Gold Bless the USA

Take this WaPo article posted on HuffPost recently.
US Treasury’s Gold Valued: US Gold Reserves Total $288 Billion, But Not Really

In this article the author argues:
“Raising the value of the Treasury’s gold stockpile would have an inflationary effect, too, which is the last thing the Federal Reserve wants right now. In 1933, President Franklin D. Roosevelt increased the book value of gold to $35 an ounce from $20.67 to battle deflation. It did the trick, but the move was risky. Given that the Fed now has safer ways to create inflation, a revaluation and sale would come across as the powers-that-be playing fast and loose with a shaky economy.”

That’s not exactly right. When we were on the gold standard, raising the valuation of gold in reserve did in fact have an inflationary effect, since it would allow the Fed to instruct the Mint to print more dollars. This kind of action, the author correctly points out, WAS very risky since it was a huge and immediate shock to the value of all the dollars held by anyone anywhere.

Luckily, we don’t have to rely on such crude methods today. In fact, without going back to a gold standard, we CANNOT utilize this tool of monetary policy in this way.

So, what would raising the valuation of gold-in-reserve do to inflation? In a direct way, the change should have no effect. The government could value the gold at $1 or at $1 trillion. As long as the US continues to hold the reserves (i.e. not sell), the money supply and interest rates will remain the same.

If we were to try to read into this a bit deeper though, you could argue that marking the gold-in-reserve to market would be the first step the US would take in order to sell part of its gold stocks. Just that signal alone would wreak a bit of havoc on the gold markets. Alas, this still would not have an effect on inflation. (Well, maybe on inflation expectations, which could have self-fulfilling feedback effects.) The only thing I can think of as having a clear effect on inflation would be the actual sale of some or all of the gold bullion. This would have a deflationary effect since the Treasury would be taking dollars out of the economy; reducing money supply and raising deflationary pressures.

I should note that there is a big caveat to all of this. If the US chose to embark on a policy of selling its gold, there’s no telling what effect that may have on market confidence in the US Government and the Federal Reserve. While the direct effect of selling the gold may be deflationary, the effect of greater uncertainty about US fiscal stability could reduce the governments credit rating and make it more expensive for the US to borrow. There are a number of ways to deal with this eventuality, and none of them are pretty.

So, Tim Geitner, if you’re reading this. Get back to work and don’t sell our gold reserves.

An open-letter to the supporters of Yes on 1

Here’s an open-letter I just sent off the the Yes on 1 campaign, which is trying to outlaw same-sex marriage in Maine. If you haven’t already donated some of your time or money to the folks trying to defeat maine’s prop 1, please visit protectmaineequality.org .

————————————————————-

Hi there,

I just finished reading your website (www.standformarriagemaine.com) I know you’re just some supporter of Yes on 1 who got stuck reading and responding to all of these emails, but I had a few questions about why you support this campaign.

So I’m asking…

• How does denying the same rights to your neighbors that you currently enjoy “strengthen democracy”?
• Why do you falsely tell people that churches will lose their tax-exempt status under this law?
• Why does your website repeatedly use the word monogamous as if it somehow antithetical to same sex couples (and for that matter, synonymous with straight couples?)
• Who can you name from your so-called “wealth of legal scholars” would argue publicly that a law-abiding citizen would be fired for holding their own personal views on marriage?
• Why does your campaign mislead people into thinking that a Yes vote would “not take any of (same sex couples’) rights away”?
• Why is there a picture on your website of fake a elementary school chalkboard, as if the students were learning about gay sex?  Where in LD 1020 does it encourage schools to discuss any form of sex?
• If overturning LD 1020 actually “maintains the rights and benefits of Maine same-sex couples,” what do you think your gay friends and family members and their allies have been fighting for?
• Why do you tell the children of gay parents that their family is “trash” or “worse than” your families?
• Finally, what will you tell your friend, sibling, or child if they come out? Will you tell them you were wrong? Will you tell them you didn’t mean to hurt them? Or, will you tell them that domestic partnership should be good enough for them and their family? Will they feel the same way?

I understand these questions are uncomfortable. Frankly, I don’t expect a response. I just hope you are at least able to answer these questions for yourself. If you can’t, maybe you should reconsider your vote.

Thanks,
Michael

Funny Stats: Britons in trouble

Now that I live in London, I am trying to bring myself up to speed on all of the public dangers of living in the UK. My friend Danny brought the dangers of coffee breaks to my attention. Apparently I should develop a taste for Jaffa biscuits since they are the “least dangerous” cookie surveyed.

http://www.telegraph.co.uk/news/newstopics/howaboutthat/6153518/Crumbs-half-of-Britons-injured-by-their-biscuits-on-coffee-break-survey-reveals.html

Is this the Clean Coal we were promised?

The New York Times has an in-depth article up today about increasing pollutants in American drinking water. It’s a long article, so if you have time read the whole thing, but their audio slideshow is pretty impressive.

http://www.nytimes.com/2009/09/13/us/13water.html?hp

Spot the Econ Mistakes: Mileage Edition

I’m starting a new set of columns called Spot the Econ Mistakes. I’ll start off by taking an article I’ve found some mistakes in economic analysis that are interesting and change the conclusion of the article. I hope you’ll add your own discoveries of mistakes in the article in the comments section.

