There’s quite an interesting interview with Lord Adair Turner published here. This bit in particular caught my eye:
“I think the crucial thing, the crucial question you need to answer when you accept that we can do fiat money creation is how to discipline and I’m going to address this subject in a lecture in Germany in February, because some of my very senior German friends have said to me, “Adair, you’re absolutely technically right that this is possible”, but, without quite putting it this way, they say, “we mustn’t tell the people!” Because if the people know, and if the backbenches of Parliament as well as the small elite technocrats know that this is possible, people want to do it – not to the extent of 2% of GDP or not just when we’re in a crisis – they’ll want to do it to the extent of 10% of GDP every single year because the Chancellor of the Exchequer will know that he can always create some fiat money so the head of the Department of Health will come through and say, “so why don’t I have some of this?”
“So, we have to find…the way I think about what we did with fiat money creation…it’s like medicine which, taken in small amounts, is good for us but taken in large amounts is toxic and fatal and, essentially, we’ve decided that it’s so dangerous that we’ll put it in the medicine cabinet, lock the door and throw the key away. And for most time, throwing away that key hasn’t harmed us too much because there were other things that were so great in the economy but I think we are now in an environment where throwing away the key has harmed us. If we take it out of the medicine cabinet, we’ve got to have a believable set of political economy processes. And I think that’s the challenge to the Occupy movement and people on the radical left: how would you place it in a discipline. Now here’s one way I might place it in a discipline, say we can do it within the framework of an independent central bank: you could have a thing that says the Treasury can have an element of an unfunded deficit or it can write off some of the existing debt owned by the central bank but only with the approval of the Monetary Policy Committee of the central bank in the pursuit of a 2% inflation mandate. They can agree this amount in order to make sure at least that you hit the 2% inflation target but they have control of it. In some way or another you’ve got to place limits on it because central banks independence and rules on non-monetising, they’re like those commitment devices that people who are trying to give up smoking, or diets. On one level, it’s completely arbitrary to say you’re not allowed another chocolate until 4 o’clock in the afternoon rather than 3:59 but you have to do these rules because otherwise you won’t stick to it”.
A point pushed by Positive Money people is that a committee of clever people should decide how much new money to create rather than leaving it to private banks. The passage above seems to me to be quite a clear exposition of this idea. Others would argue that this is anti-democratic, and the decisions should be taken by elected politicians. So my question would be, does Lord Turner have a point?