Randall Wray: Making Money Work For Us – Chapters 6 & 7, RP Book Club
(https://www.youtube.com/watch?v=JvCfu-G-HKA)
2023(e)ko ira. 11(a) #MMT #RealProgressives #LearnMMT
This is the third session of RP Book Club’s series on Randy Wray’s “Making Money Work for Us: How MMT Can Save America.”
Our guest is L. Randall Wray, a Professor of Economics at Bard College and Senior Scholar at the Levy Economics Institute.
In this session, we cover:
Chapter 6: The MMT Alternative Framework for Policy
Chapter 7: MMT and Policy
Transkripzioa:
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[Music] well I want to welcome everyone to RP
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book club this is our final session on Randy’s book and we have Randy himself
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with us tonight to answer our questions okay okay so we are going over chapter
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six and seven of the book here from Dr Randy Ray making
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money work for us so mmt could save America chapter six the mmt alternative
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framework for policy and chapter 7 mmt and policy
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I want to give a little disclaimer uh this is a great book and one of the things I really enjoy about Dr Ray is he
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breaks everything down to the lowest common denominator like he makes it so
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simple to understand this stuff and that’s the beauty of MNT is it simplifies and demystifies a lot of the
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economic gobbledygook we’re taught to believe but uh
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mmt from what I understand one of the basic policies that it proposes is the
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job guarantee because it satisfies that need to pay taxes it kind of completes the circuit if I’m understanding it
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right and it calls for a job guarantee and really in general uh public spending and
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understanding that we don’t need to have like a profit motive a return on investment or you know executive and
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CEOs or need to find an investor that wants to take a risk on Transportation
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or health care or whatever m t is telling us that we can do this and
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it’s almost like every page of this book I read I’m thinking to myself that everything that mmt or The mmt Advocates
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are proposing is diametrically opposed to the interests of private capital and
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wanting to privatize everything for a profit and it’s almost like
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if you believe that Congress has been captured by the rich in the ownership class and
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it’s against congress’s interests to admit mmt or
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yeah I understand it we understand it because it’s it’s going against the will of their donors
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this really breaks everything down and gives the Nuance of how things are paid for in monetary policy and
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and really simplifies it in a way that a child could understand and I think there’s a an illustrated book coming out
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pretty soon maybe we can even get Libertarians to understand this stuff because I don’t think we can hold our
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politicians feet to the fire personally but I believe that
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if more people that think right now the government is inept or they can’t
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balance a budget or a lot of gridlock and Joe manchin is stopping stuff if they understood that
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austerity is a policy choice and it’s a lot of this stuff is intentional I think it would light the fire for people to
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get radicalized to to do something about it more than I guess just Vote or they
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can tell they’re Congress person but that’s my opinion one of the things that I took from this
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book too is that monetary policy and monetary operations and things like
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overnight interest rates and treasury bond sales is just outdated obsolete stuff from the gold standard
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era that I mean now is just basically a way for rich people to multiply their wealth but
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I think it’s intentionally kept confusing and boring and you know you
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know in the era of 10 second attention spans I think a lot of people just start tuning out because they think it’s just
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this complex nonsense they don’t understand you know it’s just accounting it’s just keystrokes moving numbers from one place
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to another and like said in the earlier chapters balances balance
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alrighty so here we go I’m sure you hang around RP headquarters if you
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are familiar with our guests tonight and he needs no introduction but I’ll give him a little one Randall rage the
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professor of Economics at Bard College and Senior scholar at the levy economics Institute
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written a lot of books done a lot of lectures put out a lot of quality content and resources and
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Dr Ray gives legitimacy to the movement you know he almost makes it less of a fringe thing and you know gives gives us
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a lot of good resources to to share with people and you know it’s legit stuff and uh
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man also the greatest beard in mmt since Bill black ladies and gentlemen
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Dr L Randall Ray the floor is yours sir okay thanks so I’ll just say a couple
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words about each chapter um as I was saying before it was opened up to the audience
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in chapter 6 is on framing and that actually is the first part of the book
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that I wrote I wrote it a long time ago as a series of several blogs on
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Stephanie kelton’s New Economic perspectives blog Stephanie and I both
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were reading Leck off at the time and realized that we had to talk about
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Framing and we had to try to get the framing better so I always tell the story of Robert
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heilbroner when I wrote the first draft for the 1998 book which was the first
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academic book on what became mmt Warren Mosler had written a little
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pamphlet before that called Soft currency economics anyway I sent the draft aisle Runner who
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I had met once but he didn’t know who I was I asked if he could write a little blurb for the book jacket
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Publishers like that I’m not positive in sales books but anyway so I thought I’d try him because he’s probably either
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number one or number two in terms of the most economics books sold in English
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language the other would be John Kenneth Culbreth and I just got a phone call out of the
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blue from heilbrunner and he said you’ve asked me to write a
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blurb on your book which is about money and this is something I cannot do
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money is the scariest topic there is and your book is going to scare the hell
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out of everybody and so he he did not write the blur but
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so I joke that we’ve been scaring people ever since and part of the reason it’s scary is because we weren’t taking
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account of the way the brain works and lackov is the one who explained how it works
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we tell stories we use metaphors and um these memes actually take a
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physical presence in your brain and when you hear a word it will trigger
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the meme sort of like a virus and the problem is that
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most of the terms we use in economics suit the conservative frame
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almost certainly on purpose and so the conservative talks
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about the free market we all love freedom and about choice we think we like choice
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and of getting the government off our backs and lack off talks about the
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parental figures that are both have positive connotations but also negative
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connotations because your parents constrain you and so they’ve already got all of these
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terms the government runs a deficit well I found out you know a long time ago
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that the average American average person in the street has no idea what a budget
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deficit is usually they confuse it with the trade deficit okay it means that we’re buying
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more from China than we sell to China but the one thing they do know is
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a deficit is a bad thing it means you’re deficient our government is deficient in
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some very important way and so you know we would explain
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the way that we view a deficit and uh argue that there’s nothing wrong with
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this we can’t run out of money and you know if the government ever
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needs more all it has to do is keystroke more money
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which is a perfectly good description of the way a modern government spends it’s
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all keystrokes they can’t run out but when the average person hears that
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that sounds immoral the government’s not paying for stuff
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okay the government is just keystroking that can’t be right it can’t be moral
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for the government to do that it should be constrained like we are
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in our income government can’t spend without limit that would be wrong and so anyway