The first critique is of an article on the blog, The Consumerist (one of my favorite blogs). They took an argument from another site that has a calculator for comparing commuting with a motorcycle or a car. Their conclusion is that commuting with a motorcycle is more expensive than commuting with a car.

Take a look at the article here: http://consumerist.com/5356991/can-you-save-money-by-motorcycle-commuting-not-really

What are the mistakes? Why is this conclusion wrong?

This author is employing a common strategy in economic reporting: dazzling the reader with many numbers that distract from relative scale. In the case of this article, a more straightforward reporting would show that the comparison is just a function of fixed costs and marginal costs. Fixed costs including: The purchase price of the car and/or bike, the average repairs over time for the car/bike, annual or start up fees (e.g. registration and taxes), and insurance. Marginal costs include: gas, numbers of miles driven, and costs for when the car/bike can’t be used (due to weather or repairs).

The calculator in this article assumes that you already own a car and would continue to own it thereby subtracting the fixed costs from the cost function of the car, but it leaves it in for the cost function of the bike.

This is extraordinarily important since, even though the marginal costs of bike are lower, the scale of the marginal savings from using a bike do not begin to compare to the fixed costs of the bike.

A better analysis would offer this question: What are the comparative TOTAL costs of a bike over the TOTAL costs of the car. Certainly, if you live in a climate that you cannot use a bike year-round you would need a secondary form of transit during the winter, but that does not mean, as the article suggests, that you must have a car. You could rent one for a time or find public transit. Both of those have costs, so you must add them to the total cost of the bike. Still, those are MARGINAL costs and are small relative to the fixed costs of the car.

The author of the article thinks that commuting to work with a motorcycle is more expensive than with a car. What they have actually proven is that it is more expensive to own a car and a motorcycle than just a car alone. That is an obivious conclusion to anyone.

With a better analysis, the article would conclude that commuting with a bike is MUCH more economical than a car.

After many months… A Relaunch!

I’ve neglected Econpolitik, the blog for the American Lefty who’s not afraid to look into what economics (both traditional and heterodox) says about the issues we care about. [I reserve the right to throw in some tech posts here and there.]

The good news is that it’s time for a relaunch! I’m no longer constrained by the Hatch Act, which bars Federal Employees from engaging in certain political activities, and I want to start writing in longer form than the 140 characters that twitter gives me. I will still be writing some posts over at twitter.com/econpolitik, but I will be using that as a scratchpad and then fleshing out some of those ideas on the blog.

I hope you enjoy this newly revitalized Econpolitik and I hope you offer your ideas and comments in the future. Thanks for reading!

Porn Industry Bailout

File this under: “I didn’t make this up.”

http://politicalticker.blogs.cnn.com/2009/01/07/porn-industry-seeks-federal-bailout/

Follow-up: The Citizen’s Inaugural Ball – They DID IT!

Take a look…

http://thecaucus.blogs.nytimes.com/2009/01/05/obama-to-attend-neighborhood-ball/

…

He’s not calling it the Citizen’s Inaugural Ball but rather the Neighborhood Ball. Great! Clearly, I wasn’t the only person thinking about this (well, maybe I was back on Nov. 30 when I first wrote about it), but I’m glad this time I actually got the idea in print before it was announced formally.

Hopefully, me and my friends can get in.

The Citizen’s Inaugural Ball

As the Inauguration Planning Committee works, they should keep in mind the distributed nature of the Obama campaign. In past inaugurations, like the one I went to in 2005, the celebrations matched the size and the demographics of the base of support for the winning candidate. The last inauguration’s biggest ball, the Texas-Wyoming Ball, was sponsored by major corporate donors (the same donors that had sponsored the President’s campaign) and by large donors who could afford $500+ tickets.

People who can afford these prices shouldn’t be denigrated for their wealth; indeed, their generousity in part helped elect President-elect Obama. So let them eat cake at their parties (edit: keep out the huge corporate sponsors), but it’s time to recognize the sacrifices of time and money made by millions of Americans who cannot afford these exorbinate prices.

The Citizen’s Inaugural Ball could be one huge event that could help promote one of DC’s large venues: RFK or Nationals Stadiums. The committee need not be constrained to find one venue though. Like the organizing it did during the campaign, Obama’s people could help set up many many smaller venues throughout the DC-area or even the country with much lower ticket prices: $15-$40.  Obviously, the new president would be unable to visit many sites in person, but a special message to these individuals gathering to celebrate the momentous day would go a long way to showing that the Obama presidency will be as revolutionary as the Obama campaign.

Econ Article of the Day: A Defense of CPI

In today’s Article of the Day, I present to you a newly spunky Bureau of Labor Statistics, normally one of the most staid parts of our federal bureaucracy. In this article, the BLS explains many of the complexities of and changes in measuring consumer inflation, the Consumer Price Index (CPI). Using pretty easy-to-understand examples the BLS is hoping to enter the fray with bloggers and Wall St. talking heads that criticize the CPI as understating inflation.

Go get ‘em, BLS! Your dry, yet informative articles will surely be read by the masses!

http://www.bls.gov/opub/mlr/2008/08/art1full.pdf