursion) good deed might be a reward in its own right. (In addition, we might need to think of at least three broad types of payments: token payments to acknowledge gratitude, payments to at least approximately cover the costs and/or efforts of the performer, and payments that allow a profit for the performer.)

Excursion on when I would require payment:
This is too large a topic for this text and I have not thought it through in detail, as the topic has not been that important in my adult life. However, there are at least four aspects that I would consider and recommend others to consider: (a) Whether the service is within the realm of professional expertise and/or is something for which the performer is regularly paid (cf. the lawyer and the physician in the joke from the original text). (b) The closeness of the relationship, e.g. whether a lawn is moved for the own mother, the neighbor, or some random person somewhere in the same town. (c) The size of both the individual service and the sum of all services requested by that recipient, e.g. in that I would not have expected anything over a “thank you” for driving that shopping cart to the rude woman (not that I got one …), but would have required payment in the hypothetical case of carrying her bags home (unless, more likely, I turned her down outright). (d) Whether requiring payment could have a positive effect of the attitude on the recipient, e.g. in light of recurring freeloading (a similar idea as with the lawyer/physician joke, but from another angle.

I caution that the right answer for the one performer might not be the right answer for another, e.g. because the one has much more spare time than the other.

Depending on the situation, the ability to pay might also factor in. For instance, if I had mowed the lawn for widows as a teenager (cf. original text), I might have gone with money in case of the rich widow and been content with cake in the case of the poor.

In addition, care should be taken when the recipient has a legitimate or perceived “pre-payment”. For instance, the mother of a teenage boy would usually be justified in seeing a mowed lawn as very partial payback of the services that she has performed for and expenses that she has had because of him.

Excursion on paying own children for house-work and similar:
Some argue that paying the own (pre-adult) children for house-work and similar tasks is a good thing, e.g. to teach the connection between work and money or having them earn their pocket money. I can see the point behind this, it is compatible with the ideas of my original text, and I might do so myself, if I ever have children. However, I also see potential problems, notably in that the children might be more likely to appreciate their parents efforts, if they are taught that “by doing chores, you pay us back”, and be more likely to develop a sound team spirit if they are taught that “by doing chores, you pull your own weight”. To some degree the suggestion amounts to viewing the children as performers, but it might be better to focus on the parents as performers and the children as recipients.

To boot, the one* case of such explicit payment within my family (that I recall) did not work well: my sister had lousy school grades and received payment for reaching certain standards**. This did nothing to help her academic career, as she eventually became a high-school drop-out, but it did make young me feel unfairly treated: In my eyes, she was rewarded for past failure and for past laziness—not for later adequacy (“success” would be too strong a word). This while my success and hard work came with a pat on the back. Or consider the game-theory point of view: someone could play this system by deliberately (!) earning bad grades the first semester, negotiating a money-for-grades scheme, and then studying normally to earn an entirely artificial reward. Or consider the psychological effects: instead of learning for life or the sake of learning, students already learn too much for the sake of grades, and now we add an aspect of trying to get grades for the sake of a small short-term pay-out.

*I did on several occasions receive explicit payment from my grand-mother for helping her with some church activities, but as she, in turn, was paid by the church, I would see that as another case entirely. (And, no, I did not ask for money—she offered.)

**I do not recall the details (or the duration of the experiment), but the amount per good grade was sufficiently much that I would have liked to have it, while not being enough that it made a major difference in the big picture. (For instance, even the amount that my better grades might have earned is bound to have been lower than the monthly value of free food and lodging.) The events were almost certainly before high school for her, and no later than the first year of high school for me.

Excursion on perceived or claimed good deeds:
Not everything that might seem, or is claimed to be, a good deed actually is. Consider e.g. giving to a poorly managed charity or two examples from my own past (the second also being a further illustration of annoying and self-centered women):

When I was a teenager, I had a summer job as a gardener/janitor. As I performed some type of work near a flower bed, an elderly man approached me and asked if I could remove that young tree that had invaded the flower bed. I was happy too do so, and pleased at the learning experience. With hindsight, I am uncertain whether I was allowed to do so, and whether the elderly man had any say in the matter, and the tree might well have been the cause of two years of heated arguments in the home-owner’s association—where I had just given the kill-the-tree side a victory that I was not entitled to give. (This is not actually likely, but it is also far from impossible and I performed that particular service without bothering to find out.)

During a train ride, a few years ago, a group of women boarded and went through the train, sitting down with the other passengers (very rude, as there were free seats apart from other passengers, and as they proved not to be “bona fide” passengers, themselves) and beginning conversations without probing for interest (mildly rude) and for the purpose of selling (extremely rude). When they came to me, I learned that they were selling some type of garage-sale* junk, from baskets that they carried, to give money to two friends who were getting married (such sales are against train regulations).

*I actually wrote “garbage-sale” before proof-reading …

As I declined and pointed out that such sales were not allowed, one of them got snippy and went on about how this was for charity (“Wohltätigkeit”, or similar). It is not: had they given own money and/or their garage-sale junk to their friend it might, possibly, have constituted charity. When they ask me to do so, with or without an alibi piece of junk in return, it is just panhandling. To this, I note that there was not even an attempt to describe the happy couple as particularly needy—they were just “our friends”, and because they wanted to give money to their friends, I should open my wallet …

But they all seemed unable to comprehend that they were doing something wrong, too self-obsessed, too blind to other people, too lacking in self-perspective, … Even the fact that I preferred to read my book over talking to them seemed to annoy them—something that must be entirely my decision and something very understandable in light of the rudeness and lack of intelligence displayed.* And, no, this appeared to be perfectly regular native German women—they were not members of some gypsy-like group who might have used a similar scheme to panhandle on a professional level.

*And here, too, I suspect a strong aspect of “men are supposed to”: they were dressed much more provocatively and uniformly than was normal for a train ride. This would be well explained by e.g. a “if we are sexy and flirty, men will be kind to us” type of thinking. (Cf. the original text and women flirting in the office.)

Written by michaeleriksson

June 28, 2020 at 2:43 pm

Speculations on the negative influence of female attitudes

with 6 comments

Over the years, I often contemplated whether many of the unfortunate political and societal tendencies of today might be partially rooted in a greater female* involvement in fields like politics and business, e.g. a focus on equality of outcome (instead of opportunity), the feelings-matter-more-than-facts mentality, the I-deserve-this attitude (as opposed to I-have-earned-this), the condemnation of anything considered “elitist” and the over-focus on just-different-not-better-or-worse, the misinterpretation of something as a personal** matter (as opposed as factual one), the increasing legal obligation of the “strong” to take care of the “weak”,*** the prioritization of effort over accomplishment (“A for effort”), …

*In general and not restricted to the negative influence of the pseudo-science “Gender Studies” and Feminism, which has for decades been increasingly unable to hide that it is a one-sided women’s movement, not an equality movement.

**As in e.g. “you said/did this because you dislike me, specifically and personally”, and as opposed to “you said/did this because you dislike what I said/did, and you would have said/done the same, had it been someone else”.

***Where “strong”, in reality, often amounts to nothing more than “is a hard worker who planned ahead”, while “weak” often amounts to “was lazy in school and is lazy at work”, or variations on similar themes.

A few days ago, this was again brought to my mind through a shopping incident, which, in it self, was no big deal, but did provide an excellent illustration of some problems that I have encountered again and again in interactions with women (it also illustrates why I often find women frustrating):

I went to grab a shopping cart, found that the first one in my aisle* had some sort of metal holder sticking up from the “handlebar” (for want of a better word), which served no obvious purpose, which I had never seen on any of the carts there or elsewhere, and which could not be removed. I would obviously have preferred to grab a cart without this add-on, but in order to do so, I would have had to lead this cart out of its aisle, temporarily leave it, go back down the aisle and grab the next cart, lead it throw the aisle, leave it unattended, while I brought the original cart back through the aisle, and then go out the aisle a last time to pick up the waiting cart—assuming that no-one had grabbed it, in which case I would have had to start over. Obviously, this would simultaneously have hindered others who wanted to access the aisle. In the pre-COVID-19 days, it would also have involved using two Euro coins instead of one, forcing me to go for my wallet instead of my pocket.**

*At this particular store, the shopping carts are parked in two quite long aisles surrounded by metal railings. My aisle was almost empty, while the other had exactly one cart. (In Germany, the last cart is often not removable, for unclear reasons, and going after it might have saved me some time or might have forced me to return to my original aisle with an additional loss of time.)

**Most shopping carts in Germany have a slot to insert a Euro coin to release it from the chain of carts. (The coin is refunded when the cart is returned.) During the COVID-19 era, many stores have dropped this requirement. (Presumably, to justify a parallel “you may not enter the store without a shopping cart” rule, in turn, likely, an attempt to either increase distances between people or to limit the number of simultaneous visitors to the store.)

I was halfway out of the aisle, when the following events and dialogue (from memory and paraphrased from German into English) began:

W(oman who was driving her cart back to her car): That cart is for [some baby thing or other]. It would be good if they were left for the mothers.

(Note how she does not spare a word on the extra effort that this would have implied for me, does not consider that it had been, apparently, mis-parked by someone else, and assumes in a blanket manner that only mothers would ever use it, not fathers, baby-sitters, whatnot. She also spoke in a reproachful you-should-know-better tone—but how should I have known better? Again, I have never seen this type of modified cart before!)

I: It would be good if I could reach the other carts.

