Here is a question it would have seemed incredible to pose as recently as five years ago: are the liberal elites on the wrong side of history? Are they about to succumb to that favourite feature of university examination papers “a historical watershed”? Consider the accumulating evidence.
Last weekend, in the first round of the Austrian presidential election, Norbert Hofer, the candidate of the Freedom Party (FPO), led the poll with 36.4 per cent. The candidates of the governing coalition parties were in fourth and fifth place, each with a humiliating 11 per cent of the vote, and are eliminated from the second round where Hofer will face a run-off against Green candidate Alexander Van der Bellen.
The Austrian and EU establishment is now investing all its hopes in the supporters of the other candidates uniting to stop Hofer in the final round on 22 May. Since Van der Bellen’s platform is an open-doors policy for immigrants, while Hofer’s victory is attributed to the influx of 90,000 migrants into Austria in the past year, his appeal to voters may be less seductive than the establishment hopes.
This is just the latest shock for the European elites. Earlier this month the Dutch electorate, in a referendum, voted down a proposed treaty between the EU and Ukraine. That, of course, was the “wrong” result. For fear of serial embarrassment by the untutored public, the Dutch minister of the interior has already said he will “look more closely” at the referendum law. A Dutch minister with his finger in the dyke of public opinion is an accurate metaphor for the beleaguered condition of the political establishment. Geert Wilders’ PVV party is leading the polls in the Netherlands.
Marine Le Pen similarly heads the polls for next year’s presidential election in France. The insurgency is now ubiquitous. In Germany last month voters delivered a rebuff to Angela Merkel, provoked by her immigration policy, with Alternative für Deutschland (AfD) – a party that did not even exist four years ago – taking 24.4 per cent of the vote in Saxony-Anhalt and doing well everywhere else that was contested. In Poland and Hungary the victory over the discredited establishment has already been won, with the electorates voting into power, with overall majorities, governments that reject the Brussels agenda and instead reflect the national will.
In Britain, the mere fact the Leave campaign in the EU referendum seriously threatens Remain is a seismic change. The response from the threatened elites has been to unite against the perceived danger of the popular will prevailing. In the United States, the two surviving establishment (Ted Cruz now rates that label) candidates in the presidential race have formed an alliance to stop Donald Trump. How insulting is it to the voters of Oregon and New Mexico that Ted Cruz will cut campaigning for their support, while John Kasich will reciprocally snub Indiana?
Donald Trump has 845 delegates to Ted Cruz’s 559. Today is another Super Tuesday, with five states voting and 172 delegates available. Trump has poll leads ranging from 26 to 38 per cent across all five states. Even if, eventually, he rolls into the GOP convention 20 delegates short, if backroom deals were to cheat him of the nomination, even the National Guard could not contain the resulting explosion.
What is helicopter money and how does it work?
As I learned when I spoke about it in 2002, the imagery of “helicopter money” is off-putting to many people. But using unrealistic examples is often a useful way at getting at the essence of an issue.  The fact that no responsible government would ever literally drop money from the sky should not prevent us from exploring the logic of Friedman’s thought experiment, which was designed to show—in admittedly extreme terms—why governments should never have to give in to deflation.
In more prosaic and realistic terms, a “helicopter drop” of money is an expansionary fiscal policy—an increase in public spending or a tax cut—financed by a permanent increase in the money stock.  To get away from the fanciful imagery, for the rest of this post I will call such a policy a Money-Financed Fiscal Program, or MFFP.
To illustrate, imagine that the U.S. economy is operating well below potential and with below-target inflation, and monetary policy alone appears inadequate to address the problem. Assume that, in response, Congress approves a $100 billion one-time fiscal program, which consists of a $50 billion increase in public works spending and a $50 billion one-time tax rebate. In the first instance, this program raises the federal budget deficit by $100 billion. However, unlike standard fiscal programs, the increase in the deficit is not paid for by issuance of new government debt to the public. Instead, the Fed credits the Treasury with $100 billion in the Treasury’s “checking account” at the central bank, and those funds are used to pay for the new spending and the tax rebate. Alternatively and equivalently, the Treasury could issue $100 billion in debt, which the Fed agrees to purchase and hold indefinitely, rebating any interest received to the Treasury. In either case, the Fed must pledge that it will not reverse the effects of the MMFP on the money supply (but see below).
From a theoretical perspective, the appealing aspect of an MFFP is that it should influence the economy through a number of channels, making it extremely likely to be effective—even if existing government debt is already high and/or interest rates are zero or negative. In our example the channels would include: