The sobering lesson is that conventional policy may not prevent a prolonged deflationary slump. This lesson has not been lost on policymakers. The nuclear option, conceived in America but untried in Japan, is to finance public spending or tax cuts by printing money. This requires the central bank to go along with the fiscal authorities (which may prove easier in America than in Europe). It could work like this: the government announces a tax rebate and issues bonds to finance it. But instead of selling them to private investors, it lodges them with the central bank in exchange for a deposit. It draws on this account to clear the cheques mailed to taxpayers. This scheme is essentially the same as the proverbial “helicopter drop” of money, but with neater accounting and a less erratic distribution of cash. It bypasses banks and money markets, and puts money directly into people’s pockets.
Monetising a slug of public debt in this way is bound to be inflationary. But by this stage, inflation would be a blessing: an economy where conventional policy tools had failed would suffer from falling prices. A burst of inflation would lift asset prices, ease the weight on debtors (whose real burdens are increased by deflation) and improve public finances. Some central bankers will shudder at the thought. Some, but not all. Ben Bernanke, now the Fed chairman, recommended this course of action to Japan’s policymakers in 2003 (when he was a Fed governor). Indeed, he went further. One way out of a slump, he argued, is for policymakers to commit themselves to a period of catch-up inflation, to break deflationary expectations and heal the wounds from past price falls.
domingo, noviembre 02, 2008
cuando portarse mal está bien
Me encantan estas situaciones en las que no sólo Private Vices are Publick Benefits, sino que también Publick Vices are Public Benefits. El Economist glosa a La Ciencia Maldita: