I am a huge fan of Ben Bernanke. He can take a significant amount of personal credit for preventing a depression. Also, The Courage to Act is a superb book.
Disappointingly, Ben’s latest contribution to the helicopter money debate is uncharacteristically poor. He is wrong on four basic points.
1. The issue of ‘permanence’ is a pointless distraction. No one in receipt of a check from the central bank, asks: ‘Is this permanent?’ In fact, it is not even clear that the question is meaningful. It is a category error from the theory of taxation. The main challenge for theoretical economists is squaring these obvious intuitions with our models. The practical policy issues are in fact very clear.
2. Base money financed transfers from the central bank are not ‘tax cuts’.
3. Direct transfers from CBs to the private sector are in fact legal in most jurisdictions, whereas monetary financing of budget deficits is explicitly illegal. Ben seems oblivious to the major legal differences between the US, Eurozone and UK. It is clear that the policy he is discussing (unhelpfully calling it a ‘helicopter drop’), is simply deficit monetisation, and is expressly illegal in the Eurozone. He also refers to the proposal of Simon Wren-Lewis, Mark Blyth and myself in the Guardian, but describes it as illegal – in that article we are in fact requesting UK legislation, in part because the UK government is highly like to cooperate with a Bank of England request. Bernanke should be clear that it is probably illegal for the Fed to engage in cash transfers to households, and Congress is unlikely to cooperate with granting the Fed further powers – so it is really only in America where monetary policy, for institutional reasons, would now be virtually redundant in the face of a recession. But this is patently false elsewhere.
4. Ben assumes that helicopter drops are fiscal policy. He does so without clarifying the distinction between fiscal and monetary policy, and then quotes Friedman who is very clear on the issue – and very clear that cash transfers financed with base money is monetary policy.