econlife - Where Lost Luggage Finds a Home by Elaine Schwartz

Our story starts in 1970 when a part-time insurance salesman heard that Trailways wanted to get rid of a stack of unclaimed luggage. He borrowed $300 (equal to $2,046.01 now), bought it all, and the rest is history.

The Price of Lost Baggage

On card tables, Doyle Owens displayed the contents of his suitcases and sold whatever people would buy. Today, in Scottsboro, Alabama, the Unclaimed Baggage Center occupies a 50,000 square foot store. From airlines and other commercial establishments, it buys lost baggage, wheelchairs, items that were forgotten in overhead bins.

All is either sold, trashed, or donated. More than half is clothing that the company launders before selling it at a 20 to 80 percent discount. They also offer unclaimed headphones, lots of watches, e-readers, and the eyeglasses we stash in seat back compartments. Much less typically, they’ve found wedding dresses, a live rattlesnake, and a Gucci suitcase with Egyptian artifacts.

These are some of the watches they’ve found:

And these are the racks:

The Airlines

Only after mishandled baggage first has sat, unclaimed, for 90 days can it be sold. During the first quarter of 2020, an average of five or so bags per 1000 were mishandled. You can see below that, among the larger airlines, American is the worst at 5.74 per 1000:

Our Bottom Line: Markets

Not necessarily a place, a market is a process through which prices are determined. In 1970, Doyle Owens was clever enough to see that he could create a market for the shirts, shorts, and electronic devices that travelers left in lost luggage. Mr. Owens provided the supply and the prices at which he was willing and able to sell his inventory. But then demand kicked in because bargain hunters knew what they were willing and able to pay. At that point, supply and demand interacted and the market created an equilibrium price.

When Unclaimed Baggage buys suitcases from airlines, the market determines their value. Then, when the contents are sold, again, the invisible hand of the market nudges sellers and buyers toward a mutually agreeable price.

My sources and more: My email subscription to The Hustle introduced me to the lost luggage story. From there, a new world of baggage emerged, starting with U.S. DOT reports and WSJ, here and here. Then, for even more, you could go to the Unclaimed Baggage website.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.

econlife - Why It’s Tough to Make Stock Market Predictions by Elaine Schwartz

Yogi Berra reputedly said that “It’s tough to make predictions, especially about the future.”

But some believe it’s not difficult to make stock market predictions when the S&P 500 and the Dow continue going up. (I’ve inserted the arrow.):

It is difficult.

Stock Market Predictions

In 1929, two famous economists thought they could predict the direction of the Dow. Basing their expectations on business cycles, each one thought he could figure out when a recession was imminent. During the 1920s, each believed the moment to sell was just before the downturn began.

Irving Fisher:

Irving Fisher (1867-1947) was a Yale professor, a mathematician, an economist, a columnist, an inventor, an investor, and a health zealot who ate salad for breakfast, drank no coffee, no tea, no alcohol. Because he thought (and said) that, “Stock prices have reached what looks like a permanently high plateau, he lost his entire fortune– maybe $10 million–during the October, 1929 crash. After, pursuing an investing strategy that continued to predict the business cycle, he never made it back.

John Maynard Keynes:

John Maynard Keynes

Meanwhile, on the other side of the Atlantic in Great Britain, an equally auspicious economist also expected to outsmart financial markets. John Maynard Keynes (1883-1946) was the offset to Adam Smith. In the midst of the 1930s Great Depression, he explained that laissez-faire was not always best when a bit of government could help to “prime the pump” until all was well again. Since then, we’ve all become Keynesians. However, in 1929, Keynes, like Fisher, misjudged the economy’s trajectory and lost millions. He though changed how he invested, amassed a new fortune, and concluded that forecasting business cycles was impossible.

Keynes was right.

Stock Market Predictions

According to University of Pennsylvania finance Professor Jeremy Siegel, investors who  “switched from stocks to cash four months before the beginning of a recession and back to stocks four months before the end of the recession…” would accelerate their gains considerably. The problem is that no one can time the switch because (like Fisher and Keynes) recession forecasters have a dismal record.

In his book, Stocks for the Long Run, after charting how stock prices echoed the business cycle (below), Dr. Siegel warns us that we won’t beat the stock market by trying to predict the economy:

Our Bottom Line: Business Cycles

As the group that formally identifies business cycles, the NBER (National Bureau of Economic Research) tells us that the length of our current expansion has surpassed the March 1991 to March 2001 120-month record holder. The current expansion began with the June 2009 trough. At the end of the expansion it will peak, contract, trough at the bottom, expand, and go through the cycle again.

Instead of assuming that two successive quarters of a GDP decline identify a recession, the NBER says its criteria are slightly different. Not necessarily during two successive quarters (as most of us assume), the depth of the GDP decline matters as do employment and other data that range from payrolls to income.

It took until September 2010 for the NBER to confirm the Dec. 2007-June 2009 recession. So you can see why, “It’s tough to make predictions, especially about the future.”

My sources and more: First, the Cautionary Tales podcast and then the NY Times and Dr. Siegel (Chapter 15) all looked at forecasting. As for the business cycle, the NBER website is the place to go for all the facts you could possibly need.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.