I first heard of the term "Helicopter Money" when I was in graduate school studying economics. The concept belongs to a famous Nobel Prize-winning economist, Milton Friedman, and is simple. A government supplies large amounts of money to the public, as if the money is being scattered from a helicopter. People then use the money to buy things.
Back then, the concept seemed to be quite silly to me. Why would anybody in their right mind give away free money? But in reality, this concept or measure has been used quite a few times by major central banks such as the Federal Reserve Bank of America and the Bank of Japan. However, the implementation of the concept is more sophisticated than merely handing out free cash. It is done by monetisation of government debts and purchasing private credit papers. The measure is officially named Quantitative Easing (QE).
The Helicopter Money concept is supposed to be a policy of last resort, and arguably the most potent, to stimulate an economy. This academic concept of the 60s came to light in late 2008 after the Lehman Brothers crisis that was threatening to cause a global economic slowdown. Although not publicly admitting it, many central banks bought into the idea and started to pump unprecedented amounts of money into their respective economies.
The famous one was the Federal Reserve's QE policy, which was carried out three times. However, it should be noted that this was not a "pure" Helicopter Money policy as the money was not distributed directly to households but rather through financial institutions and governments. Therefore, the effectiveness of the policy was substantially reduced. That is the reason why the amount of money spent had to be so enormous. The Federal Reserve Bank had to implement the policy three times and the Bank of Japan still needs to keep pumping money into the economy even now.
Despite its shortcomings, the Helicopter Money policy actually works. The global economy did not fall into a deflation trap and some economies, such as the American and Chinese, showed clear signs of recovery soon after. Unfortunately, by not giving money directly to households as the theory suggests, it has created another big global economic problem, i.e. household debt. The household debt problems will likely drag the world economy into recession. The evidence is clearer by day. I shall revisit this issue in my future articles.
Should the Helicopter Money policy be introduced in Thailand? Let's go through the checklist.
First, does the Thai economy need to be strongly and urgently stimulated? The answer is most likely to be a loud yes. I doubt that, despite those beautiful GDP figures and almost full employment data, anybody will argue that the economy is not in a serious position. If the economy is healthy, there is no need for the government to constantly come up with various economic stimulus measures such as the ones announced a few weeks ago. I have pointed out the weaknesses and the risks of the Thai economy in several articles so I shall not repeat myself.
Before we jump to a quick answer to the first question, I, as an economist, want to remind readers that higher growth, higher income, more spending, and more investment are not always desirable. A healthy economy does not mean a high GDP economy. Inflation and unemployment are more important. With the current inflation rate of 1.24% and unemployment rate of 0.9%, no economist should support further stimulus measures, let alone a strong one like the Helicopter Money measure. But can we really trust those figures?
Second, do we need this measure of last resort? In other words, are there any more economic stimulus measures that can be done before adopting the Helicopter Money policy? The answer is more complicated than the first one. But, in a nutshell, I would say yes. We need the policy of last resort as current fiscal and monetary policies have reached their limits. Fiscal policies are capped by the debt limit. For instance, the annual debt limit of the 2019 budget is set at 450 billion baht. That is set in stone. To change that, the government needs to amend the budget law.
Therefore, when the government decides to spend money on one fiscal stimulus package, it has two choices. a) reduce the budget of other spending, or b) raise more income, i.e. higher taxes. Definitely not a win-win situation. As for monetary policy, interest rates, particularly on the savings side, are already at the floor. Driving interest rates down will mean negative rates on savings accounts. I don't think we will ever see that in this country. Although the rate on saving accounts in Japan is at -0.2% and government bond yields of Scandinavian governments already bear negative interest rates, Thailand is too conservative for that. More importantly, the problem in this country is not that the households are not spending money, but that households don't have the money. Lowering interest rates will have a negligible effect on consumption.
Third, will we see the Helicopter Money or a Helicopter Money-like policy in Thailand? I certainly cannot give an answer to that. Only the BoT and the Monetary Policy Committee have the answer. What I can say is that no traditional fiscal or monetary measures can pull the Thai economy out of an economic slowdown, for reasons already explained.
During the recent political campaigning, a party asked my opinion about the QE policy for Thailand. I advised against the idea as I could not see it being effective. First, I could not see how the government, the current one or the next, could balloon the fiscal deficit enough to call for monetisation by the BoT. We are talking about doubling the deficit from half a trillion baht to a trillion baht here. Second, I don't think the BoT has the guts to ruin its balance sheet that much, not to mention upsetting the entire monetary sector. Third, giving more money to banks will be fruitless as NPLs are climbing.
Is there an effective Helicopter Money-like policy for Thailand? There could be one possible answer. But you'll have to read my next article then.
Chartchai Parasuk, PhD, is a freelance economist.