Home > Main > Bill, Here’s why The Trillion Dollar Coin Works

Bill, Here’s why The Trillion Dollar Coin Works

November 26, 2011

Bill had an awesome comment on the last post.

He calls MMT “naive”!  He’s right of course.  And it’s why I am a fully throated supporter of the Trillion Dollar Coin.

How does this make sense?  I was going to post this in the comments, but Its better up top here.

Remember, simple ideas tend to go farther. Does your business plan fit on the back of a business card?  Can you explain it to your mom?

The Trillion Dollar coin passes these tests.

Bill makes a series of great, related points.

  • The “powers that be” do not want middle class prosperity
  • The people are easily mislead/distracted.
  • The Coin doesn’t solve any serious real world problems
  • bypassing the dominant narrative is nearly impossible

The Trillion Dollar coin doesn’t solve real world problems.  It solves the problem of getting the right solution into the mind of 100,000,000 people.

Here is my full response.

Hi Bill,

Great comment.

First, you’re right. The Trillion Dollar Coin doesn’t do anything that isn’t already possible. Neither does MMT.

I’ll point out something that is as subtle as a faint smell of smoke but as huge and powerful as the ocean itself: We are constrained by our imagination of the possible.

The Trillion Dollar Coin only has one important property. It makes it 100% clear the government can issue money at will.

What would this idea mean if 100 million people in the United States knew it to be true? Or how about just 5,000 thought leaders?

The problems you mention are real world problems that cannot be solved by either the Coin or by MMT. But you’re forgetting that these problems seem to be intractable because “we need to borrow money to be able to afford X, Y, Z”

The problem of government banking cartels? What if people knew the government was allowing banks to shovel money created by the governent into their own accounts?

Right now, many people actually believe these people earned the money and the government is stealing it. When people know it’s the other way around, what’s going to happen?

We’re also letting millions of people sit on their butts because “we can’t afford XYZ.” The Trillion dollar coin makes it 100% obvious the “Can’t afford” part is 100% wrong.

This is the power of the Coin. It takes the dominant narrative away from the elites you rant against. It bypasses the economists. It bypasses the government.

It’s strong enough of a meme to wash over nearly any elite objections to MMT.

Anytime you hear “we can’t afford it”, the response is “the Trillion Dollar Coin”.

Your point about being naive is so great. This is what my rant is about – the naive belief that all you need is a good idea and some pluck, and you’ll be crowned king o’ the world in a matter of months.

That’s why I am such a full throated supporter of the Trillion Dollar Coin. The Coin isn’t naive. It’s marketing that 100,000,000 people can understand.

Now I know about real resource constraints. They are huge, huge, huge. MMT doesn’t do anything for this at all. The current policy is far worse than what MMT implies.

When we aren’t faced with money constraints, we’ll be better able to face real world resource constraints. I know this isn’t well stated or even logically connected, but my own experience is that solving simple problems in my personal life makes solving more complex and pressing problems easier.

I hope you think through the Trillion Dollar Coin.  It’s like a good version of the Gold Standard.

The power of the TDC isn’t that it solves problems. The power is that it gives a framework to solve problems. It’s like a computer – useless on its own until it runs a program..

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  1. November 26, 2011 at 6:41 pm

    Don’t know who BIll is. he certainly doesn’t sound like Bill Mitchell. Anyway. Of course, I very much agree with this post, and urge Bill to read:

    http://www.dailykos.com/story/2011/08/03/1002638/-Proof-Platinum-Coin-Seigniorage:-A-Political-Game-Changer-for-Progressives!?via=history

    and

    http://www.dailykos.com/story/2011/08/05/1003393/-End-the-Austerity-War-Against-the-People:-Mint-the-Platinum-Coin!?via=history

    and

    http://mikenormaneconomics.blogspot.com/2011/07/definitive-solution-to-debt-crisis.html

    for the political psychological case.

