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Does the economy need a helicopter rescue to escape COVID-19 disaster?: Don Pittis –



As the Canadian government and the U.S. central bank say they will do whatever it takes to get their economies back on track, some experts are recommending a long-discussed weapon.

Known as helicopter money, the concept was proposed as a thought experiment by Nobel Prize-winning American economist Milton Friedman as an alternative to governments borrowing and spending to stimulate the economy.

With growing fears of a wider economic meltdown caused by the effects of the COVID-19 pandemic, economists are suddenly considering the helicopter option, though the subject remains controversial.

One of the many controversies is over the definition of exactly what helicopter money is and what it is not.

No actual helicopters needed

While no actual helicopters are used in the process, the one thing most economists agree on is that it involves the distribution of money into the economy in a way that boosts the spending power of ordinary citizens.

“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 famously proposed.

U.S. President George W. Bush, centre, talks to Rose Friedman, right, as her husband, economist Milton Friedman, left, addresses dignitaries gathered at an event held in his honour at the Eisenhower Executive Building in Washington, May 9, 2002. Friedman, a 1976 Nobel Prize winner for excellence in economics, was one of the strongest advocates of economic freedoms and free enterprise. (Kevin Lamarque/Reuters)

Friedman, who died in 2006, was one of the founders of the Chicago school of economics that tended to oppose government involvement in the workings of the economy.

Usually described as a monetarist because of his belief in monetary policy as a means of adjusting or fine-tuning the economy, Friedman was part of the small government movement that began to mature following his influential paper in 1969. In general, Friedman objected to the fiscal spending championed by Keynesians, who believe that governments should borrow money and spend it on anything from roads to schools to reignite economic growth.

Deflation fighter

In the helicopter theory’s original form, Friedman saw this distribution of cash in the economy as something to be used when interest rates had gone as low as they could go and the economy was refusing to respond to other kinds of monetary stimulus. He saw it as a one-time measure to return inflation to a healthy level.

As described by Friedman, helicopter money was exclusively a monetary tool used by the central banks, which can create the money out of thin air, just as they do with the money used to buy bonds in quantitative easing. Often called “printing money,” it is the process of creating new currency units, as the Fed promised to do yesterday, and using them to buy existing bonds, thus injecting cash into the economy.

“When the economics community talks about helicopter money, what they really mean is, at the end of the day, the Bank of Canada could print money and simply send it to Canadians,” Craig Alexander, Deloitte Canada’s chief economist, said in an interview last week.

But he says now is not the time for that inflationary boost.

“You might start to entertain distributing money from the central bank to households if there was deflation, but that isn’t where we are in terms of risks yet,” he said.

In the slippery world of economic theory, the definition of helicopter money as solely a tool for generating inflation has expanded beyond what Friedman proposed.

No doubt he turns over in his grave every time someone uses the term modern monetary theory, or MMT, the idea that helicopter money could be used in place of fiscal spending to redistribute wealth and even pay for policies like the proposed Green New Deal in the U.S.

While many economists would object to the wider use of the term, sources as credible as the Financial Times and the Bank of Canada suggest it has become more inclusive.

U.S. President Donald Trump, left, and Treasury Secretary Steven Mnuchin, right, answer questions during the administration’s daily coronavirus briefing at the White House last Tuesday. Mnuchin said the administration was looking to send money directly to Americans to help them cope with the COVID-19 crisis. (Jonathan Ernst/Reuters)

The FT story with headline, White House warms to showering U.S. with ‘helicopter money,’ points out the Trump administration is seriously considering a cash handout to every American that would expand the national debt.

“We are looking at sending cheques to Americans immediately,” Treasury Secretary Steven Mnuchin said last week. “Americans need cash now, and the president wants to get cash now — and I mean now, in the next two weeks.”

You are the guinea pig

Economists at the Bank of Canada bridge the monetarist and Keynesian perspectives with a fresh report out last month titled: The Power of Helicopter Money Revisited: A New Keynesian Perspective.

A quick glance at the Bank of Canada paper, besides demonstrating that economics is a very different language than most of us use, reveals how much the results of cash injections of this kind remain theoretical.

