My economic prediction for post--covid

Look at the supply chain issues. That's it in a nutshell. Unfortunately, I have no expertise in this area, but somehow I still feel that this is key to understanding what is happening and what will happen. And perhaps (well, absolutely) some other factors are involved. 

But first, let's list the big factors: supply chain, material shortages, labor not willing to be exploited like before, energy disruptions from the Ukraine war, investors desperately seeking to make some money.

The supply chain, transportation issues, and material shortages are all working together to hike up prices. This isn't going away anytime soon because the supply chains got royally jacked up. 

(Written in August 2022. Still applicable.)

Image: 6abc.com

Cross of Gold

One of the best things about living in the U.S. is the abundance of economic and political ideas. This is a diverse society of both ethnic groups and ideas, and I wouldn't change either of those. So I won't attack the existence of loony ideas, just their particular merits and demerits. I won't even throw the label "loony idea" around since that would antithetical to my belief that most political ideas have strong reasons behind them.

With that in mind, maybe I shouldn't consider a return to the gold standard a loony idea. It's one of tenets of Ron Paul's long campaign to return the US to the straight-and-narrow of the constitution or die trying. But the drive to reestablish the gold standard is a poster child for the blindness of adherents to the disadvantages and risks of an idea.

Here are the highlights for the advantages of the gold standard:

• Paper currency has no intrinsic value because it isn't gold and isn't convertible to gold.
• Governments, politicians, and central banks often cause massive inflation of the currency.
• A gold standard makes it impossible for politicians or a central bank to inflate currency. The value of our national currency can stay stable for decades or longer.
• A gold standard forces the government to behave soundly, to avoid budget or trade deficits, in order to preserve the country's gold store.
• If there's a gold standard, we can return to using gold coins, which have intrinsic value in the precious metal.

Here are some risks and disadvantages:

• The gold-based currencies are subject to attack by currency speculators. That's why there are no longer any gold-based currencies.
• A gold-based currency doesn't necessarily stop governments from misbehaving. Governments have been known to run deficits and ended up bankrupting their precious metal reserves.
• The gold standard favors one kind of wealth over all others. Gains in non-gold wealth (agriculture, housing, infrastructure, a varied economy) are devalued unless there is also significant growth in gold holdings. That was possible during the mining boom in the 1800's, but not likely now.
• The inflexibility of the gold standard can lead to deflation, which has much worse economic effects than slight inflation rate of 1-2%.
• The history of financial panics in the 19th century doesn't support the idea that the gold standard promotes economic stability.

When I look at these two lists, the disadvantages clearly seem the weightier side of the equation. I don't know how someone supports the gold standard unless they completely ignore the mountain of evidence against it. When supporters embrace the policy as a magic cure to vagaries of financial systems, they look more like an unquestioning cult than a reasonable political movement. No, Paulites, the gold standard will not be our salvation from ourselves.

Update 6/12/23. Blogger flagged this post as having virus-infested links. I removed the links I thought were the most questionable. They were to a Lew Rockwell site.