Friday, May 3, 2019

Annie Gilroy — Why Ray Dalio Says Shift to Modern Monetary Theory Is Inevitable

Dalio, however, agrees that MMT has weaknesses. He said, “The big risk of this approach arises from the risks of putting the power to create and allocate money, credit, and spending in the hands of politically elected policy makers.” He states that the system has been designed in a way that “highly skilled people” are in charge of decision making rather than politically motivated people. He added, “At the same time it is inevitable that we are headed in this direction.”
This is both a pertinent concern and also a legitimate one. Ralph Musgrave had observed this in the comments on the link to Dalio's article.

It's basically conservatism versus liberalism, "republicans" with a small "r" and "democrats" with a small "d" — Hamilton versus Jefferson in the US  and Tories versus Old Labour in the UK.

The former assume that the people at large are not qualified to make decisions that require any degree of expertise; hence, governing should be put in the hands of experts. This is the basis of "republicanism" as representative government. They especially fear "Jacobinism" as the rule of the rabble and recall "the reign of terror" during the French Revolution.

The later assume that sovereignty resides in the people, that a liberal government is a government of, by and for the people, and that political freedom is based on self-determination in a society in which all persons are equal before the law. They doubt that any government by experts will eschew privilege for the elite classes and and fear institution of a double-standard before the law.

The former favors hierarchical technocracy and the latter, consensual democracy. While lip-service is paid to democracy in liberal states today, the reality is that there are no genuine democracies. Moreover, there never has been, perhaps excepting some so-called primitive tribes.

Even if one accepts that MMT is the state of the art and science in macroeconomics, including as a "policy science," the political question hangs in the background. As a macroeconomic theory (economic science), MMT is supposedly value-free. But policy and politics are value-laden, and different value systems are indicative of different ideologies.

So this is a hot-button issue as MMT gains ground, and it is doing so quickly — alarmingly quickly for some.

Market Realist
Annie Gilroy


Joe said...

The can't be a "shift" since the system already functions the way MMT says it does. There could be a shift in recognition of this fact, though.

edzimmer said...

Possible solution to the fear of putting money creation in the hands of politicians: Let politicians (elected officials) determine WHAT programs government undertakes and an independent, economically-literate body (perhaps under the Fed) determine HOW to pay for them (ie, taxation or money-creation).

André said...

Yes, let Wall Street determine how to pay for them. That seems a very good way to deliver social welfare

(I'm being ironic)