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what I try to do in chapter six is to give us new ways of thinking about
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things and Stephanie Kelton does this in her book too so you know don’t call it a
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budget deficit call it a government spending Surplus the government is spending more creating
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income for us the so-called debt clock in Times Square is actually keeping track of all the
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wealth Financial wealth the government has created for us the government doesn’t take money out of
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our pockets it puts money into our pockets uh that’s a really good thing
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so that’s an example of how you turn the tables and you use positive words that
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trigger good feelings in people’s brains and then you are you’re not triggering
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the wrong ones so that’s chapter 6 chapter 7 and is really asking
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the question has mmt made any Headway and I saw there were various comments
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being written in Chad about the difficulty even if you you win
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the debate and you get the framing right the difficulty of turning the political
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system around so that it will actually try to serve the public purpose broadly Divine and
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that is extremely difficult uh everyone who’s who says this is difficult that
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you’re all correct we don’t have the political will to do this to do the kinds of
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things that most mmt proponents who mostly are progressive want to do
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and I I don’t see politicians As Leaders they’re followers okay but we can use that to our
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advantage if we understand how things work then every time Obama tells us the government
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ran out of money you say you’re lying we know you’re lying you need to stop it we
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know that that cannot be true and you know that too you know that you’re a liar call them
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out um make them afraid to say silly things like that in public it’s been hilarious
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watching Paul Krugman over the years he is you know he’s so confused and so
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wrong on virtually everything he says it has anything to do with macroeconomics
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I think Krugman is pretty good on some things but not on macroeconomics and he’s called out all the time
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and he has to try to defend himself and gradually over time he’s learned something
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he stopped saying things where he will you know suddenly get a hundred people commenting on his blog telling him he
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doesn’t know what he’s talking about so I I think that that is what is useful
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about teaching people who you know don’t have the kind of power that our politicians have but
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who can try to hold them to their errors Point them out and say
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we’re not we’re not going to take that anymore because we know that you are not telling
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the truth um I think I’ll stop there
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all right so we’re gonna get to the Q a and we’re gonna actually go to the CEO
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and founder of RP himself Steve grumbine who has a question
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I believe you’re familiar with him Dr Ray yep actually I saw his question too
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all right let’s see from Steve do you feel that minting the platinum coin is
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the best way to move on the debt ceiling or is there another mmt preferred way of expressing this I’m really not sure
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foreign gray had a little conference a couple
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weeks ago at Willamette and I went and I met the guy who pushed the the law
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through in order to um uh allow the mint actually to Mint Platinum coins of any
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denomination and all along he had in mind that this would be a source
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of um Finance for the treasury so the idea of selling coins to the FED
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in order to get around the dead limit really is sort of the intention of the
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platinum coin back when the laws passed he wasn’t thinking of trillions of dollars he was
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thinking of some billions of dollars that Congress would have without
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worrying about where’s the money going to come from are we gonna have to increase the tax uh rates how are we
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going to get around pay go this was going to provide them with the capacity
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to spend without worrying about any of that stuff and he is very gung-ho on trillion
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dollar coins and he believes that there’s a pretty good chance or very
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very good chance that the treasury will do this now all of the elected officials and
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appointed officials are saying they will never do it they’re not going to do it that it’s a gimmick and so on
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I think it’s very good that it’s out in the open people are discussing it and realizing that the debt limit is very
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silly and some prominent people have come out and said that we ought to get
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rid of it probably most of you heard Yarmouth on in interviews uh he was the
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head of the house budget committee saying that we should just raise it to a gazillion dollars and then not worry
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about it anymore just one time increase to some gazillion dollars and will be
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good for the next few hundred years so it helps to make it clear
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that I there is no real spending constraint this is a self-imposed
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constraint we can find ways to get around the self-imposed constraint so I would rather get rid of the debt limit
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foreign but as a last resort uh hopefully the Biden Administration will
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use it I don’t know the answer to that our next question comes from uh actually
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one of the coolest people I know and I met out in DC Cheryl Van Epps call me
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John that was really nice of you I’m asking this question from a position I’m a patient
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who is one of those high class patients as they call them in the legislation for
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Medicare for all when I looked at the H.R 1976
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legislation text it was written in the point of view they’re looking at Cost
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cutting and to me that means cutting services
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um I don’t want to go into it but it looks like the Senate the newer version
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4204 is not I’m just now going through it and I’m really pleased at that
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so that’s where I’m coming from with this question so theoretically speaking could we write legislation with an
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open-ended amount of Appropriations uh write it as if it’s Mission based to
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meet the Public’s needs sure absolutely and we we have programs
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essentially like that that don’t have uh dollar amounts attached to them they
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are um I mean I’m not an expert on the the budgeting but Stephanie is but a large
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part of the budget is open-ended so certainly we can do that unemployment compensation for example at
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the federal level is open-ended so you just need to meet the requirement and sometimes they loosen the requirements
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so that you can stay on unemployment compensation longer so certainly we can write the bills that way and that’s a
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large part of the budget already so of course mmt says uh
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budgeting overall budgeting is a good idea
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there are some areas where you don’t want to give unlimited budgets like building freeways uh building
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interstates because with an unlimited budget the transportation department is going to
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ramp up the spending your prestige and your pay is somewhat
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related to the number of people and projects that you’re managing and so there’s a a big incentive to to pave the
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whole country uh if you give them an open and ended budget but if you are say
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setting unemployment compensation what matters is not the amount that you
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spend but the requirements for receiving unemployment compensation
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uh and the same would be true for medical care it’s not how much you spend it’s providing the treatment that’s
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needed so and they yes should they yes it
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should be open-ended Social Security is that way too now part
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of the reason I was leaving that out is because you’ve all been taught the Social
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Security is paid for with payroll tax which of course is nonsense all the payroll tax does is reduce your
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take-home pay that’s all that it does but we pretend like the payroll tax pays
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for Social Security and they keep telling you well we’re going to have to cut the benefits in about a decade
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because the revenue coming in is lower than the benefit payments because we
