Money from heaven: Decoding Helicopter money
Finance
Helicopter money means money “dropped from the sky”, or freshly created cash used to fund government projects or put directly into the hands of citizens when an economy enters into a recession (technically defined as the occurrence of negative GDP growth for two consecutive quarters). It is an unconventional monetary policy used to nudge the citizens to increase spending.
When is helicopter money used?
Popularized by American economist Milton Friedman in 1969, the premise of this concept is that when a central bank wants to raise output in an economy that is running substantially below potential (like the situation since last year), an effective tool would be simply to directly transfer money in everyone’s account. The idea is that you will go out and spend this money which will help boost economic activity.
How does it act as an economy booster?
According to economics pundits, “under certain extreme circumstances,” such as the onset of a recession, when politicians rule out a fiscal stimulus, helicopter drops “may be the best available alternative.”
Helicopter drops have a strong effect on economies jostling with deflation for a long time. Unlike changes to interest rates, the stimulus paid for by the central bank does not rely on increased borrowing from end-consumers. This reduces the risk of immediate inflation and adds to the potency of the financial system.
However...
Many argue that helicopter money being distributed like this, could instead make the recipients wary of the uncertain circumstances. In that case, they would rather save this money as a precaution for future use.
This argument was also supported by Mr. Raghuram Rajan (India’s former RBI governor) in an astute observation made by him when asked about helicopter money.
Rajan said that it isn’t necessary that the lucky people who pick up the new currency would go out to consume. He explained that somebody seeing the central bank distributing this money will think, ‘Has the world gone nuts? I’d better save much of this because I’m not sure what will happen.’
Quantitative easing measures like helicopter money and negative interest rates are no panacea in checking deflation in an economy. In Japan, negative rates haven’t really helped the economy in recovering from a deflationary environment.
In a pandemic-induced recession, if this tool is played out, most of the new money would end up being stored in bank accounts for precautionary reasons, and its creation might not have much impact on the broader economy.
Stan Swamy passes away
Current Affairs
Fr. Stan Swamy, 84, passed away at 1:24 PM yesterday.
Swamy had been in jail for nine months regarding the Bhima Koregaon case and the High Court was hearing his bail plea. Advocate Mihir Desai, who was representing Swamy, demanded a judicial inquiry into his death.
He was admitted to the Holy Family Hospital in Mumbai on May 28 due to COVID-19 complications. He also suffered from Parkinson’s disease. He was put on ventilator support after suffering from a cardiac arrest this morning but never regained consciousness.
Who was Fr. Stan Swamy?
Stan Lorduswamy was a Roman Catholic priest from Tiruchirapalli, Tamil Nadu. He was known for fighting for the rights of the tribal people getting displaced, especially in Jharkhand. He also served as the Director of the Indian Social Institute in Bengaluru for 11 years till 1986.
Why is advocate Desai demanding a judicial inquiry?
Advocate Mihir Desai claims that the activist was taken to the hospital 10 days late. He said that the High Court bench ensured the best medical care for Swamy but the same cannot be said about the NIA (National Investigation Agency) and the jail authorities.
External pressure
On Sunday, the National Human Rights Commission had directed the Maharashtra Government to ensure provision of all the required healthcare facilities and protection of his basic human rights.
Civil society members had also urged the Bombay High Court to provide bail to the activist on the grounds of failing health.
Why was Swamy in jail?
Swamy was charged under various sections of the Indian Penal Code and the Unlawful Activities (Prevention) Act. The NIA claims that he was supporting the Maoists and was a part of a conspiracy to instigate caste-based violence in the Bhima Koregaon village, Pune.
The Elgar Parishad conclave held at Shaniwar Wada, Pune on December 31, 2017, included alleged inflammatory speeches which, the police claims, ultimately caused the violence at the Bhima Koregaon war memorial the next day. Several academicians and activists have been accused in this case for making these speeches and ‘instigating’ violence.
Swamy’s take
Swamy had denied these charges. He claimed that he was being framed by the NIA because all of his work was related to caste and land-based struggles of people. He was seeking bail and challenging a section of the Unlawful Activities (Prevention) Act. He was also seeking medical treatment for various ailments including Parkinson’s disease.
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