WEBVTT - From MMT Advocate To Outspoken Critic 0:00:10.560 --> 0:00:14.280 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:14.320 --> 0:00:18.959 I'm Joe Wisenfal and I'm Tracy Alloway. Tracy, have you 0:00:19.079 --> 0:00:26.000 noticed that there is a lot of talk about MMT lately? No? No, Joe, 0:00:26.000 --> 0:00:31.200 I haven't noticed. What's what's MMT? No, it seems like, um, 0:00:31.200 --> 0:00:34.880 hardly a day goes by where someone doesn't weigh in MMT. 0:00:35.440 --> 0:00:38.840 It stands for modern monetary theory. It's say, I guess, 0:00:38.840 --> 0:00:42.360 a a school of economic thought that's exploding uh in 0:00:42.479 --> 0:00:47.560 popularity right now, very much online. And it's a kind 0:00:47.560 --> 0:00:50.000 of complicated. There's a lot to it, but I think 0:00:50.000 --> 0:00:52.600 the gist is that people get really excited about is 0:00:52.840 --> 0:00:56.240 sort of rethinking our approach to deficits. So I think 0:00:56.280 --> 0:01:01.080 the mainstream discourse government deficits are seen as bad or 0:01:01.120 --> 0:01:04.319 maybe sometimes a necessary evil is something to be avoided. 0:01:04.880 --> 0:01:06.920 And there's a lot more to it, but I think 0:01:07.000 --> 0:01:10.319 it hard it's this view like no deficits and government 0:01:10.319 --> 0:01:12.280 debt isn't the same as regular debt. We don't have 0:01:12.319 --> 0:01:16.560 to be afraid of it. Yeah, and MMT by complete coincidence. 0:01:16.600 --> 0:01:20.199 I'm sure it could also be interpreted as many macro 0:01:20.400 --> 0:01:24.760 economists talking, which is what it has effectively become. Right, Like, 0:01:24.840 --> 0:01:29.200 there is so much discourse about this particular topic, and 0:01:29.240 --> 0:01:31.720 it's kind of weird to observe because you think, oh, 0:01:31.800 --> 0:01:35.520 it's a relatively obscure economic theory. But I think what 0:01:35.640 --> 0:01:38.600 gets people really excited about it is that it's in 0:01:38.640 --> 0:01:42.360 an economic theory that essentially comes with a sort of 0:01:42.480 --> 0:01:46.679 view of what the world is or how the world 0:01:46.720 --> 0:01:50.960 should be, and also policy implications. So people get really 0:01:51.160 --> 0:01:54.320 really riled up about this particular topic. I had never 0:01:54.400 --> 0:01:57.360 heard that acronym any macro economists talking. I had heard 0:01:57.400 --> 0:02:03.040 a magical money tree? Is it another? Uh, another pejorative 0:02:03.720 --> 0:02:06.120 acronym for it? But I think you're right, and you know, 0:02:06.160 --> 0:02:09.760 it's interesting. There are multiple parallels I think to bitcoin 0:02:09.840 --> 0:02:13.400 actually in the sense like seventeen, all these sort of 0:02:13.720 --> 0:02:17.400 old like, sort of mainstream people in banking and finance 0:02:17.639 --> 0:02:20.480 were asked to comment about bitcoin, even though it never 0:02:20.560 --> 0:02:22.680 got I never got any impression that they had even 0:02:22.760 --> 0:02:24.920 understood what it is, and they all thought it was awful. 0:02:25.639 --> 0:02:29.160 And now this year we're seeing the same with MMT 0:02:29.840 --> 0:02:32.440 in the sense that a lot of people are criticizing 0:02:32.480 --> 0:02:35.680 in saying, oh, if we adopt this we're gonna end 0:02:35.760 --> 0:02:38.200 up like Zimbabwe or Venezuela. But it's not really clear 0:02:38.240 --> 0:02:41.280 that they've actually put in any effort into learning about 0:02:41.280 --> 0:02:43.280 what it is. And the other thing, I think that 0:02:43.520 --> 0:02:46.880 parallel and you think about like why now both bitcoin 0:02:47.040 --> 0:02:50.880 and MMT sort of post crisis rethinking of like what 0:02:50.960 --> 0:02:52.919 money is And a lot of people are frustrated with 0:02:52.960 --> 0:02:59.320 the economy, inequality, bankers, austerity, and so I think that 0:02:59.520 --> 0:03:02.600 the frust straation with the post crisis period has sort 0:03:02.600 --> 0:03:06.679 of opened the door for new ideas to take root 0:03:06.720 --> 0:03:10.200 and gather steam and force the old guard to defend 0:03:10.200 --> 0:03:12.160 the existing system in a way they're