Bill Mitchell-en Three recent interviews – transcripts and video
Today, I have translated two interviews I did while I was in Europe recently. The original interviews were in Spanish. The first interview was with Andrés Villena Oliver for CTXT and was published in the Spanish newspaper Público. It was conducted at Ecooo in Madrid on September 28, 2017. The second interview was with journalist Marta Luengo Garcés from the progressive newspaper El Salto Diaro. It was conducted at the Principe Pio Hotel in Madrid on September 29, 2017. You can get a feel for the concerns of the progressive journalists in Spain by the type of questions they asked me. I have also included the video of an interview I did yesterday (October 16, 2017) with Steve Grumbine of the Real Progressives. That should keep readers more than busy until tomorrow.
(i) Interview with Público – published in Spanish on October 11, 2017
This interview was recorded in Madrid (September 2017) with the Spanish newspaper – Público – which is a national left-wing publication. The journalist was Andrés Villena Oliver. It was published on October 11, 2017.
For the original Spanish version go to – En cuanto Bruselas fuerce de nuevo la austeridad, España volverá a la situación de 2010.
The title of the article introducing the Interview was quoting me: “Once Brussels reimposes austerity, Spain will return to the situation of 2010”.
The introduction to the Interview read:
Rowing against the current is exhausting, but sometimes it is inevitable. At a time when most of the elites and public opinion have surrendered to the idea that the permanence in the euro zone must be accepted with all its requirements, a group of intellectuals argues that monetary sovereignty is not only possible, but is necessary to guarantee collective well-being. Among these experts is the Australian professor Bill Mitchell, who has just published with the Italian journalist Thomas Fazi a new book ‘Reclaiming the State’, which calls for the recovery of state economic policies as a basis for democratizing a society that continues the involutive process driven by neoliberal globalization. Mitchell is one of the founders of Modern Monetary Theory.
The Q is the question from the journalist and is in bold and my response follows. The response may not be exactly what I said in English given I have translated it back from the Spanish translation of the English. So some noise in the dual translation process is possible.
I have just ensured the translation is as close to what I said – and the way I speak (idioms etc) – as possible
Q: The future of Spain remains bleak. How does the recent election results in Germany impact on Spain?
Spain has enjoyed growth in recent years because its public deficit has been allowed to remain above the limit established by the Stability and Growth Pact. The Troika turned a blind eye to this violation of the rules to avoid punishing the electoral chances of the Popular Party in the last elections because it knew that once reelected the PP would once again apply austerity. But the fact is that the higher than allowed public deficits are the only reason that Spain has grown lately.
But Brussels can no longer allow the Spanish government to skip the rules.
The result of the German elections represents another chapter in the world wide sequence, which consists of a huge rejection of traditional parties and an increase in political polarization, mainly to the right. The danger for Europe will come when, as is likely, Jens Weidmann replaces Mario Draghi as President of the European Central Bank (ECB). Draghi represents pragmatism; under his leadership, the ECB has acted primarily as a fiscal agent, keeping the Eurozone boat afloat. But Weidmann is far more ideological and could end Quantitative Easing (QE). In fact, if we analyze the major risk factors, we could conclude that this is undoubtedly the largest of them.
Q: The end of the QE for a country like Spain would be lethal, just remember the period 2010-2012 …
As soon as Brussels gets tough on Spain and forces the government to reimpose austerity, Spain will be history and will return to that downward spiral in which Greece is now locked.
All the countries that have survived have done so thanks to the QE policies of the ECB which have been financing the fiscal deficits through the back door. If Brussels becomes demanding again, Spain will return to the situation of 2010 – another cycle of crisis from a much more weakened position that it faced at that time, given that it has not yet recovered from the previous crisis.
Q: Authors like you advocate an exit of the euro. In Spain there is a lot of fear in this sense: the seventies and eighties are remembered, with very high rates of inflation and it is also argued that the Franco dictatorship plunged us into a huge backwardness. No one wants to go back to the fifties …
History and culture are extremely important, it’s true. Think of Greece, which was a military dictatorship and for which the past also generates much fear. But the inflation of the 1970s, which was global, had nothing to do with it, neither with the dictatorial past history of Spain, nor with an excess of fiscal deficits. It was driven by the unprecedented increase of OPEC oil prices; which was the first major global supply shock since the end of World War 2.
