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Can You Barter a Red Paper Clip for a
House?
The answer,
apparently, is, “Yes, you can.” And therein lies a fascinating story
that you won’t forget.
But first, some
economic theory.
Economists always
have maintained that your preferences are your own, and they cannot be
compared with those of anyone else: De
gustibus non est disputandum (“In matters of taste there
is no dispute”).
For that reason, it
becomes very difficult to figure out what a group of
people wants.
Economists are
inclined to view people’s preferences as complete and
transitive: You should be able to know how you rank
everything you want, and you should be consistent in your
rankings. For example, if you prefer Jack to Jill and Jill to Spot,
then you should not prefer Spot to Jack.
Now, I don’t know
if you prefer Spot to Jack; I just know that if you do and other people
make similarly eccentric choices, we are in a heap of trouble. And so
is Jack, I presume.
For example: If you
are a Republican and would prefer Mr. Giuliani over Hilary Clinton as
your next president, you may choose to vote for Ms. Clinton in the
Democratic primary (this is possible in some states). This may make
perfect sense to you if you believe that Mr. Giuliani would more easily
beat Ms. Clinton than any of her competitors for her party’s
nomination. But this is gaming the election.
It does
not get any easier if you rank your preferences completely,
consistently, and honestly; Kenneth Arrow won
a Nobel Prize in economics, at least in part for showing
that five simple rules for determining the preferences of a
group would be logically impossible to follow.[i]
Hence, the difficulty of going from individual opinion to
group consensus. For that and other reasons, we elect
people with less than a majority vote, we neglect
infrastructure needs, and we pass laws that benefit only a
small minority of the population.
But if we have
messy and inconsistent choices, we have profit opportunities. So, back
to the red paper clip.[ii]
The owner of the
paper clip, Mr. Kyle MacDonald, advertised it on CraigsList and was
offered a fish-shaped pen in exchange. He accepted. He then traded the
pen for a ceramic doorknob sculpted to look like E.T. And — according
to a review in The Wall Street Journal on August 29, 2007[iii]
— he then traded the doorknob for a neon Budweiser sign, which he
bartered for a recording contract, which he traded for a
rent-free-for-one-year house in Phoenix.
But Mr. MacDonald
had his sights set on owning a house rather than renting one. He
traded the year’s lease in Phoenix for some quality time with Mr. Alice
Cooper of Alice’s Restaurant, and that quality time, in turn, for a snow
globe branded with the logo of rock band KISS.
Now meet the actor
Corbin Bernsen, who owns more than six thousand snow globes. He traded
a speaking role in a new movie in order to acquire the KISS globe.
Mr. MacDonald was
almost there. The town of Kipling, Saskatchewan, offered a renovated
1920s-built house on Main Street in return for the film role, which the
city then raffled off for an American Idol-style audition won by a Mr.
Nolan Hubbard. Mr. MacDonald moved into the house with his girlfriend,
having reached his goal: He had turned a red paper clip into a house.
He also signed a movie deal with DreamWorks for his modern-day fairy
tale.[iv]
It belongs to the
story that the trader on the first barter deal (for the fish-shaped
pen) doesn’t want to part with the red paper clip, now that it has
become “famous.” And it appears that each person in the barter chain is
happy with his/her transaction.
But now we have a
problem, don’t we? What in the world happened to the concept of “value”
if a red paper clip, however brilliant the invention, may be traded for
a house?
First, let me congratulate my own field of economics on its stubborn
adherence to the “non-comparability of preferences” principle.
Preferences are tied to utilities, using the economists’ lingo, and
utilities to satisfaction — or happiness, maybe. |
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And to
somebody, happiness is a meeting with Alice Cooper, or a
speaking role in a film with Corbin Bernsen who, apparently,
will buy snow globes wherever he finds them. Mr.
MacDonald’s trading partners had no plans to ply the trades
they had made. Mr. MacDonald was in search of information
about the quirky and possibly inconsistent preferences of a
handful of people in North America and like a savvy trader
with inside information, he made very profitable use of it.
People like different things, and that happened to be the
leverage used by Kyle MacDonald.
That
brings us to the subject of information and its
extraordinary value in the knowledge economy.
For
example: Armed with the knowledge of a few behavioral traits
and some personal medical history, we can predict with a
fair amount of accuracy when someone will die. Google can
tell us, for very little money, what book titles will sell
best, what white males 65-and-older will purchase on the
Web, and to whom we should offer Norwegian sweaters for best
returns. The precision with which a banker can assess the
risk of a loan is now getting very much better with recent
experiences of the problems deriving from easy credit.
The
currency of The Knowledge Economy is ideas, and Mr.
MacDonald’s idea of trading a red paper clip for a house was
priceless. The value, thus, was not in the paper clip; it
was in the idea! Who knows if anyone else will replicate
Mr. MacDonald’s feat? I suspect that eBay and CraigsList
and all the other Internet marketplaces are just beginning
to realize the potential of free, unfettered, and
imaginative trading — the lifeblood of a market economy.
So … It
is still about goals, and steadfastness of purpose, and
credibility, and imagination — and fun! And if we are lucky
enough to do it for a living, is that really work?
Or, as
Robert Browning once said, “At best, man’s reach should
exceed his grasp; or what’s a heaven for?”
[i] Arrow, K. Social Choice and
Individual Values. 1951. Dr. Arrow’s Columbia
University Ph.D. dissertation introduced what has
come to be called Arrow’s Impossibility Theorem and
is part of the body of work that earned him the
Nobel Prize in Economics in 1972. This simple
summary is provided online:
a)
Social preferences should be complete in that
given a choice between alternatives A and B it
should say whether A is preferred to B, or B is
preferred to A or that their is a social
indifference between A and B.
b)
Social preferences should be transitive;
i.e., if A is preferred to B and B is preferred to C
then A is also preferred to C.
c)
If every individual prefers A to B then
socially A should be preferred to B.
d)
Socially preferences should not depend only
upon the preferences of one individual; i.e., the
dictator.
e)
Social
preferences should be independent of irrelevant
alternatives; i.e., the social preference of A
compared to B should be independent of preferences
for other alternatives.
http://www.sjsu.edu/faculty/watkins/arrow.htm.
For a more technical summary,
link to
http://www.colombialink.com/01_INDEX/index_finanzas_eng/arrow_impossibility.html.
[ii] The paper clip was invented
by Johan Vaaler, a Norwegian engineer, in 1899, and
has been celebrated as one of the most beautiful and
useful innovations of all time. In fact, Concordia
College once commissioned a sculpture, made in the
form of a paper clip, designed to serve as an
outdoor conference table. It was done to honor the
tenure of the Dean of the Norwegian Language Village
(who happens to be my daughter). And I think it
might be possible, given the fame of the sculptor,
to trade that particular “paper clip” for a house
one day …
[iii] Stark, A. Bartering Up to
a Better Life. The Wall Street Journal
(Midwest Edition). August 29, 2007. D10.
[iv] MacDonald, K. One Red
Paper Clip: Or How an Ordinary Man Achieved His
Dream with the Help of a Simple Office Supply.
Three Rivers Press. 2007. 307 pages.
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