  2. beowulf
    November 26, 2011 at 11:21 pm

    1. Spending is the real tax…. but only at full employment, otherwise its better than a free lunch (since we could literally pay the unemployed to eat at no cost).

    2. Full employment economic models assume there’s no trade deficit. Meanwhile, free trade economic models assume there’s unemployment. The economy cannot maintain a full employment equilibrium unless the trade deficit is offset by either tariffs or seigniorage revenue.

    3. If we can plan it, we can build it. If we can build it, we can afford it.

    4. That FDR had his head screwed on straight:
    “In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all—regardless of station, race, or creed. Among these are:
    -The right to a useful and remunerative job in the industries or shops or farms or mines of the nation;
    -The right to earn enough to provide adequate food and clothing and recreation;
    -The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;
    -The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;
    -The right of every family to a decent home;
    -The right to adequate medical care and the opportunity to achieve and enjoy good health;
    -The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;
    -The right to a good education.
    All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being. America’s own rightful place in the world depends in large part upon how fully these and similar rights have been carried into practice for all our citizens. For unless there is security here at home there cannot be lasting peace in the world.”

  3. bill
    November 27, 2011 at 11:55 am

    I agree with the coin and agree that its virtue is in its marketability, which MMT lacks. But it also has drawbacks. It sounds gimmicky. It lends itself to the image of a monetary crank with a magic nostrum for the world’s ills. It smacks of “cheating on our debt” through a loophole. It would be opposed as hyperinflationary etc. just as MMT. But yes, it is a simple enough concept, which, once understood, opens the door to MMT.

    But we shouldn’t put too much emphasis on the goal of cleaning up the USG balance sheet, because then we give credence to the claims that it needs to be cleaned up, i.e. balanced.

    In fact, retiring large amounts of treasury debt currently held by savers opens up a problem. In the absence of a few trillion USG bonds, what does the saver do? Hold cash balances in bank? Correct or incorrect, the former Tbond holder may see that as less safe, and will want to invest in something. What do prominent MMTers think would happen in such a scenario?

    One of the criticisms of our present system writ large is that millionaires and billionaires are able to save huge amounts of wealth in essentially riskless positions, i.e. insured banks and treasuries. Has this contributed to the malformation of the private sector?

    Or, is it the lack of safe, profitable returns offered by the private sector which has drawn so much savings into guaranteed low returns of government bonds? in essence shifting the responsibility for investment to the public sector. The public sector could theoretically invest wisely and long term in a way the private sector cannot, without regard for short term constraints of profitability, shareholders, risk, etc. Governments have behaved wisely at various times in the past. But I do not see it happening any time soon in America.

    Thanks for the reply TC.

    • November 27, 2011 at 6:38 pm

      I think we need some simulations of what would happen. I suspect people would look for real investments that were safe, but not riskless. This could only help the economy, in my view. In nay event I don’t see the public purpose that’s fulfilled by the Government providing risk-free investments. It seems to me to be just a form of welfare. I’m in favor of welfare for the needy; but I don’t seethe fairness in providing that kind of welfare when we are unwilling to provide it for the poor, CBO and other projections extending theirs say that $11.8 Trillion would be spent on Treasury Bond interest over the next 15 years. I’d be in favor of a trade where the Government provides that amount of welfare for people who can afford to buy Treasuries, as long as they agree to politically support providing an equal amount of welfare for the needy over that same 15 year period. But until them, I’d be opposed to either continuing debt issuance or paying interest on reserves, thus driving “riskless” interest rates down to zero.

    • November 27, 2011 at 7:06 pm

      Bill,

      “I agree with the coin and agree that its virtue is in its marketability, which MMT lacks. But it also has drawbacks. It sounds gimmicky. It lends itself to the image of a monetary crank with a magic nostrum for the world’s ills. It smacks of “cheating on our debt” through a loophole. It would be opposed as hyperinflationary etc. just as MMT. But yes, it is a simple enough concept, which, once understood, opens the door to MMT.

