More thoughts on economy

Thinking a lot about economy lately. Interesting, I was a good economy student and did quite well In my Finance MBA. But I choose not to follow that  specific path in my career and I`m glad with the path I choose (that actually fell in my lap and I grabbed it!). However perhaps due to this credit crunch thing I`ve been thinking quite a lot about finance and macro economy. I guess that is because I`m seeing several things that for an economy student were legendary, were economical history kind of stuff unfolding right in front of my eyes. Funny. Who would guess people would turn back to Keynes. And Friedman has just died, he must be rolling inside his coffin with all this government spending , all this Keynesian policies on the work.

And gold! People are still buying gold to protect themselves! Why? Why for God`s sake? Gold has so little industrial-practical use nowadays that I see no sense in having it as value keepers in stressing times. The only real market they have know is for jewelry therefore the value of it is relying basically on human vanity! (ok, I now some sound systems rely on gold for quality of sound and probably there are other uses I`m not aware of, but not enough to justify all this relevance). I don`t see much difference in stoking gold and stoking any relatively reliable currency (dollar, euros, pounds…) and gold comes with the additional question of size, weight, transportation. Why do people still rely on gold?

I was thinking about that and trying to remember all the theories (economy as a science  was built on top of that discussion. Later we realised that putting value to things was just an easier way to compare things and therefore make choices. That`s why I like to define economy as a science of making choices assuming everything is scarce) around the value of things from uni years. There are quite a few, relating it to the amount of work, to the relative utility of the thing, considering offer and demand (on the short term) etc etc. Nothing fits into gold. It`s hard to get. Sure it is, but so are several other minerals. It`s relatively scarce, but several things a re relatively scarce. Offer and demand are surely controlled, like in any other market and that certainly contributes, but again it comes to use. Oil is controlled, but has a lot of use to it. The same with iron, soya, cotton, and all other commodities. But not gold. People have been fascinated and crazy about gold for centuries. And they still are. I can`t help thinking about those movies that show the earth after some catastrophic event and were water is rare (Mad Max being the biggest example) and people are crazy for it. In that situation would gold mind? In the future (I hope not) we might be protecting tankers filled with water, but will we be paying for it in gold? Don`t think (and actually I don`t think, unless something really catastrophic happens) that you should be stoking water in your houses. Surely the value of potable clean water will rise but if, let`s say, water is as valuable  as oil there will be Shell`s, Exxon`s, and so forth interested in cleaning water or making sea water potable for relatively affordable prices. So for an individual is just as useful stocking water as it is stocking gasoline now (sure enough one can go by without gasoline but not without water, but I think I made my point economically-wise).

: 22 Dec 2008 06:17 |  Tags: Economy Friedman Gold Keynes Value |  Comments (1) |  Report a problem