in this context, capital-side policy refers to the opposite of current-account-side policy, specifically with respect to balance of payments. loans subsidized via income-contingent repayment are a form of industrial policy, not intended to regulate balance of payments. 1/

what i’m referring to more specifically by “capital-side policy” is something like a foreign payouts tax, as described here. drafts.interfluidity.com/2025/04/01/i... 2/

the two are complementary, i think. in general, absent balance, any form of fiscal stimulus risks leaking to external demand, contributing to trading partners’ mercantilism. 3/

the ability to impose a (near) balance constraint reduces this risk with respect to industrial policy by stimulus (which i consider far preferable to industrial policy by tariffs). 4/

so i think a foreign payouts tax makes more plausible income-contingent repayment (and other forms of subsidy), not bc the tax recoups the cost, but bc under balance, the fiscal expenditure will flow only to domestic balance sheets, susceptible to taxation and/or redistribution by domestic policy 5/

i think all of this is very Ricardian! Ricardo’s comparative advantage trades were balanced. He did recognize that gold could “balance” trade reflecting past wealth rather than comparative advantage, but perceived mechanisms that would limit gold-“balanced” trade, eventually enforce balance. 6/

those mechanisms don’t so reliably work when gold is replaced by securities, especially fiat denominated securities. a foreign payouts tax is just a mechanism to reimpose the kinds of constraints Ricardo perceived existed naturally under a gold standard. /fin