Tuesday, January 31, 2012

More Centralized Health Care Means More Waiting

Those who pine for a more centralized, single-payer health care system might want to pause and reflect on a new study written by Bacchus Barua, Mark Rovere, and Brett J. Skinner and published by the Fraser Institute. The study is called Waiting Your Turn and documents the wait time for health care in Canada. The authors' key conclusions are summarized as follows:

  • Specialist physicians surveyed across 12 specialties and 10 Canadian provinces report a total waiting time of 19.0 weeks between referral from a general practitioner and elective treatment in 2011—the longest total wait time recorded since the Fraser Institute began measuring wait times in 1993.
  • Patients in Ontario experience the shortest wait (14.3 weeks) followed by British Columbia (19.3 weeks), and Quebec (19.9 weeks)
  • Patients wait longest to undergo plastic surgery (41.6 weeks) and wait least for medical oncology treatment (4.2 weeks)
  • After an appointment with a specialist, Canadians wait nearly 3 weeks longer than what physicians believe is “reasonable” for elective treatment.
  • Throughout the provinces, in 2011 people are waiting for an estimated 941,321 procedures. Assuming that each person waits for only one procedure, 2.8 percent of Canadians are waiting for treatment
  • Only 9.4 percent of patients are on waiting lists because they requested a delay or postponement

As the authors say in their preface, "despite high levels of health expenditure and provincial wait time strategies, it is clear that patients in Canada are waiting too long to receive treatment."

No one can deny that our current health care system is a mess and needs real reform. There is good reason to believe, however, that more centralization and socialization is not the sort of reform needed. Amending a system so that there are even more incentives to increase demand for a good while decreasing supply for a good is a recipe for a shortage. Goods for which there is a shortage are often rationed by waiting which increasingly is what is happening in both Canada and the United States.

HT: Mary Theroux

Friday, January 27, 2012

Economic Fairness and the State of the Union

In his State of the Union address, President Obama called for various laws, regulations, subsidies, and tax code changes all designed to promote economic fairness in society. The day after his speech, results of the Bloomberg Global Poll were released indicating that a majority of international investors agree that income inequality is a grave problem for capitalism. While Tom Kane praised the President, claiming he promoted entrepreneurship, I agree a lot more with Anthony Gregory's assessment that the speech was another brief for statism.

While there is much that could be said going point by point through President Obama's address, I want only to address the theme of economic fairness that permeated the speech. One certainly cannot fault anyone for desiring to live in a society that embraces justice in economic relationships. Unfortunately, what the President could do most to promote actual economic fairness was not mentioned--a return to the free society undergirded by the institution of private property.

In a free society, people earn incomes by supplying a productive service, meaning a service for which someone is willing to pay more than enough to cover its cost. Workers get paid to the extent that they contribute to their employers' operations. Capitalists reap interest income for supplying present money in exchange for future money. Entrepreneurs reap profit income to the extent that they more successfully satisfy future consumer demand. In such a society, incomes are the fair return for serving somebody else. As Scripture indicates "the laborer deserves his wages" (1 Tim. 5:18). Also note what the master of the house says to the unhappy worker at the end of the parable of the vineyard in Matthew 20:1-16.

In our present economic system, however, there are numerous ways people can live off of others. Bankers are allowed to create money out of thin air and reap interest income by loaning it out, all the while subsidized by the Federal Reserve. Wall street investors are free to make larger and more risky investments and get bailed out by the state.

Those who receive subsidies from the government reap income due to their privileged status vis-a-vis the government and they do so at the expense of other people. The only way for the state to fund subsidies is through taxes, borrowing, or inflation or some combination of the three. All of these sources of funding results in wealth being redistributed from some citizens to others at the rather arbitrary desires of bureaucrats.

A return toward economic fairness and justice requires a return to a free society. A return to a free society requires a return to private property.

Wednesday, January 25, 2012

Prudent Wives, Shoveling Snow, and the Benefits of Capital

About a month late from the calendar's perspective, winter arrived in Western Pennsylvania. Last week we had our first stretch of snow that genuinely called for daily shoveling of the driveway. As I tackled the job, several thoughts successively went through my mind. I first was reminded of a verse in Proverbs and then again was struck by the great mundane benefits we reap from capital goods every day.

