The opportunity cost of helicopter drops
Tyler Cowen links to a Wolfgang Münchau post advocating helicopter drops:
I have argued in favour of a ‘helicopter drop’ , even before the recent deterioration in economic growth and the outlook.
A helicopter drop means that the ECB would print and distribute money to citizens directly. If it were to distribute, say, €3,000bn or about €10,000 per citizen over five years, that would take care of the inflation problem nicely. It would provide an immediate demand boost, and drive up investment as suppliers expanded their capacity to meet this extra demand. The policy would bypass governments and the financial sector. The financial markets would hate it. There is nothing in it for them. But who cares?
The ECB has not run out of ammunition but the number of effective policy tools is clearly finite.
I criticized this view in many different ways, so today I’ll use the “opportunity cost” argument. First of all, the ECB never runs out of ammunition, as there is an almost infinite set of assets that they could purchase, at least in principle. Second, while some types of asset purchases would be controversial, obviously a helicopter drop would be 10 times more controversial.
Münchau’s proposal could actually be seen as combining two distinct policies:
1. First, buy up enough assets to hit your inflation target, no matter what it takes.
2. Then give the assets away to the public. This would be like if Norway were to suddenly do a helicopter drop of its Sovereign Wealth Fund onto the residents of Norway.
Since step 1 already solves the AD problem, step two must be evaluated separately, on its own merits. Unless Münchau thinks it would be a good idea for the Norwegian government to suddenly drop all of its assets on the Norwegian public, there is no argument for helicopter drops.
Suppose the ECB were to use the “whatever it takes” approach, and buy €X trillion in assets. Then it could move from OMOs to a helicopter drop by simply giving away these assets. So what’s wrong with that? One problem is that if the ECB is actually successful, then interest rates may rise above zero. In that case to prevent hyperinflation the ECB would have to buy back much of the money that’s been injected. But what would they use to buy back the money? After all, they’ve given away their bonds in a helicopter drop.
Instead, Eurozone governments would have to raise distortionary taxes in order to recapitalize the ECB. This is just another example of the basic proposition that if a fiscal action can only be justified on the grounds that it would boost AD, then it’s completely unjustified. Obviously the Norwegian government would never do a helicopter drop of bonds on classical public finance grounds, which means they should never do a helicopter drop of bonds.
Münchau does briefly address the option of buying bonds instead of doing a helicopter drop, but in a completely unsatisfactory fashion:
My second recommendation is about measures that should not be taken — policy gimmicks. These are decisions that get some people excited but will not lift the rate of inflation. For example, the ECB should not buy bank bonds, or indeed any other form of corporate bonds, or equity. The reason banks are not lending is not a lack of funding but the presence of too many toxic assets on their balance sheets. It would be much better to address this problem directly.
This makes no sense. If you were going to buy exotic assets then the whole point would be to raise inflation (or NGDP.) That is, you’d want to buy enough to boost inflation up to target. So it makes no sense for Münchau to suggest the policy might fail to boost inflation. If it were not going to be pursued aggressively enough to succeed, then what would be the point of doing it at all? And of course bank lending is completely beside the point, and has no relevance for whether OMOs would boost inflation. OMOs are inflationary because they boost the money supply relative to demand, and that sort of OMO would be inflationary even in an economy where banks did not exist at all.
The opportunity cost of doing a helicopter drop is that you forego a much cheaper option, merely relying on a “whatever it takes” set of OMOs, which do not require distortionary taxes to recapitalize the central bank.
Here’s one of those rare cases where the common sense of the man on the street is correct. Dropping money from helicopters really is too good to be true.
PS. The anti-helicopter drop message of this post should not discourage fans of eurozone reflation. A helicopter drop would be very politically contentious. In contrast, much more effective tools such as OMOs are less controversial, and also superior policy options. It’s a win-win. I very much doubt the ECB would even need to buy exotic assets like stocks and corporate bonds; God knows the eurozone has plenty of public debt to buy.
PS. I have a related post over at Econlog.
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8. June 2016 at 08:37
‘A helicopter drop would be very politically contentious. In contrast, much more effective tools such as OMOs are less controversial, and also superior policy options.’
