The end of gold

by Eric on March 21, 2013

I would have said “gradually,” rather than “secretly,” but over on Bloomberg I have a little piece on how FDR ended the US gold standard.

There’s widespread disagreement over when the US went off gold – was it with the end of domestic convertibility, which happened on March 6, though it wasn’t made clearly permanent until later? was it with the end of exports, on April 19? Scott Sumner just claimed the US didn’t permanently leave the gold standard at all in 1933, “just temporarily suspended it,” which is an answer Friedman and Schwartz sort of give, though they fudge it – “the gold standard to which the US returned was very different, both domestically and international, from the one it had left”. I myself like the answer given in one article, that the US went off gold “about crocus-daffodil time, 1933.”

Actually, I think the word “disagreement” isn’t quite right – it’s more lack of agreement; I’ve never seen anyone bother to pick apart who prefers which date and why. Obviously it depends on what you mean by “the gold standard,” and what it means to be on or off.

As the Bloomberg post indicates, I’ve been looking into Roosevelt’s intentions and expressed policies, and I’ve become persuaded that he knew pretty clearly what he was doing.

Two weeks before Roosevelt’s inauguration, Keynes wrote,

can it be possible today to forecast a respectable future for [gold], when in the meantime it has betrayed all the hopes of its friends? Yet it does not follow that the monetary system of the future will find no place for gold. A barbarous relic, to which a vast body of tradition and prestige attaches, may have a symbolic or conventional value if it can be fitted into the framework of a managed system of the new pattern. Such transformations are a regular feature of those constitutional changes which are effected without a revolution.

I predict, therefore, that central banks will continue in the future, as in the past, to keep gold reserves for the protection of their exchanges and as an emergency means of settling an adverse international balance.

That’s, in outline, the policy Roosevelt pursued – probably without having read Keynes, but who knows? – beginning with his inauguration. He wanted a managed currency, so he could influence commodity prices, but he also wanted enough gold in US vaults so he could fend off speculative attacks on his managed currency. That’s why he ended convertibility, but didn’t quite announce it. If he said convertibility was done for good and all, it would have been much harder to get hoarders to return their gold to the vaults.

It’s also, of course, the basis for the dollar that became the anchor of the Bretton Woods system, in which, Keynes would later say, reprising his language of 1933, gold had become a “‘constitutional monarch’, so to speak, which would be subject to the constitution of the people and not able to exercise a tyrannical power over the nations of the world.”

FDR’s intentions matter because if he meant to do what he did, if he was carefully managing expectations, then the history of his monetary policy becomes a useful text applicable to modern affairs.

Meanwhile, in modern affairs, it’s not a good season to be a gold enthusiast. As usual, the answer to a headline that ends in a question mark is “no.”

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A Little Bit Utopian?

by John Q on March 20, 2013

Continuing in our seminar on Envisioning Real Utopias, a contribution from David Estlund. Like several of the contributions, it’s a bit long for a blog post, so I’m posting the opening paras, and posting it as a PDF. Read, enjoy and comment.

[click to continue…]

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Edmund Burke on the Free Market

by Corey Robin on March 20, 2013

In the Huffington Post, Alex Zakaras, a political theorist at the University of Vermont, levels a familiar charge at today’s GOP: they’re not real conservatives.

Over the last several decades, the party has abandoned political conservatism and embraced its opposite: an agenda of radical, experimental reform.

I’ve addressed this argument many times, including in a book now out in paperback that’s selling for $16, so there is no need for me to rehearse my position here.

What drew my attention to Zakaras’s piece is this claim: [click to continue…]

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Economists and the theory of politics

by Henry Farrell on March 19, 2013

It’s been interesting to follow the progress of Daron Acemoglu and James Robinson over the last few years, from what I suspect (but don’t know – happy to be corrected) was a right-leaning centrism to a set of vigorous arguments about the pernicious consequences of inequality. This is perhaps comparable to Keynes, who was never a full-on lefty, but instead a liberal interested in saving capitalism from itself. Now, via JW Mason on Twitter, I see they have a “new paper”:http://economics.mit.edu/files/8741 arguing that economists need what “some of us would call”:http://vserver1.cscs.lsa.umich.edu/~crshalizi/weblog/778.html a theory of politics, and that if they developed one, they’d see why unions were often well worth any deadweight cost.

bq. In this essay, we argue not only that economic advice will ignore politics at its peril but also that there are systematic forces that sometimes turn good economics into bad
politics, with the latter unfortunately often trumping the economic good. Of course, we are not claiming that economic advice should shy away from identifying market failures
and creative solutions to them, nor are we suggesting a blanket bias away from good economic policy. Rather, our argument is that economic analysis needs to identify, theoretically and empirically, conditions under which politics and economics run into conflict, and then evaluate policy proposals taking this conflict and the potential backlashes it creates into account.

