Krugman’s Trillion-Dollar Fantasy

If you doubt whether the Left has gone around the bend, all you have to do is read Paul Krugman. Today, on the New York Times web site, Krugman argued that President Obama should circumvent the debt ceiling by having the Treasury Department mint a trillion-dollar coin, which would then be handed over to the Federal Reserve, thereby freeing up a trillion dollars in additional borrowing. Apparently this was a serious proposal:

Should President Obama be willing to print [sic] a $1 trillion platinum coin if Republicans try to force America into default? Yes, absolutely.

Note that in typical Krugman fashion, where he means, “if Congress doesn’t vote to increase the debt limit,” he writes “if Republicans try to force America into default.” Krugman seems incapable of writing a sentence that is free of partisan hackery.

For those new to this, here’s the story. First of all, we have the weird and destructive institution of the debt ceiling; this lets Congress approve tax and spending bills that imply a large budget deficit — tax and spending bills the president is legally required to implement — and then lets Congress refuse to grant the president authority to borrow, preventing him from carrying out his legal duties and provoking a possibly catastrophic default.

This “weird and destructive institution” comes from the Constitution; Congress, and only Congress, has the “Power…To borrow Money on the credit of the United States.” Of course, it would be better if we had a coordinated package of taxation and spending plans, and a debt limit consistent with those plans. That would be called a “budget.” But we don’t have a budget, because Senate Democrats have refused to adopt one for nearly four years, with Barack Obama’s concurrence.

And Republicans are openly threatening to use that potential for catastrophe to blackmail the president into implementing policies they can’t pass through normal constitutional processes.

More calm, rational analysis from the former economist! Actually, Republicans are merely saying that they won’t vote for legislation to raise the debt ceiling unless the Democrats agree to some combination of spending reductions and entitlement reform that will make a small contribution toward saving the country from financial ruin. If that’s “blackmail,” we apparently haven’t had anywhere near enough blackmail in recent years; hence our $16.4 trillion debt and $1 trillion annual deficits.


Enter the platinum coin. There’s a legal loophole allowing the Treasury to mint platinum coins in any denomination the secretary chooses. Yes, it was intended to allow commemorative collector’s items — but that’s not what the letter of the law says. And by minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling — while doing no economic harm at all.

“No economic harm at all”? Really? Gosh, this wealth-creation business is a lot easier than we thought! Next thing you know, we will be picking $100 bills off trees. Well, why be pikers? We can pick billion-dollar bills off trees!

The phrase “no economic harm at all” links to another post by Krugman. (Krugman, like Barack Obama, likes to cite himself as authority.) In that post, Krugman wrote:

I’ve had communications from a number of people asking an interesting question relating to the debt ceiling and other issues: why does the Federal government have to borrow at all? Why can’t it just print money to pay its bills? After all, haven’t people like me been saying that this isn’t actually inflationary?

That’s the kind of question Democrats are asking these days: Why do we have to worry about paying our bills? Can’t the government just print money? Hey, they’re the pro-science party! Krugman goes on to answer the question:

First, as a legal matter the Federal government can’t just print money to pay its bills, with one peculiar exception. Instead, money has to be created by the Federal Reserve, which then puts it into circulation by buying Federal debt. …

But leaving the debt ceiling on one side, isn’t it true that since spending can currently be financed by Fed money printing, we shouldn’t care at all about the notional debt owed to the Fed? Alas, no.

It’s true that printing money isn’t at all inflationary under current conditions — that is, with the economy depressed and interest rates up against the zero lower bound. But eventually these conditions will end. At that point, to prevent a sharp rise in inflation the Fed will want to pull back much of the monetary base it created in response to the crisis, which means selling off the Federal debt it bought. So even though right now that debt is just a claim by one more or less governmental agency on another governmental agency, it will eventually turn into debt held by the public.

So by Krugman’s own admission, it isn’t true that conjuring up a trillion-dollar coin will “[do] no economic harm at all.” Krugman has long been notorious for misquoting other people; it turns out he can’t even quote himself correctly. Now, back to today’s post:

It’s easy to make sententious remarks to the effect that we shouldn’t look for gimmicks, we should sit down like serious people and deal with our problems realistically. That may sound reasonable — if you’ve been living in a cave for the past four years. Given the realities of our political situation, and in particular the mixture of ruthlessness and craziness that now characterizes House Republicans, it’s just ridiculous — far more ridiculous than the notion of the coin.

If you try to bring our trillion-dollar deficits under control, you are crazy and ruthless. So, Paul, what do you call people who run up trillions of dollars in debt, refuse to reform entitlements that will bankrupt our children, and decline even to adopt a budget, in violation of federal law? Are they crazy or ruthless? Of course not, those are Democratic statesmen!

So if the 14th amendment solution — simply declaring that the debt ceiling is unconstitutional — isn’t workable, go with the coin.

What is the “14th amendment solution”? This is a theory bouncing around the left-wing internet to the effect that the debt ceiling is unconstitutional, because of this language in the 14th Amendment:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

If you are puzzled as to how this clause could make the debt ceiling unconstitutional, you are not alone. To make just one obvious point, if the executive branch undertook to incur debt in excess of the debt limit, it would not be “authorized by law.” Liberal law professor Larry Tribe explained–very gently–why the “14th Amendment solution” won’t work.

But note that Krugman assumes that if the debt ceiling isn’t raised, the government will default on its bonds. This assumption is made explicit elsewhere in Krugman’s post. But that simply isn’t true: on the contrary, under the quoted language of the 14th Amendment, the government can’t default on the debt it has lawfully incurred, which is all of the debt currently outstanding. The federal government takes in a vast amount of tax revenue, far more than is necessary to pay interest on bonds and to pay off bonds as they mature. Those payments would be made; there would be no default. What would happen is that the Treasury would have to prioritize its payments. Thus, there might not be enough money to run the EPA, or bail out “green” energy companies, or give food stamps to illegal aliens, or subsidize NPR, or pay federal employees far more than they could earn in the private sector, or pay Medicare reimbursements or Social Security benefits. Some of those consequences might be bad, but they would not be a default.

If there is one person who sums up the intellectual decline of the American Left, it is Paul Krugman.

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