Things I Wish They'd Taught Me When I Was Younger: Why Money Is Awesome

There are some things money can't buy. They are the exceptions that prove the rule.

For the pedants, to say something is an exception that proves the rule is to say that when you look at the exceptions, they're so unusual that it reinforces the point that the rule is generally valid even though it isn't universally valid. In the case of money, there's a reason people don't say things like "there are some things hand-knit scarves can't be bartered for" or "Hand-knit scarves can't be bartered for happiness."

Eliezer once described the sequences as the letter he wishes he could have written to his former self. When I think of the letter I wish I could write to my former self, the value of money is at the top of the list of things I'd include. 

You can give a cynical, Hansonian explanation of why we don't tell young people enough about the awesomeness of money, and I suppose there'd be some truth to it. But I'm not sure that was my main problem. Growing up, my dad spent a lot of time urging me to go into a high-paying career, to the point giving me advice on what medical specialty to go into. He just didn't do a great job of selling me on it. It wasn't until I learned some economics that I really came to understand why money is so awesome.

(Disclaimer: I don't actually know that much economics, and in fact have never taken an economics course. I just know more than my former self.)

The first thing to understand about money is that the range of things you can get for it is really incredibly huge. Econ bloggers Tyler Cowen and Alex Tabarrok periodically do posts called "markets in everything" where they highlight some of the weirder examples of this, but the weird examples matter less than the obvious examples people just don't think about much.  There's a tendency to associate money with a narrow range of things rich people stereotypically spend their money on. Or, in my case growing up in an upper middle-class family, there were the family vacations and boats that my dad seemed to mainly spend his money on, which were nice but didn't seem particularly worth planning my career around.

Yet not only is the range of things you can get with money huge, even with things you can get without money, spending money on them is often a better way of acquiring them. The reason for this is comparative advantage, a concept that gets discussed a lot in the context of nation-states and why free trade is a good idea, but which also works on an individual level. For example, say you're a lawyer who makes $300 an hour, and you're trying to solve the problem of how to keep your house clean. You could spend a couple hours a week doing it yourself—or you could work slightly longer hours and hire someone else to do it for $30 an hour.

The reason this is an example of comparative advantage is it doesn't matter if the people you're paying to clean your house are any better at house-cleaning than you. In fact, it works even if they're slightly worse, as long as the difference in house-cleaning ability is overshadowed by the difference in lawyering ability. In econ jargon, you can have an absolute advantage at both lawyering and house-cleaning, and it will still make sense to pay other people to clean your house if they have a comparative advantage there. Many people who aren't rich probably assume that when rich people hire other people to do basic tasks for them, it's a frivolous expense, but under the right circumstances it can a matter of economic efficiency.

This point about comparative advantage, when applied to charity, is one of the central insights of the effective altruism movement ("earning to give"). Suppose instead of talking about a lawyer who wants to keep his house clean, we're instead talking about a lawyer who wants to help the local soup kitchen. He could volunteer to help out there in his spare time, but he could also work a little longer hours, donate the money, and enable the soup kitchen to hire more person-hours of work there. Choosing to volunteer rather than give would suggest the lawyer isn't mainly concerned about helping the soup kitchen, but perhaps with warm fuzzies or being seen doing good.

And this doesn't just to small-scale decisions about donating some money vs. volunteering a few hours. It also applies to someone trying to decide between, saying, going into a career in medicine and eventually joining Doctors Without Borders vs. going into a career in finance and using the money you make to pay people to distribute bed nets to stricken regions of the world. (That person was me when I was younger, except the second option wasn't even on my radar.)

Note that while I personally think earning to give is an especially important example of how you can exploit comparative advantage to achieve you're goals, it's also worth emphasizing that it's just a special case of a general principle which can be extremely powerful even if you don't care about making the world a better place.

Given all this, what of the saying "if you want something done right do it yourself"? The answer is that, yes, the difficulty of figuring out who's competent and trustworthy does impose transaction costs on hiring people to do stuff for you, but it's important to remember the costs are finite. When the difference in comparative advantage is large enough, they'll often be worth paying.

Now there are still things money can't buy, at least not literally. But money tends to make them easier to acquire. Take the classic example of happiness: there's a traditional idea (which I've heard attributed to the Greek philosopher Epicurus, though I can't find the source now) that more money makes you happier up to a certain point since it's hard to be happy if you're starving, but beyond that more money doesn't help. It turns out that it's not clear this is actually true—some studies have found more money leads to greater happiness up through the highest income levels examined.

