I just read Claudia Sahm's chapter on direct payments to individuals that was part of a larger book put out by The Hamilton Project at Brookings, called Recession Ready: Fiscal Policies to Stabilize the American Economy. In it, she proposes a specific automatic trigger based on the unemployment rate to send out cash payments in the midst of a recession. To her credit, I think she basically nails it. First, she has Congress and the IRS set up an automatic payments system and the legislation in advance, so the money can go out the door quite quickly. Second, she creates a reliable and fast acting trigger to get the annual payments out while the recession is still occurring, and third, she also develops a system for multiple payments during severe recessions, that makes sure Congress doesn't take the money away too quickly.
When I thought about the problem of direct payments, I usually came at the problem from the perspective of the Federal Reserve, where in the last two recessions, interest rates hit zero right after they started, which means the Fed lost their primary tool for managing the ups and downs of the business cycle. I even suspect that interest rates might stay at zero for very long periods of time, say across the entire business cycle, and thought giving the Fed some power to issue direct payments to individuals would give them a new tool to pursue their counter-cyclical policy mission. I thought letting the Fed issue direct payments worth $100 per person per month for up to a year, worth about 2% of GDP, at which point Congress could extend them, would be useful.
Examining how the Fed might get some control over fiscal policy was beyond the scope of her paper, so my current view is that I think it makes sense to combine the two proposals. Congress could pass legislation to set up the automatic unemployment rate trigger, and in one twist, I might give the Fed the power to send out the first annual payment if need be since they might be able to react even faster than a data driven trigger, but if the Fed did not do that, then once the trigger was set off, Congress could vote to up or down whether or not to let the payments go out. You can debate whether it takes approval from both the House and Senate for the payments to happen, or whether it takes rejection from both the House and Senate (and perhaps the President too) to block them from going out, but I think giving Congress some say in the matter assuages any concerns about giving up too much control over their power of the purse. Then, once the first annual payment went out, the Fed could decide to provide a monthly direct payment up to $100 per person per month on top of the annual automatic stimulus payment determined by the unemployment rate trigger. Perhaps after a year of monthly payments, Congress could be given a vote to determine if this should continue or be blocked, just to make sure the Fed doesn't abuse their newfound partial control over fiscal policy.
This would give you the best of both worlds, where individuals would get the benefits of large annual payments on top of a smaller monthly benefit. Plus, the Fed could make sure the money goes out the door even faster, and adjust the total amount of fiscal stimulus based on the severity of the recession as it happens. I think this balances the need to provide more fast acting and timely counter cyclical fiscal stimulus while still giving Congress some oversight and control over how it takes place. Given how important the stimulus checks were in this recession, I think it clearly makes sense to have a system already in place to do something similar when the next recession hits.
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