Now, I don't get a lot of comments on my blog (even when I set fiendishly difficult riddles in mock Old Norse verse patterns for my readers to solve) so you can imagine how excited I was to read a response to my daydream of time-limited money being dropped into everyone's bank accounts. And then how disappointed I was to read that there are people out there that don't believe that ice-cream money would save the economy after all, in the words of 'JR':
Your theory sounds wonderful, but (and mostly to play devil's advocate), surely if you gave every person in England a £10,000 windfall, most of them would spend it repaying a loan they took out from the bank (or on the things they would have bought anyway, so they can pay the 'other' money back to the bank instead), so all the "spare" money would end up with the banks anyway? JR
Incidentally, I meant to mention last week that the government of the UK has spent £200 billion on Quantitative Easing in the current crisis, had that money gone directly to the people that would have been a whopping £3,166 each! JR has ruined this statistic by making my figure look paltry next to his one.
A healthy economic community is one where each pound keeps getting spent and even when it winds up in the bank, the bank lends it out again. And, even though there isn't anything like enough cash for everyone to have all their money at once, everyone pretends there is and carries on sharing the same few pounds. You see this in action if you work in a bar, where you keep getting the same ratty fiver handed back to you. In a healthy economic community that fiver has got ratty because it has been through the tills and paypackets of so many local businesses.
If a government gave the money directly to the people some of it would become the useful type of money described in the previous paragraph. If the money had a time-limit on it (i.e the initial receiver can't just leave it in the bank) all of it would.
I'm not sure that JR's argument holds even in the classic helicopter drop of giving everyone extra cash. We are not all rational actors who notice, a la David Ricardo, that this money can't just appear from nowhere, government bonds have to be repaid, taxes are going to go up, I better save my money. A lot of people would just think: 'Woohoo! free money! I'm going to buy a motorbike!'