.@rohangrey was way out in front on this (and other fintech issues). He speaks the way I might write if I knew as much as he knows and I had a few weeks to draft/revise/edit what I’d written.
I am sure after listening to the "P word" the entire anti-MMT gang will foolishly equate #MMT to the extreme version of communism n deliberately ignore the entire statement, coz they know if they consider the entire statement they would be 100% wrong about MMT! @StephanieKeltonpic.twitter.com/vOjvUH0pq2
I am sure after listening to the "P word" the entire anti-MMT gang will foolishly equate #MMT to the extreme version of communism n deliberately ignore the entire statement, coz they know if they consider the entire statement they would be 100% wrong about MMT! @StephanieKeltonpic.twitter.com/vOjvUH0pq2
And you're saying deficit spending is the way to address this, that people that deficit spending won't.
-- It's not a necessity that that drives inflation and it's not a necessity that it saddles future generations with debt. It's not a necessity that saddles future generations.
It is not the case that deficits are inherently inflationary but it is true that deficits can get too big. And one possible way for that to materialize is in the form of inflation. So, again, you can't spend willy nilly. You can't drive trillions and trillions too rapidly into a very narrow hole. You have to figure out over what period of time can I safely make these investments in infrastructure. And you have to be able to resource what it is you’re trying to do. Rohan said it earlier. If you want to do infrastructure, you have to be sure that you have available to you the the contractors, the engineers, the architects, the steel, the machinery.
But that you can get ahead of. That's the kind of thing that planning -
- Oh, oh, Jon.
- What?
- You said the P —
- Should I leave? I'm just gonna go. I should leave.
You said the P-word.
You're not getting invited back to the Christmas party now.
I apologize.
This is a scary word because you just said "planning." You have to plan. Yes. You have to plan for prosperity. And by the way, boardrooms are invented for the purpose of planning. That's what corporate America does. They go walk into the boardroom for the purpose of planning. So we have to be willing to plan for prosperity. We have to be willing to do that.
Here @rohangrey explains that why mainstream economic thinking is fundamentally flawed about what causes inflation. It is all about the availability of real resources. Just coz something is not showing up on govt balance sheet doesn't mean it is not causing inflation! #MMTpic.twitter.com/32bg7sEspm
Here @rohangrey explains that why mainstream economic thinking is fundamentally flawed about what causes inflation. It is all about the availability of real resources. Just coz something is not showing up on govt balance sheet doesn't mean it is not causing inflation! #MMTpic.twitter.com/32bg7sEspm
If you think about the way the inflation is showing up, you know, one of the things to look at is, where are the real resources there otherwise potentially being deployed? So if somebody comes to a bank and says, "I want to build a school." That's going to need laborers. It's going to need bricks. It's going to need other things. Say there's somebody else in the next booth at the bank and says, "I want to build a casino." It's the same labor. It's the same bricks. It's the same electrical engineers, et cetera.
Now we don't have a mechanism today to work out where we should put the blame, between a private loan, private credit, and public spending. We say, "Oh look, we spent a lot of money on school building and now there's inflation in construction." "It must be the schools." Meanwhile, all those casinos being built next door get off scot free because that's not taking place - on the government's balance sheet.
- Right.
So when we look at demand, we need to look at all the sources of demand, not just the public's balance sheet. Otherwise we're always inevitably going to blame the one thing that we changed this time. And of course, no one's saying we need to cut military spending by a third. That's not the part of the budget they're going to blame at the end of this. They're going to blame helping average people. If it's that we have the resources, but right now, private actors are hoarding them or using them in private markets, and they're not available for public use, we need to make them available.
Oh, okay. So, and these are the things that you're talking about. Energy prices, supply chain, bottlenecks, the, you know, problems related to the shutting down and reopening of different parts of the economy at different times. - These are kind of the inevitable growth pains. - So the correlation is not causation in this case. - That's exactly right. - Okay. But you're - you're right to say, you know, that there is a real risk that Keynesian economic policy and that the policy response this time, which was so much better than the policy response after 2008, will come away with a real black eye if people don't get a better understanding of why the inflation is up at the moment. If we start pointing our fingers and saying, "Well, this is what happens when you try to help people stay in their homes and be attached to their employers and have some income to pay the bills." Can't do that ever again. This was the punishment. Can't let that happen.
If you think about the way the inflation is showing up, you know, one of the things to look at is, where are the real resources there otherwise potentially being deployed? So if somebody comes to a bank and says, "I want to build a school." That's going to need laborers. It's going to need bricks. It's going to need other things. Say there's somebody else in the next booth at the bank and says, "I want to build a casino." It's the same labor. It's the same bricks. It's the same electrical engineers, et cetera.
25:35
Now we don't have a mechanism today to work out where we should put the blame, between a private loan, private credit, and public spending. We say, "Oh look, we spent a lot of money on school building and now there's inflation in construction." "It must be the schools." Meanwhile, all those casinos being built next door get off scot free because that's not taking place - on the government's balance sheet. - Right. So when we look at demand, we need to look at all the sources of demand, not just the public's balance sheet. Otherwise we're always inevitably going to blame the one thing that we changed this time. And of course, no one's saying we need to cut military spending by a third. That's not the part of the budget they're going to blame at the end of this. They're going to blame helping average people. If it's that we have the resources, but right now, private actors are hoarding them or using them in private markets, and they're not available for public use, we need to make them available.
