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This is the Human Action Podcast where we debunk the economic, political and even cultural myths of the days. Here's your host, Dr. Bob Murphy.
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Hey everybody, welcome back to Human Action Podcast. This episode I'm going solo and I'm going to walk through several charts to give you some more insight into gold production and net exports. Because the context here is there were some fans of Donald Trump with the new reports about the trade deficit saying, hey, look at the tariffs are working, net exports are up. And then it was brought to my attention, and that's why we're getting into this in this episode is there was a tweet that came out from James Rickards which said that, hey, hang on a second, this, a lot of this surge in exports is just due to gold leaving the country. And so then of course there were a lot of people saying, oh, is it like, are foreigners just sopping up all this gold out of the United States? And that's what's being clocked as, you know, an improvement in the trade deficit, things like that. Right. So that's the topic here. So let me just as I was interested in this and went through and dug out some charts to try to get a better handle on what's actually going on, I thought this will be a good topic for the fans of the Human Action podcast. So here we go. Okay, so first of all, here is the tweet from Jim Rickards that again, some people sent to me asking for my feedback on it. And so he says this came out January 9, 2026, and he said the US trade deficit went down. That's good for GDP, but a big part of the reason was huge gold exports. What does it say when gold is leaving the US in record amounts? And is the short term boost revealing a long term collapse? Okay, and then he's got this chart here. For those of you watching the video version of this episode. You can see what I'm talking about. It says non monetary gold exports and billions of US Dollars. And you can see it bounces around, you know, between the 2 and 4 billion going back, you know, to 20. This chart starts in 2010. It's just got annual amounts there bouncing around. And then, you know, it, it gets bigger, like a little bit into 2021 and then 2022. But then you can just see in 2025, it just goes through the roof. Okay. Look like quintipling at least. Okay. And so again, the, the issue is, is that with the rosy reports about how the US Trade deficit was down in the, you know, Most recent quarter of 2025 report that came out, is that really just due to the surge in gold exports? And then because that, you know, it's, it's like, huh, that, that doesn't, that doesn't feel the same. If you were somebody who was worried about the trade deficit, it doesn't feel the same. Say our tariffs work or ever if you thought oh yeah, because US Car producers are making more vehicles and they're getting exported or American farmers are just making more wheat that's getting exported, that, that feels one way. But to just say oh yeah, a bunch of gold is leaving the country, that, that doesn't land as well. Right. So let's unpack this and try to get a handle on. So my first thought was well, wait a minute, the chart we just saw there of, let me back up, it is correct. Right. So Jim Rickards there, you know, just showed a chart of gold exports measured in dollars and said that oh this, this was, you know, a big component of the, the Rosie trade deficit report. But he didn't like give the exact statistics there, but he, he is correct. All right. I just went and double checked and just make sure, you know, I had my ducks in a row that yeah, if you go look at the, the BEA's recent report on, you know, the trade deficit, it, it does say when it gives like the factors, you know, every quarter when they come out with the stuff that, you know, the new updates, they'll explain, you know, what are the major changes from the last quarter's report. And it specifically says in there that yes, part of what happened in terms of the reduction in the trade deficit is it was on both ends that the export of non monetary gold was up and that the imports of non monetary gold were down. And so hence, you know, the net, that big component of net exports of gold. And then when you look too at the change in the overall export balance, that one component was a big percentage of it. Right. So it is correct to say, if you wanted to ask why is it that the official measurements of the US Trade deficit declined, you know, going into the, that quarter like third quarter of 2025 compared to the prior one? Yes. Like I think the number one reason would be that these increase in exports of non monetary gold and a reduction in the imports of non monetary gold. Okay, so now again, let's, let's go to unpack that further. And so what does that mean? Is it really like was there a run on the bank or you know, things like that? Okay, so my first thought was let's check to see, is this just a price phenomenon? Right, because of course, what else has been going on in 2025 is the price of gold has gone through the roof. And so since those import and export measures are in dollar terms, I want to just go double check that. So here we're showing the same underlying data, exports of goods, non monetary gold. And that's the blue line you can see there. But again, that's measured in US dollars. And so, yep, you can see that that blue line just really takes off, goes to the roof there, especially in the second quarter of 2025. And then it drops a little bit in the third quarter, but it's still very high by historical standards. However, I overlaid this particular chart with that green dotted line, and that's showing you the export price index. All right, so