#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
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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
36:02
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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
