a thread in which ilx interprets economics and finance, sometimes linen by linen*, and disagrees a lot (probably)

the best choice of action is when you're obscenely wealthy - my suspicion is that if you're obscenely wealthy, you don't actually keep your value as cash, but instead you have it in investments in stocks, real estate, asset classes, and you only keep around enough cash to pay your bills.

https://www.kkr.com/images/insights/62-images/charts-6.png

turns out the seriously rich have more of their money in cash than the merely very rich (via https://www.kkr.com/global-perspectives/publications/wisdom-compounding-capital).

UHNW = ultra high net work, > $30m in assets
HNW = > $1m

one cool thing about hong kong is that the legal tender there is all issued by banks, not the government. so a ten hong kong dollar note could be issued by standard chartered, the bank of china, or HSBC. it looks like this is the de facto norm in commonwealth territories? i have never been to england.

still true in scotland - the royal bank of scotland printed one pound notes long after they'd been withdrawn by the bank of england. technically scottish notes aren't 'legal tender' in the uk but they can and should be accepted, i've flummoxed a few shopkeepers with them but never had one refused.

South Korean media have compared Kim to disgraced former British Prime Minister Liz Truss, an apt analogy. "For purely political reasons, both leaders caused an entirely gratuitous self-inflicted wound to their countries’ economies, destroying trust in what was supposed to be a sure thing—pension funds for Truss, government-backed bonds for Kim. The same lesson applies to Britain, South Korea, and everywhere: Electing bad politicians leads to a bad economy."

https://foreignpolicy.com/2022/11/10/legoland-south-korea-bond-market-crisis/

I am taking different lessons from this story. More like, economics: wtf have we done?!

That South Korean story also worth keeping in mind as we approach yet another dumb debt-ceiling standoff in the U.S.

BBC radio news says that the UK PM is returning to the UK to tackle inflation.

I think inflation means something like: money can no longer buy so much. The value of money has decreased.

I don't know why. Nor what the PM would do to change it.

Strange that a decrease in the value of money is called inflation rather than ... deflation?

one cool thing about hong kong is that the legal tender there is all issued by banks, not the government. so a ten hong kong dollar note could be issued by standard chartered, the bank of china, or HSBC. it looks like this is the de facto norm in commonwealth territories? i have never been to england.

Come to Scotland, the Bank of Scotland, the Royal Bank of Scotland and the Clydesdale Bank all produce bank notes.

still true in scotland - the royal bank of scotland printed one pound notes long after they'd been withdrawn by the bank of england. technically scottish notes aren't 'legal tender' in the uk but they can and should be accepted, i've flummoxed a few shopkeepers with them but never had one refused.

I've had them refused and certainly scrutinized and questioned. The thing is banknotes are not legal tender in Scotland, so if Scottish banknotes are refused in the England then English banknotes can be refused in Scotland by the same (spurious ) reasoning.

Oh and four banks in Northern Ireland produce banknotes: Bank of Ireland, First Trust Bank, Danske(!) Bank and Ulster Bank.

To complicate things further. The Isle of Man, Jersey and Guernsey all produce their own banknotes (including £1 notes). Alderney produces coins but no notes.

I turned on Radio 4 today. They were talking about cuts and taxes. It was the main item, the central idiom. Probably things that will help bad people and hurt good people. 'Austerity' and how they can avoid calling it austerity. The BBC accepted it all.

The decrease in the value of money is necessarily an increase in the price of things - that is what inflation / deflation refers to.

That makes sense.

I have an idea, for some reason, that the price of something going up is connected to scarcity. If there is less of a substance, then its price goes up. That would be 'inflation', for that particular substance?

So if there are 100 cows, a pint of milk is 80p. If 50 cows are taken away, the pint goes up to £1.60. If only 1 cow is left, a pint is £80. Is that true? I can't really see why except that the person selling the milk is mercenary and can choose to charge more so only a very rich person can buy it.

Is that what 'inflation' is about?

Examples work better using quality street and lunches.

I think you might be describing price elasticity. Inflation is a rise in prices over time, for which there could be various reasons (scarcity may be one).

I see. I had a feeling that what I was trying to describe wasn't the same as the inflation thing that everyone is talking about.

inflation is a -measure- of the purchasing power of your currency relative to previous years... it's calculated by taking a representative sample of various goods and comparing how much they cost compared to previous years. the actual price of a specific good changing can be attributed to supply and demand or any number of other relatively concrete things, while the cause of inflation (since it's an abstract measure) can be argued about. economists can make some good conjectures about the causes of inflation but they do not really KNOW. but if Taylor Swift tells everyone to buy a red iPhone and they suddenly double in price, you can be pretty sure you know why red iPhones have gone up in price.

