by Tyler Cowen
on January 8, 2013 at 5:17 pm
in Games, Uncategorized
You will find Krugman’s here, and here are comments from a former head of the U.S. Mint.
SImpsons did it.
“Ah! Found it!! It was under the rug. Now I remember thinking the desk was too obvious, so I put it under the rug. This time I’ll put it someplace really safe. Nobody will ever think to look there.”
“First, the law is not “poorly written”. The language accomplishes precisely what was intended, though it also had unforeseen consequences; but then how many other laws have had unintended consequences?”
Do businesses reducing low wage workers to part-time status to avoid ObamaCare costs count as “unintended consequences”? How economically illiterate do we assume the general population?
It’s interesting how many people will do seemingly anything to avoid talking about entitlement reform, even seriously arguing for a trillion-dollar platinum coin. Many of those same folks routinely assert that the Tea Party folks are extreme and wacky. Some of them even refer to talking about entitlement reform as a form of terrorism.
The Republican threat to not raise the debt limit unless serious reforms are made around spending and entitlements is like a minimum wage of $8 on a worker whose market wage is $15: it’s not really binding, or shouldn’t be anyways, unless of course one has no intention whatsoever to deal with our runaway spending. How should the President respond to this threat? He should just say, “I’m not really that concerned. Now that the fiscal cliff is out of the way, my intention all along was to deal seriously with our unsustainable entitlements anyways. It’s the greatest challenge of our generation, and I’m ready to get to work. Now, Rep. Ryan, tell me again how those Medicare vouchers might work.”
People talk about entitlement reform all the time, during budgeting and appropriations. The Republican threat to not raise the debt limit is exactly like the Republican threat to not pass the budget. So let’s not do the whole thing twice. The opportunity to ‘deal seriously with unsustainable entitlements’ was also present during budgeting. If Paul Ryan wants to talk about vouchers again he can do it in front of a mirror while doing his crossfit and bicep curls.
The House Republicans have passed budgets. It’s the Senate that hasn’t passed them.
Are you under the illusion that that non-sequitur matters in the least?
So, it’s essentially a helicopter drop, which, when the Govt. spent it, would expand the money supply by a trillion. Presumably, when/if the govt ever wanted to soak up the extra money supply, it would sell a trillion in bonds and cancel the proceeds.
“There are no negative macroeconomic effects.”
Are there any economists who contest this?
What do you expect in a profession where “governments are not households” is considered by some to be THE crucial insight of macroeconomics, as if leverage only has consequences for mere people?
And the law is not poorly written either. It seems he doesn’t understand macro, law, or writing for that matter.
Krugman is only 3 credits away from a degree from Clown College.
I’ll thank you not to refer to Princeton that way.
The Simpsons strike again!!
No, it’s only 2 credits now. He has successfully tossed out the phrase “liquidity trap” for the 1,000,000th time in order to justify his belief that the Brokest Nation In History can never, ever, ever accumulate enough debt.
And for bonus credit, he has come up with a new way to make it seem that when the Government needs to pay bills and resorts to printing money, it is not really printing money. It is instead, as the linked article describes, “printing money.” See the difference? There are scare quotes around it. So it’s totally, totally different.
We’ve got Clown Cum Laude potential here, folks.
I have a question.
What if someone steals it?
Offer to swap them a billion bottles of Tide.
From the corner pawn shop.
Well, my buddy here, who deals in rare coins, says it’s real, but I’d have to get it cleaned and officially authenticated. Plus it’d take up a lot of room in the shop and there’s not too big a market for these things. Best I can do is $25 and $30 in store credit.
Discussion at the corner store:
– This doesn’t happen to be the trillion dollar coin that was stolen yesterday, is it?
– No, um, it’s a different trillion dollar coin. I legitimately earned it. Um.
– Oh OK. Sorry, I don’t have enough change. Got anything smaller?
The complete lack of macroeconomic effects is based on the assumption that the debt ceiling is eventually raised. What if it isn’t?
Then sell the farm and such.
There is no terrorist and no bomb. It’s one guy in a clown suit you want to address by bringing in another guy in a clown suit of your own. It may be somehow satisfying, but the pretense that the debt ceiling actually really really puts national creditworthiness at risk is absurd. Creditors all believe they are going to get paid no matter what. I know that for the same reason Krugman knows you can print money with no problems – the rates are rock bottom. Further, isn’t it kind of peculiar to argue that it is impossible to spend enough money or print enough money to cause concern for creditors but they are supposed to be horrified by a debt ceiling debate and that may cause rates to spike? If you are a creditor, which one makes you more nervous even if you are in a liquidity trap? Please stop with the terrorists and bombs.
” I know that for the same reason Krugman knows you can print money with no problems – the rates are rock bottom. ”
Rates are rock bottom because the fed keeps pushing them down. They are buying the vast majority of all new treasury debt.
The Fed holds roughly the same amount of treasuries that it did 18 months ago, so even if Fed buying did lower rates, which Scott Sumner might have a thing or two to say about, this wouldn’t have been in effect for the past 18 months.
If operation twist is supposed to be holding long term rates down, then I guess we’d need to figure out why rates on 1 to 5 year bonds haven’t been rising, since the Fed has been selling these.
While the Fed’s holding of US Treasuries has not increased over the last 18 months its holdings of Agency MBS are up. The SOMA portfolio increased 4% in 18 months. What do you think Agency MBS holders do once the Fed has taken those securities off the market? The next best substitute is US Treasuries.
That’s total bullshit and it is amazing that it is such a widely held view.
I recall the Fed bought 60% of Treasury debt in 2011. What’s the bullshit?
The bullshit would be the “They are buying the vast majority of all new treasury debt”. If you haven’t noticed it is now 2013… and wow didn’t the rates shoot up when the Fed stopped buying all the debt in 2012. These are the zombie ideas that Krugman complains about – they can’t be killed by the facts. Do you have anything to back up the claim that the Fed is currently buying the “vast majority of all new treasury debt”? I thought QE3 was targeted at MBS.
My understanding is that the Fed has been buying some 70% of treasuries, which assuming all else equal would seem to result in a lower price (that is, lower rates.) This seems boring and obvious; what am I missing?
It is boring and obvious and wrong. QE3 is MBS not treasury securities. QE2 was treasury securities and the Fed did buy a large percentage of treasury debt in 2011 (note 2011, not 2012 and definitely not 2013).
I looked this up. In 2012, they bought 61% of UST’s. They also have $1T in student loans and so far as I know, are buying $40B/mo. in MBS’s.
“Print money to buy your own debt” has got to be on the same level of erudition as “Mint a $1T coin and pay off the deficit with it.”
Here is the actual data:
The Fed bought WAY more treasuries in 2011 than they did in 2012. No way was it 61% in 2012. It was 61% in 2011. What is your source saying they bought 61% in 2012?
Not really. The first concerns the ability to meet obligations, the second, the willingness. No one has any doubt about the former, but they could come to a different conclusion about the latter.
I don’t think they could come to any different conclusions about the latter. Ability to pay is the whole of the story for something like the US economy at this point in history. There’s too much to lose for no gain. The law can say whatever. It forces the argument to be hashed out in public. It’s embarrassing to have our fiscal incompetence on display, but there are zero creditors who don’t think they’ll get paid. Domestic spending and all that? Maybe that takes a hit. Maybe. That’s it. The left is beating a war drum here because it’s convenient for them to do so. They sense a moment when they can blame the House for everything and move past all the unpleasantness of having to have a public debate about increasing spending.
The debt ceiling is goofy, but it is goofy in exactly the same way as a congress that refuses to pass a budget or address entitlement trajectories or raise taxes on anyone other than the 1%. I would prefer to have adults in congress, but I don’t have that. I have poo flinging pander monkeys. So, fine, if that’s what we have, there are worse things in the world than having a moment that forces them to publicly debate the explicit matter of debt levels. The counter argument isn’t that the world thinks we will default, it’s that our incompetence should be hidden from view – buried under a pile of continuing resolutions.
+ 1 trillion (I’m good for it)
If ability to pay were the question, we would be facing the interest rates of Greece or Spain. There is no question about the former. Willingness to default for political gain is considered remote, but once broached, the expectation will only be for progressively worse future behavior.
+ 1 trillion again!
“Hey, get me, I’m givin’ out trillions.”
Even if there is a trillion dollar coin burning a hole in the Treasury’s pocket, they can’t spend it. Right? Seems like all congress would have to do is not pass a continuing resolution and that’s the end of the shenanigans. Since the last one expires in three months this seems to be the default action.