      But we shouldn’t put too much emphasis on the goal of cleaning up the USG balance sheet, because then we give credence to the claims that it needs to be cleaned up, i.e. balanced.”

      How it sounds depends on how it’s presented. It will be attacked as a “gimmick,” sure; but it’s easy to reply that the people attacking it that way are people who already have plenty of money and who will benefit from “the austerity” alternative they propose.

      Also, it doesn’t make any sense that the Government should borrow back money it has an unlimited right to issue. It is this practice of issuing debt that is “the gimmick.” It is the current “gimmick” for enriching people looking for risk-free interest earning investments.

      In addition, it is ridiculous to say that paying off the public debt as it falls due, while issuing no debt, is a gimmick. That’s what is really counter-intuitive, if anyone thinks about it for a minute. After all, isn’t that what people do when they have the power to pay off old debt without incurring any new debt? Why would anyone put into practice this kind of silly idea? Certainly, only because they wanted a way to provide welfare for the rich and foreign nations exporting to the rich, while they created a completely unnecessary bond market that would allow them to exert continuing power over foolish nations and their people.

      Finally, about “the hyper-inflationary” business, there is no way just using PPCS to repay debt and avoid issuing new debt would be inflationary, much less hyper-inflationary, since doing that would not increase private sector net financial assets. Inflation might enter the picture, if Congress appropriates a greater volume of spending than the Government is able to collect in tax revenue. Even then however, there will be no demand-pull inflation until full employment is reached. There can be cost-push inflation, of course, but if it occurs it will not have been caused by Government spending exceeding tax revenues.

  4. beowulf
    November 27, 2011 at 2:23 pm

    “It smacks of “cheating on our debt” through a loophole. It would be opposed as hyperinflationary etc. just as MMT. But yes, it is a simple enough concept, which, once understood, opens the door to MMT.”

    Bear in mind, its something the Administration can do unilaterally. That’s not nothing, considering that the House was rewarded this summer in its efforts to hold the debt ceiling vote hostage.

  5. November 27, 2011 at 6:22 pm

    Beo, That’s one of favorite speeches ever. FDR certainly did have his head screwed on right. Obama on the other hand . . .

  6. Bill
    November 28, 2011 at 9:50 am

    “Spending is the real tax…. but only at full employment, otherwise its better than a free lunch (since we could literally pay the unemployed to eat at no cost).”

    “Full employment” is a term for the full utilization of only one resource, i.e. labor. Full utilization of other resources is also a constraint. Food, energy, medical care are examples of resources that are currently experiencing full employment. Not bailing out the over-indebted household sesctor is a means of restraining increasing demand for said resources. As is global wage arbitrage, the payroll tax, not extending unemployment benefits, etc.

    Some of these resources can be expanded to meet increased demand, such as the healthcare sector. But if you look at the past decade in terms of the massive increase in unpayable household debt, it actually respresents a redistribution of income to the shrinking middle class from the expansive financial elite. This of course was reflected in the spending boom during the 203-2007 period. Bailing out the elites with either monetary or fiscal policy is a corrupt and anti-market action, but it is NOT a strain on any real resources. Bailing out America’s middle class from fraudulent debtgs, however just and fair, is not part of the elite global consensus, and IS a (potential) strain on real global resources.

    If the whole “developing world” were to adopt the traditional American living standard (the one embraced by MMT community), rather than the reverse (which is official policy), how long would global resources last? Maybe the impoverishment of America’s middle class is in fact the goal…

    • November 29, 2011 at 3:45 pm

      ““Full employment” is a term for the full utilization of only one resource, i.e. labor. Full utilization of other resources is also a constraint. Food, energy, medical care are examples of resources that are currently experiencing full employment.”

      Joe: How do you figure that “food, energy, and “medical care” are examples of resources that are currently experiencing full employment.

