4 ms·

One could argue that it's not that the value of a dollar varies by location, but that the value of a quarter pounder varies by location. And I think that might

One could argue that it's not that the value of a dollar varies by location, but that the value of a quarter pounder varies by location. And I think that might be a more practical perspective, since a variable-value dollar would present an easy arbitrage opportunity, whereas buying quarter pounders in Manhattan and reselling them in Peoria is a scheme that would run afoul of some technical challenges. I think that I like the way that the World Bank measures the value of the two rials better. The US dollar (or any other large stable foreign currency) theoretically represents a fairly stable measuring stick that's going to be a little bit more resilient to regional effects than a commodity good.

thaumasiotes 6y ago
> One could argue that it's not that the value of a dollar varies by location, but that the value of a quarter pounder varies by location. And I think that might be a more practical perspective, since a variable-value dollar would present an easy arbitrage opportunity, whereas buying quarter pounders in Manhattan and reselling them in Peoria is a scheme that would run afoul of some technical challenges. You could make that argument, but it wouldn't be a very good argument, since the value of everything is systematically higher (measured in dollars) in Manhattan than in Peoria. The obvious model is that the value of the dollar is lower in Manhattan. (Also, you seem to have mixed up where you would be buying the hamburgers and where you'd be selling them.)
- leetcrew 6y ago
  this might seem obvious, but it doesn't really describe the situation well. things are expensive in manhattan because it is expensive to live in/around manhattan. even the lowly mcdonalds employee gets paid about twice as much to work in manhattan as in peoria. if you buy something that doesn't require local storage/labor, it will cost the same as it does in the rest of the country.
  - thaumasiotes 6y ago
    > things are expensive in manhattan because it is expensive to live in/around manhattan. even the lowly mcdonalds employee gets paid about twice as much to work in manhattan as in peoria. All of this supports the idea that the value of a dollar is lower in Manhattan than elsewhere. Indeed, it doesn't just support the idea; it is a restatement of it.
    - leetcrew 6y ago
      only if you ignore why it's more expensive to live in NYC. it's more expensive because it's more desirable to live in NYC than Peoria. waterfront property is also more expensive than similar inland properties. the water doesn't locally inflate the dollar; it's a feature that people pay extra for. if you accept that the real value of a dollar is less in NYC, you also have to accept weird consequences like a CPU from amazon is worth less there as well.
      - deleted 6y ago
        [deleted]
      - ebg13 6y ago
        > waterfront property is also more expensive than similar inland properties. That explains _property_, not McDonalds Quarter Pounders which are exactly the same everywhere.
        leetcrew 6y ago
        it's another example of the same phenomenon. a mcdonald's quarter pounder is not the same everywhere. the sandwich itself is the same, but the location is an important (and sometimes expensive) part of the whole package. how much would you pay for a big mac that happens to be located a hundred miles away from you?
        ebg13 6y ago
        > how much would you pay for a big mac that happens to be located a hundred miles away from you? You just showed that proximity to the buyer matters, not location, because _delivery_ is an additional cost in both money and time. If you want an apt comparison, you need to not bundle unrelated expenses. Whichever McDonalds I'm at, proximity to me is the same at time of purchasing identical Quarter Pounders, and the price is not.
- mumblemumble 6y ago
  I wouldn't focus too much on just counting the number of variables. Oftentimes the more parsimonious explanation is the one that emerges from a simple principle being applied to a lot of moving parts. In this case, I would say that the perspective where it's the value of a dollar that varies is not particularly parsimonious, because it leads to a strange set of implications that could only be resolved by adding epicycles to the theory. For example, if you favor the perspective where it's the value of the dollar that varies between New York and Peoria, then you also need to account for why the dollar/euro exchange rate does not tend to vary between the two. It would be peculiar indeed if it were that the euro's value also varied by location, but just happened to vary in lockstep with the dollar. (I realize this is the scenario that's happening in TFA, but that's kind of exactly what the TFA is getting at: the rial is on the verge of forking into two different currencies.) You would also have to account for why the relative nominal prices of goods don't stay constant from location to location. Suppose that a quarter pounder costs $2 and a tube of toothpaste costs $4 in NYC. If it's the dollar value that changes, then one should be able to assume that a $1 quarter pounder in Peoria implies that toothpaste costs $2 in Peoria. My appetite for air travel right now doesn't permit me to test this myself, but I suspect that you will find that this is not actually the case.
ebg13 6y ago
> since a variable-value dollar would present an easy arbitrage opportunity It is an easy arbitrage opportunity! That's why young adults working in San Francisco can retire earlier if they leave with their earnings.

