Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenfal and I'm Tracy Alloway. Tracy, have you
Speaker 1: noticed that there is a lot of talk about MMT lately? No? No, Joe,
Speaker 1: I haven't noticed. What's what's MMT? No, it seems like, um,
Speaker 1: hardly a day goes by where someone doesn't weigh in MMT.
Speaker 1: It stands for modern monetary theory. It's say, I guess,
Speaker 1: a a school of economic thought that's exploding uh in
Speaker 1: popularity right now, very much online. And it's a kind
Speaker 1: of complicated. There's a lot to it, but I think
Speaker 1: the gist is that people get really excited about is
Speaker 1: sort of rethinking our approach to deficits. So I think
Speaker 1: the mainstream discourse government deficits are seen as bad or
Speaker 1: maybe sometimes a necessary evil is something to be avoided.
Speaker 1: And there's a lot more to it, but I think
Speaker 1: it hard it's this view like no deficits and government
Speaker 1: debt isn't the same as regular debt. We don't have
Speaker 1: to be afraid of it. Yeah, and MMT by complete coincidence.
Speaker 1: I'm sure it could also be interpreted as many macro
Speaker 1: economists talking, which is what it has effectively become. Right, Like,
Speaker 1: there is so much discourse about this particular topic, and
Speaker 1: it's kind of weird to observe because you think, oh,
Speaker 1: it's a relatively obscure economic theory. But I think what
Speaker 1: gets people really excited about it is that it's in
Speaker 1: an economic theory that essentially comes with a sort of
Speaker 1: view of what the world is or how the world
Speaker 1: should be, and also policy implications. So people get really
Speaker 1: really riled up about this particular topic. I had never
Speaker 1: heard that acronym any macro economists talking. I had heard
Speaker 1: a magical money tree? Is it another? Uh, another pejorative
Speaker 1: acronym for it? But I think you're right, and you know,
Speaker 1: it's interesting. There are multiple parallels I think to bitcoin
Speaker 1: actually in the sense like seventeen, all these sort of
Speaker 1: old like, sort of mainstream people in banking and finance
Speaker 1: were asked to comment about bitcoin, even though it never
Speaker 1: got I never got any impression that they had even
Speaker 1: understood what it is, and they all thought it was awful.
Speaker 1: And now this year we're seeing the same with MMT
Speaker 1: in the sense that a lot of people are criticizing
Speaker 1: in saying, oh, if we adopt this we're gonna end
Speaker 1: up like Zimbabwe or Venezuela. But it's not really clear
Speaker 1: that they've actually put in any effort into learning about
Speaker 1: what it is. And the other thing, I think that
Speaker 1: parallel and you think about like why now both bitcoin
Speaker 1: and MMT sort of post crisis rethinking of like what
Speaker 1: money is And a lot of people are frustrated with
Speaker 1: the economy, inequality, bankers, austerity, and so I think that
Speaker 1: the frust straation with the post crisis period has sort
Speaker 1: of opened the door for new ideas to take root
Speaker 1: and gather steam and force the old guard to defend
Speaker 1: the existing system in a way they're not used to.
Speaker 1: Totally agree, and Bitcoin and m m T are sort
Speaker 1: of two sides of a similar coin. I would say
Speaker 1: Bitcoin is a question about whether or not a government
Speaker 1: should have monopoly over money, and mm T is sort
Speaker 1: of the implications of what happens when a government does
Speaker 1: have monopoly over the money system. So I'm excited to
Speaker 1: talk about this one. We will add to the MMT
Speaker 1: many macro economists talking move in this particular episode. Yes,
Speaker 1: and I mentioned that with both of the topics, I
Speaker 1: felt like there was this phenomenon where everyone grabbed someone
Speaker 1: on the stage and they said, what's your opinion on this?
Speaker 1: And even if it's not clear that the person did
Speaker 1: any idea what they're talking about, for some reason, they
Speaker 1: will listened to. So today we're actually going to talk
Speaker 1: to someone who has been a critic of MMT, but
Speaker 1: unlike most critics, uh, he actually understands it well and
Speaker 1: at one point he was more of an endherent of it.
Speaker 1: And I first discovered MMT back and I think two
Speaker 1: thousand nine by reading his blog. So yeah, very way
Speaker 1: early adopters. So I am excited that on this week's
Speaker 1: episode we have Cullen Roach. He is the founder of
Speaker 1: Orkham Financial. A lot of people know him as the
Speaker 1: author of the very popular finance blog Pragmatic Capitalist. Like
Speaker 1: I said, I first discovered m MT through him in
Speaker 1: two thousand nine. Now he's a bit of a critic,
Speaker 1: but he understands it very well. Uh, Colin, thank you
Speaker 1: very much for joining us. Hey, guys, thanks for having me.
