I’m a big fan of economic freedom. The freedom to buy and sell what I want, and to not buy and sell what I don’t want. And this is more than just a thinly veiled support of the free market. Private corporations make you buy things you don’t want all the time.
How many of you have television service? You probably pay a cable subscription in exchange for a ton of channels. But how many of those channels do you watch? If you’re typical, probably not more than a dozen. So how is it fair to make you pay for over nine thousand channels when you only watch a handful? This is called bundling, and the folks over at Marginal Revolution talk about it all the time. Or, more precisely, they talk about unbundling.
See, the main purpose of bundling is to socialize the costs of niche products. So for example, you may only watch prime time mass market comedies on mainstream channels (actual cost: pennies), but you’re still charged the same $80/mo subscription fee as everyone else. Meanwhile, your neighbour might be a massive fan of ESPN (actual cost: a ton in licensing), but unwilling to pay the full cost of subscribing to it. In a world where each of you were charged only for what you use, you would pay a couple bucks a month, and your neighbour a couple hundred. But, of course, in that world, your neighbour would balk, cancel his subscription, and no sports would be watched. Thus, Shaw overcharges you to subsidize your neighbour, everyone gets more TV, and Shaw gets more money.
Economists though, don’t like this. As one of the normative beliefs they whisper between their catechism of impartiality, they’ll tell you over drinks that everything that can be unbundled, should be unbundled. Because, in effect: it’s not fair to make one person pay for someone else’s consumption. In the perfect world of frictionless economics, the market would hit equilibrium where peoples’ willingness to pay matches suppliers’ willingness to produce. S/D curves 101. By unbundling products, allowing each person to mix and match and pay for only what they want, each person has their resources freed up to better achieve their goals and priorities.
A while back, I was on a date with an AnCom activist from California. This was a bad idea, I know, but the spirit was willing and the flesh was weak. We were talking about air travel, as you do, and I mentioned that one of the things I missed about living in the States was cheap air travel. Air travel deregulation in the 70s is one of the greatest victories of free market economics. It’s why flying in the US is so much cheaper than up here, and it opened the door all sorts of other unbundling of the various aspects of flying. I don’t know about you guys, but I love it that wealthy businessmen pay $50 for priority boarding. It makes my flights that much cheaper.
The AnCom saw things differently. She raised as a counter-example Frontier Airlines. Frontier Airlines is the best example of airline unbundling. Their base fares are extremely cheap, but they charge for everything. $25 for a carry-on item ($50 if you don’t pay ahead of time). Selecting a seat at all carries a fee. In-flight drinks are not free. She saw this as a terrible example of an evil corporation squeezing every last profit out of their customers.
I protested. Gripe as you will, Frontier is knocking it out of the park with this. It turns out, given the choice, people would rather have a cheaper flight. Maybe for well compensated software professionals like myself, saving the $25 by not checking a bag doesn’t matter. But for poorer folk, it can make all the difference. To them, $25 can be the difference between flying at all. And insofar as people are voting with their feet, they seem to love it. For all that people complain, as NPR Planet Money reports, Frontier is seeing amazing success. People are freed up to only pay for what they need, and to save money when they don’t. How is this possibly a bad thing?
Her response, in a nutshell: This is predatory. People are lazy. People are stupid. They see the base fare and assume that’s the cost. They don’t bother to (for example) notice the $25 carry-on fee. And then when they show up at the gate, they’re not only charged a fee, but slapped with a “penalty” (Total fee $50) for their ignorance. This is grossly unethical and must be stopped.
This is an interesting complaint. On the one hand, I am objectively correct. Frontier Airlines is the fastest growing airline. Ignore the complaints; people demonstrably value this pricing structure. But she has a valid point as well. There are no doubt people getting burned by this, and since they’re people flying Frontier and not Virgin, it’s a safe assumption that they’re not likely in the best position to afford it. I thought on this, and I came to a question.
Grant for the sake of argument that this is unethical. Is there anything that could be done that would allow Frontier to keep this pricing structure, while not being unethical? Could they, say, communicate this better upfront? Do the Uber surge price thing and make you confirm that you accept it? Are there certain things for which this is intrinsically unethical, and others for which it’s not? What is the specific threshold at which this practice becomes unethical?
Of course, because she’s an AnCom, her answer is somewhere in the realm of “making me pay for a flight at all is wage slavery”, and so that’s not a fruitful line of inquiry. But lets prax this out. What is the root cause of the problem? The root cause of the ethical problem is that, uncharitably paraphrasing her comments, people are too stupid to reason through this. The corporation on some level knows this, and takes advantage of it.
The customers are stupid, and therefore the corporation is responsible for accommodating them. It sounds strange when phrased this way, but I suspect that most peoples’ instincts fall along these lines. But… why? We take it for granted that a corporation has an ethical responsibility along these lines towards the general public. But what is the general public’s ethical responsibility in return? What level of competency is it ethically acceptable for a corporation to expect from the public? What are the requirements for a minimum viable citizen?
This rarely gets discussed. When it does, it’s usually assumed as a background fact and taken for granted. Progressives and left-wing reformers generally assume that everyone is helpless, and push to accommodate the lowest possible common denominator. Libertarians like to hand-wave it all away with “voluntary exchange”, pushing 100% of the personal responsibility onto the individual. What is the “correct” value? I don’t know, and I’m interested in hearing your accounts of this. But I think it’s critically important that this discussion gets had.
We live in a world where technology is growing at an unimaginable pace. Things that seemed miraculous a decade ago are trivially commonplace now. But as technology progresses, our society becomes more complex. The cost of using these technologies is rarely zero. They all depend on some element of learning. They all hold some basic expectations on their users.
Some people, like the AnCom, find these expectations intrinsically unethical. But along that path lies ruin. Taken to the extreme, that reasoning would suggest that cars should be banned, because it’s too hard for horse riders to learn how a steering wheel works. That would be nuts; clearly the invention of cars has been an enormous boon for humanity. And yet… there are no doubt some people out there for whom driving is too challenging, and a country that expects people to have the ability to drive, is a country in which they cannot be first-class citizens.
But on the flip side, expectations of arbitrary responsibility don’t work either. Back when I lived in San Francisco, it was impossible to find housing. What I, and many other tech people did, was script Craigslist. I had a recipe on IFTTT set up. Every fifteen minutes it would scan Craigslist for new rentals in my desired neighbourhoods and price ranges. It would automatically reply to them with a brief introductory email, and CC me so I could review them and follow up on the promising ones. In this market, this was a necessity. And yet, a market that expects this behaviour of its participants is a market where the vast majority of humanity is excluded by default.
As technology progresses, it will entail ever-rising requirements for people to make use of this technology. Some people will be able to. Some people will not. If we sit here and do nothing, sticking our fingers in our ears, inequality will increase, as the people who can handle the vagueries of Frontier-style pricing economically dominate the people who can’t read the fine print. If we insist on 100% accessibility and inclusion for everyone, we’ll end up with a stagnant society that can never innovate.
If we spoke openly about this, we could discuss the merits and drawbacks, balance the tradeoffs, and set a standard. We could then innovate with that expectation, freeing us from having to worry about every corner case. And we could work to prepare people for that, holding standards for them and supporting them in the process of achieving those standards. But the closest thing to a discussion of this that I’ve ever seen is David Chapman’s Meaningness blog, where he talks about the critical task of leveling people up to a stage 5 mentality. Unfortunately, the only people familiar with his work are people like us, the people who don’t need it.
So what makes for a minimum viable citizen? What expectations of peoples’ ability is it reasonable to hold? Are people even able to rise to these challenges? How can we support them in it if they can?