Look at all the currency-issuing countries that currently have significant deficits: do you see any of them having dramatic levels of inflation? Each country has an internalised sense of its past and people hope that any past trauma is not repeated. But the idea of restoring monetary sovereignty is not related to these past events.
Q: But giving politicians the ability to create money could be dangerous in economic terms …
This is a frequently expressed position: “You can not trust your politicians.” But you did trust in them to implement austerity policies! And you have already seen the results … I think that the quality of politicians is a reflection of the level of involvement of citizens in politics.
Citizens must force their politicians to comply with the law. And Spain can do it: it is a country with relatively high levels of education. It is nothing like the poor country it was in the fifties, sixties and seventies. Can we really imagine a military dictatorship right now in Spain?
Q: Could we say that there is a clear relationship between monetary sovereignty and the level of democratization of a country?
Absolutely. In fact, the problem of the neoliberal era has been depoliticization, a process whereby elected leaders transfer decision-making responsibilities to those who have not been democratically elected. This is the case for Central Banks, which are not accountable, as well as certain international organizations such as the IMF and the European Commission. They are separate from the political and electoral processes. The return to monetary sovereignty means that the elected politicians once again become responsible and accountable for their actions to the voters.
Q: You have affirmed that one of the main problems of the Left is that it is trapped in neoliberalism. What do you think of the growing advocacy within the Left in favor of a Universal Basic Income and the claim that the objective of full employment is obsolete?
A government that issues its own currency can always provide employment for those who need it, since it is able to buy all the resources that are for sale in its own currency, including all idle labour. So the idea that full employment is obsolete is one of those errant claims that the Left has fallen into to justify the lack of political will by governments to create sufficient work.
First, the true position of the Left should be to demand decent work for all who want to work. At present, I know of no societies where work is still not a crucial aspect – not only as a source of income but also for its social aspects, as a way we achieve self-esteem and a sense of self confidence. Society has not changed enough yet to consider it reasonable that a person who can work should be able to receive public support not to work when there are productive activities that such a person can perform. The Left should always fight for the achievement of good jobs for all, something that also serves to militate against the power of the capitalists.
There is a second point in which it is important to repeat in this regard. A currency-issuing government can always create employment for those who need it, since it is able to buy any resources that are for sale in its own currency. When you understand this basic principle of the monetary system, it follows immediately that it is the government that chooses the unemployment rate. Whatever the private sector does, the final responsibility for employment creation rests with the government. The government can always ensure full employment with a combination of conventional public sector employment supported by a Job Guarantee (an unconditional, fixed wage job offer to anyone who desires to work).
Given those insights, the advocacy of the Left for a Basic Income Guarantee amounts to surrendering to the neoliberal myth that the government should not use its spending capacities to provide jobs to the unemployed. The moment you claim full employment is obsolete, you are already advancing neoliberal ideas.
Moreover, by advocating that the state transfer a minimum amount to keep people alive rather than taking responsibility for providing work, you are constructing people as meagre consumption units and ignoring all the essential social and human aspects of work that I noted earlier.
Q: Then the private sector is rescued …
Yes. All you achieve is that people can continue to spend their frugal Basic Income – government just ends up saying to the unemployed – ‘here are a few euros, go away and shut up’. It is a vision that undermines human potential. There are numerous scientific research studies that show that when people are deprived of work, their social network begins to shrink because people lose contact with their former work colleagues, their acquaintances etc. It is clear that people who are systematically deprived of work experience guilt, not to mention the lack of income. The lack of income impacts on their motivation and opportunities – their social circle shrinks, they are invited to less social events and cannot afford to attend events. The isolation is intensified.
There is another point, moreover, that is more difficult to explain to people, but is no less important to understand. Advocates of a Basic Income Guarantee generally fail to understand the inflationary implications – once the government spends without requiring anything in return. Basic Income proposals do not include an inflation anchor – a mechanism to control the inflationary impact of government spending – and as a result there is a bias towards inflation inherent in the proposal.
