European money printing is starting off with purchases of government securities. But does that makes sense? Because new money will be channelled to the rich, who will mostly save it rather than spending it and boosting the economy. Is there not a more intelligent way of monetary easing? I think there is, and in this context let me refer to what I wrote previously about the efficiency of US money printing. I maintain the same in respect of Europe; this time substitute ECB for Fed.
“The Fed would be much more efficient and it could achieve its target by printing much less money if it made its purchases of enormous value in the market of real goods rather than on capital markets. That is, by purchasing goods rather than bonds. In good measure, the central bank will go to the baker’s to fetch its donuts, to the pub for the regular pint, and to the hairdresser’s to get its hair trimmed, and will use newly printed money to pay for all that. That would be real economic stimulus and job creation, and we could say goodbye to deflation.
The idea of course is absolutely absurd—the Fed does not have the capacity, and there is nothing it could do with all the stuff, no matter how better it sounds to buy goods than bonds. Fortunately, I know folks who can carry out the task to perfection. The population has the time and the capacity, and the goods purchased would not be wasted either. They should be given the money, allocated fairly and equally. As everyone would get their share unconditionally, it would be technically similar to basic income, except that it would be financed from newly printed money. That is why it may be called monetary basic income. Since the vast majority of people are not rich, they would spend the dough rather than saving it, and take care of economic stimulus in the process. Given the crisis, they could do with a little extra support, and most of the printed money would be put to good use in the first round. By definition, they would buy from competitive businesses, those that deserve success the most. Based on the 85 billion dollars worth of monthly asset purchases of QE3, every American would get a monetary basic income of about 260 dollars in the period of money printing. In reality, the distribution of a far smaller amount would be sufficient, as the scheme would boost the economy much more efficiently than QE3.”
The specific amounts are of course different in Europe. Asset purchases worth a monthly EUR 60 billion divided by the population of the euro area would come to a per capita monetary basic income of EUR 170 (about HUF 55,000) per month. Arguably, as in the case of the US, since this is a far more efficient way to stimulate the economy than asset purchases, money would need to be printed in a smaller value only.
Whatever the specific amount in question, let us just consider the support it would provide, for example, to young people scraping along in the southern countries. In Greece or Spain, the rate of youth unemployment has been 50% for a long time, posing the severe risk of a radical lost generation emerging. Among others, they are the ones with a most compelling need for the support provided by monetary easing, and otherwise they will not notice much of that support if the ECB merely purchases bonds.
What is more, in an economy boosted by the extra money spent, they could also create jobs for themselves. That is the way the Munchhausen effect could really work and not through purchases of government securities, whereby money only lands in the pocket of the rich, who will save it rather than spending it on consumption.