Eduardo Porter: "The Price of Everything"

MS. DIANE REHM

11:06:55
Thanks for joining us. I'm Diane Rehm. There's a cost behind every choice we make, whether it's the decision to have a baby, drive a car or even buy a cup of coffee. In a new book, Eduardo Porter explores the mystery of why we pay what we do, the value judgments we make every day and what can happen when prices go off the rails.

MS. DIANE REHM

11:07:27
It's titled "The Price of Everything." Eduardo Porter joins me in the studio. He writes about business and economics as a member of the New York Times' editorial board. He's also covered the U.S. Hispanic population for The Wall Street Journal. We, of course, invite your thoughts. Join us on 800-433-8850. Send us your e-mail to drshow@wamu.org. Join us on Facebook or send us a Tweet. Good morning to you, Eduardo.

MR. EDUARDO PORTER

11:08:13
Good morning, Diane.

REHM

11:08:14
You begin by talking about the price of garbage and you say it provides a guide to civilization. Tell us how.

PORTER

11:08:30
Indeed, I mean, different civilizations, different societies have different attitudes towards garbage. And in a way, it represents where they are within the scale of development. Say, take a look at China today. We are aghast at the level of pollution they have in some parts of China. But the Chinese seem to have much less concern about this pollution than we have.

PORTER

11:08:59
And what's going on there? Well, they're making a choice. The Chinese are making a choice, that the jobs that they are providing by these extremely energy-intensive and polluting industries are more valuable than the cost they are imposing on their environment by using these coal-fired power plants and so forth to develop.

PORTER

11:09:20
Now, presumably, if they follow a path similar to our own and become richer countries, their choices, too, will change because the value of an extra job will be less perhaps than the value of the added environmental degradation. And they will then presumably become a little bit more like ourselves where we are much more concerned about pollution and we buy the things that tend to be made with polluting techniques from other countries that are less concerned like China today.

REHM

11:09:48
I thought it was fascinating to read that Larry Summers, the economic advisor to President Obama, had written that for him it makes sense for rich countries to export toxic waste to poor countries.

PORTER

11:10:09
Well, his argument was seen as absolutely outrageous by many people. I mean, as a corroboration, that the world bank--he was the chief economist at the World Bank at the time in 1992 just thought that the Third World was a garbage dump. And indeed and I think that his argument didn't take many things into account. I mean, the reason why some countries are more tolerant of pollution, even if it's toxic and damages their population, is not necessarily because it's not necessarily the product of a democratic choice. It is perhaps sometimes the product of corruption. Officials, you know, will allow dumping of waste somewhere to line their pockets in some way.

PORTER

11:10:56
But at the same time, there is truth to Larry Summers' analysis in this case and his point that, you know, the pollution that will increase the odds of dying of prostate cancer by .1 percent will be a bigger deal, will be much more important in society where many people live to the age where you get prostate cancer than in a society where the child mortality rate is 200 per 1,000 children. They will consider, you know, prostate cancer less of a big deal.

PORTER

11:11:30
This doesn't mean that it's not important, but when they're allocating resources between, you know, dealing with garbage and other necessities, such as, you know, schooling or health care and so on it might not be. It might be sensible for one of these countries to say, well, I'll buy or I'll take money for your garbage and use it to invest in a school or a clinic.

REHM

11:11:52
But you see, I still go back to the question of morality in a choice like that. Where is the morality of those who are governing making those decisions about the value of money as compared to the value of human life?

PORTER

11:12:16
Well, that's right. But in the same way the clinic that they purchase, say through this hypothetical transaction, will also improve the life of their citizens. So I think that the breakdown is when the society is not democratic and then these choices are being made for corrupt reasons. But I could, I would argue as well, then in a democratic society these choices can be made, too.

REHM

11:12:39
So let's go from the macro to the micro to a cup of coffee. What does the purchase of a cup of coffee from Starbucks as opposed to making it at home or buying it from the corner deli tell us about who we are?

