Assorted links

1. The increasing polarization of the eurozone electorate.

2. Will Amazon achieve one-day or same-day delivery?

3. Why does this kitchen sink cost more than many laptops?  That is a question from Amit C.  I say materials, combined with economies of scale on the laptop side.

4. Claims about China and financial repression (“this time it’s different”).

5. Starbucks in a funeral home, and Jeff Sachs is mostly right here.

Comments

#3, low volume, specialty, made in America. All those put it in a different value and price network than a Chinese laptop.

Well, you used the word "price" which gets to the problem with Tyler's question. The cost is less than a "laptop" but the price is probably 4 times the marginal cost of manufacture marked down from 8 times marginal cost of manufacture.

Most of the added cost goes into the "value" chain, the layers of distributors and warehouses and sales agents and mom and pop retailers and the hundred thousand builders. If the manufacturer used Amazon to sell all its products and priced it at $400 for a nice profit, its existing distribution channel would stop selling their products.

The capital cost of the press and machining equipment is sunk, and the dies and maintenance are amortized over a large number of units. The labor in manufacture is low, and the steel is probably imported, unfortunately - Asia's steel industry is ten times larger than the US shrunken industry - in the 80s the public policy was basically "Asian central planners are going to crash their economies because it is impossible for demand to consume an added US in steel production - we will just need to weather a decade before all those Asian mills are shutdown in bankruptcy and the US retakes the global lead." In the 70s, public policy was trying to figure out how to save the US steel industry which desperately needed to modernize.

Housing in the US is still 90% in 1950 computer building - each computer in 1950 was custom built using manual labor with limited automation. In the 1950s, the innovation was standard building blocks plugged into a standard backplane customized with wirewrap done by machine. The housing equivalent is factory built walls and rooms and roof struts. The innovation in the computer industry was building computers to a standard fixed form commonly known as game consoles which is like the RV industry. Today, the cost of a laptop is so low because it is like everyone living in RVs or in the RV housing container stacked in an apartment block.

Imagine housing being made in factories in small modules with all the component strictly standardized and all in designs in a very limited form factor needed to make them mobile, and with an alternative using the same components and manufacturing to stack them into a 20 or 200 unit apartment.

No one would have a choice of sink, just a choice of ten brands each with 5 models which might have 25 different sinks picked for its style, function, and cost to match the product image and target customer.

I remember when America rebelled against industrializing housing - imagine Steve Jobs delivering the iHouse - it would be an elegant design that reflects his excellent sense of design and being first would put you in the elite, and then in next five years you would be hanging out with all the people living in iHouses, cut off from the people living in Windows brand houses from Dell and Compaq or for the real old people, an IBM log cabin, or maybe its an IBM gone-with-the-wind mansion.

This is kind of beautiful. Though perhaps we aren't far from this reality with the Ikea TV. I think Yglesias predicted the Ikea house eventually.

"low volume, specialty,"

Good point. The vast majority of sinks sold are divided into two tubs, mostly for the somewhat anachronistic reason that it facilitates hand washing of dishes. One tub is for washing and the other for rinsing. And, you can build a perfectly functional sink with a useful life of thirty years or more with much cheaper materials, so high volume standard issue sinks where price is more of an issue are indeed built with cheaper quality materials. But, when the materials costs are modest relative to total cost, the manufacturing efficiencies arising from sales volume, and the relative quality of the product within the marketplace for that kind of product, has a big influence on prices. The comparison being made is of a top of the line low volume, very high quality sink to a bottom of the line quality, high volume laptop. A laptop computer at a similar quality point to the sink relative to the respective markets as a whole would probably cost $2,500-$3,000.

#3. Materials? It's stainless steel.

I'd say it's a fabulous opportunity for conspicuous consumption.

From the Amazon link: "Elevate the culinary experience" with this sink. Elevate the credit card bill maybe.

Stainless isn't that expensive.

Looking at other sinks, that one's very expensive - as are some others.

The main factor appears to be the gauge of metal; 20 and 22 gauge stainless sinks of about that size are available for between $100 and $150.

