The platinum coin and the death of the west!


Paul Krugman explains how it works: Should President Barack Obama mint a $1 trillion platinum coin?

Yesterday, we offered a few first thoughts about this novel idea. Later in the afternoon, Paul Krugman doubled down on the peculiar proposal in a blog post.

First, Krugman constructed an argument against the idea that this action “would be undignified.” You can judge that one for yourselves.

Moving right along, Krugman explained how the magical coin would work.

We aren’t saying that what follows is wrong. We’re saying it’s deeply revealing:
KRUGMAN (1/8/13): The other objection is the apparently primordial fear that mocking the monetary gods will bring terrible retribution.


What the hysterics see is a terrible, outrageous attempt to pay the government’s bills out of thin air. This is utterly wrong, and in fact is wrong on two levels.

The first level is that in practice minting the coin would be nothing but an accounting fiction, enabling the government to continue doing exactly what it would have done if the debt limit were raised.

Remember that the coin is supposed to be deposited at the Fed, which is effectively just a semi-autonomous government agency. As the federal government proper drew on its new Fed account, the Fed would probably respond by selling off some of its $3 trillion balance sheet. In effect, the consolidated federal government, including the Fed, would be financing its operations by selling debt instruments, just as always.

But what if the Fed decided not to shrink its outside balance sheet? Even so, under current conditions it would make no difference—because we’re in a liquidity trap, with market interest rates on short-term federal debt near zero. Under these conditions, issuing short-term debt and just “printing money” (actually, crediting banks with additional reserves that they can convert into paper cash if they choose) are completely equivalent in their effect, so even huge increases in the monetary base (reserves plus cash) aren’t inflationary at all.

And if you’re tempted to deny this diagnosis, I have to ask, what would it take to convince you?
We’re not saying that any of that is wrong. Here’s what we are saying:

Suppose Obama minted the magical coin. Presumably, he would then give a speech to explain what he had done.

If he gave anything like that explanation, no one would have the slightest idea what he was talking about. And remember:

Obama had very little luck explaining his health plan, which is perfectly sensible and ordinary as compared to the oddness involved in minting a magical coin.

The minting of the magical coin would immediately be treated as a crazy action. It would sound like a crazy idea to most voters; Obama would be widely seen as some sort of lunatic. There would be no earthly chance that anyone could explain the logic of what he had done. A remarkable degree of political turmoil would ensue.

Krugman doesn’t seem to know that. This takes us back to Krugman’s vast strengths—and to his one area of weakness.

For the past dozen years, Krugman has been the MVP of mainstream American journalists. It’s hard to imagine life without him. In budget areas, almost everything we liberals know has come to us from Krugman's work.

On the other hand, Krugman doesn’t have a background in street-level politics. In a major magazine profile, Benjamin Wallace-Wells offered this remarkable picture of Krugman’s political awareness as of 1999:
WALLACE-WELLS (4/24/11): Krugman had begun the work that would eventually win him the Nobel the time he was in his mid-twenties, and so for nearly all of his adult life he has had good evidence for the proposition that he is smarter than just about everyone else around him, and capable of seeing things more clearly. Krugman is gleeful about being right, joyous in the revelation of his correctness, and many of his most visible early fights were with free-trade skeptics on the left. Of Robert Reich, for instance, Krugman wrote: “talented writer, too bad he never gets anything right.” He was a liberal and a Democrat, but even in 1999, when he was hired by Howell Raines to write his Times column, “I still saw equivalent craziness on both sides.”

This evenhandedness began to disappear almost immediately. Four months after his first column, Krugman began studying the economic proposals of the Bush campaign and found, somewhat to his astonishment, that they were deeply disingenuous...
Assuming Wallace-Wells is presenting an accurate portrait, that highlighted statement by Krugman strikes us as remarkable. As of 1999, Krugman hadn’t noticed the decades of crackpot disinformation coming from the right. He became politicized as he reviewed Bush’s proposals and the way they were being presented.

