The gold standard according to David Olive

In this article, David Olive denigrates the Republican Party of the US (the GOP) not because of its warmongering, or its catering to Israel, or even its anti-(Mexican) immigrant bias. No, he attacks the GOP because it wants to bring back the gold standard.

The Republicans cannot be in favour of a gold standard (Ron Paul notwithstanding). The entire significant political establishment of the US is opposed to a gold standard. No politician can make a serious run at the leadership of either party and support a return to the gold standard. It can't happen. So put it out of your mind.

Ryan himself is too smart to speak of a revived gold standard, which suffers a lingering “barbaric” reputation among economists. In a recent poll cited by University of Chicago professor Richard Thayler, noted in the latest Atlantic, not one economist endorses a return to the gold standard.

The datum that "not one economist endorses a return to the gold standard" tells us much about the state of economics today. At the same time, considering the role that economists play in government finance, it is a message about the likelihood of a gold standard. There is none. For as long as the system holds.

For the rest of the article he recounts the tired old arguments against a gold standard that we have all seen before--its disastrous prevention of government intervention, its volatility, and its rarity. He tell us:

A return to the gold standard is wildly impractical. Requiring the Fed to hold gold in equal amount to currency outstanding would force it to set a fixed price at which it would exchange currency for gold. 

This is an obvious canard. As has been abundantly documented elsewhere, during the gold standard, neither the governments of the US nor Britain had anywhere near enough gold to cover all currency in circulation. Paper money was convertible, but the majority of people had no interest in such a conversion, provided they had confidence in the system.

It is much the same today. Paper money has value because people have faith in it. However, unlike a gold standard, if you suddenly lose faith in government's management of the economy, you have no real way to protect yourself. Perhaps you would exchange your national currency for some nice American currency? But then you have to have faith in the US government. Around the world, it is true, most people do. But such trust can end.

David Olive doubts that the Fed Governors would have the wisdom to set the gold price to the correct level. He writes:

Set the price too high, and monstrous inflation would result. Set it too low, and the result is the even greater catastrophe of deflation, the defining malaise of Japan’s 20-year-long economic stagnation. Just as one cannot time any financial market with precision, so it is with fixing gold at a price deemed ideal.

And yet he seems to have complete faith in the Fed's ability to set interest rates! Doesn't he wonder what happens if interest rates are set too high--or too low? If they can set interest rates, they can set a gold price--it's a political decision anyway.

As for volatility, the following chart (sourced here) shows us where price volatility really began.

Prior to about 1970 there are spikes in commodity prices related to wars and (in 1815, the "year without a summer") to natural disasters. It's true that after the WWII/Korean War spike, the price level did not decline. But since Nixon closed the gold window there has been no looking back.

Republicans in Tampa this week invoked cherished values of freedom, patriotism and self-reliance. But what they stand for is anarchism.

Well, after the last century with the murder of over 100 million people by their own or other governments, maybe it wouldn't hurt to consider something different.

Deep down I think Mr. Olive's problems with the gold standard comes from its thwarting of government's  authority. Under a gold standard, if the citizenry decided to take issue with government economic policy, they could send a strong message by converting their currency to gold.

The authoritarians intent on forcing democracy on the rest of the world want these populations captive to their governments--and a gold standard, which would give citizens power over their governments, has no role in this world. 

Unconquerable science

. . . says Shimon Peres in a speech delivered today in Ottawa, as reported here.

Science has changed global governance and can be neither conquered nor defended by armies, Israeli President Shimon Peres said today. His opening remarks to a round table discussion on education and innovation at Rideau Hall drew obvious parallels to Israel's current fears of Iranian nuclear development.

But does it really? He appears to be saying (we are waiting for full text of his remarks before passing full judgement) that information travels freely, without borders. If so, any attack on Iran calculated to keep her from developing nuclear technology would be fruitless.

I am a bit curious as to the exact target of his remarks. He is an old shrewd man--is he calling out Harper?

Feces-throwing primates rule the world!

As humans have a primate origin, sometimes we can gain valuable insight into human behaviour by studying primates. For instance, primates are known for throwing shit at things when we are angry.

It is true we don't literally do this anymore. Well, not often. But it is still embedded within our psychology. In our language--we might say, "my boss just shit all over me after presentation," or perhaps, "I'm tired of all your crap", or even, "let's go over there and beat the shit out of them!". 

I find it terribly amusing and a little frightening to consider that psychologically we do not much differ from those little monkeys up in the trees throwing shit at each other.

Only we have rockets and nuclear weapons.

In fact we can view the history of warfare as the development of better and better means of throwing shit. The relentless march of technological progress in warfare has been driven by the need to improve three parameters--1) range; 2) accuracy; 3) explosive yield.

Over the years we have progressed from the invention of the catapult to the ultimate dream of primate-kind--brave American technicians sitting in bunkers in Nevada hurling shit at unsuspecting Afghan villagers by remote control. Intercontinental shit-throwing!

We've even managed to hurl some of our shit right out of the solar system!

The war policy of the western powers ever since WWII has been predicated around throwing large volumes of shit from aircraft. Victory through air power!

Viewing some of our modern political problems through the prism of our primate past may provide an interesting perspective.

There is currently considerable consternation over the Iranian regime developing the ability to hurl shit 2,000 km. Why a country that can hurl shit right out of the solar system feels this is a problem is unclear.

There is a lot of noise coming from Israel, which is close enough to be struck by the Iranian shit-flinging devices. But they have tremendous retaliatory capacity--enough to completely bury Iran. Nevertheless they endlessly lobby the US to ensure that American shit will be added to Israeli shit in an attack on Iran.

Meanwhile, the shit-throwing continues in Libya.

"As of March 20, Royal Canadian Armed Forces have been ordered to begin 

flinging poo at forces loyal to Colonel Qadaffi."

Fear of Democracy

Israel has long boasted of being the only democracy in the Middle East. Now they have come out and spoken about their opposition to democracy in other Middle Eastern countries.

From the referenced article:

'Deputy Premier Silvan Shalom said attempts at promotion of democracy in Egypt could strengthen what he called radical elements in the country, said Israeli website The Marker, a subdivision of the Ha'aretz newspaper.

'He asserted, “We know that, recently in the Middle East, democratic elections have caused the accession to power of radicals like Hamas in the Gaza Strip and Hezbollah in Lebanon.”

'The resistance movements, who owe their presence in the defense and political arenas to popular consensus, have invariably defended the Palestinians and Lebanese against deadly Israeli invasions.

'“Think of what would happen if the radicals become dominant over Egypt and decide to close the Suez Canal,” he said.'

That's the problem with democracy.

Think of what would happen if radicals became dominant over Israel. They might invade Lebanon or Gaza.

Wait--that already happened.

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Meanwhile in Canada, Stephen Harper seems a little reluctant to push for Mubarak's retirement.

But then he knows a thing or two about clinging to power.

Harper keeps a close eye on events in Egypt. He doesn't like seeing the hobbits in revolt.