I will admit my knowledge in economics is extremely limited. However, from my knowledge of history I've seen the gold standard single-handedly prevent faster recovery of economies after economic panics because of the inability to enact monetary policy and augment inflation. So my question here is. Can anyone here OBJECTIVELY tell me why Ron Paul's suggestion for the return to the Gold Standard actually has merit? Why would we tweak the system and go backwards? Honest question. I'm not well-learned in economics. Also as a side note are there any other plausible economic systems that have yet to implemented into practice, yet exist in theory? Other than fiat currency and the gold(silver/any type of valuable metal) standard?
An alternative to the gold standard (and the moderate iteration of it that gets rid of the central issue that Paulites have with central banking---discretion in monetary policy) is the currency board. It worked well to stem hyperinflation in, for example, Argentina. What happened after thanks to policy inflexibility was well...ugly... http://www.frbsf.org/publications/economics/letter/2002/el2002-25.html A pure gold standard would have much of the same problems, if not worse.
http://www.investopedia.com/terms/c/currency_board.asp Read more: http://www.investopedia.com/terms/c/currency_board.asp#ixzz1tqV0ERLL
You can always look to good ole Latin America when you need to see a natural experiment of radical economic ideas. They've tried everything.
If there's so much evidence against the gold standard (and its many variations) then why does Ron Paul champion it? Same for Republicans, if austerity and tax cuts haven't worked historically, why continue trying it?
That's a great freaking question. It's probably more of a sociological or psychological question than an economic one. Why do people have extreme stances with no proof of viability? Is it the ego? Does it give the perpetrator a sense of superiority? Is it being consumed and attracted to the simplest solutions? Gold Standard. Boom, all problems solved. Is this derived from the lack of ability to understand complex issues? A misunderstanding of the scientific method? Is he just a crazy old cook? I don't know what it is, but I'd imagine it's a bit of a combination of all these components amongst many others. It's interesting to think about though. I think maybe a better question is "How does a man with this stance gain such a fervent following?"
Well, the only thing I know is that his following loves his integrity and incorruptibility rather that his economic stance.
How have you seen things from your knowledge of history? Who forced that knowledge upon you and who would profit from you believing it to be true?
History is probably the greatest resource you have in predicting the future; or in this case, the return to the gold standard that Ron Paul is raving about. Why do you openly ignore it? You do know that rejecting "biased" knowledge and picking out bits of knowledge that support your stance is as bad as just blindly submitting yourself to the biases of others? You become a dogmatic closed-minded thinker trained only to listen to the source of your information. Do your research and form your own opinions.
I will say that the gold standard offers price stability. However, IMHO there are a some huge shortcomings that far outweigh this one advantage. I think people tend to advocate a return to the gold standard for two reasons: 1. They inherently misunderstand the level of flexibility that fiat offers. 2. They understand fiat well enough, but are distrustful of the government's ability to manage it properly.
Cause gold standard is simple and trustworthy. It's psychologically satisfying. People think "the more gold my country has, the better off I'll be". So they have a simple goal in mind....vote for the guy who will promise me the most gold for the U.S. Current standard is too confusing and seems too manipulative. People don't trust economists and bankers who they think got everyone in the 2008 border-line depression. And politicians know that this country will be the biggest victim of globalism. Instead of basing your currency, which the crux of economics, on how well you perform in terms of innovation and competition...you base on Gold and let your current buying power prevent the global economy from slowly but inevitably shifting towards an equilibrium. Also, don't forget that going to a gold standard will ignite an even crazier gold buying frenzy in which many rich folks will get richer.
So, when someone reads a book/article/journal about historical events and formulates an opinion, it actually means the author had a priori knowledge of the conclusion he/she would draw, and forced that knowledge upon him/her to profit from it. Okay... Does that also mean Ron Paul wrote End the Fed in an effort to force negative perception of the Federal Reserve upon us for profit?
How many semesters of Economics do you have to take to become a doctor or a politician? Its an economic policy written by a fiction writer, Ayn Rand. Look her up. Ron Paul champions it because it appeals to his natural biases and thought processes.
<iframe width="560" height="315" src="http://www.youtube.com/embed/RvL_Dm2d99A" frameborder="0" allowfullscreen></iframe>
Video only paints half the picture... Prices have risen by 2189.4% since 1913, or a 95.4% loss in purchasing power. (usinflationcalculator.com) Average annual salary in 1913 was $800 paying $0 in income tax. Average annual salary in 2010 was $41673.83 paying $6600 in income tax, assuming an unmarried individual that takes no deductions (IRS website) Prices have risen by 2189.4% since 1913, but an individual's after-tax income has risen by 4384.2%. In other words, people people can buy over 2X the goods and services.
I stopped watching after the video claims that fiat currency DIRECTLY contributed to poverty, war, etc. Like all this wasn't existent during the period of the gold standard as well. Let's not forget during the gold standard economic panics were pretty frequent and pretty deep compared to the recessions we have now. Much of the blame for those panics were attributed to the inflexibility of currency during that period.
It means being on a FIAT System rather than the Gold Standard System directly contributes to poverty, war, etc. This is obviously true. Having an unchecked amount of money encourages governments to go to war. Were there wars when the world was on the Gold Standard? Of course, but that doesn't mean the Gold Standard encouraged it.
Definitely has an effect on economies of countries which are pegged to the dollar. Though these are officially voluntary, they are treated as a major political chess piece.
