Helicopter Money as a Policy Option

By Lucrezia Reichlin, Professor of Economics at London Business School; co-founder, Now-Casting Economics and CEPR Research Director, Adair Turner, Member of the UK Financial Policy Committee; Senior Research Fellow, Institute for New Economic Thinking, and Michael Woodford, John Bates Clark Professor of Political Economy, Columbia University and CEPR Research Fellow. Originally published at VoxEU.

With persistently weak economic conditions becoming the norm in Europe, economists are considering increasingly unconventional policy options. One tool that has yet to be taken out of storage is ‘helicopter money’, i.e. the overt monetary financing of government deficits. This column recounts a policy debate on helicopter money that was held at LBS in April 2013 among three of the world’s leading monetary economists.

Introduction by Reichlin

Since the crisis central banks have implemented a variety of non-standard monetary policies aiming at stabilising nominal demand in the presence of major disruptions in financial markets. These policies had different intermediate objectives: market making, controlling long term interest rates or asset prices, support of credit via subsidies. They had a role in stabilising financial markets after the collapse of Lehman Brothers and the banking crisis which followed. Their effects on the real economy, however, are uncertain.1

Notwithstanding this uncertainty the Bank of Japan has recently engaged in bold action, announcing that it will double the monetary base and its holding of government bonds in the next two years.

  • Some think that quantitative easing will fuel the next financial bubble and that exiting will create financial instability (see Stein 2013).
  • Others think that more should be done to sustain the real economy.

Adair Turner has recently put a different option on the table (Turner 2013): “helicopter money” or permanent money creation. This is an idea that was discussed in the thirties in the US as a response to the great recession (see Friedman 1948 and Simon 1936) and more recently by Bernanke in relation to the zero lower bound problem in Japan (Bernanke 2003). As Bernanke has suggested it can be implemented via transfers to households and businesses via a tax cut coupled with incremental purchases of government debt, so that the tax cut is in effect financed by money creation.

Although the idea has been around a long time it is a taboo today. Non-standard monetary policies in response to the recent crisis have all led to an increase in the size of central banks’ balance sheets but in the recent experience no central bank, including the Bank of Japan, has purposefully increased the monetary base and committed to keep this additional money in circulation permanently. The idea, however, gets some support from academia.

In his 2012 Jackson Hole speech Michael Woodford suggested a version of flexible inflation targeting whereby the central bank commits future monetary policy to a permanently higher nominal target (such as the path of nominal GDP) and discussed various tools within that framework, including permanent increases in the monetary base via fiscal transfers (Woodford 2012).

In a situation of persistently weak economic conditions it makes sense to consider all options including tools that have stayed long in the closet.
The following is a summary of the questions posed by Reichlin and the answers by Turner and Woodford.

Question one : Adair, can you explain why, in your view, helicopter money is an option for monetary policy that is relevant to today?

‘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.

The crucial first question is: do we want more nominal demand? The answer should be yes if (i) we are confident that some of the increase will take the form of increased real output or (ii) if some increase in the inflation rate is in itself desirable. These conditions seem likely to apply in some developed economies today, with nominal GDP growth rates very low, depressed by private sector deleveraging in the aftermath of the financial crisis. And if these conditions do not pertain, we should not be trying to stimulate nominal GDP by any means.

So let’s assume that increased nominal GDP growth is desirable. The problem is that other levers may be ineffective or have adverse side effects. Monetary policy, in both its conventional and unconventional forms, may be ‘pushing on a string’. Reducing policy interest rates to the zero bound fails to stimulate credit supply and demand in a ‘balance sheet recession’ in which the private sector is deleveraging. Cutting long-term interest rates by quantitative easing may be equally ineffective. And very low interest rates, sustained for many years, will encourage a search for yield, hence financial innovation and carry trades, which create risks to financial stability.

Fiscal stimulus, in its conventional funded form, financed by bond issues, may be more effective. Fiscal multipliers may be high when central banks are committed to keeping interest rates low for the foreseeable future. But with public debt levels already high and rising, concerns about future debt sustainability may create ‘Ricardian equivalence’ effects with households and companies aware that tax cuts today will have to be offset by tax rises later.

In this specific environment  – ‘helicopter money’ – should be regarded as an available option. Ben Bernanke proposed this for Japan in 2003. If Japan had used it then, it would now have some mix of a higher real GDP level, a higher price level, and lower public debt to GDP.

Question 2: Mike, what in your view are the potential effects of this policy on the economy as compared to traditional quantitative easing and how do you relate it to your framework of targeting the path of nominal GDP?

