Framing Platinum Coin Seigniorage: Part Three, Political Objections
As I pointed out in Part Two of this series, there are three classes of opponents of High Value Platinum Coin Seigniorage (HVPCS, $30 T and above). The first and largest group opposes all Platinum Coin Seigniorage (PCS) of whatever type. The second, opposes HVPCS, but favors using the Trillion Dollar Coin (TDC) for the limited purpose of avoiding the debt ceiling. The third, opposes HVPCS, and doesn't really favor using the TDC either, except, perhaps, as a last resort. It favors an incremental approach to PCS beginning perhaps in the millions or billions in face value, and over a long period of time eventually building up to a TDC.
Part two, this post (Part Three), and the three remaining posts in this series consider the many objections brought forward by people in one or more of these categories, and my replies to them. As you're seeing, if you're following the series, the opponents of HVPCS have already thrown everything but the proverbial kitchen sink at it. In this post, I'll consider some political objections to PCS.
The Executive will never do it because it's too crazy, weird, bizarre, or outré for words and is beneath the dignity of the United States. Also, it's too big to be practical.
Mostly, this kind of characterization is just name-calling and labeling and is really beneath contempt. A big problem exists. That problem is austerity politics and it is blocking the emergence of progressive economic policy during a time when the presence of nearly 31 million dis-employed people, unprecedented inequality, a stagnating economy, and many other serious challenges requiring an activist Federal government to enable solutions. This is what is too crazy, weird, bizarre, or outré for words and is beneath the dignity of the United States. This is what is profoundly impractical; not minting an HVPC of whatever face value to fill the public purse so we can pay off the debt and cover deficit spending for years to come.
HVPCS can provide the fiscal background that will open the way to constructive economic policies. HVPCS is a novel solution in the sense that it has never been used before. But that doesn't make it crazy, weird, bizarre, or outré. It just makes it “new.”
Fearful, or conservative people will frequently characterize new initiatives in uncomplimentary ways; but their real objection is that the new proposal is outside of their comfort zone; and they believe in as little change as possible because they think that change is most often bad and rarely, if ever, a good thing. From their point of view, this is the best of all possible worlds, however evil it may be for the majority of people.
There’s no point to creating a Strategic Petroleum Reserve-like buffer stock of something the govt has the ability to create at will, especially if it's just going to scare the hell out of people
This is an objection offered by those who prefer an incremental approach to PCS, rather than HVPCS with its consequence that enough seigniorage would be generated to pay off the national debt and cover deficit spending for many years to come. They emphasize the importance of making people comfortable with the idea of PCS before we use it to really change the situation of fiscal politics and move it away from austerity.
Making people comfortable and moving toward consensus is a laudable goal. But PCS will immediately be perceived as a threat to powerful vested interests (as I'll explain below). These interests won't allow the Treasury Department to have the power to create electronic credits in the Treasury's spending account for very long. They will vigorously pursue repeal of the 1996 law to constrain Treasury once again to taxing or borrowing in order to fill the public purse. That's why we do need a buffer stock of funds in the Treasury General Account (TGA) whether or not it scares people.
In addition, just what does “scaring people” people mean? Scaring bond traders? Scaring Wall Street? Scaring the big banks? Scaring the media who have gotten in bed with these interests? Scaring the people who have devoted their lives to propagandizing for austerity? Or does it mean scaring “average” Americans?
I don't think it means scaring most people, because I think they will be comforted to know that the Treasury has enough funds to pay off the public debt as it comes due; and to cover deficit spending appropriated by Congress for many years to come. They will also be comforted to know that there's no need to cut major popular safety net or discretionary programs, or to raise taxes on them.
Let's get real! Using HVPCS may scare elites here in the United States and in other nations around the world. But it won't scare the American people once they understand how it will impact their own lives.
It's the same as “printing money”!
“Printing money” is an epithet from gold standard days used to characterize paper money that wasn't convertible to, and thus “backed by” gold. When the US and other nations ended the gold standard in 1971, all money became fiat money, unbacked by convertibility into any commodity. So, today, when people refer to “printing money” they usually mean the Government issuing currency or bank reserves while deficit spending, without also issuing debt instruments of equal face value to withdraw an equal amount of money from the economy. When debt is sold along with new money created in deficit spending, this is often viewed as “debt-backed” money, and is also thought to be less inflationary than deficit spending unaccompanied by new government debt.