bq. Our basic argument is simple: the extant political equilibrium may not be independent of the market failure; indeed it may critically rest upon it. Faced with a trade union exercising monopoly power and raising the wages of its members, most economists would advocate removing or limiting the union’s ability to exercise this monopoly power, and this is certainly the right policy in some circumstances. But unions do not just influence the way the labor market functions; they also have important implications for the political system. Historically, unions have played a key role in the creation of democracy in many parts of the world, particularly in Western Europe; they have founded, funded and supported political parties, such as the Labour Party in Britain or the Social Democratic parties of Scandinavia, which have had large impacts on public policy and on the extent of taxation and income redistribution, often balancing the political power of established business interests and political elites.

bq. Because the higher wages that unions generate for their members are one of the main reasons why people join unions, reducing their market power is likely to foster de-unionization. But this may, by further strengthening groups and interests that were already dominant in society, also change the political equilibrium in a direction involving greater efficiency losses. This case illustrates a more general conclusion, which is the heart of our argument: even when it is possible, removing a market failure need not improve the allocation of resources because of its impact on future political equilibria. To understand whether it is likely to do so, one must look at the political consequences of a policy: it is not sufficient to just focus on the economic costs and benefits.

It would be nice to see more economists starting to think about the world in this way. It would be even nicer to see this paper having some influence on the numerous technocratic pundits who have unconsciously absorbed economists’ way of thinking about policy problems.

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Welcome! Once more, I’m trying to help people understand how policies get made from the inside, and how something that looks like a dumb idea can often be the best choice out of a bad decision set, in the context of the ongoing Euro crisis. The last one was pretty didactic, in that I was aiming to steer people down a path to the decisions I thought were being under-rated. This time, what strikes me about the Cyprus policy agenda is the sheer amount of uncertainty and ambiguity; nearly every idea could end up succeeding brilliantly or failing horribly. So this time round, I’m introducing a large element of chance.

In this episode, as in the last one you are once again a representative of the Secret One World Government, and you have been temporarily flown in to pull the strings in the island of Surpyc, which is currently experiencing a bailout crisis…

[click to continue…]

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(With thanks to Martin O’Neill for the original administrative email.)

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Inspecting Iraq, in retrospect

by John Q on March 18, 2013

Following up on Corey’s piece, I want to restate a point that seems to be forgotten a lot, especially by those who went along with the Bush-Blair claims about WMDs. Until December 2002, there was plenty of behavioral evidence to suggest that Saddam had WMDs, namely the fact that he had expelled (or, more precisely, refused to co-operate with) the UN weapons inspection program. Given the benefits from being declared WMD-free, this made little sense unless he had weapons. Equally, Bush and Blair were making statements that they knew what WMDs Saddam had and fairly accurate knowledge of their location. Again, this seemed (to me, at any rate) to make no sense if they were relying on a bluff that Saddam could easily call.

All of that changed, in December 2002, when Saddam readmitted the inspectors and declared that he had no WMDs. At that point, it suddenly became obvious (again, to me, at any rate) that Bush and Blair had been making it up. I naively supposed that it would be equally obvious to everyone else, and that, as a result it would be impossible to mobilise support for war. I was particularly struck by the unanimity with which the pro-war bloggers reproduced the ever-changing propaganda lines of the Administration. No one would be surprised now, but back then, the assumption was that disputes with people like Glenn Reynolds were a matter of honest disagreement.

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This is my contribution to the Erik Olin Wright Envisioning Real Utopias book event. One note: our event was originally supposed to kick off round about February 1st. You know how it goes with utopia. Delays, delays. I mention this because my rhetorical trick was going to be to check the newspapers, a week before our event, for signs of utopia. As a result, as of today, I’m quoting 7-week old newspapers. (I could have rewritten the post to suit last week’s news. But I find I like my even-more-vintage fish and chip papers better. I’m sticking with ’em.)

Let’s start by locating our author’s project – Envisioning Real Utopias – with respect to a familiar dilemma. [click to continue…]

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Utopia means “nowhere” so I guess its appropriate that our seminar on Erik Olin Wright’s Envisioning Real Utopias has been in the vaporware category for years. However, we’re finally ready to go live. We’ll be putting up a post every day or two for the next couple of weeks, then Erik will respond. Some of the posts will be fairly conventional reviews, others will take some particular point as a license to jump off in new directions. Enjoy and comment!

