Tuesday of this week was the day billions shrank to peanuts. In the morning, US government plans to tackle the coronavirus crisis with a $ 850 billion aid package were circulating. A few hours later, it had turned into a trillion dollars. “It’s a big number,” Treasury Secretary Steven Mnuchin said after explaining the move to Republican senators. But: There is also a “very large situation in the economy”.
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US president Donald Trump, who had long talked down the coronavirus threat, is now going all out to save the US economy from falling. The government doesn’t just want to get the airlines out there and help small businesses over the edge. It also relies on an unorthodox remedy that found many followers in this crisis: helicopter money. According to media reports, millions of Americans will soon receive a check for at least $ 1,000 from the state and possibly a second one later. “The Americans now need cash. And the president wants to give cash now,” Mnuchin said in a joint press conference with Trump. “And when I say now, I mean: within the next two weeks.”
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The idea of letting money rain from the sky dates back to the 1960s and was originally developed by the Nobel Prize winner Milton Friedman formulated. She became famous when former Fed chair Ben Bernanke described the 2002 helicopter money-transfer metaphor as a way to combat deflation in Japan. In practice, this would mean that the central bank creates money that the state then distributes to the citizens. This thought experiment seemed so strange to the economists’ guild at the time that Bernanke had his nickname away from that moment: “Helicopter Ben”.
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Republicans “Great Interest”
The corona virus crisis has made the idea of dropping money acceptable in America. Not only democratic politicians, but also Republicans like Senator Mitt Romney believe that this can cushion the consequences of the pandemic for the economy. Because, unlike tax cuts, the payments work without delay. For many of the hotel employees or waiters who are now losing their jobs, this is vital. And the government hopes that way consumption support without which the US economy would crash. There is “great interest” among Republicans in the idea, Senate faction manager John Thune said after meeting Mnuchin. In addition, there are good chances for an agreement with the Democrats on this point, without whose consent no law can be passed in the House of Representatives.
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The Trump administration plans to provide $ 500 billion for the checks. Millionaires should not benefit from the action, the Ministry of Finance said. In addition, that sees Stimulus package According to US media alone, $ 50 billion in aid for airlines and around $ 300 billion for small businesses. The Treasury is also said to defray the Americans’ tax debts. Overall, the items add up to around $ 1.2 trillion – significantly more than the $ 700 billion stimulus package following the 2008 financial crisis.
Public debt explodes
Where the money is supposed to come from is open. America’s public debt is skyrocketing – but nobody is interested in that right now given the existential crisis. If the government does nothing, unemployment could skyrocket to 20 percent, Mnuchin has warned. And Trump believes that a “big infusion” for the economy is better than having to refill it several times: “We want the big hit.”
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For some, however, it is still not big enough. The planned spending program of around six percent of gross domestic product does not do justice to the crisis, argues economist Narayana Kocherlakota. Because the damage of the corona virus to the US economy exceeds this amount. The former president of the Federal Reserve Bank of Minneapolis believes an economic stimulus package “of the order of $ 2.5 trillion” is necessary. His suggestion: $ 10,000 for every child and adult under 40 – because younger people would be more likely to spend the money than older people. Kocherlakota recommends that the government should also pay a bonus to anyone who can be tested for the virus.
That sounds like a pretty weird idea. Until recently, this also applied to helicopter money.
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