thaumasiotes 6y ago

> One could argue that it's not that the value of a dollar varies by location, but that the value of a quarter pounder varies by location. And I think that might be a more practical perspective, since a variable-value dollar would present an easy arbitrage opportunity, whereas buying quarter pounders in Manhattan and reselling them in Peoria is a scheme that would run afoul of some technical challenges. You could make that argument, but it wouldn't be a very good argument, since the value of everything is systematically higher (measured in dollars) in Manhattan than in Peoria. The obvious model is that the value of the dollar is lower in Manhattan. (Also, you seem to have mixed up where you would be buying the hamburgers and where you'd be selling them.)

leetcrew 6y ago
this might seem obvious, but it doesn't really describe the situation well. things are expensive in manhattan because it is expensive to live in/around manhattan. even the lowly mcdonalds employee gets paid about twice as much to work in manhattan as in peoria. if you buy something that doesn't require local storage/labor, it will cost the same as it does in the rest of the country.
- thaumasiotes 6y ago
  > things are expensive in manhattan because it is expensive to live in/around manhattan. even the lowly mcdonalds employee gets paid about twice as much to work in manhattan as in peoria. All of this supports the idea that the value of a dollar is lower in Manhattan than elsewhere. Indeed, it doesn't just support the idea; it is a restatement of it.
  - leetcrew 6y ago
    only if you ignore why it's more expensive to live in NYC. it's more expensive because it's more desirable to live in NYC than Peoria. waterfront property is also more expensive than similar inland properties. the water doesn't locally inflate the dollar; it's a feature that people pay extra for. if you accept that the real value of a dollar is less in NYC, you also have to accept weird consequences like a CPU from amazon is worth less there as well.
    - deleted 6y ago
      [deleted]
    - ebg13 6y ago
      > waterfront property is also more expensive than similar inland properties. That explains _property_, not McDonalds Quarter Pounders which are exactly the same everywhere.
      - leetcrew 6y ago
        it's another example of the same phenomenon. a mcdonald's quarter pounder is not the same everywhere. the sandwich itself is the same, but the location is an important (and sometimes expensive) part of the whole package. how much would you pay for a big mac that happens to be located a hundred miles away from you?
        ebg13 6y ago
        > how much would you pay for a big mac that happens to be located a hundred miles away from you? You just showed that proximity to the buyer matters, not location, because _delivery_ is an additional cost in both money and time. If you want an apt comparison, you need to not bundle unrelated expenses. Whichever McDonalds I'm at, proximity to me is the same at time of purchasing identical Quarter Pounders, and the price is not.
mumblemumble 6y ago
I wouldn't focus too much on just counting the number of variables. Oftentimes the more parsimonious explanation is the one that emerges from a simple principle being applied to a lot of moving parts. In this case, I would say that the perspective where it's the value of a dollar that varies is not particularly parsimonious, because it leads to a strange set of implications that could only be resolved by adding epicycles to the theory. For example, if you favor the perspective where it's the value of the dollar that varies between New York and Peoria, then you also need to account for why the dollar/euro exchange rate does not tend to vary between the two. It would be peculiar indeed if it were that the euro's value also varied by location, but just happened to vary in lockstep with the dollar. (I realize this is the scenario that's happening in TFA, but that's kind of exactly what the TFA is getting at: the rial is on the verge of forking into two different currencies.) You would also have to account for why the relative nominal prices of goods don't stay constant from location to location. Suppose that a quarter pounder costs $2 and a tube of toothpaste costs $4 in NYC. If it's the dollar value that changes, then one should be able to assume that a $1 quarter pounder in Peoria implies that toothpaste costs $2 in Peoria. My appetite for air travel right now doesn't permit me to test this myself, but I suspect that you will find that this is not actually the case.

ebg13 6y ago

> since a variable-value dollar would present an easy arbitrage opportunity It is an easy arbitrage opportunity! That's why young adults working in San Francisco can retire earlier if they leave with their earnings.