that's not a dollar measure, you know, that's not showing you the price of gold, but it's an index based on, you know, what, what are exporters getting for their gold measured in dollars. And so you can see that, you know, those, those two lines move pretty tightly. Okay, so you know what, the first main point I'm saying here is part of what's going on. When you see the huge surge in the dollar exports worth of gold in 2025, a big component of that is simply, oh, because the unit price of gold is much higher measured in dollars. All right, so that's one thing, but then another element to get a, get our hands wrapped around this thing is to look at the comparison of exports and imports. All right? And then here we see something very interesting that you might completely change your thinking about, you know, the recent report. Okay, so this chart goes back to 2000, and the blue line is exports of gold that we've been showcasing here. But now this dotted red line is showing the imports of non monetary gold. Again, these are still measured in dollar terms. Okay, and so what do you see? In a typical year, the blue line is close to, but above the red line. So in general, over the decades, the US has been a net exporter of gold, just like, you know, Saudi Arabia is a net exporter of oil. The US still has some active mines in production. We produce physical gold, and that's one of our exports. In a typical year that we export, you know, more gold is produced and flows out of the country than is imported from other countries that have gold mines that are still producing physical metal. Okay, but you can see there were two huge aberrations in that typical trend that in 2020, you can see that that red line shot way up. Okay, so there was a big surge in gold imports in 2020. And then you can also see in 2025, in the first quarter, there was a huge surge in the imports of gold. Okay. You also saw that exports started rising in that first quarter as well. But then what happened is going into second quarter, the imports fell off a cliff, the exports zoomed up, and then by the third quarter, which is, you know, what we're, you know, it was the recent report we just saw, you can see that it's coming back down and imports are rising. So they're, they're coming close to parity again. All right, so from this, I want to say it seems to me much of what has happened over the course of 2025 with gold is similar to what we saw with a lot of other products that have, like, a large international aspect to them. So you saw it, for example, in pharmaceuticals as well. And what happened is, remember, you know, Trump went, gets reelected, and the 2024 election, November 2024, he comes in, gets sworn in January 2025, and he's talking a big game about using tariffs. And so, and that, you know, then there was the deliberation day shock and so forth. You know, that kind of caught markets by surprise. So in the first quarter of 2025, there was a big surge in imports on many different types of goods, including, like I say, pharmaceuticals, which, you know, was on my radar, but it was not on my radar until I was doing the research for this episode, is that that also was the case for gold. Okay? So, and the intuition is a lot of importers weren't sure what the rest of 2025 and going forward was going to look like in terms of tariff rates. And so they just err on the side of caution and said, hey, why don't we just pull forward? Like, in other words, if we know, every month, we typically import such and such amount, you know, of these pharmaceuticals or gold from our foreign sources. Let's just crank that up and go ahead and bring in a bunch. So we have this nice big stockpile in case tariff rates go up later in the year. So we can bring them forward and import them at the pre existing tariff schedule rates. Okay? So I think that's what happened. And so that's partly why I think you see that, you know, imports went through the roof in early 2025, and then they fell off a cliff because they had already pulled forward, you know, a year's worth or whatever of imports in a couple Months. And so then they didn't need to keep doing that. And then as they got more certainty about, okay, you know, Trump's backing off some of the tariffs and whatever. It looks like maybe that was largely just his negotiating style. You know, he says something shocking to scare everybody, get them to the table, and then he kind of bargains away that initial ask, you know, as a negotiation tactic. And so I think that's partly what you see here, that yes, there was a huge surge up front and then they, you know, held off on that and kind of let the inventories whittle away, you know, after they got more certainty about what the tariff rates were going to be. Okay. So I think that's largely what you're, you're seeing. And so, you know, now we're still on the tail end of that where that's kind of unwinding. So it's really just, you know, a mirror image of what you saw in the first quarter. Okay. So I think that's a large part of the story here. Okay. And then let me also show you just if you ought to get a handle on now, like, huh, geez, that's. I, you know, I wasn't aware that the US Was an exporter of gold. And so like we just produce this stuff like. So here's a chart that I got from the World Gold Council. So I believe this is, I think this is data over the, it's either the last five or the last ten years annual averages showing physical production. Okay. So that's why I liked this chart. So again, the price movements aren't confusing things. And you can just see in terms of the actual physical weight of the metal mind and you know, and brought to market, you can see here production measured in that sense. So again, according to this time frame and the averages that these people had with their data, China was number one at, I'm rounding here, 380 tons. Russia is at 330. Australia is at 284. Canada is at 202, and the US is at 158. Okay, so again, these are annual average tons of, you know, physical production. Okay. And then I hunted around to try to find, and I did succeed, looking at exports and imports over time on a, a weight basis, you know, not in terms of the market price of, of the gold being exporter imported. And so here, this is going back to 1989. This particular chart, the 2025 figures, though, there's, there's an asterisk. This is only as of. It's up through May of 2025. Okay. Just to be clear, so this is not including, you know, the third quarter information. So I think the net exports would be higher here, you know, if they, if they did have the full, you know, the data that some of the other charts I showed you included. Okay. But as you can see here from this chart, again, this is just looking at the physical weight that in a typical year, you know, that top darker bar which is showing the exports contrasted with the light blue bar which is, are the imports. You can see on a typical year, the US Is a net exporter of gold. Right. However, that wasn't the case, for example, in 2020. And there you can see that blue bar was, was lower. And so that's why in the year 2020, overall, more gold flowed into the United States than out. And you know, there's lots of potential reasons for that. You know, obviously the, the lockdowns and the financial uncertainty, everything in 2020 presumably had a lot to do with that. Okay. But big picture is what I'm saying here is that you can see as of May, you know, there was not a particularly, you know, huge outflow of, of gold from the United States. So again, that number would be higher in physical tonnage terms if we had, you know, more of the, of the data there. But you can see it's not, I, I don't think it's correct to say that, oh, what's been happening is physical gold has been leaving the country, you know, at a rate that, you know, we haven't seen before. Okay. Again, I think the part of what happened with the turnaround in terms of the net exports is that was just unwinding the big net imports of the first quarter of 2025. So once you look at the year as a whole, I think a lot of that is going to wash out. But then also it's largely due to the price spike of gold over the course of the year that in terms of physical volume, it's, it's not that big of a shift. Okay. So that just gets you up to speed on, you know, some of the mechanics and some of the, the, the data in terms of those, you know, get a handle on the size of these numbers and some of the possible complications. Let me throw you another curveball. If you try to get into this. This is more for the, the purists out there, but I did come across it and I want to just make sure you're aware there is something funky they do with these numbers. And it might partly to the extent that maybe some of those figures don't fully line up. That it did look to me that, for example, those, the import and export bar charts that I was showing you there compared to the figures that the BEA was posting, even though those were in dollar terms, it still looked like something was a little bit off and that those, the physical measures weren't fully accounting for the huge surge in imports that you saw on the BEA's reports. And so partly what might be going on is this, let me just read. This is from the bea and they say how it was like a little explainer when I was looking up these figures and there was like, you know, footnotes and stuff. So let me just read you this. So the title of this little explainer is how are exports and imports of non monetary gold treated in BEA's National Economic Accounts? Non monetary gold is used for two purposes. For industrial use as an input in the production of goods and services such as jewelry, watches and electronic equipment, and for investment as a store of wealth and a hedge against inflation. BEA's National Economic Accounts do not treat transactions and valuables such as non monetary gold as investments. And therefore purchases of non monetary gold as a form of investment are not included in personal consumption expenditures, gross private domestic investment or government spending. Because. Let me just stop there. So what they're saying is like, you know, one, when, when they look, when they're doing the GDP components, one of them is, you know, you got personal consumption expenditures, you know, people are buying food or whatever, clothes, things like that. And then you have private domestic investment, right? So some firm builds a new factory or something that gets, you know, that's part of gdp, that's production. But you know, it's, it's labeled as investment, okay? And it's not the government doing it. It's private sector, so it's private, okay? So they're saying you, you might have thought, okay, so if they dig up some gold out of the ground and then some hedge fund wants to add it to their portfolio as a, you know, a hedge against inflation for its clients and they go ahead and they spend money acquiring that know, they're paying the, the people to dig it up out of the ground and give it to them. I mean, that's not consumption, right? They're, it's not like you're paying farmers to pick some apples and give them to you and you eat them, right? So shouldn't that get counted as part of private domestic investment? Because clearly from, you know, in a financial perspective, clearly that's investment spending, right? So should it get count that way? And they, they don't handle it that way. Okay. Again, the National Economic Accounts do not treat transactions and valuables such