      Bill: “Not bailing out the over-indebted household sesctor is a means of restraining increasing demand for said resources. As is global wage arbitrage, the payroll tax, not extending unemployment benefits, etc”

      Joe: So what. Killing a Billion is also a means of restraining demand for those resources. Does that mean we want to do that? What’s your point Bill. Are you just rewarming Malthus again?

      Bill: “Some of these resources can be expanded to meet increased demand, such as the healthcare sector. But if you look at the past decade in terms of the massive increase in unpayable household debt, it actually respresents a redistribution of income to the shrinking middle class from the expansive financial elite. This of course was reflected in the spending boom during the 203-2007 period. Bailing out the elites with either monetary or fiscal policy is a corrupt and anti-market action, but it is NOT a strain on any real resources. Bailing out America’s middle class from fraudulent debtgs, however just and fair, is not part of the elite global consensus, and IS a (potential) strain on real global resources.”

      Joe: Everyone is “straining” resources to some degree. There is no basis for saying that wealthy elites have any more right to available resources than other people do. As it is they take much more of their share of available resources and use their money, often ill-gotten, to do that. Since other people vastly outnumber the wealthy elite, what’s just and fair does count, because eventually without justice and fairness our whole system will come to a very unhappy end, and also because human life is, in part, a search for justice and fairness.

      If wealthy elites deserved a bailout, a highly debatable proposition since it was they who crashed the global economy, then certainly the real victims of the crash deserved a bailout too. In fact they deserved a bailout first, since their bailout would have created the conditions for restoring a vigorous economy. I don’t disagree that creating prosperity might create a real strain on resources; but I don’t subscribe to the view that our resources are too limited to support the present world population with a decent standard of living. I think Solar and Wind Energy will be competitive within a four or five years now, and that Food need not be in short supply.

      I am not saying we don’t have to re-organize our economy and the world’s economy for sustainability. I very much think we do. But we will not succeed in doing that by continuing with an unsustainable political and economic system. That will only hasten a worldwide collapse of civilization the miserable deaths of much of humanity.

      Bill: If the whole “developing world” were to adopt the traditional American living standard (the one embraced by MMT community), rather than the reverse (which is official policy), how long would global resources last? Maybe the impoverishment of America’s middle class is in fact the goal…

      In fact, I’ve addressed that here: http://bit.ly/sUgO4o

  7. beowulf
    November 28, 2011 at 10:47 am

    <i<“Full employment” is a term for the full utilization of only one resource, i.e. labor..

    Its the only resource that matters, like Protagoras said, “Man is the measure of all things”.
    Or to quote another ancient Greek (Sophocles):

    “A cunning fellow is man.
    His tools make him master of beasts of the field
    and those that move in the mountains…
    He has a way against everything,
    and he faces nothing that is to come without contrivance…
    With some sort of cunning, inventive
    beyond all expectation
    He reaches sometimes evil,
    And, sometimes good.”
    (h/t Victor Davis Hanson)

    • Bill
      November 28, 2011 at 11:54 am

      “Its [labor] the only resource that matters.”

      This belief is one of the big problems people will have when engaging with the MMT community. MMT is actually a core set of premises, of a descriptive nature, espoused by a relatively diverse coitere of individuals with unorthodox ideas. It’s a group with a variety of opinions outside of this core of premises. However, this group is surrounded by a larger group of ideological camp followers with a wide range of non-descriptive opinions which they often (innocently) pass off under the rubric of MMT.

      Case in point, this non-MMT claim, that “labor is the only resource that matters.” Well, leisure is a resource, the opposite of labor, and is quite valuable. Otherwise I’d not be here expending my leisure discussing this.

      MMT, as a subset of Keynesianism, acknowledges the possibility (even probability) of conditions in which there is an excess supply of labor. Technology frees up labor. There is not an infinitely elastic standard of living. At some point more leisure is better than more labor. Having a surplus of voluntarily unemployed labor (people who do not want to work more) is positive for wages.

