Monday, 8 May 2017
More support for the “Bernanke / Positive Money” system.
Positive Money has long advocated a system under which stimulus takes the form of simply printing more base money and spending it (and/or cutting taxes) while the total SIZE of the deficit is decided by professional economists (e.g. by the central bank). As for obviously POLITICAL decisions like what proportion of GDP is allocated to public spending and how that is split between health, education, law enforcement and so on, those decisions remain with politicians. E.g. see the submission to Vickers authored by Positive Money, the New Economics Foundation and Prof Richard Werner, entitled “Towards a twenty-first century banking and monetary system”.
Bernanke also recently suggested that arrangement would have merits. See para starting “A possible arrangement…” in this Fortune article entitled “Here’s How Ben Bernanke’s “Helicopter Money” Plan Might Work.”
Note that that system DOES NOT reduce democratic accountability. Reason is that under the EXISTING SYSTEM, the final word on the amount of stimulus is taken by the central bank in that the central bank (at least where the CB is relatively independent) can nullify what it sees as excessive fiscal stimulus implemented by politicians using CB implemented interest rate rises.
Support for a system of the latter sort has recently come from Nobel laureate economist Eric Laskin. See Bloomberg article entitled “A Nobel Winner’s Radical Proposal to Solve the Euro Area’s Woes.”
Note that while the above mentioned work by Positive Money and co-authors advocates full reserve banking, full reserve is not an essential ingredient in a system where central banks (or some other committee of economists) decide the total size of a stimulus package. In fact neither Bernanke nor Laskin mention full reserve.
Apart from the latter full reserve point, there are other small differences between Laskin’s proposal and Positive Money’s. But there are any number of variations on the basic theme here.
It’s nice to see another supporter of the “basic theme”, especially a Nobel laureate.