Friday, May 20, 2016

Simon Wren-Lewis — Helicopter money and fiscal policy

Both John Kay and Joerg Bibow think additional government spending on public investment is a good idea, and that helicopter money (HM) is either a distraction (Bibow) or fiscal policy by subterfuge (Kay). They are right about public investment, but wrong about HM.
In an age of moronism, SWL is probably correct from the pragmatic point of view. Under the neoliberal veil, politicians will never deploy fiscal policy. If they don't , and the central bank cannot offset even if it is willing to, this ship is going stern in the air.

Helicopter money in the US would result in a huge reaction from conservatives and Libertarians, however, who would see it as the work of the devil.

Mainly Macro
Helicopter money and fiscal policy
Simon Wren-Lewis | Professor of Economics, Oxford University

31 comments:

Andrew Anderson said...

G. W. Bush distributed "stimulus checks" and no one objected that I can recall.

So what's the problem? Control-freaks who can't stand that individuals make spending decisions and not them?

Random said...

Economists are a big part of the age of moronism. Why not have Snoop Dogg in charge of money creation?

Tom Hickey said...

G. W. Bush distributed "stimulus checks" and no one objected that I can recall.

It was fiscal.

Right now, there is a huge amount of agitation on the right over the Fed. Many are calling for more transparency (there is bill in Congress now) and some even want to abolish it. Giving the Fed more power would enrage them.

Matt Franko said...

All they have to do is raise the interest rate... that will take care of a lot of current problems.. but of course not all...

Tom Hickey said...

Matt, "where's your model?"

Andrew Anderson said...

It was fiscal. Tom Hickey

ALL fiat creation should be fiscal; that should be blindingly obvious. The Fed should only create fiat for the US Treasury in exchange for "trillion dollar coins" and that fiat used (besides normal deficit spending) for "helicopter drops" equally into individual citizen accounts at the Fed for lending to the banks if desired. Let the banks get their liquidity the honest way - by borrowing from the population.

Tom Hickey said...

The issue is issuance.

In one meaning of "helicopter money," the central bank credit accounts with balances that it creates independently of the fiscal authority, generally the legislature. This is considered to be an aspect of monetary policy by a politically independent central bank.

Another meaning is "money-financed fiscal policy," where the fiscal authority directs the use of funds and the central bank credits accounts directly accordingly the issuance of Treasury debt. This is tantamount to crediting the Treasury's account at the central bank without corresponding debt issuance by the Treasury.

Andrew Anderson said...

This is considered to be an aspect of monetary policy by a politically independent central bank. Tom Hickey

Which is morally absurd on its face since a politically independent bank that can create fiat is essentially a legal counterfeiter.

Random said...

"where the fiscal authority directs the use of funds and the central bank credits accounts directly accordingly the issuance of Treasury debt. This is tantamount to crediting the Treasury's account at the central bank without corresponding debt issuance by the Treasury."

Not really Tom. Reason is the amount of 'borrowing' is decided after the government spends. When the government spends it spends from its buffer (on a particularly heavy spending day an intraday overdraft), if there is no saving in the spending chain, the government will get ALL its money back as tax as it goes round the economy. This shows if there was no saving in the spending chain, that is a sufficient but not necessary condition for at least a balanced budget.

Of course people are also spending savings and borrowing IOUs from the banks that can be used to intermediary pay taxes. To pay your taxes you need to present the government’s own bank’s liabilities to settle that debt. If you don’t then you haven’t settled them. Therefore for the taxes (in the UK) to be credited to the National Loan Fund Account or Consolidated Fund Account the banks making the payment have to have access to central bank liabilities.

I suggest you send any 'economists' this document. Government runs overdrafts intraday and clear at the end *just like* private banks. Isn't the U.S. system the same? At least in the UK what I am saying is true:

http://www.publications.parliament.uk/pa/cm200102/cmselect/cmpubacc/349/349ap02.htm

"18. The net surplus or deficit in the NLF is automatically balanced to zero each day by a transfer to or from the Debt Management Account operated by the Debt Management Office (DMO). The DMO's cash management objective is each day to balance this remaining position on the NLF. It does this by issuing Treasury Bills and by borrowing or lending in the sterling money market during the day. To achieve this objective the DMO needs reliable forecasts of each day's significant cash flows into and out of central government, and up to date monitoring information on actual cash flows as they occur. For cash management purposes the flows that matter are those which cross the boundary between the Exchequer Pyramid accounts at the Bank of England and accounts elsewhere (ie cross the outer black line of the chart annexed to this memorandum).

19. When government is a net lender on a particular day because, for instance, tax receipts exceed spending, the DMO lends the cash back out into the market. The effect is to balance up cash holdings across the banking sector because, if government has received more cash on the day than it has spent, the commercial banking sector will have an equal and opposite deficit.

20. The DMO has put arrangements in place with the Bank of England and the main settlement banks to ensure that its position is balanced at the end of each day, even when there have been very late changes in the forecast of government cash flows on the day. The DMO also maintains a small (£200 million) balance at the Bank which acts as a buffer, eg in the event of a change in the net government position following the final reconciliation of the government accounts in the Exchequer Pyramid after the end of each day."

