Stephanie Kelton. Dirua topatuz

Economist Stephanie Kelton I’d like to start though by first acknowledging that

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I live and work on the NWO and nambur Country and I pay my respects to Elders

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past present and emerging sovereignty of course was never ceeded and this always

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was and always will be Aboriginal land uh I just want to also note that uh

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this year is the Australia institute’s 30th Anniversary uh for 30 years we’ve been introducing big new ideas to the

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National conversation and trying to shape National policy for the better and as you’ll see have seen over the past uh

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few months we have been kicking some goals especially on things like the stage three tax cuts on uh biodiversity

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credits we’re also um arguing very uh strongly for protection of the Morgan

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skate in Tasmania and many other things including how we tax uh our gas

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companies don’t forget um to follow our podcast there’s follow the money uh

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which is a weekly podcast hosted by ebony Bennett which uh tries to explain economics in a nice easy and clear

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Manner and also my podcast um dollars and cents which I do much the same but

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uh really use my weekly column mardian Australia to help jump off uh this week I’m give you a spoiler we’re going to be

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looking at house prices and how basically all the young people are stuffed uh Australia’s biggest book club

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as well um is on once a month that’s a webinar um but days and times vary for

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that so please check our website and uh for details of upcoming events just a

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few tips for you on Zoom if you hover over the bottom of the screen you should be able to see a Q&A function where you

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can ask questions of Stephanie and you can upvote other questions as well so um

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in the second half of uh today’s webinar I’ll be uh looking at some questions there and seeing if uh we can get some

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great questions from the audience so please uh do uh participate there please

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keep things civil though of course and on topic for the chat although if you don’t our moderator will boot you out so

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do not do so uh this discuss is being recorded and it will be posted on our

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website so there are not many Economist I think who have had as big of an influence and

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I would say annoyed as many people who I think actually need to be annoyed as has

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Stephanie Kelton over the past decade she is a professor of economics and public policy at Stonybrook University

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and known as the leading expert I would say on modern modern monetary Theory or

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mmt which we’ll just call it because that’s a lot quicker her best-selling book the deficit myth and this is my

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copy here very uh well thumbed copy I should say um explained to a very

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willing audience the thinking behind mmt and the reasoning behind the economics that helped switch the political debate

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in the United States when she was senior economic advisor to the Bernie Sanders campaign in 2016 and

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2020 she is in Australia promoting the movie Finding the money which is an

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excellent documentary that I um was fortunate enough to be able to see a preview of that explains mmt with both

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by herself and by her colleagues um all of whom are at Stony Brook I think are they just about oh no nobody just me oh

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just you we were at the University of Missouri and Kansas City many of us together okay uh there’s actually for

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those of you in camra there is a screening tonight at uh the dendy cinemas uh I’m not sure if it’s all sold

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out it probably is but uh if not you can still you uh find uh some tickets on the

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uh finding the money website and there’s also another one in Sydney tomorrow night at torren University Australia Sur

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Hills campus which will also feature a Q&A session and among others on that

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will be our own Dr Jim Stanford from the center for future work so um that will be really good event and especially for

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those of you who saw Stephanie last night on Q&A and wanted more questions and answers from Stephanie that would be

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a great event to be in so welcome Stephanie thank you very much for joining us thank you it’s great to be

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with you congratulations on your work and the film um which I think actually does a great job of making economics

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kind of clear easy to understand and a little bit fun and interesting which is certainly something where the Institute

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always like to do I think I don’t want this uh webinar to become a tutorial on

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mmt because I think that can be a bit dry um but I think mmt gets a lot of

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attention and criticism I think from people who are I think almost a purposefully

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misunderstanding or or misinformed so let me see if I’ve got it right from my

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reading of your book and from looking at the at the at the film and to be honest

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what I think it it is doesn’t feel that wacky or bizarre so maybe I’m actually

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wrong and I’ve missed something because I keep getting told that mmt is wacky and bizarre so am I right in saying that

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the crucial aspect of mmt is that iies with a sovereign currency like Australia USA UK Canada but not the Euro Zone

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literally cannot go broke because they print their own money but that doesn’t mean we can’t

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just uh sorry and and because they print their own money that means we really

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should stop worrying about the size of our government debt but that doesn’t mean we can just print money like crazy

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or not care about deficits but that the crucial aspect is not how much a deficit

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that adds to debt but if it’s increasing inflation now is that an accurate

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characteristic or is it a bit too simplistic I that was pretty good uh that that was pretty good so I’d have to

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go back through it that was quite a lot I’d go back through it line by line I guess but um I wouldn’t I never use the

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phrase printing money I don’t I don’t like it because I don’t think it’s descriptive of what’s actually taking

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place and of course it makes everybody immediately you know Envision the actual cranking of the handle and the rolling

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out of the bills and the wheelbarrows full of money and everybody goes right to viart Germany and then has a heart attack so I try to just use you know

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operationally descriptive terms so I might say you know a country that operates with its own Sovereign currency

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or for a currency issuing government uh something like that so you know yes the

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starting point with mmt is to begin by recognizing that when you’re talking about a government that is the issuer of

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a current currency that several things follow from that observationally one you can’t run out of your own currency

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that’s impossible so when it comes to questions of the public debt and people worry you know how are you going to pay

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it back and all those sorts of things well mmt gets into the operations and says this is not a difficult proposition

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it really just amounts to debiting One account and crediting another account now all of this is done in the modern

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era using nothing more than a computer keyboard and it does tend to make people nervous because so many people don’t

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understand the Fiat money system that we have today even you know I do a lot of public speaking I speak to a lot of

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people with CP with CFA you know uh distinction like they’ve taken they’ve

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sat the CFA exam uh they are in finance my students come in they’ve studied a

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little bit of Economics I say you know what do banks do well they lend other people’s money oh what backs the US

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dollar gold I mean you’d be surprised how many people in the finance Comm Community or in you know an economics

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program so mmt says okay we got to talk about what this monetary system is the

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the Fiat system that we have how does it work how do governments spend what do they have to watch out for it’s not

