A trillion dollar platinum coin to fix the debt ceiling; Why not 100 trillion!?

My paper last week on “Minimizing debt ceiling crises” inspired a lengthy, dyspeptic reply from Joe Firestone, a noted champion of the platinum coin plan to make the debt ceiling irrelevant. Though Firestone and I agree that our country’s recent debt ceiling showdowns are both fruitless and potentially destructive, a yawning chasm separates our views of America’s contemporary fiscal and monetary system. I am a fiscal conservative who thinks it is imperative that the federal government find a way to match its spending and its revenues in coming decades; Firestone, as he makes clear in a short e-book, believes that this whole way of thinking is deeply misguided and even sadistic. So I have no expectation that we will be able to bridge our gap, but I am grateful for the opportunity to clarify my assumptions that his post gives me.

Firestone criticizes my misgivings about the platinum coin option’s legitimacy as mere “conjecture,” and argues that minting trillion dollar platinum coins (or much higher values—more on that later) for seignorage purposes would be legitimate in both senses of the word: a valid and defensible interpretation of the law, and accepted by the public as a legitimate government action. Of course I must plead guilty to making conjectures—it is impossible to say with certainty what would happen if the government took such a radically unprecedented step. But it seems to me that my conjectures require much less imagination that Firestone’s.

First let’s consider the law. Whereas I characterize any strategy of minting high value platinum coins as exploiting a legal technicality, Firestone thinks “one person’s ‘legal technicality’ is another person’s plain language in the law.” The language at issue is in 31 U.S.C. §§ 5111 and 5112(k) and does, on its face, appear to give the Secretary of the Treasury basically unlimited discretion to mint platinum coins of any denomination. All members of Congress who voted for this bit of legal text have averred that it was meant to facilitate numismatic offerings rather than a fundamental shift in our monetary paradigm—but that doesn’t worry Firestone, who says, “It is of no moment that no individual Congressman intended to give the Executive such broad authority.”

One can make this sort of plain meaning textualist argument, but 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. When the executive branch and judiciary seek to make sense of legislative enactments, they ought to do so with some sense of comity for the legislature. Finding text that can be manipulated and turned to purposes wholly alien to the legislators who enacted it is a gross distortion of our system of separated powers.

Firestone and other platinum coin proponents have a response: they say that the use being made of the debt ceiling by hardline 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.

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. Former Representative Mike Castle (R-DE), who played the biggest role in putting the platinum coin law on the books, nicely summed up what the reaction would be likely to be back in 2013. He said the plan is “so far-fetched and so black helicopter-ish a type of methodology of trying to resolve something like this that I think the public would totally scoff at it…It would be an artificial way of trying to create money and I think everybody will see that.”

Now, public scoffing is unlikely to persuade Firestone, since he sees widely held commonsense ideas about public finance and money as totally wrongheaded and wants to completely repudiate the idea of a budget-constrained government. And I have to be careful here, because I, too, want to reject a widely held intuition about public finance—namely, the idea that we should take a courageous stand against debt by refusing to raise the debt ceiling, an incoherent idea that is nevertheless supported by a wide swathe of the public. But even so, I have to say that Firestone’s idea for a Treasury-led transformation of our monetary system strikes me as deeply undemocratic.

As if to prove just how far-reaching a change the platinum coin maneuver is meant to effect, Firestone tells us that “if the President is wise” he will push not just for a measly $1 trillion coin, but rather for a $100 trillion coin, which would effectively declare the debt ceiling null and void for the foreseeable future. By Firestone’s lights, this move would not be at all inflationary, since that money would never circulate and could be used to support government spending only to the extent that Congress was willing to appropriate money.

That seems…extremely dubious. The idea that we would simply move some numbers around in some electronic ledgers and emerge less constrained by our debt, but without any consequences for the value of our currency does not compute, at least for me—it is a story about price inflation that never once mentions expectations. How could we enter a world in which government debt accumulation would have no negative consequences (for taxes or otherwise), but Congress would nevertheless refrain from spending money in an inflationary way?

Firestone and his colleagues have a correct and unusual understanding of the fact that money is a social construct. That makes their writings genuinely interesting to work through, unsettling in the best sense, because they are willing to imagine how radically different monetary systems might serve social purposes. But they seem to have little sense of how being a consensual social construct makes money a particularly delicate, even fragile, social convention. Instead, they have the sense that they can boldly manipulate the parameters of the system with great positive effects and no important backlash. They would confidently lead the public through the looking glass into a brave new monetary world, and are certain that we would all be better off for the change (with the possible exception of some privileged few well served by the current system—there is a pronounced populist edge to all of these writings, which assume the only apple carts upset by their monetary revolution-in-the-making would be those of the very wealthy).

But for better or for worse—I think better—our democracy doesn’t function that way. To say the public is not ready or willing to step through that looking glass would be an understatement; few people would even be able to comprehend the practicalities of the new regime, and most would immediately and decisively reject the change as illegitimate. America, and I think any representative democracy, is more little-c conservative than this. Firestone throws around that word as an epithet for cowardliness; to my ear, it sounds like a valuable safeguard against foolhardiness

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’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 31 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.

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.