The economist Milton Friedman (1912-2006) wrote, in 1969, about dropping money from a helicopter to stimulate the economy. In November 2002, Ben Bernanke (then a member of the Board of Governors of the Federal Reserve System) gave a speech about deflation in which he said:
“A money-financed tax cut is essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money.”
Bernanke (who would become Fed chairman in 2006) was nicknamed “Helicopter Ben” because of this one Milton Friedman reference in this one speech. The Federal Reserve went through periods of “quantitative easing” (money printing) and the “helicopter drop” reference became much more widely known.
Wikipedia: Ben Bernanke
Ben Shalom Bernanke (pronounced /bərˈnæŋki/ bər-nan-kee; born December 13, 1953) is an American economist, and the current Chairman of the Federal Reserve, the central bank of the United States. During his tenure as Chairman, Bernanke has overseen the response of the Federal Reserve to late-2000s financial crisis.
Bernanke was a tenured professor at Princeton University and was chair of the Department of Economics there from 1996 to September 2002, when he went on public service leave. From 2002 until 2005, he served as a member of the Board of Governors of the Federal Reserve System. Here he outlined the Bernanke Doctrine and first spoke of the Great Moderation, where he postulated that we are in a new era, where modern macroeconomic policy has decreased the volatility of the business cycle. He then served as Chairman of President George W. Bush’s Council of Economic Advisers before President Bush appointed him to be Chairman of the United States Federal Reserve on February 1, 2006. Bernanke was confirmed for a second term as Chairman on January 28, 2010, after being nominated by President Barack Obama.
In 2002, following coverage of concerns about deflation in the business news, Bernanke gave a speech about the topic. In that speech, he mentioned that the government in a fiat money system owns the physical means of creating money. Control of the means of production for money implies that the government can always avoid deflation by simply issuing more money. He said “The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.” (He referred to a statement made by Milton Friedman about using a “helicopter drop” of money into the economy to fight deflation.) Bernanke’s critics have since referred to him as “Helicopter Ben” or to his “helicopter printing press.” In a footnote to his speech, Bernanke noted that “people know that inflation erodes the real value of the government’s debt and, therefore, that it is in the interest of the government to create some inflation.”
The Optimum Quantity of Money, and Other Essays
By Milton Friedman
Chicago, IL: Aldine Pub. Co.
Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily (Pg. 5—ed.) collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.
To begin with, suppose further that each individual happens to pick up an amount of money equal to the amount he held before, so that each individual finds himself with twice the cash balances he had before.
If every individual simply decided to hold on to the extra cash, nothing else would happen. Prices would remain what they were before, and income would remain at $10,000 per year. The community’s cash balances would simply be 10.4 weeks’ income instead of 5.2.
But this is not the way people behave. Nothing has occurred to make the holding of cash more attractive than it was before, given our assumption that everyone is convinced the helicopter miracle will not be repeated. (In the absence of that assumption, the appearance of the helicopter might increase the degree of uncertainty anticipated by members of the community, which, in turn, might change demand for real cash balances.)
The Federal Reserve Board
Remarks by Governor Ben S. Bernanke
Before the National Economists Club, Washington, D.C.
November 21, 2002
Deflation: Making Sure “It” Doesn’t Happen Here
A money-financed tax cut is essentially equivalent to Milton Friedman’s famous “helicopter drop” of money.
Automatic Fiscal Policies to Combat Recessions
By Laurence S. Seidman
Armonk, NY: M.E. Sharpe
Milton Friedman’s Helicopter Drop: A Money-Financed Fiscal Stimulus
In a famous passage, Milton Friedman colorfully describes an unconventional means of implementing a money-financed fiscal stimulus:
Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community…
New York (NY) Times
Future Shock at The Fed
By James Grant
Published: October 26, 2005
The Fed could, if necessary, buy up all the Treasury’s debt, using dollars created specially for the purpose. Or, for a double-barrel stimulus, it could also buy up private debts (mortgages, car loans, bonds and the like). And as a last resort, the Fed could figuratively put in place an idea that the economist Milton Friedman once theorized for illustrative purposes: It could drop money out of helicopters. Approbation for Mr. Bernanke is not quite universal on Wall Street; after that speech some took to mockingly calling him ‘‘Helicopter Ben.’’
Wall Street Journal—Real Time Economics
October 18, 2008, 10:38 AM ET
Deflation, Ben Bernanke and the Famous Helicopter
By WSJ Staff
Fed Chairman Ben Bernanke tackled the topic in a November 2002 speech, which laid out deflation risks and possible policy responses. Speaking then as a new Fed governor, Mr. Bernanke also delved into non-Fed actions that could be used to fight deflation.
But the speech is remembered less for its thorough treatment of the topic than for a single passing reference to a helicopter.
Citing Milton Friedman‘s “helicopter drop” — the figurative notion of handing out cash to the public, effectively fighting deflation — would come back to haunt Mr. Bernanke, who was simply making a passing reference to a commonly used theoretical concept. Some traders unfairly dubbed him Helicopter Ben, a nickname that gained even more popularity three years later when he was nominated to be Fed chairman.
Helicopter Ben’s Doublespeak: Fed Created to Prevent Panics
July 14, 2011
During a U.S. House Financial Services Committee meeting held in response to rumors the Federal Reserve plans a third round of printing fiat money out of thin air – otherwise known as quantitative easing – Ben Bernanke told congressman Ron Paul the Fed was created to prevent the rise of financial panics.
New York City • Banking/Finance/Insurance • Sunday, August 14, 2011 • Permalink