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have the Baby Boomers uh and I I yes we didn’t plan well enough ahead of time well that’s all false the
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uh Social Security can make all the payments as they come due and uh we have
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set the conditions under which uh your under which you qualify for Social
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Security and also the formula for how much you will get on Social Security that’s all written into the law
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it’s always claimed that Congress
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would have to do something in order to you know find
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the extra money estimated to be about one quarter of the benefits promised in
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order to to pay for that but that’s a self-imposed constraint yeah and I would go further and say that
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uh you know there’s this idea I remember working for the Bernie campaign and one of the things was
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those darn Republicans have been stealing from the cookie jar of Social Security and we got to get them to pay
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it back and stuff and I told people this phone Banking and then when I under you know listen to some of your lectures
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read some stuff it’s like Jesus Christ it’s all nonsense it said it’s totally
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solvent and I think that’s part of the thing that gets people pushing back against mmt is they see on their check
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minus you know 100 bucks for FICA or going to that and it’s like well I’m
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paying for this stuff and they just can’t wrap their mind around that it’s it’s not like that but and
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Randy we were working with a Medicare for all group and they were at one point
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looking into ideal legislation what would be ideal legislation or how would
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they ask Congress or Senate to change whatever legislation is sitting in their
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offices now and one of the questions that we got hung up on was taxes the
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Physicians for a National Health Plan and the national single-payer groups
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were insisting on progressive taxation being included in the bill and I’m
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wondering I mean nothing wrong with progressive taxation if you got to have taxation but I’m wondering is there a
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way to word it so that I know Stephanie talked about that we
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may need some offsets we don’t know what Medicare for all is going to require but
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is there a way to word it with it doesn’t include taxation unless it’s
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necessary I just wonder if you have any ideas about that I just don’t like the idea of making it sound like oh we got
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to raise taxes pay for it pay go whatever I’m wondering if there’s another way that’s realistic
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Medicare for all is probably going to reduce Total Medical spending by a
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substantial amount and uh so yeva and I have written on this
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rather than a tax increase we might have to give a tax cut
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because we’re gonna we’re gonna be taking a lot of spending out of the economy spending on stuff we don’t need
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and that is you know all the people between you and your doctor uh that are
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that are trying to prevent you from getting care we’re going to eliminate those people the whole Insurance sector
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and they’re gonna have to go find something useful to do so we might need to reduce taxes in order to expand
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aggregate demand so that they can find jobs doing something more useful than what they’re doing now so I I can’t
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Envision that we need a tax increase if we move to Medicare for all more likely
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we’ll need a tax decrease we might reduce Medicare Medical Care
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spending by somewhere between three and five percent of GDP that’s like a huge
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shock to the economy so we’ll give everyone a tax cut with their Medicare referral great I’m
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wondering if he ever has anything to add to that do you have a suggestion about how to put that in
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legislation how you would express it
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I don’t really know I think I wouldn’t just say what Wendy just said that we think that just because government
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spending is going to go up that has to be matched with taxes that’s the framing right but Medicare for all is a perfect
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example of you needing to give a tax cut because the overall spending and economy
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is going down because the governor is now saying you cannot charge us I don’t know three hundred dollars for insulin
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or we are not going to spend so much on administering the Health Care system so
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that’s where the savings are coming from so you are actually withdrawing spending from the economy no need to attach tax
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increases to that think of all the all the insurance sector workers are going to be laid off
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after this now it’s true that households are going to have more take-home pay
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because they’re not going to be spending the 12 000 a year as they’re part of the
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courage of the insurance that their employer is supplying and so they’re
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gonna have more take home pay and it could turn out that the hit to agree demand isn’t as big
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so I think the right way to proceed is to implement Medicare for all
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maybe phase it in maybe your first step is to lower the age from 65 to 55 and
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then keep lowering it until we’ve got everybody in that pool transition to it
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and if it turns out that aggro demand does increase too much then what we want
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to do is raise taxes at that time or
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figure out where the inflation is coming from and try to tackle that part of the
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economy rather than tying a progressive policy
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that you want to any kind of tax increase like I said
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in the book that’s like throwing barbells to a drowning swimmer
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um you don’t need to throw something that is going to generate a whole bunch
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of opposition any kind of tax is going to raise opposition um why tie that to a progressive
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spending uh proposal all right we’re going to go with
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Catherine Herbert next and she wants us to read it for her why do mm tears not
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seem to support Universal basic income so we generally have about 12 million
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people who want to work and can’t find work
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and so my first response would be you know if somebody tells you what they
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want is a job they want to do something useful they want to contribute to society
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you say well how about basic income guarantee instead say but they want a
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job let’s first give a job to anyone who wants to work
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and then we’re going to find that there are some people who don’t want to work
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cannot work uh or should not work and then let’s deal with that the job
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guarantee has a bunch of advantages over a basic income guarantee
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and so for most of the population the job guarantee is very much better
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for them as individuals but also for our society as a whole
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um a job guarantee program is going to require
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much less spending by the federal government because we’re targeting the spending to
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people who have not been able to find a job or have recently lost their job and so we’re talking maybe 12 million
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people on average maybe 18 million in a recession as people lose their private
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sector jobs and maybe it falls to 8 million in a very robust boom
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that’s a small fraction of the whole labor force
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if on the other hand you look at what basic income guarantee from the very
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beginning had proposed to do is to provide an income that is a
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reasonable alternative to working so that people would not be forced to work they could choose voluntarily not
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to work and collect basic income guarantee and that it would be generous
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um that in fact that everybody’s going to get it that was the original proposal
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and you would get a decent American living standard okay then you’re talking
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about thirty thousand to fifty thousand dollars per person across the United States depending on whether you include
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children or not you know we could be up to 350 million people receiving this clearly
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it’s very much bigger so then the argument is well but what we
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will do to make sure this isn’t really inflationary is that we will tax everyone above
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some income level and in order to make sure that the basic
