PBR cans at the bar across the street from where I live just went from $2 to $2.50. So now would be a great time for a government panel to gather experts to discuss the relevant issues surrounding commodity inflation; what is important and not important in understanding how inflation is calculated, the ways it can bias, the relevant experiences of unorthodox monetary policies in other countries, how China and other emerging markets’ demand for commodities are effecting prices, whether we need a higher inflation target, the disinflationary impact of the foreclosure crisis, etc. etc. etc.
Now I wonder who is in charge of the committee that would hold a hearing on this? Oh I know. Ron Paul.
As part of Obama’s post-politics era, Ron Paul kicked off his first hearing into monetary policy by putting someone whose recent research was “unmasking” President Lincoln as modernity’s first dictator. That guy did not like the Federal Reserve.
So tomorrow, March 17th, 10:00am, Ron Paul is chairing “The Relationship of Monetary Policy and Rising Prices.” That page now has links to the testimony of the three witnesses and oh. my. god. This is not me cherry-picking, these are the main arguments of the panelists. All of them are gold bugs.
First up, Mr. Lewis E. Lehrman, Senior Partner, L.E. Lehrman & Co:
If the defect is inflation and an unstable dollar, what is the remedy?
A dollar convertible to gold would provide the necessary Federal Reserve discipline to secure the
long term value of middle income savings, to backstop the drive for a balanced budget. The gold
standard would terminate the world dollar standard, by prohibiting official dollar reserves, and the
special access of the government and the financial class to limitless cheap Fed and foreign credit.
The world trading community would benefit from such a common currency — a non-national,
neutral, monetary standard — that cannot be manipulated and created at will by the government of
any one country. Thus, dollar convertibility to gold must be restored.
Next up, Mr. James Grant, Editor, Grant’s Interest Rate Observer:
With a little help from our friends, we are about to make the case that there has been no net progress in doctrine and policy since 1914, when the lights went out on the true-blue gold standard. Some will smile. The pure paper dollar, these scoffers say, is but a lighter, sleeker, more intelligent variant on the old, gold-backed model. But you could only issue so many gold-backed dollars, the supply being constrained by the scarcity of the collateral. There now being no check on the volume of issuance, dollars pile up in the vaults of America’s creditors. It falls to them to say “uncle,” and say it they will one day, we are certain. They will then be queueing up to exchange intrinsically worthless paper for tangible value….
Thus, commanded the ancients: Anchor the dollar to the precious metals, raise liquidity to the top of the list of banking virtues and understand the process by which commercial credit comes into the world (hint: not bybankers’ pens). The first of these rules to live by was, to Willis and his contemporaries, as clear as the law itself. Under the Constitution, the 1792 Coinage Act and the 1900 Gold Standard Act, the dollar was defined as a weight of silver and gold. The verdict of monetary history resoundingly seconded the wisdom of the lawmakers: Paper currencies unbacked by anything except the issuing politicians’ good intentions invariably lost their value.
Last, but not least, Professor Joseph T. Salerno, Pace University, New York:
Since it began operations in 1914 the Federal Reserve System (“the Fed”) has presided over a relentless decline in the value of the U.S. dollar….The answer given by theory and history is that a falling price level is the natural outcome of a dynamic market economy operating with a sound money like gold.
Under a gold standard, prices naturally tend to decline as ongoing technological advances and investment in additional capital rapidly improve labor productivity and increase the supplies of consumer goods while the money supply grows very gradually. For instance, throughout the nineteenth century and up until World War I, the heyday of the classical gold standard, a mild deflationary trend prevailed in the U.S. As a result, an American consumer in the year 1913 needed only $0.79 to purchase the same basket of goods that required $1.00 to purchase in 1800. In other words, due to the gentle fall in prices during the nineteenth century, a dollar could purchase 27 percent more in terms of goods in 1913 than it could in 1800.
Contrary to our contemporary deflation-phobes, the secular fall in prices under the classical gold standard did not inhibit economic growth in the U.S. In fact deflation coincided with spectacular transformation of the United States from an agrarian economy in 1800 to the greatest industrial power on earth by the eve of World War One.
Last time they brought in EPI’s Josh Bivens as a counterpoint to the Lincoln Unmasked guy. Not so this time. This time it is 100% gold bug. (Should they bring in a Marxist for proper balance?)
And there isn’t any actual discussion of whether or not supply and demand dynamics, particularly from China, are impacting prices. Runaway inflation is just assumed, even though if you bet on that two years ago you would have lost your shirt.
Now whatever, it’s just a panel. But notice how this makes the “normal” extreme right-wing look downright sensible? Statements a step to the mainstream from Paul’s group, statements like QEII is a dangerous scheme, that our level of unemployment is natural, that we need to appease imaginary confidence fairies, that the bond market is more confident of our long-term deficits because we have finally brought the hammer down on spending for the Special Olympics and put them in check, and that the Federal Reserve should have no mandate towards employment, now look that much more sensible.