New MSM Trillion Dollar Coin Wave Misses the Big Story: Bradford and Plumer
In my last three posts, I've critiqued the new wave of mainstream posts and commentary on Platinum Coin Seigniorage (PCS) on my way to making the case that the MSM are missing "the big story" about PCS. These include posts by Pethokoukis, Wiesenthal, Carney, Drum, Yglesias, Yglesias, and an MSNBC cable segment by Chris Hayes. All of these have looked at PCS in terms of the Trillion Dollar Coin (TDC) and its possible impact on the impending debt ceiling shakedown. None have viewed it from a broader point of view. Let's now look at commentaries by Harry Bradford, and Brad Plumer.
Harry Bradford posted on the possibility of minting two $1 T platinum coins. He does the journo thing of citing a bunch of people saying this or that about aspects of the TDC proposal while doing very little evaluation and analysis. More or less, his post is just a "he said, she said" treatment.
Bradford begins by citing Chris Krueger's Guggenheim report, and cites Krueger's opinion that using the coin option might be inflationary, and might trigger a wave of law suits, Of course, I've already indicated above that neither of these things are likely to happen and that Krueger offers no reason for thinking these two effects would come to pass. But Bradford takes Krueger's view at face value.
He then quotes one economist as telling the Washington Post that "A government shutdown is much more straightforward" than using PCS. In reply to which one might ask: more straightforward for who? The journalists who have to write about it and won't have to research PCS beyond the TDC meme, or the millions of people who will suffer economic hardship for at least some period of time because the President decided to engage in that kind of brinksmanship, rather than just mint a platinum coin with a high enough face value to take the debt ceiling off the table as a negotiating tactic supporting the strategy of "shock doctrine" designed to emasculate the social safety net?
Bradford then cites Pethokoukis as saying that using the coin might cause inflation, a point I examined here, indicating that Pethokoukis was following Krueger's opinion and that Krueger's opinion, was just that, a statement supported by no argument at all.
Then Bradford points out that others incuding WaPo's Brad Plumer, don't believe it would cause inflation since the money from the coin would not be directly spent into the economy. And he ends by indicating that in July 2011 Felix Salmon wrote that if the coin were used, then investor confidence in the US might be damaged; but that I debated that view in a post at Naked Capitalism.
Bradford neither tells us why Salmon thought investor confidence might be lost, nor why I disagreed with him. As it happens, Salmon thought that using the platinum coin would cause the US to lose reserve currency status. I argued against that point by questioning why that would happen as long as we were paying our debts with the seigniorage. I also pointed out that it would be very difficult to find a substitute for USD, and went over the difficulties, on a case-by-case basis, involved in shifting the reserve currency to another nation.
Brad Plumer's post "Could two platinum coins solve the debt-ceiling crisis?" touches the various bases already reviewed above, including calling the coin and other options for getting around the Congressional prohibition, "wacky," while quoting the Peterson Institute for International Economics's Joseph Gagnon to the effect that using the the two coins would not be inflationary, because the Government would just be using the proceeds to spend at existing levels. This part is correct, of course.
Then Plumer adds something new to the discussion:
This strategy is hardly risk-free. Opponents could plausibly argue that the original law was intended to set rules around commemorative coins, not to finance the operations of the government. And, of course, the political blowback would be fierce.
Indeed, even Balkin now says that he thinks the platinum-coin option is too risky. If Congress can't or won't lift the debt ceiling, then most likely the Obama administration would have to start shutting down parts of government so that it doesn't default on its debt. That, in theory, would prod Congress to act.
"All those other ideas [like the platinum coin option] are very uncertain, and they could lead to complicated litigation," says Balkin. "A government shutdown is much more straightforward."
Plumer is right that the political blowback would be fierce if the President used the PCS option. That's why I think it's best for the President to use it in a way that introduces definitive changes in the Treasury's authority to spend Congressional appropriations without borrowing, and in the political context of fiscal politics by creating the wherewithal to pay off the current debt. I favor minting a $60 T proof platinum coin to do that, to which the political blowback would be still more fierce. But, if one is going to get fierce political blowback in the first place then one may as well get it for changing something fundamental, rather than for using a band-aid over a short-term problem (the debt ceiling). For reasons I've outlined in this post and this one, I think minting a $60 T coin, would be a political game-changer for progressives and can build enough popular support for the President to survive any political blowback.
But as Plumer says, Jack Balkin now thinks that the platinum coin option is too risky to use, not only for political reasons; but also because he thinks it would spawn complicated litigation. It may spawn litigation challenging the President's action based on the intent of the law. But as I argued above, suing and winning based on the question of Congressional intent is very difficult and tests the expertise of justices who like to stick to the text of legislation, and also there is the question of standing.
Balkin thinks that it's more "straightforward" for the President, in case of Republican intransigence, to end the debt ceiling crisis by prioritizing spending with bond holders first on the priority list, and with gradual shut downs of portions of the Government as revenue shortages require. I agree with Balkin that this way of handling the situation will eventually work for the President politically and the Republicans will be blamed as they were in 1995 for the shutdown.
However, many people will suffer the effects of the shutdown; so for them this is not a "straightforward" course; but one that introduces many more complications into their lives than the President minting a $60 T platinum coin and then braving political blowback and litigation, and perhaps attempts at impeachment by the House.
It's worth noting that Jack Balkin has just posted an excellent argument at the Atlantic for his preferred strategy of pursuing the government shutdown course, and a version at his own blog that refers to PCS.
In the one on his blog he says:
Still others have begun discussing alternatives like trillion dollar platinum coins and the sale of exploding options, which I discussed during the 2011 debt ceiling crisis. These two ideas are quite interesting theoretically, but they are practically irrelevant.
Why? He doesn't make that clear except to go on to explain why the government shut down strategy will work. And later on in the post he says:
In fact, if the president ignored the debt ceiling and issued his own bonds, or if he publicly announced that he would mint trillion dollar coins or sell an exploding option to the Federal Reserve, he might lose the high ground in the standoff and actually be politically weakened. First, Republicans would feel no obligation to raise the debt ceiling because Obama would have taken all the pressure off them, and government functions would continue normally. Second, any of these strategies would give Republicans the opportunity to go on the attack. They would insist that Obama was acting illegally, go to court to stop him, and possibly even try to impeach him.
I agree with this, but only if Obama were to chose one of the low trillion dollar platinum coin options. Those are no good, because they leave the fundamental fantasy of fiscal scarcity intact. We can see that it is this kind of option Balkin is thinking about because even when PCS is used he still sees raising the debt ceiling as an issue that needs to be settled. But if a $60 T coin option were used, then the debt subject to the limit would be paid off and the debt ceiling would never be an issue, at least for the foreseeable future. In my next post, I'll get to the Big Story about PCS, the MSM commentators missed.
(Cross-posted from New Economic Perspectives.)