WEBVTT - MMT And Emerging Markets 0:00:10.840 --> 0:00:13.680 Hello, and welcome to another episode of the All Thoughts 0:00:13.720 --> 0:00:18.200 Podcast on Tracy Alloway and I'm Joe Wisenthal. So, Joe, 0:00:18.280 --> 0:00:21.759 I really enjoyed our m m T discussion from last week. 0:00:22.680 --> 0:00:25.600 I did too, and uh, you know, it was kind 0:00:25.600 --> 0:00:28.960 of interesting because we never really did like an introductory 0:00:29.120 --> 0:00:32.720 to m MT episode. We immediately started with a critic 0:00:32.880 --> 0:00:36.320 although you know, some people pointed out A the criticism 0:00:36.400 --> 0:00:38.879 wasn't too harsh, and B we did sort of introduce 0:00:38.960 --> 0:00:42.279 the concept. But now we're going to go backwards and 0:00:42.479 --> 0:00:47.599 sort of keep building the foundation. Right. Well, actually, actually 0:00:47.720 --> 0:00:51.680 I would argue we're going forward and we're picking We're 0:00:51.720 --> 0:00:55.560 picking up from where we left off in that previous conversation, 0:00:55.720 --> 0:00:58.960 which was I think at the end, we were discussing 0:00:59.000 --> 0:01:03.400 about whether or not MMT could ever work outside of 0:01:03.440 --> 0:01:07.360 the United States. Right, So obviously when people talk about 0:01:07.360 --> 0:01:11.240 how the US can have much higher sustained deficits than 0:01:11.280 --> 0:01:14.039 other places or than than we've had, they're like, well, yeah, 0:01:14.080 --> 0:01:16.280 sure of course the US can, but that's only because 0:01:16.319 --> 0:01:20.280 the dollars the global world reserve currency. And so the 0:01:20.840 --> 0:01:26.800 accusation towards mm T is that it's generalizing from the 0:01:26.920 --> 0:01:31.120 US example, to something that wouldn't be applicable to countries 0:01:31.160 --> 0:01:34.920 that maybe don't enjoy that same status for their currency, 0:01:35.200 --> 0:01:38.720 right exactly. The argument is that the US is in 0:01:38.800 --> 0:01:42.840 some way hashtag blessed with a number of financial attributes, 0:01:42.880 --> 0:01:45.959 such as the reserve currency status UH and the safe 0:01:45.959 --> 0:01:49.800 haven nature of U S treasuries relative to other assets, 0:01:50.200 --> 0:01:52.760 and that it is special in some way, and that 0:01:52.800 --> 0:01:58.160 you can't apply MMT to other jurisdictions, in particular developing 0:01:58.640 --> 0:02:02.280 or emerging market economies. There was one other thing that 0:02:02.280 --> 0:02:06.080 that conversation actually brought up, and this was the notion that, well, 0:02:06.160 --> 0:02:10.360 we haven't really seen any real life applications of MMT 0:02:10.680 --> 0:02:13.920 just yet, right. So the argument is that and of 0:02:13.960 --> 0:02:16.919 course this gets into the distinction between m m T 0:02:17.200 --> 0:02:20.480 as the descriptive framework. Basically, m m T s attempt 0:02:20.520 --> 0:02:23.760 to describe the money system how it actually is, versus 0:02:23.800 --> 0:02:26.960 the implications the prescriptions, where it's like, okay, well, if 0:02:26.960 --> 0:02:29.280 you know this is how the money system works, then 0:02:29.360 --> 0:02:32.320 this is the policies that you can do. And the 0:02:32.480 --> 0:02:35.440 argument is that we really don't know what it would 0:02:35.440 --> 0:02:39.200 look like for any country to adopt some of the 0:02:39.280 --> 0:02:43.880 prescriptive side of m m T and whether whether the 0:02:44.000 --> 0:02:47.240 sort of fiscal latitude that m m T s as 0:02:47.280 --> 0:02:52.600 many countries enjoy would actually improve the economy. Absolutely right. 0:02:52.639 --> 0:02:55.080 So there's two big questions that came out of that 0:02:55.280 --> 0:02:58.079 big discussion, one of which is whether or not mm 0:02:58.120 --> 0:03:00.160 T works outside the U S and the other is 0:03:00.200 --> 0:03:04.280 whether or not the prescriptive social policies of MMT could 0:03:04.320 --> 0:03:07.920 actually work in some capacity. So I'm really pleased to 0:03:08.000 --> 0:03:10.959 say that we have a guest on Today Show who 0:03:11.000 --> 0:03:14.560 can deal with both of those two very very large 0:03:14.600 --> 0:03:18.400 and complex topics. Our guest is going to be Fattle Kaboob. 