MMT Is Misunderstood | Warren Mosler
https://www.youtube.com/watch?v=LCUPBpSiISU&t=354s
Timestamps:
0:00 – introduction
0:59 – sponsor
2:01 – Why MMT
5:22 – Tax and Money
16:09 – MMT in Practice
26:01 – Zero is Natural Interest Rate
28:38 – Hyperinflation
31:51 – Unemployment is a Choice 35:34 – MMT in a Nutshell
39:02 – Quantitative Easing
44:50 – MMT and Turkey
1:01:17 – MMT or Myth Game
1:18:33 – Fixed Exchange Rates
Volcker 1:36:47 –
Trade Deficits
1:42:13 – Conclusion
Transkripzioa:
0:00
hey everyone welcome to money and macro talks my name is Julius rasford and in this video I have a long conversation
0:05
with Warren Mosler Warren is an American Economist and hedge fund manager and he
0:11
is known as the founding father of modern monetary Theory or mmt an
0:17
increasingly popular but controversial theory on money currency and unemployment now there is a lot of
0:24
confusion on what mmt actually is and what it implies for central banks
0:30
government and monetary policy around the world therefore I first asked him to
0:36
clear up any confusion about the basics of mmt after that I asked him to take a
0:41
look at some statements by famous non-mmt economists about mmt now tell me
0:46
if these statements were correct or not finally we discussed some of the deeper issues of mmt and how they apply to real
0:54
world examples such as current High inflation and Turkey’s economy but
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before going to the conversation a big thank you to the Daily upside for making this interview possible the daily upside
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simply sign up by using the link in in the description below and with that being said on to my conversation with
2:03
Warren Mosler hey and Warren uh so I did a little poll amongst the people watching this live and and also this
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this might be of interest to you but uh you seem to have uh actually a very uh
2:15
enthusiastic fandom uh in the chat at the moment uh commenting on how great
2:21
you look on camera even so this is definitely going quite uh quite far away from economics uh but uh
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I also did a poll among them and even though there are it seems to be a lot of fans uh in there I I asked like okay I
2:35
can only honestly say that I understand mmt this was the question sort of said I I asked him and 70 says no so 30 says
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yes I think this is still relatively High uh if you would ask it to any group
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of economists and this is probably your fan base but therefore I thought okay let’s start this conversation sort of a
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little bit with the basics because a lot of people like I know that you could basically just go to your website and
3:03
read the white paper and and where a lot of people just don’t do that so we’re
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just gonna do help them with that a little bit I figured okay so uh your
3:14
vote is a little bit uh distorted because I voted yes on that pool you did as well all right yes so it’s a little
3:20
overstated here that that is yeah that’s probably that one percent uh you’re finally part of that uh
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Infamous one percent uh in the United States anyhow okay so I figured like I
3:32
was I was reading this and I thought okay you know I am an economist but I don’t know too much about mmt so one
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thing that I often came across is even people saying like why is this a theory right like what what makes this a theory
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and so then I went through it and I figured hey you know mmt the white warrants white paper has a lot to say
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about money this is a story about money it has a story about Texas it has a story about unemployment it has a story
3:58
about inflation and so I figured you know let this is a full theory of macroeconomics so let’s let’s go through
4:04
it and why not start with you know what’s in the name like money so so what
4:10
is the the money story from mmt yeah so it’s modern monetary Theory
4:15
because someone on Bill Mitchell’s blog started calling it that and we had the same conversation with each other at the
4:20
time well it’s not really my theory it’s just a set of identities but the name stuck and it was popularized it was
4:27
becoming it was spreading and it caught on and so we thought okay you know let’s just take the publicity
4:33
and leave it alone what’s the difference with the name is and so uh modern came from uh Randy Ray’s book understanding
4:40
modern money way back and uh 1998 which is the excellent book probably the best
4:45
one written on that subject and uh I worked with him every line for two years
4:50
in that book so that’s a very good one and uh he got the word modern from case
4:55
who was being tug and shake and he said yes it’s modern it’s only been around 4 000 years or something like that six
5:02
thousand ten thousand whatever it was so it’s modern you know he was just being his usual flip you know
5:08
talented writer that he is so we use that and uh modern because we’re one started talking
5:15
about it and then Theory because that’s what the guy called it who was Bill’s blog so what
5:22
we’ve recognized is that the currency itself is a simple public Monopoly okay
5:29
okay so only the government issues it yes the government is just single supplier of the thing that it demands
5:35
for payment of taxes to Monopoly that’s a coercive Monopoly if you don’t pay your taxes you go to
5:41
jail or lose your house or lose your car otherwise it doesn’t work and there aren’t any other schools of thought that
5:47
start with that you know with that money story and everything we do begins with
5:53
that money story that’s our understand that’s where you start your understanding of anything Financial without that you’re
5:59
not starting at the beginning as I spoke to you before so that’s that’s the beginning so uh the beginning is a
6:04
government that will presume wants to provision itself which means we want soldiers for the Army it wants judges
6:11
and lawyers in the legal system that wants public health workers it wants who wants to get stuff done yeah yeah and it
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wants to transfer Real goods and services from private to public domains you know
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and so uh it needs labor it needs food for the cafeteria it needs fuel for the
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the Army it needs all these things and in the case of uh let’s say
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representative government the population has agreed and given the government a mandate to provision itself to serve
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public purpose it’s all presumed to serve public voters okay so how does this do that if it just printed off a
6:47
currency nobody would care about that currency they could spend it so the whole thing Begins the whole provisioning process begins with a tax
6:54
liability and in the case of our government’s payable only in the tax credit that the government establishes
7:00
will extinguish that tax liability as the U.S dollar the British pound the Euro yeah okay so a the basis behind the
7:08
whole system is the tax liability and for the purposes of discussion I just say let’s say a real estate tax on
7:14
everybody’s house without getting into the merits of real estate tax versus on taxes just to yeah facilitate the
7:21
understanding you could have chosen income tax where we’re going with real estate tax for simplicity’s sake tell you a problem straight with the income
7:27
tax if people decide not to work uh and not report their income you’ve got issues so you have to have a tax on
7:34
imputed income and it’s it gets complex there’s also prosecutive economy does better the ramps up and it gets worse it
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goes down so you’re fighting a moving Target which it works okay but if you just want to talk about the fundamental
7:47
case of a government provisioning itself you don’t want to get into all those discussions right away the real estate
7:53
tax you don’t have yeah you have a few issues but nothing else but there’s something we can understand there’s a
7:58
tax in your house if you don’t pay the tax you’re going to lose your house yeah so how I see this a little bit is sort
8:04
of us discussing hey let’s start a government somewhere we have sort of all the legal stuff or the non-economic
8:09
legal stuff in place we have people we have it but we’re dirt Brewer we don’t have a currency we’re going to start a government let’s start we don’t have
8:15
people in the government how do you get people to work in the government yeah yeah it’s just you and me at the moment
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right so what we do is we put a tax real estate tax the government imposes a real estate tax in this cases of tax
8:29
payable in U.S dollars which is tax credit and that causes
8:34
homeowners and even renters indirectly who have to pay rent to a homeowner who
8:40
needs the money but it causes a population to need the money to pay the tax quite simply and so people are out
8:47
looking for paid work they’re not looking to volunteer for the American Cancer Society you know to do
8:54
good they need money because taxes are an ongoing drain okay they’re a
8:59
liability it’s an ongoing liability they create enormous anxieties all this
9:04
hunger for money disagree this you know almost non-human Behavior that’s lost
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for money is a five product a derivative of a tax
9:15
liability that’s a tax liability it isn’t there so uh and this is order
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right you start with the taxes and then you have the fertile ground there just for money and the interesting thing is
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you can people once say there’s tax liabilities and now there’s dollars that I think they can never get enough
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you know there’s just no incident this insatiable desire for these these tax
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credits and it’s it drives civilization okay so so what we’re creating
9:45
is by definition today’s definition unemployment people looking for paid work so before okay before okay so
9:53
before the tax liability no one was looking for paid work in that currency because it wasn’t there yeah so they
10:00
were just living a tribal life doing stuff for each other because they knew each other but they’re not unemployed
10:05
right well they might have been you know working for Japanese Yen because you know you could buy things in Japan from
10:11
people who needed that for their tax liability okay but they weren’t looking for US dollars in this country before
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1792 or whatever until there were tax liabilities in U.S dollars and so when you come up with nobody was looking for
10:24
Euro before the tax liability switched from local currencies over there to Europe
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I created a need for Euro and it creates this powerful need for euro look what it drives okay so the tax liability creates
10:38
unemployment in that it creates people looking for paid work in that currency without those tax liabilities in that
10:44
currency you would not have people looking for paid work in that currency right non-monetary society that you
10:50
alluded to you won’t have people looking for paid work at all but and here and here is my mother monetary theory is
10:56
already very different from all of Economics right because we don’t unfortunately that’s true about
11:01
unemployment like that in terms of Euro unemployment or Yen unemployment we
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think about it as unemployment right so unfortunately that’s true and so our discussions on unemployment have
11:12
missed the essence of unemployment because of that what we do and why we do it have been you know clouded and and
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it’s still there you know once you understand why it’s there how it got there what you do about it it wouldn’t
11:24
be there anymore okay but it’s there because of this lack of understanding now the sad thing is you know I think
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it’s only maybe 250 years ago everybody understood what I just said okay it’s not um it’s modern as cane
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said you know because the people had forgotten it recently but this is nice
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that core element has something from a very ancient or or old economic
11:48
tradition called tartalism I think right which at which at the core sort of uh
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Texas give money value taxes give Fiat money value right that was nap and whatever but you
12:00
know he had Adam Smith when he looked at the U.S colonies and your paper money saying you know the prince can uh once
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he once the money’s needed to pay taxes he can then set the value of it which I’ll get to in a second okay so that was
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Smith and then before that you had the Romans This Is How They operated they would tax the territories they conquered
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in their own coin and then to get the coin to pay the tax they had to send grains to Rome and it’s the same thing
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right you know um transferring resources from private to public domain and that’s
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how the whole Roman Empire functioned and then before that you go back to the Samaria Sumerians or whatever you see
12:37
these old pictures from 4 000 years ago of stones with holes in them and the pebble fit in the hole that was those
12:44
were tax credits you know because this thing made an impression in here and the government could then spend it and
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people would take it and then because they could use it to pay their taxes so they and then they’d fit it in to make sure it fit in the same hole and now it
12:56
wasn’t counterfeit and uh the England ran on tally sticks for how long hundreds of years right and so I heard
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everybody understood how that worked there were taxes payable and tally sticks which were done at the medieval
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fairs and so they could spend these pieces of wood and which would then come back and maybe be made to fit into the
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stock and you know we’re in Valley sticks private money though in the sense