18 gauge is harder to work than 22 gauge, and I think that's the cost increaser, rather than the mass of metal - even if the mass doubled, if materials were the cost driver, we'd expect $200-250, ceteris paribus.

Bigger, more expensive presses, not being used for other lines. Less demand. All adds up to higher price for a boutique product. (I don't know what the hell a non-industrial sink is having done to it that you'd need something stronger than 20 gauge stainless...)

(Also agreed - the luxury marketing is probably adding some - but Moen's non-luxo-branded heavy stainless sinks have about the same price, so I don't think that's the whole story.

And unless someone noted the brand and looked up the price, this is lousy conspicuous consumption - it doesn't look any different from the $150 ones!)

"I don’t know what the hell a non-industrial sink is having done to it that you’d need something stronger than 20 gauge stainless"

One of the nice things about a heavier gauge of steel is that it is discernably quieter when metal is clanking around in it, something that is irrelevant in industrial use, but a nice slight plus in a luxury kitchen.

What is not explained in the #1 link, is what exactly "extremism" means.

Without this being defined, and in the context of the different EU countries, it is somewhat difficult, I would think, to draw any definite conclusions.

Richard Ebeling

I can't speak for other countries, but the 45% extremist figure for Greece works out right if you assume that the two big parties (Nea Democratika and PASOK, typical centre-right and centre-left parties) are not extreme, as well as their recent splinters, ANEL and DIMAR, which each are composed of members of the big parties that oppose the austerity/bailout plans.

That would leave the KKE (Greek Communists), SYRIZA ("Coalition of the Radical Left," who are generally to the left of the KKE), and newcomers Golden Dawn, who deny being Nazis.

SYRIZA was previously an utter fringe party, polling below the KKE's usual 10%, but they have become the standard-bearers for the anti-austerity movement, and that has pushed them to 27% of the popular vote, good for second overall in the last election. Golden Dawn barely existed before this year, but they did completely displace a previous right-wing party that routinely elected members to the legislature.

If I had to guess, in other countries the chart-maker probably picked the standard big centrist parties as "not extreme," and the standard communist/left and quasi-fascist/right parties as "extreme."

Sachs article is incredibly bad. I am not sure how you can say that "the only route to middle class jobs is through education, skills and active labour market policies that match jobs and needs. Germany and other countries of northern Europe have generally succeeded in creating these institutions". Say what? Unemployment in the US has been consistently lower than in northern europe until 3 years ago. If the reason for that was in creating 'middle class jobs' can someone please explain how that trend is only showing up now? To say that bubbles were the only reason why this didn't show up before is ridiculous. Even now, if you compare certain US states with Germany we have lower unemployment. Are you saying that institutions in Oaklahoma (unemployment 4.8) or Nebraska (3.9) are better than the ones in Germany? Or we don't have middle class people in these states? Please.

Not to mention that his article is a list of complaints, no hint of policy at all. If he thinks that natural gas is an 'illusory answer', what is he saying here? Go nuclear? Or does he think increasing taxes on HC is the solution? How does that play with his critique of Krugman?

Articles like this are just a distraction in my opinion.

And let's check back with Germany in 6 months.

Specially if the Germans continue to follow the advice of another genious names Stiglitz, who said that it is in 'Germany's Enlightened interest' to bail out all Europe, no matter what it costs.

And one more thing that occured to me: Would Sachs consider the UK part of 'southern Europe'? after all, if nothern europe is the part of the world who has implemented this great education plan and is thriving because of it, I guess he considers 'northern Europe to equal Germany and the small countries around it?

2. Not if they keep using Prestige.

That sink is the macbook air of sinks, maybe higher. Note the price of competing stainless steel sinks, which are cheaper than even the cheapest of laptops.
http://www.amazon.com/Moen-22832-Excalibur-Stainless-Single/dp/B000UO0GQO/ref=sr_1_10?ie=UTF8&m=AH5IPRMX6GLKP&qid=1342103337&s=hi&sr=1-10

3. Because polishing metal is lousy, lousy work, not only requiring precision but also dirty and dangerous. Also, what byomtov said.

No doubt it is, but what does doing it by hand add?

By the way, type 304 stainless steel costs between $1.00 and $1.50 a pound. The sink weighs 22.5 lbs.