I understand that helicopter money may be superior to OMO in that OMO gives the CB assets it can eventual sell to reverse out the initial policy. But I don’t get that it is also more effective. $1T in HM would surely boost NGDP more than $1T in OMO because 1) it is an addition to wealth not an asset swap and 2) OMO will cause interest rates to fall more than HM in the short term and cause people to hold more money.
8. June 2016 at 08:40
Oops: “I understand that helicopter money may be superior to OMO” is the wrong way round.
8. June 2016 at 09:08
Great Post, it clarifies the issue of what to do after a helicopter drop and if there is a need to tighten again. Basically what you are saying is one can’t mix fiscal and monetary policy, even if she wants to. If you use fiscal stimuli, you will end up having to use fiscal tightening to reverse.
8. June 2016 at 09:13
Scott,
“I very much doubt the ECB would even need to buy exotic assets like stocks and corporate bonds; God knows the eurozone has plenty of public debt to buy.”
It might be preferable in some instances though ;-).
Speaking of which, how much would the implementation of monetary policy have to change under a Trump presidency? Let’s say that a President Trump threatens to default on the public debt or do something else which might reduce the value of US treasuries, could this create any problems for the Federal Reserve to control inflation? It seems to me that a debt default could have similar consequences to a helicopter drop.
8. June 2016 at 09:33
Scott,
I’ve come to believe the real issue Econos have with NGDPLT is the LT.
The big boys won’t even begin to let go of discretion. The fact that they speak far more willingly about insane helicopter $ vs most sane idea ever NGDPLT should convince you too.
Maybe you are already there and I have missed it?
What feels different to me now, is they all seem to WANT INFLATION, and lord knows your 4.5% NGDPLT would be like 3.5% inflation – so they’d have the excuse they crave, and it far more sane sounding than free money.
But they don’t want inflation enough to give up discretion, they’d rather make the insane seem OK, then give up their own levers based on their own read of the data.
But you NEED the expectations to Chuck Norris the market right?
Before I go any further, is this assumption of mine wrong?
8. June 2016 at 09:39
Morgan,
Good point about the level target as the most likely problem, i.e. giving up discretion.
8. June 2016 at 09:51
“This would be like if Norway were to suddenly do a helicopter drop of its Sovereign Wealth Fund onto the residents of Norway.”
Alberta once had a “prosperity bonus”. 400$ for every men, women and child. https://en.wikipedia.org/wiki/Prosperity_Bonus
In any case, you may actually seriously argue in favor of sending a check to every EZ citizen on the grounds of creating a tighter fiscal union (i.e. a more optimal monetary zone).
8. June 2016 at 09:52
Market, You are comparing apples to oranges. A $1 trillion OMO is nothing like a $1 trillion helicopter drop. OMOs are essentially costless.
Toby, I don’t see how a threat of a default would prevent the Fed from controlling inflation, but perhaps I’m missing something.
Morgan, Even without LT, OMOs are a much easier way to boost inflation than helicopter drops.
8. June 2016 at 09:54
LK, You said:
“you may actually seriously argue”
You may, but not me, and not the Germans.
Agree about Alberta, but the Eurozone certainly has no “prosperity” to give away right now.
8. June 2016 at 10:18
‘A $1 trillion OMO is nothing like a $1 trillion helicopter drop. OMOs are essentially costless.’
Well, helicopter drops are equally costless (any future taxation they lead to is merely to prevent inflation – and don’t result in less consumption by the non-govt sector). But politically – won’t people look at the costs anyway , so it becomes relevant that a given dollar amount of HM boosts NGDP more than the same amount of OMO.
Plus OMO boosts asset prices and lowers interest rates compared to HM – so HM may be less distortionary to the economy.
