8 ms·

Nobody has ever explained to me, in a satisfying way, what's wrong with a helicopter drop. Edit: I mean helicopter drops in the original sense. That is, printi

by tormeh 11y ago

Nobody has ever explained to me, in a satisfying way, what's wrong with a helicopter drop. Edit: I mean helicopter drops in the original sense. That is, printing money and the giving it away unconditionally and equally to all flesh-and-blood citizens.

eronhp 11y ago
It's basically the place you drop it, everybody agrees that we should drop it on the needy, but somehow we always drop it on the banks and the wealthy.
- tormeh 11y ago
  That is conventional policy, yes, which is why helicopter drops are so exciting: unconditional and equal transfer to flesh-and-blood citizens create much-needed inflation without disproportionately favoring the rich.
adventured 11y ago
You're debasing the currency that you're 'printing' to use in the helicopter drop. That means you're stealing purchasing power from anyone that uses eg dollars, to redistribute it to whomever is on the receiving end of that helicopter drop (which is almost guaranteed to not be everyone you just stole the purchasing power from). Ever see Canadians complain about the value of their loonie in threads online? I see it constantly, they complain because they've lost purchasing power. What happened? The USD soared when the Fed stopped debasing it so aggressively with QE, and the Canadian economy went into recession because commodities are priced in dollars (leading to a double whammy). The US effectively did helicopter drop trillions of dollars. The Fed's balance sheet presently represents a housing, bank, government and stock market bailout. The bottom 50% don't own much in the way of assets however, so when you debase their purchasing power and send the value of the dollar plunging (post 2002 or so), their standard of living falls significantly. The rich could mostly care less, within reason, because their assets can often be shifted to better returns based on what's happening at the moment. Average worker incomes however cannot be shifted, they simply get eroded. This is fundamentally why the median US worker has seen almost zero inflation-adjusted income increase in 40 years, post Nixon's choice to debase the USD. No coincidence the cost of everything has soared (including commodities), perfectly timed from that fateful decision. It's also no coincidence that every nation's GDP simultaneously skyrocketed - priced in dollars - when the Fed began debasing the USD around 2002/03. In vague terms that represents the vast loss of purchasing power that the dollar experienced, to the benefit of pretty much everyone else. It's also why, when the dollar turned back the other way after QE stopped, emerging economies like Brazil crashed so hard and fast (as the USD pulls capital out of Brazil like a gravity well), and it's why China is bleeding such large sums of capital right now (as occurred on a smaller scale across Asia the last time the dollar went on a big bull run in the 1990s, leading to the Asian economic crisis of 1997). If you're the Fed and you run actual 3% to 4% persistent inflation (while lying and pretending the CPI is accurate at say 2%), and worker wages climb by 1% to 2% per year - then over 20 years the average worker gets destroyed. In pretty much every country a helicopter drop has been tried, it has led to inflation in relative proportion to the size of the drop. Inflation harms the poorest the most (see: Venezuela, Argentina, Zimbabwe, Russia, Brazil). The US is a bit of a special case in that regard, because it can export some of that inflation to the world via the global reserve currency, which helps blunt the amount of inflation that immediately hits the domestic economy. That inflation often finds its way back however, which we may see shortly with China liquidating its treasuries.
- tormeh 11y ago
  First, you're criticising fiscal stimulus in general, not helicopter drops in the original sense. Second, creating inflation is very beneficial when current inflation is below target. That's the point. Third, inflation harms holders of money, not those that have no money. It thus incentivizes spending and investment, which is why we have above-zero inflationary targets. Yes, hyperinflation is bad - which is why helicopter drops have to be used in moderation. But then again, that's true of almost anything in politics and life in general, so I don't see why that's relevant.
  - tsotha 11y ago
    >Second, creating inflation is very beneficial when current inflation is below target. That's not a blanket truth. Inflation is good if you don't have savings. It's bad if you do.
afsina 11y ago
What you describe is part of the Keynesian economics. There is a great deal of resources about the criticism of Keynesian economics especially from Austrian School. But i like the rap battle the most :) https://www.youtube.com/watch?v=d0nERTFo-Sk https://www.youtube.com/watch?v=d0nERTFo-Sk
ThomPete 11y ago
The problem is that it requires an uptake in the economy to work and it requires that the countries have saved up in the good times to pay for it in the bad times. Problem is that the economy isn't really picking up and so now the bill is passed on to our children and grandchildren to pick up.
- dsfsdfd 11y ago
  And this is different to QE in which way?
  - ThomPete 11y ago
    They aren't they are equally bad IMO unless you hit exactly at the right time and have money saved up from the good times. Which 99.9% of the times isn't the case.
    - jerf 11y ago
      I like to distinguish between true-Keynesianism and political-Keynesianism, because they are very, very not the same thing. True Keynesianism, as you say, requires saving in the good times. Political-Keynesianism is trotted out only when times are bad and it's important to justify government intervention, but most of the people who were saying "Keynes Keynes Keynes" conveniently get quiet when it's time to pay down, until next time the economy is down again. It has often seemed to me that if you truly believe in Keynesianism, the fact that the economy is still in the crapper and has been for nearly a decade now really shouldn't surprise you, because we've really only used the bits of Keynesianism that happen to be convenient to our ruling class. If you don't do what Keynesianism tells you to do, you shouldn't expect the results it promises. (Again, I'm not really a big believer in either true- or political-Keynes, but still, one is a serious economic theory and the other is a convenient fiction.)
