TOS Blog: Daily Commentary from an Objectivist Perspective

The Trillion-Dollar Coin: Economic “Solutions” by Lucky Charm

Modern American politics continues to read like something out of Atlas Shrugged, Alice in Wonderland, or The Onion. As a recent example, various economists, pundits, and politicians have, with a straight face, endorsed the minting of a trillion-dollar coin to escape the debt limit. Talking Points Memo offers the background. Although the Treasury Department opted not to pursue the option, the fact that so many people seriously considered it shows how absurd things have gotten.

In endorsing the idea, Paul Krugman explains how it would work:

The Treasury would mint a platinum coin with a face value of $1 trillion. . . . This coin would immediately be deposited at the Federal Reserve, which would credit the sum to the government’s account. And the government could then write checks against that account, continuing normal operations without issuing new debt.

In other words, opines Krugman, there’s no reason for the federal government to go deeper into debt; it can simply declare that it has more money.

However, as is obvious to everyone with even a partial grasp of reality, arbitrarily creating more dollars does nothing to increase the amount of real wealth. Instead, it transfers real wealth to the federal government by devaluing the dollars held by private citizens; it is a form of theft. Further, when the federal government spends dollars—whether collected via taxation or created via inflation—it either directly purchases the labor of bureaucrats and contractors for government projects, thereby diverting resources that would otherwise go to private development, or it forcibly transfers wealth from producers to welfare recipients.

Escaping the debt limit through (in Krugman’s words) the “accounting trick” of the trillion-dollar coin would only expand the already out-of-control federal spending by stealing more money from American producers.

Krugman does, however, make a good point: Congress imposed the debt ceiling and passed “automatic” spending increases, mostly for “entitlements.” In other words, Congress increased the budget and precluded the federal government from spending more money to cover the increase.

Government efforts to solve government-created spending problems by means of monetary make-believe have brought us a $16.4 trillion national debt. A make-believe trillion-dollar coin will only worsen the problem.

The solution to the government’s spending problem is not to issue a wealth-redistributive trillion-dollar coin. That’s like trying to solve a crime with a lucky charm. The solution is to decrease the extent to which government violates rights. The solution is for Congress to cut federal spending. And the only way Congress will do that is if the American people demand it.

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Image: Wikimedia Commons

Posted in: Individual Rights and Law

Comments are welcome so long as they are civil.
  • http://www.facebook.com/paul.s.williams.39 Paul Scott Williams

    And just imagine how long it would take to get change for the bus at a 7-11 if that was the only coin you had!

  • http://twitter.com/Gypsymtnkat Katherine Tomsich

    Paul Krugman is a child. Only children and politicians believe in magic money trees,

  • Anonymous

    First, who owns or pays for the platinum? Second, I presume they won’t actually attempt to put a trillion dollars worth of platinum into the coin so they are inventing false value (much like our normal currency). Third, doesn’t depositing it and drawing against it steal from the other account holders at the Federal Reserve? Then finally you get the inflationary impact. Sarcastically speaking, this is amazing!

  • Mr. Awesome!

    Personally I think we should just not pay for anything-let the bills we charged up that went over budget go unpaid!

    So what if the people who lost their homes due to Hurricane Sandy suffer! So what if the war in Afghanistan cost too much and went over budget! Who cares if a soldier has a warm meal and ammunition anyhow?

    Yeah! And lets keep talking about “Entitlements” like Social Security, Unemployment and Medicare like they are bad things! That will unite the people behind our cause!

    Lets show those damn liberals we care about the budget and just not pay the bills-because emergencies, war and rampant unemployment caused us to go over budget!

    Starve a soldier and deny him/her ammo, let people who have watched their homes flood,freeze this winter and let unemployed people starve!~ that’ll show em what us Neocons stand for!

    The money for the debt is already spent: If we don’t agree to pay the bill it will be like a charge off! the money spent was not on frivolous things it was for emergency Aid, Unemployment etc.

    If you want cuts start with defense and Homeland security,-but if you cut beware that this will cause a rise in unemployment-because people in these agencies will loos their jobs.

    Every action has an equal and opposite reaction. You spend too much you go into debt you cut too much you create unemployment and go into recession.