Freakonomics Radio - 180. Fitness Apartheid

Episode Date: September 25, 2014

Markets are hardly perfect, but the results can be ugly when you try to subvert them.

I'm Dr. Theda Palmer Saxton. I'm a resident of 160 West 97th Street here in New York City, Upper West Side. Is that enough that you need to know about this situation? I, for one, wouldn't mind knowing a bit more. Why, for instance, Dr. Saxton has chosen to speak out about this issue? I cannot possibly be quiet while I hear something that we fought, you know, Mandela had to fight about. I'm not doing that here. I did the 60s already.

I've done the dogs. I've done the water hoses. I've done, I'm not doing that again. Not here. This is the only place I've ever even had to say apartheid for myself. Apartheid for myself. Apartheid? On the Upper West Side of New York? So I guess where I'm living in apartheid, I need a pass.

They need to give out passes and say, these are the good people and these are not. I don't need a star to put on my little chest to say, oh, I'm going to be put on a train or something and sent off somewhere. Same concept. When you can start dividing people based on value, that's dangerous. And these people here are dangerous. Saxton is originally from St. Louis. She started out as a dancer and actor. She became an arts in education administrator. Later, she got a PhD in organizational communication from Howard University. Now, she works as a life coach in New York with a special focus on women over 50.

Her business is called The Seasoned Woman. The dangerous people that Saxton is referring to, they held a public forum. Well, this poor woman about three rows in front of me said, well, can we pay? Well, is it okay? And aren't we at least good enough to do something? And it was something to the effect of being good enough.

And the man sort of, that sort of straight out said to her, no, no, I have not heard anyone to their faces being told that they were not good enough to be somewhere ever. I couldn't get over that. Saxton is African-American, but she says the problem she's describing here is not about race. Here's her neighbor, Jean Green Dorsey, who is on the same side of the fight. people or the yellow people, because we have lots of Asians. We have lots of Hispanics, all of various stripes, along with a lot of American blacks and Haitian blacks.

They don't care the damn about any of us. They wanted to make all this money. So what is it that led Dorsey, Saxton and others to level charges of apartheid? What is the violation that has gotten them so upset? A physical fitness center cannot decide for me who I am, what I can and cannot do. Did she say a physical fitness center? Let's listen to that again. A physical fitness center cannot decide for me who I am. But I can and cannot do. That's right, podcast listeners. The topic of today's program, fitness apartheid. From WNYC, this is Freakonomics Radio, the podcast that explores the hidden side of everything.

Here's your host, Stephen Dupner. Ooh, ooh, ooh apartment. There are a lot of buildings like hers in New York and other cities. This one was built several decades ago to provide housing for moderate and middle income families. It used to be that her whole building was rent stabilized. But in this case, that's no longer true. The original affordable housing program expires over time. And a few years back, this building was bought by a property management company called Stonehenge Partners. Saxton and other tenants like her can stay at the rent-stabilized rate, but when an old tenant moves out or dies, Stonehenge can charge the going market rate. So a two-bedroom apartment that someone like Saxton might be renting for $1,000 a month might go for $3,000 or $4,000. Now, if you're Stonehenge, what does it take to attract a $4,000 a month might go for $3,000 or $4,000. Now, if you're Stonehenge, what does it take to attract a $4,000 tenant to this building? Well, you'll probably renovate the old apartment and

you may want to offer some building amenities, like how about a little fitness center on the ground floor? That's what happened in this building. Saxton and the other long-time residents were pretty excited when they heard about the new gym. But once it was built, they found out there was a catch. It was like, I'm expecting them to tell us this outrageous figure, like 1,000, 2,000, or no family, or whatever the hours. I'm expecting something about that in price to discuss.

So then I was informed that there was nothing to discuss because the people there that had been there already, the so-called, the original, I call them the aborigines, the original people, you were not allowed to be there. And I said, my goodness, I'm not hearing right. And so I was kind of like, I think all in a state of shock. That's right. Only the new tenants paying market rate rent could use the gym.

