The game theory of #mintthecoin

By Felix Salmon
January 9, 2013

As Cardiff Garcia says, when it comes to #mintthecoin, “it’s important for advocates to define carefully what they’re actually calling for”. The basic matrix, as I see it, looks a bit like this:

Don’t mint the coin Mint the coin
Threaten to mint the coin Bluff Open Defiance
Don’t threaten to mint the coin Negotiate Last Resort

I’m in the bottom-left corner: Negotiate. That’s the job of the President of the United States: to negotiate with Congress, rather than to do tricksy, Constitutionally-dubious end-runs around it. Joe Weisenthal, to his credit, is also clear where he stands — he’s in the bottom-right corner. He doesn’t advocate using the threat of minting the coin as a negotiating tool; rather, he’s advocating that negotiations should happen as normal, and only in the very last resort, if all negotiations fail, should the coin be deposited at the Federal Reserve so as to avoid a catastrophic default.

One problem is that it’s very hard to keep the existence of the coin secret, especially if the executive-branch negotiators, who are going to be spending a lot of time with the representatives of House Republicans, know that they have it in their metaphorical back pocket. Basically, the existence of  a secret plan to mint a coin is functionally equivalent to a public threat to mint the coin, if the House Republicans find out about the secret plan. In that event, the Negotiate strategy becomes the Bluff strategy. And as Cardiff says, the Bluff strategy is really stupid:

For the Republicans, having Obama threaten to use the coin might be wonderful news because then they could force him to actually use it. By this reasoning, not only will the worst-case scenario of default be avoided, but they could then look forward to screaming “Dictator!” while accusing him of having used a legally questionable tactic (or at least of going against the intent of the law) and of running an end-around on the balance of powers (and actually they’d be right about this).

This argument would be ludicrously hypocritical, but unfortunately it would also play better publicly than the hypothetical White House defence. Which would probably sound something like this: “The Republicans backed me into a corner again, and despite my being the president who said that we should all put aside childish things, I ordered a shiny coin and called it a trillion dollars, which I’m allowed to do because of a poorly written amendment to a law that was undeniably meant for something else.” Not exactly a winning case.

The Open Defiance strategy — let’s just print the coin anyway, and thereby stop the House Republicans from using the threat of default as a negotiating tactic — looks pretty silly too, because you’re basically using a sledgehammer to crack what might ultimately be a pretty thin nut. At this point, it’s worth moving out of the econowonkosphere and into the even weirder world of Republican politics. Once we get there, we learn from the likes of Greg Sargent and Kim Strassel that the Republicans aren’t nearly as coherent on this issue as they were in 2011, and that, in Strassel’s words, there’s a good chance that “Round Two is already Mr. Obama’s”.

The grown-up Negotiate strategy, it turns out, actually has an incredibly high chance of success, while any other strategy risks creating massive political chaos. (I can easily, for example, see the Republican party refusing to support any nominee at all for key positions like Defense and Treasury and State, if Obama goes all scorched-earth with a Coin strategy.)

The Negotiate strategy is far from ideal, of course. Since the debt ceiling has been and will be reached many, many times, even something with a very high chance of success is statistically certain to fail eventually. So the obvious best-case scenario is to abolish the debt ceiling entirely, or, failing that, to raise it to, say, a few quadrillion dollars. But right now, when we’ve already reached the debt ceiling, is probably not the best time to try to negotiate such a thing. (In fact, any time there’s a Democrat in the White House is probably not the best time to try to negotiate such a thing.) For the time being, the executive branch should do what the executive branch has always done when the debt ceiling looms, which is to persuade Congress to raise it.

It’s worth adding a meta-media note here, too. The #mintthecoin meme has successfully migrated from the outer reaches of the econoblogosphere into a fair amount of mainstream media coverage, and as a result it has actually started to be taken seriously outside the Beltway. And even, in a few cases, inside the Beltway too. But be clear, this is absolutely a media-driven meme: people talking about it are not talking about an actual political proposal which an important number of serious DC politicians genuinely want to implement. As I say, it’s a Flying Spaghetti Monster thing — it’s a ticklish thought experiment, nothing more. Many media organizations are having a lot of fun with it, and that’s their right. But, especially in this case, it’s important not to mistake media coverage for reality.


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Minting the coin is always on option as is negotiating. Speak softly and carry a big stick. In game theory players can move from box to box. You have spelled out what you thing the President’s game options are. What is Boehner’s? Where is the payoff matrix? If the Republican’s in the House promise not to force us into a default the Obama can promise not to mint. A very shallow piece of analysis this.

Posted by ScottFree | Report as abusive

Obama has repeatedly said he won’t negotiate the debt ceiling. To back down destroys his credibility.