You know, it always strikes me that,
when you talk about that policy, it's OK for the government to intervene. You know, you said earlier about winners and losers. It's always OK for the government to intervene on corporate behalf. For instance, you know, Wal-Mart is allowed to, or a lot of those companies, can pay less than subsistence wages. But the American taxpayer subsidizes that with social services. And food stamps is basically a subsidy program for Kraft. You know, it's government money. So we always make money available for corporate America. And it makes me come around to this idea of, you know, a universal basic income that is maybe smaller than what we thought about, you know, in other ways. But, we are subsidizing corporate malfeasance. Like that's where a lot of our money goes. So when you talk about our debt, or even, you know, the deficit that's running every year, a lot of that is base
i did an interview with a gentleman named thomas honig who uh i guess was chairman of the kc fed and uh he had been voting no on quantitative easing from the fed which is their policy of of of pumping a good deal of money in into the economy and he and i had a spirited discussion where i uh without the knowledge of economics or the language of economics or the verbiage of economics was trying to understand uh why the fed can just bring this money cannon uh to corporate america and not also maybe let, as we say in the old neighborhood let the people have a taste but a little taste a little something from the money cannon. i guess i'm confused as if we can print money you just said we're the only we can buy an asset okay any asset by printing money that is weird but you can't pay debt by printing money you can buy that by printing money so why don't you just buy back our debt well because all you're doing is i feel like i feel like you're having trouble it's like talking to a monkey no you're like talking to a monkey and trying to understand how do i communicate with this monkey no no i don't know what to do no no it i totally i totally get it's confusing. and stephanie and rowan were lovely enough to uh comment on it on the internet in in a long chat form which made me think that neither of you has a fulfilling life because this is the part now we get to it how did this how did any of this come to your attention and and uh explain to me how this came about?
Kelton：
so i you know i listen to the podcast and i'm on twitter rowan's on twitter. and there was quite a bit of chatter about this you you guys pushed some buttons but you didn't push the buttons. that were pushed for me and i think for rowan. we were on the wrong buttons. no no no i think that a lot of uh the interest in some of the commentary was surrounding you know the impact potential impact of the fed's quantitative easing program on inequality but i wanted to take up a different part of the conversation and i listened to the whole podcast. and then i felt very sad and.
wow that's that's our goal.
anytime you can listen to the whole podcast and feel sad i've done my job. misery loves company so i reached out to rowan and i said i feel very sad and i would like you to experience the sadness with me would you listen to it together.
i'm going to give you guys a chance to unsadden yourselves by telling me what what i was getting wrong there and and where you thought the conversation should have gone what was it that that saddened you both as you were listening to me talk about uh fed policy with with thomas owning？
Kelton：
well i i don't think it was so much listening to you it was the missed opportunity of what you could have potentially pulled out of him had he given you i think you know more candid answers frankly. to the questions yeah okay and so they felt like missed opportunities but you were clearly on to something.
and you were asking probing questions and you're not a monkey. you're not a monkey john you had him you had him yeah i had him on the ropes but he didn't want to be as forthcoming as as both of us think that he should and could have been.
R:
yeah i mean i think the starting point is that um we often think of the fed as the sort of only institution in the federal government that has any monetary firepower right it's the sort of printing press it's the one that can do anything in a crisis but the reality is and i think covert has done a great job of demonstrating this that it's the fiscal firepower it's the budget side of things that really has the power to um actually save you know real people's incomes save industries to invest. and one of the big questions is if we accept that we can do things with the budget and we should be what is the role of the fed and how do they relate to each other and when it comes to things like protecting financial markets from having a liquidity crisis or regulating financial institutions yeah it makes sense the federal reserve might be the place you look to. but when you look at what the fed is doing when we say sort of fed injected trillions of dollars into the economy one of the things that it's doing is buying up assets. so the first thing to think about is there's always two assets involved there's the sort of money that goes in and there's whatever's coming back out going to the fed so if somebody said to me hey you've got trillions of dollars but all you can do is buy other dollars that's going to be very useless to me if i'm trying to protect homeowners or people who've lost their incomes so then the question i think we have to ask ourselves when we look at what the fed does with quantitative easing is what is it buying up.
Ladies and gentlemen,
welcome to the podcast.
We have an exciting, exciting podcast for ya.
Today's podcast is a rebuttal.
It is a further clarifying
of a former podcast that we did.
Our guests today,
very exciting.
Stephanie Kelton and Rohan Grey.
They are some of the leading authorities on what's called
Modern Monetary Theory,
which is kind of a new approach
to economics.
First, thank you for inviting
- both of us to come and talk to you about this. - I'm delighted.
Alright. So let me roll it back then
and we'll start a little bit at
my interest in this.
I did an interview with a gentleman named Thomas Hoenig who
I guess was chairman of the KC Fed,
and he had been voting “No" on quantitative easing from the Fed,
which is their policy of
of pumping a good deal of money
into the economy.
And he and I had a spirited discussion
where I,
without the knowledge of economics
or the language of economics
or the verbiage of economics,
was trying to understand
why the Fed can just
bring this money cannon
to corporate America
and not also maybe let,
as we say, in the old neighborhood,
let the people have a taste.
How 'bout a little taste?
A little something from the money cannon.
I guess I'm confused as
if we can print money,
you just said we're the only-
We can buy an asset.
OK.
Any asset by printing money.
- That is we- - But you can't pay
- debt by printing money?
You can buy debt by printing money.
- Or you- - So what are you just buy back our debt?
Well, because ...
all you're doing is-
I feel like I feel like
you're having trouble.
It's like talking to a monkey.
- No, no. - You’re like talking to a monkey and trying to figure out-
- Look it- - how do I communicate with this monkey?
- No, no. - I don't know what to do.
No, no, it. I totally.
I totally get it. It's confusing.
Stephanie and Rohan
were lovely enough to
comment on it on the internet
in a long chat form,
which made me think that neither of you
has a fulfilling life
because this is the part-
now we get to it.
How did this-
How did any of this come to your attention?
