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Anatole Kaletsky: A breakthrough speech on monetary policy (Reuters, February 7, 2013)
Wednesday night may have marked the "emperor's new clothes" moment of the Great Recession, in which the world suddenly realizes its rulers are suffering from a delusion that doesn't have to be humored. That delusion today is economic fatalism: the idea that nothing can be done to break the paralysis in the global economy and therefore that a "new normal" of mass unemployment and declining living standards is inevitable for years or decades to come.

That such economic fatalism is nonsensical is the key message of a truly historic speech delivered on Wednesday by Adair Turner, chairman of Britain's Financial Services Authority and one of the most influential financial policymakers in the world. Turner argues that a virtually surefire method of stimulating economic activity exists today and that politicians and central bankers can no longer treat it as taboo: Newly created money should be handed out to the citizens or governments of countries that are mired in stagnation and such monetary financing of tax cuts or government spending should continue until economic activity revives.

The idea of distributing free money to end deep recessions has been promoted theoretically by serious economists since the 1930s, when it was one of the few practical policies that Keynesians and monetarists agreed on. John Maynard Keynes proposed burying money in disused coal mines to be dug up by unemployed workers, while Milton Friedman suggested dropping money out of helicopters for citizens to pick up. Friedman also argued in a 1948 paper that governments should rely solely on printed money to finance their regular cyclical deficits. More recently, as conventional policies to revive growth have faltered, with widespread disappointment about the impact of zero interest rates and quantitative easing, proposals for distributing money directly to citizens have been quietly gaining traction among critics of orthodox central banks. I discussed this trend, sometimes described as "quantitative easing for the people," in several columns last year.



I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Fri Feb 8th, 2013 at 04:15:36 AM EST
[ Parent ]
The first comment predictably says "OMG Weimar".
I believe the answer to this is "Zero Lower Bound"?
(Or "Liquidity Trap".)

Here's Krugman

From the very beginning of the Lesser Depression, the central principle for understanding macroeconomic policy has been that everything is different when you're in a liquidity trap. In particular, the whole case for fiscal stimulus and against austerity rests on the proposition that with interest rates up against the zero lower bound, the central bank can neither achieve full employment on its own nor offset the contractionary effect of spending cuts or tax hikes.
[...] clearly, there's something about the notion that the rules for policy depend on the situation that some economists just don't want to understand.

by Number 6 on Fri Feb 8th, 2013 at 06:38:05 AM EST
[ Parent ]
Much of that is good but...

"John Maynard Keynes proposed burying money in disused coal mines to be dug up by unemployed workers"

... I wish he did not help propagate that meme. Keynes was sarcastic there, showing how the goldbugs made no sense. He certainly proposed infrastructure spending as a better way to give newly created money to the unemployed.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Sat Feb 9th, 2013 at 04:13:13 AM EST
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