What Is Helicopter Drop (Helicopter Money)?
Helicopter drop, a term coined by Milton Friedman, refers to a last resort type of monetary stimulus strategy to spur inflation and economic output. Though it would appear to be theoretically feasible, from a practical standpoint, it is considered to be a hypothetical, unconventional monetary policy tool whose implementation is highly improbable.
- Helicopter drop, an idea of influential economist Milton Friedman, is a monetary stimulus act of last resort that could be undertaken when other, more frequently used stimulus attempts have failed to sufficiently revive a struggling economy.
- A helicopter drop refers to spiking a nation's money supply, such as with increased spending or a tax cut, as a means of jump-starting a weak economy.
- The idea of a helicopter drop is mostly metaphorical and can refer to a number of unconventional approaches to monetary policy that jolt a struggling economy.
Helicopter Money: Word on the Street
Understanding Helicopter Drop (Helicopter Money)
Helicopter drop is an expansionary fiscal policy that is financed by an increase in an economy's money supply. It could be an increase in spending or a tax cut, but it involves printing large sums of money and distributing it to the public in order to stimulate the economy. Mostly, the term 'helicopter drop' is largely a metaphor for unconventional measures to jump-start the economy during deflationary periods.
While 'helicopter drop' was first mentioned by noted economist Milton Friedman, it gained popularity after Ben Bernanke made a passing reference to it in a November 2002 speech, when he was a new Federal Reserve governor. That single reference earned Bernanke the sobriquet of 'Helicopter Ben', a nickname that stayed with him during much of his tenure as a Fed member and Fed chairman.
Bernanke’s reference to 'helicopter drop' occurred in a speech that he made to the National Economists Club, about measures that could be used to combat deflation. In that speech, Bernanke defined deflation as a side effect of a collapse in aggregate demand, or such a severe curtailment in consumer spending that producers would have to cut prices on an ongoing basis to find buyers. He also said the effectiveness of anti-deflation policy could be enhanced by cooperation between monetary and fiscal authorities and referred to a broad-based tax cut as “essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money.”
Even though Bernanke’s critics subsequently used this reference to disparage his economic policies, they were effectively silenced by his adroit handling of the U.S. economy during and after the Great Recession of 2008-09. Faced with the biggest recession since the 1930s, and with the U.S. economy on the brink of catastrophe, Bernanke used some of the very same methods outlined in his 2002 speech to combat the slowdown, such as expanding the scale and scope of the Fed’s asset purchases.
Helicopter Drop Example
More recently, Japan, which faced stagnant growth throughout the 21st century, toyed with the idea of helicopter money in 2016. Once again, Bernanke was at the forefront of the conversation when he met with Japanese prime minister Shinzo Abe and Bank of Japan's Haruhiko Kuroda to discuss further monetary policy options, one of which was issuing large scale long-dated perpetual bonds. In the ensuing months, Japan did not formally implement a helicopter drop but instead opted for further large scale asset purchases.