W: Well, yes, that other woman did park it in the wrong place.

(If she had noticed this, why did she speak to me, now or at all, and not “that other woman” at the time? Or did she, again, just assume that it had to be a woman?)

W: Well, we can switch carts, I suppose, then I can drive it back where it belongs.

(This in a tone that and formulation as if she were doing me a favor, displaying a lack of perspective both on the situation and our respective roles.)

She moves one or two bags between carts and we go our separate ways. I soon notice that the cart is unusually clumsy for being empty, but first assume that it is just a locked* wheel, which she has pawned off on me. A moment later, I spot a carton with six (?) quart-sized juice boxes on some type of rack below the main “basket” of the cart.

*Many German shopping carts have an idiotic wheel lock that is triggered when the cart leaves a certain area, but which is not unlocked when the cart re-enters that area and the staff does not seem to unlock carts on its own initiative—if at all.

I: Lady, excuse me lady. Your beverages!

W: Oh, I forgot, come here and I’ll take them.

(She forgets, and I am supposed to come to her, a dozen-or-so meters in the wrong in direction? The forgetting, it self, is a little odd, but I might have given her a pass, had it not been for all the other oddities. I, too, occasionally forget things, but I take responsibility for them when I do.)

As I suspect that I would lose more time through arguing than I would gain, I do drive over—and then have to wait some ten seconds, while she fiddles around with her own cart, before she turns her attention to the juice. (If I cause a problem for someone else, I tend to that problem first and my own later. With hindsight, as I write some of the below, I cannot rule out that she was not just inconsiderately leaving me waiting, but positively expected me to move the juice for her.)

Now, imagine if her first line would have been that of an adult, e.g. “W: Excuse me, but someone must have placed that cart in the wrong place. It is a [baby this-or-that] and does not belong with the other carts. If you want to, we can switch, and then I will take it back where it belongs, when I am done.”—which version would you prefer and which is fairer? Alternately, she would still have left the world a little better off by just remaining silent towards me and, optionally, writing a letter to the store, suggesting some design change to prevent a return of the cart to the wrong place.

(As an aside, I would likely have been done faster, had I gone through the pick-another-cart-through-running-repeatedly-through-the-aisle scenario above. Should a similar situation happen again, I will be sorely tempted to make my first and only line “I: Take a hike, rude woman!” …)

Among the interesting sub-topics there are two overlapping that I want to address in more detail:

  1. That she spoke to the wrong person above and that women might expect more from men than from other women:

    Now, I do not know the specifics of her motivations above, and it is possible that she simply was too late to speak with the other woman (but in time to speak with me). However, it is quite possible that she picked me, because I am a man. More generally, many women still seem to work on the assumption that men are (or should be) kinder to women than other women are, are more likely (or even obliged) to do them favors, etc., which could explain the choice. (Also note the assumption that I would be the one to come to her with the juice.) If in doubt, a smile and a little flirting seems to be supposed to make men give women special treatment, and I suspect that one of the reasons that I have had proportionally more intra-office conflicts with women than with men is that I do not engage in such favors and that I do hold women to the same standard as I do men. While many women are reasonably professional, far too many are not (especially, among the younger): In a minor caricature, “I spent five minutes flirting and he still wanted me to fix my own error! Why didn’t he let it slide—or volunteer to do it for me?!?”

    The TV meme of a girl-friend wanting the boy-friend to drop everything and come over immediately has happened to me in real life and I have been asked to solve dozens of computer problems that the respective girl-friend could have solved herself in five minutes through just using her head or doing an Internet search. My niece apparently has managed to talk my step-father into driving her eighty kilometers to something as trivial as cheer-leading practice (“practice”, not “competition”) after she missed a train; and I have myself been told* that I really should have a car or I would not be able to drive my girl-friend when she needed a ride. In our teens, my sister (mother of the aforementioned niece) hardly lifted a finger in the household while I mowed the lawn and chopped wood. I once, in some context, read about a mother who had asked her (very young) daughter why she preferred to play with her father—the reply was along the lines “daddy plays like I want too”, which the mother did not. Etc.

    *In all fairness, this was a joking statement, by one of the more self-insightful female colleagues that I have had. My reply was that I did not have a girl-friend and, therefore, did not need a car. The attitude is real with some women, however.

    At the extreme end, I once read an article (blog post? whatnot?) by a woman who insisted that it was important to have many friends and, specifically, at least one friend in each area of potential need, to have a computer-geek friend (“he* fixes my computer for free”), an accountant friend (“he does my tax filings for free”), a lawyer friend (“if I am ever sued, he would represent me for free”), etc. (To avoid misunderstandings: her attitude was not “I am lucky to coincidentally have many good friends who are also very useful to me” but “I deliberately seek to make ‘friends’ because they will be useful to me—and you should do so too”.)

    *In my recollection, these friends were all or overwhelmingly male, but the general scheme was likely open to female ‘friends’, if they had the right skills to be useful and were naive enough to let themselves be used. A version which is less centered on male victims, however, would only move the example from this item to the next.

  2. Who-does-what and the contrast between selfless cooperation and own responsibility/cooperation for mutual benefit:

    Superficially, it might seem that it was reasonable that I drove my cart to her to get rid of the juice, instead of the opposite—I had a lesser load relative* my strength level, it was a lesser effort for me,** and she would now only have to reload the juice once (my cart to her car; instead of my cart to her cart to her car). This is also in line with the opinions that I had (or had instilled in me) as a child, to selflessly help others whenever we can—and to take such help from others for granted.

    *But not necessarily absolutely, depending on what she had in her bag(s).

    **At least, on a normal day. At the time, I was at the end of a ten kilometer walk with a lot of hills, but she had no way of knowing that.

    However, as I have understood as an adult, this type of reasoning causes no end of problems and unfairness. For instance, above, she made a mistake in implementing her suggestion, and I am supposed to rectify it. Why? In this particular case, it was not a big deal, but by an analog reasoning, if her car had broken down, I would have been obliged to carry her bags home for her. It fosters a lack of own responsibility, it removes the incentives to think first and take precautions (because if something goes wrong, someone else will fix it for free), it distorts markets and misses opportunities for economic growth, it lands the innocent with an undue burden, it opens the door for deliberate abuse, it keeps growth in the skills of the helped back,* etc.

    *In at least some cases, as e.g. with the child whose parents do everything for him, the girl-friend who refuses to fix her own computer problems, or the man who is given a fish instead of a book on fishing.

    For instance, consider the woman with many friends from the first item: As long as only she, or only just a small minority, follows her method, or as long as such free-of-charge services are limited to true and long-term friends and family members, things will still work fine. However, if (as per her suggestion) everyone tries to build the same type of friend network, what will happen? Take her accountant ‘friend’: He will now have next to no private business but have a roughly unchanged work-load, because people go to their “friend accountant” instead of their “paid-for accountant”. Those who deal mostly with corporate clients might still do well, but now with the additional workload from their “friends”. The profitability of being an accountant will drop, some current accountants will be forced to leave the profession,* members of the following generations will be less inclined to become accountants, etc. As an interesting side-effect, accountants with a greater interest in socializing will be hit worse, because they are more likely to have many friends, and some might deliberately cut down on friends to be able to remain in business. Is that a world that we want to live in? Especially, as the same will happen to more-or-less any useful profession? (The Leftist reader should also note the drop in tax revenue and that taxes are what ultimately pays for all those “free” government hand-outs.)

    *But they might still be on the hook for helping their friends, if they still have the right skills (and, possibly, certifications).

    Or consider fairness, incentives, and market forces, in a scenario like a teenage boy mowing the lawn for the wealthy old widow next door, because she is too weak to do so herself. If he does it for free, from the kindness of his heart, she benefits and no-one else. If she pays him, they both benefit. If the widows Smith and Wesson insist that he help them too, because he does help the widow Jones, he would he hard-pressed to turn them down. In one case, he has extra work for nothing; in the other, he has a fair recompense and, possibly, even the beginning of a small business, which will teach him valuable skills for his later life. (And the Leftist reader should, again, pay attention to taxes.) With remuneration, that one boy might not be stuck with moving all the lawns alone, because some other boy might be found willing. Or we might see two birds by one stone, when an unemployed (adult) neighbor starts to earn money. With remuneration the widow Jones might have the guts to point out that the boy occasionally nicks a flower when mowing around the flower beds. With remuneration the poorer widow Wesson might find that a bi-weekly mowing is enough, giving the boy some more spare time.

    Or consider taking or not taking own responsibility: Say that three poor co-eds go to a far-away party, stay until the middle of the night, and that one calls for a free-of-charge ride from her boy-friend, while another has to call a taxi, and the third has to walk home. Who will tendentially behave how the next weekend? (And would it not be fair for the first to at least cover gas and time spent for the drive?) Or say that the co-eds each have an unnecessarily expensive apartment, and that, at some point, rent is overdue and unpayable: The first student gets a no-strings-attached handout from her father; the second a loan, to be repaid within six months, no excuses; the third gets nothing*. Who is more and who is less likely to go through the effort of looking for a cheaper apartment, pay greater attention to unnecessary expenses during the month, and/or take on a part-time job?

    *Not that I necessarily suggest this where a parent–child relationship is involved. (Indeed, my parents volunteered to pay my rent through-out, so it would be hypocritical. With hindsight, however and from my more adult perspective, a loan would have fairer to them and I might have learned to take more own responsibility at an earlier stage.) Still, the illustration of principle is valid. If in doubt, feel free to mentally replace “father” with “boy-friend”, “landlord”, or “tax payer”.

