The Tribune

By RICHARD COULSON

EVERY Bahamian who thinks about our public policies should read these two recent books - short, punchy, and written in non-academic style that anyone can appreciate.

The first one is In Gold We Trust?, (yes, the title includes the question mark) by an academic economist and a reporter for the Economist magazine. It explains the much debated 'gold standard', requiring any Government-issued 'fiat' currency to be convertible into a fixed amount of gold. There is virtually zero chance that the gold standard will be adopted by our Government, or indeed by the US, despite the fulminations of last-chance Republican candidate Ron Paul. But I frequently meet people who wish this weren't so. Concerned about deficit spending, an explosion of the money supply and threat of runaway inflation, they harbour a nebulous belief that gold can somehow overcome these evils.

This book should disabuse them of that belief. The authors' capsule history of the gold standard shows that, far from being entrenched in ancient history, in fact it only played a role in the late 19th through the first two-thirds of the 20th century, and even in that period was no panacea against the economic dislocations caused by wars, depressions and periodic financial panics. Nations using the gold standard often had to forsake it, as did President Nixon in 1971, when he finally detached the US, and thus the rest of the world, from gold - long before the profligate financial policies of which Federal Reserve chairman Ben Bernanke is now accused. Even the renowned economist Friedrich von Hayek, author of The Road to Serfdom, beloved by libertarian conservatives, admitted that gold was but a 'wobbly anchor' for financial stability.

The book's basic position is that "the rise of modern democracy drove the abandonment of the gold standard... though it protected the value of money, [it] was too rigid for modern welfare states... A return to the gold standard might restore money's soundness, but at an enormous cost in economic growth, wealth and employment". Profound deflation, in other words. A gold standard imposes these handcuffs on growth because it prevents money supply from being adjusted to suit varying conditions.

Also, gold suffers from scarcity and volatility. Global gold reserves total about 31,000 tons, valued at present prices at about $1.6 trillion. By contrast, total foreign exchange reserves are about $10.2 trillion. There's clearly not enough gold to back-stop the world economy. And the physical constraints of gold mining sharply limit new production, which actually declined over the last 10 years. If by some miracle production were radically increased, gold's essential scarcity value would be eroded and its price would drop, shrinking its reserve potential even further

Gold's volatility is a mixture of passivity mixed with bubbles. After spiking to $800 per ounce in 1979, for 25 years from 1980 to 2005 it hovered around $400 or less, far below world economic growth, and then shot to $1,900 by mid- 2011, far exceeding economic growth. To adopt a gold standard today, where would government set the conversion price - near the depressed $400 or the inflated $1,900? Any decision would be the worst kind of statist intervention, arbitrarily harming or helping borrowers and lenders, savers and spenders.

The authors' message is that money must be regarded as an ever-changing technology, in which gold is simply the "latest phase of innovation ", and certainly not the last. Of the three functions of money - medium of exchange, unit of account, and store of value - gold does not perform the first two, and the third only imperfectly. They expect that new forms of money will develop, such as the experimental ' bitcoins' based on various currencies and commodities.

The authors by no means defend rash deficit spending policies. Technical innovation must be accompanied by governments working hard "in restoring faith in fiat currencies". That this is within human will and ingenuity can be seen in the budget recently announced in Spain, where long-sacred government expenditures are being cut to the bone.

Note: This column is not intended as advice to speculators about profiting from a long or short position in gold; readers can reach their own conclusions. But gold optimists should note that the spot price has dropped under $1,600 despite earlier bullish forecasts that this year it would rise well over $2,000.

The second book I recommend is Dealing Death and Drugs, by two residents of El Paso, Texas, who both served on its City Council and thus have had a ringside view of Mexico's raging drug wars and their close links with the US. Across the river from Juarez, generally called "the most dangerous city in the world", they trace the dreadful consequences of Mexico's drug cartels battling both against themselves and government authorities, resulting in nearly 50,000 deaths over the last six years, with innocent civilians often being caught in the cross-fire. The slaughter is not declining. The Mexican periodical Proceso (on-line in Spanish) tells me that almost every day last month saw another group killing or murder of a police officer.

While the authors do not underplay the sadistic violence of the cartels or the incompetence and corruption of Mexican law enforcement, their main accusation is pointed in another direction - the US. The key economic driver for drug traffic is the insatiable US demand for Mexico's home-grown marijuana, or cannabis, a demand which they lament but regard as irrevocable. Their critique is against the US federal and state government's policies for criminalising it, in effect since the 'War Against Drugs' was initiated nearly 40 years ago. They provide a detailed 'cash-flow' chart of the expenses and profits at each link of the chain, from the Mexican farmer growing marijuana to the hard-pressed Chicago 'pusher' selling at retail.

