Must-read: Adair Turner: “Helicopters on a Leash”

Must-Read: Adair Turner: Helicopters on a Leash: “Opponents can counter with a ‘slippery slope’ argument…

…Only total prohibition [of helicopter money] is a defensible line against political pressure for ever-laxer rules…. In countries with a recent history of excessive monetary finance… that argument could be compelling…. The crucial issue is whether political systems can be trusted to establish and maintain appropriate discipline.

Hamada cites… Korekiyo Takahashi, who used monetary-financed fiscal expansion to pull Japan’s economy out of recession in the early 1930s. Takahashi rightly sought to tighten policy once adequate output and price growth had returned, but was assassinated by militarists…. But Hamada’s inference that this illustrates the inherent dangers of monetary finance is not credible. Continued deflation would also have destroyed Japan’s constitutional system, as it did Germany’s…. Prohibition of monetary finance cannot secure democracy or the rule of law in the face of powerful anti-democratic forces. But disciplined and moderate monetary finance, by combating deflationary dangers, might sometimes help. So, rather than prohibiting it, we should ensure its responsible use. The likely alternative is not no monetary finance, but monetary finance implemented too late and in an undisciplined fashion…