But suppose, in spite of this, that you're an income satisficer, meaning you want to make a certain amount of money and don't care about additional money beyond that. Suppose as long as you have that certain amount of money, you care more about being able to do what you love. And suppose you don't care about being able to make the world a better place through donating to charity. Should you then pursue whatever career you think you'll enjoy the most out of those that pay enough money?

Not necessarily. The way to think about this is to realize that time spent  is, in an important sense, an expensive luxury. In economics, there's a concept called opportunity cost, which is closely related to comparative advantage. Opportunity cost asks: by choosing to do something, what's the next-best alternative you're giving up? So for example, by this standard the biggest cost of college for many people will be not tuition, but the time they spent in college that could've been spent working. Even if you didn't go to summer classes, didn't study all that much, and were only qualified for minimum wage jobs, it still easily adds up to more than the cost of a state school in the US.

A lot of things turn out to be like this: when you translate the cost in time into a monetary value, time is the biggest component of the cost. Once you start thinking in those terms, it becomes easier to see that just as there are two ways to convert time into a clean house (clean it yourself, or work at a job where you have the comparative advantage and pay someone else to clean it), there are two ways to maximize the amount of time you spend doing things you enjoy: find a job you mostly enjoy, or else find a high paying job you hate and work part-time / take frequent long sabbaticals / work hard when you're young, then retire early.

People tend not to even consider the second set of options because they've been sold a model of "work nine to five for fifty weeks a year from college graduation until you qualify for Social Security," and you are nudged towards that model somewhat by employers assuming it. But it's not mandatory, and if you acquire in-demands skills that can translate into greater flexibility. I have a friend who's a dev consultant who recently took a month sabbatical from her job and then quit entirely without having another one lined up because (1) she makes enough money she doesn't need to work year-round and (2) her skills are sufficiently in-demand that she's not worried about her ability to get another job when she wants one.

On the flip side, to understand one of the main problems with the "get a job you love" strategy, consider the extreme case: a job you'd do for free. The problem with such jobs is that they tend to be jobs other people are willing to do them for free too. That makes it hard for anyone to get paid. For example, I love writing, and I'm doing it for free right now. But it turns out lots of other people feel the same way, and the internet has made it really easy for all of us to distribute our writing for free, and now it's even harder to get paid as a writer than it was during the age of print.

This is just one example, but I suspect there's a systematic reason why the "get a job you love" strategy tends to produce outcomes you didn't really want: it can make it harder to see what tradeoffs you're really making between money and time spent doing things you want to do for their own sake. In the worst case, you end up getting the worst of both worlds: you become a college professor because you think it will pay okay (if not great), and you'll get to devote all your time to the life of the mind. But you end up adjuncting for what's effectively minimum wage while spending most of your time dealing with undergrads who are just taking the course for the elective and only care about getting an A with as little effort as possible.

I'm not saying everyone should optimize solely for money in choosing their career. But at the very least, it's worth putting considerable effort into finding out how much you could (perhaps not immediately, but after but in a year or several) if you did optimize for money. That way, you'll at least know the tradeoff you're making when you chose a different career.

And by the way, if you're reading LessWrong, odds are you're fairly smart, and may be underestimating how monetizable your intelligence is. I'd like to repeat the advice given by other people in the online rationalist community to look into programming as a career choice. I'm currently doing App Academy and highly recommend it, if you do apply tell them I sent you. You may also be able to get good information on choosing a career from 80,000 Hours.

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Needs to start with a list of the top 5 things you spent money on that were completely awesome and that your younger self didn't know about. The Concrete-Abstract writing pattern says to give the example first, then the generalization; currently you're missing the example part.

Right. The post is also a bit unstructured, but lack of truly awesome examples was my main problem with it, too.

The main everyday example given was house cleaning. But that seems like such a stereotypical example that I wonder a) whether people actually do find it sufficiently awesome to hire people to clean their houses, and b) if it's the only example of its kind.

EDIT: Some other comments suggest CFAR workshops as an awesome expense. I have no first-hand experience with them, but that sounds plausible to me.

Here is an example which I discovered only recently and which for me is 10x the awesomeness of house cleaning.

