Tag Archives | economics

How Long Should I Wait in Line for “What the LeBron”? [Economics]

imageI was listening to this NPR podcast on the fashion sneaker economy and I got interested in the people who wait 12, 24, or even over 36 hours to purchase and then resell the shoe. Is it really worth it?

I absolutely believe in time is money, in the sense that any time you waste should be considered at a labor rate. This isn’t much different from waiting in line for a new Xbox or Sony Playstation console either. In November 2001, my friend Mike and I slept overnight outside Best Buy and Walmart in a Milpitas shopping cart in hopes of getting an Xbox. We did, but at the time we were both students who had nothing better to do and also made about $8.00 an hour in our part time jobs. We also only waited about eight hours or so – even though people were waiting in line at Best Buy, no one actually went to Walmart and we got our Xboxes easily that morning.

Now that I am an adult, the economics are different. Let’s answer two questions:

1) How much is it worth for me to pay in premium rather than wait in line for the new Nike Lebrons or Jordans that are released?

2) If I look to resell the shoes, how much do I need to profit to make it worthwhile to wait in line (versus taking care of my children or just flat out working another job?)

First Scenario:

$20 an hour, $800 a week ($40,000 per year)

(Assuming 40 hours of work; let’s avoid taxes and benefits reductions for simplicity. As a side note, the average salary in the US is $1000 per week.)

The chart below shows, based on how much the shoe originally cost ($250 before tax), your expected returns and salary based on waiting (this dismisses transportation, shipping costs, etc. This also doesn’t account for the times you may actually lose out on the shoe – yikes!)

If you are looking to buy and you make at least $20 an hour at your job, it is worth it for you to buy a $250 shoe at any of the prices listed in green. For example, if you think you would need to wait a full 24 hours in line to secure the shoe, you should be willing to pay up to $700 for the new Lebron rather than wait in line. If you purchase the shoe for $700, you are paying someone else $18.75/hr to wait in line for you, which is less than your own salary.

If you are thinking, but I have to pay someone, well, think of it as outsourcing your work. How much would you pay someone to do your job? If you make $20 an hour, but you can outsource it to Bob for $18.75, you can make $1.25 an hour from doing nothing. This is an arbitrage, free money off the ground.

If you are looking to sell, the cells in red show your hourly wage rate from waiting in line.

At $20.00 (white highlighted cell), you are indifferent (waiting 5 hours to sell (or buy) the shoe at $350).

imageSecond Scenario:

$25 an hour, $1,000 a week ($50,000 per year, roughly the average pay across the nation)

imageThird Scenario:

$30 an hour, $1,200 a week ($60,000 per year)

imageFor the last scenario, let’s say you do pretty well and make the magical $100,000 a year mark. Because you make a pretty darn good salary (congratulations, by the way!) I expect that you should have an intelligent approach to your time.

Final Scenario:

$50 an hour, $2,000 a week ($100,000 per year)

imageAs you can imagine, the more you make, the harder it is for you to really profit from waiting in line if you want to resell the sneaker, but it’s also more valuable for you to not wait inline if you just want it for yourself. If I had to wait more than 2 days for a shoe and I made the average US salary, it is economically worthwhile for me to pay $1,000 for a $250 shoe on eBay or NikeTalk rather than wait in line. In the podcast, they mentioned how resellers talk about the shoes like a stock, but there is one big difference. The transaction cost for purchasing/selling a stock is minimal. I can make a trade on eTrade for $20 at any time, it’s automatic. You can set it and resell it anytime (no waiting in line as with shoes) you need based on defined amounts, there are no extra fees in terms of storage (you need to keep shoes and boxes in great condition, collectors are picky).

If you make $100,000 a year, you are better off going to work rather than waiting in line longer than one night. Do some research on Campless, for example and find the right timing to make an offer on the shoe you want.

You may argue otherwise, which is fine, but ultimately you should define to yourself how much your time is worth before blindly waiting in line for shoes, video game consoles, or the new iPhone. Especially if you are an adult, with real bills to pay.

10 Things to Learn from Poor Economics (by Abhijit V. Banerjee and Esther Duflo)

imagePoor Economics: A Radical Rethinking of the Way to Fight Global Poverty from Abhijit V. Banerjee and Esther Duflo, has a very simple theme: every thing you thought about fighting poverty and people in poverty is wrong. They do not actually state this in that way, but over the course of the book, I realized that every blanket and lazy assumption I had ever thought (the poor are poor because they are lazy, the poor cannot be given things for free, the poor are too poor to pay for things) was wrong.

