Hurray For Helicopter Money

by: Martin Lowy

Summary

Helicopter money would be better than NIRP or more QE.

Helicopter money would let consumers, not banks, decide where the money goes.

Helicopter money would be efficient to stimulate demand, which is what the economy needs.

Congratulations to Ray Dalio! (see here.) Helicopter money could well be the right approach. True, the Fed does not have the power (probably) but Congress could authorize it, and with 21st century technology, it could make all the difference to the U.S. economy.

What might helicopter money look like? Yes, it would be green, eventually. But it would take the form of electronically loaded bank accounts for every American over, say, 18 who has a social security number. The Fed would set up an account for each such person, using the social security number. The Fed would add, say, $100 a month to that account for a period of, say, two years, all stated in advance.

This would be much better than stimulating the economy by inducing banks and others to lend. It would be better for two basic reasons: (1) it would create demand rather than debt, and (2) it would permit consumers to decide what to spend the money on (or to save it). The world is awash in debt. It needs no more. Demand is deficient; the world needs more. (See here, for example) Classically, we rely on the collective wisdom of consumers to allocate resources through their spending and saving. That is, by definition, efficient resource allocation.

Using accounts at the Fed (FRBNY probably) would be efficient. No checks to send out etc. The money should be doled out slowly so as to enable consumers to rationally use it rather than getting a windfall.

How do consumers get the money from their account at the Fed to where they can spend it? There are many potential ways. The Fintech guys can tell us how to do it. They also can tell us how to prevent frauds. Those are things they have been studying for a decade or more. The details are important, but they are doable.

M-2 is now over $12 trillion. Adding about $500 billion would not be a big deal. There would be no fiscal impact, other than through the benefit that more demand would create more tax revenue. When I suggested this to a Fed member a few years ago, the response was, "We've never done that." Since then the Fed has done a lot of things they'd never done before.

The government could not do this forever, of course. But it would be a simple way to stimulate demand, which would benefit everyone.

Politically possible? One never knows.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.