WEBVTT - Why Debt Isn't Always a Bad Thing 0:00:15.356 --> 0:00:24.036 Pushkin from Pushkin Industries. This is Deep Background, the show 0:00:24.036 --> 0:00:27.236 where we explore the stories behind the stories in the news. 0:00:27.716 --> 0:00:32.516 I'm Noah Feldman. Our country is facing a genuinely challenging 0:00:32.596 --> 0:00:37.396 historical moment. There are two major stories that are proceeding 0:00:37.636 --> 0:00:42.156 right now. The first is the protests, the demonstrations and 0:00:42.236 --> 0:00:45.796 in some instances looting triggered by the tragic death of 0:00:45.836 --> 0:00:49.316 George Floyd. We talked about that earlier this week with 0:00:49.396 --> 0:00:52.316 Finita Kupta, and we're going to continue to cover that story. 0:00:53.316 --> 0:00:56.036 The second story, which has not gone away, is the 0:00:56.076 --> 0:01:01.796 coronavirus pandemic and its consequences for the world. Today, we're 0:01:01.796 --> 0:01:04.836 going to focus on that story. The federal government has 0:01:04.876 --> 0:01:08.116 said that it's planning to borrow nearly three trillion dollars 0:01:08.396 --> 0:01:11.436 between a in June of this year to help businesses 0:01:11.436 --> 0:01:16.116 and workers affected by the coronavirus shutdown. That's a record 0:01:16.156 --> 0:01:19.636 breaking amount of money. Think of it this way. During 0:01:19.636 --> 0:01:23.916 the entirety of last year, the government borrowed one point 0:01:23.956 --> 0:01:27.356 to eight trillion dollars. That's compared to three trillion in 0:01:27.516 --> 0:01:30.996 three months. How worried do we need to be about 0:01:30.996 --> 0:01:36.316 the remarkable, indeed astonishing scope of our emerging national debt. 0:01:37.076 --> 0:01:40.676 In order to explore answers to this question, both mainstream 0:01:40.796 --> 0:01:45.556 and otherwise, I'm joined by Professor Jason Furman of the 0:01:45.596 --> 0:01:50.396 Harvard Kennedy School. Jason served as President Obama's Chairman of 0:01:50.436 --> 0:01:55.556 the Council of Economic Advisors from twenty thirteen to twenty seventeen, 0:01:56.036 --> 0:02:00.036 effectively serving as the president's chief economist and a member 0:02:00.076 --> 0:02:04.396 of the cabinet. He's also the best macroeconomist at explaining 0:02:04.436 --> 0:02:11.916 things that I have ever met. Jason, thank you so 0:02:11.996 --> 0:02:15.836 much for being here. We're obviously in an unprecedented situation 0:02:16.116 --> 0:02:20.916 of economic crisis, with forty million people unemployed, that's nearly 0:02:21.076 --> 0:02:24.676 a quarter of the workforce, and in that context, every 0:02:24.756 --> 0:02:28.396 economist that I know thinks that it's completely reasonable to 0:02:28.476 --> 0:02:31.756 spend the money that we're spending now on some combination 0:02:31.796 --> 0:02:34.836 of a bailout slash life support system for the economy. 0:02:35.596 --> 0:02:39.396 What I'm curious about is is there a limit? Is 0:02:39.396 --> 0:02:43.956 there any maximum point beyond which we cannot go? Well, 0:02:43.996 --> 0:02:46.236 it sounds like you have great taste in the economists 0:02:46.316 --> 0:02:50.756 that you hang out with, so congratulations on that. I 0:02:50.796 --> 0:02:53.316 don't think there is a limit to the amount of 0:02:53.396 --> 0:02:59.236 money that can be spent on effective measures. So I 0:02:59.276 --> 0:03:02.516 wouldn't think of it as a target, nor would I 0:03:02.556 --> 0:03:06.116 say this a ceiling. I would ask the question, is 0:03:06.196 --> 0:03:10.796 what I'm doing going to have a multiplier that's close 0:03:10.876 --> 0:03:13.876 to one or higher than one, in which case you 0:03:13.916 --> 0:03:16.916 can definitely do it because it means GDP will go 0:03:17.076 --> 0:03:19.276 up by more than debt and it will actually help 0:03:19.316 --> 0:03:22.556 your fiscal sustainability. And then if it doesn't have a 0:03:22.636 --> 0:03:24.956 multiplier more than one, you still might want to do 0:03:24.996 --> 0:03:28.356 it because you care about education, you care about protecting 0:03:28.716 --> 0:03:31.716 a family and need and the like. Don't put a 0:03:31.756 --> 0:03:35.596 budget constraint on it, but do ask real questions about 0:03:35.636 --> 0:03:38.836 whether what you're spending is useful, is likely to help 0:03:38.876 --> 0:03:42.116 the economy or not. When I spoke to Larry Summers, 0:03:42.156 --> 0:03:45.276 it's now probably almost six weeks ago. He said, Listen, 0:03:45.356 --> 0:03:47.676 nobody should get the idea that we're passing a stimulus. 