WEBVTT - Steve Keen Says Economists Get Everything Wrong (Especially About Climate Change) 0:00:10.800 --> 0:00:14.200 Hello, and welcome to another episode of the All Thoughts Podcast. 0:00:14.280 --> 0:00:18.720 I'm Tracy Allaway and I'm Joe. Isn't all so Joe. 0:00:18.840 --> 0:00:22.760 One of the themes that we've had in our recent 0:00:22.800 --> 0:00:29.520 episodes is this idea of the pandemic changing certain perceptions 0:00:29.640 --> 0:00:33.159 of economics or certain perceptions of how the world and 0:00:33.200 --> 0:00:36.720 the economy actually works. Yeah, I mean, I think that's 0:00:36.720 --> 0:00:39.640 exactly right. Like, you know, we we just got in 0:00:39.680 --> 0:00:44.960 the US, for example, personal income and spending data, and 0:00:45.080 --> 0:00:48.840 you know, the story is that income replacement, household income 0:00:48.880 --> 0:00:53.360 replacement was actually extremely effective and successful in the US, 0:00:53.880 --> 0:00:57.040 and that's not what you expect in a recession. And 0:00:57.040 --> 0:00:59.360 it's sort of I think like people are sort of 0:00:59.400 --> 0:01:01.560 opening their mind and to like, how much of what 0:01:01.600 --> 0:01:05.400 we take for granted is just policy choices. Yeah? Absolutely so. 0:01:05.720 --> 0:01:07.679 I mean one of the big things that happened is 0:01:07.720 --> 0:01:11.240 we had the COVID shock in we finally had this 0:01:11.480 --> 0:01:16.759 exogenous shock that economics is kind of obsessed with, and 0:01:17.319 --> 0:01:20.679 things didn't necessarily pan out exactly the way that a 0:01:20.720 --> 0:01:24.800 lot of economists would have expected based on traditional principles 0:01:24.880 --> 0:01:28.040 of how things actually work. So now you know, not 0:01:28.080 --> 0:01:31.440 only have we had an unusual crisis in many respects, 0:01:31.440 --> 0:01:34.640 but now people are talking about an unusual recovery as well, 0:01:34.760 --> 0:01:37.640 and whether or not the future economy is going to 0:01:37.680 --> 0:01:41.240 look slightly different. So with that in mind, um, and 0:01:41.280 --> 0:01:44.760 I guess without further ado, we have the perfect person 0:01:45.360 --> 0:01:50.320 to talk about all of this, an iconic clastic economist, 0:01:50.440 --> 0:01:52.560 if ever there was one, and someone who thinks slightly 0:01:52.600 --> 0:01:55.720 differently to a lot of other economists out there. We're 0:01:55.720 --> 0:01:58.920 going to be speaking with Professor Steve Keane. He's a 0:01:59.120 --> 0:02:03.320 Distinguished Research Fellow at the University College London and also 0:02:03.760 --> 0:02:08.320 the world's first crowd funded economist. He has a Patreon 0:02:08.400 --> 0:02:10.600 account where he posts a lot of materials. You can 0:02:10.680 --> 0:02:14.160 check that out. Uh, Professor Keene, thanks so much for 0:02:14.200 --> 0:02:18.320 coming on. Thank you, thank you for the invitation. So 0:02:18.720 --> 0:02:21.360 I guess, um, I'm trying to think where to start, 0:02:21.440 --> 0:02:24.680 because of course your research is quite wide ranging, and 0:02:25.000 --> 0:02:28.000 if we're going to talk about the entire state of 0:02:28.080 --> 0:02:31.799 the current economy, that's a pretty big topic. But maybe 0:02:31.840 --> 0:02:36.120 just to begin with talk to us about what surprised 0:02:36.160 --> 0:02:39.440 you over the past year or what stood out to 0:02:39.560 --> 0:02:45.200 you in terms of economic developments. In some sense, I 0:02:45.280 --> 0:02:48.960 wasn't surprised because when the crosses first, I get on 0:02:49.000 --> 0:02:51.680 my Patreon blog that we should have, you know, the 0:02:51.680 --> 0:02:53.679 government should pump as much money as they canadate the 0:02:53.720 --> 0:02:57.440 economy to make it possible for people to not to 0:02:57.480 --> 0:02:59.400 have to go to work and still make their bills 0:02:59.400 --> 0:03:02.519 and not go andankrupt through the whole process. And I suppose, 0:03:02.560 --> 0:03:05.120 I suppose in one sense that it's not amazing that 0:03:05.160 --> 0:03:07.760 when a crisis strikes like this, the economic textbook