The Economist: The platinum distraction

THERE is a bizarre fascination among opinion journalists with the idea that Barack Obama can finance government, whatever the outcome of the next debt-ceiling showdown, with a $1 trillion platinum coin. Here's how Josh Barro of Bloomberg explains this bonkers notion:

In case you're not familiar with this idea: In general, the Treasury Department is not allowed to just print money if it feels like it. It must defer to the Federal Reserve's control of the money supply. But there is an exception: Platinum coins may be struck with whatever specifications the Treasury secretary sees fit, including denomination.
This law was intended to allow the production of commemorative coins for collectors. But it can also be used to create large-denomination coins that Treasury can deposit with the Fed to finance payment of the government's bills, in lieu of issuing debt.

Having investigated the subject intensively for about an hour, it seems to me that the Treasury is "not allowed to just print money" at the order of the executive in about the same sense that the executive is "not allowed" to order the air force to drop nukes on Brooklyn, or "not allowed" to order the assassination of American citizens. Which is to say, it's just not done, until it is. The American habit of making a fetish of their written constitution tends to blind them to the fact that power is constrained at last by conscience, convention, and credible threats of social, institutional, and physical reprisal, not paper law. The pundit class's interest in the statutory niceties of the president's authority to mint platinum coins tells of both a touching faith in the subordination of executive power to public procedure, as well as a longing to transcend the actual democratic process through the singular will of a great leader supplied with a gleaming totem of grail-like generative power.

Clearly, American government is at an impasse, or nearing an impasse. An impasse is in the offing, let us say. As a percentage of GDP, public debt is at a post-second-world-war high, and the federal government annually spends hugely more than it takes in. Worse still, until text-messaging and faux-faded cell-phone snaps of omelettes can be harnessed to create runaway economic growth, there is not the slightest hope of future balanced budgets. As the late "fiscal cliff" episode has revealed, Congress lacks the resolve to raise income-tax rates on any but extraordinarily big earners, and thus lacks the resolve to raise more than trivial amounts of additional revenue. On the other side of the ledger, there is little resolve to curb military or entitlement spending, which is to say, there is little resolve to significantly curb spending, even if, as my colleague maintains, "everything the government does apart from wars and transferring money to old and poor people has gotten creamed".

This is a frustrating pattern of facts. Liberals are frustrated by this creaming, and by the fact that there exists such a thing as a "debt limit" that prevents the executive from financing the programmes it is legally obliged to run. Conservatives are frustrated to discover that record deficits have done next to nothing to slow the growth of the beast, much less to begin to "starve" it. The ultimate problem is simply that the American public makes consistently inconsistent demands, so government must strive to meet them, or get replaced by one that will. But there will be a reckoning.

Jonathan Chait says that "At some point, we will likely face a choice of cutting benefits or raising taxes, and in the face of a simple, zero-sum choice like that, voters would overwhelmingly favor tax hikes." When shove comes to push, I don't think any of us really knows whether congress and the president can negotiate its way out of this jam, much less whether push or shove will prevail. Predictions, such as Mr Chait's, about the most likely mix of tax increases and spending cuts are mostly speculative wish-fulfillment. Speaking of which...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. The larger attraction, though, is that it does so in a way that honours democracy by sticking to the letter of democratic legislation, yet also flirts with the heady unilateral decisiveness of fascism. This is, I'm afraid, a combination powerfully intoxicating to the pundit id. 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.