In the fall, realizing our need for another snow shovel because of some wear and tear on our old ones and our daughters both of the age to want to actually help scoop snow (go figure), my wife took it upon herself to purchase a new shovel. She brought home, it turns out, not just any shovel, but a new 27" Suncast Pusher with graphite blade and galvanized steel wear strip at the point of impact. It is outstanding! It is fifty per cent wider than our smallest shovel and cut my shovel time greatly. It is so amazing that shoveling the driveway has been turned from a chore into an opportunity for triumph over the elements. My wife made an excellent choice for which I am very grateful. As Solomon wrote, "House and wealth are inherited from fathers, but a prudent wife is from the LORD" (Proverbs 19:14).

I also quickly marveled at how we benefit from more and better capital goods while doing something as mundane as shoveling snow. It would be possible, after all, to clear my driveway without a shovel. It would take a tremendously long, cold, and tiring time, but it could be done. I could also have done it with one of our older and smaller shovels. That fact that my wife invested some of our savings in a newer, larger shovel greatly decreased my shovel time by greatly increasing my productivity. One more reminder that the truths of economics are manifest each day.

Saturday, January 21, 2012

Intervention, Scarcity, and the Environment: It's Not Easy Being Green

I've come across a number of items related to economics and the environment recently. One of the overriding themes is that, because economic goods are scarce, all interventions into the economy, even for the sake of the environment, requires the bearing of costs.

David Bier contrasts the different perspectives on recycling by Newt Gingerich and Julian Simon and sides with Simon's position that we should "recycle only if it is worth it." It might not be worth it, because recycling is not free and in many cases, the costs may outweigh the benefits. This principle is also the theme of Roy Cordato's provacatively entitled classic, "Don't Recycle: Throw It Away!"

Word has also come that BP Solar, an huge alternative energy player that received a $7.5 million grant four years ago, has decided to exit the solar energy industry because it is unprofitable. It seems that there has been so much investment lured into the industry, in large part because of government subsidies, that prices have fallen to a point where firms are having trouble making it without continuing subsidies.

In his book Eco-nomics, Richard Stroup uses the case of the 2000 Los Alamos, New Mexico fire to explain that along with any benefits to be had from environmental regulation, there come costs. Stroup recounts how, during the 1990s the Forest Guardians sued the federal government to cease logging in the national forest in New Mexico. In 2000 there was a fire that destroyed most of the forest the advocacy group wanted to preserve. The fire was so devastating because little thinning out of small trees had occurred the previous decade because of lobbying by environmental groups.

As Stroup notes,
It’s one thing to be passionate about protecting the environment. It’s another thing to be successful at it. Many laws have been enacted in the United States to clean up pollution or preserve natural beauty, but many of them have unintended consequences. They don’t save the species they were supposed to. Or they don’t clean up the rivers as Congress intended. They end up costing a lot of money, often creating large government bureaucracies that can’t seem to achieve the goals that seemed within reach when the agency was formed or the law was passed.
None of the above should be taken to imply that we are not to care about the environment. It is simply to not that all of our actions, including environmental regulation, incur costs. As Kermit sang, "It's Not Easy Being Green."

Friday, January 20, 2012

Amity Shlaes on the Meddling Fed

Readers of this blog know that the negative consequences of Federal Reserve driven inflation is a not infrequent topic for discussion. Amity Shlaes, columnist for Bloomberg, has just identified another way Ben Bernanke's Fed policy makes things worse. In her words Bernanke "tarnishes trust" with a new case in point being a white paper authored by the Fed Chairman. In the paper, Bernanke calls for banks to essentially rewrite mortgage rules in numerous ways in mid-stream, so that reducing borrower burden trumps the right of banks to foreclose.

Shlaes also nails a very important point.
The more general problem is that the Fed -- the bank, in game terms -- has been playing so prominently in the first place. Even if the new paper is only recommending what other authorities have already said, its very publication represents another signal from the Fed that it will keep its hand perpetually and unpredictably in the game, even in periods of recovery like the current one. Monopoly works best when the bank has no discretion: It pays $200 as you pass Go, and otherwise mostly keeps quiet.
Finally Shlaes rightly concludes that the Federal Reserve needs to just get out of the housing market and out of the "rest of day-to-day commerce." The more the Fed meddles, the longer the market is hampered. The longer the market is hampered, the longer it will take to get back on the path to true recovery.

Thursday, January 19, 2012

Announcing My Events Page

I have created an Events page that lists upcoming appearances where I will be lecturing or presenting papers. It will be permanently linked along with my other pages. You can access it by clicking on Events.

