The Golden Fleece

Politics in 21st Century America is nothing if not an exercise in creating politically useful artificial solutions to politically damaging real problems. The Great Recession is the defining symptom of our time; an economic catastrophe caused by a surge in private debt and financed and accelerated by the unregulated connection of household credit and hybrid Wall Street profit schemes. The Great Recession destroyed the livelihoods of several million job-holding Americans, but the actual mechanisms of catastrophe have been obfuscated by political actors with the intent of using the tragedy for base political gain.

In order to further political agendas, a number of truths have been suppressed:

  1. The deregulation of Wall Street acted as both trigger and oxidizer for the private debt that fueled the economic fire, but political actors have moved to make Wall Street (as job-producers) the solution to the problem.
  2. The Great Recession was built on private debt, not public debt, but political actors have emphasized the control of public debt as the vehicle to both rebuild from the tragedy, as well as avoid future tragedies.
  3. The Federal Reserve added to the tragedy by both not doing enough to regulate the financial marketplace and failing to take early and aggressive action once the tragedy was in process, but political actors have assailed the Federal Reserve for doing too much in the aftermath.
  4. The acute loss of domestic demand has led to a painfully slow recovery, exacerbated by our nation’s trade deficit which itself is directly related to our overvalued dollar. Political actors have sharply criticized any action that allows for dollar devaluation against competitive currencies, devaluation that would lead directly to more American jobs.
  5. The evidence on monetary policy is clear and beyond dispute in the entire economic community, but political actors have moved to remove the United States’ monetary flexibility by moving backwards to the gold standard.

Of all of the inane ideas to pollute the conservative agenda over the last decade (and there have been many), the move by the GOP to make a return to the gold standard a platform plank is arguably the most juvenile. With this move, the entire conservative movement seems to be intent on pulling an akin (defined as postulating a ridiculous and thoroughly unsupportable notion, then executing painful contortions to find shallow justification for the notion).

Conservative writers, with a special focus on those who adopted Ron Paul as the Spirit of Libertarian Pride, have labeled the response to the notion as some form of liberal hysteria. Their columns are long on talking points and short on direct evidence; Ralph Benko casts the gold standard as a kind of “real money” idea that is too simple and honest for academic liberals (he calls them the Dogmatic Left) to comprehend:

“Opponents of the gold standard have attacked and will again attack good money — and especially gold — as “outside the mainstream.” That may be true for academic economists but it is simply not so for the rest of us. Rasmussen polled 1000+ voters last October, and its data revealed that hefty pluralities of almost all demographics — and a majority of Blacks — approve of the gold standard. Historically speaking, sound money in general and gold in particular represent very mainstream opinion.”-Ralph Benko, Forbes

In fact, the gold standard, in concert with other economic “concepts” the conservative movement has adopted, is relevant as a political force because it is simple to understand. Americans with real jobs rarely have the time or inclination to dig into economics (I love the subject, and it gives me an ice cream headache from time to time), and Americans with real jobs tend to gravitate towards simple arguments as a consequence. But it does not have to be the case, and the economics of the gold standard are quite easy to understand.

In fact, they are so easy, that there are no practicing economists in the United States who believe that returning to the gold standard is a good idea, for any reason. Also linked above, a recent poll done by the University of Chicago’s Booth School of Business (the home, mind you, of conservative supply-side economics) found zero economists who support the idea. A majority of Americans would take the word of all economists over their own preconceived notions, a fact that Mr. Benko’s Rasmussen poll did not take into account.

But let us address directly the reasons that conservatives cite for returning to the gold standard.

  1. Bubbles and economic shocks can’t happen under a gold standard…except that they did, and can.
  2. The gold standard eliminates the threat of hyper-inflation, and generally leads to more stable prices. This is emphatically false, as the two tables below show quite clearly.
  3. The gold standard does not allow major recessions…except, I suppose, the Great Depression (an event that was made manifest by the inflexibility of the standard).
So, price stability?

Not sure how one might call this stability…but how about price stability under the current Federal Reserve response to the Great Recession?

That is more like it folks. Many friends have said the following to me over the last couple of years;

I don’t know Mike, the dollar is really only valuable because we believe it is. I think it would be better if our money was connected to something real.

That idea makes sense, and it is simple enough, but it is based on two fundamentally incorrect assumptions, that the dollar is based on faith alone, and that gold is intrinsically valuable.

  1. The dollar is not based on belief, it is rooted in the economic potential of the economy of the United States. The full faith and credit of the United States is nothing less than our own full faith in credit in ourselves, rather than a commodity that we happen to think looks pretty in jewelry.
  2. Gold is not a vital commodity in our economy; it is good in jewelry and has some function in electronics, but good as gold is a sentiment centuries out of date. Were we to find any evidence that our current general monetary policy is a problem (and there isn’t any), it would make more sense to go on a water standard, or a chicken standard, or an oil standard, than a gold standard.

Party platforms are an important part of the democratic process, and it is normal for the two parties to disagree emphatically on planks. But in this case, the plank is a living demonstration of the Republican Party’s disconnection from fact-based problem-solving. The plank is a joke, as is (sadly) the Grand Old Party.


The Rational Middle is listening…

4 thoughts on “The Golden Fleece

  1. Not sure if there is no criticism to make of this piece. These are complex topics and some facts are trickier to confirm than others. That said, I liked the piece and it concurs with my own views. The only thing one might add to the Gold Standard assumptions is that a gold standard retro-conversion would somehow be free and not destabilizing. Indeed one cost is the additional pollution we would generate extracting gold more aggressively. There are many others.

    • Certainly a complex set of topics, with an attempt to present them simply and within 1,000 words. I would further argue that while monetary policy has many houses, the notion of a currency fixed to a commodity is untenable.

    • Indeed Michael…there has been a complete abdication from macroeconomic reality by the Right. There are certainly opportunities for supply-side solutions, but the collapse in the housing bubble removed between $400 and $560 billion annually from the economy. The Stimulus, half as large as it needed to be on its own, was further eroded by several hundred billion in annual spending cuts at the state and local level.

      Thank you for visiting The RM.

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