Helicopter money: will cash from the sky boost Europe’s economy?
12 October 2016
Imagine a helicopter flies over your house and drops a bundle of cash in your back garden. What would you do with the money? This is the question ING asked 12,000 people in 12 countries to test the theory that ‘helicopter money’ could lift Europe’s sluggish economy.
The idea behind so-called ‘helicopter money’ comes from US economist Milton Friedman in 1969. The premise is that if free money fell from the sky people would spend it. The more they spend, the more the economy benefits.
In Europe, where growth and inflation remain low, the idea of helicopter money is slowly gaining traction with politicians and economists. What if the central banks gave households an extra EUR 200 a month to spend as they like? Would it get the economy moving again?
ING tested the theory by asking people across Europe what they would do with helicopter money. Turns out, the majority (52%) would rather save it. Only around one in four people said they would spend the cash. A further 15% would use it to lower their debt. Italians were the most enthusiastic spenders, while the savers were more likely to be from Eastern Europe.
In addition, less than half of Europeans think it will boost either inflation or growth if central banks create money in this way. From this, we can conclude that as nice as an extra EUR 200 cash a month sounds, it’s unlikely it will be dropping out of the sky any time soon.