as non monetary gold as investments and therefore purchases of non monetary gold as a form of investment are not included in. And they list, you know, all the different possible categories. Okay, so here, you know, I'm not going to get into why did they make that decision. I think you can come up with some reasons yourself as to, yeah, like paying some guys to build a factory that's clearly investment. Whereas paying some guys to dig up yellow metal out of the ground and hand it over to you, maybe that doesn't seem the same. Again, I'm not saying that's right or wrong to have that attitude, but that, that is what they decided to do. So now given that that's what they did, here's what they say. Accordingly, NEA National Economic Accounts, exports and imports of non monetary gold should not include gold that is held for investment purposes. All right, and then they go on. So what do they do? So where are these numbers coming from then? Where they report imports and exports of non monetary gold. So they say in most cases the primary source Data for the NEA estimates of exports and imports are the BEA's BE Bureau of Economic Analysis International Transactions Accounts. However, for non monetary gold, the NEA estimates are not based on the ITAs. Only a small share of exports and imports of non monetary gold recording in the ITAS is for industrial use. Most transactions are for investment purposes. Okay, so what they're saying is normally when we try to figure out the flows of imports and exports, we use this other series called international transactions accounts where they keep track of that stuff. But we can't do that for gold because most of the gold transactions that that ledger keeps track of are for, you know, they're not, they're not for industrial purposes. Not that somebody's buying, you know, taking the, we're exporting gold to somebody somewhere because they're using it, you know, for dental fillings or something. Right. And so they're saying, you know, to consistent with our methodology where we on a domestic context don't count spending to acquire physical gold as an inflation hedge, we don't count that as investment. That wouldn't work here. So what do they do how they come up with these numbers? So those other figures are removed and replaced with an adjustment for gold calculated as the difference between domestic production and industrial use of gold. Okay, so and then they give more details about where you can go for further reading. Okay. So I partly just went down that cul de sacs. I'm like, think of it just to let you know, this stuff gets really nuanced and subtle and if you do see discrepancies that some data sets seem to suggest that, oh wow, you know, exports and imports of gold, like measured physically look like such and such, whereas when you're doing it in monetary terms and looking at the official government data, they don't seem to match up. I'm saying part of the explanation besides just the price changing is that the government, when they're reporting exports and imports, they do this adjustment because again, for whatever reason, when it comes on the domestic calculation of gdp, they don't treat investment in non monetary gold the same way they would treat investments on other types of things. Okay, so that's just again to warn you for the you purists out there who are going to dig into these numbers, that there's that element. Okay, let me just take a, a step back though and raise one more issue again on this issue of like, how should we feel about this? So, you know, number one, it's pretty standard in Austrian economics. Like you can see, you know, Rothbard discussing this in man economy and State, for example, that the standard concern over the trade deficit is almost always based on fallacious economics. Okay? And I think that's largely true in this context as well, right? In general, if everything is voluntary and there were no government intervention, you know, I wouldn't care one way or the other about the trade deficit. Just like with an individual household, if, you know, you spend more at your local grocery store than they spend hiring your services or buying products from you. So what, you got a trade deficit with your grocery store, you got a huge trade surplus with your employer if, you know, if you're a salaried employee, okay? So that's totally fine. There's nothing unsustainable about that. Even if you have a net trade deficit with the rest of the world, if you're a household, that could be, you know, that could be okay, you know, as long as it's voluntary. Like if you were a retired person, you know, drawing down some of your retirement assets, there's, there's nothing wrong with that. Or if you're a college, you know, you're someone going to medical school and you're consuming more than you're producing, again, there's nothing intrinsically problematic with that, all right? It's voluntary choices. Now where, however, and that's usually where like the free market analysis of this stuff ends. So I will say I think that that can be a bit short sighted. And so in general, the fact that the United States, for example, has been running chronic trade deficits since the 70s, I don't think that that's completely benign and that the people pointing to that and saying, hey, that's kind of, you know, dubious. Should we be worried about that? I, I think it's too glib to just say, hey, free markets for the win, because, you know, for one thing, we don't have free market. And also, as I said, the pattern emerges in the 70s. And so I, I'll link in the Show Notes page, folks. But in, in a prior episode of the Human Action podcast, I showed that the US Trade deficit really started occurring after Nixon left the gold standard. And so to me