Tenuous economic lessons drawn from detergent shoplifting

The Tide is turning.

Last year, I wrote about the extraordinary news that Tide – a popular brand of laundry detergent – was being stolen and used as a black-market currency across the United States (I also titled the post Laundered Money which I am still proud of ten months later). The retail price is high, the resale value is only slightly lower, it's impossible to track and everyone uses it. I looked at how well it would work as a unit of exchange:

Crucially, one bottle of it is identical to any other, a quality economists call "fungibility", putting it in the same class as oil, precious metals, or currency itself. If someone lends me a bottle of Tide, I don't have to return the same one to them when my debt is called in – in fact, because there are no serial numbers, it would be impossible for them to tell even if I did…

[Stolen] Tide is also a highly liquid commodity, frequently traded, which will allow a natural, and relatively stable, value to emerge for it.

Now, New York Magazine's Ben Paynter has done further investigation on the Tide-boosting phenomenon, and taken some of the magic out of it. It turns out that while a lot of people are stealing a lot of detergent, there's less evidence of the currency side of it. Crucially, Paynter, who was speaking to police in Maryland, didn't hear the same stories that Kentucky police passed on in March 2012 of people exchanging Tide for drugs, or being offered Tide instead of drugs. Instead, it's just your common-or-garden people-are-shoplifting-something-to-sell-it-and-use-the-money story.

But! There's still tenuous economic lessons to be drawn from the NY Mag piece. The first comes when the Maryland police describe their frustration with the fact that the penalties for a misdemeanour aren't that high:

After [Sergeant Aubrey Thompson's] team busted one area shop owner for taking in stolen Tide, the perpetrator struck a deal for a $250 fine and a form of probation—then turned around and raised the price his store charged for Tide by $3.

What we're seeing here is an example of someone with price-setting power passing on a regulatory cost. Simple models normally wouldn't ascribe price-setting power to the owner of a lowly neighbourhood grocery store, since it's more typically found in examples of monopolistic competition. But in reality, every shop owner has a quasi-monopoly over "shops in this location", which grants them the ability to set prices a bit. (That is: even if you know your corner-shop is charging you 10p more than the supermarket down the road, you still pay up, because you don't want to walk).

That price-setting ability lets the shop pass on costs incurred from regulation – in this case, the regulation which ensures that it cannot resell stolen goods. The owner treats a $250 fine as just another cost of doing business, and raises the price of Tide accordingly.

And yes, laws against reselling stolen goods are regulation. Think of that next time you hear someone railing against "red tape".

The other tenuous economic link comes from Paynter's description of the history of Tide:

When the company released Tide in 1946, it was greeted as revolutionary… Procter & Gamble, naturally, patented its formula, forcing competitors to develop their own surfactants. It took years for other companies to come up with effective alternatives.

It's a good description of the plus-side of patents. Procter & Gamble gets a reward for its innovation by being guaranteed-first-to-market, while competitors, eager to chase that market, develop other surfactants alongside. The pace of human invention speeds up, and after less than thirty years, all that knowledge is released into the public domain for anyone to apply.

It also reminds us what's broken with much of the current intellectual property regime. Imagine if, instead of patenting a surfactant, P&G had patented "a method for cleaning clothes" which described nothing more than "the application of a surfactant to fabric in water". Any other surfactants invented by competitors would then still be covered by the P&G patent, giving the company a monopoly over that entire method of cleaning clothes. Worse still, what if P&G had applied for that patent before anyone had actually invented a surfactant? The company could then sit back, wait for someone else to actually innovate, and then sue them for infringement when they do.

That rather describes the state of patents now, at least in the IT industry. Consider the patent trolls who are asking for $1000 from end-users who have networked scanners:

He said, if you hook up a scanner and e-mail a PDF document—we have a patent that covers that as a process.

The same legal framework which enhanced innovation in the 1940s may well be hindering it now. Worse, it has basically turned into a license for extortion.

But at least our clothes are clean.

Bottles of tide on a store shelf. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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Can Philip Hammond save the Conservatives from public anger at their DUP deal?

The Chancellor has the wriggle room to get close to the DUP's spending increase – but emotion matters more than facts in politics.

The magic money tree exists, and it is growing in Northern Ireland. That’s the attack line that Labour will throw at Theresa May in the wake of her £1bn deal with the DUP to keep her party in office.

It’s worth noting that while £1bn is a big deal in terms of Northern Ireland’s budget – just a touch under £10bn in 2016/17 – as far as the total expenditure of the British government goes, it’s peanuts.

The British government spent £778bn last year – we’re talking about spending an amount of money in Northern Ireland over the course of two years that the NHS loses in pen theft over the course of one in England. To match the increase in relative terms, you’d be looking at a £35bn increase in spending.

But, of course, political arguments are about gut instinct rather than actual numbers. The perception that the streets of Antrim are being paved by gold while the public realm in England, Scotland and Wales falls into disrepair is a real danger to the Conservatives.

But the good news for them is that last year Philip Hammond tweaked his targets to give himself greater headroom in case of a Brexit shock. Now the Tories have experienced a shock of a different kind – a Corbyn shock. That shock was partly due to the Labour leader’s good campaign and May’s bad campaign, but it was also powered by anger at cuts to schools and anger among NHS workers at Jeremy Hunt’s stewardship of the NHS. Conservative MPs have already made it clear to May that the party must not go to the country again while defending cuts to school spending.

Hammond can get to slightly under that £35bn and still stick to his targets. That will mean that the DUP still get to rave about their higher-than-average increase, while avoiding another election in which cuts to schools are front-and-centre. But whether that deprives Labour of their “cuts for you, but not for them” attack line is another question entirely. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

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