Romney, Republicans, and the gold standard

I understand why some conservatives are fond of the idea of abandoning fiat money and returning to the gold standard, especially after the Great Recession and ongoing euro crisis — not to mention fears the growing national debt will prove inflationary or hyperinflationary. As George Bernard Shaw put it, “You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect to these gentlemen, I advise you to vote for gold.”

But I am not there yet. As Milton Friedman famously said, ”Inflation is always and everywhere a monetary phenomenon.” Instead, I would prefer adjusting the mandate of the Federal Reserve so that monetary policy is less discretionary and more rule based.

One option is what could be called the “New Gold Standard,” the market-based targeting of nominal GDP.