They make these main points:

First, the War doesn't work, just as Prohibition did not work The enforcement campaign intended to restrict supply has failed to make marijuana more expensive, and thus less available to young people. US Drug Czar Gil Kerlikowske is quoted as saying in 2010: "In the grand scheme, it has not been successful...Forty years later, the concern about drugs and drug problems is, if anything, intensified, magnified."

Second, the actual use of cannabis is heaviest among young people but rarely results in long-term addiction, possibly 9 per cent, and generally dies out with age.

Third, its use itself rarely leads to crimes or accidents; far more automotive accidents are traced to drunk driving. Crime is usually the result of seeking money to satisfy an illegal habit or, more frequently, 'turf wars' between cartels battling for control of lucrative distribution channels.

Fourth, the cost to US government agencies has been horrendous: Over $1 trillion, or a present $15 billion per year, as itemsed in one quoted report.

Fifth, and worst, the US rate of incarceration far exceeds any other nation, even the most primitive, and weighs disproportionately on young blacks. With 5 per cent of the world's total population, the US has about 23-25 per cent of the prison population. At present, about 2.3 million people are held in US Federal or State prisons , more than four times higher than 30 years ago.

Comparative statistics illustrate the shameful situation. The most common metric is number of persons incarcerated per 100,000 of population. In the US, the figure is between 715 and 743 depending on the report. By contrast, the figure for Canada is 117, for the UK 154, and European counties average about 100. Here in the Caribbean, the Bahamas shows 382 and Barbados 354.

Does this vast disparity between the US and the rest of the world indicate a much higher serious crime rate (it has actually been declining) or an immensely more efficient detection and apprehension of criminals? Hardly. It derives from draconian laws, adopted as part of the War on Drugs, imposing mandatory sentences on sale or mere possession of small amounts, as little as two grams, of marijuana - non-violent crimes of minuscule monetary impact . These laws have been enacted, and rarely amended, by politicians fearing a backlash if they are seen as 'soft on drugs'.

In addition to this book, there is no lack of intelligent criticism of present US policies and suggestions for reform,. In 1993, Yale Law School Professor Steven Duke wrote a book comprehensively critical of the US methodology, and at my introduction persuaded conservative pundit Bill Buckley to attack it in his usual vigorous style. The renowned economist Milton Friedman in 2008 bluntly called for legalisation of drugs. The respected libertarian Cato Institute has published many articles on the subject, including a review of the successful 'decriminalisation' programme launched by Portugal in 2010. Even the evangelical leader Pat Robertson, after long thought, last month announced that he found criminal enforcement unacceptable. In 2011, a sweeping report by the UN-sponsored Global Commission on Drug Policy took the same line, writing (with the US clearly in mind) that "...governments are filling prisons with minor offenders serving long sentences, at great cost, and with no impact on the scale or profitability of the market". This was not a Commission of visionary dreamers; it included hard-headed Americans such as former Secretary of State, George Shultz; Federal Reserve chairman Paul Volker and retired Goldman Sachs boss John Whitehead.

The only official American reaction to these years of dissent has been occasional half-hearted rhetoric from President Obama, with little change of substance.

Thus I noted with trepidation a recent Tribune headline stating: "Turnquest launches anti-drug strategy." To his credit, he announced positive measures to replacing strict criminal penalties: establishment of a Drug Treatment Court, "to impose sentences to treat and rehabilitate persons that commit crimes because of drug dependence". But he also provided the statistic that of 1,326 persons presently sentenced or remanded in H.M. Prison, more the one-third were incarcerated because of drug offences. And, in a subsequent article, he emphasised that "police will go after everyone involved in the marijuana trade - from production, to sale, to use." In other words, continuance of the tired, ineffective practices followed to date.

I hope that our new Minister of National Security, Dr. B.J. Nottage, will revise past policies and concentrate more on treatment and rehabilitation than on automatic prison sentences. We do not want to emulate New York City, where arrests for possession of insignificant amounts of marijuana have increased from 1,500 in 1980 to about 50,000 in one recent year, at vast public expense and negligible effect on drug usage. True, homicide and other serious crimes have been radically reduced in New York, resulting from imaginative enforcement measures and certainly not from the massive growth in minor drug busts. We can import many good products from the US, but an imitation of that country's anti-drug policy is certainly not one of them.