In both cases, there is a fair chance that evolution has tilted women more strongly towards such flawed attitudes than men (and might well have tilted men to be cooperative with women, which increases the problem). For instance, in the second case, a woman in a historical setting has often been mostly surrounded by close relatives and close friends, where help has been highly likely to be reciprocated and often had a positive evolutionary effect. Most of the relatives have likely been young children, with a limited or even absent ability to take care of themselves. In this situation, an attitude focused on helping and being helped might be very useful, even up to and including the Communist mantra of “from each according to his ability, to each according to his needs”.

Move to adult life, business, politics, … and this no longer holds. These attitudes are suddenly highly problematic for reasons like those discussed above.

Men, in the same historical times, have been mostly surrounded by adults, interacted with a wider range of people, traded with strangers, been exposed to the risk of free-loaders in a different manner, seen a much lower degree of fungibility of personnel,* hunted in a different type of cooperation, lived in a world where lack of responsibility in one person might have caused the failure of all and everyone needed to be held to said responsibility, etc. If someone is too slow to hunt a certain animal, the others cannot hold back or carry him (as women going to gather berries might or might not have done), because then the hunt will fail. Instead, some other role has to be found, e.g. as a layer of traps or maker of weapons. Should the reason be old age, they would take care of him based on past work for the team, but not should the reason be laziness and a wish to get something for nothing. This develops the attitudes suitable for adult life, business, politics, …

*I am uncertain how to formulate that reasonably, but the point is that the positive resp. negative effects of working with someone with higher resp. lower IQ, strength, speed, whatnot are much larger when e.g. hunting or building a house than when gathering berries or raising children (at least by the standards of old). Moreover, the proportion of tasks in which it was possible to compensate for a lack of ability through harder and longer work was likely considerably smaller among men. Hence the degree of fungibility among women was correspondingly higher than among men, and there was less point in rewarding excellence or giving the more able incentives to work harder.

As an aside, regarding parts of the second item, there is well-known joke that is highly pertinent:

A physician asks his lawyer friend what to do about all those people who want free medical advice when they meet him in private. “Easy”, says the lawyer, “give them their advice and then send them a bill for services rendered. Either they will stop asking or you will get paid for the effort.” The physician was happy to finally have a solution. Two weeks later, he received a bill from the lawyer.

I doubt that these bills can be enforced, because the “customer” was not made aware of the fee in advance, but the principle is sound. Imagine spending the entire day dealing with medical or legal problems, trying to relax* with a few friends in the evening, and then having to deal with further medical or legal problems with not a dime of recompense. A better friend might just as well have dropped down to the office for some official, paid-for advice, which the physician or lawyer might have reciprocated with a prioritized treatment or a family-and-friends rebate.

*My idea of relaxation is a good book, movie, sit-com, whatnot, while hanging out with friends after a hard day’s work seems like a chore, but I appear to be in the minority here.

Another point of interest is the physicians failure to see the symmetry of the situation and/or his failure to realize that his “one” question might have been the lawyer’s umpteenth, just like his own umpteenth question might have been “one” question to each of his own free-loaders. This is certainly something that those should keep in mind, who wish for help from others.

Excursion on sexes in examples:
In the examples, I have mostly stuck with a male helper/female “helpee” to stress the early points on female attitudes. While these constellations are typically more likely than others, other constellations do, obviously, exist.

Written by michaeleriksson

June 14, 2020 at 4:00 pm

German department stores (and COVID-19)

leave a comment »

As a follow-up to an excursion in an earlier text ([1]):

Barmen’s is, obviously, not the only city center that risks severe damage or structural changes due to the COVID-19 counter-measures. A good example is the recent claim that about half of Germany’s department stores might close (cf. a German source [2])).

As historical background, for a large portion of the 20th century, Germany had a flowering department-store business, with a number of large* individual stores and a number of chains. Over time, these consolidated almost entirely into two chains, Karstadt and Kaufhof, which both ended up struggling.

*At least by the standard of the day. While some, like the famous KaDeWe, are large even by today’s standard, others need not have been.

When I moved to Germany, in 1997, this consolidation was already mostly completed, but older names were often still in use. For instance, the big Karstadt store in Frankfurt still carried the “Hertie” name. Since then, I have seen these names disappearing, more and more stores closing, and an endless stream of news about Kaufhof and its poor profitability (including repeated owner changes and almost-bankruptcies*).

*Reminding me of the German saying “totgesagte leben länger” (roughly, “those believed dead live longer”), as it has come back from apparent death more often than Michael Myers.

About a year ago, these two chains began a merger process, which automatically would imply a reduction of business, e.g. to avoid having two large department stores from the same chain in close vicinity to each other.

Now, factor in the damage done by the COVID-19 counter-measures and we have the situation discussed in [2], where about 80 of the remaining 170-or-so stores might close.

Even apart from the drop in the level of competition and the risk that the overall “shopping opportunities” (I know of no good word) are reduced, this is highly unfortunate, because there has been a long drift towards small stores that are almost pointless to visit. For instance, a typical German* mall has just a few decent-size stores and then a barrage of “hole in the wall” stores, often with a strongly overlapping set of products, often differentiated only by what brand or which few brands are offered. (This particularly when it comes to clothes.) Effectively, a customer can take a few steps inside the store, look left and right, and determine that there is nothing to bother with. Alternatively, there is one thing to look at, which in nine cases out of ten turns out to be a waste of time, e.g. because of an excessively high price.

*I suspect that this is not limited to Germany, but my experiences from other countries are much more limited.

With a larger store, the chance of finding something worthwhile are larger, the product and price ranges are wider, it is easier to make price comparisons, …

These problems are artificially made worse, because even the larger stores (department stores included) often sort products by brand instead of e.g. type. Let us say that I want to buy a pair of trousers: in a good store, I would find wherever the dark, somewhat business-like trousers were, go to the right size grouping, and look through the various item with an eye at aspects like looks, price, and quality. In a typical larger store, as is, I have to go to section for brand 1, find the right product type, find the right size grouping, look through it, then go to brand 2, lather-rinse-repeat. In a small store, I would go to the one brand, find the right product type, find the right size grouping, look through the mere handful of candidates, and then make a decision whether to (a) buy from this particular store, (b) go to a different store, hoping to find something better, (c) go to several stores, try to make comparisons, and then go back to the best alternative. No wonder that eCommerce is beating brick-and-mortar …

Of course, in a larger store, ideal or actual, I would also stand a good chance of making several purchases at once: if I need a new pair of trousers, I can also pick up a few shirts. Not so with a smaller store, because it is unlikely that I would find both in the same store. (Sometimes, they are not both present at all in a non-trivial scope; but, even when they are, I am unlikely to find a good match for both in a single store.) In a big department store, I could find not only trousers and shirts but also e.g. a lamp and a few DVDs.

To discuss the reasons behind these developments goes beyond the scope of this text, and would likely require a lot of research, but I do note the push towards shopping-as-an-experience (rather than shopping-to-get-a-needed-product), the increased influence of the individual brands in the trade and the brand obsession of many irrational customers, and a deliberate tactic by at least some stores and/or brands to make comparisons harder, as they know that they would not come off well in these comparisons.

From another angle, chances are that increasing costs of business (notably, rent) in the more attractive city centers has favored high-markup articles, implying e.g. that the generic clothing store has been closed in favor of a Prada store.

This, in turn, could be a contributor to the failure of the department stores, as they have often stuck to a high-markup* strategy, making it unnecessarily expensive to buy there and forcing entire product ranges out. (For instance, many department stores do not sell lamps.) Now, I understand the wish to optimize profitability, but this type of action has often amounted to cutting off the branch one sits on. In particular, from my point of view, the attraction of a department store is rooted in the idea of “everything under one roof”—that I can go to one store and get all my purchases done in one go. This ideal, however, was only weakly adhered to even in 1997—today, not at all. When I do not have “everything under one roof”, when I still have to visit several different stores, and I have to pay a considerable markup for what I do buy, why should I bother? There we have one customer less, less revenue, a need to optimize profitability even further, and the vicious circle continues.

*Notably, department stores often come with a double markup: one for the brand, as highly over-priced brand products are favored, and one for the store.

As is, the likes of Walmart are closer to the department store ideal than department stores are—and at much better prices. But: the likes* of Walmart are rarely found in city-centers, requiring use of a car to reach some far off, obscure location … Sadly, I had one of these just a few kilometers away, when I first came to Barmen, but it has since closed—incidentally, leaving the (otherwise very small) mall that it anchored almost dead.

*Specifically Walmart is likely not present in Germany anymore, but stores with a similar “hyper market” concept are, if likely not to the degree of e.g. the U.S.

Excursion on suicidal optimization:
The aforementioned type of optimization, which damages long-term business development, is quite common, even to the point that the net-effect might be negative* or that a niche for upstart competitors is accidentally created. One of the first examples that I encountered was the railway connection between the very small town of Kopparberg, where I lived for most of my pre-adult life, and the rest of the world. Early on, the train had a number of halts at even smaller places. Every know and then, one of them was cut from the schedule—presumably,** because too few passengers traveled to and from them. Possibly, in any given case, this was a rational decision, but it had the effect that overall passenger load was reduced and that fewer passengers used the other stations, making the next cut that more tempting.*** The result was a continual deterioration of both revenue for the business and service for the population—and the creation of a niche for a competitor, who has by now been trafficking quite a few of these stations since the 1990s.

