by This is Part V, and the conclusion, of the series providing my 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 0 T platinum coin option related to the “intent” of the coin law. In Part III, I discussed a legal objection based on Wallach’s view of the intent of the coin law, which quickly morphed into a political objection about the desirability of mutual respect and comity among the three branches of government, as well as the threat to political legitimacy arising from the judgment that the platinum coin option is really “weird.” In Part IV, I covered more of Wallach’s “weirdness” as well as other talking points about “public scoffing,” “in principle opposition to budget constraints and “common sense,” showing, I believe, that these are not valid concerns.
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Joe Firestone considers the following as important: 0 Trillion coin, Brookings Institution, Conservatism, consols, debt ceiling crisis, debt limit, fiscal myths, Joe Firestone, Mike Castle, Philip A. Wallach, Philip N. Diehl, platinum coin seigniorage, Political legitimacy, Trillion Dollar Coin, weirdness
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This is Part V, and the conclusion, of the series providing my 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 Part III, I discussed a legal objection based on Wallach’s view of the intent of the coin law, which quickly morphed into a political objection about the desirability of mutual respect and comity among the three branches of government, as well as the threat to political legitimacy arising from the judgment that the platinum coin option is really “weird.”
In Part IV, I covered more of Wallach’s “weirdness” as well as other talking points about “public scoffing,” “in principle opposition to budget constraints and “common sense,” showing, I believe, that these are not valid concerns. I then answered Wallach’s concerns about the possibility of inflation or hyperinflation resulting from minting the $100 T coin, and ended by pointing out that his view that MMT writers under-estimate the fragility of our money system, in the face of possible widespread knowledge that money is an abstract social construct and not something material, isn’t true, but instead underestimates the robustness of such money systems when there is a fiat sovereign government whose legitimacy is high along with a highly productive nation sharing its prosperity among its citizens.
In this concluding installment of the series I will discuss further arguments by Wallach that using the $100 T option would create a legitimacy problem, and then consider his conclusion expressing his classical Conservative disposition and his preference for a temporary solution of the recent just passed crisis followed by a more permanent solution to debt ceiling problems negotiated calmly with a politically de-escalated orientation.
Rule: Watch Out for Charges of “Coup”
Wallach offers the following rule:
Firestone twice quotes one of my paper’s main takeaways: “A good rule of thumb for executives in troubled times: if you can help it, don’t do anything that can plausibly be characterized as a coup.” He says that so long as Congress holds the constitutional purse strings, nothing the executive does can be regarded as seriously coup-like, and so few Americans would have a strong negative reaction, even to a $100 trillion (that’s $100,000,000,000,000…or roughly 40% of the value of all of the world’s wealth) platinum coin. All I can say is that he and I will have to agree to profoundly disagree on that question. I’m afraid that, like many others, I could not think of such a maneuver without thinking of Dr. Evil.
I think I’ve said that as long as Congress retains the purse strings then no one can reasonably characterize a platinum coin move as a coup. Of course, anybody can say any silly thing, and when they’re backed by one or more billionaires they can broadcast the big lie vigorously, but that doesn’t mean that any one will repeat it beyond mainstream scoffers, and others with a vested interest in that repetition.
In any case, this question of the legitimacy of the platinum coin option has come up in various guises throughout this debate. Wallach and I do disagree on this.
But who is correct and who is not, does not depend on what the mainstream thinks, or on how the matter strikes journalists. It depends, instead, on how the public would react to a move by the President to mint and deposit a $100 T platinum coin. I’ve argued that the initial move would not be of concern to most people, but that it would elicit a favorable reaction from them as soon as he/she began to use the proceeds to pay down the debt and to pay for deficit spending without issuing more debt instruments.
I think this conjecture of a favorable reaction from most people is a strong one, because the public debt is disquieting to people and they want to see it getting liquidated without paying higher taxes or cuts in government spending. They would get that desirable result if the President used proceeds from the platinum coin to fund redeeming the debt.
Wallach has argued in opposition that most people would consider the move illegitimate and reject it immediately because “the practicalities of the new regime” would be so strange to them. But I can’t see the likelihood of this reaction because there are no practicalities that would impact their everyday lives resulting directly from filling the public purse with $100 T, other than seeing that public debt they hate decrease with every passing month.
