Doubts and Dissent

Most members of TIME'S Board of Economists regard a U.S. return to the gold standard as a distant and potentially dangerous goal. They maintain that such a move would probably force the Federal Reserve to try to make dollars more valuable by holding down the money supply and pushing up interest rates. Such action would, of course, crush businesses heavily dependent on borrowed funds and substantially boost unemployment. The dollar would be under particular pressure whenever conflicts like the Iran-Iraq war caused wealthy Arabs and other panicky investors to seek the safety of the yellow metal. Warns Otto Eckstein, chairman of the Data Resources econometric forecasting firm: "The U.S. would have to follow a massive policy of deflation every time international disturbances created a run on gold."

Alan Greenspan, a New York economic consultant and sometime adviser to the Reagan Administration, is the board's only gold advocate. He believes that the U.S. can and should reinstate the gold standard if the Government manages to curb rising prices and restore the dollar's sta bility. Says Greenspan: "Once inflation has been conquered, the discipline of the gold standard would surely reinforce anti-inflation policies and make it far more difficult to resume financial profligacy."

Other board members are much less enthusiastic about gold's powers. Charles Schultze, chief economic adviser to President Carter, thinks that the metal's allure stems from a wishful notion that financial stability can be achieved in a "fixed mechanical way," rather than by "trusting human beings." The danger, says he, is that the gold standard would put policymakers into such a "straitjacket" that they would be unable to respond to changing economic conditions. The result: even greater instability and more frequent bouts of high unemployment. Joseph Pechman, director of economic studies at the Brookings Institution, agrees: "I think the whole idea is nonsense. The gold bugs are recommending a disastrous route for economic policy."

Still, board members hesitate to write off a proposal pushed by those same supply-side theorists who first suggested deep personal tax cuts. Says Schultze: "I don't think that we will return to gold. On the other hand, there are a lot of things that have gone on in the past year that I didn't think were going to happen, but did. So who knows?"

This file is automatically generated by a robot program, so viewer discretion is required.