The following is an excerpt from Roy Sebag's article, Buffett's Math Trumped By Gold, published by Goldmoney Insights, February 29, 2016. Mr. Sebag offers another analysis of gold similar to my own in Rockin' To The Golden Oldies. I think you'll find what he wrote most interesting.
GDP per Capita Priced in Gold
When it comes to financial analysis, I try and focus on what I consider to be "universal truths": wisdom or knowledge that is as close to foundational as possible. Mathematics for example, is universally true. Gravitational forces in the universe are also universally true. Buffett's analysis and conclusion lacks rigor as it relies on a subjective variable (deflating a historical nominal GDP by a CPI index to measure productivity and quality of life) and then disregards the most important one: That 20.67 US Dollars in 1930 was equivalent to 1 Troy Ounce of .9999 or better elemental Gold (Au).
Buffett makes the argument that his $56,000 today is six times better (even after his adjustment for inflation) than the $858 of GDP per Capita each US Citizen earned in 1929 but forgets to mention that $858 in 1929 was equivalent to 41.5 Troy Ounces of Gold in 1929. Here is the math:
| 1929 Nominal GDP | $104,600,000,000 |
| 1929 Population | 121,878,000 |
| 1929 Nominal GDP per Capita | $858 |
| 1929 Gold Price | $20.67/Troy Ounce |
| 1929 GDP per Capita in Gold | 41.5 Troy Ounces |
| February 2015 Gold Price | $1,224/Troy Ounce |
| 1929 GDP per Capita Today's Gold Price | 41.5 oz * $1,224 = $50,796 |
| St. Louis Feds 2015 GDP per Capita | $50,993 |
The result is unequivocal: When measuring on an apple to apples comparison, there has been little to no gain in GDP per capita over the last 86 years in the United States. There is most certainly not a six times increase in productivity nor is there an increase in the quality of life per capita as measured using the same unit of account that was used in 1929. Buffet's manipulating of the figures without reconciling under the apple to apples gold method is trumped by math.
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