The NES Classic and Economics

We anarchists and libertarians are bothered by a great many things, but one of the things that bothers us most–and that is almost universal among anarchists and libertarians–is the general economic ignorance that pervades the United States. We wouldn’t tolerate this ignorance in any other subject, but it serves the state’s purpose to keep us ignorant of economics (the manner by which we turn energy into product), so it’s a field that is touched only briefly–if at all–in high schools. The average American knows only that there’s a thing called “demand” and a thing called “supply,” and then their eyes tend to glaze over and words like “derivatives” and “inflationary tyreni index G7P 14.7” run through their minds.

So, first of all, forget all of that. Forget about GDP, forget about inflationary indexes, and forget about all the shenanigans that we have come to associate with “economics” now that we have given over control of the entire economy to a coalition of privately owned banks that operate with no Congressional oversight. All of that crap is fiction. They are obfuscations designed to confuse us and distract us. They are smokescreens designed to keep us disinterested in the subject, to make us feel ignorant and stupid, and to make us blindly trust in these experts who seem to know what they’re talking about. In reality, they’re just talking nonsense, like this guy:

I’m not kidding. That’s the average state economist. That’s the Fed Chairperson. That’s the Secretary of the Treasury. For the most part, they have just completely made this shit up and invented rules that don’t have anything to do with reality. It’s a game of Monopoly that they’ve invented and tricked us into playing, and they keep us playing by using complicated language and nonsense to convince us that we need them being the game’s referee.

Now, I am not talking about the fact that Nintendo has ceased producing the NES Classic. For those unaware, Nintendo recently released a mini-console for $60, which contained 30 classic NES games like Mega Man 2, Castlevania, The Legend of Zelda, and others–even some stupid ones like Balloon Fight that nobody wants. Naturally, the thing sold very well, but Nintendo notoriously has problems with supply and did the same thing with their Amiibos (which are little toys that interact with some of their games). Nintendo repeatedly failed to manufacture enough Amiibos to meet demand, which led to accusations that they were doing it on purpose (in fact, one can conclude nothing else, since they publicly addressed the problem and then did nothing to fix it).

This obviously created scalpers, and scalpers are getting a lot of criticism. Some enterprising individual pops into Wal-Mart, buys an NES Classic for $60, and then posts it on eBay for $100 (or whatever price), pocketing the profit. This is actually a good thing, economically, but it’s a band-aid to the situation. Realistically, Nintendo should be the ones directly increasing the price of the NES Classic, instead of continuing to sell them for $60. In fact, thanks to the scalpers, there is no shortage. Calling this a shortage is economically ignorant and incorrect.

A shortage is when consumers are unable to buy an item.

And there you go. What we have with the NES Classic clearly isn’t a shortage. In economic terms, a shortage exists when Demand exceeds Supply–when more people want to buy a thing, and there aren’t enough of those things to go around. In fact, scalpers have ensured that there isn’t a shortage. Rather than condemning them, we should be thanking them.

The people complaining about a “shortage” don’t really mean that they are unable to buy the item, do they? Clearly, they don’t. What they mean is “I’m not willing to pay that much for one.” This is a critical element of economic understanding: price is not some arbitrary thing. Prices are supposed to increase like this, as the increase in price offsets Demand. Again, this is obvious. Many people were willing to pay $60 for an NES Classic. Fewer people are willing to pay $110 for an NES Classic.

This means that, quite literally, supply exceeds demand, not the other way around. In reality, what we have is a surplus, not a shortage. A shortage exists when demand exceeds supply; a surplus exists when supply exceeds demand. Thanks to the increased price, the supply persists today, and the demand has been lowered.

There is a character in The Legend of Zelda: Ocarina of Time who sells Magic Beans to the player, and each purchase increased the cost by 10 rupees. The first costs 10 rupees, the second costs 20 rupees, the third costs 30 rupees, and so on. An increase in price because of high demand is a normal, expected, and beneficial part of economics, as it ensures that we never experience a shortage.

During the 1980s, the United States saw pretty severe gas shortages. Gas stations attempted to raise the price as the supply of gas decreased, but the Federal Government put a Price Ceiling on it and forbade them increasing the price beyond that. So, naturally, everyone immediately set their price at the ceiling (even if they weren’t yet that low on supply). As the cost of something increases, people’s willingness to do it or acquire it decreases, which drives them to seek alternatives. Few people would have been willing to pay $100 for a gallon of gasoline, and so they might have taken that money and bought bicycles instead. Is it ideal? No, the ideal solution is to also increase Supply to re-lower the price, which will be necessary because some people have already chosen to go without because of the increased price. “No, we’re not going to go to grandma’s house this week, not for $20 per gallon. We’ll just not buy the gas at all.”

