Imagine waking one morning to find extra cash in your bank account, a gift from the European Central Bank. That sounds outlandish and some proponents of the idea admit it’s unlikely.
But the concept of so-called helicopter money has been seriously debated by economists for several years and is coming back into vogue. That’s because despite the trillions of dollars, euros, yen and pounds that central banks have pumped into the global financial system since the 2008 credit crisis, global economic growth is slowing once again.
Milton Friedman, the Nobel Prize-winning economist came up with the concept of helicopter money in 1969. Helicopter money handed directly to consumers would, in theory, send us scurrying to the shops to spend our windfalls, boosting confidence in the economy. That increased demand would allow prices to rise again, a crucial step because a slide in prices, known as deflation, is viewed as creating the risk of extended stagnation. This renewed interest in an idea that’s almost half a century old is evidence that measures previously regarded as daring have become commonplace, repetitive and increasingly ineffective.
Supporters of helicopter money argue that it may be less risky than the current quantitative easing regime, which has been blamed for fuelling what some see as a bubble in global stock and bond markets. It is also possible the benefits would be spread more broadly.
Opponents point out that helicopter money isn’t really free. Printing more money devalues the buying power of what savers have in their accounts, in the same way that a company selling new shares dilutes the holdings of its existing stockholders.
Others say helicopter money is an overly complicated substitute for the fiscal stimulus governments should be providing. There’s also the danger that helicopter money could trigger much higher inflation than the 2% that’s currently deemed desirable, if people thought banks or governments might get addicted to its boost.
It might fail anyway and given that nothing in economics is currently working out the way the textbooks promised, people might just save the windfall instead of spending it.