Going for gold: Ted Cruz and the politics of money

Printed from: https://newbostonpost.com/2015/11/18/going-for-gold-ted-cruz-and-the-politics-of-economics/

Texas Sen. Ted Cruz has proposed that we consider getting the dollar back on the gold standard, which puts him outside the “mainstream” of contemporary economics. (What’s a mainstream again? I can’t quite say. Are there mainstreams without tributaries, in watersheds for example? Weird metaphor.)

Isn’t the gold standard nuts?

Nuts, if you are a partisan of secular stagnation. If your bag is slow economic growth, lots of cash in the direction of the financial sector as opposed to that which provides goods and services, booms and busts in things like housing and oil, millions of dropouts from the labor force — then sticking with that doughty old mainstream is the way to go. Just have the Federal Reserve print money as it sees fit. You’ll get the 2000s.

It’s incredible that gold is so trashed and misunderstood by the mainstream — this lumbering waterway being, apparently, the all-too-large complement of university economics departments (of which I myself am a part), coupled with the policy wonks in places like Washington, D.C. But note: Economics and Washington D.C. have done very well in the era of secular stagnation. Cui bono.

But gold is the essential complement to economic growth. You can ransack history and find no examples of economic growth at a splitting pace where gold was not stable, at a generally low level, in the private markets. It’s essentially as easy as saying this: Major currency issuers should conduct their business with one thing in mind; a stable, preferably low price of gold in their currency denomination in the markets. If economic growth of the first order does not result, it will be in defiance of all history.

No belief? Gold, on the markets, soared 23-fold in the 1970s, peaking at $800 per ounce. In the 1980s and 1990s, it hugged a tight band around $350. In the 2000s, it zoomed six-fold to $1,800 then bounced down to the $1,150 it hangs out at now. Here is what I told Dr. Janet Yellen herself, Fed chair extraordinaire, across her big meeting table at the Eccles Building in Washington last February:

“Economically the effects were startling in their contrasts. In the 1980s and 1990s, growth was high, recessions rare (there was one from 1982 to 2000), entrepreneurialism common, and jobs abundant. In the 1970s and the 2000s (through today), recessions were either frequent or their recoveries slow and shallow, un- and under-employment sampled new high levels, and investment went into primary inputs ranging from oil to land (and gold) to an uncommon degree.”

Obvious why. Let’s put it in italics: Gold is the favorite hedge of all those around the world who are worried about the wisdom of discretionary American monetary policy, and who otherwise would direct their resources to shrewd and very considerable investment in the real economy of humanly useful goods and services.

Low and stable gold equals massive worldwide investment in the real economy. High gold means massive redirection of productive resources to places where the investor class waits till there is good reason for confidence. That simple. And the things that flow from our savviest investors putting the great part of their resources into the real economy are tens of millions of new jobs, a surge in entrepreneurialism, heady increases in the mass standard of living, and the dignity of good work and leisure well-earned for all. Used to be called the American Dream. People still hunger for it globally.

I actually feel sorry for Janet Yellen. I think she’s a better Fed chair than her über-confident predecessor Ben Bernanke. Bernanke had learned about the Great Depression in books so much that he knew that monetary blowouts were the way to go. (He suppressed knowledge of the part in 1934 where FDR reestablished an international gold standard, which became the model for the post-World War II system.) Bernanke knew he was right in creating the dollar anew in defiance of the massive run-up in the private price of gold. And now he acts clownishly in defense of his record, nearly declaring secular stagnation the best of all possible worlds.

Dr. Yellen is a little more curious, I think, about economic history — what if all that theory is not quite correct?

The problem that she faces today is that investment remains halting, even as the Fed has taken steps consistent with falling gold. Real-world investment retains the slows, surely, because regulation has exploded along with government spending and the prospect of tax increases. If we had tax-rate cuts and regulatory restraint, an enormous demand for the dollar, on the part of investors, would ensue, making it easy for the Fed to supply tons of money for the boom — while gold stays low and stable. Who invests in gold when there is profit to be made in the economy? Nobody in the 1980s and 1990s, that’s for sure, when the money supply expanded handsomely and interest rates plummeted.

Here’s where Ted Cruz gets it. The supply-side economics tradition he is drawing upon has long emphasized a policy mix. A dollar good against gold eliminates the multi-trillion-dollar push of investors out of the real economy into monetary-policy hedges. Low tax rates and scant regulation establishes the allure not only of profits, but of realizing one’s aspirations in the proving ground of business. The policy mix establishes real demand for the dollar in both directions.

And by the way, in a point that bears repeating, the Fed would supply the dollar enormously in the face of such a boom, as gold stays low and stable. The purpose of money is to fund real transactions. These would increase fantastically with low and stable gold and fiscal and regulatory humility.

So Sen. Cruz endorses tax-rate cuts, bye-bye to Obamacare (and the EPA’s and the IRS’s doing their thing), and a dollar link to gold. The only conceivable result would be that bygone goal, that centerpiece of our nation’s nostalgia these years of our contemptible secular stagnation: the resurgence, in real life and experienced by many millions, of the American Dream.

Brian Domitrovic is the Visiting Scholar in Conservative Thought and Policy at the University of Colorado. He is the author of the 2009 book “Econoclasts,” a history of supply-side economics.