Kelton & Burbank

 

K:

… ever it deems appropriate right and the money will be there so i'm going to close on this the the answer that i usually give when people say you know how are you going to pay for it is you know the votes fund the spending 

if you can find the votes you have found the money it's as simple as that so if you know uh senator sanders and senator hawley could go around and collect enough votes to support this 1200 payment that they have jointly um proposed then the money would be there it's just as simple as that the votes always are there when it comes to defense 

right they're always there there's never a lack of votes and that funding always happens regularly every year there is an appropriation and an authorization for the military budget and they top it up over time because they feel generous and they say well we should probably put in a another 10 or 20 billion this year uh you know just because we can 

um it's only when it comes to other priorities that we think our pockets are empty that the hand ringing starts over the deficit we got to stop falling for this and democrats in particular need to stop falling for it because they've been playing you know 

charlie brown to lucy in the football for the last couple of decades at least and they continue to fall for this and every time they get in office they say you know we have to be the party of fiscal responsibility so i have to start working on the deficit and then republicans get in and they just disregard uh you know the deficit entirely and they focus on passing their agenda they're just laser focused say what do we want to accomplish let's pass our agenda democrats need to do that too what is it we want to accomplish approach the budgeting process in a mission oriented way what do you want to see happen do you want to see child poverty rates cut in half in the next four years let's do that 

do you want to drive them to zero over some short period of time let's do that 

do you want to see everybody who wants to work in this country able to find a job right with a job that that they can provide for their family with a living wage and and benefits let's do that like what is it we're trying to accomplish set the mission and fit the budget to the mission instead of pretending that the budget is some fixed allotment and we can only incrementally fiddle around and nibble away at some of the the real problems that we face so in the book i have a chapter called the the deficits that matter 

and that's what i think we need to focus on there are so many deficiencies in our economy 

the the thing we call the federal deficit is not a problem 

it is not a problem it's not a problem today it wasn't a problem 10 years ago when we had the deficit commission and the simpson bowles and all that kind of stuff it wasn't a problem 

then it isn't a problem now and it's not going to be a problem going forward we just have to flip that script and try to get everybody focused on the deficits that matter recognize that whatever is financially feasible if we have the know-how if we have the workers if we have the raw materials if we have the capacity in our economy to do things the money can always be there we just have to find the votes.

B:

thank you so much stephanie we have so many amazing questions coming in the chat but i want to start with this so you are a brilliant economist you could you know theoretically make so much money working for like goldman sachs uh but instead you've chosen um and not to go to places like harvard but instead to go to the new school and not to pursue working at places like goldman sachs where you make a lot of money but to tackle the deficit myth and do work that uh is really good for the people uh so where did you learn to care and why are you tackling the deficit myth when you could be doing anything else?

Kelton:

no it's a it's a funny question that you phrased it the way you did because um when i was finishing up my undergrad uh one of my well the the most influential professor in my life took me to lunch and he invited another professor along.

and the point of the lunch was to introduce me to this other professor and to have him give me some advice about where i should go to graduate school and so uh the the professor that i was introduced to said go to harvard.

and the professor who took me the lunch said no no no don't listen to that so the two of them started you know kind of arguing about whether and why i should or should not uh try to get into harvard and you know i i think that it was easy for me i i have a stubborn streak.

 um i don't have as uh my former boss senator sanders puts it um what did he say in the interview with the new york times editorial board.

i'm not someone who tolerates particularly well.

 i think we're his exact words and i am i think cut from a similar cloth in that respect i just um i couldn't do it i could not do that type of training i i could not um i knew enough to be dangerous i suppose in the sense that i had enough of an understanding of you know how the financial system works how banking works and that if i went through a more conventional program that i was going to be asked to swallow a lot of uh stuff that you know is it's just wrong it's i don't know how else to say it.

and i didn't want to do that so um and the new school you know has a long tradition of um fighting the good fight and being i think on the right side of a lot of policy uh fights and advocating for um you know people who are are struggling there it's a it's an institution that's very special in in its history and so i felt more at home in a place like like that.

B:

amazing all right now that we know that uh professor kelton is on our side generally um let's get into some of the questions there are some very good ones uh including i think we should start with this but how should we think about the deficit what is the deficit how does it exist in the world maybe you know what's the role of a treasury bond?

