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Speaker 1: Hello, and welcome to Stephanomics, the podcast that brings the

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Speaker 1: global economy to you. Governments have spent a lot of

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Speaker 1: money in the past few weeks. In the US alone,

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Speaker 1: the headline number is well over two trillion dollars in

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Speaker 1: a country that we already thought was spending well beyond

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Speaker 1: its means. In a minute, I'll be talking to the

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Speaker 1: economist Stephanie Kelton, an advisor to Bernie Sanders, among others,

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Speaker 1: about whether COVID nineteen has turned President Trump into a

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Speaker 1: modern monetary theorist. Keep listening to find out what that means.

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Speaker 1: But first I welcome back to Stephanomics our chief economist,

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Speaker 1: Tom Orlick for a few words on the scale of

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Speaker 1: those stimulus programs. Tom, I did talk a little about

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Speaker 1: this last week with the American economist Adam Posen, But

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Speaker 1: give us a sense of the numbers that we're talking about.

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Speaker 1: When we look at the governments of G twenty economies,

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Speaker 1: their response to the virus, and you know what kind

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Speaker 1: of superlative adjectives should we be using to describe them.

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Speaker 1: There's a lot of money going into the system, Stephanie.

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Speaker 1: When we look at monetary policy, the Federal Reserve has

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Speaker 1: followed the ECB in the Bank of Japan down to

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Speaker 1: the zero lower bound. Central banks around the world are

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Speaker 1: pumping huge amounts of additional funds into the system through

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Speaker 1: asset purchases. That's important for financial stability. But the critical

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Speaker 1: thing to compensate businesses and households for the income they're

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Speaker 1: losing during the lockdown and hopefully prepare the ground for

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Speaker 1: recovery once the outbreak is under control. In the second

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Speaker 1: half is what's happening with fiscal policy. Normally, fiscal policies

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Speaker 1: pretty slow. Political conflict, debt levels, they all stop fiscal

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Speaker 1: policy reacting quickly. This time around, governments really seem to

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Speaker 1: have got their acts together pretty quickly, and we're looking

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Speaker 1: at huge sums going in. We added it up across

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Speaker 1: the G twenty and it came to about one point

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Speaker 1: eight trillion dollars in fiscal stimulus, a lot of money.

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Speaker 1: You say that it's unusual because of the pace. I

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Speaker 1: guess it is true that it often takes a while

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Speaker 1: to pass fiscal programs, but the complaint in the past

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Speaker 1: has often been that you pass the program and then

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Speaker 1: it may take a year, even two years sometimes for

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Speaker 1: these stimulus programs to actually be affecting things on the ground.

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Speaker 1: How how much can we judge that now? Looking at

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Speaker 1: these programs, why are they more likely to get into

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Speaker 1: the economy in this very short period that they're actually needed. Yeah,

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Speaker 1: I really think that detail and precision in a sense

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Speaker 1: is the enemy. And what has to happen for these

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Speaker 1: two be effective is just a lot of money to

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Speaker 1: hit roughly the right parts of the economy really quickly.

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Speaker 1: And so the concern has to be Yes, the headline

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Speaker 1: amounts are eye popping, but is that all new money

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Speaker 1: and is it getting to the people who need it

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Speaker 1: quickly enough? And of course here in the United States,

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Speaker 1: we're already hearing small businesses saying I put my application in,

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Speaker 1: I haven't heard back from the bank, I haven't heard

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Speaker 1: back from the Small Business Administration. If it's a one

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Speaker 1: week delay, a two week delay, fine, I think businesses

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Speaker 1: are going to have the reserves to get through that.

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Speaker 1: If we're looking at two three months before the money

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Speaker 1: starts getting into people's bank accounts, then we're going to

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Speaker 1: start seeing lots of bankruptcies and that's going to make

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Speaker 1: the recovery much harder, even when the outbreak is under control.

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Speaker 1: Is the speed is so much more important in this

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Speaker 1: case because the extent of the decline has been so

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Speaker 1: rapid if and it's so serious for so many companies.

