The True Gold Standard (Second Edition)
Key Writings: Benko on the Gold Standard
The gold price fell, dramatically, and now is bobbing about. Meanwhile, the prospects for implementing a 21st century gold standard continues to rise. Dramatically.
In a recent media monetary policy media slugfest between The New York Times and The Atlantic, on one side, and Bloomberg.com and Forbes.com on the other, analyzed here, recently, the gold standard prevailed. It is noteworthy that gold’s victory in that skirmish came in a larger context.
The gold standard used to be consigned, mainly (to borrow a perfectly turned description from the Wall Street Journal’s Gregory Zuckerman and Carolyn Cui) to those with “bleak economic outlooks or dystopian views of society.” Then, many of gold’s proponents could be dismissed, facilely if not quite fairly. The gold standard had been frozen out of elite discourse.
No longer. The discourse has changed.
Whether one supports it or opposes it, the gold standard no longer is seen by most serious thinkers as fringe. It no longer is dismissible merely by invoking shibboleths like “barbarous relic” or “cross of gold.” Facts are stubborn things, as John Adams once observed. Facts are much more stubborn than mere mockery.
Amid an ongoing decline in the price of gold, a major brawl recently broke out in the elite media over … the gold standard. What is this free-for-all all about? And why does it matter? It matters because… the gold standard finally has demonstrated that, after a long eclipse, it is being taken seriously in elite (if not uniformly polite) company.
Paul Krugman, in a blog entitled Cranky Old Men, attacked a Sunday New York Times jeremiad by former OMB Director David Stockman. Stockman’s tirade, in fact, was more reminiscent of Allen Ginsberg’s Howl — “who burned cigarette holes in their arms protesting the narcotic tobacco haze of Capitalism … Moloch! Solitude! Filth! Ugliness! Ashcans and unobtainable dollars!” — than of an op-ed.
And yet, Krugman’s response possessed all the persuasive power of a 14-year-old’s sarcasm: “It’s cranky old man stuff, the kind of thing you get from people who read Investors Business Daily, listen to Rush Limbaugh, and maybe, if they’re unusually teched up, get investment advice from Zero Hedge. Sad.”
Matthew O’Brien of the Atlantic Monthly, playing Robin to Krugman’s Batman, botched a rescue operation. O’Brien got his facts badly wrong and came across as a propagandist, or apologist, rather than a serious analyst. O’Brien concluded, in The Atlantic Monthly, that “The gold standard didn’t save us from dystopia. The gold standard was dystopia.” Wrong. O’Brien was called out by the centrist Bloomberg and the center-right Forbes.com, his reputation bruised, for concocting a counterfactual counter-narrative.
The breakout headliner issue in 1978 was “Tax Revolt.” A Time Magazine cover showed Howard Jarvis shaking his fist under that headline. Proposition 13 time. Then? The Tax Revolt went, as we would now say, viral. Citizen discontent — and political activism — against high tax rates turned into a national, and then international, phenomenon. The revolt was a major factor in toppling President Carter. It led the U.S. top income tax rate to collapse from 70% to 28%. Then, rates worldwide cascaded down and global prosperity rapidly soared. Will the 21st century equivalent be a Money Revolt?
A recent, striking, piece in the FT Magazine, Is the dollar as good as gold?, commented sympathetically on the recent near-passage of a gold commission bill by the Virginia legislature. Columnist Gillian Tett quotes Prof. Alan Blinder about the “’inchoate rage” Americans are feeling about, specifically, a “fickle” monetary policy.
The phrase “inchoate rage” also appeared in an August 16, 2011 FT piece, The inchoate rage beneath our global cities by Richard Florida, commenting on the late London riots: “With the social compact eroding and a lack of viable mass political institutions to channel resentment, what comes out is not a coherent voice but inchoate rage.”
Meet Rep. Kevin Brady (R-TX): the Six Trillion Dollar Man. Brady recently took the chair of Congress’s arguably most important inner think tank, the Joint Economic Committee. From this perch Brady is proposing to provide the combination to open the lock of a safe that holds $6 trillion in potential revenues for the federal government. (That is well over 20 times the value of all the gold in Fort Knox.) Without raising taxes. Game changer.
Brady is positioned to become America’s new Jack Kemp. If this works, he, along with a new generation of other growth-oriented Representatives, will unleash a wave of (worldwide) equitable prosperity. Kemp rode the Laffer Curve to greatness. Brady is preparing to hitch the world to the Kadlec Curve, named after Laffer protégé (and Forbes.com columnist) Charles Kadlec.
Kadlec formulated an insight in a Forbes.com column late last year that, little by little, is beginning to rock Washington. He found it hidden inside a footnote of a Congressional Budget Office report.
Because real growth currently has been, and is, trending well below the CBO assumption of 2.8%, the scope of 4% growth should be considered $6, rather than $4, trillion in “enhanced” federal revenues.
The True Gold Standard, a lucid, scholarly volume by financier-philanthropist, and Reagan Gold Commissioner, Lewis E. Lehrman, recently has been published in a handsome second, much expanded, edition. Why does this matter?
Central banks have become net buyers of gold for the first time in 20 years. There is uneasiness within the United States and among its trading partners with exotic Federal Reserve policies such as QE1, QE2, QE Infinity and Operation Twist. The value of the dollar has eroded by about 85 percent since Nixon, breaking the dollar’s last link to gold, declared on August 15, 1971 that “your dollar will be worth just as much tomorrow as it is today.” Some argue that the Fed caused the housing bubble, the housing bust, the crash of 2008 and the Great Recession.
The Washington Post’s Ylan Q. Mui recently published a piece about a perfectly sensible proposal being entertained by the Virginia legislature to put together a joint subcommittee to study linking the U.S. monetary unit to precious metals. This modest piece received over 1,300 reader comments. Monetary policy is on the minds of voters.
Internationally, the gold standard is becoming a hot topic. “The more gold a country has, the more sovereignty it will have if there’s a cataclysm with the dollar, the euro, the pound, or any other reserve currency,” stated Evgeny Fedorov to Bloomberg recently. This was no idle prattle—Fedorov is the head of the committee for economic policy and entrepreneurship of the Russian Duma. He is closely aligned with Russian president Vladimir Putin.
BY RALPH J. BENKO:
The 21st Century Gold Standard
Read The 21st Century Gold Standard: For Prosperity, Security, and Liberty by Ralph Benko and Charles Kadlec to learn what the gold standard is, how it works and how a dollar linked to gold would pave the way for a new age of American prosperity.