Helicopter Cash
I had to laugh when I read this article by Simon Jenkins in The Guardian because I've been banging on about 'helicopter cash' for ages as the post below from March 2013 confirms.
But if we had such a scheme in the UK I wouldn't just cash-bomb everybody because mortgage payers have been doing very nicely thank you, ever since mortgage interest rates dropped like a stone in 2008.
No, I'd cash bomb everyone in the country who is low paid or on a low fixed income such as pensioners without any savings or financial assets to cushion their retirement.
We should cash-bomb the people - not the banks
Juncker’s new fund will do little to head off Europe’s lost decade, as Friedman and Keynes would agree
By Simon Jenkins - The Guardian
Jean-Claude Juncker claimed the €21bn European fund would ‘entice private backers to invest ‘up to' 15 times the sum. Who will invest when there is no demand?' Photograph: Walter Geiersperger/Corbis
Abandon helicopters. Use bombers. Bomb Germany, France, Italy, Greece, the entire eurozone. Bomb them with banknotes, cash, anything to boost demand. The money must go straight to households, not to banks. Banks have had their day and miserably failed to spend. From now on they get nothing.
Five years after the financial crash it is nearly unbelievable that the eurozone’s lords and masters now confront renewed recession. They seem inert before deflation, subflation, lowflation or whatever lets them avoid the word “scandal”. An ever more dominant Germany is unmoved. Its finance minister, Wolfgang Schauble, is set on “black zero” or a balanced German budget.
The European Central Bank (ECB) murmurs about “quantitative easing” but is up against Germany’s furious protests. Ten per cent of the eurozone’s workforce is unemployed and one in five of its young. Greece has lost a quarter of its national product. The waste of resources is staggering.
At the heart of this tragedy stands the absurd figure of the new EU president, Jean-Claude Juncker, impresario of Luxembourg’s outrageous tax-evasion oasis. Yesterday he proposed a €21bn European fund which, he claimed implausibly, would entice private backers to invest “up to” 15 times the sum. Who will invest when there is no demand? The pope rightly called the EU “elderly and haggard”, mistrusted, insensitive and bureaucratic. I doubt if Juncker turned a hair.
The eurozone is heading towards what even the pro-EU Economist calls “Europe’s lost decade”.
Ever since the credit crunch the continent has been suffering what Keynes called a classic liquidity trap. There is too little money around and thus a chronic shortage of demand. People have too little to spend, which means shops close, supplies dry up and no one invests.
Britain and the US supposedly met this challenge by “printing money”, by quantitative easing (QE). This was a confidence trick. It claimed to release money “into the economy” to stimulate borrowing and thus spending. It merely channelled billions into bank vaults and boosted reserves. What did spill into the economy went to stock market inflation and obscene bonuses. In Britain it also leaked into the mad world of sub-prime housing subsidies. Otherwise, demand has remained dangerously sluggish.
What saved Britain was George Osborne not practising what he preached. He borrowed and spent like a crazed Labour chancellor. Borrowing has risen, not fallen, and this year is 10% up on last year. Public spending is still higher than in 2010, welfare payments are up, mega-projects are booming; only hated local government is down. To Osborne, austerity is for the small guy – and a gullible media.
The eurozone has no such luck. Germany continues to defy the two great minds of 20th-century economics, Keynes and Friedman. They clashed on much but agreed on the need to “loosen” money supply to avert recession. Keynes buried it in the ground and had the poor dig it up. Friedman more generously dropped it from helicopters.
Such methods have long been ridiculed as vulgar by conventional economists and politicians.To them economics is a branch of ethics. Monetary policy should punish the poor for its extravagance in booms, not “reward” the undeserving. Any money going should be channelled through the welfare state or the great and good banks.
Yet versions of helicopter money (HM) are now emerging into public debate. The essence of HM is not to boost government spending – and thus challenge “budgetary austerity” – but to print money off-budget to avert deflation. It is like giving blood to a shattered body: without it, all other remedies are a waste of time.
Such “neo-monetarism” is aired by the Financial Times’s Martin Wolf in his new and exhaustive study of the credit crunch, Shifts and Shocks. He suggests “permanent helicopter money”, with government deficits simply covered by printing presses unless and until inflation returns. It has been discussed sympathetically by Tim Congdon, by the Americans Mark Blyth and Eric Lonergan in the magazine Foreign Affairs, and by the former City regulator, Lord Turner.
All challenge the conventional wisdom of bank-led reflation.
John Muellbauer, professor of economics at Oxford, champions “QE for the people”. He points out that, as existing policies to revive Europe’s growth have faltered, “proposals for distributing money directly to citizens have been quietly gaining traction among critics of orthodox central banks.”