0:03:18.440 --> 0:03:21.280 He's someone who's able to talk about both these things. 0:03:21.320 --> 0:03:25.280 He's an associate professor at Dennison University, and he was 0:03:25.320 --> 0:03:30.400 actually suggested by Nathan Tankus on Twitter as a possible guest. 0:03:30.440 --> 0:03:33.679 And I should say Joe, because we did get some 0:03:33.760 --> 0:03:36.600 blowback from people who said that our last MMT guest 0:03:36.720 --> 0:03:40.800 was too much of a critic. Fattle comes recommended by 0:03:40.840 --> 0:03:43.840 Stephanie Kelton as well, who said that he's doing some 0:03:44.040 --> 0:03:47.000 very very interesting work outside the US. Great. Well, these 0:03:47.040 --> 0:03:49.400 are I have a lot of questions, so let's get started. 0:03:49.720 --> 0:03:53.360 Cool Faddle, Thank you so much. For joining us, Thank 0:03:53.360 --> 0:03:55.680 you for having me on the show. So maybe just 0:03:55.800 --> 0:03:59.600 to begin, you could give us an overview of how 0:03:59.720 --> 0:04:02.760 you ut involved in this topic and why so many 0:04:02.800 --> 0:04:05.760 people on Twitter are pointing to you as the expert 0:04:06.120 --> 0:04:10.520 for m m T outside of the US experience. Well, 0:04:10.560 --> 0:04:12.800 when I was in grad school about twenty years ago 0:04:12.840 --> 0:04:15.400 at the University of Missouri, Kansas City at Young k C, 0:04:15.600 --> 0:04:18.880 where a lot of the you know MMT scholars were 0:04:18.920 --> 0:04:22.640 based there, Randy Ray, Stephanie Kelton, map for Stature, and others. 0:04:23.240 --> 0:04:26.320 At that stage in the early two thousands, most of 0:04:26.320 --> 0:04:31.120 the discussion around m m T was focused on the US, Canada, 0:04:31.160 --> 0:04:34.200 Australia countries that are you know, advanced countries, countries that 0:04:34.279 --> 0:04:37.680 have full monetary sovereignty. And I grew up in a 0:04:37.680 --> 0:04:39.800 developing country. I grew up in Tunisia, and I was 0:04:39.960 --> 0:04:42.520 always interested in, you know, how does this supply, how 0:04:42.560 --> 0:04:44.880 does this transfer? What are the differences, what are the 0:04:44.960 --> 0:04:47.279 adjustments that need to be made? And that's how it 0:04:47.279 --> 0:04:50.640 all started in terms of me trying to expand some 0:04:50.800 --> 0:04:53.279 of the MMT and the post Kayzee in literature in 0:04:53.320 --> 0:04:57.200 general in the context of developing countries. So one of 0:04:57.240 --> 0:05:00.160 the things that is still to this day appoint to 0:05:00.480 --> 0:05:05.120 confusion about what MMT says. It's it's a very basic 0:05:05.200 --> 0:05:08.560 definition of what monetary sovereignty is. And even though we 0:05:08.640 --> 0:05:11.240 keep saying monetary sovereignty, most people here pass it and 0:05:11.279 --> 0:05:14.919 they just hear sovereignty sovereign government, which is what the 0:05:15.040 --> 0:05:18.240 general public and even you know, mainstream economists understand as 0:05:18.320 --> 0:05:20.839 political sovereignty. A country that you know, has its own 0:05:20.880 --> 0:05:23.719 borders and its own flag, and its own army and 0:05:23.839 --> 0:05:28.720 its own currency, which is not completely what MMT is saying. 0:05:28.760 --> 0:05:32.960 So monetary sovereignty is defined as far as I'm concerned 0:05:33.080 --> 0:05:37.200 in the following way. It's it's four basic elements that 0:05:37.240 --> 0:05:40.080 need to apply. One is, yes, a country issues its 0:05:40.080 --> 0:05:43.400 own currency, its own sovereign currency. Number two, it's a 0:05:43.440 --> 0:05:46.400 country that imposes taxes and fines and fees on its 0:05:46.400 --> 0:05:49.839 population in that same currency, the national currency, And that's 0:05:49.839 --> 0:05:52.919 pretty straightforward. Most countries can do that. And then three 0:05:52.920 --> 0:05:57.760 and four is where developing countries become a category of 0:05:57.839 --> 0:06:01.800 their own and start losing some degree of monetary sovereignty. 