Partially for Frances Coppola, partly as a reference to myself – my ideal big-picture policy regime.
At the moment monetary policy is meant to be conducted so that inflation is 2% in the medium term. The target is hit mechanically by moving interest rates, although interest rates serve more as a signal of the future path of monetary policy than a binding constraint in themselves. Also people are poor. And immigrants get a raw deal.
I think all those things are stupid.
A much better policy would make things clearer (that monetary policy involves creating more money, not moving interest rates) and combine with my other favourite policies in such a way that they all reinforce one another.
So first things first, monetary policy’s aim should be to hit a 5% level target for per capita nominal gdp. Actually, it should probably be a 5% level target for per capita nominal wages as they’re the price we’re most worried about. We don’t want nominal rigidities forcing people out of work, I don’t much care if nominal rigidities create a glut of girders, just people.
What policy should be used to hit this? A Citizen’s Basic Income. First of all, a CBI is a policy in which every citizen gets a basic income regardless of anything which is enough to subsist on. You remove housing benefit, unemployment cover, in work benefits and just pay everyone the same. If you’re worried about kids give everyone a lump sum payment on birth. If you’re worried about the longterm disabled cover that via healthcare. Benefits are thus extremely simplified.
This is where the clever bit comes in (which I think I stole from interfluidity), this CBI is topped up via the central bank. All currency creation is done via direct payments which top up this CBI. This means in times of financial stress etc. when nominal growth is in danger of causing unemployment etc. everyone gets a payment. In boom time this top-up CBI is scaled back. This clarifies what the bank does (prints money) and creates incentivises to support loose policy in bad times which lesson in good times.
Finally, an open borders migration policy, but migrants only get signed up to the CBI scheme after ten years. This creates an interesting incentive for citizens. Because money only enters the system via direct payments to citizens and the central bank is targeting a per capita (resident, not citizen) nominal target an increase in immigration causes an increase in payments to citizens. The policy pays off the local population automatically with a share of the increase in wealth caused by immigration. Because the deal looks pretty good to migrants (10 years ain’t so long) they don’t disrupt the equilibrium.
There we go. All my favourite ideas in one place, all reinforcing one another. What does everyone think?