I really shouldn’t post about this casually, without going back and providing citations and kind of reconstructing the whole debate over the trillion dollar coin and how it unfolded and what kinds of arguments people were making. But, I’m lazy and I want to say something.
I thought the whole argument in favor of the coin was dumb politically, highly dubious legally, and counterproductive strategically. But there was something visceral about it that bothered me, too.
Even if we stipulate that the worth of money is arbitrary and that we can (and do) print money without it being connected in any way to an actual increase in wealth or value, the argument that we could just create a few trillion dollars out of thin air was highly corrosive. I saw a lot of arguments that the whole debate offered an opportunity to teach people that we didn’t have to make any budget cuts now or ever. We could just print enough money that we’d be able to cover our debts and not have to make any sacrifices whatsoever.
The problem with that, even if it is true, is that it immediately opens up the question why I (or you) should pay taxes for anything ever. We set this whole debate up as a matter of the rich not paying their fair share, but why should they pay more? Why not just mint trillion dollar coins? Even if there is some illusion involved in monetary policy, don’t we have to maintain that illusion if we’re going to have any argument for any kind of shared responsibility at all?
I understand that the debate took place in a wider context and that it was mainly a response to a manufactured crisis over the debt ceiling. As an alternative to default, the trillion dollar coin makes some sense.
But I still sensed in my bones that this argument that we could just print our way out of any budget imbalance was one of the strongest ways to undermine any sense of shared ownership of our society. And, also, too, it was the best (and only) way to make Rand Paul our next president.
Fair enough. I was agnostic about its legality and thought that Obama would never use it. But I thought that legal scholars and economists should weigh in regarding its legality and I liked its being discussed for these reasons: it challenged Obama to go on the offense against the Republicans; it filled up the discussion space and crowded out considerations of austerity; it expressed that a large portion of the left was done with deja vu — that a line had been crossed. IOW, whether it was right or wrong, feasible or ridiculous, it was a healthy discussion.
The only person who came off looking bad in this was Jon Stewart. But he has mojo to spare.
The cost of just printing money is inflation, though it need not be ruinous inflation, if the printing is kept within bounds and/or other means are used to suppress inflation. You will never see the likes of Paul advocating inflation because it amounts to an indirect tax on money, payable by all who have money or assets of stable nominal value, and benefiting debtors, which is mostly the middle class. The visceral repugnance at the idea of printing money is something that has been carefully inculcated by the right wing, and is to be dramatically resisted on its own terms. While a strict Phillips curve may not always hold, there is a general tradeoff between inflation and unemployment, and the wealthy will always want us to have the unemployment.
Not just the wealthy. Retirees too. People spend a lifetime saving and then inflation may wipe it out unless hedged carefully to protect the investments. Inflation undermines people’s faith in society as a whole. When someone saves all their life and, at the end of the day, their entire life savings is enough to buy an egg — as occurred in Germany in the late 1920s — it opens the door to almost anything.
I’m not wealthy, but I think it very important to keep inflation under control. I lived through the 1970s and saw its impact on the middle class. When assets inflate in value, anyone who is careful and responsible with money becomes a fool and those who are careless and irresponsible become the wise ones.
And on the other hand, there are millions of workers who saved all their lives and counted on living off the interest generated. Y their savings for a little bit comfort, pleasure, and dental care in their old age. Interest rates of .5% makes them eat up their principal (literally). And those whose major asset is their home or who have needed to sell and downsize have had a hard time of it. Many people have wrongly conflated the rich with modestly comfortable seniors when it comes to interest rates, inflation, and even capital gains.
Inflation is the cost of having the money supply be too large for the current dollar value of the goods and services being produced.
Deflation is the cost of having the money supply be too small for the current dollar value of the goods and services being produced.
Both are pernicious in large doses, deflation hurting more people than inflation does.
What Bento said. This is why libertarians truly hate fiat currency. They know that printing money essentially affects no one but those with liquid assets (ie, the rich).
I can’t think of anything you said I would disagree with.