And explain to me how this came about.
So I, you know, I listen to the podcast
- and I'm on Twitter. - Yes. Stephanie.
Rohan's on Twitter,
- and there was quite a bit of chatter about this. - OK.
You, you guys pushed some buttons,
but you didn't push
the buttons that were pushed for me and I think for Rohan.
We were on the wrong buttons?
No, no, no.
I think that a lot of the interest
and some of the commentary
was surrounding,
you know, the impact,
potential impact
- of the Fed's quantitative easing program on inequality. - Correct.
but I wanted to take up a different part of the conversation
- and I listened to the whole podcast - OK.
and then I felt very sad.
- And you know- - Wow. That's-
that's our goal.
Any time you can listen to the whole podcast and feel sad,
I've done my job.
Misery loves company.
So I reached out to Rohan
and I said, “I feel very sad and I would like you to..."
"experience the sadness with me."
"Would you listen to it together?"
I'm going to give you guys a chance
to un-sadden yourselves by telling me
what I was getting wrong there
and where you thought the conversation should have gone?
What was it that that saddened you both
as you were listening to me talk about Fed policy with Thomas Hoenig?
Well, I don't think it was so much listening to you
It was the missed opportunity
of what you could have potentially pulled out of him
had he given you
- I think, you know, more candid answers, frankly, - A fair shake.
- to the questions. - Yeah.
- Yeah.
- OK.
Yeah, I mean, I think the starting point is that
We often think of the Fed as the sort of only institution
in the federal government that has any monetary firepower, right?
It's the sort of printing press.
It's the one that can do
anything in a crisis.
But the reality is,
and I think COVID has done a great job
of demonstrating this,
that it's the fiscal firepower,
it's the budget side of things that really has the power
to actually save, you know, real people's incomes,
save industries, to invest.
And one of the big questions is if we accept that
we can do things with the budget and we should be,
what is the role of the Fed and how do they relate to each other?
And when it comes to things like
protecting financial markets from having a liquidity crisis
or regulating financial institutions,
yeah, it makes sense the Federal Reserve might be the place you look to.
But when you look at what the Fed is doing, when we say it's
sort of Fed injected trillions of dollars into the economy,
one of the things that it's doing is buying up assets.
So the first thing to think about is there's always two assets involved.
There's the sort of money that goes in
and there's whatever's coming back out, going to the Fed.
So if somebody said to me,
“Hey.”
"You've got trillions of dollars, but all you do is buy other dollars.”
That's going to be very useless to me if I'm trying to protect homeowners.
- That's correct. - Or people who've lost their incomes.
So then the question I think we have to ask ourselves when we look at what the Fed does with quantitative easing is
what is it buying up?
And this is where I think you started to get on something really interesting.
Let me maybe formulate it this way.
There's a certain orthodoxy to how we have to get out of it.
Right?
Right.
A slow raising of interest rates.
A tightening of monetary policy.
Maybe they burn off some of the money.
Should there be a rethinking
of that orthodoxy?
And the reason why I ask it is
you talked about this debt.
Right?
Right.
To me, and clearly, I'm a layman and don't understand the intricacies of it.
It feels made up
that this monetary policy
feels like a delusion of some sort.
And why couldn't they just cancel that debt
and have the country carry less
and then tighten the policy
where it would be less-
if you raise interest rates and the-
on big debt, right?
-Right. - Then we've got all this pressure on making those payments.
And why not have the Fed cancel the debt
and then raise interest rates
to reset the playing field?
Well, the difficulty with that is, of course,
this is debt owed by the government.
So now you're going to
you have this debt
and you're just going to say,
I don’t-
I don't owe it anymore.
When Tom Hoenig did not meet you where you were at,
you know, he sort of said,
“Oh, it's very complicated, you silly little boy.”
You know, but I think the reality is you are identifying a real question, which is if the Fed can swap
Treasury debt.
For money
and it basically has very little effect-
And it can print money.
The Treasury is “printing” the Treasury debt,
- and the Fed is printing the money
- to buy up the Treasury's printed debt. - Correct.
It's it's like mum issues an IOU
and then dad takes it out and then gives you cash from your wallet.
What's the actual
thing going on there?
What's the effect on the economy,
and Tom says
“Well, if you understand it like I do because I'm a very serious economist, remember,”
“then all you're doing is swapping one kind of government IOU for another.”
“Money is an IOU. Treasury debt is an IOU. Therefore, all we’re doing,”
“is swapping yellow for green. It’s exactly the same.”
And on one level, he's not wrong.
- He's not a 100% wrong. - OK.
But on the other side,
you were not wrong either.
Which is, is there a difference between
Treasury debt and money? Yes.
Is that difference quite small at an economic level the way that Tom was saying?
Yes.
But is it big at a social level,
at a political level, as you were saying?
Absolutely.
So if we have trillions of dollars of government debt out there,
people hold that as money.
You ask Goldman Sachs what's in their “cash account,”
-They’ll think you're talking about Treasury debt. -OK.
Because for them, Treasury debt is money.
So if you're swapping
Treasury debt for dollars,
it's like taking money from your savings account
and putting it in your checking account.
Do you have less money? No.
But from a political point of view,
from a cultural point of view,
you've "solved the national debt."
We've solved our grandchildren's crisis.
-That was the point I was trying to make. -We’ve solved the borrowing from China.
So I was trying to ask him
who holds our debt?
He said, "Well, China holds our debt, all these other...."
You can't just stop paying on the debt.
No, but you could just... couldn't you just
quantitative ease our debt?
What's the difference of making that money available to Goldman Sachs
as it is to making that money available to China?
Only one would lessen our debt.
You just print that money and pay debt.
