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7 January 2016
Who Are The Prominent Academics Who Advocate A Different Type of QE?
In a recent post Positive Money showed that there is a strong intellectual body of history behind the various alternative proposals for QE.
In a recent post Positive Money showed that there is a strong intellectual body of history behind the various alternative proposals for QE. Both John Maynard Keynes and Milton Friedman proposed a style of Quantitative Easing (QE) that was aimed at the real economy. Today, these types of proposals are commonly referred to as “QE for People”, “Sovereign Money Creation”, “Strategic QE” and “Helicopter Money” amongst others.
In effect, both Friedman and Keynes advocated a different form of QE than that which we are experiencing today: one that would be relayed away from the banking sector and speculators and towards consumers, non-financial businesses and low income earners – and one that could directly back investment projects, rather than create risky asset price bubbles.
At Positive Money we have been trying to keep track of Keynes’s and Friedman’s contemporaries and share them with the public. Accordingly, we will be releasing a series of posts that illustrate the various influential people who advocate a different type of QE. Each post will address a separate category of influencers. In our previous post, we highlighted some of the quotes made by prominent Policy Makers and Public Advisors and people working in the financial sector in favour of a different type of QE. Today’s post will highlight quotes made by prominent Academics. Subsequent posts will highlight quotes made by: Politicians, Journalists and Media Commentators, Activists and Special Advisors.
Academics
Professor Ricardo Caballero, MIT
“Instead, what we need is a fiscal expansion (e.g. a temporary and large cut of sales taxes) that does not raise public debt in equal amount. This can be done with a “helicopter drop” targeted at the Treasury. That is, a monetary gift from the Fed to the Treasury.”
http://www.voxeu.org/article/helicopter-drop-us-treasury
Professor David Graeber, London School of Economics
“I mean look at quantitative easing this is an example, I don’t know how trillion of euros they are printing, but someone figured out that they are printing enough to give every individual in Europe €763 maybe, a month for a year. Well why not just give everybody in Europe €763 a month for a year. It would cost exactly the same amount, and how could that not be a better stimulus for the economy?”
https://www.youtube.com/watch?v=pAJXph8eHJ4
Professor Paul Krugman, Economics at Graduate Centre of the City University of New York and columnist for The New York Times
“What’s remarkable about this record of dubious achievement is that there actually is a surefire way to fight deflation: When you print money, don’t use it to buy assets; use it to buy stuff… But nobody is doing the obvious thing. Instead, all around the advanced world governments are engaged in fiscal austerity, dragging their economies down, even as their central banks are trying to pump them up. After all, printing money to pay for stuff sounds irresponsible, because in normal times it is. And no matter how many times some of us try to explain that these are not normal times, that in a depressed, deflationary economy conventional fiscal prudence is dangerous folly, very few policy makers are willing to stick their necks out and break with convention. The result is that seven years after the financial crisis, policy is still crippled by caution. Respectability is killing the world economy.”
http://www.nytimes.com/2015/09/11/opinion/paul-krugman-japans-economy-crippled-by-caution.html?_r=0
Professor John Muellbauer, Oxford University
“Clearly, the ECB must develop a strategy that works in the Eurozone’s unique system, instead of attempting to follow the Fed’s lead. Such a strategy should be based on Friedman’s assertion that ‘helicopter drops’ – printing large sums of money and distributing it to the public – can always stimulate the economy and combat deflation.”
http://www.voxeu.org/article/combatting-eurozone-deflation-qe-people
Professor Richard Werner, University of Southampton (The Economist who coined the term QE)
“This staggering £275 billion largely ended up with the banks in the futile hope that it would result in a substantial increase in UK lending to business. Instead it was used to rebuild their balance sheets and invest in commodity speculation. To ensure that this does not happen again, we need a different kind of QE, to help the wider economy directly and to implement some badly needed green projects that would enhance the sustainability of the economy and improve the environment-as well as creating thousands of new jobs.”
http://www.carolinelucas.com/latest/caroline-welcomes-report-calling-for-green-quantiative-easing
Professor Simon Wren Lewis, Oxford University
“If Quantitative Easing (QE), why not helicopter money? We know helicopter money is much more effective at stimulating demand. Helicopter money is a form of what economists call money financed fiscal stimulus (MFFS)… The really strange thing is that ICBs have already had to confront this nightmare. It is more than possible that when central banks sell back their QE assets, they will make a loss, and so will be faced with exactly the same problem as with helicopter money. [3] A central banker knows better than not to worry about something because it might not happen. So the nightmare has already been faced down. It therefore seems doubly strange that the taboo about helicopter money remains.”