Perhaps the sink sunk costs aren't a factor, despite the sinking cost of the sink itself (sorry..). Reading the comments, the customer appears to be pleased with the sink. Mind you,these days it costs very little to research alternative sinks - http://ow.ly/cbWC8. Which still begs the question, why is this so high? Perhaps this is more to do with the manufacturer/seller? Possibly a limited run, high margin product done more as a sideline or a production filler, or excess product from a larger order and with no great pressure to move it out?

Another idea is that it is a marketing ploy.

You offer some ridiculously high-priced item that you don't really expect to sell. That makes it easier to sell the customer a somewhat less expensive - but still overpriced - version by creating the impression that he's being frugal while still getting a high-quality product.

This strategy has a name, though I can't remember it.

Reverse bait-and-switch?

I thought this article named the strategy, but it doesn't. It sounds like some combination of #3 and #4: http://www.theatlantic.com/business/archive/2012/07/the-11-ways-that-consumers-are-hopeless-at-math/259479/

Remembering what Tyler said about stories...

If I read that FT column without knowing the author, Sachs is probably the last person who I would have expected to write it.

Really? Didn't surprise me in the least -- he's been spewing stuff like that for quite a while now.

I agree with FYI. The Sachs article was incredibly bad...maybe the worst recommendation from this blog I have ever read.

Sachs article: an example of false equivalence. He accurately identifies the republican party's small-government mania, then mis-characterizes Krugman-type arguments about stimulus and monetary easing. There is clearly no conflict between stimulus and structural reforms; with enough forethought they would be complementary. There IS a clear conflict between slashing the size of government and the types of structural reforms Sachs suggests. What exactly are we supposed to take away from this?

Another factor not yet mentioned: A sink lasts a long time, we spend less life time on sinks so we look for quality than price.

http://www.lowes.com/pd_316833-1475-LFDS704NKIT_4294789628%2B4294735712__?productId=3142509&Ns=p_product_qty_sales_dollar|1&pl=1&currentURL=%3FNs%3Dp_product_qty_sales_dollar|1&facetInfo=

I don't think that most sinks cost more than most laptops. There is a much bigger range of prices in sinks because quality can vary more widely. Here's a sink at Lowes for 100 bucks. They also have them for more than a 1000.

Re: #3, I have to ask: are you and/or "Amit C" really economists?

What a non-sequitur anyone to pose (let alone those who pose as Thoughtful Men of the World).

You may as well ask why a one-hour deep tissue massage costs more than an X-box game.

More generally, you may as well pick any other pair of unrelated products that are sold at different prices.

Your question only reveals that:
(a) your reservation price for a laptop exceeds that for a sink;
(b) you are sufficiently arrogant/self-centered and ignorant of basic economics to believe that (i) everyone else's reservation prices for the pair of items should also exhibit the same cardinality and (ii) market prices are monotonic in your reservation price.

Do you know what the costs of production for each item are? What the elasticity of demand is? How suppliers compete and how intense their competition is?

Good lord, that's the most basic level of economic thinking.

And here, you self-professed paragons of economics bien pensees, are delightedly putting out a "paradox" that reveals simply that you can't do Econ 101!

No wonder we have a society and electorate that doesn't get basic economic thinking.

The self-proclaimed economics thinkers and self-promoters don't get basic economics, and propagate their ignorance.

Hey guys, please do us all a favor?

Stay in the coffee houses bordering your campuses, preening to your fellow academics and your captive, brainwashed, students.

Leave the work to us.

worst comment ever.

Gee, ed.

Thanks for demonstrating that your coffee house has Wi-Fi access.

Now, back to the echo chamber with you. The emperor's new clothes won't just praise themselves, you know.

Economists live outside reality. They are not constrained by the laws of nature. If the demand for labor drives the price, wages, up, then labor will materialize fully formed. And if demand for labor falls, the price fall will result in labor dematerializing.

When it comes to capital, say a factor, economists will use the term "creative destruction" to describe bulldozing it and melting the steel scrap into cast iron billets. But they know better to talk of creative destruction of labor, which would solve the shortage of organs for transplant.