If this is money that we've created out of thin air anyway,
what's to stop us from creating ten trillion-
You know,
I used to make fun of Paul Krugman for his idea of trillion dollar coin
-Yeah. Right. -You know and now
-I feel myself saying, -You’re in it.
"Hey, man."
-"Well- let’s just get ten trillion dollar coins." -Right.
"Give one to China, one to Europe."
Are we square?
"Good."
And then we start again because this whole thing seems
manufactured.
Swap it for them, for the debt.
And then at the very least,
we now control.
We've bought back our mortgage.
So now we can never foreclose on it,
even if interest rates go up.
We have a lot more control over our debt.
Does that make sense?
I mean. I think
I think one of the most important things
-you were trying to get at with him -Right.
was the idea that this thing we call the national debt, and this is Rohan's point.
We have yellow paper and green paper.
We have dollars and we have treasuries,
but they're thought of very differently.
We don't think of the green paper
as debt conventionally,
but we think of the yellow paper,
-the government bonds, treasuries as debt. -And that’s what the Fed is buying?
They're buying treasuries.
They're buying bonds.
They're buying debt.
Yeah. In Tom's mind, they're the same
because he thinks up at that central bank level.
So for him, they're just different liabilities on a balance sheet.
But down with us, you know, with the public
these are entirely different worlds.
Do you know the stock of public money in circulation Jon?
How many people know that?
-There's the national debt counter. -Right.
There's no national money counter underneath. Nobody’s counting that--
And they're increasing that supply
by $120 billion a month.
Still.
Yeah no grandchildren involved.
No China involved.
No bond markets involved.
It reminds me of the way our government says you need to pay for.
So any time we have a crisis or something crucial that the public needs,
the government will say,
"I'm sorry. We have discretionary spending."
"It's this amount. If you want to add to that, we either have to take it away from somebody else..."
“or create a pay for.”
OK.
“Well, also, we want to go to war.”
“Oh, OK. So what's our pay for it?”
“Yeah, that we're not going to have a pay for.”
“What do you mean?”
"Yeah, we're just-"
Freedom pays for itself.
"that we're just going to put out there"
"and we're going to pay for it."
But we're not going to-
That's going to be just debt that we don’t even think about.
We don't add it to anything.
It just is.
And that's the part that seems like,
well, you just get to decide then
what goes on our budget
and what's just air.
That's the part that I was trying to figure out.
That's the politics.
And you're exactly right.
And the way that I usually try to say it is,
you know, there's all this conversation about finding the money
We want to have health care, child care or we want to have a Build Back Better agenda
and all the rest of it.
They say, “How are you going to pay for it?
“Where were you find the money?”
And I always try to say,
“Look, if the votes are there, the money is there.”
Because the votes are what kicked the money out.
So just as you said,
every time the Defense Authorization Act comes up every year, they kick the money out.
There's no handwringing.
They don't pause to have a big debate or discussion.
Manchin doesn't stand up and say,
-“Wait a minute, I'm concerned about grandchildren.” -No pay for. No nothing.
Almost all United States senators-
It's the most bipartisan thing they do is vote for the defense authorization each year.
And not only that. They say, you know,
“How much did the Pentagon request?
“Oh, we feel extra generous today. We want you to have $20 billion.”
- "It’s more than you asked for.” -
-we're trying to get veterans health care from exposure to burn pits.
You cannot believe the shit they’re putting these guys through
for pay fors. For other-
they're going to cheap them on the back end.
It's as though
that's not part of the cost of war.
It's crazy.
And I'm just talking about the Fed
and maybe it's not their purview or anybody else,
but why can't they do
a $120 billion of municipal bonds
for infrastructure?
If you're just buying bonds
and debt and treasuries
why not buy infrastructure?
Why not use that money
rather than just to keep banks hoarding cash?
Why not put it to use?
Many years ago,
I went to Washington, D.C., at the request of Republican Congressman, Ray LaHood,
-who went on,to be- -Sure.
-Transportation Secretary Right, Illinois. -Yup.
And LaHood wanted to do exactly what you just said.
I mean, the man really wanted to invest in America's crumbling infrastructure.
Make these investments.
And he said we ought to use the Fed, that the Fed ought to be buying these bonds
at zero - effectively zero interest rate and facilitating the financing and so forth.
And a colleague of mine, Randy Ray and I
we wrote something about this and then I was asked to go to DC and meet with officials at the Fed
and walk them through and talk about how this would all work.
And so I went, I got to sit in Alan Greenspan’s chair, we had a lovely chat.
But at the end of the day, they said to me, “We prefer to see it go through Congress.”
and I said, “But it's kind of being six of one, half a dozen of the other" in these ways
that I showed them through the balance sheet entries and so forth.
And they said, “Well, we prefer the half a dozen to the six because one keeps us out of it..."
“and the other one integrates us into this process.”
Explicitly says the Fed is now financing other kinds of things and they don’t want any part of it.
Yeah, there's a big commitment at the Fed to not be seen as picking winners or losers.
Which is why in COVID, when they did for the first time establish this municipal lending facility they hated it.
It was barely used.
They made it so difficult that only one or two states'
municipalities actually took advantage of it.
To go to your earlier question,
I think there is a little bit of a difference between government, federal treasury debt
and state and local debt in the sense that the federal government’s debt
is guaranteed by the same full faith and credit as the US dollar.
So it really is almost the difference between
-a large denomination bill- -Right,
and a small denomination bill.
With these others, you’re sort of
you’re sort of picking up the tab for state and local government.
-Which is a good thing. -But isn’t theother side of it
too, though, that state and local governments can't run a deficit
in the way that the federal government can.
