
Helicopter Money: Way Out of Crisis or Fallacy of Traditional Economics? - critdem
https://forklog.media/helicopter-money-way-out-of-crisis-or-fallacy-of-traditional-economics/
======
TooCreative
Over the last 10 years, the FED has more then doubled the amount of money they
have out in the market. Other central banks have done the same.

Despite popular belief, the value of money decreased by about 50% during this
time. It is not easy to say if this is a coincidence. But it looks a lot like
there is causality at play.

The reason why inflation "officially" is lower then what one would expect
given the amount of money printed lies in the way it is calculated.

The calculation includes mostly goods and services bought by people who live
from hand to mouth. Not the goods and services bought by people with savings
and high income.

Rent and real estate in desireable areas, gold, bitcoin, equities - all of
these now require significantly more money to buy then they did in 2010.
People who saved money lost about 50% of their buying power to inflation.

~~~
iso1631
Gold value ([https://www.gold.org/goldhub/data/gold-
prices](https://www.gold.org/goldhub/data/gold-prices))

    
    
      Apr 2000: $274/oz
      Apr 2005: $425/oz (+55%)
      Apr 2010: $1132/oz (+166% in 5 years, +313% in 10 years)
      Apr 2015: $1175/oz (+3% in 5 years, +176% in 10 years)
      Apr 2020: $1647/oz (+40% in 5 years, +45% in 10 years)
    

So we can see that Gold was massively inflating until 2010, when you say the
fed started printing money, since then it's stabilised, even with the current
panic

House prices in the US ([https://dqydj.com/historical-home-
prices/](https://dqydj.com/historical-home-prices/))

    
    
      Apr 2000: $134k
      Apr 2005: $199k
      Apr 2010: $183k
      Apr 2015: $210k
      Apr 2019: $269k
    

So 2010-2019 is a 46% increase, or 4.5% per year, so about 50% for 10 years.
2000 to 2010 is 36%, but the charts indicate we're nearing the top of another
house price bubble (1998-2007 was an 80% increase over 9 years, or 7.5%
increase per year)

So I'm not sure your assertions that the increase of these values are due to
quantitive easing over the last 10 years holds.

~~~
roenxi
You're quoting figures that a lump of rock has doubled and doubled in value
since 2000 (plus a little bit). The BLS inflation calculator [0] tells me that
inflation would have gotten the price to $420 by now (heh) which is not a
doubling in anyone's book.

The trend is persistent, the rock is much the same as it has ever been. Do you
have an alternate thesis to QE for why this is happening or are you happy to
write it off as a mystery?

[0]
[https://www.bls.gov/data/inflation_calculator.htm](https://www.bls.gov/data/inflation_calculator.htm)

~~~
iso1631
Gold started increasing in value in 2001

QE didn't start until November 2008 (gold = $814) That stopped by Nobember
2014 (gold = $1232). 51% increase in gold over 6 years, or 7% per year.

That is far lower than the increase in gold in other 6 year periods which
didn't have QE.

~~~
roenxi
A very fair point with which I can only agree. Care to hazard a guess as to
why gold is rising though? The rock isn't changing.

~~~
DoreenMichele
Gold gets used in electronics, so real world demand is up, and it's actually
fairly hard to extract. This is being made harder by environmental protections
that are making it illegal in many places to do things that are more efficient
but come at a high environmental cost.

I wish we would actively foster panning for gold. It's environmentally
friendly. It's "blue collar" work that doesn't require a college degree,
spiffy resume and do forth and it doesn't take much gold per year to
potentially support someone who otherwise might be homeless or flipping
burgers (or both).

