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Why Henry III's gold penny failed
- WalterBright 5y agoPeople never learn from history, and repeatedly try to fix exchange rates. "By god, this time it will work!" Price fixing, rent control, anti-gouging laws, etc, all fail for the same reason, but that never discourages the next cohort that imagines they can defy economics.
- wnevets 5y ago> Price fixing, rent control, anti-gouging laws, etc, all fail for the same reason, but that never discourages the next cohort that imagines they can defy economics. According to Google ~39 US States have anti price gouging laws, how have those failed?
- WalterBright 5y agoThey fail because they result in shortages, hoarding, and a black market.
- monocasa 5y agoAnti gouging laws only kick in when there's a shortage to begin with, and they normally coincide with rationing, so I'm not sure shortages and hoardng are fair to ascribe to the policy. WRT the black market, when your other option is to just keep the regular market unregulated, the inevitable trades happening in the formal economy versus the informal one doesn't make much of a difference, except for doing your best to make sure everyone at least gets access to some of the critical resource in the anti-gouging case.
- WalterBright 5y agoThere is not a shortage in a free market. Prices rise until supply meets demand.
- monocasa 5y agoOnly in perfectly spherical, frictionless free markets that aren't applicable to reality. Practically changes happen quicker than a supply chain can adjust, and that can leave people without critical supplies.
- WalterBright 5y agoSome businesses do not raise prices, preferring empty shelves to the bad goodwill and accusations of profiteering. Nevertheless, goods and services are always available if the price is allowed to float. Anti-gouging laws always leave people without critical supplies. Remember the Great Toilet Paper Shortage a couple years ago?
- monocasa 5y agoOnce again, that's ignoring rationing happening at the same time. Yes APG laws without rationing encourage hoarding, but that's not the scheme generally being discussed. Additionally, jurisdictions without APG laws also empirically faced widespread shortages during the pandemic, that's not a unique feature of APG laws.
- lpapez 5y agoThis is a really weird and frankly naive take IMO, especially after what we witnessed during the pandemic. The demand for some goods is not affected by their price, and such goods have a name that you can hear in any Economics 101 class - "inelastic goods".
- WalterBright 5y agoI hear all the time that prices for certain goods are inelastic - particularly for gas and housing and medical care. But events always show it most definitely is elastic.
- BitwiseFool 5y agoBut has a free market actually existed? I sense "the free market" is a platonic ideal that has not, and cannot, be realized in the real world.
- mixedCase 5y ago> doing your best to make sure everyone at least gets access No, you don't. You're usually just limiting the supply even further by discouraging sales, and at the absolute best, shuffling around the people who get to buy the item. You can't help scarcity at all by fixing prices.
- monocasa 5y agoThe supplies that just flew off the shelves and were sold at a fair price are more than incentivized for being restocked or even served by pop up wholesale resellers. It's not like the anti-gouging laws lock in a price under profitablity; the stores wouldn't have the items even before the anti-gouging kicks in if that were the case.
- nickpp 5y agoYou are ignoring the motivational power of 10x increase in profit, for a vendor. Also the de-motivational power of a 10x increase in price, for a hoarder. In fact, a high enough price may even turn a hoarder into a vendor.
- jollybean 5y ago"You can't help scarcity at all by fixing prices." Yes, you definitely can. The price which incurs maximum profits for producers has little to do with consumer surplus or the maximization thereof. Price fixing alters the distribution of surpluses one way or the other, because we don't measure consumer surplus directly, we often think of 'reduced profits' to the producer, but fail to regard the increased surpluses to consumers. The term 'scarcity' is a bit of canard, because very, very few things are actually truly 'scarce' like Gold, most things depend on labour inputs, materials, and especially opportunity cost. Vaccines are an example. Phizer could probably make a lot more profit by charging $150-500/vaccine in the USA, which might leave 65% of Americans in the lurch. But the surpluses to citizens arrived at through a 'not really market price' negotiated between the US Gov, and Phizer, are much more vast. Especially the moment you consider longer term effects (i.e. limited deployment of vaccine hurts the economy badly and thus other lines of revenue) you see the systematic effects.
