Short Stack V: currencies aren't a scoreboard
Don't put much stock in the ruble's exchange rate. And who will save us from mutant SEO-speak?
Welcome to the fifth edition of Short Stack, our medium for shorter-form content for paying subscribers. As always, we enjoy taking questions from our readers, so please feel free to email us or leave questions in the comments section, below.
Today I'll be looking at the strong ruble, explaining why I'm rooting for the Disney boondoggle everyone likes to make fun of, and suggesting that our antitrust aficionados are looking in all the wrong places.
Let's dig in.
Currencies aren’t a scoreboard
Reader Alec Stapp asks about the performance of the Russian ruble, which is reaching seven-year highs even as Russia is subject to broad sanctions by much of the world. There are some great long-form answers to this question; Matt Klein, in particular, has been excellent, and if you’re curious about this you should consider subscribing to his newsletter.
But I’ll give a short answer: foreign exchange rates aren’t a scoreboard. While it might sound better to have a “strong” currency than a “weak” one, that isn’t always the case. A too-strong currency can drive up unemployment by making exports uncompetitive and by making domestic industry struggle to compete with imports.
But there’s something even more important here: in the specific case of the ruble exchange rate, the numbers are a bit fake, or at least misleading. Most Russians can’t actually realize the benefits of a strong ruble.
First let’s talk about why the ruble is rising. It’s mostly about trade, which has an impact on foreign exchange markets. When people try to import, that pushes your currency down. When they export, that brings it up.
Think about it: if a Russian airline wants to fly around Russian passengers with a Boeing jet, it's going to get paid in rubles. But it is using an aircraft built by Americans, who are paid in dollars. At some point in this business plan, someone has to exchange rubles into dollars so Boeing can pay its workers. So you get someone on foreign exchange markets saying "I have rubles to sell." Get enough of these ruble-sellers on the market and they push the ruble downwards.
Sanctions, of course, made lots of Russian imports impossible. This means fewer people selling rubles, which pushes up the price of rubles.
But is this all really good for Russia? No. The main benefit of having a strong currency is that imports are cheap to you. But if you're not allowed to buy the imports, that does you no good.
You could say that hypothetically, if Russians were allowed to buy imports and exchange rates remained at their current levels, Russians would be doing really well. But they can’t do that right now. And if a peace deal is signed and the restrictions on Russian imports are lifted, the high exchange rate wouldn’t last. You’d get a flood of Russians excited to buy much-needed imports again, and that would push the ruble back down.
This kind of thing actually happens relatively frequently: a seemingly attractive number that you can’t take advantage of in practice. During the early COVID-19 pandemic just after the CARES act was passed, real personal incomes appeared to be very high. Prices were low and people had received extra transfer payments from government. But when people became more confident in 2021 and tried to start spending money more regularly again, that high real income was revealed to be a bit of a mirage, as lots of money chased limited productive capacity.
Much as consumption repression in 2020 created artificially high-looking real incomes, the sanctions on Russia are creating an artificially strong ruble. Don’t put too much stock in the number.
I wouldn’t write off Disney’s Galactic Starcruiser yet
A lot of fun has been made of Disney World’s Galactic Starcruiser, which is often characterized as a $5,000 Star Wars hotel. While I definitely have some doubts about the project, it also seems unfairly maligned, and the description is a misnomer. The phrase “$5,000 Star Wars hotel” is easy to make jokes about, and most of the jokes are premised on the idea it will fail because nobody would pay that much money. But the jokes seem at least a little bit overblown: at least for now, the experience is fully booked seven weeks ahead. The next available dates are well into August.
I learned about this project through the jokes. But the high price point made me curious, so I researched it. First, I learned that “$5,000 hotel” isn’t really a fair characterization. It’s more like a giant, multi-day interactive game. (And the price quoted there is all-in for two guests on a two-night stay.) Disney’s character actors approach you for Star Wars-themed missions and adventures aboard the “ship.” It is like an Escape Room, or a Live-Action Roleplay (LARP), facilitated by Disney cast members.
This made me understand the price point better, but I also became more worried for the health of the project.
Disney wants things to be expensive for you, not expensive for Disney. Disney’s core competency is making money off of well-loved intellectual property through tie-in products. (This is why it often makes sense for Disney to buy beloved franchises from other creators.) Even if it’s expensive and difficult to compete to create beloved franchises, Disney is best-in-class at selling high-margin follow-on products.
But the Galactic Starcruiser is both expensive for you and expensive for Disney. It has to be, just given that the ship is crawling with professional cast members. People are expensive—much more expensive than scenery or themed goods. And the Galactic Starcruiser needs a high density of paid cast members to feel authentic.
The character interaction model isn’t always and everywhere doomed by labor costs, of course. Expensive character interactions have always been a part of the Disney model, and many people will pay high amounts, on a per-minute basis, for a brief character interaction. But the key is that those interactions are brief, keeping the costs down. My question is whether you can get people to sign up in advance for a concentrated dose of character interactions, knowing full well how expensive they’re going to be on a per-minute basis.
