AUGUST 27, 2012
Let’s stipulate that a candidate whose go-to rhetorical tic is “gosh” doesn’t need help looking out of date. Even so, Mitt Romney got some late last week when the GOP platform committee proposed studying a return to the gold standard, last seen in this country (more or less) in the early 1930s. The draft of the platform, which will be finalized this week in Tampa, called for a commission to explore “possible ways to set a fixed value for the dollar”—code for gold.
On the merits, the idea is almost self-evidently awful, at least if you know a bit about monetary policy (and I confess to only knowing a little). Using a gold standard means linking the value of the dollar to the amount of gold in the world. If there’s suddenly too little gold—suppose something crazy happens, like South African miners go on strike—then there will be too few dollars relative to the amount of buying and selling going on in the economy. When there are too few dollars, each dollar becomes more valuable, and people start to hoard them. Spending slows and the economy collapses.
This is no mere theoretical proposition. It was a regular feature of the U.S. economy in the 19th and early 20th centuries. Economists have convincingly argued that the speed with which advanced economies junked the gold standard determined how quickly they shook off the Great Depression.
So why, despite the idea’s self-evident awfulness is the GOP considering it? (Pretty much no mainstream economist is on board.) At first blush, the explanation looks pretty simple: Ron Paul earned himself a bit of leverage by racking up almost 200 delegates during the primaries. Being a dedicated hard-money crank, he decided to put that leverage to work for his pet cause.
But Paul and his quirky followers aren’t the only GOPers musing about a return to the gold standard. The cause has, in fact, become something of a mainstream proposition within today’s GOP. Paul Ryan himself has pushed a proposal that's similar, except arguably more ruinous to the economy. And Republican Congresswoman Marsha Blackburn, who co-chairs the party’s platform committee, insisted the gold flirtation didn’t arise as a sop to Paul. “These were adopted because they are things that Republicans agree on. The House recently passed a bill on this, and this is something that we think needs to be done,” she told The Financial Times. Even Sarah Palin has piped up with similar sentiments. Though Palin didn’t explicitly endorse a gold standard, her comments were right out of the hard-money circles where support for it flourishes.
What gives? For generations, the hard-money issue has broken down pretty much along class lines. Starchy conservative bankers loved the gold standard because it generally kept inflation in check and protected the value of their assets. Poor Midwestern farmers, not so much. These were people who benefited from inflation, which ate away at their debts, and who were crushed by deflation, which made their outstanding loans more expensive. (That whole “Cross of Gold” speech at the 1896 Democratic convention had something to do with this…)
On one level it’s no surprise that the contemporary GOP, a party generally dedicated to the upward redistribution of wealth, would have a soft spot for an idea like the gold standard. It is, for example, perfectly in line with Ryan’s other interests, like cutting taxes for the wealthy by trillions of dollars, slashing domestic spending, and generally baring his teeth at the poor and weak-minded.
But why would someone like Sarah Palin, who represents a decidedly more downscale, less educated wing of the GOP, be so keen? It’s one thing for working-class people to tolerate policies that aren’t in their interest if they feel they win on balance when the GOP's in power. But why would they lobby for these policies—particularly when it's a previously obscure, highly-technical issue like monetary economics? During Rand Paul’s Senate run in 2010, his supporters were skeptical of a Palin alliance partly for this reason. “Sarah Palin is an idiot and we don't like her representing Rand Paul. But it's his choice. We don't have to support everything he does,” said one commenter on a Paul groupie-blog.
So far as I can tell, the Palinites’ recent interest in hard-money nostrums has nothing to do with the merits and everything to do with: 1.) pure ignorance (the working class whites devoted to Palin—they of the underwater mortgages and maxed out credit cards—don’t seem to understand that inflation is their friend. At least the yeoman farmers of yester-year could see where their bread was buttered); and 2.) resentment of elites, which is right in their wheelhouse. As it stands, monetary policy is controlled by the Fed. And what is the Fed if not a collection of self-important pointy-heads—the very people Palin (and other GOPers, like Rick Perry) believes have too much control over the country. Moving to a gold standard would essentially take care of that problem.
Call it the final triumph of the Tea Party movement: The GOP was already plenty good at convincing working-class whites to support a form of fiscal policy that catered to rich people. Now they’ve figured out a similar trick for monetary policy. It’s pure genius.
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