(iStock illustration; Ben Kirchner for The Washington Post)

Ted Cruz has come down with a bad case of Midas delusion.

Now, it usually only afflicts people wearing bowties, but the politicians those people donate to are also at risk. We can't say for sure if that's how Cruz contracted it, but the fact that his biggest benefactor is a goldbug means that we can't rule it out either.

What are the symptoms? Well, chief among them is a belief that the price of gold doesn't just matter, but actually matters more than anything else. In other words, that we could fix the economy if we fixed the dollar to always be worth a certain amount of gold. That, at least, is what Cruz hinted at when he said that "one of the problems is the volatility of the dollar" and that the best way to stop "these rapid oscillations in commodities markets" due to "unstable currencies" is to adopt a "rules-based monetary supply, ideally tied to gold." That way, Cruz says, the dollar would always be worth the same. "We don't want a strong dollar or a weak dollar," he told voters, but rather "want a stable dollar."

But do you see what he did there? Cruz is assuming that a stable dollar means that it's stable against gold. There's no reason to do that, though. After all, it's not like the price of gold matters to a middle-class family. It has nothing to do with the price of food or housing or education or anything else that anyone who isn't preparing for the end of the world would need. Who cares if people can't buy as much gold as long as they can buy the same number of things they need to, you know, live?

And besides, making the dollar stable against gold wouldn't make it stable against other things. At least not in the way we'd want. Just take a look at the chart below. It compares how much prices have actually changed since the late 1980s with how much they would have changed if we'd been following the gold standard instead. As you can see, a gold-backed dollar would have been a much more volatile one. It would have sent prices up more in 10 years than they did go up in 25, before making them crash more than they even did during the Great Depression. (Falling prices might sound like a good thing, but they're not because they can make wages fall at the same time that debts don't, pushing more people into default).


Source: St. Louis FRED

The gold standard isn't even a solution in search of a problem. It's a problem in search of a solution. And the one that people found 80 years ago was just getting rid of it. Why is it such a disaster? Well, it's not only that it'd make prices bounce around a lot more from year to year than they do now. It's that it'd also make the bad times worse.

Think about it like this. Just saying that the price of gold isn't allowed to change isn't enough to actually make it happen. That's because supply and demand still exist, and, if you don't do anything about them, they'll make the price go up or down as is the case. The only way to stop them from doing so is to make the dollar go up or down instead—which means raising or lowering interest rates. The simple story is that higher rates make your currency a more attractive place to hold money, and that, in turn, makes your currency worth more.

But let's back up a second. We wouldn't be talking about any of this if the price of gold only went up during the good times and down during the not-so-good ones. In that case, the gold standard would give us higher interest rates when we needed them and lower interest rates when we needed them too. The problem, though, is that this isn't true. It turns out, as Paul Krugman notes, that gold prices go up when the economy is overheating and when it's underperforming. So that means the gold standard would increase interest rates at both the best and worst possible moments, the latter of which is how a recession can get turned into a depression. Indeed, it's a pretty good description of what happened in the 1930s.

That's why none of the economists in the University of Chicago's ideologically diverse expert panel think that the gold standard would be better than what we have now. And that's putting it politely. Chicago professor Anil Kashyap went so far as to say that "love of the gold standard implies macroeconomic illiteracy."

You shall not Cruz-ify mankind upon a cross of failed policies.*

*Paul Krugman points out that what I thought was a highly original pun was in fact a pun he'd already used. As chagrined as I was to see that, I felt even worse when I realized that I've kind of been repeating myself with the you-shall-not-crucify formulation.

Negative interest rates, financial turmoil and a weaker dollar are drawing investors back into gold. Can the yellow metal's return to favor last? (Reuters)