Coppola Comment

When the efficacy of (unconventional) monetary policy is discussed, the point that is often raised is that QE is ineffective because it directs money to the rich, who have a lower marginal propensity to consume than the poor. People argue that if only we could direct money to the poor - perhaps by throwing money out of helicopters into deprived areas - monetary stimulus would be far more effective. The same argument appears in debates about the effect of inequality on growth. Consumption drives growth (well, it's not quite that simple, but bear with me); inequality concentrates income in the hands of a few at the expense of the many; the rich few have a lower marginal propensity to consume than the (relatively) poor many, so spending is less than it would be if inequality were lower. Therefore rising inequality impedes growth. But here is John Cochrane : "Didn't Milton Friedman demolish the whole concept of "marginal propensity to consume" 70 years ago?&quo;