EconTalk with guest Susan Mayer debunking some conventional wisdom on silver policy bullets.
(This is my first non-soccer post in awhile, but it will factor into a future post about soccer.)
The title is from Rory Sutherland on this Econtalk podcast (emphasis added):
…one of the things that annoys me about economics is that it likes markets for the wrong reason. Which is, that it likes free markets because they’re notionally efficient, whereas I like markets because they’re inventive. And, the two narratives–you know, it’s a perfectly–you can understand why free market people leapt on this idea of efficiency through competition. In fact, competition seems to be deeply wasteful if you look at it in a short time horizon. What’s magical about markets, of course, is that they solve problems through a process of kind of market-tested innovation.
Trial and error. But it’s a bit more than that too, because I think one of the extraordinary things markets do–which, I think this is one of the reasons I’m uncomfortable about economics trying to model itself on Newtonian physics–is quite often what markets find is more than one solution to the same problem. And I think if you approach business problems with the mentality of someone who is trying to make it look like physics, then one of the dangers is that you’re always trying to optimize something or find the single overarching solution that works for the average. And in many cases, I think markets and business do something much more ingenious than that. They solve the same problem for different people in a different way.
I’ve been trying to find words for this for a long time, but kept falling back on the not-so-compelling “competition is good because trial-and-error and solutions aren’t so obvious” yada.
His last sentence sums up what I’ve been trying to articulate.
Markets and businesses solve the same problem for different people in a different way.
That’s good. That gives more of us what we want.
What I like about McDonald’s, you may not like, and you might prefer Chipotle instead.
We both get more of what works best for us, instead of having to settle for what works for the average of us, which might not even represent real people.
For example, let’s say I’m age 50 and you are 30. Our average age is 40. Someone might solve a problem for a 40 year old, since that’s average.
But, in our small sample of two, a 40 year old doesn’t even exist. So, their solution isn’t good for either of us.
In a scene in the movie, Central Intelligence, Kevin Hart’s character is reconnecting with a high school classmate, “Fat Robby,” played by Dwayne Johnson.
Hart asks how he got in such great shape. Robby responds:
I didn’t do much really. All right.
I just did one thing.
I worked out 6 hours a day, every day, for the last 20 years. Anybody could do it, right?
That reminded of something I see in the telling of a lot of success, and failure, stories.
People try to boil it down to just one thing.
But, the real story is more like what Johnson says after that. It really wasn’t just one thing.
Hart’s face is the typical response you get when you try to explain it’s really more than just one thing.
Walmart’s success is a good example.
The first thing people think about Walmart is low prices.
Many people think that’s the ‘just one thing’ for Walmart.
They missed that Walmart invested heavily in its supply chain management, long before other retailers. They did this to help save costs and keep prices low, but it also had an unexpected benefit. It meant that stores were stocked and shoppers more often found what they wanted.
Even the second generation Walmart management lost sight of this, and other, important value dimensions as they focused on the ‘just one thing’ of low price in the 90s and 00s.
They kept costs low by doing things like servicing shelves less and cutting cashier labor to the bone.
This led to messy, disorganized stores and long lines at the checkout.
Walmart may have what you want on the shelf, but they made it less appealing and less convenient to get it.
For a lot of customers, cleaner, more organized stores with shorter checkout lines became more appealing, even if the prices weren’t rock bottom.
Losing customers to competition made Walmart management realize they had neglected the importance of these other value dimensions. So, they put more effort into keeping stores clean and organized and making it easier to check out.
It’s good to remember that success and failures usually come down to more than just one thing.
Many times those other contributors are not obvious.
I enjoyed this EconTalk podcast with guest Maeve Cohen, about rethinking economics.
I also think there is much room to improve economics education.
Maybe there could a little less emphasis on how to calculate GDP and more discussion on the implications of a ‘incentives matter,’ for example.
I highly recommend listening to this week’s EconTalk podcast with guest A.J. Jacobs.
He and host, Russ Roberts, discuss Jacobs’ new book, Thanks a Thousand: A Gratitude Journey.