gets 0:03:07.760 --> 0:03:10.600 thrown out the window where it desperately deserves to be 0:03:10.680 --> 0:03:13.480 thrown by the way, um and the people are just 0:03:13.639 --> 0:03:16.880 you know, as I know from what Hank Parlson had 0:03:16.880 --> 0:03:19.359 to say back when the financial crisis, he wasn't going 0:03:19.400 --> 0:03:22.680 to let capitalism collapse on his watch. So they throw 0:03:22.720 --> 0:03:24.840 the government money book at the system. And of course 0:03:24.880 --> 0:03:27.480 that happened back in the Great in the Great Recession 0:03:27.520 --> 0:03:30.960 as well. But we're very rapidly switched over to you 0:03:31.080 --> 0:03:33.400 the focus back on balancing the government's books and all 0:03:33.400 --> 0:03:36.000 this sort of stuff. This time around, the scale of 0:03:36.040 --> 0:03:38.240 obviously done has been two or three times as big 0:03:38.520 --> 0:03:42.680 as what happened with the trying to reduce the damage 0:03:42.720 --> 0:03:45.960 from the global financial crisis and for Actually, a lot 0:03:46.000 --> 0:03:48.800 of Americans ended up getting a pay rise out of 0:03:48.840 --> 0:03:50.640 the fact they got six hundred bucks a week from 0:03:50.680 --> 0:03:53.520 the government to meet their bills for a while. And 0:03:53.560 --> 0:03:55.760 I think what actually has started to soak into people 0:03:55.880 --> 0:03:59.440 is that, hey, maybe maybe the world of financial system 0:03:59.520 --> 0:04:01.680 doesn't work the way the textbooks told us it works. 0:04:02.080 --> 0:04:04.600 So I think that's the pleasing thing that I take 0:04:04.640 --> 0:04:07.840 out of this, that there's more consciousness of that textbook 0:04:07.880 --> 0:04:10.760 explanation as the Bank of England itself set in two 0:04:10.800 --> 0:04:15.640 thousand and fourteen is simply wrong. M Do you think 0:04:16.320 --> 0:04:18.720 this is a lesson that's actually been learned? Like, we 0:04:18.720 --> 0:04:21.400 can all observe this, we can all look at household 0:04:21.440 --> 0:04:24.800 incomes having held up despite the crisis, we can look 0:04:24.839 --> 0:04:27.960 at the sort of very robust power of you know, 0:04:28.040 --> 0:04:30.359 fiscal policy. But do you think this is a lesson 0:04:30.360 --> 0:04:32.320 that will actually be learned or do you think it's 0:04:32.320 --> 0:04:34.839 a lesson that will be dismissed? You know, Oh, that 0:04:34.960 --> 0:04:37.400 was a weird crisis because there was this exogenous shock. 0:04:37.480 --> 0:04:39.840 It was a health thing. We have to go back 0:04:39.880 --> 0:04:41.560 next time in a downturn, we have to go back 0:04:41.600 --> 0:04:43.760 to the old way. I'm already you seeing that happened 0:04:43.760 --> 0:04:46.920 in the literature, particularly amongst the UK politicians of both 0:04:47.000 --> 0:04:50.640 Labor and Tory stripes that both talking about the need 0:04:50.680 --> 0:04:52.719 to balance the books and get you know, fix up 0:04:52.760 --> 0:04:55.960 so our our future generations aren't paying for our blurreds 0:04:56.120 --> 0:04:59.919 during COVID. But I think that the scale of the 0:05:00.160 --> 0:05:03.960 was so big and the public impact so great that 0:05:04.640 --> 0:05:07.120 it's going to take longer for that conventional message to 0:05:07.160 --> 0:05:09.279 be accepted as it was in the past. And I 0:05:09.320 --> 0:05:10.680 think in some ways they're not going to get a 0:05:10.760 --> 0:05:14.480 chance to do that because as soon as was out 0:05:14.480 --> 0:05:17.520 the door and pill sent thing, God, it's not anymore 0:05:18.320 --> 0:05:21.080 said hold my beer, I'm going to set fire to Canada. 0:05:21.640 --> 0:05:24.839 And what's happening right now is making I think, making 0:05:24.839 --> 0:05:26.560 people think that a whole lot of things they took 0:05:26.560 --> 0:05:30.000 for granted do not work the way that they have 0:05:30.120 --> 0:05:32.640 been assured they do. And that includes how economists have 0:05:32.680 --> 0:05:36.480 said that climate change is no big deal. So I 0:05:36.520 --> 0:05:38.680 think COVID was a warm up saying that we have 0:05:38.760 --> 0:05:43.839 to do something to drastically change our impact on the planet. 