aheho

I believe you are on record stating a preference for a progressive consumption tax in lieu of our current income tax. I think you make a compelling case. A supposed drawback of our current system is it provides a disincentive to savings. A move to a consumption tax would supposedly rectify that. Let’s take a moment and think about how that change would affect the macro-economy under the current Fed policy regime. Holding all other things equal, the wicksellian interest rate will be lower under a consumption tax vs. our income tax. (Due to the change to saving incentives mentioned above). Do you agree? The lower the wicksellian interest rate, the more likely we will end up with a natural rate below zero. The more the wicksellian rate goes below zero, the more likely we end up against the zero lower bound, and a Fed that thinks it’s “out of ammo”. My concern is unless we move to a NGDP targeting regime, a move to a consumption tax will indirectly make our monetary policy worse, and more prone to recessions. What we gain in Harberger’s triangles, we will lose in okun's gap. So, do you agree with the premise that we have put ourselves in a position where policies that would otherwise be efficient, become dangerous due to the way the fed currently manages the macro-economy?