0:06:01.880 --> 0:06:05.159 So number three, it's a country that only issues debt 0:06:05.279 --> 0:06:08.760 denominated in its own national currency. And as you know, 0:06:08.960 --> 0:06:12.440 most developing countries, because of trade deficit, they have external debt, 0:06:12.920 --> 0:06:16.680 which means they issue debt denominated in dollars, in euros 0:06:16.680 --> 0:06:19.760 in Japanese end, and that's where they start losing degrees 0:06:19.760 --> 0:06:23.320 of of monetary sovereignty. Number four is also related to that, 0:06:23.400 --> 0:06:26.080 which is, you know, fixing the currency or trying to 0:06:26.200 --> 0:06:29.159 stabilize the exchange rate at a particular level, pegging the 0:06:29.200 --> 0:06:31.440 exchange rate to the dollar, to the euro, to other 0:06:32.120 --> 0:06:35.559 strong currencies, and so both are related to the trade 0:06:35.600 --> 0:06:39.040 deficit issue. Both are related to the external debt issue. 0:06:39.480 --> 0:06:42.719 So that means that you don't have a binary where 0:06:42.760 --> 0:06:46.200 a country either has monetary sovereignty or doesn't. It's really 0:06:46.279 --> 0:06:49.240 degrees of monetary sovereignty. So when you look at that 0:06:49.600 --> 0:06:52.800 the US, Australia, Canada, these are countries that enjoy full 0:06:52.880 --> 0:06:56.479 monetary sovereignty. In Japan is is the same. Whereas you 0:06:56.480 --> 0:07:00.120 know countries that completely gave up their monetary sovereignty. You 0:07:00.160 --> 0:07:04.080 think of countries that dollarize, like like Ecuador completely, so 0:07:04.360 --> 0:07:07.560 the extreme other opposite of of that spectrum. But most 0:07:07.560 --> 0:07:11.320 developing countries are somewhere in between. And what what MMT 0:07:11.480 --> 0:07:14.480 allows us to do if we start from this basic 0:07:14.560 --> 0:07:19.360 definition is to ask the question what would allow a 0:07:19.440 --> 0:07:25.960 particular developing country to regain or reclaim its full monetary sovereignty, 0:07:26.080 --> 0:07:30.600 and the question of external debt becomes important. And that's 0:07:30.600 --> 0:07:34.520 where the distinction between the debt denominated in the national currency, 0:07:34.600 --> 0:07:38.720 the local domestic national debt versus the external debt becomes important. 0:07:38.760 --> 0:07:42.320 And unfortunately, most analysts just talk about debt as if 0:07:42.400 --> 0:07:46.080 it's the same thing. And that's where it becomes very 0:07:46.120 --> 0:07:48.480 clear that the US, when we talk about the US 0:07:48.560 --> 0:07:50.960 and the job guarantee or a green new deal, the 0:07:52.000 --> 0:07:57.080 comparison between a US debt and Venezuela's debt or or 0:07:57.120 --> 0:08:01.160 any other you know, developing countries that become irrelevant. And 0:08:01.200 --> 0:08:04.440 that's why for most mainstream economists, the case of Japan 0:08:04.520 --> 0:08:07.200 is a puzzle. As as bol Krugman said several times, 0:08:07.400 --> 0:08:12.640 it's just not they can't comprehend why massive national debt 0:08:12.680 --> 0:08:14.880 in the case of Japan doesn't lead to hyper inflation, 0:08:15.360 --> 0:08:18.640 doesn't need to default, and things like that. So, first 0:08:18.680 --> 0:08:21.400 of all, that was really helpful, and I think I 0:08:21.440 --> 0:08:26.560 had never quite heard monetary sovereignty articulated that well, because 0:08:26.600 --> 0:08:28.840 it is a term that gets thrown around a lot. 0:08:29.320 --> 0:08:32.280 One thing that I think is really important and I 0:08:32.320 --> 0:08:34.440 don't want to gloss over it is you know, in 0:08:34.480 --> 0:08:37.040 the intro we were talking about the US and it's 0:08:37.120 --> 0:08:39.960 reserve currency status, and I think it's striking that you 0:08:39.960 --> 0:08:43.120 didn't include that in any way in your definition. And 0:08:43.320 --> 0:08:48.200 so we have the full characteristics of monetary sovereignty obviously 0:08:48.240 --> 0:08:50.560 in the US, but as you point out, you also 0:08:50.559 --> 0:08:55.080 see him in Australia and New Zealand and Canada, and 0:08:55.120 --> 0:08:59.040 no one would consider any of those national currencies to 0:08:59.080 --> 0:09:03.880 be anything closed to reserve currencies exactly. So, so once 0:09:03.920 --> 0:09:07.520 you have, once you have your full monetary sovereignty, then 0:09:07.800 --> 0:09:11.280 or if you lose your monetary sovereignty like most developing countries, 0:09:11.320 --> 0:09:14.560 then the question is what is the thing that's leading 