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income guarantee doesn’t add a lot of Agri demand to the economy we’re going to have to text them at
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Double what we give them with the basic income guarantee so if you give them 30 000 we have to
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tax them sixty thousand and the reason for that is to offset the other half of the population
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that is below that median income level and uh you know all of a sudden half of
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the population isn’t getting anything with the basic income guarantee it is
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actually losing with a basic income guarantee in order to prevent any inflationary pressure
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then uh you’re going to lose a lot of support for the program and the big argument for the basic income guarantee
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is that because everyone gets it it’s going to be just fabulously popular because who’s going to turn down fifty
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thousand dollars or whatever it is so anyway that is one problem with it the other
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problem the other so the size of the spending will be very different
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and the other is that we see the job guarantee not only as something that
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provides jobs to anyone who wants to work but also as a way to help stabilize
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wages and prices it can’t be inflationary by itself
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because all it is doing is catching people that fall out of the labor market
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it doesn’t compete with the private sector it is providing an alternative
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job public option as some people call it that has a wage that’s established
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with the law that creates the job guarantee program and that will help to stabilize wages
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both on the upswing and also on the downswing wages can’t fall below that
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wage and when the economy does heat up the private sector and other kinds of
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government jobs will pull people out of the job guarantee program so it actually
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helps to stabilize wages which helps to stabilize prices
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so that’s the main arguments in addition we could argue that the Ubi people claim
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that what’s going to happen is we’re going to unleash all of this innovation of creativity because people won’t have
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to take the kinds of jobs that Graber was describing I won’t use his words but
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you know what I mean they’re crappy jobs they won’t have to take those crappy jobs because they will get the basic
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income guarantee and they can then become creative and so on it’s nice that’s a nice way to think
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about it but we know from surveys what unemployed people do with all their
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extra time and and just to cut to the conclusion uh they watch television and
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they sleep a bit more those are the activities that we find that actually occupy the time that
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people are not working so it’s nice to make these claims but I
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think there are problems anyone is interested I have written all of this in a previous book greatly forward I’ve
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gone through their claims I’ve got the arguments that they made I have the citations to their literature pavlina
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it’s your neighbor and I have been working with arguing with
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the founders of the modern movement for almost 30 years
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um and I just I find most of their arguments implausible
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uh or mistaken Randy you said that the jobs guarantee
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jobs are not supposed to compete with the private sector jobs but in fact
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if you’re offering me twenty dollars an hour uh with a job guarantee or 15 or
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whatever and McDonald’s is only offering me seven then I’m gonna stick to the job
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guarantee job so that is competing and my other question is some people at
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pavlina talks about this all the time the kinds of jobs we can have as job
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guarantee jobs are the other side of the equation they can really provide a
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service things that the actual Community needs I always think when I lived in New
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York City of all the empty lots that could have been turned into public gardens or playgrounds or something that
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would be a great job as a job guarantee job the Arts there’s so many things
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anyway but the competition question is what I’m curious about when you implement the job guarantee
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program whatever wage and benefit package and working conditions in those
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jobs will set a standard that the private sector has to meet or
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compensate you for so if the job guarantee program has two
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weeks of paid vacation as all you Americans know we have no law that
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requires you to get paid vacation in the United States and many employers don’t provide any at all
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we won’t need the law because as soon as the job guarantee program has a two-week paid vacation
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the private employers will either have to add that or pay you enough
35:37
that you will accept not having a paid vacation the same with health care if it
35:43
comes with Health Care private sector will have to provide that okay so whatever wage and benefit package is
35:51
provided becomes the new minimum and uh we would like this set at a
35:57
living wage and with the kinds of benefits I’m talking about so yes you’re right as soon as you
36:05
implement this it is set a new standard it’s like raising the minimum wage when
36:10
you raise the minimum wage or if you require paid parental leave for the
36:17
birth of a new baby that sets a new standard and the job guarantee program will do that
36:23
so there is competition at the very beginning I mean it’s not really competition it’s you either they meet it
36:30
or they’re out of business and so some people have said well that sounds terrible and I even had a very
36:37
Progressive woman once when we were presenting the Roosevelt Institute who was worried about her own business
36:44
because she said I couldn’t possibly pay a living wage to my workers and her
36:50
business was in New York City certainly go out of business and say well you know some business models
36:56
should not survive if you’re a business model requires that you can only pay 750 an
37:05
hour to people who live in New York City that’s not a business model that we want
37:11
to support a lot of jobs will disappear because that business model it can’t be
37:19
successful and I think that all jobs should pay a living wage if they don’t pay a living
37:24
wage they shouldn’t exist I couldn’t agree more that’s why I think
37:30
a lot of private businesses are wholeheartedly against a federal job guarantee because why would you want to
37:36
compete with an entity that doesn’t need a return on investment was unlimited funding but I digress I
37:43
mean we already have like grumbine always says we have a basic income already it’s Social Security let’s expand and Target that better you know
37:51
and I think a Ubi is a policy prescription makes it to where instead of Universal
37:57
Health Care it’s like ah here’s some money go buy health care and if you can’t afford it
38:02
too bad or whatever and it just again it doesn’t solve it it’s like putting a Band-Aid on cancer but it gives the
38:09
illusion is hey look at we gave you money why didn’t you go to the doctor you know or whatever it’s a subsidy for
38:14
low-wage employers that’s what it is so I’m sure you’ve all you know read the
38:20
analyzes of Walmart employees they’re on food stamps okay why are they on food
38:26
stamps because because Walmart does not pay a wage that they can live on so all
38:32
you’re doing is subsidizing low-wage employers and what I’m saying is put them out of business instead
38:39
agreed all right and our next question comes from Matt pivot’s a friend of the
38:45
organization you’re good to go awesome I have one so my question has to
38:51
do with zero percent interest rates so basically mmt says because our
38:57
government creates new money when we spend they’re effectively not competing for an existing bucket or sum of money
39:04
they’re for the natural rate of interest would be zero what do we say to people if they have a
39:12
rebuttal or pushback stating that would cause problems with investment maybe in
39:18
the financial markets like asset price inflation is there a good way to counter that or other alternative explanation
39:25
other than just what I said yeah I I hear that um
39:31
a lot and I hear it from people who work in financial markets who are worried about that
39:36
and so first just the natural raid argument is that the
39:44
government’s National governments normally spend more than they receive in
39:51
tax revenue so we call it a deficit I would like that we transition away
39:58
from using that word because deficit oh no they’re doing something wrong No actually they’re doing something right
40:04
they’re spending more than they’re taxing and they’re putting money in our pockets that’s a very good thing for
40:11
them to do but the implication for the banks is that their reserves will be
40:18
increasing because every dollar that the government spends will lead to a dollar
40:24
credit to some banks reserves every tax that we pay leads to a dollar debit from
40:31
some banks reserves so if the government is spending more than taxing Bank Reserves are going up
40:37
and that will tend to push the interest rate down to zero unless the Central
40:43
Bank pays interest on reserves which is what they have been doing since 2009 so
40:49
now we only push it down to the interest rate the FED pays banks on reserves so
40:57
if the vet didn’t do that it would be zero and that’s why we call it the natural rate
41:02
all right now that doesn’t mean that you’re going to borrow a zero so it’s
41:10
only the interest rate that banks are getting on
41:15
reserves lending to each other so other rates are going to be above zero and they should reflect various
41:24
kinds of risk including the risk of default so the interest rates for everyone else
41:30
aren’t going to go to zero they’ll go to zero on reserves they’ll go near to zero
41:37
on government bonds that are short term a bit higher on government bonds that are longer term
41:44
should that be a permanent policy then keep interest rates is zero and other rates very low
41:51
the fear is that when rates are very low there’s a huge incentive
41:58
