It’s raining cash, hallelujah, to (sort of) paraphrase what the Weather Girls sang. If you want to solve recessions, what about throwing cash at households instead of lowering interest rates by buying bonds or tweaking the interest rates American central bankers control more directly?
This is the proposal coming from a Brown University political economist and a London-based hedge fund guy. The professor, Mark Blyth, says if you took all the money the Federal Reserve has spent on its bond-buying and quantative-easing splurge, every household in America could have been handed $56,000.
Sure, the Fed waved its magic wand to “print” the money that bought the bonds. Under this cash-from-helicopters idea, central bankers would still have to use the magic of inventing money. But it’s Blyth and Eric Lonergan’s idea that the central banks could print less, give households more, and the stimulus would help a much wider cross section of the population than is helped now by QE.
Blyth told me that our current policies are designed to get people to borrow who don’t really want to borrow. When interest rates are forced sown, this encourages people who already have excess cash to put more of their money into financial instruments, rather than spending it on business ventures in the real economy that might do more to create jobs.
Cash from helicopters is not a new idea. On the right, Blyth says Milton Friedman liked the idea. On the left, Keynes also embraced this.
We have done smaller versions of it before. Remember cash-for-clunkers, in which the feds handed out checks if you swapped an old car for a new one during the depths of the financial crisis? And the payroll tax holiday? Academic research shows that for every dollar spent on these programs, many more dollars went forth and multiplied through the economy.
The idea is the central bankers would still have to print money by saying the word “abracadabra” and making it appear, which can be inflationary. Some say that’s the only way inflation happens. But Blyth and Lonergan believe under their proposal, the U.S. or Europe would have to print less of it than we do using the usual thinking.
Print less but transfer more, in their rallying cry. Details of this argument are in the September/October edition of Foreign Affairs. Will cash for households catch on? Blyth isn’t optimistic at a time that political polarization means nothing catches on these days in Washington.