It is possible for exactly the same equilibrium to be supported by a policy of either sort. On the one hand (traditional quantitative easing), one might increase the monetary base through a purchase of government bonds by the central bank, and commit to maintain the monetary base permanently at the higher level. On the other (‘helicopter money’), one might print new base money to finance a transfer to the public, and commit never to retire the newly issued money. Suppose that in either case, the path of government purchases is the same, and taxes are raised to the extent necessary to finance those purchases and to service the outstanding government debt, after transfers of the central bank’s seignorage income to the Treasury. Assuming the same size of permanent increase in the monetary base, the perfect foresight equilibrium is the same in both cases. Note that the fiscal consequences of the two policies are actually the same. Under the quantitative easing policy, the central bank acquires assets, but it rebates the interest paid on the government bonds back to the Treasury, so that the budgets of all parties are the same as if no government bonds were actually acquired, as is explicitly the case with helicopter money.

The effects could be different if, in practice, the consequences for future policy were not perceived the same way by the public. Under quantitative easing, people might not expect the increase in the monetary base to be permanent – after all, it was not in the case of Japan’s quantitative easing policy in the period 2001-2006, and US and UK policymakers insist that the expansions of those central banks’ balance sheets won’t be permanent, either – and in that case, there is no reason for demand to increase. Perhaps in the case of helicopter money, it would be more likely that the intention to maintain a permanently higher monetary base would be believed. Also, in this case, the fact people get an immediate transfer should lead them to believe that they can afford to spend more, even if they don’t think about or understand the consequences of the change for future conditions, which is not true in the case of quantitative easing.

But while I grant this advantage of Adair’s proposal, I believe that one could achieve a similar effect, with equally little need to rely upon people having sophisticated expectations, through a bond-financed fiscal transfer, combined with a commitment by the central bank to a nominal GDP target path (the one that would involve the same long-run path for base money as the other two policies). The perfect foresight equilibrium would be exactly the same in this case as well; and as in the case of helicopter money, the fact that people get an immediate transfer would make the policy simulative even if many households fail to understand the consequences of the policy for future conditions, or are financially constrained. Yet this alternative would not involve the central bank in making transfers to private parties, and so would preserve the traditional separation between monetary and fiscal policy.

Question three: Adair, do you agree with Mike that a bond financed fiscal transfer, combined with central bank action in pursuit of a nominal GDP level target would be desirable and better than pure helicopter money?

Well as Michael quite rightly says, if there is perfect foresight, the equilibrium resulting from the two strategies is exactly the same. But perfect foresight may not naturally arise. It may need to be created by the transparency of overt money finance.

Michael’s proposal is essentially that (i) the government increases its fiscal deficit, directly putting money into people’s pockets (whether by tax cuts or public spending increases); and (ii) the central bank commits to maintaining a nominal GDP growth path, buying government bonds as necessary to achieve this even if, as is highly likely, achieving and maintaining that path of GDP level is likely to entail a permanent increase in the monetary base.

And if individuals and companies perceive that the increase in the monetary base will in fact be permanent, they will not rationally worry about any Ricardian equivalence cost of the future increase in government debt burden. They will understand that the fiscal stimulus is effectively going to be paid for with permanent central bank money.

Clearly therefore, Michael’s proposal is substantially very close to open monetary financing. But it isn’t quite overt. And that creates a danger that perfect foresight will not pertain and that individuals and companies will still worry unnecessarily about future government debt burdens. As a result, we might have to do even more quantitative easing type bond purchases to achieve Michael’s nominal GDP level target, creating the financial stability risks I referred to earlier.

The crucial question to me therefore is whether the more overt form of the strategy can be made consistent with central bank independence and with appropriate discipline against overuse of money finance. I believe it can.

Question 4: Helicopter money is a form of fiscal policy. The question arises of whether it is the central bank, the Treasury or both in coordination that should implement it. This has the potential to threaten the principle of central bank independence or at least it may force us to reconsider the rules that govern the relation between Treasury and central banks today. Mike, what is your view on how we can deal with the problem of moral hazard possibly caused by an unclear separation between them?

I think this would indeed be a problem with outright ‘helicopter money’, and it is why I prefer the alternative sketched above. The policy that I proposed would require coordination of monetary and fiscal policy actions, but it could be carried out while preserving a traditional separation of roles. The fiscal authority would make the transfers, issue debt to pay for them, and later tax people to service its debt; the monetary authority would conduct open-market operations in the amounts needed to keep nominal GDP on the target path (or to keep nominal interest rates at zero, if undershooting of nominal GDP is unavoidable), hold assets against the liabilities that it issues, and distribute its earnings to the Treasury. The fact of such coordination on joint efforts to achieve a desirable equilibrium would in no way imply that the Treasury gets to dictate monetary policy, and so I don’t see it as raising moral hazard concerns. Indeed, it could be implemented by a central bank that commits itself to its policy (namely, use of monetary policy to achieve the nominal GDP target) regardless of what the fiscal authority does. I believe that the policy would be more certain of success (assuming an economy initially at the zero lower bound) if the fiscal authority were to cooperate, because success would not depend purely on the expectation channel; but it would be a sensible one for the central bank regardless.

