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. Today’s post will highlight quotes made by prominent Policy Makers and Public Advisors. Subsequent posts will highlight quotes made by: Academics, Politicians, City Workers, Journalists and Media Commentators, Activists and Special Advisors.
Policy Makers and Public Advisors
“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…A money-financed tax cut is essentially equivalent to Milton Friedman’s famous “helicopter drop” of money. Of course, in lieu of tax cuts or increases in transfers the government could increase spending on current goods and services or even acquire existing real or financial assets.”
“For hundreds of years central banks have injected money in the economy through either banks and/or markets. That is what we know, and so we will certainly consider these ideas that are being discussed; they are being discussed everywhere and the ECB is part of these discussions in academic fora and in other circumstances.”
“’Helicopter money’ – by which we mean overt money finance of increased fiscal deficits – may in some circumstances be the only certain way to stimulate nominal demand, and may carry with it less risk to future financial stability than the unconventional monetary policies currently being deployed.”
“So why it matters is that the competence of the Chinese authorities as managers of the macro economy is really in question – the messing around with monetary policy, the hinting on doing things on the fiscal side through the policy banks. But I think the only thing that is likely to stop China from going into, I think, recession – which is, you know, 4 percent growth on the official data, the mendacious official data, for a year or so – is a large consumption-oriented fiscal stimulus, funded through the central government and preferably monetized by the People’s Bank of China.”
“We need to ensure the extra money leads to higher demand. One good place to start is with the textbook example of printing money to finance consumption – sending every adult in the country a voucher that can be spent in the next three months. Allocating £300 to each of Britain’s 50m adults to spend on goods and services would cost £15bn, or 20 per cent of the £75bn created by the new round of QE. (In 1999, the Japanese government distributed $175 vouchers to the public – 99.6 per cent of them were spent within the six-month limit.) Perhaps you can persuade the MPC that this is preferable to buying gilts?”
“Given the shortcomings of both monetary and fiscal policy on their own, is it possible that a combination of these measures, specifically OMF, might prove better able to generate “strong, balanced and sustainable growth? ”By way of analogy, it is like saying “Soup and sodium – not good. Soup and chlorine – also not good. But, soup and sodium chloride – very tasty”.”
“In respect of monetary policy, overt money financing (creating new money and channelling it through net government spending to low income people, infrastructure and the unemployed) could replace the ineffective and wasteful quantitative easing policy as a means to stimulate economic activity. Quantitative easing finances banks and speculators; creates asset price bubbles; distorts risk pricing and resource allocation; causes competitive devaluations and currency wars; and results in reversals and financial distress on exiting the policy. Quantitative easing has no direct positive impact on consumer prices as predicated by the central banks of Japan and the United States.”
“There is clearly something else you can do if you get to zero (inflation) and still want to increase spending. You can buy goods. Which one should you choose? We haven’t asked the question in the crisis but we should.”