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running out of money it’s not bankrupting the nation it’s not having bills come due that you can’t afford to

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pay but there are limits what are those limits well they’re in the real resources they’re in the productive

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capacity of the economy it’s an inflation limit so I’m giving it just a little bit right to get a

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yeah so I mean one of the things I I’ve been thinking about is that uh you know

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there’s the old saying that kind of in a in a recession everyone’s a key in is it

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almost a sense that your fight is is almost about as much of of highlighting

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the fact that governments are always actually mmers when they want to be I mean we had and I always think of

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defense spending there’s never a question of how do we pay for defense spending in fact we had a great

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quote that was reported from our from our Treasurer that uh when we embarked

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in the past few years on a massive nuclear submarine project and the

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question was where’s you know how are we going to afford this and the quote was everything is Affordable if it’s a

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priority which for an mmt would sound yeah um but it’s a case of in politics

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uh it how is do you see the role of mmt

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of almost pushing that through and realizing yes if that’s okay for defense then it’s also okay for unemployment

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benefits or for education or for other things or is it is it a bit more than

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just highlighting the hypocrisies of politicians yeah it’s more than highlighting the hypocrisies but you

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know I want to be a little bit careful because mmt is not a lot of people will will do this they’ll say well the

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government is spending you know a bunch of money money on defense or the Republicans just did these huge tax cuts

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they’re doing mmt as if anything that increases the deficit is doing mmt well

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it might well be that doing something that is designed to shrink the size of

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the deficit could be doing mmt because we’re sort of agnostic on the number that pops out of the budget box at the

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end of each fiscal year that’s not the thing we worry about Target we don’t judge bigger numbers as better numbers

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and smaller numbers as you know less desire aable it might be better to have a smaller number pop out of the budget

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box at the end of the year depending on what’s happening to the real economy so we you know in the book I wrote about

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balanced economy the goal should be to achieve a balanc a broadly balanced economy if it takes an unbalanced budget

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to achieve a broadly balanced economy one with High full employment low inflation kind of the things that we

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think are desirable macroeconomic outcomes if you can achieve those outcomes with a budget deficit of three

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or 5% fine if you can achieve them with a surplus of one or 2% that’s fine too

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yep one of the things about mmt was I think I mean it’s been around what now

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40 years or so I think you more like 30 30 years yeah mid99s yeah and but it

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really came to prominence I’d say after the GFC when we had what I’ve often referred to as the great mediocrity you

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know there was basically the throughout the oecd um underperform in um e economies

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low growth you know almost no inflation at all and so in that environment I can

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understand why mmt is attractive to people thinking yeah you know we should be spending more we’ve got you know it’s

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it’s not costing the government much given interest rates are low and and clearly the economy is not performing

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well how do you cope in or how does Mt

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respond in an environment now where we have Rising interest rates and isn’t it a case that you know the the standard

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lines that we have is that the government should take care of spending and it’s up to the central banks to

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worry about inflation what is the role of the central banks and what is the role of interest rates even in an mmt

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sort of view of the economy okay I’m probably gonna forget to come back to some parts of that to remind me because

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I want to start with the the idea of the GFC yeah and you know that is I would say

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that’s when mmt should have really gained a foothold but didn’t so what we

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got instead was in our case in the US President Obama and you know we got one

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fiscal package really just one uh of any meaningful size it was 787 billion

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dollar there were people around President Obama at the time who were saying who were saying to him it needs

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to be really really big and and 787 billion might sound like a lot of money but Christina RoR who was you know chair

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of the Council of economic advisers under Barack Obama she was Pro proposing something more like 1.8 1.9 trillion

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dollars and there were people in Obama’s orbit who said you cannot use the t-word people will have a heart attack like it

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cannot have a trillion attached to it so they went small and because they went small we ended up with about a decade of

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really anemic growth and there was no appetite to come back and do another fiscal package even people you know like

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Paul Krugman writing constantly about the need for more fiscal support there was all kinds of talk about a double dip

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recession and Democrats just sat on their hands and uh there was no push

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everybody looked to the central bank so you said what is the role of the Central Bank well poor Ben banki is sitting

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there and you know all of all all eyes and all attention and all the pressure is on him so what does he do he’s

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already got interest rates at zero this is not helping he’s already started up QE he’s done qe1 it ended then we got

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QE2 then we got something called operation twist which was you know more uh wishful thinking and then finally it

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was just you know like pushing the chips all in because all of the pressure was

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was on the central bank and you know banki went to Congress and testified and

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the economy was not recovering unemployment was still really high and it was clear to everybody that this just

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wasn’t really working in spite of the fed’s best efforts and so here’s poor banki sitting before Congress just

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getting grilled one member of Congress says to him basically why aren’t you

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fixing it it’s your job you’re the fed you you have the toolkit why isn’t it getting better and banki said and I I’ll

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quote him he said let me just say that monetary policy is not a Panacea it’s

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not the Ideal tool now when the head of the the central bank is sitting in front

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of Congress saying monetary policy is not the Ideal tool what do you suppose he’s trying to say right I mean he was

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trying to imply you’ve got a policy lever it’s called fiscal policy pull your lever but Congress didn’t do it and

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so we just got you know year after year of the zero interest rates and the and

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the QE and uh we didn’t do it until covid really and then we got a

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completely different policy response after I mean Australia kind of got half of it right

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in that we actually did have a massive uh stimulus package and much much bigger

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in terms of percent of GDP than than the USA and ours worked extremely

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well and yet immediately even while it was in place it was we were it was the

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labor government at the time was being criticized oh this you’re sending us into debt and deficit you blown the

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budget was the the big line um and then

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very quickly after in a sense the crisis passed in Australia and unemployment started going down the Reserve Bank Hood

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which had also uh reduced interest rates started increasing them again and the

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government at the time also was determined to get back to Surplus because of this belief that uh it needed

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to prepare for the next Crisis and of course what happened is the economy slowed and we then had another decade of

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ever lowering interest rates and attempts to to get the economy going while also trying to get the government

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uh the budget into Surplus why is that thinking of and and something I I certainly believe is wrong

