Deacon wrote:When you own a hotel you charge a fee. If you are charging $100/night and the ones in the UK are charging £100/night, then when a Brit travels to the US and the pound is worth 2 dollars, they're delighted that their £100 now buys them TWO nights.

See, I take issue with the assumption that a hotel in the US and a hotel in the UK would cost the same amount of currency. These are different goods, in different locations, despite both being hotels. Hell, I could buy a night at a Super 8 in Colorado, and compare that to a Super 8 in California, and think my dollar goes farther in Colorado (when really, the hotel in Colorado is a fundamentally different good, as location matters). Prices would be different, but they are set based on supply and demand. For instance, it could be that the pound is worth two dollars, but the hotel in the US is not $100/night, but $250/night, so the Brit still would be disappointed his money isn't "going as far".

And inflation would counteract the difference in the exchange, I think. If the pound is worth 2 dollars, and the rest of your example is the same, the Brit would be delighted to be able to afford two nights at the relatively cheaper hotels stateside. But, were the dollar to inflate so the pound was worth 4 dollars, the price of the hotel in the states would not remain constant, but rise. It would rise to, roughly, twice the price. So the Brit turns his £100 into $400, but the hotel in the US costs (roughly) $200 now, so he still only gets two nights. The inflation of the currency did, on net, nothing for the traveler. (If demand also increases, the price will rise even higher, and his money will go less far, even given the favorable exchange rate.)

I suppose, also, that the problem is that I am thinking about this economically (I tend to do that), and not as a tourist or traveler.

The problem is you're thinking about it as an inexperienced and untraveled kid. Just because you took an economics class that one time doesn't make you an expert. The real world doesn't operate as cleanly as all that.

When inflation hits, are wages continually adjusted throughout the year? What about the price of goods? What about the price of 100% domestic business like hotels? Of course not.

Now consider how very nebulous the various exchange rates of the many world currencies would be compared to inflation. A Brit and a French guy go traveling. The pound is strong, the euro is weak. Do they pay different prices in dollars? Or is it only the number of their native currency it takes to supply those dollars? Which one is happier about the exchange rate increasing his buying power?

Deacon wrote:The problem is you're thinking about it as an inexperienced and untraveled kid. Just because you took an economics class that one time doesn't make you an expert.

No, I'm just thinking in the long term, whereas you are thinking in the short-term. The very short-term, given the adjustment speed of exchange rates in the modern world.

Which one is happier about the exchange rate increasing his buying power?

Ah, see, you are also neglecting a major point in economics. To quote something I just read on the subject:

The assertion is made again and again that the purchasing power of money may be different in different markets at the same time, and statistical data are continually being brought forward to support this assertion. Few economic opinions are so firmly rooted in the lay mind as this. Travelers are in the habit of bringing it home with them, usually as a piece of knowledge gained by personal observation. Few visitors to Austria from Germany at the beginning of the twentieth century had any doubts that the value of money was higher in Germany than Austria. That the objective exchange value of gold, our commodity money, stood at different levels in different parts of the world, passed for established truth in even economic literature.

We have seen where the fallacy lies in this, and may spare ourselves unnecessary repetition. It is the leaving out of account of the positional factor in the nature of economic goods.

The same mistake is being made here, I think. The trip from Europe to the US will not correlate with some exchange rate. If the exchange rate is 1 Euro for 2 US dollars, then the person traveling will trade 100 Euros for $200. And then they will purchase a night in a New York hotel, with particular characteristics. The difference in price between a 100 Euro night stay back home and a stay in New York - in either direction - will have nothing to do with the exchange rate, and everything to do with the qualitative difference in the good purchased, including its positional nature. The only way for the hotels to be directly comparable, is for them to occupy the same location and have the same quality in every regard - i.e. exactly identical.

When inflation hits, are wages continually adjusted throughout the year? What about the price of goods?