As I see it now, Wallach still has failed to explain what practicalities he is talking about that most people would even know about, much less find objectionable. Until he can spell that out, I think he hasn’t even begun to make his case. What do you my readers think? Would most people know about differences from the old system? And, if so, why would they be opposed to those differences.
Wallach’s Conclusion
Wallach ends his reply this way:
I’ll end on a conciliatory note. The platinum coin strikes me as just about the worst of all of the clever ideas on the debt ceiling precisely because it relies on creating a physical object that people can regard as both profane and ridiculous. And so I don’t see why other potential back-against-the-wall weird ideas need to necessarily be subject to the same analysis. As I say in a short piece over at U.S. News & World Report that runs through some other options, if Treasury were in extremis “it might make sense to consider some of the more technical ideas mentioned—the more arcane, the fewer blog posts written about them, the better.” Firestone advances one such idea: Treasury issuance of consols, or perpetual bonds. He and others think that these could bring in revenue without counting against the debt ceiling (see comments of this post for arguments to that effect). I’m not at all clear on the legal details of that proposal; my first impression is that with the current statutory architecture of U.S. Code §§ 3101, 3102, and 3121 they probably don’t provide a solution without some further statutory change. But, precisely because there is a historical precedent for consols, and because they represent something far short of a total transformation, they represent a far more fruitful possibility to explore.
I agree that if one is only interested in getting around the debt ceiling hostage-taking that consols may be easier to get done than the platinum coin solution. Indeed, I think that if the President needs to resort to something to stop a default that he will probably prefer consols to the platinum coin, because I believe he has no desire to pursue progressive economic goals at the expense of the present economic/financial hierarchical structure. After all, his economic interest during his post-presidency is aligned with that of the present financial hierarchy. So, why should he want to disrupt it and usher in a more progressive economic era in Washington?
On the other hand, if one is interested in enabling progressive economic policy, then the proper alternative is clearly the $100 T coin proposal, rather than options producing one or a few trillions. That’s because the options in the lower trillions don’t do very much for the perception that there is a public debt problem. If these options are used, then the public would see no government shutdowns due to the debt ceiling, but people would still be talking about government solvency problems and scarcity in government financial resources, and would still be rationalizing austerity policies by moaning about the gigantic “national debt.”
Also, people would not see very much debt payoff with a coin in the low trillions, so the effects of using the few trillion platinum coin options will not pressure the Congress very much to change its austerity policies. All these options would do is to help to avoid financial crises, without enabling progressive economic appeals to block conservative actions for more austerity budgets. So, the point here is that all platinum coin solutions are not the same.
So, some coin options will enable great change. Others will only serve to maintain the status quo of economic stagnation, because any use of the platinum coin will be attacked as illegitimate and as creating inflationary pressures by critics like Philip Wallach, but the more modest alternative options will not allow very much debt repayment that people can point to and say, “Look what’s not to like about the platinum coin? It’s allowing us to repay the debt and not having very many other effects except enabling economic policies that are more inline with the expressed preferences of the majority of people.”
Wallach celebrates news of the debt ceiling budget deal just concluded by the President and the Republicans in Congress:
Happily, as I write this, it is looking more and more like we may escape the Obama presidency without a debt ceiling crackup—which I would certainly take as vindication of my belief that radical “solutions” to our debt ceiling showdowns may well be worse than the problem. We reform-minded fiscal conservatives can hope that next time around we might replace the debt ceiling with some more useful fiscal control mechanism, but in the meantime we can be glad that this episode did not provide the occasion for revolutionary and uncertain monetary regime change.
When this discussion, began, I said I doubted that any of the alternative options other than another “compromise” that would retain the status quo or worsen it would come out of the just passed debt ceiling standoff. That has now happened, and perhaps even with a marginal improvement in fiscal stimulus, indicating that I was a bit pessimistic in my prediction of what Obama would agree to.
My Conclusion
The bottom line is that the Republicans didn’t want a government shutdown greeting Paul Ryan’s accession to the speakership, and they also didn’t want one giving them a black eye going into the Campaign 2016 season. They were politically wise to avoid those possibilities until they can secure a broader mandate from the people on which to base their nastier impulses.
