The Invisble Hand: A Textbook Case Study

How does an industry that gets to set their price and all but force their consumers to buy their product fail to make a profit? Because people don't like to be screwed would be the layman's answer.

A consumers ability to skirt around an expense that they do not wish to expend isn't just a case of people being cheapskates, it's the entire premise behind how capitalism works. The burden of creating value is on the provider of the good, regardless of how stacked the deck is in their favor.

For those of you who perhaps never attended college, let me preface this for you. College is expensive, really expensive. And no small factor in that is in the cost of the textbooks that a classroom may require. You've already spent several thousand dollars in tuition, what's several hundred more in books going to hurt you?

And several hundred dollars more it is, the average amount spent on textbooks by your average college kid is around $700. Compare that to the amount that kids spent on textbooks 10 years ago, which was... about $700. Yet, the average cost of a textbooks, nearly doubled in that same time.

Wait, so what is going on here? How can these textbooks, which are required in most cases, be going up in price while students are spending about the same amount?

Anyone who has ever had to set a budget, personal or otherwise, knows the answer. Even in places where items can be mandated, the invisible hand will creep in and find a way. Prices go up, demand goes down. In this case, the demand for buying these books goes down, not for the content in them that is required.

When prices go up, people usually try to find ways to avoid paying those higher prices. That seems to be what is going on here. The spread of the Internet has made it easier for students to find used textbooks in faraway places. Textbook rental has become a thing. Some students can now buy e-textbooks, which tend to be cheaper than print books. Others are borrowing books or <gasp> going without and they just accept the potential negative impact that it brings.

In fact, the average number of textbooks that the average student buys throughout the year has gone down. Suddenly, the textbook industry is less and less about trying to figure out how to create a great product at a great value, and more and more about closing loopholes and tightening their grip on students wallets. They must have missed that scene in Episode IV:

"The more you tighten your grip, Tarkin, the more star systems will slip through your fingers." -Princess Leia

They have created a system in which those who play by the traditional rules get pummeled with ridiculous prices and those who find those loopholes and workarounds get through college with the same results but having paid much, much less. All because a mandated product is trying to get the same amount of money out of them in the end.

Think about how this concept applies to our taxes, and you start to ask some valid questions about our tax system and the 74,000 pages of tax code it possesses.

Can such a tax code ever be 'loophole free'?

What is the incentive for a company or individual to find/create a tax loophole?

As some politicians continue to push for a system that is more fair in which rates go up while closing tax loopholes. Just think to yourself as a college kid holding on to a required biology book that costs $300.