What Does “Buy Local” Really Mean?

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I’ve seen this picture passed around a few times on social media; especially around November and December with people doing Christmas and other holiday shopping. The message is riddled with as many good intentions as it is with fallacies. On the surface, it proposes a common sense plan to revitalize the economy and help the citizens prosper. However, it is steeped in protectionism and misleading concepts. It can best be broken up into 3 areas: 

“If each of us spent $100 a year… it would put an extra $3 million year into our economy”

Obviously, due to space constraints on a chalkboard sign, no sources are cited for the dollar amounts, where they came from, or why they were chosen. So right off the bat, it is important to regard the sign as more of a good idea than a golden truth. However, we can do some simple math to get a starting point:

$3,000,000 invested / $100 per person = 30,000 persons to achieve this goal.

30,000 people works out to a small town, and “our economy” (more than likely) specifically refers to the town’s economy. Is this what defines “local” when describing a local business? The township or village? What about the county? Some major cities sit on multiple counties – i.e. New York City occupies five different counties. Is that still local? Here in the Bluegrass, we have a Kentucky For Kentucky campaign that helps promote businesses and attractions in the state. Is that still local? What about Toby Keith insisting his purchases say “Made In America”?

The word “local” has a different connotation depending on who you ask. Most importantly, though, where the border of “local” lies will greatly affect how that $3 million is spread out. A handful of businesses on Main Street in Small Town, USA? That would be a nice boom to the locals. The same amount comes out to pennies for Kentucky’s 4.4 million residents though. So without defined metrics, the statement is empty.

“…on local businesses instead of chain stores…”

This can be boiled down to 2 of the 5 W’s: Why should I buy local? And I want more than “because your neighbor. ” Specifically, what is the difference maker between small/local business and a chain, and why should that be important to the consumer? The beauty of this question is that there is no objectively, measurably true answer. It all depends on the subjective value on the customer; what they want for their dollar. Personally, I prefer small, “hole in the wall” restaurants over chain restaurants. That’s not to say that I hate chain restaurants. I just prefer one over the other. Sure, I can get a Big Mac for less than $5. But I would prefer a Big Tolly with pepper jack, bacon, jalapenos, and salsa with a side of cheese fries and an Ale-8-One to drink for a few dollars more. For the person on a budget, though, the Big Mac is probably the better option. The most important part is that’s not up for me to decide. It is solely for the consumer.

To expand on the first point made earlier in regards to “local” and borders, what makes a chain store inferior to a local business? Do the Wal-Mart and McDonald’s employees not live in the same town as those from Jim’s Soda Shop? From the cashiers, to sales associates, to shift managers, and even the store manager. Sure, the dollars keep flowing upward to the corporate office, but the aforementioned people still earn a paycheck just like everyone else. And in turn, they spend their dollars in town and also contribute to helping their neighbors. Much like the Wal-Mart corporate office, small business owners re-invest their profits back into their stores. They add more variety of products; hire another worker or raises current worker’s wages; they save up and open another location across town. All of this on top of what they take home, pay-wise, and how that money is invested: paying off the mortgage; contributing to their kid’s college fund; building a deck on the back of the house… things that contribute to their happiness and well being. It doesn’t matter who does the hiring – local employees means local dollars.

If local is defined as a small business with no corporate office and whose owners live in the community, then some products absolutely, positively cannot be bought from a local business. Bananas are grown in Southeast Asia, Africa, and parts of Central America. You won’t find them at a famer’s market in Montana. Ford’s heavy duty trucks and Toyota’s Camry and Avalon are made in Kentucky. If you live in one of the other 49 states and drive one of these vehicles, you didn’t support a local business. How many parts of your computer or smartphone were made in Silicon Valley? The argument boils down as such: for what consumer products is it ok to purchase locally, and what products is it ok to purchase from outside the region?

“…it would create thousands more jobs every year.”

