Summary: The current crisis is one of governance: how our leaders work together combine with structural flaws to produce bad outcomes. Today we look at this from a legal perspective, which describes both the problem and an easy solution. Such situations show a society its problems, and provide the pressure for successful societies to fix them. Our unwillingness to confront our structural problems and interest in quick fixes suggests we are not one of those. This is part five of a series.
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Contents
- The problem is a trilemma
- The Trillion Dollar Platinum Coin
- Legal and Operational Difficulties
- For More Information
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(1) The problem is a trilemma
The structure of every government accumulates becomes weaker over time as its people discover and exploit flaws in its design. Successful regimes fix, even improve, themselves. As America has done with Amendments during the past two centuries. A regime “ages” or ossifies in the sense that it loses this vitality, as its people venerate the Founders and lose the willingness for the always difficult task of reform. That might be happening now to America.
Our “rotten boroughs” in the Senate, increased use of filibusters to block normal legislation and holds to block appointments — these and other things (see here for details) are the political equivalent of arteriosclerosis. Instead of working to fix them, we either live with them or seek quick fixes (often dysfunctional fixes). Today we examine one such problem, and a proposed fix. First, the problem …
(a) “The Constitution“, Neil H. Buchanan (Prof Law, George Washington U), New York Times, 15 January 2013 — Excerpt:
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The Constitution not only gives Congress the sole power to borrow money but to spend and tax. This Congress – or, more accurately, the Republican House majority – has threatened to use those powers in a way that would make it impossible for the President to faithfully execute all of the laws that Congress itself has passed.
Last year, Congress appropriated spending by the government through March 27, 2013. It has also amended the tax laws, most recently on Jan. 2. Those laws together would require the President to borrow more than the current debt limit, starting next month. The President will then face a “trilemma,” having to choose which power of Congress – spending, taxing, or borrowing – to usurp, in order to fulfill his duty to respect Congress’s other powers.
… We know that the president cannot simply enact across-the-board cuts. He will be forced to fully fund “emergency operations” of the federal government. To protect the government’s credit rating from further damage, he would almost certainly pay principal and interest in full on all bonds. The spending cuts, therefore, would have to come elsewhere. Nothing in the law gives the president guidance on how to make those decisions, because Congress expressed its priorities in the spending bills that it passed (but now will not finance).
Issuing more debt, on the other hand, is both modest and easily reversible. The president would not be upsetting Congress’s spending and taxing priorities, but would instruct Treasury to sell securities, as it always does. If, in its next budget, Congress wants to reduce the debt, it can do so. Until then, the president must do the least damage, and that is by issuing enough debt to tax and spend as Congress ordered him to do.
(b) Read the full analysis: “How to Choose the Least Unconstitutional Option: Lessons for the President (and Others) From the Debt Ceiling Standoff“, Neil H. Buchanan (Prof Law, George Washington U) and Michael C. Dorf (Prof Law, Cornell), Columbia Law Review, October 2012 — Conclusions:
We argue further, though more tentatively {if the debt markets break down} the president should unilaterally increase taxes rather than cut spending.
We then use the debt ceiling impasse to develop general criteria for political actors to choose among unconstitutional options. We emphasize three principles derived from a famous speech by President Lincoln {4 July 1861 to Congress}:
- minimize the unconstitutional assumption of power;
- minimize sub-constitutional harm; and
- preserve, to the extent possible, the ability of other actors to undo or remedy constitutional violations.
(2) The Trillion Dollar Platinum Coin
Carlos Mucha, an attorney, suggested the big easy way to evade the debt limit: minting trillion dollar platinum coins. as explained in his article at the NYT website:
Under the Constitution, Congress is given the authority to create money. Congress has delegated this power to create money to two agencies: the Federal Reserve and the U.S. Mint. For decades, the Fed has issued paper money and assisted the Department of the Treasury in issuing enough new debt to fund the budget deficit.
Meanwhile, the Mint quietly issues circulating coins to banks and numismatic coins to collectors (all U.S. coins are legal tender). … Then in 1996 … {o}ver the objections of a Democratic administration Republicans in Congress passed a statue, 31 USC 5112(k), permitting the issuance of platinum numismatic coins. The astonishing part was that Congress set no specific denomination, writing perhaps the biggest blank check in history.
… To create this debt free money, the Secretary of Treasury must instruct the mint to produce a platinum numismastic coin with, say, a $1 trillion denomination. This coin can then be deposited at the Federal Reserve, and the Fed will credit the account of the U.S. government for the face value of the coin.