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but why is this thinking of because it’s still present right now we we’re hearing the the Secretary of the Treasury the

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treasurer as well also say we need to build our up our buffers for the next Crisis why is that wrong isn’t that good

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economics of in Good Times you you know you get you allow the budget to go into

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Surplus and then when it’s needed you go back into deficit spending well it’s really rooted in household budgeting

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philosophy right it’s the idea like it’s having a rainy day slush fund where if

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you have a financial advisor your financial adviser probably tells you to try to keep around six months uh in

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reserve right have six months of savings set aside in case of a job loss or some kind of unexpected cash emergency where

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you need a bit of money to tide you over and this is is kind of like the way the government is thinking right we hear

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economists in the US would say things like we should keep our powder dry that was their way of saying you know limit

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deficits or try to get surpluses when the economy is strong so that somehow you you could you have saved something

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up that you can unleash at a later date you know the uh incoming Biden

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Administration after he won the election but before he was inaugurated you know the Republicans have passed these huge

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tax cuts and we were we a pandemic and some of Biden’s inside advisers were

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saying things on television and in the Press like the cupboard is going to be bare when we get in like it’s mother

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hubard and the hupo is bare and I thought you got to be kidding me if you guys come in thinking the other guys

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didn’t leave you with a surplus that you can spend down we’re in real trouble and

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fortunately you know that was sort of a one-off comment and it didn’t really hold them back in fact you know they did

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a really really good job in terms of the fiscal response but it’s rooted in this idea I it’s politically expedient you

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know to be able to to say these sorts of things it’s it’s meant to sound fiscally responsible to your your voters and so

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say well we’re going to be very careful about the way we operate the budget and produce surpluses so that when the time

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comes and there’s an emergency we can do something that you might otherwise think is irresponsible but because we’ve

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prepared for it you know and people are so misinformed that a lot of this stuff ends up sounding

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reasonable why do you think the the criticism of you and and mmt in general

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has been been so vifer even by and you mentioned Paul Krugman and you’re right

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during the GFC he was the one say inflation is not going to go up guys spend more um he was you know really

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calling out those conservative economists who were saying oh this all this spending is going to set fire to

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inflation and yet clearly is not a fair to Mt and why do you think there is this

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default return to debt is bad deficits are bad Surplus is good why why do you

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think it’s so hard to unstick even even amongst economists who probably should

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know better well in the let’s just take the case of Paul Krugman who’s been on every

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side of this argument over many decades and that’s I think that is the difficulty here I really do when George

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wsh Bush was president and he came in we had a recession in 2001 this brought an

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end to the Clinton surpluses we had budget surpluses in 1998 99 2000 2001

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the mmt community and a handful of others were saying the surpluses are

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causing fiscal drag which is going to push the economy into recession now we were marginalized ridiculed people like

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Jamie galbreth right Jamie galbreth had a meeting in the White House during this

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era of the budget surpluses he goes into the White House he’s surrounded by conventional economists Jamie says the

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surpluses that the Congressional budget office is projecting people are saying the us is going to retire its debt

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entirely the White House was putting out announcements and we’re GNA have a parade down Fifth Avenue right to

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celebrate this achievement Jamie went into the White House and said you’re all crazy these these budget surpluses at

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the government level are being built on the backs of private sector deficits which are unsustainable you’re not going

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to get 15 years of government surpluses you’re going to get a recession and you should start easing now right you should

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allow the the deficit to increase and Jaimie was laughed at to his face in the white house and we know this because

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there’s an article in the Washington Post that details all of this now Krugman around the time was criticizing

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uh George W bush for cutting taxes relaxing the fiscal deficit because the recession started in 2001

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Krugman wrote a column and said these deficits are going to drive up interest rates I’m terrified I’m getting out of

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my adjustable rate mortgage into a fixed rate mortgage I mean he wrote all of this stuff right so it turns out we were

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right about this and he wasn’t saying the things that we were saying and I just think that you know when he wrote

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his first post on mmt the very first time he published on it he invoked Jamie

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galri not Warren Mosler not Bill Mitchell not Randy Ray or Stephanie Kelton or any of the people you might

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associate with mmt he name checked Jamie galri and he said there’s a school of thought out there called modern monetary

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theory that believes deficits never matter I think that’s a bridge too far I

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think that’s wrong now first uh I think that’s wrong to which is really

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interesting right because we call that straw Manning when you attribute ascribe to someone a Viewpoint that they don’t

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hold for the sake of tearing it down and I don’t I can’t explain why people do

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the things they do but I’ve watched it for a lot of years now and it happens all the time I mean good thing this

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leads into that aspect which I agree is a common criticism that mmt says

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deficits don’t matter um we can afford anything which is clearly not not mmt um

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suggests and and also rather ludicrously you even hear that MERS don’t care about inflation which is is bizarre given

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that’s the central nut of the whole thing but that brings the question and

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something that is quite relevant in Australia’s um economic debate at the moment is what are the constraints and

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how do you know when an economy is in a sense running at its Optimum or it’s

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it’s at a at a level even if we just call it full employment which we know

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historically we haven’t been at for you know pretty much since World War II A

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lot of it you know and but in Australia last year we the government actually produced a report looking at employment

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was the first one we’ve really had in in this country since World War II and they really challenged the notion of the of

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Full Employment being the non-accelerating inflation rate of unemployment so uh un full employment is

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when you’ve got the lowest rate of employment unemployment you can have with inflation being stable and they

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really challenged that and instead said it actually should be whenever anyone who wants a job can get a job in not too

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short a Time essentially problem is though that the central bank still holds

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to the nairu and to that belief that that is what constitutes full

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employment I think I know the answer but what does mmt say about the the nairu and this whole view of Full Employment

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is linked to when inflation is at a low level or at a stable level how how does

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how does mmt talk about full employment well we talk about full employment as so all we do with nairu is

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Define full employment as the level of unemployment the amount of unemployment

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you think you need to maintain kind of price stability or 2% inflation or or

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whatever your inflation Target is so we don’t do that we say look we could achieve True full employment genuine