to borrow at a very low interest rate and then to speculate in financial
42:03
assets and that leads to speculative bubbles in financial assets
42:10
and also possibly in housing and real estate so we get these bubbles of
42:16
financial assets what’s the best way to prevent those bubbles from occurring is it to keep the
42:23
interest rate high okay so the FED has been raising interest rates it seems to
42:28
have had an impact on the stock market it had an impact on housing markets
42:34
is that the right way to deal with speculative excess I would say no it’s
42:40
not lots of the speculation should just be outright plain illegal they should not
42:48
be permitted to do it it should be jailable offenses and virtually
42:53
everything that has to do with the virtual reality coin scams should be
43:02
illegal and they should be going to jail a huge part
43:10
of the cause of the global financial crisis was various frauds by Wall Street
43:17
by the biggest banks and I A lot of it was illegal but a lot of
43:23
it wasn’t illegal but should have been illegal so what I would say is let’s clamp down on the speculators rather
43:31
than raising the interest rate and hoping that will dim the speculation because it becomes a little bit more
43:37
expensive for them look if you believe that you can get a 25 return
43:44
by speculating in financial assets or Commodities raising the interest rate of
43:50
five or six percent is not going to reduce the speculation so let’s tackle
43:57
the problem directly instead of thinking that we can get rid of it by increasing
44:02
the cost a little bit right our next question is from CAG Lee
44:08
and he would like us to read it yeah okay it’s my understanding that there
44:13
are two types of accounts at the central bank I’m unable to remember what they are called but essentially checking in
44:20
savings accounts when Warren Mosler has been asked about the ramifications in
44:26
the event that China sells all of its U.S treasuries his response has been
44:31
that there are no ramifications and the money would just be moved by
44:36
keystrokes from the interest bearing account to a non-interest bearing account one of the ramifications for
44:43
China would be their loss of interest income the only thing we owe China is an account statement so my question is what
44:52
does the national debt number actually include just the money in U.S treasuries
44:59
interest bearing accounts or all the money deposited at the FED interest and
45:04
non-interest bearing accounts yeah okay let it so I’ll just answer the last part
45:10
first when they total up the government debt they’re only totaling up
45:17
the bonds and bills so they’re not including cash and
45:23
they’re not including what Warren was calling the checking account at the FED
45:28
which we call reserves so it’s reserves that are held at the fed the now earn a
45:36
bit of Interest as I was saying before those are not included in the debt so
45:43
yes if everyone who held a Government Bond all
45:48
the banks in the United States all the banks around the world and all individuals
45:55
working through their Banks decided that they didn’t want to hold a U.S
46:00
government bonds anymore we could take that 33 trillion or whatever the number
46:06
is now 33 trillion dollars of bonds and change all of that to Bank Reserves
46:13
that is moving it out of the savings accounts into the checking accounts and now
46:21
the amazing thing is the treasury wouldn’t be paying any interest at all
46:27
it would be the FED paying the interest so the FED would pay the interest on 32
46:32
trillion dollars worth of reserves although it’s a very low interest rate okay it’s lower than what
46:39
the bonds are paying this would just simply be quantitative
46:45
easing on a much bigger scale than what we saw after the global financial crisis
46:52
so that’s what the quantitative easing was bought back the bonds and credited
47:00
people’s checking account and they get the interest rate paid by the FED Institute by the treasury so there are
47:07
some advantages of doing that uh is there any implication of China
47:14
deciding to sell off their bonds um as Warren was saying
47:21
they’re going to lose some interest income there could possibly be some
47:27
impacts on the dollar exchange rate I I say possibly the theory is that if China
47:33
started selling treasury bonds you got to find buyers for them
47:39
If the Fed doesn’t buy them and it could be that other Global buyers wouldn’t buy
47:47
them unless the value of the dollar went down this is the theory of the way things work
47:56
in reality the dollar we can’t find things like that affecting
48:02
the value of the dollar so I think it’s very unlikely that it would have much impact on the United States at all so I
48:09
think Warren’s right and he’s definitely right if it’s the FED that just buys all the bonds and credits their the Chinese
48:19
central banks Reserves our next question comes from my brother from Down Under Stephen D so 15 years
48:27
ago in Australia we paid off all the government debt and the budgets in
48:32
surface does that mean all the money in the economy was from Bank Lending
48:38
okay I don’t think you paid off all the government debt it’s true that you ran a
48:44
surplus we did two under President Clinton when you’re running a surplus
48:49
you can be reducing the size of the outstanding government debt we actually
48:56
got down to no government debt except unless 60 billion in bonds because it’s
49:02
foreign National Market wanted it right
49:08
other than that all dead absolutely all government debt broke down okay in the in the United States Clinton
49:16
had said we would retire all of the government debt within 15 years okay and
49:25
economists and the FED took this seriously uh we didn’t but uh we we said
49:32
the budget surplus is going to destroy the economy we’re going to collapse into a deep recession the budget deficit will
49:38
come right back okay which is what happened but anyway economists and the FED took this
49:44
seriously and so just like you’re saying everyone was worried what are we going
49:50
to do if there’s no government debt out there what are we going to use is the really safe the default risk-free asset
49:58
in our portfolios the FED held conferences on this trying to figure out
50:04
what they would use instead and one of the answers was mortgage-backed securities
50:11
uh because I mean everybody knows that in the United States
50:17
we do get housing bubbles in in particular cities particular States and
50:26
they crash and the house prices fall and those mortgages go bad
50:33
but we had not had a nationwide housing
50:39
crash since 1929. couldn’t happen you know and so because
50:46
the advantage of the mortgage-backed Securities is you package mortgages from all over the country and do the security
50:52
the idea is you Diversified the risks away and there’s no chance those things
50:58
can go bad therefore mortgage-backed Securities are just as good as gunola bonds and so
51:06
the markets because it looked like government bonds
51:11
were going to disappear and we were running a surplus they started stuffing their portfolios full of mortgage-backed
51:18
Securities and this helped to lead to the global financial crisis because
51:24
suddenly there weren’t enough mortgage-backed Securities to satisfy everybody so they started securitizing
51:32
worse and worse mortgages until they got to the point where their
51:39
securitizing mortgages that had no chance of ever making a single payment whatsoever and then the whole thing fell
51:45
apart okay you’re right the markets are the ones
51:50
that demand the government bonds and so we have all this worry the Bond vigilantes will attack if the debt gets
51:58
too big and so on and then the treasury has no problem selling the
52:05
bonds every time there’s a new bond issue it’s over subscribed the global markets want U.S treasury
52:12
bonds so we have the strange disconnect people warning this can’t continue you
52:18
can’t continue to run deficits and put more bonds into the market the Vigilantes will go on strike but the
52:24
Vigilantes are out there saying well that we want the Bots don’t take them away from us so
52:33
in some cases when the treasury ran surpluses and
52:39
therefore we’re not issuing new bonds central banks issue the bonds
52:45
because the market demands bonds in China the
52:51
Central Bank issues bonds so markets can accumulate safe bonds when the national
52:58
government is not issuing enough to satisfy the markets
53:04
James Keenan are you there sir okay so this is a comment from which I’m
53:11
soliciting a response from Randy in chapter 6 of making money work for us you argue that we have to reframe the
53:18
public discussion about money deficits and debt so as to capture the moral High Ground you then go on to recommend one
53:25
particular way of reframing the concept we take care of our own as suggested in
53:32
a 2012 Bruce Springsteen song and you suggest several memes based on this
53:37
concept I fully agree with you about capturing the moral High ground and reframing the
53:43
debate but I confess I have qualms about the particular concept you’re suggesting
53:49
on the one hand we take care of our own suggested a more communitarian approach
53:54
to politics but on the other hand over the course of my life I’ve often heard people say about an ethnic group other
54:01
than their own those people they take care of their own
54:06
and this most often appears as an anti-semitic trope I could also imagine that this Trope
54:12
could get twisted into we take care of our own but we don’t take care of the
54:17
others those who are not our own I also watched the video of the
54:22
Springsteen song and I found it a bit too flag waiting for my tastes so while
54:28
I’m fully on board with your search for good political messaging for mmt I’m more dubious about the particular
54:34
message that you suggest in chapter six reaction our own means all of us we’re
54:41
all in it together I talk about the pandemics that we face
54:47
as humans but even Beyond humans the pandemics of covet is one climate
54:55
catastrophe is another the rising Seas of
55:00
refugees climate refugees War refugees of inequality racism of fascism these
55:10
are all pandemics we Face we Face them all together we cannot possibly solve
55:15
these even a country at a time we all have to work together and understanding
55:24
mmt makes this much easier
55:31
a country like the United States faces No Financial constraints
55:38
either a domestic or abroad now that’s not true of most countries
55:46
we argue mmt does apply to developing countries and even I wrote a piece for
55:52
another book that just came out on this the problem that they face so domestically they can use their own
56:00
currency to mobilize their resources but they don’t have the resources to
56:06
deal with these kinds of problems that I’m talking about and problems that for the most part they did not cause okay
56:12
it’s not the small developing countries that have caused climate change it’s the
56:17
rich countries that have caused climate change but the small countries are the ones who are already facing disaster
56:26
because of what we did okay now they don’t have uh
56:32
sovereignty externally they can’t spend their own currency to
56:38
mobilize foreign resources because for the most part other countries around the
56:43
world don’t want to accumulate Assets denominated in their currencies
56:48
the US is not in that situation Britain’s not in that situation in China increasingly is not in that situation
56:55
our currencies can mobilize foreign resources and what that means is
57:02
that we can help we have the capacity the financial
57:09
capacity to afford to help the developing nations take on
57:16
these multi-pandemics that we all face
57:22
together and because we can’t run out of money and
57:28
because we realize the only constraint really well the only constraints are the resources
57:37
and the know-how okay for the most part we seem to have the know-how
57:44
I’m not a that kind of scientist we even especially Yaba did most of the reading
57:52
on Greening the economy it seems like we pretty much have the
57:59
technical know-how to do it resources
58:04
we don’t have all the resources we need but we can start
58:10
to build them in order to tackle the pandemics
