Win-A-Rama For America

A Benjamin Cole post

The always-intelligent Market Monetarist and Kentucky economist David Beckworth recently posts on the “shortage of safe assets.”

So what is a safe asset shortage?

“It is the shortage of those (safe) assets that are highly liquid, expected to be stable in value, and used to facilitate exchange for institutional investors in the shadow-banking system. They effectively function as money for institutional investors and include treasuries, agencies, commercial paper, and repos. During the crisis many of the privately issued safe assets disappeared, erasing a large chunk of the shadow-banking money supply,” writes Beckworth, from under his state-icon coonskin cap.

So what? Well, this is what:

“[If] this excess demand for safe assets is big enough it will push down the natural interest rate below zero. Since the central bank cannot push its policy rate very far past 0%, an interest rate gap will emerge and cause output to fall below its potential. That seems to fit post-2008 fairly well.”

Print Money

Okay, put on your seat-belts. A primer: In macroeconomics, everyone defers to Michael Woodford, the Colombia scholar, who even gets invited to speak at the annual central-banker orgy in Jackson Hole, Wyoming.

And Woodford says now is a good time to print money and pay federal bills and debts with fresh cash. See:

The Win-A-Rama Solution

In the U.S., employees and employers pay onerous 15%+ FICA (payroll) taxes, on the first $100,000 or so of wages, into the Social Security and Medicare trust funds.

So, declare a FICA tax holiday.

Compensate for the loss of tax revenue by having the Fed buy $1 trillion a year of T-bonds, and placing the loot into the Social Security and Medicare trust funds.

This is a win for overtaxed productive people and a win for the economy. It will result in more demand and more hiring. I am not sure it would be inflationary, as the cost of employment would drop.


Shrewd observers will note Win-A-Rama does not solve Beckworth’s safe asset problem. It sucks $1 trillion a year in safe assets into the trust funds.

Win-A-Rama would make matters worse not better!

But Beckworth avers one solution to the safe asset shortage is to “shock and awe” the economy with pro-growth government policies, in which case many private assets become perceived as safe. Win-A-Rama could do the trick.

And if not, then millions of productive Americans will have gotten a tax break, without buying Panama hats from greasy-palmed bankers and lawyers.

Not so bad.

Michael Woodford Endorses A Tax-Cuts-And-QE-Regime

A Benjamin Cole post

Since becoming a devout Market Monetarist, I have pondered not the goal but the how—how does the U.S. Federal Reserve and federal government meaningfully target nominal growth in GDP at an appropriate level, i.e. NGDPLT?

It may be that plain-vanilla QE, without the straitjacket of interest on excess reserves, would be effective. It appears QE was effective in the United States, especially the open-ended QE 3, even when hamstrung by interest on excess reserves.

But I have also been curious about marrying QE to tax cuts, such as a tax holiday on Social Security and Medicare taxes (the FICA taxes), with the lost revenues supplanted by the bonds obtained through QE. The FICA tax cut scheme has the additional benefit of lowering the cost of employment (remember, employers pay half of FICA taxes) at the very time that unemployment is a problem.

Michael Woodford

I had assumed my tax cuts+QE scheme would never appeal to serious economists, as it is suspiciously close to monetizing the debt, if not outright money-printing to run the federal budget.

But it turns out the highly regarded and deferred to Michael Woodford, the Colombia University professor, also backs tax cuts+QE!  Woodford has accolades too numerous to mention, and gets invited to the Kansas City Fed’s annual Jackson Hole confab as a speaker.

In a 2013 interview for VOX, the policy portal for the Center for Economic Policy Research, Woodford said of a QE-and-tax-cuts regime:

“I believe that one could achieve a similar effect, with equally little need to rely upon people having sophisticated expectations, through a bond-financed fiscal transfer, combined with a commitment by the central bank to a nominal GDP target path (the one that would involve the same long-run path for base money as the other two policies).

The perfect foresight equilibrium would be exactly the same in this case as well; and as in the case of helicopter money, the fact that people get an immediate transfer would make the policy simulative even if many households fail to understand the consequences of the policy for future conditions, or are financially constrained. Yet this alternative would not involve the central bank in making transfers to private parties, and so would preserve the traditional separation between monetary and fiscal policy.”

True, Woodford leaves open whether the “fiscal transfer” is tax cuts or direct spending. But I think most economists would concur that leaving money in the private sector is better than public spending, and so we can say, ceteris paribus, Woodford endorses tax-cuts+QE.


Back when the U.S. space program was in the early and televised days, NASA did not refer to the Atlas or Gemini or Mercury rockets as “blasting off.” Too cartoon-y. So, NASA used the words “lift off” to describe a launch, even though “blast off” is more correct.

Woodford appears the very epitome on erudition and intellect, deeply committed to his craft. But obscurantism is everywhere.

What Woodford is saying is, “Print money and finance federal deficits with it.”

He also says no promise should be made to unprint the money.

So…why is Michael Woodford not the Chairman of Federal Reserve?