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full employment def find as anybody seeking work uh paid work y uh who can’t

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find a job has can have a job in some other part of the economy so everybody who wants to work is working y That’s

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True full employment and you can achieve that as a a matter of policy by design

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by offering an open-ended job to anybody who’s ready willing and able to work but can’t find work anywhere else in the

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economy it’s like a public option in the labor market so you announce it people come in you have an established wage and

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benefit package and now you’ve got full employment anybody who isn’t working is voluntarily unemployed so you eliminate

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involuntary unemployment yeah and so but is there a

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concern about because the traditional view was oh if we get unemployment below

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4% 5% whatever that’s going to set off inflation what’s your response to that

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well the response is this is uh in part the price PR anchor right this is the government

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anchoring probably the most important price in the economy which is a wage right a base wage uh and it provides

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much more price stability to Anchor the wage through a federal job guarantee

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program because the way we do it today leave millions of people unemployed employers do not want to hire

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the unemployed they hire around them right because your skills atrophy you don’t have a a work history nobody knows

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what kind of worker you’re going to be employers are skittish about uh hiring from the pool of unemployed workers and

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so what do they do when they want to staff up as the economy begins to pick

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up they go to their competitors and they start competing for people who are already employed try to bid workers away

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from their competitors and they do that by driving the wage up so you get more

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inflationary pressure maintaining the pool of unemployed workers the way we do it today than you would have if you

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maintained a ready pool of employable people from whom the private sector can

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reach in and you know for a tiny premium over the base wage get these workers out

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they can transition back into the private sector you truncate downturns because as the economy slows which it

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inevitably will right they’re not eliminating the business cycle altogether but as the economy slows

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people find themselves you know losing positions let’s say in the private sector instead of becoming unemployed

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they transition immediately into the job guarantee uh pool and their job is

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maintained their income is maintained for as long as it takes and the recovery will come about much quicker and so you

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you should see you know the business cycle become dampened and the price

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anchor help with price stability I mean we certainly saw that during the the pandemic here in Australia we we had a a

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quasi job guarantee um that uh in a sense kept

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people uh while we had the lockdowns they were still getting a wage they were still getting employed uh they even

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doubled the unemployment benefits and actually put it to a level above slightly above the poverty line and

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bizly it lowered poverty and kept the economy from going into a depression Jer yeah jobkeeper

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yeah jobkeeper and uh so and it was it was something that certainly we here at

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the Institute have been advocating for the movement was very much in for and and the government then did and took

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credit for um which is fine but it is it frustrating to you or has

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it been so common that we’ve seen through the GFC through the pandemic

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where we’ve seen examples that this type of spaning works it it actually doesn’t set fire to inflation at least and we’ll

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get to the current inflation in a sec but that it’s almost it it works and

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then they forget and think oh that was then now we have to go back to the traditional methods of of thinking of

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the economy is as being a household budget I mean I’m seeing you’re probably seeing interviews with Kier steyer and

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Rachel Reeves and you know that that’s where I see The backsliding Happening uh

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in the US I don’t see it I don’t see the backsliding I see the Biden

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Administration came in and did their $1.9 trillion dollar that was the covid uh rescue plan act right that was the

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last one that sent checks stimulus checks to people and expanded the child tax credit and so people got more money

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uh but it was very shortterm it passed in March of 2021 and by the end of the year most of

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that those programs had expired but then they came back and they followed it up with the bipartisan infrastructure Bill

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hundreds of billions of dollars chips and science Act and the inflation reduction act which is this huge you

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know climate Bill uh which is uncapped those subsidies and tax breaks it’s like

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I’ve been describing it as the cookie jar with no lid on it it just replenishes itself because the the

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government commitment is uncapped for 10 years so the estimate was that the

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government would end up spending about 370 billion on climate related investment uh subsidies and support and

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so forth we blew past that a long time ago Goldman Sachs says we could get as much as three trillion over the next

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decade so we’ve got fiscal in place whereas President Obama left office and

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there was nothing really in place to continue to support the economy certainly after the GFC we really got

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the one package and that was it but the Biden Administration has put in place these three big packages that are there

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for years to come so there’s all of this fiscal support baked in um it he may not

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even get credit for it depending on how the next election goes you know what I mean but it’s uh it’s been a very very

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different um you know policy response postco and the thinking has absolutely

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changed I there’s no question none of those were paid for in the so-called conventional sense of the word you know

31:12

they sort of wink wink nudge nudged with one of them and S kind of tried to pretend it wasn’t going to add to the

31:17

deficits massively adding to the deficit do you think then that the the pandemic kind of bed the cat on the whole lie of

31:25

we need to pay for everything absolutely like Wars do like World War II did and

31:31

um yet no question I mean we we did five trillion in legislation from March 2020

31:37

to March 2021 12 months 12 months three packages five trillion dollar but at the

31:44

same time we’ve also had inflationary pressures where there’s certainly I’ve I’ve

31:50

noticed the the comments that oh we we can’t spend we need to actually reduce

31:56

the deficit because CA of inflation and what has been your view of what’s been the Cause We’ve we’ve certainly at the

32:02

Australian insute we kind of be before anyone else we can certainly say have led the charge saying that in Australia

32:08

was due to um supply side and and companies in effect gouging y um and The

32:17

Reserve Bank criticized us specifically and purposefully and our response was

32:22

well you would if you thought that interest rates were the only way you could reduce inflation what’s what’s

32:27

been your view of what’s happening in America and around the world in inflation so well first I’m sure that

32:33

your work highlighted all of these things in the early phase of the pandemic the when inflation kind of

32:40

first popped up really it was Ed car prices in the US that’s where all of it was coming from and it was so easy to

32:47

tell that story we knew exactly what happened you want me to tell the story yeah so I mean you can imagine it’s 2020

32:54

we don’t have vaccines everything is shut down down I mean the service sector is is virtually completely shut down uh

33:00

nobody’s traveling the airlines the car rental companies are sitting around

33:06

going oh my God are we are we going to be viable you know what what’s our future the car companies are selling off

33:11

their fleets because they got massive inventory and nobody to rent cars to so they’re selling off their fleets we get