58:16
but we certainly have all the money that we need and there’s no problem for us
58:24
donating as much money as necessary to help
58:29
developing nations to start to tackle their
58:35
various pandemics but how do we operate in the world so
58:40
the US promises foreign aid we never live up to what we have
58:46
promised and what we promise is extremely small a percent of GDP or
58:52
something like that and the reason why we don’t live up to it is because we think we can financially afford it but that’s not the
58:59
question the question is whether we can find the resources to do it
59:05
or whether they can find the resources to do it money is not the problem so we
59:11
can provide the funding as long as they locate the resources in order to tackle
59:19
their pandemic so I think that that’s how mmt helps and
59:25
the definition of us has to be inclusive selfishness is not
59:31
going to work I we found when the pandemic first hit
59:36
and you remember what the rich countries did they all hoarded the masks and then
59:42
they hoarded the vaccines and what good did that do us
59:47
it’s always going to blow back and hit us if we don’t help deal with the refugees
59:55
or the processes that are generating the referees the blowback hits us
1:00:01
so we are all in it together and we have to realize that
1:00:07
yeah we’re on the same bus nobody gets off the planet
1:00:12
this is Aditya in Boston so yeah first of all thanks Randy I’ve listened to a
1:00:18
lot of your material over the last couple years it’s been really a major part of my education mmt I’m not
1:00:24
entirely clear between the terms like inflation versus relative prices I don’t know it sometimes isn’t even clear to me
1:00:31
if maybe people are using it totally in a precise way so I’d really appreciate hearing you kind of comment or expound
1:00:37
on the difference between these two terms maybe also describing what factors in the world are most important for
1:00:44
modulating each inflation versus relative prices and also if you have any good advice for how we should use those
1:00:50
terms properly okay well um
1:00:58
the mainstream focuses on relative prices and
1:01:04
those are supposed to efficiently allocate the resources among a scarce
1:01:10
resources on competing the uses so I don’t want to use the term
1:01:15
that way but in so inflation is based on a price
1:01:22
index it’s a human construction you make lots
1:01:28
of decisions when you go about constructing a price index and so we
1:01:33
have two the CPI and the pce that are very commonly used they’re both
1:01:38
constructed indexes they have made choices and some of those
1:01:45
choices are very strange so for example if you look at U.S High inflation
1:01:52
periods they have always been driven by three items in the consumer basket
1:02:00
one is oil and that won’t shock anybody that when oil prices quadruple it has a
1:02:07
big impact on the measure of inflation because oil goes into the production of
1:02:13
virtually everything that we buy or at least the transportation okay the
1:02:20
second is food well the food price is 70 determined by oil so that’s not too
1:02:27
strange either if oil prices go up food prices are going to go up because basically when you eat food you are
1:02:33
eating oil uh literally because it’s in the
1:02:38
fertilizers the pesticides but then they also have to operate the machinery and transport the food
1:02:45
so those two items the third one is a strange one it’s shelter services
1:02:51
and this is supposed to capture all of the joy you get from living with a roof
1:02:57
over your head okay and a very large part of that in America is the owner
1:03:07
occupied equivalent rent which is
1:03:12
an imputed price it doesn’t exist because if you
1:03:18
own your own home I mean even if you still owe the mortgage loan you live in
1:03:23
a home that is that you own
1:03:29
your mortgage payment some people have floating rate mortgages but fixed are the most common or you’ve already paid
1:03:36
off the mortgage that price is not going up okay
1:03:42
but what they do is they impute a rant that you would get if you had to rent
1:03:48
something equivalent to the home that you’re living in and that can move in very strange ways
1:03:54
that have nothing to do with what is going on in the housing market that is
1:04:00
the market for newly built homes um that the Sheltering component is 40
1:04:06
percent of the consumer basket and the owner occupied portion is maybe 25 so a
1:04:14
quarter of the consumer basket and that is what tends to drive inflation and it’s not even a market
1:04:21
price it’s not a price that you’re paying then if the
1:04:26
fed reacts to that which it has just done reacts to the inflation with a lot
1:04:33
of that being driven by the shelter component they raise interest rates well
1:04:38
now think about what’s going to go on in the housing market in the United States we have a severe housing shortage
1:04:45
because hardly eating homes have been built since the housing bubble burst so
1:04:50
we have a housing shortage we have a homelessness pandemic and homelessness all over the
1:04:57
country and a shortage of rental units and rental prices are going up Rising rental
1:05:04
prices go into that imputed which makes the inflation look even worse when
1:05:13
rental units are going up we had a moratorium on rents but we got rid of that at these supposed end of the
1:05:21
pandemic so anyway you got all these strange things going on the FED raises
1:05:26
interest rates how is that going to affect the market for new rentals and new homes
1:05:34
well the builders have to pay interest for all the materials they’re using to
1:05:40
build homes and all the buyers have to pay a much higher mortgage rate and so you don’t get a
1:05:47
loan homes built and you don’t get new multi-family buildings dwellings built
1:05:53
and so the shortage isn’t relieved uh so
1:05:58
you’re not going to reduce the inflation pressure coming from the housing component by raising the interest rate
1:06:04
you’re going to make it worse so you get this crazy
1:06:10
problem because of the way the index is constructed
1:06:15
a lot of countries include the interest payments on your home
1:06:21
in the measure of inflation and we did too but then it becomes even more obvious
1:06:27
when the Central Bank raises the interest rate target which raises the mortgage rates
1:06:33
that raises inflation so the FED fights inflation by causing more inflation that’s why we switch to the other way of
1:06:40
measuring it I think in the early 80s but it still is a bizarre thing it’s not
1:06:46
reflecting market prices at all so what I’m saying is a large part of the
1:06:51
measured inflation rate is due to The Peculiar way that we measure the
1:06:56
inflation rate and you get the wrong policy even if you believed the monetary
1:07:03
policy is the correct way to fight inflation you’re getting the wrong signals and possibly the wrong impacts
1:07:09
on the inflation rate I personally would not use monetary policy to fight inflation
1:07:15
that probably isn’t where you wanted me to go yeah that’s my agency
1:07:21
yeah I think you say it all the time that the FED doesn’t have the tools to
1:07:26
fight inflation so why do we expect they’re going to but all right our next
1:07:31
question is from Gonzalo yes hello my name is Gonzalo from Argentina because
1:07:37
excuse my English this is a bit of a technical question and the other day I
1:07:44
was debating with a friend of mine who was the vice president of our Central
1:07:49
Bank and I was explaining him how when the treasury issues bonds it just Reserve
1:07:57
drain as Warren always says and I think that the book also says that but he
1:08:03
tells me well what happens if the treasure would issue a vapor Bond saying I owe you will blah blah blah and
1:08:10
collects the money in a private bank account and the deposit shifts from the
1:08:17
buyer to the from the seller from the buyers sorry to the treasury account and the research she’s from from the also
1:08:25
from the side from the buyer to the treasury I don’t see that the reserve drain there and I know that doesn’t make
1:08:33
much sense but I don’t know why exactly
1:08:39
well so the treasury sells bonds
1:08:44
and uh in the United States anybody can buy U.S
1:08:51
treasury bonds you go online to Treasury direct.gov and you can buy treasury
1:08:57
bonds you think that you’re paying for them with your demand deposit your checking
1:09:04
account you see the money disappear out of your checking account you think that you have paid the treasury but that’s
1:09:11
not true that I I can’t say for certain
1:09:17
the way that it works in Argentina uh but in the United States and the countries where other mmt people have
1:09:25
investigated the treasury cannot write checks on a
1:09:32
deposit at your bank at your private bank so they can’t just move deposits
1:09:37
out of your account into the treasury’s account and then the treasury can spend that that’s not the way that it works
1:09:45
your bank’s reserves will be debited and the treasury’s account at the central
1:09:52
bank will be credited so that’s the way it works so reserves are withdrawn from
1:09:58
the banking system now in the United States we do have these special tax and Loan accounts
1:10:03
where the treasury does keep deposits but it cannot write checks on those it
1:10:09
can’t spend on it’s going to move them to the Fed in order to spend them and that is when
1:10:17
the reserves are withdrawn and the only reason they have the tax and Loan accounts really is uh it has nothing to
1:10:24
do with treasury spending it had to do with timing of the loss of Reserves
1:10:33
for the banks it was to avoid negative impacts on the private Banks that’s why
1:10:40
they did it it’s not that those accounts the treasury holds in private Banks can
1:10:46
be used in any way by the treasury so I’m not sure what your central Banker
1:10:53
is trying to argue uh I’ll tell you what just the other day
1:11:00
I was looking for some old class notes because I had to give a lecture on a topic I was pretty sure I
1:11:06
had notes I came across my lecture notes from 1990. okay why does that matter
1:11:13
well I met Warren Moser in 96. so it is long before Mosler
1:11:21
and I was teaching my class at University of Denver and I had all the balance sheets
1:11:27
and I showed exactly how the treasury spans and yep you increase the Bank
1:11:35
Reserves and then the bank increases the deposit account of the recipient of the treasury spending and then I showed what
1:11:42
happens with the bond sale yep it reduces the reserves in the private Banks and what I’m saying is that
1:11:48
anybody who had never heard of mmt never heard of Warren Mosler would have come to
1:11:56
exactly the same conclusion just working through the balance sheets and that’s why when Warren said it
1:12:03
Bond sales are just Reserve drain you know I thought about it I thought about the balance sheets but I had never
1:12:09
thought of the way that he was thinking of it therefore it’s not a borrowing operation
1:12:15
it’s only a reserve drain it’s functionally exactly the same as an open
1:12:21
market sale of bonds by the FED which was his point why do we call that one a fiscal
1:12:27
operation it’s not a fiscal operation it is a reserved draining operation so it’s
1:12:34
part of monetary policy okay so that was the inside of Warren but anyone who can work through very simple balance sheets
1:12:41
and you would hope your central Banker can do that if they can’t work through balance sheets you’re probably in
1:12:46
trouble anyone would come to the same conclusion this cannot be argued
1:12:53
it’s true yeah I think what the sexual Banker was
1:12:58
trying to say that they do have the tax alone accounts so then in situations when they’re not transcended to the
1:13:05
treasurer’s account that the FED then the reserves are not drained and that’s accurate right so that is true you can
1:13:11
throw bonds and not drain reserves and that’s the whole point of having those tax and Loan accounts which are not used
1:13:17
anymore in the United States was to keep the reserves and not drain them because when you drain them you have impacts on
1:13:24
interest rates which happens sometime I think it was in September of 2019 when
1:13:30
