I have been working on an economic theory that may have potential to solve many of our country’s money problems. Now, the only thing that doesn’t make sense here is that I stink at mathematics and when it comes to economics and the theoretic thereof, my capacity to think logically is out the door. I admit those kinds of intellectual shortcomings are contrary to anything that must bear up to sound economic policy. With that in mind, I shall plow ahead anyway. For starters, you must accept that my economic theory is based on emotion.
Yes, I know that the last thing on which you should base money decisions is your emotions. But, think about it, behind most decisions involving a purchase is a sizable amount of emotion. We’ don’t admit that very often, but even when we buy things we rather not have to—like automobile tires—there is some emotional aspect involved. Maybe you like the Goodyear blimp or the Michelin guy or the local tire store that features the boss’ cute little daughter doing the commercials. Or maybe emotions come into play because you merely hate buying things like automobile tires. In this case it’s not the product or service, it’s the purchase itself that stirs the emotions. Regardless, the premise for my revolutionary economic plan is that all purchases have a moderate, if not huge, element of emotion driving them. Speaking of driving, do we even need to discuss how emotions factor into purchasing a car?
I will leave the path I’m on for a moment, to give you some necessary background information. My wife mentioned the other day how she’d like a quick 2-3 day getaway to the west coast of Florida. We live on the east coast. West coasters come here to get away; east coasters go there to do likewise. So, since we have our anniversary coming up in a few weeks, I thought I’d go online and see if I could make reservations somewhere without having to take out a second mortgage. My intentions were good, but the costs were not as honorable. In fact, it was about only one step down from trying to afford Disney World. I punted, figuring I’d think about for a day or more…much more. But then I wandered outside and sat in my thinking chair on the back patio. I got to thinking that we’d probably go to the west coast several times a year if it didn’t cost so much. In fact, because it cost so much, we don’t go at all. Ah-hah, I thought, and my revolutionary economic policy was born.
Let’s say the hotel cost $100 a night instead of the $250+ most of them charge. Based on the lower cost, we would very likely go to the west coast three, maybe even four times a year. As it is now, we don’t go at all. That means the hotel has made the decision to stick with the $250 rate, which in our case, would represent $500 it’s not getting from us for a two-night stay. But if the hotel were to charge the lower rate, it would get as much as $800 a year. Of course, I realize that I have spent more at the lower rate than if I paid the higher rate and traveled only once…but that’s where the emotional factor comes in. When I go to book a trip, at the moment of impact, I am much more willing to go for $200 than $500. Hence my theory:
Significantly lower prices, ongoing, will lead to more spending, ongoing, thus feeding the economy and placing less demand on wage increases.
One of my early jobs in life was that of a waiter (today I’d be called a server). The restaurant where I worked had a table section and a counter area. At first I always worked the tables where people were usually ordering full meals and leaving paper money for tips. One day I was asked if I wanted to move to the counter. At first I thought “hell no!” Why should I give up dollar-plus tips for the quarters I saw left on the counter? Some of my veteran colleagues advised me to give it a try…so I did. I made, at a minimum, twice the amount of tips at the counter. People who ate at the counter rarely ordered full meals. Most, particularly in the morning rush, wanted just coffee and a donut. But the turnover at the counter was so much higher than at the tables, the result was significantly more tips. And too, people who come to the counter may be there every day. Folks at the tables come far less frequently.
People will spend more money when the price is right…and that means lower prices than corporate America is willing to accept. If the latter stopped being so greedy and so narrowly focused on shareholders, it might discover lower prices result in higher sales. The workforce, too, would have to contain its greediness for wage increases. After all, companies cannot be expected to lower their prices and perhaps forfeiting some profit without being able to contain costs.
I know all this sounds too simple for most people to buy into, especially those who control the economy. Sure, fixing the economy is probably a lot more involved, but for us little guys on the spending side it just seems it doesn’t have to be that complex. I do not think many of us would buy the same amount of goods and services if prices were to be significantly lower…we’d buy more, much more. If we didn’t buy more, we’d buy better. In fact, I might consider taking an upgrade on my hotel on the west coast. An ocean view would be nice.