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US helicopter money

Economic Report

  • The US federal government is considering sending ‘helicopter money’ to Americans
  • Under current circumstances, helicopter money is an attractive alternative to outright monetary financing, especially for the US
  • We expect helicopter money to be effective in slowing down a sharp decline in consumer spending, although it will probably not be enough to bring the economy back on an upward growth path

Will US helicopter money be effective? Yes, it probably will.

This week President Trump proposed sending Americans $1,000 checks. Such a direct stimulus is also known as ‘helicopter money.’ Not all Republicans were enthusiastic about this idea. For example, Senate Appropriations Committee Chairman Richard Shelby said “I don’t know the logic of that.” In this note we take a closer look at the economic logic behind helicopter money. Based on our analysis, we expect this to be effective in slowing down a sharp decline in consumer spending, although it will probably not be enough to bring the economy back on an upward growth path.

What is helicopter money?

Many people, when hearing the words helicopter money, think of Ben Bernanke. After all, he was nicknamed ‘Helicopter Ben’ during the crisis, when the Fed stimulated the economy with an extremely loose monetary policy. However, the idea goes back to Milton Friedman, Nobel laureate (1976). Friedman described in a famous article how helicopter money (new banknotes distributed among the population by throwing it out of a helicopter) could help to stimulate the economy, when this was caught in a so-called liquidity trap (Friedman, 1969). When this additional money is directly distributed to the people, they will spend it, is the underlying assumption. In today’s world of deposit money, the equivalent of helicopter money would be a tax rebate, financed by the creation of extra money. Another version, of course, could be to give people an amount of money, financed out of the government budget and to be financed with taxes, the issuance of bonds and/or a decline in a government surplus. This is what happened in the Netherlands in 1998, when they gave every taxpayer a one-off gift of 100 guilder (about 45 euro), the so-called ‘Zalmsnip’. It didn’t really stimulate the economy, neither did it make the government very popular.

How effective is helicopter money?

Would it work? Some economists are strongly convinced it always will (Buiter, 2014). But we think its effectiveness will depend on the circumstances. Today, an increasing number of Americans are cash-strapped. For example, 11% of Americans could only afford their household expenses for up to a week in case of a quarantine, and another 15% could only afford those expenses up to 3 weeks. In the end, 45% of Americans would be unable to cover 3 months of living expenses without tapping into credit or their retirement fund (if they even have one). There is also the danger of unemployment and many people also face additional healthcare costs. In such circumstances, a direct gift from the government will be very welcome. When cash-strapped people receive money, they may be expected to spend it more or less directly on essentials. Therefore, helicopter money will in this case be very effective in helping people, preventing misery and even hunger among a substantial size of the population and it may also help to restore people’s confidence in the future. But this, of course, is the US situation. Elsewhere things may be different.

Could other countries follow the US example?

In principle, the US example deserves to be followed. However, this will differ from country to country. To see this, one should realize that the US has a rather limited system of social security. A deep recession means a serious decline in family income, in a country that already has a large part of the population living in relatively poor circumstances. Most European countries have relatively more generous systems of social insurance, although the situation will differ from country to country. In the Netherlands, for example, there is a strong system of unemployment insurance, so most people will have enough money to pay for their basic needs. Would the Dutch government decide to give directly money to the people, much of it may in these uncertain times end in savings deposits or cash holdings.

A second consideration is, that many European countries lack the fiscal room for manoeuver for such a measure, simply because budget deficits and public debt already are too high. Germany and the Netherlands are major exceptions here. In contrast, the US can create more or less unlimited deficits, financed with bonds or financed with newly printed money, because it can always finance its deficits in US dollars. The worst that could happen to the US is that the US dollar may decline in value, what de facto means that ultimately foreign investors in dollars pay the bill. This is a consequence of the international position of the dollar. Most countries can’t afford this luxury. Members of the Eurozone, of course, could be helped with extra fiscal space if the ECB would be prepared to print extra money to finance the extra spending. However, monetary financing is explicitly forbidden by the European Treaties (art. 123). But this may change, of course.

Could helicopter money stimulate activity once the acute crisis is over?

Again, this will depend on the actual situation. People may spend the money, which will stimulate activity, or they may not. If people lack confidence in the future, they may decide to save the money for a rainy day and put it on a savings account (or keep it in the form of cash). Under normal circumstances, helicopter money is inferior to outright monetary financing of additional government spending in for example infrastructure. This by definition increases real economic activity and creates new jobs. The government starts a new project and it channels the new money through the bank accounts of the contractors. Once the employees involved have received their salaries, a second round of spending may start. This is a major difference between monetary financing and helicopter money. On the other hand, however, starting up a public project takes time, while in a modern society it should be possible to directly distribute money to the people at very short notice. This is a great advantage compared with extra government spending. What’s more, in case of the coronavirus and the need for social distancing starting new public projects could be an additional challenge. So in the current circumstances helicopter money is an attractive option.

Is there a role for monetary financing?

Monetary financing increases both real activity, the money supply (M1) and the monetary base. Using this instrument in an economy that is already up to speed and operating close to capacity will in theory ultimately lead to increasing inflation. Public spending may crowd out private spending and the seigniorage income of the government increases its share in the economy and acts as tax income (Keynes, 1924). Once a government goes too far in using this instrument, inflation may get out of hand and an economy may run into deep problems. But this is not to say that monetary financing is wrong in all circumstances. If an economy is in recession and in danger of entering deflationary territory, monetary financing is the most effective and appropriate way both to stimulate activity and prevent deflation. In today’s situation of a world economy that has come to a grinding halt, helicopter money as well may be very effective in helping to stop the decline, especially in countries with less generous social insurance systems (see above).

The conclusion is that, given the choice, in normal recessions monetary financing seems to be more effective than helicopter money in stimulating economic activity. But in today’s situation, helicopter money may be the better option. Certainly in the US.


Bernanke, B.S. (2002), Deflation: Making Sure “It” Doesn’t Happen Here, Speech before the National Economists Club, Washington, DC, 21 November 2002

Boonstra, W.W. (2019), The global economy needs a new currency anchor, Rabobank Special 

Buiter, W.H. (2014), The Simple Analytics of Helicopter Money: Why It Works — Always, Economics.

Friedman, M. (1969), The Optimum Quantity of Money, Transaction Publishers, New Brunswick, New Jersey, 3rd print, 2008

Keynes, J.M. (1924), A Tract on Monetary Reform, Prometheus Books, New York

Philip Marey
RaboResearch Global Economics & Markets Rabobank KEO
+31 30 71 21437
Wim Boonstra
RaboResearch Global Economics & Markets Rabobank KEO
+31 6 5128 1405

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