Enrico Grazzini
Here we examine the main differences between Fiscal Money or Tax Discount Bonds (TBDs) which are issued by the state and backed by the future tax revenues, Helicopter Money, that involves a central bank dropping free money straight into people’s pockets – and Quantitative Easing for the People (QEP). Helicopter Money (HM) has recently been advocated by many economists (such as Eric Lonergan and Martin Wolf, chief economics commentator at the Financial Times) as the very best solution of last resort to increase demand and face the next possible crisis while QEP has been proposed by Labour Party leader Jeremy Corbyn as the optimum way to expand the British economy in an equitable way. Nonetheless, Fiscal Money (FM) is the best (and maybe the only one) way out to overcome the liquidity trap and the austerity constraints.
A group of Italian scholars is proposing Tax Discount Bonds to the Italian government as a way to boost aggregate demand and increase GDP without increasing public debt. TDBs are euro-denominated bonds issued by the state and valid for tax discount: they mature 2/3 years from issuance, but they are negotiable on financial markets and so immediately convertible into legal currency. TDBs would be assigned free of charge and could swiftly increase spending power. They could become the oxygen required to exit the liquidity trap, increase income and create new wealth thanks to the Keynesian multiplier. In fact, we assume that the fiscal multiplier exceeds 1 (one) when capital and labour resources are greatly under-utilized and interest rates are close to zero (as now in the Eurozone).
Our project envisages issuing a large number of TDBs over three years: the total would be equal to 2-3% of national GDP so as to cause a (healthy) monetary shock, increase demand promptly and boost the economy. TDBs are not refundable in euro by the state: so, according to Eurostat criteria, they do not constitute any financial liability and must not be accounted for as debt. Thanks to the multiplier effect, the rapid GNP growth will produce more fiscal revenues so as to counterbalance the potential deficit occurring when the TDBs are utilized as a form of fiscal reduction two years after issuance.
In order to increase consumption, this “free money” would be allocated to families in inverse proportion to income while it would be assigned to companies in proportion to the number of their employees, so as to reduce the cost of labour, increase firms’ competitiveness and retain a balance in trade. The state can also use TDBs to pay for public works and increase employment and private investment.
Because TDBs are assigned free of debt to households and business, they can easily be compared with HM (see the concepts of Milton Friedman, J. M. Keynes, Ben Bernanke). FM is very similar to but not the same as HM. There are variants of HM but, either way, HM is always issued by a central bank, whereas FM is issued by a national government. HM is about a central bank printing money and giving it directly to the people in order to increase demand. Rather, FM is about a state issuing fully guaranteed bonds as tax rebates. The differences in a nutshell are: in HM central banks are the main players, while national governments have the leading role in FM.
For ordinary people both HM and TDBs would look like windfall money. But Fiscal Money is by far the better solution for the Eurozone because, for institutional and political reasons, it would be very difficult for the ECB to print money and assign it directly to the people. Even QE – or the ECB printing money mainly for the benefit of Eurozone banks – has been questioned by the Bundesbank and the German government which dictate austerity policy so HM will be never accepted by the German authorities. On the contrary, FM can always be freely issued by a national government because each Eurozone state is sovereign in fiscal policy and because FM is fully compliant with all Eurozone rules.
Fiscal Money can be also compared to QEP but is not the same thing. Corbyn would like the Bank of England to issue new money to finance a state bank and public investment. But the ECB would never agree to implement QEP in the Eurozone since it implies financing member countries’ public budgets and fostering national government control on the economy. On the contrary, FM is not about financing public deficits and does not imply state command over the economy. According to the Fiscal Money project, national governments would assign TDBs directly to the households, companies and (only pro quota) to government administrations.