they had all these treasury issues and then tax payments by corporations because that’s when like or you know tax
1:13:37
the second tax deadline in October and then there was a shortage of reserves and so the interest rates skyrocketed
1:13:44
and the FED quickly intervened so yeah sure you can leave the reserves in the system but the question is why would you
1:13:50
want to do it and the only reason is to leave them there to avoid impacts on
1:13:55
interest rates and then when you’re ready to spend that’s when you take them out and then you inject them back in
1:14:01
with the spending yeah absolutely I think that’s one of
1:14:07
the greatest things about mmt it’s simple once you get down to the basics Paul bertwell you have a question hi
1:14:14
thank you Dr Ray I really enjoyed chapter six and overall this book I read
1:14:20
both understanding money and your Prima but my question was with regarding that
1:14:26
framing that the appointed in chapter six do you consider that personally what’s responsible with the tremendous
1:14:32
success of the coke Libertarians in creating this sort of self-loathing
1:14:38
working class right has been convinced that for a lifetime of servitude hey
1:14:44
your government doesn’t know you anything and then taking they’ve convinced everybody to take these things
1:14:50
Kingdoms in the past would never bequeath to the nomadic Warrior tribes that were market-based right that was
1:14:57
part of the infrastructure and these people are just begging when you go out and try to train and educate they’re
1:15:04
just begging for their own doom and then when you ask them for proof for their claims they Supply the equivalent of a
1:15:11
pitch or Daffy Duck is this what you really attribute to the success I mean what they’ve been able to
1:15:17
convince them is down is up it’s from belief
1:15:23
yeah lack off is the expert and so I’m just uh summarizing what I learned from
1:15:29
him so his argument is that yes conservatives understand all
1:15:35
this they embraced this notion of framing and they are
1:15:40
extremely good at it and that’s why they’ve won all of the debates all the political debates since the days of
1:15:48
Ronald Reagan and Margaret Thatcher uh and unfortunately the
1:15:54
liberals he’s very focused on the Democratic Party
1:16:01
they don’t understand it and they use the conservative framing the
1:16:06
conservative framing dominates even among the Liberals and that’s why they
1:16:12
lose that’s his argument it’s because they’ve adopted the same framing deficit
1:16:18
is scary and if you use the words that they’ve used
1:16:25
like I was saying freedom how can anyone be against a free market it sounds so
1:16:30
nice and contrast that to the government and
1:16:36
planning and government control uh government controlling us
1:16:41
that they’re going to win as soon as you open your mouth when you start talking
1:16:47
that way yeah someone just wrote pay for it it’s the Democrats that insisted on
1:16:55
bringing back the pay for in 2010 and 2011
1:17:00
they insist on bringing back pay force a couple of years ago at the Eastern
1:17:06
economic Association meetings my wife presented a paper that we had
1:17:12
done together which is mmt framework and uh she presented it while I sat outside the
1:17:20
door watching our child and I couldn’t really hear what was
1:17:26
going on the door was closed until after she was done I heard someone in the audience yelling but you gotta pay for
1:17:33
it and the guy who was yelling was a UMass Progressive far left Wang quasi
1:17:42
Marxist heterodox Economist because I know his voice he was the one who was insisting
1:17:49
no you gotta pay for it you know uh so anyway that is a huge problem
1:17:56
all right next up we have Stephen Cobb okay great I have a follow-on question about the market for treasuries if we
1:18:03
eliminated the sale of government securities and bought back all the existing debt where would the private
1:18:09
sector Park its money in a risk-free vehicle I’m thinking here about you know
1:18:14
wealthy individuals corporations Pension funds and so forth would it be best to have zero interest treasuries
1:18:24
um now I’m speaking for myself
1:18:29
we don’t all agree on this I think both Bill Mitchell and Warren
1:18:35
mosa would just say but why give them risk free let them
1:18:40
take risks if they want to earn anything and so they would eliminate bonds as far
1:18:47
as I understand um them my view is
1:18:53
I see a role to continue to offer General bonds but I would Target them
1:19:00
and so some of you might be as old as me and you remember when you were in grade
1:19:07
school and at the end of the week you would take a quarter to school and they
1:19:13
had be slotted cardboard
1:19:18
pieces that you could put your quarter in it and when you got an 1875
1:19:24
you got a U.S savings bond that would be worth 25 dollars if I remember right
1:19:30
seven years later why don’t we do that okay let’s offer savings bonds to kids
1:19:37
let’s offer government bonds to
1:19:44
everyone whose family income is under a hundred thousand dollars a perfectly safe asset and let’s give them a good
1:19:50
return uh it doesn’t have to be Market determined Congress can set it and you
1:19:56
know where do we set it well we we set it where it will encourage saving among
1:20:01
low-income people in a perfectly safe asset with a good return for them so
1:20:09
that they don’t have to go to bitcoin or to Wall Street and have thieves
1:20:15
steal their savings let’s give them a safe alternative it’s in the public
1:20:21
interest I also would do it as long as we have private pension plans
1:20:27
where it is one of the legs of the stool I mean ideally I would like to move beyond that and
1:20:34
have a full generous Social Security that is sufficient for everybody so that
1:20:41
we don’t need pensions but we’re a long way from transitioning
1:20:46
toward that so let’s also allow Pension funds to hold those again instead of
1:20:52
putting their money into private equity which is what they’re doing now and then that private Equity buys out firms and
1:21:00
lays the workers off so your own pension fund is eliminating your job and then
1:21:06
also taking risky bets that are almost certainly going to lose money for the Pension funds so I would say Pension
1:21:14
funds probably Insurance life insurance
1:21:20
where what they need is a sort of
1:21:25
portfolio with a base that is very safe and long term
1:21:31
and then in any manager or pension fund will tell you that then they can take
1:21:37
some risks with some of the fund to try to get a better return so I would do
1:21:44
then uh pick which kinds of Institutions and which
1:21:50
kinds of households would be allowed to purchase these
1:21:57
special U.S treasury Bonds in order to get a good safe return
1:22:02
so that’s my view you don’t sell bonds just to drain reserves just to
1:22:09
allow anybody to earn a return on something
1:22:17
that is riskless in terms of default risk keynes’s argument was that we should
1:22:24
drive the risk-free interest rate to zero okay so what bill and Warren are
1:22:30
saying is perfectly consistent with Kansas recommendation too I’m just saying there could be a public purpose
1:22:36
in offering very safe savings bonds or uh
1:22:43
had to serve the public groups yeah almost like I have any risk at all
1:22:51
this type of public retirement program funded by the federal government okay we are gonna go to Tom Clark he wants us to
1:22:58
read it for him Tom asks it says FICA slash MCR taxes are
1:23:05
portrayed as hypothetical earmarked taxes I get that this isn’t really true
1:23:10
but does that mean there’s no such thing as a hypothecated federal tax
1:23:16
sure what that is neither am I and I’m not sure what the second acronym was
1:23:23
what was mccr I don’t know Tom if you’re available thank you yes I think
1:23:28
hypothecated taxes what the British call their NHS tax
1:23:33
and it’s earmarked and so what I meant by the fight uh FICO mcoi payroll taxes
1:23:40
okay all right I got it
1:23:45
okay it doesn’t go anywhere when when they take it out of your pay
1:23:52
it’s gone the government just burns tax revenue it doesn’t go now I know what they tell
1:23:58
you they tell you well we we’re running a surplus
1:24:04
this really got a big boost back under President Reagan
1:24:10
the Greenspan commission and it’s the same Greenspan before he headed the Fed
1:24:16
he was in the head of this commission to look at Social Security and they said hey you
1:24:21
know what we had a baby boom and someday these people are going to retire and
1:24:27
they they ran projections and they said that with
1:24:32
the current payroll tax rate and a growing group of elderly people
1:24:40
who will be retiring the tax revenue won’t match the benefit
1:24:47
payments going out and so what should we do
1:24:52
now this is something that was going to happen in the future it wasn’t happening already in the Reagan years they said
1:24:59
well let’s raise the tax rate but let’s raise it way more than we need now
1:25:06
and we’ll accumulate a surplus and then later we can run down that Surplus when
1:25:13
the tax revenue Falls below the benefit payments and they increase the tax rate
1:25:19
to the rate they thought they would build a big enough Surplus to get us
1:25:24
through the whole retirement of the Baby Boomers okay my generation
1:25:32
and so we’re about halfway through that right now but eventually they’re all going to be dead so you don’t have to
1:25:38
worry about them once they’re dead right so this is a it’s a limited amount of time and they thought they had resolved
1:25:45
it and now here we are 50 years almost 50 years later but well actually it is
1:25:52
50 years later and uh the projections now show that in about a decade
1:25:59
we will run out of the Surplus we will have converted all of the bonds
1:26:07
that the social security accumulated over that whole period of time when tax
1:26:12
rates were too high relative to benefit payments now we’re going to use up all
1:26:19
that Surplus and we find out that
1:26:25
we’re gonna run short it’s not because
1:26:31
they miscounted the number of seniors it is because
1:26:37
they use increasingly pessimistic assumptions about the future
1:26:43
that we’re gonna grow slower than we have in the past and
1:26:50
that people will retire as they have done in
1:26:56
the past even though we haven’t extended life span and
1:27:02
what do people say 70 is the new 60 or whatever um aged people have stayed in the
1:27:10
workforce longer and so on all right what did they do with the
1:27:15
Surplus they bought U.S treasuries and so the it’s the treasury owing
1:27:21
itself it didn’t give them anything that they can spend they can turn the treasuries back to the treasury but the
1:27:28
treasury has to finance Itself by selling the treasuries onto you so it
1:27:34
didn’t do anything at all we are doing exactly what we would have done if there had been no Surplus the only difference
1:27:41
is that they wouldn’t have been taking three or four percent extra out of your
1:27:47
paycheck these past 50 years you would have had more money to spend it didn’t
1:27:53
change anything regarding the way the finances will be run with a surplus or
1:27:59
the way those finances will be run without a surplus it just made no difference and besides
1:28:07
of course the treasury doesn’t spend the tax revenue anyway all the taxes due is
1:28:13
reduce uh your take-home pay and
1:28:18
the spending is just keystroke credits to bank accounts we could have made all
1:28:24
the payments as they come due it’s very funny because after Greenspan headed this commission came up with this
1:28:30
solution then before Congress Paul Ryan was grilling him about social security
1:28:36
and he thought Ryan thought he was going to get the answer he wanted out of Greenspan well Social Security is going to go
1:28:42
bankrupt right and Grace Vincent said no the government can make all payments as
1:28:49
they come due we just use keystrokes right if he had answered that way in 83
1:28:55
we wouldn’t have had the tax increase because what he’s saying is it doesn’t
1:29:00
make any difference we can make all the payments so the FICA tax is not used to make the
1:29:07
Social Security payments why did Roosevelt set it up this way so it all
1:29:13
goes back to the New Deal Roosevelt was afraid of being called a socialist and of the program being called socialism
