https://youtu.be/sPT_UZe8OnE
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[Applause]
the people who were so sure that
deficits drive interest rates up
or that qe is inflationary i mean those
people that asserted those things
with real fervor i think
are demonstrably wrong hello there from
the uk how are you all
welcome to the what bitcoin did podcast
which is brought to you by the mighty
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bitcoin i'm your host peter mccormack
and today i've got an interview with
economist
stephanie kelton to discuss modern
monetary theory
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okay so on to today's show and i am
joined by economist
and author and mmt proponent stephanie
kelton
she's the professor of economics and
public policy at stony brook university
and was a one-time advisor to bernie
sanders now
this show is certainly going to trigger
a few people but i was really glad
stephanie came on the show
and i will ask please if you don't agree
with a lot of what she says which i
don't
please just show a little bit of respect
online let's not go and completely
attack her
mmt was something i want to discuss i
wanted to find out a bit more about as
it's been pushed around so much so
i was uh very glad that stephanie came
on to discuss it especially as she's
written a book about it it's called the
deficit myth
and i've had a growing interest in
economics since
discovering bitcoin not historically
something i've cared too much about
i'm more of a creative person but you
know it's discovering bitcoin you'd get
into economics and they've certainly
been drawn into the world of austrian
economics and
and the theories which people like
stefan novara talk about
which just makes sense to me and so in
this world of central banks money
printing at
these unprecedented levels i am
naturally
worried like other bitcoin is about the
repercussions but there is this growing
school of thought which is gaining in
popularity called
modern monetary theory and i did read
stephanie's book the deficit myth
and whilst i disagreed with most of it i
did have questions and i did want to
talk to her about it i did want to get
behind
this idea and why people are such fans
of it
so yes it is very easy just to dismiss
mmt and get out there and just start
fighting people about it i mean i've
largely dismissed it myself but i also
recognize we live in a world of
governments and central banks
so i want to understand the ideas behind
this and i mentioned to joe wazinthal i
pinged him on
twitter and said i wanted to get behind
this subject and he recommend talking to
stephanie
and so she agreed to come on the show
listen my primary issue with mmt in my
simple moral mind is that i think it's
an unfair system we know inflation is
theft
and mmt proponents claim that you can
print
almost as much money as you like as long
as you keep inflation under control but
inflation itself
we know is theft my biggest issue though
is with the incentive structures because
money printing is controlled by people
who can use it and abuse it
and that's something i put to stephanie
but we do live in a world of
governments and central banks and they
aren't going away right now and we've
got this weird pandemic
which is having a massive impact on gdp
i think i just saw a
34 drop in the us 24 in the uk
we know the only way out of this for the
government is they're going to continue
to print
so if this theory is out there if it
exists i want to know a little bit more
about it i want to understand why
people support it and what the
implications are for everyone else
now a couple of times in this i did feel
out of my depth as many of you know i'm
not really an economist and i'm not sure
if you know do you know what i'm not
sure if i was out of my depth
i wasn't confident enough in my argument
so i will be very interested in feedback
on this please do reach out to me tell
me what you think it got right what i
got wrong
you can reach me on hello
whatbitcoindid.com i look forward to
hearing from you on that
also just on defiance got a really great
show on defiance that came out this week
i've got zubi on
we talked about the hijacking of black
lives matters also i've got a really
cool show starting next week it's four
parter it's about the rock band
the ghost inside they're actually a
metal core band they had this accident
2015
four-year recovery and they've allowed
me to tell the story so that starts next
week
you can find that all at defiance.news
outside of that i love you all have a
great weekend and i will see you soon
hi stephanie how are you i'm great how
are you i'm really good thank you thank
you for
coming on the show you came under
recommendation from joe from bloomberg
from joe yeah why isn't that he's a he's
a good guy
yeah yep he's been on the show okay so
let's get into this this is going to be
a subject which will be
controversial in the bitcoin world
because
most bitcoiners tend to be uh fans of
austrian economics and
uh not particularly fans of mmt yet we
we are in a world of mmt it's not
something i fully understand
um i'm not gonna sit and defend
austrian economics uh to a very deep
level because
i'm i'm not an expert but i am gonna ask
questions around the kind of ideas of
things i've
heard and and i've also i've listened to
the majority of your book this week
whilst uh on my peloton well this week
and last week
and i definitely have questions lots of
things i'd like to go through with you
but just before we go into it just so
people are listening because not
everyone
will know you can you just give people a
bit of your background
like who you are what you do and then
talk about why you wrote this book
because i think that would be a good
setup for us
sure well i'm an economist i've been
teaching economics at the university
level for 20 years i spent
17 years at the university of missouri
in kansas city
and now i'm at stony brook university
which is on long island in the state of
new york
i took a little bit of time away from
academia i took a leave of absence and i
went to work in the u.s
senate and i served as the chief
economist for the democrats
in the senate for a period of time um
in 2015 and part of 2016
i was an advisor to the bernie sanders
presidential campaign
i just recently wrote a book
you asked why did i write the book you
know i've been kind of
working in a sort of space for a long
period of time and this
is what has become known as mmt
and you know i just wanted to i always
try out twitter twitter's like the place
where i go to
test drive um the way that i like to say
things you know i think communication is
really key
and you can get that instant feedback on
twitter if you found a way to
to phrase something that really
resonates and helps people
see things more clearly it's like you
know you immediately know you've kind of
hit a gold mine
with a certain phrase or or whatever
so i don't know i i think that i feel
like in many ways
i um wanted to communicate with the
broader public i
you know as an academic you write
research papers and you communicate with
a certain audience with your scholarship
but there's this broader public out
there who's so misinformed i think
about a lot of issues that are really
important and i wanted to give them
an entry point into the kind of work
that i
and other mmt economists do that would
be
you know really just accessible somebody
could pick up this book with no prior
training in economics in fact it's
probably better if you don't have it
because there's less
unlearning that you have to do um no
fancy mathematical equations to get in
the way
scare readers off and so i just wanted
to to see if i could write a book that
would help empower people
to take place you know to take part in
the discourse
around public policy and a lot of the
issues and
kind of protect them from the myths and
misunderstandings that they're bombarded
with by media and politicians and so
forth
and do you get stuck in some of the
twitter warfare at all
i don't i mean i really don't think i do
um
you know i've been on this kind of hell
site for a long
time and like i said i i find it useful
in a lot of ways there are obviously
flame throwers and
you know people who get very aggressive
and i've just always tried to
avoid engaging with people like that i'm
happy to engage and
debate with you know honestly interested
people
you know who are treating the ideas you
know
fairly they have genuine questions i
want to try to provide answers and so
forth but
now there's obviously you know a lot of
like for the same reason that one should
never read the comments section of the
new york times
you know there are just certain things
you don't live in your mentions or
you know life is probably going to be
pretty unhappy
well i'm going to treat this fairly i
want to listen i've got questions
i do think maybe when this goes live
you might want to ignore your twitter
for a couple of days there might be some
bitcoiners who are disagreeing with you
but i i do want to listen and because i
found the book fascinating actually i've
got a question about the book
because i didn't actually check it and i
think i i think you did did you narrate
it yourself
i did yes yeah so i've got an
interesting question for you
so i have this other podcast where i do
these mini documentaries
and this very strange thing happened
whereby i recorded it
uh my very first long form episode which
is about 35 minutes and it was about
steve mnuchin
and we had to make some changes and when
we went back to record it
my voice sounded entirely different so
we ended up having to re-record the
whole thing again
now i don't imagine you narrated this
all in one session right
well don't we all think that our voice
doesn't really sound when we hear
ourselves we say oh that's not me that's
not what i sound like
um but you're saying it actually
distorted the way that you
really do sound no two different times
of the day so because the days were
separate when you put them together it
sounded just slightly different it was
obviously yeah
and so interestingly when i was
listening to your book there was one
point i noticed it happened
which is something i wouldn't ever have
noticed but that's um
it's a hell of an undertaking to to
narrate a whole book
it was very strange i was reluctant to
do it but i had
um actually while i was in australia the
first part of the year i was there for
two weeks
uh in january of this year and i did a
lot of media while i was there one of
the things i did was a podcast
radio interview with uh blind host
and so he you know he digests everything
just about audi through audio and he
said you know
who's going to who's going to read your
book and i said well i don't know
there's been no decision he said oh you
have to do it.
