Great story today about a guy exploiting (in a positive way) the power of Craigslist, and conducting a series of barter exchanges that so far has started with a red paperclip and ended with a year’s free stay in a house in Phoenix.
Of course, any reader of This Old House Magazine knows that there are many old houses that are available for essentially free, provided you can move them or otherwise improve them. So theoretically Kyle MacDonald should have had his house a long time ago. But this is the rub about Craigslist: it’s not a perfect market, because not every buyer or seller is plugged into it.
The larger economic point that is missed by the article, and by the premise of MacDonald’s experiment, is that there is no way to overcome economic friction. Part of what MacDonald is doing in his “trades up” is exploiting private valuations of goods that are lower than his own private valuation, and thus apparently creating value in the trade. But this overlooks the value of MacDonald’s time and the opportunity cost that he incurs by spending time on this project. The other factor is the value contributed to the project by people like Annie Robbins who acts economically irrationally because she admires the anticonsumerist principle of the exchange, and by the snowmobile company that donates goods and travel in exchange for marketing publicity. In fact, that particular trade may well have destroyed traditional value somewhere along the way.
So here’s the larger economic question: are market exchanges in particular, and the market in general, subject to the laws of thermodynamics? Is it possible to have a trade that “creates value”? Or is what happens merely a shifting of value from one party to a different party with some inevitable loss of friction?
A lot of modern negotiation theory is based on the principle of the “win-win” where both parties at a table derive benefit from a trade. The question is: who loses? Does every win-win have an external party somewhere who is not represented at the table who is disadvantaged by the trade in some way?
These aren’t theoretical questions. A lot of the politics that surrounds business is based on the conflict between people who believe in win-win (or at least tout its value) and people who argue on behalf of the damaged external party. Think industry vs. environmentalists.