In contradistinction with the Job Guarantee, which sees government spending not competing with the private market, the spending embodied in the Basic Income directly competes with private spending. Further when the economy overheats, the only inflation control mechanism under a Basic Income is increased unemployment, which is no improvement on the current system.
(ii) Interview with El Salto Diaro – published in Spanish on October 15, 2017
This interview appeared in Spanish – El salmón contracorriente Bill Mitchell: “Si fuera español exigiría que nos sacaran del euro” on October 15, 2017 but was conducted at the Principe Pio Hotel in Madrid on September 29, 2017.
The journalist was Marta Luengo Garcés.
The English translation of the title is: “A fish swimming against the stream – Bill Mitchell: “If I were Spanish I would demand we get out of the euro”.
The introduction to the article was:
William Mitchell is an Australian heterodox economist and a principal proponent of Modern Monetary Theory. He is a professor at the University of Newcastle and director of the Centre of Full Employment and Equity, a non-profit research organisation whose focus is on policies that can restore full employment and achieve an economy that delivers equitable outcomes for everybody.
In his 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – he presented “a critical history and an analysis from the perspective of modern monetary theory of the European economic crisis that began in 2009.”
He is currently traveling through several European cities to present his latest book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017).
Q: In 2015 you published Eurozone Dystopia, where you analyzed the historical and theoretical origins of the single currency. How did that process become a dystopia?
In the 1970s, Monetarism and the erroneous ideas of Milton Friedman came to Europe and found their way into the French Ministry of Finance. The Socialist Jaques Delors, who drove the process that led to the Eurozone, has become infested with Monetarism, which ultimately led to Mitterand’s austerity turn in 1983.
The 1989 Delors report which finally led to the implementation of EMU reflected this shift in ideology. Delors had previously established the complete liberalization of capital movements in 1987, following the neo-liberal mantra of the IMF. The capital controls that had been in place were among the major reasons for currency stability within Europe during this period.
The Delors Report was a real disaster because the ideas of previous reports such as Werner  and MacDougall  were abandoned. These previous reports had underscored the importance of the creation of a federal fiscal capacity linked to an elected parliament to give the policy capacity democratic legitimacy. Delors ignored those earlier studies.
Then, in 2003, the recessions in Germany and France caused them to be the first nations to violate the Stability and Growth Pact rules that they themselves had insisted be introduced as the pillar of the euro.
Then the supposed subsequent period of stability which preceded the GFC saw the ECB set interest rates to suit the recessed German economy but which fuelled real estate bubbles in Ireland and Spain. Further, Germany embarked on a severe internal wage deflation strategy to ensure its external competitiveness improved relative to its Eurozone partners.
It was only a matter of time before the dysfunctional structure and these early developments would manifest as a crisis.
Once the crisis emerged, the ECB assumed the role of fiscal authority by indirectly funding Member State deficits but at the same time participated in the imposition of oppressive austerity regimes that have severely punished countries such as Greece, Portugal and Spain. There was no democratic legitimacy in these policy impositions.
Given the system was not designed to withstand the stress that came with the GFC, the design flaws were revealed and the only reason the Eurozone has survived until today is because the ECB has failed to comply with its Treaty obligations.
Although the ECB has tried to assure everyone that it is only managing liquidity what they are in fact doing is financing deficits. It has thus assumed the role of, on the one hand, fiscal authority without democratic legitimacy and, on the other hand, part of the oppressive regime that has severely punished countries like Greece, Portugal and Spain.
The reason for not adopting the Werner Report in 1970 and creating a true federal system is the same one that explains the current crisis: the EU is composed of countries unwilling to fully cooperate together.
Q: Now it seems that the euro area is more or less quiet. In fact, in Spain economic indicators suggest some recovery, what do you think about that?
The EU has tolerated Spain presenting a deficit that violated 3% fiscal rules due to the recent national electoral period when the threat of a socialist government (or worse, with Podemos) arose.
