WEBVTT - Stephanie Kelton On MMT and the Inflation We're Seeing Today 0:00:10.360 --> 0:00:14.040 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:14.120 --> 0:00:17.240 I'm Joe wasn't All and I'm Tracy. Tracy, what are 0:00:17.280 --> 0:00:20.160 the big topics for you at We're at the Milk 0:00:20.239 --> 0:00:22.880 and Conference out in Beverly Hills. What would you say 0:00:22.920 --> 0:00:25.000 of like some of the big topics you've heard. I 0:00:25.040 --> 0:00:27.520 think it's inflation. I mean, I gotta say I was 0:00:27.560 --> 0:00:29.960 on a credit markets panel and it was called credit 0:00:30.000 --> 0:00:33.680 Markets and Inflation, So that kind of tells you everything 0:00:33.680 --> 0:00:36.040 you need to know. No, that's obviously a big thing. 0:00:36.320 --> 0:00:40.240 I saw Ken Griffin of Citadel he was talking about 0:00:40.280 --> 0:00:42.239 he was actually kind of optimistic about it, though, like 0:00:42.240 --> 0:00:44.360 he wasn't at work. He had a lot of criticisms 0:00:44.360 --> 0:00:47.640 about this administration and policy and all that. But of 0:00:47.760 --> 0:00:49.840 all the things, I was actually a little bit surprised, 0:00:50.080 --> 0:00:53.040 like he didn't seem that concerned about inflation or as 0:00:53.120 --> 0:00:54.800 much as all the media is talking about it. He 0:00:54.840 --> 0:00:57.400 thinks it'll moderate towards the end of the year, or 0:00:57.480 --> 0:01:00.960 he thinks there's a chance anyway, give the had some flexibility, 0:01:01.080 --> 0:01:04.880 so some interesting different views. Well, yeah, I mean, the 0:01:04.920 --> 0:01:06.560 thing that I've learned from the past year is that 0:01:06.600 --> 0:01:10.400 people feel very people have strong opinions about inflation, like 0:01:10.480 --> 0:01:15.000 it's a very emotional topic. Sure, and it's really striking 0:01:15.040 --> 0:01:17.840 that we've had this incredible labor market recovery, we have 0:01:17.920 --> 0:01:23.240 sub four unemployment, and yet it appears that because inflation 0:01:23.319 --> 0:01:27.480 is high, that explains why consumer sentiment is so bad, 0:01:27.800 --> 0:01:30.800 although I think there's more to it than just inflation. Well, 0:01:30.840 --> 0:01:32.800 so this is the other thing that I think we've learned, 0:01:32.920 --> 0:01:36.240 which we've talked about before. But it feels like people 0:01:36.400 --> 0:01:40.680 care about more. People care about inflation than people care 0:01:40.720 --> 0:01:43.160 about the unemployment rate. That's what it feels like to me, 0:01:43.200 --> 0:01:46.840 because inflation affects everyone, whereas the unemployment rate is this 0:01:46.920 --> 0:01:49.640 kind of abstract thing. You can go up to people 0:01:49.640 --> 0:01:51.880 and say, oh, unemployment is just four percent, and they'll 0:01:51.920 --> 0:01:54.360 be like, well, I've been employed for the past ten 0:01:54.440 --> 0:01:56.320 years and all I know is that the cost of 0:01:56.360 --> 0:01:59.480 living is going up. Yeah, exactly right. So even during 0:01:59.520 --> 0:02:03.280 period of high unemployment, most people hold on to their 0:02:03.400 --> 0:02:06.480 jobs over a given cycle, but everyone kind of feels 0:02:06.600 --> 0:02:10.639 rising prices and so there's sort of like this political asymmetry. 0:02:10.680 --> 0:02:11.919 And you think about the FED and it has to 0:02:11.960 --> 0:02:14.440 balance the two. But this is the first time we 0:02:14.480 --> 0:02:17.880 really see like this, like it appears anyway that the 0:02:18.120 --> 0:02:21.040 high inflation is coming at a cost of consumer sentiment 0:02:21.080 --> 0:02:22.799 and so forth. Yeah, I think that's right. And of 0:02:22.840 --> 0:02:26.960 course it's highly politicized, and people look at different policies, 0:02:27.120 --> 0:02:30.600 and in particularly they look at you know, the FED 0:02:30.680 --> 0:02:34.000 gets some of the blame and transitory shocks, but there's 0:02:34.040 --> 0:02:37.440 a lot of I guess ire, directed at the fiscal stimulus, 0:02:37.600 --> 0:02:41.680 and in particular that last round that Biden