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August 09, 2012 4:15 PM Free Money for the People!

By Ryan Cooper

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Via Atrios, I see that the idea of just printing money and handing it out is gaining some elite traction. Here’s Anatole Kaletsky in Reuters:

Last week I discussed in this column the idea that the vast amounts of money created by central banks and distributed for free to banks and bond funds - equivalent to $6,000 per man, woman and child in America and £6,500 in Britain - should instead be given directly to citizens, who could spend or save it as they pleased. I return to this theme so soon because radical ideas about monetary policy suddenly seem to be gaining traction. Some of the world’s most powerful central bankers - Mario Draghi of the European Central Bank last Thursday, Eric Rosengren of the Boston Fed on Monday and Mervyn King of the Bank of England this Wednesday - are starting to admit that the present approach to creating money, known as quantitative easing, is failing to generate economic growth. Previously taboo ideas can suddenly be mentioned.

The nice thing about this is it wouldn’t rely on some second-order effects through the expectation channel. With a big cash windfall a major fraction of the population are sure to spend it or use it to pay down some debt. When you’re in a depression, as we are, that’s just what the doctor ordered. This is as opposed to normal quantitative easing, which relies on pushing on the economy through the rotten banking system. Like a sponge, the banks absorb most of the money before it seeps out into the real economy.

Probably the biggest obstacle with this is how ridiculous it sounds. “The money has to come from somewhere,” people say. Actually, no it doesn’t. That’s the whole idea behind fiat money. Nothing behind it. “It’ll create hyperinflation,” conservatives will say. Nope. Right now we’re in a depression: we have very low inflation from too few people with jobs and money buying not enough goods and services to run the economy at potential.

Therefore, more spending will just pull in more idle people and resources. Only when the economy is at capacity is serious inflation a possibility. If it starts to happen, the Fed can easily act to restrain it.

The least convincing counterargument is the moral hazard one. “Can’t give people free money,” people say, “otherwise they’ll lose their moral fiber. Success must be earned.” I suppose all other things equal that’s the case, but that argument sure didn’t stop the Treasury from stuffing $700 billion down the rotting throats of the banks back in 2008, and it hasn’t stopped the Fed from stuffing God knows how many more trillions in cheap loans after it.

Again, I agree that moral hazard should be a consideration, especially for the richest and most powerful people and corporations, but we recognize in a crisis sometimes it’s more important to keep the system from collapsing than make sure every person gets exactly what she deserves. When we had a banking crisis, everyone agreed on this. Elites everywhere panicked, and swooped in with “incredible speed and force to bail out the financial sectors in which creditors are invested, trampling over prior norms and laws as necessary.” We’re now in the fourth year of an unemployment crisis, and it’s high time we found some similar urgency.

Nothing I haven’t said before, and still probably little chance of happening, but here’s hoping. Regular people could use a bailout every bit as much, if not more, than wealthy elites.

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Ryan Cooper is a National Correspondent at The Week, and a former web editor of the Washington Monthly. Find him on Twitter: @ryanlcooper

Comments

  • martin on August 09, 2012 5:52 PM:

    The least convincing counterargument is the moral hazard one. “Can’t give people free money,” people say, “otherwise they’ll lose their moral fiber.

    Well, as the Tea Party types like to say, "It's OUR Money" so let's see them put it where their mouths are.

  • Joe Friday on August 09, 2012 5:54 PM:

    "With a big cash windfall a major fraction of the population are sure to spend it or use it to pay down some debt. When you're in a depression, as we are, that's just what the doctor ordered."

    Actually not.

    The Chimpy Bush administration tried this. Remember the "stimulus checks" they mailed out ? The vast overwhelming majority of Americans either saved it, used it to pay down debt, or use it to buy routine things they were already going to buy (mostly higher energy bills at that time).

    None of it was stimulative.

    There's nothing wrong with giving people money, it just has to be incentivized. In other words, here's a voucher, but it's only valid if you use to buy a new car, or major appliances, etc.

  • J. Michael Neal on August 09, 2012 6:01 PM:

    I would find the moral hazard argument, that you can't reward people unless they work hard for success, a lot more convincing if the system did a better job of making sure that hard work gets rewarded.

