Economics 101 with Jack White

What's that, Jack? Price is a function of supply and demand?

Eighteen months ago, Jack White's record company Third Man Records was having problems with "flippers" – people who buy the company's ultra-limited-edition releases (the tri-colour vinyl reissue of the White Stripes' first album, for instance, was an edition of five) purely to sell them on for a profit. His solution? Skip the middleman:

This week, Third Man Records decided to beat the flippers at their own game, listing their own limited-edition White Stripes reissues on eBay. Vault subscribers [a paid members' service] were directed to these auctions, where bids have soared to more than $300 (£193).

The winning bid ended up being $510, but White had to face down angry fans, writing:

make no mistake, we could make twenty thousand split color whatevers for you, and they’ll be worth 20 bucks, and you’ll pay 20 bucks for them, and you’ll never talk about them, desire them, hunt to find them, etc. why should ebay flippers, who are not real fans, dictate the price, make all the profit (taken from the artist and the label) and take the records out of the hands of real fans. there’s a guy who waits in a black suv down the block from third man who hires homeless people to go buy him tri colors when they are on sale. doesn’t even get out of his car. should he be charged ten bucks or two hundred? don’t be spoiled, don’t insult people who are trying to give you what you want.

Writing at the Guardian, , a staff member at Third Man, even brought some economic theory into the discussion:

Third Man customers take these limited-edition releases very seriously. Hardcore fans are incredibly dedicated and vote with their money. The more hard to find an item is, the more they want it. It's something of a Veblen good, and that's not a bad thing. But I understand fans' frustration when there is something they cannot get, and by us selling items on eBay it appears we are dangling something in front of their noses and demanding they pay more. We are not. These items will end up on eBay regardless. On an auction site, the customers set the price.

So, economics 101 with Jack White: price is a function of supply and demand. If supply is low and demand is high, the equilibrium price will be high indeed. If the merchant keeps the price artifically low, then there is an opportunity for arbitrage – or "flipping". Either way, the price will end up at its natural level; so you may as well capture that yourself.

Hat-tip to Modeled Behaviour

Jack White sings with his band the Dead Weather. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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I was wrong about Help to Buy - but I'm still glad it's gone

As a mortgage journalist in 2013, I was deeply sceptical of the guarantee scheme. 

If you just read the headlines about Help to Buy, you could be under the impression that Theresa May has just axed an important scheme for first-time buyers. If you're on the left, you might conclude that she is on a mission to make life worse for ordinary working people. If you just enjoy blue-on-blue action, it's a swipe at the Chancellor she sacked, George Osborne.

Except it's none of those things. Help to Buy mortgage guarantee scheme is a policy that actually worked pretty well - despite the concerns of financial journalists including me - and has served its purpose.

When Osborne first announced Help to Buy in 2013, it was controversial. Mortgage journalists, such as I was at the time, were still mopping up news from the financial crisis. We were still writing up reports about the toxic loan books that had brought the banks crashing down. The idea of the Government promising to bail out mortgage borrowers seemed the height of recklessness.

But the Government always intended Help to Buy mortgage guarantee to act as a stimulus, not a long-term solution. From the beginning, it had an end date - 31 December 2016. The idea was to encourage big banks to start lending again.

So far, the record of Help to Buy has been pretty good. A first-time buyer in 2013 with a 5 per cent deposit had 56 mortgage products to choose from - not much when you consider some of those products would have been ridiculously expensive or would come with many strings attached. By 2016, according to Moneyfacts, first-time buyers had 271 products to choose from, nearly a five-fold increase

Over the same period, financial regulators have introduced much tougher mortgage affordability rules. First-time buyers can be expected to be interrogated about their income, their little luxuries and how they would cope if interest rates rose (contrary to our expectations in 2013, the Bank of England base rate has actually fallen). 

A criticism that still rings true, however, is that the mortgage guarantee scheme only helps boost demand for properties, while doing nothing about the lack of housing supply. Unlike its sister scheme, the Help to Buy equity loan scheme, there is no incentive for property companies to build more homes. According to FullFact, there were just 112,000 homes being built in England and Wales in 2010. By 2015, that had increased, but only to a mere 149,000.

This lack of supply helps to prop up house prices - one of the factors making it so difficult to get on the housing ladder in the first place. In July, the average house price in England was £233,000. This means a first-time buyer with a 5 per cent deposit of £11,650 would still need to be earning nearly £50,000 to meet most mortgage affordability criteria. In other words, the Help to Buy mortgage guarantee is targeted squarely at the middle class.

The Government plans to maintain the Help to Buy equity loan scheme, which is restricted to new builds, and the Help to Buy ISA, which rewards savers at a time of low interest rates. As for Help to Buy mortgage guarantee, the scheme may be dead, but so long as high street banks are offering 95 per cent mortgages, its effects are still with us.