Felix Salmon writes:
Economists Justin Wolfers and Betsey Stevenson have a problem with Grant Achatz’s pricing strategy at Next, where tickets are sold at a fixed price and are then free to be resold at an enormous markup on the secondary market . . .
“It’s democratic in theory, but not in practice,” said Wolfers . . .
If a person can sell a ticket for $3,000, the true cost of going to the restaurant — what an economist would call the opportunity cost — is $3000, because that’s how much money the person is giving up for the meal.
Bloomberg’s Mark Whitehouse concludes that Next should “consider selling tickets to the highest bidder and giving the extra money to charity” . . .
What strikes me is how weird this discussion is. Why should this restaurant owner have some sort of moral obligation to maximize his income and then donate to charity? For one thing, if he really did make more money off the deal he might just keep it. But more to the point, this sort of maximization argument is deadly because of its universality. Should Mark Whitehouse be doing things he doesn’t feel like doing, just so he can maximize his income and donate the extra to charity? And in what sense would you ever expect restaurant tickets to be “democratic” (in the words of Wolfers)??
The whole thing reminds me of our discussion of the two modes of pop-economics reasoning. You take some fact (or stylized fact) about the world, and then you either (1) use people-are-rational-and-who-are-we-to-judge-others reasoning to explain why some weird-looking behavior is in fact rational, or (2) use technocratic reasoning to argue that some seemingly reasonable behavior is, in fact, inefficient.
In this case, Wolfers and Whitehouse are going through some contortions to argue (2). In a different mood, however, they might go for (1). I don’t fully understand the rules for when people go with argument 1 and when they go with 2, but a quick rule of thumb is that when someone seems to be acting like a jerk, an economist will defend the behavior as being the essence of morality, but when someone seems to be doing something nice, an economist will raise the bar and argue that he’s not being nice at all.
I’m guessing that if Grant Achatz were to implement the very same pricing policy but talk about how he’s doing it solely out of greed, that a bunch of economists would show up and explain how this was actually the most moral and democratic option.
P.S. I agree with John Sides that Salmon should’ve checked before slamming him as “out of touch.” I think I can guess what was going on. Salmon has a fun, shoot-from-the-hip style that I generally enjoy. He should’ve known that Sides is a careful researcher and a thoughtful writer, but he didn’t. Salmon sets his criticism threshold low so he’ll get the occasional false positive.