He­li­copter money?

The Malta Business Weekly - - LEADER / NEWS -

The fol­low­ing is the def­i­ni­tion as found in Wikipedia. (There’s ac­tu­ally a lot more. Quite in­ter­est­ing).

He­li­copter money is a pro­posed un­con­ven­tional mone­tary pol­icy, some­times sug­gested as an al­ter­na­tive to quan­ti­ta­tive eas­ing when the econ­omy is in a liq­uid­ity trap (when in­ter­est rates near zero and the econ­omy re­mains in re­ces­sion).

Al­though the orig­i­nal idea of he­li­copter money de­scribes cen­tral banks mak­ing pay­ments di­rectly to in­di­vid­u­als, economists have used the term ‘he­li­copter money’ to re­fer to a wide range of dif­fer­ent pol­icy ideas, in­clud­ing the ‘per­ma­nent’ mon­e­ti­za­tion of bud­get deficits – with the ad­di­tional el­e­ment of at­tempt­ing to shock be­liefs about fu­ture in­fla­tion or nom­i­nal GDP growth, in or­der to change ex­pec­ta­tions.

A sec­ond set of poli­cies, closer to the orig­i­nal de­scrip­tion of he­li­copter money, and more in­no­va­tive in the con­text of mone­tary his­tory, in­volves the cen­tral bank mak­ing di­rect trans­fers to the pri­vate sec­tor fi­nanced with base money, with­out the di­rect in­volve­ment of fis­cal au­thor­i­ties. This has also been called a cit­i­zens’ div­i­dend or a dis­tri­bu­tion of fu­ture seignior­age.

The phrase “he­li­copter money” was first coined by Mil­ton Fried­man in 1969, when he wrote a para­ble of drop­ping money from a he­li­copter to il­lus­trate the ef­fects of a mone­tary ex­pan­sion.

The con­cept was re­vived by economists as a mone­tary pol­icy pro­posal in the early 2000s fol­low­ing Ja­pan’s Lost Decade. In Novem­ber 2002, Ben Ber­nanke, then Fed­eral Re­serve Board gover­nor, and later chair­man, sug­gested that he­li­copter money could al­ways be used to pre­vent de­fla­tion.

We were re­minded of this con­cept by the re­cent gov­ern­ment de­ci­sion to send a cheque to all those who work.

Now there is a lot to say about the de­ci­sion and its mo­ti­va­tion. Some ask, for in­stance, why were pen­sion­ers ex­cluded when they are most at risk of poverty?

The above quote from Wikipedia shows there can be a pos­i­tive in­ter­pre­ta­tion of such a move. When other ex­pe­di­ents are listed, such as tax re­bates and the like, a he­li­copter drop is more im­me­di­ate, and cuts through the red tape that a tax re­bate would in­volve.

How­ever, ac­cord­ing to the def­i­ni­tion of the con­cept as re­ported ear­lier, its use is rec­om­mended in cases of a re­ces­sion, which is not the case here, or a liq­uid­ity trap, the mon­eti­sa­tion of bud­get deficits and the like.

The gov­ern­ment ex­plains this is giv­ing back part of the sur­plus to

A sec­ond set of poli­cies, closer to the orig­i­nal de­scrip­tion of he­li­copter money, and more in­no­va­tive in the con­text of mone­tary his­tory, in­volves the cen­tral bank mak­ing di­rect trans­fers to the pri­vate sec­tor fi­nanced with base money, with­out the di­rect in­volve­ment of fis­cal au­thor­i­ties. This has also been called a cit­i­zens' div­i­dend or a dis­tri­bu­tion of fu­ture seignior­age

the people who cre­ated the sur­plus in the first place – the work­ers. We say a he­li­copter drop would have been fairer if given to those at the risk of poverty. For these people, such an un­ex­pected gift would have been a real and pos­i­tive sur­prise and pos­si­bly help where real help is needed.

But the gov­ern­ment, it seems, still can­not per­ceive the real pain such people are suf­fer­ing. The blank re­sponse which a par­tic­i­pant at this week’s pre­sen­ta­tion of the Pre-Bud­get doc­u­ment got when he spoke of the suf­fer­ing of such people is quite in­dica­tive.

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