This morning, upon logging in to my Twitter account, I found it brimming with reports that the Hong Kong government was about to embark upon an unprecedented experiment with helicopter money. “Helicopter Money is Here,” blurts an FT Alphaville headline. “Hong Kong Embraces Helicopter Money,” says Zero Hedge. The foreign press has also chimed in: “Helicopter Money Comincia a Hong Kong,” writes Italian financial journalist Maurizio Blondet.
In typically understated fashion, Zero Hedge’s report concludes thus:
So Hong Kong is about to unleash the mother of all stagflations on its people—who were already on the brink of massive social unrest before the virus forced lockdowns. Supply chains have collapsed, therefore there is no supply of goods or services, but demand is about to soar (thanks to free money drops from the government)…What happens to prices we wonder?
To which the correct answer is, not much—or nothing, at any rate, that can be blamed on exceptional additions to Hong Kong’s money stock. Why not? Because Hong Kong’s plan doesn’t actually involve any extraordinary growth in the supply of Hong Kong dollars. That is, Hong Kong isn’t planning to resort to helicopter money at all. Nor does its plan even come close.
Been There, Done That
This isn’t to say that the Hong Kong government isn’t planning to give away money. According to the more sober FT piece, under the proposed plan
Hong Kong permanent residents aged 18 and above will each receive a cash handout of HK$10,000 (US$1,200) in a HK$120 billion (US$15 billion) relief deal rolled out by the government to ease the burden on individuals and companies, while saving jobs.
So far so good. But what the FT fails to note is, first, that such handouts are nothing new, and, second and more importantly, that fiscal handouts aren’t the same thing as helicopter money.
Read the rest of this post →