Kelton:

okay well so as i i said the deficit is just the difference between two numbers i mean we shouldn't make this harder than it is you know it's the word it's the word that gets in the way because the word has a connotation a deficit is a shortfall right if you're a sports fan and you turn on uh you know the game.

and you see that it's getting close to halftime and you hear the announcer say,

oh if the bills are going to come back and win this thing they're going to have to overcome a 14-point deficit oh my god you know that's what a deficit is it's something to overcome it's a problem situation.

 but it's not when we're talking about the federal government's finances so we've chosen this really lousy word to describe the budget outcome at the end of the year what happened did the government add more than it subtracted or did it subtract more than it added that's all we're talking about and most of the time it's a pretty good thing that the government is making a contribution a financial contribution to some other part of the economy.

right it gets to add more dollars than it subtracts from the rest of us that lets somebody accumulate more financial assets but then you mentioned the bond part.

and this is where the the deficits lead to um an addition to this other thing that we call the national debt.

so when i say suppose the government spends a hundred dollars in and subtracts 90 away they've left ten dollars in some part of the economy except they don't leave that ten dollars when the government runs a deficit it sells bonds u.s government bonds treasuries.

and so those ten dollars that the government is making available through its deficit get subtracted back out and replaced with government bonds.

so think of 10 u.s treasuries now sitting on someone's um in someone's portfolio.

right?

so if the government does this let's say the government does uh infrastructure and it wants to build a bridge it can do two things right one thing is it could say well i don't want to add to the deficit because i i'm somehow you know opposed to that.

 so i want to spend a trillion dollars on infrastructure but i don't want that spending to add to the deficit so i'm gonna subtract a trillion dollars away from people by taxing.

 so i'm gonna take a trillion dollars away from some people in the economy i'm gonna add a trillion dollars to other pockets so the construction workers who get hired to do the infrastructure the corporations who manufacture and sell cranes and concrete mixers and all that kind of stuff right they get paid a trillion dollars and some segment of u.s taxpayers you know.

 you get your account subtracted with dollars so what happens well you fix some bridges that were crumbling and uh and that's it america gets crumbling infrastructure this segment of the population gave up some dollars and this segment of the population got some dollars and it's net to zero nobody has any net new dollars but we have some better infrastructure.

 okay that's one way to do it the other way to do it is to say the government is going to fund the infrastructure investment it's going to just spend a trillion just like the cares act we're just going to spend a trillion dollars.

 so the government spends a trillion dollars some workers get jobs doing infrastructure repair and and so forth some companies get some additional dollars right for selling heavy machine equipment and that sort of thing and america gets better infrastructure so we get better safer bridges to drive across and somebody ends up with a trillion dollars right uh as a result now with the deficit it's a trillion dollars of bonds it's like saying the government is making uh some of its payments in the form of u.s treasuries so some people end up holding bonds now who are those people well there tend to be wealthier people right who have dollars that they can transform into u.s treasuries treasuries are interest bearing dollars.

so somebody's getting to give up their dollars to hold treasuries which amplify which pays some interest but look you hired some people workers did infrastructure investment they got paid the contractors got paid the corporations made some money and we got better infrastructure it's like you know you could do it either way but in the second way the government is actually increasing the financial assets out there somewhere in the economy as payment for the improved infrastructure.

burbank:

now there's i love the phrasing of this question it was a question from the chat is there a point where debt spending becomes unsustainable or do we indeed have an infinite credit card and the word credit card is reminding me of obama's 2008 stump speech.

Kelton:

yeah so i don't you know you're right uh when i'll say it for those who who don't know what you're talking about.

but when barack obama was running for president first time he was stumping around the country and he was you know lamenting this national debt that we have he said you know it's irresponsible he said it's unpatriotic it's like you take out a credit card from the bank of china.

right a credit card from the bank of china the government doesn't have a credit card don't don't analogize the federal government's finances to that of a individual household that gets you going on the wrong off on the wrong foot.

does the does congress have the capacity to commit to spending whatever it deems appropriate the answer is yes.

 it can afford to purchase whatever is available and for sale in its own currency that's the limit right you can't buy what's not available so all the money in the world would not help the government get ventilators and ppe back in march.

it wasn't available you couldn't have it but you can afford to hire all unemployed workers who are looking for jobs that pay us dollars looking for a job in with wages paid in us dollars you can afford to hire everybody.

 uh and employ everyone who wants a job but can't find one anywhere else in the economy so the upper limit is what's available and for sale in your own currency.

it's not the same as saying the government should go out and buy everything that's available for sale it's recognizing that that is the upper limit.

right.

 it is what's available and for sale in your in your currency so is there a limit yes right you try to push beyond the limit the punishment is inflation it's not insolvency with a credit card if i charge up my credit card right.

and and i can't pay it the punishment for me is bankruptcy right that's not going to happen to the federal government of the united states the punishment is inflation not insolvency.

burbank:

yeah i think there are so many questions about inflation so let's dig into those um yeah is inflation going to be a problem if we spend you know three trillion dollars on another covet relief package.

