Tuesday, January 8, 2013

Trillion-Dollar Platinum Coins: Change We Can Believe In

The platinum coin option has emerged as a way of addressing short-term problems involving the debt ceiling, but it also intrigues me as a structural change to American policy. It would put the capacity for quick monetary expansion into the hands of a democratically elected leader. There's a risk that the leader would use this power badly and cause trouble, but quickly removing leaders who do bad things is what democracy is for.

Instead, our system puts the power into the hands of an independent central bank, which can make mistakes for a long time while blame falls on democratically elected leaders. I'm getting less sure about the case for central bank independence. Obviously, moving monetary policy to the president through platinum coins is pretty weird, but I'm starting to think things might be better if Presidents could just print some money through less colorful means when they needed to. If people are going to blame Presidents for deflationary spirals with high unemployment, Presidents might as well be given something to do about it.

Making these monetary tools specifically inflationary ones strikes me as pretty nice, because inflation has its benefits. Will Wilkinson describes what I think: "commentators with technocratic leanings I think find it especially frustrating that a higher rate of inflation, which would erode the value of the debt and also boost growth and, thereby, revenue, is not on the democratic negotiating table. The fancy of a $1 trillion platinum coin is so tantalising in part because it puts a monetary option in play." On top of that, it's a monetary option with good distributive consequences -- inflation hurts those who have money, does nothing to those without money, and improves the situation of debtors.

Unfortunately, Will follows this with comparison of the platinum coin to fascism, apparently because it's the executive branch doing something big, and then the remark that "We'd be better served, however, if the commentariat would rein in its id, stop its idle chatter about exotic, coin-based, presidential monetary policy, and begin seriously to consider the more probable but less glittering eventuality of a Greek-style default." But I don't know how you get a Greek-style default if you can make a lot of your own currency, which the Greeks can't do because they signed that power over to the ECB. Giving more inflationary power to the President is a way to not be Greece, and be a country with something like 5% unemployment and 5% inflation instead. 
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