did um 0:02:41.720 --> 0:02:43.800 after he was elected, and a bunch of people say, oh, 0:02:43.880 --> 0:02:46.320 look it's proved it's too much. That was way over 0:02:46.440 --> 0:02:48.760 there. There There was like there was one line and the 0:02:48.800 --> 0:02:50.680 other line was a little bit below and that was 0:02:50.720 --> 0:02:53.800 the outpost. Wait, but then there's they spent trillions and 0:02:53.800 --> 0:02:56.920 it's too much. When are you going to say modern 0:02:57.000 --> 0:03:02.639 monetary theory? Okay, so I was waiting. Okay, let's just 0:03:02.720 --> 0:03:06.480 jump right in. So one of the biggest advocates not 0:03:06.600 --> 0:03:10.200 of fiscal stimulus or spending per se, but in getting 0:03:10.320 --> 0:03:13.800 us to rethink what we can do with fiscal policy, 0:03:13.960 --> 0:03:17.120 of course, is Stephanie Kelton, who's known as one of 0:03:17.120 --> 0:03:20.520 the foremost advocates of this way of thinking. Modern monetary 0:03:20.600 --> 0:03:23.800 theory and she's the author of the book The Deficit Myth. 0:03:23.919 --> 0:03:27.080 She's the co host of the Best Ideas Money podcast, 0:03:27.960 --> 0:03:30.959 and she's a professor at stony Brook, and she's here 0:03:31.000 --> 0:03:33.000 with us at Milkin. And so we're going to be 0:03:33.080 --> 0:03:35.200 talking about, Actually, you know what we're really gonna be 0:03:35.200 --> 0:03:38.240 talking about, is monetary modern monetary theory to blame for 0:03:38.240 --> 0:03:40.760 this high inflation? Are you to blame for this high inflation? 0:03:40.800 --> 0:03:42.920 Step he jumped it into. I'm just gonna jump right in, 0:03:42.960 --> 0:03:47.600 are you to blame? I think so? Congratulations. No, look, 0:03:47.720 --> 0:03:53.280 I think that you YouTube probably more than anyone to 0:03:53.400 --> 0:03:55.920 have well no, no, no, I'm just gonna say, have 0:03:56.080 --> 0:03:59.360 done deeper dives into this question. Over the course of 0:03:59.400 --> 0:04:02.400 the last what eighty months, two years or whatever. You 0:04:02.440 --> 0:04:05.920 have been chasing this story in a more sophisticated and 0:04:06.040 --> 0:04:08.880 persistent way than I think anybody out there, and you've 0:04:09.280 --> 0:04:12.240 I think, really forced the conversation to shift. I mean, 0:04:12.480 --> 0:04:15.800 maybe I've helped shift the conversation on some fronts, but 0:04:15.920 --> 0:04:18.320 on the inflation front, I really think you've helped to 0:04:18.360 --> 0:04:23.160 focus attention on issues of pandemic related supply chain and bottlenecks. 0:04:23.200 --> 0:04:26.000 Nobody has done more to change the conversation around those things. 0:04:26.000 --> 0:04:27.880 So thank you. This is going to be a double 0:04:27.960 --> 0:04:30.480 edged sword for us. I think if people start, yeah, anyway, 0:04:30.520 --> 0:04:32.880 go ahead, Well look, I mean, so we we have 0:04:33.120 --> 0:04:35.479 that we we've been paying a lot of attention to 0:04:35.720 --> 0:04:39.120 the drivers of inflation and thinking about inflation in ways 0:04:39.160 --> 0:04:41.760 that we didn't before. And frankly, we haven't really had 0:04:41.800 --> 0:04:44.240 to think about inflation for so many decades. To the 0:04:44.279 --> 0:04:46.479 extent that we talked about inflation, it was how do 0:04:46.520 --> 0:04:48.640 we get it up? I appreciate that, by the way, 0:04:48.680 --> 0:04:51.560 but to you know, the you know, the sort of 0:04:51.760 --> 0:04:54.640 it feels like there's sort of this revenge a little 0:04:54.640 --> 0:04:57.960 bit of the sort of the old school the New 0:04:58.040 --> 0:05:01.440 Kansian economists, and they're like, look, here's this line that's 0:05:01.480 --> 0:05:06.360 potential GDP. Here's this other line that's actual GDP. There 0:05:06.440 --> 0:05:10.400 is a gap between them. Biden spent too much money 0:05:10.480 --> 0:05:13.520 that was more than one line subtracted by the other line. 0:05:13.800 --> 0:05:17.320 Our models work, it showed inflation. So what is that 0:05:17.400 --> 0:05:20.160 a vindication of that style of thinking, like this sort 0:05:20.160 --> 0:05:23.039 of like vulgar output gap thinking. No, of course not, 0:05:23.279 --> 0:05:27.960 I mean, you know, being potentially getting the inflation stuff right. 