The term “helicopter money” was coined by economist Milton Friedman in 1969 to describe a last-resort economic stimulus, when deflation threatens and interest rates are near zero. The term implies injections of cash direct to individuals, who will spend it and boost growth.
We are far from the situation Friedman was contemplating. Inflation in SA is 4.5% and real interest rates near 5%. However, we face a great danger in the coronavirus pandemic. The Spanish flu pandemic of 1918 killed nearly 5% of the then SA population of 6.5-million people.
The current pandemic will kill far less than 5% of our population, as we are better prepared and knowledgeable. However, we have a risk not present in 1918, namely vast numbers of unemployed whose number will grow as businesses fail due to the pandemic.
SA already has 10-million unemployed people. With so many at the breadline we dare not let nature take its course, as was done in 1918. In addition to the threat of anarchy, business needs an urgent stimulus. We must increase buying power. The best way to do this would be to pay every adult R500 a month direct into his or her bank account. At about 30-million adults, this would cost the government R15bn a month.
The great flu of 1918 lasted only two months in SA, because it raged out of control and was soon over, at great cost in lives. As we are enforcing social distancing, the current epidemic’s curve will be flatter, and the period correspondingly longer. Experts predict an active phase of about four to six months.
Assuming we employ helicopter money for six months, that will amount to R90bn. The social and economic benefits of this direct injection of funds will far exceed the cost.
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