PORTER

11:13:02
I love the cup of coffee because it's not just a cup of coffee, right? The cup of coffee that you drink in the morning has so many attributes. It's an emotional experience. It's a social experience if you drink your coffee with others. It is part of perhaps a ritual that you do every day that involves reading the newspaper and other things that are pleasurable. And it also, of course, involves coffee, right? And perhaps paying for this coffee.

REHM

11:13:30
Money, right.

PORTER

11:13:30
There is a standard commercial transaction, but there's a lot more in there. And so when I think of paying for a cup of coffee, one isn't paying, you know, $3.50 for a cappuccino at Starbucks. One is paying for a whole set of attributes and often we don't really pay attention to these other things. You know, when we are analyzing why we buy coffee A or coffee B we, you know, just think we're paying for a cup of coffee. And we forget all this other universe of experience that we're also sort of purchasing when we choose to buy coffee here rather than there.

PORTER

11:14:09
And so I've experienced this in looking at my own life because I've chosen to buy coffee at different places. And when I started to think, well, why did I go here rather than there, well, I suddenly had to think, well, maybe, you know, at the coffee shop in my building, I get to run into colleagues and that's valuable to me.

REHM

11:14:25
Ah-ha.

PORTER

11:14:26
So maybe I'll be willing to pay more for coffee there than at the corner shop.

REHM

11:14:30
There's also a glass or a bottle of wine that you use as an example.

PORTER

11:14:36
Well, yes, this is when prices are used as a signal of value, I mean, if you think of the standard economic proposition as you look at something in the store. You like it and you look at the price tag to see whether, A, you can afford it and, B, whether it makes sense at that price, whether you get value for money.

PORTER

11:14:56
But there are many other instances and wine is a clear one where the price is telling you about the value of the product. You're not deciding this independently. So if you see, and there's been experiments done with this, if you look at a wine rack, you will think that the more expensive wine is better.

REHM

11:15:12
Tastes better.

PORTER

11:15:13
Tastes better than the cheaper wine because it's more expensive. And there's an even more kind of weird and wonderful example of this same type of process. There was an experiment done with placebo pills. You know, placebo pills have no therapeutic effect. They're sugar pills. Well, students at -- I can't remember what university, were given placebo pills that they were told were pain relief pills.

PORTER

11:15:37
One set of students were told that the pills cost $2.50 apiece. The other set were told that they cost 10 cents. Well, the group that got the more expensive placebo, the placebo that they thought was more expensive reported much, much greater pain relief than the ones who got the cheap pills. So this is operating at some real biological level. This isn't just some illusion. It is. It does have you know real biological implications.

REHM

11:16:06
But, of course, when you're dealing with a huge purchase, for example, a home, what you are trying to do there, in addition to putting your money on the table, is making a statement about yourself and what you can afford.

PORTER

11:16:27
Well, that's right, that's yet another purpose that price has served. Not telling you about the object that you're buying, but telling others about who you are. And this can be seen -- I mean, I would suggest that the entire contemporary art market and the modern art -- in fact, the entire art market today hinges on this particular dynamic. People buy these extremely expensive objects because of what these objects will tell others about the value of the people who buy them.

REHM

11:16:56
And so do they make a point of talking about how much money has gone into this?

PORTER

11:17:05
Well, presumably, that's how it works. People must know that the Picasso costs $100 million. I mean, and there's this great example of a guy in Abu Dhabi who paid $14 million for a license plate a couple of years ago and this is a piece of plastic.

REHM

11:17:22
Fourteen million dollars?

PORTER

11:17:23
Fourteen. He got into the Guinness Book of Records and this was a piece of plastic. I mean, it was a number one license plate so it was sort of unique, right? But the point, in my view, is to show everybody else that he could pay $14 million for some trifle, for some trifle of no real, you know, use, a piece of plastic, like he could have had for $95, which was the going rate for license plates.