0:09:15.040 --> 0:09:19.640 to those structural problems? And it's hard to generalize, but 0:09:19.679 --> 0:09:23.360 I'll still attempt to generalize. In general, you'll find three 0:09:23.559 --> 0:09:28.000 structural weaknesses that most developing countries suffer from. It as 0:09:28.040 --> 0:09:30.800 a result, most countries that lose monetary sovereignties suffer from 0:09:31.080 --> 0:09:34.400 So when we talk about reclaiming monetary sovereignty or regaining it, 0:09:34.480 --> 0:09:38.320 you have to focus on those root causes. So number one, 0:09:38.800 --> 0:09:43.040 it's energy deficits, and this is even true for countries 0:09:43.040 --> 0:09:46.680 that are big oil exporters, and I'll explain in a second. 0:09:46.840 --> 0:09:50.920 Number two it's food imports, food lack of food self sufficiency. 0:09:51.360 --> 0:09:55.160 And number three, which is the biggest problem for developing countries, 0:09:55.600 --> 0:10:00.320 it's it's a situation where countries find themselves imp boarding 0:10:00.400 --> 0:10:04.480 high value added content and exporting low value added content. 0:10:04.840 --> 0:10:07.480 So no matter how fast you accelerate your your exports, 0:10:07.520 --> 0:10:09.720 you're always digging yourself in a in a deeper hole 0:10:09.800 --> 0:10:15.160 because you're just adding cheap labor and you know, subsidized 0:10:15.240 --> 0:10:19.080 public policy to a production process. But you still have 0:10:19.120 --> 0:10:22.079 to import all the intermediate goods, all the capital goods, 0:10:22.080 --> 0:10:24.559 all the technology. So you end up losing in that 0:10:24.600 --> 0:10:27.800 game on on the energy front. So the solutions, obviously, 0:10:27.840 --> 0:10:30.240 if you want to reclaim monetary sovereignty, you have to 0:10:30.280 --> 0:10:34.280 plug those holes in your in your economic systems. And 0:10:34.320 --> 0:10:39.400 in this day and age, it becomes urgent to invest 0:10:39.440 --> 0:10:43.520 in renewable energy production sources in most developing countries so 0:10:43.559 --> 0:10:48.040 that you produce energy domestically and you stop not only 0:10:48.200 --> 0:10:51.600 fossil fuel emissions, but you stop the massive imports of 0:10:51.679 --> 0:10:55.840 petrochemicals and fossil fuels into the local economy. Number two, 0:10:56.800 --> 0:11:00.880 it's it's food self sufficiency. Food sovereignty is extremely important 0:11:00.920 --> 0:11:04.720 for monetary sovereignty for developing countries, and that obviously relates 0:11:04.760 --> 0:11:07.640 to a lot of international trade issues that we can, 0:11:07.760 --> 0:11:11.400 you know, spend another thirty minutes discussing um. Number three, 0:11:11.559 --> 0:11:15.120 it's this structural you know, import and export issue in 0:11:15.120 --> 0:11:17.520 in in the process of industrialization, where you end up 0:11:17.840 --> 0:11:20.640 importing a lot of capital goods and intermediate goods and 0:11:20.840 --> 0:11:24.640 high value added content and just export low value added content, 0:11:24.720 --> 0:11:27.760 so you're just an assembly line, you know, adding cheap 0:11:27.840 --> 0:11:33.439 labor to the production process and subsidized industrial development. Nothing 0:11:33.559 --> 0:11:37.640 is gonna address the external debt issue unless we address 0:11:37.720 --> 0:11:41.120 these three issues. And if you shift for a second 0:11:41.160 --> 0:11:44.600 to the US or Japan, you realize these are not 0:11:44.840 --> 0:11:48.200 these are not the issues, right. The fact that the 0:11:48.320 --> 0:11:52.880 US has a reserve currency doesn't really affect these three 0:11:52.880 --> 0:11:55.560 structural issues that are that I'm describing here. So if 0:11:55.559 --> 0:11:59.559 a developing country wanted to reclaim it's monetary sovereignty, this 0:11:59.640 --> 0:12:02.600 is where the job guarantee comes in. You can use 0:12:02.679 --> 0:12:07.480 the job guarantee as as a policy tool to reclaim 0:12:07.559 --> 0:12:10.600 that so that you're directing jobs in areas where you 0:12:10.679 --> 0:12:15.160 need additional productive capacity for food or for renewable energy, 0:12:15.600 --> 0:12:20.640 or for higher end production lines that add more value 0:12:20.640 --> 0:12:24.760 added to the process um than than the current situation. 