A recent article on VOX has prompted more commentary on Helicopter
Money.
In principle, HM
should appeal to anyone who believes that more stimulus is needed. To those of a post-Keynesian mindset, HM is
just expansionary fiscal policy; the fact that it is financed by money rather
than bonds being of secondary importance.
But those that believe fiscal policy is impotent and it all comes down
to monetary policy can view HM as being another monetary tool.
Given that it should appeal to both points of view, it's perhaps
odd that it should cause so much argument.
Yet, as someone whose perspective tends to fall in the former camp, I
find myself strangely irritated by the approach of many in the latter. Where additional stimulus is needed, I think
debt-financed fiscal expansion is best, but I'd still see HM as a pretty good
substitute. So what's the problem?
I think the issue is that portraying HM as monetary policy
looks to me like a pretence and worse, it looks like a rather desperate attempt
to defend the idea that monetary policy is sufficient to regulate demand in the
economy, regardless of what fiscal policy is doing. In my opinion, if we think we need HM, that is an indication that we
have got fiscal policy wrong. Furthermore,
it is an indication that when we get fiscal policy wrong, regular monetary
policy is not capable of providing anything other than a temporary fix. Monetary policy enthusiasts like to think of the
zero lower bound as a special case where regular monetary policy might be
insufficient. However, they fail to
acknowledge that if the fiscal stance is misjudged, attempts by monetary policy
to compensate will inevitably end up at the zero lower bound anyway (see here).
So what I don't like about this debate is the way that it is
used to avoid recognising how important fiscal policy is. Fiscal policy is, on the whole, an unwieldy
tool for day-to-day management, but it is critical that it is used with a view to
its impact on demand, not to managing the public debt. If this is not the case, monetary policy is
stuffed. It might provide a temporary
fix, but only through stoking private sector debt bubbles. The notion that HM may now be beneficial
should be a recognition of this, not an attempt to pretend that monetary
policy is still what it's all about.
