TO PRINT MONEY to finance deficits indeed has the status of a moral sin - a work of the devil - as much as a technical error. In a speech in September 2012, Jens Weidmann, President of the Bundesbank, cited the story of Part 2 of Goethe's Faust, in which Mephistopheles, agent of the devil, tempts the Emperor to distribute paper money, increasing spending power, writing off state debts, and fuelling an upswing which however ‘degenerates into inflation, destroying the monetary system’ (Adair Turner, quoting Weidmann 2012, in a speech at Cass Business School, 6 February 2013).

Lord Turner, formerly the Chairman of Britain's Financial Services Agency and once generally expected to be the next Governor of the Bank of England, but thought to be too daring a thinker by Britain's Conservative Chancellor of the Exchequer, was responsible for introducing some novel ideas into fiscal policy discussion in the autumn of 2012 and the spring of 2013, the most discussed of which was what he called OPMF - overt permanent monetary financing of the fiscal deficit. Unfortunately, he also used the term ‘helicopter money’ referring to Keynes’ celebrated joking remarks, meant to underline his point that expanding demand was the key to economic recovery. You might think of paying people to dig holes and fill them in again, he said, or print new paper money and scatter it from a helicopter.

But what Turner actually had in mind was something different - financing the fiscal deficit, not by issuing new government bonds and using the proceeds of their sale to balance the books, but simply by getting the central bank or whoever is the issuer of new money to print the necessary cash and hand it to the government.

He warns, in the speech quoted above, that this was risky medicine which might turn into poison, but he did not speculate much as to the probabilities or the mechanisms by which it might do so.

SACROSANCT TARGETS

I shall have more to say on those problems, but first, let me drive home my point that the reason why the OPMF idea did not provoke much controversy is because of an antipathy deeply rooted in the financial economics community, towards even entertaining the possibility that an inflation rate higher than 2 per cent could ever be a Good Thing.