The message to the public is “The Republicans refuse to pay for the things they’ve bought. Not paying our debts risks economic calamity here and around the globe. Therefore, I’ve ordered the government to continue to pay it’s bills. Paying for Social Security, Medicare, the national defense and other vital functions is the right thing to do. I have no right to pay for things not authorized by congress, but I must pay the nation’s bills.”

He would only issue the coin as a last resort. What’s the alternative – violating the debt ceiling law or violating the budget impoundment law (which mandates the president spend as appropriated by congress).

Posted by 3oosion | Report as abusive

I hate to nitpick, but as ScottFree points out this isn’t game theory. You just created a list of the WH’s 4 contingent strategies (in matrix form). The real 2-player payoff matrix should have those 4 in one dimension with Congress’s strategies in the other dimension. (And, you know, some analysis of the equilibria.)

Posted by absinthe | Report as abusive

When you are dealing with crazies, it sometimes is necessary to be a bit crazy yourself. They should understand. Hence I would suggest minting the coin NOW and getting it done. Why stall? Economist Krugman is for it and so is the man who wrote the law governing the coin. Lawrence Tribe of Harvard declares it perfectly legal. Doing it now would remove the nagging uncertainty that is bad for the economy and the market. And it would give us a longer time to enjoy watching the Tea Party screeching and screaming and running about like chickens, etc., etc.

Posted by Chris08 | Report as abusive

What absinthe and ScottFree Said. If you REALLY want to create a Game Theory matrix it goes roughly like this (with formatting):

Top row: Same: [ ], Dont, Do

Congress, Hold budget hostage, Have to negotiate
President Break law (if held hostage), Obey law

Note that a proper envisioning of the “Game Theory” notes that, without “mint the coin,” there is a Free Option for Congress–require monies to be spent, but refuse to authorize those monies.

Think of Mint the Coin as the price of the option, since a true market has no risk-free arbitrage.

Would we all prefer to end up in the upper right (negotiated agreement)? Possibly–even probably. (Definitely if we are only talking about the debt ceiling–then the Pareto-optimal result is what Joe and Josh have always advocated: eliminate the debt ceiling and the “trillion-dollar commemorative coin” option in the same bill. Probably–though not definitely so–if the bill is laden with other things.)

Posted by klhoughton | Report as abusive

Felix says wrt “mint the coin”:

As I say, it’s a Flying Spaghetti Monster thing — it’s a ticklish thought experiment, nothing more. Many media organizations are having a lot of fun with it, and that’s their right. But, especially in this case, it’s important not to mistake media coverage for reality.

rb6 remembers when this statement would have applied to threatening to default on the country’s debt. But notice that Felix isn’t saying that anymore, he now thinks that negotiating with Congress not to send the U.S. into default is the new normal, not only that, but the right thing to do.

I have absolutely no hesitation in recommending that Obama refuse to negotiate and if and when the time comes, mint the coin and challenge the House to do what it wants. Holding the FFC of the U.S. hostage to a bunch of crazy people is a bullshit strategy for the U.S. and it shouldn’t be pursued if there is ANY ANY ANY other option, however apparently ridiculous.

Posted by rb6 | Report as abusive

If they mint the damn coin they should make sure there are clear heads and tails sides. Obama might find that useful at some point.

Posted by ottorock | Report as abusive

HUFFINGTON POST is running a “design the coin contest.” Much fun. I would suggest putting an image of Grover Norquist on the face of the coin and $100,000,000,000.000 or ONE HUNDRED TRILLION DOLLARS on the reverse with FACTIO THEA below. After all they were the cause of the coin and there is no use not making it big enough to outlast the Tea Party.

Posted by Chris08 | Report as abusive

A Latinist might confirm to me whether the motto on the reverse should not be FACTIO THEAE (Party of Tea) with THEA in the genitive rather than as I have it. Must be correct of course.

Posted by Chris08 | Report as abusive

Searching for solutions to resolve self-imposed imaginary concepts (the debt ceiling) is akin to congress debating the morality of radical negative one.
The optics matter, the framing matters, the branding matters, or, on some level, none of it matters, and whether congress decides to raise the debt ceiling or not, the entire thing is a thought experiment because the systemic flaws are rampant, unending and solutions or problems now are simply additional data points to continue dancing with.

Posted by thispaceforsale | Report as abusive

Frankly, I don’t understand. How is minting a coin any different from having some private bank enter the number 1 trillion into a computer and then using that number to buy T-Bills (which are themselves electronic) from a primary dealer? If you’re entering numbers in a computer in the first place, what does interest matter? ZIRP is assured into infinity so who cares what the interest cost is? All the coin idea does is prevent banks from collecting interest on that portion of the debt. It doesn’t reduce the debt – it wouldn’t even reduce the deficit since you KNOW they’re going to spend whatever they “coin”.

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