Some Short Examples and Comments About the Five Dimensions

Critical thinking: A few weeks ago a furniture company was advertising 20% off or 0% interest until Jan 2024, which was about 40 months away. If you take the delayed payment offer and pay full price, you sacrifice the 20%-off bargain. That is the equivalent of paying over 5% in annual interest – not exactly a no interest deal after all.

 

Responsibility: It seems fine to harass, shame or even arrest people who don’t wear a face covering, yet in the case of a person who has children without the means to support or feed them, there is unlimited sympathy and generous financial support from the government and others.

 

Economic Understanding: Recently Subway lost a court case in Ireland. They tried to avoid paying tax on their bread, but the court ruled that their bread contains too much sugar to qualify for the “staple food” exemption. The media reported mockingly on the unhealthiness of Subway bread. 

 

One newscaster closed with “now it will cost Subway more” – wrong! It is really a hidden tax on the Irish Subway customers as they pay more for their sandwiches. I doubt if it will cost Subway any business as they raise the price a bit. Newscasters and most of the people who listen to them don’t understand economics or business.

 

Note: A recipe on Food.com for homemade white bread uses at least as much sugar as the Subway recipe. 

 

Perspective: Does anyone else find it odd that football players celebrate every time they make a good play? These people are highly paid to play a game. They are expected to throw the ball or catch it or tackle an opponent or keep him from catching the ball. When they do what they are paid to do, they make first down signals, high-five each other, do dances and mug for the camera. Try doing that in your job and see where it gets you!

 

Discipline: Consider those on-line sports betting ads. It’s initially risk-free as they promise to match your losses up to a certain dollar amount. Aren’t they counting on enough people getting hooked, even if it’s only a bet or two a week? As the saying goes, over the long run the house always wins. 

 

Here is some evidence of that. This source “estimates that New Yorkers bet $837 million on sports in New Jersey. When subtracting the payouts for wins using a conservative hold percentage, it’s an estimated $57.1 million in revenue for the operators and $6.2 million in tax revenue lost by New York to New Jersey.” With it not yet legal in New York, total losses to the state in taxes on the profits could be over $203 million.

 

Discipline (alternate): Despite being told for years to build a six-month emergency fund, most Americans were dependent on government enhanced unemployment and stimulus checks immediately after the pandemic struck and complained when they were delayed.

 

Other miscellaneous ideas: 

Three useless words – “go ahead and.” Every time you hear them “go ahead and” replay the sentence in your head with out them. It’s shorter and means exactly the same thing!

 

The only way to be an optimist these days is to have extremely low expectations. 

 

“Some free black people in this country bought and sold other black people, and did so at least since 1654, continuing to do so right through the Civil War.” (Source: Article by Henry Louis Gates, a black historian)

Flashback – Price Deception

[On New Year’s Eve 2012 I posted a look at the various ways advertisers use prices to convey a false impression. Make prices appear low to suggest a bargain; jack them up to give the impression of special quality or luxury items. Because of the date, I ended with a brief note on champagne. Though it’s only June, why not read this and then find something to celebrate?]

We are deceived by a lot of things, by ourselves and by others, especially advertisers. We are all familiar with the pricing scheme of marking items as $19.99 instead of $20 to make them seem like a bargain, even though many people, when asked, will describe the $19.99 shirt as a $20 shirt.  Consciously we are not fooled, but subconsciously it registers as a better deal. Consider that  nine-tenths of a penny per gallon on the price of gasoline.

Surprisingly, the opposite strategy is also used. When paying a higher price, we often believe we are buying better quality even when we are really getting substantially the same thing. In prior postings I brought your attention to tests of (more expensive) organic foods showing that they are not nutritionally superior. Recently we learned that family cars outperformed luxury cars in the new crash tests. I have seen many Consumers Digest-type articles saying that ordinary moisturizers help your skin as well as the high-priced brands that claim to be superior. Higher-priced brand name drugs continue to sell well against similar or even identical generics by virtue of perceived quality. “When served microwaved food from the frozen food section in the setting of a fine restaurant, most people never notice.”