Also, while economists look to physics for their math, they never include t in anything having to do with forces of supply and demand, beyond "in the short run" and "in the long run". That is like saying, "throw a ball up in the air, and in the short run it will be in the air, but in the long run it will be on the ground."

Mining to the economist is a process that increases the supply of raw materials the faster you deplete them because a mine will always be able to product more than projected - the equivalent of Zeno's Paradox where the racer never crosses the finish line.

And economists envy the physicists who can run experiments to test out theories - after all, cosmologists create universes in the lab all the time - that's how they know about dark matter and dark energy and cosmic inflation.

But your advice is the opposite of what it should be: "start a coffee shop and prove you understand economics in the real world."

When everything is printed, as laptops essentially are, then it will just be materials and economy of scale.

Sinks aren't printed, but they are stamped. So, they kind of are printed.

Extreme votes are the result of social mood. It is the horse pulling the cart, not the other way around. The euro is in crisis because the people are pulling it apart, not because the euro crisis is making them upset. Also, they seem be looking at domestic "extreme votes", but there's also growing nationalist sentiment also being driven by the social mood. Even if voters stick with the centrist party, it likely has shifted it's position on the euro.

@Richard Ebeling --- I don't know how they measure extremism either (need the Credit Suisse report), but possibly by the percentage of votes captured by smaller parties, in some cases moving to first place. Italy's Five Star movement could be the largest party in a few months, and didn't exist a few years ago.

Amazon will eventually achieve minus-1-day delivery. They'll be able to predict what you'll buy and when before you actually do. :-)

The frightening thing is that, with a touch of effort, they probably can come close already.

Imagine that you get an email or other message saying,

"Hello,

We think you'd enjoy the following books, music, etc., so we've taken the liberty of assembling them into a package you can download to your Kindle, iPad,...with just a click. Or you can delete some items from the list and download the rest."

Alternatively, I guess they could actually push the stuff to your device, though that might pose legal problems.

I'd go for that...at the right price.

This could be called the "Amazon Book of the Month Club".

I've pondered a similar business model, and you are right in that the surprise has to be part of the utility.

They already sort of do this by locating stuff people in an area are likely to do this in a nearby warehouse...

You can already set up a subscription purchase of common household items.
Buying diapers on the subscription model works out to be pretty damn cheap. That's something you know you're going to need for a long time and can rationally figure out consumption rates.

I actually used this with a bulk sale on steel cut oats (can't remember the brand). It worked out to be cheaper than Wal-Mart which is saying something.

FWIW, there are sellers in similar markets who do achieve minus-1-day delivery by providing products before you actually order them. For example, publishers who sell statute and rule books that have to be updated annually to lawyers (there are a few kinds of legal reference books that it is nice to have physically on your desk, even though everything else is in electronic format these days) routinely deliver the product to you before you have ordered it on the assumption that you will want to keep it and pay for it without having any stated authorization to do so. A number of printers also automatically reorder ink for themselves before it runs out unless you disable that feature.

High volume food retailers (e.g. McDonald's) aren't quite that fast, but they do start to fulfill you order well before you have ordered it which is how they can deliver food to you so quickly after you order it.

2. Will Amazon achieve one-day or same-day delivery?

When will the people who protest against WalMart locating in their town start to protest Amazon?

Especially since Wal-Mart pays LOTS of local taxes.

I don't think people don't protest against WalMart for having low prices and fast delivery. They protest against WalMart for its employment practices.

Amazon's isn't a paragon of virtue in that area, either.

Sinks last a lot longer than lap tops and the first time a sink fails its finished.

Regarding #5, and the Sachs link?

FT.com demands cookies and wants a registration.

Thus no FT.com content will be consumed here.

On the sinks, no one seems to mention the effect of permanance on the purchasing side. People upgrade laptops a lot more often than sinks (at least I do anyway) so in say 10 years I'll buy 2 or maybe 3 laptops (some people more's some less) whereas in 10 years I'll buy maybe half a kitchen sink. So even if the material cost is the same, the computers can sell on a smaller margin and still make higher lifetime income off a given customer. Of course because we buy so many more laptops, that also goes a long way for economy of scale.