33:17

a vaccine much faster than anyone ever could have dreamed first shot in the arm December of 2020 and pretty quickly we

33:25

start reopening and people start traveling again and all that kind of stuff but the lockdowns are happening

33:30

and the you know semiconductor plant and Taiwan shuts down we can’t get uh computer chips that are needed to

33:37

manufacture just about everything but but new cars so we aren’t manufacturing any new cars but all of a sudden people

33:43

are ready to buy a car and start spending you can’t get a new car but you can get an old car but now you’re competing with the rental companies that

33:49

are trying to buy back their Fleet used car prices go bananas and we have our first real driver of inflation and then

33:57

then it just evolved from there I mean you know we couldn’t spend money on services but we had to stay home and

34:03

convert the spare bedroom to a home office and so you’re buying furniture and shoving all those dollars through

34:08

the goods pipeline which is right not the way we normally spend and then you got the problems with shipping and

34:15

containers and costs and ports and Trucking and backups and so it starts to bleed through there and then a war and

34:21

then energy and food and and as you said and then a lot of companies that looked around and said every time I pick up a

34:29

paper or turn on the TV there’s a story about inflation there’s somebody standing in front of the uh gas station

34:35

there’s someone at the grocery store highlighting I bet consumers expect to pay more when they walk into the store

34:41

we could probably raise prices well above the rising cost that we’re facing and they did and they bragged about it

34:47

on earnings calls and we know it happened so call it you know excuse flation sellers inflation greed flation

34:54

Isabella vber you know famously called the world’s attention to this but

34:59

absolutely that was a a driver of inflation through all of this so I can’t

35:04

remember the other part no that’s fine question I mean well I guess the the criticism has been that oh mmt is not

35:11

relevant now and oh it’s been shown you know so but you would I mean I think you

35:17

just like with us with the demand side saying but it’s got nothing to do with people having too much money at the

35:22

moment it’s got to do tell you what did we say for the last 30 years inflation is the thing you have to watch out for yeah you have to do that and the best

35:30

defense against inflation is a good offense it would mean changing the way that we approach the budgeting process

35:36

so that instead of asking like you know what what are we going to spend and how do we offset all of that spending to

35:43

keep it deficit neutral mmt says hang on you want to try to keep it inflation

35:48

neutral deficit neutral and inflation neutral are not the same thing but in a pandemic what did we expect them to do

35:55

this is not when you have the luxury of time on your side and Congress can sit down and very carefully go through and

36:02

and think about inflation risk and all that they pulled out the money bazooka and they fired cash into the hands of

36:09

the unemployed and payroll protection uh programs so businesses could keep you know their workers on payroll and all

36:15

the rest of it have money have money have money and it held it together and then summon you know there were plenty

36:23

of people in the US who had been working full-time jobs those people we called

36:28

the essential workers the lowest paid worst treated people in in the labor

36:33

force and all of a sudden because of the top up in unemployment benefits in our

36:39

case they were getting $600 a week 2400 a month from the federal government in addition to whatever the state was

36:45

providing a lot of them had more money than they had when they were working and for the first time at the end of the

36:50

month they actually had something they could save at the end of the day so we pulled almost 40% of all the kids in our

36:57

country out of poverty with the child tax credit expansion at the end I mean just tremendous good did we get

37:03

inflation yes did the whole world get inflation yes uh was it a result of

37:10

overspending by and large no and I guess your studies show the same as what the Federal Reserve and Moody and others

37:17

have found which is that you know demand added marginally to some of the inflationary pressure but the vast

37:23

majority came from the breaking the supply side of our economy and the wars

37:29

and you know energy and food and and the price couging yeah I mean here in Australia we we’ve had to really battle

37:36

hard against the the line that uh we need to watch out for a wage price spiral despite absolutely no evidence of

37:43

at all of it in fact the complete opposite and and now that finally wages are rising slightly faster than

37:49

inflation immediately we have business groups saying obviously now its wages are going too fast like well real w Wes

37:56

have dropped 6% in in 2 years there might be some catch up required but

38:02

before I go to the the audience I just want to one of the things that the

38:07

Australian Institute does and we often do get criticized on light I certainly do um from mmt is uh and I’m not saying

38:16

I apologize uh we have an annual revenue summmer where we because we actually we

38:22

think Tax Matters and who is taxed matters and and how much and so certainly we do argue that you know if

38:29

if you want to spend money on these things it’s a hell of a lot easier

38:35

politically if you can explain to them well we could we should be taxing gas companies more and we’re often and I’m

38:41

often told why are you worrying about this taxes not needed to pay for things and I’m like well yes and no

38:48

but I also think it’s it’s wrong am I right to say that mmt is an agnostic on

38:54

who is taxed and how it’s taxed not oh you’re wrong that we’re agnostic on who

38:59

is taxed yeah as in you don’t care who’s taxed that’s I’m wrong to say that yeah yeah because I I often get that view

39:06

that oh it does you don’t we will be saying look the gas companies are making Al Li Banas they should be getting tax

39:12

more it’s bad for the environment and everything and there’s almost this sense of why are you worrying about tax and

39:17

linking that with education you should just be spending educated I’m like well they both matter is so is it okay what

39:24

does correct I guess the thing on mmt is don’t care about this is my position and

39:30

I think it is the position of all of the academics and probably most of the

39:35

people I suspect but I don’t know who engaged you on Twitter or wherever um my

39:42

view is that the we we ought to decouple these things and they ought to be

39:48

examined and considered and evaluated different on right distinctly so you

39:54

said education we want to spend on education right or hous or whatever it is how much do you want to spend and ask

40:00

yourself the question and I setting the politics aside could we safely spend

40:06

give me a number three billion no that’s not enough 30 billion well could we safely

40:13

spent over what period of time oh say 10 years just yeah so let let’s do the

40:18

macro kind of analysis could we commit can the government commit $30 billion do to education and then we have to know

40:25

exactly what that right what what what are we going to on over the next 10 years how much in year

40:31

one year two right really think it through and say could the Australian economy safely absorb 30 billion rolled

