Will the Helicopter Money Land Safely on New Zealand Citizens?

  • Jul 15, 2020 NZST
  • Team Kalkine
Will the Helicopter Money Land Safely on New Zealand Citizens?

Summary

  • Economists have called Helicopter Money an idea of ‘Quarantative Easing’ for the people.
  • This concept is well-known for supporting the expenditures of households and industries, especially during crisis times.
  • The idea of printing and supplying free money is fascinating, but it has its consequences.

When you hear about Helicopter Money, the first thing that comes to the mind is the famous Netflix series ‘Money Heist’ in which the criminals distribute loot money amongst the common public by dropping it from the air into the busy streets of Spain. People receive free cash, and criminals in return, earn general public support. Probably a win-win situation for both. This activity sounds and seems feasible in the shiny world of cinema. On the contrary, when we talk about the New Zealand Government releasing sanctioned free money to its citizens, we wonder how it is going to work for the economic revival. For that, let us understand what Helicopter Money is and will it work or not and why.

With no relief whatsoever throughout the world because of the novel coronavirus (COVID-19) pandemic, economies are struggling hard to recover. Every major affected country is pressured to come up with a variety of relief packages and stimulus aids. Besides, governments are using all the possible strategies for industries to come back on their feet.

ALSO READ: Three ‘Gs’ Defining NZ Recovery Scenario: Global Connections, Government Support and Galvanic Digitisation

Amid all this, the proposal of Helicopter Money is making many noises, and there is no reason why New Zealand shall stay behind on discussing its possibility.

What is Helicopter Money? It is basically ‘Free Money’, an unconventional monetary policy to bring the weakened economy back on track. Helicopter Money works in different ways as enumerated below:

  • The Government takes the funds from the Federal Central bank and distribute it to its citizens to spend mainly in the retail industry. This ‘so-called fiscal policy’ initiative will help with cash flow and provide a boost to the economy from its liquidity trap.
  • Central bank directly transfers funds to the private sector without any involvement of fiscal authorities.

Story of Origin- An American Nobel prize-winning economist Milton Friedman first introduced the concept of Helicopter Money in the year 1969. He wrote a parable of dropping money from the helicopter directly for citizens use to demonstrate the effects of monetary growth.

Several economists seriously considered this concept in 2000 after Japan’s Lost Decade. 1991 to 2001 was a period of economic stagnation in Japan, which led to economists taking into account the idea of distributing non-repayable money directly to the public.

Ben Bernanke, an American federal reserve board governor and later chairman, suggested that Helicopter Money can be used to prevent deflation. The Irish economist, Eric Lonergan, argued in 2002 in the Financial Times, that it can be used as a substitute to reduce the interest rate and aid financial stability.

Economists have also called this idea ‘Quarantative Easing’ for the people amidst the virus-induced crisis.

Idea of Helicopter Money from NZ Perspective- New Zealand Government considering allocating funds directly to individuals is a fascinating idea. But looking at the past, this initiative had certain difficulties during the implementation.

A charitable trust in New Zealand, Hutt Mana Charitable Trust, planned to close the trust and distribute the assets to its trust beneficiaries. The idea was that anyone paying electricity bill in Wellington’s Hutt valley would possibly get $1500 as non-repayable funds. This announcement made citizens excited. When it came to the implementation of this noble initiative, the process took much time, and people started getting restless as many of them had already added these future funds into their budgets. This delay created a huge ruckus in the community, and emotionally appealing stories started to appear in the news. In the end, the trust did as they promised while winding up the assets and gave each household a cheque of good enough sum.

Introducing this idea in the general public without any implementation plan could lead to discrepancies with disappointments and frustration.

The current scenario is unsettling. Because of the coronavirus pandemic situation, morals are already shallow. Also, people would prefer to save the money distributed by the Government, rather than actually spending in the retail industry.

So, meeting the expectations of immediate cash distribution, along with raising the necessary funds for distribution to the public at large is a crucial factor to be looked by the policymakers. The Government is still contemplating on implementing this concept given the impact on currency and hyperinflation.

New Zealand is being appreciated internationally with timely border closing, clear communication about the crisis and strict lockdowns. But the country suffered its most significant contraction in the last 24 years. The gross domestic product (GDP) shrank to 1.6% in January-March Quarter. The Government announced the economic stimulus of NZ $12.1 billion, and it is a bigger package than countries like Australia and Singapore.

In view of economic prospects and fiscal intervention, The Finance Minister, Mr Grant Robertson, said handing out cash is not an “immediate plan.”

While it is a tricky situation for the Government to balance the spending and money flow to get the retail industry and the overall economy up and running, Helicopter Money proposal needs further discussion keeping in mind the perceived benefits and impact on economic fundamentals. All other available policy tools may be looked at, before looking at the implementation of Helicopter style of money pumping as a last resort.

 


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