One of the reasons I am against using helicopter money as a counter-cyclical monetary policy tool is that, once society gets a taste for it used in these circumstances, there will be pressure to use it for acyclical purposes, financing whatever might win an election.
Well, if you think this is concern-trolling [an internet term I only recently realised applied to me], you need look no further than the debate about helicopter money in the UK. The early interventions, in the darker days of the crisis, urged it as a tool to boost aggregate demand and close the output gap, while conventional fiscal policy was constrained.
Now, with the helicopter idea out there again, comes the next step: Corbyn’s ‘People’s QE’, being touted as a means of general deficit financing, pretty much orthogonal to whether it’s actually needed for monetary policy purposes [since no reference is made to the fact that those charged with monetary policy are not voting for more stimulus of any kind].
You can see why. Corbyn is making some expensive promises about ending austerity and renationalising industries. After all the fuss caused by proposals to sell slightly more bonds than the Tories, printing money seems like a corridor of least resistance.
Going further back, you could argue that the first slippage was QE itself.
As the public grappled with the ‘print money, buy assets’ meme, it’s only natural to wonder why if the Bank can buy those sterile old bonds, it can’t buy something more useful for us all. Such worries were alive and well when I was in the Bank of England. And they were not helped by the UK Treasury using the ‘profits’ from these purchases [which one would expect to be reversed later, as assets are sold by the BoE] to reduce its routine borrowing.
This is a small argument in favour of the idea pushed recently by Miles Kimball and Willem Buiter, that institutional reform should be undertaken to remove the zero bound to central bank interest rates, to preserve maximum continuity in monetary policy operations when a large stimulus is needed. Or, in due course, of raising the inflation target. This would not achieve the same flexibility in permitting large stimuli, but it could be got with less institutional innovation, and a smaller risk of a kind of ‘WTF’ moment when the populous grapples with the idea it has to pay someone to borrow their money from them.
Stepping back, the resurgence of helicopter money talk of one sort or another has been one episode amongst many that show the forces arrayed against monetary policy regime stability.
When interest rates were pushed to their natural floors, and inflation was allowed to rise into the 5 per cents, the conservatives thought this an example of outrageous overreach, and/or forecast spiralling inflation. Now, on the other side, we have calls for the authorities to solve our problems by harvesting magic money trees.
So far, the monetary policy regime, held together in the UK at least by slender legislative threads, has stayed intact. That it has is pretty impressive.
One of the things I grasped in my time writing speeches for my betters at the BoE was the idea that monetary stability wasn’t simply a technical matter of the monetary authority figuring out the right interest rate setting, or even the Treasury figuring out the right mandate to hand off to the central bank. It was the endurance of a political consensus about what the means and goals of monetary policy should be.
It often seems like there are a great many who don’t share the same basic understanding of the mechanics and benefits of monetary policy as the economics profession [who knows they may yet be proven right]. So it’s something of a marvel that what I see as basically the right monetary framework has survived despite this lack of understanding.