The objection to using PCS then, is precisely that it would provide the credits needed to add new money into the economy without issuing debt, and the basis of the objection is that this is more inflationary than adding the same money into the economy after subtracting an equal amount from it by selling debt. In turn, the idea that PCS-based deficit spending and debt pay off would be more inflationary than debt-based spending is based on the Quantity Theory of Money (QTM). The problem is that the QTM is false, and that both logical analysis of the theory and the empirical evidence available to us refute it.
I'll discuss this a little more below under the inflation objection. But the main point here is that there's no reason to believe that PCS-based deficit spending or debt repayment would be more inflationary than deficit spending or debt repayment accompanied by debt issuance. So, there's nothing to the “printing money” objection. The US isn't either Zimbabwe, or Weimar. It doesn't have crippling external debts in currencies it does create; or wholesale destruction or appropriation of its productive capacities to contend with. So, PCS won't lead to our becoming like either of those historical basket cases.
The political blowback will be fierce, and minting the coin will strengthen the extremist faction in the Republican Party and lead to paralysis in the Congress.
Minting a platinum coin with any appreciable face value over $1 Billion Dollars will create a political firestorm. It doesn't matter if the face value is $100 Billion or $100 Trillion, the act of using PCS, including HVPCS, will be met with outrage, propaganda, labeling, name-calling, and predictions about the decline and fall of the United States. The extremist faction of the Republican Party will have a field day and will be fully supported in their outrage by Wall Street, the big banks, and the financial and political MSM.
However, it won't lead to political paralysis in Congress, provided HVPCS is used rather than “moderate” PCS options. If $60 T gets credited to the TGA, and the President pays down $6.5 T in intragovernmental debt, during the first week after minting the coin, then the Congress will be faced with a game-changing fiscal backdrop to deal with. The President can advocate for action on a variety of measures that will meet national problems with no questions about the fiscal capacity to accomplish these things. If the Republicans simply refuse to pass them, or to work through compromises without having the excuse that we must balance the budget, reduce the deficit, or repay debt because we are running out of money; then they will suffer severe losses in 2014, and the President will get what he wants in 2015.
It really is as simple as that. Without being able to “poor mouth” the country, the Republicans will have no rationalization for their obstructive fiscal politics, and the President will have no excuse for cutting programs people need and want. If the extremist Republicans continue on with their normal economic nonsense, then they will be dead men/women walking as we approach the next election. The 80 CEOs and their “fix the debt” stuff, as well as Peter G. Peterson will also be gone, as political factors. And both parties will have to get about the business of solving our nation's problems, or suffer the consequences in 2014.
The platinum coin will only delay a reckoning we need to have
The “reckoning” here is over the Republicans' “reckless threat to force the United States into default.” Using either the TDC or HVPCS, lets the Republicans off the hook on this issue and makes the new hot issue the President's irresponsible action in minting a platinum coin. I think whether this happens or not depends on the face value of the platinum coins involved. If the platinum coin is a $60 T or some other HVPCS alternative, then I think the political system will quickly begin frying bigger fish than either of those issues.
The issue of whether to let Republicans off the hook is small potatoes compared to the issue of whether HVPCS should be used in place of debt issuance to pay off old debt and perform deficit spending without issuing any new debt instruments. Both this issue and the issue of whether we should end austerity politics when there's no longer any need to worry about solvency or debt when deficit spending, are far bigger issues than whether the Republicans were :reckless” or the President “irresponsible.” In addition, the issue of the President's “irresponsibility” will be gone in a week once he pays off that first $6.5 T in debt subject to the limit.
We can't mint a platinum coin because this would violate a social norm!
Social and cultural norms are properties of social systems, and there are many levels of social systems ranging from families and small friendship groupings to international social systems. You can certainly say that there's a norm against using HVPCS as a plausible solution to the national debt, and claim that this is not how our society pays its bills. And, it's certainly true that we haven't done it in the past; and 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 HVPCS. There's no evidence at all 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.
In part four, I'll discuss more political as well as some economic objections.
(Author's Note: h/t to Jack Foster for proposing a framing document for HVPCS. This is it; but divided into 6 parts for blogging convenience. The rest of the series will continue with objections made to HVPCS and my answers to them.)
(Cross-posted from New Economic Perspectives.)