- opo 5y ago>...so I'm not sure shortages and hoardng are fair to ascribe to the policy. Before all these price gouging laws, in natural disasters there used to be marginal producers (people with a pickup truck etc.) who would load up on some supplies like ice etc. and bring them to the area that was hit to make a quick profit. When the electricity is out and someone wants $12 a bag for ice it would anger you if you just want to keep your drinks cold, but you would think it is an incredible bargain if that way you can keep your insulin chilled: https://www.econlib.org/library/Columns/y2007/Mungergouging.html https://www.econlib.org/library/Columns/y2007/Mungergouging.... In the long run, high profits during a shortage also mean that suppliers in general will be incentivized to keep a larger stockpile of goods that have a good shelf-life since they know they will be able to make good money the next time there is a shortage (more than the storage costs). (Or the potential for high profits will incentivize spending money to be more flexible in production in case demand increases for a short time.) If you are going to literally make it illegal to try this, then you better have a government be willing to spend its tax dollars on creating a stockpile - when the pandemic started we saw that all the talk of the national stockpile the federal government supposedly had was greatly exaggerated. While politicians like 'price gouging' laws since everyone can see a higher price (but can't see the missing products that won't be available), a majority of economists are opposed to 'price gouging' laws. For example see: http://www.igmchicago.org/surveys/price-gouging/ http://www.igmchicago.org/surveys/price-gouging/
- monocasa 5y agoFirst off, it's not clear that pop up, cross market arbitrage resellers are statistically relevant to these markets, or that they're something that should be optimized for. Secondly, it's not clear that these resellers given up as examples are truly performing arbitrage, like is generally assumed in thought experiments by opponents of APG laws. These thought experiments also generally assume that the subsequent lack of additional incentive is enough to reduce supply. Let's take the example you gave of the ice sellers (and was given in your econlib citation). This example cites owners of a refrigeration truck with either direct access to the equipment that produces ice (a remarkably time and capital intensive venture), or business connections capable of obtaining large quantities of ice during a shortage. Either those hold true and for some reason these people who have invested heavily in ice distribution are for some reason deciding to stay home on a day of the highest demand because they can't increase the going rate more than 5%, or (more likely in my mind) they aren't actually increasing supply to the market in question, but instead bought locally before the the normal sellers thought to increase their prices (or the normal sellers had ethical issues with greatly increasing their prices in a a time of need). Additionally, these examples all leave out the key to the idea, simultaneous rationing, which means that the supply isn't reduced by hoarding (at any price to the hoarder) by directly reducing the amount they can get. So in your example, there isn't an issue getting ice for your insulin because of rationing _and_ you didn't have to pay a premium for it. Finally, as an aside, your first citation is from a far right think tank dedicated to the removal of government influence on all aspects of life, and the second is a polling of economists connected to a specifc branch of economics known to be rife with groupthink. It's unsurprising the conclusion they come to.
- wnevets 5y ago> They fail because they result in shortages, hoarding, and a black market. When has that happened? Can you provide an example?
- deleted 5y ago[deleted]
- Retric 5y agoSeveral exchange rates have successfully been fixed by being pegged to some other currency or gold for long periods.
- WalterBright 5y agoName one.
- Retric 5y agoHong Kong dollar. Since 1983 $1 USD = HK$7.80±0.05.
- WalterBright 5y ago"To keep people from dumping Hong Kong dollars, Hong Kong jacked up overnight interest rates as high as 300 percent last week and to around 20 percent on Monday." https://www.washingtonpost.com/archive/politics/1997/10/30/hong-kong-pays-dearly-to-keep-us-dollar-peg/e0dfc5ed-b08d-4e26-aebd-5f4784e59907/ https://www.washingtonpost.com/archive/politics/1997/10/30/h... Not exactly a great example.
- brimble 5y agoThat date rings a bell... Wikipedias Yeah, that was the so-called "Asian Contagion" financial crisis. IIRC the US dumped a shitload of money into Mexico and maybe some other countries to stop the dominoes falling. Lots of countries had a bad time right around then.
- AnimalMuppet 5y agoRight, but what point are you making based on that? That fixed exchange rates work, but they come under severe pressure in a crisis? That's actually an argument against fixed exchange rates.
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- brimble 5y agoPrice fixing is, as far as I can tell, the single common element that every developed-state health care system other than the US employs, whatever their differences. It certainly appears to work. Anywhere from setting prices in an actual price-book, to leveraging monopsony to set prices, to intervening to set prices only where problems arise (implicitly threatening to do more of that if needed, which I expect has an effect—this is a part of Singapore's approach, for instance). Some (of each approach) work better, some worse, but they basically do seem to work, in that many of these have been working that way for decades and haven't collapsed yet, and most don't seem to be heading toward collapse any time soon. I don't know of a single counter example, and I'd bet I could find examples of even the US taking similar, extremely limited measures, and that those worked out OK, too. At the very least the harm of those cures, if you will, do not look to be worse than the disease.