8. June 2016 at 12:04
I think about it differently, although you basically hit on it too. Instead of doing X euros of OMO, which the market knows can be unwound at the drop of a hat, the ECB could do a much smaller amount of “asset giveaways”. This could be done gradually to meet a desired NGDPLT target. Instead of buying 2 trillion euros of bonds and holding them (ready to sop up the cash at a moment’s notice), the ECB could just give away 20 billion euros (99% less) and see what happens. Unlike Munchau, I would just give it to the Euro govt’s (except Greece, whose money would be used to buy up some of their debt, hopefully at a discount). This giveaway could be based on population counts. I think the opportunity cost of such a modest give away would also be zero.
8. June 2016 at 12:24
“Morgan, Even without LT, OMOs are a much easier way to boost inflation than helicopter drops.”
Wait, so we’re not even talking a new target? No NGDP?
It’s just don’t do helicopter money?
nobody tells me anything.
8. June 2016 at 14:18
Am I losing it or didn’t Sumner just do a post on helicopter drop? Why is the story dated 6/9/16?
8. June 2016 at 14:19
surely the “helicopter drop” phrase originates in a 2002 Bernanke speech that talked about QE and a tax cut, not actually handing out freshly-printed cash to people:
” In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman’s famous “helicopter drop” of money.”
https://www.federalreserve.gov/boarddocs/Speeches/2002/20021121/default.htm
where exactly did Friedman even talk about a “helicopter drop” himself? i’ve never been able to find any source.
8. June 2016 at 14:20
Ok Bernanke talks about Friedman and the helicopter drop here http://www.brookings.edu/blogs/ben-bernanke/posts/2016/04/11-helicopter-money . friedman explicity talked about dropping money in a literal sense
8. June 2016 at 15:04
I am sure you know, Scott, that this is not Lonergan’s helicopter money. His HM is debt free, not on government at all, with no bonds exchanged.
And you said that if we could get off the zero lower bound that the Fed could improve its balance sheet. So, if helicopter money was done, and interest rates were raised, the balance sheet would heal itself. It makes perfect sense.
8. June 2016 at 15:07
Lonergan’s plan is for base money to be used, no assets of any kind involved, physical or financial.
8. June 2016 at 16:16
So, all the helicopter drop stuff is just a matter of getting lost in the concrete steppes?
8. June 2016 at 16:42
Excellent blogging.
Right now I would prefer Ben Bernanke’s or Lord Adair Turner’s money financed fiscal programs as monetary stimulus (I prefer money-financed federal tax cuts, not straight helicopter drops) until demand gets to the level that it begins to pull inflation up.
Then we know we are probably getting close to full capacity. Which could be many years btw. The world supplies the U.S.
But it is not inflation that is desired, it is increased demand.
I like helicopter drops also as I like democracy, and KISS.
Rube Goldberg would throw downs his pencils at the current convoluted Federal Reserve Board, with its interest on excess reserves, mysterious reverse repos, QE, and interest-rate drama–and strange two-day but closed door policy meetings of the FOMC, which include voting regional bank presidents, whoever they are. This is not democracy.
Surely, simple money-financed tax cuts are better policy. The debates will be simple: How big should the chopper drops be?
Make this a US Treasury function.
If you think the President is too small or big on chopper drops, then you can vote your preferences.
Monetary policy would become more-transparent, and the results probably easier to measure.
Who today knows if what the Fed is doing works or not? You see we have QE and IOER and reverse repos. Got that? Even “experts” get tangled up arguing with each other on the putative results.
8. June 2016 at 16:59
“First of all, the ECB never runs out of ammunition, as there is an almost infinite set of assets that they could purchase, at least in principle.”
And then
“Agree about Alberta, but the Eurozone certainly has no “prosperity” to give away right now.”
Those two statements contradict.
“Second, while some types of asset purchases would be controversial, obviously a helicopter drop would be 10 times more controversial.”
Mainly because everyone would actually come to learn by experience how prices go up for goods and services, and become directly dependent on free money, as opposed to indirectly dependent on it in the division of labor with OMOs. It would also be controversial because the basis of all variants of monetarism would be revealed for what they are, excuses for protecting the interests of the state and bankers. There is more and more additional money getting pumped into the economy to the banks initially, depressing people’s purchasing power once lent and spent and respent. With helicopter drops, the banks might not like this because it will reduce their real returns from lending.
