Good Luck Stopping Austerity With Incremental Platinum Coin Seigniorage!
Some have responded to the recent boomlet for using Platinum Coin Seigniorage (PCS) as a solution to the debt ceiling problem, by reacting to the ridicule visited upon PCS advocates by know-nothings like Heidi Moore of the Guardian and Matt O'Brien of the Atlantic, by proposing “smaller ball” PCS than the clearly inadequate Trillion Dollar Coin (TDC) itself. This post will focus on J. D. Alt's interesting post which makes five points about the TDC debate as it was addressed on a recent Chris Hayes show.
-- 1. Stephanie Kelton's reframing of a question about financial constraints to point out that the real issue is resource and productive capability constraints and not purely financial constraints, is a point that is essential to keep in the forefront our discussions and also that this is “. . . the central truth of MMT.
-- 2. It's not laws but social norms that:
. . . that form the living tissue, muscle and sinew that cling to the bones. Social norms change, but they change slowly, over time—they do NOT, by their nature, change “all at once.”
Clearly, it is a social norm that will not allow the Trillion Dollar Coin to be considered as a plausible solution to the national debt—and which necessitated so much giggling on the show. Legal or not, economy-saving or not, minting trillion dollar coins is NOT how our society pays its bills. Any shift in this social norm has to be very incremental.
-- 3. Producing too much money and spending it into the economy, as Joe Wiesenthal pointed out on the show can cause inflation if the amount of spending injected exceeds the resources of the economy to absorb it. On the other hand, if it doesn't exceed those resources then “the result will not be inflation but rather a growing of the economy and an expansion of national assets; in that case, in could be argued, to withhold the spending is indefensible.”
-- 4. “Paying your debts and living within your means”:
. . . is a very powerful message to the religious psyche that permeates our cultural norms. It can only be countered by explaining WHY, in fact, the sovereign government is in debt (see item no. 5 below) and making clear, over and over, Dr. Kelton’s point that the “means” we have to live within are not FINANCIAL means but, rather, RESOURCE means.
-- 5. A point not directly addressed in Hayes's show is that the constantly and casually reiterated idea that the Federal Government can only raise money for spending by either taxing or borrowing is false; and that it can also create money though issuing currency. He also points out that it has to be made clear to people that the reason for the existence of the debt is this false assumption. And then he ends with:
“Issuing” currency (rather than borrowing in the bond market) to pay for sovereign spending over and above what is collected in taxes might be one of those things that could be done incrementally. Instead of threatening the institutional and social norms of the bond market with total annihilation, MMT could propose that sovereign spending be “monetized” only on a limited basis, to accomplish certain specific and special goals that would strengthen and benefit the nation as a whole. Over time, as people saw the benefits of monetized sovereign spending—and became assured it did not, if properly managed, lead to inflation—the social norm would likely shift. If that happened, the next time Chris Hayes had a panel discussion about the national debt, there wouldn’t have to be so much giggling.
I agree with the first of these five points. But I have either questions or qualifications to raise about the rest.
On Social Norms, and their impact on MMT Policy Advocacy
First, I don't flatly disagree with the notion that social norms change slowly over time, but do not change all at once. I just wonder about the application of this generalization to reality. For example, if something were called “a social norm” and that something did, apparently, break down rather quickly, to be replaced by another something we called a social norm, would we then change our mind about the first thing we called a norm, or would we conclude that it was not, after all, a “real” social norm. In other words, what evidence would J. D. Alt accept as sfficient for him to falsify the generalization that social norms change only slowly? There has to be some or we're looking at tautology here, not empirical social science.
Second, in looking at a specific social norm that doesn't “change all at once” how would we mark the beginning of the process of change of that social norm over time? In a recent article, Ellen Brown points out that the idea of using coin seigniorage to pay off the national debt was first suggested in the early 1980s by a chairman of the Coinage Subcommittee of the U.S. House of Representatives. Does this count as the beginning of a process to change the social norm that Federal spending must be based on either taxing or borrowing?
How about the beginning of the MMT synthesis in 1996, and the thinking associated with it that the Governments with fiat currencies can spend freely by printing money? Is that the beginning? What about the acceleration of MMT work in the late 1990s and early 2000s? Is that the beginning of the change in social norms involved here? How about the publication of Ellen Brown's book in 2007; which mentioned the possibility of coin seigniorage being used to disintegrate “the Web of Debt”? Is that the beginning?
I could go on with this; but you see the point. Unless we can agree on the starting point of the process of change for a social norm, J. D. Alt's generalization is pretty meaningless for any coherent application.
He wants us to think that High Value Platinum Coin Seigniorage (HVPCS) won't happen anytime soon because it violates a social norm, and these change only very slowly; but if we don't have the starting date of such a change, we can't very well evaluate whether we're looking at an overnight change about to happen; or whether a change that happens tomorrow, or next week, or next month, has actually been 42 years in the making; say since Nixon took the US entirely off the gold standard; or even since FDR took the domestic economy off the gold standard 80 years ago.