Tuesday, January 17, 2012

America's Youth Embrace the Entitlement Culture

Over my years teaching economics students at the undergraduate and graduate levels, I have become more and more convinced that our youth and their parents are getting ripped off by the government school system. In terms of academic skills, it is apparent that, while we have trained high school students in America to memorize and regurgitate facts very well, they by and large not instructed in logic and critical thinking and very few of them receive any instruction in writing research papers anymore.

Not surprisingly, they are getting shortchanged as well regarding economic reality. While there are, I think, increasing numbers of economics classes being taught, they either are not sound or not pervasive enough to counter disastrous economic thinking on the part of the masses.

Today's illustration of this dismal state of affairs comes to us by Jack Chambless, Professor of Economics at Valencia College in Florida. He is interviewed about an essay about the American dream he asks his introductory economics students to write.

Although this is not necessarily a scientific survey of all principles of microeconomics students, it is a revealing picture of how well we have trained our youth to embrace the entitlement culture. It is no longer considered wrong to live off someone else. Such a world-view, of course, is contrary to the Christian ethic of property and rejects Paul's admonition that we should do honest work with own own hands, so that we may provide for our own families and also have something to share with others in need (Ephesians 4:28; 1 Timothy 5:8).

My thanks to Steven Yates for alerting me to this interview.

Friday, January 13, 2012

Economists' Arguments for Government Arts Subsidies

One of the chapters in my dissertation was an analysis of government arts funding, focusing on the National Endowment of the Arts. A good portion of that chapter was devoted to critiquing arguments I found in the economics literature that sought to justify government arts subsidies from an economic (that is not ethical) perspective. I worked that section into an article that was recently published. "Economists' Arguments for Government Arts Subsidies" appears in the Spring 2011 (Vol. 3, No. 1) issue of the  Regent Journal of Law and Public Policy.

As I write in my introduction,
Economists have offered several arguments in favor of government subsidies for the creation and distribution of art, many of which rely on allegations of market failure . . . these arguments are reviewed and critiqued, and the author concludes that no satisfactory economic justification for government arts funding has yet been offered.

Unfortunately an on-line version of the article is not yet available.

Wednesday, January 11, 2012

The Economist Magazine on Austrian Economics

Last Saturday, I wrote about an Economist magazine article discussing alternative--what they call heterodox--macroeconomic policy frameworks. I explained how its treatment of nominal GDP targeting was somewhat wanting.

The Economist writers are not much better when they turn to the efficacy of Austrian economics.
Austrians still struggle, however, to get published in the principal economics journals. Most economists do not share their admiration for the gold standard, which did not prevent severe booms and busts even in its heyday. And their theory of the business cycle has won few mainstream converts. According to Leland Yeager, a fellow-traveller of the Austrian school who once held the Mises chair at Auburn, it is “an embarrassing excrescence” that detracts from the Austrians’ other ideas. While it provides insights into booms and their ending, it fails to explain why things must end quite so badly, or how to escape when they do. Low interest rates no doubt helped to inflate America’s housing bubble. But this malinvestment cannot explain why 21.8m Americans remain unemployed or underemployed five years after the housing boom peaked. 

There is much in the above that needs response. In the first place, there a number of reasons why many economists do not admire the gold standard. One is that it places constraints on what monetary authorities and bankers can do and thereby refuses to nurse their hubris. Professional economists are a lot like politicians in this regard. They cannot abide being told that their monetary intervention is worse than useless.

Additionally, many are under the impression that the gold standard caused and/or prolonged the Great Depression. This fallacy has been ably responded to by Joseph Salerno in his essay, "The Role of Gold in the Great Depression: A Critique of Monetarists and Keynesians," Chapter 27 of his fantastic Money Sound and Unsound. On the question of the gold standard and the Great Depression, I also recommend Chapter 3 of Banking and the Business Cycle published in 1937 and written by C. A. Phillips, T. F. McManus, and R. W. Nelson.

Those economists who blame the gold standard misconstrue its true nature and consequences. It is more accurate to say that the Great Depression was made possible by leaving the classical gold standard during the First World War. The reason there were crises even under the gold standard is because either the monetary system was merely a pseudo-gold standard, or authorities allowed the issue of fiduciary money via fractional reserve banking.

I would also suggest that Austrian business cycle theory has won more converts than the Economist may think, but they may come more from financial practitioners than academic economists. Financial practitioners actually need to know the way things really work for them to avoid losing money. On the other hand if Krugman, Sumner, or J. Bradford DeLong make a wrong public pronouncement due to operating in a faulty economic framework, it does not cost them much personally. Additionally, academic economists have a lot invested in the economic framework they learned from their graduate school mother’s knee, so to speak. It takes much intellectual fortitude for someone to walk away from the framework in which they were trained.

