4 ms·

Your first point isn't too far off the mark. If goods are really 60% more expensive in Switzerland than in the US, then you'd expect people/corporations/institu

Your first point isn't too far off the mark. If goods are really 60% more expensive in Switzerland than in the US, then you'd expect people/corporations/institutions in Switzerland to use their CHF to buy dollars, buy goods in the US at a large discount and have them shipped to Switzerland, or for Swiss companies to hire US employees and pay them in USD, thus driving the USD/CHF exchange rate towards purchasing power parity. Up to transaction costs (inc shipping) and trading restrictions, this really should happen, so it's interesting to explore why it doesn't. Typically the culprits are artificial limitations (e.g. international trade restrictions) or low-value goods where shipping costs are large relative to the cost of the item, or goods which spoil easily and so can't be easily shipped. If you can't explain the disparity with transaction costs and trade restrictions, then there must be some other reason for CHF being so high relative to the USD. One possibility - CHF is viewed as a hedge for various risks (inflation, market crashes). It is typically anti-correlated with the S&P500, for example, and correlated with market volatility, so it's good to be holding it in a crisis. The same applies to JPY, and the opposite applies to AUD and CAD, which are seen as risk-on currencies.

marvin 13y ago
Just for the record, I am not currently arguing with you, but I just thought I would point out something from real-world experience which starkly contradicts the "ideal" economic equilibrium you describe. In my experience as a Norwegian, the parity argument isn't even close to true in the real world. There are lots of non-perishable goods here which are imported but are a lot more expensive than they are in the US. For reference, there is a 25% VAT on everything and there is occasionally an import tariff on the order ot 5%. Also some special taxes on vehicles, tobacco, alcohol and fuel, but I'll keep those separate. Most goods here are a lot more expensive than abroad. Clothes and shoes are 2-3 times more expensive than in the US. Ditto for furniture and most non-perishable goods you would buy in a store. All food is 2-3 times more expensive, even imported, canned goods. This is in line with the labor required to stock and operate a store. Electronics are usually ~30-40% more expensive than abroad if you get them in the right place, which does more or less match the parity theory. My guess is that this is because buying these goods on the Internet is a viable option (in contrast to groceries, clothes, shoes, food, medicine, furniture etc). Hence these retailers are forced to conform, or go out of business. I am not sure how they are able to do this, whereas a clothing store or a supermarket is not. But this is what I observe. The cheapest electronics retailers are very low on staff and high on automation. Long story short, locally labor-intensive products are obviously a lot more expensive in expensive countries. But higher salaries also have a very large effect also on the cost of imported goods, because there is a lot of labor involved during the shipping, import and sales process. If you are able to automate away some of this, you have a massive business opportunity. But it's a very obvious opening, so it is not a trivial task.
- wcfields 13y ago
  A friend of mine touring through Norway decided to get a pizza and a 6 pack of beer. Ended up costing him ~$65.
  - marvin 13y ago
    Sounds about right. My ballpark estimate just now arrived at $67. It's really funny whenever someone complains that the Bay Area is so expensive; in all areas except housing it's a lot cheaper than where I live. Salaries are higher too, if you're in software. If you work on McDonalds, though, you should probably be in Norway.
  - mgkimsal 13y ago
    Interesting... earlier this year I was going to go for a 'Chicago Style' pizza in Moscow. Would have been around $42. Decided to go to Sbarros (closer). Initially ordered one of these "everything pizzas": $50. "nyet nyet nyet" I shouted. Got a more basic cheese/pepperoni deal for a mere... $19 I think (IIRC). I understood I was getting 'western' luxuries in an expensive city, but it really drove home the concept of "cost of living" someplace moreso than abstract calculators. :)
CHsurfer 13y ago
There are some on-line electronics stores that run quite efficiently. In these places, the price is much closer to the USD equivalent in similar stores in the US. I think this supports the argument above related to Higher labor costs driving up prices.

marvin 13y ago

Just for the record, I am not currently arguing with you, but I just thought I would point out something from real-world experience which starkly contradicts the "ideal" economic equilibrium you describe. In my experience as a Norwegian, the parity argument isn't even close to true in the real world. There are lots of non-perishable goods here which are imported but are a lot more expensive than they are in the US. For reference, there is a 25% VAT on everything and there is occasionally an import tariff on the order ot 5%. Also some special taxes on vehicles, tobacco, alcohol and fuel, but I'll keep those separate. Most goods here are a lot more expensive than abroad. Clothes and shoes are 2-3 times more expensive than in the US. Ditto for furniture and most non-perishable goods you would buy in a store. All food is 2-3 times more expensive, even imported, canned goods. This is in line with the labor required to stock and operate a store. Electronics are usually ~30-40% more expensive than abroad if you get them in the right place, which does more or less match the parity theory. My guess is that this is because buying these goods on the Internet is a viable option (in contrast to groceries, clothes, shoes, food, medicine, furniture etc). Hence these retailers are forced to conform, or go out of business. I am not sure how they are able to do this, whereas a clothing store or a supermarket is not. But this is what I observe. The cheapest electronics retailers are very low on staff and high on automation. Long story short, locally labor-intensive products are obviously a lot more expensive in expensive countries. But higher salaries also have a very large effect also on the cost of imported goods, because there is a lot of labor involved during the shipping, import and sales process. If you are able to automate away some of this, you have a massive business opportunity. But it's a very obvious opening, so it is not a trivial task.

wcfields 13y ago
A friend of mine touring through Norway decided to get a pizza and a 6 pack of beer. Ended up costing him ~$65.
- marvin 13y ago
  Sounds about right. My ballpark estimate just now arrived at $67. It's really funny whenever someone complains that the Bay Area is so expensive; in all areas except housing it's a lot cheaper than where I live. Salaries are higher too, if you're in software. If you work on McDonalds, though, you should probably be in Norway.
- mgkimsal 13y ago
  Interesting... earlier this year I was going to go for a 'Chicago Style' pizza in Moscow. Would have been around $42. Decided to go to Sbarros (closer). Initially ordered one of these "everything pizzas": $50. "nyet nyet nyet" I shouted. Got a more basic cheese/pepperoni deal for a mere... $19 I think (IIRC). I understood I was getting 'western' luxuries in an expensive city, but it really drove home the concept of "cost of living" someplace moreso than abstract calculators. :)

CHsurfer 13y ago

There are some on-line electronics stores that run quite efficiently. In these places, the price is much closer to the USD equivalent in similar stores in the US. I think this supports the argument above related to Higher labor costs driving up prices.