not used to. 0:03:12.600 --> 0:03:15.359 Totally agree, and Bitcoin and m m T are sort 0:03:15.400 --> 0:03:19.320 of two sides of a similar coin. I would say 0:03:19.320 --> 0:03:22.480 Bitcoin is a question about whether or not a government 0:03:22.480 --> 0:03:26.079 should have monopoly over money, and mm T is sort 0:03:26.120 --> 0:03:29.119 of the implications of what happens when a government does 0:03:29.160 --> 0:03:32.840 have monopoly over the money system. So I'm excited to 0:03:32.880 --> 0:03:35.200 talk about this one. We will add to the MMT 0:03:35.480 --> 0:03:40.040 many macro economists talking move in this particular episode. Yes, 0:03:40.160 --> 0:03:42.560 and I mentioned that with both of the topics, I 0:03:42.680 --> 0:03:46.600 felt like there was this phenomenon where everyone grabbed someone 0:03:46.640 --> 0:03:49.200 on the stage and they said, what's your opinion on this? 0:03:49.800 --> 0:03:52.280 And even if it's not clear that the person did 0:03:52.320 --> 0:03:54.640 any idea what they're talking about, for some reason, they 0:03:54.680 --> 0:03:57.400 will listened to. So today we're actually going to talk 0:03:57.480 --> 0:04:00.440 to someone who has been a critic of MMT, but 0:04:00.800 --> 0:04:04.880 unlike most critics, uh, he actually understands it well and 0:04:05.320 --> 0:04:07.560 at one point he was more of an endherent of it. 0:04:08.080 --> 0:04:11.360 And I first discovered MMT back and I think two 0:04:11.400 --> 0:04:16.679 thousand nine by reading his blog. So yeah, very way 0:04:16.800 --> 0:04:20.360 early adopters. So I am excited that on this week's 0:04:20.400 --> 0:04:23.440 episode we have Cullen Roach. He is the founder of 0:04:23.560 --> 0:04:26.560 Orkham Financial. A lot of people know him as the 0:04:26.600 --> 0:04:30.920 author of the very popular finance blog Pragmatic Capitalist. Like 0:04:30.960 --> 0:04:33.720 I said, I first discovered m MT through him in 0:04:33.760 --> 0:04:36.080 two thousand nine. Now he's a bit of a critic, 0:04:36.120 --> 0:04:38.719 but he understands it very well. Uh, Colin, thank you 0:04:38.800 --> 0:04:42.280 very much for joining us. Hey, guys, thanks for having me. 0:04:42.600 --> 0:04:46.200 So it's pretty extraordinary how much talk MMT is getting 0:04:46.240 --> 0:04:48.400 these days, given that it was just you know, you 0:04:48.440 --> 0:04:51.520 were just one of hardly anyone A handful of people 0:04:51.560 --> 0:04:55.440 writing about it about ten years ago. Uh, why don't 0:04:55.440 --> 0:04:58.119 you start off by saying, sort of in your view, 0:04:58.640 --> 0:05:02.159 what attracted you to this framework of thinking about the 0:05:02.200 --> 0:05:06.640 economy way back then? Yeah? So you know, gosh, coming 0:05:06.640 --> 0:05:09.560 out of the financial crisis, I think what a lot 0:05:09.600 --> 0:05:13.080 of people were looking for was answers about how things 0:05:13.160 --> 0:05:17.440 worked because the world seemed so dysfunctional back then that 0:05:17.600 --> 0:05:19.400 I think, especially a lot of us in the UH 0:05:19.760 --> 0:05:22.520 in finance and economics, we were sort of rethinking the 0:05:22.560 --> 0:05:24.400 way that we had been trained about a lot of 0:05:24.400 --> 0:05:27.480 things and better trying to develop a model for for 0:05:27.520 --> 0:05:32.080 better understanding the world basically. And the thing about MMT 0:05:33.040 --> 0:05:37.000 is that it has a very precise descriptive aspect to it, 0:05:37.160 --> 0:05:41.160 and they do in general a much better job of 0:05:41.200 --> 0:05:45.640 describing how the financial system actually works. So the big 0:05:45.680 --> 0:05:49.320 thing for me was in particular it was banking. They 0:05:49.400 --> 0:05:52.640 understand banking extremely well, so all the post Kaynesians do. 0:05:52.720 --> 0:05:56.800 The The mm T people are a strand of the 0:05:56.880 --> 0:06:00.760 post Kaynesian school, and all of the post Keynesians have 0:06:00.800 --> 0:06:03.640 a very solid understanding of banking because they understand and 0:06:03.720 --> 0:06:06.480 dodges this money. Basically, the and dodged his money is 0:06:06.520 --> 