This morning before heading out to work I managed to watch a panel discussion on CNBC. Jim Grant of Grant’s Interest Rate Monitor was a guest for about 15 minutes. Now I usually watch CNBC strictly for entertainment purposes, that is, to see just how clueless the mainstream media and commentators are about economics and the current financial crisis. Occasionally, though, there are enlightened guests and Grant was one of them. Not only that, he also sported a bow tie.
The subject of the discussion was the gold standard and its role in reducing government debt. Having a basic understanding of Austrian economics nothing of what Grant said was really new to me. He discussed the collapse of the Bretton Woods system in the early 1970s, the closing of the US gold window, and the privilege that the US government has enjoyed since then, that is, having most developed nations use the US dollar as a reserve currency. With the end the dollar-gold tie, the US government can now run virtually endless deficits and not be worried about gold leaving its borders as American creditors worry about America’s ability to pay.
Grant’s summary of all this seems to strike the people sitting around the table as something foreign, to put it mildly, and they are, for the most part, speechless for the remainder of the segment. The properly named Steve Liesman argues with Grant though I am not sure I can give him much credit for that.
There are the usual objections to Grant’s arguments in favour of the gold standard. At 10:30 one of the hosts admits that he can’t think of a good reasonanyone would want to own gold since its only use is speculative. Asides from ignoring uses and applications of gold, it is interesting that this fellow can’t wrap his head around the fact that a piece of rare, heavy metal can have exchange value greater than twenty pieces of paper with the number “100” printed on them.
At around 14:30 the other shoe drops. Is there enough gold in the world. Oh boy. This is where my head starts to hurt. Do these people even understand supply and demand? From what did they graduate in University? As Max Keiser says in direct response to this criticism, “There’s something called the price discovery mechanism” If there is a demand for gold the price of it will go up. It will become more precious. People will trade smaller denominations. Perhaps most gold would be stored in vaults or banks and people would trade certificates that represent amounts too small to trade practically in physical quantities. Maybe some people will use silver instead. What difference does it make? These are things for the market and voluntary exchange to sort out.
Basic economics folks. Don’t watch CNBC if you want to learn any. If the hosts of a multinational business news network are this clueless about these issues what does this tell you about the average viewer?
I tried to embed the video but it didn’t work. I blame CNBC for that too.
You can watch it here.