Between Debt and the Devil": A Radical Proposal for Global Finance
Paragraph 1
Adair Turner, an academic, policymaker, and member of the House of Lords, in his new book, “Between Debt and the Devil: Money, Credit, and Fixing Global Finance”, argues that countries facing the predicament of onerous debts, low interest rates, and slow growth should consider a radical but alluringly simple option: create more money and hand it out to people. “A government could, for instance, pay $1000 to all citizens by electronic transfer to their commercial bank deposit accounts,” Turner writes. People could spend the money as they saw fit: on food, clothes, household goods, vacations, drinking binges—anything they liked. Demand across the economy would get a boost, Turner notes, “and the extent of that stimulus would be broadly proportional to the value of new money created.”
Paragraph 2
The figure of a thousand dollars is meant to be strictly illustrative. It could just as easily be five thousand dollars or ten thousand dollars — however much was needed to drag the economy out of the doldrums. The funding would come from the central bank, the Federal Reserve, which would exploit its legal right to create money. Central banks do this by printing notes and manufacturing coins, but they can also create money by issuing electronic credits to commercial banks, such as JP Morgan and Citibank. Under Turner’s proposal, that’s what the Fed would do—give banks newly created money, which would be passed along to their account holders. Merry Christmas, everyone!
Paragraph 3
It’s a deadly serious proposal, actually, and its author is a sixty-year-old English technocrat renowned for his intellect and his independence. If, despite Turner’s impressive credentials, the words “hyperinflation,” “Weimar Republic,” and “Robert Mugabe’s Zimbabwe” are whirling around in your head, he would certainly understand. “My proposals will horrify many economists and policymakers, and in particular central bankers,” he writes. “‘Printing money’ to finance public deficits is a taboo policy. It has indeed almost the status of a mortal sin.”
Paragraph 4
But it’s also a proposal that serious economists have broached before. In 1969, Milton Friedman argued that money financing could provide an alternative to Keynesian debt financing. Faced with a chronic shortfall of demand in the economy, Friedman said, the government could print a bunch of money and drop it from helicopters. In 2003, Ben Bernanke, who was then a governor at the Fed, suggested that such “helicopter drops,” or their electronic equivalent, could provide the Japanese government with a way to lift its economy out of a decade-long slump. In Britain, Jeremy Corbyn, the leader of the Labour Party, had suggested that the Bank of England could pay for some infrastructure spending by printing money.
So far, these ideas have gained little traction. Bernanke, after taking over the Fed, in 2006, seldom mentioned his earlier proposal. Even Paul Krugman, who is usually a big supporter of stimulus programs, has distanced himself from Modern Monetary Theory, pointing to the danger of inflation from excessive monetary growth. Turner, however, insists that creating money may be the only way of generating a decent rate of economic growth and escaping the current predicament.
