Good Question

World's most expensive water. Does anyone in hotel industry really believe this profit is worth the brand damage? pic.twitter.com/RTA4Cr8XQb

— Deb Roy (@dkroy) August 9, 2015

 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?

Saving Just a Wee Dram o'Water

Here's an idea to "save" water.  Pee in the shower.

Problem:  We do not in general either create or destroy water.  FRESH water, perhaps, POTABLE water certainly.  We convert water from drinkable into a temporarily icky form (to quote PJ O'Rourke).

But the idea that we should use social shaming to force people to pee in the shower for extremely dubious benefits is bizarre.  The only saving, in a wet nation like England, is the saving on chemicals for cleaning and electricity for pumping.  Residential water use is just not that siginficant a source of water "waste."

Of course, a shower DOES use a lot of water.  If these kids were serious, they would be suggesting that REAL conservations would be taking a bath in the toilet, before they pee in it.  And then you could flush away the soap, dirty water, and pee all at once.  If you really cared about the environment, kids, you would bathe in the toilet, rather than pee in the shower.

Lagniappe:  The alternative at my college, Davidson, was to pee in the sink (each room had one).  This wasn't so bad in the men's dorm, I suppose.  But at 8:30 on Sunday mornings there sometimes young lady visitors who had "visited" overnight, and they didn't want to walk down the hall in their evening wear to use the loo.  So they tried to pee in the sink.  Of course, given the structure of female urine delivery systems, this meant that they had to plop their petite little behinds up into the sink.  I do recall at least two loud crashing sounds when at different times a sink was torn off the wall by a young lady trying to answer a call of nature in a men's dorm.  Ah, the memories.

UPDATE:  Snopes needs to get out more.

UPDATE II:  Oh. My. God.  Look what I've been missing.  Technology is great, and capitalism is even better.  I mean, you can buy these things on Amazon.

Showdown in Ely

High noon. Timber rattlers herald the jangling stomp of Councilman Setterstrom's boot-stomp just ahead of the last asthmatic rants of the dying sirocco hell-bent for licking the hem of the duly elected official's leather duster.

A groundhog chatters nervously.

Ely's mayor, one Melody Van Camp, glances at a filigreed pocketwatch, knowing that the appointed hour has come and gone. Rail Boss Mark Bassett has fled town, and it was time for a reckoning.

So they broke in.

At the coroner's a reedy Scot tapped the last nail into place for the coffin he'd just finished, took a swig of a dark liquid, wiped the corner of his mouth, narrowed his eyes, and asked the tumbleweeds: "people, if crap like this can happen, why do we even have a government at all?"

All was not quiet in Ely. The break-in had pitted honest folks' morals against each other. Some were saying the rail boss had it a-comin'. Some were saying the council had ought gotten a search warrant. Others were saying it was a breach of the rule of law.

Me? I'm a drifter in these parts, ma'am. I've got no sympathies one way or t'other. To me, it's a stretch to see how one part of the organization with a widely-recognized claim on the legitimate use of force in society can bully another part of the organization with a widely-recognized claim on the legitimate use of force in society and be any more or less obnoxious than they already are.

But then, I'm not the antihero of this little story. I'm sure from the point of view of the Seibei, the Ushitora and Yojimbo both were villains. And vice versa. What if life were more like a spaghetti western than a John Wayne morality play? To the city council, the railroad is naughty. To the railroad, the council is naughty. To the median constituent, you've really got to wonder if these public servants are really serving the public. If any duly constituted government has a hope of forming a euvoluntary institution, it should be local government. This is an illuminating test.

A sickly-looking carrion bird perches atop the saloon.

The Alchemy of Intentions

Reads a sign on the patio of my local grocer's:

Retail Alcoholic Beverages Not To Be Consumed on the Premises 

Naturally, alcohol by-the-glass is quite available. You can have a slice of pizza and some on-tap beer to wash it down with, but if you dare unplug the spigot of that box of Chablis you bought inside, you flaunt the good laws of the Commonwealth.

Statutes against public drunkenness dabble in the gray area between what Hayek referred to as "law" (the spontaneous ordering of society's rules, emerging over time through trial and error) and "legislation" (mandates from a legislature, seldom subjected to the rigorous review of time and experience). Surely there have been the equivalent of drunk tanks for time immemorial—you absolutely must let someone three sheets to the wind sleep it off lest he become a danger to his own person and the safety of those around him. That's not particularly controversial.

