The “Just One Thing” project is my attempt to identify the most important factors for the long-term health of our economy. The idea is to ask this question of economists from the various schools of economic thought:

If you could change just one thing about economic policy in the US, what would it be and why?

I wanted the economists to think about what policy is hurting us the most when it comes to economic performance. Limiting them to changing only one policy was also supposed to get them to think long-term rather than identifying a policy change based solely on current conditions. 

While I am not trained as an economist (I’ve been an investment advisor for 18 years and my education is in electrical engineering), I do have my own answer to the question:

Sound money: That can be defined in many ways, but when most people speak of sound money they are thinking of a gold standard. I’m not that rigid, but my personal experience leads me to believe that currency stability is absolutely essential to the proper functioning of an economy. Every period of economic distress in my lifetime (I’m 47) has followed a period of currency instability. The 1971 end of the Bretton Woods arrangement ushered in a decade of economic turmoil. The good times associated with the rise of the dollar in the early 80s was followed by the Plaza Accord (1985) devaluation of the dollar that ended with the Crash of ‘87 and the S&L crisis. A rapidly rising dollar can cause problems as well. I believe the extreme rise of the dollar in the mid to late 90s was a contributing factor to the dot com bubble and subsequent crash. The fall of the dollar starting in 2003 was a large factor in the housing bubble and subsequent crash.

We need a stable value for money because it is the volatility that causes the problems. Many of the problems everyone is trying to solve have their roots in the volatility of the value of the dollar. The derivatives market that everyone believes is such a danger would be much smaller if the value of the dollar was stable. Why? Companies and individuals generally use derivatives to protect themselves from some type of volatility. The two most common types of derivative contracts are based on interest rates and commodity prices, both of which are functions of dollar volatility. Stabilize the dollar and the demand for derivatives would drop. 

The rise of inequality is another problem that I believe has its roots in an unstable dollar. There are two factors which correlate well with income and wealth inequality: inflation and corruption. Inflation is a function of the value of the dollar. Corruption is a function of the size of government. A stable dollar is by definition non inflationary. The discipline of a gold standard restrains the size of government. We will not solve inequality by raising taxes on the rich without making us all poorer in the bargain.

There is a question as to whether the stable dollar produces good economic policy or the other way around, but it seems to me that the commitment to a stable currency has to come first. Furthermore, the stability has to be defined by something real such as gold. There are other possibilities, but gold has the advantage of having been tried and having worked in the past. 

A gold standard will not solve all our problems. In our past experience with gold we still had recessions, depressions and panics. But those episodes were relatively short and were not caused by the gold standard, but usually the banking system. Obviously, banking system problems are still with us. The gold standard would create a stable framework within which a capitalist system can best function.

 

Here are the responses I’ve received so far:

     Walter Block

     Tyler Cowen

     Bryan Caplan

     John Chapman

You might notice that all the responses come from libertarian leaning economists. While they may have been over represented on my email list because of my own philosophical leanings, I sent the enquiry to economists from all over the political spectrum. You may draw your own conclusions about why only libertarians responded.

I will continue to try and get more responses to the question and I will post the answers here when I do. If you want to participate, please leave your answers in the comment section. If you are a professional economist, please include some bio information.