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    Randall Wray: Positive Money delakoaren ebaluazioa

    An alternate title for this episode could be “Back to Basics.” It reminds us why Randall Wray’s MMT Primer continues to be a definitive resource for the Macro & Cheese community.

    This 2017 interview came about when the American Monetary Institute (AMI) published an article critiquing MMT. Randy Wray was mentioned and quoted throughout, so Steve invited him on to set the record straight — and maybe shed some light on AMI and its theory of “positive money.” If you don’t come away with a clear understanding of it, it’s because Randy himself can’t always get to the bottom of AMIs logic. It turns out they have some less than pristine methodology. It’s hard to assess the strength of their theory when you can’t pin down the theory. They don’t even produce balance sheets.

    AMI wants the Treasury to print greenbacks because they posit that the Federal Reserve is private and independent, with full control over the US dollar. Randy explains that we do, indeed, have a sovereign currency, and suggests that we read the Federal Reserve Act of 1913. The Fed is a creature of government, under the control of the Congress. Its very limited independence consists of the freedom to set overnight interest rate targets.

    It’s easier for Randy to debunk AMI’s critique of Modern Monetary Theory, and a large part of the interview takes us through the fundamentals of MMT — how money is created, the differing roles of the Treasury and the Fed, the causes of hyperinflation, sectoral balances, and why the US will always have a trade deficit. In our lifetimes, at least.

    We end with a long discussion of solutions to inequality. Since taxing the rich is politically unfeasible, Randy says a better way to reduce their wealth is to attack it at its source, where vast wealth is amassed. He wants to forbid corporations from buying back their stocks. Corporate CEOs and upper management receive outsized compensation in the form of stock options. Corporations spend more on stock buybacks than on investment in plants and equipment, which would create jobs. The buybacks raise the value of the shares, then the CEOs exercise their stock options for huge amounts of money. There’s no reason to allow it.

    This is an episode you’ll want to listen to right before trying to explain MMT to your uncle. Better yet, send him the link.

    L. Randall Wray is a Professor of Economics at Bard College and Senior Scholar at the Levy Economics Institute.


    Macro N Cheese – Episode 74
    Counterpoint: MMT’s Evaluation of AMI’s Positive Money with L. Randall Wray
    Randall Wray [intro/music] (00:03:)
    Congress has to put together a budget. They’ve got to agree on it. Our problem really has never been that Congress wants to spend too much. Our problem has always been, the Congress wants to spend too little. When you’re talking about excessive inequality and taxing the rich, why do you have to link that to student loan debt relief or anything? You just say you need to tax the rich because they’re too rich. What’s wrong with that?
    Geoff Ginter [intro/music] (00:40):
    Now let’s see if we could avoid the apocalypse all together. Here’s another episode of a Macro N Cheese with your host, Steve Grumbine.
    Steve Grumbine (01:30):
    All right. And this is Steve from Macro N Cheese. This week, we’re bringing you a great interview with L. Randall Wray from early 2017. The American Monetary Institute published AMI’s evaluation of Modern Monetary Theory critiquing MMT. The article contained a lot of references to Professor Wray. So I wanted to hear what he had to say about AMI and the Theory of Positive Money. Enjoy the episode folks. This is Steve with Real Progressives. I have a really super wonderful, awesome guest professor, author, economist, Randy Wray. Randy Wray, welcome to Real Progressives. How are you sir?
    Randall Wray (02:15):
    Good. Good to be on.
    Grumbine (02:17):
    So let’s talk a little bit about who you are and where you come from and what you do.
    Wray (02:23):
    Well, I am now Professor of Economics at Bard College, and I’ve been a senior scholar at the Levy Institute of Bard College for, I don’t remember, 20 years or more. I just retired from University of Missouri, Kansas City so I can reduce my commuting.
    Grumbine (02:42):
    Oh, wow. Okay. So you get to work with Stephanie or have worked with Stephanie for a long time. And Scott Fullwiler and Bill Black; and who are some of the others that we might know from UMKC?
    Wray (02:54):
    Well, you hit the main people who write on New Economic Perspectives and who have worked on Modern Money Theory. Mat Forstater also has done a lot of work on the job guarantee. And he’s been with us from the very beginning back when we were all at the Levy Institute and other people are sympathetic, but it’s not really their areas. They do development or econometrics and so on.
    Grumbine (03:20):
    Wray (03:20):
    A lot of current students and a lot of former students who are now teaching around the country, such as Pavlina Tcherneva, who I think you’ve had on who was one of our students quite a while ago.
    Grumbine (03:33):
    She is fantastic. She really broke down the job guarantee. A lot of people were listening, but you know, with different set of ears because they had walked into the idea of a job guarantee, thinking Calvinism, you know, make work, work fair and stuff like that. When she explained the public purpose, I think they’ve made the light bulbs go off for a lot of people, but I’d like to do cause I want to just let everyone know.
    Your article, What Are Taxes For, ironically, was the thing that pulled the log jam out for me. I got all the gold standard nonsense and everything else that teaching fractional reserve lending, everything that you could ever not be applicable to any more we were taught and it was grilled into us. Talk to us a little bit about what Modern Monetary Theory is and what Modern Money Theory is. Explain the theory. It’s a marketing name, is it not?