Question five: Adair, how do you respond to the concern that your proposal dangerously undermines central-bank independence?

I absolutely agree that there are dangers in breaking a taboo by recognising that Outright Monetary Financing is possible: but I think there are ways to guard against that danger. And conversely, I think we should recognise that Michael’s proposal might also undermine appropriate fiscal discipline.

Michael and I both agree that optimal policy today requires closer coordination of monetary- and fiscal-policy actions. In his option the fiscal authority can increase the fiscal deficit, directly stimulating the economy, confident that there will be no crowding out offset, since it knows that the central bank, committed to a nominal-GDP target, will purchase and in all likelihood permanently keep much of that debt. But that in itself might endanger fiscal indiscipline; the fiscal authority might run increased fiscal deficits to a greater extent than reasonably justified by the nominal GDP target and by the likely permanent increase in the monetary base.

Under the Outright Monetary Financing approach that I propose, by contrast, the scale of money financed fiscal deficits would be clearly determined in advance by an independent central bank. The fiscal authority would decide how to spend the money (the balance between tax cuts and public expenditure): but the central bank would determine the amount of permanent money finance, consistent with an appropriate inflation or money GDP target. And it would do so as an independent central bank, and through the same decision making processes which govern the use of other monetary-policy tools.

Editor’s note (as first lines of the body of the column): This column summarises a CEPR-London Business School debate between Adair Turner and Michael Woodford on this policy option chaired by Lucrezia Reichlin that was held in April 2013 at LBS.


Bernanke, B (2003), “Some Thoughts on Monetary Policy in Japan”, speech, Tokyo, May.

Friedman, Milton (1948), “A Monetary and Fiscal Framework for Economic Stability”, The American Economic Review 38, June.

Giannone, D, Lenza, M, Pill, H and Reichlin, L (2012), “The ECB and the interbank market”, Economic Journal.

Khrishnamurthy A and Vissing-Jorgensen, A (2011), “The Effects of Quantitative Easing on Interesta Rates”, Brooking Papers of Economic Activity, Fall.

Lenza, M, Pill, H and Reichlin L (2010), “Monetary policy in exceptional times” Economic Policy 62, 295-339.

Simons, H “Rules and Authorities in Monetary Policy”, The Journal of Political Economy 44(1), February.

Stein, AJ (2013), “Overheating in Credit Markets: Origins, Measurement, and Policy”, speech at the research symposium sponsored by the Federal Reserve Bank of St Louis, St Louis, Missouri, 7 February.

Turner, A (2013), “Debt, Money and Mephistopheles”, speech at Cass Business School, 6 February.

Woodford, M (2012), “Methods of Policy Accommodation at the Interest-Rate Lower Bound”, speech at Jackson Hole Symposium, 20 August.

1 For quantitative evidence on the macroeconomic effects for the US see, amomgst others, Khrishnamurthy and Vissing-Jorgensen, 2011. On ECB non-standard policies, see Lenza, Pill and Reichlin, 2010 and Giannone, Lenza, Pill and Reichlin, 2012.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. mmckinl

    What we need is Public Banking … Public Banking would save governments hundreds of billions … enough to fund long term unemployment benefits for years … enough with current government expenditures to pay for single payer healthcare.

    “”Among public banking’s available benefits:

    State budget deficits end as state-owned banks create at-cost credit. The US has only one state with increasing budget surpluses: the only one with a state-owned bank.
    State taxes are entirely paid with ~5% public mortgages and credit.
    Trillions in taxpayer surpluses are returned from documented government CAFRs (Comprehensive Annual Financial Report) as at-cost credit replaces rainy-day funds.
    Truth in banking opens debt-free money: US national debt is ended forever, and we have full employment for the best infrastructure we can imagine (documentation here, here, here).
    Truth in banking and money can open truth everywhere: unlawful US wars can end, poverty can end, trillions of more dollars returned in the broader economy, and even truth from corporate media.””


  2. Ciaran

    Is there any actual evidence for this notion of Ricardian equivalent that economists talk about . I find it highly implausible , it doesn’t sound like anyone I know . For one thing , almost everybody I know pays absolutely zero attention to politics . The idea that there are people out there watching the government budget and making personal consumption decisions on the basis of expected future tax levels ….. I find it hard to accept .

    1. Ben Johannson

      Ricardo-Barro equivalence is the penultimate zombie idea. The four-year natural experiment with austerity running in Europe is like firing a few hundred bullets into its head only to watch it continue to stumble blindly on.

      At no point have consumers or investors behaved as the hypothesis suggests, increasing their spending as they internalize the expectation of lower future taxes.

    2. JGordon

      What you will find is that economists (and finance types, who are little better) have lots of bizarre and implausible ideas, much like most religious zealots you’ll run into.

