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Comment by jessriedel | Hacker News Reader

>Here’s the really bad news. No one has actually run out of drives yet. Most manufacturers have stated they have drives enough to last them through the end of November, meaning that the current price hikes are the result of shipment reductions, supply-side manipulation to reduce demand, and undoubtedly some degree of speculation by the middle men. This last factor has an impact on the total price, but it’s not what’s causing the problem.

>First off, the so-called “gray” market for hard drives is going to explode....DigiTimes reports that gray market HDD sales are already booming as panicked OEMs have tried to lay in additional inventory to see them through the coming months.

The world must be a scary place when you don't understand basic economics, with a boogeyman man behind every corner.

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Could you elaborate on your criticism?

I don't understand basic economics. It's something I regret and would like to change.

It's a basic economic principle that if supply decreases with the demand staying the same the price will go up, and a sudden, unexpected decrease in supply will lead to activity of buyers to look elsewhere to meet that supply. Basically, what's happening is exactly what would be expected, but the reporting has a breathless tone.

It will be interesting though to see what effect a >50% supply decrease has on prices and the market once things com e to equilibrium when the timeline of the supply coming back is known.

> but the reporting has a breathless tone

Well, yes and no. Apologies for reducing your logic to the absurd, but if Iran dropped a nuclear bomb on NYC tomorrow then lot's of people would die, basically exactly what you would expect to happen if that bomb was dropped there. Does that mean everyone who treats it as a big deal (in sarcastic terms: "with a breathless tone") is making a big deal out of nothing?

Yes, with the details that there will be a flood, and that x% of HDDs are made there, and that the flood will shut down production for X months, then prices rising are exactly what you would expect. The reason for it being newsworthy and to some unexpected is that we didn't know the flood would happen, and even after they did plenty of people had no idea, having never had need to think about it, that it happened where so many HDDS are made. Hence why being told that, and therefore what it means, is unexpected.

The op is making reference to the the Supply and Demand model that is supposed to apply on markets [1]:

"It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers (at current price) will equal the quantity supplied by producers (at current price), resulting in an economic equilibrium of price and quantity."

Note that the "comptetitive market" bit is important as it implies that the market is fully "free", which almost never happens IRL. Price fixing, strategies, stock market, governments, you name it. There are plenty of ways which make this model too basic in many cases. Worth knowing anyway.

That kind of things is best learnt with a grain of salt and some marketing knowledge as well. Read all the posts on "finding the right price" on HN to see how it does not necessarily apply -- but somehow does.

[1] http://en.wikipedia.org/wiki/Supply_and_demand

To add to what mkeblx said: what's happening is not only what's to be expected, it almost exactly what you want to happen ideally.

If suddenly the world supply of hard drives is cut to 10% of its normal values by a chance event (and we concentrate on the time period before new compensating production can be started) then those hard drives become more valuable. The price goes up, so that the people who are willing to pay the most for the drives get them. If Bob will only pay $100 for a drive because he's just using it to store his 2TB of cat pictures, but Sam will pay $500 because he needs the drive to run his business, then Sam will get the drive but Bob won't. If you try to hold down prices artificially with legislation (price ceilings) then each is equally likely to get the drive, which most agree is not good.

(Now, there are a million caveats to this naive Econ 101 treatment, especially regarding basic necessities--water, food, shelter--and disaster situations. And any normative "should" statement requires people to agree on a theory of ethics/morality. But in this case, most will agree that the basics of supply and demand lead to the appropriate outcome.)

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Incidentally, I was surprised to find that the Khan Academy has a bunch of macroeconomics and finance lectures, but little in the way of basic microeconomics. (This is especially funny because microecon is better understood.) Anyone know a better source for an introduction to supply and demand?

Any economics text books will do. It's taught in most college sections in France.

For a readable introduction, I don't know of any better than Thomas Sowell's Basic Economics or David Friedman's Hidden Order: The Economics of Everyday Life (David Friedman's textbook Price Theory: An Intermediate Text is almost as readable and is here: http://www.daviddfriedman.com/Academic/Price_Theory/PThy_ToC... )

Yeah, I can't understand the widespread ignorance of/indifference to micro either. It's like people either think it's less important (because of the name) or that it only applies to people running manufacturing or retail businesses. Macroeconomics is seriously incomplete, so when it fails to predict the future well people dismiss economics as a whole, not realizing how fantastically useful and illuminating micro is. Admittedly micro suffers from not having a good theory of oligopoly, but I venture to suggest that that's a bit like the 3-body problem.

For philosophical types, I recommend 'New Ideas from Dead Economists' by Todd Buckholz. If you just want to get going with the math, I like the Barrons Business Review book on Economics by Peter Eisen. You should be able to find either of these used for a few bucks.

I don't think it's an indifference to microeconomics in particular so much as an indifference to anything that doesn't seem like it's especially relevant to one's life at the moment. People are indifferent to structuralist anthropology too, just to pick a random example. I agree that people are probably misinformed as to how useful microeconomics might be to their life though. It's a fantastically useful subject.

The reason macroeconomics is on the Khan Academy and has more general interest these days comes from the fact that people feel like their lives are in turmoil due to the economy, the real estate collapse, and Wall Street, and they don't understand how any of it works. Macroeconomics may be incomplete and perhaps even problematic, but it's the subject that can most shed a light on complex interconnected problems as opposed to local specific ones.

Agreed...I just have my doubts about how well one can really understand macro without a firm grasp of micro. Some people reflexively dismiss economics in general as just so much dogma, and it's hard to make the case for economics as a discipline when micro is so poorly understood.

There have been some psychology experiments that cast doubt on the naive econ treatment. In behavioral economics, the alternative hypothesis is called the "endowment effect". The short version is that people get attached to something they intend to keep (as opposed to trade onwards) and demand a significantly higher price to sell it than they did to acquire it.

http://en.wikipedia.org/wiki/Endowment_effect

http://endowment-effect.behaviouralfinance.net/

And one more thing to add. If the speculators are doing their job properly the current price of hard drives is as high as its going to get, as opposed to the zero speculation market where prices don't skyrockets until the supply chain actually empties, and people aren't conserving their HD usage as much before then.

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