Sunday, 17 May 2020

Useless article by Megan Green in Prospect Magazine.

I’m new to Prospect Magazine, the magazine which claims to set out “the big ideas that are shaping our world”. I’m not impressed by the first two or three articles which got my attention.

The first is entitled “Can “helicopter money” save the global economy?” and is followed by a sub heading which reads “The time may come for such a programme but it is not today.” The article is by Megan Green.

In her second para, she argues that there is little need for helicopter money because interest rates at an all-time low, thus governments can fund extra spending the usual way: by borrowing. Well the obvious problem there is that extra borrowing, particularly on the very large scale needed to fund Covid related spending, would push up interest rates, which is exactly what is not needed just now!!!

Then she claims that helicopter money may erode central bank independence. That’s in her para which reads as follows - I've put her material in green italics.

“Monetary financing of governments also poses a serious threat to central bank independence. If governments get used to being able to issue debt and sell it to the central bank in order to finance whatever they want, the lines between fiscal and monetary policy will be blurred even more than they already are. Central banks could increasingly come under pressure to run the printing presses for reasons having nothing to do with sound monetary policy.”

Then her next para starts as follows.

“Having central banks distribute helicopter money directly to the private sector is also problematic. Central bankers, who are unelected officials, should not be making decisions about how to distribute money in an economy, creating winners and losers.”

Then her final sentence reads “But now is the right time to consider the theoretical, political and practical challenges of implementing helicopter money, so when a recovery finally does take hold, this mechanism can really help.”

Well Megan Greene clearly doesn’t know this, but Positive Money solved all the problems she refers to above about ten years ago. That is, under Positive Money’s system, technocrats (e.g. some committee like the Monetary Policy Committee at the Bank of England) decide the SIZE of the deficit, while politicians retain control of strictly political matters, like whether the deficit takes the form of tax cuts or public spending increases, and if the latter, whether the money goes to education, health or whatever. And that deals with ALL THE PROBLEMS referred to by Megan Greene above, in particular the “distribution” problem.

As regards “blurring” the distinction between monetary and fiscal policy, why should that be a problem? Under the Positive Money system the distinction between the two is not just “blurred”: monetary and fiscal policy are joined at the hip! And one good reason for doing that is that interest rate adjustments are a very defective method of imparting stimulus. Evidence for that is set out by Positive Money and the New Economics Foundation in this publication.

As for her claim that “Central banks could increasingly come under pressure…”, the answer to that is that central banks are always under pressure from politicians. All we can do is set up a series of rules that clearly distinguish between the responsibilities of central banks and politicians; then if politicians ride roughshod over those rules, then at least we can all see what’s happening, and vote relevant politicians out of office at the next election if we so wish.

Moreover, even though interest rate adjustments are a defective tool, there’d be nothing wrong with central banks RETAINING the right to raise interest rates so that given a serious breakdown in relationships between a central bank and government, the central bank could at least cock a snoop at government by raising interest rates.

Seems Megan Greene isn't quite up to speed on this issue. And as for Prospect Magazine’s attempts to extract money from me and others to read their stuff, they’re joking, aren’t they?

Incidentally, Megan Green will play a prominent role in a webinar in two day’s time (on the 20th May) in which another incompetent, Ann Pettifor, will play a leading role. (See top of the left hand column of this blog if you’re interested in Ann Pettifor’s blunders.)

So I look forward to a truly glorious display of nonsense – or perhaps the latter two will redeem themselves.

P.S. (18th May 2020). That Megan Green is a pro-austerity incompetent perhaps shouldn’t be surprise, given that she hails from Harvard, which itself is a hot-bed of pro austerity incompetents: e.g. Kenneth Rogoff, Carmen Reinhart and Alberto Allesina.


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