Lew Lehrman Reminds Us of Nixon's Mistake On Gold

Lew Lerhman wrote a timely piece in the Wall Street Journal recently reminding readers of who took the key step that led to today's weak dollar and incredibly bloated federal debt situation- Richard Nixon. On Sunday, August 15th, 1971, forty years earlier to the day of Lehrman's piece, Nixon appeared on television to announce that the US was terminating the dollar's convertibility to gold, making it a complete fiat currency.

While I do recall the event from my youth, the details which Lehrman provided were fascinating. With today's events providing more perspective, I can't help but see a lot of Obama in Nixon and his actions. A lawyer with no significant adult work experience outside of politics. An ideologue, of sorts, without understanding the ramifications of many of his ideas.

Recall, if you will or, if you are too young, learn that it was a moderate Republican president to be the first in the nation's history to impose wage and price controls without the nation being in a state of declared war.

At the time, inflation was tame compared with the later Carter era.

As Lehrman tells it, again, like Obama, Nixon prized big, sweeping pronouncements and gestures. Having been convinced of going off the gold standard by his newly-appointed Treasury Secretary, Texan John Connally, Nixon hastily gathered some advisors at Camp David that weekend to arrange the details and plan his speech.

According to Lehrman's article, only Volcker is on record as having regretted being part of the fateful decision.

Perhaps, given Europe's eventual economic palsy due to so many of it's nations becoming high-cost, high-tax and low-economic growth welfare states, the US would not have been in so much pain for very long, had we curbed spending to defend the dollar. We'd have tackled ruinous spending, the disastrous new Medicare program, and continuing deficits long before they reached their current unsustainable levels.

In retrospect, Nixon's own contribution to US profligacy was uniquely damaging because it appeared to have little immediate cost or consequence. Sure, inflation rose, but compared to the later Carter era, it was mild. The real damage was the loss of an external control- gold redemptions of dollars by foreign creditors- on US government debt and spending.

Lehrman's advocated for a return to the gold standard for years, so it was no surprise to see his name as the author of the article. With the passage of time, it seems increasingly likely that Nixon's action was the key enabling factor in the rapid decline in value of the dollar (now worth 18 cents compared to forty years ago).