Helicopter money

Gifts of money and their effect on the economy

Imagine if the government gave every person some extra money each month for a year, and they could do as they pleased with it. Usually a windfall is confined to a small number of people; think of lottery winners or people who find treasure on or near their property. In these cases, research has indicated how recipients typically respond.

What would you do?
However, there’s little information on how people react if a whole community, for example, receives the same gift. ING decided to try and find out how people would respond to helicopter money – this is part of a range of activities, including the Think Forward Initiative, focused on gaining a better understanding how people actually make decisions about personal finance.

Advisers to governments suggest that adopting such a “helicopter money” policy could stimulate consumer spending and therefore boost economic growth. Typically attributed to Milton Friedman in 1969, the idea is to imagine a helicopter flying over a country and dropping money on the population below. If people spend that money, both growth and inflation should increase.

Continued slow growth and very low inflation have been threatening economic prosperity in some countries. Some people suggest that to address this central banks – acting on behalf of governments – should print money and give it directly to individuals.

Saving, not spending, helicopter money
Almost 12,000 people in 12 countries across Europe were asked: “Imagine you received €200 in your bank account each month for a year. You are free to do what you want with the money and don’t need to repay it or pay taxes on it. How would you use this extra money?”

While many respondents to ING’s survey indicate they would be pleased to receive the funds, few say they would go out and spend the money. Only about one in four (26%) say they would spend most of the money. This share is very low; compared with about half (52%) say they would save or invest most of this windfall. 

In addition, less than half believe either growth or inflation would be higher if the ECB created money this way.

We asked people what they would do with this "helicopter money" if it were given to them.

Past experience
This particular approach to helicopter money has been tried in limited ways in the past. In 1999 and 2009, Japan sent time-limited shopping coupons to particular sections of the population. Taiwan carried out a similar initiative, also in 2009.

The effectiveness of the 1999 programme in Japan has been questioned. Spending on semi-durable goods (such as clothes and computer software) increased immediately after the coupons were made available but there have been doubts about the longer term effects.

Given questions about past coupon spending programmes and the practical difficulties of actually giving money to individuals (for example, how would people without bank accounts receive the money?), a more promising application of the helicopter money concept might involve directly financing government or infrastructure spending.

Economics in 3D One of the early papers from the Think Forward Initiative, Economics in 3D, argues that macro-economists need to pay more attention to the behaviour of individuals to understand how the economy works. ING’s 2016 helicopter money survey is another attempt at this linking of individuals and the wider economy.

Milton Friedman’s idea is a useful way to think about simple approaches that might stimulate the economy. However, our survey results suggest people may react in unexpected ways. For helicopter money to work, government may need to take a larger role in controlling how the money would be spent.

Previous versions of these surveys on financial and economic behaviour are freely available at eZonomics. These surveys are conducted by Ipsos.