that, you know, that should be some indication that this isn't simply a reflection of the strength of the US financial sector. And oh yeah, investors around the world just love the dollar so much and they love US Assets so much that, you know, on net they want to invest more in our country than vice versa. And so how do they, how do they pay for that? They got to send us cars and sweaters and things like that. Right? So that, what I just said there is a, is a typical glib kind of, you know, free marketeer dismissal of the trade deficit is completely irrelevant. And I want to say, I, I think actually that, that, that's too glib. And that really, even though, yes, in a fictitious world where you had Rothbartopia, if that region of a completely free society happened to be running large trade deficits year after year, that would probably be benign. You know, I would just say, yeah, that's probably because, you know, physical goods from around the world are flowing into that region because of all the, you know, tax advantages and regulation, so on, it made more sense for stuff to be built in that country. And so raw materials and other, you know, goods, semi finished goods and things like that would from around the world flow into that country to be processed into finished goods and services. And you could totally see how they might, that might show up as a net trade deficit for a while especially they did things like, you know, engage in financial services and if that was one of the, you know, their exports, as it were, that the way these things are calculated, that could show up as a, is a trade deficit. Okay. But again, just because you could hypothetically imagine in Rothbardopia a big trade deficit, even if it's chronic, being consistent with the healthy economy and the population gets richer over time, and there's no problem. That doesn't mean in the real world, looking at the U.S. the fact that it's had a chronic and growing trade deficit since the 70s, that that's a sign of US economic strength. And I don't think that's the case at all. Okay. And just to kind of connect it back to the household. Yes. You can come up with scenarios in which a household that's quote, living above its means is totally fine. The two I just went over just to remind you is yeah, somebody who's in their retirement years and they had built up a large portfolio of retirement savings and then they're drawing those that down over time. As long as they, you know, they think they got enough that by the time they die they'll still have net assets that they give to their heirs, that's totally fine. And you know, the way you might measure that in terms of a household is oh yeah, they're not working, they're not earning an income from a job and even the earnings on their assets might be lower than their consumption. If again, year after year the amount of their principal is getting smaller over time, that's still consistent with, as you know, a reasonable financial plan for the household. There's that element, that example or like I say, you can imagine a younger person who's in school and if you looked at, geez, their in, you know, their actual income is lower than their consumption and so their debt's going up and you know, maybe that's show up in the form of student loans or the run up credit cards or you know, their parents are either gifting them or implicitly lending them money, whatever. That still could be fine because yeah, it makes sense. You're building up your human capital especially you're going to a, you know, getting a technical skill or something, that's fine. But you can also imagine scenarios even at the household level where someone living above their means is not sustainable. It is a sign of profligacy. Right. Some couple that just keeps going on vacations and putting it on their credit cards and you look at the course of the year and they have a negative savings rate, they consumed more than their income and that showed up in terms of their gross debts increasing. Yeah, it's all voluntary. And so it's not that, you know, they violated someone's property rights and we can say Austrian economics says you just did something naughty, that no, it's their value scale. If they want to do it, they can do it. They have the right to do it. In terms of libertarian Properties theory. But the point is that's not sustainable. And if we're just commenting as people on the wisdom of that, you know, you're allowed to say, hey, that's irresponsible or okay, you had your fun, but now you got to turn around and, and have net savings going forward in order to pay for that vacation, as it were. Right. So that's, that's all fine. I'm saying those things that, you know, could be true at the household individual level. You can also find analogs at the country level. And so yes, even though Rothbartopia could run a chronic string of trade deficits because it's got such an awesome economy now, the flip side of that is the United States could be running a chronic string of trade deficits because its government is borrowing more and more and that effectively, you know, foreigners are loading up on treasury debt and they're quote, paying for it. You know, they're acquiring those treasury securities by sending us cars and sweaters and whatever. And that, you know, it's not that the US government is building all sorts of great infrastructure or whatever. No, they're doing, they're, they're frittering that away. Okay. So that's just building up this huge debt that some of which is owed to foreigners. And you know, that's, that's not sustainable and it is not a sign of a healthy growing economy. Okay. So that's, you know, just kind of walking you through some of the steps there. And again, part of the, the reason, I