My only possible critique is that the notion could have been used as a negotiating point with whoever is left in the GOP who might have a ingot of common sense.
Basically say,”Look assholes. You at not the only one who can bring the crazy. If you can’t control your brain dead fuckwads and join with us to actually do some governing we will make this coin. It’s a stupid idea but it will technically work, you can’t stop us, and we have no other ideas how to actually run the government and manage the economy. So, unless you have another idea you want to propose, what’s it going to be? We are done dicking around.”
That may be what they’ve used it for. They may have decided it would have done no good marginalizing the crazies because there are too few left and with too little power among the GOP member who still are thinking. I will bet on that second reason.
It’s not taxes that would be shown to be unnecessary, it’s debt and the nonsensical narrative of “balancing” government budgets, as if families or businesses were appropriate metaphors for government.
This isn’t that difficult. The value of money is based, at root, on the fact that you can use it to pay taxes, nothing else. So as long as the US Federal government charges taxes of some kind and the country remains big and powerful, the US dollar will have value as a medium of exchange and a predictable store of value. The power of the US Federal government to compel people to pay taxes is more predictable than gold. That is exactly how money is used now.
Why charge taxes at all? To retire cash from circulation, exactly as the Fed uses interest rates now, explicitly, and as governments already use taxes now, implicitly. If too much money has been printed relative to the productive capacity of the economy, inflation may occur, so you raise taxes to retire more cash from circulation and thus keep inflation under control. You could alternatively raise interest rates to do the same thing, which is what the Fed does through sales of government debt to investors under the present, debt-based system of monetary control.
The real benefit of the coin was not that Treasury instead of Congress (through its artifact, the Fed) would control monetary policy — it wouldn’t since the Constitution provides ample means for Congress to retain control Treasury actions. It is that the contrivance of public debt could have been shown to be completely unnecessary. Public debt serves no purpose other than accumulate interest in the hands of the wealthiest people, through no value-added effort at all on their part since the Federal government does it all for them through the Fed. Debt is completely unnecessary even if taxes are.
It was a perfect opportunity to demonstrate this in a public and useful way while siding the Obama administration firmly against the austerity narrative which kept Japan in a recession for over a decade, pulled the EU back into recession last year, and threatens to derail US recovery now. Instead, Obama has bought into the austerity narrative that keeps so many people in poverty by indirectly supporting the persistent transfer wealth from the poor to the rich in the form of interest payments as if that were a fiscally responsible thing.
What would be the effect on the economy and future US monetary and fiscal policies by proving that debt and balanced budgets are unnecessary? Nothing. Or at least nothing more grave than the last time a US President bucked similarly counterproductive conventional wisdom to get out of self-contrived fiscal and monetary mess: when Nixon declared the US dollar had no convertibility to gold, forcing the rest of the world to follow suit.
Absolutely right! It’s not often we agree so completely! What the Coin discussion illustrated, above all else, is that many progressives are as economically illiterate as the right, and simply don’t understand the nature of money, taxes, debt, interest rates etc. in regulating economic activity, employment and inflation.
It’s simply unconscionable that Boo could say:
Booman Tribune ~ A Progressive Community
When the role of taxes as THE mechanism to control inflation is so central to Modern Monetary Theory (MMT). What chance have we got when even progressives are so completely misinformed.
I thought his arguments on the legality were dodgy at best; his economic arguments completely wrong; But came to agree that tactically he (and Obama) were probably correct in not going down the coin route as it would have the effect of letting Republicans (but not the economy) off the debt ceiling hook. it all depends on whether your key objective is to wrong-foot Republicans or to safeguard the economy, although, arguably the first objective may become a prerequisite for the second.
However what happens if the Republicans really do refuse to raise the debt ceiling and DO thrash the economy? Ultimately, regardless of who is at fault, the public will expect the President to be the adult in the room and fix the economy as best he can. In that context, and as a last resort, the Coin option is still one of the best options around, and so it might not have been clever to rule it out so categorically. The best strategy might have been for the White House to have said nothing, on the record, about the Coin option at all, even if they thrashed it in private to f*ck with Republican minds.
