Randall Wray: MTM hasiberrientzat. Politikari baten gida

#177 L. Randall Wray: Money For Beginners – A Politician’s Guide

(https://www.youtube.com/watch?v=FK42XVm294k&list=UULFEp_nGVTuMfBun2wiG-c0Ew&index=3)

As opposition politicians lecture their constituents about not loving growth enough, and vow to keep children in poverty to achieve it, Patricia & Christian talk to award-winning economist and author of “Money For Beginners – An Illustrated Guide” Professor L. Randall Wray about how governments spend and the legacy of 40 years of ignoring it.

Transkripzioa

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I got a phone call and this very soothing calm voice came on and said

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hello this is Bob heilbronner and you’ve asked me to write a blurb for your book

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and this is something I cannot do because your book is on money and money

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is the scariest topic there is and your book is going to scare the hell out of

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everyone

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this is the mmt podcast with Patricia Pino and Christian Riley

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big thank you to all of our supporters so far and thanks as ever for the time

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you put into understanding mmt let’s dive in welcome one and all to the mmt

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podcast I’m Christian Riley and I’m Patricia Pino and today we’re really honored to welcome back to the show

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primary mmt academic Professor L rattle Ray hi Randy hi good to be back for

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anybody wondering about where the modern money in modern money Theory comes from it comes from your seminal book

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understanding modern money which turns 25 years old this year so congratulations on that and it’s

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continuing impact and in your latest book money for

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beginners and Illustrated guys which is beautifully illustrated by heska Van Dorn and by the way at the beginning you

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write that when you wrote understanding modern money you were warned that it would quote scare the heck out of

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everybody tell us about that warning who did it come from what did they mean yeah so the

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background is that Warren Mosler had come on this discussion group online in

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January of 96 and not long after that I started writing the book understanding

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modern money that came out in 98 so probably in 1997 when I had much of the

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draft manuscript done I sent that to Robert heilbronner who is maybe either

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the top or number two to John Kenneth Galbraith in terms of the number of

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books that he wrote and sold on economics so just a towering figure and

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I had met him once but obviously he didn’t know who I was so I mailed it to him and just strangely enough I got a

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phone call back in the days when the phone hung on the wall and this very

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soothing calm voice came on and said and hello this is Bob heilbronner and I was

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just amazed at how on Earth did he get my phone number and he said and you’ve

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asked me to write a blurb for your book and this is something I cannot do

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because your book is on money and money is the scariest topic there is and your

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book is going to scare the hell out of everyone of course that was disappointing but it

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turned out he was right and it is a scary topic and the book did scare people and after many years I realized

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that mmt’s main problem really has been

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that it is seen as very scary very

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dangerous and really to immoral in the sense that the main conclusion we reach

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is that the government cannot run out of money and it seems like what we’re

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saying is the government is getting something for nothing it doesn’t need income before it spins and if that’s

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true that’s immoral and I think really the hostility to mmt is a moral

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opposition to it it really it goes even Beyond scaring because once they understand it they just believe that

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it’s immoral for the government to do that I thought you were going to say that the immoral reality of It Came sort

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of because mmt highlights some coercive aspects of money on behalf of the government with workers and employment

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is that not something that bothers people as much some of the critics have used that so they say oh well this

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sounds like fascism to me that you mean the government imposes liabilities on

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people we say Yeah in democracies we elect representatives and they decide

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what taxes to impose and it’s so funny to me that you mean no one has ever

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thought about this before well taxes or obligations that we must pay and if we

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don’t pay them bad things can happen to us no one realizes that it’s the

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strangest critique that we get I think that hold it imposing taxes it must be a

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fascist policy very bizarre but also they shoot the messenger right well yeah

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but you know know how could we be the messenger for this yeah it’s been this way for 4 000 years

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at least right hence the joke about it being modern but I think I’m right and

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say that your preferred term is modern money Theory rather than modern monetary Theory which I like to why is that

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because another kind of critique we get all the time is oh you guys are just Milton Friedman right but so it’s just a

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monetary Theory you have a different monetary Theory than Friedman and then

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they’ll say and the bizarre thing is you guys aren’t talking about monetary policy you’re always talking about

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fiscal policy why on Earth are you talking about fiscal policy when your

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theory is about monetary policy okay and so I think it’s very confusing to people

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I don’t know exactly how it got changed it seems to be mostly change in Britain

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there is much more pushback about trying to drop the monetary in Britain I think

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so I don’t know exactly how that came about I think possibly in the very

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beginning we used both money and monetary and I started seeing more and

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more of this kind of criticism that hold it you guys are all about fiscal policy so why are you emphasizing monetary

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policy and I decided that it just makes more sense to use modern money Theory

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and as you said my first book was called understanding modern money and it was to

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explain how money works and I did not come up with modern money Theory I think

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it was a commentator on Billy blog that came up with that and I really don’t know what that commentator said whether

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it was money or monetary so let’s get into your recent book money for

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beginners because it’s timely because in the UK at least we’ve got quite a few beginners in the money field

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unfortunately they’re in quite influential positions for instance in

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our nominal opposition party the labor party the shadow culture secretary Lucy Powell said I think yesterday that an

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incoming labor government wouldn’t be able to scrap one of the austerity policies instituted by the conservatives

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which would lift a quarter of a million children out of poverty and a further 850

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000 out of deep poverty because in her words there is no money left

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where have we heard that before and then she went on to say that’s the economic

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reality Randy is that economic reality well of course not and it’s very hard to

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believe now that there are any politicians who actually believe such nonsense because of what we did during

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the cobit pandemic the U.S somehow found five trillion dollars uh in looking

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under the couch pillows I guess and I think that everyone realizes that is a

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lie so why are they using that lie I think part of the explanation is this

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inflationary period that we’re going through that many people have convinced themselves that this inflation was due

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to too much government spending and so they are really lying about the finances

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as a justification poor rolling back government spending because they think that caused inflation

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I was planning to say actually maybe she meant there is no money for the left or

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if you want to use it for conservative policies we’re fine with that but I just noticed that Warren Mosley made the same

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joke on Twitter so absolutely that it’s important to point that out it’s easy to