  • Ron Byers on August 09, 2012 6:13 PM:

    A real problem is our high level of productivity. Since the 19902 fewer and fewer people, using greater and more efficient technology, are able to produce far more goods than the remaining workers can purchase. We need more well funded consumers. During the early years of this century the real estate bubble put money in the pockets of people were not earning enough money from their jobs to support our collective lifestyle. When the bubble burst, that money went away and the economy collapsed. In the past an economy would emerge from a recession as things wore out and inventories were depleted, people were hired to produce replacement goods. That accelerated demand and things generally returned to normal. Right now we are in a productivity trap. We just don't need to hire people to rebuild inventories. That positive feed back isn't happening, at least not as fast as it used to. To keep the economy going we might have to hand out money for free, or for things that we have never paid for. Maybe free money to go to college, or free money to stay home and raise the kids. I haven't figured it out yet, but the world will change. If it doesn't we won't have the consumers we need to create the demand we need to keep the rich, rich. The alternative is some sort of mass casualty event that is too horrible to imagine.

  • golack on August 09, 2012 6:17 PM:

    Now now JMN, hard work does get rewarded...it's just that the reward may not go to those actually doing the hard work...I mean, someone has to pay for the CEO's golden parachute...and all those traders churning stocks..where do you think their pay comes from...

  • Josef K on August 09, 2012 6:40 PM:

    That ideas like this are getting tossed out, and not laughed out the door, is not a reassuring sign. It suggests policy makers and their fellows in the financial sector are getting very nervous. Rightly so, imo; people are getting in a foul mood, and revolutions have started for less-obvious reasons.

    That's not to say this is a bad idea. Its actually a pretty practical one. I recall the Nixon Administration even contemplated something along these lines, albeit more like a minimum monthly stipend or something. The whole "moral hazard" argument rings hollow in light of what caused the 2008 crisis, so I'm more inclined to laugh than listen right now.

    Who knows, maybe some enterprising someone will actually go forward with this madness. It really can't hurt at this point.

  • Peter C on August 09, 2012 6:40 PM:

    Yes, it would work. Yes, we need to do something to fix the high unemployment caused by the financial shock. But it would be far better to borrow the money as the government and create jobs to build infrastructure. It would cost a bit more (but only a bit since interest rates are so low), but it wouldn't create a 'moral hazard' (big whoop, I know), AND we'd end up with useful and economically productive infrastructure (well equipped schools, good roads, public transportation, etc.).

  • bobbo on August 09, 2012 6:53 PM:

    Joe Friday: the Bush stimulus checks were much smaller than what is being contemplated here; the recession we are still trying to recover from was much deeper and so money spent would have a much bigger impact; and so what if people use it to pay down debt? If they do, they will be in a better position to spend money in the future on goods and services.

  • Rugosa on August 09, 2012 6:59 PM:

    Joe Friday - As I recall, the Bush windfall was about $300.00. Enough to have a meal out and use the rest to pay bills, but not a big boost to the budget. A payment of 5000-6000 could be used to invest in courses or training, or to hire someone to do home repairs, or for older people to boost a retirement savings account.

    Peter C - I like your suggestion, and would add that hiring teachers and transit workers should be considered part of a "useful and economically productive infrastructure."

  • TCinLA on August 09, 2012 8:22 PM:

    “Can’t give people free money,” people say, “otherwise they’ll lose their moral fiber. Success must be earned.”

    Ah, now we know why trust-fund baby Mittwit is such a rotten sonofabitch.

  • Neildsmith on August 09, 2012 8:31 PM:

    No matter how much money you give me, I am not going to buy the crappy house you overpaid for. Nope.

  • brett coster on August 09, 2012 9:02 PM:

    In Australia, a $900 handout was part of the then-Rudd Labor government's response to the GFC in 2008. It also built infrastructure by granting money to schools, public and private, to build halls, libraries or specialist rooms. And it heavily subsidised installation of insulation into homes.

    Naturally there were howls from the conservatives about people buying flatscreen TVs, that the school buildings were unnecessary or overpriced, and there were definitely some rorts (and deaths from appalling work practices) by shonky insulation contractors, but all in all it did the job. It got retail going, the building industry boomed, and a million or more extra homes now have reduced energy costs.

    Australia got through the GFC largely unscathed, we're still AAA-rated, unemployment is at 5.2% and our dollar is now past parity with the USD. Sure, China buying enormous amounts of dirt from us also helped, but the stimulus kept the economy going in much better shape, and we still have very manageable debt levels.

  • jjm on August 09, 2012 9:23 PM:

    Well, people have been convinced by the wealthy that the gigantic wealth they have accumulated came out of nowhere; and not out of anyone's hide.

