Mario Draghi said that the ECB board has not talked about it. But he didn't say that the idea of theHelicopterMoney (HM), i.e. the monetization of public deficits, is completely absurd, even if the economists of the Bundesbank consider it so. We can therefore talk about it without fearing going off the rails. As we know, for many the HM is the nuclear weapon, the one that is able to defeat the enemies of the moment: deflation and the associated risk of a new one recession. In concrete terms, as Guido Tabellini proposed in the Sole 24Ore of 19 April, the ECB would transfer the monetary base to the accounts of the national treasuries which would decide how to spend the money.
Each Member State would therefore account for a higher debt net which would be one-off in nature and would not affect the public debt because it would be financed, on a permanent basis, with central bank money. It is difficult to think that a maneuver of this type would not have positive effects on final demand, because both fiscal and monetary policies would become more expansive. So what are the reasons why the board of the ECB did not talk about it? We can make some conjectures and list possible defects or limitations of the HM.
1) We should change the treaties to allow the ECB to directly finance national treasuries. To this objection, raised by Tabellini himself, one could reply that, without changing the Treaties, the ECB can still buy public bonds on the secondary market as it is doing with QE. It should, however – and this would be the real novelty with respect to QE – commit to renewing maturing securities, again on the secondary market, and to do so on a permanent basis. In this way, it would replicate, with the legal instruments available, the concept of "helicopter money", i.e. essentially "a gift" that the ECB would give to European citizens through national treasuries. However, it is very unlikely that the current central bank board can commit all future boards to be, as Krugman puts it, “credibly irresponsible”. Thus, without changing the Treaties, HM could be done, but would have low credibility.
2) Another objection is that the monetization of large deficits is already been attempted in Japan, with very poor results on the real economy.
3) Finally, there is the objection that we can attribute to the guardians of German orthodoxy. Once the maypole has been discovered, what can guarantee that, as Tabellini proposes, politicians only use it in absolutely exceptional conditions? The temptation to would not be irresistible break into the safe of the ECB to solve the thousand problems we have in our rich nations? How could you argue to voters that this money can't be used to improve health care, eradicate poverty, raise pensions, wages or jobless benefits? And why should companies continue to make so much effort to innovate and be competitive on international markets? And why should anyone continue to pay taxes?
It is difficult to deny that these objections have some force.