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find the money for the military for war for what’s called National Defense and

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for tax cuts for the rich you can always find the money for that so it really is the progressive policies that are going

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to get cut and this unfortunately it comes from the top with our labor party again it’s been a real weekend the

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leader of the labor Party kirst Armor wrote an editorial for the guardian and

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in it he wrote If we are to turn things around then economic stability must come first that will mean making tough

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choices having iron Cloud fiscal rules the supposed alternative huge unfunded

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spend ending increases at a time when the Tories have left nothing in the coffers is a recipe for more chaos and

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more misery for working people and I think Randy that goes to your idea that you’ve said many times before that the

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government only spends one way could you talk about that in this context of kirstan’s Claim about the government

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having coffers and that they’re empty now yeah well of course they don’t have coffers and almost all spending is

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electronic now central banks make the payments for the treasury and they

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create it out of thin air as the metaphor says it’s keystroke credits

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they can’t run out all government spending in modern economies takes exactly the same form whether we will

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end up with a deficit at the end of the year will depend much more on what the

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government collects in taxes it’s generally not spending that leads to a

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deficit at the end of the year it is tax revenue and that depends on economic

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performance so if your economy starts growing rapidly which doesn’t look like

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me in the UK or the US I think growth is going to be slow but if you grew rapidly

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tax revenue automatically goes up because so much of the tax revenue is

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based on income growth and growth of asset prices then tax revenue will boom

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and you could end up with a smaller than projected budget deficit at the end of

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the year but the reason that I’m talking about this is because there is no such thing as deficit spending there’s no

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special way to finance a spending in excess of taxes all the spending no

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matter whether you end up with a deficit a surplus or a balanced budget at the end of the year all the spending always

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takes the same form it always look looks exactly the same you do the accounting

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at the end of the year and find out what the budgetary outcome was so there’s no

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special form of spending that we call deficit spending and it’s really

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unbelievable to me to hear U.S politicians speak about the budget in

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this way although I’m sure there’s still some of them that do but it certainly seems that mmt has made more inroads in

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the US than in the UK and we were talking about narratives earlier in Framing and how people perceive mmt but

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one of these fiscal rules that have become quite popular both for Tories and for labor in the UK

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I beat myself because I feel bad that that idea for a fiscal rule seems to have come from the left of Labor during

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the Corbin years and when he has his advices and I hate to think that it was

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the left that gave the right this idea of weaponizing fiscal rules against

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government spending are you familiar with the argument and do you agree with the proposition that was a bad strategy

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to go about of course it was bad but look the Democrats did the same in the United States the paid for rules that we

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have were put in place by the Democrats so I’m not surprised at all to hear that the left wing did it the Democrats are

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the ones who insist on pay forwards for their policies the Republicans are the

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ones who are always willing to give tax cuts to the rich with no pay Force so they don’t believe in the paper and so

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they will always have some kind of an exception for their policies and then

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the Democrats insist on no exception for their own policies it’s crazy yeah they

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the left always it’s just so for frustrating it’s that idea only Nixon could go to China but in Reverse we need

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Democrats in there to give us all to give us these fiscal Straight Jackets yeah well not to go too far back in

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history only will Clinton could end welfare so the Democrats step up to do

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the things that conservatives might not be able to get away with so we’ve established having funding or not having

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funding again just isn’t economic reality when you issue the currency and

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also this idea that the government has coffers that fill up goes to your example in your latest book of what

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happens to government tax revenue after it’s collected and you use some very old historical examples like the Virginia

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colonists could you talk about that sure we can go a bit further back so Medieval

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Europe the crown used tally sticks and in English we have these terms raise

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and this was the main instrument used by the crowns in Europe to spend so

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everyone thinks that they spent coins but coins were always a very small proportion of the money supply Kings

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mostly spent tally sticks so they would raise a tally that would be Telex

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Checker to go out and cut Hazelwood sticks and then you score them that is

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you put a score using the term of cutting wood a score across the tally

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stick and then you split it in two so that you have a stock and a stub and the

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king would purchase a wagon with half of a tally stick at the same time that they

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would raise a tally they would impose a tax payable in the tally sticks and so

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the exchequer would collect those halves of the tally sticks that had been spent

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and match them to make sure there had been no counterfeiting counterfeit would be adding some additional scores on the

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stick to make them more valuable so check to make sure there’s no counterfeiting and once matched they

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would always burn them so in the American colonies they came up with a new innovation which was paper money new

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to the West although China had done it for several hundred years before the

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American colonies of course use the British coins but they are always short

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and they were prohibited from coining their own money they found a loophole

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there was no prohibition on issuing paper bills so the state government

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would enact a law that allowed the issue of let’s say 10 000 Virginia pounds all

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13 colonies did this so there was some form of paper money in every one of them Majestic Virginia as the example they

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could issue 10 000 pounds and at the same time they would pass a new tax law

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called a Redemption tax so this makes it clear they knew what they were doing that would be expected to raise about

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ten thousand pounds over the next two or three years that the tax would be in place and so people could pay that tax

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with the paper money and that gave them an incentive to accept the paper money

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so the legislature would spend the currency into existence buying what the

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government needed and then collect the paper money in tax payment they kept

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very careful records the expert on this is Farley Grubb who has looked at several of the colonies they kept very

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careful records of the tax receipts and how much of the tax was paid with the

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paper money versus how much was paid with the British coins tip quickly about

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75 percent of the tax would be paid with the paper money and then they would

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record that they burned it so as soon as they received the tax revenue they burned it so would we learn from that

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tax revenue is not to get something that you can spend is to get something that

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you can burn revenue is for burning not for spending and of course it had to

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work that way because nobody could have paid the tax in the paper money unless

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you had spent the paper money into existence so spending comes first that’s

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how the money gets into the economy and then taxing redeems the currency taking

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it out and burning it just like the tally sticks had been burned I bring that up because I think that’s something

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that people miss when we talk about today tax money being destroyed or deleted when it’s returned to the issuer

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I think some people might think we’re saying in the old days governments used to burn or melt down their tax revenue

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after they collected it and these days if you pay them in cash they’ll shred it after they’ve collected it and that’s

