Confronting the Malefactors. Recessions Under the Gold Standard. Holding China to Account. Rabbit-Hole Economics. Krugman and the Gold Standard. Source link: According to Paul Krugman, it was adherence to the Gold Standard that helped push the United States into depression in the 1930s. What I find interesting, however, is the mentality he exposes about himself as he presents his case for wild inflation: What E&T (Eichengreen and Temin) show is that circa 1930 key decision-makers had spent so many years equating adherence to gold not just with prosperity, but with morality, decency, civilization itself, that they couldn’t even contemplate breaking with that orthodoxy — even in the face of total catastrophe. I think we’re more flexible now.
Yeah, breaking contracts, debasing the dollar, all that stuff that is associated with honesty and integrity. It is not difficult to see why Krugman would scorn such things. Krugman: Contemporary Economics Is Bitter, Ignorant And Mostly Useless. The Unofficial Paul Krugman Web Page. SYNOPSIS: The Gold Standard is an Economic myth whose only benefit is it sounds good The legend of King Midas has been generally misunderstood. Most people think the curse that turned everything the old miser touched into gold, leaving him unable to eat or drink, was a lesson in the perils of avarice.
But Midas' true sin was his failure to understand monetary economics. What the gods were really telling him is that gold is just a metal. If it sometimes seems to be more, that is only because society has found it convenient to use gold as a medium of exchange--a bridge between other, truly desirable, objects. There are other possible mediums of exchange, and it is silly to imagine that this pretty, but only moderately useful, substance has some irreplaceable significance.
But there are many people--nearly all of them ardent conservatives--who reject that lesson. There is a case to be made for a return to the gold standard. So where does gold enter the picture? An Impeccable Disaster.