Knifonomics (part 29): helicopters

The Knife has written before about “helicopter money“. If you’re going to boost the economy by printing money, then it needs to get into the normal circulation. Chucking it out of a helicopter certainly achieves that.

Here, in a brief pointed letter to the FT, is a summary of what has actually happened, or not:

Sir, Tim Harford (“Since you asked”, March 2) tells us that the Bank of England has created about £6,000 per person since the start of the financial crisis. But this money has apparently not yet stimulated the economy. I have looked closely at my bank statement and so far have failed to identify an extra £6,000. It seems to me very apparent that if the £6,000 were channelled straight into every person’s bank account, the invitation to spend it would be gratefully accepted by many. Problem solved?

John Fleming, Chertsey, Surrey, UK

The Knife can certainly assure Sir Mervyn King that if he’d sent me the £6000, I would have spent it by now. eBay, old Mercedes coupes, Grateful Dead limited editions, all pumping it back into circulation, like he wants. 

A noted proponent of helicopter money is another knight, Sir Simon Jenkins. Here is his terse summary:

As a result there are not just two policies but two British economies now running in parallel. One is doing just fine. The stock market is back to its highest level since before the crash in 2008. Banks and their executives are returning to prosperity. This has nothing to do with the economy but with the microeconomy of quantitative easing. QE has given £375bn to the banks, who have used it to refinance government debt and inflate the stock market.

Rather than boost the economy with renewed lending to businesses, this vast sum has depressed demand by reducing bond yields, cutting private pensions, and forcing companies to funnel money into pension schemes to keep them solvent. The Pension Insurance Corporation estimates theTreasury has lost £37bn in corporation tax as a result. If anything, QE has sucked spending power out of the economy. Yet for some reason the BBC continues to call it “pumping money into the economy”.

And the reason behind this stupidity?

Suppose the government had used its printing presses to put the same £8,000 a head into the pocket of every man, women and child in Britain? Or suppose it had written off the equivalent in private and housing debt? Would the economy really have been worse off than it is now? I do not believe it.

…. (it is)  classic  British establishment snobbery. Giving money to ordinary people to spend is considered by the Treasury, the Bank of England and Westminster to be immoral. (When they did it in Sweden it led to a surge in employment.) Yet it is just fine to give similar sums to “respectable” bankers, pension fund managers, consultants, contractors.

We are victims of a most peculiar form of snobbery, not based on social class, but on privilege and a sense of entitlement. That just makes it worse.




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