What Is a Helicopter Drop (Helicopter Money)?
Let me explain what a helicopter drop means in economics. It's a term Milton Friedman coined as a way to imagine adding cash straight to everyone's bank accounts overnight, like dropping it from a helicopter, to simplify thinking about monetary policy without getting into the usual channels. Over time, this idea has turned into a real strategy where governments or central banks pump up the money supply and hand out cash directly to people to boost inflation and get the economy moving, especially during big shocks like we've seen since 2000.
Key Takeaways
You should know that a helicopter drop, from Friedman's idea, is basically a cash injection into the economy as if tossed from the sky. It means ramping up the money supply via more spending, tax cuts, or just printing and distributing money. Think of the stimulus during COVID-19 – that's pretty close to this concept.
Understanding a Helicopter Drop (Helicopter Money)
A helicopter drop is an expansionary policy, either fiscal or monetary, funded by printing more money. It could come as extra government spending or tax reductions, but the core is creating and distributing large amounts of cash to stimulate things. I see it mostly as a metaphor for bold moves to kickstart the economy when prices are falling in deflation. Friedman mentioned it first, but it got famous when Ben Bernanke referenced it in 2002, which stuck him with 'Helicopter Ben' for years. In that speech, he talked about fighting deflation from low demand, where spending drops so much that prices keep falling, and suggested tax cuts as equivalent to Friedman's helicopter money. Critics used it against him, but his actions during the 2008 recession, like quantitative easing, actually worked to prevent worse damage.
Examples of a Helicopter Drop
Take Japan in 2016 – they were dealing with stagnant growth and considered helicopter money. Bernanke was involved again, advising on options like issuing perpetual bonds, but they went with more asset purchases instead. A clear recent case is the U.S. under Trump during COVID-19: direct stimulus checks of $1,200 then $600 per person, paired with Fed QE, to counter the economic hit from lockdowns.
The Fed and the COVID-19 Pandemic
You might argue the Fed's moves during COVID-19 were like helicopter money. They stabilized markets and banks with trillions in injections, supporting small businesses directly. This happened through various programs.
Fed's Stimulus Facilities
- Paycheck Protection Program: The Fed provided liquidity to banks for lending to small businesses to keep payrolls going; it's repayable, so not pure helicopter money, but repayment isn't done yet.
- Main Street Lending Program: This offered loans to small and mid-sized firms that were stable pre-pandemic; it wrapped up in early 2021.
- Corporate Bond Purchases: Through the Secondary Market Corporate Credit Facility, the Fed bought corporate bonds and ETFs for the first time, reducing supply so companies could issue new ones for capital. Overall, this ballooned the Fed's balance sheet from $4.7 trillion to over $7.3 trillion by early 2021.
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