“Nobody dislikes currency inflation more than strippers”

The link to the associated cartoon with that caption is here, from Tim Harford’s Twitter feed.

But is that claim true?  It depends on the margin.  Let’s say the standard tip is a dollar, and price inflation lowers the real value of that dollar.  A lot of customers won’t substitute into stuffing $1.43 into the stripper’s garments.  They might do two or three singles, but strippers will be shortchanged at various points going up the price pole.  There is something about handing out a single bill that is easier and more transparent, or so it seems.

Say inflation gets high, or runs on for a long time for a large cumulative effect.  At some point the customers switch to giving $5 bills.

Does it help strippers if the Fed issues lots of $2 bills?  Well, the leap up to the larger tip comes more quickly, but the customers also stay at the $2 tip level a long time before moving up to $5.

At some margins inflation is bad for current strippers, but good for some set of future strippers.  If the economy is close to the margin where individuals upgrade from a $1 tip to a $5 tip, then inflation is good for current strippers but bad for future strippers (for a while).

The answer also may depend on whether the Fed adjusts the ratio of $5 to $1 bills to keep in proper synch with the stripper customers.  If the Fed doesn’t increase the supply of fivers rapidly enough, future strippers may not get their deserved payoffs for a long time.

Let’s explore this assumption that handing out a single bill of a given kind is easier (admittedly there may be other ways to specify the assumptions).  And let’s assume that overpaying some strippers and underpaying others is less efficient for some reason, whether Benthamite or having to do with the unevenness of medium-run supply elasticities.

In that case tips may be more efficient, with ongoing inflation, at the $5 level than the $1 level.  Given that two dollar notes are rare, the step up from a one to a five involves a fivefold increase.  But the step up from a five to a ten is only a twofold increase, as is the step up from a ten to a twenty.  Even the switch from twenties to fifties involves a smaller multiple than from a one to a five.  So there are fewer problems with the non-convexities within the 5-10-20-50 range than within the 1-5 range.

Perhaps the sooner we get the strippers away from “the ones” the better — who needs those non-convexities?  Strippers sure don’t.

On the whole, therefore, strippers may prefer price inflation.  Of course once the $100 bill is the standard tip, the next notch upwards is again hard to come by, outside of the eurozone that is.


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