One possible inflation scenario:

The amount of cows remains the same at 100, but mark s receives a bequest and decides to give everyone £50. There’s now more money chasing the same amount of milk - and prices go up.

An increase in the quantity of money seems to be a leading suspect in many historical cases of inflation. e.g. the Price Revolution that occurred in Western Europe between the 15th and 17th centuries, which many suspect was related to the influx of gold and silver specie from the New World via primarily Spain.

"but if Taylor Swift tells everyone to buy a red iPhone and they suddenly double in price, you can be pretty sure you know why red iPhones have gone up in price."

I can see that if ms Swift recommends something, many people will want it. But does that mean its price will go up? Why?

Aren't the prices of such items quite stable?

If I try to imagine another credible example ... say TS says that she likes the sequel to KNIVES OUT, and her fans go to see it. It won't cost them more than it would have done if she hadn't recommended it.

"The amount of cows remains the same at 100, but mark s receives a bequest and decides to give everyone £50. There’s now more money chasing the same amount of milk - and prices go up."

But why? I don't understand this either. It's not the milk-seller's business how much money the other people have. That's their private business. It doesn't seem logical to me that the price of things should go up for those people who happen to have gained more money.

in both the advertising (Taylor) and inflation (milk) examples, the people selling things want to get the most money they can for the sale. if people are willing to pay more than the price was yesterday, the sellers may well adjust their prices.

i feel like we're gradually whittling our way down to first principles of classical liberal economics (Adam Smith, law of supply and demand), like Daffy turning into a pencil drawing in Duck Amuck. it's fun!

In the US, prices are apparently propped up by a giant strategic cheese stockpile.

It's possible this cheese stockpile is more voluminous than all the gold ever mined in human history.

"if people are willing to pay more than the price was yesterday, the sellers may well adjust their prices."

I think I understand that idea, but does it happen?

The price of things (spaghetti, say) does go up, but not because people are richer and can afford it more easily - does it? Isn't it because it has become more expensive to produce spaghetti, for some reason, so the price has to go up to cover costs?

Maybe the idea seems counter-factual or counter-intuitive to me because people have not actually become richer, in my society (the UK), in such a long time (15-20 years maybe?), so I can't remember it happening but it did use to happen.

imagine it like this:

doctor casino owns 100 cows that produce 100 pints of milk a day, each pint sells for £1, there are 100 people who want to buy 1 pint each. great.

overnight, 20 cows mysteriously die from cattle mutilation (attributed to aliens). 80 cows are left producing 80 pints for that day. dr. casino still sells each pint for £1, there are still 100 people who want to buy 1 pint each, but now there are only 80 pints. the last pint of the day is sold to philip nunez. 20 people were not able to buy any milk. as philip nunez walks out of dr. casino's barn, o. nate (who was waiting in line but now realizes the milk is sold out) follows philip nunez into a corn maze and says, i've got a kid at home who desperately needs calcium, sell me that pint of milk - i'll even give you more than you paid, i'll give you £1.20. philip nunez, who likes milk but doesn't like it enough to not be a fat cat capitalist, says you got yourself a deal. dr. casino, who's closed up shop, walks by and overhears the exchange. he realizes that he is leaving £.20 on the table by still selling it at £1 a pint, why should philip nunez get that extra £.20 and not him? after all, dr. casino is the one who owns the cows, philip nunez hasn't added any value here other than being earlier in time to the barn than o. nate. dr. casino is determined to capture that value!

so, the next day, dr. casino starts selling the milk for £1.20. of the 100 people, 20 think £1.20 is too high, but 80 will begrudgingly accept the price hike because they need the milk. £1.20 is therefore the market-clearing price, equilibrium is reached once again.

tah-dah!

^ you can also imagine a world in which the noble dr. casino never increases his price, despite losing 10 cows a day to aliens. doesn't the milk stay at £1 in that world, you might ask? well, sort of - only to those who are lucky enough to buy at the £1 price for the purpose of consumption. there will be a healthy secondary black market for milk where the milk will trade for prices higher than £1, and as the milk supply decreases every day (due to cattle mutilation) the price on the secondary market will increase, leading to more and more scalpers muscling in on the daily milk drop.

one missing component here is how much of my milk earnings i will blow in the cow-and-alien-themed pinball machine Attack From Mars

The amount of cows remains the same at 100, but mark s receives a bequest and decides to give everyone £50. There’s now more money chasing the same amount of milk - and prices go up.

