The thesis behind the book is that, although quantitative easing since the Great Financial Crisis of 2007/8 has failed, the cause of failure was its implementation, not the policy itself. Quantitative easing was a policy proposed by Milton Friedman and Ann Schwartz back in 1963 as a way to counter a financial depression, or “Great Contraction” as they termed it. The idea was to radically increase the money supply, providing consumers with money to resuscitate the economy. Five years later Friedman used the metaphor of a helicopter dropping money over communities to achieve this goal. He emphasised that it had to be a one-off event to discourage people from saving it, thinking there was more to come.
Following the Great Financial Crisis, central banks worldwide initiated Friedman’s policy of helicopter money, dispensing trillions of dollars. However, as Coppola explains, this massive use of quantitative easing, or the “Great Experiment”, failed because Friedman’s “‘helicopter drop” came to mean not putting money into people’s pockets, but rather casting money blindly onto international financial markets without regard to where it would end up. The desired result did not happen; instead we find ourselves in the “Long Stagnation”.
So where did the helicopter money go after it was distributed to the financial sector and corporations? Much of it was invested in emerging markets. Corporations used it to buy back shares to increase the price of their stock and bonds without increasing productive activity, or as Coppola writes “Wall Street is awash with money, while Main Street dies of thirst”. This explains the asset bubbles and the low unemployment rate in some nations, while wages remain stagnant.
Friedman starts from MV = PQ.
If V falls then we’re going to have a recession possibly plus deflation – the two possibly being a depression.
So, if V falls increase M.
Did V fall? Yes. Did we increase M? Yes. Did we have a depression? No. Did we have deflation? No. In fact, once we started QE, the recession stopped.
QED, QE worked.
Helicopter money is something else, something more, to be done only if QE fails.
The argument that the new money must flow through to the real economy isn’t QE, that’s straight Keynes. Let’s go spend lots of money on stuff. And sure, that can work. We can have lovely arguments about whether it works better etc, but it’s a well known thing.
And we’re really not going to do $4 trillion of it, as the Fed did with QE. ‘Coz it’s a different thing, see, subject to different constraints.
“There must be zero tolerance of polices that exacerbate inequality and hurt the poor. Public investment banks and sovereign wealth funds must be created in every nation.Laws and rules forbidding cooperation between governments and central banks need to be removed, especially in view of the climate crisis.”
And that’s just being stupid. The reason we have central bank independence is so that the politicians don’t control everything.