There is an idea floating around Washington, D.C. and the Internet these days that the solution to our national debt problem is for the U.S. treasury to mint a trillion-dollar platinum coin.
According to its supporters, this simple action would wipe a trillion dollars off the books and eliminate the political standoff over the debt ceiling.
From an economics standpoint, though, the idea lacks the breadth of imagination needed to make it a success as fiscal policy. It would make a lot more sense for the Congress to enact a more comprehensive Debt Reconciliation Plan. Instead of one coin, it would direct the U.S. Treasury to mint approximately 315 million coins, each having sufficient molecular content to be considered platinum, legally, and bearing the denomination, “$50,000,” the approximate amount of federal government debt for each person living in the U.S. as well as our armed forces overseas.
Each of us would be entitled to one of these coins, thus eliminating the need for further entitlement reform, at least this year. The debt could be wiped off the books, America could get a fresh start, the economy would grow again and we’d all be richer.
The only real problem with the reconciliation plan would be the added federal expenditures needed to clean up and recycle the pixie dust.
There is a possible credibility issue. Some people might feel that the plan is “too good to be true.” Advisers would probably counsel, though, that this program is at least as credible as the current policy where the Federal Reserve buys Treasury bonds as soon as they are issued and stuffs them in a drawer. That drawer is jam-packed right now with more than $1.67 trillion worth of government debt and there’s pixie dust all over the place — and no one seems to mind. Besides, the Debt Reconciliation Plan puts something in everybody’s pocket and nobody has to pay. Who’s going to complain about that?
It is not clear just how serious the platinum coin idea was originally, but it has attracted enough attention for one member of Congress to author a bill prohibiting the U.S. Treasury from actually doing it. And the White House is fielding questions from the news media about the idea. Still, it is nonsense.
The alternative plan, which would put a worthless coin in each of our pockets, is, of course, absolute hokum, too. It’s got pixie dust all over it.
We each have in us to some degree a desire to believe in the kind of magic that could make our economic problems disappear. We can call it unrealistic, but it’s still there.
That probably explains why financial markets are not always rational.
To economists, the stock market is the closest thing to a perfectly competitive market we could find in the real world. To be truly competitive, though, a market has to be rational. Its heady response to the cobbled-together fiscal agreement, then, makes us realize that it is not perfectly rational, just close to rational.
The imperfectly rational market also saw December’s tepid employment report as positive. There are some positive signs in the economy, certainly, but the employment report was really a reminder of just how long our economic comeback is going to take.
The unexpected link that connects the platinum coins, the fiscal cliff agreement, and the employment report is one word: “loophole.”
It is a legal loophole that would supposedly allow the Treasury to mint the magical platinum coins. And, coincidentally, the fiscal cliff agreement contained a substantial number of tax code loopholes; the result, most likely, of the high intensity lobbying that had preceded the legislation. Most of these were continuations of existing special treatment for particular industries or situations and it probably made sense to avoid the economic shock of letting them suddenly expire while Congress and the White House worked up the courage to reform and simplify the tax code.
Still, the idea that they had to be hidden by burying them in the fiscal agreement says something about the way the federal government views the public interest. Its response to lobbying promises a continuance of the tax code’s favoring big businesses over small. The fact that the loopholes were largely unreported also says something about the way today’s news media works, but that is a separate story.
In reality, the fiscal cliff agreement did not move us one millimeter toward dealing with our national debt or ongoing prodigality. December’s employment report was only mildly encouraging and the tax code is still an undecipherable mess of favors to big business and advocacy groups.
The hardest thing to take about current fiscal policy, though, is that the darned pixie dust gets over everything.
James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Herald Business Journal.