Some Platinum Coin Objections from the Mainstream: Part III

This is Part III of my lengthy reply to Philip Wallach’s reply to my evaluation of his views on the platinum coin proposal and other options for settling debt ceiling conflicts. In Part I I discussed some preliminary mis-characterizations of what I said and, more importantly, why the commonly recognized fiscal policy rule that, at least over a number of years, government revenues ought to match government spending is fiscally unsustainable and fiscally irresponsible in light of deductions from the Sectoral Financial Balances (SFB) model. In Part II I continued with a discussion of political legitimacy and usurpation issues and then covered some legal objections to using the $100 T platinum coin option related to the “intent” of the coin law.

In this installment I’ll continue with more discussion of political objections.

A Legal Objection Transitioning into a Political One

In his reply, Wallach continues his argument against the platinum coin option on the basis of intent, and the idea there is almost no serious student of statutory interpretation who would condone this level of indifference to the larger statutory context and purposes of the legislature, by saying:

Firestone and other platinum coin proponents have a response: they say that the use being made of the debt ceiling by hard line opponents of government spending is also a distortion, and one bad turn deserves another, at least during our current era of dysfunction. But I reject this form of reasoning, which presumes things are worse than they really are, pushes us toward a downward spiral of tactical maximalism, and makes it difficult to find our way out of the cycle of dysfunction. If our founding ideals of separated powers and the rightful place of the legislature are to be meaningful, we must be willing to respect them even—or especially—when we find Congress to be obnoxious.

I think this begins as a legal argument about the intent of the coin law, but immediately transitions into to a political one, about how people ought to behave in dealing with the Congress. As such I think it is easy to refute. The legislature represents us, the people collectively, and when it jeopardizes the economic well-being of all us by using the debt ceiling to place the executive branch in a double bind so that it cannot perform its spending mandates using appropriated funds, due to Congress’s refusal to raise the debt ceiling for purposes of re-litigating duly passed legislation, then I think that particular Congress doesn’t deserve comity and respect, but rather opprobrium and condemnation.

And it also deserves to be on the receiving end of every legal maneuver that a President elected to represent all of the people can muster. So I think the real issue here is the legality of the platinum coin and its likely impacts on most of the people of the United States rather than the side issue of conflict between the branches of Government in our separation of powers and whether the Congress deserves deference even when it itself acts illegitimately.

Separation of powers doesn’t mean one of the branches should bow to another when that branch uses dirty tactics jeopardizing the safety of the Republic and its people. It means that all the branches should fulfill their obligations to serve as they see it and then let the checks and balances built into the Constitution incline the system toward conflict resolution.

The people and the media ought to have a role in such disputes too. Specifically, both should have turned sharply against the House Republicans during the elections of 2012 and 2014 and turned them out of office, specifically for their hostage-taking over debt ceiling and budgetary matters threatening government shutdowns. Both should have ruled those tactics out of order, and deserving of defeat at the polls, regardless of other issues involved in those campaigns, rather than act as they did, indulging in a game of placing equal blame on both parties for “squabbling” with one another and failing to recognize the greater blame due to the Republicans for their intransigence evidently motivated by resentment over their PPACA defeat, and their apparent dislike, bordering on hatred for the duly elected person in the White House.

As for Wallach’s “downward spiral of tactical maximalism,” there are a number of points that may be made about that. The most important, and the only one I’ll call attention to, is that it is not just tactical maximalism that is going on.

Rather, the debt ceiling tactics are part of a strategic maximalist process driven by Congress members from both parties, but most explicitly by Republicans, who want to reduce drastically both domestic discretionary and entitlement spending over the long term. They, their political allies, their think tanks, their media supporters, and their funders, are not using large national majorities to gain legitimacy for their actions. They are not following the course of seeking a popular mandate for what they want to do.

Instead, their political allies at the State level, are gerrymandering congressional districts, and engaging in systematic voter suppression, and then in Congress itself, minorities in both the House and the Senate within the Republican Party are coercing others to get a party majority supporting Government shutdown threats, forcing Democrats to agree to gradually cutting programs with popular majority support, more and more, over a period of years. They are carrying out this strategic maximalist program to impose minority rule even in the face of widespread polling showing that the public, by large majorities, opposes such cuts. And they are driving this ideologically-based strategic maximalist process as, with the passage of time, it hurts more and more people along numerous dimensions of well-being, and undermines democracy in the United States as well.

