Prices are underrated.
This week there were a few events that made the case for prices so apparent. First, the one most people have seen, was the hoarding of gasoline on the East Coast. The supply of gas was cut off because a hacker group was holding a pipeline company hostage, so East Coast residents descended on gas stations to fill up before everything vanished. But, of course, some people took it too far and hoarded gasoline, causing an even greater shortage.
What could we do to stop such hoarding? Well, you could make it unprofitable by increasing prices. Then only the people who truly need gasoline would buy it. Then, when supply is restored, prices will go back down and everyone else can have it. Unfortunately, some states have laws against letting prices adjust. Thus, chaos wins.
Another example of why prices are important comes in the world of Pokemon. I’ve written about the plight of Pokemon cards, where arbitrageurs are buying cards from retail stores and immediately selling them for 3-4x more on ebay. The reason this works is that the retail price of Pokemon cards does not change. Stores are still selling booster packs for about $4 each, even though the cards disappear within minutes of hitting the shelves.
But what happens when you don’t let prices adjust? As we have already seen with gasoline, you get excess purchases. But you also get other ways to allocate a scarce good. There’s arbitrage, where you let the market decide. Or, there’s violence.
Target announced that they will stop selling Pokemon cards because customers are physically fighting each other in stores. Target does not want to (or contractually can’t) raise the price of booster packs. Since prices don’t determine who get the packs, violence does.
In summary, we hate to see prices increase, but they perform an important function.
Why is there a labor shortage?
Just about every day I see an article about labor shortages. So in this week’s video, I look at what’s happening in the labor market. Go on over to the channel if you want to hear about matching models and unemployed mothers.
Currency on the Lebanese Black Market
How far can $10 get you when you use the Black Market? This YouTuber decided to find out.
I really liked the video because it demonstrates how the market deals with capital controls. Capital controls are rules imposed by governments or financial institutions to limit the flow of currency across borders. Many governments implement them when they want to prop up the value of their currency. Venezuela is an example: when hyperinflation was so bad, they tried to limit how many dollars could enter the country to limit the options their people had for currency.
The video shows three friends taking $10 USD and exchanging them at different rates, including the official rate and the black market rate. Then they show you what you can get in a day. Great story, beautiful video, and I learned many things I did not know about the Lebanese economy.
Is Cryptocurrency Feminist?
Speaking of currency, what about crypto? As much as we like to think of cryptocurrency as a macho space dominated by billionaires tweeting whatever they want, is there a case that cryptocurrency empowers women?
In developing countries, women face plenty of barriers. One significant barrier is that any cash they receive instantly garners claims. Husbands believe they get a cut. Family members want loans. So women have a hard time retaining cash for their personal or business needs.
So one economist decided to see what happens when women receive digital money. She randomly gave some women cash and others a digital currency (caveat: but not a crypto). A woman who received the digital currency had much better outcomes because her family and friends didn’t know how much money she had.
If cryptocurrency gives women greater control over their money, they might be further empowered and able to improve their lives.