But your key point – that the public debt is an artifice – which subsidies the rich by giving them huge unearned income in the form of interest remains. The whole purpose of public expenditure is to spend Government created money into circulation – most of which is then clawed back in the form of taxation to reduce inflation. (The exact opposite of the right wing framing that the Government spends taxpayer’s money).
Until progressives realize this, they are operating within the same paradigm as the “Fix the Debt” frauds who use the debt issue to try and beat down public services and transfers. The truth is, the larger the Government debt, the great the private credit/surplus on which the rich can earn interest without having to work for it. This is not some left wing doctrine, but actually an accounting identity, axiomatically true in all “schools” of economics, and yet some progressives don’t seem to understand it.
Obama appears to be winning his bridge-burning high stakes gamble, and so more power to him- continuing to drive a wedge into the House Republican caucus is the only way for the country to be governable for (at least) the next 2 years. But it was not at all out of place to worry about the stakes- basically, your ass, mine, and a lot of other people’s- and so to think about ways to avoid catastrophe if the Republicans didn’t fold. And I heartily second the comments about the disaster of what passes for the left (and not just in the US by any means) buying into false right-wing economic ideas.
I think you and Santiago misconstrued my point as economic one rather than a perceptual one.
If I’m toiling away in my body shop fixing carburetors and struggling to pay my mortgages, feeling very much pressed by the requirements of the IRS who say I must pay x amount to them every year, I have a hard time understanding the value of my money to the government when they can, in a pinch, just create all the money they could possibly even need from scratch.
If you tell me that my money is creating inflation and that the government needs it not to pave roads or fund education or protect us from bad guys, but only to keep the price of consumer goods low, I am going to want to rip off you head.
That’s what I was getting at with my reference to maintaining the illusion. You are arguing about the downside of the illusion. I am arguing about the necessity of the illusion. It’s part of the contract that binds people together.
It’s why the Fed belongs as a separate independent entity. What Congress does should be commonsensical. Let the Fed play around with the money supply and control inflation.
That’s the whole point though. The illusion you speak of is a rightist meme well-known to progressives and mainstream economists alike that serves to keep Joe the Body Shop Mechanic wanting to rip the head off President Obama for raising taxes on millionaires instead of ripping the heads off of bankers for making billions in passive income from the interest rates paid by Joe. The meme was long ago shown to be patently false during the last Great Depression by the infamous John Maynard Keynes and eventually even FDR himself, but it has been resurrected in the decades sense by “practical men,” or as Krugman calls them, Very Serious People. The whole point of the coin was to end this insidious and false illusion which provides such a strong, right-wing slant to any discourse of fiscal policy. It was a monumental opportunity to shift the discourse in favor of working people.
Working people SHOULD want to rip off someone’s head if they are the ones who are paying the taxes instead of the rich who benefit the most from low inflation. And that’s a good thing, not a problem. As progressives, we WANT that reaction from body shop mechanics. They should demand that costs of keeping inflation low be borne by those who benefit most from low inflation — rich people with lots of liquid cash on hand. And if the rich can’t be compelled to agree, then we accept the higher inflation and significantly lower unemployment that results, all good things for working people and all things that could have been easily demonstrated with a coin or two and a couple of months of no economic fallout, but lots of new discourse about how the world really works to bring working people up to speed on the new reality available to them.
Nixon (who’s capacity for coming up with outside-of-the-box solutions ended up finally being his undoing, of course) managed to be able to demonstrate what all economists knew, but what no one else seemed to want to accept, particularly in his base — that the value of money has no connection at all to real, physical resources. And he did it by simply declaring it so as a policy of the US Treasury, something that common sense dictated was absurd at the time and that most of his conservative base thought would bring the end of the world in some way.
