The open hand and the closed fist
July 12, 2016 12:21 PM   Subscribe

Just print money and give it to everyone by Chris Arnade: "The usual answer to why we don't do this is that it isn't politically feasible and there is no precedent. 1) That has never stopped bank bailouts, which often require a great deal of political and regulatory ingenuity to jam through. (TARP cough TARP) 2) It is a symptom of a system built by and for the bankers to benefit themselves. It is the equivalent of saying, 'We can't do it because we have never wanted to do it'. That we don't do it this way isn't just a small economic quibble with no impact. The most visceral anger I hear from voters across the country is directed at bank bailouts, which they see as evidence of a rigged system. They are right. The system is rigged in the sense that our primary method to stimulate the economy also conveniently bails out bankers." (previously; via)

cf. more on helicopter money (or money financed fiscal expenditures)
  • 'Helicopter money' can help economy - "There are many factors that can increase a country's potential economy – better education and health, more capital investment, streamlining regulations or fixing the tax code. But there is only one way to ensure a country fully utilizes its potential economy – ensuring enough spending in the economy to put all its people and resources to work."
  • Helicopter money is different - "There is scope for policy innovation, contingency planning, and better policies for the long run. As it stands, granting central banks the power to make money-financed transfers to the private sector – as close as possible an approximation to Friedman's helicopter drop – seems the best on offer."
  • The Puzzling Aversion to Expansionary Fiscal Policy - "Why now are elites so into helicopter drops and basic income checks? What changed?"
viz. what helicopter drops can look like in practice also btw, further angles on why printing money and various ways of giving it away should be used to help 'flush' the system...
  • Productivity, Inequality, and Economic Rents - "The good news is that to the degree that the 'rents' interpretation is correct, it suggests that it is possible to reduce inequality and promote productivity growth without hurting efficiency by changing how rents are divided—or even that it is possible to do both while increasing efficiency by acting to reduce rents in the economy. Policies that raise the minimum wage and provide greater support for collective bargaining can help level the playing field for workers in negotiations with employers, in turn changing the way that rents are divided. Measures that would rationalize licensing requirements for employment, reduce zoning and other land-use restrictions, appropriately balance intellectual property regimes, and change the incentives that have led to the expansion of the financial sector as a share of the economy would all help curb excessive rents... The bad news, however, is that rents have beneficiaries and these beneficiaries fight hard to keep and expand their rents. As a result, political reforms and other steps aimed at curbing the influence of regulatory lobbying are important for reducing the ability of people and corporations to seek rents successfully. Such actions would help ensure that economic growth in the decades ahead is robust, sustainable, and widely shared."
  • Economics: GDP in the dock - "Since its invention during the Second World War as a thermometer of economic health, gross domestic product (GDP) has become a familiar incantation in claims and counter-claims about the well-being of nations. Some environmentalists and feminists were early critics, but until recent decades, few others questioned it. Now, campaigners ranging from left-wing Nobel-prizewinning economist Joseph Stiglitz to the free-market Economist magazine want to replace GDP with direct measurement of human well-being. The technology industry has joined them, bemoaning the failure of GDP to account properly for digital technologies, including free online services, because the relevant statistics are not collected or do not fit easily into existing categories. There is even a mini-boom in books about economic statistics. A decisive coalition is shaping up in favour of moving away from GDP. The question is what to use instead."
  • Gordon and Varian Approaches to Understanding the Ill-Named 'Secular Stagnation' - "The scalability of non rival & non excludable digital goods is changing the world's economy in ways that are not yet fully understood."
  • Capitalism 2.0? - "What kinds of institutional changes might we imagine for our current political economy that do a better job of satisfying the demands of justice and human wellbeing... if we want a genuinely fair and progressive society in the 21st century? ... What kinds of political and economic institutions would serve to advance these social goals? One approach that is gaining international attention is the idea of a universal basic income for all citizens... Another approach results from politically effective demands for real equality of opportunity. Equality of opportunity requires high-quality public education for everyone... Another determinant of equality of opportunity is universal access to quality healthcare."
  • President Barack Obama on Basic Income - "The way I describe it is that, because of automation, because of globalization, we're going to have to examine the social compact, the same way we did early in the 19th century and then again during and after the Great Depression. The notion of a 40-hour workweek, a minimum wage, child labor laws, etc.—those will have to be updated for these new realities. But if we're smart right now, then we build ourselves a runway to make that transition less abrupt."
bringing the scope out a bit on how we got to this point and a warning...
The Abdication of the Left (via)
A greater weakness of the left [is] the absence of a clear program to refashion capitalism and globalization for the twenty-first century... The left has failed to come up with ideas that are economically sound and politically popular, beyond ameliorative policies such as income transfers. Economists and technocrats on the left bear a large part of the blame. Instead of contributing to such a program, they abdicated too easily to market fundamentalism and bought in to its central tenets.

Worse still, [economists and technocrats on the left] led the hyper-globalization movement at crucial junctures. The enthroning of free capital mobility—especially of the short-term kind—as a policy norm by the European Union, the Organization for Economic Cooperation and Development, and the IMF was arguably the most fateful decision for the global economy in recent decades.

