Barbershop/Beauty Shop Networks

 In a market economy the vendors sell something and the buyers decide to buy based on price. If it's not a commodity then quality and features come into play, but the market is supposed to be impersonal.

Got my hair cut today and got musing about networks. My experience with barbershops and my wife's experience with her hairdressers (actually just cuts) says there's a lot of networking going on.  I'd say half the patrons of my shop ask for a specific barber. (It's not a big sample; the shop is old-fashioned male-oriented and I go when there's least likely to be other patrons.) And my wife does the same thing.

You can understand why--a haircut is very personal so someone who cares will choose their barber on particular features. I guess that the market works well enough because buyers have different preferences, and there's enough of us who don't care to keep the market fairly liquid. 

Safeway Ships Air Around the Country

 (Or how 3 pounds became 30.5 oz.)

Once upon a time, long long ago, coffee was sold in 3 pound cans.  This coffee was roasted and ground, ready for use in office coffee pots and home percolators.   The cans were cans, tin cans, cans which once emptied found many uses around the home. Coffee, being a storable agricultural commodity, was always subject to volatility in supply and so in price, despite the international cartel the supply management setup known as the International Coffee Agreement.  IIRC prices for 3 pounds of coffee ran around $3 in the early 70's.

As time went by, consumer prices for coffee increased and coffee roasters found resistance to paying the high prices.  So someone had the bright idea, instead of raising the price as we need to, let's reduce the amount of coffee in the can by a bit--same effect but consumers will be less upset. (This was probably the same someone who about the same time reduced the amount of candy in candy bars.) And the someone was right.

I don't know when flaked coffee was invented--there's a patent from 1991--but it was touted as a big innovation, delivering better taste for the coffee drinker. The thing about flaking is it means an increase in the volume of roasted coffee for the same weight.  Consumers lapped up flaked coffee.

Bottomline: between reducing the amount of coffee in a can and increasing the volume by flaking, the current Safeway "3 lb" can of coffee contains 30.5 oz, or just under two pounds.  And when you open the can, as I did yesterday, you find it's only about 3/4 full.

So ever since the first decision to reduce the weight without changing the size of the contained, Safeway has been shipping canned air from its warehouses to its stores, wasting space in its trucks.

(I should note that Folgers, and I assume other roasters, somewhat reduced the size of their containers when they switched from tin cans to plastic containers for their coffee.)

The Raisin Decision and Government Supported Cartels

Supreme Court handed down the decision on the raisin reserve case.  As expected, they ruled in favor of the plaintiffs. 

Megan McArdle  and Eugene Volokh fully approve and David Bernstein mostly approves.

Me, I go back Prof. Robin Williams in his survey of American society in 1962.  Then he observed and wrote that there was a growing trend for American government, particularly federal, to do what today we would call "out-sourcing".  At that time he was referring to the quasi-public, quasi-private setups like the Federal Reserve and a bunch of USDA arrangements dating to and before the New Deal.  They'd specifically include the marketing orders and the farmer-elected county committees which at that time had much power in the predecessor agencies of FSA (i.e., Agricultural Stabilization and Conservation Service and Farmers Home Administration). 

The point was that the Feds were delegating some governmental authority to bodies which were privately elected, whether by bankers in the case of the Federal Reserve, or the various USDA committees.  Because it was a sociology course, his was a mostly descriptive description.  The reliance on elections he viewed as a part of the country's general commitment to democracy, both in government and in NGO's (to use today's term again). 

I suspect in the past I've expressed reservations about the case.  It seems to me in this case the Hornes, the plaintiffs, are attempting to free ride.  I go back to the early history, pre-New Deal, in which there were repeated attempts by farmers voluntarily to cut production in order to drive up prices.  Because of "free riding", those attempts always failed, usually rather quickly.

My impression in the case of peanuts is the issue is a bit moot: the "raisin reserve" hasn't been used for 12 years or more and the supply/demand situation seems to have fundamentally changed.  ("This time it's different"). So killing the raisin reserve may be simply a case of weeding an obsolescent idea.   But does the logic of the case stop there?

Restaurants and Their Customers

The NYTimes had an article on how restaurants are tracking their customers, recording their preferences:

Even a single visit can prompt the creation of a computer file that includes diners’ allergies, favorite foods and whether they are “wine whales,” likely to spend hundreds of dollars on a bottle. That’s valuable information, considering that upward of 30 percent of a restaurant’s revenue comes from alcohol. Some places even log data on potential customers so that the restaurant is prepared if the newcomer shows up.

That a waiter you have never met knows your tendency to dawdle or your love of crushed ice may strike some diners as creepy or intrusive. But restaurant managers say their main goal is to pamper the customer, to recreate the comfort of a local corner spot where everybody knows your name.

Is this an invasion of privacy or the way technology enables the free market best to satisfy customer desires?

Love Those Free Marketers

The incentives certainly work to inspire idiocy:

Jim Massery, the government sales manager for Pittsfield, Mass.-based Lenco, dismissed critics who wonder why a town with almost no crime would need a $300,000 armored truck. "I don't think there's any place in the country where you can say, 'That isn't a likely terrorist target,'" Massery said. "How would you know? We don' t know what the terrorists are thinking. No one predicted that terrorists would take over airplanes on Sept. 11. If a group of terrorists decide to shoot up a shopping mall in a town like Keene, wouldn't you rather be prepared?" From Ta-Nehisi Coates

 “‘However, with the enormous amount of risk farmers are about to undertake by planting a new soybean crop, now is exactly the wrong time to reduce support for the federal crop insurance program,  The American Soybean Association from Farm Policy

Based on the logic of these hucksters, we need a $300,000  armored truck in every town the size of Keene, N (23,000 +) H, or larger, or about 1300 places. And because soybean farmers plant a crop every year, and risk their investment in seed and fertilizer, we can never reduce crop insurance.

