Tight Money Hurts Young People

If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.” – William Jennings Bryan

I don’t get the sense that many young people read this blog, but if you are a young person you need to hurry up and get radicalized on the issue of money politics.

The main “radical” message you’ve probably been hearing on monetary policy is from the Ron Paul people, arguing for a gold standard. If you are a relatively young, working-age person, this idea is fucking evil. It is a bazooka pointed straight at the heart of your lifetime earnings potential. Any debts you have – which, if you are a typical Millenial, are probably enormous – would be extremely hard to pay off under a gold standard.

This is because most debts are in nominal terms. If the value of the dollar goes down, and your nominal wages go up, the value of your debt goes down. Inflation is good for debtors, and bad for creditors.

But because inflation is bad for certain kinds of old people on fixed incomes, politicians tend to favor tight money (which hurts you) over loose money (which helps you.)

As the US population ages, inflation is going to become more unpopular, even as the older generation relies on us to pay for their entitlements. Not only are we going to have to pay more in taxes to cover their benefits, we are also likely to be hurt by their hard money politics.

It is critical that you understand the political trade-off here so that you can help pressure Presidential candidates and Senators to confirm loose money advocates to the Federal Reserve Open Markets Committee.

Here is a good primer on the topic.


  1. GDub says:

    Are you saying that current monetary policy is “hard”?

    • Jon Geeting says:

      Yes, money is tight right now. Read up on your Milton Friedman. Super low interest rates are a telltale sign of tight money. The entire problem we are having is that the Fed can’t get nominal rates below zero. Ben Bernanke believes that he can push real rates below zero, but he just prefers high unemployment to inflation over 2%.

      • GDub says:

        I never believe that one factor can be the “entire problem” in a period of economic change. I agree that the effect of various actions may have the appearance of “tight money” but its probably a stretch to say that we have a tight policy.

        Inflation may be great for debtors, but it is bad for savers as well as creditors. And its bad when the prices of commodities, food, and housing rise faster than wages when inflation really gets going.

        Again, I challenge you to try to make Bernanke’s case. I assume he doesn’t go to bed at night thrilled that so many people are suffering. So what is it, in your opinion, that he’s trying to balance? What are the potential tradeoffs of different policy choices? Why is he wrong?

        • Jon Geeting says:

          I don’t think it’s a stretch to say that money’s tight. Interest rates need to go negative. The Fed hasn’t done enough to achieve that goal, obviously. They’re still paying interest on reserves!

  2. John says:

    Before you beg for high inflation, please read up on it. Not a policy class, read up on what actually happened, and recognize that inflation isn’t something you turn on and off at a whim.

    Additionally, your class warfare is getting old.

    • Jon Geeting says:

      I’m aware that you and other conservatives are still living in the Great Inflation era, but that is clearly not happening. Conditions today look nothing like that. The Fed is fully capable of targeting 4% inflation with expectations becoming unmoored. We did it all through the 80s, through Ronald Reagan’s entire Presidency.

      Also, let’s remember the history there. Paul Volcker did raise interest rates and stop the high inflation. If we actually had problem inflation, the Fed could raise interest rates and throw a bunch of people out of work. That would be a preferable situation to the situation we have now, where even more people are out of work and the Fed’s just not even trying to do anything about it. Your class warfare on my generation is getting old.

  3. GDub says:

    I’d be interested to see you take Bernanke’s perspective and give us your guess of how’d he’d defend his own position. You aren’t allowed to assume he’s evil, partisan, or dumb.

    To be fair, comparing now with the 1980s doesn’t totally work–because to you one set of conditions is an abstraction and one you are living in–but those were pretty bad times too, and it is easy to dismiss the challenges of that era. We all face that challenge. However, the act of “raising interest rates” was horrifyingly wrenching for many at that time, to include many in the Lehigh Valley. It isn’t a policy choice, its an atom bomb.

    • Jon Geeting says:

      I think he wants to do more, and a minority of FOMC members want to do more, but he doesn’t have enough votes on the FOMC to do what he prescribed for Japan in the 90′s as an academic, so naturally his public statements aren’t really making any sense. He says he sees the economy decelerating, but still isn’t going to do anything. The other interpretation is that this is just the recovery the Fed wants. He prefers 2% inflation ceiling to a booming labor market but with somewhat higher inflation.

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