There are more than 400 apartments in this building, about 60 percent of which are still rent stabilized. So the gym would be for the minority who pay market rate. They'd get a special key card for the gym. A sign went up on the gym door, said, quote, please do not hold the doors open for other residents. All residents must use their key card to gain entry. Please make sure that the door fully closes behind you. Thank you and enjoy Stonehenge. And that's when Theodore Palmer Saxton and a lot of other people from the building got upset

and started talking about fitness apartheid. Uh, that's a cute catchphrase, and I'm sure it'll get a lot of publicity. That's Dan Hammermesh. I'm professor of economics at Royal Holloway University of London and at the University of Texas at Austin. I know Hammermesh a bit. Very sweet guy. He's a grandfather and grandfatherly, but he's also an economist. Look, the owner had to spend money creating this gym, right?

How is the owner going to get the money back by giving it away for free to people who are already getting an extremely good deal? I mean, essentially what the people who are rent-controlled want is a bigger subsidy than they're already getting. Isn't that pretty greedy? But you can understand, let's say, the parent walking past the gym with the kids feeling bad that their kids can't use the gym when the other people living next door to them can, in part because that's the emotion that's attached to money. You know, there are a lot of economists like to talk about how prices take care of things, and they usually do. But in this case, the price can't really take care of the emotional harm that might be caused, can it? No, the price can't. There's a very simple solution. Abolish the rent control and the

stabilization. Then the people could pay the same price as the others, and they'd have access to the gym, and their kids wouldn't feel badly at all about it. I'm quite sure they aren't advocating that and will not be doing that anytime soon. I'm a tough guy on these things. You are a tough guy on these things. Now, let me ask you this. For the people who consider this fitness apartheid, don't you think they would consider the first-class cabin on an airplane, which you have to walk through to get to coach, wouldn't they consider that airline apartheid as well? Absolutely. My kid sees these people getting their champagne before the flight takes off. That's all they're ever going to see. I see very little difference. And how are they going to tell

the kid, gee, they get champagne and we don't? They're paying more, we aren't. It's exactly the same. The difference is there, the company clearly unbundles the product. The first-class product is different from the coach product. Here, they've made the mistake of bundling them, and they don't have to be bundled. That's my solution. It won't help the kids feel better, but it would do the job. So Dan Hammermesh doesn't see fitness apartheid when he looks at the segregated gym in this building. But how might he have handled it differently? If I were the owner, I'd say, look, included in the rent is partly a regular rental for your apartment and let's say $50 or $100 a

month gym fee. In other words, rather than calling it all rent, I'd separate it out. These are two separate unbundleable commodities, which seem to me easily unbundled. They're different things. Right. So rather than making the $3,000 rent have the free gym, you'd say your rent is $2,985 and a $15 gym fee if you want it. Yes. And then you can say to me, the subsidized guy, and if you want to use a gym, it's $15 a month, no problem. That's exactly right. And presumably the $15 or whatever the price would be, it'd be more than that would reflect the actual cost of building and running the gym. I think it's an easily solved problem.

So, W, you know I believe in markets and prices, and the usual way to deal with the provision of goods is through prices. But I think that the developers here probably have an ulterior motive. That's Steve Levitt, my Freakonomics friend and co-author, also an economist at the University of Chicago. The way that these contracts are usually written is that these apartments will remain rent-controlled, below-market apartments for as long as the current tenants live there.

So in a typical setting, it would never make sense to say the old guard tenants can't use the gym. You just find the right price. It might be a very high price that takes into account the negative externality they may have on the new tenants, but you would want to charge that price. And it would just be a mistake to ban them completely. But I don't know, if I'm that developer, I just want to get these old guard out. And so maybe really the market isn't the best tool. It's actually making life very unpleasant in a way that prices can't make life unpleasant. So the idea that you actually ban them from the gym serves a real purpose here. It tells them, look, we think you're second-class citizens. We don't respect you. And as long as you live here, we're going

to treat you horribly. Now, that's not a very nice and a very moral way to do it. But if your objective is to make life awful for these folks and get them out, it's proving to be a pretty effective way of doing that, I bet. Good answer. What do you call this? It's not quite price discrimination. Is it market segmentation? What do you call this? I would call this disrespect. I mean, it's intentionally showing through your actions that you have no respect for the old guard people and rubbing it in their face in a way that markets don't really do it. Markets are not moral, immoral. They're amoral. Markets don't care. In a market world, I don't care if you live here or not. I don't care who the identity of the person is. As long as you pay the

