Friday, August 05, 2016

Helicopter money for the UK

'Helicopter money' is a policy option that is being urged seriously by serious economists. In its most literal form, it means dropping money from a helicopter. People who get the notes will go out and spend.This will boost aggregate demand, which is the policy objective today.

On the other hand, people may not spend the money, they may hoard it. For the UK, Robert Skidelsky favours other approaches that have been in the public domain:
The government should pay for, say, an investment programme not by issuing debt to the public but by borrowing from the central bank. This will increase the government’s deficit, but not the national debt, since a loan by the central bank to the government is not intended to be repaid. Thus the government acquires an asset but no corresponding liability.
However, this is only one possible form of helicopter money. Another way of achieving the desired increase in spending was suggested by the Swiss businessman, Silvio Gesell, in 1906. His idea was to give cash directly to households. But to give people an incentive to spend the money and not hoard it, there had to be a cost to holding on to it. In his scheme, unspent currency notes would have to be stamped each month by the post office, with a charge to the holder for stamping them. 
The combination of the two methods, Skidelsky believes, could be used to inject £100 bn into the British economy. This would, of course, be a repudiation of the austerity measures pursued by ex- Chancellor George Osborne.

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