0:06:09.599 the concept that essentially banks create money from thin air. 0:06:09.640 --> 0:06:12.560 They don't. They don't lend out their deposits, they don't 0:06:12.640 --> 0:06:15.279 lend out their reserves. The central bank doesn't control the 0:06:15.320 --> 0:06:19.880 money supply. Really, the banking system itself is indodgingus. It 0:06:20.320 --> 0:06:24.480 literally can control the supply of money that is existent 0:06:25.120 --> 0:06:27.400 at any given time. And this was really crucial to 0:06:27.480 --> 0:06:32.480 understand coming out of the financial crisis, because at its heart, 0:06:32.640 --> 0:06:35.320 the financial crisis was a banking crisis. It was a 0:06:35.320 --> 0:06:38.960 crisis of too much credit, too much money being extended 0:06:38.960 --> 0:06:43.440 by banks too you know, finance homes that people couldn't afford, 0:06:44.240 --> 0:06:48.800 and when everything deflated, the central bank then responded with 0:06:48.839 --> 0:06:52.320 all these big actions. And the interesting thing at that 0:06:52.400 --> 0:06:57.039 time was that a lot of mainstream macro models said 0:06:57.040 --> 0:06:59.600 that what the central bank was doing, through things like 0:06:59.680 --> 0:07:03.359 q E and whatnot, we're going to potentially cause hyper inflation. 0:07:03.560 --> 0:07:08.000 And understanding MMP and in Dodge's money was really important 0:07:08.040 --> 0:07:12.280 because if you understood that that's not how things actually work. 0:07:12.600 --> 0:07:16.160 You understood basically that if the central bank flooded the 0:07:16.160 --> 0:07:20.120 banking system with reserves, it wouldn't necessarily cause banks to 0:07:20.280 --> 0:07:22.640 lend more. And in fact, if the lending system and 0:07:22.680 --> 0:07:26.600 the demand side of it was dysfunctional that banks wouldn't 0:07:26.680 --> 0:07:29.880 lend more and it actually wouldn't cause high inflation. And 0:07:29.920 --> 0:07:33.960 so from a market practitioner's perspective, that was a huge, 0:07:34.400 --> 0:07:38.080 huge advantage to have by understanding the impact on financial 0:07:38.120 --> 0:07:41.240 markets and bond markets in particular. And so that was 0:07:41.320 --> 0:07:45.200 really my general attraction was that the post Kanesian schools 0:07:45.200 --> 0:07:49.040 in general just have a better, a really more sensible 0:07:49.120 --> 0:07:53.200 operational description of how things work. So Colin, I want 0:07:53.240 --> 0:07:55.040 to dig into this point because I think a lot 0:07:55.080 --> 0:07:58.160 of people won't remember that, you know, in the aftermath 0:07:58.200 --> 0:08:03.840 of the two financial crisis, just how revolutionary or different 0:08:04.120 --> 0:08:08.440 that idea was. When central banks around the world started 0:08:08.480 --> 0:08:13.400 doing quantitative easing. I mean, the sort of common take 0:08:13.560 --> 0:08:15.880 on that was that it was going to lead to 0:08:16.400 --> 0:08:20.120 hyper inflation. And I will admit I remember writing up 0:08:20.160 --> 0:08:23.840 some analyst notes that said exactly that, what was it 0:08:24.400 --> 0:08:28.640 about practitioners of mm T, like, what did they see 0:08:29.120 --> 0:08:32.800 that other people didn't? Well, I think it's that they 0:08:32.880 --> 0:08:35.960 just had a They have a better understanding of how 0:08:36.080 --> 0:08:40.480 banks actually work. So banks don't take their reserves from 0:08:40.520 --> 0:08:42.880 central banks and actually lend them out. In fact, they 0:08:42.920 --> 0:08:45.960 can't lend them out to non banks, and so people 0:08:46.040 --> 0:08:49.920 who understood that operational aspect knew that if you added 0:08:49.960 --> 0:08:53.080 a trillion dollars of reserves to the banking system, that 0:08:53.160 --> 0:08:58.520 wouldn't be multiplied into you know, ten trillion dollars of money, 0:08:58.600 --> 0:09:02.280 as the money multiply UH tells us. The money multiplier 0:09:02.400 --> 0:09:06.679 is basically a great, big myth, and the indogenous money people, 0:09:07.240 --> 0:09:10.280 they all understood that. And so, you know, it's interesting 0:09:10.360 --> 0:09:14.400 for me because I I