and i said no no no i was thinking you
know there needs to be some great reader
with a great voice something and he said
no
i really encourage you to read your own
book and it was really
because that kind of impacted me and
persuaded me to do it but i'll tell you
it's a weird experience because you
don't do it all in one day
i mean you you can't i can't imagine
anybody who could maybe somebody could i
couldn't
they carved out three days and i
you know was in this little room in
uh the publishing house has the the
little studio
and you sit in a tiny little room and
they give you
tea and honey there's a banana
on the table there's a microphone in
front of you
and then there's a glass window and you
can see the tech person on the other
side
and so you have basically a kindle like
version
of the book and the tech person has a
version of the book
and so they're following along as you
read
and you mess up and you mess up and you
mess up
and you read words that aren't there and
then he catches it and you have to go
back but we also found
you know it hadn't gone to print yet
which was great because we found a lot
of little typos and that sort of thing
the other thing that happened is that
you find out
how much noise your body makes just like
naturally so i had all of this gurgling
happening through the whole thing and he
would hit the button and he speaks you
know through the system and he goes
stomach and then he tells you where to
start and it was just like three solid
days
of him telling me my stomach was making
these gurgling sounds and we had to go
back
and repeat and repeat so it was it was
but i'm glad i did it you know in the
end i'm glad i spent the time
to record it because i think a lot of
people have told me how much they
appreciated
having the author narrate the book but
well three days is impressive
because i'm going by memory is it about
12 hours long we didn't go 12
but we definitely went beyond eight all
three days
yeah because if i if i have to do say 30
minutes of narration
i do with my engineer um he's remote but
i do it with him there on zoom
it takes usually at least two hours and
it's intense
and at the end of that two hours i am
wiped out so the fact that you did
perhaps eight hours across three days is
is pretty intense
yeah i wonder where you noticed the
change in my
um the sound of my voice or whatever
because i did go through the entire book
and then at the very end when i was so
relieved
to hit the last word on the last page he
said
they want us to come back and record
maybe the first four pages of the
introduction again
because you change right you you get
into a groove
and those first four pages you've never
done it before and so there's probably
some the sound of hesitation and you're
less comfortable and then by the time
you get to the end
so i had to suck it up and go back and
read the first few pages again or
something i wonder if
i think it's that because you've got the
first kind of like half hour chapter
the kind of intro and i think i think it
would have been there
and it's one of those things i've only
noticed now
since i've started doing my own
narrations for podcasts
like i've noticed how often everybody
says you know which i didn't
notice before now i can't unhear it so
anyway that that was very very
interesting to hear okay so listen it's
a very interesting book like
i've got a lot of questions and i've got
a lot of questions because it
contradicts
a lot of the things that i hear from
certain austrian economics that i've
interviewed
as part of trying to understand bitcoin
and their view
on on the economy but i think a good
starting point here is if you were to
explain because some of the people
won't listen listening won't actually
know what this is but
what is modern monetary theory and also
like where does it differ from say
keynesian theory because i think i
notice
like paul krogman he's not a fan of
modern monetary theory but he is a
keynesian right
okay so the first part of the quest the
first part of your question is
like the hard one right what is modern
monetary theory because
the the truthful answer the full answer
is
that it's the name that's been given to
this body of
scholarship that has been produced over
the course of two and a half decades
from what originally were a handful of
economists that's grown
some over time but it's a rich
scholarship and it's a branch of macro
economic theory it's if you like a
school of thought so
you know everybody listening to your
show is uh very familiar with the
austrian
school of thought probably knows the
keynesian school thought you know that
there is
a marxist school of thought maybe you
know that there's post keynesian and
institutionalist and i could go on so
you have
in macro you know this menu of options
to to think about a framework for
analyzing the macro economy
and mmt has entered the fray and become
one of a number of contending approaches
to macroeconomic theory so what makes
mmt different from some of the others
well the starting point for us
i think is recognizing that the currency
itself
the in our case the us dollar is a
simple public
monopoly that the government is the
issuer of the currency
and the rest of us i say in the book are
just users of currency
and that distinction is important
because if you get
that distinction right then you can
start to understand
why the government can operate its
budget in ways that are very different
from the rules that apply to a household
to a private
business to state and local governments
they can behave in ways that look
irresponsible and even unsustainable to
us
but if you begin to understand the
nature of the currency the monetary
system
then you can start to understand why it
is it isn't
inherently unsustainable for the
government to spend more than it takes
in
every year for the government to issue
bonds and we call that borrowing and we
refer to it as debt and we think
somehow that's problematic but you know
mmt
i think provides a lens that helps us to
better understand the mechanics the
monetary operations the monetary system
so that we don't draw wrong conclusions
about the federal government's budget
and finances and liken them
to those of a household private business
okay so i watched uh peter schiff
you know peter schiff the goldberg i
watched him on joe rogan
and he said the government is broke the
us government is broke
and i've also often heard about this
debt ceiling
that it seems to exist this scary debt
ceiling that they get
seems to get raised it's almost like
they've raised the the level of the
house
so can you explain why
why the debt ceiling exists and and and
then why it's not necessary
and you also don't agree that the
government is broke right
well yeah i don't agree that the
government is broke i mean i think
you know all evidence to the contrary
sort of you know if you if
if we were broke we wouldn't have
congress spinning out
multi-trillion dollar spending bills you
know left and right we're on the cusp of
another one
here you know maybe any minute any day
any week
that is not the kind of thing that you
do when you are penniless
and you know incapable of spending so no
uh i don't think that's correct the debt
ceiling is like this
anachronistic thing it is a way
that it's first of all it's important to
say it's a self-imposed constraint
it's something that uh exists because
congress put it there
it's something that can go away if
congress removes it currently the u.s
has been operating without the debt
ceiling
in place so right now it is not there
okay congress made it go away
they may one day bring it back i hope
they won't but if they do
it's a way of saying i want to check
myself periodically so
you know it here's why it doesn't make
sense because when
congress authorizes legislation like
let's take for
example the 2.2 trillion dollar cares
act
which congress passed in response to the
coronavirus and the economic meltdown
they said okay
the house the senate everybody came
together 2.2 trillion dollars
so-called in this cares act um
that is congress making a commitment
right that's congress saying we're going
to spend 2.2 trillion dollars now if
something happened in the interim and
the debt ceiling was in place
and a point was reached where you were
going to
butt up against the debt ceiling that is
congress saying
i want a second chance to think about
the prior commitments i've made you've
already authorized the spending
so now it's like coming in after the
fact and saying well i don't know if i
want the fed to clear those payments
i know i committed to making them but
i'm not sure i want to go forward so
it's it's a pretty counterproductive
thing to do
we're one of the only countries in the
world that operates with a
thing like this in place and like i said
we don't it's not there now
in in the uk we've had um ever since the
2008 crisis especially under the
conservative government
we've had what was known as like
austerity which was very unpopular
um it seemed to be a number of programs
that
affected the the poorest in society
worse
we had this thing called this uh bedroom
tax whereby if you
had a social property and it had two
bedrooms and you're only using one
you were taxed on it to try and
encourage people to either use that room
or or
or move out and a lot of very very tough
programs but the idea was to bring down
our deficit here what i found quite
interesting in
your book is that you talked about a
deficit being a good thing
so can you talk me through that yeah so
the way i like to say it is
that every deficit is good for someone
okay
every deficit group so the question for
me and then is
well for whom and for what right so the
deficit is
nothing more than the difference between
two numbers that's what it is
right we measure it every year and we
say
okay one number is how many in your case
british pounds
the government spends into the economy
and the other number is
how many british pounds is the
government subtracting out of
the economy mainly by taxing people okay
so it's the difference between those
numbers
if the government adds more dollars in
spends more dollars into the economy
then it subtracts away we label it a
deficit we say the government
has engaged in running a fiscal deficit
