We should return to the gold standard
Next is decentralization and politics, as I mentioned before, the federal reserve is prone to cause depressions, a gold standard would shift the power of the monetary system from the federal reserve to the invisible hand (The Wealth of Nations), the monetary system would manage itself.
Third is history, the last nation to issue fiat was Rome, as anyone here knows, the Roman government collapsed, Roman currency was worthless, Rome fell to Anarchism, and barbarians ruled the land, it is inconceivable for our economy to go off fiat 500 years from now, Rome could hardly go off fiat for 200, and the only difference is that Rome issued fiat coin, whereas we issue fiat pieces of paper.
To try something over and over again and expect different results"- Einstein
To suggest that we are somehow different and that history will not repeat itself, or that our results will be different this time is insanity, history has shown us this repetitively.
I will now state the opposite side of this debates argument and show how it is wrong:
1.We could not mine enough gold.
2.Our GPA has increased since we killed the gold standard.
1.We have massive gold mines in California, and massive silver mines in Nevada, this is no excuse.
2.So what, China has a big GPA, we don"t consider them to be our role models.
I hereby accept your challenge and will claim that we should NOT return to the gold standard.
But before I begin with my first arguments I'm going to mention a few things.
- First of all, this is the first debate I handle on this site, so I'm curious what it's like
- Second of all, I noticed that debates like http://www.debate.org... the participants format their posts. As a friendly piece of advice, your posts look better if you'd use a bit more formatting
- Third, use sources. Your arguments are easy to rebut without
My post is ordered like this:
1. Reduced flexibility of central banks
If the economy is in a recession central banks shoud lower interests to stimulate the economy. If the economy is about to overheat, the interest should be raised to slow the economy down. This is both to keep the inflation under control. Now let's see how effective the gold standard and the central bank are at keeping inflation under control:
Here's a graph of the CPI when the USA had the gold standard:
http://cdn.theatlantic.com...; width="425" height="267" />(1)
Gold standard? Yes. Keeping inflation under control? No.
Now let's put it next to the inflation of the last years when we had a fiat currency:
s://figures.boundless.com...; alt="https://figures.boundless.com...; width="426" height="209" />(2)
Gold standard? No. Keeping inflation under control? Yes.
Conclusion: a fiat currency gives central banks the power to keep the inflation under control.
2. Unstable price of gold make the financial system unstable
Let's imagine the current price of gold is $400 per ounce and the bank has 1000 ounces in its safe. Therefore it can issue $400.000. What will happen if the price of gold raises to $600? The bank can now lend out $600.000, which is $200.000 more. This increases the supply of money a lot and will make the economy overheat, creating inflation.
Later the price of gold drops to $400 again. The bank needs 1500 ounces for the $600.000 it has outstanding, but it only has 1000 ounces. This is a problem that can get solved in only two ways:
While the gold standard was around, the price of gold was very unstable.
Conclusion: the gold prices are too unstable to have an entire financial system depend on it.
I could give more arguments, but let's keep those for the next rounds.
Allow me to point out why I disagree with your arguments:
I already rebutted this in my first argument: Reduced flexibility of central banks.
2. Decentralization and politics
You claim the Federal Reserve (FED) is prone to cause depressions. Can you back this up with facts from sources?
It seems like you claim the Roman Empire fell, because they started using fiat currency. But if fiat currency is such a disaster for an empire, why did it take 200 years before the empire fell and not 20 years? Furthermore, sources please!
You also rebutted two arguments of mine even though I never made them, nor was I going to make them. Therefore I fail to see how they add value to your case.
We should NOT return to the gold standard for two reasons:
I'm waiting to see what your reply is.4) Sources
Next is fluctuating gold prices, this was due to many things which had nothing to do with the gold standard, for one the Fed err all reserve, if you get a chart from 1700s when there was no central bank in America, then that would be credible, next at that period we were going through many economic busts, for one the coinage act of 1965 and the economic recovery act of 1970, next we were going into a variety of wars, courtesy of Lyndon b Johnson and Richard Nixon
Next, a gold standard does not need money managing, the treasury is more than able to keep large reserves of gold and silver to issue enable to stimulate the economy, if it's going too fast the government can raise taxes to slow it, the treasury can also raise or lower it's interest rates at any time, it was always this way,
Your argument was very short so in turn my rebuttal will be also.