However, using common sense, common law proscriptions against public intoxication as justification for treating beer differently if it comes from a tap compared to coming from a bottle smells a little skunky. Does the alcohol content rise during the bottling process? Perhaps my experience with home brewing has misled me, but my before-and-after specific gravity readings have never so indicated. Perhaps it's a monitoring issue. If the customer has to approach the counter every time he wishes to refresh his tasty beverage, the vendor has a chance to gauge whether or not to cut him off: a chance that does not exist if he bought all his liquor beforehand in the grocery store.

This argument is not entirely without merit, so the next question is whether or not the marginal risk-weighted costs of drunk and disorderly conduct for the consumption of retail-purchased alcohol (net of on-tap service) are high enough to justify the direct costs plus all the hidden opportunity costs of having an alcoholic beverage control department.

Perhaps I was out sick the day they issued the philosophers' stone that allows for the transmutation of good intentions into desirable outcomes, but I can't for the life of me divine the alchemy by which the political rents generated by the VA ABC result in cheerful temperance at the Fair Lakes Whole Foods. Instances of drunken buffoonery are everywhere and always a purely local phenomenon. The grocers, not an alcohol control board, know best the specific circumstances of their business and are far better equipped to handle the particular, idiosyncratic desires of their customers than a gang of state employees.

And I don't even drink. Sheesh.

Sustainability

I met a traveller from an antique land
Who said: "Two vast and trunkless legs of stone
Stand in the desert. Near them on the sand,
Half sunk, a shattered visage lies, whose frown
And wrinkled lip and sneer of cold command
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed.
And on the pedestal these words appear:
`My name is Ozymandias, King of Kings:
Look on my works, ye mighty, and despair!'
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away".

PB Shelley, "Ozymandias"

"Sustainability" is a platitude. But it can be useful platitude when it warns of broken accountability mechanisms. Fossil fuels aren't "sustainable" in a technological sense, but prices provide an adequate feedback mechanism to let consumers know when relative scarcity changes. Prices encourage people to develop alternatives. Feeble promises of Utopia lack such feedback mechanisms.

Truck, barter, and exchange is sustainable (when valuable information isn't throttled). Political kayfabe isn't.

"This too shall pass" means something different to euvoluntary exchange than it does to political coercion.

Why So Little Turkey Day Gouging?

If you've ever forgotten to pick up that extra tin of spicy desiccated bread Stouffer's so generously describes as "stuffing" on the morning of the fourth Thursday of November, you might know what it means to be coerced by circumstance, particularly if Aunt Gilda is into her fifth glass of Bordeaux and creepy uncle Lester has already started to tell the kids stories about the time he spent in Cambodia.

But hold the phone. The fact that most folks have already done their shopping implies that the demand curve enjoys countervailing pressure, perhaps even enough to offset the corresponding jolt to the supply curve (employees taking the day off to suffer... er, I mean enjoy the fine day with their beloved families). But after all that, we've still got an interesting issue where only the least-picky, most desperate shoppers are out scrounging for supplies. Does that not sound an awful lot like grounds for the "exploitation" we see in the aftermath of natural disasters?

No, and here's why. The thing about natural disasters that isn't like the holidays is a matter of scheduling. Prices are information.

Let me type that again, this time in all caps: PRICES ARE INFORMATION.

In the case of fire, flood, earthquake, or Godzilla, the necessary information is that there's a surprise shortage of wood or generators or whatever it happens to be. Customers get the hint that they need to more carefully ration the existing stock, to apply resources to their actual high valued use, and suppliers get the hint that they need to get more of that good to the affected area, pronto. It's not about exploitation, it's about coordination.

Contrast this with the harried husband in fuzzy bunny slippers out picking up a can of jellied cranberry sauce. It's a crisis for him, sure, but there's no supply chain stress, no coordination mismatch. The food is on the shelf. All is well. He can saunter in and make his last-minute purchase and rest easy knowing that even though it ain't euvoluntary for him, no one need bother taking advantage of that.

And that's what I mean by directional meta-euvoluntarity: general practices and institutions that support a greater variety of euvoluntary exchange all around. Thank you sir, I want some more.

h/t M. Giberson & JR

Supererogatory Euvoluntarity

Got a five-year-old in the house? Have him try to pronounce the title of this post. Post it on YouTube.

The title may be mouthy, but the idea is pretty simple. "Supererogatory" means an act exceeding or not enjoined by requirement. If you're a strong swimmer and you see a kid drowning in a still pool, you're bound by ordinary pedestrian morality (at least in the Western cultures most of my readers {according to Google analytics} hail from) to jump in and save him. A supererogatory feat would be to do the same thing except in swiftly-flowing floodwaters where the risk of death to both parties is non-negligible.