    Wray (04:29):
    Yeah, it’s not actually the name that we assigned to it. We were perfectly happy to call this Chartalism, State Money Theory, which we saw as being perfectly consistent with heterodox economics in general, post Keynesian economics, the sort of background that all of this came out of. But I think it may be was a commentator on Billy Blog, Bill Mitchell’s Blog, who called it Modern Money Theory.
    I had titled my first book on this topic, “Understanding Modern Money.” And so that idea modern money was already there. That actually came from John Maynard Keynes, who said that this state money approach was applicable to all money systems for the past 4,000 years, at least. So I took that as my title as sort of a joke to say, this only applies for the past 4,000 years. It could be true that we had a commodity money – what you were taught, the gold standard argument.
    Maybe that was true 4,000 years ago. We may not ever know the answer to that. There actually is no evidence for it whatsoever. And Keynes had said 4,000 years. We now know because we know a bit more about the ancient history. At least the past 6,000 years, it has been a state money everywhere, always all through time, all over the world. That is what money has always been.
    The exceptions are very rare, very insignificant until the Euro. The Euro is a big exception to this rule. And if you wanted, we could talk about what that exception is, but otherwise every state has had its own money. So we start from that recognition and then we say, well, what does it mean if you have your own money? What difference does it make? It makes a big difference.
    A sovereign government has its own money, is not like a household. It’s not like a firm. So whenever a politician tells you that if I ran my household budget the way Uncle Sam runs his, I would go bankrupt; and therefore, Uncle Sam can’t do this either. You know, it’s the second part of that statement is completely wrong. Yes, you would go bankrupt. If you ran your budget, the way uncle Sam does, which is to run deficits almost all the time since the founding of the nation.
    But Uncle Sam cannot go bankrupt. So that is the big difference. And once you understand that, then you understand that, of course, tax revenue is not important for giving Uncle Sam what he needs to spend. Cause he’s got it. Okay. Taxes must serve a different purpose. And in some ways, what we’re saying is not new. There have been people going back through time as far back as we can find written records who understood this.
    In a way, it makes sense that governments understood what they were doing when they created their own money. They understood that this is what gave them fiscal power. And so they understood you need some way to drive your own currency. You got to make it acceptable to people. It’s easy to just print it up. Today, it’s easy to keystroke money into existence on balance sheets, through electronic entries, but they’ve gotta be demanded.
    So you have to create a demand for them. And fundamentally that is what taxes are for is to create a demand for the government’s currency, which it then accepts in payment. And I know when people first hear this, it just sounds so bizarre but, in a way, this is a universal statement for all monies. That is debts that are denominated in a money of account.
    It’s also true for bank money. There is a reason why people will take bank money and it is because a lot of us, maybe most of us, owe the banks. And if you owe the bank, you want to get what you can use to retire your debt to the bank. And what banks accept is their own IOU’s, same way that government accepts its own IOU’s in taxes.
    Grumbine (08:51):
    So let’s talk about a gentleman named William George comes on and he talks AMI Positive Money, which we’re going to get to in a little while. We’ll put it up a bunch of different times. Private debt is the problem, which we all agree. Government debt is not. But what he’ll do is he’ll talk about we have to democratize the dollar. We got to get a full reserve bank or whatever.
    I really want to get to that in a minute. That is really the thrust of what I’d like to talk about because it’s really preventing, in my opinion, a Green New Deal ever from coming into fruition. So there’s this belief that we don’t already have sovereign currency, which is absurd. Can you talk about why the US dollar is not the Federal reserves’ private corporation blah, blah, blah. Can you please just spend a few moments and debunk that so we can move on to bigger and better things?
    Wray (09:43):
    Well, first, anyone who will look at the founding of the Fed, read the Federal Reserve Act that founds the Fed, they will understand. There’s no question about this whatsoever. The Fed is a creature of Congress. It is an agency of the government. Congress can dictate to the Fed what the Fed should do. And Congress occasionally does take control over the Fed.
    It did it in both of our world Wars and it’s done it as recently as just a couple of decades ago when it told the Fed you will buy government bonds. That Congress can dictate anything they want to the Fed, it is part of our government. What the Fed really does is it acts as the Treasury’s bank under the control of the Congress. In the old days, when the Treasury wanted to spend, they actually did issue Treasury currency.
    They no longer do that. They haven’t done it for a long time. All the payments from the Treasury are made by the central bank, the Fed. All payments to the Treasury, including the tax payments we were talking about are made through the Fed. The Fed is the Treasury’s bank, and sometimes Congress tells the Fed you will be subjugated directly under the Treasury.
    And in some countries that is by law, always the Treasury dominates over the central bank. We pretend, I think because it’s sort of convenient for the Fed, as if the Fed were independent. It’s independent in only a very narrow sense of the term, which is that we have decided to allow the Fed to set the overnight interest rate target. We have given it some guidelines, but they’re very broad.
    It says the Fed needs to pursue high employment and relatively stable prices. Okay? So that is a dictate that came from Congress and that gives the Fed its marching orders. The Treasury could have been much more specific than that. And the Treasury could say, you know, we really don’t like the way you’re setting the interest rate and the Congress could take that over and say, we want you to set the overnight interest rate at 25 basis points and leave it there forever.