0:05:28.000 --> 0:05:31.440 But for the wrong reasons. It's not vindication. Okay, So 0:05:31.600 --> 0:05:34.400 I again we go back to what is a more 0:05:34.440 --> 0:05:37.800 sophisticated way to think about why we ended up with 0:05:37.839 --> 0:05:40.000 the high inflation we ended up with, And of course 0:05:40.040 --> 0:05:41.960 it's not just here in the US, but it's around 0:05:41.960 --> 0:05:44.640 the world. You look at Europe and they're just right 0:05:44.680 --> 0:05:47.120 on our heels at seven and a half percent or so. 0:05:47.120 --> 0:05:50.320 So we know that that countries like China, countries like 0:05:50.360 --> 0:05:52.960 the UK also are at forty year highs when it 0:05:52.960 --> 0:05:56.640 comes to inflation. So it's it's a bit simplistic and 0:05:56.680 --> 0:05:59.479 I think wrong, frankly, to to look at things like 0:05:59.520 --> 0:06:01.520 the output gap and say this is all down to 0:06:01.960 --> 0:06:05.040 pouring too much fire on an economy that didn't need 0:06:05.080 --> 0:06:07.440 that much fiscal support. Can you break it down for 0:06:07.520 --> 0:06:10.080 us a little bit more, how much of the current 0:06:10.320 --> 0:06:13.479 inflation or price increases do you think are due to 0:06:13.640 --> 0:06:17.720 demand versus supply issues and energy prices and things like that. 0:06:17.920 --> 0:06:20.960 Super hard, super hard to know the answer to that, Tracy. 0:06:21.000 --> 0:06:22.960 We were talking about that this morning on a panel 0:06:23.400 --> 0:06:26.640 that I was on with current CBO director, former CEBIO 0:06:26.720 --> 0:06:30.120 director and Jason Furman. We had exactly these kinds of conversations. 0:06:30.120 --> 0:06:33.360 I don't think anybody on the panel feels really comfortable 0:06:34.040 --> 0:06:37.320 dissecting at that at that level, you know, half a 0:06:37.360 --> 0:06:40.240 third whatever, um. But we do know, and we have 0:06:40.279 --> 0:06:43.440 differences of opinion to be sure. Right, Jason thinks that 0:06:43.600 --> 0:06:47.680 more of the inflation is a result of the excessive 0:06:48.120 --> 0:06:50.880 fiscal support, and I think I put myself on the 0:06:50.920 --> 0:06:54.239 other side, which is that most of what we're still 0:06:54.279 --> 0:06:57.760 dealing with is you know, pandemic related and energy and 0:06:58.120 --> 0:07:00.719 so I think that's you know, because actually where to 0:07:00.760 --> 0:07:03.919 put the numbers, I don't know. But when it comes to, 0:07:04.200 --> 0:07:06.600 you know, where to lay the bulk of the blame, 0:07:06.920 --> 0:07:09.240 I still come down on the side of you know, 0:07:09.560 --> 0:07:15.560 pandemic and energy and now food Ukraine. Right, you know 0:07:16.160 --> 0:07:19.800 it feels to me and again I were you're the 0:07:19.880 --> 0:07:22.360 expert here, but you know, it's hard to to me. 0:07:22.440 --> 0:07:25.360 It's hard to tell a story that, say, oil prices, 0:07:25.400 --> 0:07:28.440 which we know are a huge driver of all in inflation, 0:07:28.520 --> 0:07:34.000 headline inflation, have something to do with spending. Yeah, right, 0:07:34.040 --> 0:07:37.160 I mean you could in reverse though, right when the 0:07:37.160 --> 0:07:41.360 pandemic first hit and largely things were shut down, oil 0:07:41.360 --> 0:07:45.080 prices did come significantly down, So there was some kind 0:07:45.120 --> 0:07:48.120 of a relationship between what was happening in the economy 0:07:48.160 --> 0:07:50.240 and that sort of thing. But yeah, you're you're right 0:07:50.280 --> 0:07:53.800 with respect to stimulus and the fiscal support. Yes we 0:07:53.880 --> 0:07:57.559 got a faster recovery. Thank god, we got vaccines faster 0:07:57.640 --> 0:07:59.920 than a lot of people ever imagined. I remember when 0:08:00.280 --> 0:08:02.880 early on we were hearing, you know, Dr Fauci's saying 0:08:02.880 --> 0:08:05.640 maybe four maybe five years. I mean, thank