In the real world, some money is better than no money, and this is why producers can be counted upon to increase supply to meet the demand. Otherwise, they’re just leaving money on the table, and that money will go to someone else. This all has to do with diminishing returns, as well–at a certain point, because all goods are scare and finite, the cost of furnishing the supply gets too high, so the price of the good increases beyond the demand, and producers have to come up with alternative solutions for consumers. This is why we don’t have to actually worry about running out of gasoline: once we get up to $17 a gallon, so many alternatives will be cheaper that gasoline will be phased out all by itself.

While it’s certainly bad to have gasoline at $100 per gallon, especially during the 80s, it’s preferable to not having gasoline available at all. If some family had to take their sick child to the emergency room, it’s infinitely better for them to be able to buy gasoline at $100 a gallon than to not be able to buy it. High prices are always preferred to shortages. Those people out there who really, really want an NES Classic can buy one, which is obviously better than their being totally unable to buy one.

Scalpers have performed the critical service of increasing the Price of the good, which in turn lowered Demand so that Supply exceeded it. I was just talking with someone at Jim Sterling’s website about it, and I’d pointed out that marking the item as “Limited Edition” would have made the “shortage” worse. This was before I’d thought about the situation enough to realize that there isn’t a shortage. Sure, one can’t buy one at Target or Wal-Mart, but one can buy one, and that is unequivocally not the case in a shortage.

The only real point of contention is that the thing costs more than they’re willing to pay. Hey, that’s not a problem. There’s a “shortage” of $10 ones, too, and $10 is my price point for one. Every single person out there has their own price point–has their own amount that they’d be willing to pay. Evidently, for most people that number is around $60. For some people, it’s around $120. For me, it’s around $10. The fact that there aren’t any available at my price point doesn’t mean there is a shortage, though. It means that I don’t want one of the things as much as other people do*. These people who want to buy one for $60 are talking about “shortages,” but there isn’t a shortage–their price point simply isn’t as high as other people, and because of the low supply the price of the good has increased beyond the price point as determined by their personal demand.

So scalpers are good. They have performed the critical function of providing the NES Classic to the diehard fans who want them most, and we can say that pretty definitively, as one’s personal price point is determined almost entirely by one’s own demand. It follows that people willing to pay $110 obviously want one more than someone who is only willing to pay $60 for one. This means objectively and measurably that the scalpers have ensured that people who wanted the NES Classic most were able to acquire one.

It becomes little more than a whine when looked at economically. “I wanted one, but he got it because he wanted it more than I did! It’s not fair! Fucking scalpers!”

But, again, all the scalpers have done is ensure that people who are bigger fans of Nintendo and NES games were able to acquire an NES Classic, while people who weren’t as big fans and didn’t want one as badly as those other people weren’t able to, because they weren’t willing to fork over that much cash for one. I can’t even pretend to think it’s a bad thing that people who are bigger fans of Nintendo are able to purchase a Nintendo product that they want, as opposed to people who aren’t as big of fans being able to acquire the product. Clearly, it doesn’t matter as much to them, and the role of currency is precisely to allow us to measure value. That’s literally what currency does. The USD is a unit of measurement for value, and we use it to gauge how much a person wants something. If Person A wants a thing more than Person B, then Person A will be willing to pay more. If Person B can’t get it because he’s not willing to pay as much as, or more, than Person A, then the good should go to Person A, because Person A measurably wants it more.

I try not to tweet much at Jim Sterling, but I think I’m going to tweet this one at him, because he’s been pretty hard on scalpers in the past, and I don’t think that’s fair. Looked at economically, all they do is separate the Diehard Fans from the Casual Fans and ensure that the Diehard Fans are able to acquire the things that they are Diehard Fans of. I agree that this sucks for the Casual Fans, but that’s a problem of Supply, not the scalpers. It’s Nintendo’s fault that someone went without an NES Classic. The scalpers only ensured that it was the Casual Fans who went without, and that the Diehard fans didn’t have to.

I think that’s a good thing. I think that if Person A is a bigger fan of This Thing than Person B and is willing to pay more for it than Person B, then Person A should be the one who gets it.

* Actually, I don’t think I’d even pay that. To be completely honest, I don’t think I’d want one if it was free.