      - ThomPete 11y ago
        I agree. My point is that neither keynesianism or austerity are actual solutions they both have a lot of unknown consequence because the context they are being used in is always changing.
crdoconnor 11y ago
>Nobody has ever explained to me, in a satisfying way, what's wrong with a helicopter drop. The main effect would be a a transfer of wealth from debtors to the indebted, a hit of inflation and an economic stimulus effect. The economic multiplier would not be as high as something like SNAP (which is about 2.5-3.5x I think), since the middle classes and rich recipients would just squirrel away what they got. Or use it to pay down debts. It would have a higher economic multiplier than pretty much any money that's been funneled into bailouts though. Whether all this is "good" depends on your perspective. Practically speaking, though, any potential helicopter drop is going to be so small it will have virtually no effect. At the same time, it'll be demonized every step of the way by the people who would hate the precedent it would set (i.e. anybody who is owed money). I think whatever your desired effect is there's probably a better tool to achieve it than a helicopter drop. It's a fairly blunt tool.
- aljones 11y ago
  Why is a helicopter drop more prone to inflation than QE? Presume we're in a liquidity trap as the proponents of helicopter drops and QE do. Edit: I have misinterpreted what you said. I read your first sentence as explaining what was wrong with a helicopter drop of money, because that is what was asked. However you probably didn't mean that to be a list of bad effects, just effects, to set the stage for your real answer which is the multiplier. Which is indeed the most important thing to consider.
  - yummyfajitas 11y ago
    A helicopter drop will put money into the hands of poor people, causing them to consume. Concretely, a poor person might eat more. This makes food prices (included in CPI) go up, hence inflation. In contrast, QE might also stimulate investment. Concretely, we might build a factory or a road. This makes industrial machinery prices (not included in CPI) go up, hence no inflation. Since the goal of stimulus is to reduce real wages and induce workers to stop turning down productive labor, the former is more useful than the latter. Of course, there are countervailing effects - giving workers money directly can substitute for them getting a job. (See my other post: https://news.ycombinator.com/item?id=10438248 https://news.ycombinator.com/item?id=10438248 )
yummyfajitas 11y ago
According to Keynesian theory, recessions are caused by workers refusing to accept work at a lower nominal wage and instead become unemployed. The concern with a direct helicopter drop is that it might enable workers to refuse to work for longer. As an example of this, consider the semi-"helicopter drop" of money we had during the last recession: the extension of unemployment benefits. It turns out benefit cuts cause workers to accept jobs. http://c0.nrostatic.com/sites/default/files/w20884.pdf http://c0.nrostatic.com/sites/default/files/w20884.pdf
- digi_owl 11y ago
  Frankly that "theory" is so out there that it pees on the name of Keynes. It comes out of a massive abuse of preference curves, a model that itself have some massive assumptions bouncing around (like that if your income increases, you will not switch preferences completely, just keep buying more of one or the other). As for cutting benefits makes workers accept jobs, no surprise there. Cut benefits and it is accept anything or starve. Basically it is wage-slavery.
  - yummyfajitas 11y ago
    What, exactly, do you believe Keynesian theory claims? Specifically, how do you believe Keynesian theory explains involuntary unemployment? (Involuntary unemployment is when workers are employed at a wage K, and other workers are unemployed but have a reservation wage of K.) Given that you agree with my factual claim (that giving people money directly causes unemployment), what do you disagree with me on? Is it just my mood affiliation that you dislike?
    - Gibbon1 11y ago
      I think Keynes was firmly in the camp that involuntary unemployment in a depression+ is caused by a cascading demand shortfall due to everyone trying to put their money in safe assets and pay off debt vs consume. + As opposed to a central bank engineered recession.
      - 11y ago
s73v3r 11y ago
You mean aside from the rioting and violence that would break out as people scrambled to get some money?
evanpw 11y ago
If the Fed prints money and buys bonds, then in the future when they need to take that money back out of circulation in order to control inflation, then they just sell the bonds. If the Fed prints money and gives it to people, getting nothing in return, then the only way to take the money back out is to raise taxes, which will result in deadweight losses.
- tormeh 11y ago
  The central bank can't control the price at which the market will buy the bonds, but that's a good point. That said, has hyperinflation ever occurred without the central bank printing money while inflation is above-target? Private holders of money can flood the market with cash, but only the central bank can sustain that flood for a really long time.
asgard1024 11y ago
> Nobody has ever explained to me, in a satisfying way, what's wrong with a helicopter drop. There is nothing to explain, since there is nothing wrong with it. Steve Keen did a simulation of policies against debt deflation, comparing austerity (business as usual), quantitative easing (giving money to banks) and helicopter drop (giving money to consumers). The result was that helicopter drop worked the best, followed by QE, and austerity came last. This is consistent with recent historical data we have on austerity (Japan and Europe) and QE (USA); I am not sure if someone ever attempted helicopter drop in debt deflation (although a similar thing - debt cancellations - happened in history).

