Philadelphia’s own Duncan Black explains why this idea is not crazy, in the pages of USA Today:
This probably sounds like a crazy idea, but it isn’t. People are a bit uncomfortable with the notion that the Fed can simply create money, but that is what the Fed does. Currently, under a program dubbed “QEIII” (Quantitative Easing III), the Fed is creating money and, instead of simply giving it to people, is using that money to purchase mortgage backed securities in order keep mortgage rates low and increase the supply of money in the economy. This also boosts the prices of these financial assets, providing a windfall to those who own them.
It also isn’t a new idea. Federal Reserve Chairman Ben Bernanke earned the nickname of “Helicopter Ben” after suggesting that the Fed could employ the equivalent of Nobel Prize-winning economist Milton Friedman’s humorous suggestion that money could simply be dropped onto the population from helicopters in order to prevent deflation. Give people some free money and they will spend it, boosting demand and the price level.
This was an amusing metaphor, not meant to be taken literally, but conceptually the Fed is able to create money out of thin air and give it to people. Bernanke’s version of the “helicopter drop” involved paying for tax cuts with free money from the Fed. Alternatively, the Fed could finance increased government spending on such things as infrastructure and education, leading to more construction workers and teachers being hired without any need to increase borrowing or taxes.