0:03:48.156 --> 0:03:52.276 There's no stimulus here. There's just life support and people 0:03:52.316 --> 0:03:53.876 need to stay alive, and so you need to spend 0:03:53.916 --> 0:03:56.876 on life support. That's a little different than the idea 0:03:56.916 --> 0:04:00.716 that you know this will have a multiplier of one. Yeah, 0:04:00.796 --> 0:04:03.956 So there is some evidence in the last several weeks 0:04:04.076 --> 0:04:06.916 that the days that people got checks, for example, from 0:04:06.956 --> 0:04:11.196 the economic stimulus payments, spending went up at certain big 0:04:11.236 --> 0:04:14.636 box stores and the like. I think that will be 0:04:14.676 --> 0:04:17.716 even more true going forward when you're more able to 0:04:17.756 --> 0:04:22.396 spend money. So, to some degree economists is the nerdy 0:04:22.516 --> 0:04:25.156 term consumption smoothing. You don't want people to have to 0:04:25.276 --> 0:04:28.356 radically reduce their consumption and then radically raise it again. 0:04:28.756 --> 0:04:30.996 You want them to be able to smooth through shocks. 0:04:31.476 --> 0:04:35.876 If you're helping people smooth their consumption, you're helping them 0:04:35.916 --> 0:04:40.436 avoid unnaturally large reduction in it, and you're actually helping 0:04:40.436 --> 0:04:43.636 the economy relative to what would happen otherwise. So I 0:04:43.716 --> 0:04:49.916 do think unemployment insurance, nutritional assistance money for states and localities. 0:04:50.156 --> 0:04:53.156 The evidence on all of those is that they do 0:04:53.236 --> 0:04:57.196 add more than a dollar to GDP per dollar you spend. Now. 0:04:57.436 --> 0:05:00.156 Does a dollar to GDP get added six months from 0:05:00.196 --> 0:05:02.916 now rather than now? You know, that's certainly possible. I 0:05:02.916 --> 0:05:06.036 don't know exactly what the timing is. When does the 0:05:06.076 --> 0:05:08.276 bill come do for all of this? I mean, the 0:05:08.276 --> 0:05:11.036 theory behind a multiplier of one or a greater is 0:05:11.076 --> 0:05:14.796 that at some point the government, if it's the lender 0:05:15.196 --> 0:05:17.876 or the grant will get its money back. And if 0:05:17.876 --> 0:05:20.596 it's debt, I suppose it would ask for its debts 0:05:20.636 --> 0:05:24.276 to be repaid. If it's in the form of grants, 0:05:24.636 --> 0:05:26.916 there would be more GDP, so we could get tax 0:05:26.956 --> 0:05:29.836 money and then the government could pay itself back via 0:05:29.916 --> 0:05:32.356 the taxes. First of all, am I getting that process right? 0:05:32.716 --> 0:05:35.036 And second of all, is there any time frame on 0:05:35.076 --> 0:05:37.076 that that's logical or reasonable or do we just say, well, 0:05:37.076 --> 0:05:39.796 just wait until we can afford it. Yeah. There's two 0:05:40.756 --> 0:05:44.516 freeish lunch aspects to this, and both of these free 0:05:44.596 --> 0:05:49.516 ish lunches have constraints on them. The first is that 0:05:49.716 --> 0:05:53.156 for fiscal sustainability, what you care about is the debt 0:05:53.676 --> 0:05:57.556 relative to the size of the economy, and so it's 0:05:57.636 --> 0:06:00.756 debt divided by GDP. If you can do something that 0:06:00.916 --> 0:06:06.156 raises debt by less than it raises GDP, the denominator 0:06:06.196 --> 0:06:08.676 goes up more than the numerator and the debt to 0:06:08.756 --> 0:06:12.756 GDP ratio goes down. We're not in that situation now, 0:06:12.756 --> 0:06:15.276 though it appears, oh, debt is certainly rising. The question 0:06:15.316 --> 0:06:17.956 is would debt rise even more if we didn't do 0:06:18.036 --> 0:06:20.916 some of the fiscal measures we were