    Personally, that’s the policy I prefer. So far, Congress doesn’t see it my way and maybe they never will, but they could. Okay? So what we have done is we’ve allowed the Fed to set us overnight interest rate target. It doesn’t make a big difference. Normally it doesn’t. When Paul Volcker raised the overnight interest rate above 20%, that made a difference. Okay? And I think we sort of learned a lesson from that.
    The Fed has not done anything that crazy insane since then. I don’t think they ever will again; but that’s the extent of its independence. There is no possibility that the Fed is going to bounce Treasury checks – not going to happen. The Congress puts forth a budget. The president signs it. That authorizes spending. The Treasury will dictate to the Fed the payments that will be made according to the budgetary authority and it’s done.
    There’s no chance that the Fed is going to say, Nope, sorry. We’re not going to make those payments for you. It’s never happened. It never will happen. So there is no independence with regard to the Fed deciding not to allow the Treasury to spend. It will not happen.
    Grumbine (13:19):
    That’s a great point. I want to ask you because I think you made the point already, but I want to say it in terms that I frequently hear from people who are just trying to get ramped up on this. If taxes don’t fund spending, what does? And you just said it – Congress. Congress funds spending. Congress writes a bill into existence. Can you elaborate on that? I think it’s pretty clear, but I want to make sure we knock that one out of the park.
    Wray (13:45):
    Well, Congress authorizes the spending and then that tells each of the agencies of government what they’re allowed to spend. And with that authorization, they’re authorized to do the spending. The Treasury will, for example, on the first of each month, tell the Fed to credit the bank accounts of all the social security recipients. Okay. It gets done.
    Now the Fed and Treasury have worked out operating procedures to allow those payments to be made. And those operating procedures have changed greatly since 1913 when the Fed was created as this country’s central bank to make those payments. The operating procedures can and do change. For the most part, what determines sort of the evolution of these operating procedures is the need to make tremendous volumes of payments to and from the Treasury.
    And also lots of other payments that require clearing between banks and between banks and the Fed and between banks and the Treasury. And so these operating procedures that we’ve been working on since Stephanie Bell Kelton first started working on this in 1999 to find out exactly what those procedures are; and why it is that they have created the procedures they use that make sure that the Treasury’s checks never bounce.
    And that you as a taxpayer never have your tax payments bounce as long as you have money in your account, right? So they worked out the procedures to make sure that all the payments clear, and that’s what it’s all about. It’s all . . . you say it’s technical operations. All countries do this. The US is unusual in that we do have one little possible glitch in all of this, which is that when we hit a Congress congressionally imposed debt limit, the Treasury is no longer allowed to order those payments to be made. Okay?
    So that is our debt limit. And this has existed since 1913. So this little glitch, whenever we come close to that debt limit, Congress has always raised the debt limit so that we don’t actually get this binding constraint on the Treasury spending. In recent years, the Republicans, when we get close to this debt limit have threatened to force the Treasury to default on some of its promises to make payments.
    In the end, they’ve always given in. They’ve raised the debt limit. So we do have this strange thing, which is the debt limit that could possibly get in the way of making payments as they come due.
    Grumbine (16:51):
    Can you take a second to describe what debt is in this construct?
    Wray (16:55):
    Well, in general, debt means that I have issued in common terminology, an IOU or a liability. It’s a promise to pay, and you can issue debts denominated in dollars. Banks issue debts denominated in dollars. The other side of the coin is that someone who holds your debt has an asset. Your IOU is their financial asset.
    At the aggregate level, obviously for every debt there must be an asset because someone is holding that debt as a credit to their own account. So the financial assets equal financial liabilities for the economy as a whole. People get all hung up on special kinds of debt, such as demand deposits, which are the liabilities of banks and currency. In the case of coins, that’s the debt of the Treasury and paper notes, which are the debt of the Fed.
    They think of these are extremely special and they like to call those things money, but they don’t want to call your IOU or General Motors’ IOU a money. But the characteristic of all the debts is they are denominated in a money of account in case the United States in the US dollars. So my professor Hyman Minsky used to always say, look, anybody can create money. That is, you can write, I owe you $5. Anyone can do this.
    The problem is to get that debt accepted. And the thing about banks and the thing about the government is their debts are very widely accepted while your debts are not widely accepted, maybe your wife will take it and possibly your banker will take it. Probably your neighbors are not going to take. Okay. So acceptability of the debts is very important and that is really what makes the government special and the bank special – they’re widely accepted.
    Grumbine (18:57):
    So the next big thing, and I know you’ve answered this probably a million times, but if we keep printing money and printing is the wrong word for it, but if we keep creating money, it’s going to create hyperinflation – Zimbabwe, Argentina, Weimar Republic. Let’s just nail that one down really quickly.
    Wray (19:13):
    Well, you know, of course, at the extreme you could. And so what is important is to make sure that the creation of money is linked to the quantity of resources that are available. So, generally, what people are most worried about is the government creating too much money, ok?
    We can go through the problems that might exist if bankers create too much money, but usually this Weimar hyperinflation and all this is usually associated with the government printing too much money. But think about the way that it works in the United States. Congress has to put together a budget. They’ve got to agree on it.
    Our problem really has never been that Congress wants to spend too much. Our problem has always been the Congress wants to spend too little. We don’t face this imaginary problem. We are constrained by the budgeting process in the United States. Once the budget is approved, that is what is authorized for the administration to spend.