goodness, that 0:08:05.680 --> 0:08:08.320 happened much more quickly. And so the bounce back happens 0:08:08.360 --> 0:08:10.880 sooner in the strength of demands. So some of that 0:08:11.000 --> 0:08:13.440 is at play as well. So one of the things 0:08:13.440 --> 0:08:15.400 that we talked about a lot on this podcast is 0:08:15.480 --> 0:08:20.400 under investment in energy production and infrastructure, and this is 0:08:20.440 --> 0:08:23.440 something that the Biden administration has been very vocal about 0:08:23.440 --> 0:08:25.960 as well, and in fact, Biden has suggested a number 0:08:25.960 --> 0:08:30.040 of times that the solution to high prices is more spending, 0:08:30.120 --> 0:08:34.080 more investment to solve some of these bottleneck issues. And 0:08:34.120 --> 0:08:36.880 I wonder how that fits into m m T in 0:08:36.920 --> 0:08:41.080 the sense that my understanding is an MMT the constraint 0:08:41.160 --> 0:08:44.840 on spending is inflation. And now we have CPI at 0:08:44.840 --> 0:08:47.760 eight point five per cent, and we have people who 0:08:47.800 --> 0:08:50.079 are also saying, well, the solution to the inflation is 0:08:50.120 --> 0:08:54.200 more spending. How do you reconcile those two things. Well, yeah, 0:08:54.200 --> 0:08:56.800 it's a good question. So if you think about it 0:08:56.880 --> 0:08:59.480 the way I think the President Biden does, which is, 0:09:00.040 --> 0:09:03.120 we need more capacity with respect to the labor force. 0:09:03.240 --> 0:09:06.040 We need to bring more, especially women back into the 0:09:06.080 --> 0:09:08.800 labor force. And so he will in a sense justify 0:09:08.920 --> 0:09:12.400 investments in universal pre k and childcare and the sort 0:09:12.400 --> 0:09:14.680 of thing so that you can get especially women to 0:09:14.720 --> 0:09:16.880 return to the labor force to maybe ease some of 0:09:16.920 --> 0:09:21.600 the um difficulties that employers have been having hiring workers 0:09:21.679 --> 0:09:24.680 with uh computer chips. You know, he's talking about the 0:09:24.679 --> 0:09:29.240 importance of restoring some capacity with semiconductor manufacturing and building 0:09:29.280 --> 0:09:32.720 resiliency and all of that stuff. Now you're rightly raising 0:09:32.720 --> 0:09:34.520 this question about how do you do that in a 0:09:34.600 --> 0:09:37.880 supply constrained environment. You know, if they want to do 0:09:37.920 --> 0:09:40.720 all of this infrastructure and we've heard talk about you know, 0:09:40.960 --> 0:09:44.400 climate and the rest of it. You want electric school buses, 0:09:44.440 --> 0:09:46.640 you want to electrify the grid, you want solar panels, 0:09:46.679 --> 0:09:49.040 and he be charging stations all over the country. Well, 0:09:49.040 --> 0:09:50.840 the question is, you know who's going to put those up. 0:09:50.880 --> 0:09:53.680 Who's going to manufacture? Do you have firms that can 0:09:53.840 --> 0:09:56.280 meet those orders in a timely manner? Do you have 0:09:56.360 --> 0:09:58.760 the supply capacity? And to the extent that you don't, 0:09:59.160 --> 0:10:01.000 you're gonna have back logs, You're gonna have to wait 0:10:01.040 --> 0:10:03.960 to roll that out. So it isn't going to relieve 0:10:04.160 --> 0:10:06.079 a lot of inflationary pressure in the short term. And 0:10:06.120 --> 0:10:08.440 I think he keeps reminding us that these are sort 0:10:08.480 --> 0:10:12.400 of mostly medium and longer term investments, but maybe child 0:10:12.400 --> 0:10:15.199 care helps a bit. So this is sort of the 0:10:15.600 --> 0:10:20.120 the emphasis on the real resource constraint within MMT, which 0:10:20.240 --> 0:10:22.240 I will, you know, credit to m m T. I 0:10:22.520 --> 0:10:26.360 think that real resource focus has been borne out by 0:10:26.400 --> 0:10:28.920 the past couple of years. But I guess my question is, 0:10:29.640 --> 0:10:32.920 does MMT have a solution to that? Like, what is 0:10:32.960 --> 0:10:37.160 the policy recommendation in this kind of situation? Well, it 0:10:37.240 --> 0:10:40.040 depends what you want to accomplish, right If you if 0:10:40.080 --> 0:10:42.720 you're thinking about the kinds of things that worry me 0:10:42.840 --> 0:10:46.679 the most in some respects, which is the climate crisis 0:10:46.720 --> 0:10:49.080 that we're facing, then I think what you need to 0:10:49.120 --> 0:10:53.440 do is sit down and draft a program. And it's 0:10:53.440 --> 0:10:55.199 going to be a long term program. It's going to 0:10:55.280 --> 0:10:57.840 be a ten year or a fifteen year or whatever. Program. 