Thursday, January 6, 2011

Ron Paul on Colbert


Stephen Colbert hosted a brief debate between Ron Paul and an economics writer for the New York Times. The subject was "should we return to the gold standard?"

What I found curious was that two of Paul's arguments for the gold standard are actually good arguments against it.

First, he argued that we would not have entered into recent wars if we had been on the gold standard. Presumably, this is because our finances would have been much more limited. We would not have been able engage in enough deficit spending to finance those wars if our ability to create money was restricted by tying it to gold (which is a finite commodity).

Now, I am against the Iraq War as much as anybody, and I appreciate that Ron Paul has been an outspoken critic of that war, but is the inability to finance a war really a good thing? World War II was financed through debt. We dropped the gold standard during the Depression and to finance the war we racked up the equivalent in today's dollars of 30 trillion in debt (double the amount of today's national debt). Surely this financial flexibility served our nation well at that time. And I should also mention that this debt did not destroy our currency or our economy. Actually the extreme deficit spending of the war amounted to a giant fiscal stimulus program which finally completely revived the economy after the Depression.

Second, Paul argued that people would never bury cash in their backyards, believing that its value would hold. Yet this implies that since people value gold (they presumably would bury it in their backyards), they might hang on to it much more forcefully than cash.

But once again, this is a great argument against the gold standard. Money is the means to facilitate the creation of objects of real value - like food, cars, computers, etc. You can't eat money and you can't eat gold. If people hang on to their money (gold or otherwise) too tightly, then the economy goes into recession (or worse). This is because spending equals income. It doesn't make sense to say that we can all save our money and create more jobs, because jobs are only created when people spend their money. If everyone saves their money, then they also lose their jobs. So if the gold standard is more likely to lead to buried treasure than our floating currency, then this is a good argument against the gold standard. (Note: obviously the need for savings is a reality for most of us, but excessive cumulative savings that depresse demand is the danger here. And there are savings vehicles which are better than cash, such as bonds which finance local municipal projects, etc.)

There are many more points to be sure, but I found Paul's points to be very curious.


3 comments:

  1. I'm not sure what's going on here.. I'm inclined to agree with you again. Paul's reasoning is certainly unsound. I'm bothered when folks can't see an argument's antithesis... especially when they are hoping to lead a nation. Paul brings a few good ideas to the table from time to time... this is not one of them

    ReplyDelete
  2. Yeah, I agree Randy. I have always found him interesting - a true wild card rather than a party man. But does not make him right! (or wrong)

    ReplyDelete