In addressing the economy of 2015, central banks are faced with a severe problem. The Fed has cut interest rates to the bone, creating inflation, but money being loaned out sits in banks. Savers and investors are experiencing punishing inflation, retailers and former members of the middle class are experiencing deflation. Consumer goods and commodities are cheap, but consumers do not have the money to buy them. The price of staples continues to rise, and Americans trapped in structural unemployment, deep in debt, find themselves in the hands of payday lenders charging extortionate interest rates while the central bank tries to loan out money as fast as possible at zero, near zero, and potentially, negative interest rates to banks who, in order to out-pace inflation, must carefully seek large returns on investment, and therefore do not increase loan volume.
On the other end, there has been a recent effort in the media to revive the concept of a universal basic income, meaning, every citizen would simply receive a certain amount of money on a regular basis, to dispose of as they saw fit. This is touted as superior to the welfare state as practiced in the United States, and a solution to some of the nation's economic woes.
Certain problems make the basic income proposals on the table non-starters. Some argue that if a Universal Basic Income is available, people will be unwilling to work, or the 'moral hazard' argument. The relationship between immigration and a universal basic income is complicated--for a government to keep its balance sheet in order, it must ensure that it pays out only as much as it takes in in taxes, so immigrant dependents will benefit disproportionately, as will anyone who is a dependent when the system is implemented. The biggest problem is that in a democracy, the electorate can be trusted to continuously vote to increase the payments provided to them without regard for the broader economic situation.
Taking a page from former US President George W. Bush, under whom many Americans received a one-time "tax cut" check in the mail might be worthwhile. The Federal Reserve could use one-time payments, available for a specified period of time, provided via the US Post Office as a tool of monetary policy. The implementation is relatively simple, the USPO can provide the checks only to people who claim them in person over a period of several weeks, and collect a biometric identification and signed affirmation of citizenship from each claimant--there would be some fraud, but thanks to biometric identification, we could be fairly certain that the fraudsters would eventually be caught and punished.
Using this tool in concert with interest rate manipulation, a central bank could use this technique to either inflate or deflate the money supply. The one-time nature of the payments means that no severe obligation is incurred for the government, as would be from a continous, long-term guarantee of income. A central bank could execute this ploy once, several times, or never, depending on its assessment of the money supply. The 'moral hazard' argument is hard to defend if the central bank uses this tool in the same way that wise nations of years past would maintain granaries and open them during times when harvest fail to prevent famines. The US Congress' much-decried TARP bank bailout in response to the 2008 financial crisis was 700 billion dollars. The positive effect on the US economy of that program should be directly compared to the potential positive of just handing out $2000 for every man woman and child in the United States.
Arguments to "End the Fed" and complaints about the intrusive nature of central banks have fallen on deaf ears for decades. As interesting as discussions of Austrian economics can be, fractional reserve banking is here to stay for the foreseeable future, as is central bank management of the money supply in the west. It's time for new tools in the economic toolbox.
Presently, manipulation of the interest rate is the only tool available to central banks for adjusting the money supply. I propose that central banks can use direct payments to individuals as an additional tool for the manipulation of the money supply. Used in concert with interest rate adjustments, this can create inflation or deflation.