*Which is by no means a given, as the optimization presumably also has positive effects. It is, e.g., conceivable that the German department stores would have failed even faster without them, that the vicious circle resulted from a damned-if-do-damned-if-you-don’t dilemma.

**Likely helped by a wish to reduce travel times on the main line.

***I note that this was deep in the country-side, where almost everyone had a car, and that it was rarely worth the trouble to take the car to the next station: unless the intended train travel was very long, one might just as well go the entire distance by car as go to a further-away station by car and then taking the train from there.

Excursion on the main topics:
As to the main topics of [1], and with a strong connection to e.g. [3], I note that there have been several interesting political decisions recently, e.g. the new, insanely large, and hopefully-to-be-blocked-by-the-senate U.S. COVID-19 rescue package, or the recently finalized German pension increase. In the latter, the monthly payout is hiked for many former low earners*, the increases are, so far, unfinanced, will almost certainly come from tax hikes for the rest of the population, and they are implemented despite the extra expenditures through COVID-19. Apart from the boost in working-class votes, would it not be better to put it on ice until we know what happens with the economy and what resources will actually be available? Of course, the extra costs to finance this reform will leave others with less money available, a lesser ability to secure their own future, and a greater need for government support, be it now or in the future.**

*This also raises questions of fairness, incentives, etc.: On the one hand, many of those benefiting have done the best that they could, and might deserve a leg up in their old age; on the other, many have not. They will also have paid in much less in the pension system than most others, many will already have received considerable handouts during their working years, and this might make future generations the less likely to work hard to secure their own future, as they are taught to rely on the government to put food on the table.

**This particular reform, alone, is unlikely to have much of an effect, but the overall pressure on the citizens is enormous: a major reason why the current level of pensions, social security, health insurance, … is “needed” is simply that the population pays so much in taxes, pension fees, social-security fees, health-insurance fees, …, that their ability to build own buffers and to pay running costs through earnings is limited. In a twist, this is a partial parallel to the previous excursion, as every change makes the situation worse for the population. (But it is, arguably, an anti-parallel when comparing the train company and the government, as the government benefits from the increased reliance of the population on the government.)

Written by michaeleriksson

May 16, 2020 at 11:02 am

COVID-19 and state support

with one comment

As the COVID-19 crisis and restrictions are slowly ending in Germany, the calls for support from the state are increasing—everyone and his uncle wants to receive (or already does receive) support, be it unemployed workers, businesses on the verge of bankruptcy, an opportunistic automotive industry, or cities/municipalities/whatnot.

On the one hand, the damage done to the economy is mostly to blame on the government imposed counter-measures (rather than COVID-19, per se), which makes it hard to deny these requests from an ethical point of view. (Not that I expect e.g. the typical politician to understand this, however.)

On the other, who is actually eventually supposed to pay for this? When the demands for support are this large and wide-spread, the state cannot just fiddle a little with the budget and create space for handouts—and it certainly does not have an immense surplus to spread on the needy. Where will the money come from? Printing money ups inflation and, indirectly, destroys wealth. Borrowing money only postpones the problem. Increasing taxes just pushes money back and forth, while incurring waste. (Someone receives a support check from the state’s left hand and a new tax demand from the right.) Cutting in the existing expenses will be both hard to justify politically and take a long time, even when it comes to bureaucracy and waste.* Considering the strong Leftist tendencies in Germany, I fear that the “solution” will ultimately be that the “rich” must “show solidarity” with the “poor”, which is implemented e.g. by the government simply confiscating large portions of wealth (hypothetically, 20 % of all bank assets above 100.000 Euro). A perpetuation of the highly unethical and abused “Solidaritätszuschlag” seems likely—a “temporary” tax of the past thirty years, which, before COVID-19, finally seemed to approach the end of its life.

*And even here, the cuts will do damage somewhere, which might require additional intervention and/or reduce the beneficial effects of the handouts. (But, to avoid misunderstandings, apart from the political obstacles, I would consider this the best way to go, as those damaged will often lose an unfair benefit, e.g. that of being employed for life as a civil servant while being incompetent and lazy, and as the long-term societal effects are likely to be positive.)

The most that can be hoped for is some degree of redistribution of damage, but this hardly ever ends up fair either, and often implies that the smart, hard-working, economically prudent, whatnot pay for the dumb, lazy, wasteful, and/or you-name-it. The COVID-19 countermeasures have hit more randomly than, say, regular career or business success, but it has not resulted in a “negative lottery”. For instance, a business with a sounder original economy, greater buffers, less debt,* fewer unnecessary costs, …, will be less endangered than a less sound business—but which will receive more governmental support and which will tendentially be at risk for an additional tax payment? Similarly, the individual who has saved as little as 100 Euro a month during his working life will be more likely to come out of this without needing help than the one who has consistently spent the same 100 Euro in a bar or on a bigger apartment.

*In a bigger picture, this is a strong indication that running businesses in debt and deficit, even be it to achieve growth and in the hope of future profits, is a dangerous strategy. (Often for the individual business, even more often for society as a whole.) Here very considerable rethinking might be beneficial. Generally, everyone, individuals, businesses, municipalities, …, should strive to build buffers instead of living on credit.

Indeed, just like COVID-19 kills far more among the elderly and those already in poor health than among the young and healthy, the counter-measures will kill struggling business first. (But also, unfortunately and unfairly, small businesses, which could have very negative effects on the “demographics” of businesses.) Compensation then risks saving businesses that would have failed anyway comparatively soon and might well still fail despite the compensation within a year or two—and if they grab onto COVID-19 as an excuse, we might see a larger scale repetition of e.g. the decades long German coal-industry subventions. This amounts to a great waste of money and could additional skew competition in a manner that is harmful for society.

Then there are those who might fake or grossly exaggerate a crisis in order to get compensation that they do not at all deserve …

It would have been better, had there been fewer and/or less drastic countermeasures, with (a) less damage* and (b) a greater justification for letting business developments run their course without support. As is, the situation is extremely poor with no good answers. I do suspect, however, that erring on the side of too little compensation will be the better way to go.

*And note that even a comparatively small change in damage can have a large effect on the businesses (and more generally, persons, entities, whatnot) that are close to the border of failure, e.g. in that being closed one week less or one week more can be a make-or-break criterion, as can having a tenth of the normal revenue vs. being closed entirely.

Excursion on Barmen:
I live in Barmen, a part of the German city of Wuppertal. Just a few hundred meters from my house is the local city center, once flowering. Even during my few years here, I have noticed a continual drop in stores, presumably driven by a mixture of the general brick-and-mortar crisis and the establishment of a major new mall in Elberfeld (another part of Wuppertal). This possibly aided by a drift towards shopping in nearby Düsseldorf. Of course, such decline leads to a vicious circle, where every store that closes makes it less attractive to shop in Barmen than in Elberfeld, shifting even more of the commerce away, which risks more store deaths, … Add in the negative consequences of the COVID-19 countermeasures and this could end badly.

Written by michaeleriksson

May 7, 2020 at 7:53 am

Toilet paper, pricing, and market forces

with one comment

The toilet-paper situation continues: I again failed to find any and have, five minutes before starting this text, started on my last roll.

This raises the question: where are the market forces? This is a good example of where market forces on a free market could really be useful, e.g. in that the price of toilet paper is quadrupled, reducing* the trend towards hoarding, increasing the chance that a supply will be present, and giving those in a greater need** the ability to solve their issue through a greater expenditure. At the same time, it would give the stores and/or other parties greater profits and give them incentives to increase supply. (The same applies to similarly coveted products.) It would also make unnecessary the blunt, potentially unfair, and potentially ineffective attempt to regulate sales by a limit of one or two packages per household, tried in Germany.***

*With some reservations for human psychology. I would not be shocked if a sudden price hike was taken as proof, by the dumb masses, that there was a dire underlying toilet-paper scarcity, with even greater hoarding as a consequence …

**More strictly, those with a greater need relative their willingness to pay. This could be due to a greater scarcity, e.g. being on the last roll; it could be about a greater benefit, e.g. having a large family; it could be about having more money; … The positive effects, from my point of view, are obviously more on the needs-can-be-met than the is-price-insensitive side of the equation.

***Consider e.g. that I, living alone, am allowed (should there be a supply!) to buy the same one or two as the head of a six person household; or that preventing someone from showing up repeatedly, or having several members from the same household use different shopping carts, would be hard to prevent without costly counter-measures.

A partial explanation is demonstrated by the attitude of a press release by a consumer-protection agency: Apparently, toilet paper is sold for exorbitant prices on e.g. eBay, which has attracted the wrath of the agency. On the positive side, it does advice consumers to not purchase at these prices, and to trust in a coming improvement of the supply situation in brick-and-mortar stores. On the negative side, it also charges the consumers to complain to the respective platform and condemns the practice with words like “überteuert[en]” and “unseriös[e]”.*

*Both words are tricky to translate, but, respectively “overpriced” (with strong negative connotations) and “shady”/“dubious” come close.

However, having a product that is in demand, and selling it for whatever price one can get, is not inherently* wrong. On the contrary, it will often help society and the overall economy through better resource allocation and stimulation of production—not to mention that it gives those with a greater need a way out that does not involve spending four hours in a Soviet queue with no guarantee of success.