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Speaker 1: You know, if you think of a the worst recession

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Speaker 1: a company might have seen, they might have seen demand

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Speaker 1: for by twenty or thirty percent, But in many cases

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Speaker 1: we're looking at falls in demand because governments have shut

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Speaker 1: down those parts of the economy. Do you think that

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Speaker 1: has have affected their very unusual nature of this where

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Speaker 1: governments are in effect doing this on purpose. Has that

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Speaker 1: affected the amount of political debate around these stimulutism and

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Speaker 1: it is surprising how broad the agreement has been on

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Speaker 1: this kind of scale of support. I think there's a

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Speaker 1: degree of political self interest at work here, Stephanie. And

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Speaker 1: if we think about the kind of the main advocates

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Speaker 1: of austerity, the main sort of advocates of fiscal conservatism,

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Speaker 1: it's the Republicans in the United States, it's the Conservative

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Speaker 1: Party in the United Kingdom, and they're in power right now,

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Speaker 1: so it's absolutely in their interest to forget about those

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Speaker 1: principles and just pump as much money into the system

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Speaker 1: as they can. At the same time, I think you're right,

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Speaker 1: it's the it's the nature of the shock which has

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Speaker 1: changed the debate about fiscal stimulus. If we go all

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Speaker 1: the way back to the Great Depression in there's that

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Speaker 1: famous quote from the Treasury Secretary Andrew Mellon Liquidate labor,

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Speaker 1: liquidate stocks, liquidate farmers, liquidate real estate, purge the rottenness

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Speaker 1: from the system. That was what Melon advised Hoover, who

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Speaker 1: at the time was the kind of the hapless president

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Speaker 1: trying to deal with the biggest economic shock in in memory.

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Speaker 1: Um and that sort of philosophical view that recessions are

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Speaker 1: in a sense a good thing because they cleanse rottenness

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Speaker 1: from the system and prepare the economy for growth. That

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Speaker 1: view has really lived on and there's an element of

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Speaker 1: truth in it. In the Great Financial Crisis, in the

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Speaker 1: European sovereign debt crisis, there was some rottenness in the system,

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Speaker 1: and so they're needed to be some bankruptcies in order

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Speaker 1: for the growth to restart. This time around, that's really

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Speaker 1: not the case. This is a pure exogenous shock. This

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Speaker 1: is a virus that has hit an economy which is

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Speaker 1: otherwise functioning. Okay. So the idea that the recession is

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Speaker 1: in some sense going to be cleansing just really doesn't apply.

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Speaker 1: And I think that's one of the reasons why we've

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Speaker 1: seen political parties and politicians that in the past have

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Speaker 1: been viscerally opposed to any sense of fiscal stimulus and

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Speaker 1: now embracing it. I guess the final question I would

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Speaker 1: have for you is we had We've debated I think

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Speaker 1: previously on Stephanomics, and it's certainly been a big conversation

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Speaker 1: point over the last few years, this idea that policymakers

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Speaker 1: wouldn't have room to respond to the next crisis, the

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Speaker 1: next downturn. You know that monetary policy was kind of

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Speaker 1: maxed out or almost maxed out. You know, interest rates

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Speaker 1: incredibly low, central bank balance sheets already very expanded following

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Speaker 1: the printing of money over the last few years. Um

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Speaker 1: and you know, in the case of the U S

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Speaker 1: a budget deficit was already quite high. I mean, we'll

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Speaker 1: be just wrong when we said that, how have they

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Speaker 1: come up with all this money? And why does it

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Speaker 1: not seem to matter? If we look at the economic textbooks,

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Speaker 1: there are some extremely powerful arguments against what's what's happening

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Speaker 1: right now. If we have central banks printing money to

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Speaker 1: stabilize borrowing costs to enable governments to run very, very

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Speaker 1: large fiscal deficits. Then in the medium term, in the

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Speaker 1: long term, that's not going to be sustainable. The market

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Speaker 1: is going to start worrying about inflation, and central banks,

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Speaker 1: no matter how much money they print, are just not

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Speaker 1: going to be able to keep bond yields under control.

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Speaker 1: In the situation right now, those textbook concerns in the

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Speaker 1: extremity of the moment are being disregarded. That's absolutely the

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Speaker 1: right thing to do. We need an extraordinary fiscal response.