I wish I could say “citation needed” and leave it that. And my fellow Austrian readers are probably nodding their heads in approval. Yes, as mentioned in part 2, business owners reinvest in their stores. This means expansions and hiring. I’m not disputing that. Refer back to part 1 though: without defined metrics, we have an empty statement. Obviously, $3 million reinvested in New York City or across the state of Kentucky won’t do squat. It’s a drop in the bucket. But even if the $3 million was concentrated on Main Street, it is a stretch to say that thousands of jobs would be created. Depending on the business, capital investment may be the best move; more efficient machines for more efficient service. Perhaps a service oriented business, like a barber shop, would do well with a labor investment. Whatever the business owner chooses, know that it is for the best interest of the customer.

Final Thoughts

Despite popular opinion, there isn’t some kind of wall between chain stores and local stores. Wal-Mart has recently started teaming up with local manufacturers (relative to store location). On the flip side, small business owners may use Office Depot for supplies or a large bank for their business loan. The best thing for the customer is for them to pursue what they view as the superior product or service for the best price. Through price signaling and demand, the businesses that please the largest portions of the public will remain open. Those concerned about small businesses should look at regulations, wage laws, price floors and ceilings, and other arbitrary demands coming out of the local, state, and federal levels. Large corporations who have amassed the money necessary for certifications, and who are politically connected, will find it easier to meet Uncle Sam’s demands. The small business owner is lucky to stay afloat.

Further Reading:

Subjective Value

Eugen von Böhm-Bawerk on Subjective Value
Robert Murphy on Subjective Value

Regulations

Strive To Help Entrepreneurs Thrive
How Excessive Regulations Stifle Small Businesses
John Stossel: “I tried to open a lemonade stand.”  (Don’t let the Fox News tag discourage you; Stossel is very libertarian.)

#Regulation @ Reason Magazine
#Regulation @ The Mises Institute

A Hug For The 1 Percenters, From A 99 Percenter

The Occupy Wall Street movement may have lost most of its steam but animosity towards the rich and affluent in America is still alive and well. Predominantly from the extreme left (though political allegiances hardly mean anything anymore) the extreme wealthy are expected to “contribute to society” and “pay their fair share” through extensive taxes on their companies, personal income, capital, and anything else to make their existence burdensome. They “hoard” their money away in Swiss bank accounts, or purchase rare opulent treasures that many would consider unnecessary. These modern day Scrooge McDucks, with monocle and top hat, have had their reign and now must pay the piper. What is their punishment to be? The government is to tax the ever living bejesus out of them to fund social welfare programs. Their wealth needs to be redistributed because it’s fair – because majority of people are much much lower on the totem pole and struggling to get by financially.

Having said that, I love rich people. Yes, you read that correctly. I love rich people. Filthy stinking rich. To quote the great philosopher Jay-Z, “fuck rich, let’s get wealthy.” I’m talking about people with so much money that you can smell it on them. They wipe their asses with Benjis. They drive cars so rare, you’ve never even heard of them. They own 15 different homes and they’re more hidden and secure than U.S. military bases. Since I adore these people, I must be wealthy too, right? I must be sitting a few rungs from the top as well.

False.

Full disclosure: I’m broke. Not impoverished, but I still keep my belt tight. My head is barely above water. Know what I make? $15.40 an hour. A mere 40 cents over the minimum that Democrats want. And let me tell you something: it’s nothing to shout about. First of all, thanks to taxes and overpriced insurance, I only take 2/3 of that home. Despite “earning” more than twice the minimum wage – on paper – I take home $10 and some change an hour. Factor in that I gas up twice a week because my employer is an hour of interstate driving away and it quickly becomes apparent that “living wage” is a very subjective phrase. Last I checked, working full time, I fall into the 4th quintile income bracket. I’m barely above poverty and I’m using (one of) my college degree(s) too.

So what gives? Why don’t I get some assistance that I “rightfully deserve?” I may not be in the bulls eye of the demographic that the Dems want to help, but I’m still on the board. I should marching with the Occupy protesters. I should be writing letters to my Senators and Representatives, urging them to do something about this damn evil income inequality. I contribute just as much to society, right? I should be compensated accordingly.

Here’s the thing: none of the above can truly help me.

