Bob Wenzel Is Golden
My post title is actually a little too conciliatory, because I don’t think Bob’s overall position holds up to scrutiny. But, I definitely misunderstood him in my previous post, and I can’t explain it myself. I was in a Connecticut airport about to board a flight that had been delayed by Air Force One (seriously, that’s what the Delta lady speculated), so I blame Obama for the miscommunication…
Anyway, Bob takes me to task in his latest for “failing to understand the gold standard.” It’s true, I misinterpreted his proposal, and (besides Obama’s visit to Connecticut) the only defense I have, is that I had only read one of his posts, not his first one attacking the Heritage Foundation’s Ron Utt.
First of all, let me reiterate that the issue of the gold being stolen doesn’t really distinguish between the proposals to either sell the gold, or to allow dollar holders to redeem it. Look: Utt said, “The government should sell the gold for $1,400 an ounce and use the proceeds to reduce the deficit.” Wenzel is saying, “No way, that would let the government profit from its theft. Instead of that, I propose that the government make a standing offer to sell its gold for $5,000 [at least] an ounce, to anyone who wants, and then use the money to…?”
Obviously the above aren’t literal quotes, but that is what each man’s position reduces to. So you can see why I pounced on Bob initially and had some fun with it. (Of course, the joke wasn’t too funny since I thought he was doing a firesale, not just restoring redeemability. Oh well, no one said comedy was easy.)
Second and more serious: In the book I co-authored with Carlos Lara, we actually proposed something similar to what Bob is suggesting today. Namely, I said that Bernanke should tomorrow hold a news conference and announce that in one year, he will peg the dollar forever to gold at $2,000/ounce. In the meantime, he would take the maturing bonds on the Fed’s balance sheet and use the proceeds to accumulate gold, rather than rolling it over into more Treasuries. As the date approached for the peg to kick in, Bernanke would have to adjust the overall size of the Fed’s balance sheet to make the market price of gold move toward the target price of $2,000/ounce.
So contrary to Bob, I’m not opposed to reintroducing the gold standard. However, I don’t think Bernanke is going to do that anytime soon, and so I’m also a fan of the government selling off its assets and not raising the debt ceiling.
There is no clean, purely libertarian answer to how to wind down a bloated government. Yes, FDR ripped people off back in 1933, but I don’t think there’s any way to undo that now, at least with respect to dollar holdings. Instead, you’d have to go look at the records and figure out which people were stuck turning over gold at $20.67 in 1933, and then calculate how much they got screwed, and then do whatever formula you wanted and carry their estates forward to figure out the current heirs of those reparations. In other words, you couldn’t just do something with the gold and current dollar holders.
It’s also true that no matter what the government does in practice, it is going to be corrupt and benefit the fat cats. If the government sold off billions in assets, it would give sweetheart deals to the buyers–no question. But at least it would get those assets back into the private sector. I am open to suggestions for better versus worse ways to privatize, but I think it’s a bit shortsighted to say, “Nope, I foresee a way this particular suggestion would be corrupted, so it’s off the table.”
The reason I am in favor of Utt’s idea is that I want a few of the Tea Party Republicans to hold tight on the debt ceiling. Geithner et al. are telling everybody the world will end if Congress doesn’t raise the debt ceiling, but as I pointed out to The Judge, that’s simply false. They just need to cut spending by a little bit, and they could make up the gap by selling off assets. Yes I would rather they cut spending down to $0. But I am not an all-or-nothing kind of guy; I will applaud moves in the right direction. It would be fantastic if Congress didn’t raise the debt ceiling, slashed spending by (say) $200 billion, and raised the remaining $550 billion or so by selling (a) $300 billion worth of gold, (b) $50 billion worth of oil out of the SPR, and (c) $200 billion in offshore mining rights.
A lot of this stuff isn’t so much because it will actually happen, but it’s good for various pundits to bring them up just to see the politicians and bureaucrats invent bogus excuses. E.g. the Wall Street Journal recently had a piece detailing how many hundreds of billions the government had in assets, like gold, oil, and student loans, but that Geithner refused to consider selling them because he didn’t want to “disrupt the financial markets.” And the context was Geithner’s insistence that Congress needed to raise the debt ceiling to avoid Armageddon.
Another point is that many people are skeptical the government actually has the gold it says it has. So it would also be funny to watch them squirm if the public really got serious about selling off the gold to cover the deficit.
Final point: I would need to look into this more, to see exactly which entity owns the government’s gold. But if the Treasury (as opposed to the Fed) technically owns it, then the two proposals go hand-in-hand: the Fed could go back on a gold standard, and start stockpiling gold by buying it from the Treasury and thus reducing the deficit.