    They can’t just simply spend whatever they want. They can’t go from a budget of 2 trillion to spend 2000 trillion. They can’t do it. They don’t have the budgetary authority. So this cannot happen. If you look at the real world hyperinflations, they actually never got started that way. It was never caused simply by the government spending too much. There always was some problem on the production side, where for some reason, the production was wiped out.
    In the case of the Weimar Republic, the problem was the war reparations. They had to export in order to earn gold in order to make the reparations payments. And that left far too little production for domestic consumption. You know, they literally were on the verge of starvation. So the problem there was they were exporting their output in order to earn gold.
    It was not a simple matter of deciding to print too much money that wasn’t really fundamentally the source of the problem. Zimbabwe, Bill Mitchell and others have written about this. It was not a simple case of the government just deciding to print too much money.
    Hyperinflations are extremely rare and they are always caused by very unique circumstances that the United States is not very likely to face. I mean, not in our lifetimes anyway.
    Grumbine (21:49):
    This is a wonderful thing because I’m going to take this and I’m going to use this over and over again as my like “go to for the win.” So what I want to do now is talk a little bit about sectoral balances and being able to kind of understand an inflation-based economy and inflation target versus a budgetary constraint, and kind of roll that into the whole hoax of a balanced budget amendment. If we can talk about that for just a minute, I think that would be a wonderful thing as well.
    Wray (22:23):
    Okay, sure. We face a resource constraint, although we are nowhere near approaching it and that’s the typical situation in the United States. I would say the last time we really faced a resource constraint in the United States was during World War II. We did face a resource constraint; and so we dealt with that and I’m sure most of your listeners know that we rationed the scarce resources.
    We used patriotic savings to get consumers to cut back on consumption and buy war bonds instead. It wasn’t that the government needed that money. It was that they wanted you to avoid spending so that you wouldn’t be competing with the war effort. And we had wage and price controls; so that the government knew that we were going to face real resource constraints. And they dealt with that by constraining private spending.
    The normal situation since World War II is that we’re nowhere near meeting our overall resource constraints. Now, yes, we might come up against some bottlenecks. Maybe we have a shortage of engineers or they moonshot, but we don’t face a general shortage across the array of resources. So that is not really our problem. We don’t have a financial constraint on government, no sovereign government that issues its own currency so long as it doesn’t try to peg it to gold or a foreign currency faces any financial constraints.
    Today, it’s all keystrokes. The spending is keystrokes. And you know, I always joke that as long as you have one person in the Treasury with at least one finger, you’ll be able to keystroke all the money you need to finance government spending. This can’t possibly be a problem. You could get some inflationary pressures even before you hit full employment of all resources because of the bottlenecks problem.
    So if the government is trying to hire the highest skilled workers in the economy for a war effort or something else, yeah, you can get a resource constraint in skilled workers. Their wages are bid up. That’s passed through in the production of the highest tech output and so on. You can get some inflation before full employment, and that’s a consideration.
    The best way to deal with that is to attack it on the supply side. That is produce more engineers and try to increase your capacity there, but you’re not going to have any danger of high inflation because you reached full employment in the US and you’re not going to ever run out of money.
    Grumbine (25:04):
    So if we had like Medicare For All, we might run into a constraint of having not enough doctors, hypothetically, which could in fact raise the rates for the government, which doesn’t matter because they print the money. I mean, it’s kind of like a bit of a circular thing that considering it doesn’t actually come from our paychecks, so to speak.
    Wray (25:22):
    There’s two ways you deal with that. I know people are going to react against this, but one way is you do use rationing. You have to make some decisions as a society, ok? How many resources will you devote to the last month of life? We already ration it but we let the insurance companies do all the rationing. They do it on a for-profit basis.
    What is the most profitable way to ration healthcare? Well, you ration to people who can’t afford it and you provide the care to the people who can. Which I don’t think is socially the best way to make these kinds of decisions. And the other is you attack it on the supply side.
    You can increase the supply of doctors. Provide lower cost medical school education to try to produce more doctors so we can increase the supply of healthcare and that’s how we will solve that problem. So, yes, we can’t run out of money, but we can run out of doctors.
    Grumbine (26:19):
    Okay. Very good. Did you want to add to that?
    Wray (26:24):
    Well, because you mentioned the balanced budget and the sectoral balance. If we ever did enact a balanced budget amendment and we’re able to actually hit this. Now, that’s questionable whether we can hit it. But let’s say that we could hit it. The United States at any reasonable growth rate is going to have a trade deficit. This is just the reality of the world right now today.
    We can go into why that’s true, but when our economy is doing well, our trade deficit will hit 6 to 8% of GDP. When we’re doing poorly, it falls to 3 to 4% of GDP. If the government has a balanced budget and we have something slightly broader than a trade deficit, it’s called current account deficit. A balanced government budget and a current account deficit of 5%, by definition, by accounting identity, the private sector taken as a whole is going to be running a deficit of 5% of GDP equal to that current account deficit.
    Private sector deficits are very rare and extremely dangerous. We had a private sector deficit essentially from 1996 until 2006. And that was one of the fundamental causes of the global financial crisis. We crashed when the private sector no longer could service their debt and people started defaulting on excessive debt. We don’t even need the defaults. All we need is for people to realize, hey, I’m too far in debt. I’m going to stop borrowing. I’m going to start repaying my debt.
