Imagine that you are at home in quarantine for the coronavirus and soon you see move a helicopter that throws money.
That’s the metaphor that economists use to refer to the “money helicopter”, also known as “helicopter money”.
It is handing out free money to all the people when there is a deep economic crisis, with the objective of increasing the consumption of the people and revive the economy.
Although that may seem similar to the financial support that governments are giving to people so that they can survive in the midst of the pandemic, is not the same.
Proposed by Milton Friedman in 1969, the money helicopter works like this: the central bank prints banknotes and the government spends it.
It is not government debt. It is, as it says in the metaphor, money fallen from the sky.
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The economic theory presents this as the last resource available in a situation of extreme crisis.
And has a very bad reputation. The first thing that comes to mind is the image of countries like Zimbabwe or Venezuela, where the print uncontrolled of money ended up causing the tickets not to have any value.
In developed countries that have a strong currency like the dollar or the euro, the idea of a central bank printing paper money to piece-it would be like a nightmare. Crazy.
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But came the pandemic of coronavirus and the idea of the helicopter has begun circling among some experts that, under other circumstances, never would have considered.
And all they know is extremely dangerous because it leads to playing with fire.
“A policy of high risk”
“The helicopter money has never been deployed because it is a policy of high risk. The central banks are afraid,” he tells BBC World Manuel Romera, director of the financial sector of the IE Business School in Spain.
“The problem is that when you inject money, if you spend a little and generate distrust on that money, you could end up with a hyperinflation“.
Is now a good time to take off the helicopters in the middle of the pandemic?
“I don’t know if I could do it now,” responds Romera.
“If there is a medicine to cure the coronavirus in a month and at the end of may we are already physically in the street, it would not do. It would be a mistake”.
“But if the pandemic is extended by several months, I would.”
“Now is the time”
In the present discussion, the metaphor of the helicopter money is being used in a broader sense.
While the original idea was to print out tickets and bring them to the street, some economists think that there is versions more flexible of this policy.
Although this is always a central bank asset that funds the emergency expenses, there are more complex mechanisms that allow to inject liquidity to the system.
There are even those who believe that the measures that are being taken currently in the united States and Europe to mitigate the effects of the recession are, in some way, money helicopter, because it is a fiscal stimulus to increase consumption funded by lI banks centralit is.
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It all depends on the scope and the flexibility you want to give to the concept.
And now that the epicenter of the pandemic came to the united States, with forecasts of a rise of the unemployment of between 20% to 40%, once more listening to the sound of the propellers.
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“Now is the time to do it,” he tells BBC World Willem Buiter, professor of the School of International and Public Affairs at Columbia University and senior researcher of the centre of studies Council on Foreign Relations.
The money helicopter, he explains, would serve to address “the extraordinary deficits of the governments that we’ll probably see as a result of the fiscal measures to limit the economic damage that is causing the pandemic.”
Jordi Galí, economist at the Centre for Research in International Economics (CREI) and professor of the University Pompeu Fabra in Barcelona, is another of the voices that advocates for the engines.
“It came time for helicopter money,” says Gali, understood as the direct financing and non-refundable on the part of the central banks of the emergency plans of governments in the midst of the pandemic.
If the idea of doling out money from the air will end up being imposed in some countries, will depend on how to evolve the healthcare crisis and how deep is the economic downturn overall.
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It is not known if there will come new waves of contagion after that flatten out the curve of infections and deaths, if scientists will find a vaccine or a treatment for the covid-19 or until when they will extend the quarantine to contain the spread of the coronavirus.
In that match the experts is that the global recession will be very deep and that unemployment will climb to record levels, leaving a trail of poverty and despair that the countries will have to deal with all the ammunition fiscal and monetary policies that have at their fingertips.
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