February 5, 2011
NO, VIRGINIA, THERE ISN'T A HOMO ECONOMICUS:
: a review of THE PRICE OF EVERYTHING: Solving the Mystery of Why We Pay What We Do By Eduardo Porter (MEGAN BUSKEY, 2/04/11, NY Times Book Review)
“By evaluating opportunity costs, we organize our lives,” Porter writes. A poor country could have used revenue from a landfill to satisfy an important public need, like school construction, and the investment may very well have turned out to be worth the risk. The Summers kerfuffle is one example among the scores that Porter weaves together to prove his worthy point: “Prices — how they are set, how people react to them — can tell us who people really are.”Back in the 18th century, Adam Smith propounded a very different idea: products had an unshakable value equal to the cost of the labor put into them. Much of Porter’s book can be seen as a vehicle for the author to explain to Smith just how wrong he was. Porter marshals an impressive array of research to show all the ways consumers can be shortsighted, self-indulgent, oblivious and inconsistent — not to mention hugely vulnerable to profit-eyed marketers. The information age has further scrambled the relationship between labor and value. How would Smith explain the existence of an iPhone app called “I Am Rich,” which did nothing but flash a red gem on the screen and retailed for $999? Or the computer users who routinely buy new cartridges rather than refills for their printers, effectively laying out $4,731 per gallon of ink?
It’s hardly news that people spend money on stupid things. Thankfully, Porter is interested in more than factoids. Most of his attention is devoted to teasing out the rationale underlying the “cold accounting” that determines the value of things people think are priceless, like human life and national security. What he relates has unmistakable urgency. How much should we spend today to address environmental problems that may be more cheaply tackled by future generations, especially given the number of development projects that clamor for financing now? Should we even attempt to protect against risks that would be more costly to prevent than the damage they would cause?
If you ever want to amuse yourself, go read the price per pound tags on the shelf at the supermarket.
MORE:
-AUDIO: Eduardo Porter: "The Price of Everything" (Diane Rehm, January 6, 2011)