Exclusive Interview With Dr. Norbert Michel -- Part Three

Dr. Norbert Michel

 Thegoldstandardnow.org is pleased to have held an extended exclusive interview with Dr. Norbert Michel, Fellow in Financial Regulations, Thomas A. Roe Institute for Economic Policy Studies, The Institute for Economic Freedom and Opportunity at The Heritage Foundation.  From his short biography at Heritage.org:

“Norbert Michel studies and writes about housing finance, including the reform of Fannie Mae and Freddie Mac, as The Heritage Foundation’s research fellow in financial regulations.

“Michel, working in Heritage’s Roe Institute for Economic Policy Studies,  also focuses on the best way to address difficulties at large financial companies (the “too big to fail” problem).  In addition, he researches monetary policy and other issues related to the Federal Reserve.”

This interview, published over several weeks, will include a close look, among other matters, at Heritage's recent publication of an important Backgrounder The Centennial Monetary Commission Act of 2013: A Second Look at the Fed and the 2008 Financial Crisis.

Part Three:

Q: Are you familiar with the Bank of England's Financial Stability Paper No. 13, of December 2011, which draws the conclusion that the fiduciary dollar standard empirically has proved much worse for the economy than either Bretton Woods or the classical gold standard, and which advocates a rule-based monetary system.  This would seem to be a strong argument toward settling the question you pose as "no."  Thoughts?

A: That’s a great question – I am familiar with the paper, and many other pieces of evidence that suggest we should answer that question with a firm “no.”  But I don’t think those core questions I mentioned have been given proper attention.  Too few know the story of the Fed’s creation, and monetary policy is still a mystery for many people – I’ve recently taught college students who were still under the impression we have a gold backed dollar.  But all of that’s not an insurmountable hurdle, it’s just an obstacle.

Q: In this Backgrounder you observe that "Critics of the gold standard argue that it subjects the value of money to the variations in a commodity market and that it prevents the government from lessening the impact of business cycles as economic conditions change."  Everyone recognizes that the gold standard is imperfect, although our chairman describes it as "the least imperfect" monetary system tried throughout history.  How strong is the critics' case?

A: Many conservatives would consider themselves advocates of a rules based monetary policy – we often speak about using a Taylor Rule or some other rule.  In reality, the gold standard is just another rules based policy, where the rule is that the dollar is nominally anchored by gold.  So just like any other monetary rule, the gold standard has its pluses and minuses.  And an important plus for any of these rules is that it decreases the ability of a small group of technocrats to enact policies based on near-term economic, political or other considerations.  Instead, it creates a more predictable response to any number of evolving economic conditions.   

On the other hand, it prevents those same technocrats from responding to those same evolving economic conditions, and that, I think, is what makes some people nervous (they believe the Fed should be able to respond to changing conditions). In many respects, the same criticisms of the gold standard could hold true for most any other rule.  As for the more narrow commodity issue, the fact is that commodity prices and monetary unit values interact in all sorts of ways, so I want those interactions and how they impact the larger economy to be part of the debate over monetary policy.  And as the Heritage Foundation undertakes that debate in the months ahead, I can assure you that we will hash out all of these issues.  

Q: In this Backgrounder you state that "any formal commission should also evaluate a competitive currency regime."  Of course, Nobel laureate Frederich Hayek famously was an exponent of competing currencies, as we Gold Commissioner and Congressman Ron Paul.  The Austrian position is somewhat different than the classical gold standard, but most of the advocates of both are comfortable with either. 

A: That’s true.  And both sides should be comfortable with each other because they share a common interest in pointing out that money was not created by the government.  Most supporters of both gold and competitive currency ultimately recognize that markets created money, and they would further argue that giving the government a monopoly over money creates a whole host of issues which both groups don’t like.

Q: Hayek seems to be somewhat of an outlier both to Menger and Mises with his emphasis on competing currencies as opposed to the classical gold standard.  Thoughts?

A: There’s a great deal of misunderstanding around the classical gold standard and why it broke down, and we can all learn a great deal from that era.  I obviously can’t speak for Hayek, but I think his ideas were consistent with letting people use what they want for money; letting the market, if you will, determine what the best money would be.

Q: Dr. Michel, tell us something about your background, academically and past positions working in the policy sector.

A:  I studied finance and economics at Loyola (in New Orleans) in the early 1990s, and then I started graduate school in the late 1990s – I finished my PhD in Financial Economics at the University of New Orleans in 2003.  While I was finishing up, I was already working; from 2002 to 2005 I worked in Heritage’s Center for Data Analysis, where I mostly worked on tax and macro issues.  I spent roughly the next 8 years teaching finance, economics, and statistics at the Nicholls State University College of Business (also in Louisiana).  I left my tenured position at Nicholls to come back to The Heritage Foundation.


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Ralph J. Benko, Editor

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