I remembered some time ago seeing a story about wine judging. Experts were asked to rate a certain group of wines. Later, in what they thought was a different event, they were presented with the same wines. The ratings of the same wines by the same judges came out completely different – no correlation whatsoever. I couldn’t find that source, but was overwhelmed by similar stories.  One told of wine tasting experts fooled in general, recommending wines with expensive labels with eloquent descriptions of their superiority over the same wine poured out of an different bottle. Experts also gave differing descriptions when served a white wine and the same wine with red food coloring added. Others couldn’t tell if a wine was red or white when they drank them from black-colored glasses.

It’s not only the experts who are fooled. “Expensive wine is like anything else that is expensive, the expectation it will taste better actually makes it taste better.” This article gave even more examples.  HDTV clarity and cheese tasting elicited the same perception errors based on price. A January 2008 study showed that adults rated the same wine as tasting better when it came from bottles labeled $45 than from ones labeled $5.

How would this apply to the art world? Experts always want to tell us what to think and what is real art. We often look at the work and scratch our heads. Here is a comment from a friend who visited an exhibition of what was proclaimed to be a major contemporary British artist at the Aberdeen (Scotland) Art Museum. “Imagine a giant empty exhibit hall with nearly-blank canvases, each about 7 feet square, or painted unevenly in reddish-orange oil. A life-size bronze casting of a rumpled sleeping bag.” I'm sure most of us would be equally puzzled at the praise for such an exhibit, but in the art world there is so much hype, and it’s so easy for the experts to pompously fall back on the accusation that others "just don’t get it." We buy that logic and that’s why we get what we get. (For an amusing spoof on contemporary art check out a film called Untitled).)

The effects of high price and over-reliance on so-called experts apply in many other fields. So before you buy something based on the name or the price, do the research. Whether it’s food, art, drugs, wine, cosmetics or cars, more expensive is not necessarily better. When all you have to go on is expert opinion rather than evidence, you are usually safe to trust your own taste.

Which brings us to the real topic for today – champagne. It is, after all, New Year’s Eve.  In this case I have done the research for you, and guess what?  More expensive is not necessarily better. As this British source says, “In a blind test that has thrilled the marketing departments of the major retailers and perturbed at least one of the grande marques, six wine experts gave a resounding vote of support to some of the less glamorous bottles.”

So buy what you like and save a little cash. Happy Critical Thinking in the New Year [or Independence Day], and Cheers!

The Opposite of a Bargain

Today is “Black Friday,” and people love bargains. Sometimes they love bargains too much and end up injuring others as a result. I hope that doesn’t happen this year, but even some mild pushing and shoving is a sign of poor perspective.

Despite the history of Black Friday, the fact that most of us like bargains can be lost on the experts. In early 2012, Ron Johnson, the new CEO of JC Penney announced a major overhaul of their business plan.  “Fair and square” low pricing was to replace the idea of weekly sales and promotions. He assumed everyone could see through those “fake prices” – marked up to be reduced later. It was logical. But Penney soon found out that shoppers aren’t always logical, especially when anticipating an exciting adventure of hunting for deals and then being able to boast about their cleverness. It’s in their shopping DNA, giving them a psychological boost and a feeling of pride to discover how much they “saved.” 

But that is not always the case, as we can see from this Bloomberg story, headlined: “How Companies Get You to Pay More for the Same Product.” 

Some of the tricks are quite old, like the word “repeat” on shampoo instructions or the suggestion to not let kids use more toothpaste than the size of a pea, implying that adults need to use more. 

Many times we are forced or tricked into either paying more or getting less for the same price. But there are also cases where companies use artificial scarcity to boost the price and desirability of the products. The article discusses five categories.

“Shrink-flation” is how they term getting less for the same price. The standard example is ice cream. “Häagen-Dazs brand reduced the size of its ‘pint’ containers from 16 ounces to 14 oz.” Likewise, what used to be a half gallon, became 1.5 quarts several years ago, and now my favorite comes in at 1.43 quarts. The same is true of candy bars and other sweets, but also of some breakfast cereal (17.3 oz.) and canned green beans (14.5 oz.).