[T]he right thrives on deepening divisions in society – “us” versus “them” – while the left, when successful, overcomes these cleavages through reforms that bridge them. Hence the paradox that earlier waves of reforms from the left – Keynesianism, social democracy, the welfare state – both saved capitalism from itself and effectively rendered themselves superfluous. Absent such a response again, the field will be left wide open for populists and far-right groups, who will lead the world – as they always have – to deeper division and more frequent conflict.
lastly, an apology (after a detour through some economic history...)
A Plea for Some Sympathy for Repentant Left Neoliberals - "We misjudged the proper balance between state and market, between command-and-control and market-incentive roads to social democratic ends... And here I whimper. Financial globalization was intended to take down barriers to capital inflows erected by rent-seekers in developing countries, and so speed growth in economies that had been starved of capital while also equalizing incomes. Financial deregulation was supposed to break up the cozy investment banking and other oligarchies of Wall Street and diminish their private-sector tax on the American economy. Financial deregulation was supposed to provide the poorer half of America with the access to fairly priced credit that it lacked and with the opportunity to invest in assets that would yield equity-class returns, which it also lacked. And, in a world in which central banks had the powers and the will to successfully stabilize aggregate demand, there seemed little downside... It all did go horribly wrong."
posted by kliuless (55 comments total) 73 users marked this as a favorite
 
Well, I've gotta dig in and read this, but thanks kliuless.
posted by KHAAAN! at 12:47 PM on July 12, 2016 [1 favorite]


Wow. A lot to get through here, thanks for this.
posted by Mchelly at 1:50 PM on July 12, 2016


Thank you!
posted by odinsdream at 2:27 PM on July 12, 2016


I don't have time to read all these links, but I looked at several of the early ones, and the only one that addressed my immediate thought—"What about inflation?"—was the first: "We need inflation! That is what we want right now since many countries have negative rates." OK, but that doesn't really help. Maybe we need a certain amount right now, but there's a reason Germans have been historically terrified of it: hyperinflation can destroy people's lives as effectively as a depression, and I would want to see a clear explanation of how this kind of "helicopter money" can be managed without risking that outcome. If anyone finds such an explanation somewhere in there, I'd be glad to see it!
posted by languagehat at 2:52 PM on July 12, 2016 [6 favorites]


TARP / bank bailouts were loans. If the plan is to make loans to people, sure, let's talk about it, but the "loan therefore transfer payment" reasoning is daft.
posted by jpe at 3:19 PM on July 12, 2016 [6 favorites]


Wage-driven inflation is a pretty good thing, though. On the one hand, inflation reduces the value of fortunes and the cost of debts, and on the other hand the gap between prices and wages while prices catch up to increased wages is in effect a transfer of wealth from capital to workers. helicopter money, as a demand-side stimulus, works like wage increases; yeah, prices end up rising as a result of increased effective demand, but this takes time, and while that adjustment takes place the demand side benefits.

The Weimar hyperinflation was a different thing altogether, caused by crushing war debts rather than by increased effective demand. It's not really a useful point of reference, I don't think.
posted by You Can't Tip a Buick at 3:24 PM on July 12, 2016 [5 favorites]


TARP / bank bailouts were loans. If the plan is to make loans to people, sure, let's talk about it, but the "loan therefore transfer payment" reasoning is daft.

A loan at 0% interest that you can (and do) then turn around and loan out again at >0% interest is free money. It's not free money equal to the principal value of the loan, but it's free money nonetheless. And with the size of the bank bailouts it's not a small amount of free money, either.
posted by mstokes650 at 3:34 PM on July 12, 2016 [11 favorites]


It was actually equity.
posted by JPD at 3:41 PM on July 12, 2016 [2 favorites]


> The Weimar hyperinflation was a different thing altogether, caused by crushing war debts rather than by increased effective demand. It's not really a useful point of reference, I don't think.

Sure, I certainly didn't mean to suggest it was any kind of structural parallel, but it's a useful point of reference in that it's the most widely known example. There are lots of cases where inflation has been bad for societies, and I get tired of lefties simply ignoring the issue in their enthusiasm for handing out money; it's like right-wingers ignoring the effects of burning coal/oil/gas ("it creates jobs!"). If done right, handing out money can be effective, but in order to believe it's going to be done right, I want to see some concern for the possible downside.
posted by languagehat at 3:42 PM on July 12, 2016 [2 favorites]


The usual answer to why we don't do this is that it isn't politically feasible and there is no precedent.

Economic Stimulus Act of 2008
posted by a lungful of dragon at 4:15 PM on July 12, 2016 [2 favorites]


It was actually equity.

I didn't see a dividend check. If the taxpayers bought equity in Goldman et al, we all should've gotten a check. Did my taxes go down because of the great returns the federal government secured through such a fabulous "investment"? No? Can I goto Goldman today and get preferred terms because I own the fucking place? No there too? Huh. Guess it was free money after all.

Funny how the only people ever eligible for 0% "loans" in perpetuity secured by nonexistent "equity" are the banksters. Those terms sure as shit weren't available when I took out a student loan.
posted by T.D. Strange at 9:25 PM on July 12, 2016 [4 favorites]


If it was "equity", the terms of the deal should've been something like, 90% ownership stake and every last person who works here above first year new hire is out. And if they balked at that, once upon a time we had a Department of Justice. Those should've been the only two choices. Instead, what exactly did we get for bailing out the Vampire Squid?
posted by T.D. Strange at 9:39 PM on July 12, 2016 [2 favorites]


Instead, what exactly did we get for bailing out the Vampire Squid?

