Gold Standard Will Help the Economy

Friday, 02 Aug 2013 07:45 AM

By Barry Elias

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Recently, there has been data published by the Economic Policy Institute depicting worker productivity relative to wages from 1971 through 2007.

Unfortunately, these data are inconclusive, since productivity is measured for all workers, while wages are inflation-adjusted, apply only to production and non-supervisory positions and are exclusive of fringe benefits, such as healthcare.

Moreover, during this period, nominal median household income rose four-fold, from roughly $12,000 to $48,000, according to the U.S. Census Bureau.

Wealth and income disparity have risen greatly since 1971. This divergence is a direct result of the decoupling of the U.S. dollar from gold by President Nixon that year.

When the gold standard was abolished, it enabled an excessive creation of credit and debt, which was not commensurate with long-term investments and the proper allocation of resources, such as land, labor, capital and raw materials.

The economic policies of Presidents Reagan and Clinton further undermined long-term investments.

The Tax Reform Act of 1986 under Reagan provided disincentives to invest, since corporate tax rates were higher than were personal rates for virtually all levels of net income. The financial deregulation in 1999 and 2000 under Clinton permitted an extraordinary rise of undercapitalized financial derivative products.

Returns on capital were achieved through the creation of financial products, which focused heavily on short-term arbitrage opportunities. This construct enabled a massive transfer of wealth and income to higher socioeconomic strata.

A return of the gold standard would permit greater long-term investment, more employment, greater monetary velocity, higher income and enhanced purchase price parity.

Its time has come.

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