THE SPONGEBOB-ENRON CONNECTION
by Kevin Wohlmut
[This was a magazine column which was rejected by three online magazines at around the time George Bush was pushing for privatization of Social Security. I, of course, think it's still relevant.]
THE SPONGEBOB-ENRON CONNECTION
by Kevin Wohlmut
[This was a magazine column which was rejected by three online magazines at around the time George Bush was pushing for privatization of Social Security. I, of course, think it's still relevant.]
A simple trip to the corner store’s gumball machine can serve as a microcosm of the U.S. economy without even spending a coin.
All my local grocery stores have installed the oversize banks of gumball machines now, which carry “collector’s” figurines costing 50¢ or more. But an assortment of characters stocks each machine. So if you want a specific one, the effective cost rises higher. I like Spongebob’s character, but I’d be much less interested in looking at Sandy the Squirrel on my dresser each morning. Between my friends with kids, and myself, we’ve bought eight of these gumball figures. We have yet to receive a Spongebob -- instead, we now own an assortment of Patrick Star figures; Sandy; and Squidward.
One might divide the number of Spongebob figures by the number of options displayed, and conclude that your odds of getting Spongebob are about 20% (raising the effective, average cost by five times, or $2.50) One would be wrong. Apparently the gumball companies lower the odds by stocking their machines with a non-random selection. Spongebob is made artificially rare. Our real-world efforts seem to indicate the odds are 12% or lower (indicating that, on average, you will spend $4.00 or more to get a 50-cent Spongebob figure. Hope it's worth it!)
According to the Econ-101 theory of Capitalism, there is no reason for this. It costs the manufacturers no more, on average, to produce Spongebob figures than Squidward or Patrick figures. In fact, Econ 101 says that if a company stocked its machines exclusively with Spongebob figures, their machines would be more popular than the frustrating ones which rarely yield a Spongebob, and thus they'd make more money.
But economic theory rarely matches reality.
This problem is, of course, not limited to Spongebob. Right next to the Spongebob machine is a similar one for Simpsons figures. Nine of the ten figurines depict minor characters from the series -- Principal Skinner, Miss Crabapple, Willy the Janitor, Ralph Wiggum, and so forth. Your odds seem to be 10%, or less, that you will obtain the most popular character... Bart Simpson.
Apologies to the two or three Sandy the Squirrel fans, or fans of Willie the Janitor, who will undoubtedly write to me. I realize you exist. But it seems safe to say that the vast majority of customers hope to get a Spongebob, or Bart Simpson figure. Nevertheless, the odds of getting one are small.
And why? Because the intent of the company is not to provide you with the figure you want. Customer satisfaction is not the only goal involved in the transaction.
The intent of the company is for you to give them your money. This is quite a different thing than satisfying your needs or desires, and these gumball machines have decoupled the two.
If they gave you the Bart Simpson (or Spongebob) figurine on the first try, you would stop inserting quarters into the machine. If you get Willy the Janitor on your first try, you are likely to continue inserting quarters into the machine.
A lot of readers will now want to write me and say, "Well duhhhh, everybody's always known that gumball machines were rigged since about fourth grade."
Okay, well if that's the case -- if that lesson has been learned so long ago -- why would you expect a stockbroker, or a power utility, to operate differently than a gumball company?
Enron, once the nation’s seventh-largest company before its collapse amid scandal, was specifically set up to operate on the same principle. Not that they dealt with cartoon characters. But their goal was to stand between a customer’s need (energy) and that need’s resolution. Their goal was not to provide the customer with energy -- as has been made abundantly clear in the tape recordings where Enron employees encouraged power plants to take themselves offline. Enron’s specific goal was to control the market -- and then create an artificial scarcity, much like the gumball companies do with Spongebob. That's not how the company started out, granted. But after several years, that's what the company's goal had become... that's what caused the California Power Crisis... and that's what caused Enron's collapse, along with billions of dollars of pension savings.
That’s all you need to know about Enron’s complicated schemes of transmission congestion, offshore shell companies and debt leveraging. As well as Enron’s multidecadal lobbying effort to promote deregulation. The push for deregulation and “free markets” comes from companies who want consumers to gamble, like putting quarters into a gumball machine. The consumer hopes that low energy rates will come out of the chute. The reality is that the supplier controls the conditions of the gamble, and the house always wins.
The reason I chose a simple gumball machine to illustrate this concept was not to whine that kids need onerous governmental regulation to protect them from unscrupulous gumball companies. I wrote it to remind people that corporate interests can and do diverge from ours, the consumers.
Inefficiency, monopoly and chicanery are not weird aberrations which that ol’ Invisible Hand somehow forgot to clean out. They are a part and parcel of the nature of the market itself. When corporate spokesmen claim that the only force in the economy is supply and demand... that all their energies are devoted to satisfying consumer needs and nothing else... well it’s simply not true.
When Ken Lay says "Enron is providing products and services, which allow the economy to work better, more efficiently, at lower cost and reduced risk. We also provide a lot of good jobs" -- that’s not the full story, even though he’d like you to believe that it is.
When Dick Cheney says “The law of supply and demand works... moving in the direction of freer markets and less government regulation leads to greater efficiencies... so that the consumer benefits,” it’s just not that simple.
When Jeff Skilling and Ken Lay say that “We are the good guys. We are on the side of angels” and “I believe in God and I believe in free markets,” it is not prudent to take their statements at face value.
Enron’s definition of a free market was very different from the consumer’s definition of a free market: "Free for me, but not for thee." Ken Lay and Dick Cheney talk to the public in terms of Econ 101, but their own business education goes far beyond that basic course and their schemes render your basic knowledge obsolete. Did they ever teach you, in your economics classes, that -- under the right circumstances -- you can make more money by offering someone a desired product, and then reneging on the offer? They didn't? Funny, because that's the way the gumball machines work, that's the way Enron worked -- heck, certain electronics companies practically live [links to a pdf file] off of that strategy.
Corporate interests diverge from yours, the consumer. And they have a lot more power than you do -- sometimes literally. This week, as further Enron transgressions are revealed in the coutroom trials of Ken Lay and Jeff Skilling, consumers could use some reminding.
Does anyone doubt that -- had Enron collapsed five years later than it did -- with George Bush in office, Enron stock would've been among the Federal "basket" of stock that the government dumped your privatized "personal acocunts" into?
Even though George Bush seems
to have backed down from what he hoped would be the "signature issue"
of his second term -- the next time some Republican pushes the idea of privatizing
Social Security, it's worth remembering Spongebob and the gumball machines.
Put your savings into a rigged machine, and pray that a good retirement comes
out of the chute? No, thank you.