0:10:58.040 --> 0:11:00.080 But you've got to start thinking about how you're and 0:11:00.240 --> 0:11:03.640 resource the kinds of investments that are needed to reduce 0:11:03.679 --> 0:11:06.080 c O two emissions over a longer period of time. 0:11:06.080 --> 0:11:09.600 And that means investments in energy and investments in housing 0:11:09.600 --> 0:11:12.720 and transportation and agriculture. It's a big program. And so 0:11:12.760 --> 0:11:15.160 when you say, you know, how does mm T think 0:11:15.200 --> 0:11:20.400 about the capacity constraints, In part, it's addressing a housing shortage. 0:11:20.440 --> 0:11:23.040 It's addressing got to build more housing. To deal with 0:11:23.040 --> 0:11:26.280 a housing shortage, you have to deal with the grid. 0:11:26.320 --> 0:11:29.120 If you're going to electrify, you've got to make those investments. 0:11:29.160 --> 0:11:32.280 And you know you're not going to get it all perfect. 0:11:32.360 --> 0:11:34.640 You're going to try to map this out and do 0:11:34.679 --> 0:11:37.240 it in a way that takes advantage of capacity where 0:11:37.280 --> 0:11:41.079 it exists. That build capacity, build capacity where it doesn't. 0:11:41.360 --> 0:11:44.840 That frees up capacity in the economy for other uses. 0:11:44.880 --> 0:11:47.960 If something is deemed a priority and you don't have 0:11:48.040 --> 0:11:50.760 the capacity to make the investments you want to make, 0:11:50.880 --> 0:11:54.240 you may well have to elbow out some of the 0:11:54.320 --> 0:11:57.480 private sector's current use of resources to freedom up for 0:11:57.520 --> 0:12:13.560 something that's deemed a higher priority like climate. So the 0:12:13.640 --> 0:12:17.080 way we're actually in this country attempting to deal with 0:12:17.080 --> 0:12:19.800 inflation is through rate hikes and the federal Reserve. And 0:12:19.840 --> 0:12:21.760 there's all you know, people like, well, what is the 0:12:21.760 --> 0:12:24.520 federal reserve? How is that supposed to fix supply chain bottlenecks? 0:12:24.520 --> 0:12:27.920 And everyone knows it can't and etcetera. And most people 0:12:27.960 --> 0:12:31.040 seem to also have this view. It's like even the 0:12:31.080 --> 0:12:33.880 advocates of monetary tightening. It's a blunt tool. It's not 0:12:34.400 --> 0:12:36.760 the most amazing thing, but Okay, that's what we're going 0:12:36.840 --> 0:12:39.600 to do. But at least it is countercyclical. When you 0:12:39.640 --> 0:12:43.960 look at politicians, they're proposing things like gas rebates or 0:12:44.000 --> 0:12:46.680 cutting the gas tax, which is a kind of arguably 0:12:46.720 --> 0:12:50.600 putting more, trying to douce demand even further. It's not 0:12:50.840 --> 0:12:53.439 I don't find like that very encouraging. And so like 0:12:53.760 --> 0:12:56.160 one of the good things I think about the MT 0:12:56.320 --> 0:12:59.200 view of thinking is I consider it to be democratic 0:12:59.679 --> 0:13:04.080 and outsource not outsource demand management to the to the FED. 0:13:04.559 --> 0:13:07.480 But on the other hand, I look at what politicians 0:13:07.600 --> 0:13:11.120 their response, and I don't exactly feel encouraged by how 0:13:11.160 --> 0:13:13.800 they're thinking about dealing with a period of high inflation, 0:13:14.440 --> 0:13:19.480 and so should they give people pause about the MMT 0:13:19.640 --> 0:13:23.440 political economy such that when we hit high inflation, in 0:13:23.480 --> 0:13:26.959 many cases, the first instinct of politicians is to even 0:13:27.160 --> 0:13:31.440 do spending or two spend more or well, okay, so 0:13:31.520 --> 0:13:34.680 you you raise