Roger Farmer's picture
Affiliation: 
University of Warwick
Credentials: 
Professor of Economics

Voting history

Covid-19: Economic Policy Response

Question 3: Which would be the maximal public debt you would be willing to tolerate if used effectively (as in your answers to 1 and 2 above) to support an economic recovery?

Answer:
>140% of GDP
Confidence level:
Extremely confident
Comment:
In the current low interest rate climate, there should be no limit on the size of a temporary fiscal expansion as long as it is financed by money creation. This is NOT an argument in support of modern monetary theory. The stipulation that this would be a temporary measure, designed to preserve employment relationships, is critical. Inflation is caused by growth in nominal demand, fueled by ever increasing nominal debt. Now is NOT the time to be concerned about nominal debt.

Question 2: Which of the following would have the second greatest impact in mitigating the economic effects of the coronavirus economic crisis in the UK?

Answer:
Financial asset purchases including QE
Confidence level:
Extremely confident
Comment:
There has been a great deal of interest in NGDP targeting. The arguments of the proponents of this policy are often misunderstood. Real GDP will fall; perhaps by a lot. Nominal GDP should not be allowed to fall. The best way to achieve that goal is by direct intervention in the asset markets. Scott Sumner has advocated central bank intervention in the NGDP futures market. But that market is thin or non existent. A better alternative is to intervene directly in the stock market. The Treasury should first define the assets it is prepared to buy. This should be a very broad value weighted index fund over all publicly traded stocks. Second, it should purchase a sizable chunk of assets, financed by issuing gilts. Third, it should stand ready to buy or sell that fund to support its price at a preannounced value and adjust that price to target a price path for NGDP.

Question 1: Which of the following would have the greatest impact in mitigating the economic effects of the coronavirus economic crisis?

Answer:
None of the above, other, or no opinion
Confidence level:
Extremely confident
Comment:
All of the above. Cash transfers are essential to keep families afloat. Support for SMEs is essential to ensure that jobs do not disappear. Cash transfers to businesses will be more effective than low interest loans. These should financed by money creation. This is a temporary helicopter drop that will, and should, cause a once and for all price increase. As long as it is temporary and does not lead to a permanent money financed deficit, it will not lead to inflation. The second important element, so far missing in all countries policy responses, is QE through direct support of an index fund over a broad index of stocks. The Treasury should issue debt and use it to buy shares in an index fund of stocks. They should then announce a policy to support the price of that fund by unlimited purchases if necessary. This policy will pay for itself once the crisis is resolved and the market returns to its pre crisis value.

The UK Productivity Puzzle

Question 4: Which of the following policies would be your second choice of policy to boost private sector productivity, in addition to or absent your first choice?

Answer:
Investments in human capital including education and job retraining.
Confidence level:
Not confident at all

In the last two questions you are asked which government policies are best suited to help the UK emerge from its productivity growth slowdown. Question 3 asks for your most preferred policy option, while question 4 asks for your second choice. You may use the comment section to outline specific policy recommendations.

Question 3: Which of the following policies would best help improve private sector productivity?

Answer:
None of the above, other, or no opinion
Confidence level:
Not confident

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