-So if the Fed were going to do that, -Exactly.
it would actually be more impactful
and it would allow it because so much of
the federal spending
is really to cover holes
-that exist within state- -Absolutely.
and local municipal funding.
If you ask a federal Congress
members of Congress
whether or not New York City should run its own defense force,
I mean, putting aside the size of New York, NYPD,
they’d say no, that's a federal job.
-It's too important to be left to local governments- -National security for God’s sakes.
-state by state.
Well, then why not for infrastructure?
Why not for education?
-When the answer to why there’s some- -Health care.
Yeah, why there's something unique about the federal government?
-It has the power of the purse. -Right.
It has that printing press.
We're all using that system, right?
It's their world.
We just live in it.
So here's where we get into
where I thought-
This is sort of the difference and a very basic understanding I have of supply side economics and demand side economics.
And I'll explain it,
as best I can
without knowing what I'm talking about,
which is how I do things.
All right.
We've had supply side economics for,
I don't know, 40 years
and in the last probably 15 years
really hyped up with the Fed
pumping a tremendous amount of liquidity
into it, keeping interest rates down.
It's basically just
inflating larger assets
at the high level.
You're saying to people
saving your money means nothing,
but investing it in the stock market
or in real estate is everything.
If you keep interest rates low
and people can't get 4%, 5%, 6% on savings,
their only choice is the stock market or real estate or something else.
And generally,
money is flowing in there and inflating it.
The dividends and the buybacks and all those other things that are occurring
are creating
more and more inequality.
Now, supply side economics would say
"And that's going to trickle down
and create economic growth and development," right?
$1.9 trillion tax cut, 0% interest rates.
Total deregulation
and what did we gain in GDP or median income?
Very little.
And inflation doesn't do anything.
So basically all that supply side money doesn't seem to stimulate the economy in any way.
Now the pandemic occurs and we go,
“Just fucking give everybody $600 bucks.”
The economy goes 10%, 12% growth.
Suddenly, inflation is a problem.
It makes you think we could have been growing the economy
with far less artillery and keeping an eye-
It's only when workers get money
that inflation becomes a problem.
Explain to me in economic terms
what I just said and then grade me
and then just tell me if I'm going into the next year's class.
All right, so you're - what you're talking about,
are the two different policy levers.
The fiscal policy lever is what you described.
Giving people money,
-using Congress to pass legislation, what we just did. -Right.
- The thing you started with is monetary policy. - Correct.
It's the central bank.
It's the buying of assets.
It's the zero interest rate policy and all the rest.
And the deregulation and the tax cuts.
That's all very Thatcher, Reagan, supply side trickle down.
So you're quite right.
We have done this.
We have run this experiment over and over again
for some 40 years or so.
The evidence is in, and not just here in the US,
but around the world.
It does not work. It does work,
I think some might say, as it's designed to work,
- which is to widen income and wealth inequality, - Right.
but what it also does,
by shoveling all of the gains to the people at the very top,
who, by the way, don't tend to turn around
and spend that money back into the economy.
It gives us a slower growing, just crappier economy,
where fewer and fewer people get ahead.
Wage pressure isn't there because the labor market
never runs really hot because the economy
never really runs close to its, you know, kind of potential.
And so we have relied on central banks
to basically steer the economic ship.
You guys figure it out, you use your interest rates
and your, what did you call it, Rumplestiltskin skills.
- Your alchemy. Yeah. - You take care of it.
Yeah, your alchemy and fiscal policy.
We're just going to worry about trying to keep deficits down
and all of that sort of stuff.
So it is in large part, the reluctance to use that
fiscal policy lever and to leave all of the responsibility
to the central bank to try to engineer
some kind of economic growth.
And what do they have?
They have an interest rate tool. That's the primary tool.
So they do what they can,
which is lower and lower interest rate,
which if it works, Jon.
Monetary policy works by driving people into debt
because the purpose of cutting interest rates,
- is to induce the rest of us to borrow and spend. - Right. Right.
Whereas fiscal policy works by driving income into people,
- like you said, $600 bucks. - Demand.
Here you go. It's, you own it free and clear,
and you don't have to pay it back.
So they work very differently.
They serve different constituencies.
But Stephanie, the economy,
they say 70% of the American economy
is consumer spending.
Why would you stimulate it at the 15% of the economy,
when 70% of it is driven by spending?
You could stimulate that with such a smaller gun.
When you were talking about low interest rates
causing inequality and you mentioned
savers and people needing a place to put their,
to put their, you know, retirement money.
And I think this is a really important point,
because when you and I think of high interest rates,
it's a sort of double edged sword, right?
On one hand, our savings account is maybe earning more,
or things like that. But on the other side,
our mortgage is higher or our credit card interest rate
is higher or something like that.
And so there are ways around the world,
you know, I'm from Australia.
There are ways where you can create public pension systems,
public savings for consumers.
But what we have right now is a system where
if you want to pay a higher rate for,
you know, mom and pop savers, retirees,
those kinds of things.
You also have to pay a higher interest rate
on all of the hedge funds,
all of the other investment funds that hold Treasury debt.
And so you have this hostage situation
where low rates are seen to be the cause of A) inequality,
and B) starving savers and pensioners from their money.
Whereas the reality is, we should have high rates for them,
but maybe zero rates on all those investment vehicles.
- And there's no stipulation, so.
- No, there's not there's no distinction between the two. - Right.
It's not pension bonds and non pension bonds.
It's just bonds.
And a lot of them are held by investors
- who are not pensioners. - And I'll give you an example.
This easy money policy is what allowed
the American airline industry to become flush with cash.
And so during the time -- this is after 2008,
they become flush with cash.
They do a ton of stock buybacks just to,
you know, kind of re-enrich their shareholders.