That general cluelessness has defined the work of the liberal world over the past forty years. Even as we mock more successful players like Grover Norquist, our side has displayed an endless tin ear when it comes to political discourse.

The liberal world has twiddled its thumbs as the public has had its head filled with nonsense and disinformation. That same tin ear is on display in the case of the magical coin.

Two facts emerge from the growing idea that Obama should mint that coin:

We don’t know how to talk: First, this represents the liberal world’s concession of a basic point—we don’t know how to talk pork to the people.

Should the debt limit be increased? Of course it should be increased—and the point should be easy to explain.

But rather than try to explain that point, we want to mint a magical coin! This represents a concession which is long overdue: Norquist knows how to influence voters. We don’t know what to say to those people. If we tried to persuade the public, we would have little chance of success.

We don’t understand the discourse: Go ahead—reread Krugman’s explanation of the platinum coin. Again, we aren’t saying that his explanation is “wrong.” We are asking you to imagine what would happen if Obama gave a speech in which he explained his coin.

It would be one of the strangest moments in American political history. Around the web, there is barely a clue that our “intellectual leaders” know that.

For decades, we have wondered how it can be that our side is so spectacularly inept. The source of our manifest cluelessness remains a powerful mystery. But it’s now clear, beyond any doubt, that our intellectual leaders lack the first clue about the way the American discourse works.

Our leaders sat around for years when all that shit was being promoted. The Social Security trust fund was an accounting fiction! Al Gore said he invented the Internet!

Our side didn’t say squat about such matters—nor did we manage to get off our asses in the recent case of Susan Rice. Our side doesn’t seem to know how to notice, observe or talk.

Through thick and thin, our intellectual leaders have shown the tinnest of all tin ears. But now, at long last, it’s perfectly clear:

For whatever reason, we liberals can’t function in the world. We’ll keep telling ourselves that we're the smart people. But our ultimate cluelessness is now apparent.

As such, our public discourse is doomed. But then, this country has had no real public discourse for a great many years.

Disinformation fills the air. Gigantic areas can't be discussed. But people:

Mitt Romney strapped his dog to the roof of a car! That’s what our leaders have told us!


  1. Here's "street level politics," Bob:

    Regardless of what Obama does, Fox News et al will go batshit crazy.

    As to minting the coin in particular, NO ONE ELSE OUTSIDE OF THE FOX-ET-AL WORLD WILL CARE!

    Just as no one outside of a few thousand viewers care about, or watch, or even know, Maddow, Shultz, etc. Or Dowd or Collins for that matter.

    Lastly, at the "street level," few if anyone still obsesses over a lost (or stoken) election 13 years ago.

    1. If it is your take that Bob obsesses over the 2000 election, you are clueless; you cannot see the forest for the trees.

      Horace Feathers

  2. You are right that we haven't explained the debt ceiling situation to the American public. For one thing, the fact that the debt ceiling doesn't curtail spending, and that it's the Congress (not the president) who authorizes the spending.

    Nevertheless, Paul Krugman shouldn't be faulted for not explaining that in this article, obviously written for the eyes of people who already understand these things. The dumb clucks you are talking about won't be reading Krugman.

    We are in this pickle because Obama and the Dems haven't explained this well enough to overcome years of Republican BS. But it's pretty much too late now to accomplish anything with proper explanations. The president - or Congress - has to act.

  3. Oh, please, there are plenty of media outlets, including the NYT and various radio networks, magazines, and such, that explain all of this stuff just fine and clearly. Give me a G-D break. We the People are too busy watching reality TV or Dancing with the Stars, or whatever.

    Nevertheless, I have read and heard plenty of clear and cogent explanations of all of this issues, and heard plenty of callers to radio programs --- "average Joes and Janes" who pay attention to issues --- able to grasp this stuff and pose thoughtful questions.

