The topic of the Federal Reserve has come up with some of the Republican presidential candidates. It even came up at the last debate that was hosted by Fox Business Network and focused mostly on the economy.

When Rand Paul was asked about growing income disparities, he mentioned that the Federal Reserve was partially responsible for this, particularly in artificially suppressing interest rates.

Perhaps Rand Paul was trying to channel some of his father’s energy to save his flailing campaign, but it was probably not enough to save it at this point.

One of the problems for Rand Paul is that – even on the topic of the Fed – he was outdone by Ted Cruz.

Cruz said, “Instead of adjusting monetary policy according to whims and getting it wrong over and over again and causing booms and busts, what the Fed should be doing is …keeping our money tied to a stable level of gold.” He also said the Fed should serve as a lender of last resort, but we’ll ignore that point here.

The Cruz campaign has been trying to grab some of Ron Paul’s supporters from his previous presidential runs, despite his son being in the current race with Cruz. But it is not deterring Cruz from trying, especially when acting as a proponent for some kind of gold standard.

Interestingly, both Donald Trump and Ben Carson – the two frontrunners – have also been critical of the Fed. They have criticized the artificially low interest rates and the damage it inflicts on the economy.

Now it could be that all of these guys really feel this way. But for this many candidates to be critical of the Fed, we know they have to be pushing a political button. If it were an unpopular stance amongst the Republican populace, then they probably wouldn’t be saying it.

It is also interesting to note that Donald Trump wrote a book with Robert Kiyosaki, who is the author of the Rich Dad Poor Dad series. Kiyosaki is a big critic of the Fed and is an advocate of owning gold as protection against inflation. And this is from a guy who does not really believe in traditional savings and pushes mostly for investments that produce positive cash flow.

Trump is pretty bad on some economic issues. Still, he is somewhat of a populist. And if his friend Kiyosaki rubs off on him at all, maybe Trump will start pushing for money backed by gold. His hair doesn’t have to be the only thing that is golden.

The Face of Keynesian Economics

With the latest discussions on gold, someone else has joined in on the discussion. It is none other than the modern face of Keynesian economics – Paul Krugman.

Krugman’s latest article for the New York Times is labeled “Republicans’ Lust for Gold”.

Krugman says that Republicans are now drawing their monetary doctrine from Austrian economists like Friedrich Hayek. This is quite a stretch, even for Krugman. Of course, this is the guy who thinks the presidency of George W. Bush was too fiscally conservative. In the world of Krugman, the government can never spend too much money and the Fed can never print too much money.

Krugman states in his article, “The interesting question is what will happen to monetary policy if a Republican wins next year’s election. As best as I can tell, most economists believe that it’s all talk, that once in the White House someone like Mr. Rubio or even Mr. Cruz would return to Bush-style monetary pragmatism.”

Krugman really has nothing to worry about on this front, at least coming from a politician. It is highly unlikely that we would return to a gold standard based on one the views of one politician. The president wouldn’t be able to come into office and just implement a gold standard.

A president that really did believe in some form of hard money could appeal to the American people and sway public opinion. This would be the real threat. More Americans today are critical of the Fed than ever before. It is not out of the question that tens of millions of people could come to the realization that we would be better off under a “rigid” system of something resembling the gold standard than having to anticipate what Janet Yellen and about a dozen other people are going to decide in some conference room.

Unfortunately, the Republican presidential candidates are not nearly as pro free market as what Paul Krugman would have you believe. If only most of his accusations actually had some merit to them, we would be in pretty good shape.

Some of the talk of a gold standard, or even criticism of the Fed, is good to hear. We don’t know how authentic it is from each candidate. But even if they are all just saying this stuff for voter support, we should view this as good news. That means that more and more people want to hear this and that the Fed is actually somewhat on the defensive.

In this sense, maybe Krugman should be worried. Maybe that is why he wrote an article on the topic.

Krugman defends his positions now by pointing out that consumer price inflation has been low, despite some predictions that it would rise. Of course, health insurance premiums don’t factor into his equation of low price inflation.

But regardless of consumer prices, the Fed does its damage by manipulating interest rates and creating money out of thin air. It allows Congress to run bigger deficits and misallocates resources and causes artificial bubbles.

I don’t know if it was a political calculation or not, but Ted Cruz was on the right track in what he said about the Fed and having our money tied to gold. This issue is gaining more attention, just as it should. And it is nice to see that Paul Krugman feels the need to go on the defensive for the status quo.