by Drew J Jones
Fri Dec 2nd, 2005 at 06:47:34 AM EST
back from the front page
My undergraduate degrees in economics and political science involved dealing with an enormous amount of ideological nonsense. The economics professors were largely conservatives. The poli. sci. professors were all liberals. I expect ideologues in the latter field, but, recently, the gold-bulls in the world of economics seem to have taken the crown as academia's true crazies. So let's see if we can put this beast that we knew as the Gold Standard to rest, once and for all.
Gold Standard supporters -- aka, "Goldbugs" -- are dancing in the aisles right now, as gold hit $500/ounce today, briefly (an 18-year high). I seem to remember a lot of these folks having bought gold in the early-1990s and then losing their asses in it during the boom. But I'm interested in the serious political and economic philosophy behind this debate that has been held over many decades.
So jump below the fold, as I attempt to indoctrinate you all into the view that goldbugs are morons who deserve to spend their lives in East-European CIA prisons.
Goldbugs, from the Cato Institute to the Ludwig von Mises Institute, love to talk about the Austrian School theory of the business cycles. Without going back over it -- I would have to actually dig out Mises's book from the messy, bottomless pit that is my shelf, and that is a torture I do not wish to endure once again -- the Austrians and Libertarians believe that the policy of central banks, to raise and lower interest rates as the economy needs "cooling" and stimulating, will inevitably cause inefficiencies and, therefore, wider fluctuations. The facts tell a different story:
(White bars show expansion. Black bars show recession. If you're having trouble viewing the chart, you can also find it here.)
Essentially, this chart shows expansions and recessions in the US from, roughly, 1795 to 1992. Note that the Great Depression was only the fourth-worst downturn in US history, and was not the only severe recession that was followed by another severe recession, as Milton Friedman incorrectly observed back in the 1960s when he was pushing his theories. Contrary to the Goldbugs' view of mainstream central bank policy, the business cycle has become smoother since the rise of the Keynesian school of expansionist thought, when the combination of deficit spending and money-printing became popular.
The Gold Standard ended, if I remember correctly, in 1933. Looking at the chart, you can tell me how the economy has looked since then. Bear in mind, also, that this smoothing of the cycle has come during the rise of 20th-Century Welfare-Statism -- the Satan of libertarians. Once again, this contradicts the predictions of the militant free marketeers, who argue that greater government intervention will lead to severe distortions in the market and, therefore, wider fluctuations.
I think the essential point is clear: The Gold Standard is a piece of history, long gone, and no amount of ideological vomit on the pages of The Wall Street Journal (the "birthplace" of Supply-Side Economics) will change this. It's supporters are only supporters because they refuse to accept the essential truths of 20th-Century economic thought -- that the market is not God, and that the government can play a role in making the lives of people, interacting in the market, better. To them, government is an obstacle, to be fought, even if it means being dishonest. To the reasonable among us, government is a tool to be monitored, yes, but to be used as a means to improving, socially and economically, upon the efficiency of the market.
So, when your conservative friends preach to you the virtues of gold and the inherent danger of the central bank, you'll know that they don't know what they're talking about. And, if they believe gold is really worth $500/ounce in the long run and that paper currency is done for, I've got an apartment in Baghdad I'd love to rent them.