don't have a specifically a 0:09:14.400 --> 0:09:16.840 banking background, but I know enough people in banking and 0:09:16.840 --> 0:09:19.280 have worked with enough people in banking that and done 0:09:19.360 --> 0:09:21.960 enough work with bankers that I have a pretty solid 0:09:22.040 --> 0:09:25.400 understanding of how banking actually works. And so what I 0:09:25.440 --> 0:09:28.719 was hearing from MMT and the post Kaynesians and the 0:09:28.880 --> 0:09:33.200 theoretical side of things was being exactly relayed to me 0:09:33.280 --> 0:09:36.160 when I was talking to people on the operational side 0:09:36.160 --> 0:09:38.640 of things, and in particular, I was talking to a 0:09:38.640 --> 0:09:42.439 lot of people in Japan market analysts who had been 0:09:42.480 --> 0:09:45.760 through the various iterations of KWI and the two thousands, 0:09:46.080 --> 0:09:48.600 and they laid out the accounting framework for me, and 0:09:48.640 --> 0:09:50.520 I was kind of relaying what I was reading in 0:09:50.559 --> 0:09:53.000 the theoretical works from the post Kaynesians and the m 0:09:53.080 --> 0:09:56.520 MT people relaying it to these guys, and they were saying, yes, 0:09:56.600 --> 0:10:00.200 this is exactly how this works, and the outcome will 0:10:00.200 --> 0:10:03.760 be primarily the opposite of what a lot of people 0:10:03.800 --> 0:10:05.840 are saying. You know, all the analysts that I was 0:10:05.880 --> 0:10:09.120 talking to in Tokyo, they were saying, Cullen, this thing 0:10:09.200 --> 0:10:13.000 does this program quantitative easing, it does the exact opposite 0:10:13.000 --> 0:10:15.120 of what all of you Americans seem to think it does. 0:10:15.520 --> 0:10:18.920 It is more likely to cause deflation, cause interest rates 0:10:18.960 --> 0:10:22.439 to stay low, rather than cause interest rates to rise 0:10:22.480 --> 0:10:26.839 and cause hyperinflation. And so the theoretical framework matched up 0:10:26.840 --> 0:10:31.000 exactly with the practitioners accounting and explanations of how these 0:10:31.000 --> 0:10:33.679 things actually work. And so that was around the time 0:10:33.720 --> 0:10:38.080 when I was becoming a very vocal proponent of you know, 0:10:38.120 --> 0:10:40.600 in retrospect, I wasn't, you know, to be fair to 0:10:40.640 --> 0:10:43.440 the m m T people, I wasn't exactly explaining their 0:10:43.480 --> 0:10:47.120 theory correctly. I was explaining components of it correctly, mainly 0:10:47.160 --> 0:10:51.440 the endogenous money component and the the sovereign money component 0:10:51.480 --> 0:10:53.520 of it. To me, was also very attractive because the 0:10:53.800 --> 0:10:57.040 flip side of this is, well, okay, if the if 0:10:57.040 --> 0:10:59.840 the government might not cause inflation, couldn't it cause us 0:10:59.840 --> 0:11:03.120 to go bankrupt? And that also was something that to 0:11:03.280 --> 0:11:06.160 me didn't make a lot of sense. And so the 0:11:06.280 --> 0:11:08.640 m m T people seem to have a better explanation 0:11:08.760 --> 0:11:12.240 of Hey, yeah, we can print our own money, but 0:11:12.320 --> 0:11:14.720 we also can't go bankrupt in a money that we 0:11:14.760 --> 0:11:17.560 can print. You explained this, So this is where I 0:11:17.600 --> 0:11:20.679 was gonna go. So in the intro I mentioned that 0:11:20.720 --> 0:11:24.600 I think most people when they think of MMT, either 0:11:24.679 --> 0:11:27.560 whether they really have no idea or some idea, they 0:11:27.640 --> 0:11:31.079 really think a lot about this idea of rethinking deficits 0:11:31.080 --> 0:11:34.480 and rethinking fiscal sustainability. And of course, the other thing 0:11:34.520 --> 0:11:37.680 that happened post crisis is our deficits in the US 0:11:37.760 --> 0:11:41.640 and elsewhere exploded because tax revenues dropped. There was a 0:11:41.640 --> 0:11:45.640 physical stimulus, automatic stabilizers kicked in, and there was a 0:11:45.679 --> 0:11:48.760 lot of handwringing about the size of the deficit and 0:11:48.800 --> 0:11:52.960 can we afford stimulus, and some countries adopted austerity and 0:11:53.000 --> 0:11:57.600 we kind of did too after in But that's the 