A lot of the discussion of helicopter money is about macroeconomic
mechanisms, which is of course fair enough and - for me at least -
interesting. But helicopter money, because it is quite like fiscal
policy, also raises ethical issues, and these are taken up in a
recent post
by Jeremy Stangroom. It is this and related issues that I want to
talk about here.
To avoid distractions, let’s focus on a specific type of helicopter
money (HM). The state sets up a distribution mechanism (the flight
path of the helicopter, if you like) which the central bank is
mandated to use if interest rates are in danger of hitting the zero
lower bound, and it judges that without using this mechanism it will
probably undershoot its inflation target. If at some later date the
central bank finds that it is danger of becoming ‘policy
insolvent’, the government agrees to recapitalise it. Thus
there is no question of abandoning the inflation target in the
distant future: HM is being used to avoid undershooting the inflation
target in the near future.
This policy is close to being identical to a reverse poll tax. The
key difference is that, unlike an actual government cash transfer
that is debt financed and therefore appears to be almost surely
matched by some tax increase or equivalent later, with HM the future
tax increase may or may not happen, depending on whether the central
bank does or does not need recapitalising.
The other key difference between HM and a reverse poll tax is that HM
is initiated by the central bank. This encounters a form of
the ‘no taxation without representation’ argument:
redistributions should be made by the democratically elected government. However in the case of HM, the distribution mechanism is set
up and endorsed by the government. Many distribution mechanisms are possible, and which is used is the government's choice. The
only qualification is that the mechanism has to have a powerful,
immediate and reasonably predictable impact on aggregate demand.
(Paying for infrastructure investment could only be on this list of
potential uses for HM if the investment could be immediate, and not
just substituting for investment the government would have undertaken
anyway.)
Thus HM is still government sanctioned. In addition the circumstances in
which HM would be used are limited and precisely described, and the
agent making these decisions - the central bank - should be
accountable to the government. Of course many government agencies already
make decisions that have huge impacts on particular individuals: in
the case of the UK, NICE for example.
An additional argument that I together with Mark
Blyth
and
Eric
Lonergan
have made is that conventional monetary policy also involves
redistributions between savers and borrowers. Here Jeremy
Stangroom makes a
good point: savers and borrowers undertook their debt contracts
knowing that interest rates could well rise or fall. In contrast, no
one has contracted for helicopter money.
However I think there is an additional point to be made here. Savers
and borrowers generally take out nominal debt contracts, and so they
will be affected by movements in inflation. They may well undertake
these debt contracts in the expectation that inflation will average
the central bank’s inflation target. HM money is a way for the
central bank to ensure this expectation is fulfilled.
I also think it is always important to discuss HM in comparative
terms, and in particular thinking about it as an alternative to QE.
Indeed I think this should become mandatory in discussing HM: after
all most people who propose it do so because they think it does the
same job QE is meant to do but better. To the extent that the central
bank makes a loss on QE (and if QE is temporary they really could
make a loss, which is why the Bank of England got the government to
cover these losses), it involves given newly created money away. In
this case the beneficiaries are
those
who sold their government debt to the central bank and then
subsequently bought it back at a profit. It is not clear that most
people would regard those profits gifted by an arm of the state as a
just desert. [1]
I think at the end of the day the ethical issue does all come down to
the extent that the government can delegate decisions which have
distributional impacts on the population. After all, the relevant
budget constraint from the private sector’s point of view is the
consolidated public sector which includes the central bank. Newly
created money has to go to someone. Absent QE the profits the central
bank makes are returned to the government. With QE, there is a good chance
that the central bank may be transferring this money to the financial sector.
With HM, money goes to the public. HM has not been called ‘QE for
the people’ for no reason. Arguably the state provides too much
support to the financial sector as it is, even without QE.
[1] QE is not about
buying assets to make a profit. The central bank buys existing
government debt when it is expensive, because QE only happens when
actual and expected short rates are low, and then sells it back to
the market when short rates are higher (QE is expected to be unwound
after short rates rise). This saves the government money on interest
payments but also involves a capital loss.
