The U.S. treasurer under Eisenhower, Ivy Baker Priest, is best remembered for her observation, “I’m often wrong, but never in doubt.” That’s a delightful maxim for a neutral position like the treasurer. But it’s a terrible rule for a president, Fed chairman or Treasury secretary. With unemployment stuck above 8 percent for forty-two months, it is time for officials in Washington to soften their posture of complete self-assurance and take a hard look at some of the prevailing dogmas that are strangling the economy.
Last year, The National Interest helped along the reexamination process by publishing what this columnist then called "a lengthy, thoughtful, and perplexed, ‘A Critique of Pure Gold.’" A subsequent column, "The Grave Economic Consequences of Money For Nothing" observed:
The grounds for the prevailing opposition to gold convertibility are nicely summed up by Prof. Barry Eichengreen in . . . The National Interest‘s September-October issue, Eichengreen wrote:
“Society, in its wisdom, has concluded that inflicting intense pain upon innocent bystanders through a long period of high unemployment is not the best way of discouraging irrational exuberance in financial markets. Nor is precipitating a depression the most expeditious way of cleansing bank and corporate balance sheets. Better is to stabilize the level of economic activity and encourage the strong expansion of the economy. This enables banks and firms to grow out from under their bad debts. In this way, the mistaken investments of the past eventually become inconsequential.”
Better to stabilize and encourage? Not so fast. There are two free market camps and, thus, two complementary free market responses. The first is the libertarian posture of skepticism as to government’s capabilities. The second one is the conservative’s review of the actual empirical evidence.
The conservative gold-standard advocates feature the classical gold standard as the antidote to unemployment. They contend that, properly configured (perhaps as set forth in a recent book, The True Gold Standard by the gold standard’s éminence grise, Lewis E. Lehrman, whose institute I professionally serve), the gold standard empirically is demonstrated as essential for vibrant, sustained economic growth. Moreover, it simply is incorrect to characterize either the conservative or libertarian model as designed to “inflict pain upon innocent bystanders.”
The most recent development in this policy discussion is the call in the GOP platform for a new gold commission to reassess the recommendation of the Reagan Gold Commission of 1981. Rep. Ron Paul and Lewis Lehrman, both commissioners, issued a dissenting report, The Case For Gold, called “landmark” by the Cato Institute. The first gold commission was dominated by monetarism, a fading outlook, while The Case for Gold remains widely read.
The push for a new gold commission (and calls by Newt Gingrich and Larry Kudlow for Lehrman to chair it) and the public interest it is engendering are not isolated events. Since publication of Eichengreen’s article, there has been much incremental movement in the general direction of the classical gold standard.
Joint Economic Committee vice chairman Kevin Brady (R-Tx) is pushing his Sound Dollar Act, arguably the most important piece of monetary-reform legislation in forty years. This legislation, designed to move the Fed toward policies that will stop depreciating the dollar, does not call for the gold standard. Yet it heavily weights gold in its criteria for reestablishing quality monetary policy. Republican Study Committee chairman Jim Jordan (R-Oh) has made monetary reform one of the pillars of his policy architecture to restore economic growth, although he has not yet specified the mechanisms.
Leading Republican Party figures, including vice-presidential nominee Paul Ryan, have come to a consensus that monetary reform is important, perhaps even essential, to restarting economic growth and job creation. The party elites, who lean toward a price rule, and the conservative base, which favors the “golden rule,” are in accord.