I recently suggested that there's a paradox about inheritance tax - that the sort of people who instinctively support it should in fact oppose it, and vice versa. I suspect there's a similar paradox with the debate about helicopter money - those who advocate it should in fact think it'll be little better than other policies, whilst those who should most favour it seem not to do so.
To see what I mean, let's define helicopter money. It does not mean that Sir Mervyn throws £20 notes from a heliopter. Instead, it means that the government hands money to the private sector - by, say, a tax cut or increased investment.It finances this by issuing gilts which are immediately bought by the Bank of England with newly-created base money. Those gilts are then cancelled. A helicopter drop, then, as Simon says, is just a money-financed fiscal expansion. But how does this differ from a bond-financed expansion, in which the government sells gilts to the private sector?
The standard answer* is that the extra supply of gilts reduces their prices and hence raises their yields; in the textbook model, we move up the LM curve. This increases borrowing costs for companies, thus reducing capital spending and so - to some degree - offsetting the fiscal stimulus.
The case for a money- rather than bond-financed fiscal stimulus thus rests upon the response of gilt yields to extra supply. The more gilt yields rise if their supply increases, the better - in terms of macro stimulus - is a money-financed expansion.
Who, then, would we expect to support a money-financed stimulus? Obviously, the sort who think that extra gilt issuance would frighten the markets.
By contrast, the sort of people who think there's huge demand for safe assets - so the government can sell gilts without depressing their prices much - won't see much advantage in a money-financed fiscal expansion over a bond-financed one.
Which brings me to my paradox. This exactly not the division we're seeing. For example, Martin Wolf endorses a helicopter drop, but he has written that "the massive fiscal deficits being run by the UK and US are not...crowding anybody out of the market." But if you believe the latter - as I suspect you should - then a bond-financed expansion is fine and we don't need a helicopter drop.
On the other hand, we'd expect Tories - who want government debt to come down - to favour a helicopter drop. But AFAIK, few do so.
There is, I think, an explanation here. A money-financed fiscal expansion, as Simon and Sir Mervyn agree, tends to raise future inflation. To some this is no problem and might even be a good thing. To others, it is. Perhaps, then, the old division between rightist inflation hawks and leftish/Keynesian inflation doves lingers on**.
* I'm ignoring Ricardian equivalence, as this doesn't seem a live issue now.
** Sir Mervyn and Mark Carney both oppose helicopter drops. This isn't necessarily because they are inflation hawks. It might be because they see the inconsistency between raising future inflation and retaining an inflation target.