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that we’re not talking as as money as a creature of the state right well we’re talking about the state wants
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to provision itself and there could be other things out there it doesn’t matter all right so you go into the United
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States or you go into Europe and people are trading other currencies they’re trading cryptos or putting everything but the states can still provision
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themselves as long as the tax life you know they’re this they’re the source of
13:43
the thing that they need to pay tech that’s needed to pay taxes and so people will work for the state currency
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to provision a government and beyond that it’s not it doesn’t really matter what currencies people use or why and sometimes this is
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the core of everything yeah sometimes you see this popping up again right like with Greece or Italy for example at the
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height of the Euro crisis they were talking about hey we want to introduce our own money and and they were talking
14:08
about monetizing tax liability specifically again yeah yeah and I I tried to work with
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them on that and they didn’t work out I don’t want to get into the politics but it wasn’t no no yeah it
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was it was disappointing that way because it was right there and they were all set up to do this and they just it’s
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just too hard for them let’s just leave it at that so interesting I think we’ll get back to this later indeed okay okay
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so we have Texas we have money okay so number one government wants to provision
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itself so it establishes a tax liability it’s created unemployment now it can go hire those people to work for the
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government which is the whole point of the system it then pays them the dollars or the Euro the tax credit and then the
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taxes get paid okay so the tax the tax is getting paid is at the end of the change it you know
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it’s it’s uh not at the beginning yeah it doesn’t start with people paying taxes so the government could spend it
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starts with a tax liability so people need the money they show up for work they get paid and then they pay the tax
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I call that the sequence and so that is the correct sequence and that sequence is not understood by any
15:13
Member of Parliament or any member of the U.S Congress it’s just not and that’s where they go wrong I mean from
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right at the beginning like that so once you understand that sequence now you have a framework for analysis that’s
15:24
very different from the mainstream the mainstream can say G minus t government spending minus taxes but they’ve got the
15:31
idea that the taxes come in and the government spends it when you’ve got the correct framework
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you know that tax liabilities first which has nothing to do with paying taxes
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okay then spending and then the payment of tax okay yeah that just changes all around
15:48
and once you look at it that way everything makes sense and you can explain everything that’s happened in
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every monetary system in the world since the beginning of time you know if you’re an archaeologist and you don’t understand this and you’re finding these
16:00
coins the chance you’re going to get the wrong story of what’s happening if you understand this you’ve got a very coherent logical story of what’s going
16:07
on so okay so um for me what really helped me sort of is indeed to think about this as like okay I’m gonna start
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from scratch I’m going to start a government and how will I go about it not by printing money first or Not by
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necessarily having gold first it’s just like if you’re especially if you’re an island or on an island is uh then okay
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tax liability first then people need that so you’re gonna you’re gonna start issuing money to pay for stuff to to get
16:35
people to do stuff for you I guess right to work for you okay or do you get their stuff you don’t have to you don’t have
16:40
to get what I’ve done this three times right from the beginning first at the University of Missouri Kansas City in
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the end of 96 uh sometimes 1996. they wanted student students to do community
16:51
service that’s a government working to Provisions they want the students to do this work so how do you get students to
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do this work so I suggested you impose a tax liability on these students and the tax liability
17:04
they impose was the student have to turn in 20 buckaroos that’s what they call their currency okay at the end of
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semester or you don’t get your grades and you’re not you’re okay okay that’s serious okay so they have serious taxing
17:18
Authority it’s all driven by taxing Authority you have to turn in 20 of these Buckaroo so what’s the Buckaroo well if you work an hour at the hospital
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or a volunteer an hour at the police department you’ll get one Buckaroo for every hour of community service you do
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at our designated locations this sounds like an experiment uh Warren
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right are there papers about it that sounds like an interesting paper it’s been written out been written up many times and Phil Armstrong’s doing a new
17:44
one because uh Fidel Caboose done the same thing at the Denison University and
17:49
Andrea Turk State Professor Jersey at Franklin University has Franklin Franks so it is Denison dollars Franklin Franks
17:55
and your KC Buck homes they’ve all been fully functioning for a long time and now are a monetary system and demonstrate
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what I’m going to call the base case for analysis they start with a tax liability on the students the students have to
18:07
earn these coupons they get paid and then they pay the tax and I did the
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first you know they were National accounting so I did the first national accounting Act of meeting Donahue OKC
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and it was the tax was a thousand for all the students and uh the total amount
18:26
that they earned was one thousand one hundred and then they paid 1 000 taxes and so there was a thousand left in the
18:33
economy as savings some students have I’m sorry there’s 100 left to save so it was 100 after somewhere so they earned
18:39
they came and they volunteered they earned 1100 they paid a thousand collectively it was still 100 of them in
18:45
student hand somewhere and so that’s from the student’s point of view from the government’s point of view they
18:51
collected a thousand and they spent Eleven Hundred they spent more than they collected well first of all how could
18:57
they not okay that’s called a deficit the school ran a deficit right from the beginning you have to and the school’s
19:03
deficit is equal to the Savings in the student body to the last Buckaroo that’s
19:08
you know like any third grader can understand this this is not rocket science that’s national income
19:14
accounting public debt of 31 trillion in the U.S is held in accounts at the fed and it’s just net Financial assets of
19:21
the economy like it’s not hard okay and so these things have made it explicit oh
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it’s interesting is where is this a value of this currency come from where’s the value of the Buckaroo well it’s a
19:32
monopoly Monopoly is micro 101 you’ll learn it the first half hour it’s the
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easiest thing you learn in economics is how Monopoly works school’s got the buckaroos the students
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need them it tells them what they have to do to get it you have to work one hour okay well now it’s worth one hour
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of Labor just if you want to get some other student to work for you you’ve got to pay him dollars or something it’s
19:53
going to be enough dollars to compensate him for the one hour well back then it was five dollars you could get a student to do the work for you so you didn’t
19:59
have to do it today it’s twenty five dollars to get a student to do the same work for you to go to the same hospital and volunteer
20:06
but uh what happened so oh sorry yeah yeah look in terms of dollars the value
20:13
of the Buckaroo appreciated 500 25 years so and that’s another way of saying that Buckaroo was not inflationary and the
20:20
dollar was yeah and it was but it was that different it was internally stable it bought one hour of student labor back
20:25
then why because that’s what the school pays that’s not going to change unless the school starts paying five buckaroo’s
20:32
an hour instead of one and then they’d still be five dollars right so there the price level is a function of what the
20:39
issuer tells you you have to do to get the money if the prices it pays when it spends but that’s simple Monopoly you
20:45
could say that’s mmt yeah once you recognize the currency is a monopoly then monopolis surprise that or I mean
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this is not hard stuff yeah okay okay and there’s no other source of value
20:58
that’s it without that it’s a non-startered it doesn’t work at all uh
21:03
what do you mean there’s no other source of value well if we say a Buckaroo you have to earn these and we don’t say how
21:09
much we’re going to pay school said the student says well how many do I get to work an hour so the then how do you guess it can’t
21:17
work so could you say that the Buckaroo in this case is anchored to that hour of
21:23
Labor that the university has set for it that’s the anchor for the currency and the university could have instead said
21:29
okay you have to turn in an ounce of gold and we’ll give you a bucket or you have to uh ride a bicycle for a half
21:35
hour and we’ll give you a pucker they can say whatever they want but that then is the value because that’s how Monopoly
21:41
works yeah got the thing you need they dictate terms of trade terms of exchange that’s
21:48
what a monopolist does that’s why we try and not have monopolists in our market economies because you don’t have a market when you have Monopoly it
21:53
obviates it yeah and um so I like this analogy so so let’s let’s stick with a little bit I think you already touched a
22:00
little bit on inflation because that’s uh so we’ve had sort of taxes money in our Theory but we haven’t really had
22:07
inflation yet so before you say inflation what but I think you really what you want to do is start with where
22:13
does the price level come from because inflation is how the price level changes but there is no mainstream theory of
22:18
where the price level comes from except we start historically with the one we had yesterday yeah they don’t have it’s
22:24
an infinite regression they have no idea where the price level came from except we we try and figure out and therefore
22:30
we try and figure out what makes it change well mmt we tell you where the price level comes from
22:37
micro 101 it’s right there in the textbook is what you mean when you say uh which
22:43
is sometimes controversial but within this framework not necessarily but this is what you mean when you say the
22:49
government determines inflation uh because what determines the price level they determine the price level and so
22:55
they determine the changes in the price level correct so if the government said
23:00
you can earn one Buckaroo for an hour’s work than the Buckaroo today is 25 if you
23:06
want to get another student to do it for it if they say um you have to work two hours to get a
23:12
buckaroo now it’s worth fifty dollars they say you only have to work a half hour it’s worth twelve dollars and fifty
23:19
cents but there’s no other source of absolute value of this Buckaroo except what the monopolist says you have to do to get it
23:25
markets can only do relative value and that’s in all the models and everything else they’re all relative value modes
23:31
because that’s all there is there is no external absolute value you have to assume that and what they do is assume
23:36
yesterday’s price level as their starting point because they don’t have a source of the price level so first I’ve given you a
23:43
source of the price level and then I can tell you what makes a change it’s when government changes the terms of exchange and the price
23:49
level changes but I filtered through all the institutional structure of course but okay in your case this is simple to
23:57
follow because uh yes the university sets an hour of Labor uh that it deems
24:03
worthy and the US government could have done that but that does right they don’t and because modern economists it doesn’t
24:10
work like that in the sense right I’m not saying they should but
24:16
what I’m saying is in my base case for analysis you have to start the analysis somewhere let’s start with the Buckaroo
24:21
model sure tax liability no unemployment if 25 years anybody who wants to go to the
24:27
hospital and work can get paid in buckaroos uh the budget deficit the market decides
24:33
the deficit the students decide okay my tax liability is a thousand collectively we’re going to earn 1100 or 1200 school
24:39
doesn’t decide that the market decides that so it’s all these market-friendly people we’ve got the market deciding the
24:45
price the deficit what more could you ask for and no inflation
24:51
and it’s a permanent zero rate policy the school never paid a support rate on the buckaroos if you save them you got
24:58
nothing yeah capture buckaroos so that’s our base case for analysis now it’s also
25:03
the job guarantee anybody who wants a job can go get it at
25:08
these non-profits yeah the university has right that it has a
25:14
job guarantee basically and that’s why the job monetary Theory well it’s part of the
25:21
base case for analysis if you think that we should have a job guarantee that’s fine so let’s look at the University and
25:27
say what what should they have done to make this work better how about if we don’t guarantee everybody a job at the
25:32
