Arbitrage and speculation get a bad rap sometimes, but they're incredibly useful.

I'm leaving Ulaanbaatar shortly and I'll be heading to Japan. I went to stock up on some basic supplies - personable consumables and work stuff.

Strikingly, paper is really expensive here for Western-grade, Western-style paper. The local shops literally don't carry it. Instead, they have this checkered sort of paper. It's like graph paper, but with thick black lines. I prefer black ink, and after trying out one of those notebooks, I couldn't read what I'd written.

I tried some of the upscale department stores (Sky Department Store, State Department Store) and there's literally no Western-style, 60 sheet lined notebooks in the $1 to $2 range like you'd see in the USA. They have high end notebooks for $6 to $12, and they have these thin flimsy 20-page booklet-type things for around $1. I settled for the booklet.

Now, if there was the demand to make it worth it, someone importing Western style paper from China at 20 cents a notebook and selling it here for $2 per notebook would be creating a lot of value. If this presented a large enough opportunity, eventually you'd see the margins go down towards cost, as happens in almost all industries.

There's frequently hostility to people who arbitrage, speculate, and make their income on trading-type activities. There has been for hundreds of years, predating even the Industrial Revolution.

But man, those people create a ton of value. And the thing people don't realize about arbitrage is that participating in it closes it off. If prices on a good are at $1 in one market and $1.10 in another market, then looking to arbitrage them eventually ends it. You start by buying as much $1 units as you can and sell as many at $1.10 as you can... but eventually you've bought/sold all you can at those demand levels, and the market moves towards $1.01 and $1.09... you continue arbitraging and it goes to $1.02 and $1.08... and so on.

That's simplified, there's exceptions, and buying/selling prices don't move at the same time consistently.

But the point is, people facilitating commercial transactions create a lot of value. First, by participating in arbitrage, you eventually end the ability to do so and equalize prices between regions. This helps the sellers and buyers you're transacting between.

Sometimes it creates goods where they weren't.

Even in pure electronic arbitrage where you're talking fractions of percents, speculators and arbitragers add liquidity to the market. Liquidity is hugely valuable - everyone underestimates it until they go to sell a house or car on a deadline and can't get what appears to be the market price. More speculators and arbitragers there help a lot.

When I left Los Angeles at the end of 2009, I wasn't able to sell my car. A friend of mine was kind enough to pay me $700 less than the going rate immediately, and he made a few hundred dollars profit a week later when he sold it. Liquidity - he bought low from me, sold for higher shortly afterwards, and was compensated for his time, risk, and for providing a valuable service to all parties.

So - god bless the arbitragers and speculators. I wish there were more of them, and I wish I could buy a decent notebook here in UB.