Over the last couple of days, I have been pondering over different aspects of what would happen if the united stats switched back to the gold standard. Especially I have played around with the thought experiment: ”What would the cost be to switch back to the gold standard?” So in this post, I will not past judgment on whether it would be a good idea for the united stats or the world economy if we where to go back to a gold standard, I am purely focused on identifying the practical perspective of the cost of such a switch. These reflections are prompted by the fact that Ron Paul presently is doing better, then ever before in the republican primaries. Meaning that for the first time there is actually a realistic probability that the united stats could consider a return to the gold standard.
In doing this, I first have to identifying the two pars of this analysis: How much gold and how much US-currency are there in the world? According to howstuffworks.com there is extracted around 1.555.210 kilograms of gold every year, and if we assume that this correlates to an average every year and that we have extracted gold for 400 years there would be 622.084.000 kilograms of gold currently in the world. With the current gold price at 53.133,61 US$/kilogram the current marked value of all the gold currently above ground would then be US$ 33.053.568.643.240. If we then compare that to the latest data from the US Federal Reserve Statistical Releases there are US$ 9.641.700.000.000 in circulation. Let me just quickly says that I am using the seasonally adjusted M2 numbers from November 2011. So what does this tells us?
First of all if the united stats where on the gold standard right now they would have to control 29% of all the gold existing. To my knowledge, there has never been any given country that at any single time in human history that has dominated almost a third of the world gold reserves. I might be wrong in this, but in any case to say anything significant about the cost we need to look at how much gold the U.S. Treasury presently holds. According to the U.S. Treasury’s Resource Center the U.S. International Reserve Position in gold is 7.413.372 kilogram, which means that they presently only covers 4,1% of their gold need, should they switch back to the gold standard.
I the end if, we for a moment actually ignore the overt dilemma buying up all that gold or where the money to do this would come from, without having to devaluate the US$, it would take the US 112 years to extracting enough gold to implement the gold standard, without suffering any currency penalties in doing so. So even if Ron Paul where to become 45th President of the United States, it is unlikely that the US would return to the gold standard, the cost is simply to high.
So Christmas is just around the corner, which means that millions of people the world over will be exchanging gifts. This has made me wonder, what constitutes a really good gift? If we look at the good gift from an economical point of view, it seems to me that all good gifts have at least one thing in common: A Good gift is more valuable for the receiver then for the giver of the gift. If person A goes out and buy something, for himself, he would evaluate the price of the product and compare it to his own evaluation of the product. We do this everyday, and it is second nature for most people regarding most products. But, the picture changes immediately after person A is going to find the perfect gift to person B. Now he can’t use his own evaluation of the products value since he now just acts as the middleman in the transaction between the sell and person B. Therefor he is forced to try an anticipate how person B will evaluate the value of the product and if that value is higher or lower than the actual price of the product. Since it is a gift, and the content of gifts are normally intended to be a secret he cannot just ask for the information from person B, so he is left with two options: either he can ask for a wishing list or use his imagination and risk not being able to anticipate the needs of Person B. These two different approaches to the art of gift buying are roughly comparable to two different approaches to how a company does product development. It can either do an existence market research, the wish list, or the company can approach the market as an entrepreneur and look for the gift that is equivalent to the creative destruction of the gift-giving-market. Another perspective, of the perfect gift, is how the gift is a medium in a communication between the giver and the receiver. The gift tells the receiver different things, such as how well the giver knows her. Finding the perfect gift is all about information and market signals. The more information the giver has about the receiver, the greater the chance is that he will be able to find that perfect gift. Creating some common rule for all gift-giving scenarios is of course, imposable but I would suggest that this year everyone should challenge him or herself and ignore the wish list, try something new and look for that perfect gift that will create more value for the receiver then what they paid for it.
