Tuesday, December 18, 2012

Swap Meet

Why do some people want to swap, barter, or trade instead of buy and sell?

The other day, I was going through a stack of Model T Ford Club of America vintage magazines (which I should sell on eBay or something) and saw in the classified ads in the back, this bizarre ad:
"TRADE- 1908 Model T Tourabout, 95% Restored, new wheels, new tires, new bass, irons, bows upholstery.  Needs only paint work and finish assembly.  Car is NOT for sale!  Would like to trade for a really early car.  Older restoration considered or car in like condition to mine.  Call Joe Dreamer at (555) DREAM-ON."
It got me to thinking that "swapping" seems to be popular among a certain sect of our population - the crazy part.    Go on to Craigslist sometime (itself a bastion of Crazy - where a clapped out '95 Mustang is a "hot machine" selling for $10,000 or people who are 100 lbs overweight advertise for sex, saying "no fats") and you will see items listed as not "for sale" but as "willing to swap/trade"

It is bizarre.  Do people really do business this way - and why?   And the ads are interesting - a list of surplus goods and unsatiated desires.

"Will swap Remington 12-gauge pump for jon boat in good condition."

"Want to trade my 1979 Corvette for any kind of pickup truck."

"Have 1974 Tri-Hull, no motor, will trade for flat-screen TV, 42 inch or larger"
What is going on here with swapping?  Who are these people and why do they want to swap instead of sell?

Well, there are three economic motives for swapping, all of which I think are outweighed by the disadvantages of the practice.    For cars, boats, motorcycles, and RV's, swapping can actually save "real cash money" (is there any other kind?) in that some States allow you to deduct the value of the item traded from your sales tax amount.   So if you trade a $4500 car for a different $4500 car, then you may not owe sales tax - in some States.  (Check your State Laws before trying this).

A second reason is transaction cost.  Simply stated, when you sell an item, you often have to lower the price in order to attract a buyer.   You put your shotgun up for sale, and there are no takers.  After all, shotguns are offered for sale at the sporting goods store, all day long, and most people, if they want one, buy one there (or are sold one, after seeing the bright shiny display).   So you lower the price to the point where someone says, "Gee, that's a good price on a shotgun!  I should buy it!" - and they buy it, not so much as they "need" it, but because it appears to be a bargain.   The seller does not get full value for his item this way.

Now armed with cash, he seeks out a jon boat.  But as a buyer who wants something, he has to hope that there is a desperate seller out there.  The sporting goods store has jon boats for sale, but they sell for full retail price.  And while that price may be similar to the full retail price of a new shotgun, it is likely twice what the seller got for his used gun on the open market.  By hoping to swap, the seller of the shotgun hopes to avoid this disparity in pricing between buying and selling.

The third reason is a lack of cash or capital.   If you have an old shotgun that you are not using because you no longer hunt, and want a jon boat because you want to go fishing, you might want to sell the shotgun and buy the jon boat.  The problem is, the people around you might not have the cash to buy the gun, and thus you don't have the cash to buy the boat.   And this situation illustrates why when capital is tight, commerce slows down.   People may have things they want to sell - but no one has cash to buy.  So the seller ends up not buying the things that he wants, and sales and commerce spiral downward.

And whenever the economy starts to tank, you see stories in the paper about Bartering and Swapping.   This happened in 1980, during our last great recession, and it happened again, in 2009.  People set up bartering websites, today, and proclaim to have re-invented basic commerce.  One fellow even set up a bartering vending machine where you could put items in cubbies and swap them for other items.    However, as it was based on the honor system, I suspect it was either a hoax or a huge failure.

When the economy improves (as it has) such ideas lose currency rather quickly.  And they lose currency simply because real currency becomes available and the advantages of bartering evaporate.  And the news stories about how "everyone's going back to Bartering!!" disappear.  Once again, the news media gets it all wrong - on purpose, of course, as they want you to buy newspapers or click on idiotic story titles.  They're baiting you!

But taking all that aside, is bartering a good deal?  I think not, and for several reasons.  As I noted before in my posting Money, the Greatest Invention, money has an almost magical quality.  If I want to convert a shotgun into a jon boat, I can sell my shotgun, convert it into cash, travel halfway across the planet, and then convert the cash into a jon boat.   It is like Captain Kirk's transporter beam, only better, as not only can it transport goods from one place to another, it can convert them into other goods.

Which is why it is so sad when you see poor people moving with U-Haul trucks.  They spend hundreds, if not thousands of dollars moving junk - stuff that could be disposed of or sold and then converted to transportable cash.   Spending $500 on a rented trailer to move an $800 car just makes no sense at all.   Sell it, convert to cash, and then buy anew at your destination.

But is swapping a good deal?  I think not, for several reasons.

