When the Theory Doesn’t Fit the Facts, Print the Theory

A recent piece by James Surowiecki, the New Yorker reader’s guide to the perplexing world of economics, gives us an inkling of what’s worrying all the best people in the Hamptons this summer–the price of lobster. After all, it’s one of the few problems these days that can’t be traced directly to some ruinous Obama-administration policy, so it’s not only of vital importance to New Yorker readers but also something that nice people can talk about without being called racists.

According to Surowiecki, the problem–in a carapace–is this:  “There’s more lobster out there right now than anyone knows what to do with, but we’re still paying for it as if it were a rare delicacy.” He explains this conundrum by asserting that people can’t tell a good lobster from a bad one by taste, so they judge it by price. Thus, in order to assure their customers of the high quality of their lobsters, restaurateurs decline the additional profits they could make by knocking a few bucks off the price of their lobster thermidor in order to move more of the abundant crustaceans. Or so the story goes.

What’s the evidence for this claim? Pretty much nothing, other than some manipulative prose from Surowiecki:  “Even as the wholesale price of lobster has collapsed, restaurant prices for lobster tails and that hipster favorite the high-end lobster roll have stayed buoyant.” How much of a fall in price constitutes a “collapse”, you ask? James S. doesn’t say. How far can prices decline and still be declared “buoyant”? No idea. If you’re a New Yorker subscriber you already know the old saying, If you have to ask the price then you can’t afford it.

I mention this not because of my concern for the tight budgets of lobster-eating New Yorker readers, but because this fish story provides an excellent example of one of the great failings of what passes for our “intelligentsia” today: they never let crude facts get in the way of a satisfying theory.

The essential fact about lobsters as far as restaurants are concerned is that they are highly perishable. That’s why restaurateurs who boast of their aged steaks never say the same thing about their lobsters. Also, unlike chickens, lobsters aren’t produced in assembly-line fashion; there are bountiful harvests and thin ones, both determined by the vagaries of nature. If you’ve ever had a bad lobster, as I have, you know it’s a particularly unsatisfactory experience, particularly upon excretion. So what we have here is a food item that’s produced in a very small geographical area, is costly to pack for proper shipping, must be stored in salt-water tanks upon delivery, and deteriorates fairly rapidly. In short, the price paid to a lobsterman at the dock amounts to a relatively small share of the total cost of delivering a fresh-cooked lobster to a restaurant table. Therefore, restaurant’s lobster prices fluctuate much less in percentage terms than do the prices of those same creatures right off the boat. [For example, if in normal times lobsters sell for $5 a pound off the boat and a 2-pound lobster dinner costs $40 at your local swankateria, then a 50% fall in lobster prices off the boat would only reduce the cost at tableside by a 12.5  percent (5/40).] Of course, I have no idea if that’s a sufficient basis for calling lobster prices “buoyant”, because Surowiecki doesn’t bother to define price buoyancy for us. That’s an essential part of the art of telling just-so stories.

But I do have a taste for facts, as well as a working knowledge of search engines, so it took me not much time at all to find out a few things about the market for lobsters.

First, it’s pretty common for restaurants that sell a lot of lobsters not to specify a menu price at all  their lobster dinners. Instead, what their menus typically say is “market price”. This is true in Boston, and it’s true in Florida.* Most people would take that as a sign that lobster prices fluctuate frequently enough that it’s not worth printing them on menus. They might further suppose that restaurants that only sell a few lobster dinners  would rather print a single, stable price on their menus than submit their customers to the gaucherie of having the price told to them by their server. James Surowiecki is not one of those people.

Second, if my explanation is correct, we ought to see bigger retail price fluctuations at restaurants where the price of the lobster itself represents a larger fraction of the total cost of the full lobster dinner. There are lots of such places along the New England coast, and the prices  at those places are so low that they’re newsworthy.

James Surowiecki and his readers do not wish to bother with such banal facts. They far prefer a story as insubstantial as spun sugar, as long as it can be used to illustrate the fundamental irrationality of ordinary people and the impotence of the forces of supply and demand. The people who eagerly scarf up this nonsense are just another segment of the market for ignorance, which is one of the cornerstones of 21st-century liberalism.  Sadly, it’s yet another market in which supply responds quite agilely to demand.

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*Note that items made from canned lobster meat do typically have standard menu prices. Greater storability is the explanation for that.

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1 Comment

Filed under Economics, Media

One response to “When the Theory Doesn’t Fit the Facts, Print the Theory

  1. Those evil-capitalist restaurateurs keeping the lobster man down! We’d better set up USDA lobster price supports, pronto. (To add to USDA purchases already buoying prices of such welfare and school lunch staples as salmon and pistachios.)

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