PORTER

11:17:46
And yet, I would argue that this is not, you know, irrational. There have been studies that would suggest that there is some purpose to this kind of crazy approach to prices. And it works like this. Think of a peacock. A peacock is a bird with an enormous tail with a huge spray of color that is absolutely useless for the peacock's survival. In fact, it's probably detrimental to the peacock's survival because whatever predator wants to eat the peacock will probably get him faster because he's carrying this tail around.

PORTER

11:18:23
Well, but the point of the peacock -- the point is that it can spend all this energy on this pointless tail, which is telling the peahens in the mating market that he can. And therefore he is very fit and therefore he's a very desirable partner.

REHM

11:18:38
Eduardo Porter, his new book is titled "The Price of Everything." I'm sure you have your own stories to share. Call us, send us an e-mail or a tweet.

REHM

11:20:04
The brand new book we're talking about is titled "The Price of Everything: Solving the Mystery of Why We Pay What We Do." And Eduardo Porter is the author. He writes about business and economics. He's a member of the New York Times' editorial board. He's also covered the U.S. Hispanic population for the Wall Street Journal. And you can join us, 800-433-8850. You know, the fact that you have covered the U.S. Hispanic population leads me to the next question. Are there cultural differences in how we value what we value?

PORTER

11:20:56
Well, yes. Our preferences are a function of our context. And so cultural norms will shape what we think is good or bad and also shape our expectations of what we can get in our lives. And I've got an interesting example here. In Mexico a few years back, the Mexican government tried a little pilot experiment to pave the floors -- the dirt floors of homes in one particular town. And it wanted to see, well, what effect this would have on the health of the families that lived in these homes and on their general wellbeing. And paving these floors wasn't very expensive. It cost about $150 to pave the floor, and so they did.

PORTER

11:21:55
And then, they went back and researchers went back and they reported an immense improvement in the health of the children who were no longer getting intestinal diseases as much because it's much easier to clean a cement floor than a dirt floor. And they also checked the mother's sense of satisfaction with their lives. Well, the improvement in their reported satisfaction with their lives was immense. I mean...

REHM

11:22:21
Way beyond $150.

PORTER

11:22:23
Well, it was whatever -- it was bought with $150...

REHM

11:22:27
Right.

PORTER

11:22:27
...but it was a huge improvement. In surveys that ask you to write your satisfaction one to ten, they had a 70 percent, almost doubled the levels of satisfaction that they had before with their lives. And so their satisfaction came fairly cheap, right. I mean, it was purchased with a fairly small amount of money. In Britain, a totally different society, a few years ago some people did some surveys about peoples' level of satisfaction and correlated it with their income. And they found there that on a scale of one to seven peoples' happiness level or satisfaction level went up one notch for each additional 125,000 pounds they made a year. So, I mean, this kind of underscores how different our expectations can be, right, depending on our context.

REHM

11:23:23
And certainly where we have lived, what we have grown accustomed to and so on. But bring us to the very core of value, and that is the value of the human life. We've been talking recently about a man who was exonerated after serving 30 years in prison. He was out on parole -- released on parole but then exonerated. The question becomes what is that 30 years having wrongfully served in prison, what is his human life worth for that 30 years? Or what is any human life worth?

PORTER

11:24:21
Clearly that depends on who you ask. If you ask me how much my human life is worth I will tell you it's worth everything I have and more or that of my son. But societies make choices that value human life at much less all the time. And one example that everybody will be able to relate to would be the example set when compensation was paid to the relatives of victims of the terrorist attacks in 2011 (sic) . Congress set up a fund to pay the families of victims for their loss and therefore somebody had to estimate what their loss was worth. And the loss was the life of a husband or wife or son or daughter.

PORTER

11:25:12
And Ken Feinberg, who subsequently went on to work for the Obama Administration as a car czar and now is allocating money from the funds set up by BP to pay for the oil spill in the Gulf, well, he had to figure out how to value the life of the guy who worked at Cantor Fitzgerald, the investment firm, and how to value the guy -- the janitor or the waiter at the Windows on the World restaurant. And it was extremely difficult and the results of this valuation painted kind of a troubling view of how life is valued. I mean, for instance, the most expensive life in this calculation went for $6.4 million. About eight people were valued at this amount.

