The fair division of a windfall

An interesting debate is occurring over the ethics of granting the central bank power to make cash transfers to households. This is not an academic debate. I think one of the main stumbling blocks to this policy is indeed what I would describe as ‘pseudo-ethical’.

Jeremy Stangroom is the most articulate moral questioner of helicopter drops. His objection can be distilled: they don’t deserve it.

Simon Wren-Lewis details the distributional consequences of QE and other policies, which are hardly “deserved”. In a similar vein, I have suggested that borrowers don’t deserve zero interest rates. To which Jeremy responds that they (we) contracted in to the variability of interest rates when they took out loans, and so too did lenders.

It’s not clear to me what people have, or have not, contracted in to. Or which ‘contract’ should take precedent. For example, I might say ‘I contracted into the inflation target, and if the Bank of England doesn’t deliver 2% inflation, because it won’t do helicopter drops, it is breaching its contract.’ This may indeed be the most politically effective argument in the Eurozone.

But I don’t really buy into the basis of this discussion in the first place. My view is that ‘desert’ is a second order ethical principle, which does not apply in this circumstance. Other moral principles take precedent over what we deserve, and in this instance desert simply does not provide a helpful guide.

To make clear the second order status of ‘desert’, let’s look at some relatively uncontroversial examples: Everyone has a moral obligation to stop a child from running out in front of a car – we don’t debate desert. Everyone has right to a fair trial – ‘desert’ is irrelevant. It is unethical to drink and drive – regardless of ‘desert’.

The principle that underpins all these examples is that the interests of all those affected by a given action should be weighted and treated equally. This, or a close approximation, is the highest order ethical principle assumed in moral reasoning. Often applying it is contentious for a host of reasons, including conflicts of interests, problems of agency, how to weight differing interests etc.

The examples I have provided are not contentious precisely because the interests of those affected are very clear and extreme – a child’s life, a fair trial, a fatal car accident.

Now, ‘just reward and punishment’ are second order principles, which means that much of the time they produce results that are consistent with higher order principles, but they can be overridden or inapplicable.

Okay, now what about helicopter drops? Here is how I would make the ethical case for an equal distribution: The threat of deflation creates a windfall for society, analogous to discovering oil. The windfall is that society benefits if the state prints money at no cost. The social choice is therefore very simple: no one deserves the windfall, so how should it be distributed? We could do it arbitrarily and opaquely – pretty much what happened with conventional QE. We could engage in a highly complex Rawlsian calculation based on what we would all agree to if we knew all of the effects and didn’t know our own position in society. Good luck! We could say, distribute according to need – that’s really hard to do and the debate might last longer than the recession. Or we could give everyone the same amount.

About The Author

Eric Lonergan is a macro hedge fund manager, economist, and writer. His most recent book is Supercharge Me, co-authored with Corinne Sawers. He is also author of the international bestseller, Angrynomics, co-written with Mark Blyth, and published by Agenda. It was listed on the Financial Times must reads for Summer 2020. Prior to Angrynomics, he has written Money (2nd ed) published by Routledge. He has written for Foreign AffairsThe Financial Times, and The Economist. He also advises governments and policymakers. He first advocated expanding the tools of central banks to including cash transfers to households in the Financial Times in 2002. In December 2008, he advocated the policy as the most efficient way out of recession post-financial crisis, contributing to a growing debate over the need for ‘helicopter money’.

2 Responses

  1. Sanjay Mittal

    As Positive Money and the New Economics Foundation correctly pointed out in their submission to Vickers, if the state is going to print money and spend or give it away with a view to stimulus, the exact way that money is spent is a political decision. It is thus a decision for democratically elected politicians.

    Eric Lonergan is of course entitled to his personal views on how the money is spent, but more important is to have a system in place that does the “print and spend” job in a logical way. And the logical way of doing that, as PM and NEF explain, is to have some independent committee of economists (the BoE MPC would do) decide on the amount to print and spend, while politicians decide on exactly what is done with the money.

    • Eric Lonergan

      Sanjay – I think it is v important that cash transfers can be done quickly. That is why I think then government/Parliament should decide on the rule for the transfer, and the BoE the amount. If there is government discretion every time needed, it may get held up.


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