Archive for October, 2012

Notes from the margin – October 2012
October 5, 2012

This column was written for the Friday AM in Salmon Arm. It appeared in the October 2012 All Month edition. 

Why what really matters is priceless

At a time when many Canadians are cautiously optimistic about the Canadian economy but fairly concerned about the global state of affairs, it occurs to me that focussing merely on the price of goods can be short-sighted. The paradox of value (also known as the water-diamond paradox) draws attention to the contradiction that water is more useful than diamonds yet doesn’t command a similar price. This paradox affects many decisions.

We’re obsessed with price (the dollar, the pound, the euro, the ounce of gold, the barrel of oil) at a time when value is what’s really at stake. We’re obsessed with unit of measure (the hourly rate, the stocks, the scores, the ratios, the rates) when utility is more important in challenging times.

I think part of the reason we obsess about evaluation (price and unit measurements vs value and utility) is because if we can evaluate it, we believe we can regulate it and control it. This makes bankers, brokers, bureaucrats and big business happy but doesn’t do a stitch of good when we’re trying to narrow the gap between what we have, what we need and what’s important.

We can’t put a value on our health despite what we spend on healthcare. We can’t put a value on our city despite what we spend on roads and sewers. We can’t put a value on safety despite what we spend on fire and policing. Nor can we put a price on happiness, trust, loyalty, family or friendship. The things we value most are priceless.

It comes down to how a particular firm or individual makes purchasing decisions. If a firm isolates for price (as is often the case with government procurement, institutional purchasing or large format retailers), then price trumps value and utility. And sometimes, that’s okay so long as it’s understood that value and utility aren’t reflected in price alone. If it were, nobody would ever purchase a luxury car, a home renovation or even a latte. Price and cost alone do not drive a successful economy. Value and utility are critical.  We need to strive for the right combination to achieve the manageable economy we all wish to see.