Alex and I have started this thing, and today is the first episode of the first episode. Here’s the audio, video, and transcript, just like CWT (which will continue as usual). This episode covers the isolation of monetary policy in the 1970s, and Alex and I have recorded a series of other episodes of 1970s economics, among other topics.
Right now I think we have six (?) more episodes in the can. Unlike CWT, this won’t be released once every two weeks, instead Alex and I will always make a collection and release them as a set, in very close order.
In the current episode here is the episode:
COWEN: A barbarous relic. Look, we had to abandon the gold standard.
TABARROK: No, no, we didn’t.
COWEN: It is not an accident that it fell.
TABARROK: No, no, no. It was by no means an accident. No, it was done on purpose. This is done on purpose so that politicians can continue to stimulate the economy. He thinks about all the things that were holding them back. One of them was this idea of wisdom and saving. Then the Keynesians come along and it’s like Chesterton’s call. They said, “Oh, what is this fence doing here? We don’t need that.”
They didn’t understand what the fence did in the first place. The purpose of the call was to curb the political tendency to spend more and try to stimulate the economy in order to win re-election. He removed wisdom and thrift, and then he abandoned the gold standard, which was also holding them back. That was like the second fence, which was completed.
COWEN: Look, I don’t like Keynesians, but one Friedman, he was very happy to see the gold standard go. If we had stayed on the gold standard, given the subsequent volatility of the gold price, there would have been significant macroeconomic volatility. In fact, we were just going to cut the tie anyway. It wouldn’t last long.
There was this fundamental conflict that Europe in particular was relying on the US to continue to increase the supply of dollars, because there was a shortage of dollars there, and it was their last currency. Other economies were not strong enough, and there was no euro. Yet at the same time, the dollar would be converted into gold.
Gradually, we solved that “problem” by simply twisting their arms, especially the French, and saying, “We will not allow you to convert your dollars into gold, and we will continue to send dollars.” At one point, the French just said, “Not really.” They started to turn around and something collapsed. There was no way I could keep seeing it. Unless you just did a massive contraction in the world economy, which would be worse than what we did.
TABARROK: No, the increase in the volatility of the price of gold, which was a permanent phenomenon, was caused by the exit from the gold standard.
COWEN: At first but then it was China, other demands, right?
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