If you're a shoe-making elf who jealously guards his gold coins -- a Leprechaun -- you don't have many friends in American politics these days. President Obama, gold-bug message boards say, is working to confiscate all gold in private hands and even the Libertarian Party has deleted overt references to the shiny stuff from its platform. In fact, gold has only one major friend in the national spotlight: Ron Paul.
Paul, for his part, has written a book calling for a gold standard and makes it part of his stump speech. Now, with Paul and his acolytes working to disrupt the Republican convention in August, there's a real chance that some "gold bug" thinking could infect the Republican platform. This would win the party the Leprechaun vote and, by hurting fundraising, lose the election for Republicans.
Let's look at the gold standard to explain why. In the standard's defense, some prominent honestly mainstream Republicans like Jack Kemp, Ronald Reagan, Alan Greenspan have flirted with or even embraced the gold standard it the past. In fact, in an economy where inflation was a major problem -- as it was in the 1970s and early 1980s -- a "tight money" policy could have a lot of merit. But, without switching over to gold, Greenspan's predecessor, Paul Volcker, imposed one and, mostly, it worked. Inflation hasn't been a major problem since then.
The problem is that a gold standard or any other tight money policy is the wrong medicine for the economy now. Today, of course, there's absolutely no evidence of inflation in the Consumer Price Index or the much broader Billion Prices Project. (Theoretically, an "easy money" standard somehow tied to gold is possible, but no modern gold standard proponent with any public support actually favors that.) One of the economy's major underlying problems, the unemployed trapped in upside-down houses that they can't sell to seek work elsewhere, would be solved entirely if inflation were to take off. And corporations would stimulate the economy by spending the billions of dollars in cash currently sitting on their balance sheets. So, even without considering its enormous practical problems that Fed Chairman Ben Bernanke among others have outlined (there isn't really enough gold in the world to make it work in the way most proponents now propose), total lack of evidence for most of Paul's claims, and its godawful track record (we had huge contractions about once every 20 years under the gold standard), a gold standard is a total loser.
In many ways, in fact, a gold standard based economy has the flaws that most gold standard proponents claim for our current fiat currency system. Unlike stocks (real claims on ownership), bonds (real claims on debt), and most commodities (resources for which there is industrial demand) gold is almost entirely useless. Its price reflects people's interest in buying gold -- not anything about any economic fundamentals. And it isn't even a step forward for liberty. A gold standard substitutes one form of government control, over the price of a given commodity, for the existing Federal Reserve System.
Bad as the idea is, it isn't DOA in the Republican convention. Unlike other parts of Paul's platform that involve gutting national defense, withdrawing from NATO, legalizing heroin, and abandoning Israel -- things that have no support amongst most GOP convention delegates -- the generally poor understanding of monetary policy amongst portions of the Republican Party mean that a degree of support for a gold standard or something like it might be foisted on Romney's platform. After all, goldbug measures have become law in Utah and gained support elsewhere. If they make enough trouble, the Republican convention might just be convinced to give some credit to the idea of a gold standard. After all, Paul isn't going to be the nominee and probably isn't even going to get a primetime speaking slot.
While Romney himself is too smart to make anything so kooky a major part of his campaign, simply including it in his platform would make it clear to a large portion of the otherwise right-leaning financial sector that the Republican Party hasn't managed to tame its fringe elements. And this would give Romney -- who is finally fundraising decently -- a fundraising gap that, alone could cost him the election even if the chaos Paul delegates want to create at the convention doesn't turn them off on the GOP first. A gold standard isn't good for anything besides winning the Leprechaun vote.
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