If not, promoting to post would be helpful. It is the holy grail of documents. I'm being cheeky :))

Random said...

BTW I agree with you AA, although I think private banks should be allowed for capital development only as N. Wilson suggests. Basic Income is not targeted enough and someone has to paid to check projects are worthwhile:

http://www.3spoken.co.uk/2013/05/making-banks-work.html

"Banking helps prevent the concentration of equity in society. If I want to start a business and the bank won't lend, then I have to find a rich person and sell them most of my business to get the money necessary to get it going. That turns me from an entrepreneur with ownership into an unpaid lackey dancing to the tune of the Vulture Capitalist class. As Felix Dennis puts it in How To Make Money
All Faustian pacts in the raising of start-up capital should be avoided ... No founder of a business who surrenders control in exchange for capital is ever likely to retrieve control of their business. Their financial destiny is in the hands of others and the entrepreneur has lost their way on the narrow road.
Several of the proposals to narrow banking propose to restrict bank lending far further than is necessary or socially sensible - putting up the cost of lending far too high."

"When I was 17 and was looking to start my first business I went to see an old grizzled business advisor. And about the first thing he said was that British Banks don't do their job. That job is the distribution of new state backed money to those who can make use of it to develop the capital of the country. The problem of getting lending to businesses has been around for a very long time.

The lending banks we need are the ones that can lend development capital effectively and stick to doing just that. If we are to have private lending banks, then they need to be able to make a decent profit doing development capital lending.

The way I would narrow banks is to offer them an incentive - an unlimited cost free overdraft at the Bank of England. 0% funding costs. In return they must drop all the side businesses and just do capital development lending on an uncollateralised basis - probably in the form of simple overdrafts. In other words they become an agency businesses delivering state money to those that require it.

I'm not even sure a capital buffer is required here. Losing your lending licence if your underwriting isn't that good should be sufficient incentive to run a tight ship. Backing off the entire thing to the central bank reduces the barriers to entry in lending - making self-employed, highly dispersed and, importantly, locally focussed underwriters a possibility (the 'Provi Model').

Any lending businesses that doesn't want to take the oath, then has to fully fund their lending on a maturity matched basis Zopa style. No deposit insurance, no access to the Bank of England, and losses absorbed by those doing the lending. This then becomes the fate of the shadow banking system - the building societies and money funds.

So that sets state funded lending against fully match-funded lending in competitive tension. State funding will likely be conservative but actually injects extra net financial assets into the non-government sector economy. Fully funded lending is just patient man helping impatient man for a fee in return for the risk.

Now narrowing banking in any way will put the cost of lending up markedly - particularly if you de-collateralise to get away from asset bubble spirals. With the current level of loans that is likely to cause fun and games. So you have to get the total amount of lending down at the same time as the narrowing is put in place."

"Narrowing" is Basic Income possibly.

Let us continue the discussion comrades.

Tom Hickey said...

Which is morally absurd on its face since a politically independent bank that can create fiat is essentially a legal counterfeiter..

The cb gets its powers from the legislature iaw the Constitution. Just like the Mint is authorized to generate money tokens. No problem.

Tom Hickey said...

It's different in the the US from the UK. The Treasury is prohibited from spending without balances to cover (no overdrafts at the Fed). Those balances come from either taxation or debt issuance, since the Fed can neither credit the Treasury account directly nor lend to Treasury, and the Treasury doesn't borrow in the private sector.

Helicopter money is designed to get around this. But it would have to be legislated. On the other hand, the legislature could just remove those prohibitions.

Andrew said...

Confused. What's the concern? The Fed crediting my bank account without any intervention from Congress? Has anyone seriously proposed such a thing?

Andrew Anderson said...

No problem except government, meant to serve the general welfare, serves the rich instead.

No wonder then that heads have rolled, world wars have resulted and hundreds of millions have suffered and died needlessly.

No problem, you say?

Andrew Anderson said...

As for the Constitution, the Fed clearly violates Equal Protection under the Law in favor of the banks and the most so-called creditworthy, the rich.

As for "no problem", the God of the Bible takes oppression of the poor seriously - civilizations have been destroyed for such, iirc.

Matt Franko said...

Andrew there are 'automatic appropriations' for things like interest on US Treasury securities, Social Security, Meds, etc... transfer payments...

Fed controls the risk free rate so when the Fed adjusts that rate is has direct fiscal effects...

Matt Franko said...

Andrew you are getting caught up in the KJVs use of the word "money!" in Mat 25:27... its not "money!" its argurion which is SILVER (the metal)...

http://scripture4all.org/OnlineInterlinear/NTpdf/mat25.pdf

we are not using metal or silver or wtf ... and the Greek scriptures do not reveal a 'General Theory of "money!" as knowledge or truth... KJV conflates mass measures of the 3 metals with state currency into the figure of speech "money!" just like everybody else does...

they are not the same thing.... and it matters they are not...

Tom Hickey said...

As for "no problem", the God of the Bible takes oppression of the poor seriously - civilizations have been destroyed for such, iirc.

