>>1786-1787
Sims: So they often involve something like the government issuing a lot of debt, and the central bank committing to buy all the debt. The commitment has to involve a promise not to sell the debt. Otherwise it doesn’t look like Helicopter Money. So these schemes, all could work, but I actually don’t like them. Because to make them work, you have to make people understand that they actually involve a fiscal commitment. And calling it Helicopter Money makes it sound like it’s not fiscal. I’d rather that the policy was implemented and explained as a certain kind of fiscal expansion, an unbacked fiscal expansion, and without claiming that it’s something the central bank does by itself. So I think Helicopter Money proposals are well-intentioned attempts to make it feasible to get a fiscal expansion of the type I’ve advocated. But I think they don’t really make it more likely that the policy will be successfully implemented. I think it would be better just to say we need a fiscal expansion, and also this helps to keep clear that this is an unusual period in which we require help from the fiscal authorities for the central bank to fulfill its mission.
Sakurai: Some people see that inflation is one kind of tax on households, and that there is not much difference between an inflation and tax on a household perspective it’s the same thing. Would you agree, and is the difference just on the impact on inflation?
Sims: It’s true inflation is a tax, and it’s just not like other taxes, because it falls more heavily on people who have assets and no loans denominated in Yen. So when I make this proposal I’m not suggesting that financing the debt with inflation is painless. It’s painful and it’ll be more For some people, it will be more painful than financing it by taxes. The reason we want to do this, is not to substitute inflation for taxes and paying the debt. It’s rather because we think that the economy does not function very well when inflation is near zero. Shifting from a tax that keeps inflation at zero, a pure consumption tax, to one -an inflation tax- that may be able to raise a similar amount of revenue, it has an advantage to the function of the economy as a whole. It’s not going to make the true burden of the debt any smaller. The true burden of the debt is the amount of debt out there that can be paid for by taxes explicitly, or can be paid implicitly by inflation, and both of those forms of payments are costly to people. But, if you make the inflation rate go up, we think that the economy may start to function better, and they may actually help to pay off the debt. If you can get growth to get back on a more rapid path, it of course raises the tax base, and makes it much easier to avoid expansion of the debt. What’s needed is an understanding on the part of the public, and the commitment by the government not to increase future taxes or cut future expenditures so long as you’re staying below the targeted inflation rate. And that does not require any major increase in the deficit. It might work quicker if there were an increase in the deficit. There’s some reason to think increased spending in ways that increased employment might increase inflationary pressure. But the fundamental issue is to be sure that this is not seen as just another ineffectual expansion of the deficit.
