In 2009, as the global recession threatened to turn into a depression, the world’s countries deployed their economic arsenals. The US implemented a fiscal stimulus worth $787bn (£627bn), China introduced one worth $586bn (£467bn). Australia, meanwhile, took a novel approach: it sent cheques worth up to $950 (£515) to all of the 8.7 million workers earning less than $100,000 (£54,000).
The measure helped Australia become one of the few countries to avoid recession (its proximity to China and immense mineral resources were also rather helpful). While 35 per cent of workers used the cash bonus to pay down debts and 25 per cent saved or invested it, 40 per cent spent it.
As the UK confronts the threat of the first recession in a decade, comparable measures are being examined. Liz Truss, the International Trade Secretary, recently suggested handing tens of thousands of businesses £1,500 “Brexit vouchers” to help them prepare for no deal.
Such policies are sometimes referred to as “helicopter money” in reference to the term coined by economist Milton Friedman in 1969. “Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community,” Friedman wrote in his paper The Optimum Quantity of Money.
The concept refers specifically to the creation of new money by central banks (as opposed to debt-financed government programmes). Since 2009, the Bank of England has created £435bn to purchase government bonds and other assets (the process known as quantitative easing).
Now, some argue, such money should be gifted directly to voters. In her new book, The Case for People’s Quantitative Easing (its cover adorned with an Apocalypse Now-esque helicopter), the economist Frances Coppola advocates this approach.
“In 2008 we propped up the financial system and bailed out corporations but what we didn’t do was give ordinary people spending money,” she said when we spoke. “That was the missing piece of the puzzle and that’s what I think the Bank of England should be looking to now add to its tool kit.”
Critics of helicopter money traditionally cite the risk of hyperinflation and squandered economic credibility. Otmar Issing, the former chief economist of the European Central Bank, declared in 2016: “I think the whole idea of helicopter money is downright devastating. For this is nothing more than a declaration of bankruptcy of the monetary policy.” Richard Koo of Japan’s Nomura Research Institute warned that “if such envelopes arrived day after day, the entire country would quickly fall into a panic as people lose all sense of what their currency is worth”.
But Coppola dismisses grim prophecies. “A one-off helicopter drop designed to bring the economy out of a slump doesn’t necessarily need to mean that people will lose all faith in the currency, in some countries that’s impossible.”
She added: “With a helicopter drop, the whole point is to raise inflation because we’re trying to increase aggregate demand … Now, obviously, the central bank then has other tools [such as interest rate rises] if it overdoes the helicopter drop and inflation starts to get out of control.”
Ben Bernanke, the former head of the US Federal Reserve, recalled in a 2002 speech that Keynes “once semi-seriously proposed, as an anti-deflationary measure, that the government fill bottles with currency and bury them in mine shafts to be dug up by the public.”
Others, while not alarmist, are more sceptical. Torsten Bell, the chief executive of the Resolution Foundation and Ed Miliband’s former director of policy, told me that helicopter money represented an “unnecessary risk” for the UK. The spectre of a no-deal Brexit, he suggested, meant that Britain was particularly ill placed to gamble its credibility. “You wouldn’t choose a country in those circumstances to be the first one experimenting with it. You’d want it to be a country with very strong credibility.”
For the UK, with a government deficit of just 1.1 per cent of GDP last year (the lowest level since 2002) and record low borrowing costs, alternatives are available. Faced with a recession, the state can engage in classical Keynesian stimulus by raising welfare benefits, cutting taxes and investing in infrastructure. Both Labour and the Conservatives are promising higher public spending rather than new forms of monetary activism.
The case for helicopter money, Bell said, was stronger in the US and the Eurozone. America is hamstrung by its separation of powers and federal constitution, which limits the scope for unified fiscal policy. Europe, meanwhile, is hindered by German frugality and the lack of a continent-wide Treasury. In both cases, the US Federal Reserve and European Central Bank could take the initiative and scatter money from above.
The immediate obstacle in the UK is a practical one. Bell, a special adviser to former chancellor Alistair Darling during the 2008 crisis, noted that “just giving cash to people is inefficient because we haven’t built the payment mechanism to do that easily. It’s definitely not impossible but you are going to be in a much messier world than most people appreciate.”
He added, however, “I think there’s a strong case that we should have done the forward planning. Speed really does matter. Back in 2008 we had a whole world of pain trying to work out how we would get money to people quickly.”
In the pre-2008 world, nationalised banks, zombie companies and mass money printing appeared unthinkable to many. As the state grapples for new firepower to ward off recession, they may yet summon the helicopters.