1. Moral doesn't imply legal and legal doesn't imply moral. Legal systems are already in place and laws have been passed. In a democracy the remedy is political action to change laws that one either doesn't agree with or finds offense. One can also refuse to obey laws for religious or moral reasons, but courts generally don't view that positively.

2. When people advocate repealing or changing a law with economics consequences they are either assuming that the matter is best left to the market, or else to be taken seriously they need to provide an alternative and argue for it, like Positive Money is doing in the UK regarding money creation. In the US, the fight is over abortion, access to government funded women's health care, and what bathroom one must use.

Tom Hickey said...

On the other hand, Matt, some people likely read the scripture as establishing the commodity theory of money as the word of God. :o

Matt Franko said...

OT stuff there Tom.... Israel was supposed to use mass measures of silver... Didn't work obviously.... The one who ended up fingering the Lord actually took a 30 weight payment in return....

Paul wrote "philargurion" or 'fondness for silver' was a root of all the evils....

This teaching from Paul goes right over the heads of Christendumb via the emergence of the figure of speech "money!" in this case also....

Matt Franko said...

"Matt, "where's your model?"

Here the guy explains modern control theory... btw which controls/regulates everything out there that works for crying out loud .... pretty well Id say and the word "model" appears ZERO f-ing times:

http://www.csimn.com/CSI_pages/PIDforDummies.html

This whole "model!" thing comes from these stochastic know-nothing idiot economist morons.... we shouldnt be using this word ....

Ralph Musgrave said...

Matt, Next time someone asks you for a "model" send them several pages of Chinese Manderin. Say something like, "My model is set out in Manderin symbols, rather than the usual Greek symbols used by economists for their mathematical models, but I'm sure you won't mind."

Tom Hickey said...

It's not necessary to use the word "model" to have a model.Circuit designers don't talk about "models" but rather "circuit designs," which are models at a higher level of abstraction. Virtually all of science uses models of one sort or another, mathematical or conceptual.

Even a descriptive statement that asserts the actual existence of a possible state of affairs is a model of a putative fact. This is how the logic of descriptive language works.

Andrew Anderson said...

Helicopter money ... who would see it as the work of the devil. Tom Hickey

But not properly from Bible believers since restitution for theft and debt relief is Biblical and the current money system is based on systematic theft from the poor and other so-called less credit worthy and on driving people into debt. Restitution and debt relief is thus in order and an equal fiat distribution to citizens a means to accomplish both in a fair manner.

Andrew Anderson said...

like Positive Money is doing in the UK regarding money creation. Tom Hickey

I'll look into Positive Money but I don't expect to be impressed.

Tom Hickey said...

Many of the people calling for the abolition of the Fed are conservative Christians who believe that real "Biblical" money is commodity money. There were no banks then and certainly not a central bank.

In addition, they view banking as anti-scriptural since to them modern banking "fractional reserve" based, meaning based on loaning what you do not have.

This is a moral argument translated into political terms designed to bring the law into conformity with a particular interpretation of scripture as the divine (absolute) basis of morality.

Andrew Anderson said...

Many of the people calling for the abolition of the Fed are conservative Christians who believe that real "Biblical" money is commodity money. Tom Hickey

Biblical money is ethically created money and that rules out expensive commodities for government money which should be inexpensive fiat to avoid favoring, say, gold or silver owners. Notice Jesus says Caesar's money has Caesar's image on it, not that it was made of silver - silver being used as an anti-counterfeiting technique, most likely.

The Bible has some pointed things to say about gold and silver vis a vis righteousness. Moses, for example, had the Golden Calf ground to dust and forced the Israelites to drink the dust.

Conservative Christians? Rather Biblically ignorant Christians

The only problem with a central bank is that it serves special interests such as depository institutions and the rich, the most so-called creditworthy. Indeed, we should all be allowed accounts at the cb since fiat properly is the citizen's money, not the banks' money as is now the case except for physical fiat, aka "cash."

Matt Franko said...

"had the Golden Calf ground to dust and forced the Israelites to drink the dust."

Ha now even that wont stop them:

https://mikenormaneconomics.blogspot.com/2015/11/more-on-extracting-gold-from-sewage.html

they figured out a way around that one....

Ryan Harris said...

I'm not a constitutional law expert, but wouldn't helicopter money--direct deposit to citizens accounts-- be illegal in the USA in all cases. Congress has the sole and exclusive power to spend, no executive branch of government can spend money without authorization from congress. Helicopter money is government spending money. It isn't just a matter of removing the technical hurdles, I think, the legislature has to give their blessing to the fiscal expenditure. The Fed is a creation of congress. A regional federal reserve bank is technically private, maybe they could do it. I don't know, I'm not looking for an argument either way, just thinking out loud.

"No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time."

"The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;"

Tom Hickey said...

Notice Jesus says Caesar's money has Caesar's image on it

Right. It was a tax credit that had to be obtained to pay imperial taxes.

Tom Hickey said...

I believe that helicopter money could only be done with Congressional authorization, I don't think that the president as the authority to authorize this on than perhaps in an emergency. The Fed might also be able to claim it as an emergency power. But I don't know.