I think that if a little tactical maximalism on the part of the Executive Branch can de-rail this strategic maximalism directed at repealing the New Deal, the Great Society, and incremental enhancements of the social safety an regulatory legislation since; then that would be a very good thing. And using the kind of platinum coin option I propose would certainly enable accomplishing that goal, and perhaps shift the balance of power in domestic policy over to economic progressivism for at least a few years.

I think, lastly, it is easy to refute this political objection about not affording Congress the proper comity and respect by pointing to the stakes at issue in deciding whether or not to mint the $100 T coin. Wallach argues that supporting the coin option assumes that things are worse they really are. Well, perhaps it does. But perhaps also, opposing that option and elevating comity and respect between or among the branches above taking government shutdown issues off the table, and consequently removing the deficit/debt myth that the Government can run out of money from political discourse assumes that things are far better than they really are.

Consider, for example, how much worse do things have to get in relation to such problems as inequality, global warming, climate change, environmental degradation, police brutality, control of the political system by billionaires, hollowing out of the manufacturing sector, domination of the economy by a bloated, and criminal and legally invulnerable financial sector, before “responsible conservatives” realize that the worst of our problems aren’t comity and respect among the branches of government, and bipartisanship in the legislature? And how much worse do things have to get before they realize that calls for comity and bipartisanship are not calls for ways of solving them, but really calls for elites to unify and continue to temporize and resist necessary changes and prevent the political system from adapting to our many problems?

The development of economic inequality in the United States, along with many other issues that arise from that inequality and are impacted by it, says to many, and perhaps most of us that the situation we face is very bad right now, perhaps worse for most of the people than they have been since the Great Depression. Any number of things have to be done politically to create a turnaround. Among them is a very vigorous program of economic adaptation that solves the problems of both stagnation and growing inequality, and that will not occur unless driven by political adaptation. But, solving the problems of comity and respect is not one of them. Instead what has to be happen is for a political coalition to emerge whose representatives control things in Congress, the Executive Branch, the Judiciary, and the Federal Reserve (in my view the actual, if not constitutional, fourth branch of government), and can act in concert, quickly, and powerfully to solve our real problems.

When that happens, then comity and respect will again rise among the different branches. In short, comity and respect, isn’t the solution to a myriad of big problems. But, instead, it is the result that will emerge from such solutions. And it will be an earned comity and respect.
Assuming the President orders the $100 T platinum coin, then he would not only eliminate the debt ceiling problem, but also any reason for further budget cuts on grounds of our inability to afford a program which appears to be worthwhile. So, after the $100 Trillion is a reality in the Treasury spending account, then the Republican Congress can fight with the President all they want. But if they refuse to pass good spending programs introduced by she/he, then they will have to find new reasons for rejecting them which will be much less obvious than “we can’t afford it, because the debt.”

They will have to argue on the merits of expected outcomes. Enough of that, along with refusal to pass good legislation that will solve our problems and benefit people, and they will lose control of Congress which will be the end of any crisis in relations between the Congress and the Executive Branch.

More on Political Legitimacy

Wallach then continues on the political legitimacy track:

This brings us to the second kind of legitimacy. Even if you think that minting the coin would be legally legitimate in the sense of having a defensible statutory pedigree (on the crude plain meaning grounds advanced above), there is no reason to think that the American public would be inclined to accept it as substantively legitimate. (The divergence of legality and legitimacy, especially during crises, is a major theme of my book.) Why would they hesitate to do so? Well, to state the blindingly obvious, the platinum coin strategy is really weird. It asks Americans to reject all of their most basic intuitions about the government and money. . . .

As I’ve indicated already, I don’t think the plain meaning of the statute grounds are “crude” at all. This is just a pejorative label for how the interpretation of a law normally begins. It is not an argument.

Further, saying that Americans will find the coin “weird” is just another instance of pejorative labeling. Wallach says that they would find it “weird” because it violates “. . . their most basic intuitions about the government and money.” But he says no more than this, not even going into detail about what he thinks their most basic intuitions are. However, the idea that government can only raise money by taxing and borrowing is not a basic intuition of the American people. It is, rather a basic deficit/debt myth – a point of propaganda that is drilled into them constantly by the Peterson Foundation and its network of fellow travelers in Washington and New York.

