Assuming a political system is a representative democracy, and that group also produces a currency, what moral hazards are possible?

I'm thinking that policy can be compared to my physics 101 class where "energy can't be created or destroyed". Similarly in politics, if someone is saving money, someone else is paying the bill. (link to 'Story of Stuff' explainer)

Specifically, when approving new financial instruments for use (investment strategies, new asset classes) any governance that includes fiscal policy may have a moral hazard of "improving the GDP at the cost of democratic freedom or truth".

  • Can someone help me articulate this concept or conflict I'm sensing, and if it's a well known topic of study can you direct me to more information?
  • If you want to ask about ethics you should probably go to philosophy SE. – Braydon Oct 8 '17 at 14:35
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    What do you mean by "moral hazard"? How could 'approving new financial instruments for use' cause the "loss of democratic freedom or truth"? Its difficult to answer without more clarity on this point. – SMJoe Oct 8 '17 at 14:38
  • @SMJoe my thought is that if a governance system conflates a system of measuring value with a system of one person one vote democracy, then the democratic output isn't as "pure" anymore. In other words the addition of fiscal influence in a democratic governance system may change its priorities, and as a result, dilute the "voice of the people". I want to identify risks to democracy in this regard before I publish my independent research. – halfbit Oct 8 '17 at 15:26
  • @SMJoe I developed a "bitcoin for governance" and destroyed it once I realized the systematic harm it could cause. I want to slowly, carefully get the right eyes on my solution so that I don't inspire copycats to implement a similar solution recklessly – halfbit Oct 8 '17 at 15:31
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    I agree with @Braydon as your question basically deals with the moral underpinnings of a decision you will get much richer perspective on philosophy SE! :) – SMJoe Oct 8 '17 at 15:48

This isn't an exact duplicate, but I previously wrote about the advantages and disadvantages of an external currency.

The general "moral hazard" of managing one's own currency is that you can pay your short term bills and promote short term employment at the expense of long term inflation. That is to say that for a permanent increase in inflation, you can promote employment in the short term. But next month, you're stuck with the inflation and the employment fades. To get rid of the permanent inflation, you have to trade a temporary decrease in employment. The length of the temporary period depends on the credibility of the government in promising to stabilize the money supply.

Similarly, a government can print enough money to cover its bills in one month. But that still leaves it short of money in the next month. And of course, once a government does this, people start expecting it, which causes inflation in its own right.

Because there is no actual production, they can never catch up by expanding the money supply. Instead, they are stuck in hyperinflation (previously discussed here).

While involving several political questions, you may want to consider if you are more interested in the economics of currency matters.

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