As University of Ottawa professor Jacqueline Best told me last week, only half in jest, it’s all a big experiment. But, she says, no matter how it is done, there may be a qualitative difference between handing money out to ordinary people or dumping it into bond markets with quantitative easing, where only large corporations can make use of it.

But among those who would entertain the idea of helicopter money, there is one consideration that both central bank theorists and practical politicians must now be thinking about:

While most agree it is crucial to turn on the spending taps immediately to fight COVID-19, and to tide people over with the essentials and to keep the economy from collapsing, the real need for helicopter money may come later.

With so much of the economy shut down and so many people laid off and feeling insecure, until everyone is able to get out of their homes and resume normal lives, a new flood of money might not have the desired effect of sparking a new round of stimulative discretionary spending.

Follow Don on Twitter @don_pittis

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We're at war and need wartime institutions to keep our economy producing what's necessary | TheHill – The Hill



There can be no question about the nation’s current predicament. We are at war. We are faced with a public health crisis, yes, but the virus now ravaging our communities is a lethal invader taking American lives, threatening our way of life and destroying our productive capacity and economic health. 

We’re waging battle on the public health front with thousands of the most heroic and able health professionals on the planet, yet at the same time, it appears that despite Congress’ record $2 trillion relief bill we have no wartime strategy to get needed equipment where it is needed or to save our economy. We have no coordinated plan to mobilize workers, produce needed medical supplies, and distribute these to the facilities that need them.

We’ve faced down war on our people on our own shores before, so why not look to those occasions for clues as to how it is done? Many of the answers we’re looking for to respond to our current crisis and associated production shortfalls can be found in the measures taken by wartime presidents Franklin Roosevelt and, before him, Woodrow Wilson.


The key to keeping wartime production humming has always been public collaboration, with the public firmly in the driver’s seat, with private producers.

The U.S. took such measures when Pearl Harbor was bombed. President Roosevelt established a War Production Board (WPB) to coordinate the repurposing and expansion of factories; the re-routing of existing and opening of new distribution channels, and countless other tasks entailed by the productive and distributive ramp-up necessitated by the war. Before that, President Wilson established a War Industries Board (WIB) to achieve the same ends during the First World War mobilization. 

Roosevelt’s WPB worked in tandem with Herbert Hoover’s and his Reconstruction Finance Corporation (RFC), the already-existent financing arm of the New Deal. The RFC had been patterned after Wilson’s War Finance Corporation (WFC) of the preceding era, established to work with the WIB in overseeing and funding U.S. mobilization for the First World War. 

The WFC and the RFC directly financed mobilization, using a broad array of financing tools. They made direct grants, provided inexpensive credit or loan guarantees, and in many cases took equity stakes in individual businesses, thereby both recapitalizing them and taking internal governance rights to help guide production flexibly from the inside. 

Given the success of this model in our most “existentially” threatening earlier wars, why not update it now as we grapple with another lethal invader? 


I have been advocating, in some cases on my own and in some cases with others, a number of possible models for a contemporary RFC for some years now. The idea must be not just to address crises ad hoc after they have emerged, but to treat healthy and ongoing ‘reconstruction’ and national development proactively as an always-necessary, continuous process in need of an effective and democratically accountable coordinator. Think of it as a smart industrial policy tool for managing a permanent policy need in any world, such as ours, in which technical needs and technologies themselves constantly evolving. 

A National Investment Authority (NIA), for example, which I first floated with my colleague Professor Omarova early in 2015, would develop, coordinate, and oversee the financing and execution of a coherent strategy of perpetual, across-the-board national development, in collaboration with private sector agents whose industries are implicated by particular projects. 

My National Investment Council (NIC), introduced more recently, would collaborate more with already-existing federal agencies whose mandates are implicated by specific industrial and infrastructural projects, bringing them together as the Financial Stability Oversight Council (FSOC) does our multiple financial regulators. It would accordingly resemble not only the RFC but also the Board for National Investments (BNI) advocated by J.M. Keynes in the 1920s. 

Either model would include a direct investment arm, which would act both in primary and in secondary to ensure both public and private sector provision of critical public goods. What makes these models especially relevant today is that they are designed to be platforms of precisely the kind that we need to survive our pandemic. 