    The economy will crash as soon as that happens, if you have a balanced budget and a current account deficit. So, the problem, this is what we learned from Wynne Godley’s sectoral balances, is that at the aggregate level, balances have to balance. For every deficit, there has to be a surplus, ok? For every surplus, there has to be a deficit.
    So, if the government is going to run a balanced budget but we have a deficit with the rest of the world, the rest of the world has a surplus against us. Then our private sector will be in deficit going further and further into debt and that is extremely dangerous for the economy because it creates financial problems, financial instability as Minsky said.
    So, that is why you have to understand the sectoral balances and what you’re implying by saying the government will always balance its budget. Essentially, you’re saying that means the private sector can never balance its budget. It will always have a deficit in the case of the United States.
    Intermission (29:17):
    You are listening to Macro N Cheese. A podcast brought to you by Real Progressives, a nonprofit organization dedicated to teaching the masses about MMT or Modern Monetary Theory. Please help our efforts and become a monthly donor at PayPal or Patreon, like and follow our pages on Facebook and YouTube and follow us on Periscope, Twitter and Instagram.
    Grumbine (30:06):
    So, Friedman in the 70s talked about, I’m going to butcher this. You’ll be able to hopefully take me out of my hole I dig. He, basically, said in the low points you people out there, you go ahead and borrow. In the high point you pay it off. We’re going to use monetary policy to keep inflation down, and we’re going to just do away with basically fiscal policy, which gave us things like NASA and a million other things throughout time.
    What can we do to eradicate the taint of Milton Friedman and the neoliberal scourge that has caused us to continually celebrate Federal budget surpluses at the deficit of humanity. But what can we do as a people to demand of our government that they treat us and respond to our needs.
    Wray (30:53):
    Well, it’s very hard. Let me just say that virtually all of Friedman has been thoroughly discredited. Virtually everything that he wrote from 1960 on and all the work he got a Nobel Prize for, has been thoroughly discredited. This is not just my opinion. This is the widespread recognition in academic economics and I hope among policy makers.
    It’s also becoming more and more recognized that it was just wrong. It was wrong. The idea the central bank can control the money supply. Friedman’s proposal for the central bank was all based on the assumption central banks can control the money supply. Nobody who understands central banks and banks makes that claim anymore.
    Volker tried to do it. He came in in 1979. He said, we’re going to do exactly what Friedman says. We are going to reduce the rate of growth in money supply and that will bring inflation under control. They adopted monetary targets. They could not hit them. The rate of growth money supply actually exploded while he was trying to hit the target. Eventually, they gave up.
    By the end of the 80s, they even stopped announcing monetary targets. They said for whatever reason, we can’t hit the targets. The Bank of England just wrote a very nice report that came out within the past two years, I don’t remember the exact date, where they said we all now understand this. Central banks do not, cannot control the money supply growth rate. All we do is control the overnight interest rate. It’s all we can do. So, that idea has completely been abandoned by everyone.
    The balanced budget idea was relatively popular until the global financial crisis hit and governments all over the world abandoned that idea. The IMF has abandoned it. The World Bank has abandoned it. No serious people anymore believe that this should be a goal of government. They all agreed that a deficit is necessary when the private sector is in recession. Now, Stephanie Kelton calls this the depths of dove argument. It’s the Paul Krugman’s view of this.
    This is wrong because it doesn’t take account of the sectoral balances. So, it’s simply not true that you can run a surplus, when the economy is doing well, because that depends on you having a current account that is at least in balance, if not in surplus. So, that is the problem with that, it doesn’t hold together when you understand hey, there’s the rest of the world out there.
    The rest of the world wants US dollars. They operate their economies to make sure they have trade surpluses against us because they want the dollars because the dollar is the International Reserve Currency. This is not a choice that is up to the United States. I know Trump has come in and he thinks that he’s going to enact tariffs and “Buy American” campaigns and all this, and we’re going to get a balanced trade. We are not. It’s not within our control.
    What the rest of the world will do is slow down their own economies and stop buying from us so that they can export to get a positive trade balance against the US because they have to have the dollars. Why? Because they are in debt in dollars because in the global economy, many countries around the world issue debts in dollars.
    Maybe not the government, but at least the private sector is indebted in dollars. They need the dollars and the way they get them is by earning them by selling to the United States. This is not within Trump’s power or any US President’s power to suddenly balance our trade account. It won’t happen.
    Grumbine (34:51):
    So let’s go to the next thing, and this is something that’s near and dear to this election cycle. I know that you wrote some interesting articles on Bernie Sanders and the New Deal era that he was trying to kind of bring about a modern New Deal. And then you’ve got Jill Stein, who had her Green New Deal. And one of the tenants of her Green New Deal was student debt forgiveness basically.
    And she kind of stepped into it the wrong direction. She kind of spoke about quantitative easing for the 99%. Tell a great marketing material. Not really a fact-based approach. Can you talk to us a little bit about that and then I want to step into positive money.
    Wray (35:31):
    Yeah, a lot of people have this idea that quantitative easing was about bailing out the banks and so she said we bailed out the banks with quantitative easing. So, we need a peoples’ QE. QE for the people which is let’s bail the people out, including students with a student loan debt relief. The analogy is just completely wrong. QE was not about bailing out the banks.
