Drop money from the sky. Lots and lots of it. Enough to shock a struggling economy out of a deep slump.
Milton Friedman coined the term. In Friedman’s scenario the helicopters appear unexpectedly ( I don’t know if they play Wagner) and just dump money on the economy. The strategy is different from a central bank acting to stabilize financial markets or buying assets in the financial markets to push down interest rates and to support asset prices. The helicopter dump of cash to consumers has the straightforward goal of boosting demand in a struggling economy.
And it’s a strategy that global central banks followed with varying degrees of success in the global financial crisis (and after in the case of Japan.) And it sure informs the response to the coronavirus crisis. $1200 checks (eventually) to every American citizen. Loans and grants to the tune of some $700 billion to small businesses so they can keep paying employees. Trillions to big corporations (with strings requiring the money be spent on paying employees in some cases but not in others) to prevent layoffs and to keep paychecks flowing to workers. This is besides the money the Fed has pumped into the financial markets by buying Treasury notes and mortgage-backed securities and who knows what else. Bloomberg estimates that the Fed balance sheet has exploded from something above $4 trillion to a record $6.57 trillion. And there’s still more to come since the Fed has declared that its purchases have no limits.
And clearly the effort has focused on being so big and so sudden that the financial markets and U.S. consumers would be awed and reassured by the scale of the action. Wake up one morning to discover interest rate were headed to 0%. Scan the Internet news and see that the Trump administration’s $2 billion coronavirus talking point in January had jumped to a Congressional plan at $2 trillion and counting.
But what if the helicopter money isn’t enough–at an estimated $6 trillion or about the entire U.S. economic activity in a quarter? What if the economy can’t be shocked and awed back into a full, or nearly full, recovery? What if consumers simply don’t decide to spend and businesses don’t decide to invest?
It’s not an outlandish question. This coronavirus recession is not simply an economic recession. And getting the economy running again may require more than cash and more than “guidance” for re-opening the country.
Ask yourself this. If I gave you $600 to fly to Europe right now, would you go? If I upped it to $800? Or a thousand?
How about this example–I’ll give you enough cash so that you and your family can go out of dinner–heck, enough for 2 or 3 dinners–at your favorite restaurant (which has re-opened since the governor says it can.) Would you go?
The decision wouldn’t simply be about the cash. You’d think about how safe you felt about getting on a plane and then getting off in Rome or London. You’d think about how vulnerable members of your dinner party might be to the coronavirus. How about mom who was 64 and a life-long smoker? How about pop who had just had a cancer therapy?
These aren’t the normal economics-above-all-criteria for making decisions in a recession. Because this isn’t the normal recession.
And those decisions to consume or not will be based on a different time line than in most recessions. Is the coronavirus going to produce a second wave in the summer or fall that will cause some of the re-opened economy to shut down again? And should I save rather than spend with that in mind.? Much of the helicopter money is short-term. Washington has extended loans and grants to small businesses, for example, but they cover just 8 to 10 weeks of operations. The coronavirus rescue legislation raised and extended unemployment benefits but again only for a couple of months. It’s clear that some in Congress don’t have the stomach for pushing anymore money out the door of those helicopters, so can you count on hearing the blades go whoop, whoop, whoop again when the money turns out not to have been enough to shock the economy back into action?
And notice, I’m not even talking here about the economic and market effects of this new mountain of debt being piled on the old mountain of debt.
Or about the possibility that after years when national and global economies seemed to respond ever more sluggishly to stimulus that we’re headed into a period of where demand doesn’t keep up with supply and central banks have to figure out how to fight deflation.
Do they have enough helicopters for that?