Thursday, April 5, 2012

A sufficient but not necessary condition for being an economist

You might be almost certainly are an economist if you've ever got irritated at an establishment because their prices were too low.

I remember in Chicago when Mayor Richard M Daley decided to fund the latest of his permanent election bribe fund by privatising the city parking. This of course led to parking immediately becoming about 3 times more expensive.

Most people were pissed off.

But I remember speaking to an economist friend of mine. "How good is this?" I remarked. "I know", he responded, "I can now get a park any time and pay with a credit card!".

This was truly a market that wasn't clearing. Tools kept circling around at peak hour looking for that vacant spot (which didn't exist), all to save a couple of bucks. Sure, you spent 20 minutes and a few dollars in petrol, but the point was you didn't pay for it! Idiots.

Being happy at price increases shows at least two phenotypes of economists.

The first is a recognition of a market that isn't clearing, and the fact that long queues signal a need for price increases (or increased supply). Since the number of parking spots is fixed in the short term, price increases are the answer.

The second phenotype (even more characteristic of economists) is the willingness to place an explicit value on your time. Waiting twenty minutes to save $2 is only a good deal if your implied hourly wage is less than $6. Red hot tip - mine isn't. Hell, minimum wage is more than that in half the country.

With respect to the second phenotype, a lesser appreciation makes you not really mind when prices go up - you accept that there's a tradeoff, but you still liked the cheap version, for all its problems.

A greater appreciation makes you positively glad when prices go up. Getting to buy back 20 minutes of your life for $2 is a bargain, and it's a bargain that you couldn't have before now. Earlier you were paying 25c and 20 minutes. Now you're paying $2. That's a price drop in real terms, my friends.

I remember going to this place that sold really delicious and really cheap ice cream - around a buck fifty. Total bargain, right? Awesome!

Except that every time I went there, there was a half hour wait.

Screw that. I'm not going back there until they raise their damn prices.

Clear that market or don't get my custom, fools!

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