Living under the gold standard was not the good ol' days
Keepers of the influential blog Econbrowser revisited some reasons why a return to the gold standard might not be a good idea after presidential aspirant, New Gingrich, said last week that he would set up a commission to investigate the idea.
The Econbrowser economists, maintained by James D. Hamilton and Menzie Chinn, find that economic panics in the U.S. were sharper and harder to get out of when the the country maintained a fixed dollar price for an ounce of gold.
The pre-Fed era was characterized by frequent episodes such as the Panic of 1857, Panic of 1873, Panic of 1893, Panic of 1896, and Panic of 1907 in which even the safest borrowers would suddenly find themselves needing to pay a very high rate of interest. Those events were associated with significant financial failures and business contraction. After establishment of the Federal Reserve, the U.S. short-term interest rate became much more stable and exhibited none of the sudden spiking behavior that used to be so common.