Critics say MMT ignores the impact of increased borrowing costs, loss of confidence in international markets and the negative impact on productivity from excess debt. But, it gives governments a new way to fund major projects. It’s typically raised as a way to fund progressive legislation like universal healthcare and other expensive public programmes like the ‘Green New Deal’ in the US.
Helicopter money as a crisis-fighting tool
Unlike traditional QE, where liquidity is made available to banks and financial institutions, ‘helicopter money’ is about handing cash directly to individuals.
One of the big problems with QE has been that it has mainly ended up in stock markets, supporting asset prices but not doing much for economic growth. Conversely, an injection of cash directly to consumers, the theory goes, will be much more efficient at stimulating demand and moving inflation.
Like MMT, helicopter money has potential problems. Once people know that central banks can just hand out cash in times of crisis, they may come to demand it in ever less extreme circumstances. And the lesson of QE – once seen as an extreme measure – is that a one-off move can quickly become the default option.
The way it changes a government's entire perception of the choices facing it is also dangerous – what impact might a helicopter of cash have in the months leading up to a general election?
If enacted, helicopter money would need strict limits to make sure that such exceptional measures are not at the sole discretion of governments. For example, a system of automatic disbursements could be programmed for when certain economic criteria are met, taking decisions on timing out of the hands of government officials.