Can't we all get along? Or at the very least...make the demise of the zero bound threat a mutual New Year's resolution? In spite of recent growth, a (less than) 2% inflation target in the U.S. means the Fed could still "bottom out" in future recessions. Even though the blogosphere continues to discuss "breakaway" options, the public has yet to be invited to the main aspects of the conversation. Consequently, political factions distort the dialogue for their own purposes, and the Fed has too little incentive to call them out on all the nonsense.
Understandably, the Fed is hoping for a supply side recovery to do some of the heavy lifting for them. Just the same, there are conservatives who seek to restrain monetary policy beyond the point of adequate representation. Often they do so, because of a lack of desire to to reform supply side problems which contributed to the Great Recession. At the same time, many progressives refuse to budge re fiscal policy as "more important" than monetary policy. Is it because they sense that even if they did, little would be gained in a slow growth environment?
Monetary policy also lacks clarity, because much of it is being expressed in the wrong language: that is, language which sends confusing messages to the public. The U.S. is hardly alone in this problem, as special interests and political factions use inflation targeting as a foil to cover their own efforts to influence monetary policy. Tony Yates in one of the above linked posts, argued that the public could not be expected to understand an NGDP target, so central bankers should not take it seriously. Even so, the basic premise of aggregate spending capacity - were it given enough coverage in the media - should be possible to convey to most anyone.
Simon Wren-Lewis also remains adamant that fiscal policy is being ruled out as a potential solution. But compared to the Great Depression, fiscal activity is now such a widespread element of economic activity, that it has mostly reached a natural bound in terms of growth capacity. Multiple aspects of the marketplace need to be recreated on monetary terms. There needs to be clear, recognizable circumstance for further monetary growth, which makes sense to citizens at an instinctive level.
What about helicopter money? To be sure, this is a concept which is easy for folk to relate to. Unfortunately, there's a more important issue than just the temporary nature of tax breaks. They mostly contribute to consumption patterns which are already in primary equilibrium. In other words, this is an element of the economy which already exists at a relatively steady level.
When tax breaks in the form of helicopter money target those who already have steady jobs, intact family formation, housing and transportation, the middle class "gets a break" but little else happens. A permanent level of new growth, would need to generate new, steady production and consumption patterns for those who do not already have them. This is where supply side representatives need to step up to the plate and assist the Fed, instead of insisting that the Fed is the entire problem.
If no one comes to any agreement for growth in the near future, what might happen? The possibility of negative interest rates has been discussed at a serious level for some time. It's one thing to talk about implementing such a monetary reality in theory. But...the real thing?
The thought of a cashless society would be particularly frightening for anyone who does not have a reliable paycheck. How would the homeless get their meals, especially in cities which have already outlawed the provision of food to the homeless in public areas? What about the people who do not maintain the use of credit, because it eats away too much of the money they receive? Let's just don't go there. Better to address the underlying problems which have prevented real growth, and make monetary policy normal, once again.
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