Private Company Screws Up; Government Doesn't

Two articles in the NY Times business section:

• Intel screws up a chip, to cost $1 billion.
• bureaucrat at Treasury Department administers the $29 billion TARP (not the $700 billion TARP), cutting costs through good management.

I like to tweak those who dis the government. Seriously, I think the key thing is change. Mr. Miller at Treasury is new blood, who left Goldman to serve the public, which apparently he has done quite well.  While government bureaucracies can become hide-bound, the periodic shakeups which often arise from elections counter that effect.  Meanwhile, theoretically private enterprise is subject to the discipline of the market. A loss of a billion isn't going to be serious for Intel's managers, although it may be for the person who oversaw the chip development. I doubt that competition is that much of a factor here--Intel seems to have had market dominance for many years. Instead, publicity is going to be the disciplinary factor: Intel couldn't really keep the problem hidden.  And that publicity may redound on the stock price.

On the Intrinsic Superiority of Market-Driven Organizations

See this post at Propublica, for a study comparing the death rates at dialysis clinics: profit versus nonprofits.

Anyone knowing my biases knows which group does better.

Should Government Be Wrong Half the Time?

Post at Google Operating System on their failures (e.g., they just dropped Wave).

Google's Peter Norvig has a more detailed explanation for this attitude:

"If you're a politician, admitting you're wrong is a weakness, but if you're an engineer, you essentially want to be wrong half the time. If you do experiments and you're always right, then you aren't getting enough information out of those experiments. You want your experiment to be like the flip of a coin: You have no idea if it is going to come up heads or tails. You want to not know what the results are going to be."

Makes sense to me, although I must admit as a supervisor I wasn't happy about any failures. The distinction is between learning and executing; it's good to fail while learning, but when you say you have the answer, you'd better have the answer.  That may also tie into the free market--it's good for learning, but government can compete when the learning is done.

[I know, some anti-government wiseacre thought to herself when she read my title: if the government was wrong only half the time, it would be an improvement.]

The Not-So-Efficient Free Market System: Alcohol in VA

Our new Virginia governor won office last year based on a campaign of, among other promises, privatizing the system of ABC stores for selling liquor and using the proceeds for transportation.  The Post yesterday had an interesting article on the problems in implementing the promise, including a comparison with the systems in DC and MD.  Turns out VA gets more than 50 percent of the price of a bottle of Jack Daniels, while the other jurisdictions get less than 10 percent. Prices aren't that different, at least at the low and middle end.  So how does the gov get an equivalent yearly return from a private sales system?  Doesn't look as if it's possible.

Of course Virginians are used to Republican politicians making promises they can't fulfill.  (Not that Dems are immune from the syndrome.)

The side-by-side comparison shows IMHO the free market system is not necessarily the best.  Of course, alcohol has special characteristics: most of the products are time-tested.  I suspect if you looked at the Virginia ABC stores they don't do well at keeping up with the fads (like wine coolers, or special vodkas).  But as a child of someone who firmly believed in the merits of Prohibition, I'm not mourning this particular lack in Virginian society.

A Tale of Two Organizations

The NY Times today carries article on two organizations:

1. the Kansas City school system, which apparently has suffered from a total lack of leadership, so that now it has to close half its schools. "But a closer look at the school board’s recent history reveals a chaotic, almost nonfunctioning body that put off making tough choices and even routine improvements for generations."
2. Lehman Brothers, which is kaput. "According to the report, Lehman used what amounted to financial engineering to temporarily shuffle $50 billion of troubled assets off its books in the months before its collapse in September 2008 to conceal its dependence on leverage, or borrowed money."

This encapsulates some of my thinking about organizations: The free market is fine for things and services that can be measured and priced, but it is subject to manipulation, fraud, and deceit.  Government is for services which can't be measured and priced, often because benefits and/or costs would overlap the bounds of any market, but it is subject to inefficiency, fraud, and corruption.

Markets, Revisited

Ann Althouse provides a set of Fox News videos, showing the wisdom of the mavens of the financial markets (as compared to one Peter Shiff).

Competition and Free Markets and Rationality

Two pieces in the NY Times today relating to a market-based economy.

Robert FRank writes on whether competition in free markets does away with discrimination. He argues, it doesn't, except in cases where the markets are very good and very competitive. That may have been the case in the 2008 election. He cites Jackie Robinson as a case

"During Mr. Robinson’s 10-year career with the team, the Dodgers went to six World Series and he was voted to the National League All-Star team six times. In retirement, he was elected to Baseball’s Hall of Fame on the first ballot. Shortly after Mr. Robinson’s arrival in the major leagues, it became clear to all that failure to field the best possible team, irrespective of color, was a sure recipe for failure."

As a youthful Yankees fan (who only knew his older sister rooted for the Dodgers), I beg to differ--the Yankees mostly beat the Dodgers, despite Jackie (and Roy, and Junior, and Newk, et. al) in the Series throughout the 40's and 50's, even though they were very late to integrate their team. So it wasn't "clear to all" at the time. And irrational prejudice overrode reason.

And in the Week in Review, there's an article discussing research on the role of testosterone and cortisol (i.e., maleness) in the ups and downs of market. An academic believes "raging hormones might explain why the men who rule the global markets send them rocketing up when they’re on a roll, and swooping down when they get scared, exhibiting judgment that can remind you of the guys in an Adam Sandler movie."

Makes sense to me.