As I argued in my column last week, there are many reasons to believe that the upcoming debt ceiling showdown will be more difficult to resolve than the summer 2011 impasse. Anticipating this, a growing chorus of liberals has been rallying around a bizarre solution. For the unacquainted, the big idea would be to exploit a law giving the Treasury Secretary authority to issue collectible platinum coins of any denomination. As the proposal goes, President Obama would direct Tim Geithner to mint a $1 trillion platinum coin to be deposited with the Federal Reserve, from which Treasury could withdraw funds to pay off bills. The idea is believed to have originated in January 2011 on the liberal blog Firedoglake by an author going by the name “beowulf.” Currently, Business Insider’s Joe Weisenthal is a major cheerleader of the idea and Paul Krugman is also on board. Most of the arguments about this idea have been economic (will it be inflationary? how will markets react?), constitutional (would it obliterate the separation of powers that gives Congress the power of the purse?), or trivial (whose face will be on the coin?). But the proponents of the idea really haven’t thought through the politics.
To be clear, I believe that spending needs to be cut, but I also believe that the debt ceiling eventually has to be raised to accommodate spending that has already been passed by Congress. As a conservative, I fear Republicans overplaying their hand, delaying a debt limit increase so long that financial markets begin to panic. As a result, small government ideology will be associated in the public mind with economic chaos and conservatism will be seen as incompatible with governance. In the end, a critical mass of Republicans will sign onto any bill they are told will stop the bleeding, just as they did with the Wall Street bailout, which was initially rejected by the House, triggering a market crash. (Such a vote would likely resemble the “fiscal cliff” outcome in which Democratic votes made up for lots of Republican defections in the House.) So the net result of taking things too far would be real damage to conservatism with little to show for it in terms of spending cuts. And the debt limit would ultimately be raised anyway. Republicans would not only be unlikely use the debt limit as leverage again, but they’d be more eager to cave in other budget fights.
If Obama were to listen to liberals and go the coin route instead, it would be tossing a life preserver to Republicans. Whatever economic and legal arguments liberals want to make, to a more casual observer, the idea is going to look either absurd, scary or both. Just imagine Obama publicly addressing the nation, and uttering the words, “Today, I’ve directed Treasury Secretary Tim Geithner to exercise his authority to mint a $1 trillion platinum coin.” It would not only be easy to parody — like some sort of cartoonish Scrooge McDuck scheme — it would be seen as a massive power grab by Obama that validates years of conservative attacks. It would instantly reinvigorate dispirited Tea Partiers and get more of the public on their side, because it would be much easier to argue that Obama was manufacturing money to pay off the debt he was running up than to raise alarms about what would have happened if he hadn’t taken such drastic action.
Meanwhile, if the coin proponents are wrong about the inflationary and market impacts of the action, then any resulting economic chaos would be squarely blamed on Obama rather than on the failure to raise the debt ceiling. Instead of small government ideology becoming unpopular as a result of the crisis, it would be big government philosophy that would be under fire. Instead of Obama getting to play the grownup in the room, he’d look silly. Minting the $1 trillion coin would represent such a massive in-kind contribution to Republicans that we may want to start researching whether it would violate some aspect of campaign finance laws.