Central banks have already gone in for zero lower bound and negative interest rates. Increasingly there is talk of a new frontier: helicopter money. If the first two have been, at best, ineffective, the third could be more damaging than everything that’s been tried to this point.
It’s now widely accepted that neither conventional nor unconventional monetary policy has helped spur inflation, much less growth or employment. QE hasn’t worked, certainly not in Europe. It has resulted in national central bank purchases of more government debt, effectively financing government policy and increased financial asset volatility and triggered talks of a currency war. As Bank of England Governor Mark Carney noted Thursday in Shanghai, "For monetary easing to work at a global level if cannot rely on simply moving scarce demand from one country to another."
To some economists and writers, helicopter money is an old idea whose time may have come, a last-chance saloon for the global economy in the absence of government action.
The notion was first mooted by the late economist Milton Friedman in 1969: Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated. The idea is that through direct money transfers, a central bank could force money to circulate more freely, spurring economic activity. Former Fed Chairman Ben Bernanke refined the concept by suggesting it could come in the form of a tax rebate financed through central bank purchases of government debt.
A more recent advocate is British economist Adair Turner , who has argued that it may "in some circumstances be the only certain way […]
