Wednesday, October 22, 2014

Helicopter Money in the Midst of a PLOG

Mark Thoma and his readings have pulled together a nice collection of writing on a concept known as “helicopter money”. To be honest, as I read all the links I decided to fire off my own comment which needs a little refining. My opening line is simple:
Helicopter money means using fiscal stimulus with easy money to overcome one awful shortage of aggregate demand noting the following well established ideas.
PLOG is a Paul Krugman term for prolonged large output gap, which has been the current situation since 2008. This period has also been described as a liquidity trap where fiscal stimulus is clearly needed as traditional monetary policy has done all it can do and we still are in a PLOG. This naturally leads to my first well established proposition: We should be using fiscal policy that maximizes the bang for the buck. Which leads me to the rest of my rant:
(1) Transfer payments for the poor does so by giving income to people most likely to spend it; (2) Payments to the rich or tax cuts for the rich have no bang but a lot of bucks (Barro-Ricardian equivalence); (3) We could this with public infrastructure investments; (4) The Republican dorks running Congress are trying to cut (1) and (3) while emphasizing more of (2); which is why (5) We need to take fiscal policy out of the hands of these Republican dorks who run Congress.

4 comments:

Unknown said...

Wont fiscal and monetary cooperation undermine central bank independance? Wont the republicans be running fiscal and monetary next time they are in if we start ti turn the fed into a fiscal servant?

paine said...

Very concise


Congressional control of macro policy
is an Optimal upper most
strategic objective

But the people at large need to understand
The possible range of macro action
Whether to close trade gaps or rapidly close PLOGs

paine said...

Unknown

Control of congress by the job people of amerikan
Is a possible task

But control of the fed will remain effectively...
in wall street hands
Until ...congress is ...totally ...
out of Wall Streets hands

BadTux said...

The problem is we haven't really tried helicopter money. We've tried Brinks truck money -- back up Brinks trucks to the doorways of the already-wealthy and shower money upon them -- but not helicopter money -- dropping tens of thousands of dollars into the pockets of every single man, woman, and child in America via mailing them a bundle of $100 bills.

The common gripe against helicopter money is that in an economic downturn people do not have propensity to spend, so it will become lumpy mattress stuffing instead. Fiscal policy, on the other hand, is typically lauded because it forces people to spend the money they receive -- the bridge contractor has to spend money on salaries and steel, the steel foundry has to spend money on salaries and coke and limestone and iron ore, and so forth. That is a valid argument. It is one that falls flat on its face though when you're talking about #1, which is little different from a helicopter drop of $100 bills over the 4th Ward of Houston in terms of its economic effect.