The commentator Anatole Kaletsky points out that if the £375bn of QE had gone to private bank accounts rather than to buying bonds from banks, it would have meant £24,000 per British family. This would have transformed the demand economy.
To have government simply depositing cash in cashpoints or handing out spending vouchers at post offices might seem eccentric. But this has been done in Japan, China, Vietnam and Taiwan, where cash and vouchers have yielded swift spending surges. HM has been adopted by aid organisations including Give Directly in Africa, sometimes tied to school attendance. Brazil and Mexico have likewise “dropped” cash on poor communities. All these schemes were declared resounding successes. The west’s brief flirtation with HM through car scrappage schemes is credited with having saved the US car industry.
Why are policies considered suitable for developing societies not relevant to Europe? The answer, I believe, is not intellectual or political but rather a matter of class. Just to print money and hand it out leaves people vulnerable to “moral hazard”. People should not get cash they have not deserved. If demand is to be stimulated with cash, it should be through someone responsible, like a banker. If the banker in effect “steals” the money, too bad.
I imagine that even if Friedman and Keynes banged together on the door of the EU or the ECB, those inside would send them packing. These institutions are in a line of descent from those who sealed Europe’s fate with the 1919 Treaty of Versailles, the Great Depression and the 2008 credit crunch. They seem happy to visit on Europe a “lost decade”.
Meanwhile, the bombers are on standby. The printing presses can roll and Europe can be saved. But who will throw the switch?
Abandon helicopters. Use bombers. Bomb Germany, France, Italy, Greece, the entire eurozone. Bomb them with banknotes, cash, anything to boost demand. The money must go straight to households, not to banks. Banks have had their day and miserably failed to spend. From now on they get nothing.
Five years after the financial crash it is nearly unbelievable that the eurozone’s lords and masters now confront renewed recession. They seem inert before deflation, subflation, lowflation or whatever lets them avoid the word “scandal”. An ever more dominant Germany is unmoved. Its finance minister, Wolfgang Schauble, is set on “black zero” or a balanced German budget.
The European Central Bank (ECB) murmurs about “quantitative easing” but is up against Germany’s furious protests. Ten per cent of the eurozone’s workforce is unemployed and one in five of its young. Greece has lost a quarter of its national product. The waste of resources is staggering.
At the heart of this tragedy stands the absurd figure of the new EU president, Jean-Claude Juncker, impresario of Luxembourg’s outrageous tax-evasion oasis. Yesterday he proposed a €21bn European fund which, he claimed implausibly, would entice private backers to invest “up to” 15 times the sum. Who will invest when there is no demand? The pope rightly called the EU “elderly and haggard”, mistrusted, insensitive and bureaucratic. I doubt if Juncker turned a hair.
The eurozone is heading towards what even the pro-EU Economist calls “Europe’s lost decade”.
Ever since the credit crunch the continent has been suffering what Keynes called a classic liquidity trap. There is too little money around and thus a chronic shortage of demand. People have too little to spend, which means shops close, supplies dry up and no one invests.
Britain and the US supposedly met this challenge by “printing money”, by quantitative easing (QE). This was a confidence trick. It claimed to release money “into the economy” to stimulate borrowing and thus spending. It merely channelled billions into bank vaults and boosted reserves. What did spill into the economy went to stock market inflation and obscene bonuses. In Britain it also leaked into the mad world of sub-prime housing subsidies. Otherwise, demand has remained dangerously sluggish.
What saved Britain was George Osborne not practising what he preached. He borrowed and spent like a crazed Labour chancellor. Borrowing has risen, not fallen, and this year is 10% up on last year. Public spending is still higher than in 2010, welfare payments are up, mega-projects are booming; only hated local government is down. To Osborne, austerity is for the small guy – and a gullible media.
The eurozone has no such luck. Germany continues to defy the two great minds of 20th-century economics, Keynes and Friedman. They clashed on much but agreed on the need to “loosen” money supply to avert recession. Keynes buried it in the ground and had the poor dig it up. Friedman more generously dropped it from helicopters.
Such methods have long been ridiculed as vulgar by conventional economists and politicians.To them economics is a branch of ethics. Monetary policy should punish the poor for its extravagance in booms, not “reward” the undeserving. Any money going should be channelled through the welfare state or the great and good banks.
Yet versions of helicopter money (HM) are now emerging into public debate. The essence of HM is not to boost government spending – and thus challenge “budgetary austerity” – but to print money off-budget to avert deflation. It is like giving blood to a shattered body: without it, all other remedies are a waste of time.
Such “neo-monetarism” is aired by the Financial Times’s Martin Wolf in his new and exhaustive study of the credit crunch, Shifts and Shocks. He suggests “permanent helicopter money”, with government deficits simply covered by printing presses unless and until inflation returns. It has been discussed sympathetically by Tim Congdon, by the Americans Mark Blyth and Eric Lonergan in the magazine Foreign Affairs, and by the former City regulator, Lord Turner.
