So, here’s a thing I think we should do.

The Federal government should offer inflation-protected savings accounts to individual citizens, but with a strict size limit of, say, $200,000. These accounts would work like bank savings accounts, and might even be administered by banks. But deposits would be advanced directly to the government (reducing borrowing by the Treasury), and the government would be responsible for repayment. The accounts would promise a tax-free real interest rate of 0% on balances up to the limit. Each month, accounts would be credited with interest based on the most recent increase in the Consumer Price Index (adjusted for any revisions to estimates for previous months).

The purpose of this plan would be to offer a no-frills, low risk savings vehicle for middle-class workers. Ordinary bank savings accounts no longer do the job. They already pay negative real interest rates, and those rates might well get worse if we experience more inflation. TIPS don’t do the job. They expose savers to interest rate risk and liquidity risk. Small savers must compete with large savers for the same very limited pool of securities, resulting in negative yields. The option implicit in the floor on principal isn’t easy to price. It takes a degree of risk-tolerance and sophistication to manage a portfolio of TIPS that we ought not demand of waitresses and schoolteachers. They should be able to just open an inflation-protected savings account at their local bank.

Republicans should love this proposal. It would reward “virtuous” savers who are currently punished by negative real rates, and the benefit would be tilted upwards towards the relatively prudent and productive. People with substantial savings gain more from the tax and interest rate subsidy than people putting just a few dollars away. Democrats should love it too, as rewarding savers is a bipartisan trope, and the $200,000 limit keeps it a middle-class program, preventing a huge giveaway to the top 1%.

These “starter savings accounts” would be a popular vehicle for ordinary people who want convenience and safety with as little entanglement as possible in casino finance.

But the real benefit would be macroeconomic. “Market monetarists”, MMTers, and old-fashioned Keynesians love to squabble with one another, but they have a great deal in common. By whatever combination of monetary and fiscal policy, in a depression, all these groups agree that some manner of expansionary intervention should be pursued to maintain spending and effective demand. But any such policy increases the risk of inflation, and so is opposed by people holding debt or fixed-income securities. The people with the most to lose from inflation are the very wealthy, who hold a disproportionate share of financial claims. But middle-class savers value their small nest eggs just as dearly, and make common cause with multibillionaires to oppose inflation. By providing means for small savers to protect themselves from inflation when intervention is called for, we can stop the very wealthy from using middle-class retirees as human shields, and thereby create political space to adopt expansionary policy.

The existence of these accounts would be mildly contractionary, as smaller savers could no longer be scared into spending by the threat of inflation. But while pushing small savers to spend their way into precarity might contribute to short-term GDP, the overall costs of that approach probably exceed the benefits. Expansionary policy should encourage consumption and investment by people with the means to bear risk rather than threaten the savings of people who cannot afford to spend.

The limited size of “starter savings accounts” would leave the wealth of large savers at risk, and with fewer places to hide. That is as it should be. The risk of the aggregate investment must be borne by someone. Patterns of aggregate investment are determined by the behaviors of savers, or the people to whom they directly or indirectly delegate investment decisions. If we want a high quality of investment, we have to ensure that these investors bear the cost when aggregate investment disappoints. All savers would enjoy protection of their “starter savings”, but people trying to push large sums of wealth into the future would have to take responsibility for directing the use of their capital, and for monitoring the quality of the institutions through which capital is allocated generally. When the process fails, when capital allocation goes badly awry, large savers would bear the costs directly via writedowns or indirectly via inflation. It will be hard to push for bail-outs when middle-class nest eggs are insulated from the vagaries of capital markets and banks. It will be hard to push for austerity when middle-class nest eggs are immune from inflation. Wealthier savers would still be protected from penury, if they wisely max out their starter savings accounts before piling into CDOs and auction-rate securities.

The program proposed would, for now, be a subsidy to small savers, since real risk-free interest rates are negative. In better times, the program would impose a small “tax”, because the government would pay less to depositors than the positive real rates it pays on other borrowings when the economy is growing. But this would not actually be a tax, because participation would be optional. When times are good, banks and brokers will relentlessly encourage savers to migrate into higher yielding assets. Savers may choose to buy whatever Wall Street is selling, or to stick with what is simple and safe. Even in good times, a guaranteed, perfectly liquid, inflation-protected savings vehicle would be popular with many savers. Starter savings accounts would be a useful and voluntary program with a negative fiscal cost.

Some practical considerations:

Limiting the size of the accounts is absolutely crucial. Failing to do so could put the finances of the state into dangerous jeopardy. A currency-issuing government’s nominal “debt” is best classified as equity. Inflation-protected debt is much more debt-like, and can put the solvency of the state into question. Nominal debts can always be repayed in extremis by printing money. But that is not true of inflation-protected debt, on which a government may be forced to default, overtly or tacitly (by corrupting the inflation indices). The US government, very wisely, keeps its TIPS issuance very small. It should keep the aggregate size of the starter savings program small as well. At $200,000 per person, the program could succeed catastrophically if the relatively well-off take to it en masse . To manage this, the government might set a ceiling on the aggregate size of the program (perhaps 25% of GDP), and adjust the limit of inflation protection as necessary to remain beneath the ceiling. (The government would announce periodic adjustments, up or down, to the limit. The government would pay the ordinary 30-day Treasury bill rate on balances above the inflation protection ceiling.) Alternatively, the government could discourage overuse by publishing a diminishing real-interest rate schedule, so that the first few thousand dollars in an account would accrue interest at a sharply positive real rate while “late” dollars are punished with ever more negative real rates.

The accounts would have to be nonhypothecable. To put that in English, loans and other contracts that pledge the contents of these accounts as security should be prohibited and unenforceable. Otherwise, when real interest rates are negative, financial engineers will bundle loans secured against many poorer individuals’ accounts into unlimited sized accounts for rich people. This sort of indirect use of the accounts is impractical if the loans are unsecured and their repayment is at the discretion of the borrower. (Every sort of contractual encumbrance or automatic withdrawal should be prohibited, to prevent schemes where administering banks enforce security arrangements that the law would not.)

Often my proposals are pie-in-the-sky, after-the-revolution sort of affairs. But this one strikes me as practical, achievable within the present political context. “Starter savings accounts” would represent a form of middle class social insurance that I think a lot of people are thirsting for. They would have a small near-term fiscal cost, and would likely pay for themselves over the long-term. Since the program would be structured as personal savings, it flatters the American policy establishment’s devotion to “bourgeois virtues“. I think the existence of these accounts would open up a great deal of political space for better macroeconomic policy. They would reduce resistance to expansionary monetary/fiscal intervention. They would reduce the press for bailouts and corrupt reflations when the stock market swoons or some megabank coughs blood. Shouldn’t we do this?