Prices for the most part just plain make sense. Econ 100x shows how prices are formed in the market process and how interworkings of the system were buyers compete buyers and sellers compete with sellers helping price to be determined. Prices are usually the the most efficient way to allocate resources. Notice the words "most" and "usually" in the previous sentences (If you're a diehard Austrian fan "woot-woot" I bet those words felt like a red hot serrated knife cutting out your invisible heart and feeding it to your friend's pet giraffe named Skippy -note I am really sleepy right now.
In all seriousness though: I do believe that some things shouldn't have a monetary price tag attached to them. One of these things would be human life. Can we really put a monetary price on someone's life?
Well the answer to this is you can, and that's exactly what the Ford motor company did. In the 1970's the Ford motor company put a price on life, this price: $200,000
Why, did the Ford Company do this? They were simply being good economists setting up a cost-benefit analysis to help them make a choice. They did so after creating the "flaming deathtrap of doom" the Ford Pinto (which had it's gas tank ridged so if someone rear ended you, your car would explode into a ball-o flames, and due to another engineering glitch all of the doors would also jam at the same time...oh how convenient). Soon after discovering the gas tank flaw the Ford Company developed a small part that cost about $11 (about $56 today adjusting for inflation) that could be installed into the Pinto to prevent the whole gas tank blowing up issue. Ford then assigned the price and did a little math. They stated that a life was worth about $200,000 and calculated the number of people who would be killed by the Pinto and compared this number to the amount that it would cost to install the said part into existing Pintos, and found that it would cost them less to just leave the Pinto as was and make payouts to the families who would lose loved ones (In the long run it ended up costing them a lot more because of all of the negative PR and the avenge of Ralph Nader)
I am not at all arguing against the price system here. But there is something seriously wrong with Ford's past logic. We need markets to create prices! Somethings shouldn't have a price because there is no market for them due to their abstractness, and by assigning a price to these things in a way we are using a round-a-bout method of creating price controls hence we get the same ugly gut feeling that occurs when Hugo Chavez states that a pound of beef will cost no more than a certain amount.
I love the subjectivity of prices because they can show us how much we value things. They reflect our own personal elasticities of demand for certain goods that then can be compared with that of others in measurable units. But, shouldn't somethings be just left priceless?
PS I don;t mean to sound like a master card commercial here (as noted earlier me sleepy). I think I still agree with all of the above unless I get a job selling life insurance...
Ha, ha Camilla I love the post. But how do you just "leave something priceless"? Won't people try to apply a price to it regardless (like Ford did)? I think it is impossible for human life to have infinite value (unfortunately) because someone will always place a finite value on it.
ReplyDeleteSome people place a very low, finite value on it (every evil dictator, murderer, etc.). So for those of us that believe in the sanctity of human life we simply have to set a very high (though finite) value on life to drive up the price. We do this by incentivizing entities who respect life and punishing those that don't.
This is where the government comes in, I think, as a arbiter to ensure that basic human rights are protected. The government places a high value on human life by assigning punishments to those that violate its sacredness.
I loved the part about the red hot serrated knife and feeding an invisible heart to giraffe named skippy. All joking aside...
ReplyDeleteI completely agree. Human life should never be thought of in monetary terms. It's too abstract and, in my opinion, too priceless. In the case of Ford, it seemed to me that they used the cost-benefit analysis method to justify their laziness in not wanting to fix the part. They also essentially justified killing off human beings in the name of costs outweighing the benefits. (Although, I don't think it was worth it if their PR went down and Ralph Nadar decided to exact revenge). So on top of a round-about way to create a price control, they also justified killing people under the banner of a cost-benefit analysis.
I think people have done this to children right now. Back in the day (and still in some developing countries that are mostly agrarian), if you told someone you had 10 children, their immediate response was "Wow! You must be rich!" because you had essentially 10 extra farm hands so you could have a bigger farm. Bigger farm means bigger crop, which means more income for you. Now, if you tell someone you have 10 children, the immediate response (right after "Are you mormon?" {no offense intended}) is "How do you afford that?" Children have gone from added benefits to added costs. I think this is part of the reason why in certain "developed" countries, particularly European ones, people have stopped having so many children. We've put a cost on human life, in this case, a child's life, and decided it's not worth it.
How sad.
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