We know that BushWorld is backwards land, war is peace, up is down, etc.
But, recently, our corporate managers (word chosen purposefully) also seem to live in upside down land.
Join me below the fold for some examples
Prospect Theory is one of the most cited articles in economics and business press.
The theory suggests that "losses loom larger than gains", at somewhat near a ratio of 2.5 to 1. This means, that if I lose something, I need to gain 2.5 times that amount to feel "whole".
Hedonic framing as developed by Richard Thaler suggests that given the shape of the prospect theory value function, that people would prefer to aggregate losses and segregate gains.
Thinking of a cost as a loss, then people would prefer to single bill, rather than an itemized list of every 25 cent charge. Let's apply this rule to the airline industry. Their solution to decreasing demand? Raise the price. And not just that, but to raise it in a way consumers will hate. $2.00 for Pop, $3.00 for headsets, $20 for luggage, $15 for a window seat, etc.
Now you see, this makes perfect sense to the economists that head up these companies. If you "separate them", then people can only buy what they want. "Everyone should love that". The problem is, most people already hate flying in coach (cramped seats, rude flight attendants, paranoid security, etc.). So they are already in a bad mood, and each "cost" just feels a lot worse.
It is quite odd when the "no frills airlines" become the full service carriers... For example: Soutwest Airlines has their front page...
Amazing levels of stupidity from airline executives.
Up next, those geniuses in the automobile sector....
In the past, they have used their lobbyists to argue against increase CAFE standards, so that they can keep selling big gas guzzling SUVs and Trucks. Rather than be guided by this, and moving to make more fuel efficient cars, they wanted to keep making cars that "people wanted", believing that the people wanted the big behemoths.
Well, they did, until oil hit $140 a barrel. Well, oil is now below $50 a barrel, so people aren't giving their gas guzzlers away (yet), it is still becoming harder to fill the tank, not because of the price of gas, but because people are losing their jobs.
Detroit's answer? Give us money so we can keep paying our executives more than they deserve and we'll trim down by firing 20,000 or more employees (that now will have less money to buy their cars). Do you think maybe we should retool some plants to make more efficient cars? NOPE. How about making mass transit more affordable? NOPE. We only know how to fire people.
Some more stupidity? Flying to DC on their corporate jets. While it may not be THAT MUCH more expensive (although it probably is), what a bad signal to send the public. We are being wined and dined on our way to beg for money because we are so poor. Any bets as to the price of the hotels they stayed in? I for one would love to see their meal reimbursement requests. I don't know about you, but I get $50 a day when I travel.
Well, who's next in our little rogue's gallery of corporate stupidity? How about credit card companies? OK, let's see what they're doing.
In the midst of what all intelligent economists call a "credit crunch", let's restrict credit more.
See, this is a good idea because... ummm.... well.... hmmmm. I don't know. Decreasing liquidity in a consumer driven economy... Yeah, yeah, that's the ticket.
Let's make it even HARDER for people to spend money by raising interest rates. That should help. NOT.
At the same time that federal banks around the world are lowering rates to get credit going, the banks are going the opposite way. Can you say myopic? I thought you could.
We all know that they are going this because their balance sheets look like crap because of all of the bad loans they've made, as well as the paper written on paper written on paper that they "own".
I am sure there are many more corporate morons who do the opposite of what they should in any given situation, but these are the three most compelling right now.
Happy to hear your thoughts.