Writing on a Deadline?

This is old, from 2011, but I just now stumbled across it while looking up other stuff. It’s Krugman, blaming an increase in the price of gold on….Glenn Beck.

Don’t take my word for it; read it yourself. Krugman quotes Kash Mansori explaining that because the gold market is fairly small it would only take a sustained effort by a small proportion of investors to drive up the price.

Imagine that an effective, sustained advertising campaign, targeted at wealthy, conservative individuals in the US, is able to persuade 25,000 of them per month to switch a portion of their financial assets into gold. (Note that the target audience would be those roughly 3 million US households that have over $1 million in financial assets.) Suppose for the sake of argument that each of them is persuaded to shift just 5%, or $50,000, of their portfolio into gold. Such an advertising campaign would have the effect of pushing $15 bn per year into the market for investment gold — very possibly enough to have a significant impact on the price of gold, given how small the overall market for gold is.

Interesting, and plausible if he’s right about the size of the gold market. Some of Krugman’s less-than-impressed commenters argue he’s badly underestimated the world gold market, but I don’t know and it doesn’t matter for evaluating Krugman’s response.

Glenn Beck was financially intertwined with Goldline, and therefore had a financial stake in pushing fears of hyperinflation. And he had many, many viewers. So there was a direct channel through which conservative Americans were being pushed into buying gold.

Sooooo…Krugman thinks American millionaires take their investment advice from Glenn Beck? One wonders how they became millionaires, or how long they’ll remain millionaires. As it turns out, the intertoobz is all full of actual data, the kind of thing Krugman’s good at using when he feels like it, and even a two-bit academic like me can find Beck’s audience demographics. According to the data there on the date I’m writing this, Glennbeck.com got 2.5 million unique visits over the past month. 78% of his viewers make $100,000/year or less, and while income isn’t wealth, most people with that income aren’t millionaires.

Let’s be generous, though, and assume that the remainder of his audience are in fact all millionaires, including the 14% making between $100k and $150k/year. That’s 22% of 2.5 million, or 550,000 people. Now let’s take Kash’s proportion (25,000 of 3,000,000 people) and apply it to Beck’s 550,000 probably-not-really-millionaires, which give us just under 4600 people. Again, I’m the generous type, so let’s round that up to 5,000. Now, $15,000,000,000 / 5,000 = $3,000,000. So we’re not just talking about millionaires being influenced by Glenn Beck, not just folks willing to shift 5% of their million dollar portfolios into gold, but people able to shift multiple millions into gold.

Sure, we can assume that the numbers are higher, that the proportion of Beck’s listeners who follow his investment advice is much higher than the assumptions Kash used in his wholly Beck-free hypothesis. But that still requires us to assume that wealthy people are taking their investing advice from a college dropout.* I’m unwilling to make that assumption. Really, my whole analysis is entirely speculative, spurious even, but it’s incomparably beyond what Krugman attempted, which is no analysis at all.

So is this what happens to smart people when they’re forced to write to deadlines and they just happened to have a very busy week? Or is this what happens to smart people when they put on their ideological blinders? Such a claim really should be so embarrassing that Krugman’s still involuntarily curling up in the fetal position every time he remembers it.
* There’s nothing really wrong with being a college dropout. I was a college dropout for a while, in fact. But it’s not as though Beck dropped out of college and made a fortune as an investor, eh?

About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
This entry was posted in Economical Musings and tagged . Bookmark the permalink.

11 Responses to Writing on a Deadline?

  1. pierrecorneille says:

    Not being a fan of Krugman or Beck, and not being that concerned one way or another with the price of gold,* I do wonder if the Krugman argument has more truthiness to it than it appears. There are, I suspect, a lot of non-millinonaires who invest in gold on the presumption that the economy is going to heck in a pocketbook. My father, certainly not a millionaire, was a fan of the 1980s/1990s self-published books that warned of a coming fiscal calamity and that encouraged investment in gold as the only safe investment. I don’t know how much he followed that advice–and to the extent he did, it was probably buying only a handful of gold coins and not, say, large amounts of gold reserves that he probably would not have been able to afford anyway.

    But if thousands of people thought and bought as he (probably) did, then maybe that would affect the gold market. Not that Beck himself would still deserve the blame, but there does seem to be a persistent meme that the 1970s might very well return and if one can buy gold to hedge against that, they’d be doing good for themselves. And speaking impressionistically, I’d say that meme seems more prevalent on the right than on the left.

    *I’ve heard that higher prices for gold suggests a fear of rampant inflation that is at least partially self-fulfilling So, in that sense, I supposed I’m “concerned,” but it’s not particularly something I’m worried about. As a friend of mine told me once, if things were so bad that good ol’ fashioned dollars won’t work, then we’ll have a lot more to worry about than whether we as individuals possess gold reserves in our sock drawers (I paraphrase).

  2. J@m3z Aitch says:

    Re your last sentence: As my brother Scott once said to one of our relatives, if these folks advertising gold really believed what they were saying, wouldn’t they be buying it instead of selling it?

    Anyway, even if there is some possibility that the story is correct, Krugman makes no effort to demonstrate it. He just says, “look, Beck,” and treats it as case closed.

    And we’re supposed to take him seriously as an analyst.

