Conservative academics are as clueless as liberal ones are supposed to be

[jmowreader]

I was going to title this "someone Bitchslap Thomas Sowell," but figured that was a good way to get the thread locked...

Yesterday's socialist newspaper brought word that Thomas Sowell thinks price-gouging is a Good Thing.

Seriously.

Sowell says anti-price-gouging laws reduce the flow of resources to where they would be most in demand. That may have been true fifty years ago, or even twenty-five, but today it's not.

Sowell uses plywood as an example, and so shall I. Sowell says price controls will not cause new supplies to be rushed in nearly as fast as higher prices will. But consider: A sheet of 15/32" three-ply rated sheathing costs Georgia-Pacific $5 to make, costs Joe's Lumber $10 and Joe charges you $15 for it. (Not the real numbers, but good as an example.) If Joe's Lumber is right in the middle of the devastation, is Georgia-Pacific going to just send Joe what he orders every week? Hell no, G-P is going to call Joe, ask him how much he wants, and start loading up a train bound for Joe's private railhead. If that means the rest of the country is going to go begging for plywood for a few weeks, so be it. That in fact is happening now. I have a couple of SKUs I'm out of and have no replenishment date for. And Joe is going to continue charging $15 a sheet for his plywood since he's gonna get filthy rich on volume.

You see, today we have The Weather Channel. We have EDI ordering. We have historical data on what a major hurricane does to plywood sales--or generator sales; at this time you cannot walk into any Home Depot on the East Coast and buy a generator that costs less than $1500, and you'll have a hard time finding a $1500 one because they're selling too--in Florida. And we have the ability to divert shipments to where the product will sell best. There is no need to price-gouge in the year 2004 because the building products industry can put merchandise where it's needed when it's needed.

Another argument against price-gouging is its effect on sales after the disaster has been remediated. People have long memories; if you try to take advantage of people's suffering by running your plywood up to $25 a sheet, people might buy it but they will never shop at your store again. You tried to exploit their plight by screwing them out of their hard-earned cash. (It's also a gamble: if John's Builder's Mart runs plywood up to $25 a sheet and Lowe's stays at $15, John is going to be sitting on a shitload of unsalable plywood because everyone will buy Lowe's plywood. Today, price-gouging only works if everyone does it.)

Sowell also claims that price-gouging works to limit demand. Okay, let me see: if you have a 2150-square-foot roof deck and you're replacing all of the plywood on it because the hurricane pulled all of it off, you need a full bunk of plywood. (There are 68 sheets in a bunk, and a 2150sf roof deck is large but not huge.) There is no "limiting demand" question here: the guy is going to show up at your house tomorrow morning and drop a factory-banded bunk of plywood (plus two unbroken skids of architectural shingles, four bundles of ridge cap shingles, two rolls of ridge vent, six rolls of asphalt-impregnated felt, four boxes of plywood clips and a hundred pounds of assorted nails) in your driveway. The question is, are you going to pay $3000 for all of it or $4000? Remember, supply is not a problem because the building materials industry diverts supplies to a disaster area because they know the stuff will sell, and because it's good PR for the company to do so.

Sowell goes into a screed about hotels, and there he may have somewhat of a point--there are fewer hotels (because hotels were hit too) vying for more customers. However, he gets stupid on this one too. He says hotels were probably charging all that the traffic would bear before the hurricane hit so it's only right that they do so now. The part about them charging all that the traffic would bear before the hurricane doesn't hold up; there is such a severe price war going on in the hospitality industry right now, that hotels are charging just barely over their operating expenses. (Got news for ya, kids: if you are charging $59.95 for a room that gives complimentary coffee, complimentary continental breakfast, lots of towels in the room (towel theft is one of the hotel industry's biggest profit killers, and laundering towels is not free), sixteen free movie channels, free broadband internet, and a chocolate on your pillow, plus giving anyone who has a hotel loyalty card ten percent off, you're making about a dollar a night in profit. The market would bear $75 a night, but you're charging $60--or, in reality, $54 because of the card that you've trained your desk staff to encourage people to sign up for--and losing your ass in the process.

