But it’s already here!
It has finally sunk in: what everyone really wants is helicopter money. Central banks, instead of transferring trillions of newly created dollars or euros or whatever to the banks should just hand them directly to the people, like dropping bank notes from a helicopter, so that these people can grab them and spend them all in one fell swoop, thereby creating sudden artificial demand, driving up inflation, and solving all economic problems of our times.
Instead of creating asset price inflation, as QE had done, it would create consumer price inflation. Wages would still remain stuck, and workers would soon not be able to buy the normal things at these inflated prices, but that wouldn’t matter because now they’re getting helicopter money, and companies could increase their sales, margins, and profits simply by raising prices without having to sell a single extra item.
Among economists, it’s the hottest idea of the century. But the ECB will have none of it. Or so it said today, on two different occasions, by two different officials, curiously using the same words.
“It’s not on the table,” ECB Executive Board member Peter Praet told a bunch of economists today who’d been pushing for an answer at a conference organized by the Center for Financial Studies in Frankfurt.
He hadn’t come to discuss helicopter money. His speech was all about rationalizing monetary policy measures that have become absurd to everyone except to those who’ve been drinking the Kool-Aid.
He was explaining how these measures — the negative interest rates, the more-than-free money where lenders pay borrowers, the purchases of bonds, including securities backed by Italian non-performing corporate debt, the whole schmear — would “ward off the risk of a too prolonged period of low inflation,” although low inflation benefits every worker in the Eurozone.
He was talking about “transmission channels” such as the “portfolio rebalancing channel” or the “direct pass-through channel.” The whole thing that “the ECB has adopted since June 2014 has been effective,” he concluded. It was the kind of ECB-congratulatory speech that every Executive Board Member has in their drawer to be pulled out on short notice.
The economists in his audience know all this stuff. They’ve heard it ad nauseam. So they pushed him on what they really wanted: helicopter money.
Milton Friedman first mentioned the “helicopter drop” of money as a thought experiment, rather than a serious policy. In 2002, Ben Bernanke, at the time a Fed governor, referred to the theme in a speech and has henceforth been called “Helicopter Ben.” At the time, it wasn’t a compliment.
But now economists are taking this thing seriously.
“It’s not even discussed informally,” Praet emphasized to his rapt but disappointed audience. They’d tasted the Kool-Aid, and it was so good, even though it hadn’t worked, or more likely had made things worse, and now they wanted something even stronger.
The New York Times, which reported on the conference, is already taking helicopter money seriously enough to delve into the mechanics of it, how it might be both illegal and hard to do in the Eurozone.
But handing out free money would not be easy. The ECB has no procedure for distributing cash fairly to the roughly 335 million people in the Eurozone. One mechanism might be to give everyone a tax cut. But that is probably illegal under Eurozone rules, which bar the bank from getting involved in member governments’ financing.
Also today, ECB Vice President Vítor Constâncio told the European Parliament that helicopter money was out of the question: “We are not considering anything of that sort,” he said. “So it’s not on the table in any shape or form.”
Note the repetition by both speakers of “not on the table,” perhaps a sign that this is a choreographed counterattack.
And yet, helicopter money has been around for years. It’s been tried across the world without being called that way, even in the US.
When President Bush signed the Economic Stimulus Act of 2008, he called it a “booster shot” for the US economy. It’s “large enough to have an impact, amounting to more than $152 billion this year, or about 1% of the GDP,” he said. That was in February 2008. A few months later, the Treasury started issuing rebate checks of $600 to individuals and $1,200 to married couples. Most adults got one whether they needed it or not.
At the end of that year, the Fed started printing money and buying up Treasuries, including those that had been issued to pay for these checks. Thus the loop was closed. Perfect helicopter money. It was so successful that the US ended up in the Great Recession.
But it sure was nice getting that free money! We loved it. Everybody loves helicopter money. Even tax rebates or tax cuts at a time when the central bank buys government bonds issued to fund the deficit is helicopter money.
If it really worked, humans could just rest on their laurels, and central banks could simply hand out freshly created money, directly or indirectly. It would solve all problems. It would even solve the most intractable unemployment problem because no one would have to work. That’s why, among some economists, it’s the hottest idea of the century.
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