Apparently the extra money (about $10 billion, it looks like) is going towards reducing the national debt. I'm not taking a position on whether that was the right move, or if they should have sent a check to you personally, or the rest of it. I'm only online because I couldn't sleep, and I'm way too tired to think coherently about policy. But, well, you asked, and I got curious, and that's what we got.
posted by moss at 12:33 AM on July 13, 2016 [2 favorites]


OK, if we can vote for giving away money, I vote for giving me one million dollars- that should be barely enough to pay my debts and get me the things I want. If everyone else wants the same, fine- that's only 300 trillion dollars. We can just raise taxes on everybody that owns property to pay for it.
posted by happyroach at 1:51 AM on July 13, 2016


There are lots of cases where inflation has been bad for societies

Yes, but in all the advanced economies now it is deflation that is the fear. If you helicopter money, and it generates inflation that approaches your desired limit, you stop giving it out.
Here in Australia we helicoptered money into peoples pockets in the GFC response as a tax credit. It fed consumption demand and lifted spirits. But it was a single payment for a single up tick, in no way a risk to deliver hyper inflation.
The 'inflation is coming' argument has been chanted by followers of Austrian school economics since the GFC, but none is in sight yet. In any case, the massive QE programs are a much greater risk, and at least direct distribution has the advantage of equality.
posted by bystander at 2:09 AM on July 13, 2016 [2 favorites]


You did get a check. It probably wasn't as big as it should have been but you did get a check.
posted by JPD at 4:12 AM on July 13, 2016


We don't have to raise taxes. A government that operates in its own currency can create money at will, that's the entire point. Which is why the national debt has never, and will never be a real problem that we should give even one single fuck about (and why Republicans don't give a single fuck about it except when using it as a scare mongering tactic to curtail a Democratic president's agenda).

But for some reason (gee, I wonder what reason?) that policy option is only considered when Goldman Sachs is in danger of suffering some losses. What's millions of "those" people in poverty, or millions more students with no futures ahead of them compared to Wall Street being unable to pay bonus 20% higher every single year?

You did get a check. It probably wasn't as big as it should have been but you did get a check.

Pretty sure the 2008 Stimulus didn't come from bailout profits. Again, it didn't need to. We can create money.
posted by T.D. Strange at 5:39 AM on July 13, 2016 [1 favorite]


Pretty sure the 2008 Stimulus didn't come from bailout profits. Again, it didn't need to. We can create money

That's not what I said. Cash in fungible anyway.

Again, it didn't need to. We can create money.
You do realize the fed has been creating money like crazy for 8 years now right? The argument is that they need to create more and in a much less subtle way than they have been doing.

The fed has been creating money through the financial system, the problem is there just isn't the demand for loans they need to make that impact the actual economy. So instead the argument is just give it to people as a transfer payment. Traditional macro would argue the bank driven route is more effective, but that isn't working, so they need to try something different.

I'll worry about hyperinflation when we have inflation.
posted by JPD at 6:54 AM on July 13, 2016 [3 favorites]


We've been creating free money and handing it to bankers. Not real people.
posted by T.D. Strange at 7:13 AM on July 13, 2016


sigh. Yes we have. On the theory that the banks give it "to real people". The problem is real people don't want it. Because the people who have a use for it can get it for the same price from someone we aren't giving free money to.

take a step back and realize I'm agreeing with the view that it might be time to try something else. I'm just disagreeing with the argument that the fed has done nothing. The Fed has done exactly what was thought to be the right thing to do pre-crisis. It just hasn't worked because they can't create inflation or demand for liquidity.

The reason why it is in theory better to give it to the banks is because 1 dollar of bank liquidity should be worth multiple dollars to the economy - if there is demand for loans,

While one dollar of transfer payment is worth a much lower multiple to the economy.
posted by JPD at 7:28 AM on July 13, 2016 [3 favorites]


Except the banks take profits off those loans backed not by their own capital, but the fed's free money. While real people still have to pay interest. The thing to do from the beginning was skip the middle man, create demand by creating demand, not by backing already rich rent seekers to keep seeking rent.
posted by T.D. Strange at 7:54 AM on July 13, 2016 [1 favorite]


you still have to hold capital against the loans you make with the fed's money. And the banks aren't earning a good rate of return on their equity/capital today. Most banks would love to return capital.

Google what "rent seeking" means. It doesn't mean what you think it means. Banks earn a Cost of Capital return on incremental capital - that's like the opposite of what you would expect a rentier to earn.
posted by JPD at 8:08 AM on July 13, 2016 [1 favorite]


Any return on free money is more free money. Where can I sign up for such a raw deal?
posted by T.D. Strange at 8:22 AM on July 13, 2016


> If you helicopter money, and it generates inflation that approaches your desired limit, you stop giving it out.

