Bernanke’s Helicopter Drop Reality
Contrary to widespread popular belief, with special “thanks” to former Fed chair Ben Bernanke, central banks cannot hand out a “helicopter drop” of “free money”.
What central banks do is cheapen the price of money by lowering interest rates to absurd levels, hoping that it will spur bank lending.
Actual results speak for themselves. Central banks have created a series of asset bubbles, one right after the other, with increasing amplitude.
Free Money from Governments
In contrast to central bank methods, governments can and do hand out “free money”.
In the US, food stamps (now called SNAP), subsidized housing, earned income credit, disability payouts, and various subsidies such as Medicaid all constitute “free money”.
True “Helicopter Drop” Hits Finland
Finland is about to take the “free money” approach to a true “helicopter drop” level.
As a way to improve living standards and boosts its economy, the nation of Finland is moving closer towards offering all of its adult citizens a basic permanent income of approximately 800 euros per month.
The monthly allotment would replace other existing social benefits, but is an idea long advocated for by progressive-minded social scientists and economists as a solution—counter-intuitive as it may first appear at first—that actually decreases government expenditures while boosting both productivity, quality of life, and unemployment.
“For me, a basic income means simplifying the social security system,” Finland’s Prime Minister Juha Sipilä said last week.
Though it would not be implemented until later in 2016, recent polling shows that nearly 70 percent of the Finnish people support the idea.
According to Bloomberg, the basic income proposal, put forth by the Finnish Social Insurance Institution, known as KELA, would see every adult citizen “receive 800 euros ($876) a month, tax free, that would replace existing benefits. Full implementation would be preceded by a pilot stage, during which the basic income payout would be 550 euros and some benefits would remain.”
Pilot Stage – Dauphin, Canada
The article cites a ridiculous scheme tried in Dauphin, Canada from 1974 through 1979.
Huffington Post author Zi-Ann Lum proclaims A Canadian City Once Eliminated Poverty And Nearly Everyone Forgot About It.
Read the ridiculous hype and see if you can spot the obvious flaws. Ready?
The problem with superficial analysis by Lum and others is they only focus on half the equation. Yes, citizens of Dauphin benefited, but it was at the direct expense of everyone in all of Manitoba that had to contribute “free money” to residents of Dauphin.
Were the same scheme available to everyone in Manitoba, the money would have had to come from all of Canada.
And for all Canadians, the money would have had to come from Martians.
Nonetheless, in spite of such obvious flaws, economic illiterates have latched on to the free money scheme.
Why Stop at $876?
None of the free money jackasses have bothered to figure out that government programs always cost more and always deliver less than promised. The only reason Dauphin appears to be different is the city was small enough and the program was stopped before a cascade effect kicked in.
In short, such schemes may appear to work for an isolated locality (at the expense of everyone else), but the program cannot feasibly scale to an entire nation.
More, More, More
If this inane proposal gets off the ground, $876 a month ($10,512 a year) will no longer be a living wage (foolishly assuming that it is a living wage in the first places). Every month, the citizens will demand more, and more, and more.
I can hear the cries across the Atlantic ocean already. “It’s NOT enough!”
Government sponsored economic proposals of this kind are precisely what is behind hyperinflation events.
In Finland’s case, thanks to being a part of the eurozone, Finland cannot print money. That is the only possible salvation to this preposterous idea. The trial will necessarily implode before it causes damage to the entire eurozone.
Bear in mind that as with Dauphin, Canada, such schemes can appear to work for a while.
However, simple logic and 6th grade math is all one needs to understand the sheer Ponzi-like idiocy of the idea over the long haul.
Mike “Mish” Shedlock