*However, there are a number of ways that they can become e.g. dubious, unethical, or even outright illegal, e.g. through emptying the shelves in a store by buying up the supply at regular prices and then selling at heightened prices, by making misleading claims, or by failing to pay VAT on the price difference. (Also note a later footnote concerning the first item.) Such problems were not mentioned in the linked-to text …

Nevertheless, such attitudes are quite common, especially in Left-leaning countries, where e.g. a price increase in the stores might be condemned as price gouging, usury, or similar, and where e.g. a change in the underlying price after a VAT change is condemned as unethical abuse, without considering the impact of market forces.* Indeed, the Swedish Left often has a cliche response to any suggestion that e.g. some medical procedure should be even partially financed by the individual instead of the tax bill: this-or-that must not be just for the “rich”. (Usually, not only cheap sloganeering but also a fundamental misunderstanding of the suggestion.)

*E.g. in that the presence of VAT drives the (resulting) price up, which drives demand down, which drives the underlying price down—and that a reduction in VAT will drive demand up and naturally allow the underlying price to recover a portion of what it has lost.

Similarly, the last time I went shopping, there was no milk. Today (different store), the regular milk brands had been replaced by others and prices were higher than I am used to*, but there was milk. Was I annoyed at the price hike and having to pick a different brand? Yes. Was I as annoyed as the last time around, when I found no milk at all? No. Would I have been much more annoyed, had I not found any milk, for the second time in a row, after already not finding any toilet paper, for the third time in a row? YES!

*Moving from 0.6x Euro/liter to either 0.99 or 1.15 Euro per liter, depending on brand. I note that I tend to buy low-price brands and that more expensive brands can land on the same order even on a regular day.

Moreover, I understand that this is not (or not just) the store trying to earn more money, that the real problem is the hoarders, and that the store too might have faced unusual costs, e.g. in that the normal channels were temporarily exhausted and other, more expensive, channels had to be used. I am better off paying more than going without.

If the people are unable to see clearly on such issues, then this is where the pedagogical effort would be better spent.

Market forces might not be perfect, but they are valuable and trying to overcome them usually leads to more harm than good, as evidenced by the problems faced by consumers in the old Communist Eastern Europe or during war-time rationing. (Notwithstanding that some rationing might be necessary in extreme circumstances.) For instance, if a farmer is told that he will get X Euro for a sack of potatoes, he will provide potatoes according to the limits imposed by X in addition to existing limits on time, grounds, whatnot. If X is too low or sinks, he is likely to cut back on production, because it does not pay for him to use all his fields. They might now lay bare, of no use to anyone, or be used for some more profitable, but paradoxically less wanted, product—or he might still grow potatoes, but move them into production of vodka. If prices are held extremely low, he might even be better off using his potatoes as animal fodder or even letting them rot in the ground—while people are screaming for potatoes. Of course, if production is cut back, he might have to lay off helpers, who will then be a further burden on society … Vice versa, if prices are too low, he might have to cut back production because he cannot afford the helpers.

In contrast, if X rises or the limit is abolished, the price might warrant additional measures to increase output, e.g. that his private lawn, or that piece of land with poor soil, is now used to grow potatoes. In the long term, he might even be willing to go through the hard work of cutting down a bit of forest, de-rooting and de-rocking it, and planting potatoes there. He might forego existing vodka production in favor of selling unprocessed potatoes for eating. Etc.

(Similar arguments apply to some degree to other steps in the supply chain, e.g. relating to what distances potatoes might be shipped or whether attempts are made to salvage potatoes after an accident during transportation.)

What use is there for a consumer in being guaranteed a low price for potatoes, when there are no potatoes on the shelves? (And what use is toilet paper at the “old” price to me, when there is no toilet paper on the shelves?)

Re-selling tickets to sports and music events is usually forbidden. But why? For someone to want to engage in professional* re-selling, he must perceive a profit opportunity. This opportunity can only exist if the pricing strategy of the original seller is sub-optimal. (If it does not exist, the re-seller will lose money on and, likely, interest in the venture.**) If the original tickets costs 20 Euro and the re-seller gets away with 25, then the original price is too low.*** If the original tickets are fixed at 20 Euro and the re-seller manages to sell one third at 30, one third at 20, and one third at 15, and still break a profit over his own efforts, then the original pricing scheme is too inflexible. Etc. In these cases, the original seller is throwing away money that the re-seller is willing to pick up. As to the consumers, some will be better off, some will be worse off.

*As opposed to private ad-hoc sales, e.g. because “I bought a ticket, but now I must go to an unexpected funeral.”.

**With some reservations for return policies. When it comes to ticket-sales, we are likely on the safe side, because refunds are unlikely to be possible after the event has started, while claiming a refund too early will reduce the re-sellers shot at profitable last-minute sales. For toilet paper, especially in combination with temporary fluctuations in demand and/or great consumer irrationality, this might be different. If someone loads up on toilet paper in a store for the purpose of re-selling, he will typically be able to return any surplus for a full refund of the original price at a later date—in an extreme case being the cause of an artificial shortage that allows outrageous prices. (In contrast, if someone buys toilet paper without a return right, having to take the loss on surplus himself, the situation is different. Ditto if quantities bought are too small or over such channels that it does not create an artificial impression of a supply deficit.)

***Note that there are other factors than just profit making that enters here. For instance, more revenue from a rock concert might lead to more rock concerts (in turn leading to not only more entertainment but also e.g. more jobs); for instance, more revenue from an opera performance might reduce the subventions needed to keep the opera house in business and ease the corresponding tax burden.

Or consider the cartoon cliche of the lemonade salesman in the middle of a dessert: Why should he not be allowed to charge the crawling, disheveled, and thirsty customer ten times what what the same product would cost in the nearest city? He could have chosen to sell in that city to regular prices. He could have chosen to go into some entirely different line of business. Instead he took additional costs and risks on his head in order to provide a product where it might be needed. The customer in turn, could have prepared better, brought more water, returned home sooner, brought spare parts for his jeep, whatnot. Selling very expensive lemonade at high prices in the dessert is a legitimate* business model—end of discussion. The lemonade salesman has brought himself into a position of leverage through providing a service that would otherwise not be there, and the customer can take it or leave it. (He cannot “leave it”, because he is dying of thirst? Well, without the lemonade salesman, he would have died of thirst anyway. His way out might be expensive—but he has a way out.) In contrast, those who create an artificial monopoly are on much shakier ground, e.g. in the context of a sports venue where certain merchants have a monopoly on certain products and the visitors are forbidden to bring similar** goods from home—that is a negative.

*If not necessarily one that would work in real life—this is just an illustration of principle. In real life, there might e.g. not be sufficiently many, sufficiently ill-prepared customers, and the chance of actually meeting anyone outside of commonly traveled routes is likely small .

**Note that some bans might be valid in some contexts, e.g. a “do not bring hot meals” in order to protect the seats—but if hot meals are sold within the venue for consumption in those very seats, it is obvious that this ban is not justifiable in this particular context.

From another perspective, one* of the most common differences between a Leftist and e.g. a Conservative, Libertarian, or Neo-liberal perspective is how they would treat a grasshopper-and-ants situation. Let us say that someone has prepared for the eventuality of a negative future event, has gone to great pains and costs to prepare for it, e.g. by stocking up on canned foods and suitable tools—while the rest of his village has not. Indeed, they might even have ridiculed him for being a weirdo. Disaster does strike—and now the villagers are banging at his door for food and help. The general Leftist attitude tends to be that he should be obliged to give this food and help for free (e.g. by the cliche of “showing solidarity”). Others believe that it is up to him whether and under what conditions**, e.g. in exchange for money or services, he doles out his food, possibly risking his own long-term survival in the process. As a special case, let us return to the desert: Two travelers are forced to travel the desert on foot. One has the wherewithal to bring water; the other does not. Half-way there, the first is in decent shape but has used half his supply, while the second is about to have a heatstroke—should the second have the right to demand water at will, or should it be the decision of the first what he provides? (Real-life examples are, obviously, often more subtle, e.g. in that taxation schemes rarely (if ever) consider why someone earns more than someone else or social-security schemes why someone is on the dole. Sometimes it is a matter of luck; more often, nowadays, it is a matter of one or more of industriousness vs. laziness, planning vs. not planning, delaying or not delaying gratification, being professional or unprofessional, saving in the bank or spending on entertainment, …—and, obviously, actual own ability.)

*Another, with some overlap, is that the former tend to focus on equality of outcome, while the latter tend to prefer equality of opportunity.

**Note that e.g. I would not say that he should sell his food as expensively as he can, with no regard for the well-being of others. I am saying that it is his choice. That choice might be profit maximization, it might be enough profit to just make the effort and future risks worth his while, it might be selling “at cost”, it might be giving things away—as he sees fit, not I, the villagers, Karl Marx, or Bernie Sanders.

Written by michaeleriksson

March 26, 2020 at 7:14 pm

Thoughts around social class: Part II (prices etc.)

with 3 comments

As I have often remarked, the best way to create a society with a higher degree of wealth for those* with relatively little wealth and income, is not to redistribute the existing wealth (often at the risk of reducing it)—but to increase the overall wealth (even should it result in larger differences in distribution).

