The Heritage Foundation is currently hosting a conference it bills as a “Conference on a Stable Dollar.” The words “Gold Standard” do not appear in the title of the event but that is what the conference is about.
Near the end of the first panel (entitled: What is a Stable Dollar?), Stuart Varney, a Fox News host and moderator of the panel, asked the audience to raise their hands if they thought that gold should be part of some sort of monetary reform. Nearly the entire audience of wonks, academics, college students, and hedge fund managers raised their hands. How did the conservative movement reach this point?
Understanding why conservatives now embrace hard-money critiques of monetary policy is important because the economy’s recovery depends on decisions that the Federal Reserve will make. Some have wondered if conservatives are calling for tight money to intentionally sabotage the economy and destroy Obama’s chances at reelection.
While some conservatives might be that cynical, it seems that many of them do believe their own rhetoric.
Throughout most of the Obama administration, conservatives have warned that Bernanke’s policies were likely to cause inflation. I came to this conference planning to ask attendees how they can expect inflation when 30-year treasury yields are at historic lows. (This is generally understood as indicator of deflation.) What I discovered is that some attendees are less concerned about whether the economy is inflating or deflating. As far as they are concerned, the monetary system is fundamentally broken.
I asked Nathan Lewis of Capital Management LLC and a conference panelist, whether he was more concerned about an onset of inflation or deflation, he disagreed with the premise of my question:
I think those terms [inflation, deflation] are almost meaningless. I’m interested in a currency of stable value and a healthy economy, and what we have right now is a currency of unstable value and a crappy economy.
He expanded on his outlook:
This is a very unusual situation in economic history, where you have this combination of the lowest bond yield in the history of the United States, at a time when both the credit quality and the currency quality of the United States is also at its worst. The result is that a lot of these terms which were always sort of vague are kind of breaking to describe the situation.
The panel held on Thursday afternoon was hardly designed to warn participants only about inflation. Stuart Varney, showed visible surprise when one of the panelists (Lawrence Lindsey) said that the data showed that a deflation was more likely. He was visibly shocked as he asked, “So deflation is the real greater threat? Despite all the printing of money, than inflation?”
Yet while some panelists acknowledged the threat of deflation, panelist David Malpass of Encima Global (who has written several op-eds critiquing monetary policy) argued to FrumForum that inflation was likely in the future. As for the low bond yields:
The bond yields are down because of the risk of systemic crisis. If Europe breaks down, you want to be owning US treasuries.
I don’t agree that they are a good predictor of deflation or of the price level when we are at the zero bound, all of that goes haywire.
While some conservative commentators (such as Glenn Beck) made a point of invoking the Weimar Republic in their critiques of the Obama administration, Malpass made clear he was not of that camp:
I’m not a hyperinflation guy, all I’m talking about is that inflation will go to 4% or 5% if the economy gets going.
Advocacy of a gold standard is more commonly seen as a libertarian position, not a conservative one and certainly not a Republican one. I asked conference participant Ralph Benko, a senior economic advisor to the American Principles Project and editor of The Lehrman Institute’s The Gold Standard Now to explain how the party shifted:
The reason that the conservatives are coming out of the woodwork now is that the atmosphere has shifted. I think it probably shifted when Ambassador Zoellick [of the World Bank] called in a famous FT column for reassessing the role of gold. (from which he is now backpedaling) That broke the sound barrier. It allowed a lot of people who were eager to move forward to have space in the discourse.
Benko underscored that while the presence of gold in conservative discourse seems abnormal within the last decade, it was not entirely unprecedented:
I’ve been at this for 30 years. I testified before the gold commission in 1981. For 30 years there hasn’t been any oxygen in the room…when Reagan left the scene (he was a pro-gold standard guy) and when Kemp left the scene, there was no tolerance for discussion of gold. For 25 years it became the province of academics.
The change now?
The American Principles Project (which I represent) started publishing about this. Ambassador Zoellick spoke about it, and that really started the discussion on a new footing in the policy sphere as opposed to in the academic sphere and marginalized literature.
This move into the policy sphere and outside academia is the important shift. Benko joked, “Not that many people read the Journal of Free Banking.”
Cynicism has been a tempting explanation for why conservatives oppose Federal Reserve policies, but at the end of the day that is not sufficient. Right now, conservatives genuinely believe that something is wrong with the Federal Reserve. They have been receptive to the hard money explanation which has been waiting in the wings and now is having its moment.