A recent BBC article on Britain’s sick economy (growth-stalled, employment stagnant, mired in public debt, much as ours is) proposed a number of ‘crazy’ solutions.

Each proposal is seriously entertained by a clique of economists.  In the end, every one of these schemes amounts to a version of the same solution: aggressive, forced stimulus of the aggregate demand for goods and services by using some mix of debt repudiation, currency debasement, deliberate inflation and the threatened destruction of saved assets.

Collectively these government-forced changes in our economic arrangements would be intended to drive ‘hoarded’ private resources back in to the active investment pool without much concern for whether the investments would actually generate sustainable commerce.

This is a valuable piece, provided you are sane and still retain a bit of critical intelligence.

I will link the full piece below.  But here are some of the gems, starting with this teaser:

“… [C]ould there be a yet-to-be-tried miracle cure for our economic malaise?

At the heart of our malaise is a massive overhang of debt left over from the property boom years, particularly the mortgages taken on by young families, commercial landlords and small businesses. That debt built up in the decades before 2008, reaching five times our yearly economic output, and has not gone away… It has become an albatross around our collective necks. Those with the debts – not least the government – are reining in their spending in order to get their finances back under control. These are the zombie businesses and households who are struggling to stay afloat.”


One option … would mean that if the economy does not grow fast enough, the Bank would be obliged to encourage faster price rises instead. …But promising more inflation is not enough, the promise has to be credible. If people and businesses are to be convinced to go out and spend more, they have to truly believe that the Bank will do what it says on its tin. The problem is that old habits die hard. After the bruising experiences of the 1970s, many central bankers throughout the Western world still fret about losing their straight-laced, inflation-fighting credentials. This … is even stronger in Germany, where the hyper-inflation of the 1920s is linked in …to the rise of Hitler. …[S]o ingrained is the aversion to inflation, that some economists argue that the credibility of central bankers is the problem. The outspoken left-wing economist Paul Krugman has called for the US Federal Reserve to “credibly promise to be irresponsible” – to say that it will continue stoking inflation even after the US economy has already recovered. According to Prof Krugman, that is the only way that the central bank could convince everyone that they really ought to go out and start spending their money right now before prices start rising. Others have gone further, saying the Fed chairman Ben Bernanke should don a Hawaiian shirt and smoke a bong, to make the crazy promise more credible.


“Now that the debts have got out of hand, perhaps it is a good thing that traditional monetary policy has reached its natural limit. The Bank of England could just give money away….[but] in the UK the Bank of England lacks the authority to give money away. That is the Treasury’s prerogative. So the option of “helicopter money” would involve a collaboration between the two. In theory, there is no debt created…helicopter money also has plenty of opponents…The policy is also known as currency debasement, and lay behind the many hyper-inflations in history, including those of Weimar Germany and Zimbabwe….When investors lose confidence in a currency, they can lose it very quickly. The pound had one brief scare in late 2008, when its value plummeted to almost one euro.”


“Just get rid of the debt. For example, the Treasury could write a cheque for, say, £10,000 in newly-minted helicopter money to everyone in the country, on the condition that the cheque must be used to pay off existing debts.”


“Another concern is the precedent that the jubilee would set – the so-called moral hazard risk. If people get it in to their heads that if they run up too much debt, the government will come running to their rescue, what is to stop them running up even more debt in the future? Is it possible that people might unlearn the lesson of the past five years – that we cannot go on borrowing forever?


Whenever the term ‘moral hazard’ creeps into the conversation, the hair on the back of my neck starts to tingle.  I can imagine something like the following exchange taking place early in Hitler’s Germany between two naïve future targets of the regime.

“I heard that they are euthanizing severely retarded children, now.”

“I heard that too.  Very advanced thinking, given our limited resources, but maybe a moral hazard?”

“No so much.”

One uses the term ‘moral hazard’ to conceal the fact that a significant moral boundary has already been crossed, but the issue is being discussed as an engineering problem in containment, as in “that’s a harmless leak in the dam, don’t you think?”  Sort of like one of my former clients, the habitual thief, who would say, on being caught again, “I did one too many yesterday,” or “Maybe I should cut down on my burglaries for a while,” or my personal favorite, “Guess what? Another arrest happened to me last week.”

