The Insanity of Helicopter Money

"Among the most prominent advocates of MFFP is Adair Turner, whose latest book,“Between Debt and the Devil,” provides an insightful thought experiment on the use of helicopter money. Turner and his fellow MFFP advocates seem to believe that placing more money in the hands of the public is practically always welcome.  In their view, it is not only a straightforward way instantly to boost real demand; it also seems preferable to debt-financed fiscal stimulus, owing both to political constraints on debt-burdened governments and to MFFP’s more direct — and thus faster — impact on economy-wide spending."  --http://www.marketwatch.com/story/why-japan-is-resisting-the-false-allure-of-helicopter-money-2016-04-29

Umm, the author either hasn't thought this through or is an idiot (or maybe it is me who is misunderstanding something).  We are comparing and contrasting two different things - "helicopter money" / MFPP ("money-financed fiscal program") vs "government investment" / DFFS ("debt-financed fiscal stimulus").  I will use the acronyms because it sounds more erudite.

I will start with the second option, DFFS.  In this option, the Keynesian economists call for more spending, like a bridge to nowhere, or a war against space aliens or paying one person to dig a hole and another person to fill it back in, or increases to welfare, etc.  So Congress will vote on some spending program, it doesn't matter what, and increase the deficit.  It raises the money through selling bonds, which have pretty low rates right now.  The money will go to some consumer, who will hopefully spend it and it will ripple through the economy, raising the GDP at least temporarily.  And the Fed can optionally engage in QE and buy up the newly issued bond and increase the money supply.  Keep in mind this is the sane option.

The first option is MFPP.  Remember that the Central Bank's balance sheet must always be balanced.  Printing money causes an increase in liabilities.  If you just give it away, there is no increase in assets.  So you just made your Central Bank insolvent.  But, you say, we can always print more money.  Yes and that causes "quasi-fiscal deficits".  And that is when bad things really start to happen (hyperinflation).  Once the Central Bank's balance sheet is thrown out of balance, it is almost impossible to get  back into balance.  (I guess the government could bail it out, but that would be a hard sell, asking taxpayers to bail-out the banks).  And once it is out of balance, why not keep going?  It's so fun being Santa Claus, err, giving money to your politically connected buddies.  Next thing you know, Zimbabwe.

So no, we don't want "helicopter money" at least the MFPP kind.  Let's just stick to straight DFFS, which is crazy enough.  Crazy is enough, we don't need batshit psycho insanity.