Economists around the world are typically kept busy scratching their heads to come up with fiscal and monetary policies to increase economic activity. One idea that has been floated around quite a bit is “helicopter money”.
In an article for Vox EU, ING senior economists Ian Bright and Senne Janssen give their thoughts on the idea. Essentially, it means giving people free money to encourage them to spend more.
The concept resurfaced in the years after the 2008 financial crisis ‒ as growth and inflation continued to disappoint.
Whose bright idea was it?
The original idea was discussed by Milton Friedman in 1969 in his paper, The Optimum Quantity of Money, in which he said: “Let’s suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which are, of course, hastily collected by members of the community.”
ING decided to test this radical idea by asking almost 12,000 people in 12 countries across Europe what they would do if they were given €200 per month from the government. There are no taxes on it, they don’t have to pay this money back ‒ no strings attached.
Loved not spent
But the survey found that rather than spend the money, people are more likely to save it. If that were the case in real life, adopting a helicopter money policy would not necessarily raise the price of goods and services, stimulating the economy.
The average European consumer seems to be saying: “I will not spend it, the policy won’t work, but please give me the money anyway.”
Full details are in the ING International Survey special report Helicopter Money 2016, which can be found here.
This article is related to the ING International Survey: