Cash Handouts Are Best Way To Boost Growth, Say Economists

[interestrateripoff]

https://www.theguardian.com/business/2016/aug/03/cash-handouts-are-best-way-to-boost-growth-say-economists

Direct cash handouts to households would be a better way of boosting Britain’s flagging economy than the interest-rate cuts expected from the Bank of England on Thursday, according to a group of progressive economists.

In a letter to the chancellor, 35 economists have urged Philip Hammond to ditch the approach that has been followed by the government since the recession of 2008-09 and give the Bank the right to try more radical options.

The letter, printed in Thursday’s Guardian, suggests that the Bank should be allowed to create money to fund key infrastructure projects. Alternatively, the group says the Bank could pay for tax cuts or direct payments to households.

The letter states: “A fiscal stimulus financed by central bank money creation could be used to fund essential investment in infrastructure projects – boosting the incomes of businesses and households, and increasing the public sector’s productive assets in the process. Alternatively, the money could be used to fund either a tax cut or direct cash transfers to households, resulting in an immediate increase of household disposable incomes.”

Pity the historical record shows that inevitable this fails.

http://lynncoins.com/fiat-money-france5.htm

I have now presented this history in its chronological order—the order of events: let me, in conclusion, sum it up, briefly, in its logical order,--the order of cause and effect.

And, first, in the economic department. From the early reluctant and careful issues of paper we saw, as an immediate result, improvement and activity in business. Then arose the clamor for more paper money. At first, new issues were made with great difficulty; but, the dyke once broken, the current of irredeemable currency poured through; and, the breach thus enlarging, this currency was soon swollen beyond control. It was urged on by speculators for a rise in values; by demagogues who persuaded the mob that a nation, by its simple fiat, could stamp real value to any amount upon valueless objects. As a natural consequence a great debtor class grew rapidly, and this class gave its influence to depreciate more and more the currency in which its debts were to be paid.[85]

The government now began, and continued by spasms to grind out still more paper; commerce was at first stimulated by the difference in exchange; but this cause soon ceased to operate, and commerce, having been stimulated unhealthfully, wasted away.

Manufactures at first received a great impulse; but, ere long, this overproduction and overstimulus proved as fatal to them as to commerce. From time to time there was a revival of hope caused by an apparent revival of business; but this revival of business was at last seen to be caused more and more by the desire of far-seeing and cunning men of affairs to exchange paper money for objects of permanent value. As to the people at large, the classes living on fixed incomes and small salaries felt the pressure first, as soon as the purchasing power of their fixed incomes was reduced. Soon the great class living on wages felt it even more sadly.

Prices of the necessities of life increased: merchants were obliged to increase them, not only to cover depreciation of their merchandise, but also to cover their risk of loss from fluctuation; and, while the prices of products thus rose, wages, which had at first gone up, under the general stimulus, lagged behind. Under the universal doubt and discouragement, commerce and manufactures were checked or destroyed. As a consequence the demand for labor was diminished; laboring men were thrown out of employment, and, under the operation of the simplest law of supply and demand, the price of labor—the daily wages of the laboring class—went down until, at a time when prices of food, clothing and various articles of consumption were enormous, wages were nearly as low as at the time preceding the first issue of irredeemable currency.

The mercantile classes at first thought themselves exempt from the general misfortune. They were delighted at the apparent advance in the value of the goods upon their shelves. But they soon found that, as they increased prices to cover the inflation of currency and the risk from fluctuation and uncertainty, purchases became less in amount and payments less sure; a feeling of insecurity spread throughout the country; enterprise was deadened and stagnation followed.

New issues of paper were then clamored for as more drams are demanded by a drunkard. New issues only increased the evil; capitalists were all the more reluctant to embark their money on such a sea of doubt. Workmen of all sorts were more and more thrown out of employment. Issue after issue of currency came; but no relief resulted save a momentary stimulus, which aggravated the disease. The most ingenious evasions of natural laws in finance which the most subtle theorists could contrive were tried—all in vain; the most brilliant substitutes for those laws were tried; “self-regulating” schemes, “interconverting” schemes—all equally vain.[86] All thoughtful men had lost confidence. All men were waiting; stagnation became worse and worse. At last came the collapse and then a return, by a fearful shock, to a state of things which presented something like certainty of remuneration to capital and labor. Then, and not till then, came the beginning of a new era of prosperity.

