By Larry Schweikart
It’s all too common to hear the results of the election, two weeks ago, referred to as an “earthquake” or a “tsunami.” In reality, it may prove to be only a ripple of the coming sea change in American politics that the ruling classes appear impervious to. American history shows that the people of this great land will suffer indignities and even outright evil in their midst for a long time before they act—was this not what Thomas Jefferson said in the Declaration? But at some point, they demand injustice be addressed, whether it was slavery in the 1800s, or the inferior position of women in the 1900s. Today’s elephant in the room, just as the elephant in the room in the 1800s was slavery, cannot and will not be ignored, and any political two-steps, cha-chas, or tangos that seek to avoid dealing with it will experience the same electoral results that we saw last week.
And the elephant in the room? Debt. For the first time in my many years as a historical political analyst, I sense that the American people are not just uncomfortable with the federal debt and the sorry state of government finances in general—federal, state, and local—but that they are terrified and angry at the same time. And well they should be. Estimates of unfunded obligations (Social Security, Medicare, and so on) can be whatever a statistician wants to make them, but there is general agreement that they amount to over $60 trillion, and combined with the current “acknowledged” U.S. debt, may be as high as $90 trillion. Such numbers are simply unfathomable to most Americans. But while they don’t “get” the dollar figures, they do “get” that unless this is turned around, and quickly, in 30 years today’s kids will have a lifestyle akin to a modern-day Peruvian or an 18th century Frenchman. Believe me, you do not want that standard of living in either case.
Historically, gold and other commodities has been the canary in the coal mine. When gold begins to spike, watch out, because inflation is on its way. Gold went over $1400 an ounce today, and more ominous, the president of the World Bank suggested maybe it is time that the world return to a gold standard. Why is this ominous? Because it means that even he has admitted that the developed nations cannot control their own finances, and that an outside arbiter—gold—be used to do so. Unfortunately, the gold standard is only as good as those who are willing to make it just that, a standard. In the 1920s, gold flowed out of England and European countries and into the United States. The U.S., in turn, was to allow prices to rise and to print an equivalent ratio of paper money so that American products would soon be more expensive than British or Dutch products, and therefore those economies would recover. We would experience a slight rise in unemployment, their unemployment would fall.
As Milton Friedman has shown in his classic work, A Monetary History of the United States, the Federal Reserve sat on the gold. Meanwhile, other nations—one at a time—jumped off the gold standard. Imagine a large cement block in which 20 people are holding it up: everyone is safe as long as everyone stands his ground, but if one, then another, start running, the last one under the block is, to quote Mr. Miagi from “Karate Kid,” “squished like grape.” And so was the U.S. in the late 1920s: gold flowed out, and the Great Depression set in. The point is not that a gold standard (or a platinum standard, or any other standard) is good or bad: the point is that any standard is only good if governments are honest and accountable. The comments of the World Bank president suggest that he thinks no government in the world is either honest or accountable. One thing is for certain. Last week, Americans demanded, if not an honest government, at least one that was accountable. They screamed “STOP.” We’ll see who is listening.