by Roger Bourke White Jr., Dec 2007
Q: What do apartments in cities with strong rent control, plywood after a hurricane in Southeast US, and doctors who do elective surgery in the UK all have in common?
A: First, they are in limited supply, and second, the people of the community who want these things have decided they would rather wait a longer time to get them, and not pay higher prices to get them sooner.
Q: What do Hanna Montana concert tickets sold by scalpers, gasoline sold in US gas stations, and food sold in US supermarkets have in common?
A: First, they are in limited supply, and second, the people of the community who want these things have decided they would rather have shorter lines and "pay the going rate" for them.
Higher prices or longer lines? This is an economic tradeoff that all of us face every day, but many people don't recognize that they are making such a choice.
When many people are faced with the higher price or longer line choice, they see a price gouging situation. Here is an example of seeing price gouging.
The Gulf States of America have been hit with some spectacular hurricanes over the last decade. One of the curious fallouts of these disasters has been having the legislatures of those Gulf States pass anti-price-gouging measures.
Apparently, some enterprising people were bringing construction supplies into those Southern states in the hurricane aftermaths and offering them for sale at higher-than-normal prices. Some people bought the supplies, while other people got very upset that the supplies were being offered at what they thought were too high prices.
The upset people got so upset that they talked to their governments and asked for laws saying that doing something like that was illegal. The governments listened to the upset people and passed anti-price gouging laws.
I find this reaction of a community to price gouging to be odd... very odd. Anti-price gouging laws take away a freedom, the freedom to have a shorter line. The first oddity is that the people of the community didn't mind losing the freedom. The second oddity is that the people who would take advantage of the freedom -- those who would buy at higher prices -- don't protest vigorously. They don't even whimper a little. If they did, the anti-price gouging laws would not be passed. Why don't the buyers speak up?
This mystery of the difference in human feeling about paying higher prices versus waiting longer in line is what I will be exploring.
Economics 101 teaches that when a particular good gets scarcer and demand doesn't change, then the price for that good will rise. (this rule applies to both goods and services, but I will call both "goods" in this essay) In the real world, that's a half truth. The price of the good may not rise because a law prohibits sellers from charging more for it. But, if demand rises and the price can't rise, something else happens instead: a line forms to buy the good. Instead of paying a higher price to buy a good, purchasers have to wait a longer time to buy the good.
This is Economics 101A -- the "spend time or spend money" rule. It is well recognized in business circles. It is the root of the proverb, "Time is Money."
Yet, oddly, there are many, many people who don't sense this relation. These are people who see waiting in line as a "free" activity, not a tradeoff against spending money. And some of these people are the people who get upset when a seller offers goods at higher prices. They get upset because they would rather wait in line and pay less, and they feel that those willing to pay more and sell for more are being unfair to them. It's unfair because if the other person buys the good, the waiters have nothing left to wait for.
Oddly, those who buy at a higher price seem unable to justify their action at an emotional level. They aren't willing to say, strongly, "Paying a higher price for a shorter wait is my right as a consumer!" and that is why anti-price-gouging legislation gets enacted.
This problem of pay-more-or-wait-longer is not limited to disasters. Seats for entertainment events can be either dross or diamonds. In 2007, for example, Kevin Fenderline rap concert tickets became famous because they couldn't be given away, while Hanna Montana teen rock concert tickets became famous because they couldn't be found.
As a result of this demand uncertainty, ticket reselling for entertainment events is a thriving business. It thrives, but some people don't like it, so in the US it's picked up the nickname of scalping. Scalping thrives because the primary ticket seller doesn't want to run an auction for tickets -- they pick a price and offer the tickets for the picked price, no matter what the real demand is. But the reality is that ticket demand fluctuates widely between events, and over time for a given event. The ticket scalpers thrive by running the ticket auctions that the market demands, but the primary sellers choose not to conduct.
The odd part, again, is that many people have a deep emotional dislike for scalpers. They see them as parasites, not value-adders to the community. Why is this?
The heart of the bad emotion attached to paying more is that it feels like line cutting. (this would be called defecting in the Prisoner's Dilemma context) The person who is willing to pay more has "cut" to the front of the line.
This feels like betrayal, and the community doesn't like it.
Interestingly, it often feels the same way to the person who is paying more, and I suspect that is why they don't vigorously support their own action. That is why anti-price-gouging laws get passed.
I suspect this difference in emotion about time and money is the result of deeply different thinking patterns in humans. These different thinking patterns are supported by humans surviving in different environments. Both ways of thinking are successful, but they are successful in different environments.
The thinking patterns we live with today evolved when man was still in the Stone Age (Neolithic Age). We need to look to how mankind lived then to see what thinking patterns were supported.
For a Neolithic Age hunter, particularly an ambush hunter, patience is a virtue. This means wiring a brain so that being still, and doing nothing but waiting for prey to come within catching range, is a normal activity. In such a circumstance, time is not money. In such a circumstance waiting is free.
So, for a Neolithic human ambush hunter, time was free. And Neolithic ambush hunters did well.
But this is not so for a Neolithic gatherer. For a gatherer, time is money. The more time one spent foraging, the larger the larder got. So, thinking for a successful gatherer emphasized keeping busy.
The Grasshopper and The Ant fable is built partly on this difference in lifestyle and thinking between hunters and gatherers. The grasshopper is an ambush hunter, and the story teller is a gatherer.
For Agricultural Man and Civilized Man, the scale tips decisively in favor of time is money thinking. But these are new environments. They date back only five thousand years -- only 250 generations of humans.
Since both of these lifestyles - hunting and gathering - were successful all through Neolithic times, humans have evolved brains that think both ways.
Capitalists tend to be time-is-moneyists. They like quick resolution of problems. This means they support auction pricing when it that is a quick solution to finding the right price for something.
Socialists are about people having equal access to the productivity of the community. Equality is more important than efficiency. The fallout of this thinking is that waiting in line is more comfortable than paying an uncertain and higher price.
Americans are currently arguing over how to improve health care. At the heart of that argument is how to pay for it, and at the heart of the argument over how to pay for it is the pay more or wait more tradeoff.
This evolution of two successful ways of thinking is why we now have issues when we are dealing with situations that trade time and money. Some humans have deep-rooted thinking patterns that say time is free, while other humans have deep-rooted patterns that say time is money.
In the Civilized environment, the time is money people rule the day at the logical level, but at the emotional level, the time is free people still have powerful arguments.
-- The End --