The United States Should Return to the Gold Standard

C1) Deflation My opponent drops the majority of the evidence I have in regards to deflation harming the economy. He drops the study by the St Louis Reserve proving deflation did occur under the gold standard and that it reduced economic growth, he drops the study proving deflation both causes and worsens recessions, and drops the analysis that had we been on a gold standard economic growth would have been constrained as the growth in the gold supply is very small. Thus, he concedes those arguments as true. And those concessions make it impossible to win the debate. He repeats the example of the technology industry but drops the important point I make: that although deflation occurred, the *cause* of the deflation is equally important. Deflation in the computer industry was caused by market forces. Deflation due to a gold standard would be due to shrinking the money supply and a reduction in demand. His example does *not* apply well to the economy as a whole. It is fairly clear my opponent fails to refute my first contention. C2) Practicality My opponent again drops my argument in relation to the M2. His rebuttal works for the M1, but the M2 is much more comprehensive and closer represents reality. Thus, the current gold stock does not even meet an acceptable coverage--even assuming we only need a 28% backing. Billions of dollars would have to be purchased. He also ignored my arguments about price pegging and fixing, meaning a transition to the gold standard would cause a deflationary spiral and crucify the economy. My case is proven true. R1) Stability Although comparing to the fiat system in many ways is a good strategy, it ignores the fact that *should* includes all forms of monetary systems. It should also be noted even if his arguments were true, my C1 and C2 still apply. Thus, it is not preferable to move back to an archaic system which made sense 100 years ago but makes no economic sense today. My opponent seems to claim the expanding monetary supply caused the 2008 recession. This doesn’t really hold up to scrutiny. The right wing Heritage Foundation even agrees that the Federal Reserve has “positively contributed to economic stabilization in the U. S. ” [1. . http://tinyurl.com...] To claim it would not have occured under the gold standard is incorrect. Although the recession was caused in part because the Fed lost control of the money supply, it occurred due to a massive change in global finance--not because we left the Bretton Woods gold standard [2. . http://tinyurl.com...]. Thus, the recession would have occurred under a gold standard meaning the point does not really help my opponent. It should also be noted that entering the gold standard--as my opponent dropped--would lead to a deflationary spiral and would have exacerbated the current economic woes. Pro claims a study shows the gold standard reduces the rate of crisis. How do they define ‘crisis’? It is well known that the last banking crisis occurred in the Great Depression under the gold standard. *Every* banking crisis has occurred under the gold standard. According to NBER, there were six recessions after 1971 (1971 = gold standard abandoned). There were 7 under the Bretton Woods system. There were 16 under the classical gold standard, and five in the short (1919 - great depression) interwar period. Under the gold standard there were more recessions than under the current system [3. . http://tinyurl.com...]. To claim a gold standard would reduce the rate of crisis is incorrect Pro claims the gold standard is stable--but this does not work as he failed to even respond to my argument that the current system is actually 23 times more stable than under the gold standard. If stability is your goal, the current system is pretty good. The inflation/deflation graph I produced refutes my entire opponent’s case--he ignores it. The low inflation rate under the gold standard was not because of stability. Hyperinflation was simply canceled out by large deflationary periods in the following year. Even though the long term rate is zero, the short term rate is so volatile that stability really does not occur. This is proven by the graph I showed last round. A small increase in price which is consistent is far preferable than a volatile system which is only ‘stable’ because the extremes cancel eachother out. That is not stable at all. Gold is not a stable commodity. As my opponent seems to ignore, in recent years the price of gold has fluctuated greatly. Within the last decade alone the price of gold has fluctuated from $400 to almost $2000 [4. . http://tinyurl.com...]