Benjamin Studebaker

Today the treasury ruled out the magic coin, the denarius ex machina meant to save us from yet another debt ceiling fight. But before it did, Jon Stewart decided to give his opinion on the coin to his nationwide audience of over 2 million people, many of whom get their news from his show and from few other places. Unfortunately, Stewart decided to use his show to misinform the public. While many pundits and programmes disinform the American population on a daily basis, Stewart is often viewed as credible. What I am about to detail should remove that hard-won credibility.

I was unable to locate the particular Daily Show clip on a format such that it would be viewable to an international audience; if you are in the United States, you can view it here.

Stewart says:

I’m not an economist, but if we’re going to just make shit up, I say go big or go home. How about a $20 trillion coin?

Stewart has one thing right–he’s not an economist. But of course, in our increasingly expert-avoidant society, that does not preclude him from giving his opinion anyway. What Stewart sadly reveals here is a total ignorance of the concept of “fiat money”. Back in 1971, Richard Nixon did a great Keynesian thing–he took the United States off of the gold standard. If you’re curious, here’s his address announcing it:

Ever since the United States left the gold standard, the dollar’s value has been by fiat. This means that the money’s value does not come from the value of gold or silver or any other real, tangible good. It is an arbitrary value determined either directly by the government, by the money markets, or by some combination of the two. Because our money exists by fiat, the government can engage in monetary policy, increasing or decreasing the size of the money supply to influence the economy and the value of the currency. When the dollar’s value is high relative to other currencies, imports are cheap and exports expensive, when it is weak relative to other currencies, the inverse situation exists. When the Federal Reserve increases the money supply, the economy has greater liquidity and money moves through the system more smoothly, encouraging growth or, if taken too far, inflation. When the Federal Reserve decreases the money supply,  it puts a damper on the economy, discouraging reckless investment and inflation or, if taken too far, creating a recession and deflation. These are all very important tools to the health and well-being of the American economy. Monetary policy is extremely important, and anyone wishing to comment intelligently on the economic affairs of the day must know something about it.

Unfortunately, Jon Stewart knows nothing about it. When the United States creates additional money, it changes the money supply. Here is the recent history of our money supply:

As you can see, before the recession the monetary base was $800 billion. In order to encourage spending and fight off the recession, the Federal Reserve greatly increased the money supply through quantitative easing, the buying up of American bonds by the Federal Reserve to replace said bonds with cash. As a result, at present, the monetary base is around $2.6 trillion, roughly a tripling of its former amount. Now, if the treasury were to have decided to mint a $1 trillion coin, the monetary base would increase to $3.6 trillion, but the Federal Reserve could counteract this by selling off some of the bonds it bought in order to make the money supply as high as it is. If however the treasury were to mint a $20 trillion coin, any effort by the Federal Reserve to counteract the economic force of such a monetary influx would be entirely insufficient. The treasury simply cannot sell enough bonds to do that–it only has $1.6 trillion in US treasury securities at the moment. This may sound complicated to a lay person, but it is something that anyone with any background whatsoever in economics could easily tell you. A $1 trillion coin may sound ridiculous, but it is something we could do and there are compelling reasons to consider doing it. To disparage the idea by comparing it to a $20 trillion coin is extremely misleading and utterly ridiculous. Stewart has an entire team of writers, but not a single one of them, apparently, did any homework whatsoever on the monetary system before they decided to mock it and influence the views and opinions of their large audience of lay people. Most of Stewart’s viewers have little or no background against which to check the factual content of what Stewart chooses to feed them. When it comes to economics, so many people know so very little, and it is extremely irresponsible to mislead them further.

However, Stewart said more:

We don’t need some trillion-dollar coin gimmick. We need a way to get the world to take the U.S. dollar seriously again.

Since when does the world not take the US dollar seriously? Does he mean the dollar is weak against other currencies? If he does, we mentioned above that making the dollar weaker is a tool that the Federal Reserve uses in order to strengthen American exports and, consequently, American growth. A “strong” currency is not necessarily a better currency, unless you want the goods your country manufactures to be uncompetitive abroad. Many countries go to great pains to weaken their currencies. Surely Stewart isn’t so daft as to argue that the dollar is simply too weak.

Perhaps what Stewart really means is that no one takes America seriously on debt and deficits, that the coin is a gimmick because it gets us out of having debt ceiling arguments? If no one took America’s ability to pay seriously, why would people be willing to purchase American bonds at near-record low interest rates:

What is the real gimmick? I submit that it is the fact that the Republican Party has even supposedly well-educated men such as Jon Stewart believing that we have got to do something about debt and deficits right away, that we must get serious about the problem, that we must sit down together like good centrists and come to a compromise. I submit that the true gimmick is the notion that it is perfectly acceptable to pass legislation that creates spending obligations and then refuse to permit the government to borrow money to meet those obligations in order to threaten one’s own country with an artificial default so that the opposition party will agree to unnecessary deep spending cuts in a time of high unemployment, low interest rates on debt, and poor economic growth.

Jon Stewart said it himself–he is not an economist. So why does he see fit to blather on as if he is one? If you know nothing about a field about which other people know quite a bit, leave informing the public on the goings on in that field to the people who, you know, actually have taken the time to learn something about it. Give the field and those who follow it some small modicum of respect. To do otherwise, as Jon Stewart has done, is utterly disgraceful.