Speaker 1: So it's pretty extraordinary how much talk MMT is getting
Speaker 1: these days, given that it was just you know, you
Speaker 1: were just one of hardly anyone A handful of people
Speaker 1: writing about it about ten years ago. Uh, why don't
Speaker 1: you start off by saying, sort of in your view,
Speaker 1: what attracted you to this framework of thinking about the
Speaker 1: economy way back then? Yeah? So you know, gosh, coming
Speaker 1: out of the financial crisis, I think what a lot
Speaker 1: of people were looking for was answers about how things
Speaker 1: worked because the world seemed so dysfunctional back then that
Speaker 1: I think, especially a lot of us in the UH
Speaker 1: in finance and economics, we were sort of rethinking the
Speaker 1: way that we had been trained about a lot of
Speaker 1: things and better trying to develop a model for for
Speaker 1: better understanding the world basically. And the thing about MMT
Speaker 1: is that it has a very precise descriptive aspect to it,
Speaker 1: and they do in general a much better job of
Speaker 1: describing how the financial system actually works. So the big
Speaker 1: thing for me was in particular it was banking. They
Speaker 1: understand banking extremely well, so all the post Kaynesians do.
Speaker 1: The The mm T people are a strand of the
Speaker 1: post Kaynesian school, and all of the post Keynesians have
Speaker 1: a very solid understanding of banking because they understand and
Speaker 1: dodges this money. Basically, the and dodged his money is
Speaker 1: the concept that essentially banks create money from thin air.
Speaker 1: They don't. They don't lend out their deposits, they don't
Speaker 1: lend out their reserves. The central bank doesn't control the
Speaker 1: money supply. Really, the banking system itself is indodgingus. It
Speaker 1: literally can control the supply of money that is existent
Speaker 1: at any given time. And this was really crucial to
Speaker 1: understand coming out of the financial crisis, because at its heart,
Speaker 1: the financial crisis was a banking crisis. It was a
Speaker 1: crisis of too much credit, too much money being extended
Speaker 1: by banks too you know, finance homes that people couldn't afford,
Speaker 1: and when everything deflated, the central bank then responded with
Speaker 1: all these big actions. And the interesting thing at that
Speaker 1: time was that a lot of mainstream macro models said
Speaker 1: that what the central bank was doing, through things like
Speaker 1: q E and whatnot, we're going to potentially cause hyper inflation.
Speaker 1: And understanding MMP and in Dodge's money was really important
Speaker 1: because if you understood that that's not how things actually work.
Speaker 1: You understood basically that if the central bank flooded the
Speaker 1: banking system with reserves, it wouldn't necessarily cause banks to
Speaker 1: lend more. And in fact, if the lending system and
Speaker 1: the demand side of it was dysfunctional that banks wouldn't
Speaker 1: lend more and it actually wouldn't cause high inflation. And
Speaker 1: so from a market practitioner's perspective, that was a huge,
Speaker 1: huge advantage to have by understanding the impact on financial
Speaker 1: markets and bond markets in particular. And so that was
Speaker 1: really my general attraction was that the post Kanesian schools
Speaker 1: in general just have a better, a really more sensible
Speaker 1: operational description of how things work. So Colin, I want
Speaker 1: to dig into this point because I think a lot
Speaker 1: of people won't remember that, you know, in the aftermath
Speaker 1: of the two financial crisis, just how revolutionary or different
Speaker 1: that idea was. When central banks around the world started
Speaker 1: doing quantitative easing. I mean, the sort of common take
Speaker 1: on that was that it was going to lead to
Speaker 1: hyper inflation. And I will admit I remember writing up
Speaker 1: some analyst notes that said exactly that, what was it
Speaker 1: about practitioners of mm T, like, what did they see
Speaker 1: that other people didn't? Well, I think it's that they
Speaker 1: just had a They have a better understanding of how
Speaker 1: banks actually work. So banks don't take their reserves from
Speaker 1: central banks and actually lend them out. In fact, they
Speaker 1: can't lend them out to non banks, and so people
Speaker 1: who understood that operational aspect knew that if you added
Speaker 1: a trillion dollars of reserves to the banking system, that
Speaker 1: wouldn't be multiplied into you know, ten trillion dollars of money,
Speaker 1: as the money multiply UH tells us. The money multiplier