As a result, Brussels conveniently ‘forgot’ the deficit rules and stopped demanding austerity. Therefore, the reason why Spain resumed growth is down to the Eurozone violating its own rules and as soon as they re-impose austerity and implement the mechanisms of the Stability and Growth Pact, the growth will disappear, as before.
The Spanish case does not tell us anything about the viability of the Eurozone, in fact, it tells us just the opposite, that the Eurozone is dysfunctional and that it only keeps going because it ignores its own rules.
None of the problems have been solved: the banking union is a farce, as is the Juncker plan of infrastructures.
The fundamental contradictions are still unresolved and when the next economic cycle comes through the system will collapse again.
The question is how long can one violate one’s rules without exhausting all the credibility of the project?
Q: In 2015 you proposed that the best thing would be an agreed dissolution of the euro. Do you still think that it is the best option?
Yes. The best thing would be a European convention to negotiate issues such as debt moratoria. A multilateral dissolution is better than a unilateral departure, all the more because the latter option would imply winners and losers, which would impact poorly on the weakest countries.
On the other hand, with a multilateral dissolution, a more civilized process would help protect the weakest countries. However, as this is very unlikely to happen, the second best option is the unilateral exit.
Q: Unilateral exit and return to the peseta?
Of course, if I were Spanish, I would be demanding from the Congress that we get out of the euro.
Q: You are in Spain presenting your new book in collaboration with Thomas Fazi, Reclaiming the State, in which you mount a case for citizens to reclaim national sovereignty. What about the idea that in a globalised world nation-states are no longer relevant?
In the book, Thomas and I propose the thesis that from the 1970s the Left had come to assume the erroneous thesis that globalisation had usurped the power of the nation states.
We could say that while the Right worked hard to convince the Left that the state was irrelevant, they knew all along that the State was still powerful, and, in fact, they had to co-opt the state and use it to advance their own interests.
In fact, all the key aspects of the neoliberal transition have come from the state and through the state: deregulation of the labour market, liberalization of capital markets, abolition of exchange controls, privatisation, free trade agreements, etc.
The neoliberal agenda works by privatising profits and socialising losses.
When things get difficult for capital, it is States that use their legislative and fiscal powers to pay the bill and force the losses onto the citizens (via austerity etc).
But if all these changes can be done to advance the interests of the rich, we can also use the state for an inverse process: by using the currency sovereignty to create full employment; withdraw from free trade agreements that contain investor dispute resolution mechanisms; nationalising essential services that have previously been privatised, and so on.
Ironically, the only politicians who do not seem to understand this are those on the Left.
Q: What measures would a left-wing government take? Could you tell us about your proposals?
For the countries that are in the euro I would propose they first of all abandon it – make the announcement on a Sunday night [Laughter].
But for all countries in general, the first thing to do is to reorient the purpose of the State. In the words of Jeremy Corbyn, this must be put to the service of ‘the many and not the few.’
The relevant question is not how policy makes those with wealth richer but how it makes the poor richer. The harmful effects of this era of neoliberalism have been felt in the form of mass unemployment, underemployment, increased precariousness of work, the attack on wages growth and working conditions.
But we must reconfigure the State to ensure the dignity of wor and income security. In this sense, I propose a guaranteed employment program offering an unconditional and socially inclusive minimum wage.
It is also necessary to reform the financial system to eliminate all financial products that do not directly provide benefits for productive activity.
Only about 2% of global financial transactions actually benefit the real economy, the rest are just casino bets that do nothing to advance the well-being of society. We have to force the banks to be banks rather than gaming rooms.
We must also contemplate the nationalisation of banking, which as a first step might require the creation of a strong public banking sector. Equally, pension funds would have to be nationalised. There should also be growth in the availability of high quality public housing with affordable prices and rents.
The public sector must once again have an active industrial policy. In particular, by further developing the renewable energy sector.
Also, essential services such as water or electricity have to be nationalized.
In our book there is a detailed explanation of all these and more proposals.
Q: A question that you will find controversial but that, in the context of the rise of the ultra-right, it is necessary to clarify: Does your appeal to national sovereignty have anything to do with nationalism? Also, isn’t there a contradiction for the Left between the defense of national sovereignty and internationalism?