High quality stainless steel (the kind that won't rust even when in prolonged contact with corrosive substances on daily basis) *is* expensive. So even if absolutely everyone wanted to have one and the scale would reach the level of laptops, it would still be at least $250.

Some points:

1. The sink in question is described as being made of 304 stainless steel, which costs, as I said above, $1.00 to $1.50 a pound.

2. Who is it that needs a kitchen sink that won't rust when in contact with "highly corrosive substances?" My recipe file, as far as I know, contains no recipes featuring such substances as ingredients.

3. My knowledge of steel prices comes from being actually involved in an actual business that makes actual steel products. Our products are often used in environments vastly more corosive than any kitchen you can imagine. Trust me. That doesn't justify the price.

I agree, the material does not justify a $700+ price. Nor does the fact that people buy them infrequently. Firms may want to get higher profit for occasional purchases, but wanting to make a profit and being able to are very different. This is clearly a small volume, niche product, and regardless of the profit margin, that small volume may not attract many close competitors due to the overhead of creating, producing and distributing yet another small volume sink.

I'd be willing to bet that the retail salesperson who sells a $700 sink gets a pretty decent commission on the sale and that the Amazon price despite not involving nearly so large of a commission is set high in part so the company doesn't undersell its brick and mortar sales force (mostly independent distributors). A sufficiently large sales staff to do personal marketing of high end kitchen products to the customers who will buy them, whether it is in house or reflected in a big gap between wholesale price to authorized retailers and retail price, doesn't come cheap.

Ah, okay, I just assumed, from the price, that it's made of the surgical grade stainless (also sometimes called "food grade").

Corrosives: onions - sulfiric acid, vinegar - acetic acid, desinfectants - hypochlorites.

I'm talking about much more serious stuff than onions.

"Why does this kitchen sink cost more than many laptops?"

A good solid sink (I happen to own almost exactly that model and bought it when I renovated my kitchen twelve years ago, it is still one of my favorite decisions in the overall renovation job) will last fifty years to more than a century with daily heavy use. You'll be lucky if your new laptop is servicable in three or four years, and it will show meaningful wear and tear that may require a battery or some keys to be replaced in a couple of years. So the annual expenditure on a sink over its useful life is much smaller than the annualized over useful life cost of a laptop.

Also, quality control is better on the sink, which it should be. If my laptop fails because I buy an inferior quality one, I can go to the store and buy a new one and my only worry is salvaging the data (which you can use backup utilities in the cloud to do regularly and automatically at a modest cost). I have lost a day or two and the cost of a new laptop which is probably cheaper than the original one and may be covered by a replacement plan purchased in the first place. As long as the average useful life of the laptop before it breaks is less than its likely period of technological obsolence in a large enough percentage of units sold, a broken laptop isn't the end of the world. My sink simply is not going to become obsolete. But, if my $700 sink fails, it will probably damage the surrounding granite countertops, the fine cabinetry that holds it, the adjacent flooring, and will require a building permit and an expensive contractor or two to replace the sink and all of the damage that its failure has caused. All in all, a sink failure is likely to cost several thousand dollars and will probably take several weeks of considerable inconvenience to remedy. So quality workmanship, that doesn't come cheap, matters much more.

As an earlier poster noted, the differences in the cost of raw materials isn't nearly so great as it might seem and makes up a tiny percentage of the total cost. In both cases, a surprising large share of the toal price goes towards compensating salespeople and marketing.

The sink v. laptop example is also an excellent example of the proposition that it is possible to run a profitable business on a long term basis selling products that lack patent protection. There are no utility patents in force protecting that sink design. And yet, somehow, Elkay manages to stay in business.

How does a sink "fail?"

You’ll be lucky if your new laptop is servicable in three or four years

Getting seriously off-topic but just FYI: I have various laptops going back to the 1993 and all of them still work. 100%. Floppy drives and hard drives. That's 20 years. And three years old laptop will be nearly as fast as what you will buy today as far as most common apps are concerned (it would only run more of them concurrently).

Ack, this sink is popping up for me in random Amazon advertisements on various websites ever since I clicked on the link.

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