Third, I have some background in Complex Adaptive Systems Theory (See Ch. 2), plus many years of research in Conflict studies, Civil Strife, mass movements, and the social sciences more generally. I know that when complex systems are having difficulties maintaining themselves at “the edge of chaos,” they can easily fall into the death spirals of either rigid mechanical order, or seemingly chaotic dynamics, before they reorganize into a new pattern that successfully maintains their identity as a complex system. During the process of reorganization new global properties of the reorganized complex system emerge in very short time frames. These new global properties can easily involve social and cultural norms that were never dominant in the previous state of the complex system subject to system transformation.
Does that mean that the old dominant social norms changed very rapidly or only very slowly? Again, that's going to depend on your perspective. If you look at the rapid breakdown and transformation of the system involved you'd swear that the change was very rapid.
On the other hand, if you do a historical analysis, it's almost never hard to show that the change you're analyzing has deep historical roots and was a long time coming. Do I really have to cite historical examples on this point? What about the norm that the major European powers wouldn't fight major wars against one another. That one lasted for 1815 – 1914, almost 100 years; and then was gone with the wind. How about the social norm, that Russia would always be ruled by a Czar? That one lasted for hundreds of years, until 1917, even if we date it from the first Romanov? How about the gold standard? How about slavery in the US? How about no taxes on income? How about the norm of not having a Central Bank in the United States?
Fourth, it's important to keep in mind that social and cultural norms are properties of social systems, and that there are many levels of social systems ranging from families and small friendship groupings to international social systems. J. D. Alt says that there's a norm against using the TDC as a plausible solution to the national debt, and he flat out claims that this is not how our society pays its bills.
Well, it's certainly true that we haven't done it in the past; and it's certainly true that people working for, or identifying with, the FIRE sector are opposed to using PCS as a solution to the debt problem and take refuge in ridiculing us and trying to activate a social norm and frame that they think is dominant. But these things don't show that there really is a social norm preventing this in the United States when viewed as a large-scale political/economic system. Or that President Obama has to move incrementally to change “the social norm” because he would have a problem with implementing High Value PCS with a bold lightening strike minting a $60 T coin, since the country as a whole would rise up in opposition to such a move due to the strength of the social norm that we shouldn't use PCS.
There's no evidence to suggest that this would be the case, and every reason to believe that most people don't care how the national debt is paid off; so long as it's paid off, and is not there to burden themselves, and “their grandchildren.” After all, most people are completely unaware of how deficit spending and debt instruments work, and completely unaware that "debt is not debt” as we MMTers like to say. What they do know is that the United States has more than $16.4 T in debt instruments out there. That scares them, because they've been made to believe that it's their debt, and I think they really don't care if this “debt” is paid off by taxing more than we spend, or through using platinum coins to get the Federal Reserve to create money out of thin air for Treasury to use in a way that has no obvious short-term effects on them.
Joe Wiesenthal and Inflation
Joe Wiesenthal's formulation on inflation during the Chris Hayes panel discussion was a good one. But in Joe's writing he's taken pains to point out that while the inflation issue doesn't affect the Trillion Dollar Coin (TDC); Higher Value PCS applications are likely to create inflation and perhaps even hyperinflation. Joe Wiesenthal has no basis for saying this that is apparent in his writings. But, it is a position opposed to HVPCS, and biases him towards what I've called “small ball” PCS applications, rather than game-changing ones.
Paying Your Debts and Living Within Your Means
I agree that this meme is powerful and representative of our cultural norms, and also that it needs to countered with explanations of why the public debt exists, and also that the issue of “means” is not financial, but involves our resources and our productive capacity. But I don't agree that telling or teaching people this is the “only” way to counter the norm as applied to financial means.
Telling and teaching is important for both the short and long terms; but even more important is action that will remove the public debt, while not tanking the economy or causing inflation. This is what a $60 T PCS solution will do, that small ball PCS activity will not.
In fact, if the President used a $60 T solution to pay off large chunks of the national debt, people would quickly get the point that the debt existed only because Congress and the Executive blocked using coin seigniorage on the debt and the deficit and insisted that only taxing and borrowing could be used for spending. Using the coin would illustrate that there was never any issue of financial means. When that debt began to get paid off quickly it would be “a teachable moment;” one in which we could get the message across that the real constraints are in resources and capacity, and that we need to quit worrying about the financial end and start building a prosperous sustainable economy characterized by economic and social democracy.