Wallach, meanwhile, is happy about the budget settlement because he wants to find policies and procedures to restrict the economic policy space of the Federal Government over the coming months without the threat of any financial defaults or any other dangerous politically-induced results going on. For myself, I am resigned to the result, for the present, since I didn’t expect this President to do anything to enable a political environment that would be more friendly than the present one for progressive economic policies, and I also wanted to avoid a collapse while continuing to urge what I believe is the right course, which is to end budgetary austerity after using the fiscal authority granted to the government by the Constitution to take debt issues off the table, and view the deficit as harmless as long it is not great enough to create uncontrollable demand-pull inflation.
I am relieved that the President’s deal with the Republicans did not include the “grand bargain” on entitlement he has been seeking for years, but only a small, unnecessary bit of meanness in the service of faux fiscal responsibility. I suspect we have the 2016 election campaign to thank for that, and also the rise of Bernie Sanders. A strong attack on the safety net right now, would not have been politic, and would have improved Sanders’s poll numbers. Both sides in Congress may have had their eyes on that during the current negotiations.
As for the President, he will now move to focus on trying to cement his legacy by completing his awful trade agenda, which is now in trouble, but, which, if passed, will make him the president who made the world safe for multinational corporations, and severely undermined sovereignty, democracy, consent of the governed, separation of powers, and federalism in the United States. That’s not a legacy that I would seek if I were him, but it is one that he seems bound and determined to secure, and seems to suit his neoliberalism just fine. But all this is another story for other places and times.
Meanwhile, I’ll conclude this narrative on Wallach’s views about platinum coin seigniorage. During this series, I’ve replied to: some preliminary mis-characterizations of what I said in my original reply 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. I’ve also considered political legitimacy and usurpation issues, legal objections to using the $100 T platinum coin option related to the “intent” of the coin law, a legal objection based on Wallach’s view of the intent of the coin law, which quickly morphed into a political objection about the desirability of mutual respect and comity among the three branches of government, as well as the threat to political legitimacy arising from the judgment that the platinum coin option is really “weird.”
After, criticizing in detail the “weirdness” notion and arguing that it was unsuccessful as a way of arguing the illegitimacy of the $100 T coin option, and was little more than labeling of it, I then continued with a number of critical objections to more specific arguments of Wallach’s about the political illegitimacy of the option, followed by consideration of the inflation/hyperinflation myth resulting from using the platinum coin option, and then replied to Wallach’s criticism of MMT as an approach with a populist edge that throws caution to the winds by favoring new methods of managing the system of public finance, as exemplified by its advocacy of the platinum coin option, and as failing to recognize the fragile abstract social construct we call “money.”
In this final post, I continued to refute the idea that the reaction to using the $100 T platinum coin would be illegitimacy, arguing against the plausibility of coup charges unsettling the political system, unusual inflationary effects, unfavorable reactions on the part of most people, and then argued that platinum coin options in the low trillions do not make sense if one is interested in both avoiding the debt ceiling and also ending the reign of austerity-like fiscal policy justified by the enormous level of outstanding federal debt instruments, and also the substantial debt-to-GDP ratio, concluding that only options like the $100 T option would serve the needs of progressives wanting to change the political environment and then legislate progressive economic policies.
And this brings us to the nub of my systematic disagreement with Wallach. It is not just about the technicalities of using the platinum coin, or about issues of intent of the 1996 legislation, or about various talking points questioning whether people would conclude that minting and using a $100 T is an illegitimate option for a President to select and implement. Instead, the issue we disagree about is the degree of risk a president would and should be taking if she/he tried to implement such an option.
Wallach believes that this option is too risky to pursue. He can’t say why this is the case by advancing a credible story about why this option would lead to serious inflation or hyperinflation or to other damaging side effects that we cannot predict or prepare for. But, in light of his ideology of classical Conservatism, he believes that extreme caution is advised in applying previously unused methods such as the platinum coin to our present problems when we can just muddle through, and eventually arrive at solutions to our current problems, that will be lower risk, than the $100 T or really, any platinum coin option.
