Thursday, August 27, 2015

Shadow Prices in a Toy Economy

I spend a lot of time thinking about prices. Probably more time than is good for me. My first Big Boy Pants price theory was hand-delivered from an out-of-press Alchian and Allen Exchange and Production (nb, the top billing that "exchange" enjoys in the title is something regular readers of EE will appreciate) via Walter Williams. But graduate level Microeconomics I was hardly the end of my obsession with the subject. Cost and Choice, a breezy little treatment by the late James Buchanan and the occasional lecture by our own Mike Munger also top the list of influences. It was Buchanan that got me thinking of subjective value (though I think my pals at Sweet Talk might prefer to call it conjective value) on both the consumption and the production side, and it was Mungo who urged me to think carefully about the wide range of opportunity costs and the many otherwise unnoticed frictions of ordinary commerce.

I recently had a Munger Moment visiting Colonial Williamsburg with my niece who is visiting from Lithuania for the month. If you've not been there before, it's a working recreation of the actual 1750s era town, complete with brickyard; milliner; cooper; baker; forge; foundry; loom; smiths tin, black, and silver; & sundry. There's even a dedicated period-appropriate toolmaker who uses modern equipment to craft the tools used by the on-site artisans using the same steel that would have been available at the time. The bit that intrigued me started at the brickyard. While the barker was giving his pitch to the punters, I tugged the ear of one of the other folks working there to ask her why the sundried bricks had what appeared to be a cattle brand on it. She explained to me that the bricks they fired there in the traditional style were actually used on-site for repairs, renovations, and for new projects. Since they were obliged to be period-accurate, they have to distinguish the brick sizes on account of everything predating the standard 220/73/106mm dimensions in use today. Moreover, despite being a tourist attraction, they're one of the few brickyards in the US to use traditional firing methods to create non-standard bricks, so folks owning old brick homes in historical districts often buy from them, especially if they need to replace vitrified or hot-fired bricks.

My curiosity rose as we visited further. At the tinsmith, we discovered that not only were wooden mallets, fids, hods, and scrapers produced on-site, but a great many other easily-manufactured goods as well. It's pretty tough to work with tool steel when you've got a foot-cranked grinding wheel, but cast iron is easy enough to work in the style of the period. Much of the cookware comes right out of the foundry on site. Costumes too, even if the fabric is imported (which is also period-appropriate, since Virginia only grew the cotton; all the textile mills were either up north or across the pond). The really interesting bit was when I saw that some of these same goods used and manufactured on-site were on sale in the gift shops. So between the bricks, the tricorn hats with or without cockades, the wooden dice games, the horseshoe puzzles, and the rag rugs, there are three market tiers: a wholesale market (bricks sold to homeowners in Old Town Alexandria), a retail market (hurricane lanterns in the gift shop) and a shadow sharing market (can you fix my solder oven? I'll owe you a favor later).

Now, ordinarily, we'd just impute the formal market price to the shadow market to determine what the opportunity cost of this local sharing economy is, but casually watching it in action on a lazy summer afternoon gives me pause. I think there's a little something else on the balance sheet in the trade between the park employees that doesn't exist across from a cash register. I think some of it is what the accounting trade calls "goodwill," but I also think there's a special residual for cases like these that rely heavily on in-group aesthetics. You probably already know the literary trope that has the plucky hero earn the "special price just for the family" thanks to some courageous act of derring-do. There's some truth to that. Cherished in-groups enjoy a favored-customer status. Some of it's probably because of reputation effects, but I suspect a lot of it is just atavistic clannishness. I'm a little out of the loop on the current experimental econ lit, but I imagine that you could test it pretty easily in the classroom. Randomly assign folks to a blue team and to a green team, let them trade within their team for a while, then let them trade with each other. My hypothesis is that Team Green will charge higher prices to Team Blue members, and I also suspect that this effect will intensify when the objects traded are more tangible and personal (cups or sweaters in contrast to financial instruments or tokens).

