Can optimizing everything for maximum utility leave us in a sub-optimal situation? That’s the question posed this week in a very interesting book review of What Money Can’t Buy. The author surveys how market morality (the idea that markets always lead to optimal outcomes) permeates our everyday life now and challenges traditional social norms. He concludes rather provocatively, but thoughtfully: 

Proponents of market morality claim that it imposes no belief system, but that’s just a smoke screen. Choosing to place utility maximization at the core of your belief system is no different from choosing any other guiding ideological precept. Every problem has an incentive-based solution; every tension can be resolved by seeking the maximally efficient outcome.

This is a depressingly reductive view of the human experience. Men will die for God or country, kinship or land. No one ever picked up a rifle and got shot for optimal social utility. Economists cannot account for this basic fact of humanity. Yet they have assumed a role in society that for the past 4,000 years has been held by philosophers and theologians. They have made our lives freer and more efficient. And we are the poorer for it. 

Thinking about some of the examples of markets taking over social norms, I do feel indignant, even as an market-loving economist. When did we go from naming buildings and monuments after people who have built a legacy to naming them after people who made a lot?

In a rare case of an anachronism being something I am proud of, Yale refuses to name its new residential colleges after rich donors and instead only after alumni who have done something worthy of recognition. I think such a policy brings the best out of the community and gives people something to aspire towards — an externality unaccounted for by the market.

I really do feel that markets not only allocate goods and resources but they also express and promote attitudes towards the very goods being exchanged. Once we agree certain goods can be bought and sold, we implicitly label them as commodities and some things should be sacrosanct. People can’t sell their votes, organs, or freedom. Enabling the sale of them would effectively destroy the value they represent.

Markets, at the worst, could destroy a lot of things but at the very least, fail to capture or account for everything. Markets can make people do the right things some times but they cannot make the right motivations — in fact, oftentimes, they undermine the right motivations.

That said, people do a lot of good things without incentives everyday, though the number of things may diminish as markets permeate more and more of daily life. In my experience, there are still good people who don’t check first if the moral high ground isn’t on top of a pile of gold. When you find those people, you have to place a high value on your relationship because they are increasingly rare in today’s world, but don’t ever make the mistake of thinking you can put a price on them — or else you may have diminished the most valuable thing in the world.

How economic-lotteries shape careers in certain industries and how they are becoming more common

An interesting new study suggests that the poor have more to think about in terms of trade-offs which costs them financially.

Recently, I received a nice postcard from a friend who was explicitly trying to prop up her favorite dying US agency — a beautiful, thought though likely futile effort. It made me wonder about the future of businesses that primarily operate offline.

The Internet through the spread of email has permanently disrupted the main business of the US Postal Service, and the uptick in shipping packages to homes from e-tailers hasn’t quite made up for the lost business. That fact surprises me as I consider my recent Black Friday experience seeing many retail spaces remaining empty, big box stores appearing desperate, and online stores doing better than ever. The future of retail feels like it will be largely online with offline delivery for anything that doesn’t have to be consumed or used immediately. Such a future feels a little bleak when you try to imagine all the empty street windows. 

That said, I don’t think that could really come to pass since some equilibrium will be reached. I have started to wonder what would keep retail spaces filled and bustling with business. I’ve come up with five ways this would be possible:

1. Experienced based retailing. I believe either offline retailers are going to have to be like Walmart or be like Apple in the future. They won’t be able to charge a 20-50% markup on a pure commodity shopping experience; instead they must produce an amazing retailing experience or they must simply have cheaper prices than the Internet has to offer. 
2. Pop-up retailing. Internet companies have already begun this season tocreate pop up stores in cheap, empty retail spaces. These pop up stores enable online stores to have a real world face.
3. Online Sales Tax. Federal enactment of such a tax would remove the uneven playing field that sites like Amazon enjoy right now. This would certainly help make offline prices more comparable to online prices.
4. Better Online-to-Offline Advertising. If there was a way to use the Internet to better market and direct customers to offline locations, then bricks and morters would have a chance. Right now, most online advertising focuses on online-to-online conversions (something I’m trying to change through PaperG).
5. Advertising retailing. It’s possible that retail spaces will get so cheap that they become effectively three dimensional advertising spaces. Brands can rent out the space and fill it with their goods supplemented with representatives to answer questions. 

Some or all of these will likely to come true. I hope so because I would hate to live in a world of empty windows.

Commuting is one of the worst things you can do for your happiness and finances. This is why I live 15 minutes walking distance from work. I’m glad someone has finally quantified the issue:

So each mile you live from work steals $795 per year from you in commuting costs.

In other words, a logical person should be willing to pay about $15,900 more for a house that is one mile closer to work, and $477,000 more for a house that is 30 miles closer to work. For a double-commuting couple, these numbers are $31,800 and $954,000.  

Since 1995, airfare prices are down 21% after inflation. Airlines really have no pricing power even after all the consolidation. I wonder if the pricing trend has anything to do with the Internet and the increased pricing transparency of the market. In fact, I wonder how anyone decided what airplane ticket to buy before the internet.