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Helicopter Money Might Be Closer Than You Think

by Mark Gilbert, Bloombergview:

Central bankers, it may soon be time to don your flying suits and start your engines. There’s a growing suspicion that quantitative easing and zero/negative interest rates have lost any power they might have had to kickstart the economy. So Milton Friedman’s famous “helicopter money” is back on the radar as a potential solution to what ails global growth.

With governments still unwilling to flex their fiscal muscles to boost the world economy, Friedman’s idea — easy to articulate, devilishly hard to envisage in practice — is very much in vogue. Here’s how he described it in “The Optimum Quantity of Money,” a collection of papers published in 1969:

 Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community.

The hope would be that putting more money directly into consumers’ pockets would send them scurrying to the shops to spend their windfalls. The ensuing surge in demand would revitalize animal spirits, averting the threat of deflation by persuading retailers to raise their prices. Inflation rates would make their way back to the 2 percent targets many countries have adopted as a safe pace of acceleration for consumer prices. In practice, a central bank wishing to drop money on its constituents would probably either just add money to their bank accounts, or move in tandem with the government to fund a national tax cut. We’d all wake up a bit richer on a Monday morning.

Friedman appended an important caveat to his thought experiment: “Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.” The truth is no one would regard a helicopter drop as a one-time event. Once the whirlybirds are in the air, they’d likely fly again and again. Moreover, if the money drops had the desired effect of reviving inflation, it’s entirely unclear how you’d go about taking stimulus back out of the economy if prices spiral dangerously higher.

Read More @ Bloombergview.com

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4 comments to Helicopter Money Might Be Closer Than You Think

  • fonestar

    We tink that “helicopter money” is a great idea actually. When you throw the money out the helicopter the roter distributes it equally to everyone underneath. Also it looks like one of those shows where the person gets 60 seconds to get as many bills blowing around their head as they can.

    • Eric

      Yes because everyone is “equal.” Speaking of equal, do you ever get off that fat butt of yours and leave the computer?

      “Helicopter money” is just another excuse for propping up this failing financial system and distributing what wasn’t earned from the productive members of society to the unproductive members of society.

  • fonestar

    Helicopter money is teh brilliant theory of Friedman to stop financial collapse and deflation. And my butt never leaves behind teh computer.

    fonestar was born to troll.

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