Can the ECB create money for a universal basic income?

Funding basic income through taxation is costly. At the same time, low consumer demand is a major worry. The European Central Bank could kill two birds with one stone by giving money directly to citizens.

Finnish social welfare agency KELA’s basic income experiment has got plenty of attention in Finland and elsewhere. This is not surprising: in recent years various proposals for a basic income have been submitted by a growing number of scientists, politicians and non-governmental organizations in several countries.

According to a study by the Municipal Development Foundation, 51 percent of the Finnish population supports basic income. Last year, even greater support was found on surveys in France and the Spanish region of Catalonia.

The popularity of unconditional basic income can be explained by the fact that it can be argued from various standpoints: the left is attracted to the idea of eliminating poverty and making citizens freer; the right wants to simply welfare benefits, and encourage people to get out of benefits and take up whatever work is available.

There are problems with basic income models that still need attention. The most common of which was brought up last week In an interview on the Finnish public broadcaster Yle, history professor Juha Siltala brought up one of the most common objections: “We should really consider a basic income that you can really live on. But who pays it then?”

When KELA hinted that they might pay up to 800 euros per month, unconditional and tax-free, to participants in their basic income pilot, Canadian professor James Milligan dismissed the idea as “typical fiscal nonsense.” According to Milligan, if the amount was given to the whole population, it would require doubling the Finnish tax rate.

But what if a universal basic income is funded by other means, in addition to taxation?

The ECB to the rescue
In recent years, the European Central Bank (ECB) has tried to support the eurozone’s lagging inflation through “quantitative easing” (QE), a measure used by other central banks as well. The ECB has been buying securities from institutional investors such as banks, using large amounts of fresh money.

So far, national economies have not responded as hoped: despite the increase in the value of securities, consumer prices have stagnated.

Last year the leader of the British Labour Party Jeremy Corbyn promoted the idea of “People’s QE” in which the Bank of England would channel money directly to citizens, not banks.

The proposal received wide support, and many people believe the ECB should follow suit. Even former IMF chief economist Olivier Blanchard praised the idea.

The expression that Corbyn used is misleading, however, because in his proposal the money is not channeled directly to the public, but to government, which then uses it to stimulate the economy through infrastructure projects and other measures.

Another model was suggested by a group of 19 economists, who signed a letter published in the Financial Times (FT) in March last year. They proposed that the money should be given directly to citizens of the eurozone countries. The idea was to use ECB money to give 175 euros per month to each citizen for 19 months.

Economist Milton Friedman once called this kind of payments “helicopter money”: it is as if the money is just thrown at people from the sky, with no strings attached. Effectively, what the FT letter proposed was a eurozone-wide unconditional basic income paid by the ECB.

One problem with helicopter money is inflation
If the ECB funds infrastructure investment and fiscal policy, it strengthens the position of states substantially. The impact of a pan-European basic income would be the opposite. It would transfer a substantial part of social security funding from states to the ECB. In addition, allocation of money would be determined by citizens, not governments.

The FT letter did not call for a permanent and comprehensive basic income. After all, 175 euros per month is a significant sum in the poorest countries of Europe, but not much at all in countries like Finland.

There are other problems. If the ECB pays a higher basic income, rising demand could lead to massive inflation, unless production of goods increased at the same pace as demand. ECB’s quantitative easing has inflated equity prices for a long time, but sharp increases in the prices of real goods are generally considered more harmful to the economy.

In addition, direct monetary payments to states and citizens would be incompatible with the EU treaties and further limit ECB’s independence.

Despite these problems, a pan-European basic income would have a distinct advantage when compared to a national basic income. A national basic income in countries that attract most migrants would make them an even more popular destination. A pan-European payment would equalize the differences between countries.

Two birds with one stone?
One model discussed by basic income activists would entail that the ECB pays the same amount to all European citizens. The countries with higher living expenses would top up their citizens’ basic income from their national treasury, or from the common EU budget.

Such an arrangement may sound utopian, as it would require a major revision of existing national social security frameworks, and probably a reform of the entire financial system.

But the reality is that the challenges faced by the current welfare arrangements and the economic system are reaching a crisis point. Many jobs have been shredded, and, as technology advances, returns from labor and tax revenues no longer increase as labor productivity rises.

Still, we need money to sustain consumer demand and fund social security. A pan-European basic income financed by the ECB could solve both problems. There is no doubt that we will see more of such discussions in the public sphere in the near future.

