Inflation and Morality

I don’t know if the “platinum coin” scheme is strictly legal, and I don’t know if its deployment would freak out people whose freakouts tend to produce things like financial panics and mass unemployment. But there’s something remarkably honest about it, other than its utility in getting around deeply irresponsible people in Congress who think threatening a debt default is a good way to force Obama and Democrats to cooperate in the first steps towards repealing the New Deal and Great Society programs.

The magic coin is a pretty straightforward example of inflation–literally “printing money,” as conservative scolds like to say.

Now as a purely economic phenomenon, the propriety of inflation right now entirely depends on your perspective about why the economy is lagging. Here’s Paul Krugman patiently repeating the arguments he’s been making for years now, though this time in the context of the platinum coin:

[W]e’re in a liquidity trap, with market interest rates on short-term federal debt near zero. Under these conditions, issuing short-term debt and just “printing money” (actually, crediting banks with additional reserves that they can convert into paper cash if they choose) are completely equivalent in their effect, so even huge increases in the monetary base (reserves plus cash) aren’t inflationary at all.

And if you’re tempted to deny this diagnosis, I have to ask, what would it take to convince you? The other side of this debate has been predicting runaway inflation for more than four years, as the monetary base has tripled. The same people predicted soaring interest rates from government borrowing. Meanwhile, the liquidity-trap people like me predicted what would actually happen: low inflation and low rates. This has to be the most decisive real-world test of opposing theories ever.

But opposition to “printing money” has never been strictly about economics or the “real world”–it has been, for eons, a moral issue to those who believe anything that makes life easier for debt and debtors must be morally ruinous to the individuals and the society that benefit. Go back and read the arguments made for the gold standard during the nineteenth century, or look at the famous Thomas Nast cartoons depicting the desire for an expanded money supply a “rag baby” with monstrous implications:

It’s really no different that John Boehner’s recent statement that he grew up with a horror of debt; it’s something he doesn’t “do.”

This is a parallel phenomenon, of course, to the more general alignment of conservatives with the feeling that those hurt by the Great Recession were people–often those people–who didn’t adequately prepare themselves for adversity, and/or forfeited any sympathy by depending on government for mortgage assistance or other needs. Let’s not forget that before recession assumed its eventually massive proportions, it was common to hear conservatives say a recession would be a good moral tonic for the country, not only squeezing speculation out of the economy but validating the superior virtue of people whose ample means meant living beyond them would be virtually impossible.

A lot of that moralism has now been transferred to debt-and-deficit-hawkery. Indeed, scratch a deficit hawk, and you will often very quickly find a disdain for the “indiscipline” of debtors, of those who insufficiently save, of those who aren’t as prudent and responsible as the deficit hawk.

The interesting thing about the platinum coin proposal is that it flushes all those sentiments right out into the open where they can be addressed head on.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.