0:05:44.200 --> 0:05:46.920 And what we did during COVID, so the government's got 0:05:46.960 --> 0:05:50.000 the capacity to finance that, it creates the money when 0:05:50.080 --> 0:05:53.240 it spends. And that's that's the lesson I hope that 0:05:53.279 --> 0:05:54.960 we can get to because we're damn or going to 0:05:55.080 --> 0:05:57.200 need that when we start working out how do we 0:05:57.200 --> 0:06:01.120 address climate change. I only want to talk about climate 0:06:01.200 --> 0:06:04.440 change in detail. But before we do that, can you 0:06:04.680 --> 0:06:09.119 maybe elaborate a little bit on the public debt versus 0:06:09.160 --> 0:06:12.919 private debt issues, so you make a massive distinction in 0:06:13.000 --> 0:06:16.880 your research between public and private debt. So yeah, it's 0:06:16.920 --> 0:06:19.880 it's It is ridiculously simple once you see from the 0:06:19.880 --> 0:06:22.600 point of view an accountant, and of course most economists 0:06:23.080 --> 0:06:25.520 don't do accounting, don't learn about money. I saw Paul 0:06:25.600 --> 0:06:28.160 Krugman has a new master class program out where the 0:06:28.320 --> 0:06:31.440 two crucial slides the economics is about people. It's not 0:06:31.480 --> 0:06:34.120 about money. Well, that's totally wrong. It is about money 0:06:34.240 --> 0:06:36.599 and how money affects people, and how people affect money. 0:06:36.960 --> 0:06:38.800 So when you when you do look at money, you've 0:06:38.800 --> 0:06:41.359 got to look in double entry bookkeeping terms, and you 0:06:41.400 --> 0:06:44.320 see what happens when a bank creates a loan, Well, 0:06:44.360 --> 0:06:47.560 it puts money in your deposit account, which is a 0:06:47.560 --> 0:06:50.440 liability for itself, and it puts an identical amount of 0:06:50.440 --> 0:06:53.080 money in its loan account. Saying you I was that money. 0:06:53.320 --> 0:06:56.680 So it's assets rise and its liabilities rise, and that's 0:06:56.680 --> 0:06:59.960 how credit money is created by banks, and a very 0:07:00.000 --> 0:07:02.599 similar mechanism of flies for the government. When the government 0:07:02.640 --> 0:07:05.479 spends more than it takes back in taxes, the spending 0:07:05.520 --> 0:07:08.479 turns up in private bank accounts. That rise increases the 0:07:08.880 --> 0:07:13.200 liability side of the banking system ledger, and the money 0:07:13.400 --> 0:07:17.160 is is stored in the reserve accounts that the is 0:07:17.200 --> 0:07:19.760 transmitted through the reserve accounts that the banks themselves have 0:07:20.080 --> 0:07:22.680 at the central bank. Well, that means the reserves rise 0:07:23.480 --> 0:07:27.120 when the government spends, it has a deficit, just like 0:07:27.280 --> 0:07:31.080 the loans rise when the private banks create. When they 0:07:31.120 --> 0:07:35.080 create loans, both of them create money, and in that 0:07:35.120 --> 0:07:38.120 sense there is no limit on the amount they can 0:07:38.120 --> 0:07:41.280 both create. The impacts they both have on the economy 0:07:41.520 --> 0:07:45.040 depend upon what are the inflationary impacts? What are the 0:07:45.640 --> 0:07:48.000 impacts of having to pay for that extra debt when 0:07:48.000 --> 0:07:50.520 you buy it as an individual, And when an individual 0:07:50.600 --> 0:07:53.080 borrows money, you can't go to the bank saying look, 0:07:53.080 --> 0:07:55.280 I printed these notes out of my basement. You're you 0:07:55.320 --> 0:07:57.080 mind if I use those to pay my interest bill. 0:07:57.440 --> 0:08:01.040 But in the case that the government the treasury, which 0:08:01.080 --> 0:08:05.040 creates the money by the deficit spending, is the effective 0:08:05.040 --> 0:08:09.440 owner of the central bank, and that means that it 0:08:09.600 --> 0:08:13.560 can in fact pay its interest payments. Effectivities an accounting 0:08:13.560 --> 0:08:16.440 operation between the treasury and the central bank. So the 0:08:16.480 --> 0:08:21.720 government has effectively limitless capacity to create money the limits 0:08:21.720 --> 0:08:23.760 of the impact of that on the economy rather than 0:08:23.800 --> 0:08:26.560 the physical capability of doing it, and rather than the 0:08:26.920 --> 0:08:29.640 death the government creates. And that I'm going to finish. 