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our proof that money’s deleted from existence when you pay taxes but I would say what we’re actually saying is the

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thing that money is which is a promise to do something and in the case of a pound that’s a promise to pay off a

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pound’s worth of any charge that they go government might levy on you the most common charge being taxes but once it’s

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in the hands of the issuer the government it ceases to be that promise it just becomes paper or metal or in

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terms of electronic Ledger entries they’ve become just literally nothing and I think you help underline that when

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you write about the reason that governments publicly burned their tax revenue in days gone by was to stop

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those pieces of paper being used again or for unscrupulous government Representatives stealing them away and

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using them again so it was proof that they’ve been taken out of circulation but to me those pieces of paper stopped

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being money the moment they will return to the issuer does that sound about right sure that’s exactly right and so

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in The Illustrated guide we talk about Joe’s Pizzeria that issues pizza coupons

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mails them out to all the people in the neighborhood in order to drum up business that Pizza coupon is Joe

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pizzeria’s IOU now it’s a pizza I owe you not a money I owe you but the

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principles to say when a customer brings that coupon in that is Joe’s IOU Joe

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owes them a pizza when he delivers the pizza to them so he puts it in the box

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and hands it to them he is no longer in debt now he’s got his own IOU back and

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so we say be kind of schizoid for Joe to treat that any longer as an IOU because

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he owes himself a pizza which makes no sense right so what does he do with the

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IOU he burns it because it’s no longer valuable once it’s in his hands then we

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go next to the example of the Federal Reserve Bank in the United States our

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paper money is all issued by the FED now our treasury doesn’t issue any paper money anymore so all of the paper money

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in the United States is the fed’s i o owe you when it goes back to the fed the

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FED can just shred it because once it is at the FED it has no value except as

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paper yeah so they do shred it and if you take a tour of the FED they’ll give you a little baggie with shredded paper

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money I think that reinforces the point that once you receive back your own IOU

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it no longer has any money value yeah I bring that up because in all this fiscal

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responsibility talk you get some people talking about a government running a surplus like it’s a good thing like the

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government is saving up its own money for a rainy day when I think what we’ve just said should underline that that’s

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actually an impossibility and let me just add some people might say that when the payments clear from a taxpayer to

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the treasury that the electronic digits from their bank’s Reserve account are being in some ways collected and

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transferred to a treasury Reserve account so can we not think of those digits continuing to exist as money and

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then when the government spends from the treasury’s account can we not think of that as taxes haven’t been collected and then re-spent I know some people think

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along those lines could you address that from an mmt perspective so it technically it’s not correct

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because you as a taxpayer I don’t know if anyone in the UK actually pays their

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taxes by carrying paper money and coins to the tax office in the United States

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you could do that but very nearly zero people do it that way everyone writes a

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check on their bank account or they have an automatic withdrawal and what you

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have is the banks IOU so you pay your taxes using A bank’s IOU the bank pays

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your taxes for you and debits your account the treasury has not received anything that they can spend they cannot

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spend any private Banks demand deposit they can only have the Central Bank make

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their payments for them so it’s technically not correct to say the

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treasury has received something that they can spend because they don’t have have a deposit account at your bank or

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at any private bank on which they can make payments they’re not receiving anything that they can spend but if the

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let’s say I know that there’s a Consolidated Fund in the UK exchecker but there’ll be an equivalent account at

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the treasury I guess or within the FED on behalf of the government that a

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balance goes up when the taxpayers bank’s Reserve

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account goes down is that correct well the treasury does have a deposit account

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at the fed and the FED though is going to make payments on the treasury’s

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behalf to Private Bank Reserves so that is how treasury spends Central Bank

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makes a payment of reserves to a private bank that private bank will then credit

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the demand deposit account of the recipient of the treasury spending whatever it is maybe it’s Social

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Security so what we have to do is have the Central Bank make the payment for the

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treasury now central banks often have a requirement that the treasury have a

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positive balance in its account at the central bank now is there any technical

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reason why this is necessary obviously no the syndrome can always make that payment whether the treasury’s account

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is positive zero or negative okay it’s only an internal rule it’s an operating

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procedure that says that the treasury must have a positive balance a negative

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balance does not provide a barrier that the Central Bank can’t overcome okay so

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it’s an internal accounting procedure now in the case of the United States the

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FED as an operating manual for the people at the fed and there’s a q a section at the end and says what do we

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do if the treasury’s ballots is already

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zero and we receive a check drawn on the treasury it says enter a negative value

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okay which is obvious that’s what you do what’s that called it’s called an

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overdraft it’s like an unlimited overdraft right well it’s unlimited okay but it’s going to trigger activities by

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the treasury and the central bank to fill up the treasury’s account okay and

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they have a wide variety of operations that they can use to get a positive

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balance so that’s what will actually happen so it’s not going to go to some unlimited number they’re going to

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temporarily have a negative balance and then they’re going to engage in operations to get a positive balance

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okay that’s what will happen and the point is that positive balance the way it gets in there I mean I’m now

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thinking about your metaphor about the magician you got to put the rabbits in okay it

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could come from tax receipts that are coming in the Central Bank handles all

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the tax payments too so when you pay your taxes the Central Bank debits your

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bank’s reserves your bank debits your deposit account and the FED will credit

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the treasury’s account okay so tax receipts are one way to do it but think

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about this problem that the Central Bank of Treasury have in the case of the United States 350 million people not all

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those are taxpayers because there are children there too but several 100 million taxpayers plus firms that pay

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taxes and tax payments are bunched up around quarterly due dates so four times

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a year for business requirements or for average households it’s April 15th

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that’s the magic day that we pay our taxes and so the tax payments come in in

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huge bunches okay at specific times of the year on the other hand government

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spending is much more spaced out over the course of the year and when the

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government mails out a check they don’t really know when the recipient is going

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to deposit that and then two or three days later that check will need to be cleared okay so the spending is pretty

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uniform across the air although the first of the month is when Social Security checks used to go out so you

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get a lot of checks cashed a couple days after the first but the tax payments are

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really botched and so they are not coordinated is what I’m saying therefore the fed and Treasury and this true in

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every country the treasury and Central Bank have to work out procedures in

