What is a helicopter drop (helicopter money)?

Milton Friedman coined the term “helicopter drop” to suggest that monetary policy transmission mechanisms would not affect the addition of cash to citizens’ bank accounts overnight.

In modern times, this term refers to a monetary stimulus plan that directly gives cash to the people to stimulate inflation and economic growth, based on Friedman’s metaphor. Since 2000, helicopter drop strategies have become prominent policymakers” responses to large-scale economic shocks.

Helicopter Money: Understanding a Drop

A helicopter drop is a fiscal or monetary strategy that boosts an economy’s money supply. It includes creating massive amounts of money and distributing it to boost the economy through expenditures or tax cuts. “A “helicopter or “op” refers to unusual tactics used to boost the economy during deflationary periods characterized by declining prices.

The term “helicopter drop” originated from economist Milton Friedman but gained prominence after former Fed Chair Ben Bernanke addressed it in a November 2002 speech as a new governor. Bernanke was known as” “Helicopter B” for most of his Fed career and chairship because of that one allusion.

Bernanke mentioned “helicopter Dr.” in a lecture to the National Economists Club regarding deflation-fighting techniques. In his address, Bernanke described deflation as a result of a collapse in aggregate demand or substantial consumer spending cuts, requiring firms to drop prices to attract purchasers. He also suggested monetary and fiscal authorities should work together to improve anti-deflation policies and called a significant tax reduction” “essentially equivalent to Milton Friedman’s famous ‘helicopter drop of money.”

Critics criticize Bernanke’s economic policies, but others believe he effectively managed the U.S. economy during and after the Great Recession of 2008–09. During the worst recession since the 1930s, Bernanke expanded the bank’s asset purchases, known as quantitative easing, to combat the slowdown following his 2002 speech.

Helicopter Drop Examples

Japanese growth stagnated in the 21st century; therefore, helicopter money was considered in 2016. Bernanke led discussions with Japanese Prime Minister Shinzo Abe and Japan’s Haruhiko Kuroda on monetary policy alternatives, including issuing large-scale, long-term perpetual bonds. In the following months, Japan did not undertake a helicopter drop but proceeded with large-scale asset purchases.

The administration’s direct-to-taxpayers stimulus payments and Fed Q.E. in reaction to the COpandemic’s economic catastrophe were helicopter-drop policies. The CARES Act permitted initial payments of $1,200 per taxpayer in March 2020. The December 2020 stimulus package included $600 payouts.

COVID-19 and the Fed

One may claim that the Fed’s COVID-19 pandemic and recession stimulus programs were helicopter-dropped. In response to the U.S. economic crisis, the Fed adopted extraordinary measures to stabilize financial markets and the banking system and help small companies. The U.S. economy received trillions.

The Fed used many facilities to stimulate:

Paycheck Guard Program

The Paycheck Protection Program Liquidity Facility (PPPLF) assists small firms with staff retention. Participating banking institutions received liquidity from the Fed to lend to small companies. Repayment is still pending, so it’s not helicopter money.

Main Street Lending

The Main Street Lending Program, with five lending facilities, supported and provided loans to financially stable small and mid-sized firms before the COVID-19 epidemic. The program concluded on January 8, 2021.

Corporate Bond Purchases

In partnership with the U.S. Treasury, the Fed established a facility to directly buy investment-grade corporate bonds of U.S. corporations. The Fed’s first purchase of corporate bonds and bond-containing ETFs was the Secondary Market Corporate Credit Facility (Fed C.F.).

The Fed’s purchases lowered the bond supply, allowing corporations to issue new bonds for funding. Injecting money into the economy through asset purchases and loans iFed’sce increased the Fed’s balance sheet from $4.7 trillion on March 17, 2020, to over $7.3 trillion by January 5, 2021.

Conclusion

• Milton Friedman proposed the helicopter drop, a monetary stimulus that drops money into an economy’s nation’s nation’s helicopter.
• Increasing a nation’s money supply through expenditure, tax cuts, or money supply is helicopter money.
• Some COVID-19 stimulation initiatives mimic helicopter drop money.