“if the ECB is actually successful, then interest rates may rise above zero. In that case to prevent hyperinflation the ECB would have to buy back much of the money that’s been injected. But what would they use to buy back the money? After all, they’ve given away their bonds in a helicopter drop.”
Sumner you are incorrectly assuming that helicopter drops, regardless of size, necessarily leads to hyperinflation. Where is the basis for that claim? I think heli drops are insane, but I will still say that if the heli drops are modest, it need not lead to hyperinflation. If everyone is given say $1000, that will not lead to hyperinflation. Hyperinflation as you define it requires sustained a price inflation of 20%, 30% per year, or more.
“And of course bank lending is completely beside the point, and has no relevance for whether OMOs would boost inflation. OMOs are inflationary because they boost the money supply relative to demand, and that sort of OMO would be inflationary even in an economy where banks did not exist at all.”
This claim does not justify a preface of “of course”, because it isn’t true. OMOs are inflationary because they boost the money supply relative to demand? Yes, but that is only part of the story. Without additional lending, almost all of those funds created by OMOs will sit idle as reserves in the banking system. Now it is in principle possible for banks to spend the additional money instead of lending more, but this would require such high OMOs that it would be impossible to contain lending. Lending will increase. So effectively, OMOs really do depend on lending.
“The opportunity cost of doing a helicopter drop is that you forego a much cheaper option, merely relying on a “whatever it takes” set of OMOs, which do not require distortionary taxes to recapitalize the central bank.”
But there need not be any additional taxes because there need not be “hyperinflation”.
“Here’s one of those rare cases where the common sense of the man on the street is correct. Dropping money from helicopters really is too good to be true.”
I think the real reason you are attacking heli drops is because it will cheapen your theory by exposing its underbelly. With OMOs, there is some chance of perception of sophistication and elitism. But with heli drops, it conjures up images of welfare recipients and crazy game show contestants, and ultimately the futility of central banks. People will learn that even though they are getting a free paycheque, prices keep increasing just too much for the additional paychecks to go very far. The entire socialist monetary system would come under threat.
Heli drops are the core of monetarism. Useless in practise and useless in theory.
Finally, there is no such thing as an AD problem. There is always an AS problem, as human desires and wants for goods, i.e. what money actually buys, always outstrip the ability to satisfy those wants and needs. With sticky prices, a boost in AS will boost AD. The problem is not insufficient money. There is more than enough money to facilitate a functioning economy.
All inflation is distortionary. Sumner focuses only on distortionary taxes. But inflation is in fact distortionary because it misleads investors into conflating an increase in demand for a particular product relative to other products in the real coordination, trade off sense, with an increase in demand caused by inflation. There is no way to tell the difference, until reality eventually dominates people’s distortionary activity, hence the persistent distortions caused by inflation.
8. June 2016 at 18:11
@Major. you said: “People will learn that even though they are getting a free paycheque, prices keep increasing just too much for the additional paychecks to go very far.”
I don’t think that is right. Sumner said that getting off zero would cause the Fed to repair its balance sheet. So, if you give the helicopter money while you raise interest rates there won’t be inflation. And you aren’t going to raise them, it looks like, until you do helicopter money! If prosperity leads to higher interest rates, you get off zero.
We are, I admit, screwed up with as much as 8 trillion dollars of long bonds that could find there way into clearinghouses for derivatives. That could depress yields in the face of raising rates at the short end, but maybe the economists could figure that out while they figure out Helicopter Drops, hopefully the Eric Lonergan base money, no asset drops.
8. June 2016 at 19:19
Market, You said:
“Well, helicopter drops are equally costless”
No they are not. Fiscal stimulus requires distortionary future taxes.
bill, I doubt whether a small helicopter drop would have much effect. In a sense Japan has been doing that for 20 years.
Lorenzo, Yes, many people put too much weight on concrete steppes.
8. June 2016 at 20:57
Scott Sumner:
“bill, I doubt whether a small helicopter drop would have much effect. In a sense Japan has been doing that for 20 years.:–Sumner
On the other hand, there seems to be a consensus that helicopter drops is why Japan avoided the brunt of the Great Depression.
