Matthew O'Brien ponders why the GOP mainstream seems to be taking Ron Paul's pro-gold standard arguments seriously (the platform will include a commission to explore the "fixed value for the dollar").
When we peg the dollar to gold we have to raise interest rates when gold is scarce, regardless of the state of the economy. This policy inflexibility was the major cause of the Great Depression, as governments were forced to tighten policy at the worst possible moment.
Krugman drives home another danger: deflation.
So if we’d had a gold standard operating in this crisis, there would have been powerful deflationary forces at work; not exactly what the doctor ordered. Now, the gold bugs will no doubt reply that under a gold standard big bubbles couldn’t happen, and therefore there wouldn’t be major financial crises. And it’s true: under the gold standard America had no major financial panics other than in 1873, 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933. Oh, wait.
Noam Schieber notes that gold standard supporters aren't simply Paulites:
Paul Ryan himself has pushed a proposal that's similar, except arguably more ruinous to the economy. And Republican Congresswoman Marsha Blackburn, who co-chairs the party’s platform committee, insisted the gold flirtation didn’t arise as a sop to Paul. “These were adopted because they are things that Republicans agree on. The House recently passed a bill on this, and this is something that we think needs to be done,” she told The Financial Times.
So why is the mainstream party embracing an ideology that would be economically ruinous and has little appeal outside of the Tea Party? Eric Rauchway's view:
On balance, Keynes thought deflation was worse: “it is worse in an impoverished world to provoke unemployment than to disappoint the rentier.” Unless, of course, you’re Paul Ryan, in which case nothing is worse than disappointing the rentiers. Indeed, the whole Ryan schtick, involving brows furrowed over deficits and inflation, exists to ensure that the class of people eyeing their investment returns are not only not disappointed, but further and more richly sated. Changing the distribution of wealth would be far worse than inhibiting its production, and Ryan, in his certainty that nothing is worse than inflation, would rather the latter than the former.