At the suggestion of a commenter “m”, here are some useful links

buy and read the book,
Envisioning Real Utopias

or read chapters here freely accessible here
http://www.ssc.wisc.edu/~wright/ERU.htm

or read an article that summarizes many of the points, here

Click to access New%20Left%20Review%20paper.pdf

or listen to this talk that also summarizes a few points, starting at 54:00
http://videoarchive.asanet.org/presentations/2012ondemand_awards_presidential_address.html?plist=2012

Or this written version of the talk

Click to access Presidential%20address%20–%20uncorrected%20page%20proofs%20–%202012.pdf

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On the 10th anniversary of the Iraq War, it’s important to remember that George W. Bush did not always or simply lie about Iraq and the threat it posed. He did not sell the war simply by making stuff up about the presence of WMD or exaggerating the threat posed by Iraq. That storyline is too easy. Bush and his allies did something far subtler—and more disturbing—and what they said was actually well within the canon of national security discourse, both on the left and the right. [click to continue…]

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On the 45th Anniversary of the My Lai Massacre…

by Corey Robin on March 17, 2013

On the 45th anniversary of the My Lai Massacre,  you may want to read this, from the Washington Post:

Pham Thanh Cong leans forward, his 55-year-old face a patchwork of scars and dents, and explains what’s wrong with My Khe hamlet. Vietnamese families are built around a three-generation structure, Cong says. Parents work the fields while grandparents take care of children. In time, children will become caregivers and grandparents the cared-for. Eventually, the generations will shift and the cycle will repeat. Families have been this way since there were families in Vietnam.

But in My Khe, a generation is missing. [click to continue…]

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Why Utopia ?

by John Q on March 16, 2013

The first question to be asked about Erik Olin Wright’s Envisioning Real Utopias is whether it makes any sense to pursue, or even talk about, utopian projects.

[click to continue…]

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Last month, I debated Mark Blitz, a Straussian neocon and former Reagan Administration official, and now professor of political philosophy at Claremont McKenna College, about the politics of freedom. Throughout the debate, Blitz expressed some skepticism about my account of coercion in the workplace.

At one slightly tense moment, I confronted Blitz directly about the situation of the workers at his college (1:08:35 in the video). [click to continue…]

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Art and Life

by John Q on March 15, 2013

I’ve been a big fan of Frank Moorhouse’s Edith trilogy since I first encountered it nearly a decade ago. The first two volumes, Grand Days and Dark Palace dealt with the heroine’s adventures (political and sexual) as a young and optimistic Australian staff member with the doomed League of Nations. That was a fascinating glimpse of a world that had vanished well before I was born, and showed up Moorhouse’s capacity for imaginative recreation of that world, as well as the marvellous character of Edith Campbell Berry.

In the third volume, Cold Light, Edith turns up in early postwar Canberra, and there’s a sudden shift of view for me (and I guess, also for Moorhouse). The story runs into the early 1970s, when I was growing up and going to the Australian National University in Canberra. Edith is an observer and occasional participant in events ranging from the planning of Canberra to Menzies’ attempt to ban the Communist Party. Not only that, but most of the characters, with the exception of Edith and those in her immediate circle, are real people. Notable examples include Australian PMs Menzies and Whitlam, but also some academics from the early days of the ANU. I knew quite a few of them, and some of them even knew me: Heinz Arndt, for example, paid me the backhanded compliment of describing me as “a very dangerous young man” [1].

Reading and visualising a book so close to your own life is an odd experience – I was starting to wonder if I would appear in a crowd scene, perhaps outside Parliament House after Whitlam’s dismissal. For younger readers, of course, the early days of Canberra belong to the same dim past as the Kellogg-Briand Pact. They will, I think, find the book just as rewarding as I did, though in a very different way.

fn1. Arndt had been a leftwing social democrat in his early years in Australia, but moved sharply to the right later. In mischievous moods, I sometimes cited, with approval and without mention of his subsequent evolution, his early work advocating bank nationalization.

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More of the same

by John Holbo on March 14, 2013

This is a follow-up to Corey’s post, I suppose.

Given that concerns about the character of the new Pope are immediately being raised regarding his conduct during the Dirty War and its aftermath, in Argentina, it says something that the National Review editors are attempting a bit of preemptive damage control on a different front. “His counting poverty as a social ill should not be misconstrued as …”

Really? The new Pope is against poverty? The editors looked at what this new Pope is known for; looked down the list of concerns and doubts people might have, upon skimming the first set of news stories, and this jumped out as the thing we need to be reassured isn’t as bad as it might look, because there’s two sides to the story? (It turns out to be ok because he’s not in favor of ‘statist solutions’ to the problem.)

I mean: I could understand if the editors decided to write a pure celebratory piece that didn’t mar the occasion by drawing attention to anything any critics are already saying. But that they decided to let a touch of concern show through, and this showed through – of all things.

And Republicans wonder why people think Republicans don’t care about the poor.

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