The Trilemma of the World Economy and Modern Monetary Theory

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Other Title
  • 世界経済の三重苦と現代貨幣理論
  • セカイ ケイザイ ノ サンジュウク ト ゲンダイ カヘイ リロン

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Abstract

Since the financial crisis of 2008, the world economy has been locked in a trilemma of low economic growth, excessive debt, and income inequality. These three problems have reinforced each other due to central banks’ easy monetary policy which tries to address low growth. Instead of economies being stimulated by this easy monetary policy, it has caused a number of unpleasant side effects: a low borrowing interest rate has led to increases in debt; money created by quantitative easing has been channeled to asset markets; the resultant hikes in asset prices have exacerbated income inequality; and the poor have had to rely on debt financing in order to sustain their households. Thus, this easy monetary policy has given rise to unintended consequences of debt deflation and income inequality. In order to reduce debt, spending should be cut, but growth cannot be created when both public and private sectors cut spending. Political polarization and antagonism between the rich and the poor have unfolded in a form of populism which is responsible for business uncertainty to the detriment of corporate investment. It is under such circumstances that Modern Monetary Theory is proposed. It calls for a new and different set of policies: policies that put central bank money into the hands of public sector spenders. These policies would require closer co-ordination between fiscal and monetary authorities to ensure that fiscal expansion does not lead to increases in inflation and interest rates. The advent of Modern Monetary Theory may represent a regime change from private-sector-initiated economic liberalism, where wealth creation and its accumulation are promoted, to government-managed dirigisme, where wealth redistribution and social capital creation are prioritized.

Journal

  • 経済志林

    経済志林 87 (3･4), 43-68, 2020-03-20

    法政大学経済学部学会

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