Friday, 23 October 2020

George Selgin is keen as ever to promote private money printing.

He has long argued for private banks to be allowed to create/print money and has also campaigned against letting central banks create money.

His latest effort in this direction is an article entitled “Ground proposals for “Helicopter Money””, published by the Cato Institute. 

His central objection to central bank issued helicopter money in that article is that “…having supplied it, the Fed has no easy means for taking it back.” And thus that  “By making an irreversible addition to the money stock, the Fed credibly commits itself to accept a higher equilibrium inflation rate.”

Well the first flaw in that idea is that the Fed still has a way of combating inflation: raise interest rates. I.e. the Fed can still sell government debt into the market and thus mop up surplus money and raise interest rates. However, what it CAN’T DO is to cut down on the private sectors TOTAL STOCK of paper assets in the form of government liabilities. I.e. it cannot cut down on the SUM OF the private sector’s stock of government debt AND base money (aka reserves). And that’s important because frankly there isn't a bit difference between base money and government debt.

In other words it’s perfectly true, given how responsibilities are currently allotted as between central banks and governments that the Fed can’t do that. But helicoptering involves a VERY DIFFERENT set up which thus requires a different allocation of responsibilities which COULD ENABLE the Fed to “take back”.

Indeed, a system that does in fact enable central banks to “take back” was set out ten years ago by Positive Money, New Economics Foundation and Prof Richard Werner (p.10-11). Plus Bernanke gave his blessing to that sort of PoMo/NEF system.  It really is time Selgin got up to speed on this. 

Under the latter “PoMo/NEF” system, the central bank is allowed to specify how much new money is created (or withdrawn) each year, while POLITICIANS decide exactly what form any extra spending or extra taxes take.

Note that the latter PoMo/NEF system does not strictly speaking advocate helicoptering, if by the latter one means having a central bank create and dish out money to whoever it thinks fit: rather, it involves (to repeat) letting POLITICIANS decide who gets the money.

But that is absolutely correct: the decision as to WHO GETS a windfall is clearly a POLITICAL decision, i.e. not one that a central bank ought to take.

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