Donald Trump has claimed that if the Republicans win the midterm elections, he will make every adult in America $5,000 better off. That is, for all practical purposes, a $1 trillion spending commitment.
JD Vance, in his role as Vice President, has since slightly clarified the offer, but not denied that Trump made it.
Let's ignore for a moment that it appears that Trump is simply using his position as President to bribe voters, and let's consider the economics of this instead.
What Trump is proposing is what Milton Friedman called 'helicopter money', which is money showered by a government on the people in an economy, irrespective of there being no greater capacity within that economy to absorb their spending. Some people who have no desire to understand modern monetary theory, like Ann Pettifor, for example, suggest this is what MMT proposes, when nothing could be further from the truth.
That said, I emphasise that what Trump is proposing makes it clear that money creation at will is entirely within the US government's power, via the Federal Reserve. There is no technical reason why $5,000 could not be given to every household in the USA, even if doing so makes precisely no sense at all.
Firstly, as Trump would know if he understood the nature of government finance, if he is to increase the financial worth of every household in the USA in this way, somebody must assume the resulting liability, and that is his government, whose debt will increase by $1 trillion as a consequence. As a result, the interest rate that it is likely to have to pay if the current relationship between the US government and financial markets is maintained will rise. In addition, a whole range of other adverse economic effects might result, none of which he appears to have thought about.
Secondly, whilst some recipients of this money might prudently use it to pay off their debts, and others might save it, you can be fairly sure that many might decide to spend it almost immediately, but the inevitable consequence of that will be inflation because there will be no more goods and services to buy than there were before the money was created. On this issue, I find myself in the strange position of agreeing with Milton Friedman.
Thirdly, the impact of this decision on the dollar, whose position as the world's reserve currency is already under threat, is hard to predict. Markets are not, however, prone to reward economic irrationality of this sort, especially when the motive for undertaking it looks close to being election fraud.
Fourth, there may be many in the USA who might be equally alarmed at the irrationality of this. Few people would usually refuse $5,000. However, when that offer has so many obvious downsides, it might be enough to persuade people that Trump really is corrupt and unfit for office. As a result, they might decide to vote against his party, or not vote at all. I think an electoral backlash is as likely as support for this madness when so many Americans have been told by Republicans for so long that debt is their enemy, even if in most cases that is not true.
Fifthly, the injustice of the might appal many. I am sure it is true that there are many in the USA for whom $5,000 might be transformational. Many others will see it as neither here nor there. People like Elon Musk will never notice it. The fact that it will supposedly go to everyone, regardless of need, might appal many.
As MMT makes clear, creating money when there might not be anything to buy with it virtually guarantees inflation, and MMT is almost obsessed with preventing that, and yet this is what Trump is doing. MMT, in that case, provides the only economic framework that shows both how he can do this and why he should not.
It is time people took it seriously.
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Jonathan Pie’s latest video covers this in his wonderful, sweary style.
My wife and I went to see Mr Pie’s show last week – fantastic. A great evening.
Craig
I imagine that would be fun: I have seen a video of him live.
I am married to a retired nurse and you are married to a retired GP
I cant imagine that you do not get some interesting comments on Trumps behaviour that are based on medical science.
Usually in the vernacular. I think she was in the merchant navy along the way!
She and I have something in common then!
🙂
Trump puts MMT in the news, at the same time as we have a growing crowd of people who understand the arguments, and are in possession of the tools to disseminate them, and to promote instead, a politics of care. You should send him a thank-you card.
How cheaply do the American people sell themselves. $5000 in Trump’s world is nothing. I bet it does not make a dent in their medical bills.
I saw a comment by an American on Facebook saying tariffs would raise the money.
It shows a huge lack of understanding of how the economy works. It’s how Trump gets away with it.
It is not quite as bad here but….
Hence the need for your work.
This is obviously a desperate bribe, that has as much chance as happening as his DOGE or tariff dividends, but… Am I right in thinking from a purely economic point of view, the only real issue with this is that of inflation (if we ignore the morality etc)? Am I right in thinking your first point regarding the debt and interest is true from the point of how things are currently run, but is not necessary?
