Everyday Economics

Economic thinking is not limited to the classroom, the boardroom or the business pages. At least it shouldn’t be!

My wife and I just returned from a trip to Italy. When recounting our travels to a friend we happened to mention that two of the hotels we stayed in were actually quite old. The first was originally constructed as a monastery that dated back to the 11^th century. The second was a wealthy merchant’s home located just outside the beautiful walled city of Siena. It was built in the middle 1300’s. Imagine that… sleeping in a room that was nearly one thousand years old! Our friend was taken aback and remarked, “They really knew how to build houses back then. Not like today.” She continued with certainty and conviction, “Today they want the buildings to fall apart quickly so they can be replaced. It’s planned obsolescence.”

Later at dinner another friend happened to mention that she wasn’t feeling well due to severe seasonal allergies and other medical issues. She told us that her insurance company would pay for a prescription of the potent steroid, Prednisone, but not a more targeted and expensive medication that could cost upwards of $600 per month. The drug was not in their formulary. I asked her if she had considered other sources to fill her medication such as Wal-Mart since they are well-known for their aggressive low pricing in prescription drugs, just like everything else they sell. She said firmly, “No. I have an issue with Wal-Mart. I won’t shop there.” Since she had not indicated being poorly treated at a Wal-mart in the past I imagined that it must have been some social or political bias. Regardless, I added, “If they carry your prescription drug you may be able to save hundreds of dollars by having it filled there.” Her eyes widened… she said, “Really? I guess should give them a call.”

Both these statements resonated with me at a fundamental level. Let’s examine the first.

The underlying assumption was that builders today design houses and buildings to deteriorate quickly. Builders today must use a quality of craftsmanship and materials that doesn’t hold up, so that they can be replaced by new buildings… erected, it is assumed, by the same builder at some point in the future.

Now if I was a general contractor and knew this "shady" practice to be true I would have two choices. First, I could keep quiet to perpetuate this scheme. Then I would look for some other way to compete with other builders for new business. Or, I could tell the customer, that my firm will build exactly what the customer wants on time, under budget, and using high quality materials and excellent craftsmanship. I would also state that we, as professional builders, will stand behind our work because our reputation and future business depends on it.

So, if a customer wants to build a monastery that will last a thousand years, and if the budget allows for it, then there are many GC’s who will be able to deliver just that. But that’s a pretty uncommon request since houses made of solid stone, with marble floors and heavy timbers, that are covered by heavy Tuscan tile roofing and adorned with hand painted frescoes would be prohibitively expensive and rejected as being inefficient extravagances. Is it planned obsolescence? In a way, yes it is. But it is the contractor’s client doing the planning and making those choices not the builder.

Then there was the friend with the medical condition.

It seems that she objected to doing business with Wal-mart as a general practice. She never offered a reason why and I never asked. But one thing became clear. She revealed that her objections were quantifiable. They had a dollar threshold. If it meant saving a couple of bucks when shopping for a toaster then her principled stand not to shop at Wal-mart remained steadfast. But when she saw an opportunity to save hundreds of dollars and get exactly the medicine she wanted her objections to shopping at the big box from Arkansas melted like the spring snow.