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Bring on the Helicopter Money–and Gut the Fed

May 15, 2013 in Economics

By Joseph Salerno

You would not think that there would be any worthwhile ideas in an article entitled “Bring on the ‘Helicopter’ Money.” Written by hedge-fund manager Daniel Arbess in today’s Wall Street Journal, the article contains a very good idea buried among many bad ones.

Arbess argues that quantitative easing is failing because there is a lack of demand for credit, so that Fed policy is “pushing on a string,” as it were. In addition, Arbess contends, fiscal policy is acting as a “headwind” to the economic recovery because of higher payroll taxes and rising health care costs.

To combat such “monetary impotence” and “fiscal paralysis,” Arbess recommends a “helicopter drop of money” directly into the economy. In technical terms this is today called “overt monetary finance,” which means that the Fed would bypass the banking system and credit markets in creating money and send the new money directly to the Treasury where Congress would decide on how to use it. Since it is illegal for the Fed to purchase debt directly from the Treasury, this procedure would be considered “a direct equity investment” in the Treasury. Sure this policy poses the obvious risks of inflation in the hands of an undisciplined Congress, but Arbess believes that these risks are “manageable” and that this mechanism offers “an optimum combination of fiscal and monetary stimulus without increasing private or public debt.” Thus, Arbess’s main concern seems to be to expand government spending without further bloating Federal deficits and the national debt.

Of course these are all very bad ideas and are based on the crude and destructive Keynesian notion that money and spending–more paper tickets or their electronic substitutes changing hands–will lead to the creation of more real goods and jobs. But the Fed has created $2.3 trillion (M2) since 2008. What makes Mr. Arbess think that creating dollars through a different channel will alter the result? Furthermore, what is retarding the economic recovery is not the Federal budget deficit or the size of the national debt per se. It is rather the amount of resources that the Federal government is prying from the hands of productive entrepreneurs, investors and laborers, and siphoning out of the private economy into wasteful subsidies to domestic special interests, the financing of unnecessary wars, the feeding of an insatiable and gigantic military machine, and the payment of the salaries …read more


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