  3. Matty says:

    It seems to me that if the economy gets to the point the global reserve currency is no good we’re into Mad Max territory and shinny soft stuff won’t help much. Investing in weapons and survival gear should be the angle. Now if you’ll excuse me I have to dig my private nuclear bunker

  4. Matty says:

    On the economics of using gold as a hedge against inflation. I’m not exactly knowledgeable but my gut feeling is if one investment class was consistently better over decades. 1 something would happen to stop it. I don’t have anything to base this on other than a vague sense one bit of the economy always doing better can’t work. 2. Word would have got out through more reliable channels

  5. Troublesome Frog says:

    As my brother Scott once said to one of our relatives, if these folks advertising gold really believed what they were saying, wouldn’t they be buying it instead of selling it?

    That’s the trick–the big scam is that those guys aren’t usually selling gold (at least, Goldline wasn’t). They’re selling gold coins to people who think they’re buying gold as an investment. And they’re selling them waaay above the melt value of the gold (or the market value of the collectible coin). Basically, they take gullible old people who think they need to buy gold to keep the government from stealing their retirement and turn them into novice coin collectors and then fleece them on their coin purchases.

    This was the thing that made me reclassify Glenn Beck from “weirdo crank” to “King of the Grifters.” Whip your gullible followers into a frenzy and then steal $0.40 on the dollar from their retirement funds. Truly a top notch scam.

  6. pierrecorneille says:


    Those were probably the types of guys my father was listening to/reading in the 1980s/1990s.

  7. Troublesome Frog says:

    Krugman thinks American millionaires take their investment advice from Glenn Beck?

    Well, I do want to throw this fine artisanal small-batch data out there: just about everybody I’ve ever seen talking about gold being a good investment uses the reasoning that inflation is just around the corner and gold will protect them.

    If you plot the historical price of gold next to inflation, you’ll see that increases in the price of gold are really terrible indicators of future inflation, so it seems like the people who buy gold to protect them from inflation have been making important financial decisions based on badly flawed premises. So I don’t know who they’re listening to, but they probably shouldn’t be, millionaires or not.

    Maybe most of that price run-up is people who know something about the fundamentals (not sure what fundamentals, given that the demand for gold as something other than an investment doesn’t seem to be going crazy), but I suspect that it’s one of the few investments where the greater fool theory alone can keep even pretty big fools in the black for a fairly long time.

  8. lancifer666 says:

    If you are wealthy (say total assets of tens of millions of dollars) then it makes some sense to keep a portion of your money in gold just in case there is a hyper-inflation event.

  9. Dr X says:

    Well, this chump bought gold and held it for about 28 years. Krugerrands at a very small mark up. Return about 4.5% The first 20 years it earned nothing. I only got out with what I did because of the gold bubble beginning c 2003. S&P over same time would have earned neighborhood over 7%. Looking at the numbers, it’s a lot of money lost. I guess if you’ve got millions you can leave gold sitting around costing you money for decades, but even if I was wealthy, I wouldn’t buy gold again. I think that modern economies aren’t going to get themselves into hyperinflation. And if they did, you’re not going to buy loaves of bread with gold. More likely, barter systems would expand.

  10. J@m3z Aitch says:

    Funny, I never pictured Dr. X as a Glenn Beck listener.

    Seemed like more of a Hannity fellow…

  11. Troublesome Frog says:

    J@m3z Aitch:

    It wouldn’t matter if he was a Hannity guy. Hannity was pushing gold too. And Goldline.

    I don’t really have anything to defend the notion that Glenn Beck single-handedly drove up the price of gold. I’m not sure that Krugman was really putting that claim out there, although I suppose you could make the argument that he was twisting his moustache and stroking his neatly trimmed beard while giggling that the rubes would believe it if he implied it. That’s not too outlandish for a partisan columnist to pull. But it’s also not too outlandish to note one example among many of a kooky trend that seems large enough to be alarming.

    We should remember that Glenn Beck is just one example of many members (“many” in this case meaning “practically all”) of the top conservative commentariat pushing fears of hyperinflation and saying that gold is a safe haven. My methodology for reaching this conclusion: Google “conservative commentators” and take then Google “[name] gold” and “[name] hyperinflation” to see if they’re pushing the same fears in their rants. Just a few of the obvious top hits:

    Rush Limbaugh
    Glenn Beck
    Bill O’Reilly
    Sean Hannity
    Eric Bolling
    Mark Levin
    Gordon Liddy

    Again, not a complete and exhaustive survey, but a pretty telling result with a few minutes of Google. So there’s those guys, and then there’s the news which takes whatever crazy shit those guys are saying and adds a question mark to the end, making it a mainstream news headline. If you’re the half of America that prefers its news from sources that lean conservative, you’re definitely getting some of this. If you’re in the majority of Americans who think that whatever most people are saying about investment is likely to be true, you’re also probably affected by it.

    People pay to create buzz because creating buzz can alter conventional wisdom and decision making behavior on a large scale. I’m sure it’s a big feedback loop like the Wikipedia citogenesis problem, so it’s hard to tell what the original driving force is, but I’m guessing that mentioning gold or hyperinflation on your show gets you a phone call from Goldline with an offer to endorse gold even more loudly in return for a share of granny’s retirement fund, so that’s probably not too healthy.

Comments are closed.