Wednesday, 4 May 2016

Bernanke agrees with Positive Money, the NEF and Richard Werner.

In a recent article, Bernanke proposes the idea that when it comes to helicopter money, the central bank should determine the AMOUNT of new money to be created and spent, while democratically elected politicians decide exactly how that money is spent – or whether the spending takes the form of tax cuts.

That split of responsibilities is central to this 2011 work by Positive Money, the New Economics Foundation and Prof Richard Werner.

In fact, as the PM/NEF work points out, the committee which determines the above amount does not necessarily need to be a central bank committee: any committee of independent economists would do.

Incidentally I am grateful to Simon Wren-Lewis for highlighting that Bernanke article.

And finally, the relevant paragraph in Bernanke’s article runs as follows.

So, how could the legislature and the central bank play their appropriate roles in managing a joint monetary-fiscal operation, without endangering central bank independence or falling down a slippery slope of unconstrained monetary finance of fiscal spending or tax cuts? A possible arrangement, set up in advance, might work as follows: Ask Congress to create, by statute, a special Treasury account at the Fed, and to give the Fed (specifically, the Federal Open Market Committee) the sole authority to “fill” the account, perhaps up to some prespecified limit. At almost all times, the account would be empty; the Fed would use its authority to add funds to the account only when the FOMC assessed that an MFFP of specified size was needed to achieve the Fed’s employment and inflation goals. [11] Should the Fed act, under this proposal, the next step would be for the Congress and the Administration—through the usual, but possibly expedited, legislative process—to determine how to spend the funds (for example, on a tax rebate or on public works). Importantly, the Congress and Administration would have the option to leave the funds unspent. If the funds were not used within a specified time, the Fed would be empowered to withdraw them.


P.S. (same day). Under the above system, Nick Rowe seems to think it would be difficult to tell whether government had actually spend the additional money allotted to it. Can’t see the problem myself.

First, government is hardly likely NOT TO SPEND it is it? I mean extra government spending (and/or tax cuts) makes politicians popular. Why on Earth WOULDN’T they spend it?

Second, all you have to do to see if total government spending at the end of the year or quarter is more than the previously planned total.


  1. Was just reading this yesteday from PM website.The Uk has actually done this on a small scale in the past,before EU rules stopped it.It used a "Ways and Means" account;

    1. Well the EU are the experts when it comes to economics, aren't they, as you can tell from the unemployment levels in Greece, Spain, etc...:-)


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