The book is about Jacobs’ experiences in attempting to thank all the folks who make his morning cup of coffee possible.
He starts at his favorite coffee shop and works back to thank the folks who deliver the coffee to the store, roast it, keep the store pest free, grow the coffee and even the folks that create the safe drinking water that makes up over 98% of his morning joe, to name a few.
The book is another take on the economic classic essay, I, Pencil, which explores the amazing coordination among large numbers of people who make something as mundane as pencils.
At the end of the podcast, Jacobs recommends being as creative as possible this Thanksgiving when considering what you are grateful for.
I, for one, am thankful for the price system, which enables the coordination among billions of folks and encourages them to make things that improve my life, like pencils and coffee.
Another good bit of advice that Roberts and Jacobs discuss is looking for the good. Russ recalled a bumper sticker, “Wag more. Bark less.”
Jacobs said he finds he has an inner Larry David and inner Mr. Rogers. Larry David looks for things to be annoyed about it. Mr. Rogers looks for things to be happy about and grateful for. He tries to encourage the inner Mr. Rogers more and good things happen.
Kansas Congressman, Ray Merrick, is catching some flak for saying those words. He also said “They are a net consumer.”
Salon.com typifies the criticism of Merrick’s comments in the subtitle of its piece:
Kansas Republican Ray Merrick shows off his breathtaking ignorance.
Brandon O’Dell, commenting on this Merrick piece in Kansas City’s alternative newspaper, The KC Pitch, gets it. He wrote:
You don’t have [to have] the most basic understanding of economics to even comprehend that what Merrick said is factually accurate. The government does not “produce” anything, unless we all woke up this morning to a communist takeover whereas the government now owns the means of production? What he said is 100% true. The government does not take raw materials and labor and combine them to create goods or services that have a net value greater than the cost of making them. That is “production”. Unless you are in the business of making goods or services that can be sold for a profit, you are not a “producer”. Not a tough concept.
What he DIDN’T say is anything derogatory about government employees. It wasn’t a criticism, it was a statement of a basic economic fact, that government consumes. It doesn’t produce. Some government services are absolutely necessary. That doesn’t change the fact that they are expenses though, and should be managed Ina responsible manner, and yes, even cut when possible. Not something government is good at.
Criticism I’ve heard of Merrick’s comments falls mostly into two categories “Merrick is a jerk or idiot” which is then coupled with “but government workers are valuable” or “Merrick is a hypocrite since he’s a government employee.”
I take this as another example of the sad state of discourse in our country. These critics don’t have the capability or desire to try to understand what Merrick said. They will just shame him for saying what they thought he said. He is a politician, so he will roll over and apologize instead of taking the opportunity to educate his critics.
Yes. Some government employees do valuable work. Government workers are paid for by taxes. Where do taxes come from?
Just as in my burritos company example in the Government is Overhead post, the burritos company’s accounting department does valuable work for the burritos company, but they aren’t producers. Take away the burritos operations and what happens to the accountants? They lose their jobs. Their jobs are paid for by the production and selling of burritos.
David Henderson’s post on sayings from economist Dwight Lee is worth a read. This one is from the comments of that post:
You can tell for whose benefit an institution is run by looking at who gets the closest parking spaces. At universities the students get the most distant spaces, administrators and faculty the closest. At Wal-Mart, they ask the employees to park away from the entrance.
Update: Don Boudreaux also posted this at Cafe Hayek. In the comments of his post, someone points out that professors and teachers also get the good parking spots at his children’s private university and high school, implying that private doesn’t necessarily make the institution more likely to give better parking to the students.
I think it’s important to realize that the private/public distinction is not all that helpful in determining whose benefit the institution is run. Certainly, there are plenty of private institutions run for the benefit of their bureaucrats.
I think an interesting question is how and why such private institutions can get away with that?
One answer for universities may be that they aren’t really run for the benefit of the students, but rather for their parents, who don’t visit as often.
Certainly, all institutions have to try to please multiple groups of stakeholders. But, universities do seem a lot more focused on administrators and faculty than other groups. Tenure is another example.