Inflation Economics: the Tooth Fairy vs. Lemonade Stands

Over the weekend, walking with a few other adults in 75-degree Holliston, Massachusetts, I observed a clear harbinger of spring: a kid’s lemondade stand in a cul de sac. The price: 10 cents per small cup. It wasn’t bad lemonade, either.

This led us (naturally) to discuss the resurgance of YouTube videos featuring beat-downs of Easter Bunny characters, and thence–again, naturally–to the going rates being paid by the Tooth Fairy. We reckon it’s a dollar.

The consensus–among 5 out of 6 adults–was that back in the day (20-40 years ago, depending on our ages), lemonade went for 5-10 cents, and the Tooth Fairy used to pay out somewhere between a dime and a quarter (that’s 10-25 cents, for our  New Zealand readers).

The astute among you will quickly calculate the implications: inflation has hit The Tooth Business far more heavily than that sugary-sour cause of tooth-decay itself, Lemonade. The  Tooth Fairy’s economic model, therefore, has been more inflation-challenged than that of the youthful entrepreneur.

Neo-classical Economics vs. Family Economics

Somebody out there will correct me, no doubt, but basically neo-classical economists suggest that people are largely rational utility-maximizers and that, markets being generally free, prices will seek levels informed by both those drivers.

The rest of us, of course, know that people are highly irrational and there is no such thing as a free market. So we are free to concoct our own theory of inflation in the realm of Family Economics.

Let’s start with the obvious fact: no rational adult would have kids in the first place. It makes no sense economically, and increasingly it’s becoming clear that it makes little sense in terms of happiness or sanity either (insanity being hereditary, since you get it from your kids.)

Let’s focus on who sets prices. Nominally, it’s the kids who set the lemonade prices, while the Tooth Fairy (aka Mom and Pop) sets rates for the tooth repo business. In fact, M&P play a big role in each.

Mom and Pop, being in the game for irrational reasons anyway, wish the best for their kids. The best, in the case of lemonade stands, means that the kids get lots of business, much gratitude and praise, and little grief from the (neighborhood) market.

The best way to achieve that goal? Subsidized low prices. The kids get high volume, praise, even tips. Parents rationalize they’re teaching the kids a valuable lesson in economics. (Of course, they’re really just teaching them the case for massive government subsidy and transfer payments, but no matter).

Then why the high prices in dental recycling? Parents, operating against their own enlightened self-interest once again, foolishly seek love and affection from their kids. They figure if they over-pay for teeth, they’ll get that much more gratitude. The fact that kids don’t effectively calibrate the difference between ten cents and a dollar somehow doesn’t register to them.

And as if that weren’t enough, the fight for kids’ love extends to the competition from the perceived love the neighbors’ kids get from their parents. "But Johnny got five dollars from his tooth fairy" is the surest way to generate a round of neighborhood inflation.

Behavioral Economics

There are several new approaches to economics out there, loosely aggregated under the term "behavioral economics." All aim to make sense out of otherwise nonsensical behaviors–seeing utilitarian maximization in people sacrificing their lives for the species’ sake (a la lemmings), that kind of thing. 

But sometimes, I think, the  search for meaning is simply doomed. Furthermore, if all behavior  makes sense on some scale, then there’s  no such thing as stupid. This is a dangerous belief, since if there’s no stupid, then there’s not much against which to contrast the opposing virtue.

A case in point may be parental love for children.  Kids–they break your bank, break your heart, yet still the human race engages in the eternal race to propagate. Go figure.

What sense does it make? Not much.  But  why should it have to make sense? It’s an "is" thing.

Let’s just call it human economics and move along, move along, nothing to see here, just move along…