hospital would that make it better I’d say like I don’t think so but if you can prove it we’ll give it a try that’s
25:38
happened the professors will come in and say well why don’t we pay interest on the money it’s like why you think
25:43
that’ll make it more valuable if you just give people hand them out oh no I guess not okay so like why are we doing
25:50
this I mean you can if you want to mix everybody up and do it but what’s your reason and nobody’s ever been able to
25:56
defend a deviation from the base case in 25 years so they’ve tried yeah yeah and
26:02
now we’re also hearing another controversial thing that you you get maybe into Twitter uh feuds about that
26:09
shouldn’t be the interest of Base interesting zero in the book career case I think people can follow you that that
26:15
this makes sense but why why would you do you think then that in the in in our modern economies we always observe an
26:22
interest rate higher than zero over from I think it’s a I think it’s an
26:28
anachronism from the gold standard where you had to raise the lower rates because you’re worried about convertibility of
26:33
the money we don’t have convertible currency anymore just have tax credits and uh non-convertible tax credits and so
26:40
that’s what they used to do and when we switched over they just kept doing it and they kept the old reasons for doing
26:46
it you know it’s going to make the currency stronger and whatnot even though every Central Bank study has
26:51
shown that there is no correlation you can’t trade currencies based on interest rate differentials you’re going to lose
26:57
a lot of money but yeah but that’s it I just think it’s an anachronism from previous regime so yes okay so up to
27:05
this point I’m I’m with you at least for the Buckaroo example for sure yeah but uh you know I I wonder if it might get a
27:13
bit tricky if you translate it to to bigger cases which which I think it
27:18
happens a lot right I think it’s the opposite of getting tricky it you wind up with something like right now for the
27:24
UK what would I propose go to a permanent zero rate policy you don’t have to sell guilts just let the excess
27:31
funds pile up and Reserve Accounts at the bo of England or if you need collateral for some it’s a structural
27:37
purpose you don’t want to run through Parliament allow them to issue three-month bills or something like that but basically no Securities zero
27:44
permanent zero rate policy and um child guarantee anyway you’ve put a tax out
27:49
there that’s created more unemployed people than you want to hire you made a mistake
27:54
lower the tax or higher than one or the other you know you don’t do that you
27:59
don’t decide you want to uh hire 50 people and then put a tax on the economy
28:04
that creates 200 unemployed higher than 50 and what the others rot because you’ve created them they were
28:10
not employed before your tax cost them to be on the point so okay so wait why yeah because I would love to get into a
28:16
more complex discussions with you about the UK and all of that but yeah I just think we haven’t fully covered the base
28:21
guys yet yeah Okay and like so I just want to ask you two or so more questions about this and then have a look at the
28:27
chat because I I see kind of quite a lot of people also already asking questions about this and I think I want to just
28:32
make sure that everybody comes along uh with our train of thought before we get into a bit more complex cases but okay
28:39
so about your framework so let’s go back to the universities and so I just wanted to throw you a little bit
28:45
of a curveball uh and and let’s bring in an internet favorite which is hyperinflation in what can you imagine a
28:52
scenario in which you are in that University with the buckaroos there’s hyperinflation in the buckaroos could
28:58
this happen in any anyway and how would it happen sure they would just raise the
29:03
wages that they’re paying to work they take one Buckaroo an hour we’ll give then the next month they say we’ll give
29:09
you 10 buckaroos an hour and then the next month will give you 100 buckaroos an hour and they just keep evaluating
29:14
devaluing the currency it’s it’s it used to be called crying down the value of the currency back in the Middle Ages I
29:20
think the king would cry down the value but why would the university do that that makes no sense right of course but
29:26
governments do it all the time I was just down in Argentina in April what they’re doing is like it’s nonsensical
29:32
from you know the correct framework for analysis under their framework for analysis which is some mixture of old
29:39
fixed exchange rate and IMF gobbledygook then it makes sense okay but but if you
29:44
go into the assumptions they don’t tie into the actual debits and credits but they don’t seem to care they just keep
29:49
doing it but yeah okay but how about this one then it’s like so I’m not fully
29:56
satisfied with your example because I I think I can think of a way that we get hyperinflation in in our University
30:01
simple case Okay because if the university fails if it goes out of business then I think we’ll also have
30:08
hyperinflation in buckaroos in the remaining buckaroos okay that’s not a choice of the University right it’s not
30:14
their action yeah so let’s say what you’re saying is if they lose their taxing Authority yes if students no
30:20
longer have to earn that’s correct you look at any uh currency you know where taxing Authority
30:27
has been lost and it goes there’s no value because what’s the tax credit worth without a tax it’s worth nothing
30:33
yeah so that is tax credits and that is what we often actually see right like
30:39
why would they often bring up Weimar Germany Zimbabwe these were collapsing
30:44
governments and they’re I have to do a paper on Weimar and it was different but in other it was true in Lebanon I think
30:51
a few decades ago when the Civil War started they couldn’t collect taxes anymore currency just hyperinflame but
30:57
most of these other places that’s not the case it’s not the case text so collection has ceased you know
31:03
but it it will do it If you eliminate U.S all U.S taxes and the tax credits
31:09
worth nothing the US Dollars was Zero yeah okay so I’m sure we’ll get back to uh to why I’m right then
31:15
but that’s the case right let’s look at Europe uh there are no more taxes uh
31:21
people and we are pasadas and all those currencies that we’re zero yeah sure
31:27
it’s the only way the only way that what happened was that they switch to tax liabilities to
31:32
Europe and then the European Central Bank bought those other currencies at the exchange rates
31:38
and people sold them for Euro because now euro is needed to pay the taxes live their lives and that was it once
31:44
they stopped those other currencies aren’t worth anything because there are no more tax liabilities denominated in those currencies
31:50
okay Lauren final thing about this in our simple example which I I think we need to flesh out a little bit more that
31:57
is unemployment so in our University case like in the real world we see unemployment all the time that’s the
32:03
norm right uh any in your University system I suspect we don’t uh why not
32:08
because there are always jobs available that pay in buckaroos the hospital will
32:14
always take you in for an hour and give you a Buckaroo police station will take you for an hour and give you Buckaroo
32:19
whatever you want we have open-ended employment that pays in buckaroos and that’s not inflationary
32:27
no matter what the deficit is so that’s the the job guarantee basically right that’s what’s become to be called the
32:33
job guarantee I didn’t call it that originally it’s in soft country economics showing that there’s a policy
32:39
option you can have an open-ended job as a buffer stock because all currencies are ultimately supported by some kind of
32:44
buffer stock policy question which buffer stock you choose and the university chose the labor
32:50
buffer stock for their currency which is an option for the government yeah but you’re also saying that our governments
32:57
choose that right but they you’re saying they choose to keep an unemployed buffer
33:03
yeah right right because I’ll give them the benefit of the Dom they just don’t know any better and after looking at it
33:10
wrong way around they’ve got the sequence wrong and so that’s the consequence so but I think this is a this is this for me was a complex part
33:17
of uh mmt well all right let’s let’s see if this helps why does any student work
33:22
for a Buckaroo there’s only two things they can do with it you can pay the tax or not pay the tax
33:28
if they so they either pay the tax or they save it uh or they can pay each other I would imagine right and then the
33:34
next person who sells something he why did he sell something for Buckaroo either to pay the tax or to save it yeah
33:40
so by the end of the day whoever’s holding them decided to save it the
33:45
Savers are there voluntarily at the end of the day somebody sold something because they’d rather have the Buckaroo than whatever they sold their labor
33:53
you know bag of M Ms whatever it was the University no telling what it was right so uh because it’s just you can’t get a
34:00
smaller more open economy but and it’s not the prime currency it’s not competing with any currency or anything
34:06
like that and it exists you know stable for 25 years while
34:11
everything around it and flights away okay so anyway um so if there’s only two reasons the
34:17
economy at the macro level we look at macro now so we don’t have any fallacies of composition
34:22
will work for the currency well trade goods and services currency it’s either to pay the tax or to that safe
34:29
and you can argue about what causes savings desires to go up or down but they are what they are and and in the
34:35
public debt okay are the dollars spent by the government that have not
34:41
yet been used to pay taxes because they’ve people in this Society have elected to that saves them it’s all
34:47
voluntary and that is the net those are the net Financial Assets in the economy and
34:52
that’s all it is and it’s there because that’s what people want for whatever reason
34:58
and it’s in real terms by the way so if you get inflation obviously you know the price level goes up it’s a
35:04
price level doubled and everybody wants to walk around with twice as much cash in your pocket twice as much cash when
35:09
you go shopping twice as much savings for retirement so it’s always in real terms whatever the savings desire is
35:15
okay so I think this this is actually a good point to see if this is that
35:20
addressed your last concern about the uh yes but I would like to I would definitely like to explore it a little bit further uh later sure because it
35:27
does remain uh a tricky tricky explanation uh but I think let’s see I
35:33
think we’ve at least we’ve covered the basis uh in the sense that we’ve covered sort of okay uh if this helped me at
35:40
least like okay think about it you want to start a government from scratch start with the tax liability because that will
35:46
give your currency value then you start issuing that currency then you I think you you you said uh the currency value
35:52
Comes Is defined by what the government then says you have to do to get the currency the tax credit
35:58
Minneapolis has this thing he’s a sole supplier a single supplier yeah tell us what you have to do
36:04
together you have to do one-hour community service you have to sell me you know one I’ll give you a billion of
36:10
these for one Jet Plane he’s telling you what you have to do together yeah and that’s it that’s you yeah
36:15
you’re right this is an interesting thing to add at this point you maybe how I would phrase is that you have to
36:20
choose an anchor if you start from scratch your University chose labor as an anchor you could also choose land as
36:27
an anchor if you do a land tax or a real estate toothpaste whatever you want but you know look at it look at a football
36:33
stadium football game
36:38
sorry yeah they have the ticket they have the tickets they tell you what you have to pay you know I mean there’s a
36:44
limited number of seats so they could throw it out to the market they don’t do that or the electric company in London they just tell you the price now if they
36:51
they don’t like the consequences they can raise the price and lower the price but it’s they still have to set the price
36:56
I’m not saying there are consequences for these other people but they’re still price sellers
37:02
and of course the football stadium they don’t collect the ticket first and then sell it they sell the ticket first and
37:08
then collect it right yeah if you don’t understand that if you think they’re collecting them first and then selling
37:13
them you’re going to get a lot of things confused when you’re trying to make policy you know and that’s what our governments do they got the sequence
37:20
backwards and it confuses policy I’m being polite here yeah but thank you for
37:25
that but since we are live uh but uh yeah no okay so we have the sequence the
37:31
job guarantee is potentially an anchor and a way to avoid it’s my base case for analysis and if
37:40
you want to have the government buy gold instead of Labor fine and we can modify that let’s see what that does now gold
37:45
is fully employed because anybody who thinks gold can sell it for one Buckaroo or something whatever they put the price
37:51
on it and then that has to get traded for other things it’s like why would you do that but I mean you can and we did as
37:58
a nation because we had other remote time for a long time yeah I mean it’s a lot of things
38:03
you know if you don’t understand what’s going on behind the curtain you can do a lot of things that on a look back don’t
38:09
make any sense right at the time they made perfect sense okay so so I think we had that covered so unemployment then
38:14
and then you know you can you can have uh hyperinflation if if the government
38:20
collapses or if if it chooses tax uses Authority diseases yeah if the cessation
38:25
of tax Authority takes away value from tax credits you know if you’re going to get a solar tax credit for doing solar
38:32
cells and you don’t all of a sudden nobody owes any taxes anymore that’s not worth anything
38:37
all right Warren shall we see what people are saying and see if there are some questions so actually Carlo is
38:43
helping me today uh to collect some questions Carlo do you have um do you have some
38:49
for me perhaps uh I will actually go go through like maybe one first uh because there’s a bit of a lag
38:57
uh time lag so I I definitely have one and then Carlo if you can help me out um so Rohit Bangalore asks to you Warren
39:06
why did QE not cause inflation in the 2010s and why is it different this time
39:12
all right so you have QE and it’s a little different from Europe because you’re buying a national government debt not the ECB
39:20
Zone debt but it’s it’s with the with the guarantee it’s all the same thing but okay so what they call
39:26
quantitative easing is in the U.S the government purchase U.S treasury securities
39:31
so what is a U.S treasury security right it’s an account at the Federal Reserve
39:37