The problem with opposing the $100 T option on grounds such as these is that they are vague and have no specific decision rules that can help us to apply the advice of such a generalized Conservative disposition to policy. Clearly, the Conservative disposition is not intended to paralyze policy making. Also, it is not intended to end all innovation. So, without rules, its application must be dependent on judgments about which policy alternatives are just too risky to undertake and which ones are worth the risk.
But such judgments are generally quite problematic and do not stand up well to criticisms when they are just groundless conjectures or assertions unsupported by even much argument, much less empirical data. And since risk may be looked at as a combination of likelihood and expected net benefit relative to public purpose, it is clear that our judgments about risk will vary with judgments of relative likelihood and degree of expected net benefit from a particular policy. But Conservatives tend to undervalue both likelihood of success and net benefit relative to public purpose, while progressives are often much more optimistic, and, I would say, realistic about both.
In any event, in my e-book, I’ve discussed at length all that might be gained by first minting that coin and then implementing various progressive economic policies that could no longer be blocked with the rationalization that “we can’t afford it!” In that book, I also listed all the objections I could find to minting a greater than $30 T coin, and I tried to be as honest as I could in considering the objections as given by their advocates and to attempt to consider their full force so I could follow Karl Popper’s advice and kill our worst ideas before they kill us, as it were.
I concluded that given all the known costs of maintaining the current fiscal policies of relative austerity, the risks associated with minting a platinum coin in the $30 T range greatly outweighed the risk of staying on our present course, or selecting one of the other options for overcoming debt ceiling crises apart from the $100 T option.
In my view, Wallach’s Conservative disposition and his preference for consols might well minimize debt ceiling crises, but it certainly will not solve the problems of inequality, economic stagnation, coping with climate change, all of the rest of the various problems we face. Apart from the fact that Wallach identifies no clear causal chain from minting a $100 T coin to inflation/hyperinflation, or any other specific damaging effects of such an action, we have a situation where we have to weigh inchoate Conservative fears of “Black Swans” against the high likelihood that getting rid of the austerity predisposition that is the fiscal expression of Conservatism, will open the way to coping with the huge variety of problems we are beset with.
The potential benefits from doing that far outweigh the inchoate risks that Wallach fails to identify with any clear and specific chain of reasoning that would give us reason to believe that there are high risks attached to using the $100 T platinum coin option. Lifting the burden of austerity politics and fiscal policy on the 99%, and ending debt ceiling crises, sequesters, and ideological budgetary conflicts, and their attendant effects on economic activity and unemployment, far outweighs the likely negative consequences of any of the objections against the $100 option raised by Wallach, or anyone else, apart from demand-pull inflation, which, I’ve argued in detail, is a very unlikely outcome of that option.
So, I think that while Conservatism may have some value when the circumstances and conditions fit its generalized prescription of “don’t take that big step since it’s too risky.” In our present circumstances, the time for small steps, for incrementalism, is long passed.
We need to cope with economic, inequality, climate, environmental, and a host of other crises and problems. We need to take a lot of actions now!
We cannot afford to tie our public financing shoe laces together out of fear of the unknown in order to prevent our walking too fast into the future; because it we do that we may just be foregoing the bright future we may have, in return for one where human life is “nasty, brutish, and short.” None of us wants that. So, perhaps it’s time for Conservatives to come to understand that slow and inadequate action, or outright failure to act, can be more dangerous to the future than vigorous action driven by hope, rather than fear.
Conservatism, in the guise of neoliberalism, has had a very long run now, dating from Jimmy Carter’s presidency, and guiding American politics since that time. I know Wallach is likely to deny this, explaining all the ways in which the Reagan, Bush 43, and Obama Administrations haven’t been Classical Conservative administrations at all.
But, nevertheless the temper of America’s fiscal policy or lack of it has been marked by paralysis and a drive mostly to minimize fiscal deficits and achieve surpluses unless circumstances appeared to require short-term exceptions to such policies such as the ARRA or some ill-advised tax cuts. It is that orientation which has led to the problems we face today. We now need change to conserve what is valuable in our civilization. Conservatism will not serve us well for the present. It just doesn’t get it, and it exacerbates the splits and conflicts we are experiencing in American society, bringing our politics closer and closer to the most serious political legitimacy as well as multi-faceted crisis we have had since the early 1930s.
