Americans avoid the substance of economics like the plague. Despite the subject’s near constant presence in television and print journalism, we the people rarely approach the notion on its merits. Sloganeering trumps reason every time, at least where the sticky realities of math are concerned. That is the problem, really, with economics; it is math and mathematical modeling, and we don’t do math. We do appreciate a good catch-phrase, however, and “the gold standard” is as good as it gets.
An emerging element in the conservative purity standards checklist for 2012, is the candidate’s allegiance to the notion of returning the United States to the gold standard it abandoned in 1971. The notion has increasing credibility for credulous people; who wouldn’t want a dollar based on a “solid” foundation? With all of the political barbs being traded, and all of the badly misunderstood economic concepts being promoted, the idea of a currency based on “the full faith and credit of the United States” seems to fall short of our hopes. But does it?
This is not a subject easily defined in political terms; economic populism crosses every normal political boundary. Anti-globalism features prominently with xenophobic conservatives and liberal union reps alike. The idea of a “government” as separate entity promoting a currency with “nothing in the vault” behind it, is a notion that has traction with liberals, conservatives, and all points in between. That conservatives have grasped the issue has more to do with their savy in picking political brands, and the enduring traction of the Tea Party, than any native ideological construct.
Despite this lack of real connection, no less a personality than presidential candidate Michelle Bachmann has jumped into the gold standard pool:
When real Americans with regular jobs, kids, and community responsibilities misunderstand economics, its OK. When a presidential candidate clearly fails the basics, it is disgusting. The quantitative easing that Ms. Bachmann refers to was a Fed program, not a policy of the Obama Administration. That fact plainly stated, the tool is a perfectly valid and valuable one, designed and effectively used to ease liquidity crises and reverse deflationary trends. Quantitative easing does increase the money supply, and it does lower the currency’s relative value, but neither is necessarily a bad thing. A high relative value for the dollar, regardless of how that dollar is backed, is the single most potent factor in the U.S. trade deficit. A falling dollar makes it easier to export, and more expensive to import. In simple terms, a lower relative dollar means more jobs for U.S. workers.
It is important, once again, to highlight that these are not ideological constructs; monetary policy and its effects are not the residue of conservative or liberal thinking. (Note-Libertarian thinking brings a whole different argument.) President Clinton and his Treasury Secretary, Robert Rubin, pushed the “strong dollar” philosophy during the former’s administration. One wonders if Ms. Bachmann realizes in whose footsteps she is walking. She certainly doesn’t realize what has been happening economically the last two years. The nation’s measure of inflation has just now turned positive, after two years of flat to negative growth. Low inflation is good, but inflation near or below zero is bad. Ms. Bachmann, the committed Christian, should understand the notion of all good things in measure.
An item costing $20.00 in 2005, would have cost $21.23 in 2007, for a two year inflation of 6.2% (the Bush years). An item costing $20.00 in 2009, would cost $21.07 today, for a two year inflation of 5.3% (the Obama years). (Go to this site to change the numbers around any way you like.) Remember, this time frame covers two years of quantitative easing, to which the Fed just announced an end. One would expect candidates for this democracy’s highest office to know the rate of inflation before speaking about it in public. But that isn’t enough for the Representative from Minnesota, she also believes that the dollar should have precisely the same value as it did in 1911. Well, I suppose she does believe that everything else we the people do should be as it was 100 years ago, why should economics be any different?
The whole conversation leads us back to the value of the dollar, and the foundation of that value. Glenn Beck led a group of Americans down the path of gold-standaritis, all the while pocketing millions in endorsement money (alas for Glenn, it was paid in worthless dollars) from gold merchant Goldline. But the idea of “backing” the dollar in gold has a certain calming and nostalgic ring. The gold standard, after all, would be better than no standard…right?
Americans are unsure of their dollar because, as the wags say, it has value because we believe it does. Gold however, that is a different story. Gold has value because it…well…it has value because we believe it does. The metal has little intrinsic value in a modern economy; it has applications in jewelry, electronics, and some shockingly fashionable (and disgusting) gourmet circles. If we the people decided to back the dollar with a concrete commodity, there are dozens that make more sense than gold; wheat, corn, soybeans, oil, coal, water, salt. Roman soldiers might not, as the story goes, been paid directly in salt, but the Empire certainly managed the commodity in ways quite similar to the way modern central banks mange the money supply.
The problem with picking a commodity to tie the dollar to, is that they are all so fluid. Americans, regular folks and opportunistically ignorant politicians alike, value a gold standard because of its supposed stability. But commodity-backed currencies are inherently unstable…inflation still happens, recession still happens, and nations like the United States are left without tools to deal with either. Greece is often in the news, and the news often screws the pooch on Greece’s real problem. That nation lacks what many independent nations have, the ability to exercise independent monetary policy. It is shocking to me when I see and read of so many Americans who believe in the exceptional nature of our nation, and yet want to rob it of the tools that come with the status.
We are still the most powerful economy on Earth, and will remain so for some time. China, as it draws level with us on some terms, will begin to struggle on others, and their state-guided economy lacks the flexibility to meet those challenges. And that is the key, unassailable point of the dollar. Our currency isn’t floating in the wind without foundation, it is built on piers sunk deep into the bedrock of our economy. It is based on us; working Americans, entrepreneurs, American corporations, American natural resources, American ingenuity. We back the dollar, and the full faith and credit of the United States is nothing more or less than the faith and credit of we the people. The notion isn’t really as hokey as it may sound friends, the value of the dollar fluctuates as our economy and policy structures fluctuate, but it is always on firm footing. We are the only people who can destroy our dollar, and presumptive leaders like Michelle Bachmamn are the ones who can lead that destruction. Don’t let them. Be you Republican or Democrat, don’t let the uninformed or recklessly power-hungry destroy our economy to prove their philosophy.
The Rational Middle is listening…