It would have been nice if Pres. Obama, who is nothing if not conventional in almost every policy aspect, had conjured up the imagination and insight to crush another persistent, right-wing narrative that harms the poor with this window of opportunity, but perhaps that was expecting too much. I mean, to the body shop mechanic you refer to, would the fact that taxes aren’t really required for government to order work for people to do really have been more crazy-sounding than two gay guys getting married? The kind of paradigm-changing, risk-taking leadership Obama showed on the marriage issue is what I had hoped he could have shown in this brief but rare opportunity regarding economic policy.
I think you are underestimating the role the illusion plays in making it so the lack of Gold Standard doesn’t result in some catastrophe. And, frankly, it isn’t all illusion. There are actual mechanisms in place that make the system work. Without t-bills to create a kind of ballast, the system would not work.
We couldn’t have a non-catastrophically inflationary economy if we gave up collecting taxes and just printed however much money we wanted the government to spend. And that was the principle that the coin violated and why I felt on a visceral level that it was corrosive to the social contract on the perceptual level.
You’re right we can’t simply print without any restriction. The simple way to look at it is that the economy needs a certain amount of money. Too little produces unemployment, too much produces inflation. We’ve long heard claims that, if driven by short-term political goals, the government will tend to print too much, and this has happened at times, although in the current developed world it seems the politics doesn’t produce this. (IMO the inflations of the 70’s were a result of polities not yet understanding the management of true fiat money, which was a relatively new-fangled thing at the time.)
What’s been ignored in the push to control money by independent central bankers is that they also have a bias, to too little money, since unemployment doesn’t affect them, but, as wealthy people, inflation does. We’ve had 4 years now of grossly inadequate money, impairing all developed countries significantly, and driving several European ones to deep depressions. That bias is hurting us, badly, IMO much more than the inflationary biases of the 70’s did.
I like the platinum coin discussion because it teaches people that the nation has made a choice to let bankers control the money supply, that we don’t have to do it that way, and that the particular choice we’ve made carries a high cost in terms of chronic unemployment, and a risk of disaster with the current political situation and the debt limit. If currency were controlled by the Treasury, limited by the constraints of Congressional spending, there would be no risk whatsoever of the debt ceiling causing a major economic calamity.
Fair point, but if you are talking strategically rather than tactically, it IS important that the bogus “Fix the debt” narrative is challenged, and that, ultimately, Governments don’t pay interest to rich people/banks on their own money. That “interest” or “seignorage” payment is perhaps the single most regressive (poor to rich) transfer (subsidy to banks and their shareholders) in the entire economy, and yet it is (ideologically) hidden from view.
I fully appreciate that when Obama is up to his neck in crocodiles, he will worry about draining the swamp later. But that doesn’t mean that the progressive movement shouldn’t be shouting about it from the rooftops, or that Obama, if he truly wants to be a transformational President, shouldn’t keep his powder dry on the issue.
Bravo!!!
Proably too deep for leftiness world, but we do keep trying.
I posted an…extension…of what you were saying. The hand underneath the sock puppet, so to speak.
Here.
Nuts, Bolts and Virtual Trillion Dollar Coins. Whadda Buncha Maroons!!!
It started out as a comment on your posts, but it jes’ grew.
Like Topsy.
Thanks…
AG
This is an extremely powerful argument to me. Trillions get created and loaned all the time, but only through the mediation of a parasitic skimmer class in the banks.
That said, you have to step back and understand that Obama works carefully and pragmatically. Despite what his racist opponents say, he is not a grand ideological experimenter. So for that reason alone it wasn’t going to happen. And there are good political arguments about why the coin would have simply muddled an issue that it benefits Obama to keep crystal clear.
Bravo!!!
Proably too deep for leftiness world, but we do keep trying.
I posted an…extension…of what you were saying. The hand underneath the sock puppet, so to speak.
Here.
Nuts, Bolts and Virtual Trillion Dollar Coins. Whadda Buncha Maroons!!!
It started out as a comment on your posts, but it jes’ grew.
Like Topsy.
