The maximum “real” (that is, ex-inflation) sustainable growth rate for any closed economy is Population Growth + Productivity Growth. In the US the population grows at a little over 1%/year and productivity growth has been a bit over 1%/year (well, what we’re told by the gubmint, at least). So, real sustainable GDP growth is about 2.5% (maybe 3% if you’re really optimistic) per year here in the US.
The great part about a Gold Standard (since gold is a subject in this post) is that it’s very difficult to manipulate the currency. The biggest weakness of a Gold Standard is that it’s very difficult to manipulate the currency.
So, a Gold Standard is great when things are relatively stable because politicians can’t rev up the printing press (so to speak) to pay for profligate spending. But when the economy heads south, a Gold Standard is very unforgiving because the government has little ability to use Keynesian remedies in compensating for “animal spirits.” So, if you go back to the 19th century in the US you see routine depressions – not recessions, although you see those too. The US economy under the Gold Standard was extraordinarily volatile relative to what we’re used to seeing today. Having said that, it’s very difficult to engineer a financial bubble like the one we’ve witnessed under a Gold Standard as well. So, there are pros and cons to operating under a Gold Standard. And, obviously, everyone’s got their own opinion as to which they prefer.
It’s highly likely that we’d be better off today if we had been operating under a Gold Standard for the last 20 years. But… a Gold Standard might have engendered a different set of unpleasant results that we can’t fathom (because we didn’t follow that path).
