Back to the Future with the Republicans

Sitting in Canada and watching what passes for "politics" in the US is quite entertaining. Here's a bit from a blog post in The Economist that points out that one of the leading Republican presidential candidates wants to take the US back to the 19th century by replacing Federal Reserve notes (paper) with something more solid (gold):

TIM PAWLENTY, former Minnesota governor and potential Republican presidential candidate, has thoughts on money:

The former Minnesota governor said the administration has devalued the dollar by injecting "fiat money" into the economy.Former Minnesota Gov. Tim Pawlenty (R) predicted Tuesday that the U.S. will face a double-dip recession that could last all the way until the 2012 elections.The likely presidential candidate said the government, under President Obama, has devalued the dollar by injecting "fiat money" into the economy in an attempt to boost it — a plan he said will be damaging in the long-run.

This is unfortunate. Let's review the reasons why:

• "Fiat money" is another way of saying "money". Fiat money—that is, dollars—is what people use to obtain goods and services in America. I'm assuming this is Mr Pawlenty's way of suggesting that everything would be better if America were on the gold standard.


• Everything would be terrible on the gold standard. Once upon a time, conservatives understood this. Conservative patron saint and economics Nobelist Milton Friedman argued that tight monetary policy—a product, in part, of the need to defend gold convertibility—was responsible for the depth of the Great Depression.


• If Mr Pawlenty is talking about monetary policy here, and it seems as though he is, he's got his organisational charts all wrong. The administration does not control monetary policy; the Federal Reserve does. Barack Obama did reappoint (Republican appointee) Ben Bernanke, but once Mr Bernanke was confirmed the administration had little say over the Fed's policy decisions.


• Mr Pawlenty seems to think a falling dollar will lead to a recession. I...don't know why. I suspect that if asked, Mr Pawlenty would heartily agree that America should export more and import less. A falling dollar is one of the ways unbalanced economies engineer a reduction in the current account gap.

What more can you say? Increasingly, it seems as though the default Republican position on monetary policy is a set of thoroughly discredited fringe beliefs that would prove economically disastrous if adopted. That's a problem!

It is amazing to see the US bolding striding from the 21st century back to the boom-and-bust economy of the 19th century. While he is at it, Pawlenty should disband public health services under the theory that "oppressive government" threatens the health of American, and he should disband the public education system because a two-tier society of overlords and servants doesn't need an educated underclass. What is next? Will Pawlenty wax romantic about horse-and-buggy transport as a way to get out from under the thumb of those nasty Arabs?