Helicopter money

economic-dictionary

Helicopter or monetary helicopter money is an expansive fiscal or monetary policy that governments or central banks could carry out by placing cash directly in the hands of the public.

Basically helicopter money is an idea that consists of giving money to people. Hence it is also known as "quantitative easing for the people." The first to coin the term was the economist Milton Friedman. The economist who received the Nobel Prize in economics in 1976, introduced the concept around 1969 in his book "The optimum quantity of money and other essays" which in Spanish would be something like "The optimal quantity of money and other essays."

It is important to point out that the money helicopter is a mix between expansionary monetary policy and expansionary fiscal policy. Depending on the author, he will refer to the concept as monetary policy, as fiscal policy or a mixed policy.

The idea of ​​helicopter money

Friedman's idea was illustrated by an example. The example was throwing cash from a helicopter for people to pick up and spend. It was a metaphorical example but one that illustrated the substance of the matter well.

Since it is an expansionary monetary policy or expansionary fiscal policy, the objective is to stimulate aggregate demand. That is, to boost the economy at a time where it is stagnant or in recession. In other words, revive the economy.

Something that often happens in stagnations and recessions is deflation. The economy slows or slows and jobs are destroyed. As unemployment increases, people lose wages and spend less money. This, together with negative expectations about the future of the economy, produces a chain effect. Finally prices drop and start over. It is a vicious circle.

The way Milton Friedman proposed with helicopter money was basically to encourage this spending to reactivate the economy and stop the fall in prices. This policy was to be carried out as a last chance. In other words, if conventional monetary policies (lowering interest rates) did not work, central banks had to do something else: implement unconventional monetary policies.

Another issue would be how to put this policy into practice in a viable way. Some proposals are to issue smart cards with money to spend or to put the money directly into people's bank accounts.

Advantages and disadvantages of helicopter money

Helicopter money has been endorsed by many economists and criticized by many others. However, something that everyone agrees on is that if applied, it would be in very specific economic circumstances. For example, if the economy is in stagflation it would not make sense to apply it.

With that said, here are the advantages and disadvantages of helicopter money:

Advantages of helicopter money

The advantages of helicopter money are:

  • In times of deflation, it slows down the fall in prices.
  • It is a way of stimulating aggregate demand without increasing indebtedness.
  • Should the public spend that money, the economy would reactivate.
  • If done in a controlled way, there should be no danger of hyperinflation.

Disadvantages of helicopter money

The disadvantages of helicopter money are:

  • Governments can become dependent on helicopter money.
  • If not done correctly it can create hyperinflation.
  • If consumers do not spend that money (save it) the policy would not be effective.
  • It is considered a difficult monetary policy to carry out properly.

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