And then the pandemic hits,
and they don't have the cash on hand.
So we've subsidized their golden parachutes,
but not the industry that we rely on for transportation.
So I think the really difficult like, line to try to draw,
is not to say we should just throw interest rates super high
because that can put people out of, you know, into,
bankruptcy from debt and things.
But we do want to not have that easy money
that you're talking about.
So how can we put tighter financial conditions,
more restrictions on Wall Street,
more restrictions on these big companies?
If the idea is we can print money when we need it,
but the only time we ever use that is when
the financial system or the big banks need it.
It's the only time we'll really print it, is for them.
In this pandemic, we did it on a more Keynesian level.
And suddenly, inflation ran amok.
Again, putting labor over a barrel,
which is to say, "See? We tried."
"We gave you guys a little money, and look what happened."
It doesn't take into account the externalities
of supply chain problems in a pandemic.
It doesn't take into account that we never got ahead of,
we never planned for that influx of money.
So it kind of had nowhere to go
other than consumer spending.
So how do you battle the, perception at least,
that when you do have a more Keynesian approach,
it immediately destroys commodities like
gas, groceries and everything else that the people
who are struggling rely on in the first place.
So one thing is you look around the world,
and you see countries that did far less than the United States.
We had a tremendous response in terms of fiscal policy,
right, to deal with the pandemic and the economic fallout.
About $5 trillion from March of 2020 to March of 2021,
was committed through Congress.
So you see all these countries that didn't go anywhere close
to where we've gone.
Germany has inflation running at a 40 year high.
- China has inflation at a near 40 year high. - Oh, okay.
So, and these are the things that you're talking about.
Energy prices, supply chain, bottlenecks,
the, you know, problems related to the shutting down
and reopening of different parts
of the economy at different times.
- These are kind of the inevitable growth pains. - So the correlation is not causation in this case.
- That's exactly right. - Okay.
But you're - you're right to say, you know,
that there is a real risk that Keynesian economic policy
and that the policy response this time,
which was so much better than the policy response
after 2008, will come away with a real black eye
if people don't get a better understanding
of why the inflation is up at the moment.
If we start pointing our fingers and saying,
"Well, this is what happens when you try to help people
stay in their homes and be attached to their employers
and have some income to pay the bills."
Can't do that ever again. This was the punishment.
Can't let that happen.
If you think about the way the inflation is showing up,
you know, one of the things to look at is,
where are the real resources there
otherwise potentially being deployed?
So if somebody comes to a bank and says,
"I want to build a school."
That's going to need laborers. It's going to need bricks.
It's going to need other things.
Say there's somebody else in the next booth at the bank
and says, "I want to build a casino."
It's the same labor.
It's the same bricks.
It's the same electrical engineers, et cetera.
Now we don't have a mechanism today
to work out where we should put the blame,
between a private loan, private credit, and public spending.
We say, "Oh look, we spent a lot of money on school building
and now there's inflation in construction."
"It must be the schools."
Meanwhile, all those casinos being built next door
get off scot free because that's not taking place
- on the government's balance sheet. - Right.
So when we look at demand, we need to look at all
the sources of demand, not just the public's balance sheet.
Otherwise we're always inevitably going to blame
the one thing that we changed this time.
And of course, no one's saying we need to cut
military spending by a third.
That's not the part of the budget they're going to blame
at the end of this.
They're going to blame helping average people.
If it's that we have the resources, but right now,
private actors are hoarding them
or using them in private markets,
and they're not available for public use,
we need to make them available.
You know, it always strikes me that,
when you talk about that policy,
it's OK for the government to intervene.
You know, you said earlier about winners and losers.
It's always OK for the government
to intervene on corporate behalf.
For instance, you know, Wal-Mart is allowed to,
or a lot of those companies,
can pay less than subsistence wages.
But the American taxpayer subsidizes that
with social services. And food stamps is basically
a subsidy program for Kraft.
You know, it's government money.
So we always make money available for corporate America.
And it makes me come around to this idea of,
you know, a universal basic income
that is maybe smaller than what we thought about,
you know, in other ways.
But, we are subsidizing corporate malfeasance.
Like that's where a lot of our money goes.
So when you talk about our debt, or even, you know,
the deficit that's running every year,
a lot of that is based on underemployment, undereducation,
and there being no constraints.
You know what it is?
We always talk about, "We live in a free market system."
But nothing about this system seems free market to me.
It seems to be intervened on at all different angles.
It's only that if you intervene on behalf of workers,
is that called socialism. Everything else? That's just,
you know, it's crony capitalism,
but it's never called that.
You know, we're going to subsidize in some respect.
The federal government is going to try to find ways
to deal with the inevitable problems of poverty.
The collateral damage of capitalism.
Right. But whether it comes in the form of food stamps,
or some other form of income payment,
I don't think that's fundamentally challenging
and getting at the issues of a Wal-Mart
being able to continue to underpay workers.
- The way you do that, I think, is to create - Right.
an alternative workplace, so that if you had something like,
let's say, a federal job guarantee, and everybody had a right
to a job at a good wage with decent benefits and the rest.
That's the way you apply the pressure
to the Wal-Marts and the other, you know,
- Amazons and so forth of the world to make structural changes. - But, Costco.
Doesn't Costco basically do the same thing as Wal-Mart?
They just pay better.
It's kind of the same business.
And this - this goes to your question.
You know, I think Stephanie and I both believe that,
you know, people who with the low incomes
should have more money. As a, you know, unequivocal point.
But in my opinion, when you think of the future
of a universal basic income, it's sort of that old line
people say, "It's easier to remember - to imagine,
the end of the world than the end of capitalism."
So imagine you've got an Amazon gift card forever.
