Brian Gongol Show on WHO Radio - August 24, 2014

Brian Gongol

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Please note: These show notes may be in various stages of completion -- ranging from brainstormed notes through to well-polished monologues. Please excuse anything that may seem rough around the edges, as it may only be a first draft of a thought and not be fully representative of what was said on the air.

The Price is Wrong

Stock market indices are all touching long-term (if not all-time) highs. Among many stocks with high-flying prices, Berkshire Hathaway is in the news after its share price crossed $200,000. Now, it's perfectly natural that people would turn their heads and look at such an eye-popping figure (especially when the stock sold for $290.00 a share back in 1980), the milestone really doesn't mean very much, other than that it's a big, round figure.

What's more important is to know that the intrinsic value of the shares crossed $200,000 long ago, and while price shows up on the scoreboard, value is what really matters. There is a big difference between "price" and "value".

Train yourself to see value, rather than sticker price. If people only understood that the price is wrong -- except for one seller and one buyer, the price of anything in the market is lower than what the buyer values it, and higher than what the seller values it.

- Getting more than what you pay is the essence of a market economy -- consumer surplus

- Sellers paid more than it costs them is the other half -- producer surplus

- We're happiest when we can maximize the surplus all around

- Price and value are often different; price is only an approximation of the middle ground between supply and demand values at any given moment

- Even though prices are only approximations, they're far better than non-pricing mechanisms. Any system that tries to remove pricing isn't really *fixing* questions of value -- it's just making it even harder to think about.

Some cases where prices are clearly wrong:

Tin Foil Hat Award

Business and Finance Uber hires President Obama's former campaign manager as SVP of "policy and strategy"
It doesn't say good things about the state of the economy that companies feel the need to bring in marquee political names in order to get the kind of political favor they need to survive. That signals an economy that's subject to the whims of politicians, not one in which markets are free to reward good ideas and punish poor performers.

Yay Capitalism Prize

News More signs around Wrigley Field?
Neighboring rooftop owners are suing to stop them. This is a classic case of the need for well-defined property rights -- feeding what economists call the Coase Theorem.

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