They could. In the scenario where they do not, you get Japan like problems of not enough inflationary firepower. To do that with confidence requires the tax base to support it, which means as labor share of income drops, taxing the capital share of income as well.
Taxing the capital share of income is not the end of the world, it is a relatively normal policy, but we would have to generate the political will to actually do so, the government must be able to credibly collect those taxes.
If we think the funds for helicopter money come from government borrowing, and the bond market breaks due to unexpected deflation, the government cannot get the money to pay for the inflation to get the market to get the money (this is what is meant by systemic risk), or default
If we think the funds come from future taxes, if the capital share of income increases and the willingness to consume from accumulated capital drops, the government must increase taxes on the income streams of capital or labor to make up consumption
If you think MMT is correct, and the government can just do helicopter, they will have to do that to keep equilibrium.
All of those cases (helicopter money and capital taxation) as specific policies are major policy shits. There is always a chance that does not happen.
There is a big difference between “The Fed Can” and “The Fed Will”, and if you are at 95% odds of the feds getting it right, that is still 5% of not fixing it. That is what is meant by left tail risk.
They could. In the scenario where they do not, you get Japan like problems of not enough inflationary firepower. To do that with confidence requires the tax base to support it, which means as labor share of income drops, taxing the capital share of income as well.
Taxing the capital share of income is not the end of the world, it is a relatively normal policy, but we would have to generate the political will to actually do so, the government must be able to credibly collect those taxes.
If we think the funds for helicopter money come from government borrowing, and the bond market breaks due to unexpected deflation, the government cannot get the money to pay for the inflation to get the market to get the money (this is what is meant by systemic risk), or default
If we think the funds come from future taxes, if the capital share of income increases and the willingness to consume from accumulated capital drops, the government must increase taxes on the income streams of capital or labor to make up consumption
If you think MMT is correct, and the government can just do helicopter, they will have to do that to keep equilibrium.
All of those cases (helicopter money and capital taxation) as specific policies are major policy shits. There is always a chance that does not happen.
There is a big difference between “The Fed Can” and “The Fed Will”, and if you are at 95% odds of the feds getting it right, that is still 5% of not fixing it. That is what is meant by left tail risk.