Sanity Injection

Injecting a dose of sanity into your day’s news and current events.

Should we return to the gold standard?

Posted by sanityinjection on May 5, 2009

A small but vocal minority of economists and politicians argue that a return to the gold standard (under which paper money is convertible to a certain amount of gold) would provide increased stability and foster economic growth.

RealClear Markets editor John Tamny has a good column up defending this view. I have a lot of respect for Tamny and his columns are always thoughtful and well-reasoned. But I am not sure I am sold on gold. It seems like too pat a solution that would eliminate the Fed’s ability to set an independent monetary policy. Perhaps if the world returned to an international gold standard for all currencies, there would be a resulting boost in international trade, but I judge that other countries would be even less likely to give up their monetary control.

While I agree that under a gold standard many of the elements of the current recession probably could not have occurred, that also suggests that the sustained economic gains we’ve seen in prior years also could not have occurred. To put it another way, I’m not sure that the best solution for a gambling addiction is to amputate the hand that holds the cards. 

Then again, this is not my area of expertise. What are your thoughts?


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