and people say oh my god why are they
mismanaging their finances why can't
they live within their means
we rail against the deficit what we
forget to do what we
fail to to recognize is that if they put
100 in
and they only take 90 back out somebody
gets
10 right the government's deficit
is always and everywhere matched by a
financial surplus
in some other part of the economy it has
to be that way okay this is
by the rules of accounting so
their deficit the thing we call the
deficit is also a surplus
we just don't refer to it from our
perspective
our vantage point what's happening to
our balance sheets
we only talk about it with respect to
what's happening the government's
balance sheet well that's not
interesting i don't care
what number falls out of the budget box
every year i care about the health of
the real
economy i care about inflation i care
about unemployment
i care about whether society's needs are
being met i don't care about the number
that falls out of the budget box
so i just feel like you know
a lot of the problem we have is just a
communications problem
it's the words we've chosen to use to
describe what's actually happening
calling it a deficit creates you know
unnecessary anxiety because people
immediately say
week deficits are bad right if i turn on
the tv
and i see my football team
down by you know two goals and i say oh
you know if arsenal's going to pull this
off they're going to have to overcome a
two-point deficit against liverpool
well the deficit they want they won't
come back
not not against liverpool i mean not
against liverpool well
but you know what i'm saying i mean
these the words we use
are really problematic and the same
thing happens when we describe the
government borrowing you know we say the
government is borrowing money to fund
the deficit or financial deficit and
then we call
the resulting government bonds the debt
and then we go right into
you know your share of the debt and no
debt and it just
triggers people you know i'm still on
your football analogy because
firstly firstly you call it football and
not soccer which is amazing
you recognize england and you recognize
liverpool the best team which is also
excellent
so i'm just going to stick with that i'm
always going to be a fan of yours for
that yeah i mean
arsenal are terrible how did you know
that liverpool were the best
listen i lived in england for a little
while and the only football
match that i ever attended like saw live
was an arsenal game
and uh i won't tell you who won
because i don't remember when when was
this how long ago
96. wow 96 would that
so you would probably went to arsenal
when they were at highbury the old
ground
because they've got a new big new ground
like was it a really tight
ground i mean i all i remember
is that you couldn't have your beer at
your seat like you can at a baseball
game
or you know sporting game here and that
the visiting team
uh fans were literally put in a small
section and that there were guards
around them they were being protected uh
that's what i remember it's not so much
protection it's more because
basically with uk football if you if you
put them together everyone will just
start fighting
especially if they've had a bit so yeah
they built a wall around the uh
the opposing team's fans and then i
think they were allowed to leave first
so they could get a head start
maybe getting to safety no it was
it was a great experience i loved it
sometimes they have a police corridor
from the ground to the train station to
get them up to get them out so
anyway sorry back to this sorry you
distracted me it's because i'm a
liverpool fan and we won the title this
year it's the first time in 30 years so
the fact that you picked them out is a
good thing okay so let's get back to
this so it's a highly relevant time
right now and it's a good time to
discuss it because
we have gone from a 2008 financial
crisis to an
even in some ways a more scary crisis i
think the
gdp drop in the uk is 24 i don't know
what it was in the us
headlines are much lots more government
borrowing
headlines yesterday i think i mean the
gold price is up to
uh close to if not over two thousand
dollars now um i saw that the
there were reports in the financial
times of a weakening dollar
so i know that you can't print
unlimited amounts of money i understand
that there is an
inflationary impact on increasing the
money supply
i've been to venezuela i've seen the
impact on that i've obviously
read about zimbabwe lebanon recently i'm
also aware that
so even places like turkey now i think
it's about 13 inflation
is inflation the only downside in your
world
to a massive increase in the in the
supply of money
is that the only thing we have to be
aware of well i don't i
no but i don't also think that it's a
massive
increase in the supply of money per se
that it that poses the greatest risk to
potential
in runaway or accelerating prices um
you know you look at a place like japan
and you say okay here's a country
that has virtually committed itself over
the past three decades
to trying to achieve its own two percent
inflation target all they want is two
percent my god they would rejoice
if they could hit two percent i was
there last year it's all
policy makers and politicians talk about
how do we reflect how do we get to two
percent they can
not do it and it's i i think a lot of
people say
in spite of all of the so-called money
printing
all of the qe all of the expansion the
monetary base and so but in spite of
that
they can't move the needle on inflation
they
cannot get even close to hitting their
own
two percent inflation target now maybe
uh
we just simply have things backwards you
know this idea that all you have to do
is crank up the printing presses
increase the money supply
and that there's some automatic
transmission mechanism that gets you
from
increased money supply to increased
prices is just not borne out by the
evidence remember
after the financial crisis bernanke
tried to and the fed
struggled for nine years qe1 qe2
qe3 right we were there too huge
expansion we're doing it again
you know with long buying and expansion
the base so it isn't enough
it won't get you to inflation um do i
worry about
things other than inflation sure
but mmt tries to emphasize that the
relevant constraint in all of these
discussions that take place about public
policy government finance
you hear people say oh president obama
peter schiff you mentioned right we're
running out of money we're going broke
no we're not okay
that's bad logic but can we spend too
much
yes is there evidence that
at present we are at risk of you know
creating an inflation problem because of
what congress has done so far with
trillions of spending what the fed has
done
there's no evidence of that so
inflation's this really tricky
phenomenon it's a dynamic process
you can get it for reasons that have
nothing to do
with an increase in the money supply
nothing to do with that right look at
for example uh milton friedman right
would say inflation is always in
everywhere
a monetary phenomenon and it became
described as too much money chasing too
few goods
and i think for a lot of people we go
straight to the too much money part
and we forget about the too few goods
part right so you
look at what's happened in countries
like zimbabwe for example
people say well zimbabwe had
hyperinflation yes they did why did that
happen
and people think well the government
must have just printed a lot of money
and it created hyperinflation well no
what actually happened is that this guy
robert mugabe came to power
and he you know wanted to reward the
freedom fighters
he took land away from the whites who'd
been farming land
for forever and uh redistributed
and gave land to the blacks to freedom
fighters who
didn't know how to farm the land you
have massive food shortages
all of a sudden you're an agricultural
economy you got to feed your people
you're not growing the food a massive
collapse in the supply of food
now you're trying to import food but
nobody wants your currency so you have
to buy
foreign currencies the value of your
currency collapses as you're trying to
import food to feed your people
so the point is there's a lot going on
in zimbabwe
that goes way beyond printing money
leads to hyperinflation you have a
collapse
of the productive capacity of the supply
and that can
easily create you know an acceleration
of prices
okay so i guess what you're saying there
is an increase in the money supply
alone doesn't guarantee hyperinflation
but if that is if that happens alongside
you know a cut in productivity that
could lead to
a higher inflation so are we would you
say at the moment we are a risk
of that because we have significant
parts of especially here in the uk
significant parts of our economy have
been locked down some parts are coming
back
and i think there's going to be some
interesting uh side effects on that so
for example if you go to the pub now
you have to book in and you have to be
sat at a table
where it used to be you could use to be
able to stand like two three people deep
at the bar trying to get a drink
so these bars have a lot less customers
naturally
they may have to raise some of their
prices so could the lockdown and the
stimulus package
lead to is that is that a scenario where
we could have
higher inflation yeah it's a great
question so
you know the way i think about it is
first recognize that
inflation is meant to be a term that
applies to a
generalized increase in prices so not
just the price that you have to pay at
the pub
for the meal for the you know beer or
whatever but generalized
increase in prices so we where do these
how do we measure this
stuff well we put together price indices
right so you have
you know government officials and others
who build these
uh indices they they are constructed by
human beings we decide what goes in
and then we decide how to weight each of
those contributors so housing
healthcare energy food right all of the
things that are
supposed to represent the spending
behavior of the average consumer we try
to capture that
and then we track the movements over
time of those individual
consumer goods and how the prices are
changing
so your i think you're thinking is your
