For Joel Waldfogel, the glass always seems to be half-empty. In the latest episode of EconTalk, I suggest it’s half full. He argues that fixed costs reduce choices and can cause you to be punished by people with preferences that are different from yours. I argue that most of the time, other people’s preferences are irrelevant and that when they’re not, the market finds alternative ways to make us happy.
Market tyranny?
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"I argue that most of the time, other people's preferences are irrelevant and that when they're not, the market finds alternative ways to make us happy."
Which, of course, explains Cafe Hayek's existence and perpetual choir-preaching.
My preferences, of course, are to inflict negative externalities on those with homogeneous preferences (i.e., I like to stir $hit up).
So, will this market persist without the heavy hand of regulation?
Reading Joel's article I think I see a pretty blatant flaw in his reasoning: he seems to only count big business while ignoring smaller businesses. For example, his claim, "Industries like daily newspapers offer essentially one product per market." Sure enough, my hometown has only one big media daily newspaper. But why limit the analysis to only big media daily papers? If we expand the criteria we discover that my hometown has several newspapers include a couple of Spanish papers, one in both Spanish and English, a couple of artsy newspapers and several others that I don't often read.
He then claims, "This brings us back to Nike's new shoe. Foot Locker is full of options that fit me and most other Americans. But American Indians make up just 1.5 percent of the U.S. population." Again, he's done the same thing. Why limit the analysis to Nike and Foot Locker?
I have a very good friend who is also very obese. He can't buy clothes at Walmart. Does that mean he has to go naked? Of course not, there are places he can buy clothes.
Joel, it seems to me, creates criteria so limiting that his criteria create the condition he's looking for.
He then discusses drugs, "With drug development costs near $1 billion, if you are going to be sick, hope that your disease is common enough to attract the interest of drug makers." The irony is, of course, that the cost of regulations are a large part of the cost of bringing a drug to market.
What an odd argument from Mr. Waldfogel. Some initial observations on his written argument:
1. There are two aspects of his argument that do not sit well with one another. He claims the market is undersupplying diversity of goods simply because some tastes are not being met (even though the Nike example doesn't actually demonstrate this). Yet he also recognises that diversity is costly and must presumably be rationed. Does diversity's cost not imply some preferences will not be met? He seems to be postulating a foregone profit opportunity in the first argument but not the second.
2. The unstated but-for: the tyranny of the market compared to what? If neither governments nor markets deliver sufficient diversity, where is the optimum solution coming from? Sounds distinctly utopian.
3. He conflates Nike with the total market for shoes. Assuming American Indians do in fact been wear shoes, does it not follow the footwear market has provided suitable footwear even if one small part of it, Nike, has not?
4. "The division of labour is limited by the extent of the market." Mr Waldfogel's first argument is, I think, saying markets undersupply the division of labour – but why would they if that leaves persistently leaves money on the table? To me the argument is uninteresting unless he either explains this, or postulates a way around it. He does neither.
RE: "He argues that fixed costs reduce choices …"
I haven't listened to his talk or read his paper, but I wonder if Waldfogel has heard of the long tail phenomenon. Digital technology–and some clever entrepreneurs–have brought down the fixed cost of many items and have increased the diversity of products available to consumers.
Critics of capitalism tend to criticize capitalism by utopian standards. Sure, its not going to be perfect, but I know of no free market economist that says it will be.
Well, I am glad I read to the end because the first thought I had on reading about the Air Native was that it was a gambit by Nike designed to get the thumb suckers off its back and lessen the hostility shown by the leftwing towards large successful businesses. Then I came to this:
"according to the Associated Press, the new sneaker "represents less of a financial opportunity than a goodwill and branding effort."
Once you understand that, then you must understand that the "Air Native" was not a decision made on intelligent marketing grounds.
I also do not understand Mr. Waldfogel's repeated emphasis on the word help in his example of the radio listeners. How does my listening to a black rap station help the black people? If every white person in Houston spent the next month listening to black radio 24/7 but still did not buy from its advertisers, how would we have "helped" the black people?
Actually it was so weak in understanding of how markets work, weak in logic about developing his arguments, and weak in his attempts at reasoning that I began to suspect that muirduck had been discovered in his day job.
Mr. Waldfogel seems to miss the very real point that the market that did not serve the native Americans was not failing them, but was a market that was functioning rationally. That the native Americans had no sneaker that properly fit their feet and the fact that no one had been willing to make one based on sound marketing principles was a sign that markets had looked at the situation and had determined that there was insufficient market to make such investments required to produce a sneaker that fit.
I require a EEE shoe size, quite wide, no drop of Indian blood in me that I know of, and I find good sneakers that fit me in Walmart, and they serve me as well as any Nike.
Now Mr. Waldfogel may imagine that our nation has a principle that everyone must be satisfied in is each and every individual desire, but I can't find that guarantee anywhere in any of the documents that founded our nation, or the corporate charter we currently operate under.
I personally feel terrible dehabilitating loss of self esteem and resent that Rolls Royce does not make a car that I can buy and drive, a car bearing the distinctive quality and recognition of Rolls Royce.
For a discussion on the problems in Waldfogel's article see this. There were lots of wide shoes being produced already by lots of different companies. The claim that it took "too many years" doesn't makes sense even if the factual claim was true. Waldfogel's discussion of Friedman is also misleading.