Nostalgia for the Gold Standard Is Misplaced - Up and Down Wall Street Daily - R. Forsyth - Barrons.com

Nostalgia for the Gold Standard Is Misplaced - Up and Down Wall Street Daily - R. Forsyth - Barrons.com

Deflation vs. devaluation might have been one aspect; but, concomitant would have been the fact that suddenly - with import barriers - the effective cost of goods rose.

In other words, if the low cost producer (say China) today, wasn't allowed to sell the US imported goods (say tires); and, no other country could do so; then, let's assume the unions had their way and tires would now cost $100 vs. $10 (extreme example for purposes of illustration).

Now, assume wages don't go up; assume taxes on business go up; assume government benefit taxes go up (i.e. further raising the cost of domestic production and possibly depressing already flat wages).

Assume therefore that the society now has the same purchasing power but all costs of goods have gone up by a factor of 10. Locally, that is hyperinflation (or close to it).

If 100 people might have bought a tire for $10, maybe only 5 will buy one for $100. One can see where this leads...much less demand.

While this is an extreme case applied to the 1930's, the basic logic is also applicable today with current administration policies. As government is raising the costs for government programs attached to wages, it is driving up the costs of US production. Demand isn't being lessened by import restrictions impacting price; rather, the strongest impact may be on US employment.

How this plays out from here is clearly impacting markets as people guess which way the government will go to stimulate demand.