I like to work on casual games as a hobby, I haven't released many but it's something I like to do. I am a software engineer and have no art skills. You can make a game with no art, or make a port of some game for which the art exists. It is limiting.

Enter the miracle of Elance. You can find good artists on that site, with experience making art and animations for games, and they're very affordable. I think they charge less per hour than house cleaners in California. All of a sudden getting real art for your game is just an ordinary hobby-related expense, kind of like if I were into photography I'd spend money on lenses and Photoshop license fees.

(My experience was mostly with graphics artists, but that site is general-purpose, you can find people willing to do all sorts of work there, translation, programming, whatever.)

and they're very affordable

But doesn't this undercut the original point a bit?

This is a very good point, but I'm hesitant to do anything about it because now I'm envisioning how to completely re-write the post as "Why Money is Awesome: The Listicle" and I'm not sure doing that's a good idea.

(Clarification: not meant to be sarcastic. Actually I wonder if the listicle format could've worked for this post. But now that I've written it one way I'm reluctant to re-write.)

In most jobs, it's hard to change the number of hours a week you work in order to earn more or less money.

Depends if you count future income. Highest paying careers are often so because only those willing to put in extra effort at their previous jobs get promoted. This is at least true in my field, software engineering.

I more or less agree, but note that extra effort does not necessarily mean extra hours. Though, depending on who you work for the latter might be a good proxy for the former.

The important thing is to make the right people notice you put in the extra effort.

Woking extra hours seems like the obvious solution, but depending on circumstances it may not be the best one. If the company does not keep records (or if your boss outsources the recordkeeping to someone else), it may even be unnoticed.

The good strategy requires finding out what your boss considers an evidence of an extra effort. (Some bosses may consider extra hours an evidence of extra effort, others may consider it an evidence of incompetence.) Then produce that. If you really put in the extra effort, make sure you don't forget to provide this evidence. (And of course there is a dark path of not putting in the extra effort, just optimizing for this evidence. Even if people notice you optimize for evidence, they will probably not discount properly.)

For example, bosses are often not aware of what their subordinates are doing. And to some degree that's okay, because you are paid to take care about the details. It's just: the more you see something, the more real it seems. So you could sometimes remind your boss of what you are doing, in a way that does not make them worry about you not being able to handle it. Like: "Yesterday I had this interesting problem [keyword, keword, keyword, skip the boring details], it was really complicated, but then I solved it successfully, so no problem, everything goes according to the original plan." For example while you are together at lunch. (Dark version: describe a problem your colleague had and solved yesterday, but pretend that you contributed to the solution. The boss will be delighted that you care deeply about the company and take initiative even beyond your responsibilities.)

It is worse than you imagine. Putting in heroic hours is pure signal. Fatigue will kill your actual productivity to below that of putting in a 40 hour week if you do it for more than 3 weeks at a time. This is especially true in programming as a tired programmer can very easily have outright negative output - it will take more than an hour to fix the errors committed during that extra hour you put in. Entire industries ignore this because it has become a social norm within them that going home after regular business hours is a sign of lacking commitment, and it takes a rare level of... Sanity and towering belief in your own judgement for the boss of a firm in these industries to go against that norm and evict stragglers from the office at closing time willy-nilly. I still recommend finding one if you possibly can. Or being one. The average programming shop is run abysmally badly - it should be fairly straight forward to prosper by following a handful of simple rules of productivity (Meetings at open and close of day, not noon, no all-nighters.. ect)

If you intend to engage in pure signalling to get ahead as an employee, find signals that dont waste 20-30 hours of your time per week.

This is probably specific for USA. In my country this does not happen in IT. (Some other professions are exploited this way, e.g. doctors. Which is even more horrible, if you imagine the consequences.)

It's not just exploitation by elders in medicine though. Many young doctors work ridiculous hours by choice, and their more reasonable colleagues suffer as a consequence.

It's terrible that the expertise of doctors should make them fully acknowledge the dangers of sleep deprivation for example, yet some of them wilfully ignore the facts.

Pure signal? Some people actually like their jobs, and perhaps the extra income too.

ETA: are people expected to work extra hours for free in the US?

are people expected to work extra hours for free in the US?

