Sumner has said that what's important on winning support for his NGDP targeting regime is not public opinion-he always says
there is no public opinion in economics; and idea I don't endorse, but another conversation-but elite economic opinion.
The reason I don't endorse this is not just for anti-elitist reasons but as a shear matter of practicality most elite economists have some pretty bad misconceptions-as elite economists are mostly
neoclassical economists. To an extent then I'm a pragmatist. Elitism on economic reasons would be defensible if not for the fact that elite economists today are wrong about some pretty basic things today.
On the issue of the $1 trillion dollar platinum coin however, I like what I'm hearing from elite economists like Krugman, Yglesias and Sumner. Krugman on the platinum coin:
'First, as a legal matter the Federal government can’t just print money to pay its bills, with one peculiar exception. Instead, money has to be created by the Federal Reserve, which then puts it into circulation by buying Federal debt. You may say that this is an artificial distinction, because the Fed is effectively part of the government; but legally, the distinction matters, and the debt bought by the Fed counts against the debt ceiling.'
'The peculiar exception is that clause allowing the Treasury to mint platinum coins in any denomination it chooses. Of course this was intended as a way to issue commemorative coins and stuff, not as a fiscal measure; but at least as I understand it, the letter of the law would allow Treasury to stamp out a platinum coin, say it’s worth a trillion dollars, and deposit it at the Fed — thereby avoiding the need to issue debt.'
'In reality, to pursue the thought further, the coin really would be as much a Federal debt as the T-bills the Fed owns, since eventually Treasury would want to buy it back. So this is all a gimmick — but since the debt ceiling itself is crazy, allowing Congress to tell the president to spend money then tell him that he can’t raise the money he’s supposed to spend, there’s a pretty good case for using whatever gimmicks come to hand.'
http://krugman.blogs.nytimes.com/2013/01/02/debt-in-a-time-of-zero/
Of course, here, Krugman had the MMTers at hello but lost them here:
"But leaving the debt ceiling on one side, isn’t it true that since spending can currently be financed by Fed money printing, we shouldn’t care at all about the notional debt owed to the Fed? Alas, no."
"It’s true that printing money isn’t at all inflationary
under current conditions — that is, with the economy depressed and interest rates up against the zero lower bound. But eventually these conditions will end. At that point, to prevent a sharp rise in inflation the Fed will want to pull back much of the monetary base it created in response to the crisis, which means selling off the Federal debt it bought. So even though right now that debt is just a claim by one more or less governmental agency on another governmental agency, it will eventually turn into debt held by the public."
"We are living in weird economic times, where many of the usual rules don’t apply and there are big free lunches to be had. But not everything is a free lunch, even now. Sorry."
So Krguman's usual New Keynesiaon position of
it's not inflationary but only because we're in a liquidity trap.
Yglesias:
"Refusing to raise the statutory debt ceiling and forcing the federal government to default on its legal obligations is the ultimate nuclear weapon in congress' arsenal. Bring the president to heel by threatening to destroy the economy."
"But the administration does have a counter-measure, lurking in the poorly drafted subsection (k) of 31 USC § 5112 "Denominations, Specifications, and Design of Coins":
(k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.
"The intent here is to create collector's items, but the fact that the denominations are left up to the Secretary's discretion means that you could finance the government by minting a $1 trillion coin. It's important to be clear that both the platinum coin and the debt ceiling are purely a question of finance. The maximum amount of money the president can spend on any program is the amount congress appropriated. Conveniently, that's also the minimum amount of money the president can spend on any program. That's exactly what makes the debt ceiling so perverse. By refusing to raise it, congress denies the president a legal method of spending money that he's already legally obligated to spend. Platinum coin finance would create new spending capacity, but no new spending authority."
http://www.slate.com/blogs/moneybox/2013/01/03/platinum_coin_option.html
Ygelisas then points out that the platinum coin idea is "mighty silly." It is but no more silly than the debt ceiling which is what the petition for the platinum coin for the White House points out:
"With the creation and Treasury deposit of a new platinum coin with a value of $1 trillion US Dollars, we would avert the absurd-yet-imminent debt ceiling faceoff in Congress in two quick and simple steps! While this may seem like an unnecessarily extreme measure, it is no more absurd than playing political football with the US -- and global -- economy at stake."
https://petitions.whitehouse.gov/petition/direct-united-states-mint-make-single-platinum-trillion-dollar-coin/8hvJbLl6
Now Sumner:
"The trillion dollar coin is back in the news, with recent posts by
Paul Krugman and
Matt Yglesias discussing this option. I basically agree with both of them; the debt ceiling itself is such a logical monstrosity that any zany gimmick like the trillion dollar coin is fair game."
