Shake Shack, Suspect Specie, and Sane Stewardship of the State

An actual text exchange I had with a friend about going to Shake Shack, and the results of a trip there. (Picture is a composite reconstruction; see article for details.)

The picture above is a reconstruction. The original picture and the original text exchange were lost forever last Sunday when my phone slipped out of my pocket while I was on a hike, and fell into the Sandy River. The original text exchange, which was substantially close to what is illustrated, took place in late April of 2023, a day or two after Shake Shack opened a location across the street from Powell’s City of Books in downtown Portland.

As proof of my love for you all, I went back to that Shake Shack today (19 May 2023) and ordered a lunch so as to collect a photograph for this article. This should amply demonstrate that although my friend was cracking a joke, it’s one of those jokes that’s funny because it’s true. What you see there is a “Smoke Shack” burger with crispy onions, accompanied by a cookies-and-cream shake. No fries. They didn’t even wait until the cheese was melted before bringing it out to me. After a 10% tip for the staff, my credit card had an additional $20.79 of debt on the account. That’s close to $21 for a fast food burger, no fries, and a shake.

Now, the quality was pretty good for fast food, but it was hardly an earth-movingly good meal. If I’m going to drop $21 on lunch, and I’m not trying to collect a point to make and a photograph to use for a blog post, I’d drop that $21 at any number of better places in downtown Portland. So it’s a good thing money is just a social construct (and yes, actually, it is exactly that) because otherwise, I might just have to accept the proposition that if you want something even halfway good in the world, you need to be prepared to pay for it.

I was reminded of that the moment I sat down to await my food by perusing my Twitter feed. All over the news that morning was debt ceiling brinksmanship by House Republicans, and folks were worried about it, and rightfully so. I thought, “If I want a decent burger, I guess this is what it costs; if we want a functional government, that’s going to cost something, too.”

Why do I think it’s McCarthy as the willful aggressor rather than Biden? Because I’ve not heard any representative of the Republicans bothering to explain in any detailed way what the cuts they want are or why they would be good for the country. McCarthy himself doesn’t seem to have his heart in it–his attitude seems to be “This is what I had to promise a critical segment of my caucus to get my speakership, so I have to do this.” So he’s doing it, but doesn’t really have any passion for why he’s doing it or what the real result would be. The people who are driving it can’t or won’t articulate why, and presumably their supporters have just already bought into a generalized concept of “less government spending is better,” whether that’s true or not.

The spectacle of Kevin McCarthy holding a knife to the global economy’s throat is terrifying and grossly irresponsible. McCarthy was feckless, weak, and probably not particularly smart, and that’s how he wound up having to cave on this to his populist wing. It’s not clear to me that the populist wing of the GOP understands what they’re trying to accomplish by doing this or that the threat they’re using to backg up their incoherent demands is “we’ll own-goal the entire world’s economy with the most catastrophic economic event since Black Friday in 1929.”

Worse, the Wall Street wing of the GOP, who I presume do understand what’s at stake, doesn’t seem able to do what it clearly needs to — defect and vote with the Democrats to raise the debt ceiling and get us the hell out of this mess. With the result that once again, we hurtle precipitously towards the crescendo of the ten-to-fifteen month periodic ritual of Republicans dousing us all in gasoline and threatening to ignite fireworks, while simultaneously throwing a temper tantrum for ill-defined and untargeted spending cuts without even really understanding what good thing is supposed to happen if we get them or what bad thing might happen if we made those cuts unintelligently.

And the worst part is, they are credible in making this nihilistic, self-destructive threat. So I wasn’t hugely surprised when the very first tweet I saw from someone who wasn’t a friend or an Ordinary Times adjacent personality was this:

As republicans have walked away from negotiating we're inching closer and closer to absolute catastrophe. I wrote about why it's time to stop with the nonsense, mint the damn coin and move on.

