Something interesting happened in the gold, or bullion, market when someone traded over 18,000 lots and sent the price down by 1.6% in about a minute. This sort of volatility is unusual but had no long-lasting ramifications. When I read comments on the story I was struck by the fact almost immediately the most suggested theories were conspiracy based.

When reading about what happened, it becomes clear gold traders are completely unalarmed and know precisely the reality of the situation. Someone tried to trade 18,149 ounces of gold but accidently chose to sell the same number of lots. A trade of this nature in ounces is quite typical. Gold is currently a pretty flat commodity without much movement or trading and thus the larger trade, a lot is about equivalent to a hundred ounces, was unusual.

I find this incredibly interesting. The logical and rational explanations, well clarified in the article, fall on completely deaf ears. There are quite a few people who are invested in various financial collapse schemes. These people want your money. They want you to be convinced an imminent downfall is coming and the price of gold will spike. They want people to be scared, because frightened people are fleeced of their money all the more easily.

These sorts of doomsayers have been around for as long as we have written records. They’ve always had the same motives. I think it’s highly unlikely the people commenting on these stories are those who will reap the financial windfall cascaded on them by willing fools. The conspiracy commenters are merely unwitting agents and future victims.

There is no great financial collapse coming. Buying gold is not going to make you rich. No one is manipulating the market. The only easy way for you to make millions of dollars in the commodity market is to understand human frailty. People are easily frightened and, when so, lurch as a pack toward a single objective. I’m reminded of watching a soccer game where the competitors are all about five or six years of age. They chase the ball as a herd. If a couple of players are smarter and more skilled than the rest they can easily use this tendency to score goal after goal.

That being said, it’s your money. Do with it as you will. If you want to purchase gold, or anything else, because you believe disaster is right around the corner, far be it from me to stop you. I don’t begrudge those who understand how things work their profits. To the smart go the spoils.

Tom Liberman

The recent case involving United Airlines has brought to the forefront of people’s consciousness the industry practice of overbooking on flights and in hotels. I understand the United Airlines case didn’t actually involve overbooking but that’s irrelevant to the topic at hand. The question is, should the airline and hotel industries engage in the practice?

In order to make a judgment in this regard we must understand why they do so. Overbooking is done primarily to maximize profits. There are always people who book a hotel room or a flight but don’t show up when the time arrives. This translates into losses for the airline or hotel as they would normally have reserved that ticket or room for someone else. Now it is too late to do so.

The problem occurs when fewer people fail to show up than are overbooked. The flight or hotel now doesn’t have enough room for all the customers. This is resolved in a number of ways, generally by offering incentives to take a later flight or providing a room at another location.

But how is it solved? There are basically two methods.

Laws might be passed that forbid the practice. This leads to decreased profits for the industries involved. Hotel rooms go unfilled and flights take off at less than maximum capacity.

The second method is for the hotel or airline to voluntarily refuse to overbook. This generally involves non-refundable transactions. If you purchase a ticket and are unable to make the flight or stay, you do not get any of your money back. It is as if you actually took the flight or stayed in the hotel.

Both solutions have significant problems.

When we reduce profit, there is a negative effect on all aspects of the business. The company might not be able to employ as many people, they might economize on things like safety, they might even go completely out of business. If laws are passed in one state or community rather than another, we create obstacles to the free market. One supplier has an advantage over another. In addition, companies are now given an incentive to break the law. When you make breaking the law profitable, you encourage crime. Companies that find ways around the restrictions are going to be more profitable than those who follow the regulations. These criminal companies succeed where their competitors fail.

The second solution is problematic for the consumer. Sometimes when we miss a flight or fail to stay at a hotel the cause is unavoidable. Perhaps a death in the family or an illness. It comes across as cruel and certainly generates an enormous amount of bad publicity in this information age to force people to pay for tickets under these circumstances. People lie. It would be impossible for an airline or hotel to track down everyone who failed to show up and prove their excuse, a death in the family, didn’t actually happen. Thus, they either stick to policy or face social media retribution.

I totally understand the outrage of a person who suffers because of overbooking. I’d be angry as well. I just think it’s important to understand the cause of a problem before going about trying to solve it. In this case, there are solutions but they are imperfect.

That’s the nature of this world sometimes. Contrary to what people might be saying, there aren’t always easy solutions.

Happy travels, my friends!

Tom Liberman

A friend of mine on Facebook recently passed along a meme comparing the price of a dozen organic eggs to the price of a coffee at Starbucks. The ostensible reason for the post was to ridicule people paying five or more dollars for a coffee who then complain a dozen eggs is too expensive. The reality of both situations is something called Perceived Value.

The basic idea is that people want value for their money. The relative worth of a product and the value associated with expenditures are different for each person. For some people a dozen eggs has much more value than a cup of coffee from Starbucks, while for others it is reversed.

I don’t want to get into a long discussion of Perceived Value, although it’s certainly a fascinating subject. I want to examine why people in the United States, and much of the developed world, seem to value a cup of flavorful coffee at a higher level than a dozen organic eggs.

It’s because cheap eggs abound and we don’t need to purchase expensive eggs to stave off starvation. There are plenty of eggs in this part of the world. Eggs go for a very low price thanks to factory farming and other capitalistic endeavors. Thus, we balk when we see a high price associated with a dozen organic versions of the product we could get more cheaply.

But wait, you say. You can also get a cup of coffee for less than five dollars many places. This is true; however, a cup of coffee is not a vital human need. Eggs, as in nourishment, are something we absolutely must have. If we go without eating for a long period of time we die. Eggs are a human need. Coffee is simply a human desire; in other words, a luxury. We don’t mind paying extra for a cup of coffee as long as we really enjoy it. We don’t need the coffee to survive. We justify the expense as disposable income.

The reality is we cannot change anyone else’s perceived value of a product. If some people balk at spending a certain amount on eggs, that’s their business. The same for coffee.

The important lesson to be learned is that capitalism has brought us abundance. Certainly, arguments against factory farming can be made. The practices that allow for cheap eggs are not particularly savory. That being said, we can actually purchase a dozen eggs for a couple of dollars. In fact, most people in the developed world spend far less of their income and time getting enough food to survive than do those in underdeveloped countries. This allows us to purchase an expensive cup of coffee.

I’m of the opinion this is something we often overlook in an age of abundance and wealth. Sure, things aren’t perfect, but capitalism and technology have brought many of us to a level of wealth and luxury beyond the wildest imaginations of previous generations.

Rich people are very rich but poor people are a lot wealthier than their counterparts in underdeveloped nations.

It’s going to take some time before we achieve super-abundance. Where everything we truly need is available for almost nothing at all. Where the only money we spend is on luxuries. There are still people in the developed world suffering and hungry but that doesn’t mean we should turn back to older times.

The path to this level of abundance is through the expansion of capitalism, not the restricting of it. Five dollar coffee proves it.

Tom Liberman