Friday, March 11, 2016

"Time to drop money on normal people"

From Aquanomics (your source for the economics of H2O):'s my micro/macro perspective on "addressing" the Great Recession:

Interest rates in the US, EU and elsewhere are near (or below) zero because central banks seem to think they can stimulate growth via supply-side (cheap money) policies. I would argue that growth is stalled on the demand side (i.e., weak business climate, debt overhang, and underemployed workers).

Current stimulus policies are poorly directed and too timid.

They are poorly directed because cheap money to banks has only led to bankers buying stuff they like (financial instruments, luxury goods and politicians). What we need instead is to give money to normal citizens who will spend it on a diverse range of goods (including paying down their debts). Funding to citizens will also reduce inequality.

Current policies are too timid because monetary expansion (AFAIK) is sterilized by proportionate increases in government debt or central bank balance sheets. I suggest just printing money (say 1 percent of a broad measure of supply) without bothering to create offsetting liabilities.

Yes, I am saying that we should ignore fears of monetary inflation and the money illusion. First, we surely need inflation, so extra money is no bad thing. Second, the money illusion will not just result in equal price inflation across the economy. Instead, there will be demand-driven inflation (prices rising from demand, not more money) in places where people see value. Such a result is socially efficient because it uses the price mechanism to allocate additional funds to reward relative value....MORE
Buying politicians is getting expensive, a point I was getting at in last October's "While the Cost of Stuff Declines, The Cost of Political Power Skyrockets".