Read @inthesetimesmag 👇🏿 https://t.co/zamB0v04ZE

— Mo Weeks (@mo87mo87) May 19, 2023

“Mint the damn coin,” or more specifically, #MintTheCoin, is supposed to be the silver bullet out of our current predicament. It’s based on a combination magical thinking and a particular way of reading 31 U.S.C. § 5112(k):

The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

By “particular way,” I mean “in a way that is completely and derangedly devoid of any other context.” So sure, if you just read that one sentence in isolation, it looks like Janet Yellen is authorized to mint as many coins in whatever denomination she chooses as long as she uses platinum to do it. Secretary Yellen presumably would consult with President Biden before doing such a thing, but there seems to be nothing to stop her from getting an artist to inscribe a stamp with some dignified-looking artwork, the words “United States of America,” “In God We Trust,” “E Pluribus Unum” “One Trillion Dollars,” and “Liberty,” and most importantly the words “One Trillion Dollars” bestowing a denomination on the coin. Because hey, if money is just a social construct, so is law!

Thanks to the magic of seigniorage, the Platinum Bugs argue, there’s effectively a trillion new dollars that the Treasury is holding because the cost of an ounce of platinum is trivial compared to the value of the coin once the government bestows its fiat upon it.

As an exercise in pointing out how absolutely batshit insane the Republicans holding the U.S. government’s reliability as a debtor is, I suppose #MintTheCoin serves that purpose. It also serves as admirable fodder for right wing folks who feel the need to have some sort of retort to accusations that their side of the debate has been co-opted by wooly-headed conspiracy theories like QAnon and Trumpian confabulations. Government By Twitter Hashtag and Fevered Magical Imaginings is not likely to lead to good ideas, whether those ideas or left-leaning (#MintTheCoin) or right-leaning (“Don’t just starve the beast, blow it the f– up!”).

So let’s be real: #MintTheCoin is today’s permutation of the 1970’s call to “fight inflation by printing more money” and it’s an awful idea for the same reason: it would explode M₁. As anyone who’s taken macroeconomics should recall, M₁ is defined as “currency in circulation plus commercial bank and other liquid cash deposits” or more simply, it is a reasonable enough metric to answer the question “How much money is there in the whole economy?” As of the close of Q1 in 2023, it was about $19 trillion.

I don’t think you need an advanced economics degree to realize that more than doubling M₁ overnight without a similar increase in goods and services productivity would be massively inflationary. Even if you couldn’t puzzle through that on your own, there is the recent example of Zimbabwe, which relied upon seigniorage as a source for up to a quarter of its annual governmental revenue for nearly a decade. The result was five-digit hyperinflation and an utterly wrecked economy from which the country still has not really recovered. #MintTheCoin advocates have not offered a plausible explanation, in my opinion, as to why we would expect any different a result in the US than Zimbabwe got; it’s a worse idea than fighting cancer by smoking more cigarettes, because exploding M₁ would work faster.

#MintTheCoin has another downside: it’d be illegal. It ignores the fact that the Fed, not the Treasury, controls the money supply; further, it ignores that 31 U.S.C. § 5112(k) is one part of an Act of Congress authorizing the Treasury to mint a limited amount of “commemorative” coins as a profit-making numismatic enterprise, and thus isn’t intended to create “legal tender for all debts” the way true currency is supposed to be.

At this point, I was done with the burger. The burger was good! It was not great. But I still had some milkshake and hadn’t really finished fretting about politics yet despite distracting myself with looking into just how awful an idea #MintTheCoin would actually be. And while enjoying the rest of my milkshake, I found out there’s a more interesting cluster of ideas out there to circumvent a potential failure by Congress to raise the debt ceiling. They seem like they have a more plausible chance of passing legal muster and reaching the point where we could ask not just “is this possible?” but “is this a reasonable way forward?”

There’s a financial instrument called a consol, also known as a perpetual bond. It’s a financial instrument with no maturity date. It pays interest at a specified rate until it is repurchased; the borrower can purchase it at will. The mandatory interest payments are a liability, but the amount of the bond isn’t a “debt.” So instead of minting a trillion-dollar coin, which could not realistically be negotiated anywhere anyway, the government could issue a trillion dollars’ worth of consols. Several European nations have used consols to finance their debts, particularly debts accumulated very quickly in times of war. The earliest use seems to have been by the UK in the 1750’s. Again, why isn’t this a “debt”? Becasue the creditor has no enforcement rights on the principal. The principal is repayable “at the pleasure of the obligee,” where here the party obligated is the U.S. Government.