REHM

11:26:04
And on what basis?

PORTER

11:26:06
Well, on the basis that they made a lot of money.

REHM

11:26:09
So -- and their earning, how it would continue.

PORTER

11:26:10
That's right. The way that this was calculated was your life is worth your contribution to GDP essentially. So if you make $100,000 a year and your life expectancy is another ten years, well, there's a million dollars, right. And so that's pretty much -- I mean, this was -- it wasn't applied mechanically. Mr. Feinberg was very, very careful. He was very concerned about the issues of inequality.

REHM

11:26:40
Of course.

PORTER

11:26:40
And so he tried to narrow down the differences that would have appeared had you done this in some mechanical form. But still this was the main way that it was calculated. And so you've got somebody who only got $250,000. And this was because on top of the economic loss, as it was called, there was a non-economic loss. But how do you measure non-economic loss? Well, what they did is they put an arbitrary number on it, $250,000. And so somebody who didn't have a job, say a child, was worthless in this calculation, right.

PORTER

11:27:17
And then other strange things appear. You know, women, for instance, were valued on average at two-thirds of what men were valued, because their wages were on average lower. The older mean above 70 were worth on average $600,000. And men in their 30's were worth $2.8 million. So there was these enormous disparities.

REHM

11:27:36
Yeah.

PORTER

11:27:36
And clearly this had nothing to do with how the relatives of the victims valued the life of their loved ones. I mean, there was a woman who argued that her husband had to be worth more than other men who died because he had taken longer to die as was -- as evidence she pointed to, cell phone calls that he'd made throughout a longer period of time. And to her, that was -- that meant...

REHM

11:28:08
Priceless.

PORTER

11:28:08
...that he had suffered a lot...

REHM

11:28:09
Yeah.

PORTER

11:28:09
...and was therefore worth more. Another wife said that her husband had to be worth more than the husband in a newlywed couple because they had been married longer. And so the value of his contribution to family was not being taken into account if they were valued in the same way. So clearly this is something that doesn't have an answer, right.

REHM

11:28:33
I sure wouldn't have wanted to be Ken Feinberg.

PORTER

11:28:35
At the end of the day, I mean, he wrote a book about this and he said that if he would've -- if he had to do this over again, he would prefer to just give everybody the same amount. However, that wouldn't have worked because this was a political compromise. I mean, the reason that they were doing this was to avoid lawsuits against the airlines, which would've bankrupted the airlines. And so had they not given the stockbrokers more money than the janitors they would've probably had a lot of lawsuits and it wouldn't have served this purpose.

REHM

11:29:06
Eduardo, what about the price of something we hear about an awful lot, the American Dream? What about the price of the American Dream and how expensive it has become?

PORTER

11:29:24
Well, homeownership is the American Dream and the pursuit of the American Dream kind of went off the rails. And that is a very clear and present instance of how prices can fail. I mean, the fact that prices determine our choices does not mean that they are always correct. They can go wrong and lead our decisions in very wrong directions, lead our investments in very wrong directions. And the housing disaster that we've experienced is a very clear instance of that.

PORTER

11:30:03
And it was many people who were driven -- who were attracted into the housing market under the belief that the price of their homes would only rise. And when they didn't do this the financial equation for these new homeowners stopped working. And they weren't able to pay for their homes. And this, as we have seen, has caused enormous repercussions throughout the American economy.

REHM

11:30:34
So the American Dream has a new outlook on it, a new price tag on it, a new psychological feeling about it.

PORTER

11:30:48
Well, yes. I mean, I would argue that owning a home might not be a good thing to create a national dream around. A home is an asset. There are other assets that might make sense for people to have and rent a home.

REHM

11:31:09
You know, I'm wondering when that phrase first came into being, was it -- right after the Second World War? Was it that return from the war of all those GIs who were helped in education in the ability to buy a home? It became the American Dream after the Second World War?