~~~
pjc50
Panning is very location-specific, though. How does access for panning relate
to land ownership / public management of rivers?

~~~
DoreenMichele
I don't know the answer to the land management piece. I do know that we live
in a world that increasingly makes it hard for people just do a thing and make
a living, without a college degree, a raft load of student loans and on and
on.

I do know we have too little well-paid manual labor and too much of a divide
between the have and have nots. I know you don't need much more than a gold
pan to get started, which can be had for under ten dollars from places like
Walmart.

I didn't research the land owenership/public management of rivers angle very
much. I do know that it's not illegal in some places to dredge rivers on
public land, which is extremely disruptive of the ecosystem.

This is more of less the summary of the research I did into the subject:

[https://sandiegohomelesssurvivalguide.blogspot.com/2016/11/h...](https://sandiegohomelesssurvivalguide.blogspot.com/2016/11/half-
baked-idea-panning-for-gold.html)

------
H8crilA
The usual knee-jerk reaction to money printing is "omg inflation is coming".
But it is not that simple - inflation is just the trend in average prices of
things/services/whatevers (and there's a great deal of disagreement about what
should those things be; the US has 6 measures of inflation none of which agree
with any other).

All of those things are ultimately subject to the supply/demand pricing
mechanism, so if you want to proclaim inflation you should be able to answer
this question: why will demand outstrip supply? I'm not saying this cannot
happen, it can, but most people just forget to even consider this basic
supply/mechanism framework.

Instead of trying to judge the reality of production and consumption people
often rely on some "magic" properties of accounting numbers of large
institutions (central banks or governments). It is so much simpler to just
eyeball some trillions and say "it's too much, the currency is dead!" rather
than deal with the complexities of reality.

~~~
roenxi
I disagree but I'm going to make my counterpoint a little indirectly:

I can name a couple of states in my lifetime where the government has
collapsed in an inflationary manner and the people have suffered and starved.
They are generally places people flee in large numbers.

There are no counters that I'm aware of that have suffered a deflationary
collapse. If I look up the Wikipedia page for deflation I'm given hellholes
like Hong Kong and Japa... no, wait, those are some of the places I'd actually
prefer to live than where I am now. Pity I don't speak any Asian languages.
Pretty civilised places, really. Advanced is the word I'd actually use to
describe them.

There is literally one example of a deflationary collapse in the 1930s US
Great Recession. Even then, that was the precursor to the modern US rather
than, say, the Zimbabwe collapse through hyperinflation.

I can fathom why governments call deflation the big enemy. I can't fathom why
people believe that. Even in the worst case suffering and deflation seem like
a pretty good foundation for long term success. People really should stop
flirting with inflation and try encouraging deflation as a response for once.
Who knows, it might work. Governments keep encouraging inflation and we keep
having mysterious debt-fueled collapses.

~~~
pjc50
The usual ones that people name are Venezuela and Zimbabwe, and in those the
hyperinflation isn't just a monetary phenomenon that the states decided to
self-destruct with; it's a _symptom_ of a whole cascade of failures, including
economic sanctions on the country!

Hyperinflation in those cases is effectively a forex phenomenon. The country
stops producing any useful export goods (or is banned from exporting, or in
the case of Weimar Germany forced to export gold at gunpoint), so the value of
its currency collapses. Because the country still requires imports, especially
oil, the value of those goods shoots up - but you can't save the economy from
this by printing local currency.

(Can someone name a 20th century country with hyperinflation that wasn't under
sanctions or involved in a war?)

~~~
roenxi
> (Can someone name a 20th century country with hyperinflation that wasn't
> under sanctions or involved in a war?)

But in contrast, can anyone name a 20th century country with deflationary
policy who broke under sanctions or came off badly when involved in a war?

Flirting with deflation is much safer policy than flirting with inflation.
Although a fair point that hyperinflation is associated with cascades of
failures that still suggests that flirting with high inflation is more
destabilising than flirting with very low credit levels. If anyone responded
to cascades of failures by highly deflationary policy they don't seem to have
made it into the well-known-failed-states pile.

