A non-economist friend emailed me yesterday and asked me to explain the proposal for a $1 trillion platinum coin.

The proposal is that the Treasury mint a coin with a face value of $1 trillion and sell it to the Federal Reserve for $1 trillion. That way the Treasury gets an additional $1 trillion without the federal debt going up at all. It’s a way around the ceiling on the federal debt.

According to Paul Krugman, who advocates such a coin, this provision of the law makes it legal.

But it’s a bad idea.

Why? Because we don’t have only specific restrictions on what government can do. We have unstated, but widely understood, norms. One of them is that the government shouldn’t do this. It should play by the norms and, if the executive branch can’t persuade Congress to raise the debt, then it shouldn’t try to get around it with such stratagems. Bit by bit, such measures wittle away the constraints on government. And government, remember, is the entity we need most to constrain.

I remember during the Bush I administration (I think it was that one) that various conservative economists were urging the U.S. Treasury to, by regulation, tax only the part of a capital gain that was true capital gain by indexing asset prices to inflation. So, for example, if someone bought a stock for $100 in year x and in year x + 10 sold it for $200, but in year x + 10 the inflation-adjusted value of the original purchase price was $180, the tax should be only on the $20 real gain and not on what I have called the $80 phantom gain.

I opposed this idea. I think that indexing asset prices so that the tax is only on a true capital gain is a great idea. I don’t know whether the Treasury could find some weaselly language that allowed it to do this, but the proposed measure violated a norm: Congress gets to decide the tax code.

I think the same principle applies to the debt ceiling.

We see this norm breaking a lot lately and it’s very disturbing. When people of both sexes followed a female U.S. Senator into a bathroom and taunted her, that was disgusting. When President Biden was asked about it, he stated:

I don’t think they’re appropriate tactics, but it happens to everybody,” The only people it doesn’t happen to are people who have Secret Service standing around them. So, it’s part of the process.

If Biden had settled for the first 6 words, that would have been too faint but not terrible. But his “it’s part of the process” was disgusting. He should have gone further and denounced the tactic in no uncertain terms. Wasn’t he the guy who argued that the previous president violated norms of simple decency?


Thomas Sewell, in a comment below, cites a Twitter thread by monetary economist William J. Luther. I recommend reading it. It challenges the Paul Krugman view that this stratagem is legal.