    QE was, I think, a very misguided policy that resulted from the Fed under Ben Bernanke not understanding what they do. What they wanted to do was to lower long-term interest rates thinking they could reboot another mortgage bubble which, in itself, is a stupid idea. They thought they could lower long term interest rates with the Fed pumping bank reserves into the system, buying government bonds from the banks, and then eventually they moved on to buying mortgage backed securities.
    Well, it didn’t work. All it did was reduce bank earnings a little bit. They used to earn say 3, 4, 5% on government bonds. Now, they’re earning 25 basis points, which is just .25 of 1% holding reserves. It just reduced their profitability. It didn’t stimulate the economy at all. It didn’t bail them out. If anything, it made them less profitable. So QE was not a bank bailout. We had already bailed out the banks.
    We didn’t bail them out with QE. We bailed them out with an alphabet soup of special facilities that occurred before QE, ok? So, we did bail out the banks. That was right but it wasn’t QE. So, it was the wrong analogy and I think the idea that we need to provide student debt relief, we need to provide mortgage relief.
    We still have a storm of foreclosures. People losing their homes, which has disastrous effects on those families but also on the communities. When you have foreclosed homes that are sitting there vacant being vandalized and so on, it’s just a tremendous mess. We need the relief but it’s not difficult to do the relief. You don’t do it through the Fed. You do it through the Treasury. This is an appropriate role for fiscal policy to play, which is to in some way or other, provide the debt relief.
    I did talk to Jill Stein and I think I got her agreement, which was that we run it through the Treasury. It’s on the budget. We allocate a certain number of hundreds of billions of dollars a year to provide the relief. What we can do if you want to is have the Treasury buy the student loans. And then just write them off. Say you are forgiven. Jill Stein preferred to forgive all the student loans.
    My preference was to do it on the basis of the paying capacity of the students who are in debt, for the former students who were in debt. To me that makes more sense than just forgiving all of it and then you need a policy going forward. How will we provide the funds for education going forward. The way that we did in the past is not sustainable. You can’t have people graduating from college with 50 to $100,000 in debt. It just makes no sense to run your education system that way.
    Grumbine (38:54):
    Could the Treasury have done this without Congress?
    Wray (38:59):
    No, it needs to be budgeted. So the way that I would do it is to have it budgeted. Yes. But look saying that what we will do is tell the Fed to do it. This is not going to work. This has less political feasibility than running it through Congress. So I understand what you’re getting at. We’ve got a Congress that is going to be very difficult to run this through and even worse now.
    That makes it very difficult but it’s no easier to try to run it through the Fed because you are dealing with a Fed that is absolutely opposed to doing anything like this; and with a Congress that’s going to have to tell the Fed to do it, and Congress believes that the Fed is independent. So there’s no more chance I think of doing it sort of trying to get around by running it through the Fed. You’re not going to get around Congress in either case.
    Ben Bernanke or Janet Yellen, they’re not going to do this. They going to say no. I mean, Congress told them during the bank bailout before QE, we want to know which banks you loan to and how much did you lend to them? And you know what Ben Bernanke said? Take a hike. I’m not gonna tell you. It took the lawsuit by Bloomberg to force Bernanke to release that data. And then we found out he made 29 trillion dollars in loans. Most of that to 14 banks plus 4 in central Maine.
    It took a lawsuit and a Freedom of Information Act lawsuit in order to get that data. The Fed is going to tell Congress to take a hike. You’re gonna have to alter, amend the Federal Reserve Act. It’s going to be very difficult to have the Fed do something that it really I don’t think could do right now under the Federal Reserve Act.
    Grumbine (40:44):
    So, let’s go to the next thing and that is, can you breakdown the idea that the Green Party has adopted this AMI Positive Money bourgeois. And you just have done a bunch of research here recently regarding Positive Money. Can you break this down for us?
    Wray (41:08):
    Yeah. Let me say that I’m trying to finish with a co-author, an extended study of what Positive Money is. And it’s actually very difficult to pin it down because the people who are promoting Positive Money for the most part are not out of academic economics. I’m not saying that you have to be an academic economist to have a good idea. I’m not saying that at all.
    I’m just saying that it’s very hard to figure out, you know, what theory is behind what they’re stating and then also to try to fit their statements into accounting. Hey, we’re talking about one kind of accounting, sectoral balance accounting, to make sure that what they’re saying is actually coherent. There’s another kind of accounting which is just the normal balance sheets of banks, the central bank, the Treasury, trying to run all of this through balance sheets to see is it coherent.
    Does it make any sense and the problem is they haven’t done it, and I’m not sure that they are capable of doing it. So, you have to try to reconstruct what must be a coherent way of presenting what their presenting in a non-coherent way. And I say a lot of it is not coherent. The balance sheets don’t balance, ok? So, they’re saying a lot of nonsensical things that just aren’t possible. You can’t do this. That said, and I think you mentioned this, we agree that the banks are completely run away.
    There’s just so much excess, so much fraudulent behavior, too big to fail. They engaged in risky and fraudulent practices before the crisis. The Fed and Treasury bailed them out, patted them on their little behinds say go back to doing what you been doing ’cause you been doing such a great job. This has to be stopped. So they’re absolutely right about that. We want to constrain the banks too. They think that they can constrain them by making them narrow banks.
    Some of the proponents of Positive Money, what’s called narrow banking or full reserve banking or 100% money banking, they want to prohibit the banks from just creating money out of thin air. Now, remember what I said before. Hyman Minsky said anyone can create money. All you have to do is write “I owe you $5.” How are you going to prevent that? You can’t prevent people or institutions from creating money.