Now think about our old pal Jorge, piloting his taco truck across the burning sands. Munger argues convincingly that selling our weary, lost traveler (does he have a name? I can't recall) a 16-oz bottle of water for $10,000 is not euvoluntary since it impinges on a lousy BATNA. Munger also shows that even if it's a non-euvoluntary exchange, the result of not making the trade, regardless of the terms, is yet worse. Jorge has a moral imperative to sell to our wanderer, and an ethical obligation to refrain from taking excessive advantage of an awful situation.

Notice though that Jorge's ethical obligation is entirely conditional on him tooling around the dusty dunes in the first place. Jorge could have done lots of other things with his life. he could have moved to LA and bummed around in Winona's bungalow overlooking Pismo or taken that ski vacation with Kevin Costner and Gary Oldman up in Whistler. But no, Jorge chose to chop that secondhand jitney and set up a kitchen with the finest carnitas y flan in all Oaxaca.

DAVAI DAVAI JORGE DAVAI

Was this initial decision supererogatory? If so, what does it imply about a subsequent decision to junk the taco truck and retire to Tierra del Fuego? Can it be that there are three stages in a firm's life (pre-formation, existence, post-destruction) only one of which imposes moral obligations on owners?

If we accept that existing firms really do bear some responsibilities over their terms of trade (and Munger's critique of Locke is difficult to gainsay in this regard), it seems to follow that there's an instrumental benefit to supporting those qualities, institutions, and sentiments that support and affirm firm creation.

Right? The more opportunities for trade that exist, the fewer skeletons of feckless desert travelers should litter the arroyo.

If firm creation is supererogatory, then bourgeois dignity and low barriers to entry are super-duper-erogatory.

Up up and away.

Not A Drop To Drink

Did Nestlé CEO Peter Brabeck commit a bit of a faux pas when speaking on the usefulness of property rights over potable water? Judge for yourself:



Now, I will agree that some of his statements are not well-supported by economic theory, but most of his observations are pretty good. His comments on labor market productivity aren't what has folks bent out of shape though (I'd link to some online commentary, but most of it seems too heavily laden with profanity to share on our family-friendly blog). It seems as if people are downright offended when this gentleman dares forward the proposition that water is valuable.

Ah, but where to put the emphasis on that last phrase? I don't think the stress should be on "water", since we recognize the value of food and shelter, we obtain and enforce property rights there. I also don't think the stress should be on "valuable", as I think many people recognize that there are areas of the world that suffer great privation in fresh water. Water is clearly valuable when Tony's Taco Truck isn't over the next sand dune. No, I think the stress should be on "this gentleman". The furor is that this guy is a CEO. He will never, in his entire life, ever want for a drink of clear, refreshing water. He is the masthead of BATNA disparity.

If I were to lecture on the economics of goods provision and of the tragedy of the commons, that's one thing. I'm a middle-class American working schlub. This guy? He's offensive because he dwells in the estate of the oppressor class. The admiral of one of the largest food service fleets in the world wants to privatize drinking water? Cui bono is easily answered here, but what's easy to overlook are the consequentialist arguments in favor of expanding the scope of the market. It just sounds wrong for water to be privately held. From the mouth of someone so well-heeled, it sounds darn close to evil. Certainly non-euvoluntary.

And we can just pity the folks who can't buy water for love or money, I guess. Better that bureaucrats should decide to divert Colorado River water to Nevada to build huge fountains and golf courses for the delight of the monitor lizards.

Wants, Needs, BATNA

Perhaps it's my training in economics, but I tend to flinch when I hear the word "need". A careful consideration of the nature of opportunity cost renders "need" pleonastic. Its use seems to imply unacceptable consequences of failure to trade. Our pal in the desert needs water in that failure to strike a bargain with Jorge will result in death. I need sandbags for my front door or else my basement will flood. Absent a new anchor, Locke's sea captain founders in heavy weather--he needs that hunk of bent iron.

But daaa-aaad, you don't understand... I neeeeeed an iPhone.

To the economic tin-ear, "wants" are frivolous or selfish; "needs" are simply the unfortunate consequences of this grievous life. Children grasp this and employ the word artlessly, a source of much gentle snickering among the world's parents. Grown adults grasp this too, employing the word with a bit more art, a source of much exasperation among the world's economists. Workers need a living wage, the environment needs stewardship, "we" need to "invest" in "public" infrastructure. The word "need" in many of these cases nixes useful conversations about opportunity cost. Yes, perhaps all these things are useful, desirable, good, but by classifying them as "needs" implies that the consequences of failing to divert resources to them are simply intolerable. End of discussion.