think a lot of the free marketeers who just knee jerk reaction to say, oh, anybody complain about the trade deficit is a fool. Go read Bastiat. I think that's too glib because again, the fact that this pattern really started emerging only after Nixon left the gold standard, I think should, you know, be a signal that, wait, something's off here. The specific mechanism, in case you're curious, I think is this is a part of it, is that by leaving the gold standard, it gave the federal government permission to run bigger deficits, knowing that the Fed was there waiting in the wings to be able to monetize it. And so I think that's partly what happened and why like the US savings rate is lower than it otherwise would have been and why the, you know, the trade deficit is therefore bigger than it otherwise would have been had the US stayed on the gold standard. Okay. And then just the last thing I want to go over, if you are in that mentality of that. Yeah. There's a sense in which the, the Us Exporting goods is like someone going to work and earning an income. And it's okay to import, you know, just like, it's fine just to, to consume. It's fine to spend your money on goodies as long as you think it's sustainable. Right. And so for, you know, for a given household in general, you think it'd be responsible if their income is higher than their consumption, that they're saving on net in a typical year. Okay. And so you can see why, you know, someone might think that would be true of a country as well. Again, I'm not fully endorsing that because there's a lot of nuances and there's all kinds of pitfalls you get into if you start thinking of the. The country as a household. But I, I just want to point out, like, again, even if you went down this path, how would you, how would you think about the net export of gold? Right? Because it's kind of interesting that it's, again, it's, it's one thing to think, oh, yeah, we, we assemble cars in our factories and we export them, or we, you know, where we make jet engines or something, or software, and that's what our exports are. That makes you feel like, yeah, usa, usa. Mega for the win. If, you know, if it's Trump's tariff policies that led to that outcome. But it seems a little bit different if it's, we're just digging up gold out of our minds and putting them on ships and sending them to foreigners. Like, there does seem to be an element there of. It's not so much that we're, you know, producing stuff from our awesome productivity, but it's more like we're just taking our natural resources and then, you know, shipping them abroad. So on that even there, you know, there are, there is some subtlety because there's a sense in which, you know, people don't purely create anything from a physics standpoint. Like, everything is just rearranging atoms, right? And so there is a sense in which, oh, nothing is actually produced by pure human labor. Everything is just transforming natural resources into different combinations. Like, even when we say we, oh, we're making cards in a factory, well, we had to get the raw materials from somewhere, right? So, you know, there is that element. So should we just view cars coming off the assembly line is just depleting the, the natural resources that we started out with? I think most people say, no, that, that doesn't, that doesn't sound right either. Okay, so I'm saying with something like gold, that's more of an intermediate case where it's not as obvious because, you know, there still is human ingenuity involved, right. That if there's some country somewhere and they had all kinds of natural resources, you know, they had oil deposits and you know, like case in point, Venezuela, it is certainly true. Let's put discussion of foreign policy aside, that international oil companies have more expertise in going into Venezuela and you know, setting up wells and transportation networks and so forth and docks and whatever to be able to get the oil they have in the ground or offshore and get it to refineries around the world. That international oil companies have the expertise, the experience and the equipment, whatever, to be able to do that at a lower price per barrel than if a socialist state run enterprise in Venezuela tried to do it itself. Right. So that's certainly true. So again, with this stuff, you got to be careful and not fall into a very crude materialist fallacy where everything is just lumps of, of matter on the ground and you know, and you don't worry about entrepreneurship and stuff like that. Okay? So there is that element, even with gold, that yes, the capitalist system, the closer a country comes to it, would be better at exploiting or tapping into the raw materials that nature has provided. Okay. But again, having said all that, there is this interesting asterisk of gross domestic product and oh, we're having net exports and that contributes to GDP that, that word gross in there, that it's not accounting for the depletion of the natural resources, you know, the, the inventories, if you will, that nature gave us from that. Just like with, you know, Saudi Arabia or something. If they're exporting crude oil is, you know, do you want to count that is the same in terms of GDP as, you know, some other country where they just have a bunch of workers who are really good at whatever writing novels and exporting novels or making movies and exporting that or writing software that you do see how, you know, you might want to quantify that differently. And again, part of it comes down to if, if a big component of the value of the finished product that you're exporting is just coming from the, the input and that, oh, there's only so many ounces of gold in our country's land and you know, as we take it out, that's going