Would you want an asteroid’s chunks of solid gold to be towed to Earth?
We ask because, it turns out, the chunks might actually be out there. Orbiting the sun in the asteroid belt between Mars and Jupiter is a potato-shaped rock, mainly of metal, called 16 Psyche. Its average diameter is, NASA explains, “about the distance between Los Angeles and San Diego” (140 miles/226 kilometers, 1/16 that of our Moon). Some think 16 Psyche might be the core of a planet blasted away by collisions billions of years ago.
Because Psyche is mostly nickel and iron, observers have suggested that there could well be gold and platinum in there too, because all these elements are often found together. Venture capitalists have proposed mining such asteroids; accountants are saying, slow down a bit. NASA, meanwhile, is proposing to launch a spacecraft in 2022, to arrive and investigate 16 Psyche in 2026. Estimates of $700 quintillion in value are floating about.
So now, as a thought experiment, what would happen to the economy if entrepreneurs brought back large chunks of Psyche’s gold to Earth? Would it collapse the gold market? The currency? Cause a recession?
Most likely, it wouldn’t make much difference to most people’s finances:
If gold was still used for money, that much gold would create massive inflation, resulting in a lot of economic hardship. No country uses the gold standard anymore, so that’s hardly a concern. Rock-bottom gold prices would certainly be devastating for gold mining companies and people who keep their wealth in gold bars. That’s really bad for them, but they’re a tiny part of the global economy.David Youngberg, “What That Giant Asteroid of Gold Would Really Do to the Economy” at Foundation for Economic Education
So what difference would huge gold boulders arriving from space make? A geologist explains:
Of all the minerals mined from the Earth, none is more useful than gold. Its usefulness is derived from a diversity of special properties. Gold conducts electricity, does not tarnish, is very easy to work, can be drawn into wire, can be hammered into thin sheets, alloys with many other metals, can be melted and cast into highly detailed shapes, has a wonderful color and a brilliant luster.Hobart M. King, “The Many Uses of Gold ” at Geology.com
As an industrial metal, gold has everything going for it except that it is rare and thus expensive. Thirty-eight percent of it is used in jewelry. Only 34% finds its way into electronics where, King notes, “Gold is the highly efficient conductor that can carry these tiny currents and remain free of corrosion. Electronic components made with gold are highly reliable.” Gold, he adds, is used in dentistry and medicine because it is “chemically inert, nonallergenic, and easy for the dentist to work” and “highly reliable in the electronic equipment and life-support devices.”
In short, anyone whose financial position is not bound up with the rarity of gold might be physically better off if there were more of it around.
Does that seem counterintuitive? Something like that has already happened to aluminum:
Even though it’s the most abundant metal on the planet, most aluminum is trapped in bauxite and was difficult to purify for most of human history. Pure aluminum was incredibly rare, and there was once a time when the stuff of soda cans was more precious than gold. Aluminum bars were displayed next to the French crown jewels, and pure aluminum caps the Washington Monument.David Youngberg, “What That Giant Asteroid of Gold Would Really Do to the Economy” at Foundation for Economic Education
Then, starting in 1886, everything changed with the Hall-Héroult process for refining aluminum from bauxite:
Making aluminum cheap didn’t cause an economic collapse. Quite the opposite. It made society wealthier because refining improvements made everything else cheaper, thereby creating new opportunities. Wood that once went for beer kegs could be used for something else. Aluminum boats don’t corrode in water, and this application freed up steel and timber that would otherwise be used to replace degrading vessels. Modern airplanes wouldn’t even be possible without aluminum, and their existence frees up fuel, time, and materials that would have otherwise gone to passenger ships and trains.David Youngberg, “What That Giant Asteroid of Gold Would Really Do to the Economy” at Foundation for Economic Education
Aluminum cans also line our supermarket shelves and aluminum foil lines our roasting pans. It is an easy metal to recycle as well; in fact, it is usually the most valuable item in a recycling box.
So if you are not French royalty, you are better off with more abundant aluminum. That’s because wealth comes from ideas, not things:
It comes from the ability to create things that satisfy human desires.
A steel factory represents real wealth, because you can use it to make parts for cars, buildings and so on. A house does too, because you can live in it or rent it out. The skills and knowledge in your head are also a form of wealth, even though they’re not counted in the official statistics. Even a sandwich is wealth, at least until it goes bad.Noah Smith, “That Giant Asteroid of Gold Won’t Make Us Richer” at Bloomberg
Bradley Institute fellow Jay Richards, author of The Human Advantage: The Future of American Work in an Age of Smart Machines, observes that the chunk of gold orbiting the sun illustrates another basic reality of economics as well, one that impacts the development of artificial intelligence:
There is no fixed amount of work to be done, or tasks to be accomplished. (Believing otherwise is called the “lump of labor” fallacy.)
There are currently a lot of things human beings do that will easily be done in the future by machines. That won’t leave us with nothing to do. It will just mean we will be able to transition to doing those value-creating things that machines, can’t do, or can’t do well alone.
It is analogous to the gold asteroid. Acquiring the asteroid would affect the price of gold, which would be quite disruptive. But by lowering the price of gold, it would create new, currently nonexistent, markets for other uses of gold.
In the same way, AI creates new, currently nonexistent, markets for human time and creativity. Here’s an example from the history of automating the workplace: A century ago, tens of thousands of women worked for low pay as telephone operators, physically connecting wires at switchboards. The same processes as slowly automated them out of that job also provided many more interesting jobs in communications, most of which offered better pay and advancement. Automatic switching was, if you like, the “gold asteroid hit” of yesteryear. It was only really bad news if you had invested your life savings in manual switchboards.
Further Reading: Students, don’t let smart machines disrupt your future. Three ways you can avoid life in Mom’s basement and the job pouring coffee (Jay Richards)
Maybe that robot will do you a favor and snatch your job. The historical pattern is that drudgery gets automated, not creativity.
Jay Richards: Creative freedom, not robots, is the future of work. In an information economy, there will be a place where the human person is at the very center
In defense of the gig economy. Jay Richards: It’s misunderstood! Weekly salary is only one measure of value today
Featured image: Gold city by Zoltan Kovacs at Unsplash