Just as dependent on the law of cause and effect was the moral development. Out of the inflation of prices grew a speculating class; and, in the complete uncertainty as to the future, all business became a game of chance, and all business men, gamblers. In city centers came a quick growth of stock-jobbers and speculators; and these set a debasing fashion in business which spread to the remotest parts of the country. Instead of satisfaction with legitimate profits, came a passion for inordinate gains. Then, too, as values became more and more uncertain, there was no longer any motive for care or economy, but every motive for immediate expenditure and present enjoyment. So came upon the nation the obliteration of thrift. In this mania for yielding to present enjoyment rather than providing for future comfort were the seeds of new growths of wretchedness: luxury, senseless and extravagant, set in: this, too, spread as a fashion. To feed it, there came cheatery in the nation at large and corruption among officials and persons holding trusts. While men set such fashions in private and official business, women set fashions of extravagance in dress and living that added to the incentives to corruption. Faith in moral considerations, or even in good impulses, yielded to general distrust. National honor was thought a fiction cherished only by hypocrites. Patriotism was eaten out by cynicism.

Thus was the history of France logically developed in obedience to natural laws; such has, to a greater or less degree, always been the result of irredeemable paper, created according to the whim or interest of legislative assemblies rather than based upon standards of value permanent in their nature and agreed upon throughout the entire world. Such, we may fairly expect, will always be the result of them until the fiat of the Almighty shall evolve laws in the universe radically different from those which at present obtain.[87]

And, finally, as to the general development of the theory and practice which all this history records: my subject has been Fiat Money in France; How it came; What it brought; and How it ended.

It came by seeking a remedy for a comparatively small evil in an evil infinitely more dangerous. To cure a disease temporary in its character, a corrosive poison was administered, which ate out the vitals of French prosperity.

It progressed according to a law in social physics which we may call the “_law of accelerating issue and depreciation._” It was comparatively easy to refrain from the first issue; it was exceedingly difficult to refrain from the second; to refrain from the third and those following was practically impossible.

It brought, as we have seen, commerce and manufactures, the mercantile interest, the agricultural interest, to ruin. It brought on these the same destruction which would come to a Hollander opening the dykes of the sea to irrigate his garden in a dry summer.

It ended in the complete financial, moral and political prostration of France-a prostration from which only a Napoleon could raise it.

But this history would be incomplete without a brief sequel, showing how that great genius profited by all his experience. When Bonaparte took the consulship the condition of fiscal affairs was appalling. The government was bankrupt; an immense debt was unpaid. The further collection of taxes seemed impossible; the assessments were in hopeless confusion. War was going on in the East, on the Rhine, and in Italy, and civil war, in La Vendée. All the armies had long been unpaid, and the largest loan that could for the moment be effected was for a sum hardly meeting the expenses of the government for a single day. At the first cabinet council Bonaparte was asked what he intended to do. He replied, “I will pay cash or pay nothing.” From this time he conducted all his operations on this basis. He arranged the assessments, funded the debt, and made payments in cash; and from this time—during all the campaigns of Marengo, Austerlitz, Jena, Eylau, Friedland, down to the Peace of Tilsit in 1807--there was but one suspension of specie payment, and this only for a few days. When the first great European coalition was formed against the Empire, Napoleon was hard pressed financially, and it was proposed to resort to paper money; but he wrote to his minister, “While I live I will never resort to irredeemable paper.” He never did, and France, under this determination, commanded all the gold she needed. When Waterloo came, with the invasion of the Allies, with war on her own soil, with a change of dynasty, and with heavy expenses for war and indemnities, France, on a specie basis, experienced no severe financial distress.

If we glance at the financial history of France during the Franco-Prussian War and the Communist struggle, in which a far more serious pressure was brought upon French finances than our own recent Civil War put upon American finance, and yet with no national stagnation or distress, but with a steady progress in prosperity, we shall see still more clearly the advantage of meeting a financial crisis in an honest and straightforward way, and by methods sanctioned by the world’s most costly experience, rather than by yielding to dreamers, theorists, phrase-mongers, declaimers, schemers, speculators or to that sort of, “Reform” which is “the last refuge of a scoundrel.”[88]

There is a lesson in all this which it behooves every thinking man to ponder.

https://mises.org/library/fiat-money-inflation-france

[frederico]

Economists do not have a clue how to run an economy

[knock out johnny]

Economists do not have a clue how to run an economy

Who does then?