Because Austrian business cycle theory is primarily a theory of just that--business cycles, it necessarily is primarily concerned with features that are common to all cycles. It should not surprise us that it neither exclusively nor chiefly explains why a particular downturn can be so bad. However, to say that Austrian theory does not concentrate on those issues is not to say that it is silent.

The answer to questions such as why some downturns are so bad and what should we do to get out of recessions after they have happened are implied by the theory itself. Once it is understood that recessions are due to malinvestment undertaken by artificially low monetary interest rates, and that a well-coordinated capital structure depends on free markets with flexible prices, the answers become apparent. Particular recessions can be very bad if there has been a tremendous amount of malinvestment resulting in a tremendous amount of capital consumption during the boom. They can be exacerbated if the government consumes even more capital via fiscal stimulus or if its central bank intervenes in the market and seeks to keep interest rates artificially low.

Contrary to what the Economist implies, Austrian theorists have written much about the best policy to undertake to get out of recessions. In 1931 Mises explained what to do to get out of the Great Depression:
All attempts to emerge from the crisis by new interventionist measures are completely misguided. There is only one way out of the crisis: Forgo every attempt to prevent the impact of market prices on production. Give up the pursuit of policies which seek to establish interest rates, wage rates and commodity prices different from those the market indicates. This may contradict the prevailing view. It certainly is not popular. Today all governments and political parties have full confidence in interventionism and it is not likely that they will abandon their program. However, it is perhaps not too optimistic to assume that those governments and parties whose policies have led to this crisis will some day disappear from the stage and make way for men whose economic program leads, not to destruction and chaos, but to economic development and progress (The Causes of the Economic Crisis, pp. 180-81).
Although written in 1931, the above remains as timely as today's headlines.
In 1963 Rothbard likewise explained:

If government wishes to see a depression ended as quickly as possible, and the economy returned to normal prosperity, what course should it adopt? The first and clearest injunction is: don’t interfere with the market’s adjustment process. The more the government intervenes to delay the market’s adjustment, the longer and more grueling the depression will be, and the more difficult will be the road to complete recovery. Government hampering aggravates and perpetuates the depression (America's Great Depression, p. 19).

Rothbard concluded that,
In sum, the proper governmental policy in a depression is strict laissez-faire, including stringent budget slashing, and coupled perhaps with positive encouragement for credit contraction. For decades such a program has been labelled “ignorant,” “reactionary,” or “Neanderthal” by conventional economists. On the contrary, it is the policy clearly dictated by economic science to those who wish to end the depression as quickly and as cleanly as possible (America's Great Depression, p. 22-23)
More recently Jesus Heurta de Soto, when discussing what to do after an economic downturn to avoid a secondary depression also advocates freeing the market.
[T]he only effective policy for avoiding a “secondary depression,” or for preventing the severity of one, is to broadly liberalize markets and resist the temptation of credit expansion policies. Any policy which tends to keep wages high and make markets rigid should be abandoned. These policies would only make the readjustment process longer and more painful, even to the point of making it politically unbearable (Money, Bank Credit, and Economic Cycles, p. 453).
Writing just last June, Frank Shostak gave the following advice about what is the best fiscal policy to deal with our recession:
We suggest that the focus should be, not the fiscal deficit as such, but curbing government outlays. Cutting government is the best policy for normalizing the economy, and it must be implemented as soon as possible.
Commenting in November on the troubles in the Eurozone, Shostak had this to say:
Again, we maintain that the present crisis is due to past and present loose monetary and fiscal policies. We also suggest that, given the severity of the crisis, this raises the likelihood that the pool of real savings is badly damaged. This means that to fix the eurozone problem what is needed is to address the factors that undermine this pool.
So, any policy that endorses a tighter monetary and fiscal stance will lay the necessary foundation for a buildup of capital and will set in motion a solid economic expansion. Obviously a tighter stance will wipe out various bubble activities that have emerged on the back of loose policies.
The bottom line is that Austrian economics has much to say about what policies are best for recovering from a recession. Sustainable recovery requires the capital structure to be realigned according to the wishes of people in society. Unprofitable investments must be allowed to be liquidated. Unwise entrepreneurs must be allowed to go bankrupt, so that what productive assets are in the economy will be obtained by more productive entrepreneurs who can then direct those resources toward more productive uses. Relatively smooth readjustments require markets to be a free and flexible as possible. Impediments to such adjustments, such as minimum wage laws and unemployment insurance and uncertainty regarding future levels of regulation regarding things like health care, help explain why the current rate of unemployment is still quite high.