As an investment vehicle, there are some serious downsides. It’s low risk, low-return, because while the interest rate promised is low, it lacks a maturity date and therefore lacks a predictable ROI. Particularly problematic if the interest doesn’t offer an ROI in excess of inflation. And even in a low-risk portfolio, because the principal can be bought back at any time by the obligee (probably fractionally at the obligee’s option), there’s a significant risk of long-term loss.

As a financial planning instrument, again there’s a downside: even though the consol isn’t necessarily repayable at any particular time, it does eventually have to be bought back.¹ So there is a plausible argument that a consol would be a “debt” and therefore issuing consols falls within the power and discretion of Congress to authorize, or not.

We don’t know the answers to any of those issues yet. The United States has, so far as I can tell, never issued consols as financial instruments. We’d be sailing into uncharted waters.

In the short run, it’s pretty certain that if the Treasury were to auction off a trillion dollars’ worth of consols, securities repayable “at the pleasure of the United States of America” and bearing interest obtained at the bid rate, a trillion dollars could be raised with about the same degree of administrative fuss as the Treasury incurs now issuing T-bills. There would be a legal challenge as to whether a consol is authorized by law, and if so whether it is a debt for purposes of the debt ceiling law. But it would provide a means for the government to keep on paying its bills even while the challenges were pending.

In the inevitable legal challenges arising out of both sides failing to blink, you can bet the government would raise Section Four of the Fourteenth Amendment to the Constitution. Article I, Section 8 gives to Congress, not the President, the power “…to pay the Debts [of and t]o borrow Money on the credit of the United States,” but this was at least debatably amended in 1868, when the Constitution was amended thus:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

This was meant when originally passed to forever place repayment of bonds issued to finance the Civil War out of the reach of the pro-Southern Democrats (and, in its second sentence, to forever leave creditors of the former Confederacy out to dry). But there’s the text, and it seems plausible that it means in 1868 when it was adopted, Congress was stripped, at minimum, of the power to refuse to pay the government’s debts. The President, who under Article II, Section 3 must “take care that the laws be faithfully executed,” could then interpret that even in the absence of Congressional authority to do so, he has an obligation to honor debt obligations because of previous laws authorizing the issuance of that debt. The money has to come from somewhere, and a consol is at least debatably a form of obligation that is not a debt because it is repayable at the pleasure of the creditee, so Congress might lack power to prevent the President from issuing a consol.

Alternatively, of course, the law imposing the debt ceiling might be deemed inoperative as unconstitutional (at least in the instance of a threatened default), and the President could simply order the Secretary of the Treasury to issue more T-bills, standard and familiar debt instruments, based on the authority of the Fourteenth Amendment. That would be the first argument, but I can see that argument failing — because the Fourteenth Amendment does not say that the President may take action to pay debts in defiance of an explicit Congressional limitation on his instructions to spend public money.

In Youngstown Sheet & Tube v. Sawyer, 343 U.S. 579 (1952), President Truman intervened in a threatened national labor strike by steelworkers, purporting to seize certain steel mills as vital to the war effort (the war being the conflict in Korea) and order the management to concede to the steelworkers’ pay demands pending resolution of the dispute so that they would continue working. In effect, of course, this would have made the wages demanded by the workers permanent because really, how could management go back from having paid them while under Federal stewardship? So the executives of the steel mills, on behalf of their stockholders, challenged Truman’s seizure of the mills.

