Bank of England Madness

[Cyclone]

Isn't that much the same as a tax cut?

[Solomon1]

Isn't that much the same as a tax cut?

 

Who knows Cyclone!

 

No-one will tell me....

 

Apparently there's all this free money headed my way

 

But I never appear to see hide nor hair orrit

[I1L2T3]

It's not really the BoE's job to be financing infrastructure projects, etc. That's the government's job (or, in neoliberal fantasy land, the job of unsubsidised private companies who could make a profit out of it).

 

As the "markets analyst" on the Today programme this morning said, monetary policy (QE, interest rates and such) has been taken as far as it can, the implication being that it's fiscal policy that has to be used to stimulate the economy from now on. I.e. public spending, fuelled by higher taxation or, more likely, higher government borrowing (I predict that we won't be hearing much about the pressing need to reduce the public debt in years to come). Indeed, lower taxation can also act as a fiscal stimulus, if targeted correctly (there's no point reducing tax for people who are already spending as much as they want or need to).

 

Reducing VAT in particular would be sensible, as VAT tends to hit less well-off people worse. In answer to truman, yes, I wouldn't be surprised if VAT is reduced before the end of the year.

 

You are right that in normal circumstances central banks would not back infrastructure but these are not normal circumstances.

 

Labour got its message horribly confused with 'QE for the people' but underlying that was a realistic (temporary) option for extending the remit of the BoE

 

---------- Post added 16-08-2016 at 19:46 ----------

 

Like I already said

 

Helicopter money??

 

Who's giving me a grand??

 

Why do you care how gives it to you?

 

But it'll probably be the government and most likely with some kind of restriction that it has to be spent on goods and services

[Solomon1]

Why do you care how gives it to you?

 

But it'll probably be the government and most likely with some kind of restriction that it has to be spent on goods and services

 

Well if how is giving it to me then...

 

BUT

 

HOW will I get this money dude?

[I1L2T3]

Well if how is giving it to me then...

 

BUT

 

HOW will I get this money dude?

 

I dunno. Probably some kind of vouchers I'd have thought. They won't want you to save it. They will want you to spend it.

[Solomon1]

I dunno. Probably some kind of vouchers I'd have thought. They won't want you to save it. They will want you to spend it.

 

Are you for real?

 

How much in vouchers am I getting??

[Cyclone]

I dunno. Probably some kind of vouchers I'd have thought. They won't want you to save it. They will want you to spend it.

 

So I'll save a £1000 of my regular spending and spend these vouchers.

[I1L2T3]

Are you for real?

 

How much in vouchers am I getting??

 

Yes I'm for real.

 

I'm not saying helicopter money is a good idea and I'm not advocating it or supporting it.

 

I'm simply explaining one way that it could work.

 

The principle is basically the same whatever. A group (perhaps everybody) is selected to have some funds distributed to them in some way. They spend the funds in the economy and that boosts the economy.

 

---------- Post added 17-08-2016 at 08:58 ----------

 

So I'll save a £1000 of my regular spending and spend these vouchers.

 

You can you that if you want but it doesn't matter what you individually do. It only matters if a large number er of people do that and as long as a sufficiently large number of people don't do it and the aggregate impact does not impinge on the intended effects of the spending of the funds then whoever distributes the money probably won't care.

Edited August 17, 2016 by I1L2T3

[NigelFargate]

Helicopter money has been talked about for decades theoretically, but it would be a brave central bank to be the first to put it into practice. Firstly there are the political risks, e.g. people complaining about money being given to those who don't "deserve" it. Secondly there are financial/economic risks. For one thing, it might not work, prices might just inflate in proportion to the amount of money helicoptered in. Some people have even argued that it might kick off a hyperinflation; it probably wouldn't, if it wasn't overdone, but would you want to be the one to take that risk?

 

I suppose it could be used to pay directly for things like infrastructure, but then it starts to look more like fiscal policy anyway. And in that case, why not just use fiscal policy per se, as that's tried and more or less trusted?

 

---------- Post added 17-08-2016 at 09:09 ----------

 

 

As I understand it, it involves creating money, rather than just distributing money that already exists. But I may be wrong, and/or the term might mean different things to different people.

 

I first came across the proposal many years ago, in a lecture by my Economics professor on Milton Friedman's neo-monetarist ideas. The professor was haughtily dismissive of it, for reasons which included the ones you mention above.

 

In any case, it wouldn't work in the UK - we just don't have enough helicopters!

[Cyclone]

Yes I'm for real.

 

I'm not saying helicopter money is a good idea and I'm not advocating it or supporting it.

 

I'm simply explaining one way that it could work.

 

The principle is basically the same whatever. A group (perhaps everybody) is selected to have some funds distributed to them in some way. They spend the funds in the economy and that boosts the economy.

 

---------- Post added 17-08-2016 at 08:58 ----------

 

 

You can you that if you want but it doesn't matter what you individually do. It only matters if a large number er of people do that and as long as a sufficiently large number of people don't do it and the aggregate impact does not impinge on the intended effects of the spending of the funds then whoever distributes the money probably won't care.

 

The point I was making is that distributing vouchers makes it no more difficult to save than if you distribute £10 notes.