Dalio on MMT

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pmward
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Dalio on MMT

Post by pmward » Fri May 03, 2019 9:10 am

Ray Dalio released a paper on MMT the other day, and as usual it's very in depth, well thought out, and backed entirely by hard research/data. He looked at the various forms that MMT can be potentially be put into practice. He also surprisingly found a whole lot of good historical "MMT" policy examples for most of these, even including some here in the U.S., to analyze (and an interesting chart showing the value of gold increase in various countries in the 1930s). He absolutely knocked it out the park, imo. If you have any interest at all in the MMT debate (or at least need a reason to hold onto your gold while it's currently underperforming) it's worth a read:

https://www.economicprinciples.org/down ... MP3_MK.pdf
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Re: Dalio on MMT

Post by flyingpylon » Fri May 03, 2019 1:03 pm

Here's what Cullen Roche had to say about the Dalio piece:

https://twitter.com/cullenroche/status/ ... 4284549121

He's studied and written about MMT quite a bit in the past and has some big issues with it.

Just offering a counterpoint. I have not developed a position on MMT but I find the various monetary system theories somewhat interesting.
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Re: Dalio on MMT

Post by Xan » Fri May 03, 2019 1:23 pm

Just chiming in to refresh my understanding (and perhaps others) on definitions.

Monetary Realism (MR) - The attempt to understand how modern fiat money actually operates.

Modern Monetary Theory (MMT) - Monetary Realism plus a set of policy opinions, typically involving the government doing much, much more.

(Really these came about the other way around: MR is MMT minus the policy opinions.)

Is that right, people who know more than I do? From my perspective, MR is to be applauded, and it has a lot of great insight into how things work. I don't think that the MMT policy opinions necessarily follow, though.
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Re: Dalio on MMT

Post by pmward » Fri May 03, 2019 2:39 pm

Xan wrote:
Fri May 03, 2019 1:23 pm
Just chiming in to refresh my understanding (and perhaps others) on definitions.

Monetary Realism (MR) - The attempt to understand how modern fiat money actually operates.

Modern Monetary Theory (MMT) - Monetary Realism plus a set of policy opinions, typically involving the government doing much, much more.

(Really these came about the other way around: MR is MMT minus the policy opinions.)

Is that right, people who know more than I do? From my perspective, MR is to be applauded, and it has a lot of great insight into how things work. I don't think that the MMT policy opinions necessarily follow, though.
Well, MMT at it's core doesn't necessarily mean the government has to do any more. It just states that it can. The Dalio piece expands on a lot of practices that we have done in the U.S., even back when we were on a gold standard, that were MMT at it's core.

How Dalio broke it out, which I thought interesting, is in generations of monetary policy.

M1: adjusting interest rates
M2: QE to banks
M3: some form of working together of monetary policy providing QE to directly support fiscal policy.

Dalio's argument, which I am in agreement with, is that if we do get another severe downturn in the next couple of years the current monetary levers they have available will essentially just be pushing on a string. We are already close to the 0 bound on rates, and already at the point of severely diminishing returns on QE to the banking system. So some form of fiscal stimulus supported by monetized debt will likely be necessary to spur a recovery. Not to mention the political ramifications of continued QE to banks would be dire in the current political landscape (the wealth divide is big time news these days). So M3 (aka MMT) will likely become a necessity, not an option. And it might not be all too dissimilar to the WWII era, except hopefully no war. We did get a 30 year bull market that started at that time though, so who knows?

The conclusion that I've kind of come to is that MMT in itself is not bad, it's more about how it is used (or abused) that could be bad. MMT is mostly looked upon as a tool of the far left, but the reality is Trump is already our first true MMT president (using debt to provide tax cuts late in the economic cycle because we have "low inflation", calling for quantitative easing and lowering of interest rates by 1% because we have "low inflation", etc). I do find the topic fascinating though, and am trying to get a full understanding for my own investment portfolio because I think there will be some really good VP opportunities out of it.
Last edited by pmward on Fri May 03, 2019 2:53 pm, edited 1 time in total.
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Re: Dalio on MMT

Post by pmward » Fri May 03, 2019 2:49 pm

flyingpylon wrote:
Fri May 03, 2019 1:03 pm
Here's what Cullen Roche had to say about the Dalio piece:

https://twitter.com/cullenroche/status/ ... 4284549121

He's studied and written about MMT quite a bit in the past and has some big issues with it.

Just offering a counterpoint. I have not developed a position on MMT but I find the various monetary system theories somewhat interesting.
I don't think Cullen really understood what Dalio was doing, and based on his comments I'm not sure he even read the paper, it looks like he just skimmed the headline and then went on a Twitter tirade based on that alone.

Dalio has been writing all of his recent economic papers and books with politicians and economists as his target audience. He is trying to spur some public discourse on the subject, which would be beneficial to all regardless of what route we ultimately go. Dalio was not looking at what the far left agenda with MMT is (like I mentioned above, the right is also ninja using MMT for their own agendas these days). The piece is completely void of all politics. He was simply stating that MMT is likely inevitable because of the Fed being kind of painted in the corner at the moment, then looking at what could potentially be done with MMT, and looking back at periods in history when those tactics were used and what the result was. I think Cullen is letting his own bias get in the way there. It's a history lesson, not a political piece. If we do wind up going down this route, we need well known and respected people like Dalio thinking through the potential benefits and ramifications of MMT in a public setting. We need to be looking back at history for clues so we can have a real fruitful public discourse between the great economic minds out there and ultimately get a real fruitful end result (whatever that is) instead of just some quickly thrown together mess that blows up in all of our faces.
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Re: Dalio on MMT

Post by I Shrugged » Fri May 03, 2019 8:42 pm

Yeah, that's what we need. Economists running the country. Deciding who wins, who loses. Essentially setting the prices for everything. With all of the cronyism, special interests, front running, and perverse incentives that will go along with it. But, smart people will be running it, what could possibly go wrong?
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Re: Dalio on MMT

Post by pmward » Sat May 04, 2019 9:50 am

I Shrugged wrote:
Fri May 03, 2019 8:42 pm
Yeah, that's what we need. Economists running the country. Deciding who wins, who loses. Essentially setting the prices for everything. With all of the cronyism, special interests, front running, and perverse incentives that will go along with it. But, smart people will be running it, what could possibly go wrong?
They already are doing this...
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Re: Dalio on MMT

Post by boglerdude » Sun May 05, 2019 12:36 am

Try to reason with someone who wants a higher minimum wage and wants to stop "gentrification" and you'll start to wonder if democracy is so great. All I know for now is we need more transparency, like the checking accounts of public servants being visible to the public.

"MMT" isn't "modern", we've always printed. The movement should be called "we need a job guarantee"

If you print new money and give everyone 1k/month, lets say increase the money supply 20%, do all prices go up 20%? Consumer prices might go up more because the poor will spend it. So stocks might go up 10% and cars 30%. This weakens the relative power of the rich. On the other hand, bankrupting people (the goal of a capitalist) lowers the overall amount of stuff produced by the economy because the poor cant afford to move to new job centers or get online to study etc. Public transit loses money but its good overall.

Edit: The poor are already getting squeezed for all they have so maybe rents and assets would just go up 20%
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Re: Dalio on MMT

Post by Kriegsspiel » Sun May 05, 2019 7:49 am

pmward wrote:
Sat May 04, 2019 9:50 am
I Shrugged wrote:
Fri May 03, 2019 8:42 pm
Yeah, that's what we need. Economists running the country. Deciding who wins, who loses. Essentially setting the prices for everything. With all of the cronyism, special interests, front running, and perverse incentives that will go along with it. But, smart people will be running it, what could possibly go wrong?
They already are doing this...
It used to be called political economy for a reason.
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Re: Dalio on MMT

Post by Kriegsspiel » Sun May 05, 2019 8:33 am

boglerdude wrote:
Sun May 05, 2019 12:36 am
"MMT" isn't "modern", we've always printed. The movement should be called "we need a job guarantee"
"An engineer offered to haul some huge columns up to the Capitol at moderate expense by a simple mechanical contrivance, but Vespasian declined his services:"I must always ensure that the working classes earn enough money to buy themselves food." Nevertheless, he paid the engineer a very handsome fee"
- Suetonius, The Twelve Caesars

Vespasian ruled at just about the beginning of the long term devaluation of the denarius.
On the other hand, bankrupting people (the goal of a capitalist) lowers the overall amount of stuff produced by the economy because the poor cant afford to move to new job centers or get online to study etc. Public transit loses money but its good overall.
The goal of capitalists (business owners) is to make money by selling something. It doesn't make sense that they would want to lower the demand for stuff they're selling.

Bankruptcy is a possible consequence of borrowing money, so a better argument would be to say that bankrupting people is the goal of banks. But even there, it doesn't make sense because bankruptcy protects you from creditors.

Even if your starting premise was correct, the second part still doesn't make sense. If the goal is bankrupting people, why would capitalists be creating jobs in the first place? Logically, they would lend money to people without jobs, so that they can't pay it back. Studying online/in a library is free so I don't see it as relevant.
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Re: Dalio on MMT

Post by boglerdude » Sun May 05, 2019 8:50 pm

Was hyperbole, business owners charge as much as they can. Capping what they can charge (price controls) causes product shortages. Nixon capped gas prices to hide his inflation.

"I must always ensure that the working classes earn enough money to buy themselves food."
Yeah. Millions of people are unwilling or unable to retrain for tech jobs. Plus the mentally ill, orphans and eldery all require your tax dollars to survive.

I'm not for a job guarantee or UBI, but we could spend a lot more on "easy" projects like high speed rail and more social workers to help the homeless (who are mostly mentally ill).

As far as MMT, if everyone gets 1k/mo UBI do all prices just go up and nothing changes in the real economy?
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Re: Dalio on MMT

Post by Kriegsspiel » Sun May 05, 2019 9:01 pm

boglerdude wrote:
Sun May 05, 2019 8:50 pm
Was hyperbole
K
As far as MMT, if everyone gets 1k/mo UBI do all prices just go up and nothing changes in the real economy?
I'd think there has to be a centrally-planned aspect to it for it to work. Like, once people come online for UBI, the robot production quotas are increased. Something like in the 5th chapter of Manna.
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