The Price of Everything (38 page)

But it would be naive to believe that industrial nations will inevitably move back to a Big Government era, clipping bankers’ horns, clamping down on monopolies, and generally taking a decisive role in shaping the economic order. Bank shares jumped the day after the U.S. Congress passed a new law to regulate the financial industry. They surged again after global regulators agreed on new, higher capital cushions. Both jumps suggest the new rules will do little to curtail banks’ risk taking.

What’s more, President Obama’s efforts to reform health insurance and stimulate the economy with government spending provoked a furious populist backlash. Forty-eight percent of Americans tell Gallup their taxes are too high. As I write this passage, the loudest protesters on the streets are not railing against bankers. They are members of the Tea Party, who accuse President Obama of being a “socialist” out to undermine the nation’s values. In Europe, faith in government is not doing much better. Following the battering of the bonds of weaker countries like Greece and Spain in the spring of 2010, European Union governments virtually across the board declared it was time to start slashing their budget deficits. This, despite the fact that employment was still contracting, unemployment remained around 10 percent, and there was no plausible alternative source of demand to take the place of the spending that governments planned to withdraw from their economies. In other words, they risked a deeper economic downturn just for the sake of pulling the government out of the economy.

These are early days. Little more than two years have passed since the demise of Lehman Brothers. Finding a new equilibrium between government action and private markets was always going to take longer than that. And citizens’ mistrust of their governments seems about as high as their mistrust of bankers. But if we learn only one thing from the economic disaster of the last two years, it should be this: we should never again accept unchallenged the notion that the prices set by unfettered markets must inevitably be right. Sometimes they are. Sometimes they are not.

Consider the testimony before Congress of Alan Greenspan, the former chairman of the Federal Reserve, on October 23, 2008. Greenspan was known as “the Maestro” for his seemingly deft management of monetary policy, evidenced by a long tenure during which the United States experienced low inflation, long economic expansions, and short and shallow recessions. He was also one of the main architects of economic policy as the housing bubble inflated toward its climax. A follower of the libertarian, antigovernment thinker Ayn Rand, he was considered the high priest of unfettered markets, prone to righteous expressions of faith in their ability to properly price financial assets and allocate resources efficiently.

But when he was dragged before the House of Representatives’ government oversight committee on October 23, Mr. Greenspan shocked the world by admitting he had been wrong. Henry Waxman, the Democrat from California who chaired the committee, goaded him, “You found that your view of the world, your ideology, was not right, it was not working.” And to most people’s surprise, Greenspan answered, “Absolutely, precisely.” Indeed, even Greenspan learned just how badly prices can fail and send our decisions and our lives astray.

I HAVE BEEN
writing for a living for two decades. Never before did writing seem to be such a quest. As with any great adventure, the success of this book relied on a large cast of characters.

I couldn’t have started without the help—sometimes inadvertent, involuntary, even posthumous—of economists, psychologists, and even the occasional biologist, demographer, and sociologist.

Some of these scholars were particularly generous. In no particular order, I would like to thank Monica Dasgupta and Vijayendra Rao of the World Bank, Robert Frank from Cornell, Claudia Goldin and David Laibson from Harvard, and Justin Wolfers from the University of Pennsylvania’s Wharton School, who patiently talked me through some of their work and helped me grasp sometimes difficult concepts.

But my gratitude extends to the hundreds of scientists who have offered their lives’ work to understanding some of the bigger questions about humanity: how do we choose between our options? Why do we behave the way we do? I built this project upon their insights and discoveries.

I am grateful to the team at Portfolio. Adrian Zackheim saw promise in this project before I knew where it would lead. He and Courtney Young provided sharp and concise advice along the way and a deft editing touch at the end. Will Weisser and Maureen Cole provided marketing and publicity expertise. And I thank Lance Fitzgerald for pushing this book around the world, so it can be read in many places I have never been. Jason Arthur and Drummond Moir at RH/Heinemann in London were wonderfully supportive.

I will be always grateful to Cressida Leyshon, Steve Fishman, Adam Cohen, Nick Kristof, and Charlie Duhigg, who read portions of the book—providing much needed advice and helping steer me back to coherence when my writing lost its purpose and my ideas went astray. And I thank Tim Sullivan, whose patient ear and sound counsel helped me craft a jumble of thoughts into a coherent idea. Beyond the rather substantial help of my friends, I relied on the able work of some sharp research assistants: Avi Salzman, Miriam Gottfried, April Rabkin, and Alejandra Pérez Grobet. If there are any errors in this book, it is nobody’s fault but my own. There would be more if not for the eagle eye of three great fact checkers—Joshua Friedman, Susan Kirby, and Jane Cavolina.

I would also like to thank all my colleagues at the
New York Times,
in the newsroom and on the editorial board. It is a privilege to work with them every day. I owe special gratitude to my boss, Andy Rosenthal, whose forbearance allowed this book to happen.

Some superspecial thanks are in order: First of all to my mother, who has always been there, through thick and thin, ready to provide the sort of unconditional love and encouragement that only mothers can. This book happened only because of the persistence of my old friend and agent, Zoë Pagnamenta, who not only believed I had a book in me but helped me figure out what it was about. She has been a doggedly enthusiastic advocate for this book and an indispensable guide, always ready to provide needed directions to navigate the seas of publishing. I also thank Simon Trewin of United Agents in London.

Most of all, I owe an enormous debt of gratitude to my family, who had to bear with me as I reorganized my life and theirs around my exciting new adventure. Gisele, my wonderful wife, not only agreed to be a sounding board, providing thoughtful advice and reassurance through the uncertain early stages of the book, she gamely shouldered new burdens so I could focus on writing, filling as best she could the hole left in our family by my absence. Mateo, our son, might remember this stage of his life as the time when his father wasn’t allowed to have any fun. He doesn’t know yet how much fun I had. He should know too the crucial role he played in this project. His raw love and indiscriminate joy gave me an endless supply of light and heat. And he is a great partner to kick the ball around with in the yard. I couldn’t have done this without him.

