Which James Bond villain plan made the most economic sense?

I suspect Tim Harford knew I would blog this when he tweeted this piece.  It starts with this:

We looked through their schemes, and asked Jean-Jacques Dethier [TC: link is mine], a development economist at the World Bank (and a lifelong Bond fan), what he thought.

And then:

Plot: Gold tycoon Auric Goldfinger’s (Gert Frobe) plan is quite simple: He wants to attack the U.S. Bullion Depository in Fort Knox and detonate an atomic bomb, thus irradiating the gold stored there, rendering it worthless for decades. This will in turn increase the value of Goldfinger’s own gold and cause economic chaos in the Western world.

Plausibility: “This looks plausible to me,” says Dethier…

I must disagree.  First, it requires an upward-sloping marginal cost curve for gold production, including the flow out of commodity uses.  That’s actually plausible, but should death-risking criminal schemes rely on that?  Second, if you are going to blow up some gold, don’t blow up the gold held as an endowment, blow up some gold which might go on the market.  Third, couldn’t governments in response simply increase the capital gains rate on gold sales?  In any case just setting off a dirty bomb probably would spike the gold price more than blowing up some gold.  Or how about this criminal strategy?: hold on to the gold and perhaps in due time it will go up from $35 to the unthinkable level of $200 or $300 an ounce.

And there is yet another complication.  At that time the U.S. was (sort of) on a gold standard!  Admittedly ability to redeem was quite limited and held by foreigners who were themselves having their arms twisted not to redeem.  Still, what if the price of gold doesn’t go up (denominated in terms of what?  most of the major currencies are then fixed not floating) but the U.S. price level goes down?  Why use bombs to try to manipulate the price which is about the hardest to budge in the direction which is hardest to get it to budge in?  What if only quantities adjust?  And so on.  Wouldn’t an inflationary scheme have been easier to implement?  I am not convinced Gert Frobe was a stellar macroeconomist.

I see this alternative scheme as potentially more effective, and Dethier seems to go along with it as well:

Casino Royale
Plot: Before Bond foils him (and forces him into a high-stakes underground poker game), Le Schiffre (Mads Mikkelsen) is shorting airline stocks, while simultaneously planning to destroy a prototype luxury jetliner on its maiden voyage. That will then drive airline stocks down, allowing him to make millions.

If your productivity is especially high today, go over to Twitter and try #KrugmanBondFilms.


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