What's Gold Got To Do With It

For whatever reason I've been fidgety about pushing the publish button for the first time, so I went to Tina Turner for a little inspiration before writing this post. Hmmm...love, gold, what is the difference really?

In both cases, sometimes we think the "affirmation" we need lies outside of ourselves! Yet one of life's primary challenges is finding ways to rely on ourselves as an ultimate anchor. Perhaps some might call it a stretch to think of monetary policy in the same way, but if one really thinks about it, the idea makes perfect sense. Why not think of money printing as the aggregate measure of our total economic activity? Otherwise we can end up with too much or too little money, and too little puts the kibosh on someone's ability to participate. Sure, we're talking about a statistical aggregate in a complex economic environment but still, if money gets shorted someone loses out. Whereas if too much gets printed compared to our actual total activity, inflation results. Just the same, should the measure remain close to our actual income and consumption, what inflation may arise is not substantial. Plus when we're aware what's going on (transparency), we can react when it becomes clear whether someone changes what gets printed, to suit their own ends.

What I'm describing in simple language is also referred to as nominal targeting, or NGDP level targeting. The economists who brought this neglected idea back into public dialogue are known as market monetarists, and while I am but an enthusiastic scholar of the discipline, count myself among the growing numbers of this group just the same. Among my sidebar links, the reader will also find blogs by those who explain and discuss the concept with more specific terminology. I especially liked the title of a post by David Glasner at Uneasy Money this week, "The Golden Constant My Eye".

But back in the world of the present, we are still trying to rely on the mechanism of interest rate targeting which no longer works as well as it once did. Nonetheless this monetary policy tool is not easy to let go of, in part because it allows central bankers to maintain the illusion that economic power resides not in our own abilities, but in the institutions around us. Consequently, our lives have become more and more dependent upon loans for our most important activities. While people can be forgiven for thinking it's the banks that really count in economic terms, that still makes it mighty difficult to rely on oneself as an anchor of anything.

In other words, whatever "real" wealth is, supposedly it remains separate from our own abilities and aspirations. Are we expected to believe our economic value isn't "activated" without the blessing of a gold standard, or something approximate? To be sure, there are plenty of unanswered questions about the economic value of our time in the present, which need to be specifically addressed and dealt with at length. Even so, the aggregate measure of our economic time hours will always be the most reliable indicator we have, in that no other form of wealth is utilized with the same consistency.

Update: Right out the gate I've already committed the "random act of naming" offense. For anyone who loves naming things it's a hard habit to break, and as a result I might have to refer to some labels as "pardon my jargon"! Consequently, some post labels may eventually have a page tab of descriptions. However, "income/consumption" standard was the first thing which came to mind as opposed to the gold standard tag I didn't want to use. Perhaps it is appropriate to keep those words together for any number or reasons. For instance, we want to measure economic value in terms of hours, but now some college programs are decoupling degree programs from the credit hour. At the very least, that indicates how investment time tends to be "all over the map" compared to actual knowledge and skills use time, with others.