Sadly, the Economist also cannot help itself from citing Austrian economics' to most unhelpful critics.
As for the Austrians, Brad DeLong, a Keynesian Berkeley professor who also blogs, has called an acquaintance with their ideas a useful part of a diversified intellectual portfolio. But his frequent comrade in arms, Mr Krugman, does not seem to have revised his view that their business-cycle theory is “as worthy of serious study as the phlogiston theory of fire”.
If Austrian business cycle theory is the intellectual equivalent of the phlogiston theory of fire, perhaps its is time to revisit theory of pyrotechnics. In point of fact, Austrian Business Cycle Theorists are the only academic tradition of economists who actually identified the housing bubble and correctly predicted the Great Recession.

Soundness of ideas is not established by popular opinion. Truth is not determined by majority vote. If a theory is right, it is right regardless of whether Krugman or DeLong (or anyone else for that matter) pay it any heed. Krugman’s and  DeLong’s criticisms of Austrian Business Cycle continue to be weak because they continue to demonstrate that they are not well-enough acquainted with the theory. Sometimes their writing suggest that they are willfully ignorant. 

Some people think that internal logical consistency is an important test for economic theory. Others identify the ability to predict well as the criteria for good economic science. Still others require a theory that is realistic and relevant for the world in which we actually live. Austrian economics meets all of these criteria. Precisely because it is derived from the premise that humans engage in purposeful behavior, it is realistic, internally consistent, and has demonstrated better predictive power than its alternatives.

Austrian economics, in the Misesian causal-realist tradition, is the economic framework that is most compatible with the nature of man and the created order. It is, therefore, the economic framework best suited for analyzing economic problems such as what caused and what can get us out of our economic mess.

Tuesday, January 10, 2012

Introducing Hans Economics

I wish to recommend to you Hans Economics, a blog which promises to "save economics one post at a time." It's writers are bright and savvy economics majors here at Grove City College. The blog is less than two months old and already includes some very intelligent commentary.

The Hans referred to in the blog title is Hans Sennholz, long time professor of economics at Grove City College, and one of only four students to receive a PhD under Ludwig von Mises. Do not be surprised, consequently, if the economics of the blog has a decidedly Austrian, causal-realist flavor.

Hans Economics looks very promising and I am happy to add it to my list of Blogs of Interest.

Monday, January 9, 2012

Philipp Bagus on RT's Capital Account

Last Friday, Philipp Bagus, who will be a keynote lecturer at this year's Austrian Student Scholars Conference, was a guest on the Russia Today Network's Capital Account, hosted by Lauren Lyster. He discussed the current economic problems in Europe and how to exit from the Euro. You can watch the whole show below. His segment starts at 2:55.

Saturday, January 7, 2012

Economist Magazine on Macroeconomic Alternatives

The Economist magazine has condescended to looking outside the economic mainstream box when it comes to economic policy, even to discussing Austrian economics. Unfortunately, this most realistic of all bodies of economic thought gets lumped together with some rather suspect theoretical frameworks. Much ink is given to so-called "modern monetary theory," the advocates of which advise the government merely print up as many dollars as it takes to cover our debt. That figure is now above $15 trillion (with a T)? That is, as they say, a recipe for rather bracing price inflation.

The writer devotes even more words to the new monetary fad on the block: nominal GDP (NGDP) targeting. NGDP targeting is being pushed by Bentley University professor Scott Sumner. His suggestion is for the Federal Reserve to adopt a new policy rule: instead of targeting a rate of growth in the money supply or prices or interest rates, the Fed should aim to maintain a certain level or rate of growth in NGDP.

As the Economist reports,
Central banks set targets to make their currencies credible and their policies predictable. The target for many is to keep consumer prices growing at 2% a year or thereabouts. For the past few decades that has largely succeeded in stabilising inflation; but in the current crisis it has singularly failed to stabilise the economy. In America NGDP plunged over 11% below its pre-crisis path and remains there; what people buy at the prices they pay for it is much less than most would want.
However, this begs the really important question. Why did NGDP plunge to begin with? Why does the Fed need to stabilize at all? If the secret to economic coordination is stable NGDP or a stable rate of growth in NGDP, why did things collapse in the first place

In order to properly consider such questions, it is imperative to have a good understanding of economic activity. All economic phenomena is the result of human beings applying scarce means to achieve theirs ends. The fundamental problem of scarcity cannot be eliminated by central bankers creating more monetary units. Those who advocate targeting some level of NGDP need to explain why society would be more prosperous if there are more monetary units.