right price and you don't impose negative stuff on other people, it's fine. But what's happening here is that regulation, right, the existence of rent control has obstructed markets and doesn't let these folks use prices in the way they'd like to use them to allocate resources so that they could have the, quote, right people in the apartment at the right prices. And so instead, I mean, this is actually an example of how markets are good and regulation is bad. There's no reason why a developer would ever insult people or try to intentionally degrade them if markets were allowed to work. It's that they can't do what markets want to do. That makes degradation and disrespect the tool that you would use. I mean,

it's like middle school, right? Middle school doesn't have markets, so you get bullying and mean kids and stuff like that. But in general, you don't have a lot of that. And in the real world, you know, the cable company doesn't bully you and doesn't humiliate you. They just, you know, they just use prices. And in a weird way, markets are a relatively humane way of allocating resources. Now, it's not always, quote, fair in the sense that if you have more money, you get more stuff. But at least everybody understands the rules. And there's no sense usually of outrage. It's just an understanding that, you know, sometimes you have to pay for stuff.

Coming up on Freakonomics Radio, if we can't make the fitness apartheid charge stick with the economists, how about a poor door? I take more offense at the poor door because it separates people out. It's segregation. It really is apartheid. One more thing. If you don't already subscribe to Freakonomics Radio, let me encourage you to do so. You can sign up at iTunes for free and we will silently sneak into your phone or computer every Wednesday at midnight Eastern time and drop a new episode into your queue, which has the potential to make your Thursday a bit more interesting.

That's the idea, at least. From WNYC, this is Freakonomics Radio. Here's your host, Stephen Dubner. We've been talking about fitness apartheid, as the residents of one Manhattan building call it. We've heard from a couple of tenants and a couple of economists, including Steve Levin. I would call that even more outrage has been generated by a separate but quite related story, which is now being called the saga of the poor door. Okay, so a poor door. Have you ever heard the phrase, Levitt, a poor door? No, I have not. Okay, so a poor door is what happens when you build a building, but have two classes of living

in that building. So in this case, there's a building being put up, a 33-story residential building at 40 Riverside Boulevard on the Upper West Side, nice neighborhood. There will be 219 luxury condos and 55 affordable housing units in this building, and there will be a separate entrance for the affordable housing tenants, which is now being called the poor door. So I'm curious how you see that. Good solution. You've got subsidized housing, which is being put in the same building, I'm sure, as a requirement for the developer, but they have to come in a different door, probably around the corner or something. Do you like this idea? Good solution?

I mean, it all goes back to the idea that somebody in the government thinks that it's a good idea to have relatively poor people live with relatively rich people. And so there's some kind of either regulation or subsidy that goes to the developers for putting these mixed income facilities together. And in that regard, I have no idea whether there are benefits that come from the mixing of income this way. But you cannot possibly think that if the goal is to have rich and poor live together, middle class or lower middle class live together, that having separate entrances is serving that goal. So this really seems to me like a case where there are well-intentioned regulations, or at least regulations that have an objective, and that clever developers have come up with schemes which are clearly not in the spirit of what was meant

to happen, and are finding ways to essentially loopholes to get around laws that maybe they think are stupid or maybe they think shouldn't be there, but doing it in exactly a way which it seems to me is likely to infuriate everyone in sight. And even when an economist can see that it's going to infuriate everyone in sight, you know, it's pretty obvious it's going to infuriate everyone in sight. It's not that there's anything really wrong in a moral sense with fitness apartheid or the corridor. It's just not the way we're used to transactions being done, right? So when you live in a place, you're used to being allowed to go where you want and to be able to do what you want. And I think it's especially the corridor has this feeling that harkens back to separate but equal and all sorts of stuff, which I think is very touchy and hurtful, whether or not it's meant to be.

I mean, certainly, I mean, you and I sometimes get to sit in the front of the plane because we do a lot of flying. And there's a real I feel a real awkwardness about it. I mean, I think we've even laughed about it that some of the airlines have a red carpet you walk down if you're privileged and other people are shunted to the side. And I hate walking down that red carpet. I feel awkward. Oftentimes I wait in line. You know, I remember one time I was going to a conference. And for whatever reason, the people who ran the conference, this was in South America, had given me a business class ticket.

And much to my horror, when I showed up at the airport, a bunch of other people who were academics who were going to the same conference were not in business class. And I felt so terrible about the fact that this was happening. Now, again, I didn't feel so terrible that I wanted to give up my seat in business class, but I felt terrible enough that I didn't want them to know that I remember feigning illness and going to the bathroom and stuff. So I would be the last one on the plane and then hoping that they wouldn't realize that I was sitting up front.