doing. For some 0:06:20.956 --> 0:06:23.076 of the fiscal measures we're doing, especially some of the 0:06:23.076 --> 0:06:25.996 ones that are more effective, I think they're probably in that. 0:06:26.796 --> 0:06:32.276 The second is what is your interest rate after accounting 0:06:32.316 --> 0:06:35.796 for inflation. That's called the real interest rate, And right 0:06:35.876 --> 0:06:40.076 now the real interest rate is negative, which is to say, 0:06:40.116 --> 0:06:43.676 if the federal government borrows one hundred dollars today, a 0:06:43.716 --> 0:06:46.876 decade from now, it has to pay back about ninety 0:06:46.876 --> 0:06:51.756 five dollars adjusted for inflations worth of stuff. So the 0:06:51.876 --> 0:06:55.156 question you want to ask yourself in that environment is 0:06:55.196 --> 0:06:59.276 what would you rather have one hundred dollars today or 0:06:59.436 --> 0:07:02.956 ninety five dollars a decade from now. Most people would 0:07:02.956 --> 0:07:06.716 answer a hundred dollars today, especially given all the needs 0:07:06.756 --> 0:07:09.476 we have now, there's a limit on those. If you 0:07:09.556 --> 0:07:12.676 do things that are ineffective, you don't get that. You 0:07:12.716 --> 0:07:15.236 could drive up interest rates if you try to do 0:07:15.276 --> 0:07:18.476 too much, if you try to expand the economy beyond 0:07:18.516 --> 0:07:21.036 where it wants to be, you could get large and 0:07:21.116 --> 0:07:24.356 increasing amounts of inflation. So none of that is a 0:07:24.436 --> 0:07:28.556 blank and unlimited check, but for well designed policies within 0:07:28.636 --> 0:07:33.836 the regime, wherein there is a freish lunch aspect to 0:07:33.956 --> 0:07:36.916 what's being done with respect of the second freish lunch. 0:07:36.996 --> 0:07:39.956 The negative interest rate is that based on a projection 0:07:40.036 --> 0:07:42.436 of what inflation is likely to be over the next 0:07:42.516 --> 0:07:44.956 ten years, and if the rates were to change, if 0:07:44.956 --> 0:07:49.116 there was to be deflation or just much much lower 0:07:49.196 --> 0:07:51.516 or minimal inflation, would that turn out not to be 0:07:51.556 --> 0:07:53.156 the case, that lunch would not have been as freeish 0:07:53.156 --> 0:07:57.756 as it appears. So the government mostly issues what are 0:07:57.756 --> 0:08:01.436 called nominal bonds, which is they have an interest rate 0:08:01.436 --> 0:08:03.116 in the interest rate is just the way we normally 0:08:03.196 --> 0:08:06.796 understand the interest rate. Some of what the government issues 0:08:06.796 --> 0:08:09.836 are inflation index bonds, and they pay an interest rate, 0:08:10.236 --> 0:08:13.556 which is, will pay you the inflation rate plus blank 0:08:13.716 --> 0:08:17.476 or will play you the inflation rate minus blank. Right now, 0:08:17.516 --> 0:08:20.276 the interest rate on those inflation index bonds is negative. 0:08:20.316 --> 0:08:24.476 So quite literally, the government, no matter what happens to inflation, 0:08:24.796 --> 0:08:27.756 if it wanted to issue more of those bonds, and 0:08:27.996 --> 0:08:29.876 you know, might change the interest rate on them. If 0:08:29.876 --> 0:08:32.476 you tried to issue too many, but at least on 0:08:32.516 --> 0:08:37.076 those bonds right now, you could lock in negative interest rate. 0:08:37.316 --> 0:08:38.796 But I don't want to push this too far. You're 0:08:38.836 --> 0:08:41.516 certainly right, you know, interest rates could change in the future. 