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order to get positive balances in the treasury’s accounts and they have a

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variety of procedures I study the U.S and Canada and students who studied mmt

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went on to study the situations in their own country including in Brazil for example and China and they’ve all

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developed procedures to allow them to get a positive balance even when the tax

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revenue is not coming in okay and one of the main methods of doing that is Bond

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sales so they can sell Bonds in order to get positive balances it’s not that the

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government is borrowing it is this technicality that requires a positive

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balance in the treasury’s account at the central bank so if the legislation was

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changed and the negative balance was simply allowed to exist indefinitely there wouldn’t even be a need to do

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these things or issue bonds it would make things so much simpler yeah for the

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fed and treasury why did they set it up this way in the United States this dates

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to 1913 when the Fed was created so unlike Britain we did not have a central

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bank until 1913 which is pretty unbelievable though we existed for so

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long without one and really frankly that’s why the U.S had the worst monetary history of any of the countries

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that became Rich developed countries because we didn’t have a central bank the central banks were set up originally

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to finance government spending that was their purpose and then in the 19th

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century it was discovered that because of their position in the financial system they also could stop Bank runs so

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that became their second main function the Fed was set up specifically to stop

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bankrupts and not to finance the government and so the Clause was put in

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the Federal Reserve Act that the FED could not allow overdrafts and could not

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buy government bonds at all not even in secondary markets that was the way the

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Fed was set up because they didn’t want the FED involved at all in financing government spending and the main reason

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for that is they wanted to keep the federal government extremely small and poor that all changed with World War one

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and World War II and the Great Depression so we had a very small federal government in the United States

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until the Depression and World War II and then the federal government became

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large and government Finance became an important issue but previous to that we

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didn’t want a big government with the financial ability to grow so while we’re

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talking about this history and you touched on the history of the Clinton years a while ago just a quote from

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again sorry everybody you must be sick of hearing me say his name que estarma just a quote from case Thomas article

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this weekend he writes frankly the left has to start caring a lot more about

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growth about creating wealth attracting inward investment and kick-starting a spirit of Enterprise it is the only show

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in town for those who dream of a brighter future and this idea that kirstan was leaning into at the moment

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that only growth can save us the government spending can only hinder us that we can’t solve any problem as a

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nation without the almighty private sector which in fact Stephanie Kelton recently called learned helplessness

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this idea comes from a tradition of economic thought that in your book you trace from Reagan to Thatcher to Clinton

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as you say ending welfare as we know it to George W Bush’s ownership society and

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it’s this idea that once the government stops coddling people everything just gets better all on its own could you

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talk about that history yeah well it’s yeah it’s so so sad especially that it

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would come from a party that’s supposed to be more left yeah it’s just if you start unpacking it every single piece of

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that is wrong just empirically wrong theoretically incoherent it’s just not

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true in the United States I know much more about the United States but it also serves as a useful example I think so we

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had this small government capitalism that collapsed into the Great Depression

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and that was when we switched gears we discovered as Keynes had written in the

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end of laissez-faire before the Depression hit the United States the UK was already in depression he said that

33:44

this story of laissez-faire it’s just not true and he said and no Economist

33:51

really believes it this is a political agenda it’s not true so anyway in the

33:57

United States we recognized it was not true at FDR Roosevelt set off on A New

34:04

Path where the government would play an important role in the economy and he

34:10

passed the New Deal legislation which included jobs programs that develop the

34:17

United States the United States was an undeveloped country in 1930 now we had

34:24

manufacturing we had parts of our economy that were in the Forefront as

34:30

good as anywhere else but the majority of the United States was an undeveloped country no electricity no running water

34:38

in large parts of the United States and what the New Deal did was to modernize

34:44

our economy so this story government can’t do that sort of stuff is just false it was the New Deal that prepared

34:51

the United States for the role they would play in World War II that is how we became the powerful nation that we

34:59

became in World War II the New Deal had modernized us but second if you look at

35:07

the empirical evidence for the relation of government spending in the government

35:14

role in the economy to economic growth what you see is that when the

35:21

government’s share of GDP is growing so the government is growing faster than

35:27

the economy the economic growth rate is high when the government is shrinking

35:34

relative to the size of the economy the economic growth rate is falling and this

35:42

holds up for the past more than 100 years in the United States when the

35:47

government is growing fast then the economy grows fast so the idea that government leads to slower growth just

35:55

is not true we’ll be right back after this message from our sponsor

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37:22

let’s dive back in you also write in the book about the consequences of the

37:27

massive deregulation that took place under Clinton which we touched on could you talk about those consequences well

37:34

Clinton’s deregulation continued what Reagan had been doing so our first

37:41

really serious financial crisis in the Post New Deal era so the New Deal put

37:48

very tight Financial regulations on now gradually over time financial institutions innovated they were finding

37:56

ways to get around some of those regulations and so the system was becoming riskier anyway but when Reagan

38:03

came in they really deregulated what we call our savings and loans or the thrift

38:09

sector and that sector went on to do crazy and illegal things and it

38:15

collapsed in the 1980s half of them failed and we had to have a rescue of

38:22

the saving loan institution so we had already had a lot of deregulation when Clinton came in he started deregulating

38:30

the more dangerous part of the financial system thrifts were relatively small probably the total bailout of the thrift

38:39

sector was under 200 billion dollars so a billion is a lot but 200 billion that

38:45

time around the deregulation of Clinton was much more dangerous because we are deregulating the biggest most dangerous

38:53

institutions Goldman Sachs Citibank and so on and the bailout of that at as

39:01

we’ve shown in work at the leaving Institute was 29 trillion so the bailout

39:07

was much much bigger the hole that we were in was much deeper the crisis was

39:14

much deeper and of course it became a global financial crisis that time around I wasn’t limited to the United States so

39:21

the crisis spread around the world it took 10 years for our economy to recover

39:27

from that so Clinton’s deregulation was much more important in terms of freeing

39:34

the biggest institutions to engage in dangerous and fraudulent activity and we

39:41

have never re-regulated them so the potential for another crisis like the

39:46

global financial crisis is with us all the time except now we have Moses law

39:53

there is no financial crisis so deep that a large enough fiscal adjustment can’t solve it

