Happy Holidays By: Gabriel PotterMBA, AIFA® 2014.12.24

For the holiday blog post, we can incorporate three of my favorite things:  Christmas, economics, and the Muppets.

This is the opening scene from a Muppets Christmas Carol.  The scene opens on a busy street in London where Gonzo and Rizzo the rat are selling apples.  However, Rizzo has a half-eaten apple in his hand.

Rizzo - “Christmas apples!” 

Gonzo -“We’ve got Macintosh!”

Rizzo - “Get your Christmas apples!”

Gonzo - “Red Delicious!”

Rizzo - “Tuppence a piece!  Get them while they last!”

Gonzo - “They won’t last long the way you’re eating them.”

Rizzo - “Hey, I’m creating scarcity.  It drives the prices up.”

It’s a good joke because Rizzo’s logic probably isn’t correct.  Rizzo knows a smaller supply of apples equates to a higher price.  But Rizzo doesn’t control enough of the supply of apples in London to set the price:  he’s a price taker because there are probably a dozen fruit vendors on the same block.  So, Rizzo is just hurting himself by eating up all the supply. 

We can see a real-life example of this principle in the news with OPEC’s increasing inability to set the price for oil because they no longer control enough of the supply.  More akin to Rizzo’s actions (i.e. eating his own apples), large oil producers like Venezuela are exacerbating their own financial troubles by offering super-cheap, deeply subsidized gasoline (at 12 cents a gallon!) to its population instead of selling it on the open market.

By the way, if you have an online-streaming Netflix account, the Muppets Christmas Carol is free to watch right now…. Just sayin’.

 

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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