 

Eurodividend: A partial basic income paid to all Europeans

Europe is in deep trouble – economically, socially, and politically. We need new, bolder and stronger instruments to counter the forces of disintegration. A partial basic income paid to all Europeans – a Eurodividend – could become the policy instrument that safeguards the EU and especially the Eurozone from asymetric economic shocks and reconciles citizens with the idea of European integration.

Today, the risk of poverty and social exclusion levels in the EU and in particular the precarity of young people, child poverty and in-work poverty are extremely worrying whilst the prospects of the EU’s 2020 poverty target (i.e. to lift 20 million people out of poverty by 2020) look rather dim. Moreover, unemployment levels remain very high and particularly affect young people whereas the technological and digital revolution is affecting employment in various aspects, through the replacement of a great amount of jobs, the reorganisation of the workplace and the increase of the gap between productivity gains and income earned by workers. Finally, in the Eurozone, the introduction of the euro has produced increasing economic divergence between deficit and surplus countries (in terms of GDP per capita, labour productivity or unemployment levels among others) as well as important social imbalances in terms of public investment in education, healthcare, or social security. Continue reading “Eurodividend: A partial basic income paid to all Europeans”

ECB should design, decide and implement the helicopter money programme

Instead of injecting the equivalent of €2.2 trillion into financial markets, the ECB could have injected a quarter as much money and distributed €1,000 to all adult citizens in the eurozone.

The European Conservatives and Reformists (ECR) group in the European Parliament recently launched “Leer Geld”, an initiative led by MEP Sander Loones, to raise awareness about the effects of the monetary policy conducted by the European Central Bank (ECB).
The initiative is to be welcomed: monetary policy is too often overlooked by civil society, yet its impact on our lives has never been greater. Under its “quantitative easing” programme (QE), the ECB has been buying large quantities of government bonds since 2015. Surely injecting the equivalent of 20 percent of GDP into the eurozone finance sector cannot be without consequences. Continue reading “ECB should design, decide and implement the helicopter money programme”

QE for People’s 10 steps forward in 2016

2016 was marked with a series of successes in challenging the ECB’s strategy and bringing the discussion on monetary policy forward. Please find below 10 of the achievements we are most proud of.

1. We organised a conference at the European Parliament

In February we hosted a very successful and well-attended conference at the European Parliament thanks to key supporting MEPs Molly Scott-Cato, Fabio de Masi and Paul Tang. The conference was an important step to establish the campaign’s credibility within the EU. Check out the highlights from the event here. 

2. The European Parliament published a report on helicopter money

In April, the European Parliament’s research service dedicated a special policy report on the concept of ‘helicopter money’. The report mentions our work and is broadly positive.

3. A great event in Paris

We also started to build a national coalition in France, and raised our profile by organising a public conference on May 31st in Paris. Key supporters of the campaign presented different proposals for QE for People. The conference was well covered in the French media. Check out the highlights here.

4. 18 MEPs signed an open letter to the ECB

In June, we convinced 18 MEPs to sign a joint letter to Mario Draghi, asking the ECB to “dedicate significant expertise and resources to studying the viability and implementation of innovative policies”. The letter was covered by the Financial Times.

5. We demonstrated the feasibility of QE for People

In September we intensified our lobbying activities in Brussels. In order to convince more MEPs about the need for QE for People, we produced a policy briefing which summarizes how and why the ECB could distribute money directly to citizens. The report is one of the few papers which clearly shows why (and how) the measure would be legal.

6. The vast majority of the population would support QE for People

In October, a European-wide survey evaluated whether people would support the ECB for distributing money directly to individuals. The results showed that 54% would be in favour, with only 14% against. The survey also evaluates how people would spend the money.

7. The European Parliament criticized QE for the first time

In November, the European Parliament adopted its annual resolution on the ECB. In contrast to previous years, for the first time the parliament expressed important concerns on quantitative easing, especially on its lack of effectiveness and its undesired side-effects.

8. The ECB itself admitted QE for People would be legal

In December, the ECB itself came out with a public letter which broadly supports our view. The ECB said ‘helicopter money’ is legal, if it is designed within the monetary policy framework. This is probably the most insightful statement the ECB has ever made on this topic, which shows they are actually thinking about it!

9. We exposed the ECB’s support for climate change industry

We partnered with Corporate Europe Observatory to scrutinize the ECB’s corporate bonds purchases and found out that the ECB is indeed fueling polluting industries that are far away from the EU’s anti-climate change commitments. The report was mentioned in the Guardian and lots of other national media. Following up on this, Green MEPs decided to write a letter to the ECB.