  4. Bob has it right. Republicans come up with some nonsensical talking point, and then rather than attacking and rebutting that point, liberals try to talk around it, or come up with an alternative talking point, or change the subject. Never to they stand up and take that point in a frontal assault with plain talk that will reach voters.

  5. I agree with Bob that the minting of the magical coin would would sound like a crazy idea to most voters.
    Also IMHO it would souond like a crazy action to many holders of American dollars. The dollar maintains its value only through faith. The bizarre action of minting a $1 trillion coin could shake that faith.

    American money today has no value, except what people assign to it. You can't exchange it for a certain amount of gold or silver, as was true in the past. American money retains its value because of faith that it will continue to retain the same value. That faith is fairly reasonable IMHO because the dollar has been moderately stable. It hasn't fully held its value. Inflation has averaged around 3% since we went off the gold standard. That's more inflation than is desirable, but it's something we can live with.

    However, minting a trillion dollar coin could shake that faith. If President Obama can mint a $1 trillion coin, then the next President could mint a $10 trillion coin. If unlimited new dollars can be created so easily, then holders of dollars will worry that large amounts of new dollars will be created.

    Krugman says that under current economic conditions, huge increases in the monetary base (reserves plus cash) aren’t inflationary at all. He may be right. But, if Obama succeeds in unilaterally increasing the money supply, any future President could use that power at a time when such action would be inflationary. I think the fear of further uniateral increases in the money supply would stimulate inflation and weaken the dollar.

    1. You say "stimulate inflation and weaken the dollar" as though those were bad things. Inflation is almost zero -- deflation is the danger right now. And a weakened dollar would increase exports, stimulating growth here in the US.

      Of course, neither major political party will tell you these things. That's why the platinum coin idea is annoying them so much.

  6. Confused;

    Yes the information is out there, and yes many "average" citizens are well informed, but the overwhelming majority are not.

    Understanding what is going on takes work, and people are already working too hard just to make ends meet.

    Imagine this if you will:
    Every registered voter in the US reads all the bills up for votes in Congress until he or she understands them clearly.

    Then the voters write down what effect the bills will have on them personally.

    Then the voters look up how their elected officials voted, and use that information at the next primary and general elections.

    "Ain't gonna happen', you say?

    You're right. It ain't gonna happen.

    1. This is exactly the reality and problem:

      " but the overwhelming majority are not."

      And Krugman's writing needs to be translated for ordinary citizens. Not dumbed down. But into language that can be understood without a glossary for ordinary citizens with a highschool education.

      And unfortunately so few among the liberal world make the effort.

      For additional explanation on this problem, Joe Bageant wrote at length about liberal/urban/progressive elite failing to recognize their elitism and their failure to connect or communicate clearly to make any discourse possible with the working class.

  7. Incidentally yesterday's New York Times reported that one member of the Fed’s policy-making committee shares my worries:

    Mr. Lacker, president of the Federal Reserve Bank of Richmond, has warned repeatedly that the central bank’s extraordinary efforts to stimulate growth are ineffective and inappropriate and, worst of all, that the Fed is undermining its hard-won ability to control inflation.

    1. Your concern for the nation is duly noted, DinC, but there are lots of people who share your climate-denying/lowering taxes raises revenues/Bain Capital was doing the missionary work of capitalism, etc. views. That doesn't make them correct.

      And since you're great reader of Krugman, you will have seen his blog post today, where he explores the unwillingness of some -- apparently on a moral basis -- to concede that sovereign currencies aren't built around the intuitive principles which govern, say, the family budget; and that cries for return for the gold standard are based far more in prejudice, than economic principles. You view money as an absolute measure of sacred value, rather than as a social convenience. So anyone who challenges your orthodoxy is a heretic and a criminal.

      The high interest rates and inflation you and Mr. Lacker been predicting for years hasn't, of course, occurred. But you won't budget on your views, because you're convinced that high inflation is the just outcome and comeuppance for a fiscal policy which violates the law of the sacred. That you simply don't understand what money is never occurs to you.