Doing this weekend I went with a friend of mine and watched Andrew Niccol latest movie In Time. In Time is a sci-fi story set in a world where the saying ‘time is money’ is meant literally. When time literally is used as the currency, it puts a really interesting perspective on economics and how it would affect the monetary system. When you flip the perspective of economy like that, it therefore becomes interesting to investigate the economy if In Time. The premise of the movie, and therefor the economy, is that everyone in the movie is genetic modified to only be able to live for ‘free’ for 25 years. On there 25th birthday everyone receives additional 1 years, which then simulant is used as a currency in the economy and is consumed how time normally would be consumed. When you are buying goods, like a cup of coffee, you pay with time. To earn time you would naturally need a job, where you can earn a wage, which also is paid out in minutes, hours, and so on. But now it becomes interesting. In real world economy it is never clear what part of the wage is value adding, or it is never easy to objectively say how much value a given task have added, this is of course, because that in the real world the value of a minute is subjective. Now in In Time, the value of a Minutes would still be subjective, but since you are spending time just by being alive, and paid at the end of the day X amount of hours, it now becomes clear how much value a given work have created, or at least how much that the given work is being valued by the company. Another example on how perceptive on the economy changes where time is the currency is in regards to hotel rooms. Where you pay, with time, you gain access to the room, and then you are spending time, the currency, for every second that you are using that room. So even if the transaction between consumer and the hotel still is a flat fee for renting the room; the aggregate cost of renting the room varies with how long the costumer uses the room. But generally is In Time dealing with the subject of the central bank, and inflation. Without giving to much away clearly the bad guys in the movie are the central banks that controls the distribution of the currency in society, an especially how inflation is a tax on money. Regarding the central bank being the bad guy in this movie is made explicit several times in the movie, especially when we are shown that the bad guy in the movie is the owner of a, what seems to be the only bank in the movie, in other words that the bad guy seems to hold a monopoly on the creation of time. The issue of inflation is portrayed in two ways in the movie, first we see how the central bank continuously increases the expeditions as a reaction to the actions of the movies heroes, and inflation is aseptically clear after the big event in at the end of the movie, where the reward for the capture of the movies heroes are increased form 10 to 100, again as a reaction to the actions of our heroes. So in the end, if it where not for the movie Atlas Shrugged then I would consider In Time to be an elucidate contester for the libertarian movie of the year.
It is Christmas time, which means that, in Danish politics, it is again time to debate poverty. It is a topic that seems to be returning year after year. Denmark where in 2010 the 17th riches country in the world, according to the International Monetary Fund measured in GDP per capita, so does it even make sense to debate the dilemma of poverty? When making a normative judgment on poverty, the judgment on whether someone should be considered to be poor or not. These kinds of judgments imply a normative measurement of either a moral position on ‘the quality of life’ or on the economical measurement of wealth.If we deliberate this form an economical perspective there is traditional to ways to measure poverty, we can either deliberate given wealth gap within a given society or we can Concord on a minimum income someone should have before they no longer are considered to be poor. Both measurements present their own economical problems. Since economical actions, and thereby human actions, is a tradeoff between two or more options. And because the decision that a given individual makes in a given situation depends on that his or hers preferences, the situation where the decision is presented to the individual, the information that is available, and the different alternatives that the individual is choosing from, we will never be able to make a normative judgment on the act of deciding. This means that a normative judgment on the effects of the economical judgments becomes equally impossible, and thereby also the normative judgment on whether someone is poor.If we are contemplating poverty as a moral question, then it becomes a question about quality of life, what constitutes ‘the good economical life’? A moral judgment can either be a universal judgment that guide human action in any given situation, or it is a relative judgment that depends on external factors. A universal moral judgment on what constitutes ‘the good economical life’ would require that society restrict the individual’s liberty in deciding in a given economical decision. This would not only violate the principles of private property rights, but also imply that there is a universal economical preference that is moral superior to the individual’s preferences. What we then are left with is then the relative moral judgment, which means that we no long have a ‘golden standard’ from where we can define ‘the good economical life’, which forces us to constantly debate the definition itself.So if we can’t find any normative judgment on poverty does it then follow that the debate about poverty is meaningless? I would argue that debating who is or is not poor is meaningless and would never come to a satisfied conclusion. However, the debate about what society can do to ensure that every individual has the possibilities to realize his or hers idea of ‘the good economical life’, is a more relevant and plausible debate both form a philosophical and economical perspective.
|
