What is Helicopter Drop ?
236 reads · Last updated: December 5, 2024
A helicopter drop refers to a term first coined by Milton Friedman as a rhetorical device intended to abstract away the effects of any monetary policy transmission mechanisms in a thought experiment regarding the addition of cash to the bank accounts of all citizens—as if dropped from a helicopter overnight.
Definition
Helicopter money is a rhetorical concept first introduced by economist Milton Friedman. It involves a thought experiment to explore the effects of adding cash to every citizen's bank account, as if the money were dropped from a helicopter. This concept aims to abstract away the real-world impacts of monetary policy transmission mechanisms.
Origin
The concept of helicopter money was first proposed by Milton Friedman in 1969 as a theoretical tool to analyze the effects of monetary policy. Over time, it has evolved into a practical monetary stimulus strategy, especially after 2000, becoming a common response to large-scale economic shocks.
Categories and Features
Helicopter money can be seen as an unconventional monetary policy tool, characterized by directly increasing the money supply and distributing cash directly to the public. It is typically applied in scenarios of slow economic growth or high deflation risk. The advantage is the rapid stimulation of consumption and economic growth, but the downside is the potential for uncontrolled inflation.
Case Studies
A typical case is the U.S. government's economic stimulus programs following the 2008 financial crisis, which involved distributing cash to the public to stimulate consumption and economic recovery. Another example is the issuance of economic stimulus checks by the U.S. government during the COVID-19 pandemic in 2020 to support the economy.
Common Issues
Investors may worry about the inflation risk associated with helicopter money and whether this policy could negatively impact long-term economic growth. A common misconception is that helicopter money is unconditionally effective, overlooking the potential inflationary pressures it may bring.