Right now, they would mobilize a coherent productive response to the COVID crisis. They would inject capital into businesses that need it, take direct equity stakes in them as necessary, and direct resources coherently toward the production of what must be produced both to keep our people healthy and our economy humming. 

In recent weeks, my friends James Galbraith and Michael Lind have proposed an ad hoc Health Finance Corporation (HFC) to address the COVID crisis. Like the NIA and NIC, it is inspired by and patterned in part after the RFC. I find much to admire in this proposal, as does presidential candidate Bernie SandersBernie SandersOvernight Energy: Oil giants meet with Trump at White House | Interior extends tenure of controversial land management chief | Oil prices tick up on hopes of Russia-Saudi deal Oil giants meet at White House amid talk of buying strategic reserves The Hill’s Campaign Report: Biden struggles to stay in the spotlight MORE (I-Vt.), who has proposed his own variant of it. I think we’ll do even better, however, to institute something more permanent.

Unless we’re all killed by the present pandemic, there will be others. And just as importantly, reconstruction and development — national self-renewal — are forever. 

Robert Hockett is the Edward Cornell professor of law at Cornell University, Visiting Professor of finance at Georgetown’s McDonough School of Business, and consulting counsel at Westwood Capital in New York City. Formerly with the Federal Reserve Bank of New York and the International Monetary Fund, he is a frequent advisor to legislators and regulators in Washington and New York.

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Opinion: Reality check: The economic crash is significant but it's not the apocalypse – Calgary Herald



Stock markets have entered bear market territory meaning that they have lost 20 per cent of their value and in short order. Is the stock market’s reaction overstated? From an economic perspective, coronavirus is big. It started with an interruption in China’s output and if that wasn’t mainstream enough, now global travel is being interrupted, events are being cancelled and large social events are being prohibited. Meetings are being moved to virtual ones and extended breaks are being imposed on schools. This is disrupting our lives.

When the sub-prime mortgage fiasco resulted in the global financial crisis, the U.S. stock market collapsed as the Dow Jones Industrial Average index fell from a high of over 14,000 to a low of around 7,000 over a period of 18 months. There was a fear that the globe was entering a period of a global depression much like what had happened in the 1930s. That fear proved unwarranted as the global economy rebounded and the stock market resumed its upward trend. There are many reasons that the global economy was more resilient this century versus in the 1930s and the banking rules have been largely pointed to. I would posit that the degree of globalization, trade, availability of food, preservatives and energy, along with the portion of the population that is not living in abject poverty are all in the mix as to why the 2008 recession did not become a depression.

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"Sledgehammer" policies will destroy us; we need open economy says Johns Hopkins professor | – Kitco NEWS



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Government-mandated policies of self-isolation will cripple the American economy, and the draconian measures taken to contain the pandemic are not necessary, this according to Steve Hanke, professor of applied economics at Johns Hopkins University.

“With the economy shutting down, the cost is going to be absolutely phenomenal,” Hanke told Kitco News.

Hanke likened the response to the virus from the U.S. and many Western European nations to a “sledgehammer.”

“The sledgehammer approach being used in most European countries and the United States is turning out into a very costly mistake. And what I mean by sledgehammer is they haven’t planned anything, they just have a blanket program where we’re all locked in our condos or houses and can’t move, and the economy shuts down,” he said.

Instead, governments should take the model that Sweden has set, Hanke said.

“If you look at some place like Sweden, Sweden has a very laissez-faire, very targeted approach, and they’re doing very well. The kindergartens are still open, the grade schools are still open, most factories are still open in Sweden. They are not imposing this sledgehammer and essentially wiping out the economy,” he said.

“The places that have done well in controlling and counting properly the victims of this pandemic are countries that have small, efficient governments, and free market economies. You look at Singapore, Hong Kong, they’re right up there,” he said.

Additionally, these nations have all practiced the “five P’s”: prior preparation prevents poor performance, Hanke said.

The U.S. is now the country with the highest number of COVID-19 cases in the world, and the majority of the country has not yet been tested.

“Wherever the five P’s have not been applied, you have a disaster,” he said.

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