Sure, that's the ideal. My worry is that in a democratic society it's going to be hard to stop giving it out; people don't like having things taken away. (Cf. the free bread given out to Roman citizens back in the days of the Empire; even when Rome lost its breadbasket areas to invaders, people expected their free bread and rioted when it wasn't distributed, or was seen to be given out stingily.) People by and large do not care about the general good nearly as much as they care about their own personal good.
posted by languagehat at 8:25 AM on July 13, 2016


My worry is that in a democratic society it's going to be hard to stop giving it out; people don't like having things taken away.

Austerity policies happen in democratic countries all the time.
posted by ROU_Xenophobe at 8:31 AM on July 13, 2016 [1 favorite]


Any return on free money is more free money. Where can I sign up for such a raw deal?

maybe learn how a bank works first and then you can open one and become a rentier!!!
posted by JPD at 10:17 AM on July 13, 2016 [1 favorite]


There's also the question of whether diffused are actually as effective as concentrated funding. Give everybody in the country a thousand dollars, and that's 300 billion dollars, but on an individual level, that's not going to make much of a difference- it wouldn't allow anyone to buy a house or a good car. Multiply it by ten, make the amount equal to the current budget, and that's still not a really exciting amount to talk about on an individual basis.

On the other hand. 300 billion dollars put forward repairing American infrastructure? That could make a sizable dent in the accumulating needs for repairing the material foundation for our 1st. World status.

Do the question is, how much money are we talking about here, and how could it be put to effective use?
posted by happyroach at 10:22 AM on July 13, 2016


the question of whether diffused are actually as effective as concentrated funding...That could make a sizable dent in the accumulating needs for repairing the material foundation for our 1st. World status.

I think a compelling empirical argument can be made for our unequal distribution of wealth being a primary, deleterious factor in this crumbling status.
posted by Reasonably Everything Happens at 10:50 AM on July 13, 2016 [1 favorite]


Give everybody in the country a thousand dollars, and that's 300 billion dollars, but on an individual level, that's not going to make much of a difference- it wouldn't allow anyone to buy a house or a good car.

Though funny enough, it works better for the economy when you do that anyway.

Some people will buy new clothes. Some people will go out for fancy dinners. Some people will pay down some debts (now free of those debts, they may be able to spend on other things).

It's actually a pretty excellent way of stimulating the economy and getting people spending. When people are spending, businesses need to hire more workers. When more workers are hired, more people have money to spend, wages go up, and people can spend more.

The opposite, huge chunks of money going to specific projects or persons? The theory is that it'll eventually make it through the economy, but that theory is "trickle-down economics," and it was exposed as bullshit decades ago. Yeah, there's still good reason to support giant public projects when they're needed, but for economic stimulus, you want to spread it out as much as possible.
posted by explosion at 12:23 PM on July 13, 2016 [2 favorites]


While one dollar of transfer payment is worth a much lower multiple to the economy.

That depends on who you're giving it to. If you helicopter drop money on poor people, it is immediately demand creating because their expenditures are limited by money supply. If you give it to those who already have enough money, most of it goes into savings, which is why QE hasn't worked very well.

I take your point that adding to bank reserves increases their lending capacity by even more than the multiplier for money given to the poor, but as you noted earlier banks are unwilling to lend and people are by and large unwilling to borrow, thus the massive growth in excess reserves. Rather than paying interest on reserves we need to tax that shit and give the resulting revenue to the poor. Then banks will be more compelled to lend, poverty will be relieved, demand will be created and that money will help to improve balance sheets in the real economy, thus creating the demand for loans that allows QE to work.
posted by wierdo at 1:35 PM on July 13, 2016


What you're proposing here is giving money away, while the bank bailouts... weren't that. The bailouts were paid back, with an overall profit to the Fed.

TARP revenue was $441.7 billion, when $426.4 billion was lent out, making it a jumbo low-interest-rate loan instead of a giveaway.
posted by talldean at 1:45 PM on July 13, 2016


What you're proposing here is giving money away

If that is the part that bothers you, consider that if the plan is successful, it will raise economic growth and accompanying tax take. Think of it more as priming the pump, rather than fueling the engine.
posted by bystander at 2:47 PM on July 13, 2016


The opposite, huge chunks of money going to specific projects or persons? The theory is that it'll eventually make it through the economy, but that theory is "trickle-down economics," and it was exposed as bullshit decades ago.

I'm actually aware of trickle-down economics, but that's actually not what I was addressing. I'm more concerned with say, bridges not falling down than I am economic stimulus.of I just wanted a big project for adv economic boost, I'd just throw it at NASA.

I'm asking whether it would be better to take that three trillion dollars fix our national transit system, or convert completely over to renewable energy, rather than giving everybody cash. Sure it won't have the immediate economic boost of cash in pocket, but the effects may actually be more important to the population. Like say, keeping Florida from being submerged.

I know it's really popular to talk about major projects solely in terms of economic benefits, but I'm arguing that perhaps economic stimulus shouldn't be our first priority with budgets if that magnitude.
posted by happyroach at 3:18 PM on July 13, 2016


Like say, keeping Florida from being submerged.