this um the gas tax, and that's 0:13:34.720 --> 0:13:38.040 a pretty modest I mean, we're talking about a few pennies. Really, 0:13:38.040 --> 0:13:39.560 it's like tens. You know, I don't think this is 0:13:39.559 --> 0:13:42.319 gonna lead to a big burst of inflationary pressure. And 0:13:42.360 --> 0:13:45.800 of course alongside that, what at least Democrats are also 0:13:45.880 --> 0:13:49.760 talking about, are you know, trying to move another package 0:13:49.800 --> 0:13:55.000 through where President Biden is explicitly um referring to this 0:13:55.080 --> 0:13:58.280 as a package that would be deficit reducing and therefore 0:13:58.679 --> 0:14:02.120 helping to bring down inflation. So you are actually hearing no, 0:14:02.120 --> 0:14:04.800 now I may not agree with that, okay, but you 0:14:04.840 --> 0:14:08.520 are hearing politicians say we ought to pass this legislation 0:14:08.559 --> 0:14:11.080 because it will actually help us to deal with inflation. 0:14:11.240 --> 0:14:13.000 So you know, you can say I don't trust them 0:14:13.040 --> 0:14:15.120 to do it, but the truth is they are actually 0:14:15.160 --> 0:14:18.360 trying to do exactly that, but just to broaden it 0:14:18.360 --> 0:14:21.360 out a bit. This has been one of the classic 0:14:21.600 --> 0:14:24.480 critiques of M. M. T, which is that, Okay, you 0:14:24.520 --> 0:14:27.360 can you can change the narrative and make it so 0:14:27.400 --> 0:14:31.200 that people don't think that, you know, the budget in 0:14:31.240 --> 0:14:35.080 and of itself is the constraint on fiscal spending. But 0:14:35.240 --> 0:14:38.320 then you still have the problem of politicians having to 0:14:38.440 --> 0:14:42.440 agree on whatever the policy is that that we're going 0:14:42.480 --> 0:14:45.600 to enact. And to be honest that you know, recent 0:14:45.680 --> 0:14:50.040 history in Washington has not been conducive to consensus. You 0:14:50.080 --> 0:14:52.960 still have to build that consensus. Even if you say, well, 0:14:53.240 --> 0:14:57.640 the budget is not unlimited, but bigger than maybe we think. 0:14:58.080 --> 0:15:00.960 And so I don't know, if anything, it feels like 0:15:01.000 --> 0:15:04.920 that issue is still lingering, consensus is lacking in DC. 0:15:05.160 --> 0:15:08.120 To sum it up, sure it is, but I don't 0:15:08.280 --> 0:15:10.760 I don't know that this is a in recent years 0:15:10.840 --> 0:15:12.760 kind of a thing. I mean, this is this is 0:15:12.800 --> 0:15:14.600 the name of the game. You know, if the votes 0:15:14.600 --> 0:15:17.400 are there, the legislation passes, and if the votes aren't there, 0:15:17.720 --> 0:15:21.520 the legislation doesn't pass. And so MMT doesn't solve the 0:15:21.560 --> 0:15:23.880 political gridlock and that sort of a thing. What it 0:15:23.920 --> 0:15:27.560 does do, though, Tracy, I think is it really, as 0:15:27.560 --> 0:15:31.080 you said, it recenters the debate. So instead of you know, 0:15:31.160 --> 0:15:33.840 approaching something and saying, all right, we want to do 0:15:33.920 --> 0:15:37.280 a trillion dollars of infrastructure investment, and we know we 0:15:37.320 --> 0:15:39.560 have to pay for it. We're in the old framework, right, 0:15:39.560 --> 0:15:41.080 we know we have to pay for it. So we're 0:15:41.120 --> 0:15:43.560 going to couple the proposed spending with a whole slew 0:15:43.600 --> 0:15:47.480 of tax increases to generate revenues. So we can go 0:15:47.520 --> 0:15:50.840 to the Congressional Budget Office and say, look at our legislation, 0:15:50.920 --> 0:15:52.640 give it a score. Tell us if we did a 0:15:52.680 --> 0:15:55.760 good job keeping it all deficit neutral. And it turns 0:15:55.760 --> 0:15:58.200 out and we've seen this with Build Back Better, right, 0:15:58.320 --> 0:16:00.520 it's really hard to get the votes. You have to 0:16:00.560 --> 0:16:03.640 convince your colleagues in the House and the Senate not 0:16:03.720 --> 0:16:06.320 just to vote for your spending priorities, but also to 0:16:06.440 --> 0:16:09.280 vote for the increase in taxes that you think are 0:16:09.360 --> 0:16:12.240 