When I was taught about globalisation at school, I remember the economics part, which explained how economies of scale would allow the world to buy more and buy cheaper. Yet, in today’s society some of the most common products that are bought and sold every day are becoming increasingly more expensive. Yes, we must argue supply and demand affects the price as well and in a way it’s part of the freedom of living in a capitalist society.
This is why I wanted to make you aware of the biggest rip-offs that currently exist in most of our lives. Firstly, this will hopefully make you extra cautious if and when you purchase them and secondly, becoming aware of these can also help you look for a better deal, find more suitable alternatives or simply ignore the pressure that marketing companies apply to buy them in the first place.
I have based the following information on a new book, which has been released by Nobel-prize winning economists George Akerlof and Robert Shiller, which delves into the economy as well as the regular purchasing encounters that we the consumer face. If you know a bit about economics then you may have heard of Adam Smith’s term “invisible hand”, which many economists consider one of the most powerful metaphors in all of economics.
The “invisible hand” implies that society can be better off through self-interested behaviour, which at the time was the most revolutionary way of looking at the free-market philosophy so many of us know today.
Yet, our perception of this is warped, argue Akerlof and Shiller, because although we all put our faith into free markets, to what degree exactly is the invisible hand actually controlling us? Similar to the American dream, so many live and die by that philosophy, yet over 95% of them never make reach the millionaire status they seem to believe is entirely possible with a bit of hard work.
Akerlof and Shiller best describe what I’m trying to say through the following statement:
“We see the cornucopia that free markets have delivered. But just as every coin has two sides, so do free markets. The same human ingenuity that produces the cornucopia also goes into the art of the salesman. Free markets produce good-for-me/good-for-you’s; but they also produce good-for-me/bad-for-you’s. They do both, so long as profit can be made. The free market may be humans’ most powerful tool. But like all very powerful tools, it is also a two-edges sword.”
So let’s take a look at some of the most dangerous scenarios that we can get pressured into buying.
Purchasing a new car is among the most costly decisions many of us will make if we ever get the chance, which is also what makes it one of the most important. Yet, the most laughable fact is that the majority of us have such little experience buying new cars that we are immediately put at a huge disadvantage. Akerlof and Shiller cite in their latest book a study which states that new car buyers pay almost $2,000 more, compared to those who have a better insight into the true value of that vehicle.
The study also looked into how car salesman would use three effective strategies to get more money out of us:
- Convincing consumers that they needed the most expensive options
- Manipulating and negotiating the trade-in price of an older vehicle
- Selling the convenience of expensive long term leasing
A home is the single most expensive purchase any of us will make, again if we are lucky enough to be able to afford one. This is why along with the combination of our lack of experience, its one of the biggest rip-offs to exist. Most of us don’t fully understand the construction and potential pitfalls of structural flaws. However, in Australia the average real estate fees that are paid sit at around 2.22%. The highest is in Tamsmania at 3.26% and the lowest is in South Australia at 2.07%.
Yet, you must ask yourself, are these fees justified? Nobody besides the agency can really say for sure, but how can we argue that point with them as they’ll surely disagree. All I know is that in other countries such as the UK for example the average is 1% and I have seldom heard of my friends in England complaining about bad service.
Those little plastic cards can quickly become eye-wateringly costly if not managed carefully, not to mention interest rates that would probably make our grandparents faint. Yet they are still so common in modern society, but why? You may be one of the good credit card owner who pays their debts on time every month and that’s great for you, but you still might want to consider getting rid of it. Akerlof and Shiller analysed studies which showed that people with credit cards have a tendency to spend 50% more for common purchases like clothes compared to those who don’t own one.
Akerlof and Shiller deem Hungry Jack’s as a great example of how a company can captivate their consumers to want products that don’t actually make them any better off. The worst product has to be the Ultimate Double Whopper that is possibly Australia’s unhealthiest burger. Besides its huge 5040kJ per burger, it also contains an unbelievable 80g of fat and almost 2 days worth of sodium. Tactful marketing and strategically placed outlets allowed this company to go global due to its great taste and convenience based eating. We underestimate the effort and investment that went into understanding our weak moments and hunger traits.
These burgers along with a host of other fast food items aren’t necessarily a huge financial rip-off, but combined with the toll that they take on our health they should certainly be considered more seriously.
Capitalism makes innovation one of the most beautiful parts of our system, but not all innovation is created equally. Some can be miraculous and save lives across the planet, whilst others can simply be used to lure innocent customers into doing things that are harmful to themselves.
Akerloff and Shiller give a prime example known as Facebook. Yes, the website and app allows you to stay in touch with friends and family across the world, receive information about social events and news, but it also creates negative emotions too. Envy is a prolific sensation many users experience along with social isolation. The two authors draw from a recent study conducted by the University of Michigan which found that the more time people spent using Facebook, the worse they felt. Yet, even though this information is widely available, people still continue to sign in ever day by the hundreds of millions.