0:12:25.200 --> 0:12:26.800 So this is this is where I would start, and 0:12:26.840 --> 0:12:29.240 this is where the MMT lens allows us a completely 0:12:29.280 --> 0:12:31.880 different way of looking at the process of economic development. 0:12:32.200 --> 0:12:34.960 What are the national priorities and at the same time, 0:12:34.960 --> 0:12:38.240 how to deal with inflation. Because if you're importing food 0:12:38.800 --> 0:12:41.800 and your trade deficit, your external debt is putting pressure 0:12:41.800 --> 0:12:46.240 on your exchange rate, then a currency depreciation means the 0:12:46.280 --> 0:12:49.000 next morning, where you're importing wheat, when you're importing medicine, 0:12:49.280 --> 0:12:52.959 you're importing inflation. So this is why the mm T lens, 0:12:53.240 --> 0:12:58.479 the job guarantee, the inflation issue are built into the analysis. 0:12:58.520 --> 0:13:01.600 You can't really separate one from the other. And I'm 0:13:01.640 --> 0:13:04.360 happy to talk more about this, you know so called 0:13:04.400 --> 0:13:07.800 political you know connection between MMT and the job guarantee 0:13:07.840 --> 0:13:11.120 and a political choice, because I have a few things 0:13:11.120 --> 0:13:14.439 to say about it if we have time, Well maybe 0:13:14.480 --> 0:13:17.119 just before that, foul, could you walk us through exactly 0:13:17.360 --> 0:13:20.800 how you think that the full employment or or the 0:13:20.880 --> 0:13:25.079 job guaranteed type program can affect. I mean, basically, you're 0:13:25.080 --> 0:13:29.319 talking about structural reform of developing economies. How does that 0:13:29.480 --> 0:13:34.400 work exactly? So you start looking at a particular country, 0:13:34.520 --> 0:13:38.720 you identify the particular items that are putting pressure on 0:13:38.760 --> 0:13:42.080 the exchange rate, putting pressure on on the external debt. 0:13:42.280 --> 0:13:45.040 In most cases, I said, it's it's food imports, it's 0:13:45.160 --> 0:13:48.719 um energy imports. So you're not going to switch the 0:13:48.800 --> 0:13:52.920 system structurally overnight. What you want to do is, you know, 0:13:53.120 --> 0:13:55.760 stop doing what you've been doing for the last thirty 0:13:55.840 --> 0:13:58.080 years that's been getting you deeper and deeper in trouble, 0:13:58.520 --> 0:14:01.320 and look for a new stratgy. The new strategy says, 0:14:01.400 --> 0:14:05.800 shift away from subsidizing fossil fuels, for example, which most 0:14:05.800 --> 0:14:09.520 developing countries do, because they imported at a higher cost. 0:14:09.960 --> 0:14:13.760 And if it's not subsidized, then it goes into the 0:14:13.800 --> 0:14:17.040 economy as a higher cost of doing business, higher costs 0:14:17.080 --> 0:14:20.600 for transportation, higher costs for energy production, for heating, for cooling, 0:14:20.640 --> 0:14:23.280 and all of that, and that means riots on the streets, 0:14:23.320 --> 0:14:26.400 and in most countries, the same thing with food food imports. 0:14:26.400 --> 0:14:28.880 If it's if it's not subsidized, and your importing inflation. 0:14:29.200 --> 0:14:32.000 You have riots the next morning, food riots, bread rice. 0:14:32.000 --> 0:14:34.480 We've seen this in many countries. So what you want 0:14:34.520 --> 0:14:38.640 to do is start shifting the current subsidy system that 0:14:38.720 --> 0:14:43.720 you have in most developing countries away from subsidizing fossil 0:14:43.760 --> 0:14:48.240 fuels and into building more productive capacity for renewable energy. 0:14:48.320 --> 0:14:51.640 And the more you accelerate in that direction, the closer 0:14:51.680 --> 0:14:54.880 you get to reclaiming monetary sovereignty. When you get so 0:14:54.920 --> 0:15:00.200 called aid from the Western world from development agencies, the 0:15:00.320 --> 0:15:06.560 aid shouldn't be directed towards subsidizing the existing mechanics that 0:15:06.640 --> 0:15:09.520 gets you deeper in trouble. The aide should be directed 0:15:09.560 --> 0:15:14.640 towards building productive capacity that's encourages and enhances your productive 0:15:14.640 --> 0:15:19.840 capacity of renewable energy, of sustainable food locally, of moving 0:15:19.880 --> 0:15:24.560 your productive capacity from low end, low value added manufacturing 0:15:24.560 --> 0:15:28.520 to high value added manufacturing. So you restructure the national priorities. 