in his NY Times column that begins:
News flash: Recent declines in the price of gold, which is off about 17 percent from its peak, show that this price can go down as well as up. You may consider this an obvious point, but, as an article in The Times on Thursday reports, it has come as a rude shock to many small gold investors, who imagined that they were buying the safest of all assets.Krugman is focusing particularly on what he calls gold buggism, to distinguish it from treating gold as a sensible investment at some times. He writes
No, being a goldbug means asserting that gold offers unique security in troubled times; it also means asserting that all would be well if we abolished the Federal Reserve and returned to the good old gold standard, in which the value of the dollar was fixed in terms of gold and that was that. And both forms of goldbuggism soared after 2008.
Point of history for those who are not up on it. The Federal Reserve was NOT a New Deal program. The act establishing it dates to 1913, under Woodrow Wilson. Of course, that would still make it a target of the corporate kleptocrat class because it took some control away from them even before the many new levers of government established under FDR. It is very much of a bete noir for some on the right - Ron Paul, anyone?
Krugman takes us through a bit of the recent history of the value of gold before telling us this:
Meanwhile, the modern world’s closest equivalent to the classical gold standard is the euro, which puts European countries back under more or less the same constraints they faced when gold ruled. It’s true that the European Central Bank can print money if it chooses to, but individual countries, like nations on the gold standard, can’t. And who would hold up these countries’ recent experience as an example of something we’d like to emulate?HE quotes John Maynard Keynes - who of course is hated by Conservatives - as calling the gold standard a "barbarous relic" while acknowledging that it has become a part of the apparatus of conservatism.
It used to always amuse me when I was a student - which since I did not finish my undergraduate until shortly before my 27th birthday in 1973, provided an interesting perspective - that some were so focused on gold when while the largest producer was clearly Apartheid era South Africa, between 1970 and 1980 its share of the worlds production decreased from 67.7% of the world's production down to 55.2%, while that of the former Soviet Union increased from 13.7% to 21.2% (the US held a steady share of around 2.5% of World Production). We should also remember that a good portion of world gold production was for coinage or for gold bars held in repositories, but for industrial purposes, including electronics.
Krugman says of modern conservative gold bugs that they view "fiat money" such as that produced by the Federal Reserve as part of a plot
to take away their hard-earned wealth and give it to you-know-who.It was supposed to be a hedge against runaway inflation, but now has even as an investement turned sour.
He does not expect the gold bugs to change their views, and concludes:
In modern America, as I suggested at the beginning, everything is political; and goldbuggism, which fits so perfectly with common political prejudices, will probably continue to flourish no matter how wrong it proves.THen again, being wrong about economics has never served as a barrier to reasserting the same ideas.
I would only disagree with Krugman slightly. He describes it as political. I would say that for some, it is theological, and that theology has its share of acolytes and priests, among which one can find both Ron Paul and Glenn Beck.
I had not seen the column featured today, and thought it was worth some attention, hence this post.
Do with it what you will.