Saturday, July 30, 2011

Platinum Coin Seigniorage Sounds Awesome

The more I think about minting trillion-dollar platinum coins to balance the budget, as an answer to debt ceiling problems or just for its own sake, the better it sounds.

The big problem with creating new money is that it might cause more inflation. But this is the time when we need more inflation! We need more people with money to think that their money is going down in value if they save it, so they'd better spend it now. That's how you escape the liquidity trap where nobody spends or invests because they're worried about their financial situation. Give them a reason to spend or invest (in the latter case, to develop resources that'll catch the fresh money coming into the system) and they'll be the demand you want.

That's the short-term way to put the case, but there's a long-term way too. If people on the Fed always feel that they shouldn't actively pursue looser money because that's not the stodgy banker thing to do or the rich cashed-up guy thing to do or whatever, they're always going to pursue excessively tight monetary policy. Turning fiscal policy into a vehicle for monetary loosening by setting a precedent for balancing budgets by minting platinum coins offsets the institutional bias towards excessively tight monetary policy.

Progressives should note that there's also a good distributive justification for inflation. Who has lots of cash? Rich people and rich corporations, almost by definition. Who doesn't have much cash? Poor folks and especially people in debt, who kind of have negative cash. So if you reduce the value of cash relative to other assets, you're putting poor people (who just have their future labor and some debt) in a better position relative to rich people (who have cash). Distributive win!
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