But somehow, I don't remember what happened, but my plan fell apart, and they did discover that I was up front. I take more offense at the poor door because it separates people out. It's segregation. It really is apartheid. That's Dan Hammermesh again. Whereas the other, I mean, the fitness center is just another door within the building. I see my rich co-renters when I walk in and they see me. But in the poor door business, they don't see each other even. And that I find personally more offensive.

I would think that if people who are offended by the fitness apartheid idea, that the offense comes from having to have that uncomfortable confrontation, not I shouldn't say confrontation, that uncomfortable passing in the hall at the very least of, oh, that guy's on the way to the gym that I can't get to, the poor door removes that discomfort, no? It removes that kind of discomfort, but how is it very much different from the back of the bus? In a very real sense, I perceive that as a back of the bus kind of thing. When we talk about this kind of discrimination or segmentation, whatever it's called, where does your brain go next? What kind of either problem or solution or scenario does your economist's brain turn toward when you start thinking about this kind of issue?

Well, what you're combining here are two basic economic issues. One is a price fixity, a fixed price, in this case, the stabilized apartments. And the other is the issue of price discrimination, charging different prices for what might ostensibly be thought about as the same product. So I started thinking about price discrimination, what's causing it. I started thinking about cases where there are price ceilings. For example, the NCAA regionals, they couldn't raise the price on tickets, but they made you buy a map of the arena when you got in as a way of getting the price up to market. And the question is here, they can't do that. They're sort of sneaking around by not giving you something they just added.

And that goes a little bit of a way toward raising the price toward market, but not much. Let me ask you to give me, finally, your favorite example of price discrimination, the purest example. Okay. I'll give you two examples because they're basically two different causes. First example, when my kids were young teenagers, they were getting haircuts for $12 and I was getting mine for $10 at the same barber, which really ticked me off. As much as it ticks off the people in the gym in reverse, not getting the gym, the people in the building. I told them, darn it, ask the guy for a $10 haircut. Why are you paying 12 bucks? This is a while ago, obviously. And my son came back just laughing. I said, you get the $10,

David. He said, no, I paid 12. Why? I was really angry. He just burst out laughing and said, the barber said to me, quote, you have more hair than your dad. That's called cost-based. It was an easier job to cut my hair, of which even then there wasn't very much, than my very hairy sons. Once the barber put it that way, were you accepting of that cost-based discrimination? I was completely mollified. The other and probably more common source of price discrimination is when it really is the same product. I mean, my haircut and my kids were not the same product. But for example, take a seat at the movies. I go in there being a senior citizen.

I pay $7.50 at the local theater here. You would pay $9.50, which is still a good deal, by the way. It's one seat, same seat. Why do they charge me less? Because my time is more flexible. In economic terms, my demand elasticity is higher, and they give me a lower price because they know I'll respond to it. Well, you can't go during the day or even on weeknights if you have kids, so they're going to really sock it to you. So that's a demand-based.

Difference is in our willingness to pay for the product. And those who are willing to pay any old price, like yourself, get socked with the full price. The flexible people like me get a good deal. Now, why is that not considered discriminatory in an unacceptable way? Why is that not considered discriminatory against me, the non-old person, or when a bar has a ladies' night and ladies get in free? Why is that not discriminatory to me just because I was born with male anatomy? And being a young man, too. It is exactly as discriminatory as anything else we've talked about. It is certainly discriminatory, and companies are allowed to do it. Absolutely.

And they're allowed to do it just because they got there a while ago when it was considered okay, and now it would be a weird thing to un-grandfather it, whereas the newer examples are happening in an age when we're a little bit more sensitive to this stuff? Is that the explanation then? I think it's an issue of that we're, as you say, that we're used to things. For example, when I turned 55, there was a three week period when the local movie theaters still had 55 pluses seniors. And then within a month of my birthday, they raised it to 60. And I was really ticked off. I bet you were. I was.

