Friday, January 07, 2005

MV = PY

(miles x velocity = price level x production)

The Economist has an interesting editorial this week. Apparently the outstanding stock of miles held by the public is so large that “At current rates of redemption, even if no more miles were issued, it would take 25 years to use up the stock” Airlines are printing too much money in order to entice people to fly with them, and this has created a huge liability for the airlines. Miles will have to be watered down in the future. Moral of the story? Go on vacation.

Were it to exist, the IMF (the International Mileage Fund) would by now repeatedly have warned that these growing external liabilities are unsustainable in exactly the same way that America cannot keep borrowing from the rest of the world. If the new global currency was left entirely to the market, the value of frequent-flyer miles would plummet in order to match the demand for and supply of free flights—just as the dollar would be weaker if Asian central banks stopped intervening. Frequent-flyer miles are no better as a reserve currency than the greenback.



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