      But rather than saying something in particular about economists, it rather a statement about humanity: that people are prone to delusions and wishful thinking, and that they’ll come up with inumerable intelligent-sounding rationalizations for their fantasies. Although admittedly economists do seem to specialize a bit more on finegaling the veneer of intelligence on their absurdities. But it’s a thin veneer, and easily seen through by anyone who disregards arguments from authority and only considers the facts.

    3. Dan Kervick

      I’m with you. Ricardian equivalence behavior is utterly implausible other than for a small percentage of elite, economically sophisticated agents.

      Even for them I doubt it’s a big factor. Most economically sophisticated people know that deficits are rarely “paid back” with future surpluses. Governments can and do run deficits perpetually, with a stable rate of interest on the debt.

      1. Susan the other

        Not to mention that we’d have to have an international tribunal to investigate and decide just exactly to whom the money is owed. Since governments rob their citizens, and if “paid back” certainly would not share a dime with the general population, how is it even possible to pay anybody back?

  3. jake chase

    We already have helicopter money and every electronic dollar is being passed to the banksters who created both the bubble and the crash. When I read this kind of ‘analysis’ I wonder how these economists can continue writing with their heads so far up their asses?

    1. Jim Haygood

      ‘No central bank, including the Bank of Japan, has purposefully increased the monetary base and committed to keep this additional money in circulation permanently.’

      True. But Ben Bernanke originally promised to withdraw QE1 rather promptly after the 2008 crisis ended. Instead, he ended up introducing new QE2 and QE3 programs in subsequent years, which continue to this day.

      In politicized monetary regimes, reserve additions are de facto permanent. Reversing them would mean years of deflationary ‘sweating it out’ to adjust to a smaller monetary base. But avoiding pain is the whole reason these programs were pursued in the first place.

      As with Bernanke, the proponents quoted in this article have no evidence that their proposed monetary central planning actually adds any value. History strongly suggests that it doesn’t.

      Like the money poor, the intellectually impoverished magical thinkers who think we can ‘print our way to prosperity’ always will be with us.

      Hey, sonny … can ye spare a dollar for me trepanning?

        1. kris

          Reserves can be used at any time by those who access to it, namely big banks and are being used to buy and store crude oil and commodities for financing.

          What you’re saying is that $10 in your pocket is not money, but when you buy ice cream, it’s money.

          Reserves are money, period.

          1. Elbridge Spaulding

            $10 in your pocket IS money.
            Any money in your pocket or bank account is money (today).
            It is exchange media.
            But you’ll never buy ice cream with reserves, and banks will never buy ANYTHING with reserves.
            Reserves are not exchange media.
            Reserves are not money.
            They are inter-bank balances that only serve bank’s settlement needs.
            What we need is not settlement-media but transactions that require more setlement media to be used.

            Again, sorry, but your understanding of the nature of central-bank issued reserves is mistaken.
            If I need to quote the Bernank on the subject, I will.
            “They do not create demand. They just sit there” (in the bank’s reserve accounts at the Fed.)
            Or, from where did you learn that reserves are money?
            Certainly not from the Fed’s publication on Modern Money Mechanics – from where you can find the answer.

          2. kris

            Elbridge Spaulding

            The Fed has thrown the book away.
            Reserved are not being used to buy ice cream, but they are being used to buy DOW and finance commodity storage.

          3. Elbridge Spaulding

            The Fed has thrown away many books, some as a matter of necessity (a.k.a. “this is unprecedented, and we’re out of tools.’).
            You seem to be saying that the banks as holders of excess reserves use those reserves for payment on either equity purchases (the stock market generally) or commodity futures of any kind (esp. noted agricultural today).
            Again, sorry, but this is not true.
            Were it true, it would be reflected by a change to total the quantity of reserve balances held – as a direct result of either of those purchases.
            A review of the reserve data will show that no such change has taken place.
            ONLY the central bank can create reserves and only the central bank can reduce reserves.
            What the banks can do is use their reserve position to expand their loan portfolios – especially to each other – at rates slightly higher than zero, and use those loan proceeds in the manner you described.
            But, again, no bank can use (non-cash) reserves to purchase anything, anywhere, ever.
            Banks can lend reserves to each other – the result being the same amount of reserves in existence.

            Surely agreed that Fed actions have made a mockery of the money system. But I would ask again from where you learned that it was ‘reserves-became-money’ that was the exchange media for anything involving an asset purchase of any kind.

      1. Cynthia

        Bernanke’s plans so far have only made the 1% fabulously wealthy. And this was done in large part by destroying the savings income of all the American seniors and those closing in on 65. People saved for retirement outside the stock markets and Bernanke does not like that, thus he has let loose the dogs of war against savers. The near-zero interest you get on your savings has destroyed many prudent old folks who worked hard, put off consumption and saved hard earned money. This is HOW an economy is supposed to be capitalized, BUT not under the great “Money Printing Bernanke”!

        This system deserves to collapse full tilt. Bernanke is a friend of the banking class and an enemy of the people.

