Wednesday, 7 April 2021

One Fed chairman and one vice Chairman support Positive Money.


 


To be more accurate, one former chairman and one former vice chairman support a particular aspect of the idea put by Ben Dyson (founder of Positive Money) namely that the central bank should decide the SIZE OF the deficit, while politicians continue to be responsible for strictly political decisions, including the NATURE OF the deficit, e.g. whether it takes the form of more public spending or more tax cuts.

The chairman is Ben Bernanke. See para starting “A possible arrangement….” in his Fortune article “Here’s How Ben Bernanke’s Helicopter Money Plan Might Work.”

The former vice chairman is Stanley Fischer.  See article by him and co-authors: “Dealing with the next downturn” published by “The European Money and Finance Forum”.

To be even more accurate, Fischer & Co advocate the latter “fiscal / monetary coordination” policy only where interest rates are so low that there is little more that further interest rate cuts can do. In contrast, Dyson advocated that policy on a PERMANENT basis, with interest rates being determined by market forces: i.e. stimulus under a Dyson system would be implemented ONLY via the latter “coordination” system. But still, the Fischer proposal is support of a sort of the Dyson idea.

For more details on the Dyson proposal, see the book “Modernising Money” by Ben Dyson and Andrew Jackson, or for a shorter summary of their proposals, see a submission to the UK’s “Vickers Commission” by Dyson and co-authors (p.10 onwards).

 

Market forces.

A flaw in the Dyson proposal is that governments nowadays are such HUGE borrowers, that it is arguably a bit meaningless to refer to market forces which allegedly set interest rates unless one also states what government policy on borrowing should be: i.e. government borrowing policy itself influences interest rates.

My answer to that little conundrum is “step forward Modern Monetary Theory with its claim that interest on government debt should ideally be set permanently at zero”. One reason for the permanent or near permanent zero idea (at least as far as I’m concerned) is that any sort of positive return on government debt essentially equals rewarding money hoarders for hoarding money, with a variety of less well-off taxpayers footing the bill for that reward.

Thus if one accepts the permanent zero idea, then Dyson & Co’s idea about market forces becomes irrelevant, and stimulus is implemented just by creating new money and spending it (and/or cutting taxes): which is what Fischer, Bernanke, Dyson and MMT all advocate, though they all have their own variations on that theme.  




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