In case you missed it, Bob Zoellick, the head of the World Bank, was pontificating in the FT this week about the merits of returning to some sort of gold peg for currencies. DeLong, in his typically understated fashion, shoots him down hard.
Without passing any particular judgement on Zoellick's mental faculties, I think it's fair to say that suggesting a return to the gold standard in any format is a bad idea no matter who is suggesting it. But like some form macroeconomic acne, the idea of the gold standard keeps popping back up in periods of stress. For example, see my comments on Gillian Tett's misguided op-ed in the FT last year.
At the time I argued that, using the same logic, an economy run by squirrels would use an acorn standard. Why? Because they like nuts, silly. This analogy is even more apt that I had initially realized: much like humans and gold, squirrels spend a lot of time and energy scurrying around gathering up acorns - only to promptly bury them back underground.
Where the analogy breaks down is that acorns actually have an intrinsic value (nutrition), whereas gold does not have much intrinsic value at all. Its skyrocketing price is the result of investors (and here I'm quoting DeLong again) "using gold as a speculative asset and a hedge. They are not using it [as] a medium of exchange, a unit of account, or a safe store of nominal value."
As if this weren't damning enough, a return to a gold peg wouldn't even address the global imbalances problem. It would merely shift it around: US and European central banks own some 50% of the world's gold reserves. Hmmmmm. One suspects that if Saudi Arabia was the dominant world economy, we might be hearing ideas about an oil standard. This at least would have the added benefit of being a highly liquid asset. (HA!)
Seriously folks: this is gauling. All the more so because the gold standard is one of those rare phenomena in economics where it's not a theoretical debate. We've tested it out. It doesn't bloody work.
With so many potentially bad ideas floating around about how to fix the world economy, there's absolutely no reason why we need keep discussing the one we know for sure will be a disaster.
UPDATE: Zoellick clarifies his comments: "Gold is now being viewed as an alternative monetary asset. This is not the same as a gold standard,” said Mr Zoellick. “Gold has become a reference point because holders of money see weak or uncertain growth prospects in all currencies other than the renminbi, and the renminbi is not free for exchange. So, in relative terms, gold is appealing to people who ask where should I put my money. It is a hedge against uncertainty.”
Well alright. Nevermind then, Bob: I forgive you. But just so we're clear: "a hedge against uncertainty" is not the same thing as an alternative monetary asset, mmk?