0:15:29.040 --> 0:15:33.160 Because most countries have some sort of employment program, especially 0:15:33.160 --> 0:15:37.240 emergency employment programs that happened during economic crisis, they tend 0:15:37.280 --> 0:15:41.160 to be small scale, they tend to be temporary. They're 0:15:41.200 --> 0:15:43.280 not a job guarantee in the fullest sense. Of the 0:15:43.360 --> 0:15:46.040 term that that we talk about in the MMT and 0:15:46.080 --> 0:15:48.680 the post games in literature, and they tend to be 0:15:48.800 --> 0:15:51.480 phased out or canceled as soon as the economy goes 0:15:51.520 --> 0:15:54.480 back to normal, so called normal. So what we're talking 0:15:54.480 --> 0:15:59.200 about is directing these employment programs and increasing their effectiveness 0:15:59.240 --> 0:16:03.360 over time to build productive capacity in this area. Most 0:16:03.360 --> 0:16:06.160 mainstream economists will tell you, in the developing world especially, 0:16:06.200 --> 0:16:08.800 will tell you if we pay workers through some sort 0:16:08.840 --> 0:16:11.720 of public works program or a job guarantee program, those 0:16:11.720 --> 0:16:13.480 workers are going to take their wage, which is in 0:16:13.600 --> 0:16:16.480 the local and the national currency, and they're gonna go 0:16:16.520 --> 0:16:19.200 out and buy stuff. It's going to add to food demand, 0:16:19.240 --> 0:16:21.200 it's going to add to transportation, is going to add 0:16:21.240 --> 0:16:23.880 to demand for imports. So that money is going to 0:16:23.960 --> 0:16:27.240 find its way as a point of pressure on the 0:16:27.240 --> 0:16:30.160 exchange rate. So what they say we need to do 0:16:30.360 --> 0:16:34.360 is leave people unemployed. You know, what a what a 0:16:34.400 --> 0:16:37.920 cruel system to you know, use a buffer stock of 0:16:38.080 --> 0:16:42.080 millions of people unemployed and poverty and misery and not 0:16:42.320 --> 0:16:45.640 using the human capabilities that we have in the system, 0:16:45.720 --> 0:16:49.840 especially human capabilities that developing countries has spent hundreds of 0:16:49.840 --> 0:16:52.520 millions of dollars to educate, to raise in a healthy 0:16:52.520 --> 0:16:57.320 way and then leave a young population in mass unemployment 0:16:57.400 --> 0:17:01.120 instead of using it in a in a productive way. Fottel, 0:17:01.160 --> 0:17:04.840 I have a couple uh. First, a short question and 0:17:04.840 --> 0:17:06.879 that's slightly longer. On the short one, why does a 0:17:07.000 --> 0:17:11.320 country in your view like Saudi Arabia, which obviously has 0:17:11.359 --> 0:17:15.080 no problem on its energy balances, why does it seed 0:17:15.119 --> 0:17:21.639 monetary sovereignty byger definition in not letting the real float freely? Well, 0:17:22.280 --> 0:17:24.760 if you if you look at sat Arabia in particular, 0:17:24.840 --> 0:17:27.800 that's that's an interesting example because it's it's a massive, 0:17:28.359 --> 0:17:32.120 you know, oil exporter. But if you look at sat 0:17:32.160 --> 0:17:35.720 Arabia's imports, it's actually the extreme case of of what 0:17:35.800 --> 0:17:40.960 I've been describing. Um, most of the food that's that's 0:17:40.960 --> 0:17:45.080 consumed in sat Arabia probably close to a not exactly percent, 0:17:45.160 --> 0:17:48.560 but most, I would say, at least the eyeballing at 0:17:48.600 --> 0:17:53.240 here is imported food. And satur Abia also imports all 0:17:53.320 --> 0:17:58.719 the capital goods, all the intermediate goods for its manufacturing. Uh, 0:17:58.800 --> 0:18:01.600 satur Abia also import it's a lot of labor, foreign 0:18:02.160 --> 0:18:07.959 cheap labor, and Saturreby also imports refined petrochemicals to think 0:18:08.000 --> 0:18:13.040 about the interject But does MMT from this lens implicitly 0:18:13.359 --> 0:18:17.399 reject this sort of a popular view of trade, which is, 0:18:17.480 --> 0:18:20.639 you know, some countries are not are going to specialize 0:18:20.680 --> 0:18:23.560 in oil, some countries are going to specialize in food. 0:18:23.960 --> 0:18:26.280 And one country sells the other country oil, the other 