When the world gets closer.

We help you see farther.

Sign up to our expressly international daily newsletter.

Economy

Could Milton Friedman's 'Helicopter Money' Formula Finally Fly?

Conceived of last century by the American economist as a direct means for stimulating consumption, 'dropping' money on all households may be what Europe needs now.

Coming in for a landing ...
Coming in for a landing ...
Guillaume de Calignon

PARIS — Deflation can be solved in one fell swoop: All you have to do is drop money from a helicopter.

U.S. economist Milton Friedman came up with the drastic concept in the 1960s, before it was revived in 2002 in a landmark speech by Ben Bernanke, four years before he became Chairman of the Federal Reserve.

The idea was to give money directly to households in order to stimulate consumption and, consequently, revive inflation. The strategy bypasses the traditional — and ineffective — channel of monetary policy: bank credit. But in the arsenal of weapons at the disposal of central banks, this is definitely the nuclear option.

In 2016, back when the monetary union was on the brink of deflation, European Central Bank President Mario Draghi called Friedman's theory "interesting." Three years later, the question is whether the ECB's new monetary policy measures will have a significant impact on economic activity. If they don't, then the idea dropping banknotes from a helicopter (or more likely, sending an ECB check to every household in the eurozone) could make a comeback.

There's an ideological block.

Stanislas Jourdan, director of the NGO Positive Money, which advocates this form of economic recovery, believes that to be effective, we should be handing out the equivalent of 3% of the eurozone's GDP — roughly 1,000 euros, in other words — to every adult. He acknowledges, however, that there's an "ideological block" among policymakers who, in his words, "subscribe to monetarist dogma and are thus afraid of a hypothetical hyperinflation."

Indeed, it is unlikely that the Germans, marked as they are by the hyperinflation of the early 1920s, will be seduced by such a monetary innovation. And yet, as Pictet Wealth Management strategist Frederik Ducrozet explains: "Nothing in the mandate of the ECB prohibits the direct financing of households."

There's also the possibility of a happy medium between buying government debt and the "helicopter money" solution. The ECB could lend large amounts of long-term maturity money to banks, with rates close to zero or even negative. In fact, it is already doing this through targeted longer-term refinancing operations (TLTROs).

This time around, however, the ECB could put conditions before banks can access these loans. Banks should commit to lending directly to households at very low rates — or pay penalties. That would certainly make for a more presentable solution than dropping suitcases full of money from a helicopter.

Still, for Ducrozet, "the best and most democratic solution is not ‘helicopter money," but a coordinated fiscal stimulus for the European states that can afford it — it's the most realistic option."

You've reached your monthly limit of free articles.
To read the full article, please subscribe.
Get unlimited access. Support Worldcrunch's unique mission:
  • Exclusive coverage from the world's top sources, in English for the first time.
  • Insights from the widest range of perspectives, languages and countries
  • $2.90/month or $19.90/year. No hidden charges. Cancel anytime.
Already a subscriber? Log in

When the world gets closer, we help you see farther

Sign up to our expressly international daily newsletter!
Economy

Europe's Winter Energy Crisis Has Already Begun

in the face of Russia's stranglehold over supplies, the European Commission has proposed support packages and price caps. But across Europe, fears about the cost of living are spreading – and with it, doubts about support for Ukraine.

Protesters on Thursday in the German state of Thuringia carried Russian flags and signs: 'First our country! Life must be affordable.'

Martin Schutt/dpa via ZUMA
Stefanie Bolzen, Philipp Fritz, Virginia Kirst, Martina Meister, Mandoline Rutkowski, Stefan Schocher, Claus, Christian Malzahn and Nikolaus Doll

-Analysis-

In her State of the Union address on September 14, European Commission chief Ursula von der Leyen, issued an urgent appeal for solidarity between EU member states in tackling the energy crisis, and towards Ukraine. Von der Leyen need only look out her window to see that tensions are growing in capital cities across Europe due to the sharp rise in energy prices.

Stay up-to-date with the latest on the Russia-Ukraine war, with our exclusive international coverage.

Sign up to our free daily newsletter.

In the Czech Republic, people are already taking to the streets, while opposition politicians elsewhere are looking to score points — and some countries' support for Ukraine may start to buckle.

With winter approaching, Europe is facing a true test of both its mettle, and imagination.

Keep reading...Show less

When the world gets closer, we help you see farther

Sign up to our expressly international daily newsletter!
You've reached your monthly limit of free articles.
To read the full article, please subscribe.
Get unlimited access. Support Worldcrunch's unique mission:
  • Exclusive coverage from the world's top sources, in English for the first time.
  • Insights from the widest range of perspectives, languages and countries
  • $2.90/month or $19.90/year. No hidden charges. Cancel anytime.
Already a subscriber? Log in
Writing contest - My pandemic story
THE LATEST
FOCUS
TRENDING TOPICS

Central to the tragic absurdity of this war is the question of language. Vladimir Putin has repeated that protecting ethnic Russians and the Russian-speaking populations of Ukraine was a driving motivation for his invasion.

Yet one month on, a quick look at the map shows that many of the worst-hit cities are those where Russian is the predominant language: Kharkiv, Odesa, Kherson.

Watch VideoShow less
MOST READ