to make it harder to get further ounces in the future. And if you want to account for that, that type of thing is not included in the GDP accounting. Right. Some economists have suggested trying to incorporate that stuff and into it. You know, to get a more accurate measure. But in any event I just wanted to bring that up. Notice, however, you are fine in terms of like, like there's nothing wrong with capitalism. This is just, I'm just, I'm just commenting on the accounting that's done in terms of government statisticians and trade flows. If you're a private company and you have an oil field and you're trying to determine like the optimal extraction rate and things like that, you absolutely take those things into account, right? That you. This last thing I'll say here and I'll wrap up this episode, folks. A famous result in, in the economics literature. Harold Hoteling came up with this, you know, decades ago in the early, early 20th century where you know, you want to figure out, you're sitting on a pool of oil and you want to figure out what's the optimal extraction rate. If you simplify away all kinds of issues and just, you know, make it real. Imagine like you're just sitting on a bunch of swimming pools full of oil and you want to figure out how many barrels do I sell this year. A very primitive analysis like from a socialist might say, oh well, you're a short sighted capitalist, you would just sell it all because you don't care about the future, you just want to maximize. And obviously that's crazy. No, because if you, if you sell more oil today, that's going to tend to push down the price. And so what you want to do is you come up with a forecast of what do I think oil prices will be like over time. And you know, Hoteling showed in a simplified model where you could come with an exact result because you know, you can control all the different variables and know them with certainty, the result would be the profit maximizing rate of extraction is that you keep selling barrels of oil today until the point at which the oil gains you more value, has a higher return if you leave it in the ground, right? Like on the margin you got a barrel of oil, you can sell it today for the spot price or you can hold it off the market until next year. And he was showing an equilibrium. It's got to be the case that you, the reason you would refrain from selling it today is that you just said hold it. And then you know, you get the price appreciation over time as the spot price rises. Okay, so in the final equilibrium, and again in a simplified model like this, it's like even if all the world's oil were all just a big swimming pools or you know, big reservoirs, and everybody knew exactly how Much there was, there's no uncertainty that they wouldn't just go through it all in one year, that they would draw it down and the price would rise over time, you know, reflecting the increasing scarcity and interest rates would be involved. Because if you sell today at whatever, you know, a hundred dollars a barrel, you get it. You could put it out at interest. If the interest rate's 10%, then what would have to happen is, oh yeah, the spot price of oil next year would have to be $110, right. To balance that. So you could, you know, sell today and get $100, put it on interest and have 110 next year, or you could just hold the barrel physically for a year and the spot price rises to 110. Okay, so again, that's not the real world, but he's just showing in a simplified model just to kind of get a sense of the mechanics. You can see those things would come into play. Right. And so I like that, you know, as an Austrian economist, because it's showing the role of interest rates. The idea was that, oh, the higher the interest rate, the more people would draw the oil down in the present. Right. Cause you would need to get the increase in the spot price to be higher. So you'd have to consume more today so there'd be less being carried into the future in order to get that spot price to rise more rapidly. Or on the flip side, the lower the interest rate, oh, then that would lead to a path where annual consumption is lower and more of the oil is carried forward in the future generations. And so notice how that dovetails exactly with the Austrian take that interest rates have to do with time preference. And so the idea was like, oh yeah, the more, I'm speaking loosely here, the more impatient society is, the higher the interest rate, they would consume a fixed stockpile of resources more rapidly, whereas the more patient they were, the more, the longer their time horizon. They would consume less of a given stockpile of some finite resource and more of it would get, you know, carried forward in the future years and handed down to your kids and grandkids. So that kind of, it's neat how that, how that works out like that. Okay, well, I tried to touch a lot of different topics on this. I hope it was coherent for you folks. Big picture summary is, yes, be careful. The recent announcement of the Rosie trade statistics is largely driven by the component of non monetary gold net exports. But don't take away from that the idea that, oh wow, all of a sudden all the gold is getting sucked out of the country that in physical terms, it doesn't seem particularly, you know, a particularly big rush. It's largely due to two things. Namely, it's the mirror image of the earlier surge in imports at the start of the year because of the uncertainty over the tariffs, and also the fact that the market price of gold has gone through the roof. And so exports, net exports measured in dollar terms of gold, are going to be very high for that reason alone. Okay, folks, catch you next time.
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