1:29:21
that’s why it was set up this way based on the fiction
1:29:26
that the tax pays for Social Security uh
1:29:31
benefits and when the system was set up an extremely
1:29:39
low tax rate amount an amount of Revenue equal to the
1:29:45
benefit payments because the number of workers relative
1:29:51
to the number of aged was very high and oh by the way why did they set
1:29:58
retirement age at 65 because most American workers would never make it they would never get on social security
1:30:04
so skip forward a few decades and
1:30:09
the age to a working population has grown a lot
1:30:14
loss we added lots of new beneficiaries to the program the original program
1:30:21
didn’t have spouses didn’t have children didn’t have people with disabilities and
1:30:27
we have added all of those groups to the program the original program didn’t have
1:30:33
agricultural workers and government employees we added all of those to the program so
1:30:39
the number of beneficiaries has gone up a lot and now if you try to match the
1:30:45
two you need higher and higher tax rates which plays into the hands of the
1:30:50
enemies of Social Security because of course people don’t like paying the
1:30:56
payroll tax it’s not a good tax it’s a tax on work it’s a tax on your
1:31:02
employer your employer has a huge incentive to reduce the workforce and
1:31:08
replace you with a robot which he doesn’t have to pay payroll tax
1:31:14
thank you and the tax is regressive
1:31:20
above the 140 000 a year or whatever it is now uh
1:31:28
there’s zero tax on the worker who makes high wages above that
1:31:35
cap and so it’s it’s not a progressive tax is
1:31:42
what I’m saying it’s a flat tax up to that point but overall it’s regressive it’s taking more from low to Middle
1:31:51
income people and a lower percentage from high income people and then finally of course it’s only on labor so we’re
1:31:58
not taxing profits we’re not taxing rent we’re not taxing interest it’s not a
1:32:03
good tax but we were sold on the idea that this is what pays for Social
1:32:09
Security indeed all right Kenny you’re up hello
1:32:15
I actually think this may be a good transition into my question from where that last one ended up talking about
1:32:21
taxes and I know you know throughout the book you talk about how taxing frees up
1:32:27
resources for movement into the public sector
1:32:32
and I was thinking as kind of reading that
1:32:39
like you say like income taxes are the way they are but basically like spending
1:32:44
itself is actually what causes inflation because if that is the most
1:32:51
direct way that we use the resources right when you buy something you’re using resources to get the things that
1:32:57
take to use that thing that then income taxes are a less direct way of controlling how
1:33:06
those you know manipulating or whatever how those resources are used so would a
1:33:12
sales tax more directly allow the resources to be
1:33:18
kind of controlled that way to free them up for public use I know generally sales taxes are not necessarily seen as good
1:33:25
because they discourage spending which can grow the economy and I have no horse in the race on taxes or anything so it’s
1:33:32
a genuine question okay well so you know in an ideal world you
1:33:40
can use a consumption tax sales tax so it’s
1:33:47
a tax on consumption to try to
1:33:53
reduce spending and prevent inflation reducing accurate demand and under some
1:34:00
conditions you could design it to work in the same
1:34:05
way that the income tax works and be Progressive the biggest argument against the sales
1:34:13
tax is it’s hard to make it Progressive that you you can make it more a little
1:34:19
bit more Progressive if you exempt you know basic food
1:34:25
clothing and shelter uh if you exempt that from the sales tax but it’s much
1:34:32
harder to make it highly Progressive than an income tax is so with an income
1:34:38
tax a you can increase the marginal rates and you can have
1:34:43
that go up sharply as income goes up so that you are
1:34:49
reducing inequality that’s the biggest argument against using the consumption tax I think
1:35:00
but as far as inflation fighting goes
1:35:05
the you know what I raise this question in
1:35:10
the book and Yavin I raise it in the piece we’ve done on the green New
1:35:17
Deal how do you prevent inflation the problem is what tax rate would you have
1:35:22
to put on someone like musk or gates to affect their spending
1:35:29
it’s going to be high I don’t know 99 a tax rate
1:35:35
to to have any dent in their consumption spending so politically it’s very very
1:35:42
difficult to use the income tax or a sales tax you know what sales tax
1:35:48
would be required to reduce their spending so you probably need a variety of taxes
1:35:54
to accomplish a variety of goals we know from the propublica
1:36:02
investigation that lots of rich people don’t have any income on purpose because
1:36:07
they don’t want to pay the income tax so they have a lot of wealth and what they do is borrow against their wealth and
1:36:14
you don’t have to pay a tax on you’re spending out of wealth are you
1:36:20
doing that paying income tax on that so we need to be very clever we need a very
1:36:27
high wealth tax say it should approach 99 at the very top that tackles the
1:36:33
inequality problem probably doesn’t do much for the inflation problem you want to reduce
1:36:43
certain kinds of spending when you’re getting inflation pressure in those
1:36:48
areas and maybe attacks could play some role you want to tax bad behavior you
1:36:54
want to tax pollution you want to tax sin so you need various kinds of sin
1:36:59
taxes to do that in some cases you want to allocate costs
1:37:05
to users so for example we have a gas tax
1:37:11
gasoline tax and that’s primarily to allocate costs of building the highways
1:37:16
to the users does the government really need the money no they don’t but basically what we’re saying is
1:37:23
especially to the big trucks okay you want to run a truck on the highway and
1:37:31
it takes a lot of resources plus a lot of
1:37:36
government spending including state and local governments that are constrained in their spending to build those
1:37:42
highways for you we have to over build them in order to allow the trucks to run on them I used to work in a engineering
1:37:49
department in the county and the engineers told me 90 of the wear and tear of the road was due to trucks not
1:37:55
to the cars so anyway there’s a lot of costs associated with running the trucks
1:38:00
and it’s not really that the federal government needs money but we want to put those costs on the truckers because
1:38:06
we have a viable alternative to the trucks which is the railroads and so we
1:38:11
want to make it more expensive so that will reduce the incentive to shutting
1:38:18
down the railroads and putting everything on the highways so you can see there even though money is not the
1:38:25
government’s problem you might want to book costs on certain activities ATM
1:38:33
get them to make better choices than they otherwise would make so lots of reasons to have taxes and we probably
1:38:40
need a wide variety of taxes I think
1:38:46
I saw Henry George mention the Henry George sacks is a good tax but I I
1:38:51
wouldn’t be satisfied with one tax absolutely tax the rich because we don’t
1:39:00
need their money they’re just too rich too much political power Randy is up
1:39:05
next and he wants us to read his question Randy asked do banks still borrow overnight reserves from the Fed
1:39:13
well they could in a pinch after quantitative easing we have just
1:39:20
put so much excess reserves into the banking
1:39:25
system that there are plenty of reserves available
1:39:31
for Lending now once in a while we’ve had these strange hiccups in the overnight market and the interest
1:39:38
rate has gone way above the central banks Target in the UK and in the U.S uh so
1:39:47
there’s something strange going on even though there’s massive excess reserves in the banks but if a bank
1:39:55
okay needs more reserves than the god they can borrow first from other banks in the
1:40:01
overnight market and then second turn to the central bank if there aren’t available funds in the
1:40:08
overnight Market or what central banks have tended to do
1:40:14
is move away from using What’s called the discount window which is where Banks directly borrow from the central bank to
1:40:23
the central bank just buying more bonds to put more Reserves
1:40:29
into the private market and then Banks lend the reserves to each other
1:40:35
if we go back before quantitative easing then
1:40:41
Banks you know could easily come up short and they would borrow in the overlap Market
1:40:47
and if you go back to when the FED did Supply a lot of Reserves at the discount
1:40:54
window you would tend to find that a huge proportion of the
1:41:01
borrowing from the Fed was
1:41:06
sort of longer term it would be day after day
1:41:12
banks that were borrowing and they tended to be troubled Banks they were
1:41:18
banks that weren’t really trusted by the other Banks and it was more of a lender of
1:41:25
Last Resort sort of thing but central banks have really moved away
1:41:31
from the discount window and to buying bonds to put reserves into the system
1:41:39
my professor Hyman Minsky always opposed this he said that the Central Bank should force them to come to the
1:41:46
discount window because that allows the central bank to look at their books and see if
1:41:53
they’re in trouble and see why they’re having trouble borrowing reserves in the overnight Market from other Banks white
1:41:59
on other Banks trust them maybe the other Banks know something about their balance sheet and that is the way that
1:42:05
we can keep a check on them unfortunately and he used to debate this at the FED at the Board of Governors and
1:42:12
unfortunately he lost the feds and we don’t want to do that we don’t want to look at their books we want the market
1:42:18
to operate and so we’ll just put the reserves into the market and let the market decide
1:42:25
who who can borrow and who will discipline a bank that is getting itself
1:42:33
into trouble which sort of explains why we had a global financial crisis
1:42:40
Randy thank you so so much John I know you want to say that’s the truth but we
1:42:46
believe it thank you Randy when is your illustrated
1:42:51
book coming oh okay so originally this book started out to be the cartoon book
1:42:58
but there were just too many words and there was no way to get this book down to a size that made any sense so with
1:43:06
Husky Van Doren who was a levy economics
1:43:11
Masters student graduate it turns out she’s a very good artist and so she and
1:43:18
I put together a cartoon book that has very few words and very great cartoons
1:43:24
that she drew that explains all of the basics of mmt
1:43:30
for the people that you know find this book too difficult and hopefully we’re gonna get it into the classrooms I don’t
1:43:37
mean College I mean into junior high and high school and possibly
1:43:43
uh Elementary School classrooms as a way to introduce students to mmt at an
1:43:49
earlier stage and it should be out in March great the other thing that’s
1:43:55
happening in March of March 23rd to 25th is the conference at Willamette
1:44:01
Willamette in Oregon called public money in the future are you going to be there
1:44:08
yes yeah was presenting too both of us will present
1:44:13
it’s about half economists and half um people come more from law from public
1:44:20
policy Roy and gray is one of the organizers he’s done the most
1:44:25
work on organizing and yeah the focus will be on
1:44:31
public Banks probably many people have heard of State Banks and the movement
1:44:36
for States to found their own Banks so those topics
1:44:42
will be discussed there and I I think it’s going to be online I’m not positive yeah actually we’re going to be
1:44:48
streaming it okay if so I’m sure other people will too but we are definitely
1:44:54
this was terrific thank you John for hosting and be sure to listen to macaroni and
1:45:01
cheese it’s released every Saturday morning at some ungodly hour like 8 A.M
1:45:07
Stern but since it’s not live you can listen to it anytime on any podcast
1:45:13
platform thank you so much night guys see you soon
1:45:18
[Music]