Speaker 1: is basically a great, big myth, and the indogenous money people,
Speaker 1: they all understood that. And so, you know, it's interesting
Speaker 1: for me because I I don't have a specifically a
Speaker 1: banking background, but I know enough people in banking and
Speaker 1: have worked with enough people in banking that and done
Speaker 1: enough work with bankers that I have a pretty solid
Speaker 1: understanding of how banking actually works. And so what I
Speaker 1: was hearing from MMT and the post Kaynesians and the
Speaker 1: theoretical side of things was being exactly relayed to me
Speaker 1: when I was talking to people on the operational side
Speaker 1: of things, and in particular, I was talking to a
Speaker 1: lot of people in Japan market analysts who had been
Speaker 1: through the various iterations of KWI and the two thousands,
Speaker 1: and they laid out the accounting framework for me, and
Speaker 1: I was kind of relaying what I was reading in
Speaker 1: the theoretical works from the post Kaynesians and the m
Speaker 1: MT people relaying it to these guys, and they were saying, yes,
Speaker 1: this is exactly how this works, and the outcome will
Speaker 1: be primarily the opposite of what a lot of people
Speaker 1: are saying. You know, all the analysts that I was
Speaker 1: talking to in Tokyo, they were saying, Cullen, this thing
Speaker 1: does this program quantitative easing, it does the exact opposite
Speaker 1: of what all of you Americans seem to think it does.
Speaker 1: It is more likely to cause deflation, cause interest rates
Speaker 1: to stay low, rather than cause interest rates to rise
Speaker 1: and cause hyperinflation. And so the theoretical framework matched up
Speaker 1: exactly with the practitioners accounting and explanations of how these
Speaker 1: things actually work. And so that was around the time
Speaker 1: when I was becoming a very vocal proponent of you know,
Speaker 1: in retrospect, I wasn't, you know, to be fair to
Speaker 1: the m m T people, I wasn't exactly explaining their
Speaker 1: theory correctly. I was explaining components of it correctly, mainly
Speaker 1: the endogenous money component and the the sovereign money component
Speaker 1: of it. To me, was also very attractive because the
Speaker 1: flip side of this is, well, okay, if the if
Speaker 1: the government might not cause inflation, couldn't it cause us
Speaker 1: to go bankrupt? And that also was something that to
Speaker 1: me didn't make a lot of sense. And so the
Speaker 1: m m T people seem to have a better explanation
Speaker 1: of Hey, yeah, we can print our own money, but
Speaker 1: we also can't go bankrupt in a money that we
Speaker 1: can print. You explained this, So this is where I
Speaker 1: was gonna go. So in the intro I mentioned that
Speaker 1: I think most people when they think of MMT, either
Speaker 1: whether they really have no idea or some idea, they
Speaker 1: really think a lot about this idea of rethinking deficits
Speaker 1: and rethinking fiscal sustainability. And of course, the other thing
Speaker 1: that happened post crisis is our deficits in the US
Speaker 1: and elsewhere exploded because tax revenues dropped. There was a
Speaker 1: physical stimulus, automatic stabilizers kicked in, and there was a
Speaker 1: lot of handwringing about the size of the deficit and
Speaker 1: can we afford stimulus, and some countries adopted austerity and
Speaker 1: we kind of did too after in But that's the
Speaker 1: other component besides the banking system. A sort of explained
Speaker 1: to us that link between the endogenous money characterization of
Speaker 1: how the banking system works, and also the MMT view
Speaker 1: on UH deficit or death sustainability. Well, there are almost
Speaker 1: two different components in m m T. They really are
Speaker 1: and mean the mm T people describe it as basically
Speaker 1: vertical and horizontal money, and so the there are really
Speaker 1: two different money systems in the in the MMT world,
Speaker 1: where the government issues what is essentially the real stuff,
Speaker 1: the stuff that you settle your taxes in basically reserves, currency, coin,
Speaker 1: um and even treasury bonds to some degree are I know,
Speaker 1: the MMT people don't like to use the word money,
Speaker 1: but they they are essentially what what a mainstream economist
Speaker 1: would think of as money in the MMT world, and
Speaker 1: so you have kind of two different money systems where
Speaker 1: the banking system is basically using it's issuing an IOU
Speaker 1: for the real thing, and so households and basically the
Speaker 1: non government sector they can create money like instruments that
Speaker 1: are denominated and say dollars, but they're not the real thing.