10. We established a public-interest voice on monetary policy

In Europe list elsewhere, the debate one monetary policy is mostly dominated by the financial sector. We are the only European voice representing civil society in monetary policy issues. About 10,000 people are following the campaign. We are doing our best to make your voice heard!

2016 was incredibly busy and fruitful. Looking forward, 2017 looks even more exciting and promising. Yet new opportunities are emerging and more visible actions are becoming possible thanks to our growing list of supporters. Take part and join us!

Original post by Stan Jourdan on http://www.qe4people.eu/what_we_achieved_in_2016

ECB confirms ‘Helicopter Money’ is Legally Feasible under Conditions

Mario Draghi first discussed the notion of ‘helicopter money’ in March 2016, saying “it is an interesting concept.” Since then however, the head of the European Central Bank repeatedly stated that the idea that central banks could distribute money directly to citizens, was fraught with accounting-wise, technical and legal complexity.” However the ECB had declined at several occasion to specify in detail which were the foreseen legal obstacles.

In a letter dated 29 November to Spanish MEP Jonas Fernandez, the ECB finally provides clarifications. And our interpretation of the letter lead to the conclusion that those legal issues are very weak and solvable.

The QE for People campaign praises the ECB for finally providing this legal clarification. “By providing a detailed answer on this point, the ECB acknowledges its understanding of our proposal, which many economists say could bring significant benefits to the economy” said Stan Jourdan, QE for People campaign coordinator.

Helicopter money must be designed as monetary policy

Continue reading “ECB confirms ‘Helicopter Money’ is Legally Feasible under Conditions”

MEPs call on Mario Draghi to consider helicopter money

Eighteen members of the European Parliament have signed an open letter to the Head of the European Central Bank, emphasizing the need to consider “helicopter money” — a proposal to distribute money directly to people as a citizens’ dividend.

Some advocates argue that a basic income should be financed by “helicopter money” — the printing of new money by central banks for direct distribution to individuals. To be sure, the policy is contested, even among basic income supporters. Many suggest redistributive policies to fund a basic income, as opposed to the creation of new money, and some have vocally opposed helicopter money. Continue reading “MEPs call on Mario Draghi to consider helicopter money”

Helicopter money or European Unconditional Citizens Income?

Somewhere in March 2015, the European Central Bank (ECB) launched its long-awaited programme of quantitative easing (or QE), adding lots of public debt to the private kind it has already been buying. Its monthly purchases will rise from around €13 billion ($14 billion) to €60 billion until at least September 2016. The ECB is just the latest central bank to jump on board the QE bandwagon. Most rich-economy central bankers began printing money to buy assets during the Great Recession, and a few, like the Bank of Japan, are still at it. But what exactly is quantitative easing, and how is it supposed to work? Continue reading “Helicopter money or European Unconditional Citizens Income?”

Can helicopter money kick start the Eurozone?

With Eurozone growth still sluggish, should the European Central Bank (ECB) consider a radical option – like helicopter money?

ING senior economist Teunis Brosens explains, in this eZonomics video, that the ECB has already employed quantitative easing[1] and lowered interest rates below zero. But how effective these measures will be is unclear, he says.

Continue reading “Can helicopter money kick start the Eurozone?”

What is helicopter money?

Helicopter money is a reference to an idea made popular by the American economist Milton Friedman in 1969.

In the now famous paper “The Optimum Quantity of Money”, Friedman included the following parable:

Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.”

The basic principle is that if a central bank wants to raise inflation and output in an economy that is running substantially below potential, one of the most effective tools would be simply to give everyone direct money transfers. In theory, people would see this as a permanent one-off expansion of the amount of money in circulation and would then start to spend more freely, increasing broader economic activity and pushing inflation back up to the central bank’s target. Continue reading “What is helicopter money?”

Van Parijs: An unconditional basic income in Europe will help end the crisis

In an interview given after the conference on the “Unconditional Basic Income” (UBI) organised in the European Economic and Social Committee, Phillippe Van Parijs argued that the EU should put in place such a basic income for all of its citizens, to help it escape the crisis, and to show that it is a community that “cares” for all its members.

Philippe Van Parijs is a Belgian philosopher and professor at the Université Catholique de Louvain (UCL). He talked to EurActiv’s Tanja Milevska. Continue reading “Van Parijs: An unconditional basic income in Europe will help end the crisis”