    So, what they’re going to do is take a part of the financial system, say the commercial banks, and tell them that they can’t make loans. OK, well, you could do that. Is that going to constrain the financial system? No, it’s not because most of our problems were in the shadow banks anyway. They were not in the commercial banks. Now, the commercial banks are tied to the shadow banks. That is true.
    And you could take some of the commercial banks, separate them so you can’t do any business whatsoever with shadow banks. OK, fine, you make them safer but you still have the shadow banking system. They will crash us again. They are bigger than they were in 2007. They are just as interlinked as they were and they’re engaged in, for the most part, the same kind of crazy activities.
    Outside of the mortgage backed securities, everything else has returned and things like auto related debt is actually much worse than it was in 2007. Student loan debt, much worse than it was in 2007. So, we’ve got all the makings of another crash and just taking part of the banking system, making them really safe is not going to protect that at all.
    The other thing that Positive Money shares with what in US called greenbackers, they say that, right now, the government has to borrow from the private banks and pay them interest. And they think this in some ways is immoral that the government is paying interest to private bankers when it could just print money, ok. And so, what they want to do is have the government just print the money to make the payment, ok. Well, do they literally mean that we’re going to move to it completely cash-based economy?
    When the government wants to order a $4 billion bomber, it’s going to deliver wheelbarrows of cash to Boeing or something? That would be pretty crazy. I hope that’s not what they mean. It’s hard to tell because they never get to the balance sheets. Or do they mean it’s going to be an electronic money? Well, if it’s electronic money, that’s the way we already do it.
    The bond sales to the banks are not a borrowing operation. They have to do with monetary policy. We didn’t get into that but that’s all about hitting your interest rate target. It has nothing to do with the government needs bank money to make payments because all government payments are made by the government’s bank, which is called the Fed.
    It has nothing to do with the private banks except that you and I have accounts at the private banks. And so when the government wants to pay us our Social Security, the Fed is going to have to make the payment to our private bank for the Treasury. So, our private banks are involved that way. It’s not that the government needs our bank’s money, it’s that it has to make payments to us in bank money so it runs through the Fed to our private banks.
    So, they completely misunderstand how the government spends and the reality is it already does what they want. Except without delivering the wheelbarrows. It does it all electronic.
    Grumbine (46:51):
    So, what I’ve been saying to people was that taxing the rich right now is almost irrelevant in the sense that we need to solve the pain now. We need to help the people now. The act of taxing and spending are separate components. So, the idea right now is stop worrying about fighting the tax war. Let’s go ahead and spend on the 99%. Let’s get ourselves covered with Medicare For All. This is my take. I’m just throwing it out there.
    Let’s go ahead and solve the student debt crisis. Let’s go ahead and get green energy ’cause, for goodness sakes, the scientists are telling us that if we don’t fix climate change, like, stat, we’re not going to have the ability to inhabit this planet to begin with. So, if there’s all these things that we could do now, why in the world fight about taxes when you know, reflexively, the Republicans are going to say no new taxes, the Norquist pledge, you name it.
    So, why in the world would somebody, if they’re serious about saving our lives from the pending doom of climate change, why in the world would they engage in a two or three step process? Why not just spend right now? I believe Republicans love their kids too. The issue is they don’t want to pay for so and so’s Obama phone or this or that or the other so they reflexively revolt against taxation and since taxes don’t fund spending, why are we sitting there fighting about that? First, let’s solve the pain now. Is that crazy? Is that out of line or is that sound?
    Wray (48:23):
    I always argue, especially with my liberal friends, I say, look, linking the two together just ensures you will never get the programs you want. You’re never going to get the child care, the free college education that both Bernie and Jill were advocating, and even Hillary in the end sort of came in on that. You’re never gonna get that if you link it to a tax increase. So, I agree with that.
    I think that most people link them because they don’t want them. It’s an easy thing. Oh yes, we should have free public college education like Hillary, but let’s link it to a tax. I think it’s because they don’t want it. So, it’s a way to kill a good proposal. So I agree with that. It also burns it in another way because you’re focusing on the wrong thing about taxes, ok?
    You don’t need the tax pay for it anyway, and so you’re looking at the taxes the wrong way. So, what we need is taxes that serve a function. Ok. So, the most important function is you need to drive a demand for the nation’s currency, ok. Well, we’ve got that. We’ve got plenty of taxes. You don’t see people refusing to accept US dollars in the United States. Ok? So, we’ve got demand for the currency.
    And then you do want to consider issues of fairness. So, I think generally want progressive taxes. Ability to pay should be related to the taxes you oppose. And then finally, when you’re talking about excessive inequality and taxing the rich, why do you have to link that to student loan debt relief or anything? You just say we need to tax rich because they’re too rich. What’s wrong with that?
    Grumbine (50:09):
    You wrote an article. It goes back to taxes for redistribution is not the way to solve income inequality but, basically, since taxes don’t fund spending, they’re not helping the poor. It’s not funding anything, so, the idea of helping income inequality is really lifting the bottom to a Federal Job Guarantee. Is that the essence of how to solve income inequality?