What is important, however, is that Banerjee and Duflo discuss in detail, when these certain assumptions or theories can work, and with whom, and why they do not work. From the book, you get a detailed understanding of their endless cycles of “why?” something happens, and then why the following something happens, using statistical examples all over the world. There’s no time wasted on endless armchair-at-home theory, it’s just real world testing providing proof.

My recommended takeaway from the book is never accept a blanket theory or simplified solution from a politician (or other economists) regarding poverty again. There are many things that can help, but none is a genius solution. Every single thing you can think of can probably help, but instead of choosing the cool one of the day (microfinance! government subsidies! education! first world aid!), we must realize that these are all required to slowly help people from their poverty traps. Beyond this, embrace a more empathic understanding of the poor all over the world.

Here are 10 things to learn from Poor Economics (these are quotes with my comments in []):

1) Economists (and other experts) seem to have very little useful to say about way some countries grow and others do not … But the truth is, we are largely incapable of predicting where growth will happen, and we don’t understand very well why things suddenly fire up.

2) … although we have no magic bullets to eradicate poverty, no one-shot cure-all, we do know a number of things about how to improve the lives of the poor. In particular, five key lessons emerge.

First, the poor often lack critical pieces of information and believe things are not true [examples: benefits of immunizing children; value of education, even just a few years; what politicians actually do; how HIV is contracted] … Citizens who vote in the dark are more likely to vote for someone of their ethnic group [reasoning that at least someone of the same group may provide a little help], at the cost of increasing bigotry and corruption … an information campaign must have several features: It must say something that people don’t already know … must do so in an attractive and simple way … must come from a credible source.

3) Second, the poor bear responsibility for too many aspects of their lives. The richer you are, the more the “right” decisions are made for you. The poor have no piped water, and therefore do no benefit from the chlorine that the city government puts into the water supply. [think of this as, in the United States, you are in forced to live a certain way and pay taxes for it. You have clean, running water, fluoride to protect your teeth, mandatory immunizations, taxes to cover Medicare and Social Security retirement. You have to participate in these programs, and in some ways, these protect you from being completely screwed. The poor do not have these programs and suffer in productivity because of extra disease and risk when something bad happens]

4) [Third] The poor get a negative interest rate from their savings accounts (if they are lucky enough to have an account) and pay exorbitant rates on their loans (if they can get one) because handling even a small quantity of money entails a fixed cost. [The people who need financial help the most are most unable to get it. 20% interest loans would be considered fantastic to the poor, but theft to the non-poor; credit card rates are 20%. Despite this, it is difficult for financial institutions to support these institutions because of the risk, admin work, and relatively low returns involved] The market for health insurance for the poor has not developed, despite the devastating effects of serious health problems in their lives, because the limited insurance options that can be sustained in the market (catastrophic health insurance, formulaic weather insurance) are not what the poor want.

5) The mistrust of free distribution of goods and services among various experts has probably gone too far, even from a pure cost-benefit point of view. It often ends up being cheaper, per person served, to distribute a service for free than to try to extract a nominal fee. In some cases, it may involve ensuring that the price of a product sold by the market is attractive enough to allow the market to develop. For example, governments could … distribute vouchers that parents can take to any school … It is important to keep in mind that these subsidized markets need to be carefully regulated to ensure they function well. For example, school vouchers work well when all parents have a way of figuring out the right school for their child; otherwise, they can turn into a way of giving even more of an advantage to savvy parents.

6) [Four] Many of these failures are less to do with some grand conspiracy of the elites to maintain their hold on the economy and more to do with some avoidable flaw in the detailed design of policies and the ubiquitous three I’s: ignorance, ideology, and inertia. … The fad of the moment (be it damns, barefoot doctors, microcredit, or whatever) it turned into a policy with any attention to the reality within which it is supposed to function.

7) A small revolution can be achieved by making sure that everyone is invited [explicitly] to village meetings; by monitoring government works and holding them accountable for failures in performing their duties by monitoring government politicians at all levels and share this information with voters … [the book mentions that just by having political voting, even if it is considered pre-determined, can improve things by creating an early level of accountability]

8) [Five] Finally, expectations about what people are able or unable to do all too often end up turning into self-fulfilling prophecies. Children give up on school when their teachers (and sometimes their parents) signal to them that they are not smart enough to master the curriculum; fruit sellers don’t make the effort to repay their debt because they expect that they will fall back into debt very quickly; nurses stop coming to work because nobody expects them to be there …

9) Small changes can have big effects. … Kids in Kenya who were treated for their worms at school for two years, rather than one (at the cost of $1.36 USD PPP per child and per year, all included), earned 20 percent more as adults every day, meaning $3,269 USD PPP over a lifetime.

10) Poverty has been with us for many thousands of years. If we have to wait another fifty or hundred years for the end of poverty, so be it. At least we can stop pretending there is some solution at hand…