Bank it’s US dollars in an account at the Federal Reserve Bank if I buy a one-year treasury security I
39:45
for a million dollars I give them one million dollars it goes into a one-year
39:50
treasury security which is like a one-year savings account it earns interest and at the end of the year I get my million dollars back so I still
39:58
have the million dollars it’s just in a bank the Federal Reserve Bank in a time deposit instead of in a maybe an
40:05
overnight deposit let’s say a checking account where you can get your money every day so let’s give the example and
40:11
most people will pay out of their checking accounts at the FED which are if I’m not saying this is a very linear
40:17
fashion but the FED has two kinds of accounts just like any other bank they have transactions accounts that they
40:22
call Reserve accounts they’re overnight accounts you have dollar balances and you can use them anytime you want they also have time deposits like regular
40:30
banks have savings accounts certificates are deposit where you can specify I’m going to leave my money in for a year
40:35
before I I can get it out and get you know I’m lending back the money for a year or two years or five years you know
40:41
at an interest rate well the Federal Reserve Bank is a bank that does the exact same things any other bank so when
40:47
you buy a treasury security you instruct the Fed your member band constructs the FED to
40:53
debit the reserve account in other words subtract the money in the overnight account the checking account and to credit the money the balance in a
41:01
time deposit called the treasury security so it’s just shifting the dollars from a reserve account to a
41:07
Securities account to use precise language that’s what buying a treasury security is you still have the dollars that just
41:14
in a time deposit instead of an overnight deposit presumably because you didn’t want to use that money for a year
41:20
anyway you’d rather have it in a time deposit than a overnight deposit you like the interest rate better you’re
41:25
using it for collateral somewhere I don’t know I really don’t care but you voluntarily decided see I’d rather be
41:31
out a year you know and that’s the situation before QB QE comes along the feds comes into the market and says okay
41:37
I’m buying one-year deposits and I’m going to pay for them by crediting your
41:42
reserve account your overnight account okay so if I were to sell my Securities at that point
41:48
the FED would debit my Securities account back to zero and it would credit my Reserve account so I have the million
41:53
dollars I started with in my Reserve account in either case I still have the million dollars it’s just a question of which
42:00
account at the bank it’s in this is in a savings account or in a checking account okay when I buy Securities I’m moving my
42:06
money from checking to savings when I sell Securities I’m moving my money from savings to checking okay how does that
42:12
affect the economy why would that affect inflation or anything else it’s and people have pondered over that a lot
42:19
and largely come up with they really don’t think it’s going to make much difference at all in fact I asked this
42:25
question to uh some people from the back of Japan I was at the bank of England in the late 90s when they first started doing this and I talked to the officer
42:32
from back Japan and I said uh okay so you’re buying you know uh jgb’s
42:38
government securities with Yen and you’re paying the banks and yeah so their Securities account
42:43
balance goes down their Reserve account balance goes up like how is that going to change anything it’s not like the
42:49
banks have a you know a line out the door of people trying to borrow again if they only had the money they always have
42:54
infinite liquidity to make loans it’s got nothing to do with that it’s like why do you expect this to do anything it
42:59
was Andrew Crockett was next to me who’s at the back of England at the time he goes he looks at the guy he goes uh yeah
43:04
what do you got to say to that and he says well that’s just our policy and we you know that’s what we’re going to do
43:10
and we’ll see what happens okay that was 30 years ago more so so um 26 years ago
43:16
and of course nothing happened the package Japan didn’t work QE than anybody could imagine it it was never any reason from the beginning to think
43:22
this was policy that was going to have any effect on anything whether it’s QE or QT it doesn’t now
43:28
they definitely have Placebo effects because people think it’s going to do something and if you’re on a gold
43:34
standard it would certainly do something because now all that money could be converted into golden to get the gold out of the central bank but that’s not
43:41
applicable so with floating exchange rate policy there’s no reason to think it could do anything and now we’ve had
43:46
30 years of demonstration and fed research and Boe research a bag of Japan boj research and they they can’t find
43:52
anything except what they call placebo effect when it’s when it gets announced markets will move because people think
43:58
it’s going to do something and then Fizzles up so they have plenty of that but they don’t have any actual channels
44:04
from QE to inflation or anything it just doesn’t exist
44:10
so could you also say that that is in part A swapping of one government liability for another uh sort of and if
44:17
you look at it through the m t lens then you know that doesn’t matter because all that matters is liabilities that can
44:23
help you pay taxes yeah so it’s not even the liabilities are still US Dollars it’s just one
44:28
liability you can access overnight the other one is term so it’s even less you know what I mean even more so to what
44:35
you said and so there’s you know you’re just switching your dollars from one account at the FED to another account
44:40
you still have the dollars and you’re doing it voluntarily presumably because you weren’t going to spend them or you are going to spend them otherwise you
44:46
wouldn’t switch them hey and uh Warren I have another question yeah sure so this question is by uh Terry Moore who asks
44:53
and uh can mmt actually work if it’s uh liable to be abused by governments slash
45:00
monopolies yeah this I think this also relates to something to a sentiment that I come across often which looks at money
45:06
as something that the government will be abuse the devalue at the expense of
45:12
savage okay but mmt is the framework for analysis of the monetary system it’s not
45:17
something you use or do it’s not a policy and once you understand the monetary system you’re more likely to
45:24
cause damage to your population than good maybe you know either you believe in an
45:29
informed electorate or you don’t and a lot of people don’t think the electorate should be informed they think oh if
45:35
people ever knew this or if people ever knew that you know everything would go to heck right but um I I personally believe in
45:43
an informed electorate if you don’t if you think it’s better if people don’t understand how things work that’s fine
45:48
you know we each have a vote in the election and you know we’ll see what happens but that’s what the question comes down to
45:54
but do you believe in a representative government that’s informed or you don’t yeah so so mmt teaches us about the
46:00
world but it doesn’t necessarily say how governments should run it however there are and this was another question I got
46:06
on a post previously there are quite a few mmt economists such as for example Stephanie Kelton that do seem to be
46:13
quite prescriptive and yes uh you also sometimes uh I think maybe for example
46:20
say well actually the the proper interest rate for turkey should be zero which is also prescriptive right how do
46:26
you look at these two you can look at it that way what I say is when any government pays interest
46:32
they’re paying out money currency you know tax credits they’re increasing
46:38
their deficit spending when you increase deficit spending you’re in a market economy just completely on the supply
46:44
side you’re you know reducing you’re putting pressure on your currency and if we look back at the buckaroos and I was
46:51
asked it was actually match four steps to the others thought who wanted to pay interest on buckaroos or something was a man
46:57
no Andrea I want to pay interest on the Swiss Francs that is Franklin Franks well let’s say you gave all the students
47:03
you know 100 interest on their savings it’s a thousand percent interest on their savings how much work would they
47:08
do would they go over to volunteer at the hospital if they could just make the money on interest no so the total amount
47:15
you can spend goes down when you start paying interest and if you try and spend the same amount
47:20
by paying higher prices which governments tend to do now you’re just driving up prices you’re causing
47:25
the price level to go down you’re redefining your currency downward every time you pay more which you’re driven to
47:31
do not understanding the system every time you pay more interest and you can see this happening you know
47:37
all over the world as they raise rates if the debt is high enough where the interest payment is Meaningful the
47:43
public debts very low it’s it’s de minimis it doesn’t you can’t detect it but once you get you know the U.S 120
47:50
percent of debt to GDP I mean every mainstream Economist was warning us about this 10 15 years ago when we were
47:56
50 or 60 when the debt gets too high all that interest is going to cause inflation unless you raise taxes you
48:02
can’t just rate you know the problem with the public debt is eventually you’re going to have to raise taxes or all the interest that’s going to cost
48:07
this place all right here we are and the interest is costing inflation so stop paying it and the other thing is what
48:14
you you know there are a lot of people that favor like basic income well paying interest is a form of basic income but
48:21
it’s only paid to people who already have money and in proportion of how much they already have I mean you can’t imagine anything more regressive than
48:28
that out of government policy and that’s what we’re doing the FED has decided to increase rates
48:34
from zero to three and a half paying three and a half percent basic interest income to people who already have money
48:39
and proportionately how much they already have just flooding the economy with these you know it’s almost a
48:44
trillion dollars now with 31 trillion public debt you know annually it’s approaching yeah and saying this is how we fight
48:50
inflation by giving people with money more money that’s all they do there’s no other policy that changes at the FED
48:55
operationally when they raise rates except they turn on the firehouses and start pumping more money out into the economy but um Warren isn’t there one
49:03
difference between our Buckaroo University example and and modern economies when it comes to interest rate
49:09
in the sense that you at this point seem to be talking about it mostly as you pay out interest rates and I I understand
49:15
that okay the government is a net payer of interest rates yes however part of the interest rate instrument is also
49:21
that a lot of banks essentially borrow from the government aka the Central Bank
49:27
the Central Bank basically and a lot of the channels that traditional economists talk about go through that so it doesn’t
49:34
go through paying out interest rate but it says that you know okay if you’re going to charge higher interest rate for
49:39
banks to borrow they will charge it to their customers and that will reduce investment and spending uh does that fit
49:45
how does that fit in well in this case let me start with the real world and then I’ll go to my model so for every
49:51
dollar borrowed there’s a dollar saved now they don’t you know Banks don’t take government money and lend it okay the
49:58
loan itself creates as a positive right yeah you know the causation forms spots so even though they might get that the
50:04
the actual you know if the government credits the bank’s Reserve account and then the bank makes a loan the
50:10
reserve account doesn’t go down it stays the same okay but on your books they have they when they buy this your
50:17
assigned note for your home mortgage they credit your account with a new you know new pounds or New Year or whatever
50:23
and uh new dollars over here and they keep the lawn on their books so they have an asset the liability they don’t
50:29
the dollars that they got from the government don’t have anything to do with that so they might get long
50:35
guarantees from the government so now they’re not now they will buy or signed note or before they won’t do it because
50:41
Jay Paul was guaranteeing your your loan but that’s you know that’s a different story so number one what you said though
50:48
is how a lot of people think about it and it’s it’s just not the reality it’s just not how it works so that’s a
50:53
distortion that creates again confuses conclusions so but in the
50:59
economy for every dollar borrowed there’s a dollar save to the penny or some accountants got to stay late and find this mistake banks have assets and
51:05
liabilities they’re equal of loans in your deposits now you’ve got net worth which is a form of a deposit
51:12
but you got a deposit somewhere in the system and they’re equal and so whenever rates go up borrowers pay more but
51:18
Savers get more yeah so the borrowers pay more said the question is which one’s more powerful yes borrowers have
51:24
to pay more so that hurts them but Savers get more so now they can buy more products from the business that was borrowing and so they can afford to pay
51:31
it if those two are equal if if all the money
51:36
that the borrowers paid an interest was spent yeah then it would just be a shift in wealth within the economy which could
51:44
have distortions we don’t want to have and which could be unpleasant distortions but it’s still just a shift if there’s a difference
51:50
then there can be a difference in the overall spending GDP the whole micro economy those Tendencies either spend or
51:58
not spend interest income are called the propensities to consume interest income that type of thing yeah
52:04
and so the Federal Reserve studies these propensities to see are they different
52:09
do borrowers get hurt more than Savers get help do borrowers have to pay more and Savers don’t spend more they just
52:15
played a pile up and there’s a guy at the FED I visit Steve owner he was an officer there for about 20 years he
52:22
retired a few years ago that was his job and he’d say well the answer he gave
52:27
right to the end maternity retired was you know look we believe that there is a difference in these capacities and that
52:33
it does hurt the borrowers more than it helps the sailors he says I’ve been doing the econometrics for a long time I
52:38
can’t detect it so okay so the problem is when did he do that like when was his
52:43
uh like what videos are we talking about he probably retired five or six years ago because I could have mentioned that
52:50
as wealth and quality shot up that propensity difference becomes bigger so
52:55
it’s just I agree I agree we don’t know so all we can do is look at the data because you can’t measure it it’s very
