Who Are The Prominent Academics Who Advocate A Different Type of QE?

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paul krugman qe for people


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.



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.”



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?”



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.”



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.”



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.”



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.”



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).”



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.”



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…”



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.”



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.”



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.”



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.”



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.”



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Frank Van Lerven

Frank is our Research and Policy Analyst, and is responsible for our research on current events. Frank also leads our research in Public Money Creation and Quantitative Easing. Prior to working on the availability of credit under a Sovereign Money system, Frank also researched issues related to the 1844 Bank Charter Act and its implications for contemporary monetary policy. With a Research Master’s in Advanced Political Economy (cum laude) and a BA in African Development Studies, Frank is especially interested in how Western financial systems (and models) influence developing economies.
  • RJ

    “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?”

    There are some excellent quotes above. But also some are very poor. Like this one from Professor David Graeber. There is a huge difference between buying back bonds (QE which is just an asset swap) and giving people spending money. Its like comparing a person using £200,000 to buy Govt bonds compared to going on a huge spending spree and blowing the lot. How do people this clueless keep their job?

    • Crash

      From a bank’s perspective it might just be an asset swap. Any German Govt bonds held by banks have increased in their value from 100 a couple of years ago to almost 160 nowadays. By selling them to the ECB the banks are making a huge profit.

      The money used to buy these government bonds, however, didn’t exist before. The ECB just created it. The reason it does not cause any real inflation is because it sits in the banks’ reserve accounts with the ECB which banks hold on to because they know they’ll have to cover the future losses for the massive amounts of toxic loans they still have on their balance sheets. They also use quite a bit to speculate on the financial markets, buying up bonds on dips because they know full well they can sell them a guaranteed counter party who will buy them at any price. QE is a bank bailout by any other name.

      Make no mistake, it costs exactly the same as giving everyone cash in hand. It’s newly created money and it either sits in a bank’s reserve account or your personal bank account.

      • RJ

        But from the BoE’s viewpoint it makes a huge difference. One is a neutral outcome on their balance sheet and P+L account. One results in a huge BoE loss

        The BoE should not and can not do this. If people want this to be done then this could be easily done by the Govt by say cutting VAT, cutting tax or increasing pensions etc. But it would show as a Govt deficit and increasing debt and rightly so.

        PQE is a plan to finance part of this deficit by the BoE directly buying Govt bonds. Rather than selling them to the market. (and then maybe buying them back using QE) I think Labour want to restrict these purchases to asset only. Like new housing

        So finance a deficit by selling bonds. Or finance by issuing reserves. The UK Govt can do both as required when required. But pretend otherwise.

        • Crash

          The crucial difference is that government deficits increase the government’s debt burden which has to be serviced in the future. Regardless of whether you ascribe to the concept of Ricardian equivalence or not – there is obviously an effect, whether those deficits have to be paid back by the tax payers or not and the market will react accordingly. PQE is injecting new debt-free money into the economy without increasing future servicing costs.

          When aggregate demand is as low as it has been the last couple of years due to unsustainable debt levels (both public and private), there is a shortage of circulating money (more precisely base money + existing debt used as a money surrogate) as the debt supply shrinks during the deleveraging process.

          So with QE the CB counteracts this shrinking debt supply by swapping it with money which does not disappear when the inital loan is repaid. This permanently increases the base money supply. Of course the Central Bank’s balance sheet blows up, but when it created that money the corresponding liability on the Central Bank’s balance sheet is all but hypothetical. A Central Bank can never run out of money. It’s just a number in their computers.

          If you think about it, QE is just another form of the Central Bank monetarising existing debt. In this case this is covert monetary financing of government debt and it is the holders of those government bonds who get rewarded. The CB is paying off government debt TO the bankers, and by taking the open market approach they are actively pushing up the bond prices, making rich bankers even richer in the process. Rich people, however, have a lower marginal propensity to spend and they will try to invest their capital as well as profitably as possible. Since nobody the real economy is aching the only way profitable markets left are financial markets.