He also claims that exorbitant prices will convince people to rent one room instead of two. Exorbitant prices don't affect people who want something. Proof: The H2. It gets such bad gas mileage they won't advertise it, it costs over $50,000, and they sell all they can make.

Conservatives claim liberal academics are out of touch with reality. It seems that conservative ones are just as far out of touch.

[AlCzervik]

1. I read that yesterday and was disgusted

He supports price gouging. I wonder how he'd feel if the tables were turned on him?

[tom_paine]

3. He would whien and cry like Vic Morrow in the Twilight Zone Movie

You know, the one where the belligerent racist felt what it was like to be a Jew in Nazi Germany?

[LostInAnomie]

2. I have always found his work to be incredibly short sighted.

I think that is why very few people in academia ever agree with him. Usually his analysis comes in the form of blaming the victim and never gets to the root causes.

[cosmicaug]

4. All that the market would bear.

jmowreader wrote:

The part about them charging all that the traffic would bear before the hurricane doesn't hold up; there is such a severe price war going on in the hospitality industry right now, that hotels are charging just barely over their operating expenses. (Got news for ya, kids: if you are charging $59.95 for a room that gives complimentary coffee, complimentary continental breakfast, lots of towels in the room (towel theft is one of the hotel industry's biggest profit killers, and laundering towels is not free), sixteen free movie channels, free broadband internet, and a chocolate on your pillow, plus giving anyone who has a hotel loyalty card ten percent off, you're making about a dollar a night in profit. The market would bear $75 a night, but you're charging $60--or, in reality, $54 because of the card that you've trained your desk staff to encourage people to sign up for--and losing your ass in the process.

All that the market wold bear is not $75 a night if $75 a night won't make you any money due to competition (which I think is what you mean by a "severe price war").

[jmowreader]

6. Assume $75 would produce a good profit

Here's what I mean by a severe price war:

Hotel A, B and C are in town. We'll say A is a Ramada, B is a Comfort Inn and C is a Howard Johnson--all good midpriced hotels. And they are all running at about 80 percent average occupancy, which is good.

Next thing you know, a Motel 6 breaks ground. Oh shit. Motel 6 can sell rooms for $29.95 a night because they're selling a clean room that contains a reasonably lumpless bed. Basic and simple. OTOH, the other three all have in-house restaurants, hotel bars, maybe room service, quite a few amenities. But someone at Howard Johnson's corporate office is going to send down word: you must cut prices to compete with Motel 6. Then the other two hotels start cutting prices to compete with HoJo. Next thing you know, one of the three midpriced hotels is on the auction block because they lowballed themselves out of business. Happens all the time.

Everyone seems to have lost the ability to say "we are not going to attempt to compete with Motel 6 on price because we do not sell what Motel 6 sells." Yes, Motel 6 runs these neat ads stating that we have rooms and they have rooms and ours are cheaper, and if you're one of the people who start off a conversation with a sales associate by speaking the phrase "do you have anything that's damaged?" price is what matters. Other people like to be a little more comfortable--that's the market the midpriced hotels SHOULD be chasing and ARE NOT chasing.

I figure that if things continue as they are, in ten years or less there will be two kinds of hotels: Motel 6-class clean, spartan rooms; and upscale properties that charge hundreds or thousands per night.

[ProfessorGAC]

5. Thomas Sowell Is A Poor Excuse For An Academic

His ideas and writings have the depth of the ink on a newspaper page.

He's another so-called academic who has spent an entire career learning theories and then believing them as faith, rather than spending time challenging them and looking for multidimensional ways to validate or refute them.

He finds anecdotal or non-randomly selected nuggets of data to support a pre-existing opinion, based upon hypotheticials published 100 years ago, and believes that reinforces those theories.

That's nonsensical, ascientific, and mathematically naive. He should be ashamed, but has not the intellectual depth be so.

He is not really a conservative academic. He's a conservative in the academic world. That's not the same thing.
The Professor

[jmowreader]

7. I agree Sowell is a strange one

Once Sowell praised to the skies an all-black public school that teaches to the test. Hoo boy.

Mr. Sowell, if you're lurking, listen close: Everything you think is wrong.