All challenge the conventional wisdom of bank-led reflation.
John Muellbauer, professor of economics at Oxford, champions “QE for the people”. He points out that, as existing policies to revive Europe’s growth have faltered, “proposals for distributing money directly to citizens have been quietly gaining traction among critics of orthodox central banks.”
The commentator Anatole Kaletsky points out that if the £375bn of QE had gone to private bank accounts rather than to buying bonds from banks, it would have meant £24,000 per British family. This would have transformed the demand economy.
To have government simply depositing cash in cashpoints or handing out spending vouchers at post offices might seem eccentric. But this has been done in Japan, China, Vietnam and Taiwan, where cash and vouchers have yielded swift spending surges. HM has been adopted by aid organisations including Give Directly in Africa, sometimes tied to school attendance. Brazil and Mexico have likewise “dropped” cash on poor communities. All these schemes were declared resounding successes. The west’s brief flirtation with HM through car scrappage schemes is credited with having saved the US car industry.
Why are policies considered suitable for developing societies not relevant to Europe? The answer, I believe, is not intellectual or political but rather a matter of class. Just to print money and hand it out leaves people vulnerable to “moral hazard”. People should not get cash they have not deserved. If demand is to be stimulated with cash, it should be through someone responsible, like a banker. If the banker in effect “steals” the money, too bad.
I imagine that even if Friedman and Keynes banged together on the door of the EU or the ECB, those inside would send them packing. These institutions are in a line of descent from those who sealed Europe’s fate with the 1919 Treaty of Versailles, the Great Depression and the 2008 credit crunch. They seem happy to visit on Europe a “lost decade”.
Meanwhile, the bombers are on standby. The printing presses can roll and Europe can be saved. But who will throw the switch?
Helicopter Cash (19 March 2013)
The more you hear from experts and politicians about how to solve the country's economic woes - the more you realise that none of them know what they're talking about.
The deputy governor of Bank of England floated the idea the other week - that banks might have to start charging people for holding onto their money - in other words introducing negative interest rates in a desperate attempt to get the economy moving again.
The idea is that firms and individuals would have to start spending and investing their money - in preference to being charged a sizeable fee - just for keeping their funds and savings in the friendly high street bank.
Now that sounds completely mad to me, but there are other ideas out there including my favourite - Helicopter Cash.
Now the 'logic' behind Helicopter Cash is simple - it's a scheme designed to give away free money just like throwing pound notes out of a helicopter - with the one proviso that the 'right' people pick the money up and spend it on the 'right' things.
In short it's a way of trying to stimulate demand in the economy by injecting more cash - but it will only work if the money is spent on boosting UK goods and services.
If people just put it on the bank or spend their windfall on a foreign holiday - then we're all back to square one and worse - since all this free money sloshing around will simply stoke up inflation.
But Helicopter Cash is not as daft as it sounds - because the government's artificially low interest rate policy is a free hand-out to mortgage payers.
Likewise the government's policy of 'quantitative easing' is doing exactly the same thing except that the new 'printed' money - is reserved only for the big banks.
So Helicopter Cash would be aimed at the little guy - not the big guy - and I for one hereby promise that if the government would like to give me, say, £5,000 - I promise faithfully to spend it on something that is made or provided - right here in the UK.
The deputy governor of Bank of England floated the idea the other week - that banks might have to start charging people for holding onto their money - in other words introducing negative interest rates in a desperate attempt to get the economy moving again.
The idea is that firms and individuals would have to start spending and investing their money - in preference to being charged a sizeable fee - just for keeping their funds and savings in the friendly high street bank.
Now that sounds completely mad to me, but there are other ideas out there including my favourite - Helicopter Cash.
Now the 'logic' behind Helicopter Cash is simple - it's a scheme designed to give away free money just like throwing pound notes out of a helicopter - with the one proviso that the 'right' people pick the money up and spend it on the 'right' things.
In short it's a way of trying to stimulate demand in the economy by injecting more cash - but it will only work if the money is spent on boosting UK goods and services.
If people just put it on the bank or spend their windfall on a foreign holiday - then we're all back to square one and worse - since all this free money sloshing around will simply stoke up inflation.
But Helicopter Cash is not as daft as it sounds - because the government's artificially low interest rate policy is a free hand-out to mortgage payers.
Likewise the government's policy of 'quantitative easing' is doing exactly the same thing except that the new 'printed' money - is reserved only for the big banks.
So Helicopter Cash would be aimed at the little guy - not the big guy - and I for one hereby promise that if the government would like to give me, say, £5,000 - I promise faithfully to spend it on something that is made or provided - right here in the UK.
