User:Remember/helicopter

In 2002, following coverage of concerns about deflation in the business news, Bernanke gave a speech about the topic.[50] 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."

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[The optimum quantity of money

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. 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.)



Friedman was the main proponent of the monetarist school of economics. He maintained that there is a close and stable association between price inflation and the money supply, mainly that price inflation should be regulated with monetary deflation and price deflation with monetary inflation. He famously quipped that price deflation can be fought by "dropping money out of a helicopter.""