In an earlier essay, I discussed the decline of loyalty in the West. In this one, I discuss its price and the political implications of its rising price.
In a world of declining loyalty, individuals are more and more "on their own." This problem manifests itself in times of crisis, especially that familiar crisis, old age. Yet our perceptions of the world around us are still heavily based on a social order that has slowly ebbed away, right under our noses. We plan for the future in terms of assumptions that are no longer accurate.
In this essay and the previous one, I am doing my best to warn you about the new reality, encouraging you to make plans in terms of it. If you fail to see what has happened, you may find yourself vulnerable at some point, but without the social safety nets that existed for your parents. You are (or were) your parents' final safety net. Who will be yours? And how much safety will they be able to provide?
One of the foundational rules of economic reasoning is this one: You can't get something for nothing. This is encapsulated by the libertarian acronym, TANSTAAFL: "There ain't no such thing as a free lunch." The science of economics is mainly the application of this law to every area of life.
I am planning to write a high school course on economics for a home school curriculum that I want to produce over the next three years. In this course, there will be two phrases that govern every chapter. Master them, I will tell the students, and you can master the basics of economics. One is familiar: "supply and demand." The other one is less familiar. It is the governing principle of exchange: "high bid wins." I will tell the students that they can get through the course if, every time they are introduced to a new topic, they mentally picture a pair of parrots, one on each shoulder. Each is squawking into one ear. One says "supply and demand." The other says "high bid wins."
"High bid wins" is a liberating principle. Men who are productive can accumulate wealth. They can create a world that did not exist before. In the older era, the social world would have been closed to them before capitalism appeared. This transition was described over a century ago by Sir Henry Maine: from status to contract. Economically speaking, this transition involves the substitution of the imputation of economic value by consumers for the imputation of social value by a self-screened elite. It is the difference between a landed aristocracy and a capitalist democracy.
Nevertheless, there are hidden costs of this liberation, and not everyone perceives them during the transition. Especially unperceiving are the beneficiaries. When contract is your main weapon against status barriers, you are not inclined to see what collateral damage your weapon is producing.
A corollary of the axiom of TANSTAAFL is this: "When the price of anything increases, less of it will be demanded, other things remaining equal." I argue here that the price of loyalty keeps rising. So, less of it is demanded. This is placing all of us at greater risk. Yet this is not perceived by the vast majority of citizens.
REAL DECISIONS, REAL COSTS
There are times when we make an exchange, thinking of it as condition A vs. condition B. But we fail to think through the details of each condition. We exchange some things for others that we are not consciously aware of. This can backfire when the true costs of our decisions become apparent. This may take years. It may take until a person is on his deathbed. When we marry, we must give up some things that we did not suspect that we would have to give up. If we don't let loose, there will be expensive consequences that we did not factor into the equation, which of course isn't an equation at all. For example, a new husband will have problems at home if he continues to go out with the boys as often as he did before he married.
There is something else. As individuals, we make specific decisions. These are micro decisions. We buy this rather than that. But when we do this, we sometimes cannot reverse course at any price that we are willing to pay. Surely, in marriage we cannot go back on a cost-free basis. But when a hundred million people make the same kind of decision, society will not go back. Again and again, we do not think through the implications and real costs of these individual transactions. They are too complex for most people to comprehend, so we ignore them. This does not eliminate them.
Sociologists speak of price competition as destructive of traditional social relationships. The sociologists are correct. Economists tend to ignore this process of erosion because they see all of life as a series of self-interested individual decisions made by rational people. But part of economic rationality involves ignoring implications of decisions that are too complex to understand or that are incapable of being solved at a price that individuals are willing to pay.
Think of the lowly light switch. It changed everything. The day that a woman could flick a switch and light a room, the relationship between the sexes changed. No man had to chop wood to light the room. Electricity, not the feminist movement, gave equality to women. Think "horsepower." An electric motor offers horsepower to both sexes. So does the internal combustion engine. Yet no consumer thought through the enormous social implications of electricity. One by one, they hooked up to the local power plant. They made self-interested individual decisions that had complex social implications. One of them was to make women vastly less dependent on men. Horsepower has replaced manpower. Women benefited.
The front porch was a place of American community in 1940. It ceased to be this by 1955. The main reason was television. A secondary reason was the low-cost tract house, which had no porch. Nobody warned consumers. The couch potato was not yet born. He is alive and well today.
When was the last time you wrote a four-page letter? I can tell you: no later than the week after you started using e-mail. Yet long letters were basic to the social bond of the upper classes for at least three hundred years. Historians rely on copies to reconstruct the past. Nobody issued a decree: "You will write no more long letters." But we stopped. The price of getting email was the demise of the long letter. Yet nobody warned us of this in 1995. Nobody paid any attention.
There is no doubt that when a Wal-Mart opens, some local businesses will fail. They cannot compete on the basis of price. There are social implications. Let me give an example that we all know is true. The concept of "place" changes dramatically. There is one main street in my town. As you drive down this main street, it looks like any other main drag in any American city larger than 10,000 people. There are the same businesses: WalMart, Office Depot, Office Max, McDonald's, Burger King, Lowe's, Home Depot, and so forth. Each main street has its unique sequence of national chains, but the same chains are represented. Basically, you cannot detect a region today by its main street. In business affairs, regional walk-in space is disappearing.
There is not much regional loyalty, either. Accents are fading as populations move. Television has established the Ohio accent as universal. There may be regional loyalty to a taxfunded state university's football and basketball teams, at least if they have winning seasons occasionally. But this regional loyalty is hardly what prevailed in, say, 1863.
