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S.) to every Japanese citizen each month until private spending picks up, bringing Japan's deflationary crisis to an end.The giveaway could be engineered in a manner similar to that employed during the 1990 German monetary unification, when the Bundesbank supplied East German citizens with limited quantities of Deutsche marks in exchange for Ostmarks.
The same sort of thinking led the Federal Reserve, in the mid 1930s, to actually bank reserve requirements out of fear that banks might change their minds any minute and begin lending their hoards of cash. Of course, if spending had actually revived on its own, surpassing the level necessary to revive the economy, the Fed could have dealt with the "problem" easily enough, by reabsorbing excess money by means of bond sales.
The Fed's fears turned out to be exaggerated, to put it charitably: its decision actually helped to keep the U. Keynes had a good quip about Fed officials who worried, in 1936, about inflation: they “professed to fear that for which they dared not hope.” Let's hope that the Bank of Japan won't harbor such misplaced fears, and that it doesn't otherwise allow the liquidity-trap bogey to keep it from doing all it can to revive Japan's economy.
Japanese consumer and producer spending has been shrinking for months, causing wholesale prices to decline and inventories to accumulate.
The overnight call loan rate has hit zero, and short-term lending rates are at historically low levels.
Yet for all the controversy surrounding the suggestion that Japan should actually try dropping money from helicopters (or something close to that), my own response to it consisted, not of either surprise or dismay, but of a strong sense of For I myself wrote an op-ed proposing helicopter money for Japan in the spring of 1997, that is, almost exactly 19 years ago.
I never tried to publish it, in part because I myself couldn't quite decide just how firmly my tongue was poking my cheek as I wrote it, and because I had then as I do still an abiding dislike of "clevernomics," which is the sort of stuff economists write to show people how smart they are, and not because they are seriously trying to help the world along.Fortunately, central banks don't need new taxing powers to free their economies from liquidity traps.All they need to do is to supply new money directly to the public, instead of trying to get it to them indirectly by first adding it to bank reserves.What would that do to spending and, eventually, to prices?Lately, however, helicopter money has made its way from the inner recesses of economics textbooks to the financial pages of major newspapers and magazines, where a debate has been joined concerning its merits, not as an abstract analytical tool, but as an actual policy tool for relieving Japan, and perhaps some other economies, of their deflationary woes. And see as well this recent blog post by our dear friend Jerry Jordan, written for the Atlas Foundation's t.Fearing that I was myself lapsing into clevernomics, I stuffed the essay into a file cabinet, where it has been buried ever since.All the recent writing on the subject has, however, emboldened me to resurrect my dusty old essay and to publish it here on I don't pretend that it adds anything to what recent commentators have had to say on the topic.Individual citizens, unlike commercial banks and other financial firms, do not have to decide either to hoard money or to lend it at some trivial rate of interest.They have a third, more tempting, option, namely, that of spending unwanted money balances directly on goods and services.Goodfriend's proposed taxes are meant to be emergency measures only, which would be removed in good times.Still, one shudders to think what might happen should the government decide to take advantage of the new measures' capacity for enhancing its share of the profits from the Fed's money monopoly.