53:01
hard to measure you can only guess so you look at the data when we raise rates does it the economy kick up or does it
53:08
slow actually slow down and I was looking at this back in uh 2008 when
53:13
they were cutting rates we were at 60 debt to GDP you know our publicly saying
53:19
I think these lower rates are going to slow down the economy because the income effect is going to be a lot stronger on
53:24
the Savers than the borrowing effect you know we’re not going to get this increase in borrowing to offset the
53:29
decline in savings income the propensities might even be running the other way and you can see for 10 years
53:34
or zero and how did I why did I guess that because I looked at Japan now Japan had much higher debt to GDP but they had
53:40
zero rates for 20 years back then and didn’t have runaway borrowing or anything else
53:46
sorry I didn’t think now this is in the opposite direction I didn’t think far away was going to get help by the lower rates and a lot of this is just looking
53:52
at the data it’s experience I remember years before I was on the phone to someone in Australia
53:59
this must have been in the 70s late 70s no maybe late 80s and I said how’s the
54:05
real estate market maybe late 80s he says you know it’s pretty good now you know mortgage rates are 17 and a half
54:12
said but I think if they put them up to 18 it’s going to kill it I go okay thank you you know I’m a investor you know I
54:18
was a Trader in the financial sector money manager then I call somebody in Japan I was a real estate market he says
54:24
Ah it’s terrible you know the rates are three and a half he says but I think if they put him down to three it’s going to
54:29
pick up so I’ve gone like all right how important can rates be has to be other
54:36
things that are important we had seven percent mortgages back in two thousand six and seven and we had like
54:43
twice as many mortgages as we had you know 10 years later when mortgages were three and a half
54:48
and and uh there’s just other things in the late 70s everybody in my generation their first mortgage was 15 17 percent
54:55
and it you know and that’s oh yeah I remember when I got my first hospital you guys are higher I hope it doesn’t happen together but if you look at the
55:01
housing starts in the mortgage is back it was higher than it is today on a per capita basis it was much higher okay
55:07
because there’s other things that drive these markets and the rates are not that powerful now they make headlines and
55:14
they talked about but you go back I you know we’ve peaked a 2.6 million housing
55:19
starts I think my first year I worked as a small Savings Bank that was 1973 it
55:24
was 1972 we peaked at 2.6 million mortgage rates were eight percent but okay we had we only had 200 million
55:30
people we have twice as many people today half as many mortgages the rates are half you know but it’s like okay but
55:36
but uh isn’t there like okay I read some some literature on this if you say uh to
55:41
a comment a commenter like oh QE doesn’t seem to have such a big of an impact on at least inflation and perhaps on asset
55:48
prices well there I’ve I’ve definitely read research especially for the first proposition that you know it’s very
55:54
difficult to find but I do think there is a lot of research uh stating that interest rate changes can have a very
56:01
high imp or have a high impact on exit prices right yeah they’ll affect it sure because asset prices are interested a
56:08
bond price is the interest rate but so what does a bond price change if you buy a four percent Bond and then it drops in
56:14
value you still get your four percent you know that you contracted for for your pension fund you still have four percent to pay your employees and sure
56:20
but for house prices it matters a lot right if you change the interest rate yeah like now for example
56:26
a lot of my peers are having more difficulty buying a house now than I did when I bought at uh one percent yeah so
56:33
that’s a big impact I don’t disagree but if you look at housing prices from 1960
56:39
to today they pretty much just go up all the time and if you look at the big inflation and the high rates of the the
56:45
late 70s they kind of flattened out a little bit then went right back up he didn’t see like a drop down or reversion
56:51
to the mean or anything like that they just keep going up you know with inflation no matter what the rates do
56:57
because the rates are taking away from the borrower but the saver is making money and the parents I’ll just talk
57:02
anecdotally as long as you are the parents give the kids the money for the down payment or or they get more money
57:08
at work because they need to work and they have to live somewhere so the boss has to pay you enough to make your interest payment or you can’t have any
57:14
employees right and and those the selling prices are high enough because people with money will pay it to so that
57:19
he can pay you enough to afford a mortgage and you’ll get a few months of dislocations it doesn’t usually amount
57:25
to much more than that from the interest rates so now I look at this last cycle which is what six months now they’ve
57:31
been raising rates nearly dramatically yeah and it’s supposed to slow down credit and borrowing and you look at
57:37
real estate loans in the banking system they’re going straight up the consumer ones are going up and people say oh yeah
57:43
well people are forced to borrow instead of pay cash okay you can make up all these stories but it sure hasn’t slowed
57:48
down the credit expansion expansion it sure hasn’t slowed down GDP we had two negative quarters based on
57:53
inventory adjustment from wildly over building inventory from covid now once that’s been adjusted it’s back up and
58:00
and fed St Louis is GP now is back up to 2.8 percent
58:05
with the race going and and Biden said yesterday President Biden the U.S economy is strong yeah it is the feds
58:12
paying out you know three percent of GDP the equivalent you know not not all not now but it’s approaching three percent
58:18
it will good to three percent of GDP definitely at this new deficit spending
58:24
on interest I’m saying it doesn’t look like that has no effect it looks like that’s a huge amount of money and it’s
58:30
having an effect and it’s regressive I don’t like it but I but it’s the reality is that’s you know we took a regressive
58:36
economy and made it twice as regressive by raising rates and supporting it from the top down we’ve doubled down on
58:42
trickle down and trickle down Works to some degree it’s I don’t like it I think
58:47
it’s like obscene but it works to improve the numbers whatever that means and uh you know GDP numbers that’s
58:55
what’s going on so it makes it tougher and tougher to fight it you know when the when people kind of manipulate the
59:01
data to show that it works so so one thing that that’s definitely clear to me is is that the way that you think about
59:07
this and and perhaps by extension the way that this is thought about in Mt is is a completely different lens to a few
59:14
things through okay well this is not typically do this is not even mmt this is what every mainstream Economist this
59:20
is what Paul Krugman told me when he was arguing with Stephanie Kelton in the uh sure no but what I mean is more sort of
59:27
this uh so how I look at this like okay if we talk about interest rates going to the to the economy we talk about
59:33
different channels right yeah and a lot of the economists tend to focus on borrowing type of channels and you can
59:38
focus on the saving type of Channel and I think look at the combination yeah
59:44
yeah sure but and then but I think then sort of think macro think macro yeah economists disagree then on uh which
59:51
like I think most economists would recognize that there are a lot of different channels but then the
59:56
disagreements how big they are right and I will give you an example let me give you sir I was in a conversation with
1:00:02
Paul Krugman I haven’t been in a long time but a few years ago I said you know what’s wrong with you know you can run
1:00:08
deficit spending to sustain full employment you know job guarantee whatever that’s the economy services are
1:00:13
and there’s there’s no limit today he says well yeah because if you let that debt get too large then the FED can’t
1:00:19
raise rates to fight inflation because that interest will be causing inflation that was his argument against the job
1:00:25
guarantee and against excessive deficit spending to sustain full employment in general that was the argument okay
1:00:32
now he’s saying oh these high rates are the fed’s killing the economy you know you just it’s the same guy
1:00:38
right so you can’t call I don’t think you have mmt or not mmt or mainstream or not in mainstream this is the same guy
1:00:45
it’s only been a couple of years you know what maybe the politics have just clouded their analysis maybe I’ve
1:00:51
Stripped Away the politics to just look at the numbers and if you don’t like them sorry but and these guys don’t like them then they don’t see them all right
1:00:58
well this provides me with the ultimate Bridge basically to to this section I had planned in the middle because I
1:01:03
think the discussion we’ve Now sort of entered like you’re talking about interest rates but the differences between the simple University type of
1:01:10
money and the real world it gets complicated so maybe to to sort of let everyone process that a little bit I
1:01:16
thought I guess right in the middle let’s play a little bit of a game uh which I call a myth uh mmt or myth so
1:01:23
because a lot of people have lots of opinions about mot and they’d like to tweet about it and so I was you know I
1:01:29
always get these questions is this true about mmt or not yeah I don’t know Warren so I have a slide here so
1:01:35
everybody can see it but I will read it to you I have an article from Paul Groupon so this is the little bridge and
1:01:42
he says in the New York Times fairly well-known newspaper deficits and printing press some but wonkish right
1:01:49
now deficits don’t matter a point borne out by all the evidence but there’s a school of thought the modern monetary
1:01:56
Theory people who say that deficits never matter
1:02:01
as long as you have your own currency is that MMP or myth Okay so
1:02:07
first it needs a little context first solvency purposes they never matter the
1:02:13
government checks will never bounce the government can always spend another dollar or if it wants to yes second of
1:02:19
all at any given point in time the deficit is residual and that equals the
1:02:24
real savings desires of the economy now if it gets large by paying interest that nobody really wants then you will get
1:02:31
adjustments to the price level so that you know the government will wind up paying higher prices and that will um
1:02:37
you know to the I’m trying to get tied back to your question so the deficit per se doesn’t matter
1:02:44
ever first it doesn’t create a condition where the government checks will bounce or they’re going to cause inflation it’s
1:02:51
a residual the government check deficit always reflects the residual savings desire in
1:02:58
the economy at that price level by definition it’s a market determined Thing by definition so that’s
1:03:05
a mainstream that’s I mean that’s not necessarily mmt that’s mainstream so he’s contradicting his own mainstream
1:03:11
analysis and he’s also contradicting my analysis which I guess you could call mmt but that’s through any lens there is
1:03:18
no lens that doesn’t give you that if you look at it close enough but okay and now I’m confused Warren because is it
1:03:24
enmity or not MD you said it in two sentences it’s mmt but it’s not exclusively
1:03:32
right okay so but now somebody and and Main Street but in the UK engine would
1:03:38
never say that government deficits never matter I I you know I’d say that either because
1:03:45
but I would say for solvency purposes they never matter but that that’s not what that is I mean well nobody says
1:03:52
deficits never matter just we you know by itself there’s always a context
1:03:57
maybe they matter because you’re going to lose the election I mean matter for what okay but that’s what he does that’s
1:04:03
what the mmt critics do so you say he’s too fake hair you should specify
1:04:09
deliberately big how about maliciously vague okay yeah it’s it’s a political
1:04:14
technique all right okay it’s an intellectually dishonest
1:04:21
statement all right so it’s a myth but right and yeah okay uh I know we can get
1:04:27
into sort of all uh the nuances around this oh that’s like look are you still a communist I mean you know that’s
1:04:34
I don’t know what you call those kinds of questions right there yeah but I mean in all honesty I think you do sometimes
1:04:40
make it a bit uh tricky for people to see through that because you actually engage with it fairly seriously and
1:04:46
first saying in in in in some way not not sort of completely but that indeed
1:04:52
deficits never matter like I I mean we don’t exactly say that but you can understand how people can interpret it
1:04:58
if I don’t qualify it then I I should have or I didn’t have time or I made a mistake or something but I I’m pretty
1:05:05
sure I qualify statements like that I don’t generally I don’t make statements like that that are unqualified because
1:05:10
that’s what I’m arguing against all these unqualified statements yeah yeah you’re right so what I meant is more
1:05:16
like uh even though what you just said I think people at first can interpret that as Oh indeed Paul gregman says that and
1:05:23
now Warren repeats it but then you give certain some some nuances but they’re
1:05:28
very very nuanced uh anyway let’s stick with with myth yeah I have another one for you uh modern monetary this is from
1:05:36
a Twitter user called Demetri cofinas modern monetary theorists will tell you
1:05:42
that solving inflation is easy all we need to do is raise taxes imagine trying
1:05:47
to pass tax increases in this political environment crazy the fact that smart people pretend this makes any sense
1:05:53
remains an unsolved mystery this is mmt or a myth you know it’s a myth it’s a
1:05:59
straw man argument and so is Paul krugman’s argument a little bit of a strong energy they set something up and
1:06:04
say it’s mmt and then they criticize it so it’s a myth I mean mmt doesn’t no mmt
1:06:10
proponent I’ve ever known says that I’ve ever said that I haven’t heard like we haven’t discussed it in your example
1:06:16
right you have never said raising taxes uh reduces inflation
1:06:21
no I say raising taxes reduces aggregate demand so in the case that you’ve got inflation because of excess aggregate
1:06:28
demand can one of your options to reduce demand is to increase taxes but I also add that I’ve been watching inflations
1:06:35
for a long time now you know I’m 73 years old and I’ve yet to it’s possible but I’ve yet to see one
1:06:42
of them caused by aggregate demand I just haven’t seen it not saying it’s not possible and maybe I’ve missed you
1:06:47
pointed out but I just haven’t seen it so that’s the rarest kind of inflation that I’ve seen personally
1:06:54
and okay and then this this brings me maybe then to sort of a very topical issue inflation today which is Sky High