logic is
is perfectly reasonable to say well if
restaurants are operating at reduced
capacity
might you see some price increases in
you know uh retail and restaurant and
that sort of thing right
so say sure that could happen if airline
actually
can sorry sorry to interrupt there um
can i just add to that that that was a
single example but i'm
what i'm starting to think now is we're
actually at the potential at the
kind of like a junction in the road
where we're gonna see a wholesale shift
in the global economy and what i mean by
that is
a lot less people flying and the
airline industry probably won't recover
for years another uh
issue is that a lot of people don't want
to return into cities i know there's
been a move say in places like san
francisco
that i know of two companies have become
remote first companies i think it's
facebook and
coinbase where they've seen the benefits
of people working from home
which the secondary effect of that is it
affects
the retailers who used to rely on the
staff and the offices i know that's in
london
we've got that problem as well so it's
we're potentially seeing this wholesale
change in the economy which i
i don't think can happen without a drop
in gdp
because i think a certain number of
businesses are going to
are going to suffer and going to
struggle and then people are going to
have to rebuild new types of businesses
so it's not just that one scenario only
i just can see a just a significant drop
in the overall productivity of the
country because of this
yet at the same time the only option the
government had is up until this point
we've had the furlough schemes
but after that we're probably going to
have an increase in
welfare payments which i mean social
social payments for
you know those who are unemployed et
cetera so the two things that you've
said
potentially to inflation feel like they
could be happening right now
look i feel i still continue to feel
like what we're up against
uh the headwinds are deflationary forces
that that is how i feel i feel like
incomes it's not as if we're going to
sustain incomes at their current level
but productivity and output is going to
flow and so everybody's going to have
more purchasing power
we're going to go out and spend incomes
are collapsing unemployment is likely to
remain high
for a very long period of time i see
every day
people who are being told well your
salary is being reduced
yeah you're going to keep working but
you're going to have a pay cut well how
much are you going to consume
when your pay is cut by 10 or 20 or more
percent
so it's a tension of these forces where
there are going to be some bottlenecks
in some industries and prices are going
to increase but alongside that like you
said
what's going to happen to commercial
real estate what's going to happen to
housing right now
we've got an eviction crisis uh right
here in the united states mill tens of
millions of people
face right so then what happens to
apartment
what happens to rental prices so yeah
some things are going to get more
expensive but i
am very worried about you know entire
industries
um incomes and uh other prices
just you know significantly falling in
this kind of environment
is it is it unhelpful to look at
aggregate inflation then because
we have we're going to have inflation a
certain so we might see
food inflation and see fuel deflation we
might see
property inflation we might see
deflation in other areas
we only ever get an aggregate inflation
price in the
in the news which is based on the you
know the uk basket of goods
but actually should we have different uh
measures of inflation and deflation so
we
understand the different parts of the
economy this is effective yeah and we do
right i mean you you
i know you know there are different
measures of inflation sometimes we strip
out
things that are considered volatile like
food and energy sometimes we leave them
in the
fed likes a measure called core pce
personal consumption expenditure other
people think of cpi or
we have producer price indices and gdp
deflation so we've got a lot of
different things but you're right
i mean if energy prices continued
to remain low i mean we had a period of
time where oil was
you know it was it was like so cheap to
buy oil you they were making money on
storage you know so energy prices could
collapse but at the same time
health care prices could spike because
you know private health insurance
companies could be
raising premiums which they are uh and
that could and since
energy healthcare and housing are three
big drivers
of headline inflationary pressures if
you have one category going way up like
healthcare and another category coming
down like energy
or housing if we're going to have an
eviction crisis and housing prices are
going to collapse
people are losing their homes you're
being foreclosed on you're losing your
apartment i think
housing prices would likely fall in that
environment so
on balance you're right you you say you
know we might see the headline inflation
come down
even as uh things like food and i don't
know uh
yeah what do we say healthcare and other
things are becoming much much more
expensive
education what's going to happen to
college uh the cost of tuition
schools right now are saying we're going
to cut tuition by 20
because you can't be on campus and a lot
of parents are complaining they're
saying why am i paying full
fare if my child can't be in the room
with a professor and have the college
experience and all that and colleges are
trying to hang on
by their fingertips and so they're
saying well look we're gonna cut tuition
so that's a big uh contributor to you
know cpi
or a measure like that you know what is
the cost of education well that's likely
to come down
so your feeling is this is this kind of
all just balances out
well i don't know if it balances out i'm
saying no no one knows but there
there are there's push and pull in so
many of these major categories
that it's just really hard to say on
balance what happens but what i don't
see
are all of the major categories moving
together in one direction
where it's a no-brainer to say of course
we're going to be facing
higher inflation
next up i talked to stephanie moore
about modern monetary theory but before
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k-e-y-s
c-a-s okay so
help me understand then what what are
the risks with mmt
because inflation is a risky you talk
about that in your book it has to be
controlled inflation
okay so yes if inflation is the
relevant constraint then how should we
think about it and we've been having a
conversation about
some supply side factors oil price
shocks right
can feed through into inflation that has
nothing to do
with how tight you're allowing the labor
market to get how hot you're running the
economy or anything like that
so we recognize i talk about in the book
the way economists usually think is that
you can have an uptick in inflationary
pressures
for supply side reasons right cost
push sort of things and then you can
have the demand
pull sort of forces at work where
you know you're really running the
economy so hot
that we don't have the productive
capacity to keep up the businesses can't
churn out enough new goods and services
to keep pace with that higher spending
with that higher demand
and then you get inflationary pressure
so um you know the way that i've been
kind of talking about this lately that
seems to be effective
in terms of helping people kind of
understand is
i know that a lot of your listeners
probably most are not watching video
they're just listening to the audio but
i'm holding in my hand
a diet coke right some can of soda
standard
size can of soda it holds uh 16 ounces
of liquid so that's that's what i have
now i know
that this is this can has 16 ounces of
liquid in it and i know that this glass
that i'm holding which is
empty is a 16 ounce glass it will hold
exactly 16
16 ounces of liquid and not a drop more
okay
so i can open this can and i can start
pouring
into this glass and i can get every drop
of liquid
into this glass without overflowing the
glass
okay but i can do that so think of the
glass as the economy
i can i can pour too fast and if i start
pouring too fast even though it's only
16 ounces
i can still cause the thing to run over
right because
this is the speed limit yeah you talk
about like this right so
if i if i'm applying too much pressure
to a certain part of the glass
like a certain part of the economy if
i'm trying to do infrastructure
big infrastructure investment at a time
when we don't have
the construction workers architects
engineers the machines if there's a
residential housing boom or commercial
you know if they're people are building
a lot of stuff and the people and the
equipment is already in use
then the government coming in and saying
i want to do big infrastructure is going
to put them in competition
with the private sector for those
resources and it can create inflationary
pressures
what i'm saying is i can i can watch
what i'm doing
and i can pour the liquid in and when i
see like i do right now you can't see it
but i can
i can see it starting to bubble up so i
back off i stop pouring i
wait until the foam goes down and if i
manage it all just right then i get it
right to the top of the lip
nothing drops out nothing spills over
and it's beautiful
look the real world is messier than that
okay of course
look at the economy in the same way i
can look at this glass and know exactly
when to pull back and how much space i
have so what do we do as economists what
do we do as
public policy makers and others well we
we try to get estimates we take the
economy's temperature through time how
we look at the unemployment rate
we look at capacity utilization rates we
actually call businesses and survey them
we do it every single month and we
publish the data and we say how much of
your existing
plant and equipment are you currently
utilizing and the business
says we're at about 80 or worried about
73
of capacity and we put those uh
statistics together we publish them
so we have ideas we have macro models
moody's models fed
models you know you got a 100 different
operations or more
who have large-scale macro models who
