Prices, Schizoid Americans, and the ‘Knowledge Problem’

Priceby Jon N. Hall10/14/15
In Nora Ephron’s romantic comedy Sleepless in Seattle (1993), 8-year-old Jonah Baldwin is considering taking a commercial flight from Seattle to New York and asks his girlfriend Jessica: “How much would it cost to go?” Jessica answers: “No one knows. It changes practically every day.”

It may seem odd that young Jessica, precocious though she may be, would know about the prices of commercial airline flights. But her parents, if memory serves, were travel agents working out of their home. So Jessica had probably heard her parents discussing prices, (even a romantic comedy must make some concessions to verisimilitude). But the question becomes, why are Jessica’s lines funny? I would venture that it’s the first part of it: “No one knows.” Young Jessica seems to have made a mind-blowing discovery: Adults don’t know everything. Who knew?

It’s been a while since I was a kid, but I must think that if third graders, like Jonah, were aware that some things “change practically every day” that it would disturb them. Kids like stability; they want things to be reliable, not chaotic; they want mom and dad to tuck them in at night and to kiss their boo-boos. We adults, however, put up with chaotic change all the time.

That is especially so when it comes to prices, some of which can change wildly, and not only “practically every day,” but every second, such as the price of stocks. If the price of a stock remained the same for a second trading day it would be fluky. The price of equities goes up and down all the time and we don’t get very concerned, as long as the trend is to the upside.

But we do get concerned when some prices go up, like for food and fuel. Generally, folks like it when the prices they pay are down, and they don’t like it when the prices they receive are down, or are stagnant. People don’t like to “discount” their own goods, but they’re quite willing to buy goods that are “on sale,” whose prices might even be below cost. They say of a particularly good buy that they “stole” it, and congratulate themselves on being astute shoppers. Gov. Scott Walker recently amused us with a story about his $1 purchase at Kohl’s department store.

In any event, some folks think that some prices should never go down. Among the prices that folks think should never go down is the price of their time and labor: wages. If a company is undergoing stress, workers gladly accept the decision to lay off some workers so that the retained workers can maintain the price of their work. They’re comfortable with their coworkers losing all their pay so that they won’t have to lose any of theirs. Yet, those same workers are always on the lookout for a bargain, even if it means a loss to the seller. Perhaps they’re a bit schizoid.

The novelist Gillian Flynn touched on layoffs in the magazine business in New York City in her third novel Gone Girl. The novel’s husband and wife were both laid off from their writing jobs. What layoffs should tell those fortunate enough to keep their jobs is that their laid-off coworkers weren’t really all that necessary to the proper functioning of their business … and maybe neither are they. Another way to put it is that the price of their labor was too high. Or maybe their employer’s enterprise is no longer viable.

On a recent edition of The Five on Fox News, cohost Greg Gutfeld said something to the effect that President Obama doesn’t know the price of anything. The same could be said about Congress. The cost of government programs never really registers with federal officials, because they can just borrow the money to pay for it. So price, that key economic datum, never enters their pretty little heads. While discussing Bernie Sanders’ plans for America, which Laura Meckler in the Journal put an $18T price tag on, Mr. Gutfeld opined, “Well, no, the great thing about socialism is there’s no need for a price tag. A price tag is evil. It’s the ideology of infancy.”

If you like your imported goods because of their low prices, know that you might be expected to pay higher prices for government (taxes) to fund the welfare programs for Americans who have lost jobs to foreign “slave labor.” The same progressives who would fling open the doors of immigration also want minimum wage laws. But erecting a floor on the price of labor when you’re increasing the supply of labor makes no sense. If burger flippers are to get $15 an hour, then their managers will also seek a raise, and so on and so forth until the price hike for burgers affects many more prices.

In “The Dry Math of Scarcity” on April 8 at National Review, Kevin Williamson considered how price relates to the drought in California: “…the fundamental problem is that nobody knows what a gallon of water in California costs.”

No one knows the true market price of water in California because of government intrusion. Government overlords think they know what the price of a gallon of water “should” be. But one of the prices of California’s water policy is devastation for agriculture. California needs to let the price of water float, if you will, in a market for water. When government commands low prices for some, it commands high prices for others.

Much of what the Federal Reserve has done over the last seven years has been all about keeping certain prices up, as in the prices for equities and real estate. The Fed has chosen to favor certain groups of Americans over other groups: sellers over buyers and speculators over savers.

Lawmakers who would set the price of water, or entry-level labor, or health insurance premiums would seem to not know about an insight of economist Friedrich von Hayek known as the “knowledge problem.” They might benefit from “Hayek and the Knowledge Problem,” a 9-minute Vimeo video by Prof. Lynne Kiesling of Northwestern U. The reason government officials should never even think about setting any price is that they simply don’t have the requisite knowledge to do so.

One of the reasons we’re buying so much government right now is that we never see the price tag. About half of Americans don’t pay income taxes. We have an “open bar” government courtesy of future taxpayers. So forget the brewski and have a single malt scotch.

The price of an airline ticket may be even more mysterious now than back in 1993 when Jonah flew across the country. Airlines are nickel-and-diming us to death, charging us separate fees for things that once were built into the price of a ticket. Part of the price of commercial flying nowadays is arriving at the airport much earlier than we used to, so that we can wait in line to be patted down and frisked and suffer other indignities. But you won’t find that price itemized on your airline ticket.


Jon N. Hall is a programmer/analyst from Kansas City. • (720 views)

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3 Responses to Prices, Schizoid Americans, and the ‘Knowledge Problem’

  1. Timothy Lane says:

    People don’t tend to be aware of prices when they aren’t paying their own money for a product. This is the norm with government, and with so much of medical care (third-party payers such as government or insurance). Milton Friedman pointed this out decades ago.

    • David Ray says:

      Freidman & Hayek should be required reading. Any chance those minds will ever be included in Common Core?

      • Timothy Lane says:

        One of the major problems in Common Core is that the curricula are set up by modern intellectuals. There’s no hope that they would include the likes of Bastiat, Hazlitt, Friedman, or Hayek (even though the latter two were Nobel laureates).

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