Why Tie to Gold? Why Not 1982 Bordeaux?

Photo via Flickr user hto2008, Creative Commons.

The University of Chicago IGM Economic Experts Panel, a group of economists spanning the ideological spectrum, was asked this week whether they agreed with a statement regarding the gold standard:

If the US replaced its discretionary monetary policy regime with a gold standard, defining a “dollar” as a specific number of ounces of gold, the price-stability and employment outcomes would be better for the average American.

Hilarity ensues.

Austan Goolsbee: “eesh. Has it come to this?”

Richard Thaler: “Why tie to gold? why not 1982 Bordeaux?”

Of the 37 economists, 57% strongly disagreed with the statement and 43% disagreed.  William Nordhaus and Anil Kashyap chose to use their answers to drop some truth on all the Ron Paulistas out there.

Nordhaus: “This proposal makes no sense in the modern world. Just look at the Eurozone to see the consequences.”

Kashyap: “A gold standard regime would be a disaster for any large advanced economy. Love of the G.S. implies macroeconomic illiteracy.”

On a more serious note, Pete Klenow linked to a short, interesting 1982 paper by Robert Hall on the implications of a gold standard and, more broadly, a commodity standard.  Hall dismisses the possibility of a gold standard (“unacceptable as a basis for stabilizing the dollar because variations in the relation between the world price of gold and the United States cost of living are much too large”) but goes on to contemplate a commodity standard for the dollar based on certain quantities of aluminum, copper, plywood and ammonium nitrate.  It’s an interesting hypothetical, although problematic for any number of reasons, some of which Hall points out.  In the end, Hall concludes that the quality of monetary policy is the determining factor under both a fiat currency and a commodity standard system.  That’s one thing that people who love the gold standard don’t seem to grasp–under the gold standard, the government’s ability to influence monetary policy doesn’t go away.  The government just influences policy in a different way, by determining what quantity of gold is equal to a dollar, rather than directly regulating the quantity of money.   So even if you think government/Fed control is the problem, the gold standard still isn’t the answer.

h/t Ideas Market

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