Flat payment misses point of hardship

The idea of a ‘‘helicopter’’ payment to every New Zealander has been floated as one way to give the economy a boost. Peter Lyons is not convinced.

IAM not a fan of helicopter cash. It’s too blunt as an instrument. This is when a government gives everyone newly created money to spend to keep the economy pumped up. To prevent the economy falling into a deflationary hole.

The Australian Government did this during the Global Financial Crisis in 2009 to keep its economy out of a technical recession. It likely worked. Each adult was given $900 and told it was their patriotic duty to spend it locally to keep the economy pumped. It worked but could have been much more effective with a few minor tweaks.

I am a bachelor of middle age. I teach economics parttime. I am still being paid despite my students having to cope with my image on Zoom each day. Several have commented that looking up my nose detracts from their learning experience. I’m not the George Clooney I thought I was. But my pay allows me to meet my basic needs. My shopping opportunities are limited. I don’t need Government support, unlike many who have taken a nasty sudden hit. I am very fortunate compared to many.

I totally support the Government pumping up demand in our economy. In a foxhole, we are all Keynesian. The alternative is a very nasty deflationary spiral. Our economy risks going into freefall.

As total demand in our economy collapses, this leads to more job losses, less output and lower incomes. This process feeds on itself.

Even worse is that some people and families are not able to meet their basic needs in a country that is capable of meeting these needs. The most vivid and immediate economic statistic we should be monitoring are the queues outside food banks. This is the most immediate indicator of our current economic situation. And it’s ugly.

But helicopter cash is too blunt an approach. I don’t need it. Many other fortunate Kiwis don’t need it. To give us a cash payment would be a total waste.

A slight tweak could make all the difference. In economics, this is called ‘‘nudge theory’’. Those who desperately need money for their basics should be required to make the call. Ring a tollfree number. Email an address. Just give some basic details like their bank account before receiving a government grant. This ensures the payment goes to those who desperately need it.

This includes overseas people stuck here through no fault of their own. We took their money during the good times. It also ensures that the payment will likely be spent rather than saved, providing stimulus for our economy. This achieves the core economic objective.

One person’s spending is always another person’s income. If we allow total spending to collapse in our economy, we are allowing total incomes and output to collapse.

We can reduce this by pumping money credits into the economy in the short term to those who need it and will spend it.

There is little doubt that some will abuse this approach. They will seek a payout without real need. I would suggest the vast majority of those who are OK at the moment will not abuse this trust.

Many Kiwis realise that, in extreme times, it’s about giving, and not taking from others in real need. If we go down the path of helicopter cash, we need to do it in the smartest possible way. A blanket approach will be less effective.