I don’t remember this “E.g. the Wall Street Journal recently had a piece detailing how many hundreds of billions the government had in assets, like gold, oil, and student loans” so
I’m Googling but if anyone can get the link to it first, without much trouble finding it hope, I’d appreciate it!
It was from Monday’s paper. Not sure of the title of the article.
Can the Treasury sell government assets to raise cash to postpone the date of default?
A: The government owns a lot of valuable stuff it could sell, including about $400 billion in student loans, $375 billion in gold, and $142 billion in stakes of companies it rescued during the financial crisis. But the Treasury says selling off many of those assets would cost taxpayers money and could destabilize companies, markets and even the financial system. So Treasury officials have ruled this out as an option.
http://online.wsj.com/article/SB10001424052748704281504576325510314457014.html?KEYWORDS=us+government+assets
> But the Treasury says selling off many of those assets would cost taxpayers money
As opposed to taxing them to cover the deficit? How fatuous.
It’s also true that no matter what the government does in practice, it is going to be corrupt and benefit the fat cats. If the government sold off billions in assets, it would give sweetheart deals to the buyers–no question. But at least it would get those assets back into the private sector. I am open to suggestions for better versus worse ways to privatize, but I think it’s a bit shortsighted to say, “Nope, I foresee a way this particular suggestion would be corrupted, so it’s off the table.”
Wow, I recall making that exact same argument to you, but about global warming and the lack of property rights in atmospheric resources. Your frustration at the people this paragraph is directed at should give you some idea of what it felt like communicating with you on the topic. If you rephrase my point in these terms, I think you’ll be a lot more sympathetic to what I was trying to argue.
If I really wanted to do a turnabout, I would post the same response you did at the time: “Oh great, here goes Bob again, believing that the government can improve our lives if we just get the right folks in charge…”
Here’s one exchange I had in mind, there is another that is more representative.
Heh I thought you might go there, Silas. I grant you that my position seems different on the surface, but the government is getting more power under cap and trade; it is creating a whole new regulatory apparatus. In contrast, the government already owns a bunch of gold, so I don’t see selling it for dollars as granting it new power.
But, I am not totally wed to this position. If I were to change, though, it would probably be away from recommending auctions, in favor of (say) just giving the stuff away and repudiating the debt.
Seriously, Bob? Seriously? Here are the relevant parallels, which persist, no matter how many disanalogies (perpendiculars?) you can come up with:
1) There exists a resource that the government is the de facto owner of, and which it manages poorly.
2) It would be better if this resource were in clear private hands.
3) A libertarian is proposing a mechanism to get it in private hands.
4) The proponent of this mechanism does not deem it a sufficient critique that one can point to potential corruption and cronyism in any such plan.
5) After such a plan passed, the government would enforce and adjudicate property claims in the (now-privately-held) resource. (This weakens your claim about a “new power” — would it be a “new power” that the government would arrest people for stealing that privatized gold from its new owners?)
6) Lots of opponents of the plan whine about how it would infringe on their supposed inalienable “right” to do destructive things (in your case, pass on debt to future generations; in my case, to crank out a substance that will, by supposition, cause catastrophes when it reaches a critical level).
That better durn well be enough similarities to make you reflect on your past dismissal of concerns about unclear atmospheric resource ownership rights.
Think about it.
I’ll think about it (for real). Number (5) is interesting.
Bob, did I ever mention to you that I respect your headline writing skills?
Wenzel, maybe you did, but I was too busy processing my 10,000 EPJ subscriptions to notice.
I think Peter Boettke did some work on transitions between state controlled economies to market ones, with case studies. Its worth your while to read those if you are going to talk about these sorts of things.
Hang on, Avram. As I re-read your comment, it looks like you are telling me it’s worth my while to read something before commenting again on this issue, and yet you yourself apparently haven’t read them? So how do you know it’s worth my time?
(BTW I’ve heard Boettke lecture on this stuff. I’m not knocking him, I’m knocking your comment.)
Oops, I didn’t mean it that way (I wasn’t telling you to stop talking about these sorts of things till you read so and so): I was just saying that you might find some good discussion there. You can continue to talk about whatever you want however you want while reading and not reading whatever you want, I just thought I’d bring something to your attention.
And I have read, a few years ago, and I couldn’t remember if it was Pete Leeson or Boettke, and to be sure I still can’t remember!
Yeah I actually thought you probably weren’t saying what the words suggested. By the same token, my comment may have sounded angry when it was supposed to be ironic.