. The ‘stability’ in the past was not really stable--just opposite extremes. In the modern world with a complex economy, the price of gold means backing the currency with a gold standard would be destabilizing. My opponent claims inflation steals wealth. You have to remember wages will inflate at the same rate as prices rise meaning the net-cost is zero. Only in hyperinflationary environments--which is NOT happening--would inflation harm the economy. A low and stable inflation rate is not a bad thing. Indeed, under deflation debts would be increased in worth. Deflation--which ONLY occurs under a gold standard--is also a thief. If anything, the gold standard steals more. Pro seems to claim the gold standard prevents the government from changing the monetary supply. He has failed to show one instance where the government has abused its power under the current system--whereas I have provided cases of the government abusing the gold standard. Based upon the evidence in the debate, it is clear the gold standard does *not* force the government to be responsible. Pro cites the study I already refuted. The study did *not* have enough controls to prove inflation caused crime. The only mechanism which could cause this was an increase in poverty. But as I have proven, deflation increases economic woes and has led to 20 years of economic stagnation in Japan and economic contraction in the US (under the gold standard). As the gold standard causes both hyperinflation and deflation, we can assume the gold standard would increase crime rates. R2) History My opponent ‘disagrees’ with my evidence but fails to produce evidence to the contrary. Many of the institutions in england were founded in the century prior, but they did not become large enough to spur economic growth until after 1717. It should also be noted English GDP per capita did not increase over that period, and economic growth began *before* the gold standard was implemented [5. . http://tinyurl.com...]. To claim the gold standard is the cause of growth is incorrect. The gold standard simply existed during periods of growth, it was not the cause of it. My opponent again gives us statistics with no control variable, and drops my analysis explaining why his simple time-series data is not valid. He just repeats that the economy grew after the civil war and he thinks it was because of the gold standard. I have given many reasons as to why the growth was *not* because of monetary policy--I actually gave evidence that growth would have been FASTER had a fiat system existed. He also drops this. To suggest a gold standard caused the economic prosperity of the 1800s is ludicrous. Real technological developments occurred, more oil was found and sold, we build railroads, discovered the steam engine, discovered electricity, etc. Thus, the economic growth was *not* because of the gold standard but because of unrelated factors. As I have been arguing, the gold standard worsens recessions. Under the same period recessions were more frequent and longer [6. . http://tinyurl.com...]. The gold standard did *not* spur economic growth. My opponent claims the 1920 recession was saved by deflation but offers zero evidence for such an extraordinary claim. To the contrary, the recession occurred because of deflation. “[T]he recession of 1920–21 was the result of an unnecessary contractionary monetary policy of the Federal Reserve. ” [7. . http://tinyurl.com...] Pro lists many gold standard versions which my argument still apply towards. I have refuted directly both the Woods (exchange) and Classical gold standard variations. The price standard was refuted when I argued linking the dollar to the market gold price would put us into unprecedented deflation. That system is doomed to fail. The 100% standard was refuted by my C2. None of these serve to help my opponent’s case as my C1 applies to all of them and C2 simply eviscerates a 100% backed system. Also note that I presented evidence last round--which my opponent dropped--that maintaining any variation of the gold standard would cost in excess of 2% of GDP. == Summary == (1) My opponent drops too much of C1 to refute it. He drops *all* of my evidence that the gold standard causes deflation and that deflation is bad. He weakly defends his computer argument which I have repeatedly refuted and he continues to misunderstand how deflation works. (2) My opponent hardly refutes C2, and concedes upholding the gold standard would either cost trillions of dollars or cause a deflationary spiral which would murder the economy. (3) His stability arguments are thoroughly debunked. He drops my evidence that the gold standard was 23 times more destabilizing, and that it is only ‘stable’ because two extremes cancel eachother out. The gold standard is not stabilizing. He drops my evidence that the current system is stable. (4) He continues to repeat the mantra that economic growth was fast in the 1800s but fails to understand that a plethora of advancements unrelated to the gold standard are responsible for the growth. He fails to present valid statistics (no control variable) that prove his point. The gold standard may have made sense 150 years ago, but to implement that system in the modern economy would be economic suicide.