40:38

out over 10 years in the in these ways without an offset I don’t call it Revenue I just say without without an

40:44

offset and if the answer is yes then my preferred position would be move forward

40:52

try to collect the votes for that spending on on the merits of that spending and see if you can get the

40:59

support for it if you have a bunch of lawmakers who say I won’t support it because it increases the deficit I want

41:04

to pay for I well that’s your politics and that’s your then you got to go uh play the game but I would start there

41:11

and what I’ve observed and you know I worked in the Senate so I’ve seen this from the inside and just as an economist

41:17

and as a citizen watching it from the outside every time I see progressives try to approach something with a laundry

41:24

list of progressive goals and then say and wait it won’t add to the deficit because I’m G to get all the revenue I

41:30

need from ABCD EFG in and I’m gonna have all this money and so I merge the two

41:36

they’re they’re coupled and I go out and I say this is what I want and then you get nothing because now you have to pick

41:42

two fights and when I was in the when I was working in the Senate and there were staffers whose job it is to run around

41:48

with a bill and say you know my boss has a bill will your boss get on the bill and the staffer first question is always

41:54

the same what your pay for first question not the bill what does it do right what’s your pay for because

42:02

right there I can tell you or they can tell you whether the boss will get on it or not and if you say well it’s paid for

42:07

by closing some loopholes wrong we’re not we’re not voting for closing tax loopholes oh it’s a wealth tax wrong

42:14

it’s a financial transactions tax wrong so you see what I mean you have to successfully win two fights not just

42:20

agree with me on the merits of doing the infrastructure the housing the education spending you also have to give me your

42:27

vote for your pay fors and more often than not that’s where the bill fails I

42:34

mean we just did all those bills I told you about the infrastructure and the chips and Science and the climate

42:40

spending those were not paid for so it’s turns out it’s easier to get legislation

42:46

past the $1.9 trillion dollar covid package not paid for no pay force it was

42:52

easier to get the votes and as soon as Biden tried to get Bill back better remember it’s $35 trillion dollar and he

42:58

said we’re going to have child care and we’re going to have elder care we’re going to have you know human infrastructure and and hard

43:05

infrastructure that was build back better three and a half trillion and it’s all paid for and he said the

43:10

corporate tax rate goes up and this tax and this tax and this tax and Senators said not voting for that tax not V and

43:17

Bill back better fell apart

43:22

so I just I guess I want to get back to this thing like for example you were

43:28

very much arguing that the the Trump tax cuts were not going to cause inflation but is is that the same as saying you’re

43:34

in favor of the Trump Tex cuts no and I so I wrote an oped for the New York Times to State my views on the Trump tax

43:42

cuts because Larry Summers was out there running around all over television and they passed in uh December 2017 in

43:51

November the Democrats just were like in a frenzy P Paul Krugman was right writing columns deficits matter again

43:58

and all that stuff and Larry was running around saying if the Republicans are successful in passing these tax cuts he

44:04

said these are his words that the US would be quote Living on a Sho string for decades to come because of the

44:10

increases in the deficits end quote that that’s what he said and I got really irritated because Jack Lou former

44:17

treasury secretary said the US won’t be able to respond if there was a military

44:22

engagement we wouldn’t be able to respond because of the Republican tax give me a break so I wrote this oped and

44:29

Trump was running around saying it was going to be you know he was going to be the greatest job Creator God ever created and it was going to rain down

44:35

you know six% real GDP growth and all this stuff so my oped said Trump is

44:41

wrong it is not going to uh create lots of economic growth and and and all of

44:46

this stuff the Democrats who are opposing it are wrong because it is not going to hamstring our ability to act in

44:53

the face of a crisis what does concern me it’s not going to deliver on the growth and employment promises why

44:59

because 83% of the benefits went to people in the top 1% of the income distribution they’re just going to it’s

45:04

a windfall they’re going to absorb into savings they’re not going to spend it so it wouldn’t be inflationary it would

45:10

widen inequality which I said in the oped that worried me and I didn’t like that uh but I didn’t oppose it because

45:17

uh it would add to the deficit or because it would overheat the economy cool all right well we should uh in the

45:25

time we have left so um we’ll have a look at some of the questions here and I’ll just sort of go

45:31

to the top we have got many questions so thank you for uploading them

45:39

um Australian Economist this is from Gerard Borg Australian Eon Institute

45:44

Economist so I guess that’s me Advocate raising taxes as a way to pay for a richer green or more everything

45:51

Australia but it is a myth that taxes and bonds Finance government spending why do AUST austr insute Economist keep

45:57

propagating myth I don’t think that’s a question for you um and as I say we all

46:02

have read the deficit myth and we have Stephanie Colton right here so I think it’s wrong to say the Australian insute is ignorant of monetary modern monetary

46:10

Theory um ah this is a good one why is it so difficult for modern monetary Theory to

46:16

gain Acceptance in the economic community and Academia Commerce business and in particular government is it

46:23

because it’s not in the interest of corporate oligopoly and oligarchies and their control of Academia and government

46:28

or and I guess with that as well perhaps not so much Academia and but really the

46:34

sort of the government and and companies in that is it a case that mmt is not

46:40

good for companies or they bued is that or where where do you think the push back really comes

46:45

from well I think it comes from academics mostly I mean I don’t know a

46:52

lot of corporations that spend probably a lot of time and if they did spend much time at all thinking through uh mmt I

46:59

think they would view it probably favorably because look what’s good for business robust demand and mmt is really

47:07

about maintaining a full employment economy so to the extent that you understand and by the way if you

47:14

understand anything about the kety profit equation you also understand that government deficits feed directly into

47:20

the equation where do corporate profits come from well look at the equation one of the of the contributing factors is

47:26

the size of the government deficit so if you’ve got uh lawmakers who are nervous

47:32

and skittish and trying to shrink the size of the deficit that is likely I mean all all other things equal but just

47:38

in its own right shrinking the government deficit would tend to reduce corporate profits doing things that you

47:44

know belief in the nairu and thinking that you have to kneecap the economy and drive unemployment up you’re listening