by tormeh 11y ago

eronhp 11y ago

It's basically the place you drop it, everybody agrees that we should drop it on the needy, but somehow we always drop it on the banks and the wealthy.

tormeh 11y ago
That is conventional policy, yes, which is why helicopter drops are so exciting: unconditional and equal transfer to flesh-and-blood citizens create much-needed inflation without disproportionately favoring the rich.

adventured 11y ago

You're debasing the currency that you're 'printing' to use in the helicopter drop. That means you're stealing purchasing power from anyone that uses eg dollars, to redistribute it to whomever is on the receiving end of that helicopter drop (which is almost guaranteed to not be everyone you just stole the purchasing power from). Ever see Canadians complain about the value of their loonie in threads online? I see it constantly, they complain because they've lost purchasing power. What happened? The USD soared when the Fed stopped debasing it so aggressively with QE, and the Canadian economy went into recession because commodities are priced in dollars (leading to a double whammy). The US effectively did helicopter drop trillions of dollars. The Fed's balance sheet presently represents a housing, bank, government and stock market bailout. The bottom 50% don't own much in the way of assets however, so when you debase their purchasing power and send the value of the dollar plunging (post 2002 or so), their standard of living falls significantly. The rich could mostly care less, within reason, because their assets can often be shifted to better returns based on what's happening at the moment. Average worker incomes however cannot be shifted, they simply get eroded. This is fundamentally why the median US worker has seen almost zero inflation-adjusted income increase in 40 years, post Nixon's choice to debase the USD. No coincidence the cost of everything has soared (including commodities), perfectly timed from that fateful decision. It's also no coincidence that every nation's GDP simultaneously skyrocketed - priced in dollars - when the Fed began debasing the USD around 2002/03. In vague terms that represents the vast loss of purchasing power that the dollar experienced, to the benefit of pretty much everyone else. It's also why, when the dollar turned back the other way after QE stopped, emerging economies like Brazil crashed so hard and fast (as the USD pulls capital out of Brazil like a gravity well), and it's why China is bleeding such large sums of capital right now (as occurred on a smaller scale across Asia the last time the dollar went on a big bull run in the 1990s, leading to the Asian economic crisis of 1997). If you're the Fed and you run actual 3% to 4% persistent inflation (while lying and pretending the CPI is accurate at say 2%), and worker wages climb by 1% to 2% per year - then over 20 years the average worker gets destroyed. In pretty much every country a helicopter drop has been tried, it has led to inflation in relative proportion to the size of the drop. Inflation harms the poorest the most (see: Venezuela, Argentina, Zimbabwe, Russia, Brazil). The US is a bit of a special case in that regard, because it can export some of that inflation to the world via the global reserve currency, which helps blunt the amount of inflation that immediately hits the domestic economy. That inflation often finds its way back however, which we may see shortly with China liquidating its treasuries.