Kelton:

3 trillion no but there is a limit okay look i'm drinking a glass of water i have to wipe the lipstick off i'm holding up a glass of water.

yes this let's suppose this is a 12-ounce glass if we could agree that this is a 12-ounce glass and if if it were empty and i had a 12-ounce can of soda unopened.

we could agree that i could open that can and safely pour every drop of liquid into my empty 12-ounce glass.

it wouldn't overflow i wouldn't create a mess that's the capacity of the glass 12 ounces.

the economy has like a carrying capacity right there are also ecological constraints.

but there's a spending constraint.

and the government has to share space in the economy with everyone else who wants to spend and remember that households do the vast majority of spending in our economy,

accounting for some two-thirds to 70 percent of all spending it's us we take up most of the space in the glass.

but if the glass isn't full to the top,

 in other words if we're not at full employment and there's extra space available then the government can pour some liquid into the glass take up that space and move us closer to full employment.

as you as you begin to run out of space right in the economy people are all working who is the government going to get to do infrastructure or you know if you want to do medicare for all and you want to pledge that everybody can have mental health care and dental and vision and long-term care.

 if you don't have the doctors the nurses the optometrists the health healthcare professionals if you don't have the beds and the capacity to make good on that promise.

then you can't deliver in spite of all the money in the world.right so the limits are your economy's real productive capacity there is a constraint you can spend up to full employment.

you have to share your spending space with everyone else in the economy who wants to spend.

but you can safely spend up to the point of full employment and would three trillion dollars risk overflowing the glass and producing an inflation problem no we are too far from full employment um for that for that to happen so three trillion is i think almost all economists would agree a safe number at this point given how depressed our economy is.

burbank:

and are there economic consequences to not spending money into the economy right now.

 if we don't do another stimulus.

Kelton:

 just incredible ones yeah like you know you you probably have heard this term scarring people talk about long-term scarring effects of.

um you know people who lost jobs that were we talked about this supposed to be temporary job losses maybe you were furloughed the expectation was that your boss was going to bring you back onto payroll uh restore your wages and benefits and so forth after we hit this pause button on the economy but now your your job is gone permanently.

 you know the business has gone under it's not there for you to return to.

so how long can people remain unemployed before they become unemployable right because that's what happens employers do not like to hire the the long-term unemployed.

they don't they will hire around them.

they will do everything they can to avoid hiring someone who's been out of work for 12 or 16 months or more.

why?

because you know your skills can deteriorate your work habits can do they just employers don't like to do that and i'm just giving you one example i mean think about the small businesses whole cities are going to look very different um six months from now compared to you know the start of this year there was an article i was reading the other day it really broke my heart because i spent 17 years living in and immediately around kansas city.

and the stories were about how many businesses you know small business restaurants in particular right just going under in the kansas city area and i thought by the time i make it back to kansas city to see old friends.

 i probably won't recognize much of the place you know it will have so changed with businesses going under and so what are you left with you're left with the larger and larger corporations who you know managed to survive through this fewer small businesses um more long-term unemployment those scarring effects um you know whole industries that are downsized if we don't get the support to the airlines and and retail and so yeah it's the the damage is potentially um you know lasting and that just makes it that much harder to climb your way out of it.

burbank:

yeah so this is not a question from the chat but i think it's a good time for it uh .

can you tell me about your views of spider-man?

Kelton:

well look i'm a huge uh of all the people in my family my son and i are the two complete you know marvel and dc i mean i like all of that stuff so i know you're bringing this up because i um i make some references to spider-man in the book right and i said look spider-man's a hero everybody knows spider-man's a hero why is he a hero because he you know he swoops in and saves the day when there's a crisis moment and nobody would think of spider-man as a hero.

if he refused to act he just sat there and and watched you know the the the train go careening over.

the you know the track is gone and he just was like yeah i'm gonna let it go over um he's a hero because he takes action and you know the stan lee line is that um with great power comes great responsibility.

and in the book i say that's what congress has they have great power it's called the power of the purse you know they have the power of the purse if they wanted to tonight they could walk away with a three trillion dollar bill.

that's much closer to what we need than this 900 whatever billion dollar i mean it changes almost by the minute right.

if they wanted to provide that level of support for this economy for people who are hurting in this economy to shore up incomes and protect families and communities and and get money to state and local governments they could with this with a stroke of a pen right it's just the votes all they have to do is vote for it and walk out they don't have to hurt anybody they don't have to say well we had to raise these taxes on this group of people and folks that they could just literally cast the votes provide the funding and walk away for the holidays feeling good about what they've done right to help like spiderman right.

we're rescuing families we're saving people we're saving lives we're literally saving lives people who are losing their health care people who can't feed their families people who are facing eviction.

we can deal with so much pain and distress in this economy and we have the power to do it and it's as simple as casting that vote.

 and yet they won't do it.

and so that spider-man reference is about you know the responsibility side of this you have great power but it doesn't do anyone any good if you don't use it.

and what they're trying to do is use use it as um as frugally as possible and so it leads to a lot of gratuitous suffering.