0:08:30.400 --> 0:08:32.800 I'm getting a very technical here as I know. No 0:08:32.920 --> 0:08:35.200 I'm into it, okay, But if you look, if you 0:08:35.200 --> 0:08:37.680 look at what are reserves, and they think about the 0:08:37.720 --> 0:08:40.199 main assets that banks have their reserves, that are the 0:08:40.280 --> 0:08:43.280 deposit accounts the private banks have at the central bank, 0:08:43.640 --> 0:08:46.640 there are the loans they've made to the private sector, 0:08:47.040 --> 0:08:49.439 and there are the bonds that they have bought, predominantly 0:08:49.520 --> 0:08:53.320 treasury bonds. Now, when the when the government runs a deficit, 0:08:54.120 --> 0:08:56.160 it puts money in the reserve accounts of the banks, 0:08:56.280 --> 0:08:59.200 increases their assets. That puts money into deposit accounts. That's 0:08:59.200 --> 0:09:03.080 where the spending comes from. The public gets extra money 0:09:03.120 --> 0:09:06.160 out of Then the treasury says we're gonna issue bonds 0:09:06.200 --> 0:09:08.640 to sell the bonds to the banks to cover the 0:09:09.360 --> 0:09:13.760 extra debt with money we've created. Well, that is an 0:09:13.800 --> 0:09:16.640 offer that the bonds, when the banks by them, are 0:09:16.679 --> 0:09:18.880 also assets, and how do they pay for them. They 0:09:18.880 --> 0:09:22.840 pay them with the reserves, So the deficit creates reserves. 0:09:23.120 --> 0:09:25.440 And then when the treasury says we're going to sell 0:09:25.520 --> 0:09:29.440 you treasury bonds for that, the treasury bonds an interest, 0:09:29.480 --> 0:09:32.800 which the reserves normally don't do. The treasury bonds can 0:09:32.840 --> 0:09:35.800 be traded, which the reserves can't, but can't be traded, 0:09:36.240 --> 0:09:38.520 so it's an offer that's too good to refuse for 0:09:38.520 --> 0:09:41.719 the banks. And that's why the banks always more than 0:09:41.880 --> 0:09:45.000 by more than the subscribe for all the issues of 0:09:45.040 --> 0:09:48.680 treasury bonds. So there's no way there's any borrowing going 0:09:48.720 --> 0:09:50.800 on from the public in that whole thing. It all 0:09:50.840 --> 0:09:54.160 happens on the asset side of the banking sector, leaving 0:09:54.200 --> 0:09:57.840 the private sector, non bank sector out of it. So 0:09:58.160 --> 0:10:00.760 there's no limit to the amount the money the government 0:10:00.760 --> 0:10:03.800 can create that way and cover by bonds, and that's 0:10:03.800 --> 0:10:07.200 why we saw something like the thirty or of GDP 0:10:07.840 --> 0:10:11.920 increasing in inverted commerce government debt. The government created the 0:10:11.920 --> 0:10:15.080 money that brought the bonds. One thing you mentioned in 0:10:15.120 --> 0:10:18.440 that the Krugman master Class. The idea has claimed that 0:10:18.840 --> 0:10:21.400 economics is the study of people, or that's about people. 0:10:21.440 --> 0:10:24.520 You say, it's about money. Can you explain that further, 0:10:24.640 --> 0:10:27.520 like this idea of like centering money as the sort 0:10:27.559 --> 0:10:30.160 of like key unit of analysis or like where we 0:10:30.280 --> 0:10:33.600 start in the journey, like understand what what is the 0:10:33.640 --> 0:10:37.520 significance of starting with money? Yeah, well, he said, let's 0:10:37.520 --> 0:10:39.839 talk about how Krugman starts without it, first of all, 0:10:39.840 --> 0:10:41.959 and why that ends up. We're using all the huge 0:10:42.000 --> 0:10:44.839 mistakes of mainstream textbooks make and of course come back 0:10:44.840 --> 0:10:47.280 to emphasize the Bank of England and the bonds Bank 0:10:47.320 --> 0:10:49.200 of Both of the textbooks are wrong. This is not 0:10:49.280 --> 0:10:52.480 a raving radical coming out and attacking you know, sensible 0:10:52.520 --> 0:10:55.760 centrist economics. This is institutions and know what they're talking 0:10:55.800 --> 0:10:58.120 