Simon Wren-Lewis on democratic helicopter money

Wrong approach. The issue should now be based on knowledge that the fixed rate system is over other than for those countries that either give us their power as currency issuers to a currency union, peg their currency to another currency, use the currency of another country, or borrow in a currency they do not issue. Countries that are currency sovereigns are not constrained operationally in currency issuance, although they may voluntarily restrain currency issuance politically.

"Central bank independence" is voluntary restraint on currency issuance by the currency issuer through the constitutional process of representative democracy that vests the purse strings and money creation in the people's elected representatives, allowing the holders of the purse strings to delegate at least some of its power to unelected technocrats. While this may be instituted democratically, and result is anti-democratic in transferring control at least partially to interested parties and special interests.

So the question is not whether helicopter money can be democratic but whether the democratic process can be restored politically by ending the delegation of democratic control over currency issuance. Governments create the institutions under which they operate and they can therefore change them by reversing the process.

The question of "democratic helicopter money" is easily resolved by transferring currency issuance to the Treasury and folding the payments system into the Treasury. If the people's representatives wish to continue interest rate setting they can do that through a Treasury agency also, under the direction of the executive or the legislative branches.

The present system of a politically independent central bank is anti-democratic and should be terminated as operationally unnecessary as a separate entity.

The people's representatives should appropriate funds as they see fit and the agency they designate should then make the necessary payments, issuing the funding as needed. The primary role of taxation then becomes withdrawing funding as needed to control inflation by keeping effective demand consonant with the capacity of the economy to meet it using functional finance.

The issue really boils down to ending the concept of "sound money" as a relic of the now non-existent gold standard. It's archaic at best, and it was even mostly wrong under a gold standard although there was less policy space under a fixed rate system than now under the present floating rate system.

Let's face it. The financial crisis was a debacle for capitalism and still is. The system essentially collapsed and was only rescued by government action. The problem was and continues to be that government saved the capitalists and let the rest of the people largely fend for themselves. Many drowned and some are still underwater. The system has not recovered and worker's real wages are at levels they were at in the Seventies.

So those who are tempted to object to the "radical" suggestions above need to explain just how the existing institutions served the people whom they are represented as serving in a democracy where interests are not supposed to considered special.

Why were special interests served and not the interests of all. The answer of those serving the special interests is that the interests were special because these interest underpin the system. So it was necessary to use the many as a tool to serve the interests of a few so that the interests of the many would be served "in the long run"? I have a bridge to sell anyone that falls for that line.

The policy space was available and so was knowledge of how to use it. The reality is that that officers of the ship bolted for the life boats and left the women and children behind.

Mainly Macro

Can helicopter money be democratic?

Should economists rule?

Simon Wren-Lewis | Professor of Economics, Oxford University