Money helicopter or monetary helicopter is an expansive fiscal or monetary policy that could be carried out by governments or central banks by putting cash directly into the hands of the public.
Basically, helicopter money is an idea that consists of giving people money. Hence it is also known as “quantitative expansion for people.” The first to coin the term was economist Milton Friedman . The economist who received the Nobel Prize in economics in 1976, introduced the concept towards 1969 in his book “The optimum quantity of money and other essays” which in Spanish would be something like “The optimal amount of money and other essays.”
It is important to indicate that helicopter money is a mix between expansive monetary policy and expansive 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
The idea that Friedman proposed was illustrated by an example. The example was to throw cash from a helicopter for people to pick it up and spend it. It was a metaphorical example but it illustrated well the substance of the matter.
Since it is an expansive monetary policy or expansive fiscal policy , the objective is to stimulate aggregate demand . That is, boost the economy at a time where it is stagnant or in recession. In other words, revive the economy.
Something that usually occurs in stagnations and recessions is deflation . The economy decreases or slows and employment is destroyed. As unemployment increases , people stop receiving a salary and spend less money. The above, together with negative expectations about the future of the economy, produce a chain effect. Finally the prices fall and start again. It is a vicious circle.
The way proposed by Milton Friedman with helicopter money, was basically to encourage this expense to revive the economy and slow down the price drop. This policy should be done as a last chance. That is, if conventional monetary policies (lower interest rates ) did not work, central banks had to do something else: implement unconventional monetary policies.
Another issue would be, how to implement this policy in a viable way. Some proposals are to issue smart cards with money to spend or directly enter the money into people’s bank accounts.
Advantages and disadvantages of helicopter money
The helicopter money has been supported by many economists and criticized by many others. However, something in which everyone agrees, 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.
That said, we show below the advantages and disadvantages of helicopter money:
Advantages of helicopter money
The advantages of helicopter money are:
- In moments of deflation, slows down the fall in prices.
- It is a way to stimulate aggregate demandwithout increasing indebtedness.
- In case the public spent that money the economy would be reactivated.
- If done in a controlled manner, 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 it is not done correctly you can create hyperinflation.
- If consumers do not spend that money (they save it) the policy would not be effective.
- It is considered a difficult monetary policy to carry out properly.
