Monday, October 15, 2012

The Follies of Gold

The Republican platform includes a plank to form a commission to study a “metallic standard” for money. Possibly the politicos want to attract the Ron Paul vote since he has continued to advocate a gold standard as a form of economic discipline. I don’t know much about the politics of the gold, but I know a commission will be a waste of time and there will not be a gold standard in the United States or anywhere else.

Many years ago, before banks, gold circulated as a medium of exchange, but it was heavy and inconvenient from the beginning. Enterprising entrepreneurs opened gold depositories where people could store their gold safely. Depositors received a paper certificate as proof of their deposit.

If a depositor decided to buy a horse and wagon he would mosey over to the depository to make a withdrawal. Very quickly everyone got tired of going to a depository just to do a simple transaction. Soon the paper certificates began to circulate as money instead of the gold.

Very quickly the people running the depositories began to notice that buyers making withdrawals were followed by sellers making deposits. Then they realized they did not need to keep all of the gold deposits in the vaults to cover their customer withdrawals since withdrawals were followed by deposits. By keeping records of deposits and withdrawals they learned the maximum percentage, or maximum fraction, of the gold in the vaults they could loan out at interest without jeopardizing their ability to cover withdrawals of their customers.

That was the birth of the modern fractional banking system used by the United States and every other country in the universe. Banks hold a fraction of their reserves to pay on the deposits of their customers. From the beginning there were banking cheats and chiselers who made loans beyond the maximum safe percentage and were unable to cover their customer withdrawals. Banking abuses brought efforts to regulate banks; legal reserve requirements were imposed.

In 1999 the Clinton administration signed off on a banking deregulation bill pushed by the banking industry. The cheats and chiselers returned and just as before they were unable to cover their customer account withdrawals and had to be bailed out by the government and the Federal Reserve Bank.

Gold is a commodity and like any other commodity it fluctuates in price. When gold is money then changes in the price of gold will ripple through the economy causing inflation or deflation. From the beginning it was necessary for the government to stabilize the price of gold by holding large inventories to sell in a shortage, or buy in a surplus. Managing gold inventories was subject to the erratic success or failure of mining ventures and the erratic whim of hoarders and speculators.

In 1933, the United States left the gold standard, announcing it would no longer convert dollars to gold at a fixed price. Banks were allowed to designate other assets than gold as reserves, which make it easier to manage the money supply. Other countries followed and in 1971 the gold exchange standard for international payments ended by mutual agreement of the international community.

Using gold as money creates many problems that have to be solved, but has no benefits of any kind. It does not impose discipline because money is always a human decision. Humans decide what it is and how much of it there will be. The Republicans know this, but they are willing to pander for the Ron Raul vote. What Ron Paul thinks he is doing I have no idea, but gold as money is dead.

Tuesday, October 9, 2012

The Chicago Teacher’s Strike

Growing opinion from outside of teaching expects teachers to produce a quality product measured by student test scores. The use of test scores in teacher evaluation was a primary contention for teachers in the Chicago teacher strike.

Manufactured products fail as a result of defective materials and workmanship and so the logic follows that students must fail from defective teaching and poor teachers. The solution reformers want will adjust teacher salary to be in proportion to their student’s test scores: a merit pay plan.

Close to 100 percent of career teachers understand that merit pay plans introduce personal competition into teaching which will detract and harm their efforts to collaborate and work together. Second grade teachers realize their students are last year’s first graders and next year’s third graders. Third grade teachers realize their students are last year’s second graders and so on. If they all work together and help each other, and the new teachers, then the skills and test scores of all students might rise as students go from teacher to teacher and grade to grade.

However, some test scores will always be higher than others. Merit pay proposals and plans that reward faculty based on the highest test scores are like sports competition where there is a winner and a loser, but no incentive to work together. Pay plans that help education and improve test scores will need to recognize that teachers do not work in isolation and should not be treated as if they do.

Low entry salaries for teachers help school systems conserve funds while new teachers decide if they will take the time and make the effort to learn teaching and become professionals. Many do not, but those who do find that salary schedules reward experience and evidence of continuing education. Close to a 100 percent of teachers support evaluations based on their education and their easily assessable effort to use and develop class material, and to work and collaborate with other teachers to improve student learning across all grades and classes. Those who stay under this system can expect to earn a middle class salary by the middle of their career and more if they complete a master’s degree.

Chicago Mayor Rahm Emanuel wants to change that and make forty percent of teacher evaluations based on test scores. In a massive school system like Chicago test scores will vary by attendance and drop out rates, parental involvement, family income and some by teacher skill and experience. Teachers know the forty percent of their evaluation based on test scores is high enough to threaten the economic status and professional standing as teachers. It also happens to be bad for education.