        1. jake chase

          Exactly right. The idea is to loot the savings of the middle class, drive prudent retired savers into service at Walmart, etc., force the speculative minded into rigged equity markets and blow them up. Bernanke is a stooge no different from Greenspan. The Fed is the ultimate con, the banksters and CEO grifters the only beneficiaries of its operations. Monetary policy is a crock. Megabanks and defanged regulation have vitiated any theoretical benefits that might have existed, say, in 1965.

        2. F. Beard

          An equal and universal bailout with new fiat would fix everyone, including savers, from the bottom up – especially if the bailout were combined with at least a temporary ban on new credit creation and metered appropriately to replace existing credit debt as it is repaid. That way, the bailout could be done with little price inflation risk.

          Of course, the “bailout” would actually be a form of restitution since the banking cartel has cheated near everyone.

      2. Dan Kervick

        QE does not provide helicopter money. QE consists in financial bank purchases of financial assets. It injects dollars into the financial sector, but in doing so it also extracts about the same number of dollars from the financial sector.

        1. financial matters

          If you think of the Fed buying MBS this is equivalent to the Fed buying Treasuries as they were AAA rated. So it’s a way of exchanging one financial IOU for another. But much if not most of the MBS was pure fraud. This does have the beneficial effect of fighting deflationary forces. But here is where Congress should step in and fully analyze the MBS that’s now in the hands of the Fed. If it’s going to be traded up and up for USDs it should be considered as counterfeit and dealt with as such.

          1. Elbridge Spaulding

            Totally agree.
            The Fed is holding massive MBS that can find their market value in a day and bring on the great settlement of all the rest of the upside-down pyramid sitting upon the mortgage fraud.
            All we need to do so is provide REAL liquidity to keep the economy going, something the Fed cannot do.
            It can be Platinum Coin issued or just have the gov print the money.
            But the longer the toxics are being used as a tool against financial asset deflation, the longer we are denied any real world solution.
            Let’s get on with it.

    2. Cynthia

      The lesson should have been not to get into the bubble in the first place by fostering capital misallocation through an artificially low cost of money. Sadly, all of us are paying the price for Ben’s reckless money printing schemes.

      The Banksters are printing at will
      QE is a form of blue pill
      It gives the rich more
      While the middle gets poor
      And makes markets high when we’re ill

      The Limerick King


      1. Gizzard

        How can there be an artificially low cost of something we can create as much as we want ?

        The CB doesnt suppress rates it holds them aloft. If we still had a reserve system to settle all bank transactions and no Fed Board setting rates the rate on reserves would fall to zero not go to infinity.

        1. F. Beard

          the rate on reserves would fall to zero not go to infinity. Gizzard

          Not without government deposit insurance and the lender of last resort!

          It’s government privilege that allows the banks to leverage to any large degree.

    3. Jsn

      “But perfect foresight may not naturally arise”, one can clearly smell th crap this one’s slathered in.

  4. Mr. Jack M. Hoff

    Ive got a suggestion. Why don’t Bernak and the rest of the so called economists jump out of that helicopter at a high altitude, without parachutes too. And yeah, film it for the Jackson Hole bunch too. Isn’t 85 billion a month exactly whats happenning? And do the cockroaches let a bit of it get to anyone deemed less than rich?

  5. F. Beard

    “As Bernanke has suggested it can be implemented via transfers to households and businesses via a tax cut coupled with incremental purchases of government debt, so that the tax cut is in effect financed by money creation.”

    Should help though I point out:

    1) We should not even have a central bank to “lend” us the money.

    2) The banking cartel has cheated nearly everyone, not just tax payers.

    1. Elbridge Spaulding

      Also, a tax cut to households does not either increase the money supply (to increase demand) nor create a dime of permanent money.
      It removes existing money from the public sector’s use – also economic demand – necessitating additional public borrowing, which simply takes the same money back from the private sector.
      Hooray for the monetary-asset class.
      Put the policy options next to each other.
      Then choose.
      Direct, debt-free governnmmnet issue of permanent money will win out every time.

  6. Dan Kervick

    It’s important to see that when a central bank purchases government debt via open market operations, that usually only “finances” a small portion of that debt. The government still has to pay the the central bank the principal on the debt when it comes due. Only the interest portion is forgiven or refunded to the treasury.

  7. Dan Kervick

    So I get the impression that Turner is really just advocating plain old vanilla fiscal policy, with the central bank making a big deal about announcing a higher level than usual of purchases of government debt so as to massage the frail psyches of the people out there who are worried about public debt, and supposedly worried about

    So you just do more QE1. But instead of calling it “quantitative easing”, maybe you call it “monetary helicoptering” or something. Whatever.

  8. washunate

    I find myself increasingly confused by this style of analysis.

