A geo-economic history of the developed world

This is kind of a follow-up post to one I wrote in March, 2009, talking about what I anticipated in our economic future. This takes a look back at the past, and brings us up to the present, showing us a bit of how we got here.

I saw an interview with economist and Wall Street Journal columnist Judy Shelton a couple months ago on C-SPAN. It was meant to be a nice sit-down chat, but she gives an interesting history of what’s happened to world monetary systems since the 1930s. She said that the global economy went from instability in the 1930s, where every nation was trying to undercut every other country’s currency, to stability with the creation of the International Monetary Fund (IMF). Then the IMF betrayed its own original mission, President Nixon took the U.S. off Bretton-Woods in the early 1970s, and now we’re back to where we were in the 1930s in terms of international finance–each country trying to undercut everyone else’s currencies.

Quite a bit of this interview is a profile of Shelton and her interests, particularly her love of Russian culture. The interview is an hour long.

The most intriguing thing to me is she likes the idea of a Bretton-Woods-like gold standard for the U.S. dollar, an idea that most economists would consider anachronistic. This is an idea that I got into shortly after I left college in the early 1990s, but later abandoned, because I confused it with the gold standard that existed prior to Bretton-Woods. The older one was partly blamed for the Great Depression.

The most interesting parts of the video are at 42 minutes and 55 minutes in. At minute 42 she explains her rationale for an international gold standard, saying she’s not a “gold bug,” I guess meaning that she doesn’t like it for its own sake. Rather she sees it as a relatively stable guarantor of value, and she dislikes the fact that world currencies are now not comparable to anything that seems real to most people. Instead, what people get is a sliding measure of value in the international currency market that varies from month to month and year to year. She said that now world currency trading is just a gamble, not unlike derivatives, and this has a debilitating effect on international trade. She also advocates it so that people can count on a dollar still being worth approximately what it was when they earned it, rather than its value wasting away because of inflation.

At minute 55 she gets very frank about the fiscal and economic situation that we are now in, and how we got into it. She utterly rejects the notion that supply side economics and the free market created the mess. She puts the blame squarely on government interference in the real estate market, and the dysfunctional incentives this created, with the government on the one hand tacitly guaranteeing mortgage-backed securities, while on the other allowing speculators to use them in free wheeling bets, which ultimately caused the crash to be as bad as it was. This put the government (in other words, the tax paying public) in the position of having to back the bets to try to contain an economic collapse.

On the lighter side, I noted that Mrs. Shelton said she grew up in “The Valley” (San Fernando Valley in CA). “I’m really kind of the classic Valley girl,” she said. Wow! You wouldn’t know it by listening to her talk. Note this is not “The Valley” I sometimes refer to. To those of us with a computer/tech background, “The Valley” means Silicon Valley, centered in San Jose, CA. San Fernando is a northern suburb of Los Angeles. Anyway, this took me back to the early 1980s when I used to hear “Valley Girl” by Frank Zappa on the radio.

Valley girl
she’s a Valley girl
Valley girl
she’s a Valley girl
Okay fine
fer sure, fer sure
She’s a Valley girl
in a clothing store …

Like, totally. Good memories. 🙂