      If labor was the only valuable resource, why should we not work 80 hours a week rather than 40?

      Involuntary unemployment is certainly a problem. If there is an abundence of necessary or valuable work to be done, and a surplus of unutilized labor, then the market (or the government) has failed. However, not every pair of hands is suitable for every possible job. And not just due to lack of training. And in America a large segment of the population is just not interested in doing certain kinds of work. Even a well-salaried position on an oil rig, for example, might not appeal to an unemployed software technician who invested years of time, money and expectations in working in his field.

      Not every unemployed person can be trained to work in every field. Providing medical care, for instance. The out of work DMV paper stamper is not automatically suitable, regardless of training, to assist a physician. And this person won’t pick fruit when the option to collect a check (and maybe pick a little up on the side in the unofficial economy) is availible.

      Do we truly want everyone to have a job? What we do want is for everyone to have a minimum standard of living and to be socially integrated on some level into the productive economy. We want everyone to have a minimum of healthy food, medical care and education.

      “Man is the measure of all things,” which means that man imparts value to all things. We decide what has value and what does not. The ideal of the 1950s consumer society and middle class standard if living is one possible ideal. It may be yours, but that doesn’t make it mine, and it doesn’t mean it should be everyone else’s. Anyway, the quote has nothing to do with whether or not employment is the only resource of value.

      If we decide it is a social value, a public good, to provide guaranteed employment to everyone willing to work, we must weigh this against other values.

      • beowulf
        November 28, 2011 at 12:56 pm

        “Its [labor] the only resource that matters.”

        No, you missed my point!
        MAN (as in mankind) is the only resource that matters. The purpose of creating tools to master the beasts of the fields and those that move in the mountains (and other such contrivances) is to improve human quality of life.
        That certainly, absolutely and emphatically is not limited to merely employment. There’s also the matter of decent homes, adequate medical care and good education, among other things (President Roosevelt’s list is a good place to start… that’s why I started there).

      • TC
        November 28, 2011 at 1:09 pm

        I agree with beo. Nothing else matters on the planet except Man. Full employment isn’t a pipe dream of “lets share the bounty the lord has given us.” It’s an imperative to maximize human welfare.

        Just look around, see some trash on the ground or a bridge needing paint – and think of the 20m people we’re allowing to sit on their ass in this country, and the 2 billion we’re doing the same for around the globe.

        You will quickly be sickened by the waste of human energy.

        I think of the 20 Steve Jobs we’ve allowed to expire in poverty in India over the last 50 years.

        This isn’t about sharing – it’s about my personal greed. We’d be 10x richer if we just put people to work.

    • November 29, 2011 at 3:45 pm

      I tend to agree.

  8. November 28, 2011 at 12:08 pm

    “What we do want is for everyone to have a minimum standard of living and to be socially integrated on some level into the productive economy. We want everyone to have a minimum of healthy food, medical care and education.”

    Indeed we do, and the current mechanism for distributing that is to ration it out relative to effort expended working.

    But like burning fossil fuels that distribution method has a finite lifespan. Within a short period of time we’ll have robots doing most of the work and that system then starts to break down – if it hasn’t already.

    Unfortunately like democracy, rationing by effort expended seems to be the least bad system.

    • TC
      November 28, 2011 at 1:04 pm

      We are within 15 years of moving to a largely robotic society. 30 years at most. You should read Michael Swanwick on this.

      http://en.wikipedia.org/wiki/The_Dead_(story)

      It’s about zombies, but robots work.

    • November 29, 2011 at 3:49 pm

      Soory Neil, If this:

      “Indeed we do, and the current mechanism for distributing that is to ration it out relative to effort expended working”

      then I doubt that the Koch brothers would have the money that they do. In fact, I think that there is any correlation between effort and remuneration in modern economies, is one of those myths that justifies the present unequal distribution of wealth. I just don’t believe this myth.