0:18:26.280 --> 0:18:28.280 sells food and they both when when I mean, it 0:18:28.280 --> 0:18:31.960 doesn't really make sense for a country that's essentially in 0:18:32.040 --> 0:18:35.880 the middle of the desert to expand energy on turning 0:18:36.000 --> 0:18:40.119 its land uh into good farmland when there maybe a 0:18:40.200 --> 0:18:44.560 nearby neighbor that can grow food uh much more efficiently, right, 0:18:44.680 --> 0:18:48.320 And nobody's arguing that satur Abia should start growing food 0:18:48.359 --> 0:18:51.080 in the desert. Although you know, if if we're talking 0:18:51.080 --> 0:18:54.320 about aquaponics, which doesn't need to use any soil and 0:18:54.440 --> 0:18:58.120 uses less less water, especially the more advanced forms of 0:18:58.440 --> 0:19:01.640 you know, high tech equaponics these days, then you can 0:19:01.640 --> 0:19:04.520 grow it anywhere, including and especially in a country like 0:19:04.560 --> 0:19:07.600 sat Arabia. I've been advocating this actually for for a 0:19:07.640 --> 0:19:11.560 number of years now. Um. But from an MMT perspective, 0:19:11.640 --> 0:19:16.719 the kind of the simplistic international trade framework is not 0:19:16.840 --> 0:19:20.520 the right way of looking at things because specializing and 0:19:20.600 --> 0:19:23.880 low value added content is a trap. It's it's not 0:19:24.200 --> 0:19:28.119 about efficiency, it's about a trap that leads to loss 0:19:28.160 --> 0:19:31.240 of monetary sovereignty, and it leads you into a public 0:19:31.280 --> 0:19:35.679 policy framework that keeps you locked into that situation. It 0:19:35.720 --> 0:19:38.920 doesn't actually move you higher up. Think about the countries 0:19:38.960 --> 0:19:41.399 that really made it in terms of the process of 0:19:41.400 --> 0:19:46.840 economic development, like like Korea, like UH, Singapore, UM. They 0:19:46.880 --> 0:19:49.439 didn't make it by specializing and low value added content. 0:19:49.640 --> 0:19:52.800 They made it by having a very clear industrial strategy 0:19:52.800 --> 0:19:55.720 of moving up higher and higher up in terms of 0:19:55.800 --> 0:19:58.919 value added content and not specializing in the cheap stuff. 0:19:59.640 --> 0:20:03.000 And the countries that specialized in you know, um UH, 0:20:03.640 --> 0:20:07.040 low value added agriculture and low value added manufacturing, they 0:20:07.080 --> 0:20:09.520 went deeper and deeper into external debt and deeper and 0:20:09.560 --> 0:20:12.960 deeper into trouble. The countries that have been blessed with 0:20:13.080 --> 0:20:16.800 massive amounts of oil, they you know, they managed to 0:20:16.840 --> 0:20:20.400 move closer to a higher level of degree of monetary sovereignty. 0:20:20.400 --> 0:20:23.840 In the case of saut Arabia, saut Arabia lacks monetary 0:20:23.840 --> 0:20:29.040 sovereignty because of the currency peg with with the US dollar. 0:20:29.640 --> 0:20:33.280 It has massive amount of reserves that are you know, 0:20:33.400 --> 0:20:36.280 depleting in the last few years, but it still has 0:20:36.320 --> 0:20:40.320 a massive buffer of of foreign currency reserves that give 0:20:40.359 --> 0:20:45.280 it some privileges. But by twenty eight, which is when 0:20:45.840 --> 0:20:48.360 most estimates that have seen say that satur Abia will 0:20:48.400 --> 0:20:51.919 become a net oil importer. If we continue at the 0:20:51.920 --> 0:20:55.160 current pace, then sat Arabia will you know, quickly burn 0:20:55.240 --> 0:20:59.640 through its foreign reserves and move into a classic case 0:20:59.680 --> 0:21:02.280 of a developing country that imports all of its food 0:21:02.760 --> 0:21:07.640 and imports you know, energy, and it specializes in little 0:21:07.680 --> 0:21:10.840 value added manufacturing as simply line type of stuff. And 0:21:10.920 --> 0:21:15.399 that's really you know, a disaster for most developing countries 0:21:15.440 --> 0:21:18.000 that are trapped in this situation. So then what are 0:21:18.080 --> 0:21:21.879 your public policy options? If you're developing country, then you 0:21:22.000 --> 0:21:25.760 become obsessed with accumulating foreign currency reserves, so you try 0:21:25.800 --> 0:21:28.840 to accelerate your exports. It doesn't work because you the 0:21:28.920 --> 0:21:31.159 