necessary to keep it all deficit neutral. And what MMT 0:16:12.400 --> 0:16:15.080 does is say, you know, sometimes you don't have to 0:16:15.120 --> 0:16:18.160 offset the spending, maybe off set half of it, maybe 0:16:18.160 --> 0:16:20.760 you don't need offset any of it, you know, and 0:16:20.840 --> 0:16:25.200 so you can then maybe have an easier time gathering 0:16:25.240 --> 0:16:28.320 the votes to make investments because you only have to 0:16:28.360 --> 0:16:30.920 win one fight instead of win that other fight as well. 0:16:31.160 --> 0:16:34.720 I'm a little bit confused still about the role of 0:16:34.920 --> 0:16:39.440 taxes in UH inflation management because I one thing that 0:16:39.520 --> 0:16:41.400 you hear is like, well, this would be a really 0:16:41.400 --> 0:16:44.680 good time to raise taxes on the rich. That's a 0:16:44.680 --> 0:16:49.920 politically popular thing. Maybe it UH marginally diminishes their spending 0:16:49.920 --> 0:16:54.000 power that create eases some strains on the economy. Maybe 0:16:54.040 --> 0:16:57.440 not just the rich, maybe the upper middle class as well. 0:16:57.480 --> 0:17:00.040 What is is there a role for a taxation in 0:17:00.320 --> 0:17:03.480 inflation management? And how do you think of it? Because 0:17:03.520 --> 0:17:07.240 I feel like a little bit confused on this topic. Okay, Well, 0:17:07.480 --> 0:17:11.960 taxes function to remove purchasing power from somebody's hands. Right, 0:17:12.560 --> 0:17:14.640 every dollar that's taxed away from you as a dollar 0:17:14.760 --> 0:17:18.199 you don't have and excuse me, can't turn around and 0:17:18.440 --> 0:17:20.840 chase after some good or service in the economy. So 0:17:20.960 --> 0:17:25.320 taxes function to diminish one's purchasing power. Um. But there 0:17:25.359 --> 0:17:28.800 are other ways to do that as well. So the 0:17:28.920 --> 0:17:32.480 role of taxes in MMT. First, there's an origin story, right, 0:17:32.520 --> 0:17:34.560 there's an If you wanted to start up a currency 0:17:34.600 --> 0:17:37.720 from scratch, taxes play an important role, and we saw 0:17:37.760 --> 0:17:39.679 that with the Euro. The euro is a currency that 0:17:39.720 --> 0:17:44.359 didn't exist prior to January of and then because the 0:17:44.400 --> 0:17:46.800 government said, Okay, after this day, we're going to start 0:17:46.960 --> 0:17:49.400 spending only in this currency, and we're going to require 0:17:49.440 --> 0:17:51.640 taxes be paid in this currency. Will low and behold, 0:17:51.960 --> 0:17:54.480 you switch over the monetary system and now you have 0:17:54.600 --> 0:17:57.840 the Euro. So, you know, creating a demand for a 0:17:57.880 --> 0:18:03.320 currency is one role of taxes. Another role is, you know, inflation. 0:18:03.520 --> 0:18:07.240 If you simply spent the currency and never taxed any 0:18:07.280 --> 0:18:10.120 of it back again, then you would, you know, put 0:18:10.160 --> 0:18:12.840 too much purchasing power into people's hands, and the result 0:18:12.840 --> 0:18:17.160 would inevitably be inflation. So one thing that taxes do 0:18:17.359 --> 0:18:20.280 is allow the government to both spend its currency into 0:18:20.320 --> 0:18:23.400 the economy but also recover a portion of it as 0:18:23.440 --> 0:18:26.040 they tax some of it back. But can text policy 0:18:26.080 --> 0:18:30.600 be used countercyclically? And is there a role for It's like, hey, 0:18:30.640 --> 0:18:33.200 inflation is hid. Now is a good time to raise taxes? Well, 0:18:33.240 --> 0:18:36.040 the Democrats are trying to do that now, actually, But 0:18:36.119 --> 0:18:41.960 tax taxes are already countercyclical, right. Tax revenues increase automatically 0:18:42.200 --> 0:18:46.480 as the economy grows, and they drop off in a recovery, 0:18:46.600 --> 0:18:49.280 and I'm sorry, in a recession. And so I guess 0:18:49.320 --> 0:18:53.520 you're asking about discretionary right, the discretionary use in order 0:18:53.600 --> 0:18:56.879 to battle inflation. It's been proposed in the past. You know, 0:18:56.920 --> 0:19:00.119 the Federal Reserve building is named after