That usually perceptive and always interesting observer of the financial Zeitgeist, Bloomberg’s estimable Mark Gilbert, recently penned an article entitled: “Milton Friedman’s ‘Helicopter Money’ Is Looking Less Crazy.” In response, I mailed him the comments which follow (with light editing) here.
After running through the standard complaints of the serial interventionists about how ineffective monetary policy has become (read: how we ordinary people keep frustrating their Olympian schemes), Mark concluded his piece:-
‘Zero or negative interest rates are failing to stir consumer prices, while the Fed’s attempt to normalize monetary policy looks likely to backfire embarrassingly. Because the money-machine isn’t doing what the rule book suggests it should, the engines of economic growth continue to splutter and misfire. So the argument that might in the end have the most appeal for Friedman is the one that, intellectually at least, appears to be the weakest: If everything else is failing, why not try helicopter money? ‘
Why not, indeed? Well, here is a by no means exhaustive list of several reasons for not crossing yet another bridge too far in the mindless pursuit of a specific annual rate of change in a smoothed, filtered, hedonised, sampling of a wholly arbitrary collection of consumer goods and services, to the exclusion of all other goals, the repudiation of the lessons of past experience, and the complete abnegation of common sense.
Firstly, given that every professional in financial markets would be horrified to suffer a mandatory dilution of their equity holdings, how do you imagine they and everyone else would react if they got similarly diluted in this manner in terms of that much more important element of their property, their money?
Also, assuming that it were to be done and that when done it did indeed give rise to an isolated if intense round of buying and consequent price readjustment—as its quack, would-be perpetrators so fervently hope—do you really imagine it would also magically dissolve all the locked-in impediments to the natural adjustment between supply and demand from which we suffer and which are what actually prevent people from making a better living for themselves, or from founding and running more flourishing businesses right now?
How, too, could you guarantee that the damage done to the inevitable losers from such as crass act of redistribution would not be so extensive—and possibly so non-linear and self-aggravating—as not just to mitigate, but perhaps to entirely negate, the winnings of their luckier fellows?
Looking at the sorry record of all the ongoing attempts at pushing the rate of change of the CPI index back to the mystical 2% p.a. level, can you also assure us that this phantasmagorical target will indeed be hit this time and that you will not just fuel another wasteful round of property buying, financial market speculation, crude manipulation of corporate balance sheets, public sector profligacy, or currency upheaval?
Next, once you had undertaken such a far-reaching and—dare I say—Jacobin act of disruption, how could you ensure that trust in money would henceforth be regained so that it could resume its vital function both as medium of exchange and as unit of account? This is a key proviso because, without either, you must be aware that there can be no real hope of encouraging any sustainable economic growth after the initial inflationary impulse subsides.
In light of all the above and given that the helicopter flight would be a nakedly political undertaking—and hence a thoroughly capricious act of will to power—how would you re-establish the sort of confidence in the continuity of law, of practice, and in the institutional framework that is also sine qua non for putting capital, whether corporate or individual, at risk over the longer horizons required for genuine material progress to be made?
Respectfully, you can’t. So your helicopters are going to be launched by Admiral Simplificateur-Terrible from the decks of USS Pandora and will return after their mission to land at Fort Regime Uncertainty, accomplishing little which is positive and much which is actively deleterious in the meanwhile.
‘Less crazy’? Less crazy-seeming than heretofore, given the craziness already under way, perhaps. But less crazy, per se? No!
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