could take
a piece of legislation let's say
congress is thinking
i don't know you know we might have
recovery underway here the labor market
might be picking up we might be getting
close to
our uh the glass being full i don't know
if it's safe to put some more liquid in
what do we think
so you analyze so you run models so you
try to figure out
if we were to do 200 billion of
additional spending 500 billion right
now
what is the likely impact on inflation
and you model this stuff and is it going
to be imperfect
yes but are you going to have a
reasonable estimate
right sometimes you'll miss on the
upside and inflation will turn out to be
a little higher sometimes you'll miss on
the downside
but the the point is that you know we've
done this stuff before we used to be
really good at it in the 40s and 50s
coming out of world war ii
during and coming out of world war ii
the us did an extremely good job
managing inflationary pressures in an
environment where
you know government spending massively
ramped up
to virtually 50 of total spending
and you know we didn't end up with a
hyper-inflationary problem or anything
people figured it out
the point the point is what's the range
like like what is this if you as a uh an
economist
who believes in this what is the safe
range of inflation that you want to keep
within
i know like most target 2 but look what
matters
is you know people's real income you
know
you don't want to get into a situation
where uh
you know inflation's running at four
percent let's pick a number uh
per annum and wages are only increasing
at two percent per year and everybody is
becoming two percent in real terms
poorer every year so you don't want to
get into that kind of a situation
the point i'm trying to make is that the
government is just
one spender in the economy and it ain't
nearly the biggest
right consumers get most of the space in
that glass i talked about
they get to do most of the spending and
the government has to compete for space
in the glass
with everybody else who's spending and
that means households which account for
more than two-thirds of total spending
they have to share space with private
businesses and have to share space with
the rest of the world
so if you want to apply more liquid you
have to try to get a sense
of whether the glass can safely
accommodate
the additional liquid that you want to
put in the spending
right the additional spending you want
to do and recognize
that that isn't going to be a 16 ounce
class forever
it will be an 18 ounce class and it will
be a 20 ounce glass that
some of the spending that's done the
private sector right through innovation
r d improvements in technological
know-how
more capital equipment that grows the
size of the capacity over time
government can make certain investments
that also enhance the productive
capacity of the economy over time
somebody soon you know we can
pour 18 uh ounces into the glass without
a problem
or 20 ounces you know okay
so i get what you're saying this is this
is very much macroeconomic theory
and i guess if i was looking from the
angle of the
austrian economist one of the things
about it is that
potentially whilst this works at a macro
level
on an individual level this may be
unfair
um so one of the things there's a
there's this website have you seen this
website
what what basically what the
happened in 1971
it talks about what happened it's got a
lot of charts since the us came off the
gold standard
and it highlights things that for
example that productivity
has increased increased since uh 1971 by
246 percent but
compensation has only increased by 115
and there are also the people that point
to the fact that whilst uh
mmt as a as a like economic theory will
keep the economy growing potentially it
drives greater inequality
because what ends up happening is the
the the new dollars
end up going to those who lead it need
it the least and those who need it the
most don't tend to see it
and that also one of the things you talk
about sorry i'm throwing a lot in here
is that
actually the real reason for taxation is
is fairer
distribution of income it's not that so
much that the government need it
but inflation tends to be an unfair
tax because some people say inflation is
essentially a hidden tax
and it's an unfair tax do you understand
those criticisms
well i don't even know that they're
criticisms i think most of what you just
said
most not all is more or less
true it's not a criticism of mmt the
recognizing that
worker productivity the trajectory has
gone like this
while the real median wage has gone like
this i'm showing one
you know increasing over time and the
other kind of flat lining yeah yeah um
that's just a reality that's just what
the data tells us now
some people will interpret that to say
wow
what what changed in 1971 if you look at
the economic policy institute epi
they are probably the ones who put the
chart out that this person or this
website is using to refer to this
because they
either popularize i think they they
started the thing but epi will give you
very different reasoning for that
divergence
of real median wages and worker
productivity epi economists won't say
this is because the us went off the gold
standard epi economists will look at
this and say
this is down to a lot of things the
decline of the manufacturing base
the decline with that of unions that
were there to protect workers wages
and to fight for those wage increases
and globalization and they'll layer on
you know another six or seven
reasons to explain why that picture
looks like that as opposed to just
saying
oh that's when we went off the gold
standard that must have that must be
what wrecked everything but
um is it true that deficits can be used
to deliver that financial windfall
that we talked about earlier to people
who least need the help
sure that's what i would argue that's
what the republican tax cuts did
okay they so the republicans came in
in december of 2017 passed these massive
tax cuts corporate income tax and
personal
83 of the benefits on the personal
income tax
i went to people in top one percent of
the income distribution
so when i said every deficit is good for
someone
that's true right those and republicans
understand this they know that uh
increasing the deficit will increase
somebody else's surplus they just want
to
direct the flow of the financial savings
the surplus
um to the people who you know they care
most about helping
and that happens to be people who least
need the help but
look if if we operated the budget
differently
we could have added the same two
trillion to the deficit
but diverted those financial surpluses
into the hands of people who most need
the help now
the the other point you raised is does
it end up going to the rich anyway
so if you help a poor person and you
know all they have to do is um
pay their their payday lender back or
you know their landlord or they're
struggling it's just churn
it passes right through their hands and
goes to jeff bezos or somebody
like that okay well yeah and that's we
have other structural problems in the
economy
that we need to you know figure out
how to allow let's say the bottom half
of the population
to be something other than just a
consumption unit that
churns dollars back to people at the
very top
because that's what happens too often
yeah i guess one of the things i
struggled with
because it's good timing to do this
because i did um i did a four part
series about steve mnuchin
and i was it started out trying to
understand what happened
post 2008 financial crisis uh when he
started the one west bank and
uh essentially built this foreclosure
machine so what i ended up doing was
i had to actually go back and study what
happened in the great depression and
what fdr did with a
with housing policy and then i jumped
forward and i looked at when
glass-steagall
was essentially i wouldn't say repealed
as more like neutered
and that was campaign for under reagan
but actually happened under clinton
and then the economic crisis happened
under bush and a lot of the stimulus
afterwards came uh during obama so it
felt like
actually a lot of the how would i put it
mal investment by the government
it has been both by both parties and i
know i know
i think there's a i think there is a
sound argument for
the democrats having a kind of a leaning
to being
a fairer distribution of income and the
republicans tend to be
i would say a little bit especially
under trump supporting the wealthiest
but
at the same time the point i'm trying to
get to is that
you talk about in the book that the
government isn't like a household it
doesn't have to have budget
responsibility like we do look
if you don't earn enough money or you
can't pay your mortgage you're going to
lose your home
and you have to you have to make sure it
happens i do the same i have to make
sure i can
buy food from for my children but i
wonder if and
if actually government does need that
kind of budget responsibility because
the incentive structure for those in
power
is to support the wealthiest friends and
also potentially invest in
i mean that as i understand it the us
came off the gold standard to fund the
vietnam war
which you know i think we all agree was
a disaster
but also at the same time perhaps now
there's an incentive for donald trump
to misuse the deficit to keep the stock
market high because he's got an election
coming
so i guess the the general thing i'm
trying to say is that the incentive
structure for those in powers
is to misuse this ability you perhaps
have a very solid
argument economic argument how mmt can
work
if it's used ethically i just don't
think the powers would be
use these things ethically well so first
i will
say that mmt works as a description
because
the first answer i gave you about mmt is
that it's a framework for analysis
right it's a lens so um it works
because it helps us to understand the
monetary system the nature of government
finance
and so forth that is not to say and i
say it uh
many times i think in the book that
doesn't mean that the currency issuer
can't abuse the power of the purse and
you just ran through
a series of examples that span decades
where you say i don't like that
what they did here and i don't like what
