Slate Yesterday, Daily Show Tomorrow?
[UPDATE inserted below.]
A few people today have sent me this Slate article that links to one of my old Mises Daily articles. Just when I’m about to give up economics and go full-time into male modeling, they pull me back in…
On a more serious note, what’s the story with this guy J.D. Foster from the Heritage Foundation? It sounds like he’s trying to hang out with the cool kids at Slate and UC Berkeley, who go behind the house and roll joints out of fiat currency. Check out this final quote:
If a gold standard is so problematic, why do so many people—including Ron Paul and various libertarian economists [That’s me.–RPM]—want to peg the dollar to it? Part of the reason is distrust of the Federal Reserve. The gold standard takes the power to manipulate currency out of the Fed’s hands, which economic libertarians consider a good thing. Another reason is that gyrating exchange rates make international trade difficult, since prices are always changing—better to have every economy pegged to the same index.
But economists say you can’t force currency to be stable—at least not for long. Economic uncertainty is a fact of life, says Foster. Advocates of the gold standard want to “legislate certainty,” he says. “It’s like you have a town of declining morals, so you legislate churches. It’s not going to work.”
Well, I’m not sure that’s a very good analogy. It’s not like the government is imposing a gold standard on hooligan gang members who try to issue their own currency. No, the Federal Reserve does that, right now–i.e. the very thing that Foster says doesn’t work.
What the gold standard does, is impose a restraint on the government. So rather than “legislating morality,” it’s more like guaranteeing free speech, or the right to a jury trial.
A final point: Does anybody know if Foster has publicly endorsed complete drug legalization? I hope so. [UPDATE: I’m saying, in terms of logical consistency, if Foster says it wouldn’t work to force the government to not print a bunch of money, then surely he doesn’t think we can force people to not use cocaine.] It’s odd, because the gold standard is very old-school and conservative. On that score, one could have expected the economist from the Heritage Foundation to be all for it.
The Daily Show could happen (at about 2:20):
http://www.thedailyshow.com/watch/tue-september-18-2007/alan-greenspan
“So rather than “legislating morality,” it’s more like guaranteeing free speech, or the right to a jury trial.”
Not necessarily.
Under a gold standard, the Chinese, or other foreign governments and other foreign centrals would have control over the monetary policy of the US. Why would the US ever want to outsource their monetary policy to a competitor?
And why convertibility to gold? Why not silver? Oil? Labor?
The destruction of the economies of the periphery states in the EU are proof enough a convertible monetary system is destined for failure, and reduces freedom and sovereignty.
AP,
The problem with your thinking is the silly notion that currency exchange manipulation is a tactic for economic growth. The reason countries purposefully lower the value of their currencies is to please large corporations and myopic/nativist constituents. In reality, for every exporter that is helped by currency manipulation, consumers are hurt by an offsetting amount. Currency manipulation can not lead to economic growth, so it doesn’t help or hurt the U.S. to subjugate itself to the vicissitudes of foreign manipulations.
The U.S. has only been able to get away with what it’s been doing because of its international hegemony. That advantage, though, is unwinding right before our eyes.
Furthermore, since China already pegs to the dollar, I wouldn’t see why they would have a strong desire to undo that sync if the U.S. went on a gold peg.
Do you also wonder why the US would want to outsource its TV production to China?
Also, in what sense would a gold standard outsource monetary policy to China? They are “unfairly” manipulating their currency right now. What more would they do, if the dollar were tied to gold?
Finally, your point about the periphery states of the EU: Would you also say that the current United States proves “a convertible monetary system is destined for failure”? I mean, the poor people in California and Michigan are stuck with the tight-money policies of Ben Bernanke. If only they had their own currencies, they could have inflated their way out of their present woes. Right?
“Do you also wonder why the US would want to outsource its TV production to China?”
Comparative advantage
“Also, in what sense would a gold standard outsource monetary policy to China?”
So are you saying if China or any other country (or group of countries) were able to accumulate a substantial share of the worlds gold stock, this would not have detrimental impacts to US monetary policy?
“I mean, the poor people in California and Michigan are stuck with the tight-money policies of Ben Bernanke”
There’s a laundry list of reasons why you can not compare a state like California, to an EU member, like Ireland. Labor mobility, for starters. And the states have a uncle named Sam that will (unfortunately) backstop the state budgets. Germany is not willing, nor able, to backstop the periphery. No comparison.
“If only they had their own currencies, they could have inflated their way out of their present woes. Right?”
Relative costs in countries like Ireland or Spain would have automatically adjusted as capital exited the country and the respective currencies depreciated relative to, say, Germany. Because of the one currency fits all and lack of labor mobility, the relative cost adjustments are that much more painful.
Don’t lose sight of the fact that currency is just a tool, it does not necessarily have to be “gold”, many other substances would work just as well. If we are all to be free market advocates then the free market should be allowed to select its tools of exchange just as it should be allowed to select everything else. All government has to do is protect the exchange of property and contracts.
That being said, if foreign countries manipulate their currencies in order to create trade imbalances it only harms them as they will just be subsidizing all of the foreign markets they trade with as they will be exporting deflation, like China has been doing for the past 20 or 30 years. Also, don’t forget that in order for a country to accumulate large amounts of gold disproportionally to other countries they would first have to exchange it for some goods and/or services for it so it would not really give them any type of special advantage. They would have gold but we would have the widgets. It is the same as any other exchange, exchanging dollars for gas or food; it does them no good to just sit on piles of useless metal. Its utility is defined by what it can be exchanged for so hoarding large amounts would just cause a free market to adapt a new or alternative means to exchange goods/services.
Was not one of the justifications for the implementation of the Federal Reserve: to stabilize the dollar? And during the ’20s, wasn’t this the primary goal of monetary policy as sermonized by Fisher et. al? So the trend seems to be that once your philosophy is almost entirely discredited, accuse libertarians adhering to it. Maybe in some time Krugman’s predecessors will accuse libertarians of being too fixated on consumption. (I would say Krugman himself, but it seems more likely he’ll pull a Nixon and take it to the grave.)
The one thing that disturbs me with Austrian economics is its ongoing fight to reenact the gold standard as the first objective after gaining the power to do so. There is a lot of things that needs to happen before that but nobody understands it or can illustrate it. Rather we are left with this very complicated argument that leads nowhere other than for other non-austrians to conclude that all austrians must be some major train steaming towards the biggest train wreck the world has ever seen.
I’ve asked many like Murphy whether it is not time to sit down and formulate a new liberal vision and build upon that so that we can gain some credibility beyond calling for the gold “fix” to fix all problems with the public sector and the economy, but nobody wants to do it.
I am beginning to think that it is because there is no real intellectual process behind many Austrians because they are just stuck where they are and can’t go any further.
This is exactly how classical liberalism died in the first place. After more than a hundred years, liberals are still standing, stomping on the same turf with a big unhappy smile on their face.
No wonder nobody takes anyone seriously.
(note that I have used the term liberal as it originally meant, not how the americans have bastardised it)