That's a UBI, in a sense,
because you've got your money,
you can buy everything you want
and it all goes through the Jeff Bezos machine.
- It all goes through the Walmart machine. - Right.
Now, if you go back to the beginning of COVID,
there was a point - Remember the hand sanitizer shortage?
It seems so long ago now.
I started that, by the way. That was me.
- That was, that was my hoarding of hand sanitizer - That was you?
that caused a lot of that.
You and Donald Trump, right?
That's correct.
There was a - there was a serious conversation at that point
about whether or not we could repurpose perfume factories
because the underlying chemicals
and process was largely similar.
Now in that moment, is that socialism?
To take over Christian Dior and Chanel
to help people not die?
Or is that just a national defense of our lives policy?
And whether or not we're willing to do that,
I think is a really big question.
And if we can envisage a production side alternative
to these companies, not just a demand side,
we want more money in people's pockets,
but we want them to be producing.
So what's - what's the argument against that?
Is the argument against that that
A) The government will naturally not be
efficient enough and shouldn't own-?
Yeah, have you seen the Post Office?
And also that it will hold such a competitive advantage
against other companies?
But is there another way where you can hold companies...
Look, they get the benefit of our stability
and our infrastructure, but none of the
responsibility or accountability.
They can hold all their money offshore.
They can comparison shop for the lowest interest rates
around the world to hold their debt.
They can take their workers as long as they're not a service economy.
They can take their workers and shuffle them off to a place
where the standard of living is much lower.
They've got every advantage
and none of the responsibilities and accountability.
And so is there another way that isn't
coming up with a competitor for them.
Is it just holding them to account?
I think you can do both.
You can do both. And we should do both.
We have to - You know, these problems are so multifaceted.
The hollowing out of our communities through trade deals
- written over the years, the tax laws being rigged, - Right.
and written over the years, our labor laws,
our environmental standards, all of it.
- We need a holistic reform agenda. - By the way, we do that.
I didn't mean to say like, it's just overseas,
like we undercut each other in America.
One thing that I will give serious credit,
to the Biden administration. Their push on anti-trust
has been incredibly heartening to see.
Because one of the things you're talking about is,
if we're going to let you to have these benefits.
And I think one of the biggest benefits
that we never talk about is limited liability.
If you set up a corporation, you can take on all this risk.
And if that company goes under,
- You just walk away. - Right.
You just start another company.
That's one of the biggest handouts from the public.
It's socialism.
It's socialism of losses.
- They privatize their profits, - Yeah, that's right.
but they socialize their losses.
And the justification is we wouldn't have any investment.
You wouldn't have any risk taking if we didn't do it.
OK, so we're publicly subsidizing risk in the market
because we think that's a good thing.
What do we get in exchange?
What does the public get back for this?
Having that conversation, the quid pro quo.
If we're going to bail you out every time there's a crisis,
if we're going to give trillions of dollars
of lending and support services,
what are we getting back?
Do you think maybe we could get back
a slightly cheaper internet rate or something?
- You know. - That's a fantastic point.
And here's maybe something and you guys tell me
what you think of this.
Why don't we subsidize risk for people?
You know, one of the things
that makes it so difficult for people to
get out of their situation is child care, health care.
You don't want to leave your job because you're not
going to get health care.
We make it impossible for people to take risks
because they're treading water to just stay afloat.
Yet for corporations, we say if we don't backstop you,
you'll never take a risk.
So why don't we do that for people?
Why don't we view people as human capital to be invested in
in that same way?
This is what basically FDR wanted in the second bill
of economic rights.
To provide certain protections, safeguards for all Americans.
So health care, you mentioned, housing, education,
the right to a secure retirement,
the right to a job with a good, you know, wage attached to it.
These were the things that FDR fought for
and the Democratic Party for many years fought for
as part of the party platform.
You know, basic protection, safeguards, rights, economic,
an economic bill of rights. And it,
you know, the party just, sort of at some point,
stopped fighting for those things.
I mean, to give one example,
my wife is a second grade teacher.
She had to get a master's degree to even be qualified
because we want good quality people looking after our kids.
That - that master's degree at a public university in New York
ended up causing - incurring about $50,000 worth of debt.
Now, there's no way in hell she’s going to pay that back
relative to the interest rate,
and right now scholars like Luke Herrine
have shown that the Biden administration
could cancel tens of thousands of dollars of student debt,
all of it, if they wanted to with the stroke of a pen.
They cannot blame Republicans for that.
They cannot blame congressional intransigence for that.
That is purely an ideological commitment
to the idea that higher education and not just sort of
studying the classics under a tree,
you know, pondering philosophy and Plato,
but getting the skills you need to be
- a nurse, a doctor, an engineer to do those things. - Right.
you have to become a debt slave for the rest of your life.
And we could change that tomorrow
and they just don't want to.
So this is the flip side of easy money.
Educational institutions understand that-
they always tell you this.
If you don't get a bachelor's degree, man, your life is over.
Now, they don't mention that a high school —
a white high school graduate has more wealth
than a Black college graduate.
That's a whole separate conversation.
But basically a bachelor's degree is the ante.
And that's going to be $100,000, $200,000.
That's your ante to get into the world.
- And is it-
and we've seen an astronomical —
talk about inflation.
The inflation in education.
Is that —
Is that the danger of easy money?
Because they know
people have nowhere else to go
and they know they're going to do whatever
they've got to do to get there.
And they know they're going to have customers
who will desperately take out loans
and they can inflate their administrative costs
and they can inflate everything else.
And they can have an endowment of $3 billion
and still be inflating their year to year costs.
Well, you're right. I mean, the credentialization of everything
and it's not just the bachelor's degree.
They really get you with you need the extra letters
behind your name beyond the bachelor's degree.