0:08:41.996 --> 0:08:45.436 You know the FED could stop trying to keep them low, etc. 0:08:46.236 --> 0:08:49.716 I've spent thirty five years watching every single interest rate 0:08:49.756 --> 0:08:53.116 forecast anyone has made has been too high, and interest 0:08:53.196 --> 0:08:55.356 rates have come in below it rather than above it. 0:08:55.596 --> 0:08:57.596 But that doesn't you know, just because my whole adult 0:08:57.596 --> 0:08:59.796 life has been like that doesn't mean it's the timeless 0:08:59.796 --> 0:09:03.196 truth that we should count on. How long does this 0:09:03.516 --> 0:09:06.836 large debt overhang have to last and how big does 0:09:06.836 --> 0:09:10.716 it have to be? The certain economic theory that says 0:09:10.516 --> 0:09:12.876 it's actually the standard one that when you get shock hits, 0:09:13.276 --> 0:09:15.436 your debt's going to be higher as a result of it, 0:09:15.996 --> 0:09:18.956 and you actually it's okay if you lock in at 0:09:18.996 --> 0:09:22.956 that new higher level of debt. In this case, I 0:09:22.956 --> 0:09:25.676 think it's completely plausible that a decade from now the 0:09:25.756 --> 0:09:28.956 United States would have a debt to GDP ratio of 0:09:28.996 --> 0:09:32.756 one hundred and fifty percent, which is higher than we've 0:09:32.756 --> 0:09:36.036 ever had in our history, but something that the UK 0:09:36.316 --> 0:09:39.636 had for centuries and centuries and centuries while it was 0:09:39.676 --> 0:09:43.236 the world's pre eminent power, And so one hundred and 0:09:43.316 --> 0:09:47.516 fifty percent of GDP may be okay, it may be 0:09:47.636 --> 0:09:51.436 something that we're able to get used to. It would 0:09:51.476 --> 0:09:56.236 depend on interest rates staying below the growth rate to 0:09:56.476 --> 0:10:00.676 make it at all feasible to stay at that level, 0:10:01.196 --> 0:10:04.476 there'd still need to be some adjustment, some additional revenue 0:10:04.516 --> 0:10:07.716 or spending cuts to even stabilize add one hundred and 0:10:07.716 --> 0:10:10.516 fifty percent of GDP. But I think we're going to 0:10:10.596 --> 0:10:14.516 find ourselves a decade from now that's going to probably 0:10:14.556 --> 0:10:17.756 look perfectly reasonable, when if you'd told people even a 0:10:17.836 --> 0:10:21.156 year ago, they would have thought it was nuts. The 0:10:21.236 --> 0:10:23.636 British Empire example, I have to say it makes me 0:10:23.716 --> 0:10:26.276 a bit nervous because it was at least the theory 0:10:26.316 --> 0:10:28.716 of the British Empire during this period of huge debt 0:10:29.156 --> 0:10:30.836 that the reason they were borrowing that money is they 0:10:30.836 --> 0:10:33.636 were in the process of conquering the known world, which 0:10:33.636 --> 0:10:35.676 they were in fact doing. You know, that was exactly 0:10:35.676 --> 0:10:37.716 the period in which the British Empire came to be 0:10:37.756 --> 0:10:41.276 the empire over which the sun didn't set, and the 0:10:41.316 --> 0:10:43.716 British were very explicit that the goal of their empire 0:10:43.956 --> 0:10:47.476 was to enhance their commercial opportunities and success. They took 0:10:47.516 --> 0:10:50.556 over a country or in one case, a whole subcontinent 0:10:50.956 --> 0:10:54.196 with a specific goal of exploiting it for its resources. 0:10:54.636 --> 0:10:57.276 In the case of India textiles. Roughly speaking, in the 0:10:57.316 --> 0:10:59.516 case of Africa, they didn't make it over the whole continent, 0:10:59.556 --> 0:11:03.156 but minerals they saw that debt as an engine of growth. 0:11:04.196 --> 0:11:07.196 I'm wondering if you think there's anything even slightly comparable 0:11:07.276 --> 0:11:09.556 for the US in this period. I mean, we wouldn't have, 0:11:09.596 --> 0:11:13.076 let's say, a business plan for very substantial growth that 0:11:13.116 --> 0:11:15.716 would justify borrowing that money. In our case, it seems 0:11:15.716 --> 0:11:17.636 more like we're borrowing that money now to overcome with 0:11:17.676 --> 0:11:21.036 the shock. Yeah, so first of all, lesson learned. Never 0:11:21.116 --> 0:11:25.516 bring up history with somebody that knows history. You know, 0:11:25.596 --> 0:11:28.156 the UK also had debt. Britain had debt, you know, 0:11:28.196 --> 0:11:31.076 often two fifty three fifty percent of GDP over that 0:11:31.156 --> 0:11:32.956 period of time, So this would even be a decent 0:11:32.996 --> 0:11:35.916 amount below it. But I certainly agree with you that 0:11:36.036 --> 0:11:39.956 adding to debt is much much more appealing when you're 0:11:39.996 --> 0:11:43.836 adding to debt in order to help economic growth than 0:11:43.956 --> 0:11:47.076 when you're adding to debt to, for