QE for EZ people: send each adult citizen a €500 cheque..

John Muellbauer of Oxford University says time for helicopter drop in EZ.

Eurozone deflation is likely to become reality when the annual inflation figure for 2014 is announced in January. This column argues that the ECB should develop a strategy that works in the Eurozone’s unique financial setting, instead of following the Fed’s lead. The author proposes that the ECB should pursue ‘quantitative easing for the people’, such as sending each adult citizen a €500 cheque.

He says ECB should get hold of population registers and start dispatching cheques directly to people:

Clearly, the ECB must develop a strategy that works in the Eurozone’s unique system, instead of attempting to follow the Fed’s lead. Such a strategy should be based on Friedman’s assertion that ‘helicopter drops’ – printing large sums of money and distributing it to the public – can always stimulate the economy and combat deflation. But, in order to maximise the impact of such an operation, the ECB would also have to find a way to ensure fair distribution.

One simple solution would be to distribute the funds to governments, which could then decide how best to spend them in their countries. But the EZ’s rule against using the ECB to finance government spending bars this approach.

A more reasonable option would be to provide all workers and pensioners with social-security numbers (or the local equivalent) with a payment from the ECB, which governments would merely aid in distributing. Another alternative would be to use the electoral register, a public database that the ECB could use independently of governments. Of the roughly 275 million adults in the Eurozone, some 90% are on the electoral register. Nothing in EZ law forbids the ECB from undertaking such an independent action.⁴

There is an important difference between the ECB implementing a €500 per-adult-citizen hand-out as part of monetary policy and governments doing this as traditional fiscal policy. Economists have long worried about myopic politicians over-spending, for example, just before an election in order to influence the voters and thus creating a ‘political’ business cycle, or simply perpetually spending too much, and as a result running too high government deficits. That is an important reason why the ECB is not allowed to directly finance government spending. But it is quite a different matter for an independent central bank, subject to its governing council and the representation of different countries on that council, to directly hand out cash to households as part of its method of meeting its inflation mandate. That is why I would classify this as monetary policy and not just a devious way of by-passing Eurozone rules.

EZ is looking at options which US was looking around 2010 and Japan looking at for more than 20 years now.