Imagine I’m trying to climb the income ladder, except I have a broken leg. And it’s nasty too. Compound fracture. Not a clean break but multiple pieces. I’m going to need corrective surgery, a titanium rod, and physical therapy – ALL on top of 6 months in a boot. Government assistance (let’s call it what it is – wealth redistribution) is somewhere between a band aid and a roughly assembled tourniquet. Yeah, it’s something, but in the grand scheme of things… it doesn’t change my situation. I’m still crippled. I could maybe advance up the ladder but it’s going to take a while and it’s going to be very painful. I want my leg to be in one piece and functional. The wealthy 1%ers, in this analogy, are somewhere between the actual surgeons and the administration of the hospital performing my surgery. They’re the ones directly contributing to me getting better.

At the core of it all is risk management. You may call it cost-benefit analysis. All decisions – especially economic decisions – carry risk. As you accumulate wealth, that risk becomes smaller because the loss to you is smaller. Imagine a used Chevy Cavalier for sale for $1,000. To someone making minimum wage, $1,000 is risky. Saving up that amount of money is difficult. What about reliability? Will the car break down five miles down the road? Those are the risks for someone making low wages at an entry level job. However, as they learn valuable skills and move up in the company, their wages increase because they’re more valuable. At $7.25 an hour – federal minimum wage – the Cavalier is a risky decision. What about at $8 an hour? $10 an hour? Salaried and making $40k a year? As the wealth accumulates, the margin of acceptable risk also increases.

For same car, what’s the margin of risk for someone clearing $100k a year? Probably zero. The car can be purchased easily. Any necessary repairs can taken care of just as easily. But now enters the second element of a financial decision: subjective value. What is the value of this car for someone making minimum wage compared to the doctor/lawyer/etc clearing six figures a year? For the former, it is access to mobility in the world. This may open up their opportunities to pursue a job with better pay or benefits. They value getting from Point A to Point B more than they value leather seats, touch screen navigation, and panoramic sun roofs. For the big wig, the ability to obtain transportation is nothing short of guaranteed. The questionable reliability of the aforementioned Cavalier is not a risk for them. They can afford factory fresh with the expectation of a long service life.

Because of these guarantees, they can afford to accept a new kind of risk – innovation. Most people would consider a person who earns six figures to have “made it” in life. They can live comfortably and also pursue new adult toys. In contrast to the Chevy Cavalier, let’s look at Mercedes-Benz. I’m a big fan of German engineering – Benz, BMW, Porsche, and Audi. Not just any Benz model – let’s look at the S65 AMG luxury sports sedan. Starting at $222k before options, it is a tour de force of automotive engineering. The S65 boasts many luxurious creature comforts and amenities such as 12 way adjustable power seats with memory settings – front and rear, touch screen stereo, rear seat entertainment screens, automatic sunscreens, and even a small refrigerator in the rear arm rest. All of these were unimaginable 50 years ago. Much less, the idea that a car could cost more than a house. But remember subjective value: at this level, the consumer obviously values the comforts more than just getting from A to B.

Of all the luxuries and technologies offered in the S65, I want to focus on one that isn’t exactly brand new: turbocharging. For my not-so-mechanically inclined readers, a turbocharger is a device that harnesses the kinetic energy of the spent exhaust gasses in an engine to spin a set of fans that feed more air into an engine than it would normally draw in. More air in the cylinders means more fuel can be mixed in for a bigger boom and more power. The best part is that it only operates when needed. Cruising on the highway under a light load, the engine will return fuel economy as expected for the given engine size. But stomp on the gas, and the exhaust flow spins up the fan, causing an exponential increase in air flow and consequently, horsepower. With this technology, small four cylinder engines can have power outputs that rival V6s and and even V8s. The S65 doesn’t use turbos for mere efficiency though. No, the S65 features a massive 6.0L V12 engine with TWO turbos. It offers a whopping 700+ pound/foot of torque and over 600 horsepower! So not only are you getting from point A to point B in style, but you’re getting there pretty damn fast too.