they do there well i don't like it
either
but mmt didn't make that happen we
didn't come away we didn't come around
until
you know the mid-2000s or whatever so uh
you know we can't really finger mmt and
say this is the kind of thing that will
happen when
when your thinking takes hold this was
you know cheney said
reagan proof deficits don't matter so
the
budget was being used aggressively in
the 80s the deficit
to massively increase defense fund
spending and to do
big tax cuts you know those are two
things that reagan did mmt didn't make
it possible the nature of the monetary
system made it possible and
look i mean it's a democracy so we elect
officials
we know there's a problem with money uh
with finance
in you know terms of our electoral
process the influence
of big money in the political system now
we have
entrenched it with citizens united so
yes
got a lot of people who are elected
in theory to be representatives of the
people in their districts
and to do right by them and to promote
the public interest and serve the public
purpose and so forth and they get to dc
and then they
find you know for a variety of reasons
uh that they are casting votes that are
not largely aligned
with the interest of the people who put
them there but instead
serving the interests of you know the
powerful
and the wealthy and so forth so we know
that happens and
so what is the answer to that it's it's
in it's got to be in the political
process it's not in the economics
it's in the politics it's in the
political process
but can you separate the two really i
mean
because it feels like supporting mmt
comes with an acceptance that there will
be malinvestment by
you know those who get to to to spend
the increase the deficit spend the money
so how do you change that how do you
have budget responsibility
well so i tried in the last chapter of
the book
to tackle this question this is this
exact question
and you know what who did i write this
book for i wrote this book for people
i wanted this book to empower regular
people so that
when your elected official comes back to
his or her district okay i'm a voter in
kansas
my congressman comes back to the
district and stands before
you know some subset of people who vote
who elected him
and sent him uh to to be a member of
congress
and i started saying you know why aren't
we doing more too
and i lay out the concerns that i have
about our economy
my well-being my perceived right
whatever and i say why aren't you voting
for this stuff why aren't you doing
something to solve these problems
and he says look i i agree with you i
wish we could do more
but we got this deficit we got this 24
trillion dollar debt
we are broke we can't do that that is my
answer to your question
it's the accountability has to come from
us and as long as we are misinformed as
long as we believe them when they say
listen i can only use the budget to do
tax cuts for the rich because i was
trying to grow the economy i can't
afford any of this other stuff
so how do we get better budgeting how do
we get a better use of public money
because it's federal money i mean people
talk about
taxpayer money and all that's not
taxpayer money okay
it's federal money it's our money how do
we
get more transparency better
accountability
from our elected officials and i think
part of the answer
starts with the rest of us understanding
the nature of the money itself right
what are the limits what are the
constraints what can we
legitimately ask of government uh
and what are the constraints and let's
start improving the political discourse
let's have a better debate
and then over time i hope end up with
better public policy
okay so i'm just trying to digest this
could i argue that it is the
individual's money and it's not
government money in that it is
our productivity your productivity
you're writing the book and creating the
book and selling it
that that creates value and it's my
productivity and creating the podcast
again sponsors
that creates value and that the
government doesn't actually
create money apart from the only way it
generates revenue is by taking from us
or printing it
and therefore therefore if
they have target inflation they're
actually they're actually reducing the
wealth that we actually create
so could you see a fair argument for
flipping your point there and actually
saying it is our money not theirs
no um but i'll i'll give you i'll give
you
you understand my point though don't i
do look i i'm gonna go back and use the
example of the cares act again okay
okay the 2.2 trillion that is a bill it
just starts as a
document right it is it is congress
writing down on paper
literally their intentions we want to
spend 2.2 trillion we want money to go
to the small business association for
the ppp
program we want money to help support
the unemployed we want this 1200
one-off so-called stimulus payment we
want to do this we want to do that
so they cobbled together a plan and they
said this is what we want to spend
they didn't take our money there's no
hour money in that
this is congress writing down a plan
of spending sending that through getting
the votes getting the signature from the
president and then what happens
the federal reserve is put on notice the
fed is the government's fiscal agent
it's the government's bank that piece of
legislation
effectively orders up 2.2 trillion
dollars from the federal reserve it
says it is congress saying to the fed
get ready because we've just ordered 2.2
trillion and
you're going to make the payments how
does the fed do that
well they change the numbers in the
appropriate bank accounts they carry out
the payments on behalf of the us
treasury every payment that is made was
authorized by congress
our elected body politic so
that's where the money comes from now if
you want to say
the government can't create value all it
can do is dilute
what we already had so this is a
horrible thing well hang on
how how much better off would the
economy be
without that support with all of those
small businesses going under
with all of those people losing their
rent right so
well i think i could throw something in
here i think i think this is where
nuance is needed because one of the
things i've
and i had debated this with quite a few
people especially
with the libertarians who are
criticizing the money printing i was
like well
what else could they do and a lot of
people would say well let people run
their businesses and let businesses fail
but i do think without some kind of
stimulus program
there were people who would not be able
to work who would
have no income and their only option
would be begging charity or crime
and um so i understand why something had
to be done whether or not you agree with
that i understand why something had to
be done
stimulus checks very helpful the the one
challenge i would give and
particularly towards what steve mnuchin
said is
is these loans that were offered to huge
companies
including i think some of the largest uh
hedge funds even received money
there are lots of companies that receive
money to
to allow their business to continue but
these businesses are ultimately going to
fail anyway
and also some of these people could have
borrowed money in the private markets
so i think so i think there's some i
think there's some things we have to
look at here because
almost certainly that money enabled the
stop
the stock market to stay relatively
actually to grow
and in keeping the stock market you know
at a higher levels whilst
other people are losing their jobs and
trying to survive on 1200 dollar
stimulus checks
we know that the people who tend to own
stocks and shares of gold tend to be the
wealthiest
so it creates a bigger wealth gap so
so i think nuancer is needed hey i'm not
going to argue with you
um peter at all no no question that
both things are true that some people
who desperately needed help got help and
that that benefits not just the person
who got the help but their neighbor as
well it's better for me
if my neighbors are being foreclosed on
and the value of all the homes in this
neighborhood including mine
are collapsing it's better if you know
the worker is continuing to receive some
income
because i'm a you know i'm a hey i'm
starbucks and i'm still open
and i still have some long line of cars
of people who can afford to you know
spend a few bucks on a coffee every day
it is also of course true that a lot of
people
who didn't necessarily need to tap that
lending facility
got help absolutely true so what do you
do though i mean this i think
what a lot of people would say is time
was of the essence we didn't have time
congress didn't have time
to carefully carve out you know language
in the cares act that would only allow
funds to go where they were most needed
now there were things they could have
written in
that would have ensured that more small
businesses minority-owned businesses and
others
had better access and so forth there
were things that could have been written
in that weren't
that allowed you know the big guys and
the connected folks with the
fancy accountants and the financial
advisors and others
to put them way ahead of the pack and
exhaust that initial
350 billion and so yeah it's
it's imperfect legislating in a crisis
is
bound to result in you know some people
taking advantage of
uh getting federal money that you
wouldn't ordinarily like to see happen
well i i think this is this goes back to
my other point where i think this is
the main problem i have with mmt outside
of the first point i think some some
some
of it can be a little bit unfair i think
inflation is
in some ways an unfair hidden tax but
it's the
it's you know what in the uk i'm very
jealous that we don't have a
constitution and the reason i'm jealous
is you have this base
set of rules that you can refer to for
your country
the reason i don't believe you'll ever
have a
tyrannical dictator in the u.s is
because of your constitution
and the great thing about the
constitution and the forefathers from
from the limited amount i've studied it
is the understood they understood the
weaknesses of man like
they say men and women but they
understood the weaknesses of humans and
and our own um uh flaws so they built
constitution around that to protect
