Respect Capitalism

Most of us have experienced buying clothes but never being able to find the size we want. Particularly during clearance times, it seems that there are always excess articles in XL and XXL sizes but rarely any left in M and L. Economic reasoning tell me that this should not be so – it represents a relative misallocation of resources that could be more optimally arranged.

At its most basic level this phenomenon can be described as a relative shortage or surplus. There is a relative surplus of XL’s and a relative shortage of L, M, and S (sometimes there is a surplus of smalls though also; typically its L and M that sell out). Economists know that shortages and surpluses should generally not occur if there are no price controls in the market.

Given this situation, the producer should have an economic incentive to reduce production of XL articles of clothing and increase production of mediums and larges, since doing so will cause more transactions to occur at a higher profit level for the producer.

Because how widespread this phenomenon is, my intuition tells me that there is something else going on here. Anyone have any insights?

I’ve noticed this holiday season that Wal-Mart is taking a different approach towards attracting customers: respecting their time. Around black friday back in November, Wal-Mart was promising more open cash registers for shorter lines and quicker checkouts. Near Christmas I heard commercials advertising “gift card only” check-out lines, enticing people to purchase gift cards without all the hassle typically associated with checking out at Wal-Mart during busy times.

Shopping involves more cost than just the cash you pay at the register: it involves gasoline costs for driving to the store, wear and tear on your car (extremely small cost), but most importantly time. Time spent driving to the store as well as time spent shopping and subsequently checking out has real value, despite that fact that a disturbingly large number of people fail to explicitly recognize this fact and organize their lives with it in mind. Impatient people (like myself, frankly) get a visceral reaction to seeing a long waiting line in any situation, but there is a very real and somewhat measurable economic cost to waiting in line, since it consumes several minutes or perhaps hours of your time.

So aside from its excellent drive to cut sticker-price costs for consumers while shopping, I am pleased to see that Wal-Mart is now trying to cut time costs for consumers, representing once again that Wal-Mart really “gets it”. I sincerely hope that other companies follow Wal-Marts lead and begin to allocate resources within their company in a way that respects the value of time of their customers.

As some of you know, I am a huge fan of the venerable economist Thomas Sowell and his writings. Thomas Sowell has a gift for eloquently preaching economic fact and collapsing faulty arguments like a house of cards.

I was pleased to discover this weekend that Dr. Sowell has a new book out called “Economic Facts and Fallacies” which continues in his long writing tradition of presenting economic and social arguments which challenge widely-held beliefs to average citizens. While I find the greatests of his intellectual works “The Vision of the Annointed”, the most knowledge-packed book for everyday people regarding economic issues is by far “Basic Economics”, which recently was updated to a new edition.

Economic Facts and Fallacies contains six chapters, each dedicated towards meticulously exploring social and economic issues in an economic, super-rational manner:

Urban Facts & Fallacies – Here Sowell explores overpopulation theories of urbanization and most importantly “affordable housing” issues and price controls in the housing market.
Male-Female Facts & Fallacies – Drawing upon his vast experience researching racial and group differences, this chapter presents a critique on “unequal pay for equal work”. Sowell’s arguments are particuarly strong in here as he exposes most conclusion-jumping shallowly-analyzed statistics on this as hogwash. A more reasoned approach to the statistics indeed shows that differences in pay between men and women are quite low and even when they are are almost always described by different personal choices and home responsibilities between the sexes.
Academic Facts & Fallacies – This was probably my favorite chapters, since I feel that the subject is so rarely touched upon elsewhere. Here Sowell discusses several issues on the inefficiencies of colleges and universities. He has quite a bit to say about college professors as well – an interesting read for students!
Income Facts & Fallacies – This is the best chapter at taking widely-publicized statistics and turning the conventional dire conclusions on their head. Sowell shows that conventional analysis of income statistics contains some glaring fallacies. As close to an empirical analysis as it gets, since in here is presenting fallacies in statistic analysis rather than “fallacies” directly related to opinion-soaked issues.
Racial Facts & Fallacies – This chapter is similar in style of reasoninig to “Male-Female Facts & Fallacies” as Sowell attacks widely held beliefs. This subject is persued much more in-depth by writers such as John McWhorter, who approaches racial issues similarly to Sowell. Sowell also has several books on race and affirmative action. Unfortunately, Sowell only lightly touches on affirmative action, despite having written devastating arguments against it in other writings.
Third World Facts & Fallacies – Probably the least interesting chapter to me but still essential for debunking common myths about developmental economics and the role of “rich” and “poor” countries. Correctly focuses on corruption and “economic infrastructure” barriers as explanations to the underdevelopment of nations and exposes crackpot causes like “overpopulation”.
Although I would still recommend “Basic Economics” to anyone looking to get an overall better understanding of Economics, “Economic Facts and Fallacies” goes further in touching on social issues and common misconceptions in a devastating blow to unreasoned thinking. Pick it up today!