Thursday, December 19, 2013
Touching history...
Gasoline, ketchup, and spam...
Gasoline, ketchup, and spam... Megan McArdle has an article up about how Uber's pricing is really ticking off a bunch of their customers. The high prices during a surge in demand really irritate a lot of people, even though it's easy to show that they shouldn't – at least, they shouldn't on any rational basis. But most people really aren't strictly rational. Actually, they're not even mostly rational. Want proof? Look at the bozos we have collectively elected!
Most of my American readers will be too young to remember Nixon's wage and price controls in the early '70s, and how they affected one's ability to buy gas, but I remember them vividly. First, there was a form of rationing in that you could only buy gas on either odd- or even-numbered days (depending on your license plate number). Second, even on the days when you could buy gas, you had to wait in lines for hours at a time. I once waited 7 hours at a gas station in Long Beach, California, only to be told (when I was just six cars from the pump) that the gas station had run out.
Here's the part that I'm always surprised when people don't get it: those long lines, and the need for rationing, were caused by Nixon's price controls – not in some abstract or obscure way, but very directly (more on that in a minute). Those price controls were a reaction to perceived price gouging. I say “perceived” because actually those increased prices were exactly the right thing to have happen – a free market at its finest. But it really made people angry. Not me ... I got angry at the inevitable results of the price controls.
What people perceive as price gouging is really just prices being raised in response to the old and well-understood principle of free markets: that prices go up when demand exceeds supply (as it did when lower Arabian oil imports meant less crude oil to make gasoline from). In fact, those prices should rise to the point where the demand has been reduced to match the supply. But real people, irrational beings that they are, perceive this as price gouging – and survey after survey at the time showed that people in general (but not me!) preferred the horrible effects of price controls to allowing “gouging”. The price controls meant that whether you got gas on any particular day was sort of a lottery – you might win, and score a tank of gas at a nice, low, price-controlled price. Or, like me on that day when I waited 7 hours and got nothing – you may well just lose. The net effect is that all the gas was distributed, but lots of people didn't get it, and lots of people were really frustrated. If Nixon had left well enough alone, the market would have settled out in short order to some higher price, and anyone who wanted gas bad enough to pay the high price would be able to get it – with no long lines, no gas stations running out, etc. The only rational conclusion to such an exercise is to let the free market work – but I feel certain that even today, people would emotionally react the same way they did with Nixon's price controls: they'd prefer them to the “gouging” of the efficient free market.
I had an interesting experience in the early '90s on a different kind of free market perversion. This was in Estonia, not long after the first McDonald's restaurant opened up in Tallinn. One of my local friends took me there, and for the most part it looked exactly like a McDonald's in the U.S., except that the menu board was in Estonian and Russian, and there were a few locally popular dishes and beverages. One thing, though, was very different – as I discovered when I ordered my quarter pounder with cheese: at the Estonian McDonald's, you paid for the ketchup. The clerk asked me how many packets I wanted, and added it to my bill.
My first reaction was along the lines of: these people are learning the capitalist ropes way too fast! I was definitely taken aback – after having spent a lifetime getting my condiments for free in every fast food joint I'd ever visited, it just felt wrong to have to pay for them. I wasn't angry, though; I was just amused by it. But later, talking with my Estonian colleagues, I discovered there was actually a very good reason for this charge: if the fast food restaurants didn't charge for their ketchup, people would come in with shopping bags and fill them up with all they could carry. Those people would be acting completely rationally – if someone is giving something of value away for free, why on earth wouldn't you go take as much of it as you could. The only reason Americans don't behave that way, I suspect, is that we don't think of a ketchup packet as having a value much above zero. So change the scenario slightly – imagine a gas station was giving gas away for free. Would you fill up your car? I sure would :) By charging a price for the ketchup, the fast food restaurants prevented this run on ketchup; even the Estonian equivalent of a few pennies each was enough to do that.
That reminds me of Bill Gates' proposal to cure the world of email spam: just make emails cost a few cents to send. That would completely disrupt the economics of spam, which depends utterly on it being free to send emails (like the free ketchup!). The spammers can send unlimited numbers of emails for no cost at all. If it cost them (say) one cent to send an email, then sending one million spam emails would cost $10,000 – whereas today it is free. The number of spammers, especially of the most obnoxious kinds, would drop to zero. But very few people like the idea of an email costing anything at all. That's not rational, but there it is...
