March 2009 Archives
Very interesting indeed, but painfully slow.
This afternoon, in my sick and feverish daze, I finished reading Off the Books, another one of Sudhir Venkatesh's fascinating accounts of ghetto life on the South side of Chicago. This volume focuses primarily on the underground and informal economies that are critical to the subsistence of the urban poor. Predictably, he extensively documents the drug trade, prostitution, and local businesses. More surprisingly, however, are the very large number of in-kind transactions that occur between residents of the neighborhood. In many cases, these in-kind and bartering transactions are for goods that would always be purchased with money in middle- and upper-class neighborhoods. This is a shocking observation because it means that residents are losing the many welfare benefits of having a fungible currency.
The benefits of currency are innumerable and pretty obvious. Without currency, it is extremely difficult to save or invest. A person can only acquire goods from another person if the first person has something that the second person wants. Less trivially, a person who uses bartering instead of money has a more difficult time acquiring credit from formal institutions like banks. The alternative is to resort to informal loan sharks who may physically abuse delinquent customers. The list of benefits goes on and on. Currency is unequivocally good, and excessive use of bartering and in-kind payments almost certainly has a depressive effect on the local economy of a neighborhood.
The more interesting question, however, is why in-kind payments and bartering even exist in poor neighborhoods, when they are nearly absent from more prosperous ones. One might naively surmise that even if people are poor, currency will still be used because the market price for a good will just drop to the point at which people can afford it. If two people are willing to exchange in-kind services, there is no reason why that same transaction could not be monetized. Given that few outsiders tend to venture into the ghetto, lower market prices could sustainably exist there (a ride to Midway airport on the 55 bus in Chicago, for example, passes many gas stations that sell gasoline for significantly less than in wealthier areas of the city).
I have four possible explanations for why this phenomenon may exist. The first is simply an observation that there is a special type of in-kind transaction for which money is simply unnecessary. In certain situations, the act of person A allowing person B to perform a service for A is itself a form of payment. The example that comes to mind from Off the Books is the shopkeeper who lets a homeless man sleep in his store at night to guard it. The homeless many gets a warm place to sleep during the brutal Chicago winter as an immediate consequence of guarding the shop. It would be pointless to monetize such a transaction because the service that A provides to B is inextricably linked to the service that B provides to A.
Most transactions, however, are not of this nature. A second explanation, which could apply to any transaction, is that money is not secure in the ghetto due to high rates of robbery. Given the poor access to financial services like banks, storing wealth is more problematic than elsewhere. But it is not as if residents of crime-ridden neighborhoods are robbed every day or even every month, so this seems unlikely to be the whole story.
A third and related explanation is that since saving is less feasible and people tend to have a very small amount of money at any given time, in-kind payments are preferable for large transactions. For example, if I need a new set of tires for my car, I may not have the necessary amount of money on hand, and it may be dangerous for me to save enough for it because I may be housing a crack-addict relative. But I could give the car repairman a month's worth of lunches from my underground soul-food kitchen as payment. As a busy man, this might be amenable to him. This explanation works partially, but it cannot explain why the car repairman would not just accept daily payments in cash of the amount that I would get from selling my soul-food to someone else.
The fourth and final explanation is the most complicated but much more interesting than the others. Notice that if a good can ever be sold for X dollars in a free market, there must be someone in the community who is able and willing to buy it for X dollars. So if a good is sold some of the time and bartered some of the time, there must be some people who can afford to pay for it in cash. Also, we can safely assume that people will tend to prefer cash transactions over in-kind ones. After all, you can buy anything with currency, while there are a lot of things you can't buy with your cooking skills. The conclusion is that there must be a large fraction of people who cannot afford the market prices of certain items.
This conclusion might seem stupid because we have assumed that these neighborhoods are poor. But if everyone were poor and uniformly so, then the market price for goods would either be bid down to an affordable level or the good would not be sold at all. Income stratification could produce this situation in which goods are sold half the time and bartered the other half. If the good were a necessity, then everyone will attempt to acquire the good irrespective of whether they have the money for it or not. If they have the money, then they create the cash price for the good. If they don't have the money, then they create the barter price for the good. Alternatively, note that since the poor have little to no savings, the percentage variance of their net worth is enormous. A street "hustler" may only have $20 on hand one day, but if he finds a shopkeeper who will pay him $100 to paint his store, his net worth has increased by 400%. The result is that a ghetto resident might be willing to pay for goods some of the time (i.e. just after getting paid), but have to barter other times. So even in a population with homogeneous annual income, if people have highly fluctuating net worths, monetized and in-kind markets for the same good can coexist.
All of these explanations are likely to contribute to the existence of the non-monetized markets described in Off the Books, but it is doubtful that they can explain the entire phenomenon. Whatever the cause, these informal, non-monetized markets are good examples of the enormous benefit that currency can have for human welfare.
"Heller itself struck down parts of the District of Columbia's gun control law, the strictest in the nation. The case was brought by law-abiding people who wanted to keep guns in their homes for self-defense. The cases that have followed it tend to concern more focused laws and less attractive gun owners.
Harvey C. Jackson IV, for instance, argued that he had a constitutional right to carry a gun while selling drugs in a dangerous neighborhood in East St. Louis, Ill. The federal appeals court in Chicago was unimpressed.
'The Constitution does not give anyone the right to be armed while committing a felony,' Chief Judge Frank H. Easterbrook wrote last month in Mr. Jackson's case."
--The New York Times, on the Supreme Court case District of Columbia v. Heller.
But seriously, if a situation ever existed in which gun-advocates' argument that firearms are necessary for self-defense were valid, then surely this would be it. Given that gun control rarely works in high-crime neighborhoods, allowing drug dealers to carry firearms actually makes a lot of sense. Without guns to deter their wildly irrational, doped-up customers (who carry guns no matter what), from killing them for drugs and money, drug-dealers would be rampantly attacked. We could end up with a greater level of violence than otherwise.
Unfortunately the NRA members who advocate for the second-amendment right to self-defense tend to come from suburbs and not the ghetto. It's hard to make any reasonable case that guns in suburbs play any role in deterring violence or saving lives. And ironically, the suburbs are probably the place where gun-control laws would have the highest compliance rate.
"As for another set of partyers, the New York investment bankers whose once-hefty bonuses may have significantly diminished in recent months, 'instead of having the $10,000 to $15,000 to spend on a Saturday afternoon, they might spend $2,000 to $3,000,' Mr. Laba said. 'Which is fine.'"
--Remi Laba, describing the clientele at the Saturday afternoon brunch served at his restaurant Bagatelle.
For the second time in two months, while shopping at Hyde Park Produce, I have seen someone who looks exactly like Slavoj Zizek with a young woman. He walks around very quickly, pointing at various pieces of food, barking their names in a thick eastern European accent while the woman either consents to or denies his suggestion to buy the item. But the more important point is: why is Slavoj Zizek, or an astounding lookalike, frequenting produce shops in the middle of Hyde Park?