As I mentioned before, turbocharging is nothing new in automotive engineering. The first turbocharged vehicle made its debut in the early 1960s. It is a proven technology. It can be found in quarter-of-a-million dollar luxury sport cars (the S65 in this case) down to the very affordable Ford Fiesta, a daily beater that offers a lot of bang for the buck (approx. $15k). Turbos did not start out as a perfect technology though. Someone had to take a risk with the first turbocharged car in 1960-whenever. Profits from the sales went into engineering and R&D. Time passes and then advertisers were able to say, “You know that thing you like? We made it better.” Thanks to advances and developments in material choice, engine tuning, and overall engine design, companies like Volvo (known for turbocharging much of its fleet) have developed a reputation for amazingly reliable vehicles that exceed well over 200,000 miles on the odometer during their lifespans. The consumer wins with a reliable product. The producer wins with a pay day. To paraphrase a quote printed on a former employer’s pay stubs, “A satisfied customer made this check possible.”

As I previously mentioned, the S65 offers extravagant amenities…

  • 12 way power seats with memory
  • seat massage
  • seat ventilation
  • power sunshades in the rear windows
  • rear refrigerated storage
  • 12″ touchscreen technology center (radio, navigation, WiFi, etc)
  • rear seat entertainment screens

Compare these against the commonplace turbo. Now, in 2015, someone takes a risk with the new conveniences and technologies. In turn, Benz uses the profits from the sale of an S65 to reinvest into R&D and engineering. Is there a cheaper motor option for the power seats? Is there a material that improves the efficiency of the seat ventilation whilst still providing an elegant appeal? Is there a faster, smarter CPU for the in-dash technology center? Without someone willing to take risks, those questions may not be answered. Thankfully, there are people willing to accept that risk. Risks, along with other needs, wants, and desires, fuel innovation. Innovation not only creates jobs, but perfects risky technology (like the turbo in the 60s) into bomb proof reliability staples (see Volvo) at an affordable price (Ford Fiesta and Ecoboost).

So for the rich, the elite, the wealthy, the affluent, the connected, the powerful… The people of this country with big demands and even bigger bank accounts… Thank you for taking risks. Thank you for never being content with what you have. Thank you for treating luxury like a necessity. I’d hug you all if I could. Sue me, I’m an affectionate person. Because of your purchasing decisions, I (and many others) have future job prospects to look forward to. And maybe I’ll drive to that job someday in a budget daily beater Ford that offers 12 way power seats with massage, a touchscreen dash with WiFi, and a refrigerator unit that keeps my Kahlua mocha latte nice and chilled.

OH!

…..and a turbo.

The Application of Henry Hazlitt’s “One Lesson” in a Comparison of the Apple iPhone, Public Education, and Black Friday

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I normally hate using memes or responding to memes in political discussion. It’s childish and most are strawman arguments. However… This one caught my eye because it’s one that transcends party lines. It first popped up on my Facebook news feed from a friend who is moderately conservative, but it quickly gained “likes” and comments from people all over the political spectrum. I started to see it more and more from people of all different ideologies. Even the famous George Takei page shared it. The idea being that everyone, regardless of political identity, complains about education and government but is too busy to show up to PTA meetings and elections because they’re too occupied with frivolous purchases. We’re being too selfish with stupid capitalism and unnecessary purchases to be bothered with participating in the almighty system of control over our lives. The reality is, there is a glaring truth in this image about market action compared to government action that most people are incapable of seeing.

In a market setting (specifically with this image, I’ll demonstrate with Apple and will get to Black Friday in a bit), private companies are driven by competition and subjective customer demands. When the first iPhone hit the stores in 2007, it was a revolutionary product that improved every aspect of our lives whether we want to admit to it or not. I’m more of an Android guy myself, but credit where credit is due. The iPhone is a testament to the progress that can be made under capitalism. Although the public is quick to criticize the attitude of never being satisfied with what we already own, it is this pursuit of “better, faster, stronger” that is the driving force of innovation. It is the source of improvement in efficiencies and advancements that make our lives easier. A mere 20 years prior, in 1987, the capabilities of the iPhone were unfathomable. Consider the following image:

