The phrase “helicopter drop” was coined by the late economist Milton Friedman and picked up by a student of the Great Depression named Ben Bernanke, whose vast interventions of the Federal Reserve’s cash helped to bail the economy out of the 2007-08 crisis.
If you are, or were, working at a restaurant or bar in Louisiana, the helicopters cannot fly soon enough.
Closures mandated by the coronavirus crisis will be widespread. No one knows how long this will last. Based on the experiences after hurricanes Katrina and Rita in 2005 in metropolitan New Orleans and in southwestern Louisiana, or in the Baton Rouge area after the giant floods of 2016, it’s an obvious question whether some retail businesses will ever reopen.
That’s why embracing a check-writing binge from the debt-laden U.S. Treasury is popular now across the political spectrum.
Every member of Congress knows that the workforce in hospitality businesses is hurting. The idea of writing checks is popular, more so with the Democratic leadership of the U.S. House leery of tax cuts instead of direct aid to workers. Tax cuts tend to favor the better-off.
What’s the economic impact? Bernanke brought up helicopter drops well before the big crash, talking about what could be done in a damaging cycle of deflation. Instead of inflation, a deflationary spiral would see prices fall, leading to a potentially damaging contraction in the supply of money and credit.
With the emergency closures because of coronavirus leading to a crash-stop of so many small businesses, Friedman’s helicopter drop is a politically attractive alternative for policy makers.
After all, today's Fed has already slashed interest rates to zero. It’s buying bonds to inflate the money supply, and may take steps even beyond Bernanke’s unprecedented actions while he was in charge of the Fed.
Beyond the fact that it’s an election year, President Donald Trump is above all an easy-money developer, so he’s embraced the notion.
Will it be enough? That’s a really big question and success or failure of the range of federal interventions might not be settled until coronavirus closures abate.
But what is also certain is that one day, folks will criticize the checks. In Louisiana, we’ve seen what happens.
The previously unprecedented disaster of Hurricane Katrina in 2005 rendered hundreds of thousands homeless. Among the ramifications unthought-of was that bank accounts were out of reach for the dislocated masses.
The Federal Emergency Management Agency provided immediate cash, $2,000 per family.
From the standpoint of us in Louisiana, it was an obvious need and a federal action in an emergency that helped people get their lives together.
From the standpoint of auditors, and critics of federal spending generally, the emergency cash became a target-rich environment. Whether it was paying for Champagne, soft-core porn, casino meals or chips, ugly audits made for, as the saying now goes in politics, very poor optics. Some cheated, claiming grants several times.
Today’s situation is not that of Katrina. The coronavirus closures affect far more people; many may not be eligible for unemployment checks, and need money quickly; various forms of FEMA aid may be deployed, but cash assistance isn’t going to be it.
What form today’s checks will take is still in flux. The good news for recipients in desperate need is that some help, perhaps $1,000 or more, is promised to come as soon as possible.
But one day, if the checks come in the form of cash cards, those that are cashed at casinos — wherever they are open — or other restaurants or entertainment facilities will once again be put under an auditor’s pitiless green eyeshade.
Maybe one day, the optics will be politically unappealing, but it is difficult to imagine that some form of a helicopter drop will not be deployed in the near future. Too many are in need.
Email Lanny Keller at email@example.com.