Japan is a pretty classic tried-deflation example and they ended up a really
stable, well organised society that honestly looks like a pretty nice place to
live. Well educated. Modern. One of the leading countries on the Asian
continent in fact. People complain that the rich aren't getting rich fast
enough in Japan which I don't think is a great complaint.

~~~
pjc50
> Japan is a pretty classic tried-deflation example

Er,
[https://en.wikipedia.org/wiki/Lost_Decade_(Japan)](https://en.wikipedia.org/wiki/Lost_Decade_\(Japan\))
? It wasn't so much "tried" as "was unable to avoid" deflation.

(The relation of particular economic conditions on paper to how nice a country
is to actually live in is a different and much more complicated subject!)

I don't think there have been countries which have tried deflation in response
to dysfunctionality, because part of dysfunctionality is being unable to pick
good policy options and make them stick; but there have been quite a few
who've responded to currency trouble by giving up their own currency and
either dollarising or joining the Euro. The consequence of that in Greece was
deflation: [https://www.reuters.com/article/us-greece-economy-
inflation/...](https://www.reuters.com/article/us-greece-economy-
inflation/greek-deflation-persists-in-july-as-prices-fall-for-29th-month-
idUSKCN0QC1F220150807) ... and the "austerity" that went along with it.

------
II2II
Even though the consequences are going to be economic, I suspect that the
helicopter money being offered by the various governments of the world has
more to do with stopping a domino effect that would lead to social collapse. A
decimated economy with it's institutions more-or-less intact may be a low
price to pay.

As for all of these economic predictions whirling about: they are speculation
based upon people's pet theories. Quite frankly, there isn't enough data to go
on. There are very few economic crises that have progressed on this scale and
at this pace. When there has been a crisis of similar magnitude, the initial
conditions are vastly different. Go ahead and present your predictions, but
also take the time to realize that its validity is more likely to be based
upon luck than data.

------
wz1000
> Helicopter money is irreversible since it increases the monetary base of the
> end-users.

This is inaccurate. If the government pumps $x into the economy today,
tomorrow it can take $x out by levying a tax.

> He also suggested that blockchain technology and digital currency
> opportunities allow central banks to transfer money directly to citizens’
> accounts. In this case, the regulator will be technically able to limit the
> time during which the money can be spent.

Can anyone explain what "blockchain" brings to the table here compared to
traditional banking? If you want to distribute money to everyone, you want to
verify real-world identities, which seems like the exact opposite of the
typical use case blockchain is paraded around for.

~~~
TheColorYellow
> Can anyone explain what "blockchain" brings to the table here compared to
> traditional banking? If you want to distribute money to everyone, you want
> to verify real-world identities, which seems like the exact opposite of the
> typical use case blockchain is paraded around for.

Private, permissioned "blockchain"-like technologies (the kind being discussed
in the enterprise market) would give you exactly the type of identity solution
you need.

A shared inter-bank ledger that individuals could register accounts with,
which also incotporates the appropriate level of privacy and authorization,
would enable seamless verification and transfer activities at scale.

~~~
wz1000
Why the complexity of a "private, permissioned blockchain" compared to the
traditional databases subject to periodic audits that the world already runs
on, are proven to work and are conceptually much simpler? It seems like a
solution in search of a problem.

~~~
TheColorYellow
It's a fair question. The answer is that systems like this - that are real in
their offering and not a pipe dream - are not promoting to replace traditional
databases. Blockchain is a terrible term with tons of baggage so let me
describe what I mean in more detail.

These solutions in my mind are better described as distributed systems that
allow independent verification and audit of data and transactions from within
the system itself.

This is useful when the data being shared involved spans multiple entities in
terms of responsibility, ownership, value, and other impacts. Rather than
having to rely on other mechanisms of verification the system itself is able
to provide that verifiability at scale.

Essentially you're using a technology layer, which is a collection of existing
concepts put together in a somewhat novel use, to disintermediate more
expensive verification solutions.

I think it makes a lot of sense if you examine the value chain of securities
lending (from creation of the instrument, custody, to lending, custody
transfer, and finally audit and compliance).

------
generalpass
> In this piece, we take a look at the helicopter money model, its role in the
> economy, and the related shortcomings that may emerge in the long-run.

> What’s Helicopter Money?

> The concept of helicopter money first appeared in 1969 in The Optimum
> Quantity of Money by a famous monetary theorist and Nobel laureate Milton
> Friedman. It implies transferring money to individuals or cutting taxes for
> households.

This section tells me everything I need to know: the person who wrote this
article has _no idea what they are writing about._

The "helicopter money" phrase was used satirically, and every economist at the
time and through, apparently, until today, knew this because of how absurd the
term is. I haven't read the piece sited, but I'm going to go out on a limb and
state that Milton Friedman would not have stated that the term was even
equivalent to "cutting taxes" and definitely stated the term as _creating_
money and giving it to households (via a helicopter).

Please ignore this article. It is absolutely awful and is probably effective
at tricking people who have never read about these things before.