Speaker 1: They're not what you ultimately settle your your tax payments with,
Speaker 1: or or what you basically what you have to pay
Speaker 1: the government at the end of the day. With and
Speaker 1: so that is important because the government can't run out
Speaker 1: of the thing that it actually issues, so whereas the
Speaker 1: rest of us we can. You know, a household can
Speaker 1: run out of out of income, it can run out
Speaker 1: of money, it can run out of people who are
Speaker 1: basically a willing counter party in the relationship. I mean,
Speaker 1: I can't always find a bank that I want to
Speaker 1: be my counterparty in a loan, whereas the government A
Speaker 1: and M M. T uses this the word sovereign and
Speaker 1: what I would say is a little bit of a
Speaker 1: slippery way, but in general it's a for a developed
Speaker 1: and diverse economy that doesn't borrow in a in a
Speaker 1: foreign currency, it's a generally accurate term to call it
Speaker 1: a sovereign currency, basically meaning that they can't run out
Speaker 1: of the money that they alone can create. And so
Speaker 1: there I think Stephanie Kelton has said before that the
Speaker 1: government's deficit is essentially self financing, in the sense that
Speaker 1: the government doesn't need to find sources of financing to
Speaker 1: to basically issue new money. So um, this is probably
Speaker 1: where the policy implications start to come in. But before
Speaker 1: we get to that, I want to ask a question
Speaker 1: that you often here or you know, make a point
Speaker 1: that a lot of people often bring up, and that's
Speaker 1: the idea that yes, okay, a governments are in some
Speaker 1: way self financing, and their deficits can sort of go
Speaker 1: as high as they want them to go, and the
Speaker 1: only upper constraint on that is the inflation rate. But
Speaker 1: then a lot of people come in and ask, well,
Speaker 1: our governments that already have high deficits de facto mm T.
Speaker 1: So if you look at the US, I mean, I
Speaker 1: think the budget there is supposed to get to one
Speaker 1: trillion in the next year or two. Japan has been
Speaker 1: running sort of persistent budget deficits for a long time.
Speaker 1: Are those countries, those systems already m m T or
Speaker 1: is there something people mean about mm T as an
Speaker 1: economic theory that is different to just a big deficit. Yeah,
Speaker 1: So I think that the the MMT specific theory of
Speaker 1: the world is very different than the the world that
Speaker 1: we see in most of these economies. So running a
Speaker 1: big deficit is I mean, to me, that's just sort
Speaker 1: of it. It's basically mainstream macro canesie and econ. I mean,
Speaker 1: most of what you see with the deficit is sort
Speaker 1: of an EBB and flow in a countercyclical way. So
Speaker 1: you know, we've all kind of become Canesians in the
Speaker 1: sense that you always see countercyclical deficits. Nobody becomes an
Speaker 1: advocate of budget surpluses during periods like two thousand and eight.
Speaker 1: It just doesn't happen. In fact, we've set up our
Speaker 1: policies so that we basically automatically have larger deficits because
Speaker 1: of automatic stabilizers that are in effect automatic spending programs
Speaker 1: and automatic cuts and taxes that cause the deficit to
Speaker 1: expand when the economy contracts. But MMT is much more
Speaker 1: specific in that, and I think this is the thing.
