WHY HELICOPTER MONEY IS BETTER THAN FED EASING
The term “helicopter money” has been used to suggest direct cash subsidies to the population as a possible method of monetary stimulus.
It was s sardonically suggested as an alternative to Quantitative Easing (“QE”), as it is currently practiced through bank and institutional monetary mechanisms.
QE is not even achieving the dubious and policy objectives set forth as its rationale, i.e. economic stimulus and moderate inflation.
What QE has accomplished in the larger economy is the creation of enormous asset price inflation in stocks, bonds, and real estate.
These are the best channels of utilization for the bank intermediaries and individuals who benefit from the specific implementation of QE as it has been attempted.
Because of this, traditional models of money velocity are being invalidated. The available currency units to shore of their individual and corporate balance sheets.
On the contrary, the velocity of money is at record lows. The monetary stimulus is going into the asset bubbles, or is being used to deleverage debt or improve balance sheets.
As a result, the “multiplier effect” of the stimulus is going down. The currency is not finding its way into the “real” economy.
I am against expansion of government interference and domination in our economic lives;
I am against further expansion of wealth transfers and social programs;
and I believe that Quantitative Easing is a policy failure.
But nonetheless, I submit that “helicopter money”, a direct currency subsidy to individuals, would be a more effective way of achieving those dubious policies that are the impetus behind QE.
For one thing, if the distribution of the subsidy is “democratic”, most of the subsidy will wind up being spent immediately, because 40% of the American population is tapped out financially.
This sector will surely spend the currency immediately. The currency will have high velocity through the economy, in contrast to current stimulus techniques.
Another argument for “helicopter money” is that the subsidy is finite and measurable.
This is in contrast to current methods of stimulus, which have uncertain results and are difficult to measure.
A third consideration is that the policy will be consistent with the wishes of the democratic majority,
who will find a wide welfare subsidy to the populace as desireable, and even “fair” and “equitable”.
In fact, a policy of “helicopter money” is only a shift of a government subsidy from banks and the interest groups able to benefit from low rates,
to the general populace who are currently unable to benefit from Fed policies.
In the end, both policies are inflationary, and therefore they are a tax on wealth.
Either policy debases the currency and enlarges the footprint of government on our society.
Both policy alternatives are misguided.I find them both repulsive.
They are both welfare with different groups receiving the benefits.
But current Fed policy has the additional disadvantage of having been proven ineffective.
America being as it is, I suppose we will “compromise” by having some element of both current Fed policy,
and a more “democratic” mechanism of “helicopter money”.
So we will likely get the worst of both worlds.
Everyday goods and services will then become inflated like stocks, bonds, and real estate,
and the government will achieve its objective of inflation.
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