    Wray (50:36):
    In theory, taxing the rich could reduce the income at the top and then, yes, the job guarantee and other programs you can raise income at the bottom and you could squeeze the distribution and reduce inequality, in theory. In practice, we know it is very hard to tax the rich because there are so many loopholes written into the tax code which runs to 1000s or 10s of thousands of pages that it’s actually very hard to tax their incomes.
    So, thinking that you’re going to achieve a lot of reduction of inequality by raising tax rates on the rich, I think is just not realistic. I think it’s worth trying but a better way to reduce the income at the rich is to attack it at the source. That is, the source of income. So, what we need to do is, for example, the average CEO of an American corporation earns, I don’t remember the figure, 350 times the average wage of the worker in that firm.
    This is completely out of line with US history and with the pay of CEOs in other countries in the world. And I think it’s a very hard case to make that US CEOs are just multiples of competence greater than the CEOs of corporations of any other country in the world. It’s just not plausable. Their compensation is just too high, so we need to reduce their compensation. So, that is getting it at the source.
    That’s the pre-distribution argument rather than letting them earn the money and then try to take it away through taxes, which is very difficult to do because then they got the money in order to lobby to get the tax treatment loopholes that they want to avoid paying taxes. So, it’s better to prevent them from earning the outsized income than to try to tax it away after they’ve got it because I mean, quite naturally, once you’ve got the income, you’re going to fight as hard as you can to keep it and they’ve got the wherewithal to fight.
    Grumbine (52:49):
    Can we talk quickly about this? People don’t understand the difference, total compensation versus a paycheck, and we often times end up fighting with the small fish in the big ocean when the reality is the very wealthy are not living on their W2 and their paycheck. They’ve got financialization of their assets, which turns it into more money. Basically, it just starts growing exponentially while they sleep at night. That’s where the real wealth inequality hits. It’s not the wage earners.
    Wray (53:21):
    We have a huge problem with the stock option. It not only does it lead to the extremely outsized rewards of the top CEOs, but it also screws up the incentives of the corporation. The best source for this is Bill Lazonick, who’s a professor in Massachusetts who’s done great research on this. If you look at corporations, they spend far more on buying back their own stocks than they do on investing in plant and equipment which would create jobs.
    Why do they do that? Well, because their top management, a huge part of their pay is in stock options. So we get to exercise the options after the corporate purchases of their own stocks have driven up the value of the stocks, and that’s what makes them rich. So, yes, that’s right. That’s a huge source although the wage and salary inequality is very high and it’s sort of surprising how much of a difference that makes too.
    So, we also do need to go after the high salaries. But there’s no reason to allow corporations to buy their own stocks. This is just a crazy public policy that subverts the incentives for corporations to use their profits for investment to create jobs rather than buying their stocks and driving the price up so that the CEOs get higher rewards through exercising stock options.
    Grumbine (54:50):
    We’ve been given some ideas here recently but I just want to throw this out at you before we closeout. One of them was the idea of completely doing away with all corporate income taxes, switching all corporate taxes to pigouvian. In other words, market changing the way they behave and then, in turn, passing on the taxes to those sea level people and charge total compensation as opposed to the other way around. And, that way, it incentivizes the business to pay into its employees, pay into itself without actually exploiting the worker. What are your thoughts on that?.
    Wray (55:25):
    Yes. Also, in the second edition of my modern money primer, I have a chapter on taxes. And one of the taxes I do tackle in there is the corporate income tax. Yeah, I think we should eliminate that. There’s a lot of concern with subversions, corporations that are moving offshore and the easiest way to deal with this is get rid of the corporate income tax.
    Then they’re not going to want to move to Ireland to avoid paying corporate income taxes. It makes no sense to tax corporations for making profits because after all the purpose of the corporation, I mean, the objective is to make profits. So, why do you impose a tax on them? As I said, you know, we want to drive the currency. Another reason for taxes is so called sin taxes, which you referred to. You know, for polluting and so on.
    But it’s not a sin to make profit. You know that’s what the corporation is set up to do. Let’s let them make profit. Let’s impute the profit earnings to the holders of the stock and taxes in income. So, you want a full imputation of the profits even if the firms don’t pay them in dividends. So, you can tax the dividends. But we also need to impute the withheld earnings as earnings of the stock holders, so you tax that.
    So, to get around the sin tax, you just tax the income of the owners of the corporation. You know, if you want to encourage investment, you could say well, if you retain the earnings but you invest in increasing capacity and creating jobs, then we don’t impute that. That will never get taxed, ok? Otherwise, you want to impute the owners.
    Grumbine (57:08):
    Randy, you are an amazing man. I’m not saying this just for the sake of saying it. I want you to know that you gave me hope when the light bulbs came on from your What Are Taxes For article that literally changed my entire world. I went from being something really awful which I would say Ron Paul to this guy who’s got a hunger and a desire to change the world through this knowledge and I want you to know how much that’s appreciated and we would love it if we could get you back sometime in the future.
    Wray (57:41):
    Grumbine (57:46):
    That’s fantastic and, with that, I’m Steve Grumbine.
    Wray (57:46):
    Okay. Thanks.
    Ending Credits (57:53):
    Macro N Cheese is produced by Andy Kennedy. Descriptive writing by Virginia Cotts and promotional artwork by Mindy Donham. Macro N Cheese is publicly funded by Real Progressives patreon account. If you would like to donate to Macro N Cheese, please visit

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