Speaker 1: The thing that I misunderstood about MT when I first
Speaker 1: came across it was this fact was that MMT is
Speaker 1: specifically different from mainstream macro in that it is a
Speaker 1: buffer stock of employment theory. And what that means is
Speaker 1: that basically, the way that mainstream macro use things, in
Speaker 1: the way that a capitalist economy essentially works, is that
Speaker 1: you have a buffer stock of unemployed people, and that
Speaker 1: in mainstream macro is the it's the buffer through which
Speaker 1: you control inflation. Basically, the the number of unemployed people
Speaker 1: to some degree is the thing that keeps inflation low,
Speaker 1: so you always have a certain number of I mean,
Speaker 1: for instance, today people are saying we're at full employment,
Speaker 1: and the unemployment rate is you know what, By some measures,
Speaker 1: it's it's seven eight percent, by other measures it's you know,
Speaker 1: three to you know whatever, five, depending on which number prefer. So,
Speaker 1: but there are still a lot of unemployed people out
Speaker 1: there by any measure. And you have mainstream macro economists
Speaker 1: who are saying that the economy is operating out or
Speaker 1: near full employment, which is a weird thing to think
Speaker 1: of because really what they're saying is that we're operating
Speaker 1: at a rate of employment where inflation is not high
Speaker 1: or or worrisome to a large degree. So there's a
Speaker 1: buffer stock of unemployed people in the way that mainstream
Speaker 1: macro works and m m T is very specific and
Speaker 1: that they prefer, and they explicitly say that you should
Speaker 1: use a buffer stock of employed basically to not only
Speaker 1: reach full employment, but to control inflation. So that's where
Speaker 1: the job guarantee that they advocate. It's not just a
Speaker 1: theoretical aspect of their view. It is an essential descriptive
Speaker 1: component of how they view the world, because they basically
Speaker 1: say that the government is the cause of unemployment. Therefore,
Speaker 1: the government is the only entity that can solve unemployment,
Speaker 1: and they're they're the only ones that And I should
Speaker 1: be clear, when I say unemployment in the MMT world,
Speaker 1: they mean zero involuntary unemployment. So there's always some level
Speaker 1: of involuntary unemployment in mainstream macro basically. So MMT is
Speaker 1: using a little bit of a different definition. And they're
Speaker 1: very specifically saying that they want to control the economy
Speaker 1: and prices and employment through maintaining a buffer stock of
Speaker 1: fully employed workers. Yeah, let's let's dive into this, because
Speaker 1: I think this is sort of the crux of our
Speaker 1: A lot of different disagreements come out, and it also
Speaker 1: gets to some of the difficulty that I think people
Speaker 1: have in defining m m T. Of course, critics of
Speaker 1: mm T will say, oh, they keep changing the goalpost.
Speaker 1: But what we have, let's say, if we can break
Speaker 1: it down, So what we have is this sort of
Speaker 1: pure descriptive characterization of how money and banking works. But
Speaker 1: the financial system, the vertical uh, the horizontal money, the
Speaker 1: government uh self financing deficits. It doesn't sound like you
Speaker 1: have much of a disagreement with that. So that's the
Speaker 1: pure descriptive aspect of how mm T says the existing
Speaker 1: economy works. It's not a policy prescription. Then they have
Speaker 1: these other aspects, and a lot of mm tears are
Speaker 1: associated with sort of fairly radical or aggressive economic proposals. Lately,
Speaker 1: we've seen a lot of mm tears advocate for the
Speaker 1: Green New Deal. Um you mentioned the job guarantee, this
Speaker 1: idea that the government would guarantee full employment, and it
Speaker 1: sounds like to me that the crux of the issue,
Speaker 1: or one of the key questions, is is the job
Speaker 1: guarantee component, which some people would say sounds like, you know,
Speaker 1: big government socialism, is that part of the descriptive aspect
Speaker 1: of mm T or is that part of the prescriptive
Speaker 1: aspect of mm T. So I there seems to be
Speaker 1: some disagreement with within some of the m m T
Speaker 1: people over this, but I think Bill Bill Mitchell is
Speaker 1: really the clearest on this, and the way that he
Speaker 1: describes it essentially is that the government is the in
Speaker 1: the theory eddical MMT world, the government causes unemployment. So
Speaker 1: when they start the money system, they basically they invoke
Speaker 1: rules and regulations and taxes that basically require people to
Speaker 1: obtain state money. So you have to obtain money to
Speaker 1: pay your taxes. And if you can't obtain money to
Speaker 1: pay your taxes, then you don't have a job and
Speaker 1: you don't have an income. So and if there's involuntary unemployment,
Speaker 1: then the MMT people would say basically, well, the government
Speaker 1: caused this, so the government has to fix it. And
Speaker 1: so if you understand that descriptive component of the MMT
Speaker 1: world and their view, then your logical conclusion is the
Speaker 1: job guarantee. There is no alternative basically, um And I
Speaker 1: think I think they're on a little bit of slippery
Speaker 1: ground there. I I do not necessarily think that you
Speaker 1: can say definitively that the government is the cause of
Speaker 1: unemployment in the monetary system. So there there does seem
Speaker 1: to be at least some theory slipping into the description
Speaker 1: there and the and that leads to their big policy proposal,
Speaker 1: which you know, that's part of why although I I
Speaker 1: like a lot of what MMT says, I think they
Speaker 1: tend to get, they tend to overreach, and they tend
Speaker 1: to find themselves in in positions that are not empirically sound,
Speaker 1: that aren't really supported by a lot of evidence, and
Speaker 1: this is one of those positions um and it weirdly,
Speaker 1: it goes against a lot of sort of basic Kansian principles,
Speaker 1: mainly the the idea that really unemployment is the result
Speaker 1: of a lack of investment and so you know government.