Absent large scale geoengineering to remove GHGs from the atmosphere, that is simply not possible. The amount of sea level rise already baked in is simply too high. At least on the east coast, everything south of far northern Palm Beach County will be submerged in the next century or two at best. Walls and other flood control measures are worthless since the place is sitting on top of very porous limestone.
posted by wierdo at 3:30 PM on July 13, 2016 [2 favorites]


There are lots of cases where inflation has been bad for societies, and I get tired of lefties simply ignoring the issue in their enthusiasm for handing out money

Why is inflation inevitable? It's not. That idea's an assumption derived from an ethical value dressed up as an immutable, structural feature of the natural world.

Societies that encourage and value violent, gluttonous greed (pirates, Vikings, raiding warrior tribes, etc.) take it as axiomatic that, when money supply increases, merchants can and therefore must raise prices. But that's not really the only possibility in the reality outside moral and ethical norms.

In scientific reality, a society could just as easily embrace a rigorous moral code that stigmatizes and viciously punishes price gouging and any and all market behaviors motivated primarily by greed.

More money being in supply doesn't require anyone to raise any prices. That's just what we consider the right thing to do, because of what we value, ethically, and that's what we're taught in Econ 101.
posted by saulgoodman at 9:23 PM on July 13, 2016


("We" here being we humans in those parts of the world that practice trade with each other according to common trade conventions.

But isn't that right? What makes inflation a necessity if not either moral habit or human nature? It seems to me we all create inflation through unconscious collective action, but we could all benefit from improved public services and control inflation exquisitely if we consciously took different collective actions, like allowing the state to print money to pay its workforce and invest in infrastructure, say. You don't get runaway inflation if you're only creating the equivalent in fiat cash of what you create in real economic value.)
posted by saulgoodman at 9:35 PM on July 13, 2016


It seems to me we all create inflation through unconscious collective action

Partly but also the central banks regularly make efforts to adjust the inflation rate. Right now the U.S. Fed targets a 2% rate.

If you want a "nice" thing about inflation - it serves like a partial debt forgiveness.
posted by save alive nothing that breatheth at 10:11 PM on July 13, 2016


Mild and predictable inflation is also a spur to investment; you have to do something useful-to-others with your pile of money or else it dissipates.
posted by ROU_Xenophobe at 10:38 PM on July 13, 2016


Absent large scale geoengineering to remove GHGs from the atmosphere, that is simply not possible. The amount of sea level rise already baked in is simply too high.

So basically, millions of people having to move. so which will we do- give each of them a couple thousand dollars? Or work on a large scale evacuation plan to move cities inland?
posted by happyroach at 10:49 PM on July 13, 2016


> Why is inflation inevitable? It's not.

I didn't say it was, I said it was a danger that needed to be dealt with in advance. It has seemed to me that nobody was bothering to think about that in their enthusiasm for helicopter money, and nothing I've read here has caused me to think otherwise. It's like all that enthusiasm for making it easier for everyone to buy houses a couple of decades ago. Housing bubble? Why are you trying to spoil the party with your pessimistic ideas?
posted by languagehat at 8:49 AM on July 14, 2016


Those are legitimate points, languagehat. The key thing to me is that currency is basically an IOU to some claim against the commonwealth. Under the gold standard in the bad old days, we took gold to be a stable proxy for the wealth of a nation. Now we think of wealth in broader terms like public services, public assets, property containing valuable resources, etc. So as long as any money we print is paired with the creation of some valuable public service or infrastructure, there shouldn't be any reason for that to trigger runaway price inflation/currency deflation.

So my specific policy proposal as one of those online leftists would be let the state print whatever money it wants as long as it has a direct, immediate use for it, like paying state workers and contractors, paying for infrastructure projects, etc. Then you could lower individual tax burdens, too, and we could all get magical political unicorns for our birthdays.

If you let the state inject the new money supply into the economy through meaningful, productive projects that working people benefit from directly, you avoid letting it get horded in vaults where it does no good by nervous bankers and investors. And if public policy is constructed fairly and with an unambiguous goal of increasing overall social and economic prosperity, then putting that newly minted money directly to work instead of counting on third parties to judge how best to allocate it should deliver broader social benefits. We should only have to collect taxes to smooth over market failures and to compensate for industrial externalities in the case that we let public policy priorities and investments drive money supply like that. And there'd still be normal levels of inflation as the public assets created with new money lost value over time (although I don't think all infrastructure development projects lose value consistently over time; depending on other economic factors, it's easy to imagine a particular bridge, say, becoming more valuable over time even as it's maintenance costs increase due to increasing traffic levels).
posted by saulgoodman at 9:42 AM on July 14, 2016


Students of history, or those of us who are old enough to know better; remember when Dubya gave us all a check? And Hank Paulson was all "it's gonna make half a million jobs!"

I find myself siding with the skeptics.

(not that I didn't cash mine in a hot second)
posted by aspersioncast at 9:48 AM on July 14, 2016


> Those are legitimate points, languagehat.

Thanks, much appreciated!

> So my specific policy proposal as one of those online leftists would be let the state print whatever money it wants as long as it has a direct, immediate use for it, like paying state workers and contractors, paying for infrastructure projects, etc.

And that makes sense. I would feel better about it if you were in charge. What worries me is that politicians will be in charge, and the first instinct of politicians is to hand out whatever goodies are available with minimal regard for consequences, especially if those consequences are not going to become evident until they're out of office.