- Swenrekcah 5y agoI think price-fixing works in, for example healthcare, because then you also have a single payer system. So there is one entity that buys almost all service capacity and thus gets a lot of say in the price. Also nobody else would want to outbid them because the single payer then turns around and gives all potential users the service for a fraction of the real price. So this is a great system for providing healthcare at reasonable prices. For housing. Rent control only works for the first that can get in the system, but what does work I think are widespread and well positioned non-profit housing entities that can provide a large enough share of potential renters reasonable apartment prices so that the for-profit companies can’t raise their prices too much. Source: I’m an extensively trained armchair economist.
- brimble 5y ago> I think price-fixing works in, for example healthcare, because then you also have a single payer system. So there is one entity that buys almost all service capacity and thus gets a lot of say in the price. That'd be the monopsony option I mentioned. When you have (actually, or effectively) one buyer, they tell you how much profit you can make, and can pressure you even further to pressure your own suppliers to bring prices down further. > Source: I’m an extensively trained armchair economist. Same, to put my cards on the table, but I've spent an unhealthy (haha) amount of time reading about healthcare systems and when I started to draw a line between all the non-US systems among OECD and other rich countries, that was the single thing that stood out as being common to all of them, despite there actually being a huge variety of approaches. They all seem at least medium-term stable (which is more than I can say for our US system, which seems like a train racing straight for a canyon wall, while also coming apart at every seam and bolt) and none appear to exhibit, to a significant degree, the usual problems Econ 101 (and, indeed, plenty of real-world examples) tells you price fixing ought to raise very quickly, which means it's "never a good idea" or "never works". In fact, in this case... I mean, it sure looks like it works, doesn't it? And it's not like we only have one example.
- JoeAltmaier 5y agoCoins are a sort of niche in that space. They were supposed to have intrinsic value, so arbitrage and the market would kick in as described. Today our coins are all base metal, worthless except for the face value. Essentially the same as paper money, but smaller and more durable. And we have a different sensibility about them: we don't even consider melting them down (well, not usually) since they are a symbol, not intrinsically valuable.
- samatman 5y agoNonsense, the exchange rate has been five nickels to the quarter for as long as I've been alive! Bit of a joke but not really. Bimetallism is an attempt to harmonize two mediums of exchange, and it's worked well enough at various times. Combines well with a bit of seignorage: not so much that the coins don't have value, but enough that they trade above the melt value of the metal. If the sovereign says "pay taxes with a 90% silver coin with my face or the same weight of pure silver, don't care", and has the muscle to compel citizens to do it, this puts some slack in the actual exchange rate between gold and silver: one or the other has to exceed the debased rate, rather than the natural rate, for melting to be the rational move.
- WalterBright 5y ago> it's worked well enough at various times And when it doesn't, it's a doozy, as in the Great Depression. (The fed inflated the currency while the exchange rate was pegged to gold.) > and has the muscle to compel citizens to do it Even in the most totalitarian countries, it leads to collapse.
- bullen 5y agoIf you only look at scarcity gold should be 6,55x more valuable today when 1.600.000 tonnes of silver has been mined vs. 244.000 tonnes of gold. I don't know what the mined quantities where back then but 1:10 seem arbitrary, maybe because we have 10 fingers like everything else (decimal)? The ratio is today 1:80, an order of magnitude! Oxidation is that important?
- woleium 5y agoI think it's more to do with the reduced availability of silver back then.
- throw0101a 5y agoFor anyone interested in a good history of using gold as money, Peter Bernstein's The power of gold: the history of an obsession is worth looking into: * https://www.goodreads.com/book/show/249245.The_Power_of_Gold https://www.goodreads.com/book/show/249245.The_Power_of_Gold Money: The True Story of a Made-Up Thing by Jacob Goldstein (of NPR's Planet Money) is also good: * https://www.goodreads.com/en/book/show/50358103-money https://www.goodreads.com/en/book/show/50358103-money
- firecall 5y agoBimetallic Coin System Arbitrage FTW!