Dally Dally-Oh!

In bold lettering across the bottom of the screen: "MMT is inevitable". But Ray Dalio actually said something like "Something like MMT is inevitable". Not the same thing.

Dalio Says Something Like MMT Is Coming, Whether We Like It Or Not
By Ben Holland, at Bloomberg
May 1, 2019, 7:16 PM EDT Updated on May 2, 2019, 8:36 AM EDT

Bloomberg		Arthurian

Central banking as we know it is on the way out, and it’s “inevitable” that something like modern monetary theory will replace it, billionaire investor Ray Dalio said.

The doctrine, known as MMT, says that governments should manage their economies through spending and taxes -- instead of relying on independent central banks to do it via interest rates. It also seeks to allay fears over budget deficits and national debts by arguing that countries like the U.S., which have their own currency, can’t go broke and have more room to spend than is usually supposed -- provided inflation is subdued, as it is now.

And when inflation is no longer subdued? What plan then?

Debate over MMT, which languished in obscurity for decades, has exploded in recent months. The idea has been criticized by a series of financial heavyweights, from Warren Buffett to Federal Reserve Chairman Jerome Powell. But Dalio, the founder of Bridgewater Associates, the world’s biggest hedge fund, said policy makers will have little choice but to embrace it.
Their challenge will be “to produce economic well-being for most people when monetary policy does not work,” Dalio said in his latest LinkedIn post. Over the past four decades, the era of central-bank dominance, income and wealth inequality has surged in most developed nations.

Bloomberg seems to be suggesting that "central-bank dominance" caused the surge in inequality, and that abandoning central-bank dominance will reverse the trend of inequality. That concept is too big to fit comfortably in a suggestion.

Read the full essay here.

Worth a click. Dalio is good.

Cutting interest rates, or buying securities in the process known as quantitative easing, have almost exhausted their ability to stimulate economies, he wrote. They’ll likely be replaced by a third-generation monetary policy, which Dalio labeled “MP3.’’ It will involve “fiscal and monetary policy coordination” along the broad lines suggested by MMT economists, he said, though not necessarily following their exact prescriptions.

Yeah, fiscal and monetary, the "two handmaidens":

"When economists write textbooks or teach introductory students or lecture to laymen, they happily extol the virtues of two lovely handmaidens of aggregate economic stabilization -- fiscal policy and monetary policy."
- Arthur Okun

But I would like to know what is the rebuttal to the argument that said When fiscal policy contradicts monetary, monetary policy is strengthened and fiscal is defeated. I never accepted that argument, but I could never shoot it down. And it has to be shot down, if we're going back to the two handmaidens.

I need to hear that rebuttal. And it had best be a good one.

The shift is well under way, Dalio said. With interest rates pinned near zero in Europe and Japan, and likely to head back there in the U.S. when the economy falters, the fiscal-policy takeover is “by and large what has been happening” already.

The U.S. ramped up budget deficits after the 2008 crisis, and has been doing so again under President Donald Trump. The bond-market response has supported MMT arguments: yields on government debt haven’t risen much, even though there’s much more of it around.

So the rebuttal is that the one-handmaiden approach didn't work when the shit hit the fan. But that's an observation, not an explanation. I need to understand what's wrong with the one-handmaiden approach. Otherwise, I have to think that it hasn't been shot down, and will eventually come back. I need a better argument. I always need a better argument.

Japan has been doing it for even longer -- yet after two decades of large deficits, it can still borrow money virtually for free.

Dalio gave examples of how such policies could evolve, without endorsing them. Central banks might print money directly to finance government programs -- bypassing the need to sell bonds. They could buy real estate “which would then ideally be used for socially beneficial ends.” They could also write off debts hanging over the economy, in a kind of “jubilee.” In downturns, they could deliver cash straight to the public, an idea widely known as “helicopter money.”

These are bizarre possibilities -- even the jubilee (which is the right solution) is bizarre. But it is creepy that people are willing to consider such presumably permanent possibilities as "bypassing the need to sell bonds", and that the central bank should get into real estate.

Changing the economy more is not the solution to the changes we've seen. We need to change it back, back to a low-debt, low-rent economic system, the kind of economic system that is sustainable.

There are risks, Dalio acknowledged. Such policies would put “the power to create and allocate money, credit, and spending” in the hands of politicians.

That's a long standing objection, putting the power to create money in the hands of politicians. Has to do with "central bank independence" and all. That objection won't go away easily.

“It’s difficult to imagine how the system will be built to achieve that,” he said. “At the same time it is inevitable that we are headed in this direction.”

I can only say what I say all the time: We need to understand the problem. We think we understand the problem but we don't, so the solutions we come up with are wrong. We have to go back to the beginning and think things through.

persuading economists to re-examine critically certain of their basic assumptions