0:11:57.679 --> 0:12:01.160 other component besides the banking system. A sort of explained 0:12:01.200 --> 0:12:06.400 to us that link between the endogenous money characterization of 0:12:06.400 --> 0:12:10.280 how the banking system works, and also the MMT view 0:12:10.600 --> 0:12:15.240 on UH deficit or death sustainability. Well, there are almost 0:12:15.280 --> 0:12:18.400 two different components in m m T. They really are 0:12:18.440 --> 0:12:20.840 and mean the mm T people describe it as basically 0:12:20.960 --> 0:12:24.600 vertical and horizontal money, and so the there are really 0:12:24.640 --> 0:12:28.440 two different money systems in the in the MMT world, 0:12:28.480 --> 0:12:32.240 where the government issues what is essentially the real stuff, 0:12:32.280 --> 0:12:37.120 the stuff that you settle your taxes in basically reserves, currency, coin, 0:12:37.760 --> 0:12:41.720 um and even treasury bonds to some degree are I know, 0:12:41.760 --> 0:12:43.920 the MMT people don't like to use the word money, 0:12:43.960 --> 0:12:48.359 but they they are essentially what what a mainstream economist 0:12:48.400 --> 0:12:51.280 would think of as money in the MMT world, and 0:12:52.000 --> 0:12:54.920 so you have kind of two different money systems where 0:12:54.960 --> 0:12:59.239 the banking system is basically using it's issuing an IOU 0:12:59.520 --> 0:13:05.360 for the real thing, and so households and basically the 0:13:05.440 --> 0:13:09.440 non government sector they can create money like instruments that 0:13:09.520 --> 0:13:13.280 are denominated and say dollars, but they're not the real thing. 0:13:13.520 --> 0:13:16.839 They're not what you ultimately settle your your tax payments with, 0:13:17.000 --> 0:13:19.760 or or what you basically what you have to pay 0:13:19.800 --> 0:13:21.640 the government at the end of the day. With and 0:13:21.679 --> 0:13:26.040 so that is important because the government can't run out 0:13:26.040 --> 0:13:30.160 of the thing that it actually issues, so whereas the 0:13:30.200 --> 0:13:32.839 rest of us we can. You know, a household can 0:13:32.920 --> 0:13:35.400 run out of out of income, it can run out 0:13:35.440 --> 0:13:37.480 of money, it can run out of people who are 0:13:38.120 --> 0:13:42.600 basically a willing counter party in the relationship. I mean, 0:13:42.640 --> 0:13:45.200 I can't always find a bank that I want to 0:13:45.240 --> 0:13:49.400 be my counterparty in a loan, whereas the government A 0:13:49.640 --> 0:13:52.440 and M M. T uses this the word sovereign and 0:13:52.480 --> 0:13:53.720 what I would say is a little bit of a 0:13:53.760 --> 0:13:56.920 slippery way, but in general it's a for a developed 0:13:57.200 --> 0:14:01.000 and diverse economy that doesn't borrow in a in a 0:14:01.040 --> 0:14:03.880 foreign currency, it's a generally accurate term to call it 0:14:04.000 --> 0:14:08.280 a sovereign currency, basically meaning that they can't run out 0:14:08.320 --> 0:14:11.320 of the money that they alone can create. And so 0:14:11.400 --> 0:14:15.040 there I think Stephanie Kelton has said before that the 0:14:15.360 --> 0:14:18.719 government's deficit is essentially self financing, in the sense that 0:14:19.240 --> 0:14:24.360 the government doesn't need to find sources of financing to 0:14:23.800 --> 0:14:45.560 to basically issue new money. So um, this is probably 0:14:45.560 --> 0:14:48.640 where the policy implications start to come in. But before 0:14:48.680 --> 0:14:52.080 we get to that, I want to ask a question 0:14:52.400 --> 0:14:54.520 that you often here or you know, make a point 0:14:54.560 --> 0:14:57.080 that a lot of people often bring up, and that's 0:14:57.160 --> 0:15:01.640 the idea that yes, okay, a governments are in some 0:15:01.720 --> 0:15:06.880 way self financing, and their deficits can sort of go 0:15:07.680 --> 0:15:09.600 as high as they want them to go, and the 0:15:09.640 --> 0:15:14.120 only upper constraint on that is the inflation rate. But 0:15:14.200 --> 0:15:16.520 then a lot of people come in and ask, well, 0:15:16.720 --> 0:15:21.640 our governments that already have high deficits de facto mm T. 0:15:21.960 --> 0:15:23.640 So if you look at the US, I mean, I 0:15:23.640 --> 0:15:26.480 think the budget there is supposed to get to one 0:15:26.480 --> 0:15:29.520 trillion in the next year or two. Japan has been 0:15:29.600 --> 0:15:32.480 running sort of persistent budget deficits for a long time. 0:15:33.160 --> 0:15:36.880 Are those countries, those systems already m m T or 0:15:36.960 --> 0:15:40.120 is there something people mean about mm T as an 0:15:40.120 --> 0:15:44.040 economic theory that is different to just a big deficit. Yeah, 0:15:44.120 --> 0:15:49.480 So I think that the the MMT specific theory of 0:15:49.520 --> 0:15:54.160 the world is very different than the the world that 0:15:54.200 --> 0:15:56.720 we see in most of these economies. So running a 0:15:56.760 --> 0:15:59.360 big deficit is I mean, to me, that's just sort 0:15:59.400 --> 0:16:04.000 of it. It's basically mainstream macro canesie and econ. I mean, 0:16:04.480 --> 0:16:06.560 most of what you see with the deficit is sort 0:16:06.600 --> 0:16:09.600 of an EBB and flow in a countercyclical way. So 0:16:10.240 --> 0:16:12.760 you know, we've all kind of become Canesians in the 0:16:12.840 --> 0:16:18.920 sense that you always see countercyclical deficits. Nobody becomes an 0:16:18.920 --> 0:16:22.440 advocate of budget surpluses during periods like two thousand and eight. 0:16:22.440 --> 0:16:24.320 It just doesn't happen. In fact, we've set up our 0:16:24.360 --> 0:16:28.520 policies so that we basically automatically have larger deficits because 0:16:28.560 --> 0:16:32.040 of automatic stabilizers that are in effect automatic spending programs 0:16:32.040 --> 0:16:35.000 and automatic cuts and taxes that cause the deficit to 0:16:35.040 --> 0:16:39.160 expand when the economy contracts. But MMT is much more 0:16:39.240 --> 0:16:41.680 specific in that, and I think this is the thing. 0:16:42.080 --> 0:16:44.640 The thing that I misunderstood about MT when I first 0:16:44.640 --> 0:16:47.920 came across it was this fact was that MMT is 0:16:48.040 --> 0:16:52.280 specifically different from mainstream macro in that it is a 0:16:52.320 --> 0:16:56.440 buffer stock of employment theory. And what that means is 0:16:56.480 --> 0:17:00.520 that basically, the way that mainstream macro use things, in 0:17:00.560 --> 0:17:03.560 the way that a capitalist economy essentially works, is that 0:17:03.920 --> 0:17:06.800 you have a buffer stock of unemployed people, and that 0:17:07.359 --> 0:17:11.760 in mainstream macro is the it's the buffer through which 0:17:11.800 --> 0:17:16.240 you control inflation. Basically, the the number of unemployed people 0:17:16.320 --> 0:17:19.879 to some degree is the thing that keeps inflation low, 0:17:20.480 --> 0:17:23.800 so you always have a certain number of I mean, 0:17:23.840 --> 0:17:26.440 for instance, today people are saying we're at full employment, 0:17:26.480 --> 0:17:29.720 and the unemployment rate is you know what, By some measures, 0:17:29.720 --> 0:17:32.959 it's it's seven eight percent, by other measures it's you know, 0:17:33.359 --> 0:17:39.480 three to you know whatever, five, depending on which number prefer. So, 0:17:40.480 --> 0:17:42.880 but there are still a lot of unemployed people out 0:17:42.880 --> 0:17:46.120 there by any measure. And you have mainstream macro economists 0:17:46.119 --> 0:17:48.440 who are saying that the economy is operating out or 0:17:48.520 --> 0:17:50.600 near full employment, which is a weird thing to think 0:17:50.600 --> 0:17:54.120 of because really what they're saying is that we're operating 0:17:54.359 --> 0:17:58.960 at a rate of employment where inflation is not high 0:17:59.200 --> 0:18:03.080 or or worrisome to a large degree. So there's a 0:18:03.119 --> 0:18:06.680 buffer stock of unemployed people in the way that mainstream 0:18:06.760 --> 0:18:09.600 macro works and m m T is very specific and 0:18:09.680 --> 0:18:14.600 that they prefer, and they explicitly say that you should 0:18:14.960 --> 0:18:19.520 use a buffer stock of employed basically to not only 0:18:19.560 --> 0:18:22.840 reach full employment, but to control inflation. So that's where 0:18:23.400 --> 0:18:27.399 the job guarantee that they advocate. It's not just a 0:18:28.640 --> 0:18:33.760 theoretical aspect of their view. It is an essential descriptive 0:18:33.800 --> 0:18:36.680 component of how they view the world, because they basically 0:18:36.720 --> 0:18:40.320 say that the government is the cause of unemployment. Therefore, 0:18:40.960 --> 0:18:45.600 the government is the only entity that can solve unemployment, 0:18:45.640 --> 0:18:48.560 and they're they're the only ones that And I should 0:18:48.560 --> 0:18:50.840 be clear, when I say unemployment in the MMT world, 0:18:50.880 --> 0:18:55.040 they mean zero involuntary unemployment. So there's always some level 0:18:55.119 --> 0:19:00.159 of involuntary unemployment in mainstream macro basically. So MMT is 0:19:00.240 --> 0:19:03.440 using a little bit of a different definition. And they're 0:19:03.560 --> 0:19:08.040 very specifically saying that they want to control the economy 0:19:08.119 --> 0:19:11.800 and prices and employment through maintaining a buffer stock of 0:19:11.960 --> 0:19:16.400 fully employed workers. Yeah, let's let's dive into this, because 0:19:16.440 --> 0:19:18.240 I think this is sort of the crux of our 0:19:18.240 --> 0:19:21.399 A lot of different disagreements come out, and it also 0:19:21.680 --> 0:19:24.480 gets to some of the difficulty that I think people 0:19:24.560 --> 0:19:27.919 have in defining m m T. Of course, critics of 0:19:28.040 --> 0:19:30.520 mm T will say, oh, they keep changing the goalpost. 0:19:30.640 --> 0:19:32.880 But what we have, let's say, if we can break 0:19:32.880 --> 0:19:34.919 it down, So what we have is this sort of 0:19:35.400 --> 0:19:40.159 pure descriptive characterization of how money and banking works. But 0:19:40.320 --> 0:19:44.560 the financial system, the vertical uh, the horizontal money, the 0:19:44.640 --> 0:19:48.800 government uh self financing deficits. It doesn't sound like you 0:19:48.880 --> 0:19:51.840 have much of a disagreement with that. So that's the 0:19:51.920 --> 0:19:55.760 pure descriptive aspect of how mm T says the existing 0:19:55.880 --> 0:20:00.280 economy works. It's not a policy prescription. Then they have 0:20:00.359 --> 0:20:03.120 these other aspects, and a lot of mm tears are 0:20:03.160 --> 0:20:09.760 associated with sort of fairly radical or aggressive economic proposals. Lately, 0:20:09.840 --> 0:20:13.679 we've seen a lot of mm tears advocate for the 0:20:13.720 --> 0:20:18.520 Green New Deal. Um you mentioned the job guarantee, this 0:20:18.640 --> 0:20:22.639 idea that the government would guarantee full employment, and it 0:20:22.800 --> 0:20:26.159 sounds like to me that the crux of the issue, 0:20:26.280 --> 0:20:29.520 or one of the key questions, is is the job 0:20:29.560 --> 0:20:33.800 guarantee component, which some people would say sounds like, you know, 0:20:33.880 --> 0:20:38.400 big government socialism, is that part of the descriptive aspect 0:20:38.440 --> 0:20:41.040 of mm T or is that part of the prescriptive 0:20:41.240 --> 0:20:45.359 aspect of mm T. So I there seems to be 0:20:45.480 --> 0:20:48.840 some disagreement with within some of the m m T 0:20:49.080 --> 0:20:52.480 people over this, but I think Bill Bill Mitchell is 0:20:52.520 --> 0:20:54.800 really the clearest on this, and the way that he 0:20:54.960 --> 0:20:59.439 describes it essentially is that the government is the in 0:20:59.440 --> 0:21:03.600 the theory eddical MMT world, the government causes unemployment. So 0:21:03.640 --> 0:21:07.720 when they start the money system, they basically they invoke 0:21:07.960 --> 0:21:12.280 rules and regulations and taxes that basically require people to 0:21:12.400 --> 0:21:14.960 obtain state money. So you have to obtain money to 0:21:15.000 --> 0:21:17.560 pay your taxes. And if you can't obtain money to 0:21:17.600 --> 0:21:19.760 pay your taxes, then you don't have a job and 0:21:19.760 --> 0:21:23.680 you don't have an income. So and if there's involuntary unemployment, 0:21:23.720 --> 0:21:27.120 then the MMT people would say basically, well, the government 0:21:27.160 --> 0:21:29.280 caused this, so the government