*I am troubled to find a good phrasing, with “poor” often being highly misleading, “disadvantaged” simultaneously a euphemism and (potentially) interpretable as a statement about opportunity (where the intended meaning relates to outcome), “lower class” too fixed in perspective, “less well off” either a euphemism or covering too large a group (depending on interpretation), …

The most obvious sub-topic is economic growth (e.g. in the rough GNP sense); however, for my current purposes, the area of prices and purchasing power is more relevant.* Trivially: If earnings rise faster than inflation** then every major group will (in real terms) earn more.*** This is, in turn, closely connected to factors that, directly or indirectly, relate to economic growth, including government policies, introduction of new or improvements to old technologies, energy prices, wastefulness or efficiency of business planning, …

*However, I have a text planned on some other aspects relating to growth.

**But note that inflation also has an effect on e.g. bank balances, which implies that not everyone will automatically grow wealthier in a stricter sense. These effects, however, will naturally hit people harder the more money they have—and might even be beneficial to those in debt.

***With a number of caveats and reservations when we look at the gritty details, e.g. that the distribution of increases is sufficiently reasonable, that there are no upsetting changes in (un-)employment patterns, and similar. Discussing such complications would lead to a far longer text.

A few observations relating to this sub-topic:

  1. The current “economic power” of e.g. a well-todo (but not outright rich) German is quite great in some areas, e.g. relating to food; however, it is quite poor in others, notably where the government or major businesses tend to be involved. For instance, laying a single meter of Autobahn costs roughly six thousand Euro—under ideal circumstance. In extreme cases, it can be more than twenty times as much. (Cf. [1], in German.) A clear majority of all Germans could not afford to build a single meter of Autobahn out of their monthly income—even taxes and living expenses aside… Looking at “discretionary income”, most would need to work for several months for this single meter—and real low-earners might need years.

    Through such examples, we can see a clear difference between living in a wealthy/well-fare/whatnot state and actually being wealthy. Indeed, as will be argued in a later installment, the vast majority of people are still (and might permanently remain) second- or third-class citizens in a bigger picture. (While, I stress, having far less to complain about than their grand-parents.) This includes very many who typically consider themselves successes in life, e.g. middle managers, most upper managers, professionals in good employment or running small businesses, …

    The Autobahn example also raises some questions on the effective use of tax-payer’s money: Chances are that these costs could be a lot lower with a greater efficiency—but when the politicians pay with someone else’s money, there is little need for efficiency.

  2. A particularly troublesome issue is rent, prices of apartments/houses/land, and building costs: Looking at the vast improvements in most other areas (in terms of better products and lower prices) we might expect even relatively poor earners to affordably live in their own houses or large apartments. The reality, excepting some unattractive areas, is very different. In booming areas, prices can even be preventative for many. Even in non-booming areas, the monthly rent or mortgage payment is often the single largest expense. To further increase the economic well-being of the people, reducing these prices should be a priority.

    To some part, these prices are caused by high localized population growth that is hard to work around in a timely manner—and lack of land can be a long-term issue for the duration. (Someone happy with an apartment can be accommodated e.g. by building higher; someone looking for a large garden either has to be loaded or live somewhere else.) However, there are other issues, including too long delays in building new apartments, building* costs, taxes**, luxury renovations***, “unnecessary”**** and temporary***** rentals, and undue realtor fees (see also several older texts, e.g. [2]).

    *For one thing, these are generally quite high in Germany, for reasons that include great demand, personnel costs (taxes and the employment construct; cf. a later installment), VAT, and a mentality with a disconnect between the value delivered and the price. For another, building methods, materials, “pre-fabrication”, …, have not advanced at the rate that they should have—possibly, because the building industry has little incentive for progress.

    **If a landlord makes a profit, he must pay taxes. Even if he does not make a profit, VAT will often be an issue. (Generally, note that taxes do not just hit an employee when he earns his money—they also hit him when he spends it, although usually in less obvious manners than income tax etc.)

    ***German law allows landlords to make many renovations, with a corresponding rent increase, even against the will of the tenant and in alteration of the terms of the contract. This is often used to artificially increase the rents considerably, and often with the side-effect that old tenants are forced to move out to be replaced by better earners.

    ****A common investment strategy in Germany is to buy a single apartment for the purpose of letting it for rent. This does increase the number of available rentals, but it also decreases the number of apartments available to those purchasing for own living, which (a) drives the prices up unnecessarily, (b) forces some people to rent who otherwise would buy.

    *****In times of project work, temporary assignments, and whatnot, increasing numbers work in cities for so short times that it does not pay to rent or buy a regular apartment, but still long enough that living in a hotel is unnecessarily expensive. This has led to a market of furnished apartments that are rented for weeks or months at a considerably higher than ordinary rent—and each of these apartments is removed from the regular market, increasing the deficit.

  3. A drop in prices is increasingly countered by product alternatives, product improvements, and product “improvements”, that partially or wholly move inexpensive products of the market in favor of more expensive ones. Consider e.g. the boom around various coffee machines, like Nespresso, Dolce Gusto, Senseo, which allows the sale of coffee grounds with an immense increase in markup.* Another good example is the continual replacement of computer models with more powerful and pricey versions. This is to some degree good, however, the simple truth is that, for most people, a modern computer already is more powerful than it needs to be, and that the average customer would be better off if technological advancements were directed at lowering costs. A particularly perfidious** example is toilet paper, which becomes more and more expensive the more plies it has, even at the same overall quantity***—and where even two-ply paper has been artificially removed from the B2C market.

    *This is an example where the customer still has the option to use the older and cheaper versions—and often are better off doing so. For instance, I have repeatedly had a Nespresso in temporary (furnished) apartments, but actually grew tired of the taste and tended to prefer drip brews. In my own apartment, I have a Dolce Gusto, which I used on a daily basis for a while, enjoying the greater variety, but I ultimately returned to drinking drip brews almost exclusively—I have not used the Dolce Gusto in months, despite having a dozen capsules still lying around. A Senseo that I owned some ten or fifteen years ago produced outright poor coffee, having a shorter preparation time as the sole benefit compared to a drip brew.

    **In the other discussed cases, I pass no moral judgment: That businesses try to gear customers towards more profitable products is only natural, while the customer does gets something in return and often still has a choice. The result might or not might not be unfortunate for the customer, but at least there is only rarely an ethical wrong-doing. With examples like toilet paper, the customer is left with no improvement and no choice—and is forced to pay the additional and unnecessary cost.

    ***One segment of four-ply is more expensive than two segments of two-ply, etc., even though the overall weight and volume is virtually the same, and even though the customer could just fold the two two-ply segments over another for what amounts to four-ply.

    Without such artificial market alterations, life could be a whole lot cheaper.

  4. A partially overlapping area is convenience products that reduce the work-load for the customer at an increase in monetary costs. This is most notable when it comes to food, where e.g. very few people bake their own breads and whatnots today, because the convenience of store-bought alternatives almost always outweighs the additional* costs—and despite own baking once being almost a given.** Indeed, most bread loaves appear to be sold even pre-sliced today—unlike just a few decades ago.*** Coffee was regularly ground by hand in earlier days; today, it is mostly**** bought pre-ground. “TV dinners” can reduce effort considerably, but are a lot more expensive than own cooking. Etc.

    *In this specific area, we might have reached a point where even the monetary cost of own baking exceeds the price of ready-made products; however, if so, this is not generally true and it was not originally true in this area either.

    **Indeed, further back, even more elementary steps (e.g. grinding flour) might have taken place at home; while subsistence farmers might even have provided most of the ingredients.

    ***Here the additional cost in the process is likely to be very small; however, the customers are potentially hit from another angle: Pre-slicing reduces the expected “best before” date.

    ****And the exceptions are likely almost exclusively for use in coffee machines that automatically grind beans.

    As an aside, these convenience products do not only bring a money–effort trade-off, but often result in less choice and/or suboptimal products. Consider e.g. the German pre-sliced cheese vs. the block cheese for manual slicing that is common in Sweden—to me, the former slices are too thick, simultaneously reducing how long a given quantity of cheese lasts and making sandwiches less healthy. Or consider the often quite poor nutritional profiles of TV dinners compared to own cooking.

  5. Luxury and brand products is an area bordering on the perfidious: Often these come with a value added; often they do not; and only very rarely is the value added comparable to the price hike. For the rich, this is not much of an issue; however, even the “middle class” is often well-advised to stay away from brand products without a plausible real* value added. Unfortunately, a liking for brand, or even luxury, products is quite common even among those who earn little—and here the effects can be outright dire, e.g. when a low-earner spends most off a small yearly surplus on shoes** instead of putting it in the bank for a rainy day.

    *As opposed to e.g. one that is explicitly or implicitly claimed in advertising, or one that only applies to other groups than the actual buyer: If, hypothetically, Nike brings a value-added to an Olympic runner, it is not a given that a junior-high student taking physical education also benefits.

    **To take an extreme fictional example, the infamous Carrie Bradshaw once discovered that she (a) could not afford her apartment, (b) had spent forty-or-so thousand USD on shoes over the years. Generally, she might be a good example in that she likely was not that low-earning, instead creating her recurring economic problems through wasteful living.

    In particular, it is a very great fallacy to assume that “more expensive” also implies “better”.

