The Case for People's Quantitative Easing

Last night, the Resolution Foundation hosted a debate to launch my book, "The Case for People's Quantitative Easing". A great panel consisting of Jagjit Chadha, Director of NIESR; Fran Boait, Executive Director of Positive Money; and James Smith, Research Director of the Resolution Foundation, debated my ideas with immense verve, ably moderated by Torsten Bell, Chief Executive of the Resolution Foundation. You can watch the debate here.

In 2008, QE did a great job of supporting asset prices and preventing the disastrous deflationary spiral of the 1930s. But since then, enormous quantities of asset purchases by central banks around the world have proved unable to raise aggregate demand and kickstart growth.

Although central banks didn't do a bad job in the last recession, many of the tools they used won't work in the next one, not least because the legacy of the tools themselves has not yet dissipated. Interest rates are on the floor, central bank balance sheets are enormous, and the private sector is still weighed down with debt. When the next recession hits, central banks will need more radical tools to support aggregate demand.

"Helicopter money" - distributing money to ordinary people - would provide a more effective short-term aggregate demand stimulus than QE, without its unfortunate distributional consequences. And governments can, by taking advantage of central banks' ability to support asset prices, invest in their economies to restore growth and rebalance the economy over the longer term.

But to make it work, governments and central banks need to cooperate. No monetary stimulus can be effective if the government is determinedly extracting money from the private sector as fast as the central bank is pouring it in. This raises questions about the relative responsibilities of central bank and Treasury, the limits of monetary policy, and the democratic and institutional framework within which aggregate demand management must work. When fiscal and monetary policy are blurred, can there really be effective separation of central bank and Treasury?

The book also discusses longer-term use of "people's QE" to support government efforts to address the triple challenges of climate change, an ageing population, and automation.

"The Case For People's Quantitative Easing" is currently available for readers in the UK and Europe - Amazon link is here. It will be released in the U.S. in September.

Comments

  1. I share your concerns about the efficacy of now conventional tools (including credit guidance, Q.E etc.) but think that people's Q.E. is operationally difficult. My preference is for strong auto stabilisers and discretionary fiscal policy.

    Small amounts of PQE can provide powerful stimulus but using it in large quantities risks trapping the CB at 0 for a sustained period. The only way out of this trap is for the government to recapitalise the CB which brings its own unique problems and also ends up being observationally and functionally equivalent to Q.E. Therefore only small doses of PQE are desirable.

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    1. I can't see what's wrong with "0 for sustained period" (by which I assume you mean a zero interest rate). Warren Mosler advocates a permanent zero rate. I agree with him. Anything higher effectively equals rewarding people for hoarding base money, which equals rewarding people for hoarding wads of £10 notes under their matresses.

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    2. The problem is that monetary policy could no longer be used to stabilise the economy for an extended period of time. The consensus is that monetary policy is superior to fiscal for stabilisation in normal times.

      Asking a central bank to perform a helicopter drop, unless it is calibrated carefully while taking into account the central bank's solvency, is a bit like asking a turkey to vote for Christmas.

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    3. Re the alleged consensus that monetary policy is superior to fiscal, opinions vary widely on that. Simon Wren-Lewis makes that claim, on the other hand Willem Buiter said the other day that monetary policy is a farce. Richard Werner and the New Economics Foundation have claimed likewise.

      Re "central bank solvency" I suggest there is no such thing. A central bank is a department of the state which issues units called "pounds", "dollars" or whatever, which are widely accepted as currency. If you count that currency as a liability of the CB, then central banks are in a state of permanent bankruptcy / insolvency. But there's been plenty of debate as to exactly in what sense base money is a genuine liability of a CB. Warren Mosler summed it up nicely when he said that CBs are like umpires in a tennis match: they issue points which are an asset as veiwed by players, but are not a liability as viewed by the umpire.

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    4. I did not say that agreement is unanimous on fiscal/monetary superiority, but there is a consensus amongst policymakers. It is even Labour party policy. And fair enough Ralph. Solvency is an accounting construct (assets>liabilities). If the central bank creates liabilities without purchasing an asset then it is, at the very least, insolvent in an accounting sense. This does not undermine its ability to create new money but it does impair its ability to control inflation in the future.

      Helicopter drops are technically feasible, my issue is that proponents don't seem to consider all the costs and benefits, nor do they really think through the practicalities of implementation (e.g. how does a helicopter drop interact with fractional reserve banks?)

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    5. Anonymous,

      As Ralph knows, I consider the costs and benefits in some detail in the book. I discuss the control of inflation and the solvency of the central bank at length. And I also examine the practicalities of implementation, including the role of commercial banks.

      The point of this post is to encourage you to read the book.

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  2. If distributing money to ordinary people is your solution to kick-starting growth why not just simply reduce taxation?

