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Going Platinum?

Hear me, pundits of platinum: the debt ceiling crisis doesn’t require a technical solution. It requires a political solution. Last time around, President Obama negotiated over the debt ceiling because he wanted a bi-partisan agreement to raise taxes and cut entitlements. Or, more specifically, he wanted to force the Republicans to raise taxes and to […]

Hear me, pundits of platinum: the debt ceiling crisis doesn’t require a technical solution. It requires a political solution.

Last time around, President Obama negotiated over the debt ceiling because he wanted a bi-partisan agreement to raise taxes and cut entitlements. Or, more specifically, he wanted to force the Republicans to raise taxes and to have them force him to cut entitlements. He couldn’t get what he wanted.

Now, he’s got his increase in top income tax rates. He still wants to be “forced” to cut entitlements, but it’s not clear the President wants to use the debt ceiling increase to negotiate over that, in part because negotiating last time made him look weak. For that matter, it makes much more sense, in terms of the proper functioning of government, to have that negotiation over the budget and sequestration. (Frankly, the debt ceiling shouldn’t exist at all – all the decisions about taxing and spending are made in the budget process, so it’s silly to have a separate vote on borrowing.)

If the President is, in fact, interested in using the debt ceiling crisis to force him to do something he wants to do but doesn’t want the blame for, as he was last time, then he shouldn’t mint (or threaten to mint) platinum coins. He should just negotiate. And the current game of chicken is part of the negotiation – establishing that the Republicans are lunatics so that he can save the country from them with magnanimous compromise.

If the President is not interested in playing that kind of game, then his rational goals are either getting a clean increase in the debt ceiling (which would be good governance), or making the GOP look terrible for not simply giving him a clean increase in the debt ceiling (which would be good politics).  If he stonewalls, then that choice is in the GOP’s hands.

If the GOP doesn’t give it to him, then, leaving platinum seignorage aside, the President is in a trap where all options are illegal – and whatever he does, he winds up in court. That’ll be bad for the economy, but I can’t really see how the President loses the fight, politically or legally. What’s the Supreme Court going to say: yup, you can’t refuse to spend the money and you can’t spend the money because you don’t have it, so you are hereby ordered to . . . do neither? Is the Supreme Court really going to say: get out of my court and go mint a platinum coin? Does anybody actually believe that? It strikes me as more likely that the debt ceiling itself would be struck down – which would also be a great outcome (and striking down the debt ceiling would do nothing to reduce Congress’s power over taxing and spending).

So what does the “platinum option” achieve? Assuming it’s legal (I doubt it), it lets the Republican Congress entirely off the hook, and therefore encourages their worst instincts. This was Ross Douthat’s point yesterday, and I agree with him completely. Inasmuch as the markets are terrified of massive disfunction in Washington, it won’t assure them either; it’ll look like an escalation of the insanity.

If the debt ceiling didn’t exist, the next showdown would be over the budget. If Congress can’t pass a continuing resolution, the government shuts down. That could very well happen, and if it does then the political chips will fall where they may. The economic damage from a government shut down would be very similar to the economic damage from a debt-ceiling crisis that forced the government to “prioritize” paying interest on debt – there’s not going to be a default on the debt. The main difference between a budget crisis and the debt ceiling crisis, then, is that, in the latter case, it’s illegal (under the Impoundment Act) for the Executive not to spend the money that Congress has appropriated, so if President Obama starts sending out IOUs in lieu of payment (because Congress has forbidden him from getting the money that it has mandated he spend) he could be sued (or impeached). But, in a political sense, that’s a feature not a bug.

Matt Yglesias has fallen in love with the platinum coin option because it reminds him of Roosevelt’s decision to forbid private ownership of gold, which also utilized power designed for another purpose. But the two decisions are not analogous. Roosevelt’s decision devalued the currency. It had direct economic consequences, and addressed an a substantive economic problem. A platinum coin would allow the Executive to escape from a legal trap set by Congress in which all possible actions are illegal, but it would have no economic consequences at all – it wouldn’t increase spending or the money supply. It can only be, if it is anything, a political solution to a political problem. It’s not analogous to Roosevelt’s action. A better analogy would be if President Andrew Johnson, instead of firing Edwin Stanton (violating the unconstitutional Tenure of Office Act, triggering impeachment), had simply refused to speak to Stanton and instead cast a statue of Lorenzo Thomas out of platinum and pretended he was Secretary of War in cabinet meetings.

The platinum coin option strengthens the Republican extremists’ hands in a negotiation over the budget, and does nothing to protect the economy from a budget crisis that would look very similar to the debt ceiling crisis. So what’s the point of it?

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