Friday, May 13, 2016

Joerg Bibow — ‘Helicopter money’ is a muddled fiscal policy by another name

Short and to the point.

Financial Times — Letters
‘Helicopter money’ is a muddled fiscal policy by another name
Joerg Bibow, Professor of Economics, Skidmore College


Ralph Musgrave said...

Never read such nonsense. The 2nd last para of that letter reads:

“As long as central banks take their price stability mandate seriously and buy government bonds in the open market when their mandate requires, governments can focus on spending and not worry about helicopters. The fact that today’s elected governments renege on their responsibilities and ruin our grandchildren’s economic possibilities is regrettable. But it does not mean that unelected central bankers should mail out cheques (money drops) to taxpayers instead.”

First, and re “buy government bonds”, that’s QE (assuming we’re at the ZLB). And in case the twit writing that letter hadn’t gathered, QE doesn’t have a huge effect (apart from boosting asset prices and making the rich richer).

Second, he’s suggesting that if there’s excess unemployment, homes are being re-possessed, beggars line the streets, we just sit around saying “that’s regrettable”. That is irresponsible drivel.

The purpose of an economy is to produce what people want. If not enough is being produced, the solution is to give people that which enables them to buy more of what they want. That stuff, apparently unbeknown to economically illiterate Prof Bibau, is called “money”.

Tom Hickey said...

If the cb "monetizes the debt." this is tantamount to direct issuance ("greenbacks"). Then the elected government can decide to shower munnie on people rather than the unelected technocrats "helicoptering" it.

QE was not actually "debt monetization" in this sense, because there was no corresponding fiscal add. QE is fiscally neutral. Debt monetization that funds fiscal appropriations is part of a fiscal operation.

Of course, the simple way would simply to allow the fiscal authority to issue munnie directly into the economy without debt offset of deficits. But lacking that, the CB can accommodate by immediately punching the newly issued debt for its own account, which is just a wash on the government's consolidated books.