  6. Attempts to gain through large scale salary/wage increases, as attempted by unions, will not be overly successful without a simultaneous and independent trend towards lower prices (relative earnings). Not only will people with more money have a tendency to spend more,* which drives prices upwards, but the additional cost of work will also have an effect on product prices. Notably, there are often chain effects, e.g. that a wage hike in the mining industry increases metal prices, which increases costs in e.g. the machine industry, both metal prices and machine prices affect the tin-can industry, etc. If we, hypothetically, were to increase wages and salaries with a blanket ten percent, the individual businesses would not just see a ten-percent increase of cost of work—they would also see an increase of almost all other costs. While these other increases might fall well short of the full ten percent, they can still be sizable—and they will lead to a greater price increase on a business’ products than would a similar cost-of-work increase limited to only that business. (Also note e.g. that a three percent wage increase at two percent inflation is slightly better than a ten percent increase at nine percent inflation.)

    *Or e.g. work less to keep income roughly constant with an increase in spare time. Similarly, an employer who must pay his workers more might opt to employ fewer of them, e.g. through use of more automation. Such aspects will be largely left out, for the sake of simplicity.

    To some part, such increases can even amount to a competition between different unions and their members, in that any increase drives prices upwards, and that those with smaller increases will see a larger part killed by the resulting increase in prices. At least in theory, there could even be a net decrease in purchasing power for one union/member connected to the net increase seen by another.

  7. For similar reasons, naive sometime suggestions from the radical Left that everyone should earn the same, that the fortunes of Billy Gates et al. should be confiscated and divided among the people, and similar, will work poorly (even questions like ethics aside): Give people more money and they will (a) buy more, which drives prices up, and/or (b) work less, which forces businesses to page higher wages/salaries, which drives prices up. After a period of fluctuation, the lower earning/less wealthy would be back at roughly* the same purchasing power as before, and little would be gained. At the same time, the incentives to start businesses, come up with inventions, earn money, whatnot would be reduced, which would harm economic growth…

    *It would probably be a bit higher, but by nowhere near as much as expected in a naive calculation. Indeed, in some scenarios, the prices of lower-priced goods are likely to see unusually large increases, which would be particularly harmful. Consider e.g. a simplistic world of poor peasants and rich noblemen, of which the former live on bread and the latter on cake. Turn the noblemen into peasants and divide their money in equal shares among the population—and watch cake prices drop while bread prices increase. Either cake has to grow cheaper, or no-one will now be able to afford it. Bread, meanwhile, will be eaten by more people than before (unless the price decline for cake is very sharp) and the increased competition for this traditionally scarce resource will drive prices up.

As an aside, some of these items allow the customers a degree of own choice and prioritization, and quite a lot of money can be saved by making the more frugal choice.

Excursion on myself and brand products, etc.:
While I do not take frugality to an extreme, I have almost always tried to avoid expenses without a corresponding practical value to me. This includes avoiding brands that are “famous for being famous”, buying lamps* at hardware stores instead of department and pure lamp stores, having no qualms** about going into a “one euro” store, usually preferring the cheaper hotel to the hotel with more stars, and having never owned a car***. Outright luxury items have been quite rare and restricted to times of high income.

*For instance, when new in Wuppertal, I wanted to buy an uplight (?). Asking around, I was directed to a lamp store where prices started around three hundred Euro. I spent the extra time to find a hardware store and bought a perfectly satisfactory specimen at (possibly) sixty Euro. To boot, I found the visual design of the latter to be superior…

**These days, I suspect, few people are hesitant, but in earlier days I have heard strong negative opinions expressed towards these and similar stores, both in terms of perceived product quality and the risk of being seen as a pauper for visiting them. (Quality can be a legitimate concern for some products, but mostly the products are fine enough.)

***I have mostly lived in major cities with decent public transportation, and I prefer to walk when it is reasonably possible. Having a car would rarely have been worth the cost.

This, however, does not mean that I am skimpy when I see a benefit. Most notably, I have repeatedly taken sabbaticals to spend time on studies/writing and to enjoy life—while a year-or-so off work is very expensive, it really brings me something. (I strongly recommend it to those fortunate enough to have the opportunity.) However, I have also had no qualms about living in hotels or temporary apartments when working in other cities, even at distances where most others commute. If I can afford to cut out that extra one-to-two hours a day, with all that extra stress, having to go up earlier in the morning, having to wait longer before I can relax in the evening, etc., then I have a very real benefit. At the same time, I have always adapted to my income, e.g. in that I spend considerably less money on food, eating out, clothes, whatnot today (on a sabbatical) than I did a year ago (working full-time).

Written by michaeleriksson

November 12, 2018 at 1:15 am

A few thoughts on the crisis in Venezuela (and the importance of incentives)

with one comment

With Venezuela hitting the spot-light again, I decided to read up a little, specifically with the Wikipedia pages on the economy of Venezuela and on the Venezuelan economic collapse of 2016, and at least skimming several other articles, e.g on the Economic policy of the Hugo Chávez administration and Economic policy of the Nicolás Maduro administration.

These are two simultaneously very disturbing and very enlightening reads, especially when combined with e.g. the experiences gathered in the Soviet Union or, more recently, in Mugabe’s Zimbabwe. Extreme government control, lack of respect for private ownership and the rights of the individual, the lack of incentives to create growth, …, appears to lead to economic disaster everywhere it is tried. (As, of course, predicted by many more free-market minded economists for a very long time.) If we want economic growth, it is central to give people a reason to try to build something for themselves or their families, to make their own lives better, to give those who want to work or start business easy opportunity to do so, etc.; at the same time, it is valuable to have a connection between benefit and cost, to avoid waste and poor resource use. The ideas of Ayn Rand are often naively optimistic or simplistic, but the core principles are the right one—and while human nature causes capitalism and free markets to fail to some degree, its effect on strongly socialist, communist, “central planning” societies is far greater. A sad twist is that poverty often breeds an (understandable) wish for e.g. greater redistribution between “haves” and “have nots”, greater government control, etc.—but that these very measures salt the earth and reduce economic growth. (At least when taken beyond some point. See also an excursion below.)

The starting observation is that Venezuela is one of the poorest countries on earth, and currently likely has the worst developing economy—when it should be a very rich country. Indeed, in the mid twentieth century, it was… Why? Because Venezuela is one of the world’s most oil-rich countries, and oil, now as then, is an immense source of richness. (As can readily be seen by some oil-rich Arab countries; or by how Norway went from trailing Sweden to outclassing it in wealth, after beginning to exploit its North-Sea oil.) Today, “poverty” is too weak a word for the problem: Venezuela is suffering the equivalent of a severe heart-attack—and cannot afford a physician…

To detail what went wrong from then till now would require far deeper studies, but much of it can simply be grouped under the heading “unsound politics”, largely of an extreme Leftist character. Partially overlapping, partially not, we have problems like corruption, crime, and violence. A cardinal error is the over-reliance on oil, making the country vulnerable to economic crisis when the oil price falls—and to over-spending when it rises. A strong, functioning economy would benefit considerably from oil, but oil would not be its only leg: Other industries and areas of business, be it cars, electronics, software, various services, …, would be additional sources of wealth and dampen the fluctuations caused by oil.

To look at some more specific issues from the Wikipedia articles*:

*With the obvious reservation that I do not personally vouch for their correctness—and that I do not bring a great prior expertise on Venezuela. The contents do match my previous, more shallow, impressions both during the Chávez era and the last few years very well, however. Further, with the reservation that this is a very incomplete listing with few details; those interested really should read the original articles.

  1. Social programs* like the Bolivarian Missions have reduced incentives for the people to work and caused a massive cost burden, the harder to carry when oil prices were unfavorable.** At least one included land expropriations, disrupting existing production and giving land-owners great incentives to seek their fortunes elsewhere. Others have aimed at e.g. creating more cooperatives in lieu of regular businesses—despite the disputable or outright poor results such have had when attempted elsewhere (largely, in my opinion, due to poor incentives).

    *Apparently instituted more to gain political support among the poor than to actually improve their lives. Their effectiveness at the ostensible goals appears to have been limited. My take would have been far more positive, had the success rate been greater.

    **I stress that I do not rule out that there have been positive effects to counter-balance the negative; especially since Venezuela, even then, had people who actually were poor—not the “poor” people of today’s Germany or Sweden. However, this post is specifically about the development of the economy. Apart from those programs focusing on teaching, there is mostly negative or neutral effects to be found or expected.

  2. Property expropriations of various kinds (cf. also above) that give owners, including foreign companies and investors, incentives to leave.
  3. Price controls that reduce the incentives to produce and import (or increase the incentives to export) contributing to shortages and creating black markets. In the case of gas, effectively sold by the government, this also implied a missed income opportunity compared to selling the gas far more profitably abroad and finding other arrangements for the domestic situation. (This especially since the low gas price almost certainly led to wasteful use.)

    Of course, the help for the population is dubious: What good are lower prices when there is nothing to buy? What about the opportunity cost of standing in line, Soviet style, wasting time that could have gone towards earning money (usable to pay for more expensive goods)?

  4. Trying to keep the exchange rate to the U.S. dollar at an unrealistic level, reducing the country’s competitiveness, incurring additional costs, (again) creating black markets, … I also strongly suspect that this, contrary to intentions, has strongly contributed to the degree of inflation: Firstly, this type of dual rates could make the people lose faith in the currency and consider it worthless, rather than worth less. Secondly, it becomes a second choice for currency, seeing how much easier everything goes if one has a few dollars. That a price spiral (in the native Bolivares) then occurs is not the least surprising—and an actually usable currency with a single exchange rate would be preferable, even if this one exchange rate is far less favorable than the government prefers.
  5. Allowing* oil output to fall: This reduced the oil income even at times of high prices and made the fall in prices the more hurtful.

