I fear that my friends who are Libertarians/Gold-Standard Lovers are ignoring the links/sources that I've included (in order to have a more productive debate). Consequently, these people are apparently arguing against my points without understanding the established facts & widely accepted assumptions. Part 1 (with its links to NPR podcasts) is here... http://corpania.blogspot.com/2011/03/switch-to-gold-standard-but-us-net.html Before I make my personal points, here is another crucial link... http://www.econbrowser.com/archives/2005/12/the_gold_standa.html >>> Here's an excerpt to get you excited: • "Under a pure gold standard, the government would stand ready to trade dollars for gold at a fixed rate. Under such a monetary rule, it seems the dollar is "as good as gold." Except that it really isn't-- the dollar is only as good as the government's credibility to stick with the standard. If a government can go on a gold standard, it can go off, and historically countries have done exactly that all the time. The fact that speculators know this means that any currency adhering to a gold standard (or, in more modern times, a fixed exchange rate) may be subject to a speculative attack." And here's another great link (from 1996!) http://web.mit.edu/krugman/www/goldbug.html Krugman called out Heterodox (fringe) Economist Wanniski on his absurd philosophy - •"Wanniski regards gold as the appropriate measure of wealth, regardless of the quantity of other goods and services that it can buy." Ok, so assuming you've done your homework and actually read the links above... Here are my own points: 1) Lovers of The Gold Standard are like Ptolemy. Lovers of The Gold Standard are rigid in their belief that gold's value hasn't ever changed and won't ever change. Consequently, when gold prices move these people have to conclude that such movements are actually the result of changes in that currency's value. Here's a quote from one friend of mine making exactly that argument: •"What Corpania sees as gold's wild instability is in fact the accurate reflection of the dollar's wild instability. When gold's dollar price rises, it doesn't mean gold is rising, it means the dollar is falling." Just a reminder - Ptolemy was the 2nd Century astronomer who tracked the movements of stars and wrote his Almagest which attempted to explain their movement in a "geocentric model". You see, you can actually think of the Earth as absolutely stationary & unmoving if you choose to believe that the Sun moves around it. You can construct complex yet flawed and inconsistent explanations for how & why the tiny little Sun moves around the great big Earth. But then you'd be wrong. Once you accept that it makes a lot more sense that the relatively tiny Earth moves around the relatively bigger Sun so much more of the universe is coherent. Gold-Standard Lovers are like the geocentric & wrong Ptolemy whereas Keynesians (like Nixon & Krugman) are like the heliocentric & right Copernicus. 2) Gold-Standard Lovers keep complaining about how "unstable" the US Dollar is but I think they're unrealistic and unappreciative of how amazingly stable the US Dollar has been in the past 40 years. I think you've got to calibrate relative to other currencies (compare "apples to apples"). When you calibrate it relative to other currencies you see that the US Dollar is one of the most stable currencies (part of the reason why it's so widely adopted for pricing internationally). And it's especially stable when you appreciate how much of it is in the hands of non-citizens and thus especially "at the mercy of the market" (i.e. outside of the control of the government). Quit complaining and let's focus on making the pie bigger. 3) If the US got back on the Gold-Standard the demand for gold would necessarily skyrocket. Heck, it has been skyrocketing and would continue skyrocket as we get closer to talking seriously about it! And when demand goes up so must the price. Gold-Standard Lovers must be terrible at game theory if they promote their theories now (when Gold prices are at an all-time high). These people are embarrassingly advocating that the US Government (and by extension all its citizens) become vulnerable to gold investment speculators who would now demand that the fixed price for a US Dollar be set at a very low amount of gold. But it's my guess that these Gold-Standard Lovers are not that stupid and that their behavior is rational because they're not at all altruistic. These Gold-Standard Lovers are virtually all substantially invested in gold (they've already traded dollars for gold) and thus they have a personal & vested interest in increasing gold's price relative to the US Dollar. Because they will ultimately need dollars to buy goods and services, they want as many dollars as possible in exchange for their gold. If we return to The Gold Standard then the Gold-Standard Lovers have the most to gain. Their philosophy becomes a self-fulfilling prophecy! And the only people who get hurt are the suckers (the rest of the US citizenry) who bought their "castle in the air". SIDE NOTE/TANGENT: It's like when the GOP wanted to privatize Social Security which would have instantly driven up the price of the stocks thus giving greater profit to the people who already own investments and thus taking profit from those who would've been compelled to invest. On the flip side, in their desired time-line, when baby-boomers retire there would be greater downside pressure to sell (when a disproportionate number of people would need to sell) thus further punishing the suckers. Thank "god" that that self-fulfilling prophecy got stopped by progressive liberals. 4) I just want to re-hammer Krugman's point that slams Wanniski: Valuing gold for itself and distinctly independent of what it can actually buy is absurd. http://web.mit.edu/krugman/www/goldbug.html 5) And I might as well re-hammer Jim Hamiliton's point that also crushes the Gold Standard Lovers: If we were on the gold-standard and went off it and then returned to it, couldn't we just as easily go off of it again? And since we could go off it again, what value is that "promise" macro economically? How does it help Americans? Does it even help the investment community? Except, of course, to those who already own gold? http://www.econbrowser.com/archives/2005/12/the_gold_standa.html ONE LAST POINT... If you want my solution to the problem of maintaining a currency's value, here it is: http://corpania.blogspot.com/2010/05/universal-value-price-dollar-to-years.html |
