My previous article about money-printing by the Fed has been drawing a lot of flak in several discussion forums; the flak is from the anti-Fed crowd. That tells me a follow-up post is in order.
It’s common knowledge that the dollar can buy a lot less gold today than it could, say, ten years ago. The anti-Fed crowd says that should infuriate me, because it’s supposedly irrefutable proof that the fiat dollar is approaching worthlessness – due, of course, to profligate, criminal, treasonous money-printing by the scoundrels at the Fed -- which, of course, could all be remedied simply by switching the USA to the gold standard.
But the inflation of the price of gold doesn’t infuriate me. Reason: There’s something far more important to main street consumers than the dollar price of gold. It’s the amount of day-to-day stuff we can purchase from others, using the money we earn by producing stuff for others.
The important question is “How much of the stuff I need and want can I buy with 40 hours of my labor?”. Note that neither the word “gold” nor the word “fiat money” is to be found anywhere in that question. That’s because the “real economy” is about the real things we produce, exchange, and consume; money is merely lubrication for the real economy.
So let’s answer that important question. But first I’ll show the “common knowledge” aspect: How many ounces of gold 40 hours of labor can buy, 2011 versus 2001.
Wow, what a shocker! That 40 hours worth of fiat-dollar earnings buys 79% less gold today than it did ten years ago! Not only is that undeniable, that is also where most of the anti-Fed crowd stops their thinking process (...and where they’d like us to stop ours).
But it’s mentally lazy to stop thinking at that point, so let’s proceed with the important question, which also happens to be the well-kept secret: The amount of day-to-day stuff 40 hours of labor can buy, 2011 versus 2001.
Wow, that’s a much different story, isn’t it? In spite of the fiat dollar system we’ve chosen, one week’s labor can purchase 5% more real stuff now than it could ten years ago. Even though the dreaded “fiat dollar” can’t buy nearly as much gold any more, a week’s worth of labor can buy more of the stuff we really need. The real economy has become more productive.
The whole truth is this: The “money” we Americans earn and spend can be whatever our society chooses: gold coins, diamonds, bushels of wheat, seashells, packs of Marlboros, fifths of Jack Daniels, or – last but not least – fiat dollars. The problems we are having today are problems with the real economy, not with the monetary system we’ve chosen. We are not inventing, producing, exchanging, and consuming real goods and services in sufficient quantities -- that is our real problem.
The debate about gold versus fiat dollars is a counterproductive diversion. Our national debate should be about which policies would kick the real economy into higher gear (and why) – but for some crazy reason, we are wasting time debating which brand of lube would be better for the real economy: fiat dollars controlled ("printed") by the Fed, or gold (or seashells, or Marlboros) controlled by who knows who.
It’s like we're standing around a car with four flat tires and arguing which country's brand of oil to use in the engine. To me, the answer is simple: We should choose our own oil, made right here in the USA; and then we should immediately turn our attention to fixing the four flat tires.
The United States of America currently defines money as “fiat dollars” supplied by its own central bank. That gives us monopoly control over the supply of those dollars -- control we do not have over the supply of gold, diamonds, or seashells. No other nation can produce U.S. fiat dollars; many other nations can produce gold, diamonds, or seashells. How well we manage that monopoly is completely up to us.
Links to the data used to generate the charts above: