"Whenever I go into a restaurant, I order both a chicken and an egg to see which comes first"

Tuesday, November 12, 2013

Does Paying For Extra Legroom Contribute To Income Inequality?

Frank Bruni (New York Times 11.12.13) has added his wail to the lamentations of fellow writers about income inequality in the United States. We are a fractured society, he writes, broken apart more and more by the benefits that money can buy.

But lately, the places and ways in which Americans are economically segregated and stratified have multiplied, with microclimates of exclusivity popping up everywhere. The plane  mirrors the sports arena, the theater, the gym. Is it any wonder that class tensions simmer? In a country of rising income inequality and an economy that’s moved from manufacturing to services, one thing we definitely make in abundance is distinctions.

I would have understood and sympathized with Bruni more if he had talked about real monied privilege – the ‘cottages’ of Newport, the wealthy enclaves of Bel Air, private planes, an open table at Jean Georges, skiing at Gstaad, a home on the Vineyard, a wine cellar stocked with Chateau Margaux and Charmes-Chambertin, and a his-and-hers Testarossa and Carrera set in the driveway – but not extra legroom, good seats at the theatre, Uber taxis, and Black Angus Prime.  Everyone pays a little extra for service, quality, and comfort.  Such choice has nothing to do with rank and privilege and all to do with rational market decisions.

On a long road trip south, I stopped for a Coke at a Piggly Wiggly in rural Alabama.  A husband and wife were discussing bacon and corn meal. Instead of the cheap, fatty, stringy bacon that was nothing more than striated fatback, the husband picked up a package of Oscar Meyer thick-cut. The thought of crisp, meaty, salty rashers of top quality bacon made his mouth water. He would make bacon and eggs the next morning, taking his time to enjoy the smoky, roasted flavor he rarely tasted.  

This, if I read Bruni right, is what contributes to income inequality in the United States.  Paying for better quality means setting yourself apart from the herd, putting distance between you and the next social layer down, putting on the airs of privilege, sniffing at those less fortunate, and pushing aside the have-nots on your way to a greed-driven future.

This, of course, is patent nonsense.  We all make purchasing decisions based on ability and willingness to pay; economic, financial, and opportunity costs; and budget.  Except for the rock-bottom poor, a choice of goods and services is always available. Even if a family is barely surviving on food stamps, they can still choose to buy Twinkies rather than the cheap Piggly Wiggly sawdust cupcakes. Consumer choice is what makes the economy hum. Every overloaded shopping cart bumping down the parking lot at Walmart and Target means jobs, income, and wealth.  More importantly, choice is what American marketing is all about.  There is good reason why there are a zillion types of toothpaste.  Each move up (“Get teeth whiter and keep them cavity free”) is a penny or two more.  Producers are happy because of increased revenue and market share; and the consumer is happy because he has bought something new, distinctive, and rewarding.

In economics, there is no difference between moving up from Piggly Wiggly bacon to Oscar Meyer and a Lexus to a Porsche. Both purchases reflect a search for immediate reward, a calculation of costs and benefits, and a review of budget, credit, and cash.

Assessing value is a key feature of a market economy; and although people differ significantly on how they assign value, everyone – from the poorest black family in the Mississippi Delta to the One Percent – have learned how to make rational economic decisions.  While many of our decisions may seem irrational – we don’t really need that Oscar Meyer thick cut – they are not.  An impulse buy is rational because it corresponds to an immediate felt need.  We may pay for the impulse further down the road, but at the time it made sense.

Given the structure of the American marketplace – one driven by consumer purchase, and one highly diversified by cost and quality – it is only logical that businesses in a higher-end market (airline travel, theatre, sports stadiums, museums) apply these same principles.  Instead of three tiers of differently-priced toothpaste, there are now three tiers in Economy Class – extra legroom, early boarding, and bilge.  Even though it may strain your budget, paying a few extra bucks to avoid five hours in the back of the plane next to a kid with ADHD is definitely worth it.  If you go to a baseball game once every ten years, and your yearly bonus was higher than usual, then paying $100 for a ticket is not expensive at all.  Many people of modest means will pay top prices for front row center seats for a Globe Theatre Hamlet.  The opportunity comes once in a decade and the experience is well worth the price.

In other words, my row mates at the Folger in the $150 seats may not be the showy, status-conscious up-and-comers that Bruni suggests, but seniors living on a retirement income for whom an evening of Shakespeare is invaluable.  The big guy with the aisle seat is probably not a plutocrat throwing his money around, but a sixty-year old trying to put off the hip replacement for another few years.  Paying more for the extra comfort of a better seat costs far less than invasive surgery and recovery.

Bruni is not the first critic to howl at what Michael Sandel (What Money Can’t Buy: The Moral Limits of Markets”) has called the ‘Skyboxification’ of America; and Thomas Friedman took up the cudgel over a year ago (New York Times 5.13.12).  Luxury seating is taking up more and more space in stadiums, theatres, and symphony halls, Sandel and Friedman note.  Because of this dislocation, even the nosebleed seats are pricey.  Everything is for sale, and as Bruni notes he may have to pay for priority seating in the lavatories of United.

Nevertheless, it is hard to fault  very wealthy consumers for exerting their considerable influence on willing producers. Once again, the Piggly Wiggly bacon example is relevant.  Why is Muffy Vanderbilt in her luxury box at the Met any different from Billy Bob Hawkins in red dirt Alabama? Both have assessed the costs and the benefits of the product, made a valuation of it, and opened their wallets.  It makes little difference in economic terms whether or not Muffy doesn’t have to look at her bank account before plunking down her money.  She has made an intelligent market decision based on her understanding of her wealth and what it affords.

There are many observations to make about income inequality, particularly the factors which encourage the concentration of wealth at the top of the American economic pyramid.  There are as many suggestions for decreasing the income gap, from a redistributive tax policy to encouraging private sector economic growth and job creation through lower taxes. Criticizing the natural, understandable, and common tendency of all Americans to buy up, however, is misguided; and suggesting that we all stick to generic peanut butter and Toyotas is nonsense.

(For more on this subject, see my blog post Market Realities – The Nineteenth Century is Over http://www.uncleguidosfacts.com/2012/05/market-realities.html)

No comments:

Post a Comment