example, give tax 0:11:47.116 --> 0:11:49.756 cuts to high income households so they can consume more 0:11:49.796 --> 0:12:01.716 in the present. We'll be back in a moment. I 0:12:01.756 --> 0:12:03.716 want to turn out to a topic which when I 0:12:03.796 --> 0:12:08.116 bring up with our economics colleagues at Harvard and MIT, 0:12:08.676 --> 0:12:10.676 people get red in the face, And I want to 0:12:10.676 --> 0:12:12.036 bring it up in a way so that nobody has 0:12:12.036 --> 0:12:13.596 to get red in the face. But I think it's 0:12:13.596 --> 0:12:16.116 important because it's in the public discourse now, and that's 0:12:16.316 --> 0:12:20.076 MMT or modern monetary theory now. As recently as a 0:12:20.156 --> 0:12:22.916 year or two ago, if it even came up in conversation, 0:12:23.556 --> 0:12:26.116 my anecdotal report is that people just rolled their eyes 0:12:26.116 --> 0:12:28.556 and said, this is a crackpot theory, no reason to 0:12:28.556 --> 0:12:32.116 worry about it too much. And yet now out in 0:12:32.196 --> 0:12:34.756 the public discourse there has become a kind of trope 0:12:34.996 --> 0:12:37.596 of people saying, oh, well, we're all MMT people now, 0:12:37.636 --> 0:12:39.716 we all think that the government can always print money 0:12:39.716 --> 0:12:41.556 to get itself out of any deck crisis that it's in. 0:12:41.596 --> 0:12:44.156 And that's a wildly oversimplified account of what the theory is. 0:12:44.916 --> 0:12:48.396 And even just saying that again makes our economist colleagues 0:12:48.636 --> 0:12:50.156 go a little crazy. So I wonder if you would 0:12:50.156 --> 0:12:52.716 do the flying for us. It's hard to ask somebody 0:12:52.756 --> 0:12:56.796 to summarize of you that he may think is completely wrong, 0:12:57.076 --> 0:13:00.796 but would you at least give us a caricatured version 0:13:01.036 --> 0:13:03.116 of what people mean when they say, oh, we can 0:13:03.156 --> 0:13:05.396 print money to get out of this, and would you 0:13:05.436 --> 0:13:09.316 give us some one oh one account of why that's wrong? 0:13:09.356 --> 0:13:12.236 If indeed it is sure, and I should say that, 0:13:12.396 --> 0:13:15.956 I personally think MMT is like a stopped clock that's 0:13:16.076 --> 0:13:19.236 right twice a day at this moment. It's roughly right. 0:13:19.796 --> 0:13:21.836 Lots of other theories would have gotten to us to 0:13:21.916 --> 0:13:25.196 the same place. But that's broadly speaking, my take. So 0:13:25.356 --> 0:13:27.636 what's the theory that's right twise a day? Number one? 0:13:28.196 --> 0:13:30.996 MMT says that rather than have the FED be the 0:13:30.996 --> 0:13:34.636 first line of defense in business cycles, the treasury should 0:13:34.636 --> 0:13:37.756 be the first line of defense in business cycles. That's 0:13:37.836 --> 0:13:41.316 one thing that MMT says. So if the treasury is 0:13:41.316 --> 0:13:43.716 the first line of defense, what should the treasury do 0:13:43.916 --> 0:13:47.156 in a business cycle downturn? The treasury should cut taxes 0:13:47.236 --> 0:13:51.436 in a downturn. The Treasury should increase spending in a downturn, 0:13:51.956 --> 0:13:55.156 and the treasury should keep doing that until it sees 0:13:55.196 --> 0:13:58.916 inflation rising. And then if inflation is rising where it 0:13:59.196 --> 0:14:01.956 above where it wants to go, then you stop that 0:14:02.036 --> 0:14:05.156 process and maybe even reverse it a little bit by 0:14:05.236 --> 0:14:08.716 raising taxes and cutting spending. So, you know, the thing 0:14:08.756 --> 0:14:11.236 we normally think of the FED raising and lowering interest 0:14:11.356 --> 0:14:14.596 rates in order to keep the economy on track. MMT 0:14:14.956 --> 0:14:19.156 has that primarily happening with the Treasury and the Congress 0:14:19.356 --> 0:14:23.396 raising and lowering taxes and spending. A second thing in 0:14:23.676 --> 0:14:30.956 MMT is the idea that there's no constraint on what 0:14:30.996 --> 0:14:34.836 the government does in terms of people being unwilling to 0:14:34.956 --> 0:14:39.316 lend to the government, because ultimately the central