There's something remarkable about your list about recessions. The USA went off the gold standard in 1933. (1) In the 82 years after that only one recession happened. In the 126 years before the gold standard 5 recessions happened. This brings me to my next argument: With the gold standard more recessions happen than without it. This is an expansion of my first argument:
After that you claim the price of gold didn't change a lot around the 1700. Can you back that up with facts, because I'm not going to believe you that easily.
Your third rebuttal is that the government can raise and lower taxes to regulate the economy. The government can only fix recessions if three thing happen:
Nailing all three things in practice is hard. To give an example, congress was still passing legislation in May 1977 to deal with the recession that ended in March 1975. (2)
Plus, you didn't rebate my argument about the inflation. Could you please tell me whether you overlooked it or if you admit I made a valid point?Sources
2) Bruce Bartlett, "What tax cuts can't do," New Your Times, December 20, 2000.
1. You say that 5/6 of our recessions happened under the gold standard.
2. You say that I didn't back up my stating that gold did not fluctuate during the 1700s.
3. The government takes too long.
4. I didn't rebuttals your statement about inflation.
So here's my rebuttals;
I want to state beforehand, that the list of recessions were aimed at provoking my statement about the Federal Reserve being prone to cause recessions, but if you pay attention, and do your research, you will notice that all but 1873 and 1893 had nothing to do with the gold standard, the other four were caused by the central bank of the time, 1873 and 1893 did have a correlation to the gold standard, though it wasn't the actual cause, they were caused by fraction reserve banking, banks spent people's money and only kept a fraction of it as a reserve, if you want to get into technicalities, the unbiased truth is is that there was a gold shortage, that much you could blame on the gold standard, but it would not have started anything if not for fraction reserve banking, which meant that the two recessions were caused by not abiding by the gold standard.
Actually I can back my statement, I will do so in comments as to not loose my work.
You are absolutely right, the government takes too long, though my main argument is that the treasury could hold gold and silver reserves, and issue them to stimulate the economy if necessary.
I did rebuttals your statement about inflation, but only partially, so here is a very simple fact, 1$ in 1929= 2$ in 1969, 40 years inflation with the gold standard and we loose 1/2 our money, 1$ in 1975= 4$ in 2015, 40 years inflation without the gold standard we loose 3/4 our money.
As stated earlier I will cite my sources in comments as to not loose my work.
It seems like the statement we're arguing switched from "We should return to the gold standard" to "We're better off without central banks".
But since my arguments only work if there's a central bank, I'll argue why it's important to have a central bank.
But there's no need to bring forward all of the arguments myself. This debate was already held once earlier over here: http://www.debate.org...
Note that the person who was defending the FED won.
The debate is pretty long, but The_Commander shows pretty well why it's so important to have a central bank.
Rebuttals aimed at your arguments
Even though a lot is said in the debate I mentioned above, I want to rebut some of your arguments myself.
Recessions caused by the FED
You're saying the FED caused two recessions at the end of the 19th century. Have you ever wondered WHY the FED did this? The FED did NOT do this, because the FED likes causing recessions. The FED did this to prevent the economy from overheating. A recession was required to get the economy back under control.
Furthermore, a the end of the 19th century the FED was still pretty new, so they didn't know a lot about monetary policy just yet, which led to multiple mistakes. Hence the economy started to overheat, which meant the FED had to cause a recession to bring the economy back in place. In the 20th century the FED started to learn how monetary policy works, so no recessions were caused until 2008 (according to your data). The recession in 2008 was primarily caused, because banks weren't regulated well enough. After this recession the FED learned even more about monetary policy, which in turn will lead to even better monetary policy in the future.
You're saying money is getting less and less valuable over time, but have you ever wondered WHY this happens?