Then comes the next proposal from Krugman- “it is too important to let a recalcitrant Congress put brakes on government spending by not appropriating the spending in the first place.”
Here’s Bank of America on the topic: “The trillion dollar tooth fairy From the land of fiscal make-believe”
Come on guys. I wasn’t serious.
But while we’re just talking there, why not have the Fed just forgive all the debt it owns? Why isn’t that an option, or am I missing something?
Alternatively, why only $1T? Why not just pick a number out of the air, say 20% higher than last year’s spending, issue a coin for that amount, and fund the Federal government? Eliminate taxes, give every Congressman every bit of pork she can dream up, and spend away! Krugman keeps assuring us there is no such thing as inflation any more, so let’s do it! If The World is alarmed, we’ll just print a platinum coin for every country’s budget, and everyone will be happy happy happy!
The Fed forgiving its entire balance sheet would be extremely inflationary, even if it didn’t change any of its near-term purchasing plans. In the long run the markets expect that the Fed will sell treasuries on its balance sheet, especially if inflation starts picking up.
Suppose the Fed goes rights out and forgives the debt, or even a portion of it which opens the door to the markets expecting it to forgive the rest. That credibly signals that the Fed never intends to sell any of the current inventory on its balance sheet through its entire maturity.
Right now markets have faith in the Fed doing the right thing when the situation changes, but this won’t be the case. Immediately the dollar would sell off, US interest rates would spike and gold and other commodities would skyrocket.
One thing the coin offers is the ability to collectively deleverage. That is a power we should have, whether the Fed or Treasury. Without it, attempts to collectively deleverage will only lead to depressions.
Is there any similarity to this $1T coin scheme and the bizarre usage of special $100,000 bills back in the ’30s issued by the Treasury used only between Fed Reserve branches? Those were allegedly backed by gold.
What might Krugman’s response be if the next President, or our current one given is emerging blood-lust, decided he wanted to go to war and that bothering to ask Congress for the money was silly when he could just mint a coin and hand it to the Treasury? Or if a President Romney decided he’d just ignore cuts to the Defense budget from a Democratic Senate by minting a coin. Would it be Republican obstructionism as opposed to Democratic Innovation? Turning the coin over, pardon the pun, is important in figuring out if a person is genuine or just caught up in cheer leading as Krugman often is these days.
> bothering to ask Congress for the money
The President cannot spend money which is not authorized by Congress. Congress controls the purse because it has the power to defund a program.
Congress orders the Executive to spend money. Congress orders the Treasurer to collect taxes. The difference between what Congress orders the Executive to spend and what Congress orders the Treasurer to collect must be made up somehow. One way to make it up is to borrow. Another way is through seigniorage. Congress forbids the Treasurer to borrow beyond the debt ceiling. Congress expressly permits the Treasurer to issue platinum coins.
The President cannot lawfully ignore cuts to the Defense budget, because the President cannot lawfully spend money which the Congress does not authorize.
I’m guessing Krugman’s response would be highly dependent on the party of the President who would do these things.
I like the Mint guy’s sophisticated analysis that the legal issues: “Treasury has routinely exercised this authority since the birth of the republic.” Yes, we all learned in school about the many trillion dollar coins that Alexander Hamilton minted during Washington Administration.
> we all learned in school about the many trillion dollar coins that Alexander Hamilton minted during Washington Administration.
You were taught in school about the role seigniorage plays in funding the government since the Washington Administration. Have you forgotten, or were you failing to pay attention when it was taught?
If one is making a precedent-based argument, like the Mint guy is, then doing something on a one-dollar scale is not necessarily a precedent for doing something on a trillion-dollar scale.
Why didn’t I think of that?
I’d like this to go to Court so it can strike the whole concept of a “Debt Ceiling” as unconstitutional. Can the Executive department sue the legislature for not letting it…. execute?
It’s many things but, as far as I can tell, not unconstitutional. Article I Section 8 of the Constitution is quite clear that the power to borrow on the credit of the United States belongs to Congress and not to the President. If Congress wants to limit the ability to borrow — as it does through the debt ceiling — it can. I believe this came from the British practice of preventing the king from borrowing money in the kingdom’s name without the consent of Parliament.
That said, in a modern state with modern budgetary procedures, there is no reason to have a separate vote on issuing debt and on spending money.
Of course there is. It’s completely logical to subject your budgetary (both taxing and spending) procedures to additional scrutiny when you find they lead to borrowing unsustainably.
