An EPJ Reader Schools Steven Levitt on Gold

An EPJ reader sends along this email:

Sorry to rattle this email to you, but I have to share the story with someone.  I am enduring a  MPH, EMH, mumbo-jumbo investment conference put on by my company. They brought in Steven Levitt to give a speech.  During his speech he went into macroeconomics, after saying he does not understand macro.  He slipped in that gold was obviously in a bubble.  It was all I could take. During question and answers I asked how he determined it was in a bubble.  He said the fundamentals are not there.  I rattled off increasing debt, increasing money supply, and inflation (or do I repeat myself) is the cause of gold’s surge.  They are not stopping so the fundamentals are very sound. He gave the same tired argument about how you can’t eat it, what is it anyway.  I said money.  It is cash, but not cash that can be inflated.  He said there was no inflation and the dollar will continue to hold its value.  I said it cannot. They are increasing the supply. Economics 101.  Supply goes up, price goes down.. He tried to shift to the Euro and its trouble.  I said sure.  It is a fiat currency. He stated that government imposed gold standard being ridiculous, so what was the alternative.  I asked for an example of an imposed gold system. He said the US gold standard. I said that gold system was not imposed.  It is based on the regression theorem.  He did not have a clue on what I was talking about.  I brought up Aristotle’s characteristics for money and he stood there.
I turned the questions back on him and asked how a person teaching economics at U of C (where Hayek taught) could possibly not know these fundamental theorems of the science.   That maybe someone is rigging the game in their favor.  That the combination of fed money, per-review journals, college grants and government monopolies might play a role. 

Somewhere in there I also asked about praxeology.  Overall he is a nice guy and writes great books, but I agree with your assessment.  Sloppy economist.  I enjoy having the upper hand.  Reading Mises, Rothbard and any other serious Austrian makes you see the world so clearly; I feel sorry for the muddled thinkers. They may have more intelligence, but it does not matter when you are better informed.  Later another guy from Russell , Steve Wood, went on to say gold is an irrational investment.  I thought about saying something, but he gave the same talk in Saint Louis two years ago where I educated him on gold.  I let it go on stage.  Later I went up to him and asked if he changes his speech at all. He remembered me, but just kept walking. 

Side note: I am well above my peer group on 3 month and 12 month returns.  Gold might have something to do with it. Hey, my clients can’t eat it, but a stock taste mighty fine, right?

BTW, for my take on Levitt's book Freakonomics see   Inside The Mind Of Steven D. Levitt : A Review of Freakonomics.

For Levitt and academic integrity, see this.