Super Seigniorage

A couple of weeks ago, I was trying to write a piece that I had tentatively titled “&#$% It, Nothing Matters, Inflation Isn’t Real, Just Print &#$%ing Money.”

I was in a pretty grumpy mood.

Anyway, that piece was going to be about Modern Monetary Theory, which I barely understand, but find infinitely fascinating. The key insight of MMT, as I understand it, is basically this: We can invent money. There’s no reason we can’t type an extra “0” in the “Asset” column of the budget and call it a day.

“But what about inflation!?” cry reasonable, rational economists. That’s where the original title of that piece came in. See, for the last few years, inflation hasn’t risen, despite a growing economy, and nobody really seems to know why. Personally, I think it has to do with physics.

At a certain scale, physics just stops. When you start looking on the quantum level, nothing behaves the way we think it should. Gravity, the nuclear forces, everything just starts to get weird. In the same way we don’t understand physics when the scale gets too small, I believe that macroeconomics fails to provide any predictive benefit on a national or international scale. People are just too irrational; events are too chaotic. Accidents happen. So I have a deep skepticism for any of the “conventional wisdom” of macroeconomic theory in general, which is why, when the MMT folks say that we can take care of inflation ourselves, I’m tempted to believe them.


If you’re curious about MMT, I am too. There’s a lot of it that I don’t understand. If you’re curious, I’ve found a handful a good sites that do their desperate best to make sense of it for layfolk: check here. What I feel to be the important takeaway:

The essential insight of Modern Monetary Theory (or “MMT”) is that sovereign, currency-issuing countries are only constrained by real limits. They are not constrained, and cannot be constrained, by purely financial limits because, as issuers of their respective fiat-currencies, they can never “run out of money.” This doesn’t mean that governments can spend without limit, or overspend without causing inflation, or that government should spend any sum unwisely. What it emphatically does mean is that no such sovereign government can be forced to tolerate mass unemployment because of the state of its finances – no matter what that state happens to be.

Virtually all economic commentary and punditry today, whether in America, Europe or most other places, is based on ideas about the monetary system which are not merely confused – they are starkly and comprehensively counter-factual. This has led to a public discourse about things like budget deficits and Treasury debt which has become, without exaggeration, utterly detached from reality. Time and time again, these pundits declaim that hyperinflation is imminent, that interest rates are on the verge of an uncontrollable upward spike, and that the jig will be up for sure just as soon as the next T-bond auction fails. But even though, time after time, it is the pundits’ prognostications which fail, no one seems to take any notice. This must change. A reality-based economics is needed to make these things make sense again, and Modern Monetary Theory is here to put everyone on notice that a quite different jig is the one that’s really up.

MMT is, from what I’ve been able to determine, primarily concerned with full employment, which I’ve touched on briefly here. Anyway, I’m not equipped to really get into it, so go educate yourself.

Inflation isn’t rising. But you know what is? Our national debt, and it looks like a fight over the debt ceiling is coming (because obviously, the last six months have been so boring, we need a good legislative slugfest).

Screenshot (140)

Well put, Mr. Yglesias.

Briefly: when the Federal government spends more than it takes in as revenue, it needs to make up the difference, so it borrows money by selling bonds to suckers like you and me. But there’s a limit to how much the Treasury can borrow, so Congress has to get together and pass a new law to authorize more borrowing so the lights can stay on.

Hilariously, this year the debt ceiling is coming faster than expected, because people have stopped paying their taxes–apparently, a bunch of rich folks are waiting on the tax cuts that are looking increasingly less likely. Even more hilariously, we actually hit the ceiling back in March, and Secretary Mnuchin’s been cooking the books to keep the engine going since then.

That’s for a given value of “hilarious,” of course.

All this has reminded certain corners of the Internet of perhaps one of the nerdiest memes in recent memory.

Mint The Coin

Last time around, a bunch of geeks came up with a weird idea: the United States Treasury can mint commemorative platinum coins in any denomination, right? So why not mint a coin, declare that it’s worth $1,000,000,000,000, deposit it in the Federal Reserve, and go on about your business? (Wired has a pretty good breakdown about how the idea developed.)

I’ll give it a mint to sink it (yes, I did that on purpose, no, I don’t regret it). It’s got a mad, delirious genius to it. The debt ceiling is an arbitrary number, after all, and there’s nothing that stops us from raising it whenever we want, aside from the lack of political will. The coin wouldn’t really do anything; it’d be more of a bookkeeping trick than anything else. Since it wouldn’t go into the economy, it wouldn’t raise inflation; all it would do would remove an unnecessary restriction on the government’s capacity to borrow. Krugman agrees. So does Yglesias. Weisenthal, over at Business Insider, has some good, patient explanations as to why this isn’t as dumb as it sounds.

Dumb or not, it was a bonkers publicity stunt, and it would have worked, but we decided to go with sequestration and austerity cuts instead, and now Trump’s the president, so how’d that work out for you, guys?

The coin’s never going to get minted, obviously. It’s just a wacky thought experiment that’s only technically legal, and if it looked like Yellen or Mnuchin or Cohn wanted to go for it, the critters would scream and stomp their feet and maybe actually get some legislation passed to make sure it couldn’t happen. But it’s a thought experiment we need to have, if only because right now, nothing’s working the way it’s supposed to. Income distribution is less equitable than it’s ever been. Productivity is skyrocketing, but we aren’t seeing a corresponding increase in wagesThe top 10% of equity holders own 90% of all stocks. 

Minting a trillion dollar coin sounds like something a madman would do. But ask yourself: do you think a rational person would have created the system we’re in right now?


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