A guest post by Benjamin Cole
In a recent post, I made a joke about “the oxymoron, ‘a serious economist.’”
Maybe it was no joke.
Come now Foreign Affairs magazine—a “serious” publication, with a proposal from Mark Blyth, a political economist at Brown University (a “serious” school) with a proposal that the U.S. Federal Reserve should have printed up $56,000 in cash for every household in the United States, and forked it over, after the Great Recession. London hedgie Eric Lonergan co-authored.
That $56k Giveaway Plan would have revived the economy a lot better than the Fed’s tweetybirding around with quantitative easing and interest rates, said the pair.
Crazy….But Not That Crazy
I think there is a problem with the Blyth-Lonergan $56k-Giveaway Plan, and that is moral hazard. People may come to expect occasional fat checks from Uncle Sam in recessions. Why work or save money?
But Market Monetarist, blogger and Western Kentucky University prof David Beckworth has proposed taxpayers be given a break in recessions, and that the Fed simply print up the money and give it to the Treasury, to make up the difference in lost tax revenues.
I like the Beckworth Plan, and I am sorry it was never implemented.
The right way might be a complete holiday during recessions from Social Security and Medicare (FICA) taxes, for both employers and employees, paid for by the Fed. The Fed would print the money not collected, and give it to the federal government. This would expand the money supply, and also encourage hiring and spending.
It may be such Fed cash-financing of Social Security and Medicare becomes a permanent fixture, a subsidy to the tune of a few hundred billions a year—see Martin Wolf, I explain later in this post.
The wipeout of FICA taxes favors the very people serious economists claim they like: Productive people acting productively. Why do we tax people when they work, or run businesses that employ people? That is nuts, no?
New Ideas Everywhere
Well, if you think these ideas are wacky, then consider arch-conservative University of Chicago economist John Cochrane, who has called for eliminating the entire federal debt through QE, which he thinks will result in large commercial bank reserves. Reserves are not inflationary, as long as the Fed-paid interest on reserves is high enough, says Cochrane. The Fed can just print up the interest to be paid, assures Cochrane. Well, la-de-dah, easy as pie, ain’t it?
And we hand a debt-free nation to our children. That has appeal, it is undeniable.
But then listen to Martin Wolf, star Financial Times econo-pundit, who has proposed national governments run permanent deficits financed by QE. Actually, this fits in with my FICA tax holiday plan, so I think Wolf is getting warm. I prefer the QE go into tax cuts, not government spending.
I think there is a strong germ in all of these ideas, and that is that central banks should start printing more money. We can use the cash to run parts of government, or cut taxes on productive people (my idea!).
Ironically, the powerful bulwark against any progress in monetary policy in the United States remains the Fed, and especially the Federal Open Market Committee, and the inflation-hysterics who populate that least democratic of macroeconomic policy-making institutions.
Not only do CPI-fixated FOMC monomaniacs resist any unconventional policies, they think conventional policies are best when the economy is blue in the face from monetary asphyxiation. FOMC’er Charles Plosser has rhapsodized about deflation—but then even the “dove,” Chief Janet Yellen, has enthused about a 1 percent inflation target. Given recent results, that may be her current target, in fact.
So, on the FOMC there are also “serious economists.”
But maybe that expression is an oxymoron.
PS The Blyth-Lonergan $56k Giveaway Plan is way, way, way more complicated than I wanted to address in this limited space, or even contemplate ever. It involves central banks buying a global basket of equities for 15 years, and then (I surmise) selling the booty hoard, and handing the cash to poor people, but only those poor people deemed worthy by their virtuous behavior, such as by spending the money on education etc. Egads.