40:00

you know they’re falling back on that a lot these days right I’m not on board with that okay I may have misstated it

40:07

no I think that is Warren’s position I don’t think that a fiscal response to

40:14

the global financial crisis would have been sufficient the 29 trillion that I

40:20

was talking about was the FED not the fiscal response our fiscal response and

40:27

on this I will agree with war our fiscal response was minuscule and it was stupid

40:33

to have such a small fiscal response we needed a much bigger fiscal response

40:38

that’s why it took 10 years for the economy to recover the number of jobs we

40:43

had lost and so on so the law still holds the if the fiscal response was big enough it would have been solved better

40:50

it would have helped resolve the problems with the real part of the

40:55

economy but the financial sector would not out of recovered I it’s hard to know

41:03

what things would have been like If the Fed had not done that 40 percent of that bailout that 29 trillion was outside the

41:10

United States so the problems in Europe would have been much worse than they were and a few other parts of the world

41:18

would have been much worse without the fed’s response and who knows where the

41:24

dollar as International Reserve currency might be today without the FED protecting a Global Financial system

41:31

based on the dollar so the only part that I’m disagreeing with Warren is I

41:37

think we had to have a financial response too now I don’t like the fact

41:43

that we bailed out the financial sector and asked nothing in return we just patted them on their little bottoms and

41:49

told them go back doing what you were doing before okay so that was a huge mistake but did we need to have a huge

41:57

financial response I think we did to be fair to Warren I think even now when

42:02

seeing the crisis in Silicon Valley Banks he does talk about the need for the central bank to guarantee deposits

42:10

and intervene that way to ensure Financial instability I’m sure he’ll agree with what Randy’s saying as you

42:16

were saying that Randy I was thinking I don’t know if you guys would agree with this but I was thinking the debt write-offs the bailouts of what happens

42:23

with fiscal deficits when speculative bubbles burst could be thought of as

42:28

fiscal stimulus just done really badly and never targeted where it’s needed I

42:34

think a lot of credit that was created through the SNL scams that all got

42:39

written off the debt side of that got written off so in a way that’s stimulating the economy or maybe I’m

42:45

completely off base with that well actually I think that we needed much

42:50

more debt right off right right for households right now there’s a big

42:56

debate about the student loan debts I those should be written off and that

43:01

would help the economy a lot another Levy report that has gotten a lot of press ran simulations to see what the

43:09

impact on the economy would be and it’s very favorable to forgive student debts this seems like a no-brainer to me yeah

43:16

I think Britain has a better approach to student debt than we do yeah well it

43:21

hasn’t quite got to the epidemic scale that I think it’s gotten in the states as well so we’re resembling the U.S

43:27

system more and more everything unfortunately yeah yeah and obviously and to go along with all these

43:32

complaints that we’re making about the opposition at the moment another thing that they backtracked on was that they

43:37

were going to scrap tuition fees I think then they backtracked on that oh I mean

43:43

labor is backtracked and absolutely everything yeah well you know what the coming thing is

43:49

you’re watching France the coming thing is going to be social security for the

43:54

Aged they can’t though on that one because at least not if it’s a Tory government because that’s their core

44:00

voting every time they’ve tried to mess with pensions and what they call the is

44:06

it their rule they have like a rule around that I can’t remember oh the triple lock yeah the triple lock on pension yeah so that’s like there’s

44:13

three I don’t know if you’ve heard of this Randy but there’s three indicators that they follow one is median wages and

44:19

the other one is inflation and there’s a third one I can’t remember what it is but the triple lock means

44:25

that pensions will always be increased by whichever is the highest of these three indicators basically and I mean

44:32

pensions in the UK I think is the lowest in Europe at the very least so it’s not generous by a long shot but at least a

44:39

Tory party they’d find it difficult to go against their core voters if labor does it that’s different I guess yeah

44:45

that’s why it will be labor there and it will be Democrats here yeah yeah what is

44:51

it conservatives fear their base and Center leftists are absolutely contemptuous of their base basically and

44:58

like you say in your book Randy every one of these blow-ups we’ve been talking about crises SNL crises and there’s a

45:05

great financial crisis every one of these blow-ups works out absolutely fine for the very top of the income

45:12

distribution how does that work it’s like magic so back in the Kennedy years so early 60s

45:20

the Keynesian economists became the chief advisors to the president and they

45:27

had this theory that a rising tide raises all boats and so if the economy

45:34

is growing that must raise the boats of the people at the bottom what it turns

45:41

out to be true is that the rising tide raises the Yachts so pavelina chernova

45:49

my colleague at Bart has a graph that became famous where she showed every

45:55

single recovery since World War II increased the share of the people at the

46:02

top so the way I put it is it’s the cream always Rises to the top and it was

46:08

very naive but you know in sort of a nice way I guess

46:13

that economists and especially the economists that are supposed to be more to the left the keynesians were so naive

46:22

as to believe that the rising tide would benefit the people at the bottom and the

46:29

reason is because they don’t take any account of power relationship so whether

46:35

the economy is performing well or performing poorly the people at the top

46:40

are going to be the ones that benefit and that is what the data shows so

46:46

getting back to real ancient history now Randy in terms of interest rates I think

46:52

of the book you talk about ancient Babylonians understanding compound interest is that right is there more to

46:58

tell there so Michael Hudson is the one who has written about this and told me

47:05

about it that they knew how to do compound interests and they even had

47:10

textbooks on how to calculate compound interest us and he makes the point that

47:16

the interest rates were so high and because they’re compounded the debts

47:23

would grow relative to ability to pay and that is why all societies that had

47:31

money and interest until Rome always had the Year of Jubilee the year of debt

47:38

cancellation because the debts become unpayable just because of the mathematics involved economic growth