Serious question

[interestrateripoff]

Who does then?

Serious question

Having given the question some serious thought I think asking a monkey with yes/no buttons would yield better results, they seriously couldn't get it any worse......

Although having said that if economists actually bothered reading economic history I'm sure we'd get better decisions and they'd realise the limitations of what can be achieved would create better results. The trouble with economics is politics gets in the way and the trouble with politics is economics gets in the way. Luckily the clever people have made sure both a separate entities so the problems get ignored and people can create theories that don't work.

Edited August 3, 2016 by interestrateripoff

[XswampyX]

Prisoners can.

[GreenDevil]

Haven't we been doing thius since the brown era, ie tax credits = helicopter money.

[dgul]

Who does then?

Serious question

Adam's invisible hand.

[Crumbless]

Who does then?

Serious question

Not many, so keep the economists and politicians out of it and let it run itself.

Britain has been a success over the centuries in spite of its self serving and highly corrupt ruling class.

Edited August 3, 2016 by Crumbless

[olde guto]

Not many, so keep the economists and politicians out of it and let it run itself.

Britain has been a success over the centuries in spite of its self serving and highly corrupt ruling class.

In part because of the massive empire and hence resources it once had.

[zugzwang]

Adam's invisible hand.

No such thing. In the absence of an auctioneer, a bookmaker or a regulator there is no market mechanism capable of steering prices back to fair value (equilibrium). As a consequence prices in unregulated free markets are unstable against both noise and changing expectations. Fisher Black speculated that the concept of market equilibrium was a socially-constructed 18th Century fiction, designed to offer philosophical reassurance to capitalists in a time of acute political uncertainty and revolution. It could be argued that it's re-emergence as a current idea in the 1960s and 70s was motivated by a similar appeal.

[North London Rent Girl]

That's fascinating, zugzwang, real food for thought. Minskyite, hmm, I have failure-to-read guilt about Minsky but keep seeing/reading things about him and what a prescient genius he was. Wonder who they'll be saying that about in 40 years - nobody they're getting on the TV now, that's for sure.

What that bit of this thread brought to my mind was - less erudite - a thing I heard on the radio this morning about all the primping and tweaking they're saying should be done to get people to switch electricity suppliers. I thought hmm, all more mincing around the edges of the plain fact that the market as we have it has catastrophically failed to deliver in all kinds of crucial areas because it's based on a version of human nature that could only have been dreamt up by people who didn't know any other people. And it trashes stuff - drives the quality out of all kinds of industries (and, personal bugbear, education).

Given that they cannot now talk to any of the economists who saw it coming because to do so would be to demolish their whisper-thin narrative about how nobody saw it coming, I would nominate my parents' dog, a very clever poodle, 14 now, hips giving him jip, but he would still blow any mainstream economist out of the water, paws down, and if that monkey would lend him the yes-no button, we'd really see some relative fireworks.

[sikejsudjek]

The problem is that economists work from models that are devoid of reality. They do not take into account the problems of money creation as loans. There is simply too much debt being created to prop up asset prices.

Far better to create money for something useful than keep on creating money via loans to lend on property. For those objecting to money creation - we already have it. QE - all that was intended to do was to allow banks to keep pushing more debt on an over indebted population. No wonder it didn't work. We did not borrow £375 billion off foreigners or savers to bail out our banks - we printed it. What have we got to show for that ? Another asset bubble and not much else.

There is simply too much debt in the system - and no one wants to write any of it off. The result is the productive economy is shrinking as people buy less and less, and spend ever more of their scarce income on increased housing costs.

[Crumbless]

In part because of the massive empire and hence resources it once had.

And the reason they built an empire was because of the creativity and invention of the natives with the government taking a laissez faire approach..

If taxes were 50%, regulation a nightmare and tax credits on offer Bell, Newton, Stephenson, Baird, Watt, Brunel, Flemming etc.. might not have bothered.

[billybong]

Direct cash handouts to households would be a better way of boosting Britain’s flagging economy than the interest-rate cuts expected from the Bank of England on Thursday, according to a group of progressive economists.

In a letter to the chancellor, 35 economists have urged Philip Hammond to ditch the approach that has been followed by the government since the recession of 2008-09 and give the Bank the right to try more radical options.