Again, I'm not at all dissing the basic idea, just wanting the possible downside considered.
posted by languagehat at 11:28 AM on July 14, 2016


re: inflation, the 'via' link actually has a great discussion about implementation and dealing with inflation: "we needn't abjure interest rate policy entirely. in addition to... taxation, we could still raise rates. of course, just as in the present day, overly loose monetary policy could... still provoke unpleasant tradeoffs between tolerating inflation, high interest rates, or burdensome taxes. but the... instrument of helicopter money doesn't create the potential for facing those tradeoffs. it already exists."

What worries me is that politicians will be in charge...

to your point: "helimoney is a form of fiscal policy that would be delegated to a central bank. Congress would have to carefully... circumscribe the instruments, on the transfer side and potentially on the tax side. adjustment of payroll tax... liability would be one way to arrange it, not the best IMHO, but certainly not the worst, and p'haps politically a... sweet spot."

>Economic Stimulus Act of 2008
>You did get a check. It probably wasn't as big as it should have been but you did get a check.

lightly edited from that twitter conversation:
"As a compromise, what if the Fed could give money to the SSA to buy out peoples' payroll tax obligations? ... Perhaps limited to certain conditions like inflation < 2 percent."

"is this not exactly what we did? Treasury borrowed from Fed and eliminated payroll tax for a year"

"Yes. My thought would be to empower the Fed to do that unilaterally."
oh and my favorite part: "as an aside, helicopter money might be politically and logistically easier if we had something like universal postal banking"

because...
"Team Clinton and Team Sanders moved in tandem on a whole host of concerns, such as... 'postal banking' that expands banking services to low-income Americans"

oh and re: hyperinflation, to borrow the phrasing from milton friedman: hyperinflation is always and everywhere a product of a failed state - "hyperinflation is caused by many things, such as losing a war, or regime collapse, or a massive drop in domestic production. But one thing is clear: it's not caused by technocrats going mad or bad" [1,2,3]

so hyperinflation wouldn't be the problem per se so much as institutional collapse at that point, witness venezuela...
posted by kliuless at 2:34 PM on July 14, 2016 [1 favorite]


So basically, millions of people having to move. so which will we do- give each of them a couple thousand dollars?

Most likely not even that. We don't pay people for slow motion disasters, only the big immediate ones. If south Florida somehow escapes having a major hurricane, we'll just let people's property slowly drown. Renters definitely ain't getting shit. There exist enough tall buildings that it would be possible to raise roads in the denser areas and stave off the problems for 50-100 more years (the foundations are already below the water table..they freeze the soil so they can dig them out and then seal them up to prevent water intrusion after construction), but we won't.
posted by wierdo at 2:44 PM on July 14, 2016


Inflation is actually really easy to kill if you don't have morons in charge. All you have to do is raise taxes and use it to pay off debt owned by the central bank or the Social Security Trust Fund rather than for anything immediately productive. Taxes reduce money supply in the same way a helicopter drop increases it.

There are some aspects of MMT that don't make much sense, but this area is one in which it describes monetary policy quite well. Keynesian economics is largely the same, but is only correct for commodity money under certain regimes of inflation/deflation. Like all economic theories, it is incomplete.
posted by wierdo at 2:53 PM on July 14, 2016


> Inflation is actually really easy to kill if you don't have morons in charge.

You've put your finger on exactly the part that worries me!
posted by languagehat at 3:31 PM on July 14, 2016


but look who is in charge; the austerians that delong bemoans and, when it collapses all around them, who pass self-serving bailout packages. better than morons perhaps, but if they end up ushering in fascists, i doubt they're really all that much better... more fervent and effective maybe?

also btw, re: TARP, whose oversight did bring us elizabeth warren afterall (and mini-me to hank paulson, 'banks still TBTF, lets break them up' neel kashkari), if you're looking for more explicit giveaways there was also preferential access to the discount window primary dealer credit facility, among others, with the fed essentially taking on the credit risk of the (shadow) banking system:
The bottom line is that Bernanke has made a gamble with something approaching 2 trillion. If the gamble wins, taxpayers owe nothing. If the gamble loses, taxpayers are committed to borrow a sum equal to any losses and start making interest payments on it.
and what did taxpayers get for that gamble? (socially democratic) principal reductions and bank nationalizations? nej. an insufferable jamie dimon and if clinton ends up appointing larry fink to treasury i can't even.
posted by kliuless at 1:23 AM on July 15, 2016


First thing, there are really two types of banks that people talk about. Investment banks like Goldman Sachs and commercial banks like Wells Fargo.

Almost all of bad shit associated with banks and their impact on the economy is about investment banks. Fuck those guys.

Commercial banks are a much broader spectrum of good and bad banks. Some of those banks make it their mission to stay ahead of the regulators so that they're already more strict internally than external regulators ever will be. I work in compliance at one of those.

The Fed's rates have a really direct effect on our bottom line and on me personally. I'm okay with this because we're an interconnected piece of the economy so it makes sense that a lot less of our profitability is up to us. The Fed has been keeping rates low for eight years so for the last 8 years everyone at the bank has been working to trim expenses. That means positions that get filled, travel that doesn't happen, new tools that aren't implemented, and promotions that get delayed.

As soon as the Fed increased rates just a tiny bit, I got a big raise, then a promotion (that came with another raise), and bigger bonus (that was partially attempting to make up for lost time), approval to travel for training and a certification that will help my career, and a new piece of software that will help us do our jobs better.