tormeh 11y ago
First, you're criticising fiscal stimulus in general, not helicopter drops in the original sense. Second, creating inflation is very beneficial when current inflation is below target. That's the point. Third, inflation harms holders of money, not those that have no money. It thus incentivizes spending and investment, which is why we have above-zero inflationary targets. Yes, hyperinflation is bad - which is why helicopter drops have to be used in moderation. But then again, that's true of almost anything in politics and life in general, so I don't see why that's relevant.
- tsotha 11y ago
  >Second, creating inflation is very beneficial when current inflation is below target. That's not a blanket truth. Inflation is good if you don't have savings. It's bad if you do.

afsina 11y ago

What you describe is part of the Keynesian economics. There is a great deal of resources about the criticism of Keynesian economics especially from Austrian School. But i like the rap battle the most :) https://www.youtube.com/watch?v=d0nERTFo-Sk https://www.youtube.com/watch?v=d0nERTFo-Sk

ThomPete 11y ago

The problem is that it requires an uptake in the economy to work and it requires that the countries have saved up in the good times to pay for it in the bad times. Problem is that the economy isn't really picking up and so now the bill is passed on to our children and grandchildren to pick up.

dsfsdfd 11y ago
And this is different to QE in which way?
- ThomPete 11y ago
  They aren't they are equally bad IMO unless you hit exactly at the right time and have money saved up from the good times. Which 99.9% of the times isn't the case.
  - jerf 11y ago
    I like to distinguish between true-Keynesianism and political-Keynesianism, because they are very, very not the same thing. True Keynesianism, as you say, requires saving in the good times. Political-Keynesianism is trotted out only when times are bad and it's important to justify government intervention, but most of the people who were saying "Keynes Keynes Keynes" conveniently get quiet when it's time to pay down, until next time the economy is down again. It has often seemed to me that if you truly believe in Keynesianism, the fact that the economy is still in the crapper and has been for nearly a decade now really shouldn't surprise you, because we've really only used the bits of Keynesianism that happen to be convenient to our ruling class. If you don't do what Keynesianism tells you to do, you shouldn't expect the results it promises. (Again, I'm not really a big believer in either true- or political-Keynes, but still, one is a serious economic theory and the other is a convenient fiction.)
    - ThomPete 11y ago
      I agree. My point is that neither keynesianism or austerity are actual solutions they both have a lot of unknown consequence because the context they are being used in is always changing.

crdoconnor 11y ago

>Nobody has ever explained to me, in a satisfying way, what's wrong with a helicopter drop. The main effect would be a a transfer of wealth from debtors to the indebted, a hit of inflation and an economic stimulus effect. The economic multiplier would not be as high as something like SNAP (which is about 2.5-3.5x I think), since the middle classes and rich recipients would just squirrel away what they got. Or use it to pay down debts. It would have a higher economic multiplier than pretty much any money that's been funneled into bailouts though. Whether all this is "good" depends on your perspective. Practically speaking, though, any potential helicopter drop is going to be so small it will have virtually no effect. At the same time, it'll be demonized every step of the way by the people who would hate the precedent it would set (i.e. anybody who is owed money). I think whatever your desired effect is there's probably a better tool to achieve it than a helicopter drop. It's a fairly blunt tool.

