One good thing about the current economic crisis is that it has greatly increased people’s interest in Austrian economics in general, and in the gold standard in particular. There had already been several high-profile leaders in economics, finance, and business who had come out in favor of hard money and abolishing the Fed. Then on December 17, political shock jock Rush Limbaugh had the following to say about the gold standard:
“When you take the dollar off the gold standard, for example, there’s nothing backing up the dollar. When the dollar is worth, you know, whatever the inflated value of it is, when there’s nothing substantive behind it, when you have all these runaway trains here — and we’ve reached a point where it’s all coming due here at one time; and we’re going to make it even worse with this trillion-dollar stimulus package of Obama’s. The idea that we’ve gotta go in there and have all this new government spending because we’re going to emulate FDR? Well, the dirty little secret is that FDR prolonged the Great Depression with the exact thing Obama is going to do.”
Of course Limbaugh, a GOP hack, cannot comment on anything without getting a potshot in on Obama or some other leading Democrat, but if Limbaugh were to use his powers for good rather than evil, this would be a good thing, right?
Well, maybe. But if Limbaugh does come out for gold — and it’s not exactly clear he’s going all the way with the idea from the quote above — it could actually be a bad thing, in my opinion, since it would further perpetuate the misguided notion that laissez-faire libertarians are in league with “conservatives” like Rush Limbaugh, Sean Hannity, Ann Coulter, etc. We’re not.
Limbaugh and his ilk have no interest whatsoever in libertarian ideas when their political party rules the White House or Congress (or God forbid, both!). No, when conservatives are in power, they’re too busy expanding government for their own pet interests. But the truth of the matter is, we would be totally unable to fund the Right Wing progam under the gold standard.
War, in particular, is virtually impossible to fund under a hard-money regime, and that’s why the gold standard was suspended during the Civil War, World War I, World War II, and Vietnam. In fact, any anti-war liberal — the type of people that Limbaugh hates — should embrace the gold standard as the ultimate companion of international peace. How sweet it would be for the Left to return to its laissez-faire roots and shut up the fake capitalists like Rush Limbaugh once and for all. Almost as sweet as it would be if Cindy Sheehan and Dennis Kucinich renounced socialism in favor of laissez-faire.
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Why oh why the obsession with gold money? Yes, I know it’s because libertarians don’t trust government with anything, last of control of the money supply. But look, currently the money supply is controlled by bankers. Which is the lesser evil, really. At least the government has some claim on caring about the public good. Bankers none whatsover.
Lets get rid of the bankers first, then talk about what should back the money. Once we have 100% reserve banking, much of the instability ruining our fiat money will be gone. Libertarians need to join forces with other, more collectively minded individuals who support the abolishment of fraction reserve banknig but don’t necessarily want a gold standard. Once this aim is achieved, then lets have the argument for or against gold. Gettnig a gold standard while still retaining fractional reserve rules would be the worst of all possible worlds and would serve only to enrich the financiers further at the expense of the rest of us.
Rush Limbaugh is a commentator, not an economic genius. His audience is looking for answers. I’m disappointed he can’t explain the difference between monetary and fiscal stimulus, and clue them in.
FDR’s fiscal policies failed because monetary policy failed. In fact, I believe fiscal policy (how we slice the pie) is much less important than monetary policy (how much pie we have). Google “1930s money supply” and you’ll arrive at graphs that clearly show GDP trailing money supply by about six months. Obvious now, not so much back then.
Trade protection, higher taxes on producers, and welfare are also economically destructive policies where Limbaugh seems to be on the right side. Wether nicer bridges and more solar energy are better investments than destroying terrorism as an ideology- that is the more interesting question, because the cost/benefit analysis is certainly easier for bridges and roads than it is for war.
Dan W and Dirk,
Cost/benefit analysis is an interesting concept. It actually recognizes the “cost” part in a given situation.
The current unbacked paper money system of the nation allowed the federal government to saddle the American taxpayer with $10 Trillion in debt. All the ideas I hear being promoted to “get us out” are ideas that got us in it, and get us deeper in the hole. You don’t need an MBA in anything to tell you that can’t be good.
A reasonable question to ask then is how does the nation produce and create jobs without adding to the $10 Trillion debt?
Raymond,
As of June, the US balance sheet had appx. $10 Trillion in government debt, 20 Trillion in private debt, and $70 Trillion in Assets. It also showed appx. $50 Trillion in Net Worth, and $14 Trillion in Income.
Most Americans would be happy if their debt was less than two year’s income and 30% of their assets. They’d be even more thrilled to know that their assets and income inflate instead of deflate.
The risks are that other countries lose faith in the ability of the US economy to provide value for the dollars outstanding, or that the debt-free wealthy get frustrated with their cash holdings losing value.
Given US natural resources, culture of innovation, and attractiveness for tourism, automated production capacity for various goods and services, outstanding educational institutions, and relatively reliable legal and government institutions, the ability of the US to make good on its foreign obligations seems reasonable. We certainly don’t have a labor shortage.
The bigger question may be the willingness of the wealthy and innovators to play in this market if tax changes, government regulation, and legal protection for private property rights trend the wrong way. But most countries still have a problem with income inequality and therefore have governments with some pressure to assure adequate economic opportunities for the populations (lest they degenerate into violence, which tends to happen when large differences in living standards and economic opportunity exist).
I have decried the 18 straight Fed interest rate increases because they directly impacted profitability for asset-creating enterprise, and created this economic meltdown. We have to have more control over the power of the Fed to create financial and economic crisis- because when I look at the fundamentals of the US (and world) economy, I see the productive capacity to eliminate poverty, lengthen life expectance, and provide the ability for people to pursue a reasonable amount of economic security, all while prosperity expands to a larger part of the world. But we have to break through the shackles of false scarcity.
Dirk,
Deflation comes from a state of inflation, the very thing you prescribe.
Private debt are paid by the borrowers themselves.
Government debt are borrowed by politicians but paid by taxpayers and it’s $10 Trillion to infinity. Not good.
The act of price fixing the interest rate itself is the error in your approach. It’s flawed from the start.
Because of the leveraged nature of our banking system,
The booms are created simply because there is no natural limitation to the business loan market , and the price mechanism (rates)
is being fixed by a market non participant. Central bankers are neither consumers nor producers and functions more like a counterfeiter.
A fixed low price for rates and duration can still fund loans for stock speculations, internet based start ups, home building and mortgages to excess. The stupid loans bankers make are enabled by central bank price fixing.
The interest rate is not some arbitrary number that someone can just call without distorting the nations production and employment picture.
The interest rate is the price signal that aligns production with consumption in the economy. And this price is formed by the supply and demand for savings. Savings reflects consumer time preference
with regards to their money (save now to spend later). So a high savings rate means ample supply of savings and a lower price for borrowing and vice versa.
Production with savings creates employment without additional taxes, government debt, unsustainable booms or price inflation.