47:46

until capitalism fairly recently always was way below the interest rate and so

47:54

by simple math the debts must grow faster than the ability to pay which is

48:01

based on the real economic growth rate so debt had to be canceled and this

48:08

wasn’t because they were all do-good or very liberal people it was people us the

48:15

creditors got more and more power to the point that they could challenge the

48:21

emperor and so it was a way to restore the rightful in quotes the rightful

48:27

order which is the Emperor should be the most powerful and so debt cancellation

48:32

was a way to rebalance Society because otherwise the creditors get all the

48:38

power with Rome we get property rights and you can’t just take away that

48:45

property right to collect interest from your debtors and so now even though the

48:50

economic growth rate is higher the ability to pay generally does not grow

48:57

as fast as the debts so we see in the United States our college graduates have

49:04

debt growing faster than their ability to service the dead and that’s why the debt continues to grow until they

49:12

default and paraphrase amazing year old Professor Jaime Minsky you write that

49:17

anyone can create money but neither the banks nor our government can run out and

49:22

so if prices are driven by scarcity and interest is the price of money in a modern money system how is there an

49:29

interest rate well so the interest rate the base of that is set by central banks

49:37

and the overnight rate is the lowest rate in the economy that’s completely

49:43

under the discretion of the central bank for a number of years after the global

49:48

financial crisis central banks kept it at zero and even tried to get a negative in some cases that allowed all the

49:55

interest rates to come down when inflation started to rise and that’s a

50:02

whole nother topic but I don’t believe that it had much if anything to do with government response to covet it was

50:08

almost entirely on the supply side because of supply chain main disruptions

50:14

and so on plus profit taking by firms with Market power but the central banks

50:21

responded to it as if it were driven by the demand side so they start raising interest rates and the theory is that

50:28

would reduce people’s borrowing and spending and that would reduce inflation

50:33

but as a result all interest rates rise and most countries have to follow the

50:43

path that is set by the biggest Nations especially the United States so if the

50:48

FED raises interest rates almost all countries in the world are going to have to raise theirs because they fear that

50:56

financial markets will run out of their currency so if their interest rate

51:01

doesn’t go up they can’t compete with the U.S dollar denominated assets so

51:06

everybody has to start raising rates so that’s why rates have gone up and as they go up the debt burden on debtors

51:14

Rises and we start to see people defaulting on their debts getting behind

51:21

in payments which is what is happening now it also triggered some of these

51:26

phenomenal bank failures like Silicon Valley because they’re holding assets

51:32

they were earning about three percent which is okay when the base rate was

51:38

Zero but now the base rate is above five and so they’re losing money on all their

51:43

assets and they want to try to sell those assets because they’re low earning but they have to take a big haircut that

51:51

is a loss on the sale and that’s what caused bank failures so those are the

51:56

two consequences of the Central Bank deciding to raise rates Now That Base rate will always be the lowest because

52:03

it’s very short term and it’s risk-free so on top of that you as a borrower will

52:12

have to pay a premium because you are not risk-free only the Sovereign

52:17

government is risk-free and depending on the term of the loan you may also have

52:23

to pay a premium for a longer Term Loan so that explains why there is an

52:32

interest rate on your borrowing well Andrew Bailey a while back said that he

52:39

argued for wage constraint on workers as a means to address inflation and this

52:44

really ties into those interest rates because basically what’s happened is he’s put up the price of money 13 times

52:50

in a row and then said to everybody stop putting your prices up you know what I mean like that’s for me not for D you

52:57

know but it’s even worse because in the last year has come out that the bank of England has actually paid out 25 million

53:03

pounds in just in bonuses and at the same time he’s arguing for

53:09

Restraint of workers so to what extent do you agree with Andrew Bailey that workers need restraint in order to

53:15

control inflation or is he missing something here no I think the evidence

53:20

is very strong that what is driven inflation is coming from the supply side

53:27

plus increasing markups by firms that have the market power to raise price and

53:34

there’s just so much evidence for this the CEOs at the board meetings are proudly saying yeah we’re taking

53:41

advantage of covid to raise prices because consumers don’t punish us for it

53:46

because they realize that we Face these challenges and so if they can get away with it they’re raising price some

53:54

people said well hold it if they had markup power why didn’t they raise prices before covet hit and the answer

54:00

is that they do worry about consumers say oh Coca-Cola raise their price I’m

54:07

going to shop for something else they always worry about that but when they’re in an environment

54:14

where the consumers are going to punish them and where the competition is also

54:21

going to raise their markups they will take advantage of that so that is what they’ve been doing and we know that over

54:28

the course of covet what happened is markups Rose profits Rose to record

54:35

levels during covid and CEO compensation Rose and the concentration of wealth at

54:44

the top Rose all of those things are occurring during covet and during this rise of the inflation rate the evidence

54:51

is pretty clear it is not workers that are driving this workers always play catch-up to inflation and so it’s not

54:59

surprising that we see wage demands Rising because there’s been inflation but they’re not the drivers of inflation

55:07

they are demanding a wage increase because there a real take-home pay and

55:13

their burden of their debts has gone up so when you say workers play catch-up is

55:19

the Dynamics sort of go a little bit like this some event or something

55:24

changes in the economy that shifts the balance of power in favor of capital capital takes advantage of that to

55:31

increase their profit margins and get more of their share of output and workers can only hope to respond and try

55:38

to defend their shares of output against this is that usually how the dynamic works yeah both the sort of the

55:45

empirical evidence the wage increases follow inflation but also the way the

55:54

wage bargaining works now I don’t know much about Britain but in the United States our labor unions are very weak I

56:01

think we’re at about six percent now of the private labor forces unionized so

56:07

most workers are not in labor unions but labor union bargaining has always been

56:13

based on what the price increases have been not based on what we think price

56:20

increases might be in the future because that’s a very weak bargaining position so you take the strong one which is Old

56:27

At Last year Prices rose by this amount we need our wages to rise to take

56:34

account of how much prices have risen it’s a stronger bargaining point and that’s the one that labor unions use and

56:41

we shouldn’t miss an opportunities to say that the institute for Public Policy research recently did a study that said

56:48

raising pay by 10 on average for public sector workers wouldn’t add significantly to inflation like next to

56:55

nothing as well so that whole thing that our government has been touting at the

57:00

moment the reason why they didn’t raise or they were reticent to give public

57:05

sector pay workers a raise and just recently their final offer is six percent but their whole rationale for

57:12

holding back on that was that it would entrench inflation and turns out not to be the case yeah and yeah I think that