I didn't press the girl in the tinsmith shop to elaborate on the economic institutions (my niece was a little tired and footsore), but if I'd had the time I think I would have asked her to describe the local economic system. I think she would have gone with "communism" or some variant, because she was about half a syllable from uttering "from each according to his ability, to each according to his need" (REMINDER: Marx didn't write that, he just popularized it). And I think there's some merit to that. I also think there's a great deal of merit to Bastiat's counterclaim that while you're wearing the 18th c. duds, it might be easy to overlook that Colonial Williamsburg is still just a tourist attraction. It's embedded in the institutions of the 21st c. Without the external prices listed in the shops, the tough decisions of "what shall I produce" and "for whom shall I produce it" are nigh insoluble. Without the residual ownership of the entire enterprise, and the motivation of being a colonial-era theme park that exists to entertain tourists, can you imagine that a bunch of college-aged kids would show up to sew breeches and bake bread for each other?

Like I noted with one of my favorite old posts here, barter, gifts, truck and other lesser forms of commerce are at their most euvoluntary when the alternatives of impersonal, anonymous exchange are also available. I'm coming around to the argument that the new sharing economy (Uber & al) merely reinforce those same moral intuitions. People really like to share, to be a part of a community rather than one cog out of many. Humanity isn't merely eusocial, it's social as well. The app-driven sharing economy allows us to be both at once. And I don't know about you guys, but I think that's pretty awesome. Uber, except for the day-to-day commerce of a model local economy.

Sunday, August 16, 2015

Memories of Rosasharn

Honest Toddler author Bunmi Laditan asks: is there something wrong with wet nursing in the wealthy secular West?


Cheap, reasonable alternatives abound, so it can't be a matter of BATNA disparity. If anything, the opposite is true. We sort of expect wet nursing to be the recourse of folks who can't afford anything better.

Of course, the same is true of ox tail soup or chitterlings. When I was a boy, those were the foods of poor people. Same goes for growing vegetables in your backyard or canning peaches, or knowing your way around a sewing machine. Time was, there were a whole pile of things that ordinary folks were obliged to do because anonymous, impersonal exchanges were either unavailable or beyond the means of the typical citizen. Not so anymore. We're now wealthy enough to play at being poor. It's a nice thing to be able to claim, that.

I'm on Bunmi's side. Rock on, weird mom. There are a whole lot of other hobbies you might choose that would be a lot worse for you and for them kids. Proust!

h/t Double D

Friday, August 14, 2015

The Switching Costs of Petty Tyranny Avoidance

Via Nick the G & Paolo The Wifehunter, a purulent little saga of petit neighborhood despotism. The short version: family puts up a playground for the kids. Playground is purple, so as to match the hue of the autumn foliage. HOA declares it an eyesore, threatens family with jail time (seriously?).
OK, by now all good libertarians are readying a logical and somewhat-convincing response to the Stout's troubles: You can just move. You agreed to live under the authoritah of the HOA when you moved into the neighborhood. So shaddup already.
There's more than a little truth to all that, but as Ekdahl wrote on Twitter in response to just that sort of response, "The 'rules' in this case are very vague and don't justify jail time." Things get even cloudier given that the Stouts apparently successfully appealed fines related to the construction of the swingset.
What would Coase say?

I suspect he wouldn't say "shaddup already." I suspect he'd acknowledge that part of the tacit package of rights when you buy into the governance of an HOA includes not being niggled and harassed by two-bit tinpot bullies who would be a caricature even in Kafka at his most Kafkaesque. I agree with the standard economic view that you can put a price premium (discount) on just about anything, including exceptionally nosy neighbors, I also agree that the many emanations and penumbras of too much discretion in the hands of uptight HOA directors is, effectively if not legally, an uncompensated takings.

And seriously, jail time? Are they even for real with that crap? It's a good thing our actual elected officials in the many legislatures of the land have better sense than to misuse the criminal code do flagrantly. Right?

Purple playgrounds: super non-euvoluntary, you guys. Totes magotes.

Ph'nglui mglw'nafh Tacky Swingset R'lyeh wgah'nagl fhtagn

Wednesday, August 12, 2015

Rainy Day Woman

I don't always catch fascinating conversations when I eavesdrop, but every so often, I will overhear something that makes me think. Here's a stylized transcript of just such an overheard conversation. The venue was a charming little country diner run by Southern European immigrants not too far from where I live. The place is popular with the local commoners, which makes the exchange far more remarkable than had I overheard it in, say Fairfax near campus. I have no idea who the people are in this exchange, so the names are completely fictitious.