In fact we know that increases in the money supply--even those thought necessary to achieve some target level of aggregate expenditure--do not provide a general social benefit. At best monetary inflation merely results in higher prices for the same amount of goods. Increasing the money supply via credit expansion, however, does redistribute wealth to those who receive the newly created money first and away from those we receive the new money later or not at all. Such artificial credit expansion also results in artificially low interest rates, leading unsustainable inflationary booms that necessarily must result in a recession

Additionally, what can the Economist be talking about when it says "what people buy at the prices they pay for it is much less than most would want?" This is only true from the perspective of the businessman. Consumers prefer to buy at lower prices. Ask those who shop at Wal-Mart. It also presupposes that markets do not equilibrate via price adjustments. This is an heroic assumption. Readers of this blog, for example, are well away that so-called "sticky wages" may not be that sticky after all.

Thursday, January 5, 2012

Austrian Student Scholars Conference

Next month Grove City College will host the annual Austrian Student Scholars Conference. It is the premier academic conference for undergraduate and graduate students in the Misesian tradition. This year's conference will be held February 24th and 25th. We are excited to welcome two outstanding scholars who will give keynote lectures. Dr. Philipp  Bagus, Professor of Economics at the Universidad Rey Juan Carlos in Madrid will deliver the Hans Sennholz Memorial Lecture and Dr. Guido Hulsmann, Professor of Economics at the University of Angers, will give the Ludwig von Mises lecture.

Note the following call for papers:

Cash prizes of $1,000, $750, and $500 will be awarded for the top three papers, respectively, as judged by a select panel of Grove City College faculty. Hotel accommodations will be provided to all students who travel to the ASSC to present their papers. Limited stipends are available for travel expenses. Students should submit their proposals to present a paper to the director of the conference (jmherbener@gcc.edu) by January 1. To be eligible for the cash prizes, finished papers should be submitted to the director by January 15.

Tuesday, January 3, 2012

The Beauty of the Gold Standard

A Reuters story about the rhetorical strategy of Ron Paul quotes J.P. Morgan Chief Economist Micheal Feroli's high criticism of the Gold Standard.

The end of the article, written by Andy Sullivan, discusses reaction to Paul's advocacy for a return to a gold standard. Sullivan writes, "Economists note that Paul's long-standing proposal to return the dollar to a gold standard would force the United States to relinquish control of its currency."

To that I say what Roy Hobbs says to the Judge's concern that an untimely home run by Hobbs would decidedly harm the Judge's financial prospects. "That would be the beauty of it." When Sullivan refers to the United States, he means the government. That a true gold standard would force the state to relinquish control of its monetary system is indeed the greatest virtue of the gold standard. Thus, it should not be a cause of concern, but something to celebrate. Imagine an economic world in which there would be no more government facilitated monetary inflation, and therefore, no more central bank induced inflationary booms that result in economic recession and financial panic.

Incidentally, notice that Sullivan does not name which plurality of economists to whom he is referring. I am an economist and I do not fear the gold standard.

At the end of the article Sullivan quotes Morgan economist, Feroli:
"We would still have monetary policy - it would be set by gold miners in South Africa and Uzbekistan, rather than bureaucrats in Washington," said Michael Feroli, chief U.S. economist with JPMorgan Chase.

"If you like what OPEC means for oil prices, you'd love what the gold standard would do to financial markets."

That Feroli is worried that a gold standard would make us beholden to the governments of South Africa and Uzbekistan reveals that he does not understand the gold standard very well. His comparing monetary policy under the gold standard with OPEC, is particularly unfortunate.

While it is true that a lot of the world's newly mined gold is dug up in those countries, there is a tremendous difference between gold and oil. Oil is not very durable at all. Once it is used as an energy source it is gone and the only way to use oil again is to drill for more. Things are not the same with gold. One of the characteristics of gold that has made it likely to be used as a medium of exchange in free societies throughout history is its durability. The vast majority of gold every mined is still in existence. Consequently the notion that our monetary system would be held captive to gold mining countries is simply wrong.

If we had a 100% gold dollar, we would have the most stable monetary system possible. It would be one without monetary crises, inflationary boom/bust business cycles, and would instead allow us all to benefit from, most likely, gradually falling prices made possible by sustainable economic development. What is not to like?