80s-smartphone

Telephone. Music. Radio. Recording audio. Recording video. Word processing and messaging. Calculator. Relevant items not pictured include print items such newspapers, magazines, dictionaries, and encyclopedias. Calendars to keep appointments. I could go on and on. The point is… Despite the changes in all of these technologies over the years, it wasn’t until the iPhone that all of this was suddenly available on a single device – and only slightly larger than a pack of cigarettes. Up until this point, we were house bound. Outside of the comfort of our homes, we were limited on how much of this could be mobile with us. Our strings were cut. A wealth of knowledge, technology, and entertainment was suddenly at our finger tips. And without fail, the same people who condemn the attitude of “must have more” were quick to condemn the iPhone because of its hefty price tag: over $500 after taxes and contract. “Just another mindless, overpriced gadget!” they said. In response, I must invoke the wise words of famous Austrian economist, Henry Hazlitt:

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

People immediately saw a price tag they couldn’t afford. What sour grapes! “No one is going to need that!” I admit that even I was guilty of it. I remember the first time a friend let me play with their iPhone. I was nothing short of impressed. We were out Christmas shopping and I was able to take two minutes to check my bank account. “Now that is nifty!” But even then, I couldn’t imagine owning one; much less justifying the price for such extravagance. I was also ignorant in the ways of economics and how prices fall as technology develops. Oh how the times change. Fast forward to the final days of 2014 and it’s near impossible to operate without such a device. When I hear someone talking about how the luxury of today is the necessity of tomorrow, the iPhone is the first thing that comes to mind. From knowledge, to communications, to our social lives, and commerce: our world took a leap of progress from this one invention.

The iPhone is not without its flaws and shortcomings, but show me a product that isn’t. Perfection is the idea that something is excellent or complete beyond practical or theoretical improvement. Compared against our perpetual desire for “better, faster, stronger,” perfection will never be obtained because something can always be improved upon – and this is a good thing! Someone at Apple looked at books, television, music, cameras, etc. and decided that there was theoretical improvement to be had. I can’t remember 1987. I wasn’t even a year old. However, ask someone who remembers. Ask them to think back to their youth. Could they comprehend such an idea? Twenty years didn’t take long. Just a quarter of a lifetime; a fifth if you’re lucky. What will change our lives again in 2027? Even in the seven years since its introduction, what practical and theoretical improvements have been made? The iPhone’s operating system, iOS, has advanced to version 8 and the hardware has advanced tenfold. To say the current model eclipses the debut model from not even a decade ago is an understatement indeed. A year after the iPhone’s launch, however, and someone already wasn’t satisfied with the iPhone’s capabilities. Android was introduced. Competition. A new recipe for a similar entree. Options for the consumer. And just like the iPhone, Android phones have also grown by leaps and bounds. I currently own a Galaxy S4 and will likely upgrade to a Galaxy S5 very soon. My phone has a built in universal remote control that I use for the television and surround sound in my living room. Not even the iPhone can do that. This has spared me the purchase of a separate universal remote device. Environmentalists should rejoice for innovation was able to spare the Earth of plastic that wasn’t needed to enhance the quality and efficiency of my life. I rejoice for the money saved because of consolidated technologies. Refer to the previous image of 1980s technology. Think of the plastics, metals, and chemicals required to make such products. And then think of the waste from such inferior product life spans. By what immeasurable fraction was such material usage reduced in favor of a smaller, more efficient product? Tree huggers rejoice: paper consumption is down in favor of gigabytes of storage on a sand based chip. Considering the massive level of material reduction that has happened over the last few years, Mr. Hazlitt would be impressed with our progress and advancements. What more, this is merely the short history of the Apple iPhone. The exact same thing can be said for numerous other products, services, and advancements that debut every year.

How does this compare with the government action mentioned the initial macro image? Surely, I couldn’t be making a comparison of state institutions, such as public education and PTA meetings and voting, against a cell phone. That is the beauty of economics though. Whether it be a product or service, these exchanges are bound by natural rules rooted in observable human behavior. Despite their egotistical presumptions of being impervious to these rules, the state’s central planners insist on attempting to replicate the market’s results; sometimes ending in corruption, and often in failure.

