'Helicopter money' for the global economy?

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It might soon start raining cash, said David Oakley at the Financial Times. With the global economy slowing dramatically and few signs of a turnaround on the horizon, a radical proposal has been gathering steam in central banks around the world: Print money and give it directly to the public in order to boost spending and growth. The concept of "helicopter money" was coined several decades ago by the late economist Milton Friedman, who likened it to stimulus by means of dropping cash from the sky. Advocates of the policy argue that central banks have largely exhausted their options for stimulating growth — namely, quantitative easing and extremely low interest rates — and that desperate times call for desperate measures. Central banks in Japan and Europe, they point out, have already taken the once unthinkable step of slashing interest rates below zero. But helicopter money is arguably an even more extreme solution to stagnant growth — "the nuclear option of monetary policy."

"Is this an idea whose time has come, or is it just monetary voodoo?" asked Jeremy Warner at The Daily Telegraph. Billionaire Ray Dalio, founder of the world's biggest hedge fund, is among the cheerleaders. He argued last month that helicopter money will boost consumer spending by injecting money "directly into the veins of the real economy." But count me among the unbelievers. In all likelihood, the positive effects of a one-off gift would wear off without addressing "any of the underlying causes of today's economic torpor." Central banks would also be tempted to keep printing cash for more drops, a kind of permanent "Christmas bonus" that would lead people to question the value of their money. "Much as we would all like to believe in the free lunch, there is, regrettably, no such thing."

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Here in the U.S., the helicopter debate seems a bit ridiculous, said Ben Eisen at The Wall Street Journal, since the unemployment rate sits at just 4.9 percent and the economy is growing, though slowly. But it's an open question how long America can avoid being dragged down by the economic malaise afflicting the rest of the world, and helicopter money appears to work best before a crisis hits. Two events here with similar effects offer us that clue: the tax rebate checks mailed to millions of consumers in 2001, for $600, and in 2008, for $1,200. The first time, there was no imminent crisis and Americans spent more than half their checks, "effectively stoking the economy." But during the crisis-era drop, consumers squirreled away nearly two-thirds of the money, dampening its effect. In other words, central bankers shouldn't wait until a recession hits to make their drops.

"The fact that helicopter money is being discussed at all should be fair warning that the whirlybirds are warming up," said Mark Gilbert at Bloomberg View. Deadlocked and dithering governments around the world have so far refused to flex their muscles to boost global growth. Instead, they keep passing the buck to central bankers, who are trying to make do with the shrinking number of tools at their disposal. If helicopter money seems crazy, let's not forget that quantitative easing and negative interest rates did, too, until relatively recently. "Central bankers, it may soon be time to don your flying suits and start your engines."