The idea hit the news when Jack Balkin (Prof Law, Yale) mentioned in as one of “Three ways Obama could bypass Congress” (CNN, 28 July 2011). In December 2012 he described it as “All those other ideas [like the platinum coin option] are very uncertain, and they could lead to complicated litigation,”
The idea caught the imagination of many people, such as economists Brad Delong and Paul Krugman and Harvard Law professor Laurence Tribe.
(3) Legal Difficulties
Here are law professors explaining the complexities of the legal issues about the platinum coin. Read these articles to learn about the legal issues. Here are some excerpts raising other issues.
(a) “The Danger Lurking Behind the Platinum Coin“, Eric Posner (Prof Law, U Chicago), Slate, 10 January 2013 — Excerpt:
{T}he legal case for the platinum coin is not as strong as people think, and if the president gets this wrong, the consequences could be severe. … run for the hills whenever anyone tells you that the law is clear.
… Proponents of the coin respond that no one can challenge the platinum coin in court because no one has standing — it would be hard for anyone to show that he or she was injured by the minting of the coin, the standard for bringing a lawsuit. But it is hard to predict when judges will find standing, and if they allow someone into court in this case, then judicial repudiation is more likely than not.
… Volatile politics and ambiguous law make for a dangerous combination.
(b) Neil H. Buchanan (Prof Law, George Washington U), their website, 11 January 2013 — Excerpt:
{T}he Big Coin gambit is being misrepresented as “clearly legal.” … it is simply wrong to say, as some have done, that when a gap in a law appears to leave open a possibility that is clearly not what the law was passed to accomplish — in this case, using a law permitting the minting of commemorative coins to evade the debt ceiling statute — then there is no legal barrier to exploiting that gap. It might be allowed in some circumstances, but it is not an easy legal inquiry.
Second, I pointed out that the debt ceiling statute itself is broader than people have assumed. It limits the total national debt, not only as measured by standard Treasury securities, but also by adding in all other “obligations” of the federal government. Under the Big Coin gambit, the Treasury would clearly and openly be obligating itself to replace the coin(s) with “real money” when the debt ceiling is ultimately raised, allowing Treasury then to issue traditional T-bonds, T-notes, and T-bills. That means that the gambit is not even an effective end-around on the debt ceiling, because it merely puts a different label on a government obligation.
… A monetary system simply cannot work if people do not collectively take a leap of faith. We accept currency or precious metals — which have no inherent use value for everyday purposes — because we think that other people will accept them in turn. This group delusion allows us to say that money is money. If the delusion starts to fall apart, then there are very real, very negative effects.
… It is no laughing matter to expose the fundamentally unreal nature of money to public ridicule. … I continue to suspect that a standard debt issue would be less disruptive than scrip, but that is at least an interesting question. What the Big Coin people dismiss as mere concern about looking “undignified” is, by contrast, a question of the utmost importance. Financial systems cannot survive when people stop believing that money has value. Laughing about Big Coins looks like fun. It is, however, deadly serious.
(c) “Big Coins, Political Credibility, and Hatred of Lawyers“, Neil H. Buchanan (Prof Law, George Washington U), 10 January 2013 — Excerpt:
Of course, as we all admit, none of this would ever get to court. Tribe mentions the standing problem, and the “political question doctrine” strikes me as even more of a hurdle. If that is the case, however, then we have to ask what we are trying to accomplish here. If the ultimate arbiter of this is going to be public opinion, then it matters not to be snarky and cute.
And whatever else one might say about the platinum coins option, it comes across as extremely snarky and too-cute. As one of my research assistants put it: “This is the kind of argument that makes people hate lawyers.” Grabbing onto some loophole and spinning a too-good-to-be-true argument out of it is not going to convince anyone. And it can do real damage.
(d) More legal problems
- “Is the Platinum Coin Ploy Legal?“, Jonathan H. Adler (Prof Law, Case Western U), Volokh Conspiracy, 10 January 2013
- “Laurence Tribe Is Wrong On The Trillion Dollar Coin“, Tom Maquire, 10 January 2013
- “Post-Mortem Part 2: Zombie Big Coins, Chevron and the Quadrilemma“, Mike Dorf (Prof Law, Cornell), 14 January 2013
(4) Other posts in this series
- Most of what Democrats say is wrong about the Republicans’ recent actions in Congress
- Let’s learn from this inevitable crisis, which results from flaws in our system
- About the crisis: The GOP is right. So is Obama. That’s why it’s a crisis.
- A new political party for a New America: the Tea Party GOP
(5) For More Information
(a) FM reference pages, a guide to other posts about these matters:
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