Imagine the government gave every person extra money each month for a year, and they could do as they pleased with it. This is a form of an approach known as “helicopter money”.
Usually a windfall is confined to a few individuals; think of lottery winners or people who find treasure on their property. However, there’s little information on how people react if a whole community, for example, receives the same gift. ING decided to try and find out how people might respond.
Few opt to spend it all
In the ING International Survey special report – Helicopter Money 2016, almost 12,000 people in 12 countries across Europe were asked: “Imagine you received €200 in your bank account each month for a year. You are free to do what you want with the money and don’t need to repay it or pay taxes on it. How would you use this extra money?”
While many respondents indicate they would be pleased to receive the money, few say they would go out and spend it all. Only about one in four (26%) say they would spend most of the money. This share is very low: about half (52%) say they would save or invest most of the windfall. And less than half believe growth or inflation would be higher if the European Central Bank created money this way.
Why try helicopter money?
Advisers to governments have suggested adopting such a “helicopter money” policy could stimulate consumer spending, boosting economic growth. Typically attributed to Milton Friedman in 1969, the idea is to imagine a helicopter flying over a country and dropping money on the population below. If people spend that money, both growth and inflation should increase.
Continued slow growth and very low inflation have been threatening economic prosperity in some countries. Some people suggest that to address this central banks – acting on behalf of governments – should print money and give it directly to individuals.
Short-term sales spike
This specific approach has been tried in limited ways in the past. For example, in 1999 and 2009, Japan sent time-limited shopping coupons to particular sections of the population. Spending on semi-durable goods (such as clothes and computer software) increased immediately after the coupons were made available but there have been doubts about the longer term results.
There are also practical difficulties about actually giving money to individuals (for example, how would people without bank accounts receive the money?). However, there are other ways of approaching helicopter money – for example by directly financing government or infrastructure spending.
Economics in 3D
An early paper from the ING-sponsored Think Forward Initiative, Economics in 3D, argues that macro-economists need to pay more attention to how people really make money decisions.
ING’s 2016 helicopter money survey is another attempt at this linking of individuals and the wider economy. The helicopter money idea is a useful way to think about simple approaches that might stimulate the economy. Yet the survey results suggest people may react in unexpected ways.
Want articles delivered straight to your inbox? Subscribe to our newsletter here
This article is related to the ING International Survey: