Basic Income As A Helicopter Drop

There’s no particular reason why monetary policy has to be conducted through interactions between the central bank and a banking system. Or, rather, the reason it’s done this way is historical. Under an older set of institutional arrangements, a central bank was actually a bank and it’s importance derived from its interaction with other banks. But in the modern day, you could do something completely different. For example, Peter Frase notes that from time to time, proposals pop up for a national basic income. You could, for example, have the government send a check for $600 each month to every American citizen. Alternatively, you could have the central bank send a check for approximately $600 in newly printed money each month to every American citizen and vary the exact amount of the check in order to stabilize demand. Or, of course, you could use different numbers.

I’m not sure the politics of trying to do things that way would really work out well in the end, but it’s a potential idea for your humanitarian utopia of tomorrow. More broadly, in a strong post-Keynesian approach, I think you’d just say that the government doesn’t have to issue any bonds. If you want to increase aggregate demand, you just spend more than you tax and print money to fill in the gap. If you want to reduce inflation, you tax more than you spend and rip the bills up.

That said, I think this focus on the mechanics can get misleading. The key avenue for determining actual outcomes under our current system is expectations, and that would continue to be the case under any of these systems.