Krugman backs minting a $1trn platinum coin

The real funny story's the debt ceiling.

Paul Krugman, Nobel Laureate and New York Times columnist/blogger, has written that President Obama should be willing to mint a $1trn platinum coin in order to avoid having to compromise over the debt ceiling.

Krugman blogs:

He will, after all, be faced with a choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous. The decision should be obvious…

It’s easy to make sententious remarks to the effect that we shouldn’t look for gimmicks, we should sit down like serious people and deal with our problems realistically. That may sound reasonable — if you’ve been living in a cave for the past four years. Given the realities of our political situation, and in particular the mixture of ruthlessness and craziness that now characterizes House Republicans, it’s just ridiculous — far more ridiculous than the notion of the coin.

Krugman is… half right. As Felix Salmon notes, it's no surprise that the people most in favour of the platinum coin option are largely economists. From an economic point of view, there really is no reason not to do it. Less informed commentators use basic knowledge of economic theory to warn that minting the coin is "printing money" which will lead to "massive inflation"; but since using the legal quirk to prevent a government shutdown wouldn't lead to an increase in the money supply, those fears are unfounded.

Instead, the problem is the political one. Salmon sums it up:

If you believe that the country is best run by grown-ups, you can’t believe in #mintthecoin, because it simply isn’t a grown-up strategy. If you believe that the House Republicans behave in crazy and illogical ways, then you can’t believe in #mintthecoin, because the threat of minting the coin doesn’t work against someone who’s crazy and illogical. And if you believe that the best way to approach the debt ceiling is to try and abolish it altogether, then you can’t believe in #mintthecoin, because the entire strategy is based on the idea of keeping the ceiling where it is, and then trying to circumvent it.

There are still some economic problems with the idea, which Salmon touches on. The chief ones are to do with the sheer uncertainty of minting the coin. Everyone thinks it is probably legal – but until and unless the Supreme Court affirms that, nobody can be certain it is. Which means that for an indeterminate period, the US economy would be like Schrödinger's Cat, in a superposition between default and creditworthiness. That's not desirable for anyone.

The real reason to carry on talking about minting the coin isn't, as Krugman argues, because it might mean that Obama actually mints it. But nor is it, as Salmon argues, because it might scare the Republicans into backing down. It is, instead, to come up with something Obama can "concede" on without actually having to concede on anything at all. Obama offers to change the law to ban minting the coin, in exchange for also changing the law to end the debt ceiling. It's the argument made by *Bloomberg*'s Josh Barro.

And make no mistake, the debt ceiling is ridiculous. Quite beyond its pernicious effects – it would prove beyond doubt that the American political system is broken, would almost certainly lead to the US defaulting on its international debt payments, and would definitely lead to crippling immediate defaults on *national* debt payments like tax refunds and federal salaries – it is a legal limit which makes no sense, politically or economically. The debt ceiling is a limit, set by congress, on how much the executive branch can borrow. But the executive branch's spending is also set by congress: when it authorises a bill, the president is not allowed to spend a penny over the amount specified, nor a penny under.

The debt ceiling could only ever have one of two effects: either it does nothing, because it is higher than the amount congress has ordered the executive branch to borrow; or it forces the President to break the law, either by ignoring the debt ceiling or by ignoring all of the other bills passed by congress instructing him to spend.

And we're laughing about the platinum coin?

A US platinum coin. Photograph: Wikimedia Commons

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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A third runway at Heathrow will disproportionately benefit the super rich

The mean income of leisure passengers at Heathrow in 2014 was £61,000.

The story goes that expanding Heathrow is a clear-cut policy decision, essential for international trade, jobs and growth. The disruption for those that live around the airport can be mitigated, but ultimately must be suffered for the greater good.

But almost every part of this story is misleading or false. Far from guaranteeing post-Brexit prosperity, a new runway will primarily benefit wealthy frequent flyers taking multiple holidays every year, with local residents and taxpayers picking up the tab.

Expanding Heathrow is not about boosting international trade. The UK is only marginally reliant on air freight to trade with the rest of the world. Total air freight traffic in the UK is actually lower now than it was in 1995, and most UK trade is with Europe, of which only 0.1 per cent goes by air. Internationally, as much as 90 per cent of trade in goods goes by ship because transporting by plane is far too expensive. And in any case our most successful exports are in services, which don’t require transportation. So the idea that UK plc simply cannot trade without an expansion at Heathrow is a gross exaggeration.

Any talk of wider economic benefits is also highly dubious. The Department for Transport’s forecasts show that the great majority of growth in flights will come from leisure passengers. Our tourism deficit is already gaping, with more money pouring out of the country from holidaymakers than comes in from foreign tourists. What’s worse is that this deficit worsens regional disparities since money gets sucked out of all parts of the country but foreign tourists mostly pour money back into London. As for jobs, government estimates suggest that investing in rail would create more employment.

As for the public purse, the aviation sector is undeniably bad for our Treasury. Flights are currently exempt from VAT and fuel duty – a tax subsidy worth as much as £10bn. If these exemptions were removed each return flight would be about £100 more expensive. This is a wasteful and regressive situation that not only forfeits badly needed public funds but also stimulates the demand for flights even further. Heathrow expansion itself will directly lead to significant new public sector costs, including the cost of upgrading Heathrow’s connecting infrastructure, increased pressure on the NHS from pollution-related disease, and the time and money that will have to be ploughed into a decade of legal battles.

So you have to wonder: where is this greater public good that local residents are asked to make such a sacrifice for?

And we must not forget the other sacrifice we’re making: commitment to our fair share of global climate change mitigation. Building more runways creates more flights, just as building more roads has been found to increase traffic. With no clean alternatives to flying, the only way to meet our climate targets is to do less of it.

The real reason for expanding Heathrow is to cater for the huge expected increase in leisure flying, which will come from a small and relatively rich part of the population. At present it’s estimated that 70 per cent of flights are taken by 15 per cent of the population; and 57 per cent of us took no flights abroad at all in 2013. The mean income of leisure passengers at Heathrow in 2014 was £61,000, which is nearly three times the UK median income.

This is in stark contrast to the communities that live directly around airports that are constantly subjected to dirty air and noise pollution. In the case of London City Airport, Newham – already one of London’s most deprived boroughs – suffers air and noise pollution in return for few local jobs, while its benefits are felt almost entirely by wealthy business travellers.

Something needs to change. At the New Economics Foundation we’re arguing for a frequent flyer levy that would give each person one tax-free return flight every year. After that it would introduce a charge that gets bigger with each extra flight, cracking down on those that use their wealth to abuse the system by taking many flights every year. This is based on a simple principle: those who fly more should pay more.

A frequent flyer levy would open up the benefits of air travel, reducing costs for those struggling to afford one family holiday a year, while allowing us to meet our climate targets and eliminate the need for any new runways. It would also generate millions for the public purse in an efficient and progressive way.

We have to take back control over an airports system that is riding roughshod over communities and our environment, with little perceivable benefit except for a small group of frequent flyers.

Stephen Devlin is a senior economist at the New Economics Foundation.