The dollar—that thing the Federal Reserve has been printing like mad the last few years—is in one of the worst spells in its history, short, medium, and long-term. Against the world’s major currencies, the dollar’s rate of exchange is down 5% since the Great Recession started, 32% from the 2001 peak, and 15% from the stability achieved in the late 1980s and early 1990s.
This is not to imply that the world’s other major currencies are themselves paragons of value. Against gold, all currencies have suffered mightily. But the dollar is especially bleak. It’s devalued 80% against gold since the 1980s, most of that in the last ten years. All of this has basically shown up in the consumer price index. The cost of living is double what it was twenty-five years ago.
The most important statement in President Barack Obama’s compendium of the State of the Union was:
In those 49 words, the President articulated a standard by which all economic policies can be measured: economic growth. Advocating growth as the “North Star” also positions the Democrats to take the growth issue away from the Republicans, who ignore this challenge at their peril.
Continued green-eyed obsession with projected 10-year budget deficits based on the jargon of baselines and assumptions that only a few can understand, and fewer still can master, will make them the party of austerity and zero-sum policies. And, that would position the Democrats to hold the Senate and win the House in the 2014 elections on the promise of overcoming the Republican opposition to a new growth agenda.
... It is deplorable that so few of our elected officials, with the notable exceptions of Rep. Kevin Brady, prime sponsor of the Sound Dollar Act, and Rep. Marsha Blackburn, who successfully championed a national monetary commission as part of the 2012 GOP platform, have focused on moving monetary policy to center stage. Sustained periods of real 4% growth were common before the final link between the dollar and gold was severed in 1971. About half of all the 10-year periods between 1792 and 1971 experienced an annual average rate of more than 4%. But, there has not been one, not even one 10-year period of 4% growth since the Federal Reserve took over responsibility for the value of a paper dollar. Monetary reform, especially a modern gold standard, is not inherently partisan. And in terms of the growth standard, it promises an order of magnitude higher impact, with more winners and fewer losers than any other policy option on the table.
The elevation of reform of our broken monetary system to a bi-partisan economic issue may be the biggest positive development of the next two years. Just last week, two-thirds of the Delegates in the Virginia House voted to “establish a joint subcommittee to study the feasibility of a metallic-based monetary unit.” That follows the lead of the Republican Platform’s call for a commission to consider the feasibility of a metallic basis for the U.S. currency, and last year’s decision by Utah to recognize gold and silver coins minted by the U.S. government as legal tender.
Importantly, there is nothing inherently partisan about favoring a metallic-based monetary unit. George Bernard Shaw, co-founder of the London School of Economics and ardent socialist, in his 1928 book, The Intelligent Women’s Guide to Socialism and Capitalism wrote this about the gold standard:
“You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the government. And, with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold.”
Last week, the Virginia House of Delegates Rules Committee passed, by an 11 – 1 bipartisan majority, a bill to establish “a joint subcommittee to study the feasibility of a United States monetary unit based on a metallic standard, in keeping with the constitutional precepts and our nation’s founding principles….” Such a study could prove to be a very big deal indeed.
It would bring a sleeper issue, one crucial to economic growth, to the fore of the national debate. (Full disclosure, this columnist provided, by invitation, a letter in support of this legislation before the subcommittee vote. This respectfully was reported in a wonderful, whimsy-inflected, article by The Washington Post’s Tom Jackman.)
The legislation authorizing this study widely is expected to sail through the House of Delegates. It may well also be embraced by the Virginia Senate and signed by the governor. There’s reason for optimism since it is good policy and good (even bipartisan) politics.
First, this is an excellent piece of legislation. As reported Friday, unemployment remains stuck at 7.9%. This is a national tragedy. Job creation has been punk for over a decade, over three administrations under presidents of both parties. Official Washington leadership — with some important, exceptional, bright lights such as Joint Economic Committee Chairman Kevin Brady, former Republican Study Committee chairman Jim Jordan, House Financial Services Committee chairman Jeb Hensarling, and, in the Senate, Sens. Lee, Cornyn and Rubio — has seemed clueless that the Prime Suspect in punk job creation is lousy monetary policy. Washington will benefit from a nudge from America. And Virginia is quintessential America.
“We suffer from the longest and one of the worst sustained inflations in our national history. It distorts our economic decisions, penalizes thrift, and crushes the struggling young and fixed-income elderly alike.” – Ronald Reagan, January 20, 1981.
The day after Ronald Reagan’s election as the 40th president in 1980, Steven Hayward, the author of The Age of Reagan, noted that the “dollar rallied sharply on overseas markets.” The dollar’s rise was in fairness a mere continuation of something that had begun the previous January.
In January of 1980, gold hit an all-time high of $875. As the most constant measure of value in the world, gold’s rise from $35/ounce in 1971 to $875 signaled a substantial decline in the value of the dollar. Though modern economists horrifyingly view inflation as a function of too much economic growth, its real definition is a decline in the value of the currency; in our case the dollar. In short, and as is well known about a period when the value of the dollar collapsed, the ‘70s was an inflationary decade.
Though this showed up in a CPI (13% by 1980) that was far more reflective of monetary error than today’s (more on that later), Reagan properly did not explain inflation in terms of prices. As Hayward put it, the notion that “price increases cause inflation” is “akin to the logic that wet sidewalks cause rain.”