Sunday, May 6, 2012

Amity Shlaes Writes on Gold Standard for Bloomberg News – Apparently One Can Write on the Gold Standard for Bloomberg Without Actually Knowing What the Gold Standard Is

Let’s Party Like It’s 1896!

Crackpot economic theories have a life all their own.  They reside in their own world of false assumptions, bad logic, made up conspiracies and quotations from long dead economists.  The greatest of these crackpot ideas is the gold standard.  It involves the current state of currency (funny money) conspiracies (international bankers, gnomes) and the belief that everything would be great if the world just returned to a monetary system that was out of date when it was abandoned completely 40 years or so ago.

One of the really great things about those who write in support of the gold standard is that it seems they have absolutely no idea what the gold standard is.  This of course does not stop them, lack of knowledge on a subject has never been an impediment to wacko thinking and writing.  So it is not surprising when someone named Amity Shlaes writes positively about the gold standard for Bloomberg.  Actually it is surprising that a publisher as serious as Bloomberg would publish such an article, but maybe they just needed something to fill up some space and were desperate.

Here are some of the points made by Ms. Shlaes.

Markets and countries enjoyed relative stability in gold- standard years, and capital in those years flowed to worthy growth-generating projects. The main sacrifice in gold regimes that the authors identify is that governments lose authority to micromanage domestic economies. But given governments’ records, that may not be such a bad thing, either.

It all suggests that contempt for old gold hands such as Congressman Ron Paul of Texas might not be warranted. And that it might be interesting to peruse the numerous gold-related currency plans outside the door of the academic salon. Plenty of people, many former bankers, think it is time to pass laws returning the U.S. to some version, strong or weak, of the gold standard.

Lewis Lehrman, financier and founder of the Gilder-Lehrman Institute, which focuses on history, recently published a plan to take the world back to gold, “The True Gold Standard.” Charles Kadlec, another former Wall Streeter, co-wrote his own proposal, “The 21st Century Gold Standard,” with Ralph Benko. The case for gold as a mandatory metric for the Federal Reservein setting interest rates is made in new legislation offered by Congressman Kevin Brady, another Republican from Texas. Dozens of state legislatures are introducing their own gold- or silver-related currency legislation.

Ms. Shlaes goes on to make the point that when there was some version of the gold standard the economy performed, well, sorta ok  (the developed world of course, the rest of the world ecomically sucked).  Of course also during most of those times that the economies of the world were on the gold standard  transportation was provided by horse and buggy, so maybe we need to also get rid of autos, planes and trains to make the thing work.

Economically speaking the gold standard does two major things.  One is that it creates a system of fixed exchange rates.  The member countries of the Euro are on that system.  How's that working out.  It also limits the creation of monetary by fixing the monetary base to the amount of gold in existence.  This keeps inflation under control.  Uh, note to gold standard advocates, inflation is already under control, maybe too much so.

Okay, let’s all take a long breath and have a short laugh and move on.  Don’t worry though, if anyone needs to revisit the gold standard issue it will be featured prominently in some publication forever.  It’s has a longer life than a vampire who lives in a country without garlic, crosses or wooden stakes.


  1. Gold is just so unwieldy, and it would not work well with our ATM system.

  2. You misspelled her name 4 times in a row. Well played

  3. Spelling corrected, thanks; point still correct

  4. "Someone named Amity Shlaes"?

    "Amity Shlaes graduated from Yale University magna cum laude[2] with a bachelor’s degree in English in 1982.[3]

    "She is also a regular contributor to Marketplace, the public radio show. She has appeared on numerous other radio and television shows over the course of her career.[7]

    "Prior to writing her column for Bloomberg, Miss Shlaes was a columnist for the Financial Times for five years, until September 2005.[8] Before that she was a member of the editorial board of the Wall Street Journal, specializing in economics.[9] She followed the collapse of communism for the Wall Street Journal/Europe and in the early 1990s she served as the Journal's op-ed editor.[10]

    "Over the years, she has written for The New Yorker, The American Spectator, Commentary Magazine, Foreign Affairs, Forbes, National Review, The New Republic, the Sueddeutsche Zeitung and Die Zeit, among others.[11] Her obituary of Milton Friedman appeared in The New York Sun.[12]

    "In 2011, she was named director of the 4% Growth Project at the George W. Bush Institute.[13] This initiative is aimed at illuminating ideas and reforms that can yield faster, higher quality economic growth.[14]

    "Before joining the Bush Institute she served a decade as a senior fellow in economic history at the Council on Foreign Relations (CFR), an independent, nonpartisan membership organization, think tank, and publisher.[15] As a Senior fellow in Economic History at CFR David Rockefeller Studies Program, -- Shlaes worked within the Maurice R. Greenberg Center for Geo-economic Studies (CGS), dedicated to promoting better understanding among policymakers and academic specialists of how economic and political forces interact to influence world affairs.[16]

