From Crazy to Crazier
Considering how often “helicopter money” has been mentioned in the mainstream financial press of late, it is probably going to be on the agenda fairly soon. The always dependable Martin Wolf at the FT – who has never seen a printing press he didn’t think could solve all our economic problems – has come out forcefully in favor of the idea. See for instance his recent screed “The case for helicopter money”, followed by the promise – or rather, the threat – that “Helicopter drops might not be far away”.
The most vociferous establishment mouthpiece for more statism, more central economic planning, and specifically, more money printing: Financial Times chief economics commentator Martin Wolf – a dangerous money crank.
Screenshot via hallsofkarma.wordpress.com
What is truly funny is that Wolf actually argues that the money supply hasn’t grown enough! He is pointing to an esoteric money supply measure, so-called “divisia money” – apparently he found the one and only “money supply” measure that is coming to this absurd conclusion. However, money can be clearly defined and identified, and the true US money supply has increased by more than 120% since 2008 (this is to say, more money has been printed in the past 7 years than in the entire previous history of the modern fiat dollar). Here is Wolf:
“Measures of broad money have stagnated since the crisis began, despite ultra-low interest rates and rapid growth in the balance sheets of central banks. Data on “divisia money” (a well-known way of aggregating the components of broad money), computed by the Center for Financial Stability in New York, show that broad money (M4) was 17 per cent below its 1967-2008 trend in December 2012. The US has suffered from famine, not surfeit.”
And this is what this alleged stagnation in money supply growth, a.k.a. the “money famine” actually looks like:
Interestingly, Wolf admits in the very same article that “Central banks can indeed drive the prices of bonds, equities, foreign currency and other assets to the moon”, but he apparently seems to think that no money is needed for doing so. Please note: this guy is actually a trained economist.
After rambling on about the failure of the very policies he has sotto voce advocated to date, Wolf’s naturally comes to the misguided and dangerous conclusion that even more State intervention is needed. By golly, we will be printed to prosperity, by hook or by crook!
“[T]he case for using the state’s power to create credit and money in support of public spending is strong. The quantity of extra central bank money required would surely be smaller than under today’s scattergun quantitative easing. Why not employ monetary financing to recapitalise commercial banks, build infrastructure or cut taxes? The case for letting fiscal deficits facilitate private deleveraging, without undue expansion in overt public debt, is surely also strong.
What makes this policy so powerful is the combination of fiscal spending with monetary expansion: Keynesians can enjoy the former; monetarists the latter.”
The fact that both Keynesians and Keynesians-in-drag “enjoy” this dangerous nonsense is of course precisely why it should be avoided at all costs. As to the question “why not”, we would point A) to sound monetary theory (someone should really send this guy a copy of Mises’ “The Theory of Money and Credit”. It certainly seems he will have to start from scratch if he ever wants to say anything on the topic of money that doesn’t sound like the most moronic idea ever) and B) centuries of experience, beginning with the Roman Emperor Diocletian up to whoever is running Venezuela’s central bank at present.
Famous money cranks throughout history, who managed to completely ruin entire economies by pursuing the policies Mr. Wolf advocates with the required dedication: Roman emperor Diocletian (who continually lowered the silver content of Roman coins, and then tried to counter the effects with price controls), John Law (a Scotsman who managed to plunge the continental European economy into a more than 60 year long on-and-off depression) and German central banker Rudolf Havenstein (a strong believer in G. F. Knapp’s “State Theory of Money”, the bible of Chartalists, or “modern monetary theorists” as they call themselves today).
It was not too long ago when people like Mr. Wolf or Lord Adair Turner (whom Wolf mentions in an appeal to authority – Turner also supports employing the printing press in ever more extreme ways, i.e., he is yet another member of the John Law school of economics) would have been laughed out of the room. Believe it or not, there once was a time when economists actually knew what the difference between money and wealth is and were aware of the dangers of money printing.
However, as the modern-day resurrection of Keynesianism from the grave it was presumed to have disappeared into in the 1970s shows, no economic idea is bad enough not to be warmed up over and over again by statism’s intellectual handmaidens. Mr. Wolf knows most of the bureaucratic and political elite involved in central planning personally, and it is fair to assume that his jeremiads have to be taken as serious warnings of what is actually already in the pipeline.
Chart by St. Louis Federal Reserve Research