And how sure are we really that such payments would actually lead to significant inflation? I’m not fully up to speed with the US economy, but my understanding is it is suffering supply side inflation, causing people to have significantly less disposable income. If that reduced disposable income is supplemented by the government, does that automatically cause demand pull inflation over above the supply side inflation? Or does it just restore the original demand? People aren’t going to be buying more food or gas, they just won’t be struggling as much to afford it. This then means they can continue to spend on the other non-essentials they were buying before, keeping money running through the economy.
I’m not for a second defending this, but having read the usual coverage of “it’s not clear how he’ll fund it”, it got me thinking about the feasibility of the government stepping in to provide liquidity when supply shocks are the inflationary cause. Obviously, you would need a lot more thinking regarding the amount, and who gets it, over which time period etc…
Yes, inflation is the real economic issue, and debt issuance and the resulting interest cost are consequences of current institutional choices, not a funding necessity.
But $5,000 paid suddenly to millions of people is different from simply compensating households gradually for higher prices. It creates a potentially enormous burst of additional purchasing power now.
The critical question is: where is the spare capacity to meet that demand?
If people rapidly spend the money on goods, travel, cars, housing or services when those sectors cannot expand supply, prices will rise. Supply-side inflation makes that problem worse, not better.
Targeted support for people whose real incomes have fallen could make sense. An indiscriminate $5,000 giveaway is quite different. Without substantial spare productive capacity, I would expect it to be significantly inflationary.
Potentially illegal: A post-election payment announced or distributed with an explicit or implicit message that it rewards voters for electing the politician.
Usually lawful: A generally applicable payment approved through normal governmental procedures, available regardless of how—or whether—someone voted. [ChatGPT today 11 Sept 26]
Allowable if “normal govt procedures”!
And where is that prevoius promise of a $2,000 dollar check, from the $18 trillion you made on tariffs?
I am glad you are on the record saying this, because the idea that you want to “just print money” is literally always the first straw man people use with when they argue against you, or MMT.
Trump has shown us now who the the real reckless “money printers” actually are.
Bookmarked.
Thank you
he says nothing about the federal budget out of control spending. The customary I will give you money if you will just do what I want, he learned that from his father and son now following in his footsteps. Do not understand what the other 50% of the public is paying attention to more, their own bank account or the country falling apart.
“What Trump is proposing is what Milton Friedman called ‘helicopter money‘, which is money showered by a government on the people in an economy, irrespective of there being no greater capacity within that economy to absorb their spending. Some people who have no desire to understand modern monetary theory, like Ann Pettifor, for example, suggest this is what MMT proposes, when nothing could be further from the truth.”
Could you cite where Ann Pettifor says this?
She has said to to me many times.
I think she did in her book on the Green New Deal in which she revealed her profound ignorance on what MMT says, as she has many times in videos. She did one with Stephanie Kelton once where I recall her saying this. She tore the Green New Deal group apart over this.
https://www.greenpeace.org/international/podcasts/64940/systemshift-ann-pettifor-the-story-of-money/
Near bottom of article, “find in page” the phrase
“The limits of financial expansion”
where she outlines her objections, but her arguments are all attempts to incinerate a collection of straw men, created by her, totally misrepresnting her opponents.
Agreed. And try to make sense of this on her Substack, which refersmtgo gold standard thinking as gar asI can tell:
“David thank you for this…I have serious problems with MMT…mainly because it derives much of its authority from the world’s reserve currency – the dollar. And yes, the US can, and does theoretically “print” as much currency as it needs. But very few sovereigns have that privilege..I am a supporter of Keynes’s monetary theory and policies….and as such argue that governments through their central banks raise finance through the issuance of bonds/debt. MMTers ridicule that approach as you rightly note. The problem is that bond issuance is visible in plain sight. And like Keynes, I am not a great fan of big government deficits/debt …even while I recognise that when the private sector slumps – governments must of course step in and spend. Keynes’s case is that to stabilise debt, full employment is required. South Africa is a classic case of high public debts generated by economic failure/extraordinary high rates of unemployment. The job of governments is to spend to create jobs, when the private sector is too timid, and risk averse to do so.”
https://annpettifor.substack.com/p/the-sudden-paralysis-of-the-system/comments