1:07:01
at least in where I am Europe and where you are the United States what type of inflation is this is this is not a
1:07:08
cricket demand inflation is it well look the word inflation has been
1:07:14
become a generalized term that doesn’t tell you much except it’s it becomes
1:07:19
synonymous for prices are high prices went up in their High yeah it’s not that they’re going up next year so right now
1:07:26
I’ve got to pay this much for gasoline I got to pay this much for energy to heat my house I’ve got to pay this much at
1:07:31
the grocery store so prices are high and the real question people are asking is why did prices go up you know my incomes
1:07:37
haven’t gone up what’s going on here now your first clue is that when prices go up without incomes going up
1:07:43
proportionately at least when I grew up and went to school that wasn’t inflation that was a
1:07:49
shift in relative value a shift in terms of trade okay these were you know we had
1:07:54
relative value Stories versus inflation stories inflation is where everything goes up the United States reprices from
1:08:01
dollars to pennies everything goes up a hundred times but you used to call it cost a one dollar now costs 100 pennies
1:08:08
we just had 100 times inflation okay but your wages went up also so we have a situation here and where prices have
1:08:14
gone up particularly uh Energy prices and they went up for a couple of reasons first of all going back a few years the
1:08:21
first big impetus were the tariffs the president decided that we needed to punish Canada because they weren’t
1:08:28
charging us enough for lumber so we put a 17 tariff on Lumber so lumber prices
1:08:34
go up oh we’ve got inflation in the lumber what are we going to do about that it’s like okay then we just you
1:08:40
know just as like a politically initiated policy because Canada wasn’t charging us enough for lumber don’t ever
1:08:46
send these guys to go shopping for you by the way and then President Biden comes in and he decides they’re still
1:08:51
not charging us enough so he raises it to 34 he doubles the Tariff so now we’ve got lumber prices have gone up some more
1:08:58
and they’re not going to come down because we’ve got these 34 tariffs and it’s like okay well we have to raise our
1:09:04
age we have to do this it’s a fed’s job all the money Supply’s up this is this was just tariffs okay this is pretty
1:09:09
simple we just legislated higher prices gasoline taxes we legislate higher prices right and then so we had tariffs
1:09:17
on I don’t know 300 different items and the presidents love these things because they’re bringing in dollars like the US
1:09:23
needs these dollars and so they’re it’s a profit center for the U.S to raise prices on the American Consumer to bring
1:09:29
in money it’s like all right that’s what it is it’s a tax but taxes count as
1:09:34
quote inflation they’re higher prices so we had that problem then we had the energy issue which was and I think the
1:09:42
FED gave that and then we had the supply chain things from covert right but this is a terrorist yeah okay but I think the
1:09:48
FED gave that like a half a percent a year of you know CPI increases but the big
1:09:53
one came through oil prices right so oil prices had broken during covid it got down to 40 a barrel negative On The
1:10:01
Board of Trade and then they went up to 120. uh tripling in the price of our Basic Energy natural gas went from I
1:10:07
don’t know two something to nine dollars right everything just shot up as New York it’s even worse yeah 600 at some
1:10:14
point that’s something pretty insane increases in in what I use here for 100 houses it
1:10:20
has a massive impact that used to be called a shift in
1:10:25
relative value now you have to work more to earn the same temperature in your house but wouldn’t
1:10:30
it be called a shift in relative value or if other prices went down to compensate for this and I think this is
1:10:36
also something some economists will say will say like but if it was only cost
1:10:41
Bush or from the cost side yeah then if we had stable amount of money you know
1:10:46
following monetarism then prices would go down elsewhere that’s a shift of value to many people I would say yeah
1:10:52
and um you know that didn’t happen okay we could have had wages go down I
1:10:58
suppose but uh to get our cost of production down it would have been even worse right so we have that doesn’t
1:11:04
happen because we’ve got our institutional structures not such that wages are going to go down so it doesn’t
1:11:09
work in that direction so other things go up so you can call it inflation call whatever you want but um it’s not like
1:11:16
a monetary thing so the answer to it is not to let’s cut everybody’s wages in
1:11:22
half so the prices will come down in half what’s the point right yeah so to get to
1:11:27
get back to the uh to where inflation is going about the energy prices the other thing about the energy prices is they
1:11:33
feed into everything it’s fertilizer to grow food is attractive for energy it’s Transportation if Embassy prices now gas
1:11:41
prices going up here or natural gas I should say to avoid confusion with the English language natural gas price is going up in Europe means that a lot of
1:11:48
cafes or bars will raise the prices for coffee because they cannot pay their bill anymore yeah right right and they
1:11:55
price goes off if people don’t shop there because they can’t afford it they go out of business and so it’s not like a market working is it and the price of
1:12:03
oil is legislated by Saudi Arabia Saudi Arabia Rose peas they said the price of
1:12:08
oil there’s no others just like the what the government you know in terms of exchange the government sets for its
1:12:14
currency set the information there the at the margin the side is having Monopoly on oil you either have to at
1:12:21
the end of the day we have to buy their seven and a half million barrels a day or shut the lights off for six or four
1:12:27
hours or something and so they are price-centered whether anybody recognizes it or not and they thinly disguise it by setting spreads instead
1:12:34
of absolute prices but it comes out to the same thing and again I’m not I’m not
1:12:39
going to be partially criticizing one president over another believe me I don’t think they’re both they’re all involved they’re all complicit but
1:12:45
president Trump was on record with the Republicans of having when the price of oil broke demanding that the Saudis cut
1:12:52
production to get the price up because our oil industry was losing money and Congress had put a resolution through
1:12:58
the Republicans to stop sending weapons to Saudi Arabia cut off relations if they didn’t cut production to get the
1:13:05
price of oil up so that uh our oil industry could survive you know first of
1:13:11
all we didn’t need them to do that we could have done it without that happening instead of them raising the prices cutting production and thus
1:13:17
paying more we could have just giving you other companies money it would have been a lot cheaper but you know I want to get into that argument it did happen
1:13:23
because let’s just talk about what actually happened yeah and and what in the Saudis were inferior created that
1:13:28
our government would start making demands on them to do this and they got together with the Russians and became
1:13:34
Oak Peck plus and each cut by I don’t know five million brows a day or something like that got priced up and
1:13:40
it’s been going up ever since and now they’re buddies and and we’re up against that so uh Warren
1:13:47
is the consequence of the government the government did it but yeah Russia
1:13:53
Russian government Saudi government and the US government started with tariffs is okay can I summarize argument like
1:13:58
that or is that yeah yeah yeah and there was some there was some you know there are covet issues for sure
1:14:05
but those are all transitory they’ve reversed all the shippings come back to where it was but these other things were
1:14:10
the problematic ones if we had gotten three or four percent because of the covet thing nobody would care but we’re
1:14:16
up at eight or nine and it’s scaring people because their Theory says so if it gets too high it runs away
1:14:21
it’s not going to just you know it’s not it doesn’t like mean revert or anything that’s what their theories say it just runs away
1:14:28
because they’ve got all these misconceptions of how it propagates right and then return
1:14:34
it to Venezuela we turned into Argentina if we don’t get it now and that’s there’s nothing to do with what happened
1:14:39
are we Survivor even worse it’s got nothing to do with what happened Okay so we’ve got that fear of that
1:14:46
mythology in our heads now you’re talking myths yeah yeah yeah but I I so I can relate
1:14:52
this back uh maybe even to the trans Story versus permanent uh inflation discussion I I don’t know were you a
1:14:58
year ago or something in the camp Oh this is going to be actually permanent because uh governments like Saudi Arabia
1:15:05
and Russia are going to to push this or okay I’ve been in a camp and I was there in my 2010 when I wrote the book because
1:15:12
back in 2008 the cycle didn’t break until oil got up to like 150. Saudis
1:15:17
just started raising the price until it broke the economy now there were vulnerabilities I’m not arguing now but that was the Catalyst that took it down
1:15:23
and you know I was thinking here they are doing it again got up to about 120 and that if it keeps going then the
1:15:31
inflation keeps going if it stops goes down stabilizes and the inflation’s over it’s entirely a function of energy
1:15:37
prices okay with a little bit of lack so apparently Biden made some kind of a deal with President Biden the deciders
1:15:44
back in July he’s going to strategic Reserve but they the only way the price
1:15:50
came down is they agreed to Discount their official selling prices under the
1:15:56
table to drive prices down into the election okay and then something
1:16:01
happened a couple of weeks ago where they had a huge falling out and uh policy stopped but anyway once oil
1:16:08
stopped going up and started coming down you can see the CPI numbers in the U.S just went sideways we were heading back
1:16:14
towards zero inflation you know zero zero point three or something like that we’re back to
1:16:19
pre-covered numbers and if oil stays here then I think we’re going sideways
1:16:25
and we’re back and it’s been transitory only in this sense that oil went up push everything up comes down a little bit
1:16:32
levels off everything comes down a little bit and levels up if you look at lumber prices they get up to
1:16:37
15 1600 and now they’re back to 500. well they were three or four hundred before but they’re up a little but
1:16:43
they’re not you know that’s tariffs and everything else but that big burst is over all those commodity bursts have
1:16:51
been reversed for the most part and we’re back to pre-cover levels of price
1:16:56
stability except unless oil and gas are going up again and I think they will I
1:17:01
don’t know that they will if they don’t then they won’t expect the inflation to come back right so uh but okay except
1:17:08
except the higher rates are causing are driving inflation it won’t go back to
1:17:14
where it was until after we lower the rates it’ll stay they’ll support this is these rates will support inflation at
1:17:20
higher levels than we would have had other ones so okay this I like this because now at least
1:17:25
we’re getting back to sort of but is that mmt mmt isn’t that oil prices cause
1:17:31
inflation that’s everybody I think so almost everybody agrees that
1:17:37
that oil prices have played a big role in inflation in uh yeah in most
1:17:43
countries like even our monetaries I would guess yeah but okay that’s right
1:17:48
and because then I think we again get back to yeah even where where I yeah I’m
1:17:53
not fully convinced yet but I I do think it’s a very valid argument in the sense that we get back to this interest rate
1:17:59
debate like does it cause inflation or does it does it reduce inflation well that really depends on is the borrowing
1:18:05
effect less boring stronger than uh sort of more money through the in the government paying more interest rates
1:18:11
effect but with a borrowing effect be overwhelmed by trillion dollars a year of interest payments deficit spent by
1:18:18
the government it’s a big number just you know I can’t say for sure it will but I just say look at the data
1:18:23
everything’s going up again yeah we bottomed out second quarter and just going up that was before the rate
1:18:29
hikes since the rate hikes everything’s going up but this is this gives me an
1:18:34
opportunity to move to the last subject that I want to discuss with you here because our economies are also partially
1:18:39
uh quite complex in the sense that we live in an international world and I
1:18:45
know you have made reference to sort of your University example also living in an open economy so I’m sure we’ll get to
1:18:51
that but we have an mmt discussion stand to be held in a very U.S centered sort of way
1:18:59
which does issue the reserve currency at the moment globally yeah but I think
1:19:04
that’s just empty rhetoric also okay so that that’s interesting so I didn’t necessarily say too much about it yet
1:19:10
but perhaps people would say mmt only works in the US because they have the reserve currency is is that what you’re
1:19:15
sort of is empty rhetoric or is it broader yeah that’s that yeah yeah okay that’s not that’s not a political you
1:19:22
know I don’t think so that’s not the argument I wanted to make but yeah
1:19:27
but one thing that I did notice is that you said uh in one of your papers or made reference to like okay maybe sort
1:19:35
of more mainstream economics can work in a gold standard world right but if we have floating currency
1:19:40
always applies what and how you define it could work it can’t sustain Full Employment and if you want to optimize
1:19:48
your Prosperity your real wealth you have to have full employment because your real wealth is everything you
1:19:54
produce domestically plus your Imports minus your exports that’s it’s old as economics goes and it’s hundreds of
1:20:00
years old okay there’s no refuting that and so if you’re less than full
1:20:05
employment you’re losing your real wealth so why would you want to pursue that yeah so so if I can translate that
1:20:11
so yeah and and this is true right I think nobody can deny that no current economic systems have sustained full
1:20:18
employment that’s never been the case so unemployment is a norm sadly and you could say the losses from unemployment
1:20:24
in one year probably just the United States just Europe are larger than the real losses
1:20:31
from all the wars in the history of the world put together that’s interesting yeah given today’s productivity yeah and
1:20:37
given that this happens all the time and Wars sort of and everywhere to the whole population and wars only happen uh in
1:20:44
specified in some places and yeah yeah okay I mean this is definitely uh some a
1:20:49
problem that that I also you know have struggled with especially when I briefly lived in South Africa where unemployment