      So when your prediction don't pan out, it's reality which is wrong!

    2. There are 12 presidents the regional fed banks. So far, you've got one on your side. Apparently, that one is somehow more important than the rest.

  8. Rebutting Republicans' nonsense is not as easy as Bob makes it sound. Most of their arguments are carefully tailored to be over-simplistic and to appeal to what many people think is common sense; "the government budget is just like a family budget" "the Trust Fund is just pieces of paper", etc. Countering these things often requires going into technicalities which may be too complex or too subtle for most people. The media give as much weight to a nonsensical claim from extremists if they have money backing as to a carefully reasoned, correct explanation.

    Certain arguments get no traction, apparently for "ideological" and/or nationalistic reasons. The obvious solution to the excessive costs of health care is some kind of centralized system as in all other advanced countries (not Obamacare, which is certainly not simple), and the fact that such systems are cheaper is hardly a secret, but apparently the prejudice against "socialism" and in favor of "free-markets" can't be overcome - this prejudice just causes people to ignore the facts.

    By the way, Krugman's columns usually are not only forceful but straightforward with a strong political element - they are carefully designed to appeal to a general, non-technical audience. His blog posts get into more technical and sometimes questionable things.

    1. Yep, SH. And, for these same reasons, try explaining to certain people that torture doesn't work.

    2. The Murdoch media doesn't "give as much weight to a nonsensical claim from extremists if they have money backing as to a carefully reasoned, correct explanation", they give it much more exposure, and to the exclusion of alternate viewpoints.

  9. Gravymeister,

    And this is all Maureen Dowd's and Gail Collins' fault? And the fault of hosts of cable TV shows that only Bob and a few shut-ins watch?

    I am saying that we are awash in information and sources, and the hard work of people who do a very good job of explaining issues in cogent, clear ways. Bob sits upon his throne and calls some of those people dumb, or makes vast generalizations about whole classes of people such as The Professors, some of whom actually explain things quite well.

    The generalizations on this site, the grinding of axes, the lack of supporting evidence for many arugments, the indulging of pre-conceived notions --- not to mention the relentless hurling of insults from a man who, with a straigtht face, tries to promote mutual respect among disagreeing parties --- are breathtaking.

    Ain't the blogosphere grand!

  10. The speech is easy:

    "My fellow Americans, today I have engaged in an unusual legal technicality to prevent the United States from defaulting on its financial obligations. This technicality -- the minting of a one trillion dollar platinum coin -- is an extreme and peculiar step that will only work temporarily, and that I would never have chosen to take under ordinary circumstances. But it will prevent us from being in legal default on our debt until the give-and-take of the democratic process provides a real solution." From there, switch to urging the Republicans to simply pass an increase in the debt ceiling and work through the normal legislative budgeting process to achieve their goals on changing the country's fiscal direction. "If they have the votes, they should pass the bills, and if they don't have the votes, they should compromise. But they should not continue to try to skip out on paying the bills that we have already agreed to in existing budget legislation."

  11. Bob Somerby sez that Obama can't explain minting a coin to address the debt ceiling issue in way that the public can understand.

    That's probably true.

    But, Bob, it's no argument.

    Neither could Obama explain what backs ordinary US currency in a way the public could understand.

    Neither could Obama explain how Social Security relates (or doesn't!) to the US fiscal deficit, in a way the public could understand.

    You are right Bob -- Obama can't explain the coin.

    But the point generalizes:

    Our discourse is so debased that very little can be explained without the sort of falsifications and simplifications that render the explanations lies.

    (In this case, shamefully, Bob Somerby uses his platform to *contribute* to the debasement of the discourse by referring to the coin as "magic." But then public enlightenment isn't Somerby's goal on this issue.)

    So, the public can't understand much. OK, given.

    But it doesn't then follow that action shouldn't be taken.

    Unless, like Mr. Somerby, one has forgotten how thinking works.