Friday, 11 September 2015
Krugman is catching up with Positive Money and the NEF.
Krugman suggests that printing money and spending it on “stuff” is better than traditional QE, i.e. spending it on buying government debt or other assets held by the private sector. As he puts it:
“What’s remarkable about this record of dubious achievement is that there actually is a surefire way to fight deflation: When you print money, don’t use it to buy assets; use it to buy stuff. That is, run budget deficits paid for with the printing press.”
Just to be accurate (and perhaps pedantic) there’s no reason to confine spending to “stuff”: that is, where SERVICES rather than GOODS seem good value for money, there’s no reason not to buy services. Indeed, the total spent on services in the US is about 50% more than what’s spent on goods, so if services are left out that significantly restricts the amount that can be spent.
Anyway, printing and spending on goods and services is what Positive Money and the New Economics Foundation have long advocated.
Next, Krugman misses out the question as to whether to boost PRIVATE spending or PUBLIC sector spending. That decision, as PM&NEF rightly point out is a POLITICAL decision and should be left to politicians.
That point is a big problem in the US because when it comes to spending decisions, members of Congress spend about a year squabbling before coming to a decision. But that won’t be a problem in several other countries.
Next, Krugman makes the common assumption that “print and spend” should be confined to when the central bank’s freedom to effect more stimulus is limited by low or zero interest rates. That assumption is debatable and is disputed by PM&NEF.
One reason is that it’s hard to see the logic in adjusting JUST ONE form of spending when there is a GENERAL lack of spending / demand. That is, an interest rate change affects just households and firms with variable rate loans and not those with fixed rate loans or no loans at all.
That makes as much sense as doing helicopter drops, but only on households where at least one person is bald, or one person is a Buddhist, or is a football fan.