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Speaker 1: We need central banks to be playing that supportive role.

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Speaker 1: If the eyebreak doesn't come under control quickly, if this

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Speaker 1: is still the situation in six months time, I think

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Speaker 1: we're going to see some really serious questions about whether

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Speaker 1: this policy response is actually sustainable. And I'm sure we'll

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Speaker 1: have more conversations about this in other aspects of the virus,

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Speaker 1: and maybe talk more on another occasion about all the

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Speaker 1: great research that your economists are doing. But for meantime,

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Speaker 1: thanks very much, Tom Morlly, Thanks Stephanie. So I'm very

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Speaker 1: glad to be joined by Stephanie Kelton, who's an American

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Speaker 1: economist currently a professor at Stony Brook University, but also

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Speaker 1: a frequent contributor to The New York Times and econumnist

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Speaker 1: for for Bloomberg. She also has been an adviser to

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Speaker 1: to Bernie Sanders, including in his TWI presidential campaign. Stephanie,

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Speaker 1: what do you think of the policy response to the

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Speaker 1: virus so far? I I read something of yours that

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Speaker 1: was written before Congress past that massive stimulus package have

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Speaker 1: have gone further than you might initially have expected. I

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Speaker 1: don't think so. I mean, I know, you know, they

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Speaker 1: moved in rapid succession with a series of bills. The

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Speaker 1: first one was very small eight point three billion, followed

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Speaker 1: by another piece of legislation a little over a hundred

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Speaker 1: billion dollars, and then the most recent one with what's

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Speaker 1: being called Phase three, which was two point to trillion dollars.

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Speaker 1: So you know, these sound like very big numbers, and

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Speaker 1: of course their orders of magnitude larger than what we

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Speaker 1: did in the wake of the financial crisis and heading

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Speaker 1: into the Great Recession, so by comparison, they seem quite substantial.

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Speaker 1: I don't think I've been surprised, So I think there's

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Speaker 1: just a greater appreciation now for just what we're up

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Speaker 1: against and that Congress came through with something that was substantial.

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Speaker 1: But already, of course they're talking about the need to

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Speaker 1: do more. And how do you think we US compares

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Speaker 1: with with other countries in terms of the scale of

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Speaker 1: their response. But I guess I'm thinking particularly about how

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Speaker 1: it's been an allocated what bits of the economy are

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Speaker 1: getting the most help. Well, that's exactly right. I think

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Speaker 1: that you know, I'm doing my best to try to

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Speaker 1: pay attention to the policy response and other corners of

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Speaker 1: the globe. And from what I can tell, what we

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Speaker 1: have done that I think was critically important was trying

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Speaker 1: to keep workers attached to their jobs, that is, to

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Speaker 1: keep them on payroll, to keep them employed even as

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Speaker 1: we require them to stay out of the workplace. So

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Speaker 1: that's part of what we've attempted to do with the

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Speaker 1: payroll protection program, the lending to small businesses. The problem

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Speaker 1: is that the rollout has been let's say, spotty, and

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Speaker 1: the help isn't getting there quickly enough millions and millions

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Speaker 1: of people. We've already seen ten million workers lose jobs

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Speaker 1: just in the last couple of weeks. And so I

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Speaker 1: look at what some European countries appear to be doing

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Speaker 1: more successfully in terms of keeping workers on payroll attached

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Speaker 1: to their employers, getting money into their hands more quickly,

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Speaker 1: even just north of the border here in Canada. You know,

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Speaker 1: when people are being laid off, they're able to call

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Speaker 1: a toll free number and within a matter of days

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Speaker 1: they're getting the money in their hands. And we're just

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Speaker 1: not We're not so good at speed right now, and

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Speaker 1: unfortunately speed is critically important, of course, but that's one

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Speaker 1: of the things that we're obviously trying to track, not

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Speaker 1: just the economist but the reporters at Bloomberg. You know,

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Speaker 1: there's a lot of these programs, particularly European ones, sound

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Speaker 1: fantastic in terms of what they're trying to do, but

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Speaker 1: then obviously it's going to be crucial as they get

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Speaker 1: up and running, and sometimes there's a big been a