------
ham_sandwich
ah yes, a nice discussion of the central bank toolkit when policy rates are at
their effective lower bound

wait, what's this? Bitcoin and ethereum tickers at the top of the page? A
section titled 'Helicopter Money on Blockchain'? hold on a minute...

In fairness, the article did avoid a few of the 'not even wrong' pitfalls you
might expect to see written about QE and other sovereign currency monetary
operations

------
neural_thing
Here is a succinct case by a smart economist about why we didn't get inflation
after the GFC, but will get it this time:

[https://voxeu.org/article/future-imperfect-after-
coronavirus](https://voxeu.org/article/future-imperfect-after-coronavirus)

~~~
YPCrumble
This sounds like to going to the neighborhood psychic to know whether you'll
find true love.

------
TopHand
Printing money is not the same thing as creating resources. Resources are the
backbone of wealth! No resources, no wealth. All resources begin with human
activity. No activity, no resources. Reduced activity, reduced resources,
reduced wealth. Even hunter gathers had to hunt and had to gather.

------
em500
I find this a pretty poorly written piece. It seems to have forgotten about
the headline question after the first few paragraphs, and doesn't make any
other clear point in the end.

Here's a very traditional economist answer.

Helicopter money is neither a way of of the current crisis, nor a fallacy. It
is good to do it now, but it won't "solve" the crisis. It's still much better
to do it than not.

Macro-economic recessions/crises, defined as a temporary drop in aggregate
income/production (= GDP = GDI), are caused by a drop of (some combination of)
aggregate demand (how much people will buy at a given price level) or
aggregate supply (how much people produce at a given price level) [1], in
economic parlance, negative supply- or demand shocks. If we have a pure supply
shock, demand side measures such as lowering interest rates, helicopter money,
government stimulus, will mostly just increase prices. OTOH, with a pure
demand shock, most of such measures will probably help[2]. With demand shocks,
the productive capacity is still there ("potential output"), but the demand
needs to increase to "close the output gap".

Most post-WW2 recessions in advanced economies are negative demand-shock
recessions (we haven't been able to identify short-term economy-wide drops in
production capacity), so demand side stimulus is by and large helpful (except
when they really overdid it in the 1970, when it did cause high inflation).

The current crisis is a combination of both a big demand shock and a big
supply shock. This means that demand side measures such as helicopter money
will help (in the sense that things will be much worse if we did't do it). But
things will also become more expensive (either nominally in sticker prices if
the demand stimulus is large enough, or just in real terms compared to
people's incomes) due to the supply shock. The supply side shock can only be
remedied by really controlling the pandemic.

All of this is very moderate traditional undergraduate level economics, and
will explain most of the upcoming economic upheavals perfectly fine. Keep this
in mind when you read stories cherry picked to make some point about
current/upcoming economic or monetary policy.

[1] A drop in aggregate supply could be cause by e.g. a big natural disaster,
war, pandemic. What might cause a drop in aggregate demand is still somewhat
of a mystery.

[2] Most of the economic debate is which form of stimulus is more effective,
and about more esoteric second order effects. But there might still a minority
of hard core "Real Business Cycle" economists who doubt the existence of
demand-side shortfalls.

------
ajb
Related, Frances Coppola is an advocate of Helicopter money and UBI, but
doesn't think it's the right medicine for these current circumstances:
[http://www.coppolacomment.com/2020/03/when-is-right-time-
for...](http://www.coppolacomment.com/2020/03/when-is-right-time-for-ubi-
and.html)

------
HashThis
* If citizens approve money printing to citizens, then it helps them out.

* Money printing to the privilege class (investors), creates permanent theft to citizens going forward, for these two reasons: 1) Salaries don't go up with inflation for low income and middle class. Only Gold-color workers.
    
    
       2) That money going to privilege class has them bid up equities/stocks (and other) asset classes.  Workers with 401k get far smaller percent of the stock market.  Instead of 10% YoY return from the stock market for their retirement, they get a lower percentage.
    

2008 had US Dollars at $800b (monetary base). 5 years later, it was $3.6
trillion. That is 450% as many USDollars as before. That money printed $2.8
trillion went to the privilege class. Workers adding to their 401ks get robbed
for the rest of their life, on lower growth.

