If helicopter money can't be justified now, it never can.

There are already commentators concerned over the debt burden future generations are going to inherit thanks to current government spending sprees. With risks of inflation and moral hazard about as low as they can be, what harm could be wrought from six months of ‘free’ money?

Helicopter money – having the central bank simply send people ‘free’ money – carries with it a couple of obvious risks.

The most obvious is inflation – more money floating around the system chasing the same number of goods and services can put upward pressure on prices. In recent years though, Australia has been under its 2-3 per cent inflation target. Moreover, the Australian government recently sent out $1,000 tax rebates to a large number of households while the economy was relatively close to full employment and it didn’t spike inflation. A few more checks from the central bank that don’t even replace the income Australians are losing from this pandemic, will surely not be an inflation problem either.

Manufacturing and food production also seem to be maintaining pace during the pandemic (notwithstanding some empty shelves from short term panic buying) so unless there are long term supply constraints as a result of this pandemic, inflation is likely to be the same small risk it has been for the last decade.

A second risk from helicopter money beyond adding more inflation potential into the economy, is moral hazard. Governments seeing their central bank directly transfer money to their people and/or businesses may get the idea that they no longer have to responsibly support their economy – the central bank can just do it for them. Infrastructure investment, structural reform, skills and training – why invest in any of these things if the central bank can just give people ‘free’ money?

Even in the worst of economic depressions we seem to still want elected officials to have ultimate responsibility for economic management. Sure, the central bank can drop interest rates and flood the financial sector with liquidity but we never want the government to get the idea that they can be entirely bailed out of supporting ‘Main Street’. The buck stops with them.

In a pandemic though, what is the moral hazard from giving ‘free’ money to businesses that were ordered to close and people who were ordered to stay at home? What kind of government would perversely benefit from that? Maybe if the central bank directly funded the government, it would give the government the excuse to do all the investments and reforms that they should have done years ago. But the last time a comparable pandemic occurred was the Spanish Flu a century ago, so it’s not as though any government could count on this kind of central bank support again in their lifetime. Moreover, we are talking about sending the money directly to households, not government, in amounts just enough to carry them to the other side of the pandemic. How will that create perverse incentives?

Nor do I think helicopter money during a pandemic would jeopardise government incentives to maintain a robust health care and emergency response system, any more than health insurance would encourage someone to deliberately step in front of a bus. Even if the insurance saves you, it still hurts!

A pandemic is such a rare and well-defined event, (mostly) independent of human blame, so helicopter money in response to such an event would surely not become something upon which people or governments would become dependent.

There is already commentary highlighting concerns over the debt burden future generations are going to inherit thanks to current government spending sprees. With risks of inflation and moral hazard about as low as they can be, what harm could be wrought from six months of ‘free’ money?