Economics is the study of how humans make decisions about allocating scarce resources. We all do that every day. So I make my microecon students identify examples of key economic phenomena in their own daily activities. I demonstrate with examples from my own week.
So it is serendipitous that I am rebuilding a raised garden bed just as Michael Lewis’s new book, “The Undoing Project: A Friendship That Changed Our Minds,” is being reviewed widely.
Lewis is best known for writing about Wall Street culture and practices in books starting with “Liar’s Poker” in 1989. “The Big Short,” published in 2010, detailed the growth of the housing and collateralized debt bubble prior to the financial debacle that unfolded from 2007 on. Now, he explains the life and work of economists Amos Tversky and Daniel Kahneman, who showed how the assumptions of human rationality that underpinned economic theory for two centuries are flat wrong.
So what does that have to do with my garden plot? I am an economist and have taught introductory theory based on the usual assumptions of rationality for 37 years. But the time and money I am spending on the garden plot is not rational, at least unless one frames it as “rational subject to the prior condition that this and that are true,” torturing the assumption with so many conditions that it is meaningless.
Here is the situation: We’ve just moved to a condo for retired academics. Each residential unit gets a small garden plot when an existing user gives one up. I was offered a large one, potentially 100 square feet, because no one else wanted it. It is on a slope and the existing posts and sideboards that made it a useable plot had collapsed. It needed a lot of work and material to be serviceable. That was fine with me.
Standing in the checkout line last week with a cart of pressure treated planks, it struck me that amortizing this investment over the years I might be physically able to garden means that we will eat very expensive cucumbers, lettuce and tomatoes. Why not go to a farmer’s markets? Why not get a nice, larger community garden plot a mile away? Yet I unhesitatingly pushed my cart up to the cashier and shoved my card into the chip reader. Am I irrational in sweating at digging post holes in rocky clay and spending hundreds of dollars on lumber and fasteners?
There are several explanations, not all refuting conventional theory. Moreover, more than one such factor may apply.
One is that the act of building itself produces pleasure. Some people play golf, others build cedar strip canoes and some of us like to build practical structures. There are plenty of people who spend more in greens fees over a summer than I am on my garden bed.
Then there is the fact that produce is not a” homogeneous commodity.” Walking a 100 feet from where you live to pick a ripe tomato you raised yourself is more satisfying than a locally grown tomato from a market just as that is more satisfying than one trucked in from 1,500 miles away.
Another possibility is “conspicuous production,” a variation on Thorstein Veblen’s “conspicuous consumption.” Perhaps I want to impress my new neighbors by having the biggest, baddest raised beds in Falcon Heights. I’m the tough guy on the tomato and cucumber block. And the way I go out and spend money on a pickup load of cedar-tone treated lumber shows I have plenty of cash to spend. I am obviously important.
We know this is true in agriculture. A shiny green and yellow combine can fill the same function for a farmer as a new BMW can for a lawyer or banker. Regardless of general cultural tastes, we are all influenced by the people we associate with most. My brother-in-law who sells cars in central South Dakota seldom sells a pickup costing less that $45,000. Many go for $75,000. And these often are bought by people of apparently modest means. But in that area, for town residents as well as farmers, having the newest, shiniest, most fully-equipped pickup grants instant status. I just happen to live in a peasant village where garden plots serve the same function more cheaply.
Perhaps I am just mentally ill. I have some bi-polar tendencies and, as I age, I, myself, see hints of obsessive-compulsive behavior in my actions. Building a raised bed wall that will outlast the Roman Coliseum really may not give me any status among neighbors. Perhaps they are all snickering at me as I try to sink posts deep into rocky ground. The status I am gaining is that of a nut. But if this is what my distorted psyche wants, that is what I will do.
Obsession is not necessarily all bad for society. Oliver Wendell Holmes’s deacon, who built a “wonderful one-hoss shay” produced transportation for his family for a full century. But if the deacon had been able to fire up Quicken in October, 1755, the investment of his time, “steel of the finest,” six different kinds of wood and “bison-skin thick and wide,” probably would not have produced a positive net present value. Ignoring the deacon’s pride, building a shay that would “wear out” instead of “break down” was a waste of resources for society as a whole. Ditto perhaps for my Rolls-Royce of a raised bed. But I’m gonna build it anyway, darn it!
However, economics has always recognized that “utility functions” — the factors that produce satisfaction in a human — are complex and vary from one person to another. I often did not have a great relationship with my mother, but I repeatedly heard her say, “Leave a farm in better shape for the next guy than you got it from the guy before you.” That makes no profit-maximizing sense. But it can be very satisfying if you buy into that ethic. I know the same is true for friends and Boundary Waters campgrounds. It is not true, however, in our collective willingness to build and maintain roads.
For some people and things, mere ownership produces satisfaction. Just having a Faberge egg or Stradivatius violin may give you a warm glow, even if no one else knows of it.
Decades ago I stole a blacksmith’s swage block that I had seen in the mud for years, holding up an implement on a farm campus. One day I put a concrete block under the hitch and wrestled the block to the farm. It now resides at a friend’s shed where he and other neighbors occasionally use it. I pound something into shape on it once or twice a year. Still, it is of more use to society now than when holding up an unused machine. It could serve society even longer than my raised bed or the Brooklyn Bridge. But I really took it because I just had wanted one for years
I committed at least a misdemeanor by swiping it. I valued the satisfaction of owning that swage block over the dissatisfaction of violating my own ethic against stealing. I might have been able to buy the block, but I knew that dealing with the bureaucracy of that institution would be time-consuming and perhaps fruitless. So I also valued my time over my ethical value. I would not have taken it if it had not been in the mud for years. My thirst to own it did not completely overcome honesty. (To see what they are and what they cost, type “swage block: and “Centaur Forge” into a search engine.)
For it, or the 150 lb. discarded vise I pulled out of a dumpster at another college, I would not have actually paid more than $100 if I had to buy them. But now I would not sell either for less than $250. Kahneman examined this asymmetry, also common to people who win sporty little cars on Wheel of Fortune. This anomaly is surprisingly important in refuting strict rationality of decisions.
This is a wandering tale. The upshot is that, within social and legal limits, people do what they want to do and spend what they want to spend. Sometimes this is rational, going to a big box drug store for cough medicine but also pulling a gallon of milk out of the cooler because the sale price was $1.50 below what we usually pay. And many times it is irrational, spending several dollars a square foot to construct a raised bed to last a half-century when I may only use it for 10 years myself. Economists will spend decades sorting out economic theory that accommodates a more complex and realistic understanding of such human behavior. In the meantime, I need to bolt some planks to my posts.