The next they call “Auto Bundles.” “The average new car cost more than $37,000 in October, mostly from the desire for bigger SUVs and trucks, but “options packages and custom trim lines can swell a sticker price by thousands of dollars.” The 12-inch touchscreen for a Ram truck adds almost $8,000 alone.

“Premium Economy” is the new trick airlines use to offer more legroom and amenities to those wanting more but unwilling to break the bank to fly first class.

The “Women’s Brands” category emphasizes how women often pay more for the same product from jeans to deodorant. It’s called the “pink tax” and has been around for a while. One brand even advertises their products as “pink tax free,” although that's hard to prove for their tampons.

The last category is the most problematic as it seems to prey on individual’s need to impress – a real perspective killer! It’s dubbed “Fashion Drops.” European luxury brands and other are trying “to put scarcity back in the equation” with special releases of limited productions. (This artificial scarcity has long been practiced by the diamond industry.) One such example given is Kanye West “Yeezy” Adidas sneakers.

Looking up fashion drops was a learning experience. One site, drophype.com (at least they are honest about the hype), promises the latest news on these highly desirable, special releases; but the last posting is 2 years old, so either the hype has cooled or they just fell behind. But some of those Yeezy sneakers sell here for $999, or only $28 a month! 

Those are apparently the latest tricks and lures for unsuspecting shoppers. Good luck for Black Friday shopping, try to keep some sense of perspective so you don't end up owing a monthly payment on your footwear.

Looking into Financial Rules of Thumb

I recently ran across this site carrying information, pet peeves and rules of thumb about financial advice. After reading through it, and in the spirit of economic understanding as well as last Monday’s comments about how there is always someone out to con us, I thought I would add my two cents.

One of the questions asks how much life insurance a person should buy. The writer was confused and concerned because the answers differed depending on which expert you ask. “Some say your policy should cover five times your annual income. Others say ten times. And Suze Orman recommends 20 times annual income needs.”

The real answer, of course, is that it depends.  Some people need no life insurance. Just as homeowners insurance is designed to cover a financial loss and inconvenience of losing a house to fire or a tornado, life insurance is designed to cover loss of income for some period of time until those who remain behind can work out other solutions. “You only need it if other people — like a spouse or children — would face financial hardship when you die. If you don’t have kids, if your spouse has a good income, or you have substantial savings, then life insurance isn’t a necessity."

He goes on to say: “Even if you do need life insurance, you probably don’t need to carry as much as your insurance agent is willing to sell you,” and recommends checking a site called the Life Insurance Needs Calculator. This calculator still needs to be taken with a grain of salt, but from what we learn here it’s pretty clear that life insurance for a child is unnecessary – the probabilities are low and the financial contribution is zero. So those inexpensive offers sent to grandparents in the mail border on being scams.

A second comment in the article that I took some exception with was the identification of inflation as a “silent killer of wealth.” This is a pretty common theme from financial experts. And it is true that if a person invests $100 modestly at a rate about 3%, ten years later he will have over $130 but the buying power on average will be a little less than when he started out.  It’s really a breakeven strategy at best. People may feel richer but they are no better off.

To earn more than the inflation rate though, requires putting some of the principal at risk. (A 10-year CD from Discover Bank, where you never lose your initial investment, is paying only 2.7%.) To beat inflation over time one must invest in the stock market (or similar instrument more risky than a bond or CD) and ride the roller coaster hoping to hit a peak and not a valley when the money is needed. Advisors help their customers do that, but as we know, past performance does not guarantee future returns.

But not to worry – there is another side of the story. This article reminds us that buying power is not easy to calculate. It gives a list comparing prices of numerous items including: bicycles, stoves, home entertainment systems, slow cookers, gas grills and more, for 1979 and 2015 not only in terms of dollars (for inflation), but also in terms of number of hours of labor required by an average worker to earn that amount.  In all cases there is a steep decline in required labor – and the product quality is much better.  For example, a vacuum cleaner went from 15 hours to 2.3 hours with a vast improvement in the machine itself.