against that
and i think one of the the difficulties
is that the
the constitution isn't wide enough to
protect
how government spends money and
essentially like one of the things i've
noticed is this is kind of
wall street and the goldman sachs alumni
started to take up high high position
high profile roles in the us government
i mean you will have seen it with
elizabeth warren
she's uh she thinks um trump
administration is an extension of wall
street
and i guess that's one of my main
problems is there is a
structurally it is set up in a way that
they can protect their own
and so whilst even if i wanted to agree
with
mmt i think structurally the way
politics operates in the u.s is set up
so it can be abused it can be corrupted
and whilst we can go back to their
voting booth and
and vote against this really there's i
think you need wholesale structural
change to even allow it to be slightly
fair
look i uh i'm sympathetic to
what you're saying i and again mmt
is is not a panacea it's not going to
protect us from bad actors it's not
going to protect us
from the special interests taking on
positions of power and you know
diverting
public policy to serve the interests of
you know
tiny you know group of individuals it
look i'm conceding
all of that what i do say in the last
chapter of the book though
is that the federal budgeting process
like we get to decide
before coronavirus the federal
government budget was
four and a half trillion dollars that is
how much the federal government
spent every year on the on all the
program four and a half trillion right
now of course that number is much bigger
it'll be six and a half seven and
eight trillion whatever it's going to be
congress can always write and pass any
budget spending bill it chooses so
what should be the checks that are in
place right now there's
mainly one and that check is
it goes through the congressional budget
office you want to spend money you want
to pass a bill
send it to cbo see what they say so we
have this
budget scoring agency that is supposed
to be nonpartisan and all that kind of
stuff and they look at the bill
and they say what let me study this
proposed spending to see if it adds to
the deficit
that's the primary concern and if you
can get your bill
through the congressional budget office
with a good score and
let me tell you having worked in the
senate that's what it's like
members of congress write a bill and
then cross their fingers they sit back
and wait
what is cbo going to say what is cbo
going to say am i going to get this you
know am i going to get to vote on this
and so forth
what i'm saying is that is probably the
least useful feedback we could possibly
ask for um let's help lawmakers
with a better um framework for analyzing
proposed legislation i don't care if it
adds to the deficit i care if it carries
inflation risk and if lawmakers have
adequately mitigated that risk if
there's been a careful analysis of the
proposed spending
i care if it widens income and wealth
inequality nobody asks
cbo to look at this proposed spending
and give feedback to lawmakers to say
what is this going to do to the wealth
gap what is this going to do to the
distribution of income and so forth
so we don't ask those questions so there
are a lot of changes that we could make
and i propose them to the federal
budgeting process itself
that would better protect people like us
from lawmakers abusing the power of the
purse
and i think help us get better outcomes
i'm not you know
suggesting that i have the perfect plan
and i can fix all
you know plug all of the possible holes
where
you know money is going to leak into the
buckets of the the very rich i can't do
that but i think i can provide
some insights for getting us a better
framework you know for how we how the
government spends money
what what the evaluation the analytics
behind that before we give the green
light to go ahead and spend
so so what you're saying is i mean you
accept i guess some of my criticisms and
you're saying
but that is a trade-off of the
the federal government having the
ability at times of crisis to be able to
you know support growth in the economy
to be able to support welfare payments
to help
hopefully create jobs in other parts of
the economy
yeah i don't want to so constrain i
would not want to so constrain congress
that you know when you're hit with a
crisis like coronavirus
that you have institutionalized legal
framework say
where congress can't act in a matter of
days or a week
to spin out a bill and get uh you know
address the unfolding crisis
because it would violate this it would
violate that
it would you know what i mean yeah no i
do and interestingly enough
a couple of months ago i interviewed a
libertarian by the name of
scott horton and he actually he actually
agreed that we're in a very unique
situation under coronavirus
that's that he almost agrees that the
federal government has to do something
it was quite interesting
to have that conversation i guess
outside of
coronavirus still i wonder
so what what do you think of the
austrian school of thought that
a fairer system is it's based on the
individual
and there would there would be a
requirement
okay let's not go for austria but let's
say there would be a requirement
for the government to balance the budget
what are the implications of having a
balanced budget
well in the u.s context so in in the
book
in let's say chapter five
if uh it'd be a lot easier if i could
you know
uh use visuals in some sense but look
well hopefully everyone will read this
book afterwards and i will put in the
show notes because i think
people should so let's let's take let's
suppose we could take as a starting
point that the goal
is to get a full employment economy that
we want the glass
full now we have to recognize that there
are a lot of leakages that
happen every dollar that i save and
don't spend
is a dollar that can't be captured by
some producer trying to sell their goods
and services right
saving is a leakage every dollar that is
taxed away from me
is a dollar i don't have and can't spend
buying some good or service so taxes are
leakage
and every dollar that i spend buying
goods or services produced abroad
is a dollar that can't be captured by
some u.s producer
who is trying to earn a revenue turn a
profit and stay in business so it is it
it leaks out of the u.s economy so we
got these three
leakages savings taxes and buying
imports right so the question you're
asking is
if we if government had to balance its
budget if it had to match
the amount of liquid it pours in to the
glass with the amount that it takes out
of the glass
then the question is can we keep the
glass full can we
keep the glass full how how can we keep
the glass full
the private sector as a whole normally
wants to be
in a position where it is net saving
where it is spending less than its
income
so it's not filling up our glass
sufficiently because it wants to
take some of those dollars and leak them
out saving
the rest of the world doesn't buy as
much from
us as we buy from them so dollars are
going out of our glass
and filling somebody else's bucket so
that's all lowering
the water level in our glass the only
way
to keep the economy at full employment
given the desire of the rest of the
world to net save dollars that's why
they're net exporting to us they want to
earn our currency and save it
and the desire of the private sector to
net save to spend less than its income
the only way the output gets sold is if
somebody
provides an injection there has to be
somebody who's willing to spend more
than their income
to allow everybody else to spend less
than their income
so the that is the macroeconomic
logic that tells you um what happens if
the government balances its budget it
means
chronically given the saving desires of
the other two parties the rest of the
world and the private sector
you're not going to have a full
employment economy but
i would argue that saving is a positive
it's a positive for people to save and
it's a negative that the
value of the money they've saved is
debased
by inflation and also the
i would argue also that if
if we're encountering people to spend
we're not encouraging
we're not building a sound solid economy
based on
high quality production we're actually
incentivizing
the production of kind of cheap crap
that doesn't necessarily follow of
course
saving is good at the individual level i
want to try
not to spend all of my income i would
like to try to set something aside
save for the future i don't want to work
through for every day for the rest of my
life so at some point i'll
stop working uh you know uh my wage
income will go to zero
and i'd like to have some savings set
aside but recognize the point i made
which is every dollar i choose to save
and not spend
is a dollar that isn't captured by some
seller of
output so if i take my take-home pay
and i just say my husband and i sit down
and we come up with a budget plan we say
you know what we're going to start
saving 10
of our income we've been saving let's
say five percent
we're gonna double that so we're gonna
save more every month that's great that
puts us in a
more secure position to pay college
tuition in the future retire whatever
but if everyone in the economy tries to
accomplish this
tries to spend less and save more then
it
i hope is pretty clear that you are
reducing
aggregate expenditure which means that
the output doesn't get sold right some
a lot of businesses are to lose
customers capitalism runs on sales
you can't make spending the enemy of
capitalism because
that's what our gdp is right it's
nothing more than a measure
of the total number of dollars that are
spent on newly produced goods and
services
in economy in a given period of time
like a year right so
spending is the engine here does that
mean that everything people spend money
on
is you know high quality whatever no go
to the mall you see the kiosks with the
little squishies and all the little
fidget spinners and there's a lot of
crap out there
that we're spending money on but if
somebody's buying it
then that must be a reflection of
the value that they place on this fidget
spinner for one
godforsaken reason or another now i
understand
