The Price of Everything - Eduardo Porter [5]
Prices make sense of many disparate dynamics over the span of human history. Advances in transportation technology that reduced the cost of distance enabled the first great wave of economic globalization in the nineteenth century. The obesity pandemic was bound to happen when bodies designed to survive in an environment of scarce food by gorging themselves whenever they could found themselves awash in cheap and abundant calories brought by modern technology.
There are few better ways to understand the power of prices than to visit the places where they are not allowed to do their jobs. During a trip to Santiago de Cuba a few years ago I was driven around town by a bedraggled woman who, to my surprise, turned out to be a pediatrician at the city’s main hospital. She had a witchlike quality—knotty and thin as a reed. Two of her front teeth were missing. She told me they fell out during a bout of malnutrition that swept through the island after the Soviet collapse in 1991 cut off Cuba’s economic lifeline. The doctor owned a beat-up Lada. She was very smart. But otherwise her life seemed no different from that of any street urchin, living off the black market at the limit of endurance, peddling a ride or a box of cigars that fell off the back of a truck. She charged ten dollars for driving me around town all day. I couldn’t help wondering how the collective decisions that shaped Cuba’s possibilities at the time could make it so a pediatrician found this to be a worthwhile deal.
WHEN PRICES MISFIRE
As with anything powerful, prices must be handled with care. Tinkering can produce unintended consequences. Concerned about low birthrates, in May 2004 the Australian government announced it would pay a “baby bonus” of three thousand Australian dollars to children born after July 1. The response was immediate. Expectant mothers near their due dates delayed planned cesarean sections and did anything in their power to hold their babies back. Births declined throughout June. And on July 1, Australia experienced more births than on any single date in the previous three decades.
Taxing families based on the number of windows in their homes must have seemed like a good idea when King William III introduced the window tax in England in 1696. Homes with up to ten windows paid two shillings. Properties with ten to twenty windows paid four shillings and those with more than twenty paid eight.
The tax was logical. Windows being easy to count, it was easy to levy. It was fairish: richer people were likely to have bigger houses with more windows, and thus pay more. And it got around people’s intense hostility to an income tax. But the king didn’t count on people’s reaction. They blocked up windows in their homes in order to pay less. Today, blocked-out windows in Edinburgh are known as Pitt’s Pictures, after William Pitt, who brought the tax to Scotland in 1784.
Seemingly modest actions can reverberate throughout society by altering, if only slightly, people’s evaluations of costs and benefits. Such is the case of the 55 mph speed limit imposed across the United States in 1974 as a way to conserve gasoline in the wake of the first oil crisis, when Arab countries proclaimed an oil embargo in response to the United States’ decision to resupply the Israeli military after the Yom Kippur War.
Conserving gas was a reasonable objective at the time. The strategy, however, was fatally flawed because it ignored the value of drivers’ time. At the new legal limit, a seventy-mile trip would take about one hour and sixteen minutes—sixteen minutes more than at 70 mph. Considering that the wages of production workers in 1974 averaged around $4.30 an hour, those sixteen