Stimulus: The way forward.

Matthew Yglesias gives his recommendations for permanent monetary policy changes to stave off future recessions like the current one.

1. We should aim for a long-term inflation rate of four or even five percent so that the Federal Reserve is much less likely to hit the "zero bound" and lose confidence in its own ability to shape the economy-wide demand picture.

2. We should make specific statutory provision for Fed injection of "helicopter money" into the economy. The metaphysics of fiscal vs monetary policy are less important than the fact that the Fed has the right institutional setup to conduct a joint fiscal-monetary action when needed. A Fed that can order money-financed payroll tax cuts that have zero impact on the deficit is never going to "run out of ammunition" in the war on demand shortfalls. 

3. We should beef up automatic stabilizers in the budget by creating some kind of national rainy day fund that automatically releases unrestricted funds to state governments in times of recession. Some elected officials will use the money to avoid pro-cyclical service cuts and furloughs, while others will use it to finance tax cuts and we'll just live with disagreement about the best way to proceed.