PORTER

11:31:37
That's exactly right. That's exactly right. And I think it went off the rails when the financial industry found in this dream an enormously profitable opportunity to lend and lend to people with lower and lower abilities to repay these loans. And that is what basically made it go wrong. And I would say that this has to do with how we price bankers and banking. And it's an instance of how wrongly we have priced those two things. I mean, think of -- do you remember 1987 and Wall Street the movie...

REHM

11:32:27
Of course.

PORTER

11:32:27
...Gordon Gekko...

REHM

11:32:28
Of course.

PORTER

11:32:29
...saying greed is good.

REHM

11:32:29
Right.

PORTER

11:32:31
There we thought that Wall Street was at the pinnacle of its power, right. Well, you know what? At that time the average bonus paid on Wall Street was something like $16,000, which is about $30,000 in today's money. Fast forward to 2007. The average bonus -- and this is the highest paid guy and the lowest paid guy -- the average bonus was $178,000. Now, this massive increase in the rewards of this particular institution has to do with an imbalance in the way that this particular trade is rewarded.

PORTER

11:33:12
It's rewarded for success and it is not penalized for failure. And so given that its job is to take risks, to basically bet, put money on higher and higher bets, the fact that it is not really penalized for failure -- because if it fails real big the government will come in and save it with taxpayer funds -- the bets become extremely large, the profits become extremely big in good times and the pay becomes absurdly large.

REHM

11:33:43
And there is no penalty for failure. The book we're talking about, "The Price of Everything" by Eduardo Porter. And you're listening to "The Diane Rehm Show." I'm fascinated that you also get into the cost of faith. And price entering into the selection of the church.

PORTER

11:34:14
Well, yes. To start, I should point out that when I'm talking about prices I'm not necessarily talking about money, right. Prices are measured in terms of time, in terms of love, in terms of opportunity. I mean, I think that's the best way of understanding. A price is in terms of opportunities. When you -- the cost of a $5 slice of pizza is all the other things that you did not do with those $5 because you spent it on the pizza.

PORTER

11:34:46
So having said that the price of faith is what do we pay into a religious belief that we belong to? We can pay in financially by tithing or contributing money. We also pay by going to church every week or so on, investing time in it. We pay by adapting certain rules of behavior that constrain our activities in some way. We might require codes of dress or certain sexual rules. All sorts of feeding, eating habits that will constrain our behavior. And these things are what we are investing to get a sense of community out of the church. And this is valuable. What we get is it can help our health, I mean, it can help our sense of happiness, can even help our life expectancy.

PORTER

11:35:49
Surveys have found that people who are more committed, they're religious believers who will go to church more often and so forth, tend to have longer life expectancies and report higher levels of satisfaction with their lives. And so this is valuable. This investment is valuable for them and that's why it is done. And you can also even see it in terms of social change and evolutionary perspective. In the United States in the 19th Century there were lots of little communes that popped up here and there. I mean, there was lots of experimentation in forms of social arrangement.

PORTER

11:36:32
So Robert Owen, the Welsh utopian socialist, came and set one up in the United States called New Harmony in Indiana where everything was going to be collective and so on. It lasted about three years before it split apart, you know, and awful infighting and so on. And compare it then to the Ineda (sp?) community. The Ineda community was set up by a group of believers who thought that Christ had returned in the year '70.

PORTER

11:37:03
They were a specific Christian group who had quite onerous rules of behavior. They believed in collective ownership of children. They believed in sexual continence. And they imposed extremely harsh penalties on deviance. Well, this community lasted much, much longer. It lasted about 35 years. And here, an evolutionary anthropologist would argue that it had to do with the commitment of the people who belonged to this group which came from these sets of rules.

REHM

11:37:36
Eduardo Porter. The book we're talking about titled "The Price of Everything." We'll open the phones when we come back.

REHM

11:40:04
We had an earlier caller on the line, who apparently couldn't wait, who says she works as a wine taster and she refused to look at the price of the wine before she tasted it. I think that makes sense.