    Not possible. Their gains came from somewhere, they drained the pocketbooks of some one... This would just be a little redress for those whose wealth was transferred out of their possession to the rich.

  • Joe Friday on August 09, 2012 9:52 PM:

    bobbo,

    "the Bush stimulus checks were much smaller than what is being contemplated here; the recession we are still trying to recover from was much deeper and so money spent would have a much bigger impact"

    The amount doesn't alter the behavior in a down economy.


    "and so what if people use it to pay down debt? If they do, they will be in a better position to spend money in the future on goods and services."

    That's a great platitude, but paying down debt is simply not stimulative.

    ~~~

    Rugosa,

    "A payment of 5000-6000 could be used to invest in courses or training, or to hire someone incentivizedto do home repairs"

    Those would be examples of spending that could be incentivized, as I mentioned.

    "or for older people to boost a retirement savings account."

    Saving the money, which is what people overwhelmingly do with extra money in a down economy, is simply not stimulative.

  • Sean Scallon on August 09, 2012 10:59 PM:

    "Last week I discussed in this column the idea that the vast amounts of money created by central banks and distributed for free to banks and bond funds - equivalent to $6,000 per man, woman and child in America and £6,500 in Britain - should instead be given directly to citizens, who could spend or save it as they pleased."

    Six grand? Well its hookers and blow, whose with me!

    Now that will surely stimulate the economy in one way or another.

  • urban legend on August 10, 2012 1:38 AM:

    For a policy to be truly stimulative, it has to help convince people that they will be able to replace easily the money they want to spend but are afraid to: that they are likely to hold onto a current job, but if they lose it finding another comparable job will not be terribly difficult. A one-time "goose" will not do that, and neither in a serious way will payroll or any other tax reductions. Even make-work jobs, while better than nothing, are known to be temporary and, accordingly that is weak tea in encouraging people to believe that things really are getting better and will keep on getting better.

    The only thing that will accomplish that is massive direct job creation on societal needs that have been badly neglected for more than a generation. We typically call it infrastructure. What will make it have deeper effects is the very fact that, because it would not be just short-term projects but major modernization of a decaying infrastructure. It will mean at least a few million new jobs that are not make-work but are genuinely necessary for improving the country. They will not be short-term, but will be permanent, well-paying, non-outsourceable jobs that will naturally absorb some of the hardest hit labor-force sectors in the Great Recession.

    It's also a common sense, easily-grasped solution that would be politically popular if tried. Obama should be promoting it -- his existing jobs bill plus much, much more to come -- if the voters will vote the obstructionist Republicans out of office and turn the congress over to candidates who will actually cooperate on finding solutions to the country's problems. Lead in (in a longer-than-30-second commercial): "I made a mistake after being elected in believing that Republicans would cooperate on finding solutions to help the country. [Mitch McConnell 'one-term President' tape.] I won't make that mistake again and neither should you. . . ."

  • toowearyforoutrage on August 10, 2012 12:03 PM:

    I might be more sanguine with the idea if I had any faith a system for distribution wouldn't be badly rigged much as agricultural subsidies.

    Just get the American Jobs Act passed.
    That IS getting money in the hands of people that work.
    Those that build new rail networks can not only have that new car or V, they can tell their grandchildren they're riding on rails mommy and daddy helped install.

    Problem is... that'd be a stimulus. That'd get the economy going. That would lower unemployment. All things that the GOP does NOT want to happen unless a Republican president is in office. (if even then. depressions work surprisingly well for those who already have abundant cash.

    Folks who doubt this can all be done need only research two things:
    "Monetary Soverignty" and "Debt-backed currency"

    Once you understand how national economics differs from personal, and local government finance, the world makes so much more sense. (Minus the infuriating obstruction of Austrian economists [austerity as a cure to depressions])

  • jonh on August 10, 2012 8:28 PM:

    1. Obama could do this on his own by simply not prosecuting counterfeiters, maybe just for denominations
    up to ??.

    2. Peter C noted it wouldn't cost much for the
    government to borrow the money. Actually, people are
    giving the U.S. money for the service of holding their
    money. 5 year TIPS are paying NEGATIVE 1.25%. The US
    could borrow 100 billion$, give 6.25 billion$ away,
    and pay back the 93.75 billion$ during the HRClinton
    administration in 2017. That's what I would do.