Speaker 1: They MT people would say that, well, yeah, that's just
Speaker 1: related to a lack of effective demand, which is the
Speaker 1: result of people, you know, needing an income and the
Speaker 1: only way they can get their income is from the government.
Speaker 1: So you know, they're pretty the MT people are very
Speaker 1: very smart, and they're they've constructed a very sound and
Speaker 1: cohesive sounding theory that I think is especially intuitive to
Speaker 1: people who don't have a professional background, and actually is
Speaker 1: even more confusing for people who have a professional background,
Speaker 1: because they use a lot of these words in a
Speaker 1: sort of alternative way, words like unemployment and sovereignty in
Speaker 1: ways that they don't have a meaning to uh, you know,
Speaker 1: Paul Krugman or Larry Summers, they read those words and
Speaker 1: they have a very specific meaning in mind when they
Speaker 1: think of those things, and but they're they're speaking right
Speaker 1: past each other when they're talking to each other. So
Speaker 1: I see a lot of these articles and I'm like, oh, well,
Speaker 1: I understand what Paul is saying, but I also understand
Speaker 1: what Warre Mosler is saying. And they're saying the things
Speaker 1: that in their own world there are right, but they're
Speaker 1: talking right past each other because they're speaking a different language.
Speaker 1: So you know, if you if you set aside that
Speaker 1: empirical criticism that maybe unemployment isn't caused by the government,
Speaker 1: maybe it is caused by that lack of investment. Even
Speaker 1: setting that aside, if you believe in empty and you
Speaker 1: believe that the government should be fulfilling this sort of
Speaker 1: full employment mandate, I can imagine that that on its
Speaker 1: own has certain political connotations. Um certainly in America, right, Like,
Speaker 1: a lot of people will hear that and think that
Speaker 1: is a very slippery slope on the way to socialism. Yeah, well, gosh,
Speaker 1: I mean, you could argue in a sense that it
Speaker 1: isn't even consistent with the way that a capitalist economy
Speaker 1: actually functions. I mean, America is very specifically a capitalistic
Speaker 1: type of economy. And this is consistent more so with
Speaker 1: the mainstream view that basically the way capitalists manage their
Speaker 1: own risks is through managing the unemployed. They don't hire
Speaker 1: everybody because they want to retain some profits, they don't
Speaker 1: want to pay out all of their profits. And so capitalists,
Speaker 1: to a large degree, they manage and try to optimize
Speaker 1: the economy by managing that buffer stock of of unemployed
Speaker 1: people in essence. And so I think you could argue
Speaker 1: to some degree that that is sort of the natural
Speaker 1: case of capitalism, that capitalism results in some degree of
Speaker 1: unemployment because capitalists, you know, going back to Kines, capitalists
Speaker 1: never invest enough um, and so you need some other
Speaker 1: entity that is going to come in if you're gonna
Speaker 1: mop up all of that the rest of that involuntary unemployment.
Speaker 1: And I think you could make an argument that you're
Speaker 1: kind of you're kind of veering off of the base
Speaker 1: case of capitalism into something you know, I don't want
Speaker 1: to call m m T socialist, but um, it is
Speaker 1: more along those lines than it is arguably along the
Speaker 1: natural base case of what a capitalist economy produces. And
Speaker 1: I think that's the thing that kind of gets a
Speaker 1: lot of people riled up about this is, you know,
Speaker 1: the government is so involved in the economy to some
Speaker 1: degree in the MMT world that I think people view
Speaker 1: that as a slippery slope, and you know, honestly, I
Speaker 1: don't know how justified that is. The thing to about
Speaker 1: m MT I think that maybe worries me more than
Speaker 1: anything else is that it really hasn't been tried anywhere.
Speaker 1: You haven't really seen a true MMT regime anywhere with
Speaker 1: a full job guarantee, persistent deficits. Some of them advocate
Speaker 1: a zero interest rate policy in uh perpect perpetuity. So it's,
Speaker 1: you know, that's never been tried, and so I think
Speaker 1: the uncertainty of it to me is something that because
Speaker 1: there's no real empirical evidence supporting whether or not all
Speaker 1: of this works, to me is uh something that I
Speaker 1: think is worthy of of criticism to some degree. But again,
Speaker 1: I don't know. There's also a part of me that
Speaker 1: looks at a world with a job guarantee in certain
Speaker 1: countries where I mean, for instance, if the United States
Speaker 1: started a job guarantee, do I think that the U.