bank can 0:14:39.356 --> 0:14:42.236 always print the money if it wants to, and so 0:14:42.276 --> 0:14:46.516 you don't need to worry about will anyone lend. You 0:14:46.556 --> 0:14:50.836 don't need to worry about will government spending drive up 0:14:50.876 --> 0:14:54.836 interest rates? All the traditional concerns. Instead, the only thing 0:14:54.876 --> 0:14:58.276 you should worry about is that if you spend too much, 0:14:58.516 --> 0:15:02.236 you'll get inflation. That part is the part that sounds 0:15:02.836 --> 0:15:07.876 very counterintuitive to sort of the very simplified idea that 0:15:08.476 --> 0:15:11.796 when governments get into trouble because they owe too much 0:15:11.796 --> 0:15:13.996 money and try to print money to get out of 0:15:13.996 --> 0:15:16.276 it and pay their debts, that that then drives a 0:15:16.276 --> 0:15:20.276 cycle of hyperinflation that gives you Argentina or Germany between 0:15:20.316 --> 0:15:24.196 the wars. So their MMT is denying that intuition, right. 0:15:24.236 --> 0:15:26.196 I think one of the problems with MMT is it 0:15:26.276 --> 0:15:29.876 presents itself as a timeless truth, and a lot of 0:15:29.876 --> 0:15:31.916 the people that support it, you know, will point to 0:15:31.956 --> 0:15:35.436 all sorts of identities and equations and they're like the 0:15:35.516 --> 0:15:38.956 law of gravity, they should always hold. And the fact 0:15:39.036 --> 0:15:43.116 is they hold in certain countries at certain times. So 0:15:43.156 --> 0:15:48.196 if Argentina tried to do MMT, the results would be abysmal. 0:15:48.476 --> 0:15:50.676 You know, at various points in history when countries have 0:15:50.756 --> 0:15:53.476 tried to do it, the results have been abysmal. Maybe 0:15:53.516 --> 0:15:55.396 the United States can do it right now. But then 0:15:55.436 --> 0:15:58.156 that begs a question, you know, why is it In 0:15:58.196 --> 0:16:02.036 some circumstances you can borrow a lot. In other circumstances, 0:16:02.396 --> 0:16:05.036 you can't borrow a lot. And MMT doesn't have a 0:16:05.076 --> 0:16:08.956 whole lot to say an answer to that question, because 0:16:09.236 --> 0:16:12.236 it presents itself as a timeless truth. So you're coming 0:16:12.276 --> 0:16:14.356 to the third component. Yeah, And the third component of 0:16:14.476 --> 0:16:18.756 MMT is generally a belief that the economy is persistently, 0:16:18.836 --> 0:16:23.556 for very long periods of time, operating below its capacity, 0:16:24.356 --> 0:16:29.516 with excess slack, with excess unemployment. And so it's not 0:16:29.676 --> 0:16:32.236 just when you're in a recession or coming out of 0:16:32.276 --> 0:16:36.876 it that you can do fiscal stimulus, extra tax cuts, 0:16:36.916 --> 0:16:41.196 extra spending increases. But if you're planning a health system, 0:16:41.716 --> 0:16:43.676 you know, single pay or whatever it is for the 0:16:43.716 --> 0:16:47.036 next twenty years, you can even plan ten or fifteen 0:16:47.116 --> 0:16:50.596 years from now to do definite it's spending, because ten 0:16:50.676 --> 0:16:53.036 or fifteen years from now we're probably going to need 0:16:53.116 --> 0:16:56.796 fiscal stimulus. Also because the unemployment rate is almost always 0:16:56.796 --> 0:17:01.436 too high. Is there a single identifiable analytic error here, 0:17:01.636 --> 0:17:05.196 or is it a series of claims that aren't empirically 0:17:06.036 --> 0:17:07.756 born out. Is this the kind of thing where one 0:17:07.796 --> 0:17:11.396 can say MMT is wrong because and is the because 0:17:11.436 --> 0:17:13.156 in the nature of an analysis of the world, or 0:17:13.236 --> 0:17:15.556 is it in the nature of an analysis of economic principles? 