General note:
Unless otherwise noted, prices in U.S. dollars are converted to 2009 dollars using the Consumer Price Index.

 

1-4 Prices Are Everywhere:
The data on how people value garbage is drawn from: Annegrete Bruvoll and Karine Nyborg, “On the Value of Households’ Recycling Efforts,” Statistics Norway Research Department Discussion Paper, March 2002 (
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=310320
, accessed 08/01/2010); Roland K. Roberts, Peggy V. Douglas, and William M. Park, “Estimating External Costs of Municipal Landfill Siting Through Contingent Valuation Analysis: A Case Study,”
Southern Journal of Agricultural Economics,
Vol. 23, Issue 2, December 1991; Derek Eaton and Thea Hilhorst, “Opportunities for Managing Solid Waste Flows in the Peri-Urban Interface of Bamako and Ouagadougou,”
Environment and Urbanization
, Vol. 15, No. 1, April 2003; and Papiya Sarkar, “Solid Waste Management in Delhi—A Social Vulnerability Study,” in Martin J. Bunch, V. Madha Suresh, and T. Vasantha Kumaran, eds.,
Proceedings of the Third International Conference on Environment and Health,
Chennai, India, December 15-17, 2003 (Chennai, India: Department of Geography, University of Madras and Faculty of Environmental Studies, York University), pp. 451-464. Evidence of the different Swiss and Chinese attitudes toward the environment is drawn from the 2005-2008 wave of the World Values Survey (
http://www.worldvaluessurvey.org/
, accessed 08/01/2010). The relation between sulfur-dioxide emissions and income is found in Gene Grossman and Alan Krueger, “Economic Growth and the Environment,”
Quarterly Journal of Economics
, Vol. 110, No. 2, 1995 (converted to 2009 dollars using GDP deflator). SO
₂
emissions in the United States are drawn from the Environmental Protection Agency (
http://www.epa.gov/air/sulfurdioxide/
, accessed 08/01/2010). The tale of the Larry Summers memo is drawn from Noam Scheiber, “Free Larry Summers: Why the White House Needs to Unleash Him,”
New Republic
, April 1, 2009; “Let Them Eat Pollution,”
Economist
, February 8, 1992; and James A. Swaney, “What’s Wrong with Dumping on Africa?,”
Journal of Economic Issues
, Vol. 28, No. 2, June 1994, pp. 367-377.

5-8 The Price of Crossing Borders:
Comparative gender gaps are drawn from: Bijayalaxmi Nanda, “The Ladli Scheme in India: Leading to a Lehenga or a Law Degree?” Presentation, Department of Political Science, Miranda House, Delhi University (
http://www.undp-povertycentre.org/pressroom/files/ipc126.pdf
, accessed 08/13/2010). The analysis of illegal immigration into the United States draws from: Raúl Hinojosa-Ojeda, “Raising the Floor for American Workers: The Economic Benefits of Comprehensive Immigration Reform,” Center for American Progress, January 2010 (
http://www.immigrationpolicy.org/special-reports/raising-floor-american-workers
. , accessed 08/01/2010); the Mexican Migration Project database (
http://mmp.opr.princeton.edu/results/001costs-en.aspx
, accessed on 06/30/2010); Maria Jimenez, “Humanitarian Crisis: Migrant Deaths at the U.S.-Mexico Border,” American Civil Liberties Union, Washington, 2009 (
http://www.aclu.org/immigrants-rights/humanitarian-crisis-migrant-deaths-us-mexico-border
, accessed 08/08/2010); Patricia Cortes, “The Effect of Low-Skilled Immigration on U.S. Prices: Evidence from CPI Data,”
Journal of Political Economy
, Vol. 116, No. 3, June 2008; and Department of Homeland Security, Office of Immigration Statistics, “Estimates of the Unauthorized Immigrant Population Residing in the United States: January 2009” (
http://www.dhs.gov/xlibrary/assets/statistics/publications/ois_ill_pe_2009.pdf
, accessed 07/27/2010).

 

8-10 Prices Rule:
The data on cigarette prices comes from the Campaign for Tobacco Free Kids (
http://tobaccofreekids.org/reports/prices/
, accessed 8/13/2010); and the Centers for Disease Control and Prevention (
http://www.cdc.gov/tobacco/data_statistics/tables/economics/trends/index.htm
, accessed 8/13/2010). Illegal drug prices and consumption drawn from Arthur Fries, Robert W. Anthony, Andrew Cseko, Jr., Carl C. Gaither, and Eric Schulman, “The Price and Purity of Illicit Drugs: 1981-2007,” Institute for Defense Analysis for the Office of National Drug Control Policy (
http://www.whitehousedrugpolicy.gov/publications/price_purity/price_purity07.pdf
. , accessed 08/08/2010). The analysis relating gas prices and housing draws from Edward L. Glaeser and Matthew E. Kahn, “Sprawl and Urban Growth,” NBER Working Paper, May 2003; and Census Bureau,
American Housing Survey of the United States
, 2007 and 1997 editions (found at
http://www.census.gov/hhes/www/housing/ahs/nationaldata.html
, accessed 08/13/2010). The comparison of urban patterns in Moscow with those of other cities draws from Alain Bertaud and Renaud Bertrand, “Cities Without Land Markets, Location and Land Use in the Socialist City,” the World Bank, Policy Research Working Paper 477, June 1995, in
Journal of Urban Economics
, Vol. 41, No. 1, January 1997, pp. 137-151.