Cullen wrote a post agreeing with David Beckworth‘s proposed response to Cardiff Garcia’s challenge. Cardiff posed a challenge to the econobloggers who think there is an aggregate demand problem: What should we do?
“Here is how I would operationalize this policy. First, the Fed adopts a NGDP level target. Doing so would better anchor nominal spending and income expectations and therefore minimize the chance of ever entering a liquidity-trap. In other words, if the public believes the Fed will do whatever it takes to maintain a stable growth path for NGDP, then they would have no need to panic and hoard liquid assets in the first place when an adverse economic shock hits.
Second, the Fed and Treasury sign an agreement that should a liquidity trap emerge anyhow and knock NGDP off its targeted path, they would then quickly work together to implement a helicopter drop. The Fed would provide the funding and the Treasury Department would provide the logistical support to deliver the funds to households. Once NGDP returned to its targeted path the helicopter drop would end and the Fed would implement policy using normal open market operations. If the public understood this plan, it would further stabilize NGDP expectations and make it unlikely a helicopter drop would ever be needed.”
This is a great idea. My suggestion is we payroll tax cuts to provide this helicopter drop. For one thing, altering the payroll tax rate is easy to do from an operational standpoint. It is something that can happen with a relatively small amount of work on the part of the economy, and it hits over a hundred million U.S. workers.
Not only that, this policy has already been done. This is an important consideration in any policy proposal. In short, we could do this helicopter drop starting in Q4 2013 very easily.