47:49

to Larry Summers and you think you need six s% unemployment and that’s the only way to fight inflation well if you’re a

47:56

business you’re going to lose a lot of customers and revenue and potential profit by listening to these guys so I

48:01

think the business Community should be um you know uh supportive of this

48:08

framework because it would lead to better economic outcomes which should be good for for business it’s the econ it’s

48:15

the economists that are the problem you know it’s The Gatekeepers that have is

48:20

it because uh I mean we often and this is this is something that I often hear as a

48:28

criticism is that oh mmts kind of just canes in with a a few different words or

48:35

a few different constructions I mean and that in a sense they almost want to take credit for the good things and but find

48:43

a way to criticize you when using probably you know as Krugman did uh

48:49

inventing things you’ve never said so I guess a good question is actually

48:54

what is the difference between mm in keynesianism when you really sort of get is there a crucial difference that that

49:02

you know you’re not an extension of that or is is it a different completely different way of looking at it or do you

49:09

is it a a a new is it just Neo neoism well I had this debate with Paul

49:16

Krugman um I don’t remember how many years ago it wasn’t all that many years ago he’s right I was writing for

49:22

Bloomberg as a columnist opinion uh writer at the time and he of course at the New York Times and he did a little

49:28

piece that attempted to say I think that mmt could basically be boiled down to Abal learner functional finance and he

49:35

was sort of like I think that let me pick that apart you know and take that on well that’s not what MMP is and so he

49:43

wrote that and then I replied at Bloomberg and then he replied and then I replied then he replied then I replied

49:48

so I think there are you know six uh pieces if people really want to dig into to where I lay out all of of the various

49:56

ways in which our thinking is different and why it leads to different conclusions and different policy

50:01

recommendations and that’s the thing you know whether you go back to the euro and we were engaged in debates in the 1990s

50:08

in the mid 1990s with a lot of our Keynesian and even post Keynesian

50:13

friends uh and people who saw the Euro differently than we did they I me they

50:18

might have looked at the stability and growth pact or the master treaty and said I don’t know 3% seems a little too

50:25

unforgiving maybe you should have the limit be five or six% we were saying it

50:31

isn’t about the limit that you put it’s about the abandoning of the currency and

50:36

having a monetary Union without a fiscal Union markets will shut you down you you can say that you’ll allow the deficit to

50:42

go to 6% but if Capital marks if you have to borrow and you have to pay Market determined interest rates you

50:49

might get shut down way before your your threshold that you write down in your uh

50:54

treaty as an allowance and and the examples go on I talk we talked earlier about the Clinton surpluses and the Bush

50:59

tax cuts and uh the response under President Obama where you know people

51:04

like Jason fman were pushing uh four trillion in deficit reduction so I’ll just say there’s a scene in the film for

51:11

those of you who might uh try to catch the film in canbera tonight I’ll be there uh there’s a scene in the film

51:16

where Jason Ferman attempts to say apart from the way we talk there’s really not

51:22

that much daylight between the way they think and really mmt and that’s just

51:27

completely wrong and you and I were talking before we went live about the GFC and the policy response and Jason

51:34

Ferman was President Obama’s he was the head of the Council of economic advisers and you’re watching the economy just

51:42

sluggishly try to recover and we’re out there saying you know you got to have a

51:47

bigger deficit you got to come back and do more and we and and Jason was pushing four trillion in deficit reduction when

51:54

inflation was not a problem problem at all so if your mmt you’re focused on inflation and that’s something that’s

52:01

giving you guidance as to whether you know you can safely commit more spending

52:06

and he’s focused on what’s Happening to Greece and the debt crisis in Europe and saying Oh wait we’re not gonna let this

52:12

happen you know we’ll get the deficit under control forgetting that America doesn’t have a Euro right yeah right um

52:18

there was one good question I I’ll see if I can find it about the job guarantee and it’s something that I I find quite

52:25

interesting and it’s also sort of goes along with the universal basic income is is universal basic income something that

52:32

mmt sort of uh is is okay with pushes and and just also on that as well the

52:39

job guarantee how you see that practically works and and is job guarantee just paying how is it how how

52:47

would it actually physically work I guess is good thing well so pavina chera

52:52

uh has written a book full employment guarantee so a little paperback book it’s pretty easy to get through if

52:58

people want to read she’s uh probably the most um the The mmt Economist who

53:04

has done the most writing specifically on a federal job guarantee she and I and

53:09

Randy Ray Flavia dontis and then maybe one other maybe Eva uh nursan wrote

53:15

together a levy report which is probably 60 or so pages on uh full employment

53:21

guarantee the job guarantee laying out you know what kinds of jobs who would supervise them can you be fired all of

53:27

the usual questions that kind of come up uh so all of that is addressed there and

53:33

I would encourage people who want to hear more to look there but basically

53:38

you announce the wage because you said you know how does it work you you announce the wage and it’s federally funded but the goal is to have it

53:45

locally administered because you cannot administer at the federal level a program with you know tens of millions

53:51

of people potentially uh participating you really want descent centralized administration of the programs and so

53:59

we’ve mapped out how that would look um the funding comes at the federal level the kinds of jobs well the who knows

54:06

best what their local communities need people living in the local communities right somebody might need uh new

54:13

bookshelves for the library in a public school somebody else might need uh community garden somebody else might

54:19

what what do you value in your community and what do you what do you want folks uh spending their time

54:25

could you have a basic income scheme alongside a job guarantee sure you could

54:31

and pav has written about that I think Randy has as well um I I never know

54:36

exactly what people have in mind when uh basic income comes up because you know it’s supposed to be a Ubi so youu to me

54:43

is universal which is supposed to mean everybody gets it but almost always you know nine times out of 10 when I talk to

54:49

someone about Ubi they have in mind some sort of a means tested or I don’t know

54:55

and then the basic income part to me means a sufficient income to meet basic

55:01

needs well now what are we talking 20,000 30,000 what is it and then is it

55:06

Universal and everybody gets 30 then I start getting a uh more than a little worried about inflation right so I