Thanks…
AG
Not quite true. MMT folks often claim that debt is equivalent to (or worse than) currency for inflationary purposes. However, this claim is based purely on models, which use rational expectations, and also treat all “money” (meaning easily exchangeable assets) as equivalent. Both these assumptions are outrageously wrong. People aren’t remotely close to “rational expectations” behavior, partly because we have inconsistent desires and partly because it requires godlike omniscience.
In addition, different monies have different effects on the economy. For example, if the Fed pulled back all currency and replaced it with T-bills, it would have a huge deflationary effect, because you can’t use T-bills for any consumer transaction. No currency, no food purchases, no gas purchases, etc. If we actually stuck to using dollars, the economy would completely stop (in practice, of course, people would switch to foreign currency or refuse to buy any more T-bills because they needed the actual currency.)
The empirical data is extremely clear-cut; open market operations (swapping cash for government debt) do affect the economy, and substantially, when we’re out of a liquidity trap. Empirical data beats theoretical models, and especially bad theoretical models, every time.
Now, right now, currency and debt are close to equivalent, and we could print trillions before that changed. If our economy could absorb reserves and currency like Japan does (they have issued more reserves than their GDP), we could actually pay off our current debt without any problems. But that doesn’t mean any amount of currency is equivalent to debt. Once we’re out of the liquidity trap, currency will be more inflationary than government debt, and covering some spending with debt becomes desirable.
(I agree with all your other points.)
Booman Tribune ~ What Bugged Me About the Coin
This is the point constantly made by Krugman, who is mainstream Keynesian rather than MMT. I’m not aware of anyone arguing that “printing money is NEVER inflationary” and certainly Krugman’s, (and my) comments have been limited to what needs to be done NOW whilst the US economy remains stuck in a liquidity trap and to prevent the US lapsing back into recession if the debt ceiling isn’t raised,
When the economy starts growing above trend – c. 3% – you have 4 choices to achieve and maintain a desired level of inflation:
One of the ways to reduce the money supply is to increase the level of Government debt. (The reverse is required when the economy is in a liquidity trap – i.e. you need to monetize at least part of the debt e.g. by a Trillion $ Coin). but this runs counter to the ideology and interests of a Fed run by private banks.
Exactly. Quite a while back I encountered the Kansas City School and their perspective that government should spend what is necessary to create a full employment economy and that taxes were for taking excess liquidity out of the system to prevent inflation. So sometimes budgets will be in deficit and sometimes in over-balance. This viewpoint shows that balancing is not a goal in itself and whether inflation should be controlled by spending cuts or tax increases or doing nothing all depends on the state of employment.
I don’t have the exact link, but it’s somewhere on this web site: http://neweconomicperspectives.org/
As a corollary, whether the government prints bonds or cash only depends on whether the funds are borrowed from another (semi-)closed economy or from internal sources (fiat). It should be obvious that external borrowing is only needed to buy things (raw material, finished goods) from foreign sources.
And?
So?
Would that be a bad thing, Booman?
Do you still believe that you…or anyone else who is not a fairly high functionary in the corporate-owned Permanent Government of the United States of North America…actually share any effective “ownership” of this society whatsoever?
If you do, I have a president to sell you. And any number of wars as well.
Oh.
Wait a minute.
You bought those things already.
Nevermind.
Yore friend…
Emily Litella
Wasn’ it Dark Side Cheney who maintained debts don’t matter? The platinum coin proposal reminded me of this and reeked a bit of the same. Of course everyone (that is, a lot of progs and lefts) pounced on him, ridiculing him for such stupidity. And now? It’s much better to force the repugnants into a corner and let the squeal until they expire. But none of the serious people (which includes Mr. Obama) has any apetite for an epic confrontation. One day the repugnants have to get their due—the sooner, the better for everyone’s sake. It’s not going to happen now. What will all this do to SS and Medicaid/-care.?
Wasn’ it Dark Side Cheney who maintained debts don’t matter? The platinum coin proposal reminded me of this and reeked a bit of the same
Hell, yeah. That’s what I wanted. When I left the voting booth in ’08 I said to myself “Now that’s done. We have our Bush. Break out the executive orders! Signing statements, full speed ahead. Screw norms and customs — it’s time to bust some shit up.”