Depends on the kind of work you're doing. Under American labor law, workers in retail, manufacturing, or the trades can't be asked to work more than eight hours a day or forty hours a week without being paid their hourly wages plus a substantial overtime bonus. However, there's a loophole. American workers in clerical, administrative, and professional positions -- those on the administrative side of historical labor disputes, in other words -- are usually paid a fixed yearly income (salaried, or "exempt") and are not eligible for overtime pay.

This has both advantages and disadvantages. The advantage is that the hours are usually more flexible and there's less administrative overhead; the disadvantage is that people that want to signal loyalty or overachievement are incentivized to work crazy hours without extra pay, a practice that employers often encourage, or even -- though usually only in the short term -- de-facto require. Most studies I've read find that actual productivity doesn't go up much with the extra hours in the long run, especially for knowledge workers, but it occasionally does make business sense to do a hard push right before a deadline -- and, of course, managers aren't always rational about these things.

Generally speaking, within IT, operations people are paid hourly and developers are paid on salary. This can make salary figures a little misleading, depending on corporate culture; more than once I've had friends in ops whose nominal wages were considerably lower than mine, but whose actual pay, after overtime, was well higher for the same hours. (I'm in dev.) I try not to make a habit of working those long hours, though.

Most studies I've read find that actual productivity doesn't go up much with the extra hours in the long run, especially for knowledge workers

Not as clear cut as people like to assert, see e.g.,

http://www.overcomingbias.com/2011/12/work-hour-skepticism.html

http://www.overcomingbias.com/2011/12/construction-peak-60hrwk.html

If you have data for knowledge workers specifically that paints a different picture I'd like to hear about it.

It probably differs a lot from person to person.

That made the picture a lot clearer, thanks. Makes those income figures relevant to me seem a lot less enviable.

People are widely expected to work extra hours for free in IT.

This subthread started with CronoDAS pointing out that it's hard to change the amount of money you earn by changing the amount of hours you work, and CoffeeStain pointing out that even if you can't do so in the short run you still can in the long run, because the more you work the more likely you are to be promoted. So, if we talk about the people who can just decide to work more hours this month to earn more money this month, we've come full circle here.

I see, my bad. It's easy to lose the context by reading recent comments.

So for example, by this standard the biggest cost of college for many people will be not tuition, but the time they spent in college that could've been spent working.

Not disagreeing with anything in the post, and I acknowledge that this logic makes sense if you're primarily measuring things in money, but I'd just like to note that this example is likely to come off as weird to the kind of people who like to study but who are unsure of whether there's any job that they'd enjoy. For them, having a socially-sanctioned opportunity to spend several years not working isn't a cost, it's the whole point of going to college.

Counterpoint: spending 40 hours a week on your job is a huge time commitment. It's also a huge willpower drain (doing worthwhile things requires effort to grind out results, not just time). It's hard for me to believe that the hours money allows you to "buy back" are worth the "wasted hours" on work. So it's important that work not be a waste.

Also, you will probably make more money and do more worthwhile things at a job you enjoy.

Money is definitely a big factor, but I don't think it totally dominates everything else.

I find that when people espouse the notion of "Work hard, play hard" they are missing fundamental facts about human capabilities.

Your health is worth money, literally. You start life with a fixed level of savings. Every day you go to work, you are drawing from the bank.

I know many people that had high-paying but high-stress jobs, and quit them in favor of lower-paying, lower-stress jobs. And now they spend time cleaning their house too, and they enjoy it (cleaning your house can be relaxing and rewarding). They made the right choice, by any objective metric.

I spent most of my life up until 2012 loathing the concept of needing/wanting/working for money, and being particularly annoyed when people bugging me about schoolwork would talk about the potential for losing scholarships and employment and all that mess.

I wasn't off campus and doing an online course for two months before I realized how mind-bogglingly stupid I'd been. Well, a fraction of how stupid, anyway; the full extent of it didn't set in until I discovered that my student loan payments were $226 more than I was receiving in SSI. Unfortunately, I think it's safe to consider the majority of my posting on LW to be a prolonged "Oh Shiiiiiiit" at this realization. (A little of this started to set in during 2011, but on a much narrower domain that would needlessly bloat this comment to explain.)

TL;DR: I agree with the article.

Not disagreeing, but an awful lot of people with a lot of money seem incredibly bad at spending it on anything they care about; often it seems like most of it goes on positional goods. I'm with Jarvis Cocker here.