0:17:15.756 --> 0:17:17.996 I mean, MMT shifts around a lot, so it's a 0:17:18.036 --> 0:17:22.476 little bit hard to pin down. Is not clear what 0:17:22.676 --> 0:17:25.156 evidence you could give to an mm tier that would 0:17:25.196 --> 0:17:29.716 cause her him to change their mind. And you know, 0:17:29.756 --> 0:17:31.516 just to go back to the three things I said, 0:17:31.876 --> 0:17:35.076 who should take the lead in fighting recessions? Think for 0:17:35.116 --> 0:17:38.756 a normal garden variety recession, the Fed. Actually it's okay 0:17:38.796 --> 0:17:40.836 for the central Bank to take the lead raising and 0:17:40.916 --> 0:17:44.156 lowering interest rates. Right now, interest rates are at zero, 0:17:44.276 --> 0:17:46.956 so you do need the Treasury and the Congress. So 0:17:47.116 --> 0:17:50.476 MMT is right for the moment, that doesn't mean it's 0:17:50.516 --> 0:17:53.996 always right. You know, we've already talked. MMT says no 0:17:54.076 --> 0:17:58.396 constraint on borrowing. Argentina faces a lot of constraints on borrowing, 0:17:58.436 --> 0:18:01.596 so that's not a timeless truth. That is something situational. 0:18:02.476 --> 0:18:06.036 And finally, the claim that we're below full employment, that's 0:18:06.036 --> 0:18:08.476 certainly true right now. I think that's going to be 0:18:08.516 --> 0:18:11.156 true to you from now. If you're making a health 0:18:11.156 --> 0:18:13.396 plan that's going to last for the next fifty years, 0:18:13.836 --> 0:18:16.196 I think it would be really rash to assume that's 0:18:16.236 --> 0:18:18.116 going to be the case for the next fifty years, 0:18:18.116 --> 0:18:20.196 since so you don't ever need to pay for that 0:18:20.316 --> 0:18:24.396 health plan. On the constraints on borrowing, which is also 0:18:24.476 --> 0:18:28.796 thematically where we began, I'm trying to understand from a 0:18:28.836 --> 0:18:32.876 conceptual standpoint, how we should think about constraints on borrowing. 0:18:32.956 --> 0:18:36.636 I mean, the ordinary intuition that people have is you 0:18:36.676 --> 0:18:40.156 can borrow as much money as people will rationally lend 0:18:40.196 --> 0:18:42.716 you if they have enough information to make the prediction 0:18:42.956 --> 0:18:45.876 that you'll pay it back. The intuition is that borrowing 0:18:45.956 --> 0:18:48.916 is not at all about a free lunch, because at 0:18:48.956 --> 0:18:51.316 some point it must be paid back under the terms 0:18:51.316 --> 0:18:52.796 of the lunch. You can get a really good deal, 0:18:53.076 --> 0:18:54.956 which makes it, as you said, a free ISSH lunch, 0:18:55.196 --> 0:18:56.716 but it's not a free lunch in the sense that 0:18:56.836 --> 0:18:58.996 something must be paid back, and that thing which must 0:18:58.996 --> 0:19:01.236 be paid back is essentially that which has been agreed 0:19:01.276 --> 0:19:04.916 to paid back upfront. In your view, is there any 0:19:05.076 --> 0:19:07.796 escape from that idea or is that closer to a 0:19:07.916 --> 0:19:12.196 law of gravity in the context of borrowing. I think 0:19:12.236 --> 0:19:15.516 that's broadly right, I tend to think. And this is 0:19:15.556 --> 0:19:18.236 not based on incredibly strong evidence. This is based on 0:19:18.356 --> 0:19:22.356 sort of common sense, and that's a little bit worrying 0:19:22.396 --> 0:19:24.996 to have to rely on that. It also depends on 0:19:24.996 --> 0:19:27.836 the circumstances. If every one of the rich countries in 0:19:27.876 --> 0:19:31.436 the world is borrowing more, then you know, people aren't 0:19:31.436 --> 0:19:34.076 going to say the United States is irresponsible. If the 0:19:34.156 --> 0:19:36.436 United States is the only country in the world doing it, 0:19:36.476 --> 0:19:37.956 they'll say, you know what, we don't want to buy 0:19:38.116 --> 0:19:41.516 US debt. We'd rather buy European debt, We'd rather buy 0:19:41.596 --> 0:19:43.876 Japanese debt. So there's a little bit of a strength 0:19:43.916 --> 0:19:46.556 in numbers, and this is what this is a constraint 0:19:46.596 --> 0:19:50.036 on individual countries. We actually do see an individual country 0:19:50.076 --> 0:19:52.876 in Europe has a harder time borrowing to get out 0:19:52.876 --> 0:19:56.236 of a downturn because people can shift away from lending 0:19:56.236 --> 0:19:58.156 to that country to another one. You see the same 0:19:58.156 --> 0:20:00.596 thing with US States. So it's a little bit of 0:20:00.596 --> 0:20:04.236 a safety in numbers. There's a little bit of you know, 