Tuesday, January 24, 2012

If you were wondering about the gold standard

Political campaigns make for great entertainment, as they always feature supposedly "new" ideas about how to help the economy.  Newt Gingrich and Ron Paul have been urging the public to consider going back to the gold standard.  That would mean there would be a fixed exchange rate between the dollar and the price of gold.  There is a long history on how fixed exchange rates in general and the gold standard in particular operate.  Like any other form of price control, there's lots of deadweight loss involved. 

But why take my opinion?  Chicago-Booth polled 50 leading economists concerning the desirability of moving back to the gold standard.  These are economists coming from the full range of the political spectrum and all of them have published regularly in the very top journals.  The results showed a strikingly rare degree of unanimity: every single one of them disagreed and most disagreed strongly with the proposition that the gold standard would improve price stability and living standards for the average American. 

A couple of priceless comments: "Gold is intrinsically close to useless, so its price is determined as a "bubble" from Daron Acemoglu (MIT) and "Why tie to gold? why not 1982 Bordeaux?" from Richard Thaler (Chicago). 

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