Are you referring to this?:

Money isn't important, but you have to have enough, so you don't have to think about it. Thinking about money is a drag.

Depending on how you interpret it, "enough money that you don't have to think about it" could mean a lot of money. And given that this is a famous musician talking...

To expand on Lumifer's point, maybe most people really do care about positional goods. Or rather, they care about the status positional goods bring (and various indirect benefits of status). After all, there does seem to be a lot of independent evidence that most people care a lot about status.

maybe most people really do care about positional goods

And I'll make a stronger point as well: people rich enough so that their "basic" needs are fulfilled effortlessly and semi-automatically care about status goods a great deal more than people who have to make budgets and worry about money.

A guy who buys a yacht and parks it in the marina "doesn't use it" from one point of view, but does successfully use it from another point of view which considers that as a symbol of wealth and status it works perfectly fine at the dock (actually, works much better at the dock that in the open sea where not many people can see it).

I really don't think it works for them - they keep changing their up their peers until they're not high status any more.

Not high-status within their peer group anymore, you mean. I've heard people talk about this, and for many of them it may not be what they really want, but some people may value being part of a high-status peer group.

(What we really want to know is this: how often do people set out to make money with one purpose in mind, but get sucked into spending more and more money on positional goods they didn't originally want?)

BTW I was thinking of "What's the point of being rich, if you don't know what to do with it?"

an awful lot of people with a lot of money seem incredibly bad at spending it on anything they care about

How do you know what do they care about?

Revealed preferences are revealed.

If it causes them stress, or they don't use what they buy, it's an indication.

I don't put much stock in "revealed preferences." Humans are massively inconsistent. Our minds are a bunch of disparate processes operating over different domains hacked together, we respond differently to the same dilemmas framed in different ways, we can be money pumped, we can exhibit or avoid biases depending on how we're prompted to consider a situation, our systems for liking and wanting things operate independently, and so on and so on.

Even if human preferences were coherent, what people's spending habits revealed about them would still contain a great deal of ambiguity. For instance, a week or so back, I gave money to a Buddhist monk soliciting for charity. Do I consider this a worthy use of my money? Absolutely not. It still pains me to think that I spent it in that way. I used to struggle with extricating myself from social situations with solicitors without giving them money, and I thought that I had moved beyond that, but it turns out that when the solicitor is a saffron clad monk with minimal English fluency, my difficulties return in full force. So while the fact that I can be induced to give money to a begging monk is a significant piece of data about my behavior, it would be a mistake to conclude that I'd be doing it out of a considered valuation of what the monk will be spending the money on, or for the experience of warm fuzzies, or for the signaling value of having people see that I give money to monks.

I think you're reading more into this than there is.

"Revealed preferences are revealed"

Notably, this says nothing about whether humans are consistent or whether their preferences are coherent or unambiguous. In your example you're drawing clearly unsupported conclusions from your action and then point out that they are unsupported. Well...

I don't think that it's very relevant to note that people care about the things they spend money on in some sense, if the people do not actually approve of or enjoy their purchases, and will stop spending their money in those ways, and be happier as a consequence, if they can avoid having the purchase opportunity presented in certain contexts.

If I'm reading too much into your statement, could you explain what the significance of it was to begin with?

It was a pretty simple observation.

ciphergoth said:

an awful lot of people with a lot of money seem incredibly bad at spending it on anything they care about

It seems to me that the evidence of spent money is better than general (and as far as I can see, quite unspecified and unsupported) ideas about what rich people might/could/should/would care about.

That I would definitely dispute. Rational spenders, whose buying habits are well adjusted to satisfy their own preferences, are to the best of my experience as mythical as rational voters.

That I would definitely dispute.

Really? Let's take a random member of the Walton family who is stupidly rich but about whose preferences we know nothing -- an uninformative prior.

We learn that he commissioned a megayacht.

Now, do you want to update towards "He's interested in boats" or do you want to update towards "He spends his money on something he won't enjoy"?

We learn that he commissioned a megayacht. Now, do you want to update towards "He's interested in boats" or do you want to update towards "He spends his money on something he won't enjoy"?

Having known a few yacht owners in my time, I very much would update toward the latter. I often think that the point is "having a yacht" and not at all the yacht in itself.

I often think that the point is "having a yacht" and not at all the yacht in itself.