has to fix it. And 0:21:29.359 --> 0:21:34.920 so if you understand that descriptive component of the MMT 0:21:35.119 --> 0:21:39.600 world and their view, then your logical conclusion is the 0:21:39.680 --> 0:21:43.640 job guarantee. There is no alternative basically, um And I 0:21:43.680 --> 0:21:46.680 think I think they're on a little bit of slippery 0:21:46.720 --> 0:21:51.040 ground there. I I do not necessarily think that you 0:21:51.080 --> 0:21:54.960 can say definitively that the government is the cause of 0:21:55.040 --> 0:21:58.919 unemployment in the monetary system. So there there does seem 0:21:58.960 --> 0:22:03.600 to be at least some theory slipping into the description 0:22:03.680 --> 0:22:07.240 there and the and that leads to their big policy proposal, 0:22:07.320 --> 0:22:11.880 which you know, that's part of why although I I 0:22:11.960 --> 0:22:14.600 like a lot of what MMT says, I think they 0:22:14.640 --> 0:22:16.960 tend to get, they tend to overreach, and they tend 0:22:16.960 --> 0:22:21.000 to find themselves in in positions that are not empirically sound, 0:22:21.000 --> 0:22:23.280 that aren't really supported by a lot of evidence, and 0:22:23.640 --> 0:22:26.920 this is one of those positions um and it weirdly, 0:22:26.920 --> 0:22:31.320 it goes against a lot of sort of basic Kansian principles, 0:22:31.359 --> 0:22:36.680 mainly the the idea that really unemployment is the result 0:22:36.720 --> 0:22:41.280 of a lack of investment and so you know government. 0:22:41.280 --> 0:22:43.320 They MT people would say that, well, yeah, that's just 0:22:43.400 --> 0:22:46.040 related to a lack of effective demand, which is the 0:22:46.119 --> 0:22:48.800 result of people, you know, needing an income and the 0:22:48.800 --> 0:22:50.920 only way they can get their income is from the government. 0:22:51.000 --> 0:22:54.840 So you know, they're pretty the MT people are very 0:22:55.000 --> 0:22:59.000 very smart, and they're they've constructed a very sound and 0:22:59.119 --> 0:23:03.520 cohesive sounding theory that I think is especially intuitive to 0:23:03.600 --> 0:23:07.919 people who don't have a professional background, and actually is 0:23:08.160 --> 0:23:11.160 even more confusing for people who have a professional background, 0:23:11.200 --> 0:23:13.560 because they use a lot of these words in a 0:23:13.640 --> 0:23:17.119 sort of alternative way, words like unemployment and sovereignty in 0:23:17.160 --> 0:23:19.879 ways that they don't have a meaning to uh, you know, 0:23:19.920 --> 0:23:22.359 Paul Krugman or Larry Summers, they read those words and 0:23:22.359 --> 0:23:25.320 they have a very specific meaning in mind when they 0:23:25.320 --> 0:23:28.200 think of those things, and but they're they're speaking right 0:23:28.240 --> 0:23:30.119 past each other when they're talking to each other. So 0:23:30.160 --> 0:23:32.119 I see a lot of these articles and I'm like, oh, well, 0:23:32.119 --> 0:23:35.000 I understand what Paul is saying, but I also understand 0:23:35.040 --> 0:23:39.080 what Warre Mosler is saying. And they're saying the things 0:23:39.119 --> 0:23:41.520 that in their own world there are right, but they're 0:23:41.520 --> 0:23:44.520 talking right past each other because they're speaking a different language. 0:23:45.320 --> 0:23:48.840 So you know, if you if you set aside that 0:23:48.920 --> 0:23:53.520 empirical criticism that maybe unemployment isn't caused by the government, 0:23:53.560 --> 0:23:57.160 maybe it is caused by that lack of investment. Even 0:23:57.200 --> 0:24:00.800 setting that aside, if you believe in empty and you 0:24:00.840 --> 0:24:04.879 believe that the government should be fulfilling this sort of 0:24:04.920 --> 0:24:09.560 full employment mandate, I can imagine that that on its 0:24:09.600 --> 0:24:15.280 own has certain political connotations. Um certainly in America, right, Like, 0:24:15.320 --> 0:24:17.360 a lot of people will hear that and think that 0:24:17.480 --> 0:24:22.440 is a very slippery slope on the way to socialism. Yeah, well, gosh, 0:24:22.480 --> 0:24:24.840 I mean, you could argue in a sense that it 0:24:24.880 --> 0:24:28.080