There are two major concepts we must look at to fully understand market decisions: cost and motivation. Apple started with Steve Jobs. In the 80s, Jobs looked at the computer market and noticed a desire for change and variety. Continue on to 2007 and someone at Apple looked at computers, and DVD players, and cameras, and recorders, and Walkmans, etc etc, and understood that there was a way to consolidate these items into one, simple, user friendly device. As with all other product and service developments, customer desire for consolidation, efficiency, and improvement are part of the motivation for entering the market. For the bureaucrats of the state, cost and motivation are applied in a much more detrimental way: appeal to the mythical “collective good,” and tax subsidized, back door, crony deals with connected friends in industry. First, there is no collective desire or collective good. The “collective” is made up of individuals. Only the individual thinks, reasons, and desires. Lumping individuals into groups erases details and differences that make us unique. When a group of individuals with a common desire for a particular aspect of a product or service, the only “collective” unit they become is market demand. Even then, they must be acknowledged as individuals because each have different attitudes in regards to cost; specifically, the value of the dollars in their wallet versus the value of the improved product or service with respect to dollars required to purchase it. Secondly, unlike the voluntary exchange of money found in the market, the state collects money in the form of compulsory taxation which goes on to subsidize corporate cronies on a whim. What is particularly interesting is how many of these corporations financially support both major parties in election seasons despite the prevalent opinion that this is mainly a Republican thing.

Crony back door deals are easy to hate. The corruption speaks for itself and both sides are guilty. It is the failure of programs intended for the collective good that are harder to see; especially something as lauded as education. A quality education and sound knowledge enhances employment prospects and increases quality of life. I’m not disputing that. No one disputes that. The problem is the state’s misguided and poorly managed “one size fits all” approach. You must attend a sanctioned school or have special permission to remain at home, use only approved materials, to learned approved topics, using approved methods. It sounds like an appealing theory to keep everyone on the same page, but fails to account for the previously mentioned details and differences between individuals. One of the more damaging aspects is that unlike private companies who measure success using their sales, schools get money in spite of performance. Spending on public education has exponentially increased despite lackluster test scores, the state’s choice of success measurement. This is ironic considering the “for the collective good” justification used for the program. The “collective good” is burdened by unprepared graduates along with having to foot the bill of rising costs through rising taxes. Higher costs for a similar, or worse, product. No private company could survive with such a business model. Imagine an iPhone being capable of using only a very narrow range of approved passwords, backgrounds, settings, and apps. Also, year after year and despite minimal advancements in capabilities, the price keeps going up. How long would Apple stay in business? Suddenly, the limitations of “one size fits all” and compulsory payment become apparent. End users of such personal objects like options, reliability, and the flexibility of personalization. How is an education any different? I am a visually based learner. The best way to educate me on a task or operation is to physically show me. Written details do little to assist in the process. Now consider other learning styles. Education, more than anything else, relies heavily on creativity and innovation.

In an attempt to address the inevitable shortcomings of the system, the PTA (parent-teacher association) was created to act as a bridge between parents, teachers, and administration. Few, if any, would argue against being involved with your child’s education as part of being a good parent. However, as programs like No Child Left Behind are passed at a national level (and Common Core looms in the distance), it is important to ask how much of a voice you actually have at the local level. Parent-teacher conferences are dime a dozen. If that doesn’t work, how accessible is the principal? The school board? The superintendent? You get that far and they tell you that your issue is out of their hands. How much of an audience do you have with the government? At the local level? State level? Federal level? Do you have a voice with the Department of Education? You might make a splash in regards to dress code or bus schedules, which are usually handled no higher than the local Board of Education. Good luck fighting stuff like No Child Left Behind though. This requires participation at the federal level. In other words: voting. As highly encouraged as this practice is, even it has its shortcomings. The general public is quickly learning that there is literally little to no difference between the Republicans and Democrats who, supposedly, represent you. Hat tip to Bonnie Kristian in that first link. Been following her work for several years now and I highly recommend. Do the politicians that represent you share your views on education? Do you trust them to make the right decision? I’ve demonstrated before that abandoning the popular idea of “a vote for a third party is a wasted vote” and a libertarian en masse turn out at the polls is the only way to get any sort of change (considering hardly anyone shows up to begin with). Even then, showing up and punching the ticket isn’t always enough. This is assuming, of course, that you still believe that the government represents you – the average citizenUnless everyone, unanimously, gives a shit then no one gives a shit. In theory, you have a voice – but only on minute details. The more serious matters are so far over your head that it becomes difficult to justify showing up to meetings. How can a system, designed in such a way, be described as reliable?

