The True Gold Standard (Second Edition)
The U.S. economy sustained a real rate of economic growth of 3.3% from 1945 to 1973, and achieved the same 3.3% sustained real growth from 1982 to 2007. It was only during the stagflation decade of 1973 to 1982, reflecting the deeply misguided reigning intellectual leadership of the time, that real growth fell to only half long term trends.
If we could revive and sustain that same 3.3% real growth for 20 years, our total economic production (GDP) would double in that time. After 30 years, our economic output would grow by 2 and two-thirds. After 40 years, our prosperity bounty would grow by 3 and two-thirds.
Restoring that booming economic growth and prosperity is the core of solving all of our nation’s problems, not income or wealth redistribution, or addressing “inequality.” As Brian Domitrovic rightly explained in his highly insightful book Econoclasts: The Rebels Who Sparked the Supply Side Revolution and Restored American Prosperity, “The unique ability of the United States to maintain a historic rate of economic growth over the long term is what has rendered this nation the world’s lone ‘hyperpower.’”
The Federal Reserve has arrived at last. Exhibit A: The tremendous number of people interested in who would be confirmed as the new Fed Chairman last January.
For monetary geeks like me, it’s an exciting development. It gives me a chance to talk about topics I’ve been interested in for decades, but now with more than two people.
I sincerely hope to use this column to broaden the conversation surrounding the Federal Reserve. Over time, I’ll talk about the usual topics – quantitative easing, tapering, interest rates, etc. But there’s so much more to monetary policy than these narrow issues. What about the very purpose of the Fed itself?
Is a monetary apocalypse imminent?
James Rickards, bestselling author of Currency Wars, has a new New York Times bestseller out, about the possible imminent collapse of the dollar: The Death of Money: The Coming Collapse of the International Monetary System (Portfolio/Penguin). More interestingly, he writes about what could come next: a golden age.
Advance praise (“A terrifically interesting and useful book….”) from Brookings’s senior fellow Kenneth W. Dam, former Deputy Secretary of the Treasury and author of The Rules of the Game: Reform and Evolution in the International Monetary System, is an attention getter. Rickard’s Currency Wars was a hot best seller on the New York Times list, and also, more significantly, in the United States Senate.
Why is the Federal Reserve the sacred cow of American politics?
It’s not because it has done a stellar job. Its fundamental, serial errors in the 1970s, after the U.S. blew up the gold-based Bretton Woods international monetary system, gave us and the world the Great Inflation and a discouraging, debilitating decade of stagnation. The Fed’s pursuit of a weak dollar, which started in the early 2000s, has been an unmitigated disaster. It created the horrific housing bubble. Ben Bernanke’s destructive experiment known as quantitative easing distorted the credit markets, thereby unfairly helping Washington pile on debt (“deficits without tears”) while making it harder for small and new businesses–the job creators–to get loans.
In no small part because of the Fed, the recovery from the terrible downturn of 2008–09 has been the worst in American history.
The Federal Reserve is the most powerful agency in Washington, yet it has a fraction of the oversight that our intelligence agencies, including the NSA, have. Congress doesn’t even hold the power of the purse over the Fed. The agency gets its operating money not from congressional appropriation but from the interest it gets on its bonds, which it buys with money it creates out of thin air.
The Republican National Committee recently passed a resolution, by the unanimous vote of its National Committeepeople, calling for the creation of a national Monetary Commission. This legislation is prime sponsored in the House of Representatives by Joint Economic Committee Chairman Kevin Brady (R-Tx) and in the US Senate by Republican whip John Cornyn (R-Tx).
Cato, with a representative from Heritage, recently conducted a panel on Capitol Hill on this same proposed Commission.
Policy does not grow on trees. Policy comes from people who command attention and have, and win, arguments. As the attention-commanding RNC together with two of the capital’s leading think tanks indicate, a good argument is brewing. America needs to have and win an argument about the role of good money — as in Fed policy — in fostering, rather than retarding, a climate of good job growth and equitable prosperity.