Speaker 1: S economy would suddenly go to hell in a handbasket? No.
Speaker 1: In fact, I kind of wonder if it actually wouldn't
Speaker 1: be a lot better in a country like the United States.
Speaker 1: But you kind of get back into the question of
Speaker 1: Soba and te there where the United States is so sovereign,
Speaker 1: our economy is so big, so diverse, and so productive
Speaker 1: that we can afford to do things like that in
Speaker 1: my view, which makes MMT kind of interesting in specific
Speaker 1: cases like the United States, whereas in you know, a
Speaker 1: place like Brazil, you know, they probably have no business
Speaker 1: adopting something like an mm T mentality because they quite
Speaker 1: literally can't afford to do it because there it would
Speaker 1: probably result in runaway inflation or at least the risk
Speaker 1: of it, or so so big picture and we've got
Speaker 1: to wrap it up soon is that it sounds like
Speaker 1: listening to you and reading you over the years that
Speaker 1: at least on the pure descriptive side, MMT gets us
Speaker 1: a lot closer to understanding how the world actually works
Speaker 1: than almost all of these sort of mainstream economics or
Speaker 1: economism is James Quack uh the professor uses the term
Speaker 1: to sort of describe economic economic sounding things that aren't
Speaker 1: really rude with anything. MMT gets us closer than a
Speaker 1: lot of other framework to do, but that there are
Speaker 1: certain prescriptions that they offer that in your view, just
Speaker 1: aren't nearly as solid and as sort of grounded and
Speaker 1: empirics Uh as the advocates would claim yeah, I mean,
Speaker 1: I think they take certain liberties with explaining some things
Speaker 1: that are in my opinion, kind of sloppy. For instance,
Speaker 1: they tend to consolidate the central bank with the treasury,
Speaker 1: and they argue that the the government is uh, it
Speaker 1: doesn't need funding because it it can't basically accept its
Speaker 1: own liabilities, which is what happens when the government pays taxes.
Speaker 1: But the that to me is sort of an arcane
Speaker 1: discussion because it gets into really specific reserve accounting in
Speaker 1: the way that you know, the debate over why the
Speaker 1: reserve system even exists and things like that, which is
Speaker 1: I think, you know, for someone like me who's kind
Speaker 1: of a nerd about all of this, I get kind
Speaker 1: of nitpicky about stuff like that. But in general, yeah,
Speaker 1: I would say that the the MMT description compared to
Speaker 1: the way that the mainstream models of all this stuff works,
Speaker 1: I mean, especially on the you know, the central banks
Speaker 1: and banks are such an essential component of the economy
Speaker 1: that if you can't describe how those things work, then
Speaker 1: you really are going to have a hard time describing
Speaker 1: how the system works. And m MT does a really
Speaker 1: nice job of describing those things. So you know, well,
Speaker 1: I disagree with some of the maybe specifics and whether
Speaker 1: or not the government is the cause of unemployment and
Speaker 1: descriptive aspects like that. I would say on the whole,
Speaker 1: they definitely do a much better job of getting us
Speaker 1: closer to reality than a lot of mainstream schools do. Well.
Speaker 1: I think this was a I'm sure the We're gonna
Speaker 1: get a lot of hate from the MMT crowd on
Speaker 1: Twitter for having you on, because I know you fight
Speaker 1: with a lot of them, but you're very polite, you're
Speaker 1: talking person. I like them a lot more than I
Speaker 1: think they think, and I think I sometimes come across
Speaker 1: is more critical than I really am. So I hope
Speaker 1: I provided somewhat of a balanced of you here. Yeah. Well,
Speaker 1: I was gonna say, you know, Tracy mentioned in the
Speaker 1: intro we hadn't really done an MMT episode yet, but
Speaker 1: I think this was a good balanced introduction for our listeners.
Speaker 1: So Colin, roach really appreciate you coming up. Thanks for
Speaker 1: having me. I'm actually really happy Tracy that we started.