Mariner echoes. And 0:19:00.119 --> 0:19:01.760 if you go back and you listen to the kinds 0:19:01.760 --> 0:19:04.280 of things Equals was saying when talking about how to 0:19:04.320 --> 0:19:07.840 bring down inflation now after the war or during and 0:19:07.880 --> 0:19:10.480 after the war, Equals was saying, we should use taxes 0:19:10.560 --> 0:19:12.480 to do this. So it's not a new idea, it's 0:19:12.480 --> 0:19:15.679 not an m m T proposal per se. Um, Could 0:19:15.680 --> 0:19:19.280 it work? Could it function to reduce inflationary pressures? Yes? 0:19:19.600 --> 0:19:23.159 Is it practical to adjust taxes in real time to 0:19:23.240 --> 0:19:26.600 try to battle x post inflation like after it happens? 0:19:26.600 --> 0:19:30.119 And the answer is probably no. Um, maybe you can 0:19:30.160 --> 0:19:33.440 get the votes to raise taxes when inflation is high, 0:19:33.520 --> 0:19:36.560 and it may help to reduce inflationary pressures, but it's 0:19:36.600 --> 0:19:40.800 certainly not the frontline policy prescription for reducing inflation. And 0:19:41.000 --> 0:19:44.120 m m T basic question here, what is the right 0:19:44.160 --> 0:19:47.520 way or the ideal way to reduce ex post inflation? 0:19:48.400 --> 0:19:50.679 All right, So this is the way I always have 0:19:50.760 --> 0:19:53.880 tried to say this. There is in my mind anyway 0:19:53.920 --> 0:19:57.159 no one size fits all policy response. To inflation, you 0:19:57.280 --> 0:19:59.080 have to look under the hood. If I were to 0:19:59.080 --> 0:20:01.600 walk down into my baseman and find it flooded with water, 0:20:01.640 --> 0:20:02.960 I know I have a problem on my hands, but 0:20:03.000 --> 0:20:05.080 I don't know why. I don't know if a kid 0:20:05.160 --> 0:20:07.879 left to sink, running of a toilet overflowed, if the 0:20:07.920 --> 0:20:10.359 dishwashers leaking of a pipe burst. Before I know what 0:20:10.480 --> 0:20:12.800 to do, I have to figure out where the source 0:20:12.800 --> 0:20:14.800 of the water is coming from, what's causing the problem. 0:20:14.800 --> 0:20:17.119 And that's how I think about inflation. If it's end. 0:20:17.200 --> 0:20:20.399 We were talking earlier about energy. Right, is higher or 0:20:20.480 --> 0:20:24.120 higher interest rates the right response, the right policy response 0:20:24.200 --> 0:20:27.920 to an inflation that's being driven largely by oil prices? 0:20:28.000 --> 0:20:30.040 And I think the answer is no. So I really 0:20:30.080 --> 0:20:34.040 think where we're ultimately headed. I think, I guess I 0:20:34.080 --> 0:20:39.000 hope is to a more granular, tailored policy response, more 0:20:39.040 --> 0:20:42.040 sophisticated response to the way that we approach, you know, 0:20:42.240 --> 0:20:45.159 combatting inflation. This is where we need. My idea of 0:20:45.200 --> 0:20:48.480 a FED that sets the speed limit of cars and 0:20:48.520 --> 0:20:51.040 in these days, lower the speed limit rather than raising 0:20:51.080 --> 0:20:53.560 interest rates, lower the speed limit to get better. Guess 0:20:54.000 --> 0:20:56.280 you know, the economists at the Center for Economic and 0:20:56.359 --> 0:20:59.760 Policy researches came out with a kind of six things 0:20:59.800 --> 0:21:03.120 you could do to reduce inflationary pressures today. That's one 0:21:03.359 --> 0:21:07.000 of the six ideas they put forward. A shorter work week, right, Um, 0:21:07.440 --> 0:21:10.360 work shorter work week sounds fine, Yeah, work from sounds good. 0:21:10.720 --> 0:21:14.960 Every Tracy's ears always perk up work. If MMT says 0:21:14.960 --> 0:21:17.920 everyone should work from home, that we've got you, that's 0:21:17.920 --> 0:21:20.880 okay with me. Um. But actually, actually on that point, 0:21:21.040 --> 0:21:24.439 can we talk about the job guarantee portion of MMT 0:21:24.760 --> 0:21:28.000 because I mentioned this in the intro, But it feels 0:21:28.080 --> 0:21:32.080 to me that given everything we've experienced now, that inflation 0:21:32.160 --> 0:21:36.320 seems to be a more salient issue for people than unemployment. 0:21:36.359 --> 0:21:38.639