It’s alarming to see so much of the Republican governing agenda inspired by Fox News hosts, but things have reached a crisis point when lawmakers start taking their cues from the commercials.
In late March, Rep. Alex Mooney (R-W.Va.) introduced a bill to reinstate the gold standard. It would set the value of the U.S. dollar to “a fixed weight of gold” and require the Federal Reserve to exchange paper notes for gold upon request. The idea, which economists widely deride, would severely restrict the central bank’s ability to respond to economic disruption.
No country in the world currently relies on the gold standard. The United States abandoned it in 1933, because the gold standard didn’t work very well.
And yet the integrity of gold is a staple of Fox News, which for years has subjected its viewers to advertisements warning of the imminent collapse of the dollar and celebrating gold as a store of value.
“Gold is the time-tested currency that goes up ― not down!” declared G. Gordon Liddy in an ad for gold dealer Rosland Capital. “What’s a billion dollars look like? What about a trillion? What about our national debt? It’s massive, and it casts a dark shadow over the dollar,” intoned Merit Gold & Silver’s own severe pitchman. “Gold has outperformed the Dow for the past 17 years!” announced Lear Capital, another gold retailer.
Alas, the era of the classical gold standard ― roughly the 50 years straddling the turn of the 20th century ― was characterized by financial turmoil, repeated bouts of heavy unemployment and profound social unrest. The panics of 1873, 1884, 1893 and 1907 led to riots, violent labor strikes and, in 1896, the radical reorganization of an entire American political party. These debacles are often overlooked today, because they were eclipsed by an even greater crisis known as the Great Depression, in which the strictures of the gold standard encouraged grinding deflation and mass joblessness.
The gold standard transformed minor economic disruptions into major deflationary shocks.
The chief flaw in the gold standard is also the primary source of its support among gold bugs: It dramatically curtails the government’s ability to print money to alleviate economic trouble. Because every dollar must be exchangeable for a certain amount of gold, the government cannot turn to sustained inflationary policies to finance its activities ― it needs to get its hands on more gold if it wants to print more money. As Mooney states in his legislation: “The gold standard puts control of the money supply with the market instead of the Federal Reserve.”
In practice, however, the gold standard transformed minor economic disruptions into major deflationary shocks. Since the government couldn’t print its way out of trouble, when the supply of money contracted, prices had to fall, and the resulting deflation caused widespread job losses and business failures. This turned out to be much worse than 2 percent annual inflation.
Mooney devotes three pages of his four-page bill to a revisionist history lesson, in which the congressman argues that creating the Fed in 1913 ultimately led to mass manufacturing job losses between 2000 and 2010 as a result of the central bank’s tolerance for 2 to 3 percent annual inflation rates.
The job losses over this period were real, but they are generally associated with “the China shock” ― trade policies surrounding China’s entry into the World Trade Organization. Similar inflation rates existed in the previous decade, and economists generally recognize that relative inflation rates among different countries have nothing to do with international competitiveness under the current system of floating exchange rates.
There are no hearings currently scheduled for Mooney’s legislation, which has no co-sponsors.
“Wow,” said Dean Baker, a liberal economist and co-director of the Center for Economic Policy Research.
As James Pethokoukis of the conservative American Enterprise Institute implored gold-friendly Republicans in 2015: “Please, stop.”