A helicopter drop, originally conceptualized by the eminent economist Milton Friedman, refers to an innovative economic stimulus strategy where cash is directly distributed to the public, metaphorically as if dropped from a helicopter. This measure is designed to boost economic growth and spur inflation by significantly increasing the money supply. Over recent decades, helicopter drops have arisen as notable policy responses to major economic shocks.
Key Takeaways
- Origin: Helicopter drop, a concept by economist Milton Friedman, involves injecting cash into the economy, stimulating it as though the money were scattered from the sky.
- Mechanisms: The infusion occurs through mechanisms like increased government spending, tax cuts, or directly boosting the money supply.
- Modern Utilization: Recent stimulus measures, such as those during the COVID-19 pandemic, echo the principles of helicopter money.
Understanding Helicopter Money
Helicopter money can be described as an expansionary economic policy financed by disproportionately increasing the economy’s money supply. It typically encompasses increased government expenditure or tax reductions that dispatch large sums of printed money directly to the populace to stimulate consumer spending, thus jump-starting economic activity, particularly during deflationary periods.
Though the term originates from Milton Friedman’s theoretical musings, it gained broader attention after former Federal Reserve Chair Ben Bernanke referenced it in a key speech in 2002 as a method of combatting deflation. Bernanke posited that monetary and fiscal policy cooperation—akin to the broad-based tax cut described by Friedman—could revive demand and curb deflation.
Bernanke’s usage of the term earned him the nickname “Helicopter Ben,” which reflected both support and criticism of his unconventional methods when addressing the 2008 Great Recession.
Notable Examples of Helicopter Money
Japan’s Consideration of Helicopter Money
In 2016, Japan debated the potential implementation of helicopter money during prolonged periods of economic stagnation. Distinguished advocates Milton Friedman and Ben Bernanke played influential roles, with Bernanke even meeting Japanese leaders to discuss policy solutions like issuing long-term perpetual bonds. Ultimately, Japan opted for other monetary interventions, such as enhanced asset purchases.
COVID-19 Pandemic and Helicopter Money
The direct-to-taxpayers stimulus checks distributed by the U.S. Government under the CARES Act in response to the COVID-19-induced economic crisis exemplify helicopter money. Initial payments of $1,200 per taxpayer, followed by another round involving $600 payments, helped alleviate economic strain during lockdowns.
The Fed’s Response to the Pandemic
The Federal Reserve’s actions during the COVID-19 recession additionally align with helicopter money principles through various notable programs:
Paycheck Protection Program
The Paycheck Protection Program Liquidity Facility (PPPLF) offered liquidity to banks for lending to small businesses, aiming to maintain payrolls. Though it mandates repayment, the immediate influx of funds echoed helicopter money strategies.
Main Street Lending Program
The Main Street Lending Program, inclusive of five credit facilities, extended support through loans to small and mid-sized companies to ensure financial stability during the pandemic.
Corporate Bond Purchases
The Fed, in coordination with the Treasury, initiated the Secondary Market Corporate Credit Facility (SMCCF) to acquire investment-grade corporate bonds and ETFs—methods reflected in QE designed as helicopter drops to stabilize markets.
Through these actions, exemplified by the Fed’s expanded balance sheet, the institution enhanced liquidity and ensured economic activity continuity, showcasing modern adaptations of helicopter money principles.
Related Terms: quantitative easing, fiscal policy, money supply, deflation.
References
- Friedman, M. “The Optimum Quantity of Money and Other Essays”. Aldine, 1969.
- Federalreserve.gov. “Remarks by Governor Ben S. Bernanke, Deflation: Making Sure It Doesn’t Happen Here, Fiscal Policy”.
- Appropriations.House.gov. “H.R. 133: DIVISION-BY-DIVISION SUMMARY OF COVID-19 RELIEF PROVISIONS”.
- Federalreserve.gov. “Paycheck Protection Program Liquidity Facility (PPPLF)”.
- Federalreserve.gov. “Main Street Lending Program”.
- Federalreserve.gov. “The Corporate Bond Market Crises and the Government Response”.
- Federalreserve.gov. “Federal Reserve Statistics Release H.4.1, Factors Affecting Reserve Balances, Consolidated Statement of Condition of All Federal Reserve Banks, Section Five”.
- Congressional Research Service.“The Federal Reserve’s Response to COVID-19: The Effect of the Federal Reserve’s COVID-19 Response on Its Balance Sheet”, Page Seven.