The destruction of the value of retained, earned assets in the form of savings is already programmed to take place, especially in the case where the stashed money was never banked, because of the front-loaded inflationary pressures of “QE”.  The US version of QE is helicopter money, used to replace debt with fiat (i.e., unearned) money. A trillion here, a trillion year (to paraphrase the late Everett Dirksen[1]), and “pretty soon you are talking real money”.  When policies that sacrifice honestly earned savings in order to coerce investments are called a mere ‘moral hazard’, this means a moral lapse affecting someone else; but when it affects you, it becomes an actionable moral offense.

The operation of the real economy, the one that generates earned money from producing and selling goods and services that people actually want at prices that make the enterprise economically worthwhile for the producers, seems to be a mystery to the political class and their economic advisors of the moment.  A healthy commercial economy depends on transparency, predictability and trust.  The run on the Cypress banks is a perfect example of what takes place when that trust breaks down.  Entire countries have disintegrated over much the same sort of “moral hazard” and their governments were replaced with bumbling, malevolent authoritarian ones.

The private investment money that remains parked just out of reach is not being controlled by some imbecilic pawns beholden to the political class.  Authentic, sustained economic growth requires risk taking by intelligent investors who can reasonably expect to be able to keep the rewards of their efforts if the risk pays off.  And in the larger world economy, these risk takers (call them members on the entrepeneuriate) still have choices of timing, location, legal, financial and political climate…and location.  Threaten them with confiscation and they will disappear along with their resources, ideas, innovations and managers.  In the current era, Atlas does not shrug, Atlas relocates.

The US commercial economy is laboring under a heavy political load of permissions and restrictions, unrelated to basic health and safety concerns, a load that in certain vital economic sectors it seems the businesses might as well be dealing with corrupt third world functionaries.  We do have a rational, effective and workable path out of this: Lift the political load on commerce until the recovery takes hold; then do not re-impose it.

Our recovery d depends on political humility, the realization that the political management of investments or any other aspect of the commercial economy (other than those limited measures needed to provide a stable legal and financial environment that promotes trust and transparency) is outside the competence of the political class.

From conservatives, we hear vague references to deregulation.  From the liberals we hear that business must be made “more socially responsible.”  No one seems to really get it.

Our situation cries out for a frank and open acknowledgment that the political load on the private economy (all those petty permits, permissions, layers of bureaucrats impeding rather than facilitating development, the rules and restrictions that are imposed without any rational relationship to the public good or the needs of the business) are a velvet covered jackboot pressing on the nation’s carotid artery.  You can’t get much blood out of a corpse…or for long.

It is within the legislative and constitutional power of the Congress and the president (working together!) to enact a complete reversal of the growth-impeding network of federal regulations of commerce.   This could be implemented on an emergency basis as a blanket repeal of all federal regulations in place from a given date (say the start of the last federal fiscal year of Bill Clinton’s second term), with a 90 day review period during which a commission would decide to exempt given regulations from repeal for compelling reasons of public health and safety.  Thereafter, no new regulation could be imposed without an “economic growth impact report” in the style of the currently required environmental review.  Any regulatory measure with a possible negative economic impact could not go into effect without congressional approval.  States would be encouraged, but not required to conduct a similar process.

Before you reject this reasonable idea out of hand, consider the nature of the “crazy” alternatives listed by the BBC, including the Helicopter money idea; and Paul Krugman’s startlingly frank advocacy of irresponsibility: That the government “has to say that it will continue stoking inflation even after the US economy has already recovered. According to Prof Krugman, that is the only way that the central bank could convince everyone that they really ought to go out and start spending their money right now before prices start rising.”

No April Fools here.


Copyright © 2013 by Jay B Gaskill, Attorney at Law

Author contact for permissions (none needed for forwards and pull quotes) and reader comments is via email < >.

BBC NEWS > 11 March 2013 ‘Budget 2013: Radical options for the UK economy’ By Laurence Knight Business reporter

[1] The legendary Congressman and Senator from Illinois (1896-1969) reportedly quipped on the Johnny Carson television show that, “A billion here, a billion there, pretty soon, you’re talking real money.”

Leave a Reply