Leave gold standard
Editor, Gettysburg Times,
The people of Adams County might have heard about Stephen Moore and Herman Cain, President Trump’s former nominees to sit on the Federal Reserve’s Board of Governors. Both of these men had supported returning to the gold standard — making US currency convertible to gold. I think readers would appreciate to hear why this is bad economics.
Generally, gold-standard advocates are concerned with two things: government spending and limiting the power of the Federal Reserve. That may sound like a good idea to you, until you take a look at history.
You might be concerned that the government can simply print money (though it’s not actually that easy) in order to finance spending. However, it’s not true that the gold standard era saw low government spending: FDR’s New Deal, LBJ’s Great Society, and World War II all created enormous obligations for the US taxpayer.
What about limiting the power of the Fed? Certainly, the government wouldn’t be able to “pull levers” and influence the economy as easily under a gold standard. But it’s not true that the free market would be in charge. Why? Because all gold — not just US gold — would influence our money supply. Imagine what China could do to the US economy: it would simply need to purchase a percentage of our gold and cut our money supply. Or, it could produce more of its own gold and pump it to the US. All the while, US citizens would be helpless as foreign powers play with our economy.
There’s also a hidden risk with gold. Traditionally, during depressions, the Fed will lower interest rates to increase spending and the money supply, alleviating the depression; there’s a bevy of evidence that these policies have limited human suffering and kept our economy stronger. Under the gold standard, it wasn’t possible to do this. When we lowered rates, the US had less money than before: foreign owners of gold took their gold and saved it in a country with higher interest rates, lowering our money supply. That means the gold standard caused worse recessions, and, according to historians, was part of the reason the Great Depression was so awful.
Even if our money isn’t worth something precious, that’s not a cause for alarm. Both the US and the world are economically better off for leaving the gold standard behind.