It was a classic example of loss aversion. Yet they have every right to do whatever they thought. And it made sense because people in their late 50s are still very active and are willing to pay a higher price. But I had it and I was ticked, but I lost it. I recently read, and I can't vouch for the verity of this, but I read that Jill Abramson, the New York Times executive editor who was fired, in part it's said because of her management style, which was found to be grading. And she was the first female hire at the New York Times in that job. So people put one and one together and got that, well, she was fired

because she was a woman who was grading that would have been acceptable in a man. And believe me, there were grading male editors at that newspaper before. Shocking. And now, this is the part that I've read that I am not sure is verifiable, is that she's now doing a lot of media interviews to talk about different stuff, not just her job there and her firing, but journalism, the future thereof, and so on. But she's only giving interviews to female journalists. How does that strike you? Is that an acceptable form of what we might call discrimination? It's certainly legal. I personally find it offensive.

I'll talk to anybody. I mean, I've been on Fox. Heaven help me. I've been on Al Jazeera. I mean, to me, you deal with people. But she has every right to do that. I think it's sort of silly, though, because it limits the amount of outreach she's going to do. In that sense, it strikes me being a bit self-defeating.

Now, why does she have every right to do so? So I'm a male journalist. Let's say I wanted to interview Jill Abramson for this show. And I'm told by her. And again, I have no idea if this would have actually happened this way. But let's say I'm told by her or her people. Well, you know, Dubner, you're not the biggest idiot in the world. But sorry, you're male. And idiot in the world, but sorry,

you're male. And she's only talking to women journalists right now. Isn't that a violation of my some kind of rights as an American with free speech, blah, blah, blah, blah, blah, blah, blah? No, I don't believe that there's some legal right that you have to give access to somebody. If some panhandler on the street starts talking to me, do I have to respond to him or her? I don't think so. And I see no difference between her not wanting to talk to you.

So you're basically calling me a panhandler is what you're doing here. I didn't say a panhandler. You're analogous to a panhandler. As you've probably gleaned by now, economists see the world a bit differently than the rest of us. They think that simply putting the right price on something can take care of a lot of problems. But in the real world, with all its nuance and psychological shadings, a price tag is sometimes too blunt an instrument. A solution that might seem obvious to an economist may be, for one reason or another, impossible. There's a big difference between price theory and public sentiment. And as correct as price theory may seem, public sentiment can carry a lot of weight. As in the case of the Fitness Apartheid building and the Poor Door building, we reached out to representatives of both buildings. They declined

to comment. Here, meanwhile, is the Fitness Apartheid tenant, Theodore Palmer Saxton. The idea of someone saying to you that you are not good enough to do this, but there is someone else in this very building who is good enough, who might be standing next to you or standing across from you in the same elevator with you, and we can decide the worth of your humanity. Now that was the amazing part about it, that someone sat in some room and said that and came before us in public and said it out loud. And I think it's dangerous even to start thinking that because it is so easy to start a trend. You know, Germany had a trend turned into Holocaust. You can start things. And people will accept things that you say, oh, well, that can't happen here. Sure it can. So Saxton and her allies are pushing back on that trend.

There's a bill before the New York State Assembly that would require, here I'll read from it, that, quote, any rental tenant must be provided with the opportunity to use amenities that are accessible to any occupant and or not unique to an individual unit, including but not limited to pools, fitness centers, storage spaces, etc., etc. Violation of this law would be, quote, punishable by a fine not to exceed $2,000. That means a building with, say, 15 rent-stabilized tenants would be fined $30,000 if those tenants were denied access to a new gym, which sounds pretty substantial until you realize that $2,000 per fine is roughly the difference between a single month's rent for a market rate tenant and a rent stabilized tenant, which, if you are the landlord of that building, might be a fine worth paying if your long game is to maximize your profits, and Steve Levitt put it, disrespect your tenants.

Hey, come to think of it, maybe price theory does work. Hey, podcast listeners, on the next Freakonomics Radio, using cost-benefit analysis to find out which global problems we really ought to be attacking. Many of them we focus on because they get lots of attention. They have lots of crying kids or cute animals. Down with crying kids and cute animals. Instead, let's up the ROI on development aid.

That's next time on Freakonomics Radio. Freakonomics Radio is produced by WNYC and Dubner Productions. Our staff includes David Herman, Greg Rosalski, Greta Cohn, Caroline English, Susie Lechtenberg, and Chris Bannon, with help from Joel Werner, Simon Adler, and Shruti Pinamaneni. If you want more Freakonomics Radio, you can subscribe to our podcast on iTunes

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