Kemal Dervis writes: The <\/i>Economist <\/i>recently asked of monetary policymakers. Stephen Roach has called the move by major central banks \u2013 including the Bank of Japan, the European Central Bank, and the Bank of Sweden \u2013 to negative real (and, in some cases, even nominal) interest rates a \u201cfutile\u201d effort that merely sets \u201cthe stage for the next crisis.\u201d And, at the February G-20 finance ministers meeting, Bank of England Governor Mark Carney reportedly called these policies \u201cultimately a zero-sum game.\u201d Have the major advanced economies\u2019 central banks \u2013 which have borne the burden of sustaining anemic post-2008 recoveries \u2013 really run out of options?<\/p>\n
It certainly seems so. Central-bank balance sheets have swelled, and policy rates have reached their \u201cnear zero\u201d lower bounds.<\/p>\n
But policymakers have one more option: a shift to \u201cpurer\u201d fiscal policy, in which they directly finance government spending by printing money \u2013 a so-called \u201chelicopter drop.\u201d The new money would bypass the financial and corporate sectors and go straight to the thirstiest horses: middle- and lower-income consumers. The money could go to them directly, and through investment in job-creating, productivity-increasing infrastructure. By placing purchasing power in the hands of those who need it most, direct monetary financing of public spending would also help to improve inclusiveness in economies where inequality is rising fast.<\/p>\n
Helicopter drops are currently proposed by both leftist and centrist economists.<\/p>\n
Even with such an approach, however, major central banks would have to coordinate their policies.<\/p>\n
Success also hinges on the simultaneous pursuit of fiscal expansion worldwide, with each country\u2019s efforts calibrated according to its fiscal space and current-account position. The expansion should finance a global program of investment in physical and human infrastructure, focusing on the two key challenges of our time: cleaner energy and skills for the digital age.<\/p>\n
Economic orthodoxy and independent actions have clearly failed. It is time for policymakers to recognize that innovative international policy cooperation is not a luxury; sometimes \u2013 like today \u2013 it is a necessity.<\/p>\n
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Kemal Dervis writes: The Economist recently asked of monetary policymakers. Stephen Roach has called the move by major central banks \u2013 including the Bank of Japan, the European Central Bank, and the Bank of Sweden \u2013 to negative real (and, … Continue reading