For reference, I had ordered my standard omelette with biscuit, but it had yet to arrive when this conversation started.

Alison: Thank God we've got a field of candidates not scared to talk about immigration this time around. These democrats are going to ruin us if their amnesty plans go through.

Belladonna: Oh come on, it's not that bad. They're just trying to make a better life for themselves.

Alison: A better life? Do you really want people here that think it's OK to stone a rape victim? I'm sorry [Belladonna], but that's insane.

Belladonna: Well, tha...

Cathy: Hold it right there. Have you stopped to consider there might be a good reason they do that?

(slack-jawed looks of disbelief)

Cathy: Think for a minute what it's like in those countries for a woman who gets raped. She's an instant pariah. She can never marry, never have her own house. In many of those places, she already can't drive, can't get an education, can't vote. In places where woman already lack decent options to make their own way in the world, a quick death is a mercy. Think of the circumstances. Oh and by the way, if this is Afghanistan, there are poppy fields right outside. Her mom is probably out cooking up a batch of opium before the stoning so that she doesn't feel a thing.

(stunned silence)

Alison: Cathy, you say the weirdest things.

I agree with Alison. I'd never expect to hear such an argument outside of a Pete Leeson class. I briefly considered asking if she'd ever studied under him, but I was out with my daughter, and the wise father does not leave the 3 year old unattended for long.

Tuesday, August 11, 2015

Dairy Regulation Reform in the EU

EU Commission report on repealing dairy quotas:

Aren't we running the risk of over-producing again?
No, there is not a risk of the same sort of structural surpluses as in the past. The guaranteed price for butter and skimmed milk powder now merely serves as a safety net – such as during the 2009 dairy crisis, where it put a floor in the market. This means that producers are looking at the market when they decide how much to produce. Increased focus on added-value products (such as cheese and yoghurts) as well as on ingredients for nutritional, sports and dietary products have a strong potential in terms of growth and jobs for the EU.
I guess what I'm saying is: don't get your hopes up too much.

Sunday, August 9, 2015

Good Question

 Is it exploitation if you can drink from the bathroom tap?

Hotel minibars are fascinating studies in price discrimination. Does the same economic analysis apply to the minibar that applies to cinema concession pricing? Why or why not? Does the same moral analysis apply to the minibar that applies to cinema concession pricing? Why or why not?

Thursday, August 6, 2015

Not-So-Private Idaho

Federal courts ruled that an Idaho statute barring, inter alia, surreptitious filming of livestock treatment is unconstitutional. EV here. Some of the language of the statute is hairshirt nonsense, making criminal trespass and fraud extra-super-triple-secret-illegal, but that's what you get when you write a statute obviously targeting specific activity. In this case, the specific activity is the infiltration of commercial farms by animal rights activists.

I like to think of these sorts of stealthy activist espionage operations as a way of bolstering informed consent. When I visit my in-laws on their little Lithuanian farm (or my buddies Travis and Jen on their little NH farm), I know exactly what conditions my dinner was raised under: by taking a peek outside. My moral aversions are easily and cheaply addressed with a quick inspection. Ditto for slaughtering. If I saw the hatchet fall on the chicken's neck, I needn't fret that it suffered unduly during its last moments. Supermarket meat is a cipher. All I know when I purchase flesh at the store is what the sell-by date is (and even that might be questionable). I can't even accurately judge the quality of the meat by color or turgidity, what with all the dyes and brine processors can get away with adding. PETA operatives filming abattoir floors replaces whatever flights of fancy I might have had about modern animal husbandry with a [carefully edited for maximum outrage] version of the bloody reality. I can eat my hamburger with more accurate information, helping to internalize what were previously external moral costs. On the margin, this might make meat consumption more euvoluntary.

I think that an interesting, related concern is what role autonomous drones will have in the conflict between commercial farmers (well, slaughterhouses more than farmers, most of the time) and animal rights organizations. Typically, to get the objectionable footage, activists would have to commit some sort of criminal trespass or fraud to gain entry to the grounds. What if you could just send a fleet of quadrocopters with decent cameras attached to get your alarming footage? Technology overcomes legislation yet again?

Maybe we'll get lucky and vat-grown animal protein will exceed the quality of its hoof-raised rival before that becomes much of an issue. I'm eager to find out. I can't wait to taste my first lab-burger.