          The problem is that even if QE were to reduce the government debt burden (which it doesn’t), the private sector still has no incentive to increase its private debt burden necessary to jumpstart the economy.
          PQE would give ordinary people a boost by stimulating demand straight away; they might use that money to lower their existing debt and therefore increase their future debt servicing capacity or they might spend it and increase someone else’s debt servicing capacity. Either way, the Central Bank would effectively be paying off someone’s private debt. Bankers would still profit because they own both public and private debt but instead of the money lying around in reserve accounts it would be circulating in the economy. And given a constant or even shrinking money stock the only way to get economic growth out of it is to increase the velocity of money which is what PQE achieves much better than any form of QE or increased government deficits for that matter.

          • RJ

            Its not injecting debt free money in. This is a myth. Until money reformers start living in the real world no genuine progress can be made.

            When we are dealing with FINANCIAL ASSETS (inc all money) the asset is always without exception backed by debt. This debt can be interest free and / or bond free but in some way debt will always enter the picture. Without exception.

          • Crash

            I don’t think you necessarily get the distinction between money and debt.

            If you truly understand the logic behind a debt based monetary system you know that it is essentially a system of trust. That’s where the Latin word of credit comes from. A bank trusts that your entrepreneurial endeavour will be successful and it shares the risk with you by creating a new debt for you AND the bank simultaneously, (the bank will have to be good for it in case your business goes sour). To minimise that risk the bank asks for collateral, but that’s beside the point.
            Not every endeavour can a profit, so instead of taking the hit a bank can try to increase bank lending as long as people are able to take on the burden and as long as the bank trusts that the money is going to get paid back. Now, those new loans can go into asset markets speculation which due to its inherent unproductive nature and inability to generate economic value to pay back the loan is only profitable as long as loans are ever more increasing. At some point, the trust is gone, banks stop lending and nobody is able to pay back the debt.

            Now, money is just a number, an accounting unit for measuring the amount of trust handed out in this system. In a sense, banks trusted too much and now they don’t trust anyone anymore, because debts are too high. People owe too much. A financial crisis is the way the system cancels out these debts.

            A Central Bank owns the means of how this debt is denominated and further more REPAID. In contrast to a bank who can only create money as debt, a Central Bank can truly create money ex nihilo, without any corresponding debt. The only determining factor is the trust that the people have in the currency for if they didn’t trust it, they could switch to other currencies. However, as long as taxes have to be paid in that currency there will always be a demand for the currency. This puts a Central Bank into the comfortable situation that it can, with the press of a button, inflate the base money supply without creating additional debts. Money is just a number, the debts are real, but they are repaid in currency.

            If you owe 100$ you have to work to pay it back, after which these 100$ disappear from the system. Or, someone else gives you 100$ and says “pay it back”. They paid off your debt. QE and PQE is exactly that. The difference is the Central Bank has the power to create money out of nothing, therefore not having to work for it. If you are a creditor that may not be good for you because no effort was expended to compensate for your efforts. However, if the system is on the brink of collapse you’ll accept it, knowing that the alternative is that you’ll lose it all. If you’re a debtor you just caught a lucky break. Someone else just paid off your debts so now you’re not bound by your bad decisions of the past.

            Debts that can’t be repaid won’t be repaid. Except by Central Banks.

          • RJ

            “that it is essentially a system of trust”

            No its not. If it was it would collapse overnight. There are very strict laws enforcing the payments of debts.

          • Crash

            Of course it is. If a bank didn’t trust that you’ll be able to pay back your loan it wouldn’t have given it to you in the first place. That’s why it is called credit. And the last time banks stopped trusting their debtors that was called a credit crunch and a collapse is exactly what happened next.

          • RJ

            So trust is built on having your home forcible taken off you if you fall behind on the debt repayments. Or any other asset used as security.

            It not based on trust but asset security and the force of law if someone can not repay their debt.

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