Price as a poor indicator of value

There are two ways to look at price as a function of value.  On the one hand, increasing price could be seen as an indicator of increasing value.  On the other hand, one item that performs the same function as another item but is cheaper can be seen as a better value.  Let’s examine the former first.

Axiom: Increasing price is an indicator of increasing value.  (i.e. price ~ value)

When it comes to value, it is very difficult to define what value is.  A Louis Vuitton purse performs the same function as a no-name brand purse, they both carry stuff.  However, one would argue that a Louis Vuitton purse carries a higher fashion status, and thus can add value to your life from a social perspective.  Other than this, I see no value in a Louis Vuitton purse.  Advocates of Louis Vuitton will point to higher quality stitching, to durability etc, but I think this is mostly false.  You can probably get a Louis Vuitton purse before they stamp the LV on it and you will note that it is 90% cheaper.  Same purse, but your friends aren’t as impressed.  Because of branding, increasing price does not equal increasing value.

Axiom: For a similar item of the same function, a lower price indicates higher value.

We could take the same example of the purse but I’d like to use something different.  Too often, and I’ve made this mistake myself, people buy things based solely on price, then are stuck in the cycle of replacing over and over.  I remember buying a pair of cheap jeans for $30.  I probably wore them 10 times before they tore on me.  I then bought a pair of raw denim jeans for $150.  I probably wore these jeans 300 times or more before they tore on me, and I wore them in much higher wear situations than the pair of cheap jeans.  When I’m looking at the store, the cheap jeans cost much less than the raw denim, but from a cost per use perspective, the raw denim jeans were about $0.50/use where the cheap pair were about $3/use.

My point here is that it does not make sense to make decisions on purchases solely on price.  There are many considerations one needs to take into account, like your financial situation, function (status or utility), durability, health etc.

I bring up health because my wife recently bought a travel mug for coffee.  She had her mind made up on a certain type and it was made up of recycled plastic.  When we got to the store, she found another one that was made of glass.  I encouraged her to buy the glass one because glass is inert and thus won’t release any compounds into her coffee.  I think the chances of that happening with the plastic are low, but they are not zero.  We paid more for the glass, but this is where the fuzzy definition of quality (read Zen and the Art of Motorcycle Maintenance) and value come in.

I would also like to point out that while somethings that perform the same function may cost more, they can be infinitely more durable, which means that they are probably more environmentally friendly, since less waste is being generated.

It really depends on why you are buying it.  We are encouraged to buy things so mindlessly.  Before you buy it, wait a second and ask yourself, “Why?”

Oil Junkies

I’ve been looking through the BP Statistical Review of World Energy (  Its quite a comprehensive view of the world energy situation, not just oil, but all types, including nuclear, hydro, wind, etc.  I recommend that you take a look.

What looking at it did to me though, both troubles me and gives me hope.  On the one hand, it becomes very obvious that we as a species are addicted to oil.  No revelation here, people have been screaming about this for quite some time.  But, its interesting to see who the big culprits are.

I decided to look at the G8 countries, because they seem, to me anyway, to be in the best position to reduce their dependence on oil.  I’ve plotted the Consumption/Production on the X axis, because this is a measure of how self sufficient they might be.  Its hard to tell from the chart, but only Russia and Canada are self sufficient (in that they produce more oil than they consume).  Canada’s production to consumption ratio is at .68, and Russia’s is at .27  The UK is close at 1.11  I’ve listed Japan, Germany and France in the 2000% area because they don’t produce any oil.  Without further ado…

On the Y axis, is the percent decline in oil consumption since that country hit its maximum.  What is interesting to note is that the countries that produce the least oil seem to have cut their decline more than others.  However, what isn’t shown is that most of the gains were made just after their max and then have been held steady since, though the decrease in consumption seems to be accelerating (caveat, the world recession helped).  Russia, though a net producer has had a precipitous decline in consumption, though their economy collapsed.  Only the UK seems to be noteworthy as a large producer of oil and a country that is cuttings its consumption.

This gives me some hope, because we have seen large decreases in the oil consumption, but at the same time it is obvious that all these economies can’t survive without it.  I’m troubled by the fact that 6 of the 8 G8 countries are relying on oil outside their borders, which is an indication that we are NOT on a path to sustainability…

More to come…