Most of my American readers will be too young to remember Nixon's wage and price controls in the early '70s, and how they affected one's ability to buy gas, but I remember them vividly. First, there was a form of rationing in that you could only buy gas on either odd- or even-numbered days (depending on your license plate number). Second, even on the days when you could buy gas, you had to wait in lines for hours at a time. I once waited 7 hours at a gas station in Long Beach, California, only to be told (when I was just six cars from the pump) that the gas station had run out.
Here's the part that I'm always surprised when people don't get it: those long lines, and the need for rationing, were caused by Nixon's price controls – not in some abstract or obscure way, but very directly (more on that in a minute). Those price controls were a reaction to perceived price gouging. I say “perceived” because actually those increased prices were exactly the right thing to have happen – a free market at its finest. But it really made people angry. Not me ... I got angry at the inevitable results of the price controls.
What people perceive as price gouging is really just prices being raised in response to the old and well-understood principle of free markets: that prices go up when demand exceeds supply (as it did when lower Arabian oil imports meant less crude oil to make gasoline from). In fact, those prices should rise to the point where the demand has been reduced to match the supply. But real people, irrational beings that they are, perceive this as price gouging – and survey after survey at the time showed that people in general (but not me!) preferred the horrible effects of price controls to allowing “gouging”. The price controls meant that whether you got gas on any particular day was sort of a lottery – you might win, and score a tank of gas at a nice, low, price-controlled price. Or, like me on that day when I waited 7 hours and got nothing – you may well just lose. The net effect is that all the gas was distributed, but lots of people didn't get it, and lots of people were really frustrated. If Nixon had left well enough alone, the market would have settled out in short order to some higher price, and anyone who wanted gas bad enough to pay the high price would be able to get it – with no long lines, no gas stations running out, etc. The only rational conclusion to such an exercise is to let the free market work – but I feel certain that even today, people would emotionally react the same way they did with Nixon's price controls: they'd prefer them to the “gouging” of the efficient free market.
I had an interesting experience in the early '90s on a different kind of free market perversion. This was in Estonia, not long after the first McDonald's restaurant opened up in Tallinn. One of my local friends took me there, and for the most part it looked exactly like a McDonald's in the U.S., except that the menu board was in Estonian and Russian, and there were a few locally popular dishes and beverages. One thing, though, was very different – as I discovered when I ordered my quarter pounder with cheese: at the Estonian McDonald's, you paid for the ketchup. The clerk asked me how many packets I wanted, and added it to my bill.
My first reaction was along the lines of: these people are learning the capitalist ropes way too fast! I was definitely taken aback – after having spent a lifetime getting my condiments for free in every fast food joint I'd ever visited, it just felt wrong to have to pay for them. I wasn't angry, though; I was just amused by it. But later, talking with my Estonian colleagues, I discovered there was actually a very good reason for this charge: if the fast food restaurants didn't charge for their ketchup, people would come in with shopping bags and fill them up with all they could carry. Those people would be acting completely rationally – if someone is giving something of value away for free, why on earth wouldn't you go take as much of it as you could. The only reason Americans don't behave that way, I suspect, is that we don't think of a ketchup packet as having a value much above zero. So change the scenario slightly – imagine a gas station was giving gas away for free. Would you fill up your car? I sure would :) By charging a price for the ketchup, the fast food restaurants prevented this run on ketchup; even the Estonian equivalent of a few pennies each was enough to do that.
That reminds me of Bill Gates' proposal to cure the world of email spam: just make emails cost a few cents to send. That would completely disrupt the economics of spam, which depends utterly on it being free to send emails (like the free ketchup!). The spammers can send unlimited numbers of emails for no cost at all. If it cost them (say) one cent to send an email, then sending one million spam emails would cost $10,000 – whereas today it is free. The number of spammers, especially of the most obnoxious kinds, would drop to zero. But very few people like the idea of an email costing anything at all. That's not rational, but there it is...
