Fed bashing – it’s not just for oddballs anymore!
…Not that it ever was, but when Slate magazine (yes, that Slate magazine) runs a story like this one by Bethany McLean, you know that the idea of eliminating the Fed is finally reaching the consciousness of masses. It’s about time.
In the article, called “Fed-Bashing Three Ways,” McLean notes some very prominent Fed skeptics including Jeremy Grantham, CIO of Boston money manager GMO, Jim Grant of Grant’s Interest Rate Observer, the ubiquitous-when-it-comes-to-Fed-bashing Ron Paul, and Kevin Duffy of the Bearing Fund. It also quotes some others who are skeptics of Fed action, if not its existence per se. But the top prize goes to Duffy, for this truly awesome quote:
Kevin Duffy, who co-manages a small hedge fund called the Bearing Fund, says that criticizing Fed policy, rather than the Fed itself, is “a bit like dismissing Stalin and Mao as well-intended but not the right men for the job.”
They also throw in a mention of the great Murray Rothbard and his book “The Case Against the Fed,” as well as some very heartening poll numbers, including a tally of 45% of the general population favoring the elimination of the central bank. However, despite the good news, not all is well in the public discourse. Consider another article in Slate magazine today, entitled “Gold Rush – what would happen if we returned to the gold standard?” In this article, author Christopher Beam brings us back to the depressing reality of Slate by seriously misunderstanding the nature of money in the very first paragraph of his hypothetical!
First he posits, the question “Say the United States decided to peg the dollar to the price of gold. What would happen?” He answers with this:
First, the government would have to decide what the price of gold is. That’s a lot harder than it sounds. In theory, there’s an ideal rate at which to peg currency against gold. We just don’t know what it is. Gold is notoriously volatile—its price has doubled over the last two years. If the Federal Reserve were to simply fix the dollar to the price of gold on a given day, and demand for gold changed drastically, it would wreak havoc on the economy.
Gold is volatile? I’ve never known gold to get drunk and punch people in the face. Let’s define our terms. “Volatile” means that the price of gold in dollar terms fluctuates. Beam never stops to wonder why. Right now, paper and faith in government convene to form what we call the dollar and use as money. In a truly gold-standard nation, gold is the money, and the dollar is merely a proxy – an avatar.
By never removing the central bank from the equation, never considering the possibility of a country that does not manipulate its interest rates, and assuming a country that runs a constant, rolling national debt, Beam never gets to the heart of the matter. Maybe it is currently a political impossibility, but by never considering an alternative arrangement, Beam doesn’t really add anything to the discourse.