Speaker 1: We had our first MMT episode with Colin. Like I said,
Speaker 1: I'm sure some people are going to get really angry
Speaker 1: or say he mischaracterized something, because that's always how things
Speaker 1: are on the Internet. But I thought that was a
Speaker 1: good balanced take. What's that quote from a street car
Speaker 1: named desire. I feel like you know, we we've had
Speaker 1: this date from the beginning or whatever, Like you knew
Speaker 1: the MMT episode was coming, it was only a matter
Speaker 1: of time. We'll definitely have to do more because we
Speaker 1: can get some of the more hardcore m M tears
Speaker 1: who could come on and disagree with him. But I
Speaker 1: think that this sort of the spectrum of what mm
Speaker 1: T means is sort of the source of a lot
Speaker 1: of the fighting and confusion because it does have this
Speaker 1: very descriptive aspect that's like, this is how it works.
Speaker 1: And then they're also these follow on prescriptions of like, Okay,
Speaker 1: we know how the world works, so this is what
Speaker 1: we should do. And the question is always how much
Speaker 1: does the latter necessarily spring forth from the former and
Speaker 1: how much does the description of the world lead you
Speaker 1: to automatic policy conclusions or is there sort of a
Speaker 1: range of options we then have. And it feels like
Speaker 1: that's where a lot of the uh, the fighting and
Speaker 1: disputes really happens. Yeah, I would agree with that, but
Speaker 1: I would also question the usefulness of an economic theory
Speaker 1: that is, you know, apparently self evidently so unclear to
Speaker 1: so many people and seems to mean so many different
Speaker 1: things to different people. So MMT has done a fantastic
Speaker 1: job of capturing a lot of political interest and discourse
Speaker 1: and also a lot of economic interest, but it probably
Speaker 1: hasn't done as good a job in simply defining itself.
Speaker 1: You know what's interesting, there hasn't been and I suspect
Speaker 1: it will change, but there hasn't been like the definitive
Speaker 1: mm T book yet. I mean, there have been written
Speaker 1: on it, but like the real mainstream one that everyone
Speaker 1: can read, Like, I feel like that's still coming Bloomberg.
Speaker 1: We actually ran a really good piece a couple of
Speaker 1: weeks ago that I think it is one of the
Speaker 1: fairest descriptions yet. So I feel like the mm tears
Speaker 1: do recognize this and say, like, Okay, there is a
Speaker 1: lot of confusion out there, and some people think that
Speaker 1: MMT just means print money forever. And so it will
Speaker 1: be interesting to see if the people have brought it
Speaker 1: this far, and you know, they've they really just sort
Speaker 1: of in the last ten years gone from commenting on
Speaker 1: blogs and some obscure academic x two entering the mainstream,
Speaker 1: whether they can actually start to help people understand what
Speaker 1: it is they say it will be interesting to watch. Yeah,
Speaker 1: there's a book deal in there for someone somewhere. But
Speaker 1: the the other thing that really interests me about MMT
Speaker 1: and Cohen touched on this towards the latter end of
Speaker 1: the show, but how useful is it actually for a
Speaker 1: country that isn't the United States, or that doesn't have
Speaker 1: a global reserve currency or a currency that's somehow viewed
Speaker 1: as a safe haven. And you know, he mentioned Brazil,
Speaker 1: And I really wonder the opportunities that MMT proponents are
Speaker 1: talking about full employment and you know, various other things.
Speaker 1: Could those ever apply to emerging market economies or developing
Speaker 1: market economies that do not have the luxury of printing
Speaker 1: money without inflation. Yeah, the M M tears would say
Speaker 1: that they do, and that there's nothing specific to the US.
Speaker 1: But I do think it's an open question. Don't we
Speaker 1: have an episode coming up kind of about this question
Speaker 1: MMT in the context. Yes, we did get a suggestion
Speaker 1: from someone on Twitter, so we are going to talk
Speaker 1: about it. Uh So, Yes, plentymore MMT episodes to come,
Speaker 1: for sure. All right. Well, on that note, people can
Speaker 1: look forward to that this has been another episode of
Speaker 1: the Odd Lots Podcast. I'm Joe Wisenthal. You can follow
Speaker 1: me on Twitter at the Stalwart and I'm Tracy Allaway.
Speaker 1: You can follow me on Twitter at Tracy Alloway. And
Speaker 1: you should definitely follow our guest Colin Roach on Twitter.
Speaker 1: He fights with a lot of m M tears all day.
Speaker 1: His Twitter handle is at Colin Roach. And be sure
Speaker 1: to follow our producer Topur Foreheads. His Twitter handle is
Speaker 1: at foreheads T and follow the Bloomberg head of podcast,
Speaker 1: Francesca Levy at Francesca Today. Thanks for listening.