about telling economists you've got it wrong. You've got to 0:10:58.160 --> 0:11:00.680 learn the accounting. So what the animos do and you 0:11:00.679 --> 0:11:02.559 can see this improvements work and you can see it 0:11:02.600 --> 0:11:05.280 in Mancu's textbook as they say, well, there's a supply 0:11:05.400 --> 0:11:08.360 of money and that's under government control and that's fixed, 0:11:08.520 --> 0:11:11.840 and then there's a demand for money and that's both 0:11:11.880 --> 0:11:14.920 as individuals demanding money and the government when it runs 0:11:14.920 --> 0:11:17.640 a deficit, all though demands money. So when they show 0:11:17.679 --> 0:11:19.880 the government running a deficit, they have a downward sloping 0:11:19.880 --> 0:11:23.040 demand curve for money. So the more money you demand, 0:11:23.120 --> 0:11:25.080 you demand the hider interest rate you have to pay. 0:11:25.480 --> 0:11:28.680 And the government borrowing gets added onto the demand curve, 0:11:28.679 --> 0:11:30.720 and that drives up the interest rate. And that's why 0:11:30.760 --> 0:11:34.600 they make all the arguments about driving interest government spending 0:11:34.679 --> 0:11:38.200 driving up interest rates, crowding our private spending, causing the 0:11:38.240 --> 0:11:40.959 economy to slow down. That's their analysis. And when you 0:11:41.000 --> 0:11:42.520 do the accounting and you look at it, and I've 0:11:42.520 --> 0:11:45.520 actually built a software package which is really available called 0:11:45.559 --> 0:11:49.240 Minsky available on source forge. I'd love to have people 0:11:49.240 --> 0:11:52.160 in the finance sector as well as academics and students 0:11:52.160 --> 0:11:54.320 downloaded and take a look at it. And it's designed 0:11:54.320 --> 0:11:58.000 to do interlocking double entry bookkeeping tables of the You 0:11:58.000 --> 0:12:01.000 can do it a a corporate six, A company could 0:12:01.040 --> 0:12:04.920 do it of its own books. It's designed for macroeconomics. 0:12:04.960 --> 0:12:07.280 It's there is a free tool and when you when 0:12:07.280 --> 0:12:10.000 you look at what actually happens, what you see is 0:12:10.080 --> 0:12:14.520 that rather than government borrowing adding to the demand of money, 0:12:14.720 --> 0:12:17.559 it actually adds to the supply of money. So all 0:12:17.600 --> 0:12:20.520 the arguments that Krugman and co. Make about how deficits 0:12:20.520 --> 0:12:23.320 are going to create a local expenditure and drive up 0:12:23.320 --> 0:12:26.000 interest rates, when you take what actually happens and then 0:12:26.040 --> 0:12:28.440 put it in their framework, rather than that into the 0:12:28.480 --> 0:12:31.240 demand curve and driving up interest rates, it pushes the 0:12:31.280 --> 0:12:34.840 supply curve out and drives interest rates down. So their 0:12:34.880 --> 0:12:37.679 framework is just completely the wrong framework. And so you've 0:12:37.679 --> 0:12:40.520 got to start from money. And one of the one 0:12:40.559 --> 0:12:43.160 of the essential reasons they don't like talking about money 0:12:43.200 --> 0:12:46.600 is because if you say that bank lending creates money, well, 0:12:46.720 --> 0:12:49.000 nobody borrows for the sheer pleasure of being in debt. 0:12:49.040 --> 0:12:51.760 You're borrowed to spend, so that borrowed money adds to 0:12:51.840 --> 0:12:55.080 aggregate demand. And then when you have people paying debt off, 0:12:55.120 --> 0:12:58.000 that causes a collapse and aggregate demand. So if you 0:12:58.080 --> 0:13:01.040 if you take on board that banks create money when 0:13:01.040 --> 0:13:03.880 they lend, and then see what they does the overall economy, 0:13:04.040 --> 0:13:07.280 the whole macroeconomics has to change. Now they're quite comfortable 0:13:07.320 --> 0:13:09.520 with their I SLM models and their D S G 0:13:09.640 --> 0:13:11.680 A and the A B C s and all this stuff, 0:13:12.040 --> 0:13:13.720 none of which have money, and then none of which 0:13:13.760 --> 0:13:16.959 have banks virtually now I know one or two, and 0:13:17.040 --> 0:13:19.360 they just don't want to change how they have been 0:13:19.480 --> 0:13:23.520 used to thinking, even though reality says they're wrong. Now 0:13:23.600 --> 0:13:26.160 now we have the formal bodies like the Bank of 0:13:26.200 --> 0:13:28.520 England and the BUONUS banks saying they're wrong. So it 0:13:28.559 --> 0:13:32.880 makes a huge difference to understand the accounting. So this 0:13:32.920 --> 0:13:36.200 goes back to the distinction between public versus private debt. 0:13:36.280 --> 0:13:39.720 And you know, the suggestion or the implication I think 0:13:39.840 --> 0:13:43.080 is that public debt is much less of a problem 0:13:43.520 --> 0:13:46.800 um in terms of financial stability than private debt. So 0:13:46.840 --> 0:13:49.520 I'm wondering could you maybe elaborate on that point and 0:13:49.559 --> 0:13:53.479 then put it into context for us in the current environment. 0:13:53.640 --> 0:13:57.559 So we just saw massive fiscal stimulus UM in the US, 0:13:57.640 --> 0:14:00.920 for instance, and at the same time time, I think 0:14:01.040 --> 0:14:03.680 we're starting to see I haven't looked up the number recently, 0:14:03.760 --> 0:14:06.040 but I'm pretty sure we're starting to see private sector 0:14:06.120 --> 0:14:09.120 debt go up UM. So how much of a problem 0:14:09.160 --> 0:14:12.360 is that and how much does the balance between public 0:14:12.440 --> 0:14:16.199 versus private actually matter? Yeah, I think the way to 0:14:16.240 --> 0:14:19.000 think about the private debt and public debt is like 0:14:19.040 --> 0:14:21.560 a sea saw because when you look at the mainstream, 0:14:21.600 --> 0:14:23.960 they treat them as both. Well, they ignore private debt 0:14:24.000 --> 0:14:26.360 because the attitude as well, private debt is an act 0:14:26.360 --> 0:14:29.840 between consenting adults and we shouldn't look inside the financial 0:14:29.880 --> 0:14:32.280 bedroom of the economy. Whatever they want to do is 0:14:32.320 --> 0:14:34.840 okay by us. But our government debt that's a burden 0:14:34.880 --> 0:14:37.880 on future generations. Now, in fact, when you look at it, 0:14:38.440 --> 0:14:42.560 the burden on future generations is when you know, you 0:14:42.640 --> 0:14:44.840 die with a mortgage and your kids have to take 0:14:44.880 --> 0:14:47.800 it on later. So it's private debt that gives that 0:14:47.840 --> 0:14:50.920 burden on future generations of the of the current borrowers 0:14:51.360 --> 0:14:54.640 and private debt. When you borrow money from a bank, 0:14:55.440 --> 0:14:58.600 you can't repay it and notes you invent yourself. Whereas 0:14:58.640 --> 0:15:01.440 with the government, the government, when it spends more than 0:15:01.480 --> 0:15:04.560 it gets back in taxes, can finance that by accounting 0:15:04.600 --> 0:15:07.360 operations between the treasury, which is part of the government, 0:15:07.560 --> 0:15:09.720 and the central Bank, which is part of the government. 0:15:10.040 --> 0:15:13.720 So it is in fact a way of stimulating an 0:15:13.720 --> 0:15:16.840 economy to have deficit spending taking place, as we've seen 0:15:16.920 --> 0:15:20.040 during COVID. Imagine what America would have been like if 0:15:20.080 --> 0:15:22.560 there'd been no increase in the deficit In fact, the 0:15:22.600 --> 0:15:27.040 deficit was what thirty or GDP, So without that spending, 0:15:27.040 --> 0:15:28.800 it would have been a total collapse in the private 0:15:28.800 --> 0:15:31.800 sector of the economy. And when you look at the 0:15:31.840 --> 0:15:34.560 historical record, and I've done some empirical work here, but 0:15:34.600 --> 0:15:38.000 the best work has been done by the philanthropist American 0:15:38.040 --> 0:15:41.720 philanthropist Richard Vague, who was a leading bank when his 0:15:41.800 --> 0:15:45.040 own right and is now he's a formal government position 0:15:45.040 --> 0:15:49.600 in Philadelphia. Richard did research into one and a half 0:15:49.680 --> 0:15:54.160 centuries of financial crises about a hundred and fifty countries 0:15:54.200 --> 0:15:57.080 around the world, and found over the last hundred and 0:15:57.120 --> 0:15:59.680 fifty years have been about a hundred and fifty financial crisis. 