People view coins minted by the Government as perfectly natural and in accord with their experience. Further, if they have such coins and they take them to their bank for deposit, then the value of the coins is credited to their checking or savings account. So what is unnatural about the Government minting a coin and then depositing it in its account at the New York Federal Reserve?

The nature of that act isn’t “weird” to them. The only novel thing is that the face value would be so high, but nothing else about the experience is weird. What people will find weird if one explains it to them, is the commonly known fact among people in the financial community that banks create deposits “out of thin air” in return for repayment agreements from borrowers. They will also find it weird that the Fed has the authority to create unlimited reserves also “out of this air.”

Both of these things will be weirder to them than the Government minting a coin and then taking it to its bank, even if that coin has a face value of $100 T. Sure, they will ask whether the Government doing that is legal, but if the President just reads them the very short and plain relevant clause from the Act in a speech explaining why he minted that coin, I think their only question after that would be: “Well why in heavens name didn’t you mint that coin back in 2011, and save us all that grief with these crazy people trying to shut down the Government since then?” And, alternatively, “Well why in hell has the Government been borrowing its own previously created money since 1996? Why hasn’t it been minted instead of driving the us all into debt?”

In short, Wallach’s statement of what is “blindingly obvious” is relative to his personal viewpoint. It is not based on data or evidence, but on his experience in the world which has made him a relative sophisticate, who finds the Fed generation of money and bank generation of money more natural than the Mint generating money, and just “common sense.” But I’m pretty certain that most people don’t see things that way, though I readily admit that what is “blindingly obvious” to me may not be to Wallach or to other writers in Washington think tanks who, undoubtedly, are in touch with what working people think about money and its origins every day of their lives.

13 Responses to Some Platinum Coin Objections from the Mainstream: Part III

  1. What is “blindingly obvious” to one is blinding him to the obvious distress and needs of the many. Relief from such a simple source will be welcomed and cheered by the many.

    • Yes, I can’t understand why the mainstream advocates don’t see that. For most of the public the proof of the pudding i always in the eating. So, if a duly elected President makes this move and it 1) frees up Congress to legislate some helpful things, 2) provides for paying down ‘the debt’, and 3) there is no inflation following from it; then most people will not worry about the fact that there is a huge amount of money in the Treasury’s spending account that it cannot spend until Congress appropriates it. Wallach, Ezra Klein, Alice Rivlin, and Pete Peterson might be bothered by that; but I doubt that most Americans will care about that new state of affairs.

  2. Thank you Joe, good series.

    You’re right that most people would find the bank/reserve bank creation of “deposits”/”reserves” very weird, if they could wrap their heads around it, but it’s so counter-intuitive that most people (including most economists and many bankers) refuse to accept that that is indeed what happens today.

    In comparison, not many people object to the U.S. Mint minting coins; it’s understood that that’s what they do.

    • Yes, I don’t find it strange at all. Why should the Treasury not have money creating authority? Why should it be restricted only to the Federal Reserve? I understand why the Conservatives think that things ought to be this way. But my own perspective is that a Fed independent on Executive authority is what is illegitimate in the first place. The power to create money should either continue to be held by the Congress, or if it wants to delegate it, then it ought to delegate it to the closest authority that can claim to be representative of all the people, namely the Executive Branch. I think that if you posed the question correctly in a poll most people would agree with that and would not favor the present practice of the Fed, an institution more accountable to Wall Street than it is to the people, being the sole creator the people’s currency and reserves.

      • What do you mean fed is the sole creator of money? Treasury can create money by running a deficit.

        I think people find banks or government creating money weird because they don’t realize money is just a form of debt. They have no problems if banks of govt goes into debt ie. creates debt. They don’t realize we just choose to call one section of all debts created in the economy “money”. And that all debts have dual nature being both a liability and an asset at the same time, that’s why govt debt is wealth to the private sector. Thought that liability is quite different in nature for currency issuer than for currency user.

  3. What your $1 trillion coin is up against–besides the obviously jarringly large amount, which your argument re the common usage of coins only serves to underscore–is the fact that the Treasury’s issuing such a sum upsets the monopoly on issuing substantial amounts of money long and viciously fought for and jealously held by private banking interests through the Federal Reserve System, per Title 12 of the US code, and–most importantly–per the $300 million limit on issuing Treasury notes that has been in place ever since the civil war, per 31 USC section 5115(b) (which also bars even such a limited issue of notes from being used as a reserve currency).

