Roubini: Gold standard is for “lunatics and hacks” by Joel McDurmon on Nov 26, 2011
Popular New York University professor Nouriel Roubini has made a name for himself with a few accurate economic predictions like the end of the housing bubble. He is now, however, lashing out at sound money solutions to such banking failures. In the process, he calls proponents of honest money “lunatic and hacks.”
In this interview, he repeated the mythical assertion that the gold standard “caused” the Great Depression. As he put it,
One of the major causes of the Great Depression was the existence of the gold standard and the return to the gold standard after World War I – that they restrained the ability of central banks to provide lender of last resort support to their banks created tight money, it created bank runs, and lead eventually to the Great Depression.
Economist Mark Skousen, among others, long ago corrected this misperception:
In reality, the blame for the Great Depression must be laid at the feet of Western leaders who blundered repeatedly in re-establishing an international monetary system following the First World War. Their mistake was establishing a fatally flawed mixture of gold, flat money, and central banking, known as the “gold exchange standard,” instead of returning to the “classical gold standard” that existed prior to the Great War.
When proponents of sound money further respond that our greatest economic woes have mounted since 1971, as Nixon completely unhinged the dollar from any fixed exchange rate, Roubini responds: ”utter nonsense.” But the decorated professor gives no reasons.
Roubini appeals to the thoughts of modern economists like John Maynard Keynes and Ben Bernanke, and even to Milton Friedman who despite his commitment to free markets never overcame a belief in some form of an inflationary monetary policy.
Ironically, however, Friedman’s own words refute Roubini’s anti-gold slur. In a 1963 article he condemned the Fed for not allowing the money supply to rise with the influx of foreign gold. In essence, the Fed must confess its guilt thusly: “We did not permit the inflow of gold to expand the U.S. money stock. We not only sterilized it, we went much further. Our money stock moved perversely, going down as the gold stock went up.” Indeed, it was government policy mixed with a fool’s-gold standard—not a true gold standard itself—which led to the problems that crippled this nation, and still do today.
Now, in the wake of all of this, the return to sound money will only come with much sacrifice, or another great crash. Either way, it will not be easy.