Deflation by The_Commander
Now the actual point of the contention (which links to the other arguments he made) is that the Fed devalues the US dollar. It is true that typically the Fed targets the inflation rate to be about 2% per year. Personally, I think it should be about 1%, but it makes sense to keep an inflation rate. It makes sense when you consider how bad deflation is. Many of the US’s worst economic meltdowns were deflationary periods, such as the Panic of 1837, the Long Depression, and the Great Depression. (11) The Great Recession could have been that way as well (and become much worse) had the Fed not stepped in, but I’ll get back to that. One of the main problems with deflation is the deflationary spiral:
It’s quite simple to understand. If everyone’s dollar’s are worth more, things cost less. In turn, less money is coming into companies, they can have less workers, less workers means less purchases, there is more supply than demand, and the cycle continues. This isn’t the only problem with deflation, however. If the value of the dollar increases, than so do people’s debt. This hurts the lower and middle classes the most, as pretty much all Americans need debt for houses, cars, and education. (12) However, I’m not making this up, this has occurred many times throughout history (like I mentioned earlier it ran rampant in some of the US’s worse economic downturns). This also happened in Japan in the 90s, commonly known as the “Lost Decade” for the Japanese economy. Deflation had hit the Japanese and the deflationary spiral started, and Japanese banks suffered greatly. (13)
Return on investment and inflation
But there's another counterargument against your claim that 2% inflation a year is bad. You're saying we're losing money, but that's only true when you keep the money in your mattress. If instead you invest your money in stocks, bonds or even a savings account you'll get interest in return.
Let's say I have $100 today and I put it in a savings account with a 5% return a year. 10 years from now I'll have $100*1.05^10 = $163. But there was also 2% inflation a year. So $100 at the begin bought the same as $100*1.02^10 = $122 buys today. Nevertheless, I can still buy more than I could 10 years ago. I can buy (163-122)/122*100% = 34% more stuff. But how did the bank calculate that 5% interest a year? It took the 2% inflation and added an extra 3%, because the bank want to reward you for storing your cash with them. If the inflation was 0% the bank would only give you 3% interest.
1. Inflation is good for the economy.
2. Deflation is bad for the economy.
3. Recessions are good for the economy.
4. Booms are bad for the economy.
5. Inflation increases interest rates.
Here is my rebuttal;
Inflation is bad for wage workers, the minimum wage in 1950 was 1$, 1$ in 1950 is worth 24$ now, inflation destroys the middle class, my next point is that inflation cannot go on forever, it is not feasible for us to go on a dollar that is worth 1", but going off a dollar that is worth 100$ is feasible as it has happened before, and under a good economy.
Deflation is bad for the economy, obviously any rapid change in an economic system Wil have negative effects, any rapid change will do so, gradual deflation will increase the minimum wage as 8$ will be worth more.
A recession such as 1873 or 1893 turns beneficial for the economy in the long run, it eliminates fraction reserve banks, while conservative banks such as Isais Hellmans surplus reserve banks ( he kept 150% of what was in his clients accounts) survived, and had an increased trust because they survived, this was good because it stopped an already coming disaster, whereas the federal reserve caused the economy to overheat in the first place.
I don't see how th at last one is relevant.
Now that I destroyed your side of this aspect on this debate, we can continue on the gold standard, if you have a rebuttal, say so on comments and I will send you the link to the federal reserve debate.
Pro, you're being overconfident. I'm easily able to rebut your rebuttals.
1. Inflation is good for the economy
First of all, you're changing my argument. I'm not saying inflation is good, I'm saying moderate inflation isn't bad. Hyperinflation is very bad, but that's outside the scope of this debate. Furthermore, I admit 0% inflation would be the best, but it wouldn't be possible to keep inflation at that level. One change could start the deflationary spiral. Furthermore, you're saying the buying power of wages go down, but this isn't true. Every year unions negotiates with employers to determine how much wages should go up. The normal demand of the unions is a raise in wages that's slightly bigger than inflation. But I also looked closer at your reference to the minimum wage and found this graph:
http://www.dol.gov...; width="504" height="230" />(1)
I didn't expect to say this, but: you're right. The purchasing power of people earning the minimum wage went down. But before we jump to conclusions, is inflation really to blame for this? I say it isn't. The government was supposed to raise the minimum wage to compensate for inflation, but it didn't do that enough. There's probably a valid reason for that and I suspect it's related to the theory that the minimum wage creates a dead weight loss, but I didn't do research for the exact reason.
2. Deflation is bad for the economy
This is right. But I don't really understand your argumentation. You're stating that the purchasing power of the minimum wage would increase. That's very short sighted, because it ignores many, many other problems associated with deflation, which I already addressed in the previous post. I missed your rebuttal of those.
3. Recessions are good for the economy
Again you're exaggeration my argument. Recessions are bad, but allowing a bubble to lasts is VERY bad. Causing a recession is therefore the lesser of two evils. I also didn't understand your rebuttal. You're saying that because one bank was playing it safe the FED is bad? I get the impression I'm missing something.
4. Booms are bad for the economy
Again you didn't formulate my statement correctly. Booms are good as long as they are sustainable.