Geek: new data compression method?
Geek: new data compression method? Here's a brief article about it. It's full of terminology new to me (e.g., “time stretch dispersive Fourier transform”), but I can't tell from the limited information available in the article if it's a genuinely new idea or just a repackaging of familiar redundancy-squashing techniques...
Pater: Koas and the Douglas Monument...
Koas and the Douglas Monument...
In the mid-90s, Debbie and I traveled with my parents and a good friend (Jim B.) to Hawai'i. It was a chance for Debbie and me to share something brand new with my parents, who had never been to Hawai'i before – and we were doing it on the cheap, cabin-camping in state parks and in Volcanoes National Park.
We had rented a 4WD vehicle, and on one fair-weather day we made one of our favorite trips with them, a rough dirt track that stretched counter-clockwise around Mauna Kea, starting near the Onizuka Center for International Astronomy all the way around to the town of Waimea. The road traverses several thousand feet of altitude, and wildly different flora, including high-altitude desert, koa forest, rain forest, sugar plantations, and cattle pastures.
The koa (Acacia koa) forests of Hawai'i are some of the most beautiful forests I've ever seen, and I was certain my dad would enjoy them, and he did. We stopped at several points for some of us to get out and walk amongst them, and also to see individual specimens that had struggled mightily in high winds and yet still survived. Some of these, especially isolated trees in a large meadow, have developed grotesque shapes from multiple breaks and knock-downs from wind storms over the years. The photo at right is not mine, but it's representative of the koas we saw on that trip. My dad loved them.
As our path wound around to the north side of Mauna Kea, it passed a little isolated monument, to David Douglas, the famous Scottish botanist (located at the green arrow on the map at left). One of America's iconic trees – the Douglas Fir – is named after him. He is most well known for his three botanical trips to North America in the 1820s, where he “discovered” many previously unknown species and contributed immensely to the body of knowledge about North American flora. Douglas' work was especially notable amongst conifers – my dad's keenest interest – so my dad knew his work and history very well. Or at least, my dad thought he knew Douglas' work well. He had no idea why there would be a monument to him on the side of Mauna Kea!
It turns out that David Douglas visited Hawai'i in 1834, at the age of 35 – and died there, in a pig trap, under mysterious circumstances. The monument is shown in the photo at right (not mine); it's about a quarter mile steeply downhill from the 4WD road, next to a small stand of Douglas Firs planted in his honor. The stone monument is on the exact spot where he died.
My dad was visibly moved by this experience – one of the most famous and accomplished of botanists meeting his end in such an inglorious and undignified manner, at such a young age, and in such a locale. As we stood by the monument, he was thinking up inventive ways to punish the pigs, the pig hunters, and anyone else peripherally involved. That fact that this had occurred 160 years previously didn't affect his desire to wreak revenge at all :)
On all of the subsequent trips I made with my dad, at some point on the trip he'd raise the subject of Douglas' demise. Generally he just wanted to vent again about the injustice of it, but sometimes he also raised it as kind of generalized example of how he didn't want to meet his end. Being impaled on sharp sticks at the bottom of a pig trap wasn't his idea of a good exit. Joking riffs on this thought became a standard piece of the conversations on our trips, generally while we were walking on steep ground in a forest, similar to the area where Douglas was killed.
My dad also remembered the koa forests, and talked about them on our later trips – especially those koa stands that you pass through as you drive up the Mauna Loa road from Namakani Paio to the lookout shelter. This is a winding 14 mile long road that takes you from 3,000' to 10,000' in altitude, passing through a half-dozen or so distinct koa forests on the way up. These koas vary in form, foliage, bark color, and size; each of them quite beautiful in their own unique way. In a couple of the stands near the road there are some fairly old specimens with trunks more than 4' in diameter. These are quite rare now, as most of them were cut for lumber prior to conservation efforts which didn't start in earnest until the 1950s. My dad loved those big old trees; we clambered all over the place to get near enough to see them well. He was particularly fascinated by the dramatic difference between the foliage of juvenile koas and adult koas, readily on display in those forests – it was common for an individual plant to have some of each kind of foliage.
I miss you, dad...
