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Have the Helicopter Money advocates thought through time lags?

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I won’t be as exact in separating monetary and fiscal issues, but the flaw I see in many HC proposals is that the economy is a dynamic system for which all the basic differential equations are differentiated in time. To the degree that CB monetary policy has any real impact, the principle difficulty is that they are not controlling an independent variable which has any direct connection to the most important dependent variables (unemployment, growth rate, inflation). Most of the HC proposals in this respect are monetary policy because they have no direct connection to real production. e.g. HC money to households may, or may not, raise spending, but any increase in real production will occur with a lag; HC money to the Treasury doesn’t change direct spending, it is really very close to QE (without eventual balance sheet reduction) and the hoped for reduction in real interest rates or taxes will occur with a substantial time lag. Coupled differential equations with time lags very often become chaotic. The obvious (to a scientist) solution is to do what we do in the lab, and in your refrigerator and furnace, and in everything from fighter jets to self driving cars: control the dominant independent variable(s) as a function of the most important, weighted, dependent variables. Total employment is Private + Government. If we want to impact overall employment we have very direct control of Gov. employment. Inflation is less direct, but reducing Gov. employment and differentially increasing effective tax rates have much more direct impact than the Fed Funds Rate. Intuitively the proposed HC options all have time lags in the real economy. The lesson of the Great Recession is exactly that it is the time dependence of the coupled differential equations that matter, something DSGE type models will never capture (because they are mistakenly assuming an Equilibrium, when it should be clear we have “equilibrated” now at a lower level). Yes I know this is just a repackaging of Kalecki, but we now have much more data. HC money which directly employs more people will absolutely work, and it probably doesn’t take much compared to the other approaches. So have the HC money people ever thought through the time lag issue?

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Posted by John Daschbach
Posted on 08/30/2016 4:47 PM
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Hi John,

I’m not really able to judge this to be honest. I don’t think there’s a consensus on what HC even is. Given that there’s no consensus on what HC even is I don’t think we can say that these proposals are all flawed for the reasons you cite….

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Cullen Roche Posted by Cullen Roche
Answered on 09/04/2016 3:57 PM
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    Real helicopter money is not sterilized. Eric Longergan gave the best definition: http://www.talkmarkets.com/content/bonds/eric-lonergan-precisely-defines-helicopter-money?post=92811

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    Answered on 10/07/2016 1:59 PM
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