    We already have helicopter money, if by that, one means spending beaucoup bucks. Literally trillions of dollars have been given to the criminals in finance and war over the past decade, plus all the more ‘mundane’ corporate welfare in agribusiness and prisons and fossil fuels and so forth.

    I realize we in the US may be slightly more direct about this than the UK and Eurozone, but please, they’re doing the exact same thing – bailing out the banksters. In fact, it seems that our Fed dollars have been a wee bit critical in keeping the European banks afloat.

    1. F. Beard

      The difference is that the money should be given to the entire population where it can be used to cancel out debt and compensate savers for negative real interest rates, especially in housing.

      The difference is in giving the money to the victims, not to the villains.

      1. washunate

        Generally, I would ask, what does the basic observation that we need better fiscal policy have to do with dressing up monetary policy actions?

        Legislators and heads of government do fiscal policy. If they are the barrier to good policy, then a purported solution has to address them. The monetary authorities are irrelevant on the spending money front, and largely just doing the bidding of the fiscal authorities on the regulatory front.

        It is this false promise that these monetary tweaks can solve the fiscal policy problem that is really awful. Pretending to solve a problem is worse than nothing. It makes it seem as if we have some technical challenge to overcome rather than a management issue to overcome.

        “money should be given to the entire population where it can be used to cancel out debt”

        Separately, I would strongly critique this particular comment. I would counter that money is debt. It is a claim on the system. A concept for how to transport labor today into labor tomorrow. You can’t cancel out debt with debt.

        That’s an entirely different process called bankruptcy, where debts are written down. That doesn’t require any new money at all, because it is the exact opposite of money creation; it is money destruction.

        And as far as giving money to ‘the entire population’, that’s a bizarre idea to me. I would counter that money should be targeted, spent wisely, where it creates wealth and produces a positive return. A monetary reset of, say, giving $1 million to every American citizen doesn’t create an equal society at all. Rather, it entrenches the inequality of people who own things priced in dollars (stocks, houses, mining rights, precious metals, etc.).

        1. F. Beard

          You can’t cancel out debt with debt. washunate

          It’s you who calls fiat debt but nevertheless fiat can be used to payoff debt.

          And fiat created from nothing is especially suitable for paying off debt created from nothing – which is the banks’ everyday business.

        2. F. Beard

          A monetary reset of, say, giving $1 million to every American citizen doesn’t create an equal society at all. washunate

          No, but it would eliminate almost ALL PRIVATE DEBT and greatly reduce wealth disparity:

          Let A have $1,000,000 and B have only $1000 in cash. The ratio is 1000 to 1. Now give both A & B $1,000,000. The ratio is now only $2,000,000 to $1,001,000 or about 1.9980 to 1.

          1. washunate

            I’m fascinated by the continued advocacy of this position. Adding zeroes doesn’t create wealth, and it doesn’t reduce inequality meaningfully.

            The issue isn’t about cash ratios (a small portion of overall wealth). It’s the fact that a tiny group of wealthy households in this country own the vast majority of all wealth – the businesses, real estate, personal property, financial assets, and so forth. It doesn’t matter how many dollars are handed out; that simply increases the number of dollars it costs to buy Stuff. Adding IOUs and Promises doesn’t increase the Stuff being claimed by them.

            An apartment that cost $100 per month now is $1,000 per month and then $10,000 per month…a hospital visit that cost $500 now is $5,000 and then $50,000…a college degree that cost $2,000 now is $20,000 and then $200,000…

          2. F. Beard

            Adding zeroes doesn’t create wealth,

            At the very least it can prevent the destruction of wealth since the repayment of credit “destroys deposits.” And yes, money creation can, with a lag, create wealth IF it puts idle resources to work.

            It’s insane but most of our money supply is lent into existence as “credit” (“loans create deposits”). When the banks slow their lending, then the money supply shrinks. But money supplies should NEVER shrink anymore than your blood supply would shrink.

        3. Calgacus

          Washunate:I would counter that money is debt. It is a claim on the system.
          Right. Though you gotta be careful here.

          A concept for how to transport labor today into labor tomorrow. You can’t cancel out debt with debt.The first is vague, maybe right, maybe not so right. The second, utterly, totally wrong and contradictory to your correct statements above. You can’t cancel out debt with anything BUT debt.

          And as far as giving money to ‘the entire population’, that’s a bizarre idea to me. I would counter that money should be targeted, spent wisely, where it creates wealth and produces a positive return. A monetary reset of, say, giving $1 million to every American citizen doesn’t create an equal society at all. Rather, it entrenches the inequality of people who own things priced in dollars (stocks, houses, mining rights, precious metals, etc.).

          Agreed that it ain’t the best idea, that money should be targetted wisely. But you gotta be careful on the “positive return”. A major victory of quackonomics was the return to quackonomical “sound business principles” measurements of “positive return”. But the million dollar plan is not as bad as you think, because you’re missing some consequences. It would create a more equal society for all. Would cause major inflation, but would also wipe out all debts, and create a financially stable system. People would own their own home outright.

