Jim's Blog

At the age of eighty four, you have a heart attack.  The ambulance comes around, it stabilizes you, it takes you, free of charge to the free government hospital, and the free doctors at the free government hospital conclude you need open heart surgery, a stent and a coronary bypass.

Now the government can provide the free ambulance, and the free stabilization to everyone.  But there is no way it can provide the free stent and the free bypass to everyone, in part because free stuff always costs ten times as much as stuff that people pay for themselves (which is why free contraception is expected to cost $1000 per year).

The government could, and probably will, put you on the emergency waiting list to join the special emergency waiting list for open heart surgery, which waiting list will grow longer and longer until people dying on the waiting list balances supply and demand – but it cannot keep you occupying a hospital bed while you are on the waiting list, because if it does, it is rapidly going to run out of hospital beds.

So, one way or another, those hospital beds are going to be emptied. (more…)

Warren Buffet points out that land produces wealth, and gold does not. His argument leads to the conclusion that had a Roman in the time of Caesar invested a talent in land, or deposited some money with the money lenders to earn interest, his descendents would now be worth 10⁶⁷ talents, or about one trillion trillion trillion trillion trillion trillion dollars, whereas had that Roman buried a talent of gold in the ground, that Roman’s descendents would now be worth about one talent, which is a few hundred dollars.  Clearly there is a fallacy somewhere.

Warren Buffet tells us:

The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.

What motivates most gold purchasers is their belief that the ranks of the fearful will grow.

Not so. What motivates most gold purchasers is insurance against their fears becoming true.

During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while.

Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers – for a time – expanded sufficiently to keep the bandwagon rolling. But bubbles
blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.”

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying
binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today’s annual production of gold command about $160 billion. Buyers – whether jewelry and industrial users, frightened individuals, or speculators – must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops – and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons).

Warren thinks that if you invest in cropland, rather than gold, then at the end of the day, you will have the cropland and the crops.

But alternatively you get a one way trip to the gulag as the great and the good, the wise and the virtuous, look for scapegoats to punish for the failure of utopia to arise at their command. They command utopia, notice that there is no food. Obviously those who own cropland must be at fault, and need to be punished.

What motivates most gold purchasers (and thus most bitcoin purchasers) is their belief that their fears might well prove correct, that without gold, they might find themselves penniless refugees, or, worse, without even the ability to become penniless refugees, because they lack the funding to leave a collapsing society.

Gold is an end of the world investment, insurance against total institutional collapse. We tend to underestimate fat tail risks such as total collapse, since the English speaking world has never had a total institutional collapse since the battle of Hastings in 1066.

This however, is survivorship bias. In the rest of the world, total institutional collapse has been rather common. What would have been the best investment for a Russian, an Austrian, a Hungarian, or a German in 1900?  Survivorship bias causes us to overlook fat tail risks.

Warren Buffet correctly argues that gold will, on average, lose value. However there is a significant risk that everything except gold will lose value.

Britain decided to increase income tax on the top one percent of taxpayers to fifty percent.  Predictably, revenues from the top one percent of tax payers collapsed.

This demonstrates the entirely unsurprising fact that a income tax of 50% plus VAT tax of 20% for an effective tax of 60%, is well above the Laffer limit.

I doubt that this came as any surprise to those imposing the tax.  More likely the tax was imposed for political reasons, so that heavily taxed poor people would spitefully and self destructively vote for high taxes because rich people are taxed even more.

Our Sick State:

I don’t quite know what you’d call these rituals, but the term “private health-care system” doesn’t seem the most obvious fit. Indeed, as in so many other areas of American life — the Fannie-Freddied mortgage market, the six-figure college education — the main purpose of these dysfunctional labyrinths ever more disconnected from any genuinely free market seems to be to discredit the very concept of a “private” system and thus soften up the electorate for statist fixes.

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In free, functioning societies, it ought to be easy to buy a bottle of pills. The fact that it isn’t is one reason why America has a real bad headache.

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if you price your time, even if you price it at kind of minimum wage, the amount of time it takes, this is my problem, that everywhere you look now, you’re seeing a remorseless transfer of time, and time is money, of time and money from the productive class to the kind of bureaucratic sclerosis class.

In a previous post of mine, I observe that the US health care system is socialism without a central plan, and capitalism without markets or prices. Obama is not socializing it. He is making it more socialist than it was.