September 30, 2022

Economix Blog: Newt Gingrich, Gold and Property Rights


Simon Johnson, the former chief economist at the International Monetary Fund, is the co-author of “13 Bankers.”

Newt Gingrich wants to broaden his primary appeal by invoking traditional conservative values and by extending his list of recommended policy changes. Unfortunately, he has chosen to follow the lead of Ron Paul in moving toward the gold standard, rather than pick up on the ideas of Jon Huntsman — who emphasized the need to re-establish property rights in the United States.

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Ron Paul is right to question the balance of power that lies behind our monetary system (as I wrote here three weeks ago). And he is also correct that the current operating principles of the Federal Reserve tilt the playing field far too much in favor of very large banks.

But proposing the gold standard — or a commission to study how to reinstate the gold standard — is no kind of solution to these issues. The imbalance of power in the United States at the end of the 19th century, under gold, was just as extreme as it is today.

And the idea that pegging the value of the dollar or any currency relative to gold leads to financial and economic stability is an illusion. During the 19th century the dollar was freely convertible into gold — except when it wasn’t. There were serious “suspensions” of convertibility about every 10 to 15 years; most of these were the outcome of boom-bust cycles in the private sector and had nothing to do with the government, which had a very limited monetary role before the Civil War. (James Kwak and I have a new book out in April; Chapter 2 goes through this monetary history.)

The gold standard is just a rule and rules are broken by powerful people under all monetary systems. Assuming that this won’t happen in any future arrangement just encourages illusions.

Mr. Gingrich’s other economic ideas, for example as seen in the latest debates, also seem to be edging toward the less serious side of Republican policy proposals — including very large tax cuts that would greatly increase the deficit.

There is a better way for Mr. Gingrich and other Republican candidates to appeal to the kind of ideas that really did make America strong.

Jon Huntsman argued that homeowners need effective protection against being expropriated — by banks or anyone else (including presumably a government that is beholden to the financial sector lobby). Mitt Romney may be edging in a similar direction (see this intriguing moment spotted by Dylan Ratigan and Eliot Spitzer).

Specifically, Mr. Huntsman argued that banks should be held accountable for all their wrongdoing during the mortgage boom. With regard to mortgages, he stated the need to address how homeowners were mistreated by lenders (including with the robo-signing scandal) and framed the issue exactly right:

“This is a basic question of rule of law; in this country no one is above the law. There are also serious issues involving potential violations of the securities laws, particularly with regard to fair and accurate disclosure of the underlying loan contracts and property titles in mortgage-backed securities that were sold. If investors’ rights were abused, this needs to be addressed fully. We need a comprehensive settlement that puts all these issues behind us, but any such settlement must include full redress of all legal violations.”

On Tuesday night, President Obama took a big step in this direction — in particular by announcing that he would establish a federal-state task force to investigate abuses in mortgage practices (presumably both the homeowner dimension and also the nature of securities sold to investors). Eric Schneiderman, New York’s attorney general, will reportedly be co-chairman of the panel.

This is a natural conservative agenda — and the Republican candidates should not cede this territory to the president.

Without secure property rights, no investor is really willing to put money into a project. This is true for entrepreneurs but it is just as true for families.

Even worse, if a family already has most of its wealth in the form of housing, then anything that makes this wealth uncertain — like questions about clear legal title and who really is the owner — will seriously disrupt savings and consumption decisions.

Mr. Gingrich seems to feel the need to expand his conservative policy proposals. That’s logical when the Florida primary matters so much — a defeat there for Mitt Romney could really change the course of the election.

But Mr. Gingrich of all people should recognize the historical context of secure property rights. This has long been a relatively strong part of the American economic model. We allowed this to be undermined by sharp practices (and worse) in some parts of the financial system.

It’s time to enforce the law and protect property rights, something Mr. Schneiderman has been emphasizing. If Mr. Gingrich wants to steal a march on his remaining rivals and win Florida, he should follow suit.

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