      • November 29, 2011 at 11:43 pm

        Joe,

        You’re very welcome to put the word ‘de jure’ in there.

        We all know that ‘de facto’ the distribution mechanism is FUBAR. That’s why it needs changing.

  9. Bill
    November 28, 2011 at 1:16 pm

    Does anyone actually behave as if “the only thing on the planet that matters is ‘Man’?

    Truly, let us add a few billion more of Man, and see how cheap life becomes.

    • beowulf
      November 28, 2011 at 2:49 pm

      All these capitalized “Men”, remind me that the The Children of Men is a phenomenal movie, even if it is one long public service advertisement to be fruitful and multiply. :o)

      According to the US Dept of Commerce, every American life adds $2.5 million in human capital stock (with a population of 300 million, US human capital stock is estimated at $750 trillion— funny how that sum is never juxtaposed against our $15 trillion public debt).
      http://webcache.googleusercontent.com/search?q=cache:XuMUsaSoCEsJ:www.bea.gov/scb/pdf/2010/06%2520June/0610_christian.pdf

      Personally, I think we should use a portion of our good fortune to improve the lives of the world’s poor (if nothing else, the more friends we make today, the fewer wars we’ll have to wage tomorrow). Your mileage may vary.

      • November 29, 2011 at 3:51 pm

        It is a phenomenal movie. There is a limit to the population we’ll be able to support on this planet. I suspect we are from this limit right now, but only time will tell.

    • November 30, 2011 at 2:57 pm

      De jure is fine! FUBAR is exactly right!

  10. beowulf
    December 13, 2011 at 11:29 am

    Was going to email this to TC but figured I’d just re-post herea comment I left to Yglesias report that GOP House will pay for Medicare doc fix this year by cuttingObamacare premium subsidies in out years.

    The Republicans always throw their golf club in the direction they’re walking. They’ll only agree to avoid painful spending cuts this year so long as they can lock in much greater pain in the future at no political cost (people who are hurt in 2020 would need a time machine to punish their Republican congressman in 2012).

    The biggest missed opportunities for Democrats is not taking advantage of high unemployment and low interest rates to throw the golf club in the direction THEY are walking. That is, by enacting tax hikes that don’t kick in until unemployment rate drops or interest rates increases. For example, uncap SS FICA at the same time an automatic FICA tax holiday (linked to U3 rate) is introduced. Or, impose a securities transaction tax with rate set at, say, one-tenth of 3 month T-bill yield (basically 0 today). No one will pay higher taxes for at least the next couple years and yet as rates change in the future, tax revenue will go way up (at least $200B a yr from FICA, roughly the same from transaction tax) and angry voters find that the time machine shortage benefits both parties equally.
    http://www.slate.com/blogs/moneybox/2011/12/13/health_money_for_the_elderly_or_for_the_middle_aged.html

    • Clonal Antibody
      December 13, 2011 at 7:18 pm

      Beo,

      You might like this article by Mat Vernengo at the University of Utah – A Hands-off Central Banker? Marriner S. Eccles and the Federal Reserve Policy, 1934-1951

      Marriner Eccles is often seen as an early defender of Keynesian ideas. In that respect, it is generally accepted that he considered monetary policy of secondary importance, and that as a result he allowed the Federal Reserve to be submitted to the interests of the Treasury. In this view, the Federal Reserve after 1935 acquired new instruments to command monetary policy, but it did not change its behavior significantly. Further, his defense of the Federal Reserve-Treasury accord in 1951 is sometimes seen as a reversal of his previous policy stances. This paper claims that proper understanding of Eccles’ views is necessary to appreciate the changes in monetary policy during the Great Depression and World War II. Rather than a hands-off central banker, that submitted the Fed to the Treasury, a more proper depiction of Eccles tenure at the Fed would be as a Main Street chairman.

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