What is... | December 2, 2015

What is helicopter money?

Many of us have heard of helicopter parenting, when mothers and fathers constantly hover over their children and smother them with assistance. Fewer people will have heard of “helicopter money”.

Helicopter money is when authorities swoop in and offer money in a bid to stimulate an economy.

A route to growth?
The concept of helicopter money was floated by famous US economist Milton Friedman in his 1969 paper The Optimum Quantity of Money. The idea hit the headlines more recently again in 2014 as several senior economists, including Willem Buiter writing in Economics: The Open-Access, Open Assessment E-Journal, argued it could be one way of encouraging growth.

Buiter wrote that central banks could simply give money to people. The idea is that people would then have extra cash to spend on goods and services and this would get the economy growing again.

Flying higher
If helicopter money sounds like an unconventional move, that’s partly because it has rarely been put into practice. No one is really sure how people will respond to being given extra cash in this way. What if recipients choose to save the money, instead of spending it?

Opinions differ. ING economist Teunis Brosens, in this video update for eZonomics, warns that helicopter money, simply given to people, is an irreversible policy as the money cannot be redeemed. On the other hand, interest rates can be changed “at the stroke of a pen”, he points out.

More effective than QE?
Brosens suggests however that a helicopter drop could sometimes be a better option than typical actions such as quantitative easing (QE), although the risk is real.

Read an opinion about how helicopter money might work here.

“As the name suggests, helicopter money is when money drops seemingly from the sky directly into people’s bank accounts,” Brosens explains. “It is probably a far more effective way to boost spending than measures already undertaken, such as purchasing assets.”


eZonomics team
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