we've got fidget spinners all around our
house somewhere or another
but i think i think the the point i was
trying to get to is that
that isn't it a case that if we're all
saved 10
that increases the scarcity of the
dollar therefore increases the value of
the dollar
no so what i've
what i've learned about this is wrong
i think so um because i would have
thought
that the dollars don't go away they just
why would it why would you increase the
value of the dollar
because i would have thought in my world
is that
if it's hard if like if if i'm if i'm
really don't want to spend my
dollars or pounds whatever i really just
want to look after them
people have to produce they have to
produce things that i really want to buy
so the quality of production of items
goes up
perhaps the value of items goes up but
the
again i'm by the way i'm hugely out of
my depth here
but but as i understand it this just
comes down to simple supply and demand
if the supply is constricted then the
value goes up
yeah i just don't think it works that
way i mean you
we have seen qualitative improvements in
the production
of a whole range of electronics and i
mean right
um producers improve
quality or perceived quality of products
over time
at the same time you get a lot of crap
that's produced maybe we invent new
um but but you're not going to get me i
can give you i can give you a good
example
i can give you because this is the only
time because i i can i can use bitcoin
as an example
and um i know you know you're not in
that area but let's just use it as an
example that there's the
21 million bitcoin they're limited by
supply i hold on to my bitcoin i don't
want to
spend them and lots of people do the
same as other people want those bitcoin
their relative value to the dollar or
the pound goes up
similar to gold gold is exactly the same
as more people
want access to gold especially right now
and people aren't willing to sell it
therefore the price the relative value
of gold
to the dollar a pound goes up therefore
the value of gold is going up
i i assume the same would be true about
the dollar
if i wanted to or the pound if i wanted
to
save my pounds on dollars and you did
and i was less willing to
spend it the relative value of that goes
up as well
so look let's like here's a real world
example people say
well suppose the dollar gets easier to
get let's say we make the dollar easier
to get
uh internationally the government's
running deficits it's easier to get
dollars
does the dollar does the value of the
dollar automatically go down
and it turns out you know there are god
knows how many studies thousands and
thousands
of empirical studies that attempt to
look at what happens to the value of the
dollar
let's say in relation to the budget
deficit which makes more dollars
available
is there some necessary like robust
empirical
relationship there isn't no one has
found that you would think
that you know let's say with qe here's
another example a huge expansion of the
base look again at japan
what has happened when i was there last
year the big concern
uh from japanese policymakers that i was
talking to was the strong yet
they're worried that the yen is too
strong and so there just
isn't this neat and tidy sort of
relationship for every dollar you decide
to save you say oh i'm robbing
you know the marketplace somehow of
dollars and therefore that should
strengthen the value of the dollar for
everybody who's out there doing that
somebody like me walks into a bank
that's done with the loan officer
borrows a few hundred thousand dollars
and i've just more than
wiped out right so what you're
withholding
i can easily walk into any bank and
you know i'll walk out with newly
created um
account that i will then go out and
spend so
right i think we're reaching the point
of the discussion where i am definitely
at the limitations of my ability to even
discuss and debate
do you know one of the funny things that
i'll put to you is that i i speak to a
lot of people who are
very certain in in their views of
economics whether it's
austrian economics whether it's yourself
whether it's keynesian
and i kind of drift between them all
just trying to think
there's so many people who are so
certain in their world and trying to
understand it all
is very very complicated but i do i do
recognize where i'm at the
the limit of what i know um
i'm gonna finish this on a final
question
could you be wrong they're part because
you said in your book that you were a
skeptic
and now obviously you're not and you've
read in the book could you be wrong or
are there aspects of
mmt that that you're unsure and all
concern you
well i mean the biggest one is the one
that we spent quite a bit of time
talking about which is you know how do
you
once everybody let's suppose that we
we got 535 members of congress to say ah
i'm not worried about deficits anymore i
get it now that's not the relevant
constraint it's inflation
how do we then begin the hard work of
transforming the way that they actually
behave
right how do they take a vote how should
we evaluate this proposed spending and
so
you know that's messy that's po that's
politics
but am i do i think that i'm going to be
wrong about sort of core
tenets of mmt the idea that deficits
um don't absorb uh eat up private
savings
that they drive up interest rates and
lead to crowding out and all this stuff
i don't think i'm wrong about that
uh i do i think that the government is
gonna bounce a check
do i think that you know guys like peter
schiff who say we're broke
do i think that i'm going to be wrong
and that one day we're going to wake up
and the for sale signs going to be
hanging on the united states
uh government no i don't think i'm going
to be wrong about that
so there are core tenants the accounting
insights of mmt
the notion that the government is the
issuer of the currency that it can
manage interest rates i think we're
watching all of that now you know it's
all of the
the people who were so sure that
deficits drive interest rates up
um or that qe is inflationary i mean
that
those people that asserted those things
with real you know
fervor i think um you know are
demonstrably wrong and i think mmd helps
with understanding why they're wrong
i'll say it that way
okay well it's very useful um
i i i have a couple of predictions once
this is released
there's going to be some people are
going to want to debate you they're
going to say let me debate her pete
who who will disagree fundamentally with
what you say i know there are some
people
i've spoken to um privately who agree
with the ideas behind mnt i guess the
place i am in is that i just
directionally wish we had
smaller government less government uh
less
things the government felt they needed
to spend money on which i don't think
they need to do
kind of deregulated markets and
directionally we we head to a world of
less government and
more individuality but it's definitely
been useful for me to listen to this i
will share it out in the show notes
i recommend you switch off twitter for
two days when this goes live because
your mentions will be full of bitcoiners
telling you why you're wrong ferociously
attacking your arguments um but no i do
appreciate you appreciate you coming on
um
i did enjoy the book whilst i didn't
agree with everything i did enjoy listen
to it
and i commend you for narrating the
whole thing over three days
thanks peter it was nice to chat with
you if if people want to find you i want
to find your book and they want to read
it where would they find it oh well yeah
i mean just a google uh google the
deficit myth
and there's a website through the
publisher uh where we'll give you a
variety of options if you're someone who
doesn't want to buy
from amazon there are other ways to get
it of course you can always get it
through amazon
there's lots of ways to get the book
well thank you and i wish you good luck
and uh maybe we'll chat again at some
point
okay thanks very much take care
okay so what did you think of that did
you enjoy that what do you think of mmt
is anybody listening to the show a fan
of mmt i'd love to hear from you tell me
what you think
look i'm not but i was glad to talk to
stephanie about it
it was good to hear the mmt argument i
do think it's full of holes
i think i put up some pretty strong
arguments i also think stephanie gave
some concessions
mainly around incentive structures but
we do
as i said in my intro we do live in this
world of central banks and governments
we do have this pandemic we have lots of
people out of work
the money printer is going to continue
so if it is like i want to understand
the ideas behind mmt
is the theory behind inflation is it
more nuanced than just money printing
leads to inflation
now i'm obviously not an economist but
i have learned more about austrian
economics and that definitely is a
school of thought which
i think just makes more sense to me it's
a much fairer system
but it was great to have another
perspective so a massive thanks to
stephanie for coming on
throwing herself into the fire because
i'm sure some of you will be very
critical of this um
if you are please be respectful she did
give up her time for me to come on the
show
um and also if you've got any questions
or feedback you want to let me know what
i got right what i got wrong you can
reach out to me my email address is
hello what bitcoindid.com
got some interesting stuff on my other
show defiance i released a really
interesting interview with zubu this
week we talked about the hijacking of
black lives matters
and also next week i've got a four part
series about the heavy metal band the
ghosted size starred in
they were in a fatal road crash in 2015.
lots of injuries and they had a four
year recovery until they made their
comeback gig in
los angeles which i went to and i
approached the band i said can i tell
the story and they've allowed me to
it's a fascinating story that starts
next week you can find all of that on
defiance.news and as i said if you want
to reach out to me my email address is
hello of whatbitcoindid.com
okay outside of that it's really sunny
here so i'm gonna go and join my weekend
i hope you all do
and i'll catch up with you next week
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