I'm almost certainly getting confused/missing something but here goes anyway. So I've heard that sellers will increase prices if there's more money floating around, as per the example above. But surely if one seller keeps their prices the same while other sellers raise theirs then people will just go to the place that's still relatively cheap?

In the US, prices are apparently propped up by a giant strategic cheese stockpile.

It's possible this cheese stockpile is more voluminous than all the gold ever mined in human history.

― Philip Nunez, Friday, 18 November 2022 01:26 (seven hours ago) bookmarkflaglink

Amazing! Also 'giant strategic cheese stockpile' sounds like the worst prog album ever

overnight, 20 cows mysteriously die from cattle mutilation (attributed to aliens). 80 cows are left producing 80 pints for that day. dr. casino still sells each pint for £1, there are still 100 people who want to buy 1 pint each, but now there are only 80 pints. the last pint of the day is sold to philip nunez. 20 people were not able to buy any milk. as philip nunez walks out of dr. casino's barn, o. nate (who was waiting in line but now realizes the milk is sold out) follows philip nunez into a corn maze and says, i've got a kid at home who desperately needs calcium, sell me that pint of milk - i'll even give you more than you paid, i'll give you £1.20. philip nunez, who likes milk but doesn't like it enough to not be a fat cat capitalist, says you got yourself a deal. dr. casino, who's closed up shop, walks by and overhears the exchange. he realizes that he is leaving £.20 on the table by still selling it at £1 a pint, why should philip nunez get that extra £.20 and not him? after all, dr. casino is the one who owns the cows, philip nunez hasn't added any value here other than being earlier in time to the barn than o. nate. dr. casino is determined to capture that value!

This is a good explanation. I can follow this. Thanks for this helpful narrative.

But this seems to relate to the theme of scarcity - a substance becoming rarer and thus its price going up.

But not to the other scenario that was posited, which was: a substance is recommended, or consumers have more money, so the price goes up.

"But surely if one seller keeps their prices the same while other sellers raise theirs then people will just go to the place that's still relatively cheap?"

Also seems a good argument (though I suppose doesn't apply to the fictional world where only one merchant for a substance exists, eg: Dr Casino).

On the non-scarcity side, if there’s more money circulating in the economy why should the milk-producer simply cover their costs and maintain their existing prices? They’ll want to see what pricing the market will bear - and people will be able to pay more.

also: the companies who supply me with milk bottles, cow maintenance equipment, etc., have all been inching up their prices --- because they can also get away with that, because everybody has more money. so if i don't raise my prices, i will actually be making less money on my milk sales, in real terms.

More money circulating = higher prices because it increases the chance that one of those with more money but no milk will buy at an above market rate on the secondary milk market in the example above, which will tend to push up the primary market price.

Milk tends to be very highly regulated. You might not be able to set up a secondary market as easily as this is suggesting.

But not to the other scenario that was posited, which was: a substance is recommended, or consumers have more money, so the price goes up.

― the pinefox, Friday, November 18, 2022 4:32 AM (five hours ago)

right, so the example i gave was a shock to the supply side. now, imagine this: doctor casino has reached a pact with the aliens such that they are no longer mutilating his cattle, and he's got 100 cows, there are 100 people wanting 100 pints of milk at £1 a pint. everybody's happy.

one day, the milk and taylor swift appreciators of hereford roll into town, 25 of them. taylor swift has sampled doctor casino's milk and has declared it to be the best milk ever - it's from grass-fed, free-range cows that are happy because aliens are no longer mutilating them and also doctor casino gives a great cow massage, and only 100 pints are produced a day! so, the milk and taylor swift appreciators of hereford are here for a week and they are demanding to appreciate doctor casino's milk! but, there's a problem - there are now 125 buyers of doctor casino's milk (100 + 25 taylor swift appreciators), but doctor casino can still only coax his cows to produce 100 pints a day. so what happens? well, luna schlosser, head of the milk and taylor swift appreciators of hereford, spying that PBKR was able to buy the last pint of the day, corners him in a dark alley, and says i've give you £2 here for that bottle of milk (i have some extra pounds because i was scalping taylor swift tickets off ticketmaster), and this story is starting to sound familiar...

this is what happens when you increase the demand side of the supply/demand equation.

to really hammer this home: what the back-alley scalper examples highlight is that if demand is going up, and there are enough people willing to pay more, the price will eventually go up - UNLESS i, Farmer Casino, am oblivious to the scalpers, or profoundly committed to making sure that original customer base will always have affordable milk. that kind of philanthropic attitude is rare!

note that no actual scalpers need truly materialize - i could also simply guess that with the Tay-hive coming, i can surely get away with the price hike. (i know in the back of my head that unless i raise my prices to whatever the customers will bear, the scalpers could materialize and take the money that could be mine!) i might also notice that another ILXor's farm has raised their prices and gotten away with it, so again I'm leaving money on the table.

