Helicopter money: Views of leading economists

Richard Baldwin 13 April 2016

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The media seems awash with talk about rotary flight – the ‘helicopter money’ or ‘helicopter drop‘ of Milton Friedman and Ben Bernanke fame. This is understandable.

Recessionary and deflationary tendencies are increasingly baked into expectations, making a Japan-like scenario more likely. The negative trends are proving increasingly impervious to conventional and unconventional monetary policy. Fiscal policy could help, but it appears to be tied up in political conundrums, as are many pro-growth structural policies.

As this trend is fostering deep and grievous social and political unrest, minds have been turning to increasingly radical thoughts – including thoughts about what sort of economic policy could reverse the dangerous drift. The leading contender in this ‘radical thoughts’ category is helicopter money; it is a concept that seems to be moving, slowly, from crazy to inevitable. But this begs a series of questions.

Leading economists on ‘helicopter money’

What does helicopter money really mean? Is it as crazy as it sounds? Could it be undone? Practically speaking, how would it be implemented? VoxEU writers have been providing research-based policy analysis and commentary on the helicopter options for years.

Here is a full list of the relevant VoxEU.org columns:

Helicopter money: The illusion of a free lunch

Claudio Borio, Piti Disyatat, Anna Zabai 24 May 2016

Seven years on from the great financial crisis and despite central banks being seen by many as ‘the only game in town’, there has been a renewed push for monetary policy to experiment even further. One of the latest proposals is the revival of Milton Friedman’s ‘helicopter money’. But have all the implications of what many see as central banks’ ‘nuclear option’ been fully appreciated? This column argues that this is not the case. Realising the benefits that its proponents claim exist would require giving up on interest rate policy forever.

A helicopter drop for the US Treasury

Ricardo Caballero, 30 August 2010

The US may be near a liquidity trap. This column argues that the ineffectiveness of monetary policy can be turned on its head by using money creation to finance fiscal policy stimulus – such as a large but temporary cut in sales taxes. To avoid future problems, the Treasury could commit to transfer resources back to the Fed when the economy is back to full employment. This would be a helicopter drop with a drainage contingency.

Helicopter money as a policy option

Lucrezia Reichlin, Adair Turner, Michael Woodford, 20 May 2013

With persistently weak economic conditions becoming the norm in Europe, economists are considering increasingly unconventional policy options. One tool that has yet to be taken out of storage is ‘helicopter money’, i.e. the overt monetary financing of government deficits. This column recounts a policy debate on helicopter money that was held at LBS in April 2013 among three of the world’s leading monetary economists.

Secular stagnation: The time for one-armed policy is over

Willem Buiter, Ebrahim Rahbari, Joe Seydl, 05 June 2015

Stagnation is gripping several of the world’s largest economies and many view this as secular, not transient. This column argues that many economies need both demand-side stimulus and supply-side reform to close the output gap and restore potential-output growth. A combined monetary-fiscal stimulus – i.e. helicopter money – is needed to close the output gap, and this should be accompanied with extensive debt restructuring, policies to halt rising inequality, and additional public infrastructure investment.

Combatting Eurozone deflation: QE for the people

John Muellbauer, 23 December 2014

Eurozone deflation is likely to become reality when the annual inflation figure for 2014 is announced in January. This column argues that the ECB should develop a strategy that works in the Eurozone’s unique financial setting, instead of following the Fed’s lead. The author proposes that the ECB should pursue ‘quantitative easing for the people’, such as sending each adult citizen a €500 cheque.

Fiscal stimulus via ‘helicopter tax credits’

Biagio Bossone, Marco Cattaneo, 04 January 2016

‘Helicopter tax credits’ have been proposed as a means of injecting new purchasing power into the economies of Eurozone Crisis countries. This column outlines one such system for Italy. The Tax Credit Certificate system is projected to accelerate Italy’s recovery over the next four years, and will likely be sustainable. It also provides a tool to avoid the breakup of the Eurosystem and its potentially disruptive consequences.

Eurozone recovery: there are no shortcuts

Roberto Perotti, 13 September 2014

There is a growing consensus that austerity is contributing to the Eurozone’s macroeconomic malaise, but also that spending cuts are needed in the long run to achieve fiscal sustainability. Some commentators have advocated a temporary tax cut financed by unsterilised ECB purchases of long-term public debt, accompanied by a commitment to future spending cuts. This column argues that such commitments are simply not credible – especially given the moral hazard problem created by central bank monetisation of debts.

Helicopter money: Today’s best policy option

Biagio Bossone, Thomas Fazi, Richard Wood, 01 October 2014

High debt and deflation have afflicted Japan, the Eurozone, and the US. However, the monetary and fiscal policies implemented so far have been disappointing. This column discusses the importance of helicopter money in the form of overt monetary financing in addressing these problems. Overt money financing is the policy with the highest impact in raising demand and output without increasing public debt and interest rates.

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Topics:  Macroeconomic policy Monetary policy

Tags:  helicopter money, helicopter drop, monetary policy

Professor of International Economics at The Graduate Institute, Geneva; Founder & Editor-in-Chief of VoxEU.org; exPresident of CEPR

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