    *The word should be seen with some caution. This was likely a hard-to-prevent side-effect of other policies, and it might not have been in the power of e.g. Chávez to prevent. However, a government take-over certainly did not help…

Of course, these and other factors often interact negatively in vicious circles, e.g. in that poor living conditions and prospects make the best and the brightest leave the country, thereby reducing productivity and the attractiveness of Venezuela as a place of business, thereby worsening living conditions and prospects further. Or consider how poverty leads to more crime, which leads to less incentives to work and to run businesses, which leads to more poverty. There are also very often direct and indirect negative side-effects (in addition to the above), especially through the immense inflation of recent years—as well as, if to a lesser degree, the “merely” very high inflation of the decades preceding them.

What can be done to save the country? Barring a miraculous rise of oil prices followed by a complete turn-around in economic and other policy, I see little hope. The least bad resolution that is realistic might be a complete collapse and a fresh start—to build something new from the ashes, even if it means that the road is that much longer. Superficially reasonable analogies might be found in the German Weimar Republic or possibly the German or Japanese post-WWII economies—all instances of rapid recuperation from a disastrous situation. However, these situations differed in many regards, including that there was a strong tradition of successful industry and a great number of bright and educated people in the country, that the problems were largely caused by external events (own culpability notwithstanding), and that the state of the rest of the world made it far easier to become internationally competitive again. In the latter two cases, considerable external support have to be added.

Excursion on GINI and similar:
I deliberately do not include issues like “income inequality” or a high GINI* value, even though these can be common Leftist complaints. These are not normally problems per se; and might even, within limits, be positive. The real issue is something very different: Lack of social mobility, where our parents’ fortune or lack of fortune do more to determine our fortunes than do our own efforts. When the poor-but-bright-or-industrious can end up being wealthy, they are far more likely to have hope and to realize those hopes; and larger parts of society will strive to build something. On the other hand, when they have little chance of making themselves a good life, why should they bother?** (Be it because there is too little social mobility or because even a middle-class life is not very good, as has usually been the case in e.g. most Leftist dictatorships.) Similarly, I do not put that much stock in complaints about imperialism, foreign ownership, and other ever-recurring examples of Leftist scape-goats: Even if the actual profits were to leave the country, there are still positive effects in terms of local employees earning money, infrastructure improvements, foreigners spending money locally, … All other factors equal, local ownership is better for the locals; however, the factors seldom are equal—and experiences point to it being better to have foreign owners running a well-managed and profitable operation than, like in Venezuela, having locals running a disastrously mismanaged one.

*Another reason to consider GINI complete bullshit is that it is too simplistic a measure, not taking absolute wealth levels into account, potentially giving the same value for very different income distributions, and, above all, not considering why a certain situation has arisen (e.g. politics, demographics, high or low social mobility).

**In a twist, countries like Sweden and Germany can suffer from the reverse problem with the same effect—if someone can have a materially great life without putting in an effort, then why bother with the effort?

Excursion on approaches to raising living standards:
Venezuela well exemplifies an ever-recurring difference between the approaches of the Left and and large parts of the non-Left—the former focuses on changing the division of the pie, even at the risk of making the pie smaller; the latter at making the pie larger, even at the risk of increasing the difference in pie slices. In most cases, even the poor seem to fair better with the second approach…

Written by michaeleriksson

January 11, 2018 at 12:35 am

Price segmentation

with 2 comments

About six months ago, I encountered a blog on price discrimination at hair-salonse. With one late-comer stating that “This is an aspect I hope to explore in my research on gender-based price discrimination for my microeconomics class at Harvard University.”, it is high time for me to write a long-planned post on price segmentation—which is the true explanation behind this discrimination: Women, as a group, are willing to pay more, and that is the reason for the difference in prices. (See also below and some of my comments in the original discussion.)

To illustrate the principle of price segmentation, assume that a company manufactures a three-geared bicycle and wants to determine the right price: If a higher price is chosen then each bicycle sold will give a higher profit—but fewer people will be willing (or, at all, able) to buy it. Assume that the number of bicycles sold at a certain price in Euro is n(p) = 100,000 – 200p and that the total cost of manufacture, marketing, etc. amounts to 300 Euro/bicycle. (These are unrealistic and simplistic assumptions, but they serve well as an illustration.) We can now write the profit as (100,000 – 200p) (p – 300 ) = 160,000p – 200p^2 – 30,000,000

Starting with a price of 0, we have a pleasing 100,000 bicycles “sold”—but a horrifying loss of 30,000,000 Euro. No wonder: Each bicycle gives a severe minus. Using the realistic minimum price (= the cost) of 300 Euro, we see a profit of 0, at 40,000 units sold. Now, by increasing the price by 1 Euro, we can increase the profit by almost 40,000 Euro—gaining 1 Euro from each of 39,800 bicycles, instead of 0 Euro from 40,000. Another price increase brings almost the same amount (39,400), for a total of 39,600 bicycles at a gain of 2 Euros each and 79,200 Euro in all. Another Euro gives another 39,000 and a total of 118,200. Etc.

Increasing the price further and further gives a growing profit—we have fewer buyers, but a greater profit per buyer. At a price of 400 Euro, a full 2 million Euro from 20,000 items is reached. Here, however, we have a maximum: Increasing the price further leads to a smaller profit, as the loss of customers has a greater effect than the price gain. Indeed, at 500 Euro, the profit is back at zero, because not one single bicycle is sold. (The mathematical function works for even higher prices, with an increasing loss, but is now entirely unrealistic—we cannot sell a negative number of bicycles.)

This makes the manufacturer very sad: He knows that there are people willing to pay more than 400 Euro—but he cannot charge them more without losing other customers and reducing his profits. He also knows that there are people who do not buy at all at 400 Euro who would be willing to do so at a lower price—but he cannot lower the price without lowering his profit on the existing customers.

Or can he? Yes, he can! This is where price segmentation comes in: People with different willingness to pay are charged different prices for varying reasons, some based on actual value added, some on different needs, some on stupidity or gullibility on behalf of the customer, some on border-line (or outright) fraud.

Among the many options available to the manufacturer, he chooses the following: He manufactures an ungeared basic model for 250 Euro to be sold at a price of 300 Euro, the old model at the old cost and price, and a “de luxe” bicycle with twelve gears at cost of 350 and a price of 500 Euro. Now he has his previous profit, plus the additional profit from those willing to pay extra, plus the additional profit from those who can now afford the inferior bicycle. (However, also with a minus from those who would previously have bought the mid-ranged bicycle, but now opt for the low-end one. Minimizing such losses is a question for another discussion, but take note of factors like perceived status, brand recognition, deterrents in form of artificial quality reductions, whatnot.)

To give an indication of how powerful price segmentation can be: What profit would result if every potential customer bought a bicycle at the highest possible price using the original function? We then have to add 200 * 0 at 500 Euro, 199 * 200 at 499, 198 * 200 at 498, …, 1 * 200 at 301, and 0 * 200 at 300—amounting to 4 million Euro, to be compared with the original 2 million. (Where we assume that all prices are integers. Allowing prices like e.g. 300.94 makes no change in the big picture, but would lead to more complicated calculations and, possibly, the need to discuss assumptions about fractional bicycles.)

Examples of price segmentation can be found everywhere: In the cereal aisle in a supermarket, in a computer store, at the hair-dressers, … Some examples can be less obvious, my two favourites being DVDs and books:

DVDs are originally sold at very high prices, often more than 20 Euros at release. Those very eager, irrational, or wealthy buy at that price. The price then drops by and by, with those less eager, irrational, and wealthy eventually buying at a lower price. In the end a DVD may be dumped for 5 Euros or less, before it disappears from the market—or is marked up again, because the decision is made that it is better to refocus on the true fans and late comers willing to pay a higher price than on the masses.

Books, OTOH, are divided into hard-cover and pocket books: They both have their advantages and disadvantages (and I, personally, consider the pocket book to be the superior format in most cases), but the former sells for thrice the price of the latter. Why then does anyone buy hard-cover? Easy: The hard-cover books are released about a year earlier, and the true segmentation (as with DVDs) is one of time: The customer pays for the privilege of reading the book earlier—not any inherit superiority of the hard-cover format.

Even rebates to seniors, children, and students are usually done with an eye at price segmentation (although altruism and PR can be factors): Customers who would otherwise be hard-pressed to pay are given a leg up; others still pay the full price.

Returning to the example with hair-cuts: Why would women be charged more? Because of a patriarchal conspiracy? No. The true reason is simply that men and women, as groups, are willing to pay different amounts of money for a given hair-related service (and that they often want different services). Correspondingly, it makes good business sense to segment the market based on the sex of the customer: Increase the price for men and they will desert to self-service land; do so for women and they will remain as customers—with the occasional complaint about too high or unfair prices. Similarly, women are more likely to go to a fancy “hair architect”, while men tend towards someone who admits to being a cutter of hair; women want extras of various kind; men want it plain and simple; etc.

As an aside, the issues of competition and niches is very important in practice. For instance, in the original example, the presence of a competitor selling an equivalent or superior bike at 390 Euro could give the function n(p) a radically different look when that price was approached, possibly making the original “ideal” price of 400 Euro entirely unrealistic. It would also be possible that the three given market segments would each be dominated by a different manufacturer.

Written by michaeleriksson

November 13, 2010 at 12:43 pm