0:16:00.080 --> 0:16:02.120 Every last one of them was caused by a runaway 0:16:02.120 --> 0:16:04.760 private debt bubble, and the only way out of it 0:16:04.800 --> 0:16:08.360 was to write that private debt off. So the whole 0:16:08.400 --> 0:16:10.880 focus we health and government debt is just the wrong, 0:16:11.360 --> 0:16:15.000 is just becoming out of bad thinking. And equally, one 0:16:15.000 --> 0:16:16.840 of the things people people, and also what the level 0:16:16.840 --> 0:16:20.720 of government did is it's now DP in America after 0:16:20.960 --> 0:16:23.480 after covid or, private debt was a hundred and sixty 0:16:23.560 --> 0:16:26.200 percent of GDP. So the crazy thing is the thing 0:16:26.200 --> 0:16:28.600 they're telling you not to worry about is not only 0:16:28.640 --> 0:16:31.080 the one you should worry about, but it's substantially larger 0:16:31.120 --> 0:16:50.840 than government dead in most countries around the world. So 0:16:51.120 --> 0:16:53.720 I wanna, you know, talk a little bit more about 0:16:54.000 --> 0:16:58.520 sustainability of government spending and I think it'll actually dovetail 0:16:58.600 --> 0:17:02.320 or lead us eventually into the climate change discussion as well. 0:17:02.560 --> 0:17:05.520 But obviously, and as you noted, one of these sort 0:17:05.520 --> 0:17:07.919 of curbs or you know, where the rubber might hit 0:17:07.960 --> 0:17:12.000 the road with the government capacity to spend is inflation. 0:17:12.320 --> 0:17:15.320 And right now we have some elevated inflation, say in 0:17:15.320 --> 0:17:17.920 the US, but there's a you know, strong argument that 0:17:18.000 --> 0:17:20.960 you know, to use the economists word, that it's transitory. 0:17:21.000 --> 0:17:24.800 But how do you go about thinking more broadly Okay, 0:17:24.840 --> 0:17:27.200 forget you know the data right now, but how do 0:17:27.240 --> 0:17:32.720 you go more broadly thinking about how to conceptualize the 0:17:32.960 --> 0:17:37.959 ability to spend without generating undesirable inflation or actual like 0:17:38.320 --> 0:17:41.960 you know, how to you know, reconceptualizing fiscal capacity, Like 0:17:42.040 --> 0:17:44.520 do we have any sort of way to put numbers 0:17:44.560 --> 0:17:46.600 on this or like how do you go about thinking 0:17:46.600 --> 0:17:49.240 about where those limits are? Yeah, I mean that is 0:17:49.280 --> 0:17:52.000 something which cost because we have a modern monetary theory 0:17:52.080 --> 0:17:57.320 is a description of how current financing occurs. But what 0:17:57.359 --> 0:18:00.560 we've had is a practice with that, with that and ignored, 0:18:00.600 --> 0:18:03.200 and you had constraints on how much money government can spend. 0:18:03.400 --> 0:18:06.600 The whole effective austerity type programs I've had ever since 0:18:06.600 --> 0:18:09.880 the days of Reagan and Thatcher. Now if you say, well, 0:18:09.880 --> 0:18:13.720 we actually understand it, that would mean that the policy 0:18:13.720 --> 0:18:16.119 now becomes to get the maximum level of employment you 0:18:16.160 --> 0:18:18.840 can get. Pology of a job guarantee is part of 0:18:18.840 --> 0:18:24.840 that program. And the issue about inflation is that inflation 0:18:25.160 --> 0:18:28.280 tends to be something which comes out of competition over 0:18:28.320 --> 0:18:31.800 the over the income shares of the economy. When when 0:18:31.840 --> 0:18:33.880 as we look back, the last time there's major inflation 0:18:33.880 --> 0:18:37.919 back in the seventies, you had economy going gangbusters compared 0:18:37.920 --> 0:18:41.360 to what it's done ever since, low level of unemployment 0:18:41.640 --> 0:18:45.240 and high level of capacity utilization, and that means a 0:18:45.280 --> 0:18:49.159 strong demand on raw materials inputs. And you had in 0:18:49.240 --> 0:18:52.520 seventy three, part of course, part of the Kipper War, 0:18:53.119 --> 0:18:56.080 you had the price of all being increased from tots 0:18:56.080 --> 0:19:00.200 fifty a boarrels ten and then you had in eight 0:19:00.800 --> 0:19:03.879 another another boom where the price went from ten