“Helicopter Money” Won’t Fix What’s Broken

The mere mention of helicopter money has intoxicated global stock markets, which have soared on the rumor of Japanese helicopter money. But as I explained in Why Helicopter Money Won’t Push Stocks Higher, central banks funding fiscal spending (i.e. helicopter money) will only have a weak and entirely indirect effect on profits or stock market valuations.

The problem with helicopter money is that it cannot fix what’s broken in the economy–and even worse, it perpetuates every inefficient, corrupt, bloated and unsustainable system in the status quo. As I explain in my book Why Our Status Quo Failed and Is Beyond Reform, the problem isn’t lack of fiscal spending or stimulus; the problem is the primary systems of the status quo have failed and cannot be fixed with central bank easy money.

In effect, helicopter money feeds the perverse incentives that have crippled our economy and society. Rather than be forced to choose priorities and rid centralized systems of wasteful corruption, bloat and graft that siphon off wealth and destroy productivity, helicopter money enables the continuation of all the inefficient, corrupt, bloated and unsustainable systems that make up the status quo.

No sacrifices are required by helicopter money: unlimited sums of freshly created money will be used to fund the same broken systems that have generated extremes of debt and wealth/income inequality.

The list of what won’t be fixed by helicopter money is long:

— The demographic time-bomb in pension plans, Medicare etc.: not fixed, just papered over.

— The higher education cartel’s out-of-control spending spree: not fixed, just papered over.

— The healthcare/sickcare cartel’s out-of-control spending spree: not fixed, just papered over.

— America’s declining health and runaway epidemics of “legal” drug addiction and metabolic syndrome diseases (diabesity): ignored, untouched.

— — The defense-industry cartel’s out-of-control spending spree: not fixed, just papered over.

I could go on and on, but you get the picture: funding broken, bloated, failed systems only perpetuates the rot at the heart of the nation’s economy, society and culture.

Funding Medicare’s immense fraud, needless tests, etc. won’t fix what’s broken.

Funding the failed F-35 fighter aircraft program won’t make the F-35 a better plane or a better deal for taxpayers. It’s still a gargantuan failure, regardless of how much “free money” central banks create to fund existing bloat/waste/fraud.

The entire status quo desperately needs a re-set, but helicopter money insures there’s no pressure for a re-set. Whatever the lobbyists, grifters, political favorites, quasi-monopolies, bureaucratic fiefdoms and cartels want, they’ll get, courtesy of central bank-created helicopter money.

What helicopter money does is destroy the discipline imposed by living within our means, and it obfuscates the crushing opportunity costs of maintaining a failed status quo that benefits the few at the expense of the many.

What proponents of helicopter money cannot evade is the S-curve: simply creating more money and “fiscal stimulus” without generating the higher productivity that creates more wealth is the equivalent of overdosing on crack cocaine and actually believing you have god-like powers to evade consequences.

Creating “free money” to support bloated bureaucracies and corrupt cartels only makes the underlying problems worse. We can’t solve problems with “free money;” solving problems requires realistic assessments, lifting the burden of dead weight imposed on a stagnating economy by bureaucratic bloat, institutionalized fraud, profiteering quasi-monopolies, etc., and actually fixing what’s broken.

I am in favor of real solutions, which is why I wrote A Radically Beneficial World.

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  • Carl_Herman

    Charles, don’t leave us hanging! Please summarize your solution for us. I’ve done so with apparent benefits of monetary reform and public banking that seem to be worth ~$1,000,000 per US household: http://www.washingtonsblog.com/2016/07/federal-reserve-creating-debt-free-money-nothing-americans-next-step-data-show-1000000-per-us-household-benefits-emperors-new-clothes.html

    As we close-out this debt-damned system, please present your alternative systems for money and economics for public consideration here. Thank you for your work and thinking on this trillions-worth topic 🙂

  • July 8, 2016 94,517,000 Americans Not in Labor Force

    The civilian labor force expanded in June, adding 414,000 people, the Bureau of Labor Statistics reported today. The number of employed people increased by 67,000 to 151,097,000 in June, but the number of unemployed people increased even more, by 347,000 to 7,783,000.


  • jadan

    In other words, what we need is a good economic disaster. The sinful old status quo won’t change its evil ways until the purge comes and there is general wailing and gnashing of teeth. Disaster capitalism is what Smith is talking about. Economic collapse is not healthy and certainly not necessary. Helicopter money could save the day, but only if it is allocated correctly. There has been no genuine recovery because all the money through QE never reached consumers. It bailed out the financial sector, where the fraud, waste, and abuse is located. What turned the economy up in ’09 was Obama’s tepid effort to get money into consumer hands. I went out and bought an electric lawn mower and I praised the name of JM Keynes when I got my rebate. That jump started the economy, that primed the pump. TARP did not, QE did not, because this was bail out for the financial fraudster and lazy-ass investor. Do the stimulus right and consumers will boost the economy and justify the bull market. Your moralizing is tedious, Smith. Read Carl Herman’s thoughts on public banking. We can make a good economy for everyone, but not if we continue preaching the old WASP gospel of austerity and the gold standard, as you do.

    • animalogic

      Great response, Japan: the key element, as you said is this, “Do the stimulus right and consumers will boost the economy and justify the bull market.”
      Of course, it needs to be said, cash stimulus is an emergency measure–a measure which can’t take the place of Policy designed to increase overall demand. But, that’s a story with zero interest to our “elites”….