Friday, August 31, 2007

It's A Tipsy Turvy World

1. Anyone heard the one about the Hodja? Hodja goes to a posh Soho restaurant in his tattered clothes and gets very shabby treatment. He leaves a massive tip. Next week, same restaurant, the wait staff all fawn over him. Hodja leaves a quarter. “Wtf, Hodja?” cry the waiters. “This one is for last week’s service,” says Hodja, “Last week’s tip was for today.”

2. The funny thing about tipping is that it turns the categorical imperative on its head. If you leave a higher than average tip for the charming and flirtatious waitress, she gets a windfall. If there is across the board tip inflation, the market response will be an offsetting reduction in the salaries of wait staff. Act in a way that you wish wouldn’t become universal law.

3. Performance pay works best when it is paid by the party best placed to evaluate performance, which is why tips are paid by customers and sales commissions are paid by the employer. The problem is that tipping tries to solve one kind of moral hazard (bad service) by introducing another (under-tipping). To the extent the latter is solved by moral pressure on customers, it is also likely to reduce the sensitivity of the tip to the quality of service (a low tip could be as much an indictment of your stinginess as the waiter’s rudeness), creating a see-saw effect. Incidentally, if there is significant tip inflation, my conjecture would be that eating out in large groups (stuff like business lunches) is also on the up, as a proportion.

4. Product boycott is an especially dumb and counter-productive way of protesting slave wages, because the reduction in demand will depress those wages even further. In fact, the opposite would be helpful – buy lots of sweatshop manufactured T-shirts and make a bonfire out of them (pouring expensive Burgundies down the sink surely made the surrender monkeys laugh all the way to the bank, but then the freedom fries crowd isn’t particularly known for business acumen). Why exactly is it immoral to wear a shirt made out of $1 an hour labor rather than shun cheap goodies and let thoughtless pricks go around wearing outfits made of $0.90 an hour labor?

5. A presidential tip jar may not be a bad idea. Not as financial incentive, but as real time barometer of public approval. “Dick Cheney’s Starbucks fund has hit rock bottom this week,” reports the Wall Street Journal, “with barely enough money left to buy two cappuccinos and a chocolate chip cookie. The spin from the VP’s office is that it reflects public concern about his heart condition. Democrats on the Hill are buying none of that.”