Ray Dalio, the world’s 58th richest person and a hedge fund manager, publicly stated on Tuesday the system is broken.
His primary reason for this claim appears to be that “money is free for those who are creditworthy.” Yet at the same time money “is essentially unavailable to those who don’t have money and creditworthiness.” He says:
“Because the ‘trickle-down’ process of having money at the top trickle down to workers and others by improving their earnings and creditworthiness is not working, the system of making capitalism work well for most people is broken.
This set of circumstances is unsustainable and certainly can no longer be pushed as it has been pushed since 2008. That is why I believe that the world is approaching a big paradigm shift.”
The billionaire does not provide a solution to this problem of money going to those already rich – who instead of spending it, invest it, and thus it doesn’t trickle down.
The argument implied however is a very old one and it’s that of supply side economics and demand side economics.
On the supply side the argument is that if you cut taxes, cut regulations, then businesses will be able to produce more, lowering prices, increasing productivity, and so making everyone richer.
On the demand side the argument is that economic growth comes from demand, especially if there is over production. In classical theory they say this demand should come from the state, but arguably there are many ways demand can be “produced.”
One such way is modernizing discriminatory laws, such as the Securities Act 1933, to dilute significantly investment prohibitions.
That can spur greater investment in grassroots innovations, and thus create demand which is currently artificially being constrained.
Another, more complex way, is to expand creditworthiness especially when it comes to entrepreneurs and when it comes to home purchases.
The affordability of a home, for example, can be determined not based on income which might not be a good measure in a zero hours economy and in a digital economy where such concepts as salary are changing.
Instead affordability can be determined based on how much is their rent, whether they have paid it, and whether the mortgage installments are more or less – usually less.
Dalio’s idea is a bit different. He backs what is called the Modern Monetary Theory (MMT) which is just a different name for demand side economics with both saying the government should create demand by investing in infrastructure and the like.
In MMT this is to be done by the government basically creating money out of nothing, then bring that into the economy by building roads and the like, and take this money out of the economy through taxes, fines, license fees and the like.
MMT proponents argue this is how things actually work, rather than should work, but in that case just what solution they are proposing is not clear since the current system is broken according to Dalio, hence it must follow MMT is broken.
The problem though is arguably not quite economic, but political. Economically you can tweak things here and there, but fundamentally, elections are easy to buy, and thus arguably, it’s a bit easy for the rich to rig the system.
Taking the Securities Act, for example, the rich VCs that benefit from it significantly, would lobby considerably to keep it in the law books.
They have plenty of money to “donate” to politicians, so in a straight debate on these investment prohibitions, they’d probably win when it comes to the actual vote.
We use that as just one example to illustrate a systemic problem. The rich, basically, are starting to act like a law making aristocracy in an increasingly even more hierarchical system that of course benefits them primarily, while necessarily they need to ensure it benefits others too or consent collapses.
Generally it does benefit most in the west, but an actual systemic solution might be a Citizens’ Assembly.
That’s the random selection of 500 citizens who sit in a house of Parliament for two years, with these being ordinary people.
It’s basically a jury, but for laws. They could then discuss all the issues without having to worry about re-election and without having to worry who will donate to their campaign because there wouldn’t be elections but a random selection.
That hasn’t been tried at full scale so we don’t know whether it would work, hence why it would start off as a consultative or advisory body, but with persuasive powers.
In this way there would be greater representation, or even actual representation which arguably currently lacks. There then all these matters can be discussed, including why all this money is not trickling down and what can be done about it.
The Archbishop of Canterbury has suggested he might call such assembly. The new President of the European Union, Ursula von der Leyen, has promised to call something like it. A two years long summit of EU citizens on the future of Europe. In Ireland, such assembly was perceived as being very successful in regards to deciding on abortion.
With such actual “commons,” unlike the current house of Commons filled mainly with relatively rich individuals, solutions may arise and may actually be implemented to address some of the problems.
Without it, we might just continue hearing about the problems and little about the solutions. Leaving only opt-out as a choice, to bitcoin and the new financial crypto ecosystem that is being built.