57:20

is also true in the private sector that of course labor costs are important but

57:26

increasing wages by six percent or whatever is not going to have a huge

57:32

impact on total costs and furthermore we know the markups over labor costs have

57:39

gone up so all we’re doing is giving back to labor some of the share that

57:46

they’ve lost because of inflation over the past a little bit more than a year I

57:51

mean we always focus on the conflict between capital and workers and that’s certainly the main conflict going on on

57:56

here but it is true as well that in this particular situation where it was triggered by energy shortages and then

58:03

Capital took advantage of that it was a particular sector that took advantage of

58:09

that and it could be to the detriment of other parts of Industry does that

58:14

conflict play a role at all is there a way to sort of turn certain sections of capital against each other in order to

58:21

prevent this from happening well of course there’s conflicts within the corporate sector itself and there are

58:28

conflicts between your domestic firms and say Global energy suppliers OPEC

58:38

especially where OPEC is trying to increase its share of global profits the

58:45

financial sector in the United States gets 40 percent of all corporate profit and the financial sector is always

58:51

trying to increase its share so there are conflicts within the corpusc chapter 2 and there’s also this conflict with

58:59

your central bank because interest is a huge business cost and the most bizarre

59:05

thing is if you ask any Economist well what happens if wages go up well that’s a cost so price is going to go up what

59:12

happens if Energy prices go up well that’s a cost so prices go up what

59:17

happens if interest rates go up well that’s a cost so prices go down

59:23

it’s very bizarre so right now your central bank and our Central Bank are

59:29

inflationary they are raising interest rates which is a cost of doing business

59:34

so they’re adding to inflation pressures on the supply side of the economy why

59:41

aren’t people worried about that one for lots of kinds of firms interest and rent

59:47

are probably bigger costs than labor costs why is no one talking about that

59:53

because in the United States Reds have been exposed loading over the past couple years for a couple of different

59:59

reasons we haven’t had enough construction since the global financial crisis so we have a housing shortage

1:00:06

across the United States and then also there has been a concentration of

1:00:12

ownership of rental units in the hands of mainly financial sector firms they’re

1:00:18

trying to monopolize rent so they’re raising rats and then partly because we had a moratorium on red increases and

1:00:26

and when once that went off landlords are raising risks so all of these things are inflationary I don’t know the data

1:00:33

in the UK but in the United States I think the latest figure something like 70 percent of the measured inflation in

1:00:43

the United States is now shelter which has nothing to do with wages and it doesn’t have anything to do with energy

1:00:49

it’s shelter and the raising the interest rates is not going to help that

1:00:54

it will just reduce housing construction because so yeah what I wanted to ask you is obviously we’re talking about it now

1:01:01

you touch on it in the book we’ve got an affordable housing crisis in the U.S we’ve definitely got one here in the UK

1:01:07

so sorry if this is a two big question but through an mmt lens if you were in

1:01:13

charge how would you go about tackling that crisis in an mmt informed way yes well the United Nations human rights

1:01:21

Charter says people have a right to a place to live they also have a right to job and then many other rights so let’s

1:01:29

focus on that right in in the United States we have an explosion of homelessness I live near Portland Oregon

1:01:36

right now and they have made it illegal to camp on the sidewalks or out in the

1:01:43

open but there is no housing for the people and many of these have jobs but there’s no housing for that okay in

1:01:50

order to satisfy that recognize human right we need massive investments in low

1:01:58

income and it has to either be public or publicly subsidized housing rather than

1:02:04

raising interest rates and trying to shut down housing construction we need

1:02:10

massive investments in housing construction and the government has to play a big role in doing this the

1:02:17

government cannot run out of money the government can afford this the only question is can we find the resources we

1:02:25

need to construct the housing and the answer to those questions is that some of the

1:02:34

resources are in short supply we’re going to need investments in

1:02:39

apprenticeships and so on but we’re going to need investments in new methods

1:02:45

of building sustainable housing sustainable in the environmental sense to make them more energy efficient and

1:02:52

so on we’re going to probably need to change the way that we build housing so

1:02:58

that it’s more Factory based rather than on-site construction more efficient

1:03:05

building of the housing but the government has to play a big role in doing this and the cup of can always

1:03:10

report it and we know that that my quandary is do you see as I say as well obviously there’s not enough housing

1:03:17

that’s the problem right now and that’s why people who can’t afford to be housed could barely afford it and then there’s

1:03:24

lots of homelessness as well I think some people think that there’s something we can do with taxes or something that’s

1:03:30

going to change the equation but I don’t see it for instance land value tax I’m

1:03:35

talking with some very engaged and generous people who are into land value tax at the moment and sporadically but

1:03:43

I’m not convinced any thoughts well I’ve always advocated a cubic foot of housing

1:03:51

space tax space value tax right instead of a land tax because we can use that to

1:03:59

promote smaller houses that are more energy efficient than huge monstrosities

1:04:05

that are being built in U.S suburbs that sort of maximize the amount of energy

1:04:11

that is needed and in the United States California and I think Oregon these

1:04:17

parts of Oregon have allowed the construction of these housing units in

1:04:22

backyards small housing units I think California uh has made it illegal to

1:04:29

mandate single family homes so typically in suburbs the localities would mandate

1:04:36

only single-family homes could be built I think that’s now illegal in California so that helps promote more housing there

1:04:45

is a very big problem in getting construction projects approved because

1:04:52

of the fears of having multi-family housing which allows lower income people

1:04:57

to live in your communities in the United States so the NIMBY thing not in my backyard I don’t want any low income

1:05:04

housing we have to change attitudes we have to change laws about all that stuff I think those things are more important

1:05:11

than trying to use taxes as a way to drive it just as I think that there are better ways to stop pollution than

1:05:18

putting a tax on it that’s sort of a market-based approach and I think that often market-based approaches are not as

1:05:25

good as as good regulatory positions I think in the UK we have the opposite

1:05:30

problem for a while in London landlords were making houses where rooms were so

1:05:36

small that the government had to legislate to put minimum size of rooms because here houses and rents are priced

