Debunking the myth of ‘helicopter money’

COMMENTARY / World

Debunking the myth of ‘helicopter money’

Rescue packages have triggered misconceptions about Modern Monetary Theory

The U.S. Capitol is reflected on the side of an ambulance in Washington, D.C., U.S., on Tuesday, April 21, 2020. The Senate has scheduled a late afternoon session Tuesday in anticipation of approving an agreement on a nearly $500 billion stimulus bill, including $310 billion to replenish the small business program. | BLOOMBERG

By L. Randall Wray and Yeva Nersisyan

Apr 22, 2020

New York – Modern Monetary Theory has received unprecedented attention now that policymakers are pursuing extraordinary economic policy measures to combat the COVID-19 pandemic.

Discussing the U.S. Federal Reserve’s “whatever it takes approach,” CNBC’s Joe Kernen recently concluded that “we are all MMTers now.” And in a recent commentary, Willem H. Buiter of Columbia University claimed that “much of the U.S. response (to the pandemic) will come in the form of ‘helicopter money,’ an application of (MMT) in which the central bank finances fiscal stimulus by purchasing government debt issued to finance tax cuts or public spending increases.”

As these remarks show, many commentators seem to view MMT as merely a blueprint for turning on the printing press, whether to send cash to Americans through an appropriation by Congress, or to provide liquidity to financial markets through the Fed’s actions. With the recent adoption in the United States of a $2.1 trillion rescue package, we are supposedly now engaged in what Buiter calls “a massive experiment with hitherto unorthodox” MMT.