          It doesn’t matter how many dollars are handed out; that simply increases the number of dollars it costs to buy Stuff. No, it increases prices, but the relationship ain’t simple, because debt would be wiped out. The credit assets of the wealthy would be wiped out, too. Money hoarding would cease, spending and production would resume in the “private sector”. The true waste that dwarfs all others, unemployment, would vanish.

          Adding IOUs and Promises doesn’t increase the Stuff being claimed by them. Money, credit is not a mere claim on pre-existing Stuff, but a vital ingredient in the production of said Stuff. That’s where you’re not being careful. Money as a direct claim is the commodity theory. Money and credit are very, very real (not)-Things, very real relationships, which in an adequate theory, are treated as equally real as, but different from “real Stuff”.

          At times like now, government spending WILL create Stuff magically, out of nowhere, even if it is spent wastefully. Even if it is spent by government idiots sticking their hands down your pants at airports.

  9. Rodger Malcolm Mitchell

    Isn’t it amazing how economists can take the simplest proposition and create a complex, convoluted debate. How about this:

    Nine Steps to Prosperity: (Implement sequentially)
    1. Eliminate FICA
    2. Medicare — parts A, B & D — for everyone
    3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita
    4. Long-term nursing care for everyone
    5. Free education (including post-grad) for everyone.
    6. Salary for attending school
    7. Eliminate corporate taxes
    8. Increase the standard income tax deduction annually
    9. Increase federal spending on the myriad initiatives that benefit America’s 99%

    This list, plus explanations is at http://www.mythfighter.com

    1. Observer

      I don’t trust the states to use $5,000 per capita wisely. My state can’t be trusted to legislate its way out of a paper bag. I would take issue with eliminating corporate income taxes, but since they don’t pay them anyway, what’s the difference?

    2. ChrisPacific

      Every item in this list is a spending increase or a tax cut. I appreciate that you’re proposing this as an antidote to counterproductive austerity policies and that’s well and good. But you’re talking about a pretty drastic change in the taxation/spending profile. How will you know if you go too far, and if so what would you do about it? (For example, what if a bubble started forming in the education sector?)

      Before you quote MMT principles at me, I’m basically on board with the MMT concept, but I think even MMTers would agree that it’s possible to reach a point where you have too much spending and/or not enough taxation. A readjustment on the scale you’re proposing would seem to present a real danger of reaching or exceeding that point. It would make sense to have a way of measuring whether that’s occurring, and a plan for what to do if it is.

  10. Hugh

    Reading this, I kept expecting Thomas Aquinas, or at least epicycles to come up at any moment. This is economics at its most theological with the central bank as the church and GDP as God.

    I have only a few minor quibbles.

    First, it is my understanding the Fed can not purchase Treasuries directly but must do so only after they are on the open market. So the difference between the two plans becomes almost non-existent and largely hinges on the theological question of whether the Treasuries the Fed was holding would ever be redeemed and possibly to what extent the Treasury and Fed coordinated their policies.

    Second, as others have mentioned, the Fed is currently doing something like this at a rate of $85 billion a month, but this has not translated into any stimulative policies from the government. Indeed the contrary is the case with the Obama engineered sequester and his push for greater austerity, grand bargains, and cuts to Social Security.

    Third, the Fed is only independent with regard to the American people. Otherwise, it is a private banking cartel (the regional Feds) sanctioned by the Federal government and endowed by it with money creating powers in exchange for the (from a fiat money point of view totally unnecessary) financing of its debt via the FOMC.

    Fourth, along the same lines, while moral hazard abounds among the banksters, the rich, and the elites and has already led because of them to one meltdown of the world financial system, these economists are worried about the central bank losing its “independence” and possibly falling under the democratic control of the people.

    Fifth, both Turner and Woodford show their neoclassical roots invoking an “equilibrium” which is the target of both their efforts. This is another theological concept. There never has been and never will be equilibrium in a real world economy because its complexity and externalities can not be accurately modeled, and because of entropy.

    Sixth, Turner and Woodford give no real indication how money could be gotten into the hands of ordinary Americans. Tax cuts would not improve the condition of those unemployed without incomes. Nor would it help the tens of millions of Americans who earn so little that they pay no income tax. Only something like a negative income tax or elimination of their part of the payroll tax would affect them.

    As for increased government spending, the history of the last several years has shown that political leaders have no interest in effective, and productive, stimulative spending. (From the kleptocratic perspective, this is, of course, completely unsurprising.)

    Seventh, Turner and Woodford ignore the vast amounts of private debt. If Americans use any new money to pay down debt, this will have no stimulative effect. And if they spend it, as Turner and Woodford would like them to, their debt burden will not change and could indeed increase through the taking on of new debt.

