Sunday, February 10, 2013

Krugman Slips and Makes an Important Point

Amidst a torrent of babble, Paul Krugman slips and makes an important point:
 I have, for example, often seen people claiming that stocks are actually down, not up, over the past couple of generations because the Dow hasn’t kept up with the gold price, never mind what it buys in terms of the goods and services people actually consume.
The complete point that Krugman makes here  is a very good point, but he clearly doesn't understand it. He is very correct when he says that it all about what can be bought "in terms of the goods and services people actually consume." And the fact of the matter is since the start of the century what you can buy with an ounce of gold has soared versus a decline in what you can buy with a dollar.

Here's how gold has performed since January 2000:

Here's what has happened to the purchasing power of the dollar for the same period:


  1. What are the numbers on the y-axis for the value of the dollar? What do they represent?

  2. "And the fact of the matter is since the start of the century what you can buy with an ounce of gold has soared versus a decline in what you can buy with a dollar."

    This simple, yet true, observation is why those who claim "it isn't the price of gold rising, but the dollar falling" are wrong.

    1. You need to look again. It may be true but those charts don't prove it. The gold chart is gold priced in dollars, not real goods and services.

    2. I have assumed this "simple, yet true, observation" to be valid, but I have been unable to find any consolidated data to back this assumption. I would love to see a plot of what an ounce of gold could buy versus time for different everyday items. For example, how many eggs would an ounce of gold buy every year from say 1900 to present? How many gallons of gas did an ounce of gold buy in 1950 versus today? Has anyone seen already prepared data illustrating this?

    3. @5-5 15 love...

      This probably isn't as detailed as you want (1960 v. 2013) but, if you want detailed data, it can be found with little effort using Google.

    4. Thanks Frank. Your reply got me looking and I found some charts that illustrate fairly well what I was looking for. My favorite is this one showing how the cost of electric power versus gold has fallen over time (reflecting improved technology and what would happen to all products versus the dollar with a stable money supply?):

      Here's a link to the dow versus gold over different time periods showing what I think RW was referring to in his article:

      The "" website referenced above has several charts on the right hand side of the website showing the price of different things versus gold.

  3. Are we supposed to derive any understanding from these graphs, Wenzel?
    (There should be a special type font for sarcasm)

  4. I'd really like for someone to ask Krugman if he currently owns any precious metals, or stock in precious metals or mining companies...and if not if he ever plans to own such.

    Imagine if someone would have asked that of Keynes when he advising FDR just prior the gold confiscation....

  5. The stuttering and stammering Krugman stammered on a good point by accident. I suppose if one talks enough, they eventually say something that makes sense. Too bad for him it follows on the heels of his humiliating Argentina prediction blowing up in his face and his embarrassing comments about how the public should be disarmed bc the police are a public good.

  6. Now try the latest L. Randall Wray on 'MML, The Euro and The roadto recovery'. Hold you breath.