Trump’s Fed Picks Have Fond Memories of the Gold Standard
Stephen Moore and Herman Cain are outside the economics mainstream in wanting to peg the dollar to gold.
(Bloomberg Businessweek) -- John Maynard Keynes, the secular saint of left-leaning economists, called gold a “barbarous relic.” Milton Friedman, his counterpart on the right, said a gold standard for the dollar “is not feasible because the mythology and beliefs required to make it effective do not exist.” In 2012, a survey of leading economists by the University of Chicago Booth School of Management found that 34 percent disagreed with a gold standard and 66 percent disagreed strongly.
Yet both of President Donald Trump’s apparent picks for open seats on the Federal Reserve Board of Governors, Stephen Moore and Herman Cain, are interested in fixing the price of the dollar in quantities of gold—bringing back a system that President Richard Nixon abandoned in 1971.
Their stance on gold encapsulates how far the two are outside the mainstream. It doesn’t mean they’re wrong—just that most economists of the left, right, and center who have looked into restoring the gold standard have concluded that it would be a bad idea.
Then again, the person who wants them on the Fed is more open to the idea. While campaigning for president in 2016, Trump told GQ, “Bringing back the gold standard would be very hard to do, but boy, would it be wonderful. We’d have a standard on which to base our money.”
Moore was an adviser to Trump in his 2016 presidential campaign and is a distinguished visiting fellow at the conservative Heritage Foundation. He hasn’t been formally nominated to the Fed board, but National Economic Council chief Larry Kudlow said on April 2 that the administration is “fully behind” him, despite recent news reports about his failure to fully pay alimony and taxes.
Trump’s other pick is even more of a shock to the establishment. Bloomberg News and other news media reported on Thursday that Trump intends to nominate Herman Cain, former chief executive officer of Godfather’s Pizza, for another open seat at the Fed. Cain ran for the Republican presidential nomination in 2012. He promoted a 9-9-9 plan, which would have replaced much of today’s tax code with 9 percent taxes on sales, individual income, and corporate income.
Cain is all-in for gold. In an op-ed for the Wall Street Journal that he wrote in 2012 after he had dropped out of the race for the Republican nomination, in part over accusations of sexual harassment, he wrote: “Gold is kryptonite to big-spending politicians. It is to the moochers and looters in government what sunlight and garlic are to vampires.” Moore, who holds a master’s degree in economics, is less of a gold bug than Cain. In a 2015 interview, he said he would prefer to peg the dollar to the value of a basket of commodities, not just gold. But he did say a gold standard would be “a lot better than what we have now.”
One often-used argument for a gold standard is that it disciplines governments, preventing them from printing a lot of paper money to pay their debts. Right now the world uses “fiat” money, which has value only because governments say it does. (For example, it can be used to pay taxes.) Under a strict gold standard, paper money could be redeemed for physical gold. If you didn’t trust the government to maintain the value of the dollar, you could ask for gold instead.
It doesn’t take a Ph.D. to see the problem with the gold bugs’ argument. If they were right, the world would be experiencing hyperinflation right now as unconstrained governments run their currency-printing presses. Instead, the world’s leading central banks can’t even manage to raise inflation to their target levels of 2 percent a year. If anything, outright deflation appears to be the greater risk.
Trump’s new picks for the Fed are a win for Austrian School followers and others who think Nixon made a big mistake by taking the dollar off the gold standard. But they’re alarming a lot of other people. Paul Krugman tweeted out Bloomberg’s article about the Cain pick today with this comment: “Meanwhile, I didn’t think Trump could do worse than Stephen Moore for the Fed. But never underestimate his resourcefulness.”
To contact the editor responsible for this story: Eric Gelman at egelman3@bloomberg.net
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