Bell: Gold Standard Is the Breakthrough GOP Candidates Are Waiting For

In just four months people in Iowa, New Hampshire and South Carolina will cast the first decisive votes in the race for the White House.

GOP Leadership
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GOP Leadership

By then the field of contenders for the Republican nomination will have winnowed, perhaps significantly. It is likely that the positions each candidate takes — particularly on the economy— will determine where they are in this process. Those candidates seeking an edge in the early voting states could put themselves out in front of the pack if they were to advocate gold-backed money as a central part of their pitch to voters.

It is no accident that the sometimes abstruse-sounding debate over a return to the gold standard— abandoned 40 years ago by President Nixon – is garnering new attention from economic and social conservatives alike. The reason involves many things that are not abstruse at all — job creation, wages, personal and public debt, not to mention the growing worldwide weakness of the dollar. By now it is clear to people across the political spectrum that the monetary and fiscal experiments of recent times have failed spectacularly. More of the same will not do.

Yet more of the same appears to be all that Washington can offer, evidenced by President Obama’s new jobs plan. After an epic Keynesian infusion of government funds into the U.S. economy, unemployment remains above nine percent. Economists were once again taken by surprise this past week when first-time claims for unemployment clocked in at 428,000, well above advance estimates. What amounts to the “rosy scenario” from the Congressional Budget Office sees unemployment remaining above 8 percent all the way through 2012. Talk of a new recession is no longer dismissible as fear-mongering.

It is also no longer possible to avoid the obvious implications of Europe’s spreading financial crisis. The challenges posed by extravagant public spending, overextended government benefit and pension systems, and upside-down demographics with ever-fewer workers supporting evermore retirees at earlier ages have undermined confidence in basic institutions.

The global economy is suffering a blood-borne disease in which money — the circulatory system of the marketplace — is no longer a reliable storehouse of value.

Voters sense the symptoms of this disease in many ways, but we are now in the throes of well-founded anger.When our currency has no fixed reference of value that is recognized within and among nations, then the temptation of governments everywhere to paper-over potholes in the business cycle and launch irrational public investments becomes overwhelming. Padding the money supply to stimulate demand — without respect to utility or long-term value — begins as a remedial measure but ends up feeding a permanent fever.

In the United States, the Federal Reserve has applied every tool in the money supply box to stave off disaster, but those tools have reached their limits. Since the crash of 2008 we have had three years of a zero fed funds rate, with the promise of two more from Fed Chairman Ben Bernanke. This is not the promise the financial system — and the business community — are looking for. Investors seek stability and order in the markets for borrowing and lending, not heavy-handedness by the central bank to suppress interest rates.

The Fed’s manipulations of the money supply and interest rates have made big money-center banks reluctant to lend to small and medium-sized banks because rates are too low to make the risk of lending worth it for them. Small business, the vanguard of job creation, suffers when local banks are frozen out of the financial system like this because they get starved for the capital needed to hire and expand.

Rather than debate a temporary tax break here or a bridge to somewhere there, candidates for the White House (and for seats in Congress) need to talk about systemic changes that can restore the people in control of the nation’s money supply.

When a citizen can convert paper money to gold, or vice versa, a consistent check and balance operates in the financial system that minimizes its artificiality and maximizes its reliability.

At the candidate debate before the Iowa straw poll, Susan Ferrechio of the Washington Examiner referred to the gold standard as the “top tea party goal” in Iowa. Our experience at American Principles in Action conducting a three-week bus tour with 18 stops all across Iowa echoed that message.

But it would be wrong to see the gold standard as an abstract question of interest only to new activists. At its root it is literally a values question. Are Americans’ wages and earnings a reliable reward for savings and hard work, or are they mere numerals on a printed page that government can alter at its choosing for economic and political ends alike?

The 2012 nominees for the White House must be prepared to answer that question in a cogent and reasoned way, because voters know that Barack Obama and Ben Bernanke are out of antidotes.

Jeffrey Bell is Policy Director for American Principles in Action, a Washington policy organization, and head of its Gold Standard 2012 initiative.