The True Gold Standard (Second Edition)
Tax rates were cut, regulations were rolled back, but the part of Ronald Reagan’s original economic agenda that never got off the ground was re-establishing a dollar as good as gold. This was partly because Paul Volcker was so successful a Fed chairman that fundamental monetary reform came to seem less pressing. But enlightened statesmen are not always at the helm, and the case for gold or a gold-like monetary measure and standard deserves consideration once again. Newt Gingrich has said he’s willing to consider the case for gold, and he announced today that he would name TWS friends Lew Lehrman and Jim Grant to chair a proposed commission on gold. Move over, Bowles-Simpson; here comes Lehrman-Grant.
The boss, who’s something of a gold standard enthusiast, is excited: Newt Gingrich called this morning for a Gold Commission, like the one Ronald Reagan set up in 1981, to consider how to get back to hard money (and perhaps to gold). Here’s video of Gingrich speaking in Columbia, S.C., at a foreign policy forum sponsored by the U.S. Global Leadership Coalition.
“We need to get our house in order. And we need to vaccinate ourselves against foreign contagion. The correct answer to the Euro is not to spend more American money propping up the Germans who prop up Southern Europe. The correct answer is to figure how we seal our banks off; how we make sure we protect ourselves and then say to the Europeans: you have a problem and you need to solve it.
“Part of our approach ought to be to reestablish something Ronald Reagan did in 1981 and that is to have a Commission on Gold to look at the whole concept of how do we get back to hard money.
“We need to repeal the Humphrey-Hawkins Act. We need to say to the Federal Reserve: your only job is to maintain the stability of the dollar because we want a dollar to be worth thirty years from now what it is worth now because that optimizes saving and investment because people know what they are going to back.
At 9:55 a.m. Tuesday morning, this Jake Tapper tweet came sailing across the ether: “Near the breakfast buffet, Senator Rand Paul chatting with Bill Kristol.”
Alarmed—or at least curious—tweets and emails started coming in to TWS: What’s up in Iowa? (And God knows what consternation Tapper’s tweet was stirring up at Paul headquarters!)
So we asked the boss, safely back in his room, What’s up?
The boss’s response: “Needless to say, what happens at the Des Moines Embassy Suites breakfast buffet stays at the Des Moines Embassy Suites breakfast buffet. I can report, though, without I think violating confidences, that we agreed that we both admire Lew Lehrman, and think a new Presidential Gold Commission like the one Lew (and Ron Paul) served on in 1981-1982 might well be a good idea.”
Three Republican presidential candidates—Herman Cain, Ron Paul, and Newt Gingrich—have at least hinted about the desirability of a return to the gold standard. The four top Republican congressional leaders recently called on the Federal Reserve to curb its interventions in the U.S. economy. In early October the Heritage Foundation held a two-day sound money conference in which both keynote speakers—New York investment banker Lewis Lehrman and former presidential candidate Steve Forbes—called for adoption of a gold-backed dollar. Advocating the replacement of Fed chairman Ben Bernanke has become a staple of virtually all the presidential candidates. (Even establishmentarian Mitt Romney has joined in, apparently rendering inoperative his April defense of Bernanke.)
So Republican elites are rapidly climbing the learning curve on monetary policy, certainly in comparison to the days when presidential candidate John McCain joked that if anything happened to then-Fed chairman Alan Greenspan, his corpse should be propped up and nominated to a new term. But to understand fully the unspoken alliance between President Obama and Chairman Bernanke, and the threat it poses to Republican hopes in the 2012 election, the GOP still has some distance to go.
There is, of course, nothing new about political symbiosis between presidents and Fed chairmen—most definitely including Fed chairmen originally appointed by a president of the other party. Conservatives of a certain age have not forgotten the 1993 sight of Reagan appointee Greenspan sitting in the gallery next to Hillary Clinton at a joint session of Congress, tacitly blessing Bill Clinton’s stiff tax rate increases.
Forty years ago yesterday, President Richard Nixon suspended gold convertibility, and the U.S. (and the world) went onto a “paper dollar standard.” Two pieces yesterday on the fortieth anniversary of Nixon’s announcement, by Lew Lehrman in the Wall Street Journal and Jeffrey Bell in the Washington Examiner, explore the consequences of that decision and make the case for considering a return to the gold standard.
They’re well worth reading (along with their recent pieces in TWS, and Judy Shelton’s, on the same broad topic). The current crisis is monetary as well as fiscal. It began, after all, with a housing bubble and a financial crash that were far more related to monetary than fiscal policy (the budget deficit was small and coming down in 2007). The way out may well end up requiring as thorough a rethinking, and as radical a reorientation, of monetary policy as of budget policy. But the monetary debate has lagged behind the fiscal debate. It’s time to begin to catch up. And the good news is that the solution rests on the same broad principles: the restoration of limits and standards for the federal government’s printing and spending of money.
Lehrman details Nixon’s 1971 decision, which, as he puts it, “sowed chaos for a decade.” Bell explains how the iron will of Reagan and Volcker saved us in the short term from the natural implications of fiat money. But “enlightened statesmen will not always be at the helm,” and, as Bell puts it, “those who succeeded Reagan and Volcker allowed the debt-driven paper system to inflate—and burst—a steadily worsening succession of financial bubbles.” Now the Fed desperately maintains zero-percent interest rates, punishing savers in the name of saving us from another recession, and world financial chaos seems to be the price for the “system”—fiat money and arbitrary governance by the Fed—we stumbled into forty years ago.