    But aside from this, great ideas. /s

    1. F. Beard

      If Americans use any new money to pay down debt, this will have no stimulative effect. Hugh

      A universal bailout would give new fiat to non-debtors too and justly so since the banking cartel has cheated them too.

  11. Observer

    Here’s what an Average Joe like me got out of the article:

    Quote: “Perhaps in the case of helicopter money, it would be more likely that the intention to maintain a permanently higher monetary base would be believed. Also, in this case, the fact people get an immediate transfer should lead them to believe that they can afford to spend more, even if they don’t think about or understand the consequences of the change for future conditions, which is not true in the case of quantitative easing.”

    Is the translation here “Dupe the dumb consumers into spending themselves further into debt by giving them some Monopoly money?”

    Another quote: “. . . if individuals and companies perceive that the increase in the monetary base will in fact be permanent, they will not rationally worry about any Ricardian equivalence cost of the future increase in government debt burden. They will understand that the fiscal stimulus is effectively going to be paid for with permanent central bank money.”

    Sounds like “Pay no attention to the man behind the curtain.” Seems to me like a lotta gyrations just to preserve debt so people won’t wake up and blow it off. What about repealing so-called Bankruptcy Reform?

  12. ChrisPacific

    I think they are overlooking the root of the problem, which is that the money already in the system isn’t reaching the places where it would do the most good, but is increasingly ending up in the pockets of the rich. Even if the proposed scheme was actually able to get the money to the right people (a difficulty Hugh mentions) the elites will find a way to separate them from it soon enough, either by luring them into another credit bubble, engineering another bailout using taxpayer funds, or both.

    If your pipe has a hole in it, pumping more water through isn’t the solution.

  13. Elbridge Spaulding

    Do you recognize the revolution when spoken by a 3-piece suit?
    Part Henry Simons – original public-money and Chicago Plan author and presenter to FDR.
    Part Milton Friedman – the part that he learned from Simons at U-Chicago – the advocate for public fiat money-creation and issuance directly into the economy – and for ending the creation and destruction of our nation’s capital by private bankers.
    Part Robert Hemphill – the 1930s Federal Reserve economist who recognized the need for a ‘permanent’ money system.
    Part Adair Turner – modern, outside-the-box visionary of the fact that QE never affects the real economy, and only the non-Bush variety of colloquially-marked ‘helicopter’ money-issuance can directly affect economic demand without increasing debt, in a time of global debt saturation.
    And part Elbridge Spaulding, whoever he is.
    A monetary revolution.
    Coming right atcha.
    Please. Don’t duck.

    1. skippy

      Jonathan Adair Turner, Baron Turner of Ecchinswell

      Business career [edit]

      He taught economics part-time after university. His career with BP started in 1979 and he worked for Chase Manhattan Bank from 1979-82. He became a director of McKinsey & Co in 1994 after joining in 1982.[1] Turner was Director-General of the Confederation of British Industry (CBI) from 1995-9.[2] In this role he became one of the leading proponents of British membership of the euro – a stance he later said was mistaken.[3] From 2000-06 he was Vice-Chairman of Merrill Lynch Europe.[4]

      He lectures part-time at the London School of Economics, where in 2010 he delivered three lectures on “Economics after the Crisis”, later published by MIT Press as a book under that title: this criticised conventional wisdom that the object of policy should be to maximise GDP, that the way to do this is to promote freer markets, and that inequality is an acceptable price for growth.[5]

      In 2002, he chaired a UK government enquiry into pensions. In 2007, he succeeded Frances Cairncross as Chairman of the Economic and Social Research Council and Baroness Jay as Chair of the Overseas Development Institute’s Council.

      In 2008 he was appointed Chairman of the UK Government’s nascent Committee on Climate Change. He stepped down from this position in Spring 2012.[6]

      On 29 May 2008, it was announced that he would take over as Chairman of the Financial Services Authority.[7] He took up this post in September 2008 for a five-year term to succeed Callum McCarthy. – wiki

      Skippy… reads like an obituary… methinks.

      1. Elbridge Spaulding

        Thanks, skippy.
        Surely agreed.
        As would Friedman’s here.
        And their free-market advocacy is another parallel.
        But Friedman saw the need for a level playing field for true free markets to advance, something that cannot happen when a privileged class creates the national purchasing power and rents it to the Restofus.
        For all of his VOLUMINOUS flaws, the “Framework” article referenced here was aimed at democratizing the playing field – via government fiat issuance.
        Having the reverse gets us where we are today.
        Which is why Turner’s current suggestions are anything but the free market in money.
        We need to counter the ‘financializaion’ power.
        He sees that money must provide for ‘exchange’ or there will be no demand function at work.
        And no CB today has the authority to issue ‘money’.
        Government, direct-issue for needed infrastructure.
        It’s a page out of the Kucinich(*) reform proposals.
        Yeah, he’s still the 3-piece suit.
        But it should be about the message.
        And not the mesenger.

        (*) I know he’s commenting on FOX.

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