Wednesday, December 24, 2014

Gold is not an Investment, excess saving is hoarding

Krugman's latest words on Gold are interesting, and end up calling gold a scam investment.

Buying gold promotes only one kind of business, that of mining and selling gold.  That's a tiny part of the overall economy.

Buying gold doesn't provide credit to people building other kinds of industries.  Buying corporate stocks and bonds would.

Putting money in a bank enables more lending by lowering the cost of money to the bank.  More lending means more pro ducting of things like cars, houses, and home improvements.

So buying gold is rather anti-social.  I know rational utility maximizers aren't supposed to be swayed by such things.  Anyway, I wouldn't be buying gold anyway, as I understand it as a speculation on the value of gold.  Speculation is a fancy word for gambling, and I don't like to do that because I seem to be a pretty consistent loser at gambling.

But whether I am swayed by such things or not, I think about them.

Now, there may be not so good aspects to those other things I just mentioned, and what they enable.  And I've long thought that "buying" is more pro-social than saving or financial investing because in the former case you are providing income to someone else, and in the latter you are only providing a loan.

So if it's OK to buy stuff, say high end audio equipment, why not gold?

Well also precisely because buying stuff not only provides income to others (one persons spending is anothers income), it provides us with stuff, which we enjoy directly.  So utility is amplified, so to speak, by buying the amplifier I may need for the best audio reproduction.  In fact, if an amplifier provides utility to me in the future…it is an investment.  (In some cases, it might be good store of value…or even a speculative wedge, as well, but that's not what I'm talking about.)

This may fall apart if I buy too much stuff, more than I need, more than I use, etc.  (Something I'm pretty sloppy about, actually.)

Of course, to the gold bug, survivalist, or similar kook, owning that shiny metal is enjoyed directly.  But that's a little sick, isn't it?

The main defensible reason to own gold would be as a store of value.  Though I dismiss the attempt to gain money or advantage through an increase in the price of gold as "gambling," merely holding gold, not respective of the fact it may become worth more or less relative to other things…is a defensible reason within limits.

What are those limits?  The limits to one's need for future consumption security or future reasonable bequest.  Saving more than that is "hoarding," which means other people's productive activity is being pinched indefensibly.  With the richest people however we may not think of this as hoarding so much as status seeking.  The richest seek to be richer than others.

That kind of pursuit of wealth for it's own sake, however, is just as bad socially as hoarding.

Rather than saving too much…what should the wealthy do?  Spend righteously and/or give money away righteously!

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