Free The Alchemists: Three Central Bankers and a World on Fire by Neil Irwin Page A

to come, or until inflation finally returned to normal levels. If people viewed the promise as credible, the economy would pick up as businesses started charging higher prices in anticipation of higher inflation.
    But talk is cheap, and the BOJ could, these economists argued, move more directly to increase the supply of money in the economy. The bank could create yen from thin air and use them to buy things—government bonds, shares of stock, office buildings. The existence of all those extra yen in the economy would create enough inflation to break the cycle of falling prices. In one story that made its way around the Bank of Japan and was repeated by economist Richard Koo, but which may be apocryphal, Bernanke visited Tokyo in the early 2000s as a Fed governor and argued that the BOJ could pump yen into the economy by buying
anything
—even tomato ketchup. (Bernanke doesn’t remember saying it and doubts he would have been so flippant. Former BOJ officials interviewed in 2012 had heard about his comment, but none could attest to hearing it themselves.)
    Even if Bernanke never used it, the ketchup line gets at one of the basic problems facing a central bank in a zero-interest-rate world: Although the bank has the unlimited ability to create money, getting that money circulating around in the economy isn’t necessarily easy. When a bank raises or lowers interest rates, it changes the price of money in the economy, but it doesn’t determine who gets money and who doesn’t. It doesn’t, in other words, favor the makers of ketchup over those who make mustard—or, for that matter, houses or clothing or automobiles. In theory, choosing winners and losers in the economy is a job for democratically elected officials—for fiscal policy, not monetary policy. Modern societies have generally accepted that it’s a good idea to have unelected economists turning the dials of the money supply. If they start deciding not just the amount of money created but also what it’s used to buy, however, they’ve gone an undemocratic step too far.
    In a time of ZIRP, a central bank needs some help from fiscal authorities to spread its newly created money through the economy. Getting it can mean violating the independence from politics that modern central banks hold dear. Bernanke acknowledged this reality in a 2002 speech about Japan’s troubles: A central bank, he said, could buy government bonds, and fiscal authorities could then use that money to temporarily cut taxes. It would be a “helicopter drop” of money on an ailing economy.
    Later, when critics nicknamed him “Helicopter Ben,” Bernanke surely regretted invoking that particular metaphor.
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    M asaru Hayami spent his adult life witnessing a Japan ascendant. Born in 1925, he spent the middle decades of the twentieth century rising through the ranks of the Bank of Japan. Although he held only an undergraduate degree, he worked on the international staff, representing the bank in Basel and in other overseas forums. He was a devout Christian, unusual in a predominantly Shinto and Buddhist nation, and peppered his public comments with references to Bible verses. He also had, people who knew him said, a deeply felt sense that a strong currency was equivalent to a strong nation. “In the first half of the postwar period, he attended many negotiations with Western countries when the yen was very weak,” said Kazuo Ueda, a BOJ policymaker from 1998 to 2005 and now a University of Tokyo professor. “Probably he thought the weakness of currencies is painful. . . . Over time the economy developed, the yen became stronger, and maybe he saw some causal relationship between the two.” That made him reluctant, as governor of the Bank of Japan, to do anything that would push the value of the yen down sharply—even if that’s exactly what economic theory suggests the nation needed to get its economy back on track.
    Besides, he saw many other problems that needed