Depends on the rate of inflation. I recall a story about Weimar Germany where a man ordered a cup of coffee, and then decided he wanted a second one after his meal, and the second one cost significantly more than the first - the price had adjusted upwards within the time it took to eat lunch.

But I see your point. It just is incorrect, I think. The exchange rate matters when one currency is converted into the other. And exchange rates continually adjust. When the investors say the Euro is down 13% on the dollar over the last year, they do not compare at the endpoints of years. They compare them continually, just as the price of stocks. When you go to a currency exchange, the spot price is what is adjusted to make a profit. And the spot price very clearly is affected by inflation.

Nope. Cost of living and vacationing in the UK is higher than in the US. Couple this with the UK currency being stronger, it means it's a whole lot cheaper to vacation in the US than in the UK, though the cost of the flight might be an issue. That caveat goes away mostly when you're talking about a beautiful, more local location like Greece.

Eventually, long-term it's true that in our modern global economy the price of goods and services locally tends to be more or less stable, rising in step with inflation. But prices, much like wages, certainly lag behind, and some places are just plain more expensive than others. A vacation at a 3-star hotel in Manhattan is going to cost a whole lot more than a vacation at a 3-star hotel in San Antonio. The same is true between European countries to one extent or another, even with the Euro in place, but as Martin pointed out, the difference would be much more pronounced if Greece were to reintroduce its own currency, especially as it will likely devalue much faster than prices and wages will change to keep up. If not executed carefully this could result in major problems, somewhat similar to what Mexico experienced with the New Peso while I was living there, but probably worse than grumbling and complaining. But if it's done well, it could turn out to be a good temporary solution to the long-term unsustainable socialist ideal.

The thing Deacon is trying to get at (I think!) is that your thinking about it economically, and not practically. I am about to travel to Costa Rica. I'm told that an amazing restaurant meal on the beach will cost me around 3 US dollars there. THE SAME MEAL in Long Beach will cost me around 25 US dollars. How many peso's (or whatever, I should probably find out soonish) they charge me, isn't really relevant. My US dollars go FARTHER in Costa Rica, than they do here. The same will be true for nearly every other good or service I purchase there.

Maybe it costs fewer US dollars to make the meal there, maybe as globalization occurs it will balance out. But for right now I will be the beneficiary of the exchange rate.

Deacon wrote:Cost of living and vacationing in the UK is higher than in the US.

Positional nature of goods. Taxation, transport, etc. are all factors that are not included if you just look at the difference in prices.

A vacation at a 3-star hotel in Manhattan is going to cost a whole lot more than a vacation at a 3-star hotel in San Antonio.

Again, you misunderstand me. A 3-star hotel in Manhattan is not the same thing as a 3-star hotel in San Antonio.

But if it's done well, it could turn out to be a good temporary solution to the long-term unsustainable socialist ideal.

It could only shift the economy around a bit. Exports and tourism could increase temporarily, yes. And imports and manufacturing would drop as it becomes more expensive to do this. The whole thing is predicated on a broken window fallacy.

THE SAME MEAL in Long Beach will cost me around 25 US dollars.

See, my point is that you cannot get the same meal in both places. A meal cooked by Chef A in Restaurant X in Costa Rica is a fundamentally different good than a similar meal cooked by Chef B in Restaurant Y in Long Beach. There are taxes that differ in the locations, as well as differing transport costs, and differing labor costs between individuals, and so on.

But for right now I will be the beneficiary of the exchange rate.

The difference has nothing to do with the exchange rate, and everything to do with the differing quality of goods, and the imposed costs of producing them (taxes, etc.). So, if you factor in transport costs of your plane trip, see if you still benefit. (My guess would be no.)

Here, let me try an example. Let's say I go to a farmer's market in California and pick up some strawberries for $3. I go to the grocery store in Colorado and find strawberries grown on the same farm for $3.30. Now, this is not "my dollar goes farther in California". This is quite obviously due to transport costs from the farm in California to the store in Colorado.