0:20:04.236 --> 0:20:06.476 if it looks like you're borrowing because you needed to 0:20:06.596 --> 0:20:08.756 because something bad happen to you, or you needed to 0:20:08.796 --> 0:20:12.996 do someth think about something bad, that that's okay. Whereas 0:20:13.036 --> 0:20:15.516 if the United States had woken up there was no 0:20:15.596 --> 0:20:18.956 pandemic and we just went nuts and decided we're going 0:20:18.996 --> 0:20:21.156 to increase our debt two hundred and fifty percent of 0:20:21.196 --> 0:20:24.596 GDP to build a big monument to the leader or 0:20:24.596 --> 0:20:28.516 something like that, financial markets might have been more punishing 0:20:28.996 --> 0:20:32.636 of that type of debt and then finally a trajectory. 0:20:32.756 --> 0:20:35.036 If they knew we were stabilizing in one hundred and 0:20:35.076 --> 0:20:38.756 fifty percent of GDP for debt, maybe people would have 0:20:38.796 --> 0:20:41.236 patience with that. If they could see no end in 0:20:41.316 --> 0:20:43.676 sight and it was going to two hundred, three hundred, 0:20:43.756 --> 0:20:47.196 five hundred one thousand percent of GDP, maybe they wouldn't 0:20:47.236 --> 0:20:51.116 like it. So I do think borrowing is who's willing 0:20:51.156 --> 0:20:53.596 to lend to you. Who's willing to lend to you 0:20:53.916 --> 0:20:56.956 depends on circumstances. Are you in good company, are you 0:20:57.036 --> 0:21:01.116 doing it for good reason? And do you have some 0:21:01.236 --> 0:21:04.596 plausible exit strategy from all of it. The reason I 0:21:04.636 --> 0:21:07.436 asked this, even though maybe it sounds two elementary, is 0:21:07.476 --> 0:21:09.676 that it's sort of the back of my mind. I 0:21:09.756 --> 0:21:13.556 always have this desire not to be what the ordinary 0:21:13.556 --> 0:21:16.316 non economist would probably have been. When the world gradually 0:21:16.356 --> 0:21:19.076 went off the gold standard. The ordinary person, the non 0:21:19.076 --> 0:21:21.836 economists intuition was, well, this is just necessary. There has 0:21:21.876 --> 0:21:24.716 to be something of value, and unless everything is in 0:21:24.756 --> 0:21:26.996 reference to that thing of value, the whole system will 0:21:27.036 --> 0:21:29.036 break down. And of course that turned out just not 0:21:29.076 --> 0:21:31.476 to be true for me. One of the takeaways from 0:21:31.476 --> 0:21:35.076 that historical takeaway is the ordinary non economist should not 0:21:35.156 --> 0:21:39.156 completely trust intuitions about questions like this, which is exactly 0:21:39.156 --> 0:21:42.236 why I'm asking you about it. Is there on the 0:21:42.276 --> 0:21:46.956 horizon a similar kind of intuitive error that ordinary people 0:21:47.116 --> 0:21:49.716 are making about the economy, you know, similar to the 0:21:49.756 --> 0:21:51.476 old intuition that of course there had to be a 0:21:51.516 --> 0:21:55.916 gold standard or a sterling standard. Just the notion that 0:21:55.956 --> 0:21:58.596 when times are tough, you should tighten the belt. It's 0:21:58.636 --> 0:22:02.676 just a very very powerful one. President Obama used that 0:22:02.756 --> 0:22:05.676 line a few times in speeches in you know, maybe 0:22:05.676 --> 0:22:09.236 it was two thousand and nine or two ten. He 0:22:09.316 --> 0:22:13.236 understood these issues incredibly well, and you know, was doing 0:22:13.516 --> 0:22:15.756 or trying to do all of the right things. And 0:22:15.796 --> 0:22:17.996 were you there in the Council of Economic Advisors waving 0:22:18.036 --> 0:22:19.796 your arms in the air and saying, don't say that. 0:22:20.916 --> 0:22:24.756 So some of us were not thrilled with that vocabulary. 0:22:24.796 --> 0:22:28.036 And it just shows you how powerful the pull of 0:22:28.756 --> 0:22:33.156 the family. Analogies don't apply at the level of the government, 0:22:33.276 --> 0:22:37.116 because what the government is trying to do is take 0:22:37.156 --> 0:22:39.356 a set of people that aren't working instead of factories 0:22:39.396 --> 0:22:44.596 that aren't utilized, and reconnect them. And with that you 0:22:44.756 --> 0:22:47.596