money exchange AFP/Getty Images

Money from Heaven?

The world economy is struggling with persistently weak aggregate demand, below-target inflation, and slow or no growth. But these conditions, however troubling, should not lead central bankers to implement reckless policies – above all the “helicopter drops” that many are now advocating.

TOKYO – The world economy is struggling. The single currency is fettering, not freeing, the eurozone; Japan is smarting from the slowdown of America’s normalization of monetary policy; and emerging markets worldwide are suffering the consequences of China’s economic mismanagement. But adverse global conditions, however troubling, should not lead central bankers to neglect the risks of untested policies – above all the “helicopter drops” that many are now proposing.

Conceived in 1969 by Milton Friedman as part of a thought experiment – not an actual proposal – helicopter drops got their name from the fantastic vision of fresh money being scattered from a helicopter whirring overheard. But the point of helicopter drops – or what former US Fed Chair Ben Bernanke recently called a “money-financed fiscal program” (MFFP) – is simply to distribute newly printed cash directly to consumers, such as through tax rebates.

Over the last half-century, central bankers have repeatedly ruled out the use of MFFP. But in the current environment of persistently weak aggregate demand, below-target inflation, and slow or no output growth, economists worldwide have been desperately seeking deus ex machina – a search that, for some, has led to the heliport.

To continue reading, please log in or enter your email address.

Registration is quick and easy and requires only your email address. If you already have an account with us, please log in. Or subscribe now for unlimited access.

required

Log in

http://prosyn.org/VHpqIMn;