In which case you want to update towards "He's buying himself a bit more status" which still seems entirely reasonable to me :-)

It might sound reasonable, but that's a very different matter from the purchase actually being an effective per-dollar way to get something that will actually make him happy.

Would knowing that he's commissioned a mega-yacht make me update in favor of the proposition that having a megayacht would make him feel happy or fulfilled? A little bit, sure, it's better than nothing. But I would absolutely weight his thus "revealed" preference less strongly on that question than I would the evidence of simply asking him what he thought about yachts, and even that is pretty shaky evidence.

I've got a couple things to say here.

Most of us really are income satisficers, not income optimizers. That is, if you offered me a $350k/year salary to do my current job (grad-student), I would end up distributing most of that money to charity. Not that charity isn't great, but you could have just given the money to charity yourself instead of taking the wasteful intermediate step of paying me.

Why is this true? Because we train ourselves to make it true: frugality is a large component of financial responsibility. For instance, I'm so used to living at a grad-student's standard of living that money above and beyond the cost of that standard of living is pure luxury: I spend it on frivolous bullshit or put it in my retirement account. I'm fairly sure I'm the only 24-year-old grad-student with a Roth IRA topped-up for 2012-2014, and this is because when I got extra money, it went into the retirement account rather than towards consumption, or even towards extra charity.

HOWEVER (yes, the capital letters are justified there), there is an IMMENSE component of class privilege in this whole subject. I am literally the only person I know with this much money at my age who isn't working for a tech company! Other grad-students have far less money, and everyone who didn't major in Computer Science from my undergrad is semi-impoverished and has student loans to pay off.

And then we talk about the people who came from such systematic disadvantage that they never even got to the point of a university education in a potentially lucrative upper-middle class field in the first place. There are millions of such people, far more than there are of us computery types, even if we restrict ourselves to only consider First World countries. Income inequality is high, in some places higher than it ever has been, and rising all across the developed capitalist world. Public support for things like medicine, housing, and education is falling, with the result that people are finding themselves having to dip deeper and deeper into their private funds just to make it through life.

If we want to talk about how money is awesome, we should also be talking about how to make sure that people who aren't like us actually get some of it. I mean it: no amount of Tumblry "checking our privilege" is actually going to make the people who work in, say, our favorite food trucks or hole-in-the-wall falafel joints, anywhere near as wealthy as us. We'll need to actually exercise our intelligence for that.

I'm fairly sure I'm the only 24-year-old grad-student with a Roth IRA topped-up for 2012-2014, and this is because when I got extra money, it went into the retirement account rather than towards consumption, or even towards extra charity.

This is true for me as well (I'm slightly older), but I also have some sources of income that I expect most graduate students don't.

If we want to talk about how money is awesome, we should also be talking about how to make sure that people who aren't like us actually get some of it. I mean it: no amount of Tumblry "checking our privilege" is actually going to make the people who work in, say, our favorite food trucks or hole-in-the-wall falafel joints, anywhere near as wealthy as us. We'll need to actually exercise our intelligence for that.

But one of the main reasons why money is awesome is because spending money is rivalrous. My primary expensive hobby is art collecting. I have the number of original paintings I have because I put up more money than the other people bidding on them, and if everyone had more money, then the primary effect would be that the prices increase.

When you say we need to exercise our intelligence, let me talk about Franklin Barbecue in Austin. It's quite possibly the best barbecue in the US, and they've sold out of brisket every day that they've been open. Officially, it opens at 11 AM, but generally people recommend that you show up at ~8 AM to wait in line.

To the economist in me, this is a terrible setup. They could spend their customers' extra money; they can't spend their customers' wasted time. They should auction off the barbecue, which will raise prices and lower wait times. But it'll also get rid of the communal experience of waiting in line, and less of their customers will be students and more of them will be engineers. The way to get more money to 'food trucks' is to embrace the inequality that makes engineers that will bid on barbecue.

When you say we need to exercise our intelligence, let me talk about Franklin Barbecue in Austin. It's quite possibly the best barbecue in the US, and they've sold out of brisket every day that they've been open. Officially, it opens at 11 AM, but generally people recommend that you show up at ~8 AM to wait in line. To the economist in me, this is a terrible setup. They could spend their customers' extra money; they can't spend their customers' wasted time. They should auction off the barbecue, which will raise prices and lower wait times.

