(Poison) Ivy League Economists Dis the Gold Standard
As the Wall Street Journal reports, 6 Yale economists convened last week in New Haven to discuss “The State of the U.S. Economy: How Do We Create More Jobs?” Not surprisingly, their answers were straight out of the Keynesian playbook: more stimulus, infrastructure spending, and higher taxes on the wealthy.
Also not surprising was the group’s approval of recent Federal Reserve policy actions. According to these luminaries of the mainstream economics establishment, not only have the Fed’s unprecedented money printing and bailouts averted economic disaster, but anyone who would dare question Fed intervention are simply “partisan” and “ignorant.” (Hmm, reminds me of Herman Cain’s dismissal of Ron Paul’s longstanding campaign for a full Fed audit.)
William Nordhaus was particularly defensive of the Fed, resorting to the old formula of dismissing Fed critics as nothing more than economic luddites:
“Return to the gold standard? Give me a break. We’re not in Kansas. This is an integrated world economy,” he said. And forget doing away with the Fed: “Every country has a central bank. Money cannot manage itself.”
Nordhaus’ comments ring especially ironic for students of the gold standard, who know well that the gold standard, with its fixed exchange rates and unparalleled long term price stability, presided over the great era of globalization around the turn of the 19th century. The US economy thrived, achieving average real GDP growth of 3.65% during the classical gold standard years. The last 40 years—the pure fiat money era—by contrast has shown only 2.82% average real GDP growth. (source: www.measuringworth.com)
These facts should give pause to folks like William Nordhaus, who don’t think that monetary institutions are relevant to growth and prosperity. (For more evidence comparing the performance of the modern Fed/ fiat money set up against the classical gold standard, see “Has the Fed been a Failure?” by Selgin, Lastrapes, and White)
“But wasn’t the economy beset by recurring financial crises during the gold standard?” It is true that there were occasional crises in the gold standard years, but those were mostly attributable to crippling Civil-War era federal bank regulations, which tied a substantial portion of the US money supply to the federal debt. Remarkably, the banking industry, led by the private, market-based clearing house associations, managed to settle every one of the gilded-age crises without requiring a cent of taxpayer funded bailouts or a dollar of central bank printing press money.
I would agree with Mr. Nordhaus on one thing: money indeed cannot manage itself. But who, then, should we trust to manage it? Nordhaus is appalled that anyone might consider an alternative to bureaucrats and crony capitalists at the Fed, with their unlimited money printing and bailout powers. Sorry there Professor, but the public is starting to wake up to a far more wholesome alternative.
Photo credit: http://www.caskeycpr.com/blog/