8. June 2016 at 22:38
On the rather narrow point as to whether Norway should just give away their sovereign wealth fund to the people of Norway, I say yes. I have never understand the enthusiasm for sovereign wealth funds, it seems like an open invitation for agency problems. Why not just reduce taxes if there is surplus revenue? I understand the suggestion that there might be some smoothing required in Government revenue (say due to dips in oil prices) but the Norwegian fund is way beyond what’s needed for that. And of course the argument that this will tide them over in the future when the oil runs out, well it isn’t enough for more than a few years and what happens then. Surely the best approach would be to focus on developing a low tax high productivity economy by encouraging businesses and personal investment? And if individuals want to save money, then let them do so individually.
8. June 2016 at 22:50
Scott, perhaps I have the accounting wrong, but if the Federal Reserve prints money to purchase US Treasuries to increase the money supply to meet their policy objective and sells US Treasuries to reduce the money supply, then a default on the US debt could lead to higher inflation because the Federal Reserve has fewer assets to sell to reduce the money supply.A Trump presidency, therefore, might make monetary policy more difficult. Would this be correct to say?
9. June 2016 at 02:31
Maybe we should compare helicopter drops to other fiscal policies, because a) it is a fiscal policy and because b) so many European (and US) politicians and economists in charge love fiscal policy.
So what’s so bad about helicopter drops then? People would have the money in their own pockets and we would bypass governments and the financial sector. Helicopter drops seem to be superior to all the other fiscal policies where the money is burnt for something stupid that nobody needs.
9. June 2016 at 02:36
I also don’t get why the government would have to raise taxes because of helicopter drops. There’s no debt. It’s just printing money. Money that they never neutralize. I don’t really see what the problem is. Of course you don’t print money forever but just until you reach your inflation target.
9. June 2016 at 04:17
Gary Anderson:
“I don’t think that is right. Sumner said that getting off zero would cause the Fed to repair its balance sheet. So, if you give the helicopter money while you raise interest rates there won’t be inflation.”
Sumner is unintentionally misleading you and anyone else who agrees with his beliefs on this. Interest rates are not a cause for inflation or deflation. Interest rates reflect money changing hands between lenders and borrowers. If there is less lending or more lending, the changing of money is offsetting, meaning if lenders have less money to spend, then borrowers will have more money to spend. Same thing is true for the interest payments, only here borrowers spend less and lenders spend more.
If interest rates rise because of the heli drops, it will be because of inflation premiums being added to interest rates, obviously. But if the context is a rise in interest rates, then you cannot then imagine deflation or no inflation, because then we would not be in a context of higher interest rates caused by inflation.
If on the other hand the context is deflation or no inflation, then why would the Fed be selling assets as if interest rates did rise because of inflation?
Heli drops need not even include financial assets like bonds or stocks by the way. All that needs to happen is for the Fed to credit the member banks with whatever digital money is necessary to increase everyone’s bank balances by $X. Or the Treasury could issue cheques to everyone, and the Fed can then just credit the Treasury, which would probably be easier. There is no need for “assets” in this equation at all. That is what a heli drop is.
9. June 2016 at 06:40
I disagree on Japan. The BOJ is buying debt with the currency. I would like to see them start forgiving debt. That would be a credible commitment to not extracting currency in the future. If my suggested amount is too small (and I expect it is) then keep doing it until all existing debt is forgiven.
9. June 2016 at 06:54
Dr. Sumner,
I believe that you missed two of the key problems with Dr. Münchau’s proposal:
1) On a practical level, central banks lack the authority and means to execute a Helicopter Drop. From a strictly mechanistic point of view, how would a central bank take money and give it individuals? There is no procedure whereby a central bank could take money from its vaults and deposit in the sight account of some individual person or group of individuals. The only known example of a Helicopter Drop that I know of was what the Japanese Government did to stimulate increased monetary velocity (not the Bank of Japan). In the spring of 1999 the Japanese government distributed shopping coupons worth 20,000 yen (about 200 dollars) to families with children under the age of 15 and to more than half of the elderly population. Legislatures can authorize the spending of money, central banks can only print money.