To compare to 1979 is one thing.  If the list used 1959 instead, a microwave wouldn’t even be on it. I read in another source that 100 years ago it would have taken almost 11 months of average wage work to buy a refrigerator compared to a just few days today! That’s why almost no one owned one then and almost everyone owns one now. That’s perspective!

Another Black Friday

How can Black Friday pass without thoughts turning to perspective?  What would it be this year – women fighting over yoga pants, someone caught in the stampede as the doors opened?  Perspective is about moderation and keeping our core values, what we hold important, as the focus of how we spend our energy and resources.  Good behavior in perspective leads to happier, more peaceful lives, quite the opposite of what we see on this single day (now one-and-a-half days) every year.   Black Friday once again turns out to be poor perspective “on steroids.”

With cell phone cameras ubiquitous and rolling, it’s gotten too easy to find examples.  The Huffington Post reports on and posts videos of several instances. “The shopping frenzy surrounding Black Friday has already led to a number of violent incidents across the country.  Starting as early as Thursday night, shootings and stabbings have been reported at retailers in several states.”  The Orlando Sentinel provides a laundry list of violent incidents.  Imagine how much pushing, shoving and generally rude behavior is too commonplace to even make the news.

Another article tells of cruder behavior in years past when some people were observed relieving themselves in public so as not to lose their place in line.

How can these people be proud of the way they are acting?  How can America be proud of it?  This behavior cannot be passed over as totally spontaneous, caught up in the emotion.  These people planned to be there.  They planned to shop and fight for bargains.  They probably did more research than they do before casting their ballots on Election Day!

Picture this:  Hundreds of people lined up, camping out hours ahead to attend a church service, then fighting to get to the head of the line because communion wafers are in limited supply!  Sounds ridiculous.  But replace it with Wal-Mart and cheap televisions and it becomes real.  Behavior reflects priorities, what is valued, what is meaningful.  What do Americans really value - family, faith, friendship, peace and goodwill or the law of the jungle?  Sometimes it's very hard to tell.

Bargain Hunting

Since the beginning of the Great Recession we have been able to find some great bargains.  Some people have gotten a great deal on a house, perhaps at the expense of the seller - but it was a bargain.  Most have less expendable income or are being careful with their money which seems to have inspired more bargains in the area of home repair or maintenance items that we might ordinarily put on hold, such as windows, roofing, etc.  Many other sellers have been forced to become more competitive.  This is all good for us, the consumer.  Not everything is the bargain it appears to be, however, and a little bit of critical thinking helps.

Today I received a letter telling me that I could get a different cable, internet and phone package for a bargain price.  In fact I could save over $600 for the first year over the regular price.  Wow, I thought, that probably means that next year they will be adding over $50 per month to my bill.  That's the price I should really use to compare, unless I plan to switch back and forth between cable companies on a yearly basis - oops! the very small print on the back says it requires a 2-year agreement and a $35 setup fee.  So it wasn't such a great deal after all.

Likewise, I see ads in mailings, on TV, in the newspaper or on the Internet saying that each major insurance company can save me hundreds of dollars a year on auto insurance compared to all the others.   How does that work?  It reminds me of one of those M. C. Escher drawings where the waterfall feeds itself or where no matter how many times you go down the stairs you keep ending up on the top floor.  They can't all be less expensive than each other.  As I mentioned before, one even  boasts that 85% of the people who switched are paying less.  Isn't that just another way of saying that 15% of our customers are not too bright?  When these ads are looked at closely, they defy logic.

Marketing people are tricky; they are paid to lure you in.   Fortunately, they are not allowed to lie to us directly, but some of their promises seem really fishy when exposed to basic critical thinking.  I read recently that America was a pioneering society where action was often valued over thinking.  When you are being attacked by a grizzly bear, it's not time to stop to contemplate options; but when you are being enticed by an advertisement or a salesperson, you have all the time in the world.  No matter how often they tell you it's for a limited time only, we all know similar deals will turn up in a couple of weeks or months.  Think of the possibilities for saving and to force more forthright advertising if more people's behavior reflected strong critical thinking!