The Price is Left – Idiot Economics at its Finest

One has to wonder if there are any competent economic journalists left in the media.

This whiffy offering was served up in yesterday’s West Australian by its economics editor, Shane Wright:

An index of iPad and iPhone prices from across the world, maintained by CommSec, shows the price of the new tech in Australia is going up.

In a perfect world the price of goods would be identical across the world once you took into account exchange rates. [TMR: you say what now?]

But local conditions, as well as the machinations of international money markets, push up or down the prices of goods.

Now the Australian dollar is buying US75.7 cents and that lift in the value of the currency has made local iPhones and iPads more expensive in American dollar terms. [TMR: let’s remember this.]

According to ComSec [TMR: sic], Australia is now the 20th of 57 nations when it comes to a cheap iPad Pro. And Australia is now the 17th cheapest for an iPhone 6s.

For those interested, a copy of the CommSec report is here. You can even see the bit which inspired Shane Wright to lease out some of his brain space ‘borrow’ some material (page 1, fourth bullet point):

In January 2007, CommSec launched its iPod index. It was designed as a new way of looking at purchasing power theory. That is, the theory that the same good should be sold for the same price across the globe once taking into account exchange rates.

There’s also a wonderful little section on how ‘purchasing power parity’ is regrettably only good in theory because of things like local tax rates and freight. Just don’t hold your breath waiting for any mention about how the real world also operates under a system of supply and demand – and how this could impact price*. That’s wicked capitalist-speak and there’s no room for that.

(*) – neither ‘supply’ nor ‘demand’ make a single appearance in the CommSec report or Shane Wright’s article.

Up is down (and sometimes up) and down is up (and sometimes down) – or whatever they tell you it is

In no particular order:

  • How on Earth does comparing the exchange rate with a ranking based on raw dollar values of a product allow anyone to conclude how cheap that product actually is?
  • Specifically, where is the analysis of price relative to income? Simply looking at price in raw dollar terms tells us nothing whatsoever. To have any hope of giving these pathetic indices any value, the analysis would need to be relative to disposable income for each country.
  • These things aside, since when have the prices of iPhones and iPads been indicative of purchasing power? Or whether a particular currency is overvalued? Or anything important for that matter? (Something tells me that the half baked effort put into these indices answers these questions).
  • Why is Shane Wright only now concerned about a rising Australian dollar supposedly causing higher iPhone and iPad prices – when the Australian dollar was worth well over $1.00 USD not all that long ago?
  • Specifically, if a rising Australian dollar supposedly makes iPads and iPhones more ‘expensive’ for Australians according to these indices, then why was Australia ranked:
    • 15th on the iPad Air 16GB index in September 2012 – when our dollar was around $1.04 (see page 2, 10th bullet point of the 2014 CommSec report);
    • 4th on the iPad Air 16GB Index in September 2013 – when our dollar was around $0.94 (see very bottom of page 1);
    • 13th on the iPad Air 16GB index in April 2014 – when our dollar was around $0.93 (see very bottom of page 1);
    • 2nd on the iPad Air 16GB index in September 2015 – when our dollar was around $0.69; and
    • 20th on the iPad Pro 32GB index in September 2016 – with our dollar currently around $0.76.
  • Or, in other words, why has Australia’s ranking been all over the place when the exchange rate has been steadily declining since 2012? Wasn’t there supposed to be direct link of global warming proportions between the two?
  • Could it possibly be that something else out there might also be influencing the price? (I know, I know, I need to stop being so radical).
  • And why didn’t Commsec bother to explain the impact of changing one of the major variables (iPad Air 16GB to iPad Pro 32GB – a higher priced product)? Did it think people simply would not notice? I suppose anything goes when you’re cooking up economic minestrone.

For some fun at home, try to explain this dung heap dropped in Commsec’s April 2014 report:

In September 2012 with the Aussie dollar near US$1.05, Australia was the 15th cheapest place to buy an iPad with Retina display. Now it is the 13th cheapest. The drop in the currency from September 2012 to September 2013 was a movement from around US$1.05 to US94c – a fall of around 10-11 per cent. The lift in the iPad price from $539 to $598 was an increase of 11 per cent.

Yep, that’s Commsec’s chief economist thinking he’d had a Sherlock Holmes moment back in 2014 when he noticed an 11% fall in the Australian dollar corresponding with an 11% increase in the price of iPads in Australia – with Australia also managing to acrobatically maneuver itself into a ‘cheaper’ position on the iPad index!

Now let’s go back to Shane Wright:

Now the Australian dollar is buying US75.7 cents and that lift in the value of the currency has made local iPhones and iPads more expensive

So, in other words, a rising Australian dollar may cause Australian iPads to either increase or decrease in price in raw US dollar terms, which may or may not cause Australia’s iPad index rating to go up or down. It may also mean that Australia’s currency is either overvalued or undervalued.

Perfect world?

Lastly and most importantly: what kind of ‘perfect world’ are Shane Wright and CommSec living in where price isn’t determined by supply and demand? To recap:

Wright: in a perfect world the price of goods would be identical across the world once you took into account exchange rates.

CommSec: the same good should be sold for the same price across the globe once taking into account exchange rates.

Are they really trying to say that, if local tax variability and exchange rates didn’t exist, it would be perfect to have laws dictating how much goods and services could be sold for? What utter rubbish.

If ‘purchasing power parity’ theory could be implemented, the irony is that it would actually harm the purchasing power of consumers. This is because it would remove the right of people to decide how they allocate their money. If an average-income Australian is prepared to spend 80% of a week’s wages on an iPhone, while the average Hungarian is willing to spend 85% and the average American 70%, then why should this be stopped – particularly when there are countless other factors at play in each of their respective budgets? And why should Apple be restrained from maximising its profit? 

Or is it the case that iPhones are now so important that the UN needs to immediately declare that owning one for $500 USD is now a ‘fundamental human right’? If so, why stop there when so many other things are lacking in ‘parity’? Why fool around with free markets when we could instead implement a global personal budget protocol and have a single world government decide how much everything costs?

Enough.

If Australians or anyone else are paying ‘more’ for their Apple products, then it’s because they’re willing to do so. No more, no less. They should be free to continue.

The sad fact is that many people reading Shane Wright and Commsec’s guff would blindly agree that an iPhone should cost exactly the same for everyone in every country – and have little idea why they’re shooting themselves in the foot.

price_fixing

 

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4 thoughts on “The Price is Left – Idiot Economics at its Finest”

    1. It’s utterly maddening to see these people getting paid for dribbling such stuff. The funny thing is that, the more confusing and nonsensical it is, the more intelligent people think it is! Now where have we seen that before?

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      1. As you seem a devotee of common sense, it surprises me that you would emulate the proverbial [not the real] King Canute, in trying to hold back the tide of sheer ignorance in the “quality” MSM, and in “Industry”. However, I thank you truly for your zeal in detailing the level of utter rubbish put about by oblivious – or worse – institutions and scribblers and editors. If more [including me] had to supply our evidence for our opinions, things would be much quieter, and much better.

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        1. Hi Gerard, thank you very much for your kind comments. Sometimes I do wonder why I bother. However, apathy is not my style and – as you can see with this blog – some sins are simply too egregious to leave unchallenged.

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