By hendrixnuzzles, July 31, 2016

The term “helicopter money” has been used to suggest direct cash subsidies to the population as a possible method of monetary stimulus.
It was s sardonically suggested as an alternative to Quantitative Easing (“QE”), as it is currently practiced through bank and institutional monetary mechanisms.

QE is not even achieving the dubious and policy objectives set forth as its rationale, i.e. economic stimulus and moderate inflation.
What QE has accomplished in the larger economy is the creation of enormous asset price inflation in stocks, bonds, and real estate.
These are the best channels of utilization for the bank intermediaries and individuals who benefit from the specific implementation of QE as it has been attempted.

Because of this, traditional models of money velocity are being invalidated. The available currency units to shore of their individual and corporate balance sheets.
On the contrary, the velocity of money is at record lows. The monetary stimulus is going into the asset bubbles, or is being used to deleverage debt or improve balance sheets.
As a result, the “multiplier effect” of the stimulus is going down. The currency is not finding its way into the “real” economy.

I am against expansion of government interference and domination in our economic lives;
I am against further expansion of wealth transfers and social programs;
and I believe that Quantitative Easing is a policy failure.
But nonetheless, I submit that “helicopter money”, a direct currency subsidy to individuals, would be a more effective way of achieving those dubious policies that are the impetus behind QE.

For one thing, if the distribution of the subsidy is “democratic”, most of the subsidy will wind up being spent immediately, because 40% of the American population is tapped out financially.
This sector will surely spend the currency immediately. The currency will have high velocity through the economy, in contrast to current stimulus techniques.

Another argument for “helicopter money” is that the subsidy is finite and measurable.
This is in contrast to current methods of stimulus, which have uncertain results and are difficult to measure.
A third consideration is that the policy will be consistent with the wishes of the democratic majority,
who will find a wide welfare subsidy to the populace as desireable, and even “fair” and “equitable”.
In fact, a policy of “helicopter money” is only a shift of a government subsidy from banks and the interest groups able to benefit from low rates,
to the general populace who are currently unable to benefit from Fed policies.

In the end, both policies are inflationary, and therefore they are a tax on wealth.
Either policy debases the currency and enlarges the footprint of government on our society.
Both policy alternatives are misguided.I find them both repulsive.
They are both welfare with different groups receiving the benefits.

But current Fed policy has the additional disadvantage of having been proven ineffective.
America being as it is, I suppose we will “compromise” by having some element of both current Fed policy,
and a more “democratic” mechanism of “helicopter money”.

So we will likely get the worst of both worlds.
Everyday goods and services will then become inflated like stocks, bonds, and real estate,
and the government will achieve its objective of inflation.

This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.



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Travis Johnson, Stock Gumshoe
July 31, 2016 10:19 pm

It is unfortunate that we’ve reached a point in bipolar leadership that we can’t make big decisions anymore, and push off all financial responsibility to the Federal Reserve (which has few tools available) instead of making them through the democratic process of legislation.

“Helicopter Money” may or may not do what monetary authorities hope, but the last tax rebate did, according to these economists at least, have more of a stimulatory impact than had been expected — and tax rebate checks are fairly similar to “helicopter money.”

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Travis Johnson, Stock Gumshoe
August 1, 2016 10:23 am
Reply to  hendrixnuzzles

To the recipients, I would argue that it is essentially the same — you’re talking about impact, not about the meaning or source of the cash.

But I agree, when we spend 40 years telling the American people that the budget doesn’t matter and that money can be spent on whatever they want with no consequence, that has an impact and it removes us one step from being a collection of citizens who are all in this together. If we’ve learned anything over the last few decades it’s that you can’t cut taxes first and assume that spending cuts will follow — I think they have to go together, every new spending project must be accompanied by a specific spending cut or by a multi-year plan to repay that spending.

In some cases, like a war, that might be a 20-year plan to pay for the war because we as a people believe it is important to invest in that — but big things like the financial bailout should also come with a payoff plan that would almost always include higher taxes so that we all feel that spending has real consequences. As soon as politicians noticed that voters wanted more spending and less taxes they started providing both, and rational thought left the building — I don’t care whether you believe in bigger government or smaller government, but either way it should be paid for directly by the government’s income, which is almost exclusively individual income taxes right now. As soon as that connection breaks, and we decide we can spend a few trillion on a war without paying for it, or we decide to spend a similar amount rescuing homeowners and banks without paying for it, people get quiescent about both war and bailouts (or whatever else) because the cost, other than the human cost of war seen on the TV news, is largely invisible. If every time we had to do something big as a people we had to clearly pay for it, I think that would be good for us as a nation — it’s easy to talk about what we want to do, but harder when we all have to pay for it in a pretty direct way.

Sorry, that doesn’t have much to do with your comment — just got on a rant.

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