The potential for semantic abuse is clear. Using "need" implies non-euvoluntarity, lending credibility to third-party intervention, whether or not it might be justifiable using careful cost-benefit analysis.

So how to respond to its use? I'm not really sure. it's sort of a trigger word for me. I directly challenge people when I hear it, but I'm a social knobbthicke. Maybe there's a better way to bring considerations of opportunity cost back into discussions. Please share any ideas you might have in the comments section.

I also see it as my parental duty to carefully explain the idea of cost to my daughter so on those occasions when "need" might be warranted, she will know how to use it appropriately. If I end up teaching, it will probably also be part of the first few lectures of the semester.

As for the rest of the time, beware cries of "need". Someone's usually trying to sell you a free lunch.

Mortgage Refinancing

Suppose the reason you're wandering in the desert is that you're on the way home from buying an engagement ring for your sweetie with the cash you got as an unexpected bonus you won from a raffle you forgot you entered, and you took a wrong turn. Instead of a thousand dollars in your pocket, you've got a diamond ring you just paid a thousand dollars for. Jorge is willing to accept the ring for a bottle of water.

Suppose instead that you're lost in the desert with totally empty pockets, but you just happen to find a diamond engagement ring lying in the sand. Being the expert appraiser you are, you correctly estimate the value of the ring at $1000. Again, Jorge wheels on by and is willing to take the ring in trade for a liter of water.

Are these scenarios different? If so, why? Which one is closer to euvoluntary? Kahneman and Tversky did quite a bit of very good work describing the endowment effect, where the simple act of possessing a thing increases its relative value to the holder. The Bird in the Hand theory, if you will. How about emotional freight? In the first circumstance, the ring carries with it special significance, but is that significance relevant to third parties?

I ask because I'm still puzzling over contaminated charity and to a lesser extent, commercial transactions. If I raise money for breast cancer research by holding a wet t-shirt contest, should I be surprised if the recipient turns it down? Can the Sierra Club accept donations from known polluters in good conscience? How about going into hock? All else equal, is there any moral difference between on the one hand pawning a ring from a broken engagement and on the other hand one handed down from grandma?

And what of the use of the proceeds? The reason the kid in China who sold his kidney to buy an iPad made international news was that his purchase was pretty widely regarded as frivolous. If he'd have done it to make a mortgage payment or two for the family home, I don't think there would have been as much outrage. I think I've made a case here for regret aversion by proxy as being a reasonable source of much paternalistic sentiment, but what other proxy sentiments might have bite? Prudence? Propriety? Dignity? Cleanliness? How much of this sentiment rules beliefs over the first two conditions of EE: conventional ownership and conventional capacity to exchange?

Also, forgive the misleading title. I'm interested to see if I get more spam comments from bots. Consider it a test of sorts.

Double or Nothing

Our first variation on the Desert Scenario will test moral intuitions surrounding a familiar tool in the economists' utility belt: distributional efficiency. But first, let’s review our standard scenario to refresh our memory.

“It goes like this. There’s a guy dying of thirst in the desert. We’ll call him Jimbo. Jorgé drives up in his Taco Truck (because street food is awesome), and offers Jimbo a bottle of water for $10,000 (the exact amounts don’t matter, here; it’s just a boat-load of cash). Jimbo protests that the water is too damn high, but Jorgé just shrugs his shoulders and starts to drive off. Jimbo happens to have ten grand in his wallet, so he shouts for Jorgé to stop, forks over the cash, and narrowly escapes death.”

Don't Go Chasing Windfall Profits

Please stick to the normal returns and cash flow you’re used to.

A while back, Sam introduced us to Trolley Problems. I refer to Trolley Problems as a proper noun, since it’s a category of thought-experiments (Gedankenexperimente) that I will be using to test our moral intuitions vis-à-vis euvoluntary exchange.

As Sam put it, “The purpose of these thought exercises is to get at justice or fairness heuristics.” I’d like to engage you, dear readers, in a conversation about a particular Trolley Problem I’ll call “Water in the Desert”. Be forewarned, however, that the gods of rhetoric will smite thee mightily if you refuse to take these Gedankenexperimente as-is. Since the optimal amount of smiting is in the neighborhood of zero, I humbly suggest you take on the role of an interested conspirator, and refrain from poking holes in the thought-experiment.