1:20:55
rate is Sky High is is 25 higher percent which is staggering loss of of yeah
1:21:02
because people are just sitting around right they’re doing nothing that’s that’s a real shame that’s that’s indeed
1:21:07
and this is I think what you refer to as real wealth because they don’t do anything they’re idle it’s official and
1:21:15
in the loss of humanity and everything else I mean it’s to lose lose-lose situation but one thing that I could imagine if I
1:21:23
were to start a currency now in a new country where I’m dependent on perhaps
1:21:29
Imports I might need to charge interest rates
1:21:35
because I want to Anchor my currency to another currency yeah see now but that’s
1:21:40
maybe the gold standard type of world again when I decompose all that I it doesn’t make any sense to me at all
1:21:47
that’s just so I could imagine like if I if I want to start a small island nation
1:21:54
next to Europe for example I want to start out by anchoring my currency to the euro because that’s right
1:22:01
um case why did the UMKC anchor their currency to the dollar sure I mean let’s
1:22:06
let’s make it easier then right like in fact they talked about it but I we said why would you do that nobody could come
1:22:12
up with a reason to do it to Europe or to U.S in this case I don’t
1:22:19
think so I mean I I’ve said to somebody like I used to give these talks in Italy they said well what if you go to full
1:22:24
employment in Italy can’t buy oil it’s like show me one country in the
1:22:29
world ever that can’t buy oil and a friend of mine Marshall robertco is a sub-Saharan Africa or something Sri
1:22:37
Lanka I cannot buy oil at the moment right well if you Google you know they had a
1:22:43
different kind of problem because they had all the importing organized by the state but I’ll bet right now if you Google Sri Lanka petrol station gasoline
1:22:52
station you’ll see a station with people getting filling up to cards for the price in local currency out there yeah but they
1:22:58
cannot buy enough oil I think that’s because you’ve got to fill your car up and they won’t they won’t the pump shuts
1:23:03
off I mean I don’t think so I mean price might be too high are they still queuing I don’t know I’m not sure if
1:23:10
they still are but they were for a long time for sure I assume if they were still queuing I would have seen it but I
1:23:16
can’t you can look it up but if you and they have a specific they have the fixed exchange rate just like you said in a
1:23:22
blew up but um under plenty of countries operating without fixed exchangers and
1:23:28
wheat currencies poverts currents countries there’s stations where you can buy it
1:23:33
now most people can’t afford it but the oil companies will sell it based
1:23:38
on going exchange rates whatever they are okay and it turned out I was with a
1:23:44
communist name around Casio or something in Rome telling me well in 1973 you could buy oil during a crisis in Italy
1:23:51
and then somebody I wasn’t there I said somebody else told me no what happened was in 1973 the government did not want
1:23:59
you to buy oil because they didn’t want you filling up your car and so they were trying to discourage people from doing
1:24:04
it it wasn’t that the oil companies would sell it to the government they wanted it was the opposite they were
1:24:10
tripping over themselves trying to find ways to deliver it when the government said no so and if you look at any
1:24:16
country in the world and you look at the global South you say what’s your macro problem they say oh too many Imports or Imports
1:24:23
exceed actually yeah okay that’s the problem is too many Imports have you ever seen one country where the problem
1:24:29
was we can’t import I’ve just never seen it I mean I like to look at well I mean Afghanistan at the
1:24:35
moment cannot buy its crucial Imports Lebanon cannot buy enough food imports
1:24:42
right so you know what does that mean because people can’t afford it at the going
1:24:47
prices and local currency yeah at the going exchange rate and that’s why the exchange rate is is collapsing right
1:24:52
okay and so if you look at the total yeah pretend you say that’s right exchange rate that’s the exchange rate
1:24:58
is what it is and it’s collapsing for other reasons and I don’t know what their interest rate is but I was just in
1:25:05
Argentina and the problem there was you know they were paying 50 interest on their peso debt and because their
1:25:11
inflation rate was forwarded and they have to keep a real rate but the interest goes to people who already have money and they don’t want any more pesos
1:25:17
so they just sell it for foreign exchange so the exchange rate goes down like you’re talking about which causes imported prices to go up so inflation
1:25:24
rate goes to 50. so the government pays 60. so now that people are getting 60 pesos it’s like 10 of GDP and peso
1:25:31
interest selling it causing exchange rate to go down and they’re in the spiral it just they just went 80
1:25:36
inflation and 90 interest rates it’s like no end to this because the interest rate interest payments are being fed
1:25:44
into the foreign exchange markets and pushing down the exchange rate pushing up imported prices which pushes up the
1:25:49
inflation rate which pushes up interest rates it’s just the horrible Cycles are
1:25:54
in and they keep doing it now maybe the same thing is happening in Lebanon I don’t know I you know I don’t follow
1:26:00
every country in the world but if you look it up more often than not there’s something like that going on
1:26:06
that’s just Insidious and it’s at the expense of all these people who can’t get enough to eat but nothing to do with
1:26:12
operating you know with a fixed versus floating exchange rate well I mean uh so one thing I wonder
1:26:20
about the whole fixture is floating exchange rate debates that there is and in broader economic circles because also
1:26:25
I think in more mainstream circles there was the idea floating exchange rates uh solves uh you know most of the the
1:26:32
microeconomic problems I think even someone like Milton Friedman was in favor of it yeah but there I wonder
1:26:39
are like how floating our exchange rates actually in the sense that yeah sort of
1:26:45
uh if there are small movements uh it’s totally fine and I think it works really well also you know euro is freely flowed
1:26:51
considered to be freely floating but I think what for example you can see in Turkey is that if the moves are too fast
1:26:57
then it uh does become an issue because Imports do get way too expensive uh and
1:27:04
so in effect how floating isn’t really does that make what’s interesting yeah
1:27:09
that they are I mean you look at Japan’s just it’s down 30 or 40 right recently yeah
1:27:15
Europe dropped by the same amount the dollars dropped by that amount before uh the Australian dollar went from 105 to
1:27:21
60 so now all these currencies move a lot it’s not you know they don’t all abandon them for the gold standard they all move
1:27:28
and it doesn’t like have all these horrible effects in fact you can’t get politicians to agree on
1:27:35
whether they want their currency to go up or down the Chinese currency goes down everybody starts yelling at them for unfair trade
1:27:41
so it’s like right you went in with too strong intimacy too strong in exchange
1:27:46
rate another Trade Center so it’s um it’s even ambiguous within the political debate whether they want the currency to
1:27:53
go up or down they don’t even have that if they don’t even have that sword though yeah but it might might depend on the situation right okay in some cases
1:28:00
you want it to go up uh like now for example now there’s High inflation everywhere so you don’t want your
1:28:05
currency to go down too much like if I’m if I’m running Europe what’s the inflation what’s the inflation rate in
1:28:11
Japan well I think it has been going up since the yenas has gone down a lot well
1:28:17
they don’t mind you know that’s what I’m saying it’s like I mean I have opinions on where it
1:28:24
should be but I’m just talking about the political class doesn’t have a clue that they talk out of both sides of their
1:28:29
mouth from one day to the next time this stuff yeah but you can you can contradict themselves in the same sentence yeah but you can okay fair
1:28:37
enough like I’m not gonna defend a political class but uh but that’d be that’d be too easy for me
1:28:43
but I will say as a European I liked the exchange rate going down a little bit
1:28:48
especially as someone who operates on YouTube and thus has a dollar okay okay I’m a bit I’m like an exporter of
1:28:54
services in that way yeah so I like that yeah but uh now I don’t like too much
1:29:00
that the euro is is called collapsing but going down so quickly uh because it
1:29:06
adds to a lot of inflation since Europe Imports a lot of stuff that I typically do like to buy uh from place to place
1:29:13
like Asia and you do see that I think in in increased prices and all of that yeah yeah so it’s going down because of
1:29:20
course the height prices you’re paying for you know prices that are being dictated five minutes yeah in Saudi Arabia yeah
1:29:27
and you know those heroes are being spent people don’t particularly want them and they’re um and it’s raising the
1:29:34
cost of all your production so your exports aren’t as competitive and uh you know your trade that was just reversed
1:29:42
right from clusters in Europe yes we used to be a current account if Surplus uh region a long time now deficit yes
1:29:49
right right so yeah and Japan had the same kind of reversal all the energy users had reverses the U.S has the
1:29:55
lowest domestic prices of energy so our exports are going up which is helping the dollar and a lot of what you’re
1:30:01
looking at is drawing dollar versus weak Euro to you so you know when there’s things going on in the strong currencies
1:30:08
that have been helping them and we can get an encouraging discussion for 10 hours here so probably not a good idea
1:30:14
but um did you have any more myth versus MMC I do yes that’s uh but actually I think
1:30:20
that this would also be a good uh point to ask okay more audience questions right I think I’ve seen a lot of them uh
1:30:27
come by uh so let me see I did also get a question about Norway so the question
1:30:35
was uh from a channel called political economy and I believe it was about Norway’s uh foreign wealth fund so very
1:30:42
wealthy through gas exports right so the question there was does that help the
1:30:49
Norwegian government’s budget does it help the Norwegian government to spend more what happened was your real terms of
1:30:55
trade improved dramatically with the North Sea oil right and so you’re allowed gives you the benefit of being
1:31:01
able to you’re exporting oil so you can import all kinds of other things with the proceeds and so you’re you know it’s
1:31:07
just a big increase in wealth real wealth for the uh for Norway through its
1:31:12
real terms of trade now and the exports of course were the cost you could have kept the oil for yourselves but you sold
1:31:17
it and got dollars and put fund and now you can use those to buy imports and that’s your deferred compensation you
1:31:24
might say for the oil you sold in previous years and I guess you’re still selling oil today right are you a net exporter still
1:31:32
I don’t know I don’t even know uh no way I’m not Norwegian uh from the point of
1:31:38
view of the question yeah yeah yeah uh yeah definitely I mean Norway is is a net gas exported so if they are running
1:31:45
the biggest current account Surplus there may be the only country in Europe still running a current account so that
1:31:51
allows more Imports and uh you know so your terms of trade just
1:31:56
approved by the price differentials gas prices going up I have another question from BEC Franks
1:32:04
who asks why was the inflation coming down on its own during the volca era and
1:32:09
they had to enact harsh hikes you okay the inflation came down when the oil price broke
1:32:15
and it went from like 40 to 10 or something over a couple years but it broke
1:32:20
to 30 years and 20 and it started coming down it was that after the rate hikes or before it that was after the rate hikes
1:32:28
but after the recession it was caused not by the red hikes I mean that’s my I
1:32:34
was there but I didn’t see it covered but by the fiscal Titan and the fiscal
1:32:40
balance tightened because of the inflation that the rate hikes help perpetuate so for example we had
1:32:46
inflation remember these outcomes like 12 and we were running a budget deficit of six percent well in real terms that
1:32:53
means the public debt is dropping by six percent so that’s like running a budget surplus of six percent and it just got too low
1:33:00
to support the credit structure which was growing because of the inflation prices are up you have to borrow more
1:33:06
for working capital and run your business and just for them what do you call the General money supply you know and the whole thing collapsed because of
1:33:12
you know overly tight fiscal policy which looked loose on the surface with a six percent deficit but beneath the
1:33:19
surface it was a six percent Surplus because of the 12 increase in prices and it caused a horrible cave in and nobody
1:33:25
quite understood what it was they blame the interest rates on that the interest rates were actually contributing to the
1:33:31
six percent deficit they were contributing to prices going up which then caused the real public death to
1:33:37
fall so in that sense indirectly the interest rates caused the public to have to fall
1:33:43
because of the inflationary impact and that’s what caused that big crash and
1:33:49
that brought the demand for oil went way down in the recession and that’s what turned it around at the same time in
1:33:54
1978 Jimmy Carter president Carter had deregulated natural gas and it had all
1:34:00
been capped because the price you could charge was only 50 cents when it was worth 250 or something and once once he
1:34:06
deregulated it then they could start producing it again and the utilities felt comfortable switching from oil to
1:34:12
natural gas and that old transition started and kind of opened the door to that happening and
1:34:18
from kept the demand for oil low over the next 10 years or so relative to what it had been as utilities converted and
1:34:26
other places convert businesses converted to natural gas from oil so we had that going on but if you look at
1:34:32
what happened to the price of oil and it it went from like three dollars to forty dollars it’s like 12 times or something
1:34:40
13 times in 10 years so that’s like today going from 80 to a thousand right yeah yeah I mean
1:34:49
Europeans can totally understand this now a little bit Yeah net gas prices did but then but then when it comes down
1:34:56
you’ll see in the inflation numbers coming down back then they came down very slowly
1:35:01
because the high interest rates were keeping them up with supporting demand it was supporting forward prices and
1:35:07
supporting all kinds of things and so it came they raised the inflation came down but slowly and they kept a
1:35:13
real rate product and it took 10 years to get down to three percent even with oil going from 40 to 10.