So picture an iPhone owner and they don’t like iOS; the meat and potatoes of the iPhone interface. There were no alternatives until 2008, when the Android operating system (and Android powered phones) hit the market. Said person investigates alternatives. They enjoy the similar styling in the interface but feel the Android system offers more flexibility; enough that they value the features over the price. Now Apple loses a customer. If this happens only a few times on a large scale, Apple will continue to stay afloat. If too many people jump ship, though, Apple executives will notice. To maintain a market presence, they will need to lower their prices, improve their product, or both. All this happens in a moderately regulated market too. Imagine dozens of companies available with capabilities matching, or even exceeding, those of iOS and Android for an even better price. How much better off is the customer? Satisfied customers mean products were purchased. Purchased products means a profit for the company. Profit is how you pay employees. They are motivated to take care of their customers because satisfied customers determine their livelihood. Compare this against our education system, where you only have one option: an over-priced and under performing option with very limited features controlled by people who pay little to no penalty for their mistakes. What would you rather have?

Let’s get down to brass tacks! Referring to the chart from the Cato Institute in the link above, since the late 80’s, the cost of public school has exponentially skyrocketed.  Until approximately 2007 (release year for the first iPhone), federal spending per pupil increased by approximately 125%. Since then, it has jumped to over 375% since the base value – with negligible improvement in test scores. The first iPhone was over $500 in 2007. Since then, the phone’s hardware has improved by over tenfold, and it is now less than $200 at most carriers after contract activation. When market entities can compete, significant value is added and prices are lowered.

For the sake of addressing the original macro (because I got off on a tangent a little bit), what does this have to do with Black Friday? Apply the lessons learned from the previous example. Deep discounts and sales from retailers to entice people with much anticipated Christmas shopping doesn’t seem like much of a bad idea. There is obviously a steady demand if this occurs year after year. It’s not the sales – it’s the public’s reaction to the sales causing controversy though. The number of items on discount is much smaller than the people who want the items. As a result, massive crowds form and (sometimes) a degree of chaos ensues. Much like the initial hostility towards the first iPhone, people across the nation greet Black Friday every year with equal hostility. “Such craziness! Why risk the crowds to save a few dollars? I’m willing to wait. If I wouldn’t do it, then no one should do it.” Keeping Hazlitt’s lesson in mind, we see that the insanity is an unintended result of a poor decision somewhere else. First, as stated earlier, these sales happen because the consumers value them. If no one cared, they wouldn’t show up, and the stores would take the day off. Despite the hoopla, violent Black Friday incidents are actually few and far betweenWe have two very revealing clues though. First, is the attitude of “I’m willing to wait and spend a few extra dollars later.” Second, is this interesting claim that Black Friday brawl videos are how the rich shame the poor. What we have here is the outline of a socio-economic divide. There is an income threshold for Black Friday shoppers. I’m going to step out on a limb and say that for some low income families, the rest of the year is spent saving money and just enough is saved to get shopping done on Black Friday when the biggest discounts happen. I’m not saying this *is* the case, but it *could be* the case. People will also argue that Black Fridays have gotten worse over the years. Is it media sensationalism? Entirely plausible. What about economic factors that affect low income families? Are they being taxed into oblivion to fund inefficient programs (see above) and blatant wasteful spending? What about rampant inflation that’s destroying the dollar and hits low income earners the hardest? All of these are possibilities (and probably topics of future entries) and should be explored – possibly offering insight that could affect future policy decisions that could help these families, and consequently, cut down on the chaos. The point is.. Black Friday shoppers value being able to buy things, without coercive force, for their loved ones (an often overlooked detail) more than they value having an extra day of peace at home. Just like purchasing the multitasking capabilities of the iPhone, they do it because it is beneficial to them.

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order. Yet that decentralization actually leads to more information being taken into account. – Friedrich Hayek The Fatal Conceit : The Errors of Socialism (1988)