2016-02-18

The Economist: Don't Fret Western Govts, You Can Always Go Zimbabwe

If the talk of banning the $100 bill doesn't scare people, then The Economist recommending the economic policies of Zimbabwe, Venezuela and Argentina ought to do the trick.

The Economist: Out of ammo?
The time has come for politicians to join the fight alongside central bankers. The most radical policy ideas fuse fiscal and monetary policy. One such option is to finance public spending (or tax cuts) directly by printing money—known as a “helicopter drop”. Unlike QE, a helicopter drop bypasses banks and financial markets, and puts freshly printed cash straight into people’s pockets. The sheer recklessness of this would, in theory, encourage people to spend the windfall, not save it. (A marked change in central banks’ inflation targets would also help: see Free exchange.)

Another set of ideas seek to influence wage- and price-setting by using a government-mandated incomes policy to pull economies from the quicksand. The idea here is to generate across-the-board wage increases, perhaps by using tax incentives, to induce a wage-price spiral of the sort that, in the 1970s, policymakers struggled to escape.

All this involves risks.
No kidding. Destroying the currency is a risky strategy.
The greatest worry is that falling markets and stagnant economies hand political power to the populists who have grown strong on the back of the crisis of 2007-08. Populists have their own solutions to economic hardship, which include protectionist tariffs, windfall taxes, nationalisation and any number of ruinous schemes.
The Economist is proposing an economic policy that helped bring Hitler to power, and claiming protectionist tariffs are ruinous.

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