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Speaker 1: delay in getting them up and running to see whether

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Speaker 1: people are actually getting the support they need. You've had

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Speaker 1: some spirited debate over the last few years with the

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Speaker 1: likes of Quigment on Modern monetary theory m m T,

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Speaker 1: which was being talked about a lot one or two

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Speaker 1: years ago. Some people have said to me, oh, we've

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Speaker 1: ended up with that. The virus is actually giving us

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Speaker 1: MMT by the back door. This is enormous running up

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Speaker 1: of of of deficits. Remind us what how you would

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Speaker 1: understand modern monetary theory and then say whether whether that's right,

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Speaker 1: whether we have gone quite a lot closer to m

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Speaker 1: empty with this response. Well, remember that MMT is has

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Speaker 1: always been, now for more than twenty years, a descriptive project,

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Speaker 1: and so what we've been trying to do is describe

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Speaker 1: the monetary operations, the system that we have in place,

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Speaker 1: how it works, what it means to have governments that

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Speaker 1: issue non convertible fiat currencies. That is, we're not on

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Speaker 1: a gold standard, we don't have a fixed exchange rate regime.

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Speaker 1: Certain countries are issuers of what we could call a

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Speaker 1: sovereign currency, and as a result, there is more policy

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Speaker 1: space available two countries like that then they typically take

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Speaker 1: advantage of. So one of the lessons of MMT has

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Speaker 1: been that in a country like the US, like the UK,

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Speaker 1: like Japan, like Canada, like Australia, and other sovereign currency

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Speaker 1: issuing governments, that countries have actually been living below their means.

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Speaker 1: I mean, we hear time and time again that deficits

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Speaker 1: are evidence that governments are living beyond their means, and

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Speaker 1: m m T has said, no, hang on, that's not correct.

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Speaker 1: Most of the time we run our economies below their

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Speaker 1: full potential, below their full employment capacity. In other words,

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Speaker 1: there's low hanging fruit. There is space for fiscal policy

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Speaker 1: to do more to push economies to something closer to

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Speaker 1: an approximation of full employment. And so what we're seeing

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Speaker 1: now is, you know, the complete falling away of the

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Speaker 1: preoccupation with deficits and debt, with the idea that the

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Speaker 1: deficits that we've run in the past and the national

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Speaker 1: debt that exists going into a crisis somehow constrain or

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Speaker 1: hamstring governments and prevent them from exercising the power of

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Speaker 1: the fiscal purse, if you like, in times of crises.

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Speaker 1: And so MMT was always out there saying where others

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Speaker 1: were warning that because of things like the Republican tax

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Speaker 1: cuts which passed in December of two thousand seventeen, there

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Speaker 1: were plenty of economists at the time who argued that

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Speaker 1: passing those tax cuts was going to leave us with

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Speaker 1: budget deficits and a national debt that would prevent us

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Speaker 1: from taking action in the future in the face of

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Speaker 1: a crisis, and I and other MMT economists said that

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Speaker 1: isn't the case if the next downturn comes. When the

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Speaker 1: next downturn comes, Congress will have all of the fiscal

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Speaker 1: power it needs to combat the downturn in spite of

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Speaker 1: the deficits that we have run in the past. Do

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Speaker 1: you think that President Trumps coming round to an MMT

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Speaker 1: view of the world. I mean, if you think about

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Speaker 1: his his business career, one has the impression that he

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Speaker 1: hasn't always felt that budget constraints were going to be

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Speaker 1: particularly binding on him in various ways. Um, you know,

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Speaker 1: if we see this massive response and it doesn't seem

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Speaker 1: to cause big problems for the economy, and it does

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Speaker 1: seem to be easily repaid and the markets don't mind,

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Speaker 1: do you think if it does seem doable, that he's

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Speaker 1: going to come around to it and maybe it'll be

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Speaker 1: the way of the future. I feel reasonably confident that

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Speaker 1: he is going to be willing to go back to

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Speaker 1: Congress again and again and again and do as much

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Speaker 1: as necessary. You know, I heard him on television the

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Speaker 1: other day and it didn't seem like a scripted comment,

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Speaker 1: but he did say that the federal government is prepared

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Speaker 1: to spend whatever it takes. These are the words he used,

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Speaker 1: because he said it's our money, it's our currency, and

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Speaker 1: that I've never heard from a president not my lifetime.