I also worry a bit that the Starcruiser has been failed a bit by the comparative weakness of the setting. It is set during the era of the 2010s Disney sequel trilogy, not the beloved original trilogy. Maybe the 2010s movies will become better-liked as time goes on, but I have my doubts. I notice that Disney’s other Star Wars ventures, like its Obi-Wan Kenobi series, or the films Rogue One and Solo, tend to aim for the original trilogy era.
But it also gets something right in terms of theming: having a highly immersive area devoted to a consistent theme—like Universal Parks and Resorts did with the Harry Potter franchise—is definitely more engaging than an experience with several different themes just minutes walk apart from each other. It’s nice to see Jedi, it’s nice to see the Toy Story toys, but walking freely between the two areas comes at a cost to immersion. An option for a more consistent and exclusively Star Wars experience is a good thing.
In-person games like escape rooms are popular, and it makes sense to test if Disney-owned franchises can be turned into high-end roleplaying experience. There are millions of hard-core Star Wars fans out there, so it shouldn’t be that hard to keep 100 hotel rooms full.
The real costs of concentrated industry
First, a couple of great reads: from Dmitri Brereton, Google Search is Dying, and from Charlie Warzel in the Atlantic, a follow-on: The Open Secret of Google Search. The question is whether Google’s signature product is declining in quality. You can read these for yourself and see how convincing you find them. “Dying,” obviously, is hyperbole. But I agree with the general sentiment.
Set aside the monetization through ads, for a moment. Those are annoying, but you can see what purpose they’re serving. There’s another problem, which is that search engine optimization (SEO) specialists are overrunning the top results. And you can tell this is happening because of a recognizable form of prose.
You know it when you see it. Rather than push an immediate thesis, or get directly to the point, it begins with a long meandering preamble that uses a lot of keywords. Some of it is poorly written, suggesting it might be automatically generated by computers, or subcontracted to poor English speakers.
Reader Alex Muresianu shared a prime example recently when he attempted to search for a solution to stream baseball games on his TV. I wouldn’t recommend clicking the link here, because these bad websites need no encouragement, but here’s a taste:
MLB on Vizio Smart TV: Welcome folks! Are you interested to watch many sports events at your home? Do you want to stream lots of amazing and wonderful events? This is one of the solutions to get all your needful sources. So, this article is going to provide the most interesting facts about MLB.
sIt’s basically known as Major League Baseball. To know all the basic information of this MLB and to install the application on the Vizio Smart TV, you should read the following aspects. Do follow the article without skipping anything.
You get a clear sense that at some point Google decided to reward length, incentivizing a sort of filibusteresque behavior. Some actual humans, like Tumblr user fidelcostco, have become good at parodying this style:
This isn’t just a point about consumer frustration, though. It’s also a point about market concentration. Google enjoys a near monopoly market share on search. There are, of course, alternatives, like DuckDuckGo or Bing—and some of those options at times do better than Google on the precise frustration I mention here. But those products aren’t perfect either, and they don’t have as many resources or economies of scale as the top search engine. You get the sense that Google search can afford to “phone it in.”
In a standard econ 101 model of a concentrated industry, you see monopolies or near-monopolies can cut quantity sold and raise prices. This is individually better for them, even if it makes consumers worse off. But if you think a bit more creatively, about margins other than price, you can begin to create a compelling model of what might be going on with Google search. We might be better off collectively if Google engineers took the time to recognize the hallmarks of these filibuster-preambles and systematically downranked them. But that might be more trouble than it’s worth to Google. These annoying SEO websites aren’t bad enough to lose Google real business.
We can come back to the monetization through ads now: while Google search might be free in terms of money paid directly, ads are a “price” of a sort that we pay. To the extent that you’re seeing more ads on Google, they’ve raised the “price” on you.
Would I prefer that public policy intervene to do something about Google search? Not necessarily. A fragmented market of search engines might not be a stable equilibrium, and it might not be desirable. Government solutions to this sort of problem tend to be hamfisted, and sometimes the economies of scale from a concentrated market are more important than the benefits of competition. But I at least think these problems are worth discussing.
By contrast, advocates of anti-trust policy in the U.S. have spent a great deal of political capital barking up wrong trees. They’ve attempted to tie their hobbyhorses into our current bout of inflation. They’ve gotten into vertical antitrust, yelling at Amazon for selling its equivalent of “store brand” goods. They’ve complained about industries that aren’t, to be honest, very concentrated. (Biden’s social media team has him tweeting plaintively that the majority of global shipping is done by nine companies.)
These things don’t seem compelling to me. I don’t think concentrated industry has much to do with inflation right now; it’s pandemic, war, and loose fiscal and monetary policy from 2020 and 2021. I’m not particularly concerned that Amazon entering the coat hanger market will result in some sort of coat hanger apocalypse. And nine shipping companies seems like plenty to me. I don’t want hundreds of bespoke companies sailing around in little schooners.
But I could believe that Google is mailing it in on search. I’d take our antitrust reformers a lot more seriously if they focused on seriously concentrated industries and thought creatively about non-price margins. If they did, they’d be more helpful than they are today.