55:13

always want to hear more about what somebody has in mind before but we have

55:19

basic income schemes Social Security is a basic income scheme for a certain demographic right

55:25

um except at the moment the I guess the the problem with those basic income scenes especially in Australia is it’s

55:32

it’s a punishment rather than you know that if you lose your job and your unemployment benefits you’re in poverty

55:38

and the view is that that’s a if it’s too high it will

55:45

uh discourage people from working which I I think is a a Croc but um but you

55:52

know that’s I guess the fight and it also comes it always comes back to oh we can’t afford and you know we always get

55:58

back to the we can’t afford it but you know the are there are there and I think just very quickly are there are there

56:05

some sort of types of of spending that that uh you’re you think should be

56:13

pushed more because obviously you know one of the problems with big infrastructure spendings is you are

56:18

going to hit um labor constraints quicker given the the number of actual

56:24

skilled labor and things but are you there things like education spending or

56:30

child care or or other spending that you think we we don’t we treat spending a

56:36

bit too similar and rather realizing that there are some spending that is a whole lot less inflationary than others

56:43

okay so I should have said when I was talking about pina’s work in our paper that the job guarantee we like the idea

56:49

of orienting the programs around a building a care economy which is caring for people caring for Planet caring ing

56:55

for community and so I just wanted to put that marker down and make sure I said that um so certain types of

57:01

spending higher priority you know the needs of the community but aimed at feeding into you know those those

57:08

objectives um yeah I think economists broadly agree of all Stripes that when you spend on things like infrastructure

57:15

R&D and education these are productivity enhancing yeah so you know Republicans

57:21

and Democrats can often come to together on um packages that are aimed at doing

57:26

that and we’re doing that now yeah so we are spending hundreds of billions of dollars additional each year now aimed

57:33

at building you know manufacturing capacity for semiconductors for

57:39

infrastructure right re Shoring some actual manufacturing capacity R&D around

57:45

green manufacturing solar wind all kinds of investment is happening in the US

57:50

right now and inflation has been coming down because you can spend more when you’re spending into an economy that

57:58

has and that’s the whole point I mean my favorite line and and I often push back on this in In Articles is that uh when

58:06

politicians say that uh the the government doesn’t create any jobs I’m like well you seem to I think you do

58:13

when you seem to be appearing at the opening of a lot of ribbon cutting ceremonies where you’re boasting about how many jobs we created so it’s fun

58:19

thing we are going to unfortunately have to end it I just want to end though on

58:24

one final question um yourself and and I’ve noticed certainly over the most

58:30

recent period a number of women economists who have really come to the for yourself uh Claudius arm’s come up

58:36

with some fantastic ways of sort of looking at recessions and and challenging some old Notions and and as

58:42

we said you mentioned earlier Isabella vu’s done just some fantastic work on on

58:48

sellers inflation or however you want to call it bouncing bouncing around us right but

58:54

thing I also notice is that while there is this great extra visibility and prominence of women economists you also

59:02

I think are targeted a hell of a lot more than perhaps uh some of the the other male economists is it getting

59:10

better to be a woman Economist is it still a grind is it are the barriers

59:16

coming down is it mostly in Academia or is it more still in in the public sphere

59:21

that you you feel the attacks come you been Now sort of in the in the public

59:28

prominence for for quite a while and it’s certainly been with Bernie Sanders you were very much under the microscope

59:34

is there because certainly sexism in in the economics field has been a long

59:40

structural deficit or Surplus I’m not sure it is certainly something we should

59:47

care about do do you see good signs coming or you know is it slowly getting

59:53

better I mean what I feel and observe is mostly online Behavior I’ve been very

59:59

fortunate my whole career I really have from you know graduate school to coming

1:00:06

out of graduate school to um have been surrounded by people mostly males who’ve

1:00:13

been very good to me and and protective of me and supportive and you know I tell

1:00:18

the story sometimes that there’s a photo that goes around I it’s a terrible photo my hair is this big I hate it when it

1:00:24

surfaces but I’m with Randy Wray and John Henry and John Henry was ry’s Professor

1:00:30

when he was uh doing a master’s degree before he was my professor when I later

1:00:35

came along and did an undergraduate degree and we’re at a conference I think in Denver Colorado and and we’re at

1:00:42

dinner after you know one evening and there’s a long table and everybody’s sort of leaning in for the photo that

1:00:49

you take at the end of the night and this picture surfaces and somebody said to me once are you always the only woman

1:00:56

and I took a picture and I looked at it and it never occurred to me it just

1:01:01

didn’t reson now that was 20 some 25 whatever years ago so now I’m more aware

1:01:08

you know yeah uh it is hard for women is very hard you probably saw what happened to Claudia after you know she had the

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audacity to write an oped in the guardian and say maybe

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possibly um we might need to think about the use of some strategic price controls

1:01:26

if perhaps this might be I mean it was such a subtle it wasn’t a a real go

1:01:32

after kind of she just floated the idea my God all hell you know Hell hath no

1:01:37

fury like a man scorned by his neoc classical you know critic um so and and

1:01:44

Claudia takes obviously her share of of meat online and um it it it’s a shame

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that people feel like they are in entitled to to go after some of us in

1:01:57

that way but I think these are women Mariana we are thick skinned um broads

1:02:03

so I think we put up with it pretty well well it has been my absolute pleasure to be able to talk to you today Stephanie

1:02:10

thank you very much thank you everyone for joining online I’m sorry I couldn’t get through all your questions it’s just

1:02:15

mmt is so deep and so um interesting to to get into so I’m sorry about that but

1:02:22

hopefully I’ve been able to at least address in uh context some of what you have been asking about thank you very

1:02:28

much everyone for joining and remember keep an eye out on our website for any future webinars that we are having and

1:02:35

for those of you who are going to see Stephanie tonight at dendi in CRA and tomorrow night and in Sydney you’ll very

1:02:42

much enjoy it and thank you once again Stephanie Colton thank you all

1:02:50

bye thanks for watching visit Australia institute.org for all our latest research commentary

1:02:56

and Analysis as well as details for upcoming events and webinars