Friday, 25 July 2014

Everyone is moving in a Positive Money direction.

David Beckworth has what he thinks is a great new idea, namely and to quote (his words are in blue):
That the Fed and Treasury “sign an agreement that should a liquidity trap emerge anyhow [say due to central bank incompetence] and knock NGDP off its targeted path, they would then quickly work together to implement a helicopter drop. The Fed would provide the funding and the Treasury Department would provide the logistical support to deliver the funds to households.”
Wow: combining fiscal and monetary policy – exactly what Positive Money advocates. But it gets better:
Simon Wren-Lewis and Jonathan Portes agree with David Beckworth.
However, there are two differences  between  Beckworth / Wren / Portes (BWP) and Positive Money. One is that BWP advocate the combining monetary and fiscal policy ONLY when interest rates are near zero. Wren-Lewis’s reason, as I understand it, is that PURE monetary policy is better for adjusting demand when rates are well above zero. Frankly I’m baffled. I set out a string of reasons here for thinking that interest rate adjustments are a poor way of influencing demand. Plus Positive Money and co-authors set out further reasons here.
Second, BWP want their “fiscal plus monetary at the zero bound” policy to take the form ONLY of feeding money into private sector pockets so as to boost private sector spending. My answer to that is: what about the public sector?
If the electorate has voted to split GDP in some specific ratio (which is actually what the electorate does at election time) it is not very democratic to then boost JUST ONE SECTOR when stimulus is needed.
So to summarise, and to be thoroughly patronising, it’s good to see some of the world’s leading economists stumbling their way in the direction of the policies advocated by lil old Positive Money. If the above economists could just drop the above two erroneous elements in their proposals, then they’d have adopted PM policy lock stock and barrel.
Incidentally, and this is hilarious, Positive Money is often accused of being “undemocratic” in that PM advocates that a committee of economists decide what stimulus should be implemented from time to time. E.g. see the attacks on PM policy in the comments after this article by Frances Coppla. The latter attacks are of course nonsense in that it’s perfectly normal for  “undemocratic” committees (e.g. the Bank of England Monetary Policy Committee in the UK) to determine stimulus, or have a big say in stimulus.  Thus the allegedly undemocratic nature of the committee that would determine stimulus under PM’s system is just as much a characteristic of committees like the BoE MPC. Ergo, if PM’s committee IS undemocratic, that’s not a reason to criticise PM’s system.
At any rate, if it’s “undemocratic” that the latter numpy critics of PM want, I suggest they re-direct their fire towards the Beckworth / Wren-Lewis / Portes lot: the latter are clearly much more undemocratic than PM.


  1. Two linguistic confusions in this post:
    1. MMT regards a helicopter drop as purely fiscal policy, NOT co-ordinated monetary policy and fiscal policy.
    Scott Fullwiller explains :"helicopter drops of money raise the net financial assets (via income increases) of the non-government sector, which is exactly what fiscal policy does but not what monetary policy does."

    2. If economists advocate Keynesian fiscal policy it is simply ludicrous, NOT "patronising", to describe them as "stumbling their way in the direction of the policies advocated by lil old Positive Money".

    1. Strangely enough I stumbled across that article by Scott Fullwiler myself a few days ago. It’s quality stuff. I suspect there is a flaw in it, but haven’t worked where the flaw is, if there is one. I actually left a comment after Beckworth’s article earlier today drawing attention to Scott’s article.

      I’ll certainly go thru Scott’s article in the coming days and try to work out if I need to adjust the ideas I expressed above.


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