Which is why I voted for the University of Chicago law professor. Because that’s how they roll.
Bravo!!!
Proably too deep for leftiness world, but we do keep trying.
I posted an…extension…of what you were saying. The hand underneath the sock puppet, so to speak.
Here.
Nuts, Bolts and Virtual Trillion Dollar Coins. Whadda Buncha Maroons!!!
It started out as a comment on your posts, but it jes’ grew.
Like Topsy.
Thanks…
AG
Booman, there was an excellent discussion of just the points you raise on Up with Chris Hayes last weekend. If you haven’t already seen it, you could catch the segment on video. Just excellent.
You get that the economy is a closed system and what goes around comes around. I see that. But you are not granting that those folks who were advocating for the coin do too.
But starting with the not having to make any sacrifices whatsoever part. The cuts that are being demanded by the GOP right now are sacrifices, serious hurtful sacrifices. If you want to make the teach them to sacrifice argument, talk to Pete Peterson and Wall Street.
What goes around comes around. Those who advocate for using seignorage instead of debt to finance the government argue that you use taxes to bring that money back in from the system and that taxes become the policy mechanism for the gross management of the money supply, reserve banking the means to fine-tune management of the money supply. That is an economic argument, basically a Keynesian economic argument. The proponents are are arguing from an economic analysis.
To my mind, the governmental issue is the prudence of Congress. Congress uses the “we can’t afford it” argument for denying necessary infrastructure but hand out billions to their cronies. Financing the government through debt instead of seignorage has not stopped that. The current system certainly didn’t promote the idea of sacrifice during the Bush era.
Advocates of the coin understand that unlimited coining of money and distribution through government spending results in inflation when the economy starts hitting the limits on the factors of production. But if you hit those points, you raise taxes and cool the economy off a little. That’s the general seignorage argument that does not require the issuance of a trillion-dollar coin.
The most expansive trillion-dollar coin argument was the “mint an extremely large denomination coin”. That argument was essentially to reset the debt right now at zero by paying it off; that in itself should not cause inflation. That satisfies are the nervous nellies about the debt. And have this coin as a limited savings account for huge contingencies, like wars. Then work in Congress with more or less balanced budgets. You send out x billion in spending, you tax it back with a highly progressive tax structure (that begins to narrow income inequality). I say more or less because you want enough leeway to do a little Keynesian management of your infrastructure investments.
It gets us out of our debt crisis. It allows for a balanced budget. It avoids borrowing for a huge contingency. It’s a pretty restrained financing system.
But it depends on the good faith and prudence of Congress after the “debt crisis” is fixed.
This is a straw man to what the real argument was:
gotta call b.s. on several levels, not all of which I will even address.
People were not calling for completely retooling the economy. Only a couple of severe outliers said anything like that. Second, we still finance our government with seignorage. That quarter under your couch cushion is not really worth 25 cents. It doesn’t cost any more to make a $100 bill than a $1 bill. It’s not a nominal amount, either. In 2008, we printed 7.7 billion pieces of paper money at a cost of 6 cents a pop.
That’s not even the issue. The issue was whether new money creates an associated debt. Is a new dollar created from nothing or is it exchanged for a T-Bill or shitty mortgage backed security that is worth less than the Fed paid for it? Changing the money supply isn’t the same thing as creating and destructing value. How much money is in circulation is interesting and manipulating that is useful, but it’s not the same thing as just minting a trillion dollar coin. It’s true that we do seignorage all the time, and that a trillion dollars worth of it is just an extreme case, but you’re mixing apples and oranges here.
And then you’re making assertions like we could just mint away $14 trillion of debt without it upsetting any apple carts. What does that do to the bond market? What happens when $14 trillion worth of (mostly) bonds are instantly converted into cash? We turn around and tax people trillions of dollars to even out the money supply?
You are talking crazy, Tarheel.