dollars 0:19:03.920 --> 0:19:06.760 to forty. Well, that takes money out of capitalist stands, 0:19:07.080 --> 0:19:09.639 means less investment can take place, and you have a 0:19:09.680 --> 0:19:13.080 slump in the economy. Equally, you had low unemployment, so 0:19:13.119 --> 0:19:16.600 workers demand large wage risers, and those wage risers also 0:19:16.640 --> 0:19:19.320 fed through to inflation. So you need this very very 0:19:19.359 --> 0:19:23.720 strong basis in effect in aggregate demand out of a 0:19:23.800 --> 0:19:26.960 strong bargaining position for workers to get hold of the 0:19:26.960 --> 0:19:30.040 extra bargaining power to get from lower unemployment, to get 0:19:30.400 --> 0:19:33.000 bargaining power and demand higher wages, and that's what tends 0:19:33.040 --> 0:19:36.480 to set off inflation. So in that context where we 0:19:36.520 --> 0:19:40.080 are right now, where miles from that happening, because the 0:19:40.320 --> 0:19:45.480 working class unions are being smashed, there's no real bargaining 0:19:45.480 --> 0:19:48.119 power for the individuals until you're in a really really 0:19:48.119 --> 0:19:52.760 tight market. And we're temporarily saying that, but I don't 0:19:52.760 --> 0:19:55.199 think there'll be a sustained flow through of it. But 0:19:55.280 --> 0:19:57.160 if you did get to the stage where you had 0:19:57.840 --> 0:20:02.600 job guarantee very lower unemployment, people who didn't have a 0:20:03.040 --> 0:20:05.960 lost their private sector job would get a lower, lower 0:20:05.960 --> 0:20:10.919 paid but still job guaranteed income. That would potentially increase 0:20:10.920 --> 0:20:14.200 the bargaining power of workers and you could have struggles 0:20:14.240 --> 0:20:17.760 over the distribution of income, which would lead to inflation arising. 0:20:18.080 --> 0:20:20.080 So I think in that situation, you've got to start 0:20:20.359 --> 0:20:25.320 talking about really in national agreements over income distribution, the 0:20:25.359 --> 0:20:27.639 sort of thing that the Swedish government used to do 0:20:27.720 --> 0:20:31.160 back in the sixties and seventies when they dramatically industrialized 0:20:31.200 --> 0:20:35.120 in Sweden by having a sort of agreements between capitalist 0:20:35.200 --> 0:20:39.800 workers and the government about how to develop a Swedish 0:20:39.840 --> 0:20:44.399 society over time. So once once you realize that you 0:20:44.480 --> 0:20:47.439 can have full employment, then you've also got to have 0:20:47.960 --> 0:20:52.439 some agreement about the distribution of income and how money 0:20:52.520 --> 0:20:56.120 is spent. And you know, I'm not going to suggest 0:20:56.160 --> 0:20:58.400 that's going to be an easy thing to do. So 0:20:58.520 --> 0:21:01.560 if we if we actually start getting the government using 0:21:01.600 --> 0:21:04.440 the capacity it has to generate a level of aggregate 0:21:04.480 --> 0:21:07.159 demand that gives you full employment, then we're going to 0:21:07.200 --> 0:21:10.080 have to work out what's the power relationship between workers 0:21:10.080 --> 0:21:13.480 and capitalists in America. And it can't be as extreme 0:21:13.480 --> 0:21:15.679 as it's got to be in the last thirty or 0:21:15.680 --> 0:21:18.040 forty years. Will be to one little caveat there. It 0:21:18.080 --> 0:21:20.520 isn't the industrial work capitalist who have got that power. 0:21:20.520 --> 0:21:22.840 It's the financial system. So we're gonna have to take 0:21:22.880 --> 0:21:25.280 on financial capital, and that always sends it to be 0:21:25.280 --> 0:21:26.720 a lot more fun than you'd like it to be. 0:21:28.560 --> 0:21:31.440 I mean, what are the chances that we actually got 0:21:31.440 --> 0:21:34.760 a real discussion on that issue in the US, and 0:21:35.000 --> 0:21:38.600 what are the obstacles to people taking that on. Frankly, 0:21:38.640 --> 0:21:40.720 I don't think we're going to get that conversation. I've 0:21:40.720 --> 0:21:43.040 got to take my head off to Stephanie Krlton and 0:21:43.080 --> 0:21:46.359 the modern monetary theory people have made been very successful 0:21:46.400 --> 0:21:48.800