Criteria for Policy Levers

Just last month, I put on my thinking cap and tried to come up a list of criteria our economic policy levers should attempt to meet.
This post wasn’t inspired by Nick Rowe here, because I created this list on January 12th. But its related.
MMR is trying to create a largely non-political way to think about the economy. But I am not a perfectionist, and while I haven’t asked my co-bloggers their opinion on this exact topic, I suspect they lean to being pragmatic over being theoretically perfect. We’re engineers, not mathematicians.
I started this list when thinking about how poorly monetary policy works at times because it uses real estate as the channel to impact the economy, and then has this rather large secondary channel in business lending which can be on an entirely different cycle!  It was almost a joke, like “Here’s what a real economic policy should do”! But this list doesn’t seem like a joke after I read it a few times. It seems like common sense and the basis of good policy.
There’s probably more, and these could probably be stated more clearly and more concisely, and I’m probably wrong somewhere-somehow in this list. So with that in mind, I thought I’d post a list of criteria our policy levers should meet. Comment are welcome!
Overall:
Process should be readily understandable by citizens
Transparent
Easy for Citizens to calculate/observe impact on their personal lives
Largely rule based
Responsive to the democratic process
Inputs:
Directly Observable
Directly Measurable
Relatively Stable over short time frames
Linked to Output we want to impact
Levers:
Directly Observable and Measurable
Directly Adjustable
Quickly Adjustable
Direct impact on Outputs
Rapid impact on Outputs
Fully Controlled by Policy Makers
Wide Dispersion of Effect
Possible Geographic Precision
Use Markets to disperse benefits
Outputs:
Directly measurable
Directly observable
Economic Growth Oriented
Indifferent to Economic Class
Monetary Policy doesn’t meet many of these criteria.
Comments
  • beowulf February 22, 2012 at 11:13 am

    The two fiscal policy tools the Fed has (yes you read that right) are its authority to adjust the exchange rate and its authority to levy transaction fees.
    It could cut the trade deficit with a dual exchange rate system that would, in effect, subsidize exports. A percentage of value transaction fee on everything that moves through the Fed could be ratcheted down to loosen fiscal policy or ratcheted up to tighten (fees are set and adjusted by the Fed governors voting to update the fee schedule).
    I recently told Joe Firestone (a big proponent of the HR 676 Medicare for All bill) that the bill needed to be stripped out of its trillion dollars in tax hikes and instead require its net outlays (that is, the $1T in new spending) be reimbursed by the Fed. Every quarter or so, the FRB could adjust the mix of jumbo coin purchases (stimulus!) and transaction fee revenue (not stimulus!) to pay for it.

  • wh10 February 22, 2012 at 11:20 am

    “The two fiscal policy tools the Fed has ”

    Technically, and I think Ramanan would agree, the Fed’s changing of interest rates is fiscal in that it changes the valuation of NFA.

    • beowulf February 22, 2012 at 3:06 pm

      As a secondary effect sure, but everyone considers adjusting interest rates to be monetary policy. it is true that lowering interest rates raises property values (since the same amount of interest payment would carry a bigger mortgage).

  • Wilfred Gosso March 10, 2012 at 1:34 pm

    Don’t just retire from something; have something to retire to.
    In modern business it is not the crook that is to become feared most, it does not take honest man who doesn’t know what he is doing.