The Fair Division of a Windfall

Eric Lonergan makes the ethical case for the equal distribution of helicopter money.

An interesting debate is occurring over the ethics of granting the central bank power to make cash transfers to households. This is not an academic debate. I think one of the main stumbling blocks to this policy is indeed what I would describe as ‘pseudo-ethical’.

Jeremy Stangroom is the most articulate moral questioner of helicopter drops. His objection can be distilled: they don’t deserve it.

Simon Wren-Lewis details the distributional consequences of QE and other policies, which are hardly “deserved”. In a similar vein, I have suggested that borrowers don’t deserve zero interest rates. To which Jeremy responds that they (we) contracted in to the variability of interest rates when they took out loans, and so too did lenders.

It’s not clear to me what people have, or have not, contracted in to. Or which ‘contract’ should take precedent. For example, I might say ‘I contracted into the inflation target, and if the Bank of England doesn’t deliver 2% inflation, because it won’t do helicopter drops, it is breaching its contract.’ This may indeed be the most politically effective argument in the Eurozone.

But I don’t really buy into the basis of this discussion in the first place. My view is that ‘desert’ is a second order ethical principle, which does not apply in this circumstance. Other moral principles take precedent over what we deserve, and in this instance desert simply does not provide a helpful guide.

To make clear the second order status of ‘desert’, let’s look at some relatively uncontroversial examples: Everyone has a moral obligation to stop a child from running out in front of a car – we don’t debate desert. Everyone has right to a fair trial – ‘desert’ is irrelevant. It is unethical to drink and drive – regardless of ‘desert’.

The principle that underpins all these examples is that the interests of all those affected by a given action should be weighted and treated equally. This, or a close approximation, is the highest order ethical principle assumed in moral reasoning. Often applying it is contentious for a host of reasons, including conflicts of interests, problems of agency, how to weight differing interests etc.

The examples I have provided are not contentious precisely because the interests of those affected are very clear and extreme – a child’s life, a fair trial, a fatal car accident.

Now, ‘just reward and punishment’ are second order principles, which means that much of the time they produce results that are consistent with higher order principles, but they can be overridden or inapplicable.

Okay, now what about helicopter drops? Here is how I would make the ethical case for an equal distribution: The threat of deflation creates a windfall for society, analogous to discovering oil. The windfall is that society benefits if the state prints money at no cost. The social choice is therefore very simple: no one deserves the windfall, so how should it be distributed? We could do it arbitrarily and opaquely – pretty much what happened with conventional QE. We could engage in a highly complex Rawlsian calculation based on what we would all agree to if we knew all of the effects and didn’t know our own position in society. Good luck! We could say, distribute according to need – that’s really hard to do and the debate might last longer than the recession. Or we could give everyone the same amount.

ERIC LONERGAN IS A MACRO FUND MANAGER, ECONOMIST, AND WRITER. HIS MOST RECENT BOOK IS MONEY (2ND ED) PUBLISHED BY ROUTLEDGE. HIS INTERVIEW WITH AGENDA PUBLISHING ON THE SUBJECT OF HELICOPTER MONEY CAN BE FOUND HERE.

This article was originally published at philosophyofmoney.net.