the flaws of stimulus

One-Month Money — Frequently Asked Questions

What is One-Month Money about?

One-Month Money (buy from Amazon UK, Amazon US, Harriman House) is divided into two parts. Part One — ‘The Case for Change’ — explains why our current economy is inherently unstable, and why our tools of fiscal and monetary policy can only ever hope to moderate, but never eliminate, this instability. This section ends with an explication of secular stagnation in developed economies. Driven by a structural decline in workforce growth, secular stagnation will make our current remedies, already inadequate, even more so.


To Stimulate or not to Stimulate

Keynesians like Paul Krugman and Simon Wren-Lewis have been working overtime in defence of their beliefs. The anti-Keynesian attack began before Christmas, when U.K. Chancellor of the Exchequer George Osborne wrote in the WSJ that Keynesians wanting more spending and more borrowing “were wrong in the recovery, and they are wrong now.” The attack continued when John Cochrane penned a WSJ opinion piece denouncing the efficacy of government stimulus. In it, he pointed to the fact that the US has grown despite austerity as proof that deficits are not only useless but harmful.

The Case for the Helicopter Drop

In my book, I explore the efficacy of our various forms of “stimulus,” which are usually broken down into monetary stimulus (lower interest rates and QE) and fiscal stimulus (deficit spending, tax cuts, and redistribution.) Another type of stimulus, which blurs the line between monetary and fiscal, is for the central bank to inject newly-created money directly into people’s bank accounts. Instead of swapping money for government debt, as with QE, the central bank would hand out money for free. This is a new, untested, and highly experimental form of economic stimulus, and because it wasn’t receiving mainstream coverage at the time I was writing my book, I didn’t explore it in great depth. So I thought I’d share a few thoughts now.