On law school, gold investing
(More blog entries from bbirney)
A friend recently forwarded me a New York Times article on the uptick in gold investing. While the article is superficially correct and is wise to identify that rich elites on both sides of the false left-right dichotomy are investing heavily in gold, it (predictably) lacks realistic analysis of the motivation for doing so, and the context in which this motivation occurs.
The Times is many years late in this analysis. Insightful investors have been increasing their gold hedges steadily since 9/11 gave both Republicans and Democrats a blank check to borrow unlimited money for military spending under the guise of "national security". (This is the "last nine years" they reference toward the end of the article, though they don't have the journalistic integrity to make the obvious correlation.)
I disagree that "gold buyers have always been motivated by fear." Some certainly have, but there are plenty of responsible people who perceive the fundamental flaws and endemic weakness of our economic system, not only as a threat, but also as both a short term and long term opportunity. Gold is one part of a strategy to capitalize on that opportunity and simultaneously prepare to thrive in the reality - clear to me, anyway, after taking a hard look at the signals - of significant economic turmoil in the relatively near future.
As this article brushes over, our current economic practices are patently unsustainable, and we do not have the political will to change our behavior. We borrow and spend much more than we earn, we finance our profligacy by borrowing from highly questionable creditors, we have come to demand massive (though not quite European) entitlements from our governments, and we are unwilling to make the kinds of sacrifices that would be needed to balance and sustain this relationship. A perfect example of our madness is the "spending freeze" that Obama trumpeted in January as a step toward fiscal austerity. It completely exempted military spending, Medicare, Medicaid, foreign aid and "Homeland Security" - the vast majority of the budget. It pretends to take substantive and meaningful action while in fact doing absolutely nothing. This posturing and misrepresentation is a symptom, not a cause. We now suffer from two deep and fatal economic flaws: the first, that our leaders think that a lie, shouted loudly and longly enough, will fool the citizens; the second, that they are correct.
If you agree with this hypothesis, you can react in one of two (broadly characterized) ways: You can say "Things will work out somehow", which roughly equates to "The government and banks will take care of us", or you can say "We will reach a tipping point, after which 'unsustainable' applied to 'economic practices' will produce a rapid feedback loop of social disintegration." I subscribe to the latter perspective. I don't believe our hyper-specialized, technologically-dependent society, sapped of personal responsibility and self sufficiency, can any longer survive a lengthy period of serious economic disruption. Fragile supply chains will break, computers will not be maintained, electricity grids will go down. If you need help understanding what industrialized America will look like then, try to imagine New York City after a month with no electricity, no food shipments, and residents drinking only from the Hudson River, into which they also dump their refuse (and their dead.)
This is a grim analysis, and many prefer to imagine a better outcome. While I admit that it is possible I am wrong, I do claim that the theory fits the evidence. If you think I am being needlessly alarmist, ask yourself why: Is it because you have evidence to the contrary, or is it because you don't want to face the reality that life will soon become much less comfortable and much more dangerous?
I do not fear this outcome, nor should anyone who is prepared to deal with "life after economics". This is one reason I am eager to invest in a law education. I want to be part of rebuilding strong local communities based on liberty and rule of law if and when the opportunity presents itself. It's also a reason I've chosen to live in a rural place with access to plenty of open land and a clean water source; why I've raised chickens for three years (and now ducks); why I am enthusiastically supportive of local community government in my town and county.
Perhaps I am wrong after all. Maybe the government and banks will make everything better (albeit with a little inflation). Perhaps the world will keep buying dollars to fund our foreign adventures. Perhaps no one will notice that the Emperor has no clothes. In that case, both the gold and the law education will still be good to have. The best investments are self-hedging.
