A group of economists has called on the Bank of England and the government to sanction direct cash handouts – so-called helicopter money – to stimulate the economy in the wake of the EU referendum.
In a letter to the Guardian ahead of the Bank of England's crunch meeting today, economists from a number of universities and think tanks across the UK, Europe and the US, claim the Bank's unorthodox, ultra-low rates policy has failed and it is time to unleash more radical options.
The group of 35, which includes the likes of Lord Robert Skidelsky, biographer of arguably the most famous proponent of public investment to stimulate economic demand, John Maynard Keynes, along with professors from Oxford University, University College London and the London School of Economics states:
It is unclear that the Bank of England has the tools to meet the challenges ahead.
After seven years of ineffective unorthodox monetary policy – which has created risks and adverse side-effects – we urge the new government to consider alternative policy approaches.
The letter argues direct cash transfers, the radical helicopter money scheme once dismissed by Bank governor Mark Carney as a "compounding Ponzi scheme", would be a more effective way of propping up the UK economy. Moreover, they claim, it would not produce the "harmful side effects" of asset bubbles and higher levels of inequality associated with quantitative easing.
"Further cuts in interest rates will not benefit the UK’s economy. Similarly, a further expansion of the Bank’s £375bn quantitative easing programme is the wrong solution for today’s economic problems," the group states.
According to financial markets the Bank is nailed-on to cut interest rates to a new all-time low of 0.25 per cent today, and some policymakers could also vote to extend the asset-purchasing programme.
The letter continues: "The Treasury and the Bank should co-operate to directly stimulate aggregate demand in the real economy. A fiscal stimulus financed by central bank money creation could be used to fund essential investment in infrastructure projects.
"Alternatively, the money could be used to fund either a tax cut or direct cash transfers to households, resulting in an immediate increase of household disposable incomes."