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Speaker 1: And so I think there is something to what you're

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Speaker 1: saying in terms of his ability to sort of connect

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Speaker 1: the dots between the nature of our monetary system and

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Speaker 1: why that affords the government the capacity to step up

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Speaker 1: and spend again and again and again and to replace

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Speaker 1: that last demand until the economy is recovering. I think

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Speaker 1: that's a it's a great way of looking at it.

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Speaker 1: I think I guess the final question I would have,

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Speaker 1: And again it harks back to some of the things

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Speaker 1: that people said in response to the last crisis and

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Speaker 1: the quantitative easing and the money printing that happened. Then

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Speaker 1: you know, of course people then warned of inflation as

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Speaker 1: a result of or pumping all this money into the economy.

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Speaker 1: There's been no risk of that over the last few years.

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Speaker 1: I just wonder whether you see any possibility as we

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Speaker 1: come out of this if we do get quite a

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Speaker 1: steep recovery, whenever it is maybe later than we want

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Speaker 1: uh and have had their incomes maintained, but in a

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Speaker 1: good chunk of that disposable income that they have they've

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Speaker 1: not been able to spend. Do you think there is

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Speaker 1: a risk at that point that you could have at

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Speaker 1: least some inflationary consequences from this stimulus, just because of

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Speaker 1: the nature of the fact that a lot of people

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Speaker 1: have been unable to spend as much as they normally would.

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Speaker 1: You know, it's it's an interesting question, and I don't

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Speaker 1: know that I have very strong feelings. I think it's

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Speaker 1: it is a potential risk, but I would highly discount it.

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Speaker 1: And here's why. I think for a couple of reasons.

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Speaker 1: One is that when we so called turn the economy

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Speaker 1: back on, we're not just going to flip a switch

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Speaker 1: and everyone is going to immediately feel comfortable going back

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Speaker 1: out into the shopping malls, into restaurants, into the movie theater.

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Speaker 1: It's going to take time before we even if we've

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Speaker 1: got a stockpile of of cash that we've been able

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Speaker 1: to you know, the disposable income that hasn't gone to

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Speaker 1: servicing debt, we've got some some purchasing power pent up,

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Speaker 1: We're not prepared, I think, in mass, to go out

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Speaker 1: and just wildly spend. And so that's one thing that

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Speaker 1: I would think about. The other thing is quee itself. Remember,

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Speaker 1: qui queie is not a risk. Quee is not pushing

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Speaker 1: money into the economy, per se QUEI is pushing money

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Speaker 1: into the banking system. So it's more about um adding

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Speaker 1: reserves to the banking system where they remain trapped until

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Speaker 1: they're taken out either by the Fed or by Treasury.

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Speaker 1: So I just don't see as much potential inflation risk.

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Speaker 1: If we destroy productive capacity and we allow factories to

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Speaker 1: shutter and businesses to shutter, then we're at greater risk,

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Speaker 1: right because we're not going to be able to step

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Speaker 1: up with the supply and the production to meet higher demand.

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Speaker 1: On the other side of all of this, Stephanie Calton,

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Speaker 1: thank you very much. Thank you so much for having me. Finally,

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Speaker 1: I just wanted to check in with Sean Donnan, our

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Speaker 1: senior trade and globalization reporter here at Bloomberg, to see

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Speaker 1: how his life has changed since we last spoke on

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Speaker 1: this program at the start of the year. Sean, the

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Speaker 1: biggest threat to global supply chains for the past two

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Speaker 1: months hasn't been trade wars that we talked about so

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Speaker 1: much last year, but the much more immediate problem of

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Speaker 1: closed down factories in China and closed ports. You've been

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Speaker 1: looking at that in the last few weeks, but I

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Speaker 1: see you've also been zeroing in on much more basic

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Speaker 1: food supply concerns for low income Americans who've been losing

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Speaker 1: their jobs in the last few weeks. So I'm interested

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Speaker 1: tell us a little bit about how the past few

