Helicopter Money

Imagine waking one morning to find extra cash in your account, a gift from your country’s central bank. That might sound outlandish — even some proponents of the idea admit it’s unlikely. But the concept of so-called helicopter money has been seriously debated by economists for several years, and is coming back into vogue. That’s because despite the trillions of dollars, euros, yen and pounds that central banks have pumped into the global financial system since the 2008 credit crisis, global economic growth is slowing once again. Helicopter money handed directly to consumers, the theory goes, would send us scurrying to the shops to spend our windfalls, boosting confidence in the economy. That increased demand would allow prices to rise again, a crucial step because a slide in prices, known as deflation, is viewed as creating the risk of extended stagnation. This renewed interest in an idea that’s almost half a century old is evidence that measures previously regarded as daring have become commonplace, repetitive — and increasingly ineffective.

In July, the U.S. Federal Reserve cut interest rates for the first time in more than a decade and is poised to continue driving borrowing costs down as the outlook for global growth dims. With Germany’s central bank warning that the euro zone’s biggest economy could sink into recession this year, the European Central Bank is also expected to ease monetary policy. Since most governments are unwilling or unable to pursue fiscal stimulus by lowering taxes or increasing spending, there’s pressure on central banks to reach deeper into their toolkits for ever-more unconventional policy tools. Helicopter money is back on the agenda because massive central bank purchases of government bonds — a policy known as quantitative easing — have already driven yields in several bond markets to record lows, so the scope for stimulating the economy by pushing borrowing costs even lower is limited.