Joe Weisenthal is out with another column on this issue, entitled “Why The Fight Over The $1 Trillion Coin Is The Most Important Fiscal Policy Debate You'll Ever See In Your Life.”
He might be right, but I suspect not for the reasons he believes. He is right because there are NO important fiscal policy debates, so ANY fiscal policy debate will be the most important one.
As Jonathan Chait at NYMag observes, what's interesting is that there are very few good arguments, legal or economic, against minting the coin.
Well, there is one economic argument. As to legal arguments, as government employees have made clear that whatever government employees do is legal, he is correct.
Most of the critics' arguments basically boil down to: It's just not serious, and it would make the US monetary and political system look like a farce.
I don’t know if it is serious or not. And it can’t make the system look like a farce – it already is a farce. But what it can do is make the farce evermore obvious. This will certainly bring the farce to sooner end.
But contrary to all these people who say that this is a childish, non-adult proposal put forth by impish trolls, it's actually quite the opposite. It may be the most important fiscal policy debate you'll ever seen in your lifetime, because it gets right to the nature of what is money.
It may further expose the debate of what is money, but the debate has gone on for centuries. On the one hand, money is a commodity with some very specific attributes, chosen in the market. On the other hand, money can be created from nothing.
The problem is that the second proposition – money from nothing – has already won the debate, at least in the last one hundred years and at least for a time. There is no debate about this among “serious” economists. The only debate is because of that Ron Paul fellow and his Australian school, or whatever. But for some reason, Weisenthal thinks producing this coin is somehow different than the Fed producing digits. Only in form, not in function.
Almost everyone talking about fiscal policy imagines money to be a commodity of sorts that we can "run out" of if we don't spend it carefully.
As long as money is produced in a free market, the economy will not run out of it. supply and demand, if left free, will ensure this. Those who recognize money is a commodity understand this.
In this sense, although we've long gotten rid of the gold standard, we're still shackled with a gold standard mentality, where we think of money as a scarce natural resource that we need to husband carefully, lest one day the bond vigilantes show up at our door, causing us to go broke.
Weisenthal will come to eat these words, with or without this trillion dollar coin.
He finds flaw with those who complain that the state is just “creating” money:
Creating money is exactly what government does. What's absurd for a private business is not absurd for the government.
As John Maynard Keynes simply put it a long time ago: "Money is the creation of the state."
That the state creates the money we use is actually known to just about everyone, but people have a hard time making the key leap, which is that once the state is in the business of creating money, then the old gold standard notions of monetary scarcity don't apply in the same way.
The issue isn’t monetary scarcity – central banking has temporarily relieved us from this reality; the issue is scarcity of goods and services. The world is a world of scarcity, at least since Adam and Eve got the boot. All the dreams and wishes of do-gooders, political schemers, and economic quacks cannot change this. Have the state create all the so-called money you want – this will not end scarcity, but only further exaggerate the deterioration of wealth. Witness the last five years.
Stephanie Kelton, an economics professor at the University of Missouri Kansas City and one of the earliest defenders of the coin, explained via email:
Until the idea of minting a $1 trillion coin became a reality, most people probably never gave much thought to the government’s financial operations. We understood that the government spent money, and we knew the money had to come from “somewhere”, but we assumed there were limits to how much the government could afford to spend.
Chits in one pile, the stuff the chits buy in another. Increasing the number of chits doesn’t change the second pile. The issue is an issue of claim on resources – real stuff. Creating money from nothing does nothing to create the real stuff money buys. And since government and its minions won’t be limited in this, guess who will receive the blunt end of the stick in the gut?
Enter the coin. An idea so simple the mind recoils. The Treasury has the power to end-run the process by cutting out the middlemen – taxpayers and bond markets –simply directing the Federal Reserve to add some numbers to its balance sheet. Saints preserve us!
He’s right, the mind does recoil. The saints won’t be able to preserve us. This is greenbacker stuff – Ellen Brown is joyful, I suppose.
Weisenthal’s complete ignorance comes out in his conclusion:
Remember, money is a fiction. Real wealth is capital assets, our infrastructure, our cars, our houses, and most importantly the potential human ingenuity and cooperation. Money is just something that the government creates to facilitate the trade in all of those things.
Human cooperation. Weisenthal is so close to the truth yet remains blind. Money (to include currency and credit) is what makes possible the division of labor – this is the ultimate form of human cooperation. This cooperation allows for the standard of living we enjoy via the resulting labor specialization.
Debase the money by making it of no value (any good that is not scarce is not valued), and you will deteriorate the division of labor. Deteriorate the division of labor, and real wealth – not in nominal-money terms, but as Weisenthal describes it – will be destroyed.
Imagine a world with a much lower division of labor: it is certain that most of us will not remain alive for very long. But those who remain will all be fully employed as farmers. It is for this world that Weisenthal is advocating. At minimum he is advocating for hyper-inflation. In the worst case, he is advocating for your death.
I believe under the Fed, the US will see a high inflation but likely not hyper-inflation. My concerns of hyper-inflation increase greatly if Congress takes over the Fed’s power. This proposal will do that. If this coin idea happens, be prepared, as high inflation is certain, and ultimately hyper-inflation will follow.