The Fed lowering rates to stimulate lending activity isn't just a free handout for banks. And if it is for the investment banks, it isn't, in my experience, true for commercial banks. Investment bankers can hang, but it's not black and white.
posted by VTX at 7:21 AM on July 15, 2016


As soon as the Fed increased rates just a tiny bit, I got a big raise, then a promotion (that came with another raise), and bigger bonus (that was partially attempting to make up for lost time), approval to travel for training and a certification that will help my career, and a new piece of software that will help us do our jobs better.

that's basically what helicopter drops (or a basic income) and possibly much more negative rates and/or NGDP level targeting could accomplish for the rest of the nation, 'giving ourselves a (collective) raise' and some financial security. there are other ways, more incremental, to accomplish those goals, but helicopter drops -- framed against political decisions to boost banks' net interest margins as backdoor recapitalizations (that provide bankers with raises, promotions and bonuses) -- like the transformation of the fed's balance sheet (and what it means), helps illustrate how the system is rigged set up to favor bankers, e.g. underwater 'homeowners' could have been bailed out. that they weren't and saying that's just the way it (the political economy) is and that's what the fed is supposed to do -- backstop the banking system -- in no way addresses whether that system is fair or even a good way to continue to do things, as arnade points out.

also btw...
Japan may be on route for a "soft" form of helicopter money [1,2,3]

and to not ignore the supply side (to not seem unserious ;) and maybe make a larger point, it's worth contrasting japan with venezuela (or zimbabwe, etc.), what they produce/export and the 'knowledge content' or complexity embedded in/embodied by those products/exports. for example here's a look at japan's exports and here's venezuela's, then as an exercise consider the likelihood of state collapse, hyperinflation for each given their productive/exportable capacities, and the potential benefits of raising aggregate demand (perhaps thru helicopter drops) to utilize those capacities.

but wait, too often i think that's where economic analysis stops; let's go a bit further (to make a larger point!) and link it to say, global warming, and externalities like the general welfare writ large. notice that exports are measured in dollars -- what else? how else (to compare)? -- the underlying assumption being that each dollar transaction is somehow an equivalent value on some level (from a 'free market' economics perspective), while on other levels -- say social or environmental -- they may be incommensurable. so like while burning $5 of venezuela's orinoco extra-heavy crude oil and monetizing $5 of eyeballs playing pokémon go clearly represent very different activities (with different consequences) in the social construction of economic value we currently inhabit they're worth the same amount of 'tickets' in our consensual theme park.

so far so obvious? not to get too deep into the theory of prices, social utility and measuring inflation, but one way to conceptualize the 'price' of something is as a multidimensional object with certain (subjective) value attributes projected onto a plane/line/point, or as weyl describes it: "analysis that reduces rich (e.g. high-dimensional heterogeneity, many individuals) and often incompletely specified models into 'prices' sufficient to characterize approximate solutions to simple (e.g. one-dimensional policy) allocative problems."

or less abstractly the great benefit of prices is that they let you compare apples and oranges, but by the same token -- in post-industrial late capitalism -- they're also becoming increasingly problematic, esp when pretending otherwise. like kurt vonnegut's admonition 'we must be careful about what we pretend to be'.

when price signals go haywire and diverge from their (social) utility, as i would argue they currently are, then thinking that the distributional consequences of monetary policy are 'neutral' rather than radically redistributive i believe is politically dangerous, which is what i think we're seeing now, and why ideas like helicopter money are useful correctives and should be actively considered.
posted by kliuless at 9:26 AM on July 18, 2016


The difference, though, is that things are reversed for the bank. When the Fed cuts rates to stimulate the economy, the bank I work for tightens it's belt, when it starts raising rates to keep growth under control, the flood gates open and the bank starts spending.

Which I think highlights why the Fed is just one tool in the economic tool box. While the Fed is doing it's thing, it works MUCH better if the Federal Government can use the other tools. The Fed stimulates the supply side a little (which has an opposite effect on demand for banks and their employees) and the gov't stimulates the demand side with helicopter drops. I'd hope that they were smart about how they did it by investing intelligently rather than just dropping it from the sky (like, upgrading infrastructure) to better support growth later and taking advantage of lower costs to build roads, networks, power grids, etc.

It has seemed to me that the Fed sees a recession and says, "A recession, we know just what to do." "Okay guys, we're all set on our end so now you can take care of the rest of it." And the rest of it either doesn't happen or is a slap-dash pile of shit that sort of maybe works a little (the 2008 stimulus package).

The Fed has been doing it's part, as soon as the clowns that get elected to their jobs get involved, it starts getting pear-shaped.

posted by VTX at 10:19 AM on July 19, 2016


The Need for Expansionary Fiscal Policy
(1) They say that North Atlantic governments cannot afford to spend more to boost their economies via expansionary fiscal policy right now. We point out that current interest rates on Treasury debt are so low low private company would pass up the ability to borrow to stimulate and invest.

