The major topic of debate these days is whether the Treasury Department should mint a platinum coin and sell it to the Federal Reserve Board for $1 trillion as a way around the debt ceiling. Opponents have been quick to condemn the platinum coin idea as a ridiculous gimmick. Of course they are right, but the problem itself is ridiculous.
Congress has approved a structure of taxing and spending that requires the government to borrow money. Now it is telling the president that he can't borrow money because of the debt limit. There is no way to describe that situation as anything other absurd.
Congress can decide to cut spending. It has not. It can decide to raise more revenue. It has not. Instead it has put into law a path of spending and taxes that is inconsistent with its debt ceiling. Since it has legislated contradictory policies, the appropriate response is a ridiculous gimmick like the platinum coin.
Unfortunately this debt ceiling standoff comes against an equally absurd budget debate. The large budget deficits of the recent years came about because of the economic downturn following the collapse of the housing bubble. The budget deficit was just 1.2 percent of GDP in 2007 and the debt-to-GDP ratio was falling. The debt-to-GDP ratio was projected to continue to fall for a decade, even if the Bush tax cuts did not expire.
There have been no major new unfunded spending programs put in place since 2007, nor have there been any permanent tax cuts put in place. The larger deficits have been a direct response to the economic collapse and have in fact been an important source of support for the economy, creating jobs and increasing growth. Yet, we have ostensibly serious people running around Washington yelling about out of control deficits and confusing the United States with Greece.
Policy should be focused on restoring the economy to full employment. In the short-term this will only be done through larger deficits, not smaller deficits. In the longer term we will only be able to sustain full employment with more balanced trade, which will require a lower-valued dollar.
Childish admonitions about spending within our means are not a substitute for serious thinking about the economy. A joke $1 trillion platinum coin is an appropriate response to "leaders" who want to play games making up scare stories about deficits and debt.
About Dean Baker Codirector of the Center for Economic and Policy Research
Stephanie Kelton Associate Professor of Economics at the University of Missouri-Kansas City
David John Senior Research Fellow at the Heritage Foundation
Phil Kerpen President of American Commitment
Edmund Moy 38th Director of the U.S. Mint
Ted Gayer Codirector and Senior Fellow of Economic Studies at the Brookings Institution