This week on Facebook: Sees me return to economics, yet more history and the despair of an old man who — like all old men before me — thinks that the world is going to hell in a handcart. My first instinct was to ignore articles on helicopter money as it being something that I was incapable of having an influence on (which is true) and finding myself totally confused by the rationales offered by economists and politicians. Nevertheless, the notion of helicopter money made me think of some historic precedents that I believe are valid allusions to its use.
When States count on the inflationary effects of their fiscal policy to mitigate the indebtedness usually inherent in their policy, without the economic growth necessary to support State debts, defaults become inevitable. History is replete with examples of the inflationary effects of creating new money1 — be it soft or hard — that pours into a State’s coffers and it being used in much the same way as helicopter money. The hard wealth of Spanish America’s gold and silver or the soft wealth issue of French assignats are just two examples of inflation caused by an influx of both real and fiat created wealth which, without the corresponding economic growth and fiscal prudence2 within the State led to inflation.
There is a modern monetary theory (MMT) view that helicopter money is a fiscal operation that is not inherently inflationary, which nevertheless divides economists and politicians on the efficacy of using helicopter money. In discussion related to helicopter money there are disagreements about exactly who controls the issue of it — in paraphrasing Thursday’s article there is a need to state that The Bank of England is supposed to be an independent central bank and not HM Treasury — that base money issued by a central bank is different to bonds or gilts issued by a government. Adding that it is the central bank that is supposed to control the issue of money and set the interest rate, while HM Treasury set the fiscal policy, distribute the monies collected through taxation, and pay the interest on debts incurred. Economists seem forever determined to deny the existence of money, or to conflate it with ‘debt’. There are good reasons for wanting a central bank to issue money and governments to issue bonds — they are different.
There are two words which keep appearing in most articles — whatever views are being expounded — namely, stimulus and growth. Any stimulus achieved by most States’ fiscal policy, intended to turn taxes received into investments leading to an economic growth benefitting the taxpayer, is an illusion for the vast majority of taxpayers. In increasingly competitive global markets3 where State fiscal policy is based on the premise of a budget deficit4 that forecasts a stimulus to economic growth by increasing its debt burden, it’s difficult to see any other result than the world going to hell in a handcart.
Monday 12 September 2016 Helicopter money: setting the tale straight: Helicopter money goes beyond standard fiscal and monetary policy by boosting economic activity using money created by the central bank — money that does not have to be paid back. To its modern advocates, the tale is one of blue-sky thinking that could avert the next recession. But is this just pie in the sky? This post discusses why such a policy is different to quantitative easing, why it is unlikely to have much impact relative to conventional fiscal measures and the pitfalls associated with pursuing it.
Tuesday 13 September 2016 The Euro Zone Embraces Helicopter Money: There is concern that the euro area banking sector is no longer willing or in a position to churn out ever more credit and money. It is therefore feared that the euro area might fall into deflation; that is, a period of falling prices, accompanied by declining production and employment. This, in turn, could endanger the entire euro-project. Helicopter money, some economists say, could prevent such an outcome. The ECB just needs to print up new money and hand it over to ‘those in need’. The new money will then be used for purchasing goods and services. This, it is said, will support nominal incomes: It will lead to higher goods production and/or higher goods prices.
Wednesday 14 September 2016 Helicopter money is different: The discussion of helicopter money may have moved from the periphery of the policy debate to its centre. Unfortunately, analytical confusion seems correlated with interest levels. Keynes once remarked that when economists are confronted by novel ideas their initial objections frequently cede into the assertion that there is nothing new. Amidst the considerable noise and confusion around helicopter money there are some genuine policy innovations and some old policies in new clothes.
Thursday 15 September 2016 People’s QE and Corbyn’s QE: The main difference between helicopter money and Corbyn’s QE therefore seems to be where the money created by the central bank goes: to individuals in the form of a cheque from the central bank, or to financing investment projects. I think that is wrong, and to see why we need to ask an obvious question: what is this policy innovation designed to achieve. I think it is here that confusion has arisen. Indeed some of those who dislike the idea of helicopter money have already been using Corbyn’s QE to say ‘I told you helicopter money was a slippery slope that would lead to the end of central bank independence’.
Friday 16 September 2016 Helicopter money — Views of leading economists: The media seems awash with talk about rotary flight — the ‘helicopter money’ or ‘helicopter drop’ of Milton Friedman and Ben Bernanke fame. This is understandable. Recessionary and deflationary tendencies are increasingly baked into expectations, making a Japan-like scenario more likely. The negative trends are proving increasingly impervious to conventional and unconventional monetary policy. Fiscal policy could help, but it appears to be tied up in political conundrums, as are many pro-growth structural policies.
Nowhere is global competitiveness more apparent than in States seeking a commercial advantage in their trade agreements. What State (democratic or not) is going to implement a fiscal policy in which the expected standard of living enjoyed by its political supporters is going to decrease? Even companies that span the globe and gather revenue from all over the world can be hurt by a recession or a change in regulations in the nations they were founded in. Something I alluded to in The Trojan Börse in which member States of the EU exploited another member State (Greece) to achieve their own financial and political advantage. This — perhaps more than anything else — exposed the disparity between the monetary policies of the European Central Bank and the fiscal policies of the European Union.