Stephen Moore and His Odd Belief in Gold

"I like the idea of a gold standard and, you know, restoring value to the dollar," Stephen Moore says in this clip.

Trump has appointed Stephen Moore to the Federal Reserve and his compliant Senate is likely to approve him.  This should worry you.

Moore has said that a gold standard for our dollar would be better than what we have now but what he really wants is a basket of commodities to drive the value of a dollar. This is to economics what the belief that the sun orbits around the earth is to astronomers.

Commodities. Sigh.

There are so many ways to highlight how absurd this is but I'll just use two.

One, commodities have marginal impact on the economy. (Obviously if we suddenly lost all grains or  water or precious metals or oil, the impact would be enormous. Our economy is built on a layer of commodities and credit and a sudden threat to either could crash the economy. There is a difference, though, between saying that we'd starve without food and saying that food production should be the basis for prices in all sectors.) In 2016, mining employed 0.4% of the population and "agriculture, forestry, fishing and hunting" employed 1.6%. So, between them, these professions that harvest commodities like silver, iron, corn, or elk employ 2% of our workforce. It would make more sense to base our currency on health care and social services (that sector employs 12.2%), letting our currency move in response to the price of medical devices or drugs rather than commodities.

Two, there is nothing more real about using "hard" objects to determine price levels than "soft" objects. It's true that gold is a solid object and, say, wages or the consumer price index (CPI) are softer, more abstract things. But the fact that you can weigh the gold to a precise amount is a very different matter than saying that we can peg its value to a gallon of gasoline or 50 minutes of a therapist's time or a year's supply of an engineer's career or a house in San Francisco or Detroit. When your currency is backed by gold, your economy will get an infusion of new "money" when new gold mines are discovered and be short of money when no new gold is discovered. There is NO correlation between when you discover new gold and when your economy needs to grow because of new population, new technologies or new products. The intuition that gold is "real" and that CPI is not is akin to the intuition that the sun orbits around us.

Trump is all folk tales and fear, loud noises and intimidation. For this, Moore is a perfect fit for his worldview and policies. For our modern economy, though? Not so much.