1.  The odds of finding a swapmate are slim:  You want to swap your shotgun for a jon boat.  However, in the 100-mile radius area near you, there isn't even anyone wanting to sell a used jon boat.  And even if there was, he isn't looking for a shotgun.  The law of probability dictates that the incidence of each swapper wanting exactly what the other has, is very, very slim.

Poor people are not very good at understanding probability and stastics.  This is one reason why they gamble.  In fact, if you wanted a litmus test for poverty, I suggest testing a person on their probability skills.  The poorer they score, the poorer they likely will be.   Math is useful in "real life"!

Of course it might be possible that if you find a jon boat seller, he may take a shotgun in trade, with the idea of selling it himself - or swapping it for something else.  But that creates extra work for the seller, as he now has another transaction to work, in order to get paid.  He would want to discount the transaction accordingly.   Which is why in these swap deals, part of the posturing is "Well, it isn't exactly what I was looking for......"

I suppose, theoretically, the shotgun could become a talisman - a form of currency for trading - much as things like whiskey and gold have been, in our nation's history.  Some people are claiming Tide detergent was a medium of exchange very recently, but I find these claims dubious.

2.   The odds of two items being identical in value are slim:   Price depends on condition, and while a shotgun and a jon boat could have equivalent values, it would depend on the condition, age, and model of each item.   The idea that you will find a jon boat exactly equivalent in value to your shotgun is ludicrous.  The odds are infinitesimal.   As a result, most of these "bartering" deals end up involving one party paying some cash to the other to make up the difference in price - if they ever go through at all.

Paying cash - so why is bartering better than, well, just paying cash?  It really isn't.  It is just taking a simple transaction and making it horribly complex.  And what have I said about complex transactions?  The more complicated you can make any transaction, the easier it is to fleece the mark.

Bartering takes a simple transaction (I give you cash, you give me shotgun) and escalates it by a factor of two.  And usually poor people are drawn to these complex transactions - convinced they will win somehow by negotiating a better deal than the other fellow.

Susceptibility to complex transactions is probably another good indicia of poverty-think.  The poor are continually chasing rebates, coupons, and other complex deals, convinced they can "pull a fast one" on a major corporation who is stupidly giving away money.

3.  Equating values of dissimilar items is hard to do:   I mentioned before that in car buying, it pays to pick one model, make and year range of car to look at, rather than shopping for different makes and models.   Comparing prices of a Chevy and a Toyota is comparing Apples to Oranges.   Decide what car you want to buy and then find the best price for that car.

Bartering takes this concept to the next level - where you are directly comparing values of apples and oranges.   And this is not easy to do.   You may be able to find a "book value" for one item, and compare it to the book value of another, it if it is a car or something.  But for smaller items, determining market values is harder to do.  Thus, the chance of you getting snookered is much larger.

And this brings us to the "point" I guess, of bartering.  The barterer believes that he can shrewdly "trade" with another fellow and come out on the better side of the deal.  Rather than sell his product to the highest bidder, he hopes to trade to his advantage and come out ahead.

And perhaps that it is a third indicia of the impoverished mind - the idea that you can trade your way to success.  These are the folks who think you can stock-pick or buy gold or invest in "the next big thing!" and get ahead.   And this illustrates, why in poor areas, people put ridiculous prices on things, or park cars and boats on their lawns for years at a time, hoping to find the right sucker, er.. I mean buyer.

* * *

I suspect that most of these people looking to swap, barter, or trade, are dreamers of the first order - hoping to turn a rusty non-working shotgun into a nice fishing boat, preferably with motor.   But the harsh reality is that the fellow they want to barter with has a dented leaky old Sears jon boat, with no motor, and is hoping to get a nicely oiled and cleaned Remington that was used only once or twice.   Both are dreamers, with unrealistic expectations - and no understanding of basic probability.

And perhaps that is why these dreamers will put in their ads "Swap only!  Not for sale!" as they realize that if offered cash for an item, they likely will have to accept market value for their goods - and lose any opportunity to put one over on their trading partner.

Because other than avoiding sales tax on a car transaction (in some States) I can see no financial advantage of such a proposed deal.

People wanting to swap or barter are time-wasters of the first order.   It is highly likely they don't even want to part with their goods (hoarding disorder) but rather are looking for attention and validation that their goods are valuable and desirable - which hoarders love to do.   These folks are similar to the "its for sale, but it's not for sale" people, who list an item online, and then never answer phone calls or e-mails.

Time-wasters, is what they are.   They want you to pester them with phone call after phone call, e-mail after e-mail, asking about the item for sale, until you have basically handed them all the power in the transaction - if it ever goes through.   Never fall for these power-shifting tactics.   But that is a subject for another posting.