They won, but did so by way of a badly-fragmented opinion. About all that a majority of the Court could agree on was that the President could not seize and operate a private business without a Congressional grant of authority to so act. The phrasing of that reasoning came in a concurring opinion from Justice Robert Jackson, which somewhat recently was restated:

First, when the President acts pursuant to an express or implied authorization of Congress, his authority is at its maximum, for it includes all that he possesses in his own right plus all that Congress can delegate. when the President acts in absence of either a congressional grant or denial of authority, he can only rely upon his own independent powers, but there is a zone of twilight in which he and Congress may have concurrent authority, or in which its distribution is uncertain. In such a circumstance, Presidential authority can derive support from congressional inertia, indifference or quiescence. Finally, when the President takes measures incompatible with the expressed or implied will of Congress, his power is at its lowest ebb, and the Court can sustain his actions only by disabling the Congress from acting upon the subject.
Cleaned up from Medellin v. Texas, 552 U.S. 491, 524–25 (2008) (quoting Youngstown Sheet & Tube, 343 U.S. at 635-38, Jackson, J.)

So here, in the arena of what to do if both sides of this debt ceiling impasse refuse to blink, we have three things that the President could do unilaterally to protect the economy from the irrational destruction the Republicans threaten to wreak upon it. First, he can directly challenge the debt ceiling limitation as unconstitutional, either on its face or as applied under circumstances that would call the debt of the United States into question.² If successful, he can issue more rolling debts, which means sell more T-bills and use the proceeds to keep on paying the government’s bills.

Second, he can make debt payments either by issuing more debt in defiance of the debt. This would be a “low ebb” scenario under Jackson’s formulation in Youngstown and that makes me dubious. Alternatively, he could auction consols and make debt payments from those sales. That might only work once or twice if the Court were to decide that consols were also “debts” of the United States, and therefore his auctioning them off was itself illegal and possibly unconstitutional. Or, if a consol is not a “debt,” because it’s repayable only at the discretion of Congress, then it falls in the “twilight zone” where the President can act within a plausible claim of inherent executive power.

And third, I guess, he could #MintTheCoin. This would be a really bad idea, of course, because it is both illegal upon more than superficial contemplation, and even if done successfully regardless of legality, would leave us following the dismal example of systemic financial failure set by the Mugabe government of Zimbabwe, a failure from which that nation has still not recovered in any meaningful sense.

The fact of the matter is we need the government to spend money. In a lot of ways, in a lot of places. If that doesn’t happen, really really bad things will result from it. Government shutdowns hurt the economy. A government default on debt service would be an unmitigated disaster, the worst thing to happen to the U.S. economy and indeed the global economy since 1929. And that means we need to continue spending our money. If we’re going to cut the budget (why do we need to do that again?) we need to do so strategically and thoughtfully. What’s being demanded on the GOP side of the table isn’t it. And yeah, there’s sticker shock for what things are about to cost. Just like I had sticker shock buying a better-than-mediocre burger for lunch today.

The Republicans are closing their eyes and holding their breaths hoping that magic, harmless spending cuts will come their way; and at least certain Democrats are also closing their eyes and holding their breaths hoping that money will appear, one ounce of platinum at a time, in sufficient numbers to harmlessly solve the problem. Everyone needs to stop thinking magically and start behaving with the responsibility we voters ought to demand from those to whom we entrust the commonweal.

There are grownups in the room, on both sides of the aisle, and they are the ones who need to be calling the shots. Someone willing to tell Wall Street they’ll default the national debt is not among that number. Nor is someone who thinks we can conjure trillions of dollars from two pounds of metal.

If you’d spent twenty-one of your dollars on a burger and a shake along with me, as my friend was unable to do because he was out of town, this could have been our lunchtime conversation! If that sounds good to you, make some plans, come to Portland, and let’s meet up for lunch!

1. Maybe not! Maybe they get issued and become a form of passive government income for whoever holds them… forever! This could be banks and other financial institutions, but maybe individuals too? Also, it’s pretty clear there’d be a secondary market for them. Maybe they’re the gateway to a dystopian future of economic polarization, by which the descendants of today’s very wealthy who could buy the consols are supported by them on the backs of tax dollars collected by the descendants of today’s poor. Or, maybe very optimistically, they become a back door form of universal minimal income. Or maybe low ROI and high interest diminish the future payments and future principal to little more than a nuisance to the government and little more than a pittance to the recipients.
2. What good the debt ceiling law would do without applicability in that circumstance? None. But the Supreme Court has neutered laws without completely overturning them before.