Currency Issuing Incrementalism
J. D. Alt's last point is that “issuing” currency to pay for deficit spending might be introduced incrementally, “instead of threatening the bond market with total annihilation.” He thinks that if we propose to use seigniorage to do deficit spending on specific policies that would be clearly of benefit to the nation, and these policies were legislated than as people saw the benefits, and also saw that there was no inflation accompanying the currency issuance, then the social norm against using seigniorage or just issuing currency without debt would change, and then there wouldn't be “so much giggling” about us PCS advocates, by panelists on TV shows representing the FIRE Sector.
The first problem with this is that people like me who favor HVPCS, don't favor “threatening the bond market . . . “, but rather, destroying its foundation, new debt issuance, nearly over night. I don't intend this flippantly. I don't think the President should threaten HVPCS. I think he should just do it; and let the chips fall where they may.
The second problem with this and similar proposals, is that neoliberal deficit hawks will be unalterably opposed to PCS, no matter the context in which it is used. They will work as hard as they can to prevent the PCS camel from getting its nose into the public financing tent.
They will do everything possible to repeal the PCS legislation. And they will try to impeach any President who uses PCS for any significant purpose at all, because they know very well that if either small ball or game-changing PCS works, then their austerity politics game, so important for the developing plutocracy, is up.
J. D. Alt assumes that “small-ball” or incremental PCS will be less threatening to the FIRE sector than game-changiing PCS, and so, will elicit less vigorous opposition. It is the same kind of assumption that led progressives to turn away from supporting Medicare for All, and to push for the “public option” sparkle pony, prior to caving in to the ACA, because "it's better than notihing," and the same kind of assumption that led the Clintons to propose managed care rather than Medicare for All in the 1990s, which got them a great, big fat loss to the opposition.
These kinds of “pre-compromises" do not work, because they elicit just as vigorous opposition as a “full-monty” option, would, but don't offer the same level of benefits to people. That is, people often don't love the compromise legislation, so you can't get them to support it, or to support you in the next election. That's certainly what happened with the ACA, which was a big factor in costing the Democrats the election of 2010.
In the case of PCS, incrementalism will lead to a series of exhausting political conflicts in which progressive victories will be pyrrhic, because they will drain political capital, but won't solve the problem that people are concerned about, and that the deficit/debt hawk/austerians use for leverage to make austerity politics seem reasonable. That problem is not getting PCS or currency issuance accepted. But acceptance WILL occur as a by-product of solving the problem that most people care about.
That problem is a national debt that seems self-evidently outrageous in size to most people and opposed to common sense. We can't solve that problem in a visible way that people will instantly understand with 'small-ball“ PCS. We can only solve it with game-changing PCS, that eliminates the national debt, covers projected deficits for a long time to come, and so transforms the basis of progressive politics addressed toward the economy.
The idea that we need to move slowly with policies that will significantly change politics and economics, because social norms are arrayed against such policy changes is perhaps the central idea of Conservative Ideology (notice I'm using the capital “c” and not the small “c” here). Edmund Burke might have made the same argument against PCS as J. D. Alt put forward in his post.
It is an argument that is vague in nature, lacks criteria for application, and is opposed to the rational progressive temperament that is in the tradition of long-time MMT authors like Bill Mitchell, Randy Wray, Warren Mosler, Mat Forstater, Stephanie Kelton, Scott Fullwiler, and Pavlina Tcherneva. And it's also opposed to the temperament of newer MMT writers like Marshall Auerback, Mike Norman, Bill Black and Michael Hudson.
The position of MMT is that the preferred situation for a nation sovereign in its own fiat currency is that its Treasury Department simply create currency in the act of deficit spending without issuing accompanying debt. Let's be clear here.
A $60 T or $100 T platinum coin would, if minted and deposited, achieve this MMT preference for some time to come. Not forever, but it would be the proper pilot experiment for legislating that MMT preferred change, because it would give people years to assess how that kind of system would work. So why aren't all MMT writers supporting this change? It isn't quite pure MMT; but it's damned close, and much closer than incremental PCS would be.
The counsel of pursuing incrementalism makes no sense here. There are some problems that incrementalism just won't fix. Getting rid of the national debt, and the discomfort of people with it, can't be done incrementally, because the opposition to incremental initiatives would be too fierce, and the benefits from those initiatives too little, to justify the political conflicts that would ensue. Also, there's the question of opportunity.
Right now, the President has the opportunity to make High Value $60 T PCS a fait accompli, and to eliminate fiscal austerity politics forever. How long that opportunity will exist I don't know. But it is much more risky to give the opposition a chance to mobilize against PCS, than it is to just mint that $60 T coin, get the electronic credits into the public purse (the TGA), and the begin to pay off huge chunks of the national debt quickly.
That is what will get “issuing currency” accepted. But incremental “small ball” PCS that will be fought with propaganda, money, law suits, mass media opposition, and constant ridicule, before it has had a chance to be effective, won't work, and we shouldn't advocate it.
(Cross-posted from New Economic Perspectives.)