aljones 11y ago
Why is a helicopter drop more prone to inflation than QE? Presume we're in a liquidity trap as the proponents of helicopter drops and QE do. Edit: I have misinterpreted what you said. I read your first sentence as explaining what was wrong with a helicopter drop of money, because that is what was asked. However you probably didn't mean that to be a list of bad effects, just effects, to set the stage for your real answer which is the multiplier. Which is indeed the most important thing to consider.
- yummyfajitas 11y ago
  A helicopter drop will put money into the hands of poor people, causing them to consume. Concretely, a poor person might eat more. This makes food prices (included in CPI) go up, hence inflation. In contrast, QE might also stimulate investment. Concretely, we might build a factory or a road. This makes industrial machinery prices (not included in CPI) go up, hence no inflation. Since the goal of stimulus is to reduce real wages and induce workers to stop turning down productive labor, the former is more useful than the latter. Of course, there are countervailing effects - giving workers money directly can substitute for them getting a job. (See my other post: https://news.ycombinator.com/item?id=10438248 https://news.ycombinator.com/item?id=10438248 )

yummyfajitas 11y ago

According to Keynesian theory, recessions are caused by workers refusing to accept work at a lower nominal wage and instead become unemployed. The concern with a direct helicopter drop is that it might enable workers to refuse to work for longer. As an example of this, consider the semi-"helicopter drop" of money we had during the last recession: the extension of unemployment benefits. It turns out benefit cuts cause workers to accept jobs. http://c0.nrostatic.com/sites/default/files/w20884.pdf http://c0.nrostatic.com/sites/default/files/w20884.pdf

digi_owl 11y ago
Frankly that "theory" is so out there that it pees on the name of Keynes. It comes out of a massive abuse of preference curves, a model that itself have some massive assumptions bouncing around (like that if your income increases, you will not switch preferences completely, just keep buying more of one or the other). As for cutting benefits makes workers accept jobs, no surprise there. Cut benefits and it is accept anything or starve. Basically it is wage-slavery.
- yummyfajitas 11y ago
  What, exactly, do you believe Keynesian theory claims? Specifically, how do you believe Keynesian theory explains involuntary unemployment? (Involuntary unemployment is when workers are employed at a wage K, and other workers are unemployed but have a reservation wage of K.) Given that you agree with my factual claim (that giving people money directly causes unemployment), what do you disagree with me on? Is it just my mood affiliation that you dislike?
  - Gibbon1 11y ago
    I think Keynes was firmly in the camp that involuntary unemployment in a depression+ is caused by a cascading demand shortfall due to everyone trying to put their money in safe assets and pay off debt vs consume. + As opposed to a central bank engineered recession.
    - 11y ago

s73v3r 11y ago

You mean aside from the rioting and violence that would break out as people scrambled to get some money?

evanpw 11y ago

If the Fed prints money and buys bonds, then in the future when they need to take that money back out of circulation in order to control inflation, then they just sell the bonds. If the Fed prints money and gives it to people, getting nothing in return, then the only way to take the money back out is to raise taxes, which will result in deadweight losses.

tormeh 11y ago
The central bank can't control the price at which the market will buy the bonds, but that's a good point. That said, has hyperinflation ever occurred without the central bank printing money while inflation is above-target? Private holders of money can flood the market with cash, but only the central bank can sustain that flood for a really long time.

asgard1024 11y ago

> Nobody has ever explained to me, in a satisfying way, what's wrong with a helicopter drop. There is nothing to explain, since there is nothing wrong with it. Steve Keen did a simulation of policies against debt deflation, comparing austerity (business as usual), quantitative easing (giving money to banks) and helicopter drop (giving money to consumers). The result was that helicopter drop worked the best, followed by QE, and austerity came last. This is consistent with recent historical data we have on austerity (Japan and Europe) and QE (USA); I am not sure if someone ever attempted helicopter drop in debt deflation (although a similar thing - debt cancellations - happened in history).