    "Since Fall 2008, Miss Shlaes has served as an Adjunct Associate Professor of Economics at New York University Stern School of Business, teaching a course titled "The Economics of the Great Depression."[17]

    The crux of her column is that the Bank of England -- surely one of the most respected monetary authorities in the world -- issued Financial Stability Paper No. 13 last December observing:

    "[T]he Bretton Woods [gold-exchange] system averaged the highest annual world GDP growth, more than double the average growth experienced under the gold standard and 100 basis points better than the current system. In terms of inflation, however, the gold standard was leaps and bounds ahead of both the Bretton Woods and current regimes. Where these systems really shone, however, was when the authors looked at the incidence rate of monetary crises under each regime. Both the gold standard and the Bretton Woods system performed dramatically better than the current system. During the years Bretton Woods was in place, there was an average of 0.1 banking crises per year. Since 1972, there have been an average of 2.6. And the same can be said about currency crises. During the gold standard's reign, there were 0.6 currency crises per year, compared to 3.7 a year since 1972."

    The Bank of England is hardly alone in commending that the gold standard option be treated with respect.

    Dismal, do pop over to the Lehrman Institute's, familiarize yourself somewhat with the real issues, and then let's hear a more informed critique from you.


    Ralph Benko

  5. It is also true that when the world was on the gold standard there was slavery of African Americans, two World Wars, the flu epidemic and countless other tragedies. None of these had anything to do with the gold standard but they were concurrent events, much like the economic results cited by those who support a return to the gold standard today.

    All of what is said about Ms. Shlaes may be true, and she may have excellent credentials, but she still does not understand the gold standard or make a case why fixed exchange rates and a fixed monetary base is preferable to the floating exchange rates and reserve based monetary base we have today.

  6. OK, we get it, don't like gold. One of the functions of money is supposed to be a reliable store of value. Since the Fed was created in 1913, the dollar has lost 96% of its purchasing power, much of that loss coming since 1971, when its gold backing was removed by Nixon. So you hate gold. No problem. But pray tell, how would you stop the relentless decline in our currency's purchasing power? Also, your unnecessarily snide remark, "note to gold standard advocates, inflation is already under control, maybe too much so." If you believe the government's official inflation stats, then I guess your answer to everything is simply trust the "experts" ... trust all our wonderful politicians who would never choose to overspend to buy votes and gain greater power ... trust all the experts at the Fed who are doing such a wonderful job rewarding savings and respecting the value of our retirement funds (money is, after all, our stored labor) ... trust the experts who have doubled our country's debt in the last four years and have no credible plan to ever repay it except to pass it on to the future generation. Do you really revere the experts that much?

  7. Actually I like gold very much, I just do not like the gold standard as monetary policy. Again please note that in policy terms the gold standard means fixed exchange rates and a fixed monetary base, and nothing anyone who advocates the gold standard ever explains why they think that is good economic policy.

    As far as inflation is concerned, it is a fact of economic life that moderate inflation is a by-product of economic growth and higher employment. Given the choice between zero inflation and an economy that is shrinking in real terms and inflation of 3 to 4% (which is where I think the number should be today, but not always) and an economy that is growing with higher employment most people, myself included would choose the latter.

    As far as the purchasing power of the dollar is concern, yes it has declined since 1900 or 1800 or even since 1972, but other than distributional distortions it is not a problem since nominal income has risen by more than the rate of inflation. Yes we would all like to be able to buy a new car for $600.00 which is what a new Model T cost at one time, but the economic policy to get us to that point would be ruinous.

    As for believing government statistics, as a practicing economist familiar with the operations of the BLS, BEA and the Census Bureau I have a very high degree of faith in their accuracy, and one piece of evidence that supports that they are accurate is the Republican policy goal of trying to cut their funding. Exactly what set of statistics does anyone propose to replace the government generated data?

    I do share the opinion of the commentator on trusting experts. To the extent one is capable of doing so one should rely on one’s own investigation and analysis. In fact the more a position cites “experts” the more likely that position is incorrect. Notice that those who support the gold standard often trot out a group of “experts” as their argument.

    The only argument those in favor of the gold standard seem to have is that some things were better during the same time as the U. S. and the world was on the gold standard. That is simply correlation without causality. We still need a rigorous explanation by those who support the gold standard why it is a better system than what we have, or even how it would be practical in today’s international economy. To repeat, my position is that those who advocate a return to the gold standard, particularly politicians, cannot effective demonstrate why that would be good policy in large part because they have no idea what being on the gold standard means.

    Simply stating that something is right doesn’t make it so.

    1. Thank you. Very enlightening. But why do you "like gold very much?"