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    1. Tax reductions involve an inter-temporal trade-off by increasing future tax liabilities. If correctly calibrated, P.Q.E involves no such inter-temporal trade-off and is actually positive sum for current and future generations. Tax reductions are also harder to reverse politically (in full) than P.Q.E.

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    2. I don't see why handing out money to the private sector in the form of tax cuts NECESSARILY means that hand out has to be recouped at a later date. Whether taxes are raised at a later date depends ENTIRELY on circumstances at the time. E.g. if there's a recession in five years time, raising taxes in five years time would be mad. On the other hand if demand and inflation were excessive in five years time, then raising taxes would make sense.

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  5. Congratulations! Giving money to poor people is a really good idea! In fact, I published a book about it in 2018 and argued for it in comments here on your blog. You and many others ridiculed the idea. What happened? The name of the book is Faction-Free Democracy. The money is given to all of the people, not just the poor, and is called: "Social Security Lifetime Stipend," and it comes in the amount of $36,000 per year per citizen from birth to death, payable in monthly installments of $3,000. In addition, the new system, called "Democrato-Capitalism" takes care of the perennial problem of the "stacked deck" in favor of the wealthy Wall-Street denizens. The plan also changes the Supreme Court, abolishes the Senate, and does away with elections for the House of Representatives. The entire system is based on the good ideas found in the democracy of ancient Athens. The federal system is changed to prevent the states from passing unconstitutional acts. This is what James Madison, the Father of the Constitution, proposed prior to, and during, the constitutional convention. He lost and the people have suffered ever since.

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  6. Frances, I would be interested in your thoughts on the implications of PQE on the solvency of the central bank and what impact this has on the central bank's ability to hit its inflation target? I find discussions on PQE fail to acknowledge central bank solvency (is this intentional or do its proponents just not have a full understanding of how central banks control the short term interest rate?). I know that in the past you have argued that CB insolvency is not a concern (e.g. Chile) but I would note that there are limits to this argument.

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    1. I discuss the question of central bank solvency at length in the book, so I'm sure you appreciate that I am not going to answer your question here.

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    2. Thanks for your response. I will definitely give it a read!

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  8. I read the book. I fully support the basic thrust of the book. Frances says above "This raises questions about the relative responsibilities of central bank and Treasury, the limits of monetary policy, and the democratic and institutional framework within which aggregate demand management must work. When fiscal and monetary policy are blurred, can there really be effective separation of central bank and Treasury?"

    Can I suggest that Positive Money set out the solution to that one some time ago? Their suggestion is that some committee of economists (which CAN BE based at the central bank, but doesn't actually need to be) decides the amount of money to create each year, while politicians retain the right (quite rightly) to take strictly POLITICAL decisions, like what % of GDP is allocated to public spending, and how that is split between education, the NHS, etc.

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  9. Hi Frances, I wanted to send you a brief message to tell you how much I enjoy your work. You are one writer in particular who consistently makes me think more deeply about things, and your ability to relate a wide range of topics and interests (not just banking) is really admirable. I was going to ask if there is any book or books you would recommend in the finance/banking space, but I see you've just released your own book! So my question now is whether it might be possible to get a signed copy shipped to Australia. Regards, Gordon

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    1. Gordon, if you let me know where to send it, I can arrange to have a copy shipped to you.

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    3. Hi Gordon, probably easiest to pay by Paypal.
      If you email me at frances@coppolacomment.com I will send you instructions (this email doesn't give access to my Paypal account).

      I've removed the content of your previous comment to protect you as it contained your personal information.

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  10. What would be the book entries for you "helicopter money"?

    I.e. if you are talking about credit means of payment, who would book the corresponding liability?

    If central banks would hand out notes as presents, for example, it would reduce their net worth and increase the recipient's net worth (net zero for economy as a whole). Or are you talking about "helicopter money" without any corresponding liability?

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  11. I entirely agree with proposal and effects of QE for the people. Gave talk in Brussels at the Progressive Economy Forum in 2014, "Resolving unemployment", see (.ppt) https://biblio.ugent.be/publication/4326738 ; and (text) https://biblio.ugent.be/publication/4356892 Frank Roels, em. professor U.Gent.

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  12. Hello. Tried to buy your book for a story I am writing for this week, but could not find it on Kindle. Any way I can get soonest?

    Tx
    Kevin Davie
    Business Editor
    Mail & Guardian
    Johannesburg

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    1. Hi Kevin, I've asked my publisher to send you a pdf copy.

      Best
      Frances

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    3. Frances, I've just ordered your book as I've found your twitter feed and blogs extremely informative and seemingly rational, educational in a sphere I find highly irrational. My only recommendation is to allow for a kindle version. I wanted to get your thoughts on the balance of incentives, human motivation, drive and creativity in a socioeconomic system that allows for Maslow's basic needs to be served as a basic human right. What happens to competition and collaboration, ingenuity and the principles of hard work ! Look forward to read the book.

      Book arrived and I started reading. So far so good ! Thank you for writing it.

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