http://mainlymacro.blogspot.co.uk/2015/02/helicopter-money-and-government-of.html
Professor Yanis Varoufakis, Former Finance Minister of Greece
“The EIB/EIF has been issuing bonds for decades to fund investments, covering 50% of the projects’ funding costs. They should now issue bonds to cover the funding of the pan-euro-zone investment-led recovery programme in its totality; that is, by waving the convention that 50% of the funds come from national sources. To ensure that the EIB/EIF bonds do not suffer rising yields, as a result of these large issues, the ECB can to step in the secondary market and purchase as many of these EIB/EIF bonds as are necessary to keep the EIB/EIF bond yields at their present, low levels. To stay consistent with its current assessment, the level of this type of QE could be set to €1 trillion over the next few years…Moreover, this form of QE backs productive investments directly, as opposed to inflating risky financial instruments, and has no implications in terms of European fiscal rules (as EIB funding need not count against member states’ deficits or debt).”
http://www.economist.com/blogs/freeexchange/2014/11/economists-roundtable-euro-zone-3
Professor Roger Farmer, UCLA USA
“A large fiscal stimulus may or may not be an important component of a recovery plan. My own view is that there is a better alternative to fiscal policy…But if a fiscal policy is used it should take the form of a transfer payment to every domestic resident; not an increase in government expenditure.”
http://rogerfarmerblog.blogspot.co.uk/
Professor Steve Keen, Kingston University, UK
“I would have used the capacity of central banks to create money by making a direct injection into individuals bank accounts on a pro rata basis, complicated to work out how, but basically injecting money into peoples bank accounts, on the condition that those people who are in debt pay there debts down so that way you have private debt cancellation coming out of it, not therefore not only benefiting debtors but also benefitting savers who would also get it, and rather than paying down their debts down they would get an increase in cash levels…Its a very indirect and expensive way of getting very little bang for your buck…”
http://audioboom.com/boos/2846464-prof-steve-keen-on-what-s-really-going-on-in-greece
Professor Mark Blyth, Brown University
“Unless one subscribes to the view that recessions are either therapeutic or deserved, there is no reason governments should not try to end them if they can, and cash transfers are a uniquely effective way of doing so. For one thing, they would quickly increase spending, and central banks could implement them instantaneously, unlike infrastructure spending or changes to the tax code, which typically require legislation. And in contrast to interest-rate cuts, cash transfers would affect demand directly, without the side effects of distorting financial markets and asset prices. They would also would help address inequality — without skinning the rich.”
Professor Lucrezia Reichlin, London Business School
“In a situation of persistently weak economic conditions it makes sense to consider all options including tools that have stayed long in the closet.”
http://www.voxeu.org/article/helicopter-money-policy-option
Felix Nugee and Johnathan Hazel, Wilberforce Society at University of Cambridge
“An ideal solution, then, would marry the efficacy of fiscal policy at the ZLB with the efficient design of monetary policy. Our argument – and the next part of this paper – is that the proposal of helicopter money can unite these two objectives.”
https://wilberforcesocietyblog.files.wordpress.com/2014/01/helicopter-money.pdf
Professor Bill Mitchell, University of Newcastle (Australia)
“PQE is an excellent strategy for the British government to introduce. It exploits the currency-issuing capacity of the government directly and uses it to increase the potential of the economy to improve well-being. But, the policy proposal should never have been called PQE because it is not similar at all to Quantitative Easing and the false analogy only opens the proposal to further, unwarranted criticism…PQE as envisaged is a fiscal operation, not a monetary operation, whereas QE as practiced by the Bank of England, the Federal Reserve Bank of America, the Bank of Japan etc are not fiscal operations.”
http://bilbo.economicoutlook.net/blog/?p=31626
Professor Victor Anderson, Anglia Ruskin University
“The industrial revolution brought in an economy based on fossil fuels. Now the climate crisis is forcing us to move on again. EU governments should be urgently examining every type of policy that could be used to help in this low-carbon green revolution. Green quantitative easing deserves to be near the top of their action list.”
http://mollymep.org.uk/2015/06/15/greenqe/
Professor Francesco Giavezzi and Professor Guido Tabelinni, Bocconi University (Italy)
“Combining a monetary and a fiscal expansion is key to the success of aggregate demand management, as shown by the recent experience of other advanced countries. Quantitative easing by itself would not do much to revive bank lending and private spending, because credit in Europe flows mostly via banks, rather than financial markets. And fiscal expansion without monetary easing would be almost impossible, because public debt in circulation is already too high in many countries. The combined monetary and fiscal expansion would stimulate aggregate demand both directly and indirectly, through a devalued exchange rate.”
http://www.voxeu.org/article/how-jumpstart-eurozone-economy