Good story.

But in reality, can shopkeepers see that people have more money?

What is the signal for WH Smith to put up the price of ballpoint pens? I understand "it's getting harder and more expensive to secure ballpoint pens - sadly, the price we charge for them must go up". But I don't understand "some our customers are looking more smartly dressed these days - perhaps they have more money for some reason. Let's raise the price of ballpoint pens."

OK --- so to the extent that you're asking about inflation: under inflationary conditions, the price of everything is going up. The price that W.H. Smith is paying for the pens is going up. The wages their workers expect to be paid is going up. The rent and the electricity bill are going up. Etc. So they raise the price of the pens. Good luck identifying the "first mover." But it's what happens.

But certainly, if a shop is located in an increasingly posh neighborhood, the suits people are wearing might well inform the owner's pricing decisions! It might also inform the decision of the landlord to raise rents on the pen shop, which is also going to affect the shop-owner's next moves. This isn't the same thing as inflation, though, where the buying power of a given unit of currency is going down across the economy.

Manufacturers and retailers put a lot of resource into pricing and also keep up with what their competitors are doing, state of the market, current financial conditions etc.

I guess in the old days when prices were routinely haggled over between buyers and sellers, part of the skill set of a seller was determining the highest price that the buyer was willing to pay, perhaps by watching their facial expressions and body language, bluffing, etc. In the modern era of posting prices for all items, these personal and interactive ways of sussing out how much buyers are willing to pay have been most likely replaced with modern analytical practices, but the goal remains the same.

You can still experience it in street markets the world over tho. Or when you try to cancel your internet service. Literal offer I got last week when I did that (because of course they force you to call some guy in an answering center who then reads a script designed to keep you): "What if we cut your bill by 17 percent and boost your speed from 100 mb to 500 mb?"

I should try that with my bank, as noted before.

>>> "under inflationary conditions, the price of everything is going up. The price that W.H. Smith is paying for the pens is going up. The wages their workers expect to be paid is going up."

That sounds different from our actual conditions, where the price of things is going up, but nobody's wages are going up - in fact many of us are looking at getting paid less.

"The rent and the electricity bill are going up." - I understand as a reason for price rises. But as I mentioned earlier, the fact that wages never seem to go up may be a reason I can't picture this world where people have more money and then prices rise.

That sounds different from our actual conditions, where the price of things is going up, but nobody's wages are going up - in fact many of us are looking at getting paid less.

nominal wage growth in the uk is over 5%, highest it's been in 15 years. so wages are going up for most people, on average. but they aren't going up as fast as inflation, so real wage growth is negative (around -2%)

similar story in the US too https://www.forbes.com/sites/qai/2022/10/01/us-wage-growth-fails-to-keep-up-with-rising-prices-for-17-consecutive-months/?sh=154d34b1b007

It's not that anyone claims inflation figures are anything but gross and often arbitrary estimates but it seems like there ought to be a more granular breakdown that would be more relevant to most people. Like "I have to work X more hours to feed myself now vs 10 years ago, but now I can get a big screen TV with 3 dead pixels for free on the curb that would have been a week's worth of wages 10 years ago."

Or "the rent was too damn high 10 years ago vs now where the rent is too GOTT DAMN high"

Who in the UK is experiencing 5% wage increases?

Maybe billionaires and multimillionaires, skewing the statistic somehow.

I don't think any normal person has seen any wage increase in many years.

tesco workers had their pay increase by ~5% earlier this year

https://www.nationalworld.com/lifestyle/money/tesco-staff-pay-rise-2022-how-much-will-wages-increase-and-how-do-they-compare-to-other-supermarkets-3647234

How much will Tesco staff get paid?
Tesco staff will see their hourly wage increase by 55p an hour.

Workers are currently paid £9.55 an hour, but this will increase to £10.10 in the summer.

Tesco store workers in London will get a similar increase to bring their hourly pay up to £10.78 per hour.

The pay increase has been agreed following talks with union Usdaw.

The move will see workers paid at least 60p above the National Living Wage.

The National Living Wage, which applies to workers over the age of 23, increased in April from £8.91 per hour to £9.50 per hour from this month. For those aged 21 to 22, this amount has gone up to £9.18.

but yeah, wage stagnation since the 1970s is a big driver of the wealth gap and which has made the US/UK into kleptocracies pretty much