The letter, printed in Thursday’s Guardian, suggests that the Bank should be allowed to create money to fund key infrastructure projects. Alternatively, the group says the Bank could pay for tax cuts or direct payments to households.

My bold.

That's not "direct cash handouts" or "helicopter money" though is it. It's actually wages for doing a job.

So that's what it's come to - economists can't actually tell the difference. As GreenDevil mentioned the other alternative they've suggested has already been tried via tax credits (and benefits for that matter).

It just confirms how wrecked the UK economy is and how few (if any) options there are to get out of it. It's all been tried already - and it's been an abject failure.

"Progressive" economists

Edited August 3, 2016 by billybong

[XswampyX]

My bold.

That's not "direct cash handouts" or "helicopter money" though is it. It's actually wages for doing a job.

So that's what it's come to - economists can't actually tell the difference. As GreenDevil mentioned the other alternative they've suggested has already been tried via tax credits (and benefits for that matter).

It just confirms how wrecked the UK economy is and how few (if any) options there are to get out of it. It's all been tried already - and it's been an abject failure.

"Progressive" economists

But why print money to give to people to do stuff that nobody would pay them to do? It's insane.

[porca misèria]

Pity the historical record shows that inevitable this fails.

The clue is in the first line of what you posted. It doesn't suggest it would be good or sensible. Merely better than cutting interest rates.

[Crumbless]

Its only ever about growth with these people, they really are just braindead w4nkers. Why not just annex Somalia then our GDP would sky rocket.

Has an economist ever brought up quality of life.

[ManVsRecession]

But why print money to give to people to do stuff that nobody would pay them to do? It's insane.

Because just because somebody wouldn't pay them because there's no profit in it, doesn't mean it isn't worth doing.

[XswampyX]

Because just because somebody wouldn't pay them because there's no profit in it, doesn't mean it isn't worth doing.

Well if the government via our taxes employ people to build new roads and railways so that amazon can shave 10% off their transport cost. Why don't amazon pay for it, if it's that great an idea? They are paying for drones, do you think we should start a tax funded program to build drones for amazon?

You do make a fair point, but what can the government build (fund via tax) that can't be funded by an actual business for it's own benefit?

Name one thing.

[Royw6]

Well if the government via our taxes employ people to build new roads and railways so that amazon can shave 10% off their transport cost. Why don't amazon pay for it, if it's that great an idea? They are paying for drones, do you think we should start a tax funded program to build drones for amazon?

You do make a fair point, but what can the government build (fund via tax) that can't be funded by an actual business for it's own benefit?

Name one thing.

A universal education system so we can all read and write. Police force is another. Fire brigade, health service for all, etc.

[TheCountOfNowhere]

https://www.theguardian.com/business/2016/aug/03/cash-handouts-are-best-way-to-boost-growth-say-economists

Pity the historical record shows that inevitable this fails.

http://lynncoins.com/fiat-money-france5.htm

https://mises.org/library/fiat-money-inflation-france

Helicopter money will find itself going straight to the bankers and the rich...it's QE by the backdoor, they really do think everyone is thick.

[evetsm]

interest rate cuts yadayada, drop money from helicopters yadayada

I've got an idea, cut rates to-20% and bury us up to our knees in money and we'll be the richest country if all time!

morons

[billybong]

direct cash transfers to households, resulting in an immediate increase of household disposable incomes.

So presumably there will have to be secure queuing points for the safe distribution of the brown envelopes containing the actual "cash". Otherwise too many might be "lost in the post".

The politicians should be able to arrange that quite easily as they're already seem to be quite familiar with that sort of system. A cakewalk for them for sure.

Each high street bank outlet could possibly be directed to be an official queuing point providing the banking system itself isn't directly involved in it as they would just want to take their usual huge slice of it all and then it would all just disappear overnight in the "and it's gone" banking system.

Of course by the time it's all distributed prices will have already gone up accordingly so everybody apart from the 1% actually ends up worse off than to begin with.

Edited August 4, 2016 by billybong

[TheCountOfNowhere]

interest rate cuts yadayada, drop money from helicopters yadayada

I've got an idea, cut rates to-20% and bury us up to our knees in money and we'll be the richest country if all time!

morons

Nail....head.

Not richest...most corrupt.

[Errol]

I could do with a nice cash handout. Would go nicely towards the next ounce.