The advantages of helicopter money are clear. Unlike changes to interest rates, stimulus paid for by the central bank does not rely on increased borrowing to work. This reduces the risk that central banks help inflate new bubbles, and adds to their potency when crisis or uncertainty make the banking system unreliable. Fiscal stimulus financed by borrowing provides similar benefits, but these could be blunted if consumers think taxes must eventually go up to pay off the accumulated debts—a problem helicopter money flies around.
A paper published in 2014 by Jordi Galí, an economist at the CREi, an economics-research centre in Barcelona, reckoned that money from the sky could have “strong effects” on a slumping economy with only mildly inflationary consequences. A recent analysis by economists at Deutsche Bank points out that most rich economies have turned to central-bank-financed spending in past emergencies, especially during the world wars, when America and Britain were notable enthusiasts. In some cases, this led to hyperinflation. Yet printing money to escape a slump should pose less risk than printing money to fund a state too weakened by war to raise taxes, particularly if control of the presses is left in the hands of independent central banks.
The real problem with helicopter money is that it is a technical solution to a political problem. Europe’s economic slump has been worse than those in America and Britain partly because the ECB has been slower to use policies like QE, for instance. That is because European law forbids the central bank from financing governments. Only last year did the spectre of deepening deflation allow Mr Draghi to argue there was an urgent monetary-policy justification for bond-buying. For the ECB to pursue helicopter money, European governments would have to amend the treaty that created it. But if they were willing to give the ECB that kind of leeway, things would never have got to this point.
The whole debate rests on the assumption that central banks should be acting to prop up down economies. I disagree with that assumption.
But if the central banks are determined to act, what is the least worse option for them to do? The problem with policies like quantitative easing is that it loans the government massive amounts of money which the central bank hopes will be spent into the economy to spur growth. But that money has to be repaid at some point through massive taxation, which drags the economy. Quantitative easing merely moves spending from the future into the present.
The notion of the central bank just printing wads of cash and handing it directly to the citizens to spend with no obligation to repay might be a better option. It is a faster, more direct stimulus that is driven by spending decisions of hundreds of millions of individuals. This is better than putting that cash into the hands of a few hundred politicians who will pick winners and losers. But this method also risks hyperinflation and getting citizens addicted to free cash. It also does not address fundamental flaws in an economy that are retarding it in the first place. Just like with quantitative easing and other policies, helicopter money is a salve that prolongs the flaws without curing them.
The best policy is for the central banks to keep their beaks out of the economy and let the market correct itself, but in a menu of bad ideas, helicopter money might be the least worse.