And yet the vast majority of the world’s democratic countries who can borrow at low yields do so without the constraint of a debt limit. Denmark is apparently the only other country with such a limit and Denmark has a Parliamentary system.
Denmark is certainly not the only other country with such a limit. The GAO recently did a study of the effects of the debt limit statute on Treasury borrowing. That study also briefly reviews debt limit legislation in some other OECD countries. Actually, quite a few countries have limits and restrictions on the amount of debt that can be incurred. For example, Germany recently adopted a constitutional amendment limiting the amount of structural deficits to .35 percent of GDP. The fiscal fools in Switzerland have a similar constitutional restriction that they call a “debt brake”. Seems to work for them.
The difference between the US and those other countries is the process around the debt limit legislation, not the fact that we have such legislation and others don’t. The key difference is that most other countries decide first through legislation or their Constitutions how much they can afford to spend, or at least require the debt limit to be raised at the same time a spending decision is made. In other words, they’ve got their horses in front of their carts.
The debt limit statute can certainly be improved so that it functions more effectively and with less disruption. The key is to prevent spending, without offsetting revenues if you will, that creates the debt in the first place. Those who advocate coining a trillion dollar coin in order to skirt the existing laws on the debt limit would far better put their energies into something productive and ultimately legal and democratic: Put forward legislation or a Constitutional amendment that improves the process and yet retains the idea that we should have restraints on the irresponsible creation of debt that serves short-term political interests at the expense of long-term economic health. I think that would be more in the spirit and the wisdom of the late James M. Buchanan. What better time to honor him in such a fashion?
One might also care to read the following article, “In Defense of the Debt Limit Statute”, by Professor Anita Krishnakumar that appeared in the Harvard Journal on Legislation (2005). http://papers.ssrn.com/sol3/papers.cfm?abstract_id=983145
While she generally supports the idea of a debt limit, she suggests reasonable means in which the existing legislation can be made more effective and less disruptive.
At the current platinum price level, the coin would just have to weigh 625.000.000 ounces to be worth a trillion USD.
Of course, there is not so much platinum in the world, and if, its price per ounce would be much, much lower… 🙂
Why don’t we do something productive like dig holes and fill them back up again, break windows, drop money from helicopters, threaten to use bazookas, and make widgets?
If I had a trillion dollar coin, I’d just lose it in the couch cushions.
Jump the shark watch: Orange. Taking a trillion Fed notes of platinum out of the economy for prosperity?
How ’bout just doing it owners of 2.55 out of 3 branches of government? Or, what about negotiating? Forchrissakes.
So it’s just a loophole for temporarily monetizing debt?
Nothing quite says, “Banana Republic,” like paying your bills with your very own brand of Monopoly money.
Someone explain to me why routine use of the debt ceiling isn’t an outstanding advance in constitutional political economy?
Instead of fire and forget deficit spending, legislators (and hence voters) are forced to confront when their spending decisions get out of control. That’s good thing!.
It’s a bad thing that we are dealing with it so poorly, that we’ve reached an unsustainable point of public finance, and that both our elected leaders and the general public are so utterly misinformed about things. But coming to terms with that, and forcing a change from that bad position is something we should actively be seeking.
The coin idea, of course, represents the complete opposite perspective; a political economy in which the executive has unlimited control, there’s no discussion, no need to confront problems, there’s less transparency, fewer consequences, and less checks on government power all around. Again, those seem like bad things.
“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.”
How is an ‘accounting fiction’ different than paying the government’s bills ‘out of thin air’?
The debt limit is an accounting fiction in the same way the coin is an accounting fiction. We made up an arbitrary limit to the amount of money the government can spend. The way around that is to make up an arbitrary coin to deposit in our “bank” to lower our debt. The only argument against the coin that makes sense to me is that it is an abuse of executive powers. Since Congress authorized the spending it is somewhat hard to say doing the authorized spending is an abuse but still it is the only thing people are excited about that is at least logical.
This was supposed to be a reply to JWatts.
Why does it have to be a US coin? Why couldn’t the President ask Grenada to issue a 1 000 000 000 000 000 000 000 Grenada dollar coin and deposit it in the US Treasury?
Grenada would just do it as a joke and for $10M in foreign aid. It’s not like anybody is going to discount the Grenada dollar because of the chance it would be actually cashed in.
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