more you export, the more you have to import and 0:21:31.680 --> 0:21:36.400 capital and energy and high value added content. Number two, 0:21:36.480 --> 0:21:39.520 you you start to increase your tourism. Where you bring 0:21:39.520 --> 0:21:42.600 more tourism, it means you bring more energy consumption, more 0:21:42.680 --> 0:21:46.000 food consumption, more water consumption, and some parts of the world, 0:21:46.000 --> 0:21:48.720 so it's a it's a trap, and you're competing with 0:21:48.760 --> 0:21:51.919 two hundred other you know, a hundred and fifty plus 0:21:51.960 --> 0:21:54.320 other countries who are also racing to the bottom because 0:21:54.320 --> 0:21:57.840 they too want more tourism. Then you become obsessed with 0:21:57.840 --> 0:22:00.720 foreign direct investment. But what kind of foreign direct investment 0:22:00.720 --> 0:22:02.359 are you going to be able to attract as a 0:22:02.400 --> 0:22:05.880 developing country that has, you know, not advanced so much 0:22:05.960 --> 0:22:09.119 in terms of value added content you're gonna attract. It's 0:22:09.119 --> 0:22:10.800 going to be a race to the bottom, and there's 0:22:10.800 --> 0:22:13.760 gonna be another hundred plus countries who are also competing 0:22:13.840 --> 0:22:18.160 for you know, outsourcing jobs from from the US and Canada. 0:22:18.800 --> 0:22:21.760 You're not going to be Germany or Japan, you know, 0:22:21.840 --> 0:22:26.240 competing for the high end skilled manufacturing stuff. So all 0:22:26.280 --> 0:22:30.040 of these are traps that most developing countries are stuck 0:22:30.080 --> 0:22:34.920 into because they need the currency reserves, because without currency reserves, 0:22:34.960 --> 0:22:39.280 their currency will depreciate, and it means the next morning 0:22:39.280 --> 0:22:42.120 they're going to import food and medicine and capital at 0:22:42.119 --> 0:22:45.960 a higher cost, which means they're importing inflation. It means 0:22:46.000 --> 0:22:48.080 in two days they're gonna have riots on the streets 0:22:49.040 --> 0:22:52.000 unless there's an IMF intervention to put a band aid 0:22:52.040 --> 0:22:55.960 on this situation and start over again with higher levels 0:22:56.000 --> 0:23:00.520 of external debt, with lower degrees of monetary sovereignty. So 0:23:00.760 --> 0:23:03.680 as as Warren Mosler sometimes says, if if you're stuck 0:23:03.720 --> 0:23:06.239 in a in a hole, the first thing you do 0:23:06.320 --> 0:23:08.640 is you stop digging and figure out a different way 0:23:08.680 --> 0:23:11.560 to get out. And and that's really where the MMT analysis, 0:23:12.040 --> 0:23:14.879 you know, shines a light on this, on this deep 0:23:14.920 --> 0:23:18.160 hole that most developing countries are stuck into, and says 0:23:18.359 --> 0:23:23.480 stop digging, stop using the traditional policy advice, and think 0:23:23.520 --> 0:23:28.119 of real strategies to reclaim monetary sovereignty UM and focus 0:23:28.160 --> 0:23:31.119 on the root causes that are leading to this situation. 0:23:31.520 --> 0:23:36.680 And that's where directing job creation and incentives towards building 0:23:36.720 --> 0:23:41.119 productive capacity in the areas that you identify as the 0:23:41.160 --> 0:23:46.119 weaknesses becomes the important strategy of creating jobs, developing a 0:23:46.200 --> 0:23:51.240 country on a sound foundation, and at the same time 0:23:52.560 --> 0:23:56.600 dealing with the inflationary pressures, the real inflationary pressures that 0:23:56.640 --> 0:24:00.399 are existing in the system in most developing countries. And 0:24:00.680 --> 0:24:04.280 that's why I keep saying you can't separate the MMT 0:24:04.440 --> 0:24:09.359 analysis from the structural policy solutions that need to be 0:24:09.480 --> 0:24:11.760 in place to deal with the inflation, to deal with 0:24:11.760 --> 0:24:32.240 an employment, to deal with climate change to So how 0:24:32.320 --> 0:24:36.520 easy is it though, to start digging yourself out of 0:24:36.560 --> 0:24:40.240 that hole? Because, as you describe it, the entire existing 0:24:40.520 --> 0:24:44.760 system of trade and global capitalism, I suppose, is pushing 0:24:44.800 --> 0:24:48.280 you in one direction, which is that race to the bottom, 0:24:48.440 --> 0:24:52.919