Helicopter Money

According to some economists and government leaders, parents all across America have evidently been wrong for decades. Money actually does grow on trees.

To these leaders, money is free. All you have to do is create it, ex nihilo, and watch as it magically transforms into stuff everyone can use and enjoy. This is but one more example of economists abandoning common sense while claiming that what holds true for individuals somehow doesn’t apply to nations.

The Economic Chicken and Egg Question

Most economic theory boils down to two disparate beliefs, either that supply necessarily precedes demand or that demand necessarily precedes supply. The predominate belief, implemented by central banks around the world, is the latter. It’s otherwise known as Keynesian economics.

It is true that need precedes supply, but need is different from demand. Need always exists. Demand doesn’t. Demand implies the ability to pay for what someone else supplies.

In reality, the only thing we have to offer anyone for their goods or services is the fruit of our own labor be it in the form of goods or services. Not so for Keynesians. They believe simply having money creates legitimate demand. But this is a disingenuous position, because even Keynesians would not accept counterfeiting by individuals.

Somehow, though, counterfeiting is morally good if done by the government.

They base this belief that it is good for the government to create money “out of thin air” on the premise that falling prices, i.e. deflation, leads to a death spiral of delayed spending, reduced profits and increased unemployment. I discussed this false premise in a previous article on negative interest rates.

Thus, for many economists, inflation is the key to economic growth. They believe the threat of higher prices in the future causes people to spend more now, leading companies to hire more workers to produce goods that meet this demand.

So, when considering supply and demand, which is the chicken and which is the egg?

Why It Matters

Too much money chasing too few goods and services produces inflation. If governments can increase the amount of money people spend without a commensurate increase in the amount of goods they supply to society they can achieve their goal of inflation.

There are only three ways to gain wealth above and beyond what you have produced through work. You can steal, borrow or receive a gift.

I have discussed how inflation is theft, yet governments and central banks act as if inflation is the gift that keeps on giving. Our government, in its quest for inflation and ever-increasing demand, encourages covetousness and its accomplice debt by offering tax deductions for interest payments. Artificially low interest rates allow this generation to steal from the next.

The alternative perspective that supply is prior to demand recognizes that need motivates people to provide for themselves and their families. As they become more productive through experience and innovation, their productivity increases which means they can gain more wealth per hour of labor. This is just another way of saying prices fall (deflation).

This cycle of work/save/spend is morally superior to the Keynesian cycle of borrow/spend/work because it recognizes that the borrower is a slave to the lender. Its practitioners are less likely to succumb to covetous desires to acquire wealth outside God’s providential timetable. It also does not leave them open to being those the Bible describes as wicked because they borrow and do not repay.

Helicopter Money

I suppose that one’s stance on these matters depends, in part, on whether or not one believes that policies geared toward increasing demand have worked.

Despite declarations from politicians and economists that the economy has recovered from the 2008 crisis, it has not. Keynesian policy has not worked as evidenced by the fact that the dire situation portrayed in my post, The Wizard of Odd, has only gotten worse during the past year. Quantitative easing and near zero interest rates have not succeeded in increasing inflation or the hoped for demand but have succeeded in increasing debt.

Rather than admit defeat, central bankers are willing to go “all in” to prove their economic theories work. Not only has there been talk of negative interest rates, but also of “helicopter money.” This term is not new, Milton Friedman coined it in 1969 to describe what could theoretically be done when all else failed to produce inflation. The fact that anyone even mentions helicopter money now indicates the poor condition our economy is in.

With their heads planted firmly in the sand, central bankers continue to deny the ticking time bomb they have created by flooding the economy with money. They even have the hubris to blame the failure of their policies to increase demand on banks for not lending the money and on consumers for not taking out loans. So, in their benevolence and intellectual superiority, they will consider plans to place money directly into the hands of consumers. Instead of giving money to people who already have plenty like they did with quantitative easing, they will give it to people they believe will actually spend it.

But, I think these “intellectual giants” have underestimated the public. Yes, many will spend the money, but there will be plenty of people who will be prudent enough to pay off debt with the money they are given. The problem of low demand the Federal Reserve seeks to fix will persist.

Former Federal Reserve chairman Ben Bernanke, while acknowledging the political difficulty of implementing a helicopter money policy (because it will remove central bank independence), touts the benefits of “helicopter money” in the form of increased public spending or tax cuts financed by a permanent increase in the money supply. He asserts that such a move, unlike debt-financed programs, would not be paid for by issuing new government debt to the public and would not increase future tax burdens.1

Herein lies a major flaw in Keynesian economics – failure to recognize that every dollar issued is an I.O.U. Helicopter money will monetize debt, both public and private. Critics warn it could result in hyperinflation. They’re correct.

But this is the endgame we find ourselves in. Those in charge of our money will destroy it because of an irrational fear of deflation and because of a defiant defense of their belief that “governments should never have to give in to deflation.” 2

Imagining that money grows on trees won’t save our economy. Money dropped from metaphorical helicopters won’t either.


  1. Bernanke, B S. (2016), “What tools does the Fed have left? Part 3: Helicopter money”, Brookings Institution, 11 April.
  2. Bernanke, B S. (2016), “What tools does the Fed have left? Part 3: Helicopter money”, Brookings Institution, 11 April.

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