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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.

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