    • I answered the point about the Treasury notes limitation in a previous reply to Part I or Part II, I forget which, since I’ve done many replies tonight.

      On the opposition from the banks and Wall Street, I’m well aware of this political objection, and have talked about it a lot in many previous posts and in my book: Let me emphasize here two things.

      First, I do not advocate the Trillion Dollar Coin. As I’ve made clear in these posts I advocate for the $100 T coin.

      Second, if a President mints that without warning and it then becomes a fait accompli, the cow will be out of the barn, the trick will be done, and the monopoly will be broken. Moreover, if this works as anticipated, then the chances will be very good that the Fed’s days as an independent agency will be limited. I look forward to that day, because the Fed is an Executive Agency. It should not be a fourth branch of Government. It should be under the President.

      • I agree that we’ve worked through our positions before. And I agree with all your “should”s, except in that the delegated money powers lie entirely with Congress to change (save as to making sure the debt is not defaulted on), and in that what you propose amounts to a dramatic power change, requiring congressional authorization.

  4. I should add that I am entirely IN FAVOR OF your $1 trillion (and larger) coin! I am REGRETFULLY pointing out legal and institutional barriers that to me seem plain, and which you fail to address (as an amateur scholar of monetary policy and as a more than amateur scholar of statutory interpretation).

  5. Joe,

    When you first published your book about the platinum coin, I had to read parts of it a few times in order to convince myself that it said what I thought it said. Now, I am very comfortable with your ideas, so comfortable in fact that I am surprised to hear so many people on TV who blindly continue to preach the old gospel. We need an unlimited supply of money to finance the battle against the adverse effects of global warming, and your approach is the quickest way to get things underway.

    I was talking with a 25-year old business major from Baylor University. I asked him if he was happy with the way our government was working and if he could think of any changes he would like to make to our system of economics. And I asked him about global warming. His answers were out of the bible, that is, the bible of our current systems. He thought that China was likely to force us into bankruptcy. He thought that global warming might be real but the bad effects of it would not take place in his lifetime, and he said our government was doing too much deficit spending.

    I watched a one-hour video about Eisenhower’s move from head of NATO to running for, and finally becoming, President. The Republicans of that era were shrilly decrying deficit spending and “creeping socialism,” both horrors perpetrated by the Democrats.

    When I asked my young friend what he thought about giving every citizen a $36,000 annual stipend from birth to death, he almost fainted. There were so many things wrong with the idea. We don’t have the money for it, and millions of Americans would never work again. They would smoke and drink themselves to death. And we would go bankrupt.

    What I am trying to say, is that when you first published your book I thought it would at least become a hot topic of conversation around the country. I especially thought young people, like my young friend, would fall in love with the idea. But, over time, I have begun to accept that the soil is not yet prepared to accept your seed and grow it into a course of action. I don’t know how to plow that ground and I don’t know how to nourish your idea when and if it succeeds in being planted in enough minds to make a difference.

    But thanks for continuing to carry the flag. I will try to help.

    Joe’s reply: Thank you, Jerry.

    I too, was surprised by the lack of uptake. But, I think it was due to the mainstream’s response to the idea. They couldn’t accept that the coin would be anything more than a gimmick for getting around the debt ceiling. So, everyone echoed that idea.

    At the time and afterwards I tried to expand horizons about using the coin; but I wasn’t able to get enough PR for my work. Books don’t sell without the PR and marketing that a conventional publisher sometimes provides.

    Anyway, I haven’t stopped writing e-books. I’ve written 4 over the past 4 months, and am soon to finish a 5th. Please check out my page on Amazon for details.

  6. I’m still trying to wrap my head around this. To start, I thought minting the $1 trillion coin was a great idea, and I like the $100 trillion coin even more. I’m especially attracted by the ironic aspects of this cutting of the Gordian Knot of Republican intransigence. Incidentally, I do not think their subsequent obstruction has been a result of their resentment at being beaten on PPACA — I think it’s entirely their strategy as outlined early in January 2009, before the inauguration, to allow no Democratic success whatever. However, I recently encountered an interesting analysis of how the Fed has worked: I’ve only begun to study this document, but it brings to mind a point that may be overlooked; as kludgy and uneven as it has been, along with the New Deal reforms made in the 1930s, the Fed has worked. Certainly it has worked better than the Gold Standard did from 1877 to 1914.