"But it’s also obvious to me that most people would not agree, especially the VSPs, but also average people. When most people think of coins they think of nickels and dimes, the lowliest part of our vast financial system. There is something slightly absurd about combining the number “$1 trillion” with a coin. Most people don’t understand fiat money, or open market operations, or public debt. But they have a vague idea that the German hyperinflation had something to do with currency notes of “100 billion German marks.” So the trillion dollar coin isn’t going to work. The public would greet the idea about the way that John McEnroe used to greet bad line calls:
"You cannot be serious!"
http://www.themoneyillusion.com/?p=18493
Sumner may be right about that: that the guy in the street just couldn't wrap his head around it. In an interesting book by Carl Biven on Jimmy Carter's economy, Biven suggested that while the effects of inflation are not necessarily as socially pernicious as commonly believed it may be very tough to impossible to convince the public of this-even for those who benefit from higher inflation-like those who benefited from inflated real estate prices in the 70s.
http://www.amazon.com/Jimmy-Carters-Economy-Hartwell-Business/dp/080782738X/ref=sr_1_1?s=books&ie=UTF8&qid=1357417197&sr=1-1&keywords=carl+biven
On the other hand I'm not so sure about this total pessimism about the average guy. After all the American people ultimately were a lot more sophisticated than the media prognosticators who told us the election was nothing but a pure referendum on the economy for the President and nothing but.
P.S. Sumner actually agreed with Krugman and Ygelsias as a springboard to make some other more dubious point:
"And that’s also how most economists would react if they heard my theory that the banking/real estate crisis didn’t cause the Great Recession, it was ultra-tight money by the Fed. Is there any chance I can convince other economists that I am right? Yes there is."
"One needs to break the theory down into three components:
1. Money is tight when NGDP growth and inflation fall sharply below target, not when the money supply falls or interest rates rise.
2. Under fiat money the Fed can always boost NGDP if it tries hard enough, even if the economy faces lots of “headwinds.”
3. The recession was mostly caused by a big fall in AD, although real factors such as reallocation out of housing might have played a modest role.
"If all three assertions are true, then my zany theory is true. And I think I have a fighting chance to convince economists on all three counts. For the first, I can
quote Ben Bernanke. Say what you will about Bernanke, but he is not a zany economist like I am. He’s very serious, very respected. For the second item you use
reductio ad absurdum arguments. You cite Zimbabwe, you discuss the expectations channel. You point out that in all of recorded history no fiat money central bank has ever tried to inflate and failed."
"The third might be the easiest. Lots of conventional economists think the recession was due to a demand shortfall—many supported fiscal stimulus."
"So it’s a long shot, but none of the three components of my argument are completely beyond the pale. It’s just when you put them together, people get all John McEnroe-ish."
See this is why I say Sumner is brilliant at concern trolling: you go from agreeing with his perfectly correct point about the platinum coin to feeling maybe you have no reason to agree that the banking/real estate crisis didn't cause the Great Recession it was all just Bernanke's allowing a fall in the monetary base.
Steve Keen in his book "Debunking Economics" pointed out that what the Friedman-Schwartz explanation of the Depression-or applied to this recession-never showed is why a fall in the monetary base which was not any larger than falls at other times since the end of WWII and before the GR didn't cause depressions.
http://www.amazon.com/Debunking-Economics-Revised-Expanded-Dethroned/dp/1848139926/ref=sr_1_1?ie=UTF8&qid=1357417947&sr=8-1&keywords=steve+keen+debunking+economics
See pgs. 300-306.
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