PRICE COMPETITION AND BRAND LOYALTY
A friend of mine, Van Simmons, sells rare coins (David Hall Coins). Decades ago, he ran a service station. He made his living by selling gasoline and auto repairs. In those days, the oil-retailing firms would sometimes launch a gasoline price war. They would push down prices, which cut into the retailers' profit margins. Van decided to stay out of these battles. The former owner of the station warned him: His customers would leave. Van was convinced that if he offered good service, his customers would stay. As soon as the next gas war began, he followed his original plan. He stayed out of it.
His customers disappeared. They drove down the street to save a penny a gallon. He knew from that day forth that there is no loyalty among gasoline buyers. They are price-motivated.
There is a great scene in "Back to the Future" (1985) where the movie's main character arrives in small-town USA in 1955. He sees a Texaco station. Someone drives in. (Was he driving a DeSoto? I forget.) Just as in the mid-50s Texaco ads, guys in uniforms come out to service the car. All of us who grew up in the 1950s had a moment of recognition. That world is gone. Of course, it never really existed. We remember the ad. But at least one guy did come out. He was immortalized for my generation by a Chuck Berry lyric.
Workin' in the filling station. Too many tasks. Wipe the windows, check the tires, check the oil – A dollar gas! Too much monkey business. Too much monkey business. Too much monkey business for me to be involved in. In those days, a dollar bought three gallons of gas. Yet we understood Chuck's lament.
There are few gas stations today that make their money by selling repair services. They have convenience stores attached. Their profits come from high-profit margin impulse items: candy, packaged fast food, and a few trip-related or auto maintenance products, such as oil. You buy the can of oil, unscrew the lid, and pour it into your car's engine. You get dirty. That is the price of buying oil at a convenience store. The only service is at the check-out counter.
Now that we can pay by credit card at the pump, I don't go into the store to pay any more. I wonder how the stations make their money. It isn't from repairing cars. It isn't from service. No one is loyal to a service that no longer exists.
Then there is Oregon. The gasoline dealers in Oregon have persuaded legislators to make it illegal for a customer to pump his own gas. The gas guy comes out and does it for you. As a result, gasoline costs more in Oregon. Oregon is the last bastion of the 1950s-era service station that doesn't make its profit by a customer who comes into the convenience store to pay, sees some impulse-purchase item, and buys it. But it takes the threat of civil government coercion to preserve this world. I would rather pump my own gas and save five cents a gallon.
I have zero brand loyalty in gasoline. I never did. Price competition has always governed my decision-making in the automotive world. I take my car to a local repair shop. I do trust this shop. I get good service. I get reasonably priced service. I just don't get fast service. I have factored this into the purchase. As consumers, we don't care about service stations. We don't sign up for gasoline-company-specific credit cards, which were the earliest credit cards that I can remember. They were invented to reinforce brand loyalty. But Visa and MasterCard undermined that marketing ploy, beginning in the late 1960s.
When was the last time you saw a TV ad for a brand of gasoline based on a specific benefit for buying its gasoline? Thirty years ago, there was the ad series for Shell. Each ad featured cars that ran out of gasoline on a few ounces of gasoline. The Shell-powered car always drove farther.
I did see a Citgo ad recently, but Citgo is owned by the government of Venezuela. It was a government-funded feel-good ad. It was a "we care about the environment" ad. I sometimes buy at Citgo. It's cheaper, and it's on the street where I drive home. It delivers price and convenience. I am loyal to these, not to Citgo.
BP (British Petroleum) has a weird series of ads with cartoon characters. It barely mentions gasoline, and only in the last few seconds. It sings: "Say, hey. Make the world a little better." How? At the end, it substitutes "Beyond Petroleum" for British Petroleum. (It was the Anglo-Iranian Oil Company – AIOC – until 1954.)
Brand loyalty today to BP? None. Say, hey.
I am loyal to price and convenience. I always have been. I have only rarely been a brand-loyal buyer. I am trying to think of anything that I buy based on brand loyalty. I can think of only one product. I buy used Chrysler/Dodge minivans. I like minivans because of their non-bucket seats. I buy used ones, preferably under $5,000, and always under $10,000. Chrysler and Dodge minivans sell for less than the Japanese brands. I buy them from individuals, not from Chrysler dealers. For all other products, I go on the Web to read reviews. I shop at Wal-Mart or Dollar General to buy standard items.
For me, the buyer's motto prevails: "Low bid wins." That can be viewed as a high bid for my money: the best offer. My decision to buy this way has implications beyond my immediate circumstances. I put pressure on all the excluded sellers. My decision is irrelevant to them, but the same decision by half the local population puts enormous pressure on them.
I am not bewailing capitalism's destruction of local businesses. Most businesses fail. This is not a bad thing. It conserves scarce resources. But it creates problems. Some people cannot compete effectively. This calls for voluntarism. The big problem comes when politicians identify these problems and then propose legislation to deal with them. Voluntarism is de-funded.
Societies in our era have substituted politics for loyalty because they have feared the consequences of the substitution of the cash nexus for older forms of loyalty. But this substitutes the bureaucratic nexus for the cash nexus. The old institutional loyalties were doomed in either case.
Most people used to die in their beds at home. Now they die in a hospital bed. The economic question has always been: "Who pays for the bed?" This question will not go away soon. The answer changed in the second half of the twentieth century. Therefore, institutional loyalty has changed.
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