The general impression is that the currency goes farther in some location when buying the same things. But the reality is that you are not buying the same things. A hotel in San Antonio fills a different need than a hotel in Long Beach. No one is concerned with how far the hotel in San Antonio is from the beach. While nearly everyone is concerned with how far the hotel is from the beach at a place like Long Beach. Location from popular landmarks matters as part of the determination of price of the hotel.

Your point is nonsense.

Exchange rates have nothing to do with the quality of the country's economy directly, or in the Euro's case countries. It has everything to do with the currency's bank. The currency is tied most directly through interest rates they would loan to other banks whether domestic or international. Banks also buy and sell other currencies, and so do FOREX traders.

It's basically a complicated version of Settlers of Catan.

ampersand wrote:The currency is tied most directly through interest rates they would loan to other banks whether domestic or international.

Interest rates determined by the money supplies in question. And the point is that if you create 3 more Euros for every 10 already in existence, people that are exchanging them for other currencies will demand more Euros.

Your point is nonsense.

Well, by all means, Deacon. Let's throw out the established science of economics. There can be no difference in the price of a foreign hotel and one at your current location due to differences in quality and desire to be there - it's all about the money magically becoming worth more when I cross some imaginary line on a map.

By your logic, the dollar is just worth more in San Antonio than NYC, and the price differences have nothing to do with government policy and taxation, nor transport costs between locations. In Cheyenne, a gallon of gas is just over $3.40, while a few miles south in Colorado, you will see gas stations where it costs almost $3.70 - must be because the dollar is just worth more in Wyoming - can't have anything to do with things like location and taxation.

Sigh.

the dollar is just worth more in San Antonio than NYC

*blink* are you serious? Is he serious?

IT IS.

There is more to ACTUAL economics than what is in a textbook. Yes, taxes and local laws play a part, but there are other factors as well.

spikegirl7 wrote:

the dollar is just worth more in San Antonio than NYC

*blink* are you serious? Is he serious?

IT IS.

There is no inherent quality of the dollar that makes it "worth more". Stuff is cheaper, yes, but this has nothing to do with the currency. It has everything to do with taxation, regulation, transport costs, and other factors - none of them related to the dollar itself.

But, by all means. Ignore the science of economics based on some idea that the reason you can get more stuff in one location over another is because the dollar is magically different. I'm done trying to get my point through your obtuse heads here.

CS22 wrote:See, my point is that you cannot get the same meal in both places. A meal cooked by Chef A in Restaurant X in Costa Rica is a fundamentally different good than a similar meal cooked by Chef B in Restaurant Y in Long Beach. There are taxes that differ in the locations, as well as differing transport costs, and differing labor costs between individuals, and so on.

See THIS is where you're getting wrapped up in textbook silliness and denying the real world exists. Of COURSE it's not the "same meal", but to ME, it IS. I don't give a shit WHO cooked it, or what his transport costs are, or even how much his government taxes him. What I know, is that I can eat for a week like a king on $75 there. The same is not true for LA. Therefore, MY DOLLAR IS WORTH MORE. Now, if I had earned my dollar there, and been paid for the same effort in local money, the unit of currency I would receive would likely not allow me to live much better than I do here. HOWEVER, my dollar I earn HERE is worth more THERE.

Arres wrote:See THIS is where you're getting wrapped up in textbook silliness and denying the real world exists.

I strongly disagree.

Of COURSE it's not the "same meal", but to ME, it IS.

So you claim. I'd bet that the price and the "vacation" aspect play into how good you think it is. Which would also make it more expensive as vacationing - no matter where - includes general costs.

HOWEVER, my dollar I earn HERE is worth more THERE.

You are not just neglecting his transport costs, but your own. You have to transport yourself down there to enjoy the meal. That can be quite expensive - have you seen the price of airfare nowadays? Rental cars or taxis? You aren't just paying whatever the meal costs to obtain that meal.

But I digress. Think of it as you wish. I will continue to think of stuff just being cheaper not my dollar magically becoming "worth more".

You really ought to consider traveling some time.