Nation states are fundamental to internationalism: that is, a group of States group together for a greater good. Otherwise, what we have is “supranationalism”, which is what we have in Europe, where decisions are taken at a higher level, but without any democratic control from below.
There is a cold war mentality where “internationalism” is praised without question about what it means in practical terms. If we want an optimal monetary area, who decides which currency we are going to issue? Which central bank will oversee the system? How will a federal treasury function be established? If nobody decides, then we are facing a dysfunctional monetary area, which is precisely what we observe in Europe.
One of the reasons the Left has clung to internationalism is because it rightly and strongly rejects xenophobia, fascism and nationalism. We also reject those concepts or behaviours. Reclaiming the nation state has nothing to do with nationalism, xenophobia or fascism.
There is a legitimate popular longing for greater national sovereignty, to force the state to use its capacities to advance the well-being of us all rather than a few. But so far the forces that have been able to give voice to that anxiety and longing have been reactionary populists on the Right.
People long to regain control of their lives and enjoy stable employment and income security. The very things that neoliberalism has attacked through the takeover of the State. This anxiety has been reflected in the Brexit and Trump campaigns. It is time that progressive forces harnessed this anxiety and provided people with choices.
Q: You are one of the founders of Modern Monetary Theory (MMT), which seeks to explain the true functioning of the monetary system. What does it imply in practice?
From MMT we learn that a state that issues its own currency does not have any financial restrictions on its spending.
By issuing currency a government can buy any good or service that is for sale in that currency, including all idle workers.
The conclusion drawn from this insight is that once the private sector has taken its spending and saving decisions, any remaining unemployment is the responsibility of the State and reflects the reality that the State has declined for political reasons to eliminate the mass unemployment.
In other words, the unemployment rate is a choice of the government, not the market. A political choice. If everyone understood this, then the politicians would not be allowed to ignore their responsibility to maintain full employment. They would not be able to justify unemployment rates of 25 per cent as we saw in Greece during the crisis.
The currencies we use now have no intrinsic value and the government induces demand for those currencies by demanding they are used to relinquish tax obligations that they impose.
But we require the state to spend the currency into existence before we can pay our taxes. The state is the monopoly issuer of the currency.
Which means that taxation revenue do not finance public spending, since public spending must logically come before taxes.
We can not get hold of the currency to pay taxes unless the State spends it into existence. Further, currency-issuing governments do not need to borrow in order to spend. So the dynamics of spending and taxes is very different from what the mainstream macroeconomic theories would have us believe.
Q: What happens then with fiscal deficits?
From the point of view of national accounting, public deficits are exactly equal to the accumulation of net financial assets in the non-government sector in each period.
Conversely, public surpluses are exactly equal to the depletion of net financial assets in the non-government sector in each period.
In most countries, states have to run public deficits because the non-government sector overall run surpluses (net saving).
You can not say anything about what is the optimal level of the public deficit, sometimes a deficit of 10 per cent will be good and in other situations, a 2 per cent deficit will be bad.
Public deficits are the necessary mechanism to compensate for spending shortfalls (or excess savings) in the non-government sector. If the overall non-government saving does not return to the economy, then firms will reduce production and the economy will slide into recession.
That is the role of fiscal deficits – to fund the desire of the non-government sector to save overall and ensure that all productive resources are brought into use.
The only way to obtain continued fiscal surpluses is by reducing the wealth of the non-government sector. So a deliberate austerity policy will squeeze the non-government sector, and force it to accumulate more private debt to maintain spending patters.
That process is unsustainable.
Q: MMT advocates also propose a guaranteed employment plan as a means to achieve full employment. What role does the proposal for guaranteed employment play within MMT?
From the empirical point of view, one of the problems of Keynesianism was that of the Phillips curve. In the 1950s and 1960s, it was believed that there was an inverse relationship between unemployment and inflation and that in order to achieve a low rate of inflation it was necessary to tolerate a higher rate of unemployment or vice versa.
This relationship was highly contested and Milton Friedman embedded the notion that there was no trade-off at all and that governments that tried to reduce the unemployment rate below some fixed ‘natural’ rate would only generate accelerating inflation.