2) On a theoretical level, central banks would be a poor mechanism to achieve the objectives of a Helicopter Drop. The goal of a Helicopter Drop is to stimulate a rapid increase in consumer spending to “jump start” monetary velocity. Simply depositing money in a checking or sight account may or many not result in additional spending. What the Japanese government did in 1999 was distribute 620 billion yen (about 6 billion USD) worth of coupons or gift card to 31 million people. The coupons had to be spent in the recipient’s local community and expired within six months[1].
The Japanese diet authorized this plan and it was somewhat effective. Since the gift cards expired in six months, they had to be spent quickly. Since they were given to people who needed to spend money, it was spent quickly. This is met both the theoretical and practical definition of a Helicopter Drop. Dr. Münchau’s proposal would not.
[1] http://bit.ly/1WMC7aX
9. June 2016 at 08:06
Ben, I thought it was their decision to leave the gold standard.
ChrisA, You said:
“On the rather narrow point as to whether Norway should just give away their sovereign wealth fund to the people of Norway, I say yes. I have never understand the enthusiasm for sovereign wealth funds, it seems like an open invitation for agency problems. Why not just reduce taxes if there is surplus revenue?”
Which is it? Giving away the SWF is a radically different policy from reducing taxes. If they view the oil windfall as temporary, then the SWF makes sense.
Toby, I doubt the default would be that large, but yes, in theory if there was a complete default then the Fed’s assets would drop to roughly zero, and they might be forced to inflation.
Christian, My recent Econlog posts explains why helicopter drops require higher taxes, relative to the same monetary policy without the fiscal element.
Bill, Do you mean defaulting on debt?
David, That sounds more like fiscal stimulus than helicopter drops.
9. June 2016 at 09:03
me:”In any case, you may actually seriously argue in favor of sending a check to every EZ citizen on the grounds of creating a tighter fiscal union (i.e. a more optimal monetary zone).”
ssumner:”LK, You said:
“you may actually seriously argue”
You may, but not me, and not the Germans.”
I agree that it is a weak argument (I am not in favor of such a scheme). But the question of the optimality of the EZ still seems relevant to me. No easy solutions there. An integrated banking system would be a good start (i.e. have cross-country banks, in the same way there are cross-state banks in the US or cross-province banks in Canada).
9. June 2016 at 09:30
I don’t think it would be a default. The creditor (the central bank that bought the bonds) would forgive the debt. I understand that central banks may not currently have that authority. But that can be changed if legislatures choose.
9. June 2016 at 10:50
@major You said: “Interest rates reflect money changing hands between lenders and borrowers. If there is less lending or more lending, the changing of money is offsetting, meaning if lenders have less money to spend, then borrowers will have more money to spend.”
Of course, and if you have more demand through helicopter money, there will be more prosperity and interest rates will rise. I don’t think Sumner would dispute that as you say he would.
As an aside, you conservatives better get on board for real helicopter money or you will be facing a movement for guaranteed income that will not do what people want it to do.
http://www.talkmarkets.com/content/economics–politics-education/responsibly-expand-the-monetary-base-before-it-is-too-late?post=93323&uid=4798
9. June 2016 at 11:11
I notice David de los Ángeles Buendía (David from the street in LA) posts well reasoned comments with footnotes, and Sumner blows him off with a one liner (that’s not on point, as a heli drop is by definition a form of fiscal policy–what else can it be? If you pay somebody to dig a hole and fill it back up –i.e., do nothing but accept money–is that not fiscal policy?) Sumner is hard to pin down. He’s got that Ghostbuster slime all over him.
9. June 2016 at 16:41
Gary Anderson:
“Of course, and if you have more demand through helicopter money, there will be more prosperity and interest rates will rise. I don’t think Sumner would dispute that as you say he would.”
More pieces of paper in circulation, or more digital numbers in circulation, does not make people more prosperous in real terms. Only more real wealth makes people more prosperous.
I’m just saying heli drops do not actually include financial assets. They are just creations of money ex nihilo, given to everyone for nothing.