The marketer in me suggests you're off the mark. How do you know that Franklin's bbq is the best in Austin? Because there is always a line and it sells out. The wait in line IS what differentiates their product, and its how people judge the quality in such a subjective market.

I imagine if you start an auction for the bbq, what you'll find is that in a few years you are making less money, as instead of being a good bbq experience that people drive in from all over Texas to try and tourists flock to, you'll be just another good bbq place in Austin.

It's quite possibly the best barbecue in the US

Them are fightin' words, y'know... :-D

To the economist in me, this is a terrible setup.

It's more complicated than it looks

Them are fightin' words, y'know... :-D

I'm aware, hence the hedging. I am not a food critic, and am relying on the judgments of food critics.

It's more complicated than it looks

Yes, people rage at high prices, especially when demand jumps and supply falls. And I'm sure that the status threat of the price rising or being priced out makes it worse than just the scarcity.

But the right answer probably isn't lotteries. People are unhappier when others receive rewards for merit than they are when others receive rewards because of luck. The right answer almost certainly is efficiency.

But the right answer probably isn't lotteries. People are unhappier when others receive rewards for merit than they are when others receive rewards because of luck.

This confuses me. Surely if people are made less unhappy by a luck-based distribution, that's an argument in favor of a luck-based distribution?

I'm not sure if you typed that backwards or not. I can think of plausible reasons for people to hate both luck and merit distributions.

Surely if people are made less unhappy by a luck-based distribution, that's an argument in favor of a luck-based distribution?

I view it as an argument against the preferences of people.

So you did mean it as written. I'd kind of like to see the studies, if you have a link. I don't find it surprising, exactly, but it's not a question I'd considered before, and it seems like it would be amusing misanthropy fuel.

Maybe people don't actually believe in merit, in near mode. Maybe they think they do, but they are really thinking about status.

Distributions based on merit (that we don't recognize instinctively) simply seem unfair. Distributions based on tranparent luck seem like everyone at least had a fair chance.

Maybe the real problem with money is that it usually belongs to people we personally don't know, so we don't know what exactly they did and why exactly should we respect them, so it feels like they really don't deserve the money. And the rest is rationalization.

Maybe people don't actually believe in merit, in near mode. Maybe they think they do, but they are really thinking about status.

This is made worse by money anti-correlating with status when all other variables are controlled for, i.e., given two otherwise comparable jobs, the lower status one will pay more.

But the right answer probably isn't lotteries.

The right answer to which problem exactly? Temporary shortages of high-status goods aren't exactly a burning issue that really needs to be solved externally.

The right answer to which problem exactly?

Locally, the Barbecue Distribution Problem. Globally, the Efficiency Problem. Imagine Franklin Barbecue as one of the broken windows of inefficiency; yes, it only wastes tens of years per year, and they're probably only losing tens or hundreds of thousands of dollars in revenue per year. But efficient markets in barbecue help make efficient markets in other things more reasonable.

Locally, the Barbecue Distribution Problem.

I would assume that people who run the barbecue are (1) Aware of the problem; (2) Have incentives to deal with it; and (3) Are not entirely stupid. Given this I am not sure why do you think that what they are doing now is not "the right answer". For example, raising prices might be good in the short term but turn out to be a very bad idea in the medium term.

Globally, the Efficiency Problem.

What is that problem and, again, what does it have to do with temporary shortages of high-status goods? And I'm less than convinced that the broken-windows theory applies to global efficiency. In any case, if so, wouldn't you want to start with government, instead? X-/

To give a trivial example, creating such a temporary shortage is popular marketing trick (if the company can pull it off, of course).

I would assume that people who run the barbecue are (1) Aware of the problem; (2) Have incentives to deal with it; and (3) Are not entirely stupid. Given this I am not sure why do you think that what they are doing now is not "the right answer".

I think that (3) is not a good assumption to make, and I wouldn't word it that way. I know lots of artists who have never heard of sealed second-bid auctions (also known as Vickrey auctions), despite those auctions being the optimal way to sell artwork or commission slots online. Are they entirely stupid? No; they just have limited knowledge. Similarly, the barbecue auction problem has a potentially nontrivial complication: there are 5 different varieties of meat sold by the pound (and each variety of meat can either go into by-the-pound orders or sandwich or plate orders), and many people would like either their entire order, or none of their order. How do you find the optimal set of orders to fulfill, and what price do you charge people for those orders, in a way that doesn't skew their bidding incentives?

