Thursday, 4 September 2014

US Council on Foreign Relations versus Positive Money.




An article published by the CFR argues for helicopter drops and to have them actually carried out by central banks. An alternative, advocated by Positive Money and others, is to have the state create helicopter money, but have GOVERNMENT disburse it via the normal public spending programs, or via tax cuts or whatever combination of the two the government of the day wants. (The ACTUAL AMOUNT of heli money under PM’s system would be decided by a committee of independent economists, which PM calls the “Money Creation Committee”).
So which is better: the CFR proposal or PM’s? The answer is PM’s and for the following reasons.
Having the central bank dole out money to households is POLITICAL in that it boosts private spending and not public spending. Now if GDP is already being split say 50:50 as between public and private spending, it’s a reasonable assumption that the electorate and government of the day will want any ADDITIONAL spending split in that ratio. And under PM’s system, the government of the day has the option of  doing that.
Also, in the event of inflation rearing it’s ugly head and it being necessary to withdraw heli money, how is the central bank going to do that? Does it set up a tax system that runs alongside the existing tax system? The cost of that duplication of effort makes the mind boggle.
Come to that, even having the central bank DISBURSE heli money involves a bit of duplication of effort in that government ALREADY dishes out money to households in various ways, depending on the country involved: state pensions, unemployment benefits, etc.
Conclusion: game set and match to PM and it’s Money Creation Committee.


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