1:05:44

by number of rooms as opposed to I think in the US is by meter squared well we

1:05:49

don’t use meters oh well square feet or depending where you are acres we’ve had

1:05:55

very strange laws we’ve had taxes based on number Windows therefore you board up

1:06:01

all the windows we had taxes based on number of rooms where they counted

1:06:06

closets as rooms so if you go to Old victorians there won’t be any closets because those countless rooms well to be

1:06:12

fair closets are pretty big in the state but anyway yes the rules and laws can

1:06:18

also be poorly designed and you end up with results you don’t want yeah so they

1:06:24

should be thought about very carefully yes okay all right so I mean I know Patricia and I could talk for hours but

1:06:30

I think we’d all get in trouble with our families before we wrap up Randy let’s talk about what you’ve got coming up are

1:06:36

you working on any papers at the moment or thinking about them seeing as it’s the holidays well I just finished

1:06:43

several mmt related one I have a project on value theory that I’m working on I

1:06:51

finished a draft a year ago and I tried to pull it out this summer to try to

1:06:56

work on it some more David Graber has a great book on value Theory now he’s very

1:07:03

well known for the crappy jobs and very well known for the 5 000 years of debt

1:07:09

but his value Theory Book is really good I highly recommend it and I’ve been

1:07:16

influenced by his work and by the work of David Levine and uh Duncan Foley so

1:07:25

anyway that’s what I’m working on a project on value Theory it started off in mmt we say taxes Drive money but

1:07:32

taxes don’t determine the value of money if we have a job guarantee then the wage

1:07:38

in that program sort of regulates the value of money you have to work an hour

1:07:43

in order to earn 15 bucks in the job guarantee program so that gives us a

1:07:50

value Theory and you see it is related to labor and marxians and his followers

1:07:56

have a labor theory of value Keynes I think it can be argued also at a labor

1:08:02

theory of value and I’m trying to see if we can synthesize these various

1:08:08

approaches that give significance to the wage in determining the value of money

1:08:15

so that’s the project number so at the conference in Berlin I think you’re speaking on mmt in the Euro and I

1:08:23

believe durkin’s our friend his recent country attributions have changed the picture a little bit for mmt in the Euro

1:08:29

yes he and IA are co-authors on an article I think he’s probably going to present that I think he has presented it

1:08:36

somewhere it’s not quite done but pretty close to being submitted to a journal so

1:08:43

yeah Dirk I think has changed the way that we’re looking at the Euro he

1:08:49

believes the what we say the technical problems have all been resolved the bias

1:08:55

toward austerity has not been resolved so what we’re left with is the the Euro

1:09:02

area is in more of the situation that’s similar to the UK and the United States

1:09:07

where it’s the willingness to spend that’s the problem not the setup of the Euro really okay and I’ll link to our

1:09:14

episodes with Dirk where we talk about that and a lot of what’s changed is the fiscal rules have been turned off

1:09:20

haven’t they you know at various times but then there’s always the danger that they’re gonna get turned back on again the European Commission and not known

1:09:27

for doing the right thing at all times austerity is still a big danger and so

1:09:34

to Circle back to where we started Randy we’re always looking for ways to change or even given the way that for instance

1:09:39

our labor party has gone and they’re trying to take us back to the 80s with their I don’t know their growth is going

1:09:46

to save as narrative we’re always looking for ways to change or just begin the conversation about money and it’s

1:09:52

Central importance to democracy how can we talk about money in a way that moves the conversation in the right direction

1:09:59

with or without scaring the heck out of everyone we have to recognize the problem really is not that government

1:10:05

can run out of money because it can’t the problem is identifying the priorities so making

1:10:14

good policy and then identifying the resources that are available and

1:10:21

mobilizing those and this is what John Yarmouth who is the head of the house

1:10:27

budget committee recognized and gave a very important interview on CNN where he

1:10:34

laid that out we can always afford it the question is can we find and mobilize

1:10:40

as supervise the resources to accomplish the public objectives to pursue the

1:10:47

public purpose that’s the real question you’ve got to get policy makers who

1:10:53

really want to pursue the public interest that’s the big challenge for

1:10:59

democracy we’re definitely not there and neither are you I’m on that bombshell

1:11:06

great stuff Randy and thanks for not scaring the heck out of us since 1998.

1:11:11

that’s a great place to leave it we’ve been talking to Professor L Randall Ray author of money for beginners and

1:11:17

Illustrated guide which Professor James Galbraith calls brilliant and Professor Steve Keane says that it contains more

1:11:24

wisdom on money than all the textbooks in the world so we’ll link to where you can get hold of that book in the show

1:11:29

notes and to where you can find out more about the third international European mmt conference which takes place in

1:11:36

Berlin on the 9th and 10th of September and that will feature Professor Ray along with mmt founder Warren Mosler

1:11:43

perhaps we’ll have a panel on Moses’s law all alongside Nathan tankus Stephen Hale Dirk hence Fidel kabu nadongo

1:11:51

sanvasilla Yan Lang and many more me and Patricia will be there we hope you can make it for our UK listeners there’s

1:11:57

going to be an event in London on the 1st of September featuring Warren Mosler tickets are on sale yet and so I’ll link

1:12:03

to where you can sign up to the gims mailing list for updates about that and

1:12:09

for our Australian listeners there’s a rethinking capitalism weekend coming up in Canberra in August and finally for

1:12:15

our patreon subscribers there’s a link to all our Patron only episodes including edited audio highlights of the

1:12:21

book launch of the 2023 Anthology mmt key insights leading thinkers which Professor Ray has also contributed to so

1:12:28

check out the show notes for all of the above but for now thanks so much for joining us today on the mmt podcast

1:12:35

Professor L Randall Ray all right thanks it was fun

1:12:42

[Applause] [Music]

1:12:49

that was the mmt podcast with Patricia Pino and Christian Riley don’t forget

1:12:54

you can support the show through patreon starting at a dollar a month and get access to Patron only episodes you can

1:13:02

do that by going to patreon.com mmt podcast you can also find me on

1:13:08

Twitter at mmt podcast and you can find Patricia on Twitter at Patricia npino

1:13:14

and you can email us at mmtpodcast outlook.com thanks for listening and we

1:13:21

hope to hear from you [Music]

1:13:32

thank you

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