(2) They then say that maybe interest-rate will jump up a lot, soon, and thus make borrow to spend to stimulate and invest a bad deal. We point out that financial markets certainly do not expect any such thing. And we points out that, if you are truly worried about longer-run debt sustainability, the standard calculations tell us that debt- and amortization-to-GDP ratios will be lower with aggressive borrow and spend to stimulate and invest policies then with austerity.

(3) They then say that financial markets are irrational and wrong--it interest-rate will go up, will go up soon, and will go up far. We point out that fearful financial markets have been better forecasters then their hopes of imminent normalization every year for the past decade.

(4) They then say: let's ignore those interest rates and pretend they are not telling us anything about the benefits and costs right now of fiscal expansion. We reply: you are economists--economists are supposed to take prices seriously, not throw the information in them away.

(5) They then say: nevertheless, running up the nominal debt through expansionary fiscal policy is somehow risky. We say: do helicopter money, which does not run up the debt.

(6) They then say: but even a half booming economy will take the pressure off of governments and bureaucrats to undertake urgent and important structural reforms. We ask: what evidence can you point to to support any claim that useful structural reform is easier in a low-pressure than in a high-pressure economy.
QE in the future: the central bank's balance sheet in a fiscal crisis - "Analysis of quantitative easing (QE) typically focus on the recent past studying the policy's effectiveness during a financial crisis when nominal interest rates are zero. This paper examines instead the usefulness of QE in a future fiscal crisis, modeled as a situation where the fiscal outlook is inconsistent with both stable inflation and no sovereign default. The crisis can lower welfare through two channels, the first via aggregate demand and nominal rigidities, and the second via contractions in credit and disruption in financial markets. Managing the size and composition of the central bank's balance sheet can interfere with each of these channels, stabilizing inflation and economic activity. The power of QE comes from interest-paying reserves being a special public asset, neither substitutable by currency nor by government debt."

What is the best way to redistribute income? - "The lesson is that policymaking must be holistic; proposals cannot be judged fully in isolation. Sometimes, regressive policies and universal benefits are welcome, even if an unequal income distribution is not. At the same time, it is unrealistic to expect all corrective redistribution to happen through one idealised channel like the EITC, because concentrating redistributive firepower in one area can cause collateral damage to incentives. As usual, economists will do best if they cast their most unworldly assumptions—of whatever variety—aside."

Overcharged: how the finance sector hurts the broader economy
A healthy financial system is one that channels finance to productive investment, helps families save for and finance big expenses such as higher education and retirement, provides products such as insurance to help reduce risk, creates sufficient amounts of useful liquidity, runs an efficient payments mechanism, and generates financial innovations to do all these useful things more cheaply and effectively. All of these functions are crucial to a stable and productive market economy. But after decades of deregulation, the current U.S. financial system has evolved into a highly speculative system that has failed rather spectacularly at performing these critical tasks.

What has this flawed financial system cost the U.S. economy? How much have American families, taxpayers, and businesses been “overcharged” as a result of these questionable financial activities? In this report, we estimate these costs by analyzing three components: (1) rents, or excess profits; (2) misallocation costs, or the price of diverting resources away from non-financial activities; and (3) crisis costs, meaning the cost of the 2008 financial crisis. Adding these together, we estimate that the financial system will impose an excess cost of as much as $22.7 trillion between 1990 and 2023, making finance in its current form a net drag on the American economy.
How Finance Costs Too Much and Fails to Deliver - "The costs of looting by the financial services industry are even more staggering than you probably imagined."
posted by kliuless at 5:32 PM on July 19, 2016 [1 favorite]




A tweak to helicopter money will help the economy take off - "The issuing of Gesell money to consumers should, therefore, be done in parallel with the monetary financing of a public investment programme."

Helicopter money: if not now, when? Give people money to spend, literally - "one could see helicopter drops as shifting net wealth from an institution that does not engage in spending to the private sector, which does... The worst-case scenario is that helicopter money only boosts inflation and not real spending. But as we pointed out yesterday, we are in the paradoxically fortunate situation that greater nominal spending growth is a good thing regardless of whether it is initially the volume or the price of demand that goes up."

Negative rates, helicopter money and the Bank of England - "So if you think the Bank has ruled out negative rates, you are half wrong. In principle the Bank can expand TFS to make borrowing as cheap as it likes, which could even mean negative interest rates for borrowers. If you think the Bank has ruled out helicopter money, you are half wrong. It is creating money to give away with nothing in return, but just giving the money to one particular group: borrowers."

The consequences of cheap money - "Negative yields in the Eurozone are increasingly showing up in corporate bonds. Some investment grade bonds are even yielding less than -40bp (the ECB's cutoff rate). In some ways, this could be viewed as 'helicopter money' because by buying corporate debt and pushing yields into negative territory the central bank allows firms to make money in their interest expense account."

Monetary policy: transparency or obfuscation? - "Wren-Lewis highlights the extent of current confusion in this dissection of the Bank of England's recent decision: the Bank simultaneous jokes about the absurdity of doing helicopter money and announces a variant of it (hidden behind the acronym, TFS). The FT's Martin Sandbu makes a similar point with equivalent incisiveness."

Money is created by banks mostly for the unproductive sectors of our economy - "Banks have two key powers in today's economy – they get to decide: 1) how much money to create, and 2) how this money can be spent."
posted by kliuless at 1:01 AM on August 9, 2016 [1 favorite]




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