We live in interesting times, and not just because Donald Trump has become the presumptive Republican candidate for president. Famed bond fund manager Bill Gross, who has been railing for years against the Federal Reserve’s bond buying program, known as quantitative easing policy, writes in his Janus Capital investment outlook for May that the Fed should revive a QE-like program in order to fix an ailing economy.
”We should spend money where it’s needed most – our collapsing infrastructure … health care for an aging generation and perhaps on a revolutionary new idea called UBI – Universal Basic Income,” writes Gross, now lead portfolio manager for the Janus Global Unconstrained Bond strategy. “If that strikes you as a form of socialism, I would suggest we get used to it.”
Gross writes that “every industry in existence” will likely need fewer workers in the future because robots will replace people, and not only in blue collar jobs, as they have been doing, but in white collar professional jobs as well. “Millions of jobs will be lost over the next 10-15 years” due to the “robotization of our future global economy,” writes Gross.
As proof, he cites Bureau of Labor Statistics data showing that just 78% of the eligible U.S. work force between ages 25 and 54 is working now compared with 82% in 2000. The difference “seems small but it’s really huge. We’re talking 6 million fewer jobs,” writes Gross. “Our new age economy – especially that of developed nations with aging demographics – is gradually putting more and more people out of work.”
While Gross’ embrace of a QE-like program is new, the concept of universal basic income, which he supports, is not. Proponents of the idea include Thomas More in the 1500s, Thomas Paine in the 1700s and Richard Nixon and Canada’s Manitoba provincial government in the 1970s. Currently there are plans in Ontario, Canada; Utrecht, Netherlands and Finland for trial UBI programs, and Switzerland is holding a June referendum on whether to provide every adult citizen a basic monthly income equivalent to about $2,600. In the U.S., Y Combinator, a Silicon Valley startup incubator, has announced it will study the issue.
For Gross, there are two key issues for any UBI program: the amount of income guaranteed and funding. He doesn’t favor raising taxes to finance a UBI program but supports the concept of “helicopter money,” popularized by Nobel Prize-winning economist Milton Friedman, who served on President Ronald Reagan’s Economic Policy Advisory Board. Even former Fed Chairman Ben Bernanke has written that such a program, which he calls a Money-Financed Fiscal Program, or MFFP, could be a useful tool to support economic recovery or to avoid too-low inflation. As Bernanke explains it, under such a program the Fed would permanently increase the money supply not by issuing new debt to the public, as it did under QE, but by giving money to the Treasury to maintain in its checking account at the Fed. Alternatively the Treasury could issue new debt, which the Fed would purchase and hold indefinitely, returning any interest back to the Treasury.
The primary cost of such a program will be would higher inflation, which “is what the central banks claim they want,” writes Gross.
“We are approaching a point of no return with negative interest rates and QE purchases of corporate bonds and stock,” writes Gross. “I believe that for now central banks will print more helicopter money via QE … and reluctantly accept their increasingly dependent role in fiscal policy. … Prepare for renewed QE from the Fed.”
Not so fast. Ben Bernanke wrote in his blog last month that “money-financed fiscal programs (MFFPs), known colloquially as helicopter drops, are very unlikely to be needed in the United States in the foreseeable future,” but should not be ruled out.
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