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Speaker 1: weeks have been for you as a reporter, and how

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Speaker 1: have you found yourself moving from those big macro topics

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Speaker 1: to those micro stories that are maybe hitting a little

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Speaker 1: closer to home. Yeah. I think what's really amazing is

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Speaker 1: that we've seen something that we we haven't we hadn't

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Speaker 1: even contemplated last year during the trade wars, and that

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Speaker 1: is that effectively governments would switch off economies. And we've

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Speaker 1: seen that go in a wave through the global economy. Right, So,

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Speaker 1: we saw other parts of Asia get hit, South Korea, Japan,

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Speaker 1: places like Vietnam. Then we've seen uh it come to

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Speaker 1: Europe Italy, which we've discovered actually has a pretty uh

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Speaker 1: important role even in some manufacturing supply chains, UH go

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Speaker 1: into lockdown Germany, the UK, and here in the US

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Speaker 1: as well. Increasingly, I've been finding um that the real

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Speaker 1: hole in in. I think the story is just a

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Speaker 1: documenting of of the micro damage in economies. We write

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Speaker 1: a lot about forecasts from economists of a recession that

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Speaker 1: will be the deepest in generations, we don't often quantify

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Speaker 1: what that means for for people on the ground. And

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Speaker 1: so I've tried to switch my focus in the last

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Speaker 1: few weeks from that kind of lofty debate about globalization,

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Speaker 1: which I think will be there six months from now

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Speaker 1: when we come out of this this crisis, if that's

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Speaker 1: when we come out of it um and really focus

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Speaker 1: on what is happening now, And it's kind of the

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Speaker 1: urgency of now, which is the economic damage that's happening.

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Speaker 1: And you found particularly striking example really in the very

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Speaker 1: close to the Trump resort in Florida of Mara Lago.

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Speaker 1: So tell us a little bit about that. Yeah, So,

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Speaker 1: with some colleagues we set out to document how this

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Speaker 1: was hitting working families in America for a piece that

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Speaker 1: we did for Business Week that looked in particularly the

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Speaker 1: blue collar manufacturing economy. And what we discovered when we

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Speaker 1: started calling around to some food banks and so on,

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Speaker 1: was that there was a huge spike in demand for

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Speaker 1: help for food UH supplies from people who had these

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Speaker 1: paycheck to paycheck existences and suddenly had lost their jobs.

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Speaker 1: And one particular place that we found where that spike

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Speaker 1: was occurring was literally in the shadow of of Donald

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Speaker 1: Trump's private club mar Lago in Palm Beach County, Florida,

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Speaker 1: where a mile away there's an outfit called Howley's Diner,

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Speaker 1: where a UH the owner has for the past two

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Speaker 1: weeks been serving up thousands of meals a day to

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Speaker 1: people who are laid off in Hungary. And that is

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Speaker 1: just a striking example I think of of the economic carnage. Really,

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Speaker 1: that's that that's out there right now, and it illuminates

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Speaker 1: some problems that we talk about often in a kind

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Speaker 1: of again at a thirty thousand feet of of inequality

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Speaker 1: and food insecurity and so on. But it's right there

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Speaker 1: in the backyard of one of the wealthiest enclaves in America.

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Speaker 1: We will have plenty more to talk about in the

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Speaker 1: next few weeks and months, but for the moment, Sean,

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Speaker 1: thank you very much, Thanks for having me, thanks for

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Speaker 1: listening to Stephanomics. We'll be back next week with more

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Speaker 1: insight into how COVID nineteen is affecting the global economy

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Speaker 1: in the meantime. You can find us on the Bloomberg Terminal, website,

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Speaker 1: app or wherever you get your podcasts. And for more

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Speaker 1: news and analysis through the week from Bloomberg Economics, follow

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Speaker 1: at Economics on Twitter. You can also find me on

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Speaker 1: at my Stephanomics. This episode was produced by Magnus Hendrickson

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Speaker 1: Special thanks to Stephanie Kelton, Tom Morlick, and Sean Donnan.

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Speaker 1: Scott Lamman is the executive producer of Stephanomics and the

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Speaker 1: head of Bloomberg podcast is Francesca Levy four