Why Are Economists Allergic To Gold?

The WealthCycles Staff

As the old saying goes, the more things change, the more they stay the same.

Some 32 years ago, Ronald Reagan ran for U.S. President, in part, on a promise to appoint a “gold commission” to study the issue of whether and how the United States should return to some variation of the gold standard.

The nation had just come through a couple of tough decades during which, at times, it seemed as if the whole fabric of American society was being ripped apart. Devastating inflation and a lagging economy only made worse the social and emotional turmoil created by changing mores and standards surrounding civil rights, gender roles and military intervention. President Richard Nixon’s shocking act of severing the U.S. dollar’s ties to gold had failed to bring economic prosperity to the nation, and the Republican Party was feeling a bit of buyers’ remorse. The idea of a return to a gold-based monetary system gained steam.

A recent New York Times article describes the pre-election environment:

The 1980 Republican platformdenounced “the severing of the dollar’s link with real commodities in the 1960s and 1970s,” which it blamed for inflation. “One of the most urgent tasks in the period ahead will be the restoration of a dependable monetary standard,” it added.

Once in office, Reagan made good on his promise to establish a gold commission…but any hopes for a serious effort to restore the gold standard were all down-hill from there. When the report finally came out, it recommended that the United States stick to its status quo, fiat currency system. The Times article continues:

The commission, Murray N. Rothbard, a libertarian economist, later complained, was “overwhelmingly packed with lifelong opponents of gold who buried any call for a hard currency.” Ms. Schwartz noted that Treasury Secretary Donald T. Regan, who was the commission’s chairman, and Murray Weidenbaum, a member who was Mr. Reagan’s top economic adviser, “did not tip their hands until the final two meetings of the commission.”

Only two commission members dissented from the report: Lewis Lehrman, the author of a recent book titled “The True Gold Standard,” and a young Texas congressman, Ron Paul.

Fast forward to 2012. The United States is once again in the midst of a presidential election year. As in 1980, the Democratic incumbent is saddled with a economy in recession. And at least two of the candidates contending for the GOP nomination are waving the gold flag. One is that same dissenting congressman, Ron Paul. The other is former House Speaker Newt Gingrich, who has promised to establish a new gold commission, with the second 1980 commission dissenter, Lewis Lehrman, as co-chair.

It’s impossible to know whether Gingrich’s gold commission would be any more relevant or effective than Reagan’s was. But another striking historical parallel with 1980  is the intransigence of the financial establishment about gold.

Just as Reagan’s economic advisers were staunchly against a return to gold-backed currency, as the New York Times reports, every economist surveyed recently by the University of Chicago rejected the notion that a gold-backed currency would improve the economy.

The University of Chicago last month asked a panel of 40 economists, including former advisers to both Democratic and Republican presidents, if they agreed that “price-stability and employment outcomes would be better for the average American” if the dollar’s value were tied to gold. Every one of them disagreed, some with more than a little incredulity that such a question was worthy of discussion.

As the article notes, the single most appealing feature of fiat currency to economists and central bankers is its “flexibility”—in other words (our words), you can print as much as you need to do whatever it is you want to do.

“A gold standard would have avoided the policy mistakes of the 2000s,” conceded Daron Acemoglu of M.I.T. in his response to the Chicago survey. But, he added, “discretionary policy is useful during recessions.…”
Even economists with some sympathy to gold opposed the idea. “The gold standard adds credibility when a country lacks discipline,” said Edward Lazear of Stanford, who served as chairman of the Council of Economic Advisers under President George W. Bush. “The cost is monetary policy flexibility. The trade-off is unclear in the U.S.”

“The gold standards add credibility when a country lacks discipline.” Some might say, in this déjà vu election year, that most modern nations have demonstrated a severe lack of discipline, and that credibility is in seriously short supply. Whether a Republican, if elected, would buck the financial elites to seriously consider a restoration of a gold standard remains to be seen. We say, let’s establish a truly objective commission and see what they come up with. After all, how much worse could it get?

Inflation is simply an increase in the supply of currency and credit. The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling is defined by the term "price inflation." Central Banks attempt to stop deflation, a natural phenomenon which occurs in order to correct the prior inflation.

The tangible things that we eat, use and/or buy. Commodities that are traded include Cattle, Cocoa, Coffee, Copper, Corn, Cotton, and Crude Oil, just to cover the Cs. Gold, silver and platinum also are traded on the commodities exchanges as futures contracts.

A fiat currency is created by a government decree. The Latin word fiat means “let it be done.” And with the stroke of a pen, or the crank of a printing press, “money” is created. Fiat currency has no inherent value—the paper that a $100 dollar bill is printed on is surely not worth $100. It might have been worth a few cents before the government ruined its utility as scrap paper by printing green words and numbers all over it! Compare this with gold, which is a precious, rare metal that is, in many cases, the only substance on earth that can be used for certain human purposes, including science, medicine, and of course—adornment.

A fiat currency is created by a government decree. The Latin word fiat means “let it be done.” And with the stroke of a pen, or the crank of a printing press, “money” is created. Fiat currency has no inherent value—the paper that a $100 dollar bill is printed on is surely not worth $100. It might have been worth a few cents before the government ruined its utility as scrap paper by printing green words and numbers all over it! Compare this with gold, which is a precious, rare metal that is, in many cases, the only substance on earth that can be used for certain human purposes, including science, medicine, and of course—adornment.

now with Master Mike
many of us are gold buyers

he says we are in phase 2

he also says that phase 3 will start when those professionals who have a "I buy gold" business (cash-for-gold) will turn their direction into a "I sell gold" business (gold-for-cash!!)

I completely agree BUT.......
when that day comes.....it might be too late
the spread between buy/sell price will be 40 to 50%
even at goldsilver.com
if the price will be as high as $10.000 for example,
they will pay you with $5000-6000

so, I think we should sell a little bit BEFORE....!!

WHEN?
in my opinion when you see the price of gold climbing up irrationally, 12 or 15% in a day
when even the average person in the street starts thinking of buying some gold.....
that is the right time to sell it, and to sell it all!!!

my opinion is worth nothing because I'm not a scientist on this major
but I have experience in business matters

one last thing

selling gold will not be easy in phase 3

probably we had better sell it in part in the end of phase 2, when gold price will be $3000-3500

many greetings

It is quite obvious in retrospect that the Gold Commission was proposed, created, reported on, and disbanded all with the end predetermined. They had to appoint at least 2 pro-gold people so it wouldn't seem that they were wildly packing the Commission - they needed the vote to be plausible, which required a not-unanimous decision. Plus, they probably felt silencing one or 2 squeaky wheels by putting them in the Commission was a good strategy.

If you look at the history, while Reagan appointed the members, the Act establishing the commission was passed in October, 1980 at the behest of a Jesse Helms amendment to a bill, before Reagan was even elected.

they were going to jam thru a report with time for only 1 or 2 meetings, until one of the members objected and they backed down. Beryl Sprinkel tried to single handedly crush this commission, as you can see by the link to the newspaper report of the time. It was pathetically obvious.

http://news.google.com/newspapers?nid=1310&dat=19810806&id=MBVWAAAAIBAJ&...

Bookmark and Share

Related Content