MMT breaks this theoretical impasse by showing that the State use a Job Guarantee framework to reduce unemployment to some irreducible minimum level without causing inflation was the guaranteed employment plan.
The Job Guarantee approach to full employment is also in sharp contradistinction to the usual Keynesian ‘generalised’ expansion approaches to fiscal stimulus.
Under the latter approach, if a state launches an ambitious spending program and buys the goods it needs at market prices, then government spending competes with private spending for the goods and services available in the economy, which runs the risk of generating inflation.
However, unemployment is a sign that the non-government sector has no desire to bid for the services of these workers. And, the government can always buy these services without therefore making competing bids against the non-government employers. This is the basis of the Job Guarantee.
Since there is no non-government bid for the unemployed labour, the State is not competing for these resources and is thus not generating inflationary pressures. The price at which the state buys the unemployed labor force thus becomes the minimum wage.
We are thus creating a buffer stock of employment without generating inflation, because the government is only using labour that has no bid.
This approach to inflation control is much more just and efficient than just increasing unemployment to lower inflation, which is the policy favored by orthodoxy.
Q: Why are you not a supporter of Basic Income Guarantees? Could not basic income and guaranteed employment be combined?
The problem I see with basic income is that amounts to a resignation or surrender to the neoliberal idea that the State can not achieve full employment.
It amounts to accepting the neoliberal worldview that there can be no full employment with quality jobs. I do not see why the Left would want to buy into that myth, which is part of an overall policy push that damages the prosperity of workers.
I also believe that people need to work as much as they need income. Work gives us a social identity, self-esteem, confidence in ourselves and brings us into contact with other people.
What the basic income proposal amounts to is to say to those that have been deliberately deprived of a job by poor policy: Look, here’s some money, take it and leave us alone.”
In other words, basic income conceives of humanity as consumption units lacking social ties.
A final criticism is that the basic income proposal does not include an inflation control mechanism. With a Job Guarantee, the state spending does not generate inflation.
Conversely, the state spending on the basic income scheme would compete directly at market prices and the only way the state could control inflation would be to increase unemployment. In other words, the inflation anchor within a basic income proposal becomes unemployment – which is exactly the pernicious system we have now under neoliberalism.
I grant you that the basic income policy and the Job Guarantee could be complementary but I generally prefer to concentrate on the latter.
In our societies, where the dominant culture values work and rejects the idea that people should receive handouts for nothing, the Job Guarantee proposal allows us to open a debate about what constitutes productive work. It allows us to redefine the range of works that are considered to be useful to society and beneficial to the environment. Basic income, on the other hand, does not extend any such horizon.
Q: Finally, could you suggest solutions to the serious problem of unemployment in Spain?
The first step is to recover monetary sovereignty by abandoning the euro. But, of course, it is only a first step. That alone witll not be sufficient.
There is also an ongoing struggle against neoliberalism.
The PP and the PSOE are both neoliberal in their outlook. Therefore, social movements must remain vigilant and escalate their resistance to these neoliberal ideas and policies.
Even within the Eurozone, it is clear that the 3 per cent deficit threshold allowed under the Stability and Growth Pact should be used to the fullest.
But that will not be enough to restore prosperity given the scale of the problems. Spain should never have entered the euro.
Of course, I understand that it is not easy to get out once the decision to enter was taken. I also understand that for the countries of southern Europe, which had been subjected to horrible dictatorships, the euro appeared as a symbol belonging to a democratic Europe and, therefore, a symbol of sophistication relative to the dark past.
But, on the other hand, I very much doubt that a return to the national currency would lead to a return to military dictatorships. There has been generational change and the ghosts of the past are fading.
(iii) Real Progressives Interview – October 16, 2017
I also did a wide-ranging interview with Steve Grumbine from Real Progressives yesterday. The video goes for just over an hour. (…)
Steve Grumbine with Dr. Bill Mitchell
Tonight, Join Steve as he brings author, professor and Modern Monetary Theory OG Dr Bill Mitchell on to discuss the new book “Reclaiming the State” and a Progressive Manifesto.