Monday, January 14, 2013

Post Mortem On The Trillion Dollar Coin (or, Krugman Jumps The Shark)

So the idiotic idea of the Trillion Dollar Coin—floated so as to get around the debt ceiling—is dead as Dillinger. The official White House announcement stated:

Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit.

Since we won’t know how this decision was made until a few years hence, when Obama officials start publishing their memoirs, the current best speculation of what probably happened comes from Bruce Krasting:

I think the line “Treasury nor the Fed”, is baloney. It was the Fed, in a message delivered by Bernanke, that caused Obama to back off on any consideration of the Coin. There might have been wiggle room in existing law to print a Coin, but there is nothing that says that the Fed had to take it. And Bernanke said, “No”. When Obama ditched the Coin, he did it because it was no longer an option. Bernanke took the option off the table. The WH statement makes it sound as it it was their decision, that’s just smoke and mirrors. [. . .] I think Bernanke got some calls from other Central Banks. They told him it would be a dangerous precedent for America to do this. If there are coins to be printed, it would be better if some other country (possibly Japan) do it first. After all, the dollar is still the #1 reserve currency. The foreign CBs have some say in this.

I pretty much agree with Bruce’s speculation, especially one key line of his: “There might have been wiggle room in existing law to print a Coin, but there is nothing that says that the Fed had to take it.”

Absolutely goddamned right.

OK, so here’s something interesting: It always happens that, when a foolish illusion is shattered, the people who believed in it most vocally look the most foolish. Ptolomey looks nowhere near as ridiculous as the Catholic Church, for having denied the Copernican Model.

Now that the Trillion Dollar Coin is dead, the power of its illusion is also very dead, and the people who most vocally advocated it look silliest of all.

Paul Krugman
Who tops the list? Poor Paul Krugman—he of Dr. Evil’s cat. It’s not that he wrote a casual blog post saying, in effect, “Hey it’s crazy, but why not?” Rather, he wrote a series of blog posts and a New York Times editorial, spouting the idea.

In a January 7 post on his Conscience of a Liberal blog, he wrote a post called “Be Ready To Mint That Coin”, which espoused this foolishness. Then he went on with the idea on subsequent days, culminating in a NYT editorial, “Coins Against The Crazies”

Even Krugman’s perennial fluffer, Brad DeLong, was smart enough not to endorse such a stupid idea. (And by the way, note to all megalomaniacs: When your sycophants aren’t behind you, you know you’re marching off a cliff.)

But the moment Krugman jumped the shark, as it were, was not when he published his various blog posts or his NYT editorial—it was when he got into a pissing contest with Jon Stewart.

On The Daily Show, Stewart made comedic mincemeat out of the Trillion Dollar Coin—his best shot: “I’m not an economist? But if we’re just gonna make shit up? I say we go bigger or go home. How about a 20 trillion dollar coin.”

In reaction to Stewart’s amusing rant, Krugman—unprovoked—wrote a blog post called “Lazy Jon Stewart”:

Oh, dear. Jon Stewart took on the platinum coin, and made a hash of it—he faceplanted, as Ryan Cooper says.

What went wrong? Jon Chait says that he flunked econ, but that’s just part of it. He also flunked law, politics, and just plain professional.

So, yeah, as Chait says, Stewart seems weirdly unaware that there’s more to fiscal policy than balancing the budget. But in this case he also seems unaware that the president can’t just decide unilaterally to spend 40 percent less; he’s constitutionally obliged to spend what the law tells him to spend. True, he’s also constitutionally prohibited from borrowing more if Congress says he can’t — which is a contradiction. But that’s the whole point of the discussion.

And it makes no sense at all to talk about any of this without the context of extortion and confrontation.

So according to Krugman, Stewart “faceplanted”. Uh-huh.

But what’s amazing is that last line of Krugman’s post: “[I]t makes no sense at all to talk about any of this [i.e. the Trillion Dollar Coin] without the context of extortion and confrontation.” It’s a line that’s practically a Joycean epiphany, insofar as Krugman’s views on democracy are concerned.

See, at heart, Krugman is a totalitarian. He is right that the political process in a democracy is absolutely about “extortion and confrontation”—but that is the very nature of the democratic process: Debate and compromise, deals and persuasion. But Krugman doesn’t believe in this democratic, messy process. He doesn’t believe in political “extortion and confrontation”—he believes in the diktats of the lofties such as himself, telling us proles what to do from the heights and safety of their ivory towers.

