Federal Reserve Chairman Ben Bernanke reacted to conservatives across the country who have pushed for a return to the gold standard today, saying such a move “would not be feasible for practical and policy reasons.” Bernanke’s answer was in response to a question during his lecture about the history of the Federal Reserve today at George Washington University.
Returning to the gold standard wouldn’t be practical because there isn’t enough gold, Bernanke said. And even if it was practical, he added, it would be disastrous from a policy standpoint, preventing the Fed from responding to drastic rises in unemployment or rapid inflation or deflation during economic downturns. Committing to the gold standard, Bernanke said, “would mean we are swearing that no matter how bad unemployment gets, we aren’t going to do anything about it”:
STUDENT: Why is there an argument — some argument — for returning to the gold standard, and is it even possible?
BERNANKE: [...] I think, though, that the gold standard would not be feasible for both practical reasons and policy reasons. On the practical side there’s just not enough gold to meet the needs of a worldwide gold standard. But more fundamentally than that, the world has changed. [...] In a modern world, the commitment to the gold standard would mean that we are swearing that under no circumstances, no matter how bad unemployment gets, are we going to do anything about it using monetary policy.
Conservatives around the country have pushed for a return to the gold standard, particularly since Bernanke’s Fed took sweeping monetary policy actions to combat the Great Recession. In state houses across the country, Republicans have pushed bills that would declare the dollar unconstitutional or force taxpayers to pay the government in only gold or silver. Goldbug fever also swept the Republican presidential primary, as candidates (besides long-time gold standard advocate Ron Paul) spoke at pro-gold standard events and stumped for it on the trail.
But as Bernanke noted, returning to the gold standard would have perilous consequences for the American economy. The American economy, he noted, was more prone to recessions before the gold standard was dropped, and, as with the Great Depression, the gold standard tends to make such downturns even more painful. “If you look at actual history, you’ll see that the gold standard didn’t work that well,” Bernanke said. “Indeed…there’s a good bit of evidence that the gold standard was one of the main reasons that the Depression was so deep and long.”