Capitalism remains controversial

I find it astonishing the extent to which people continue to resist the basic way that the price system allocates goods — even in America! The idea that prices should move up or down, in order to balance supply and demand, is something that remains unintuitive, and morally repellent, to most people. There is a lovely example of this in the recent fuss over Uber’s surge pricing scheme. Anyone interested in the “sociology of market behaviour” should find this and this fascinating reading. Basically, Uber’s prices go up or down in real time, depending on how many people want rides and how many drivers are on the road. It’s a nice example of a firm using technology to create something like the perfect market of Economics 101 fame. And one would think that consumers would prefer high prices to shortages (i.e. queueing, long wait times, etc.) yet people hate it.

I guess what I find surprising is that, after over 200 years of economists trying to explain why it should be so, and people more-or-less accepting that explanation, there remains this incredibly recalcitrant moral intuition. Don’t get me wrong — the market isn’t going anywhere, and I think Uber’s price system makes perfect sense. I guess the puzzling (philosophical) question is how the market could be the dominant economic institution in our lives, and yet our moral intuitions could fail to adjust (over generations!) to its central organizing principle.



Capitalism remains controversial — 5 Comments

  1. … because our moral psychology evolved in steady-state economies in which “share equally” and “share proportionately to status” were pretty much the only distributive rules, and “encourage future production and innovation” was not especially relevant?

  2. The reason is that most market prices tend to be quite sticky (or resistant to change).

    In his 1998 book “Asking About Prices”, Alan Blinder published the results of his survey of 200 firms (chosen on how well they represented US GDP). According to “Table 4.1: Number of Price Changes in a Typical Year (n=186 responses)”,

    less than 1 10.2% 10.2%
    1 39.2% 49.2%
    1.01 to 2 15.6% 65.0%
    2.01 to 4 12.9% 77.9%
    4.01 to 12 7.5% 85.4%
    12.01 to 52 4.3% 89.7%
    52.01 to 365 8.6% 98.6%
    more than 365 1.6% 100.0%


    Be sure to also look at Tables 4.3-4.5 (which show how much lag in months there is after a change in demand or cost), 4.7 (which shows the time interval periodic price reviews), and 4.8 (“When You Do Raise or Lower Prices, Do You Normally Do It All at Once or in a Series of Smaller Change?).

    Presumably, many Americans do not see opposition to surge pricing as inconsistent with support for capitalism because most markets do not resemble auctions (or, alternatively, most markets are very slowly moving auctions).

    A link to the publisher’s website for Blinder’s book:

  3. Ugh. Table 4.1 did not format well. I hope this is more legible.

    less than 1 | 10.2% | 10.2%
    1 | 39.2% | 49.2%
    1.01 to 2 | 15.6% | 65.0%
    2.01 to 4 | 12.9% | 77.9%
    4.01 to 12 | 7.5% | 85.4%
    12.01 to 52 | 4.3% | 89.7%
    52.01 to 365 | 8.6% | 98.6%
    more than 365 | 1.6% | 100.0%

    Since the prices of most real goods tend to change infrequently (at least in a low inflation economy), our moral intuitions or psychology do not usually have to directly face the logic of supply and demand through minute-by-minute or daily price changes (unless you directly participate in financial markets). Hence the spectacle of people who have been socialized in (and usually benefited from living in) market/capitalist economies for generations, but have not internalized surge pricing as an acceptable way to distribute goods.

    Also, we should distinguish between an individual’s preference for a high price versus a long wait, and her tolerance of the variability of any quantifiable obstacle to acquiring a good (whether by price or by waiting). A person could conceivably prefer a high price over a long wait in the abstract, but also prefer a predictably timed long wait over a highly variable price. A person with such preferences wouldn’t necessarily be irrational or inconsistent.

  4. I think that the current perceptions around the morality of pricing rests in the past few generations having lived in proximity, albeit an ever diminishing point in the rear view mirror, to one of the most prosperous eras in modern history (the postwar baby boom). This has largely formed our views of economic fairness. Currently, a child of a baby boomer is typically not going to easily acquire the ‘entitlements’ of middle class life they identified with their parent’s generation, like home ownership, without incurring a much higher level of debt, whilst wages are not typically experiencing growth at par or above inflation.

    Much is made about this generation perhaps being the first to do worse than the previous generation. When I hear this, I’m assuming that the ‘Greatest Generation’ is the starting point. I would argue that some of the current misfortune of Gen X/Y is as a result of listening to outmoded advice of their Boomer parents. By this I mean the preoccupation with home ownership, seen almost as a right. I think this is evidenced in Canada by the abysmal levels of RRSP and TFSA savings of generations Boomer, X & Y.