1:35:20
so that’s because the inflationary forces from the monetary policy the interest rates were propping things up more than they
1:35:27
would have been otherwise that’s the way I saw it it’s I think this is very interesting in in the sense that I I hope also for
1:35:34
everybody watching that this um you know gives you a different way to think about this and this is also something that I
1:35:41
yeah I I don’t always agree with it but I I completely see that it’s logical and
1:35:46
and if I would not agree with it would only be because I would say well I think the borrowing channel is in in many
1:35:52
cases stronger than the savings channel or perhaps I would say well but I think
1:35:57
rates aren’t actually that flexible uh in practice right if we talk about the international Case but yeah that’s
1:36:04
that’s fair right that’s that’s how economists I’ll agree with you the power we think
1:36:09
can be there in the short term two or three months people get scared and don’t buy houses and what the FED says is that
1:36:15
moves things forward you know moves things pushes things up backwards and so they can the interest
1:36:21
rate changes can move things back or forward in time is the way they say it and that’s true of a lot of individual
1:36:27
items but uh so far we’ve seen GDP accelerate after the hikes so we’ll see you see what
1:36:33
happens yeah we’ve seen that and we haven’t seen it later come down uh I think right we’ve we’ve seen the credit
1:36:39
Aggregates accelerate we haven’t seen the core inflation come down we’ve seen headline come down with oil but not core
1:36:46
interesting yeah so so one uh thing because I also had one question uh
1:36:51
before about sort of trade deficits and apparently yeah someone told me that you got into a debate with Steve Keane over
1:36:57
trade deficits do they matter or not and that piqued my interest because I I currently would hold the position that I
1:37:04
understand why many developing nations want to have a trade surplus I think it has been demonstrated by Russia and in
1:37:11
the other way around by Sri Lanka and Lebanon how you know by Russia how handy it can be to have a trade surplus
1:37:17
because it gives you a source of foreign currency when other sources get shut down and the other way around by Sri
1:37:24
Lanka and uh Lebanon where they you know had too much of a trade deficit
1:37:29
in very crucial sector so they just couldn’t replace immediately so I would say it matters I understand why it
1:37:36
matters a lot would you agree with that well if you’re going to use it to generate money to buy imports and it’s
1:37:41
not a trade surplus it’s balanced so so yeah but they didn’t do that we’re talking about using it just to build up
1:37:47
reserves initial assets yeah exactly as a war test okay which is very useful in
1:37:52
a in the financial crisis or if there’s a run in your currency or if you get an economic War as we saw with me well yeah
1:38:00
but let’s do that one at a time yeah so for Russia it wasn’t useful at all because their dollar deposits were all
1:38:05
Frozen so they can’t even spend the money yes but how are they keeping the ruble up now because they still have that girl
1:38:11
because they don’t import anything because they don’t import anything they’re not allowed to import so they have no Imports and so yeah if
1:38:19
you’re not allowed to import your currency goes up that’s pretty nice so um I’m not sure if I
1:38:26
would agree that they’re not allowed I mean I know that we wouldn’t well that’s what that’s what the sanctions are that’s what the sanctions are yeah but
1:38:32
they’re they’re very leaky right they’re not that they’re not really working like that yeah but they’re they’re strong
1:38:37
enough to keep their currency open so you but you you wouldn’t see a role for the capital controls that they put
1:38:43
in place there because I would argue that also which one so yeah Russia so
1:38:49
restricting from from fleeing you know taking the money out of the country taking rubles out or dollars I don’t
1:38:57
think it matters the dollars aren’t there anyway they can’t the dollars are credits on Western Banks yeah that’s
1:39:03
true okay so let’s say take rubles out because then uh rubles can’t be sold on the international market anymore okay
1:39:09
but who is doing that anyway I mean they didn’t have a problem with rubles leaving the country didn’t they they had a problem
1:39:16
internally with people selling rubles to buy dollars but now they’re not allowed to buy dollars the whole thing is to cut
1:39:21
out of the dollar market so they can’t sell rubles to buy dollars anymore not a lot to I’m not saying aren’t weakages
1:39:27
through crypto or something but it’s not like it was yeah but that’s what I meant yeah you can’t sell your rubles anymore
1:39:33
for dollars right which means they can’t import yeah but it also means they can’t just sell that you can also sell I think
1:39:41
for financial assets right you don’t have to import a good or service yeah so what I’m saying is is to trade balance
1:39:47
that you know shifted dramatically over there where they stopped importing and continued exporting and that’s where the
1:39:54
that’s where the uh and suddenly people who want to buy Russian oil let’s say they’re no longer selling products in
1:40:01
Russia and getting rubles that they can use to buy the oil they have to you know get to rules now because that’s what Russia said but they they won’t throw
1:40:09
any like buying things they’re only buying things from Russia so there’s no uh pressure on the rules just take it
1:40:14
takes all away if any country stopped importing like that then your trade goes
1:40:20
into security currency gets stronger the same way the opposite happened with Europe where you have to spend more for
1:40:25
energy in your currency gets weaker yeah reports went way up you know so your import bill went way up that’s a volume
1:40:31
but you’re import expense from layout Russia their import expense went to zero in Europe it went way up in Japan it
1:40:38
went way up so I’m not sure if Russia’s uh import expense went to zero but uh
1:40:44
look you know let me exaggerating a little bit but it went way down because they can’t buy it they’re not allowed to buy anything sure they’re being
1:40:51
sanctions they’re being cut off they can’t get parts for their weapons they can’t get parts for anything they’re not
1:40:57
allowed to buy things all right so so yeah so okay there we may disagree on
1:41:03
sort of how much Russia is still actually importing but to to make that into a fruitful discussion with it’s way
1:41:08
down it’s way down yeah but and and then okay and then finally so then finally uh
1:41:14
and then I think we’re gonna round off slowly uh how about Sri Lanka and Lebanon which were could be coincidental
1:41:21
big current account deficit countries and they were specifically dependent on uh crucial Imports such as energy and
1:41:28
food Russian Imports dropped from 30
1:41:35
.76 to 24. as of January so they’ve dropped more
1:41:41
since so they’re way down that’s certainly done yeah sure way way down yeah okay so
1:41:47
next so so just uh Sri Lanka and Lebanon chronic on deficit countries I don’t
1:41:53
know what happened in Lebanon I know Sri Lanka had a fixed exchange rate that blew up because they’re borrowing money
1:41:59
to support the currency which is it’s what I’ve seen a totally unsustainable process it runs out when you can’t do
1:42:05
that anymore nobody wanted you the money to do it then it’s over and that’s what happens
1:42:10
all right fair enough Warren uh yeah shall we shall we leave it at that I
1:42:15
think we had a I really enjoyed this question I hope it has okay productive discussion for you as well I think we
1:42:21
went through most of it right I think we went through the basics uh with the like how
1:42:27
you start with taxing and then you can issue money the taxi gives that money uh
1:42:32
value then you can spend it you can that allows you to spend it all right exactly
1:42:37
yeah fair enough uh and then um there there’s possibly a job guarantee to to
1:42:43
Anchor the value of of your currency so you can do it in in another way as well and then I think two we I use the job
1:42:52
guarantee as the base case for purposes of analysis with the idea that if you want to use something else fine you make
1:42:58
the shift but you have to start with something yeah you can’t just have nothing
1:43:03
and so that’s my starting point it’s not a policy proposal per se it’s a starting point and uh for lack of
1:43:11
anything better I guess it’s a policy proposal but you got a better one fine it’s not it
1:43:16
yeah and you mentioned you could also use gold even though you would not necessarily and people have that but you
1:43:22
could do it yeah and but you can’t sustain full employment with gold so you’re going to
1:43:27
not have a you know you’re not optimizing your standard of living your everything else and and that’s actually
1:43:34
interesting I think like that uh yeah full employment is uh sort of what you
1:43:39
have in mind as a the the best outcome right sure well I think it’s politically
1:43:45
uh has you know advantages and what it what I start with is the idea that uh you want
1:43:51
to have maximum you know how do you optimize your Prosperity your Mac your output and the first thing you do is you
1:43:56
got to have everybody working to get maximum output anybody not working represents a lost output so I did a
1:44:01
paper called exchange rate policy and um unemployment and it goes into detail on
1:44:07
how with a fixed exchange rate policy you cannot necessarily sustain full employment at travel times but with
1:44:13
floating rate exchange rate policy you can always sustain full employment which means you’ll always be sustaining your
1:44:19
real wealth at optimal levels you know composition issues aside and all the
1:44:24
other things that might happen as long as you’re sustaining optimal output they all become distributional issues and the
1:44:31
issues fundamental to your well-being so you’re always optimizing your well-being the floating exchange rate full
1:44:37
employment policy all right yeah and but that there is I think sort of you know
1:44:42
if I can recap our discussion yeah where we we got we might still have some some differences of opinion on how which
1:44:48
channel of interest rate is stronger and perhaps uh on how how flooding exchange rates really are uh but uh and on the
1:44:56
interest rates I say just look at the data I understand the argument I look at the data and I see it that the payment
1:45:03
now is dominating but that could change and just keep an eye on it yeah and I
1:45:08
think it is definitely something I will dive into and it’s also something that I I think a sort of mainstream empirical
1:45:13
researchers would not look into per se because that’s not what the theory typically talks about but it would be
1:45:19
interesting Avenue of research if well they talked about it two years ago when they were arguing why we can’t sustain
1:45:25
full employment now they’re not arguing to change they dropped it they were saying you know the reason we can’t
1:45:32
sustain full employment with deficit spend is the deficit get too large and then the interest payment then the FED
1:45:37
won’t be able to raise rates to fight inflation because the interest will cause inflation that was their argument two years ago are they dropping right
1:45:43
yeah and oh and the others too I was just interviewed by Peter Coyne had coiled the New York Times and
1:45:50
he went to Michael Woodford who’s Professor woodford’s time to die yeah and he said well if the interest becomes
1:45:57
problematic like that you can always raise taxes to uh offset it which is exactly my point and when they asked uh
1:46:04
Improvement Independence in the New York Times do you agree with Woodford he said yes I agree with wood of course he
1:46:09
wouldn’t dare not agree with him because he’s he’s the guru but it’s not like it’s part of the
1:46:15
mainstream core model it’s not something not just making up that they can refute it’s their own core model
1:46:21
all right well I think uh then that’s that’s an amazing thing to to close off with uh okay
1:46:28
all right thanks so much for this I hope everybody that it helped a lot of people
1:46:34
um yeah thank and goodbye everybody hope you uh hope this was enlightening to you and I hope that you actually learned uh
1:46:40
learned uh way more assistant the poll next time would be um the other way around 30 not necessarily knowing mmt
1:46:47
yet and 70 knowing it uh yes so thank you so much cheers everybody