Krugman hates the democratic process because it won’t let him do what he wants. What does Krugman want? To have the government spend without limits, and thus best the Republicans. (I’m not sure even is he know whether he wants the government to spend its way out of this receission—or he wants the government to spend without limits because it goes against what Republicans want. To Krugman, if Republicans claimed the sky was blue, he would argue vehemently that it’s actually green.) So he latches on to any idea, no matter how absurd, that will circumvent the democratic process—because he doesn’t want to have to compete with Republicans who oppose the spend-spend-spend mantra of Keynesians like Krugman.

Now that the Trillion Dollar Coin is dead, Krugman looks most foolish of all. But has he finally jumped the shark? Has he finally burned the last of his credibility? I don’t know for sure. I think so. But then the K-ster Monster from Princeton Junction has a way of coming back from the dead. All the best B-movie monsters have that ability.


  1. I'm not sure about the legality of the Coin, but even if it were found legal, it was still a very bad idea.

    I'm more intrigued with the 14th Amendment argument, but I've not yet read a coherent discussion of it by people who are experts beyond listening to some people repeat the wording of it: “The validity of the public debt of the United States, authorized by law...shall not be questioned.” The Amendment, however, goes on to read: “The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.”

    I imagine one side would simply argue that the “shall not be questioned” clause means that the Debt Ceiling requirement is unconstitutional and that the Treasury can issue debt to pay for spending already passed by congress and enacted into law. There's nothing particularly unreasonable with this argument.

    The other side will argue that the final part of the Amendment does indeed empower congress to enact the Debt Ceiling requirement as part of the “authorized by law” clause which should be read in conjunction with the section at the end: “The Congress shall have the power to enforce, by appropriate legislation...” And that part of the “appropriate legislation” with which congress chose to “enforce” the Amendment was the Debt Ceiling act. Thus, the debt of the United States that is not to be “questioned” is only that debt which is incurred by enacted spending legislation which in fact actually results in debt, and which debt is then further and independently authorized by the Debt Ceiling requirement. So the debt of the United States that is not to be questioned is debt that is “authorized by law” through the Debt Ceiling requirement.

    This additional debt authorization requirement is not redundant. Since spending does not necessarily result in debt (at least not in countries with balanced budgets), it was not unreasonable for congress to have enacted a law which would automatically stop any spending pursuant to a spending bill which congress now discovers is resulting in debt or unanticipated debt. (They're shocked! Shocked! I know.) But deciding to spend money is one thing. Finding out it is resulting in unanticipated levels of debt is a separate thing and requires a separate decision to continue spending. So it's not unreasonable for congress to have placed an independent limit on any spending that is later found to result in debt. The debt has to be independently authorized for the spending to continue and for any debt resulting from it to not be “questioned”.

    This is also not an unreasonable argument. I think it's the better argument. But this is an argument in favour of the Debt Ceiling act, not an argument against deficit spending, which as the argument itself stated, is a separate decision.

    Of course the spectacle of (Obama ? and democrats like) Krugman having shamed himself with the Platinum Coin proposal in order to continue deficit spending on programs he likes (programs he at least sees as politically expedient for Obama to support for the moment) vs. the congressional republicans using the debt ceiling act to cut spending on programs they don't like anymore but previously voted for, while gaily continuing deficit spending on programs they do like (programs which financially benefit their corporate contributors) is an altogether different matter.



  2. Very informative as usual GL, and good to see that at least THIS particular bit of nonsense got hit on the head.
    Also, just wondering when you were going to write another supplement on SPG. It's been 6 months. I quite liked the old "Week in Words".

  3. The Public debt of the United States has already been "Questioned" - when we lost our AAA least to me, that implies someone thinks we aren't good for it...and they're probably right.

  4. I think the grand scheme is to overspend, crash the economy, that ushers in hyperinflation And blame it all on the Republicans in the House. The media will go with that mantra and convince the sheeple that the only way out of the economic debacle is more govt - to combat those nasty capitalist corporations that allegedly "got us in this mess in the first place". t's saddening to watch the country you love devolve into third worldliness.


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