It's a solvable problem, of course, but it's the sort of problem you'd want to hand off to an optimization guy to solve for you, especially if your core competency is barbecuing meat.

For example, raising prices might be good in the short term but turn out to be a very bad idea in the medium term.

It might- it's possible that once people could get it by paying more money, instead of more time, it would lose some of the specialness and people would go there less. But it's not clear to me that they would ever reach the point where they don't sell out of meat, and maybe they have to be open for dinner too instead of just lunch.

But it could also be that the steady-state long-term price of their brisket is $40 a pound, and they've been selling it at $17, and that it is a fantastic thing over the medium term.

(Also, I feel I should mention, since it may not have been obvious: they do allow pre-orders, if you're willing to pre-order by about a month. The amount of pre-orders they allow is obviously capped, so that there's still BBQ available day-of. Auctioning off meat should start as a small percentage of their total quantity moved as a test, and then expanded or contracted as desired. So long as some of it is available by waiting, it is unlikely to lose the popularity.)

What is that problem and, again, what does it have to do with temporary shortages of high-status goods?

Basically, not enough people thinking like economists.

It's a solvable problem

Well, then, I see an excellent opportunity for you. You mentioned that they might be "losing tens or hundreds of thousands of dollars in revenue per year" -- surely if you go talk to them and point it out, they'll be glad to pay you some of that surplus that they are leaving on the table.

In the best case you'll earn a fair chunk of money and make friends in the BBQ business. In the worst case you'll learn a valuable lesson why theoretical economics doesn't apply to real life too well :-)

Basically, not enough people thinking like economists.

That's complicated. I understand what you are trying to say, but "thinking like an economist" is not an unalloyed good. For example, consider that economics (especially macro) is really bad at forecasting.

Well, then, I see an excellent opportunity for you.

This is, in fact, my plan.

If the availability of their product to low-income people is a priority for the current owner, it might be possible to maintain that while raising cash prices by offering menial temp work (such as dishwashing) in exchange for store credit. This is a well-known strategy among restaurants looking to settle accounts with someone who has already eaten but proves unable to pay; the innovative part would be offering a more favorable rate of exchange, and work first for food later.

If jobs are scarce, the restaurant should already have enough dishwashers. Since the restaurant can't temporarily fire one of its existing dishwashers for a week in order to have the nonpaying customer wash dishes, it's hard for the restaurant to recover the money in free labor from the customer. It only works if the restaurant happens to have a job of the right length available I'd expect that to be pretty unlikely. Better just call the police. As a bonus, if you call the police you don't create perverse incentives for more people to stiff you on the bill in the future.

I realize your version of the story doesn't include this, but I've often heard it as the restaurant giving the guy a permanent dishwashing job, and sometimes even having the guy rise up in rank and eventually come to own the restaurant. This version is even unlikelier. (For instance, if the restaurant thinks a guy hired this way is better than a guy hired through the normal application process, why do they even have an application process? And if you're in a situation where jobs are scarce, then jobs are valuable things and the restaurant should be able to be very selective in who it hires.)

Of course it's less efficient than hiring an equivalent number of professional dishwashers; the point is to extract more value from the customers by having them choose between paying extra or doing marginally useful work, rather than standing in line.

I realize your version of the story doesn't include this, but I've often heard it as the restaurant giving the guy a permanent dishwashing job, and sometimes even having the guy rise up in rank and eventually come to own the restaurant. This version is even unlikelier. (For instance, if the restaurant thinks a guy hired this way is better than a guy hired through the normal application process, why do they even have an application process? And if you're in a situation where jobs are scarce, then jobs are valuable things and the restaurant should be able to be very selective in who it hires.)

I can't speak to whether there are any real instances of such a thing happening (the story is only vaguely familiar, I may not even have heard it before,) and I suspect it's more likely than not apocryphal. But the answer to "if the restaurant thinks a guy hired this way is better than a guy hired through the normal application process, why do they even have an application process?" would be "because a single specimen does not invalidate a selection process that deals in generalities." The application process is an attempt at sorting prospective workers to select those who are most likely to be valuable to your business, but that's not to say either that some duds won't get through (people routinely make it through application processes only to be fired for poor performance, after all,) or that a less stringent selection process cannot induct good workers.