Abandon
helicopters. Use bombers. Bomb Germany, France, Italy, Greece, the entire eurozone. Bomb them with banknotes, cash,
anything to boost demand. The money must go straight to households, not to banks. Banks have had their day and miserably failed to spend. From now on they get nothing.
Five years after the financial crash it is nearly unbelievable that the eurozone’s lords and masters now confront renewed recession. They seem inert before deflation, subflation, lowflation or whatever lets them avoid the word “scandal”. An ever more dominant Germany is unmoved. Its finance minister, Wolfgang Schauble, is set on “black zero” or a balanced German budget.
The European Central Bank (ECB) murmurs about “quantitative easing” but is up against Germany’s furious protests. Ten per cent of the eurozone’s workforce is unemployed and one in five of its young. Greece has lost a quarter of its national product. The waste of resources is staggering.
At the heart of this tragedy stands the absurd figure of the new EU president, Jean-Claude Juncker, impresario of Luxembourg’s outrageous tax-evasion oasis. Yesterday he proposed a €21bn European fund which, he claimed implausibly, would entice private backers to invest “up to” 15 times the sum. Who will invest when there is no demand? The pope rightly called the EU “elderly and haggard”, mistrusted, insensitive and bureaucratic. I doubt if Juncker turned a hair.
Ever since the credit crunch the continent has been suffering what Keynes called a classic
liquidity trap. There is too little money around and thus a chronic shortage of demand. People have too little to spend, which means shops close, supplies dry up and no one invests.
Britain and the US supposedly met this challenge by “printing money”, by quantitative easing (QE). This was a confidence trick. It claimed to release money “into the economy” to stimulate borrowing and thus spending. It merely channelled billions into bank vaults and boosted reserves. What did spill into the economy went to stock market inflation and obscene bonuses. In Britain it also leaked into the mad world of sub-prime housing subsidies. Otherwise, demand has remained dangerously sluggish.
What saved Britain was George Osborne not practising what he preached. He borrowed and spent like a crazed Labour chancellor. Borrowing has risen, not fallen, and this year is 10% up on last year. Public spending is still higher than in 2010, welfare payments are up, mega-projects are booming; only hated local government is down. To Osborne, austerity is for the small guy – and a gullible media.
The eurozone has no such luck. Germany continues to defy the two great minds of 20th-century economics, Keynes and Friedman. They clashed on much but agreed on the need to “loosen” money supply to avert recession. Keynes buried it in the ground and had the poor dig it up. Friedman more generously dropped it from helicopters.
Such methods have long been ridiculed as vulgar by conventional economists and politicians.To them economics is a branch of ethics. Monetary policy should punish the poor for its extravagance in booms, not “reward” the undeserving. Any money going should be channelled through the welfare state or the great and good banks.
Yet versions of helicopter money (HM) are now emerging into public debate. The essence of HM is not to boost government spending – and thus challenge “budgetary austerity” – but to print money off-budget to avert deflation. It is like giving blood to a shattered body: without it, all other remedies are a waste of time.
Such “neo-monetarism” is aired by the Financial Times’s Martin Wolf in his new and exhaustive study of the credit crunch, Shifts and Shocks. He suggests “permanent helicopter money”, with government deficits simply covered by printing presses unless and until inflation returns. It has been
discussed sympathetically by Tim Congdon, by the Americans Mark Blyth and Eric Lonergan in the magazine Foreign Affairs, and
by the former City regulator, Lord Turner.
All challenge the conventional wisdom of bank-led reflation.
John Muellbauer, professor of economics at Oxford, champions “QE for the people”. He points out that, as existing policies to revive Europe’s growth have faltered, “proposals for distributing money directly to citizens have been quietly gaining traction among critics of orthodox central banks.”
The commentator Anatole Kaletsky points out that if the £375bn of QE had gone to private bank accounts rather than to buying bonds from banks,
it would have meant £24,000 per British family. This would have transformed the demand economy.
To have government simply depositing cash in cashpoints or handing out spending vouchers at post offices might seem eccentric. But this has been done in Japan, China, Vietnam and Taiwan, where cash and vouchers have yielded swift spending surges. HM has been adopted by aid organisations including Give Directly in Africa, sometimes tied to school attendance. Brazil and Mexico have likewise “dropped” cash on poor communities. All these schemes were declared resounding successes. The west’s brief flirtation with HM through car scrappage schemes is credited with having saved the US car industry.
Why are policies considered suitable for developing societies not relevant to Europe? The answer, I believe, is not intellectual or political but rather a matter of class. Just to print money and hand it out leaves people vulnerable to “moral hazard”. People should not get cash they have not deserved. If demand is to be stimulated with cash, it should be through someone responsible, like a banker. If the banker in effect “steals” the money, too bad.