For OMOs to raise your cash balance, and my cash balance, and everyone’s cash balance, it will depend mostly on bank lending, which results in increased cash balances being associated with owing the banks more money, which means the additional money is not really and finally yours or mine, but the bank’s. Sumner incorrectly believes that bank lending is irrelevant to inflation, but he believes that because he doesn’t really understand how our monetary system works. He just looks up the monetary base, total spending, then calculates a fudge factor multiplier, then falsely concludes that because there can always be a fudge factor to link the base with total spending, that this fudge factor is floating in thin air on its own, as the sole determinant of how the base is associated with total spending. He calls it the highly misleading “hot potato effect.” This effect does not actually describe what people are doing or thinking in the market. For anyone who wants to get rid of this “hot potato”, there needs to be someone else who does not want to get rid of it, but to take it and hold it. The reason why an expanded monetary base leads to expanded total spending is because of the law of marginal utility. Ceteris paribus, additional utits of a good is associated with a lower relatively value for that good. A lower relative value of that good is associated with more of that good exchanging for other goods.
“As an aside, you conservatives better get on board for real helicopter money or you will be facing a movement for guaranteed income that will not do what people want it to do.”
Well, I am not actually a conservative. I am an anarchist. Conservativism is archism. Conservatives do not actually want free enterprise.
But more to your point, I find your demand for me to start advocating and supporting helicopter money because it is “better than” guaranteed income, as cowardly and capitulative. When you compromise with statists, when every choice had to be the middle ground between freedom and statism, then every choice that starts with the status quo, which must compromise with statism, will have the long term inevitable result of totalitarianism.
Think about it. If the first choice is a compromise, then you have moved towards more statism. That becomes the new status quo. Then you have to make another choice, and you have to compromise again. So you move away from the old status quo, and towards more statism again. Now that becomes the new status quo. And so on.
This is what “pragmatism” leads to. This is what “compromise” leads to. This is what always including statism at the negotiating table leads to.
Years of compromise have resulted in the insane, INSANE, choice between guaranteed income and heli drops. Now I have to ask, is there really a difference between guaranteed income and heli drops? They’re both free money to that will incur losses on some people.
9. June 2016 at 22:59
Lol, Major, I don’t want you to be cowardly!!! Look, Lonergan’s view of helicopter money is as you say. It is purely monetary, and the fiscal result is not the result of fiscal stimulus. He is just more optimistic about it than you are.
You said, Major: “More pieces of paper in circulation, or more digital numbers in circulation, does not make people more prosperous in real terms. Only more real wealth makes people more prosperous.
I’m just saying heli drops do not actually include financial assets. They are just creations of money ex nihilo, given to everyone for nothing.”
I agree with the second part. But I don’t agree with the first part, because with helicopter money you are shifting ownership of money. As it is it remains at the top and is put into bonds. If it were dispersed more equitably, average people could afford to buy stuff, and the people who make stuff would see more wealth coming their way.
I don’t see the conflict between real helicopter money, as you and Lonergan talk about, and a libertarian, or liberal, or conservative view of things. You want capitalism, get money into the hands of people who will buy stuff.
10. June 2016 at 06:16
LK, I agree.
Bill, I thought you meant they’d also default on bonds held by the public.
10. June 2016 at 09:54
A central bank buying govt debt and forgiving it (nobody is defaulting on any debt), dropping cash from helicopters (literally – print it up and fly around dropping it) or printing cash and giving each citizen $X. It should all lead to the same thing – higher NGDP growth. Clearly the US doesn’t need to take such drastic steps at this time.
12. June 2016 at 06:48
bill, I agree that those steps are not needed.
13. June 2016 at 16:22
I think the inverse is true. That the man or woman on the street understands instantly the helicopter drop but not negative ior on the monetary base. Thus helicopter drops would be the far more effective tool to stimulate demand (and also target inflation if we care about that also)
14. June 2016 at 08:41
C8to, I agree that a literal “helicopter drop” would get the public’s attention, but no one is proposing that.
In any case, there is no sensible argument for helicopter drops, it’s a horrible idea.