PORTER

11:40:23
It does. It does. And interesting there's been some experiments in where people are given, you know, wines of different qualities without telling them, you know, without showing them the bottle or the price. And then when they don't know the price people's preferences are all over the map. There is this correlation between price and quality that we see when people know what price of wine they're drinking; disappears entirely when they don't know the price. And what I found particularly interesting is that this also happens with experts. Experts do roughly think that better wine is -- they will...

REHM

11:40:56
Costs more.

PORTER

11:40:57
Costs more, even if they don't know the price, they'll chose the better wine as -- the costlier wine as a better wine, but only there by a very, very small difference. I mean, it's -- they're not as expert as we might believe.

REHM

11:41:10
And let's go now to Suffolk County, Long Island. Good morning, Kathleen.

KATHLEEN

11:41:18
Good morning, Diane. Thanks for taking my phone call.

REHM

11:41:20
Sure. Go right ahead.

KATHLEEN

11:41:23
I have a very small store, but I think it illustrates the point perfectly. My husband is a teacher in a community that sees a huge influx of very wealthy people in the summer. And his students work in the community and they -- a few of them have told him about an instance working in a gourmet deli in which there will be an item or items that weren't selling. And they were instructed to mark the items up and they would actually fly off the shelves. His favorite story is about a can of olives that were marked from three to eight dollars and then were purchased.

REHM

11:41:54
Good grief. What do you think of that, Eduardo?

PORTER

11:41:58
Well, that's exactly right. I mean, when people come in who believe that only expensive olives are good olives, well, it makes sense to tell them that these olives are expensive. I mean, businesses play with these kind of like psychological biases that we have all the time.

REHM

11:42:14
Here's a caller in Dunedin, Fla. Ed, good morning to you.

ED

11:42:22
Good morning, Diane and Eduardo.

PORTER

11:42:24
Good morning.

ED

11:42:24
Thank you for having me on. I publish a fly fishing magazine here in Florida and our sport has suffered from the perception of it being an elitist sport because of the perceived cost of equipment, rods, reels, et cetera. It's actually harmed us because it has eliminated a lot of people who would prefer to fly fish or at least learn about it, but they find from sales people and other fly fishermen that it's too expensive where it's expensive enough as it is. But sometimes you'll end up paying two and a half, three times more for a rod, for example, than it's actually worth. Its functional value is no more than the reasonable price.

ED

11:43:18
But it's the perceived value so the actual value of the rod is misleading when they add a bunch of nonessential hardware to it that's very high priced – special woods in the handles, special metals, where it's the rod itself – the blank – that is the quality. And that's the functional part.

REHM

11:43:41
And surely the fish don't care.

PORTER

11:43:43
Yes, this is very interesting and you pointed, perhaps, to the core function of marketing in the economy which is adding things that do not necessarily improve the functionality of the given object that we're doing but makes us want to pay more for them. So, like, associating with a pair of sneakers with Michael Jordan will not make the sneakers any better but they will make us willing to pay more for them and make them more desirable in our view.

REHM

11:44:09
Here's a message from David in College Park, who says, "What about prices we deliberate refuse to pay? People are unwilling to pay for climate change and other environmental problems. There's a lack of generosity and a deep selfishness when we don't pay true costs for things."

PORTER

11:44:36
Well, yes. I would say he's eluding to the biggest price failure that we are experiencing today is our unwillingness to pay for the cost of emitting carbon into the atmosphere which will create, you know, environmental problems a hundred years down the road. And the reason is, indeed, that we are very reluctant to pay societies for the future -- for future welfare. But I'm hesitant to just say, well, it's we're selfish. I'm not sure that it's just an issue of selfishness because people who are otherwise generous will also have a difficulty in making this time calculation. How much should I pay today? What is the price I should pay today to save the world a hundred years from now from a certain, you know, environmental problem.

