Former Bush Economist: Trillion Dollar Coin Is 'Better Than The Alternatives'

donald marron economist

Photo: Youtube/PBSNewsHour

Donald Marron was a member of President George W. Bush’s Council of Economic Advisers.Currently, he’s director of the Tax Policy centre. Regarding the trillion-dollar platinum coin idea, he finds the legal arguments against it “weak at best,” and the economic arguments against it “stronger but manageable.” 

The best arguments against the coin, he writes, “involve image and politics.” Marron:

Minting a trillion-dollar coin sounds like the plot of a Simpson’s episode or an Austin Powers sequel. It lacks dignity. And despite modern cynicism, that means something.

It would also be premature. President Obama and the Republican and Democratic members of Congress have roughly two months to strike a debt limit deal.

There is no reason to short-circuit that process, as painful as it may be, with preemptive currency minting as the now-famous #MintTheCoin petition to the White House suggests. …

Nonetheless the platinum coin strategy might be better than the alternatives if we reach the brink of default. Analysts have considered a range of other options for avoiding default, including prioritizing payments, asserting the debt limit is unconstitutional, and temporarily selling the gold in Fort Knox. All raise severe practical, legal, and image problems.

In this ugly group, the platinum coin looks relatively shiny. In particular, it would be much less provocative than President Obama asserting the debt limit is unconstitutional. That nuclear option would create a political crisis, while a platinum coin could be a constructive bargaining chip.

… If necessary, Treasury could issue individual $25 billion coins, each in lieu of a needed bond auction. Still ridiculous, to be sure, but less so as it would calibrate coin issuance to immediate financing needs.

I would not downplay the sovereign reputational risk issue, especially when you are a government that borrows 40 cents of every dollar you spend. And the economic issues are hardly minimal. Economist Lars Christensen:

It is stupid because it’s banana republic “economic” policy based on the worst political motives without any foundation in the rule of law and a general rules based framework.

The fact is that the US government faces serious fiscal challenges. The US public debt level needs to be reduced and even if the Federal Reserve pushed back NGDP to its pre-crisis trend level I believe there would be a significant need for fiscal consolidation.

There is no getting around it – debt ceiling or not, trillion dollar coin or not – fiscal policy will have to be tightened sooner or later. And if you need idea about what to cut I have some ideas about that as well (see here).

It is simple mamanomics – you can’t continue spending more money than you have. It might be that certain US policy makers would be happy if their mum raised their weekly allowances, but would they also be happy if their mum prostituted herself to do that?

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