The Euro Area Is Not (Yet) Ready for Helicopter Money
This post is the third in a PIIE series on how to confront the next European recession.
With dangerously few monetary and fiscal stimulus options available to avert a possible recession in the euro area, policymakers and economists have started discussing a proposal that sounds both exotic and straightforward: If consumer and business investment demand are too low, why not have the central bank issue and send, say, €500 to every man, woman, and child in the euro area? They will spend it, and the economy will recover.
The idea, known as “helicopter money,” has a good pedigree and a memorable terminology. Milton Friedman introduced the concept and coined the expression, although he did not advocate carrying it out. Peter Praet (2016), until recently a member of the European Central Bank (ECB) Governing Council, once indicated that “all central banks can do it.” And a recent Blackrock report (Bartsch et al. 2019), with Stanley Fischer and Philip Hildebrand among the authors, has endorsed a version of it.
Furthermore, the concept has clear political appeal. It has been described as quantitative easing (QE) for the people (Muellbauer 2014): Instead of helping banks or making bondholders richer, the central bank gives money to the people, a transparent way of increasing their purchasing power.
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