PORTER

11:45:31
It's a very, very complicated calculation because there are other issues that we need to pay for today from our resources, too. We should get rid of malaria, for instance. We should improve nutrition in poor countries. So it's not like this is the single challenge that we face. There are others and we must allocate resources between them.

REHM

11:45:51
All right. To Don in Denton, Texas. Good morning to you.

DON

11:45:58
Hi, Diane.

REHM

11:45:59
Hi, there.

DON

11:46:00
Sometime ago I read an article in The New Yorker about Elvis Presley who could afford to buy anything that he wanted -- great art, whatever he wanted. But turned out that all he ever bought were things that you could see in a store window, for instance, jewelry, clothing and cars. And I just wonder how this fits into your theory.

PORTER

11:46:26
Well, I find Elvis's preferences kind of interesting. He presumably did not trust that things that he could not see could carry any value, so -- like a stock or a bond. And I would suggest that there's probably many people out there who are driven away by these kind of abstract constricts that hold value and prefer, like, the concrete. But, you know, other than saying that this is a very interesting approach to value, I don't know.

REHM

11:46:58
All right. To Lisa in Tysons Corner, Va., hi, there.

LISA

11:47:03
Hi. I had a question about something that is not status-oriented or at all gadget-oriented that has always perplexed me. About ten years ago, Christmas trees started to get ridiculously expensive around this area. You know, just $80 and $90 for regular Christmas trees and then, all of a sudden, one year they just came down to a regular price. And I don't know if they opened up more markets or just decided that the market would not bear that price and decided to, you know, really reduce prices. But it was getting ridiculous and I can't remember about 10, 12 years, I would say, and ever since then, they've been about the same price every year, you know, maybe a little bit more.

LISA

11:47:46
But what causes something like that, that has no extraneous factors associated with it. They're something that they grow and they harvest and they bring them one time of year and they sell them.

PORTER

11:47:58
I would suggest that if it was sudden like you say, it probably had to do with some sudden change in the supply of trees. Supply can change very suddenly, say, if some, you know, manufacturer in some tree farm in Canada starts supplying your area that didn't before or, perhaps, you know, plastic trees from China arrive that weren't available before.

PORTER

11:48:23
And some bunch of people decide that cheap plastic is a better deal than the expensive and so, therefore, the price of the expensive natural trees will also come down. But I would suggest a supply shock in this instance because demand doesn't really change that swiftly.

REHM

11:48:38
There was a news story recently indicating that less educated people are less willing to marry. And I found myself thinking about not the cost, but the price of marriage and the price of raising a family.

PORTER

11:49:03
The price of raising a family has -- at least the price of educating a child has gone up immensely.

REHM

11:49:10
But that's cost.

PORTER

11:49:12
That is indeed a cost.

REHM

11:49:12
Now, I'm talking about price.

PORTER

11:49:15
Okay. Well, let's see. What price do we face when we -- when we marry. When we marry, you are trading the life of a single person with all its joys and excitements for the benefits of a married life, which include, presumably, long-term companionship and love and children. So that's one trade that you make. But you are -- but the family is itself a little factory in which trades are made all the time. Now, the traditional family 150 years ago, and still today in many traditional societies, is the man provides the sustenance and -- from the labor market, the fields, the hunt and sperm and the woman provided a womb, an egg and the childcare. And this is a trade that has gone on -- that went on for hundreds and hundreds of years.

PORTER

11:50:11
Now, that has changed pretty drastically in our society and other developed societies. And the reason that has changed is that, I think, the most important reason that this has changed is that economic development has offered women a way out into the labor force where they acquired another function and another source of value that kind of like totally changed the balance of power and the terms of the bargains inside the family.

REHM

11:50:38
I have an e-mail to that effect from Suzanne who says, "One cost benefit analysis I've been thinking about a lot lately is the cost of my choice to stay at home with my children versus working outside the home. At one level, we feel the loss of that other income, but there are many ways in which it makes sense financially. Having one partner at home who has the time to cook from scratch, plant a garden, make or repair items that otherwise would have to be replaced, hanging up laundry instead of using the dryer. These can add up. The emotional and social costs and benefits of leaving a career are, of course, more important to calculate."