5. Inflation increases interest
This was my argument to show that when you have moderate inflation you aren't losing purchasing power if you have money in a bank account or another investment.
But since you also agree we got off-topic, allow me to bring it closer back to the topic with this new argument against the gold standard:
Returning to the gold standard is extremely difficult
At the moment the US treasury holds about 260 million troy ounces of gold reserve. At the market price of gold, about $1,146 an ounce (2) that would equal about $298 billion in gold. However M1 is in august 2015 about $3,012 billion (3). In order to peg the dollar to gold, the United States would either have to vastly increase its gold holdings, set the dollar price of gold at about $11,600 an ounce, or suffer a massive deflation and contraction in the money supply (or some combination of the three). (4)
Unless pro has a solid plan on how we're going back to the gold standard, he is empty handed.
First, unions are rare in the United States, and the few that exist are seldom get regarded by their employers.
Yes the government didn"t, but this emphasized the reason to prevent inflation, the government is just not capable of increasing minimum wage according to inflation.
Well I didn"t see anything else you are going to have to reinstate them.
I"m going to compile these two into one paragraph ok;
First off is that this point is true, but is irrelevant if said central bank caused the bubble in the first place, next is that that bank was a series of banks and was just an example. As far as that is concerned you are right, I am very well versed in this side of the subject, 1873 and 1893 were caused by bubbles, get rich schemes and other forms of Ponzi schemes, and yes, stopping it causes a recession now as opposed to a depression later, which is what Isais Hellman did, this is basically the same thing, the difference is that Isais Hellman did not cause the bubble, the Federal Reserve did.
I see where I have confused you on my debate, first off any rapid economic change would be disastrous, I was advocating for a gradual change, say the federal reserve has to print an amount of money to replace deteriorating bills, the government would make 10% of that money to be gold certificates, and if anyone would come in with a gold certificate they would get a replacement gold certificate not counted toward the 10% as the gold has already been deposited, in this way the government would be able to have time to mine more gold and silver (which is very easy with our high amount of gold and silver)
If you have any further rebuttals regarding the Federal Reserve please tell me in comments and I will create a separate debate.
This is the last round, so I'm first going to rebut the new arguments you gave and after that I'm going to give a summary of all of my arguments and rebuttals.
I did some research and you're right. In 2013 only 11.3% of the American workers were a member of a union. (1) Nevertheless, the standard rule is still that wages go up over time. See this chart for example:
Almost all of the circles are green. This means wages went up, so the buying power of the people earning the wages doesn't go down.
The argument that the real minimum wage went down is pretty weak, because income is very diverse. Only a small section of it went down, and it didn't even go down a lot.
Bubbles caused by the FED
It appeared to me you kept talking about the recessions in the 19th century while we're currently in the 21st century. There were very few recessions in the 20th century, which is a sign that the FED started to learn how to use monetary policy. Wanting to shut down the FED for what happened in the 19th century is like hating the UK, because they didn't want the USA to become independent: it happened so long ago it's no longer relevant.
Mining more gold for the gold standard
You're saying we could mine more gold so we can return to the gold standard, but I doubt it's really as simple as that. The current price of gold is $1,146 an ounce. If it was really easy to mine more gold, the costs of mining gold are low. Like only a few dollars an ounce. So firms would mine gold for an easy profit. But this is not happening. Therefore it costs way more to mine gold. Let's say mining gold costs $1,146 an ounce. This is impossible, because you first mine the easy to get gold and once you run out of that you'll continue with gold that's harder to get and costs more to mine. But to keep the math simple, let's ignore that for now. We need 2,340 million ounces before we can go completely back to the gold standard. So it will cost $2,682 billion to mine enough gold. If every of the 321,729,000 Americans (3) would pay the same, they would all have to pay $8,336. That's the price of a simple car. If I was allowed to choose between the gold standard or a car, I'd choose the car.
My arguments against the gold standard are:
1. Central banks don't have the flexibility they need under the gold standard. They need flexibility to keep the inflation under control
2. The unstable prices under the gold standard make the financial system unstable
3. Returning to the gold standard is very hard. Unless it's clearly superior to our current system we shouldn't even consider is seriously (and I believe the gold standard is inferior to fiat currency)
The arguments pro used with the rebuttals:
1. The inflation is more stable under the gold standard
It was very interesting to have my first debate on this site and I'm curious who the voters think was the best debater and why.Sources
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