PORTER

11:51:39
Well, these are very important issues and it's very difficult to determine amongst them. And you can tell by the evolution of women into the workforce. Throughout, you know, the 20th century the increase in women at work was pretty remarkable and continuous. More and more women were moving into the workforce. But around maybe 10, 20 years ago that started to change. So the women's labor supply reached a point of being about 80 percent of men's labor supply. Then it kind of -- it got stuck sort of there.

REHM

11:52:23
Huh.

PORTER

11:52:24
And I think that it's these sorts of tensions that arose within families that kind of like stopped it there because there are real costs to move into the workforce that we have to contend with.

REHM

11:52:39
And let's go to Ann Arbor, Mich. Good morning, Gail.

GAIL

11:52:44
Good morning. It's a very interesting conversation.

REHM

11:52:48
Good.

GAIL

11:52:48
I just wanted to talk about well, how I became a snob at the thrift shop. And I think what you've been talking about has really sort of solidified an idea that I had. When I retired – semi-retired – I had more time. Now, I know how valuable time is. When I had a full-time job, I used to shop at Target or K-Mart or wherever I could afford clothes. And it was fast and in/out what. Now I go to thrift shops and I look for labels of clothes that I could never have afforded in my life. And it's just very interesting to me how I'll pass on a shirt with a label that I used to buy when I shopped at Target when I can get a Jones New York.

REHM

11:53:46
Of course, Gail, that's so interesting. And you're listening to "The Diane Rehm Show." Eduardo.

PORTER

11:53:54
This is a wonderful story. And it chimes with an experiment that -- a study that some economist did a few years ago where they looked at how people -- how different people shopped. They grabbed data on thousands of shoppers in Denver and along with data on how -- on family incomes, the composition of families, the age of the family members, what they bought and how much they paid for it. And they found some really interesting things. One was that people who made less than $30,000 a year -- families that made less than $30,000 a year paid on average five percent less for the exact same goods as families who made more than $70,000 a year.

PORTER

11:54:33
They also found that the old paid less for the exact same groceries than the middle aged. And they found that families with lots of kids also paid more than single people. And the reason was exactly what you're saying. It had to do with the value of time. You know, families with lots of children can't spare the time to, you know, shop carefully and find the best possible thing at the lowest possible price. So they'll just pick up stuff from the rack and pay much less attention.

PORTER

11:54:59
And the difference between the rich and the more affluent than the less affluent is particularly interesting. Consider a janitor say that makes $11 an hour and is offered a trade. Would he want an extra $100 or an extra hour of free time? The janitor, his chances are, is going to take the $100. But if you made the same offer to a lawyer who makes $500 an hour she's likely going to want the free time. And so if you just transport this example down to the supermarket well, the janitor is going to, like, clip coupons, comparison shop, look for specials and will, therefore, become a much better shopper, you know, well, getting better things for less money.

REHM

11:55:36
You know, one last question. We may not have time to fully explore this. My gripe with society is that we do not acknowledge the full value of teachers. And, therefore, they're sort of near the bottom of the financial pole. So why is that? Why is it that out of one side of our mouths we extol the value of teachers, their importance to our children? On the other hand they make too much money we say. We're not going to pay them any more.

PORTER

11:56:21
Well, I would add to this the idea that the way teachers are paid is unrelated to the job that they do and that's -- and that also probably doesn't help the quality of the education that they provide. And so there have been studies suggesting that if you pay more for quality results in education. If you pay the best teachers very, very well, you will get a huge improvement in the quality of the education.

REHM

11:56:55
Eduardo Porter, his new book is titled, "The Price of Everything: Solving the Mystery of Why We Pay What We Do." Congratulations on the book, very interesting.

PORTER

11:57:09
Thank you very much, Diane.

REHM

11:57:10
And thank you. Thanks for listening all. I'm Diane Rehm.
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