- Master's is the new bachelor's degree. - Yeah.
And then they make it very, very easy to borrow
tens of thousands of dollars to to get those degrees.
But what they don't do is really anything to ensure
that there's a there's a job with an income
that's going to be high enough to allow you
to ultimately get out from under that debt on the other side.
So what's the foundation of what you guys would
recommend is the reset?
If you're recommending a reset
and what are the tent posts of that
in terms of what that would look like
when you think about monetary policy
and congressional appropriations
and
you know, corporate policy. What's — how does that work?
I think when it comes to higher education
I think this goes to the same point we were talking about
with the COVID crisis, which is do we want a system
where you have to go into debt servitude
to be able to get a higher education degree to do
you know, the basic services we think are necessary
like nursing and education?
If not, then at the very least
we need to commit to making that free
and cancel existing debt, say, "This was a huge mistake."
- "We went the wrong direction. We want to turn the page."
But the next day or even the same day,
we need to reform the way that we are financing higher education.
Right? People joke that Harvard University is a hedge fund
with a university attached for nonprofit status right?
We need to think about that process.
There are ways to provide you know, cheaper goods
for everybody that require us to take
a bit more active intervention in how those markets
and industries are structured.
Modern Monetary Policy is maybe an effective tool
or a new way of looking at things.
What's the reset for
how corrupt the system currently is,
and what are some of the tentposts
of what it would look like otherwise?
I don't think either one of you is just saying
"Yeah, we can just print money and use it for whatever we want."
But it's a reprioritizing and seemingly
being more agile and less doctrinaire
in how we use monetary policy
and legislative agenda.
Well, I mean, most of the focus is on fiscal policy.
So it's on what we can do legislatively through Congress.
And I think what we did and what we have seen
Congress accomplish over the course of the last 20 months
or so is just astonishing, right?
That you can with the stroke of a pen, one provision
in a single piece of legislation, the Child Tax Credit
that one provision lifted more than
40% of all the kids living in poverty out of poverty.
Which is why we had to end it, Stephanie. We had to end it.
We had we had to stop it.
You know. So, Jon, it's like we have
everywhere you look in the economy,
you will find deficits that matter.
You will find them in education,
you will find them in infrastructure,
you will find them in housing,
you will find them in child poverty,
and senior, you know, ability to retire with dignity
and all the rest of it and on and on. And you're quite right,
that you can't solve every problem with a piece of legislation,
but the budget is a way to express our values as a nation.
It is a way to prioritize and it is a way to begin to fund
some of the long standing, underfunded
and addressed deficiencies in our economy.
So we have to figure out what are our priorities are.
I would go back to that
economic bill of rights
that I referred to earlier,
I think is a very good blueprint
and a very solid place to start.
Start with the jobs,
start with a job with a good pay,
with healthcare and a right to housing and an education-
And you're saying deficit spending
is the way to address this, that people
that deficit spending won't --
It's not a necessity
that that drives inflation
and it's not a necessity
that it saddles future generations
with debt.
It's not a necessity that saddles future generations.
It is not the case that deficits are inherently inflationary
but it is true
that deficits can get too big.
And one possible way for that to materialize
is in the form of inflation.
So, again, you can't spend willy nilly.
You can't drive trillions and trillions too rapidly into a very narrow hole.
You have to figure out over what period of time can I safely make these investments in infrastructure.
And you have to be able to resource what it is you’re trying to do.
Rohan said it earlier.
If you want to do infrastructure,
you have to be sure that you have available to you
the the contractors, the engineers, the architects,
the steel, the machinery.
But that you can get ahead of.
That's the kind of thing that planning -
- Oh, oh, Jon. - What?
- You said the P — - Should I leave?
I'm just gonna go. I should leave.
You said the P-word.
You're not getting invited back to the Christmas party now.
I apologize.
This is a scary word
because you just said "planning."
You have to plan. Yes.
You have to plan for prosperity.
And by the way, boardrooms are invented for the purpose of planning.
That's what corporate America does.
They go walk into the boardroom for the purpose of planning.
So we have to be
willing to plan for prosperity.
We have to be willing to do that.
Let me ask you a question though, about
what you said about legislative priorities,
because there is a part of me
that feels that democracy,
and especially our system,
is analog in a new digital world,
and it's not agile.
And we did in the middle of a crisis,
do what we can.
But as far as the
the structure of capitalism
and the government
moving forward,
it doesn't seem particularly suited
to addressing the public's needs.
It seems more suited to status quo
and keeping those that are winning,
winning more
and keeping those that are losing entrenched.
Can we also use the power of monetary policy
for those kinds of
those kinds of effects that can help bridge that gap?
This is where I think your conversation with Tom to sort of go back to the beginning was so helpful
because until we're clear about what’s actually going on
and until the people who know how this works can
be honest with someone
like you asking very authentic questions,
we are not going to have those changes.
So take, for example,
let's make all fiscal spending, deficit spending, financed by new money creation.
The trillion dollar coin idea that you sort of laughed at ten years ago
now you come around
let's have that be the basis of all fiscal spending.
If the Federal Reserve wants to tighten financial conditions
or manage inflation,
let's make sure it has the right tools to do that.
Let's combine with other agencies
like the antitrust divisions,
like the planning divisions to make sure
we don't hit those inflationary barriers.
And let's simplify a lot of this stuff
to the level we can have conversations with the public
-so that it's not something- -Yes.
that the monkeys feel so dumb
they can't have an opinion on.
But don't you think it's purposefully complex
-and purposefully obtuse? -Yes.
They don't want transparency in any way.
And those central bankers- they're trained in the art
of very careful language.
-You make a central bank announcement, -Yeah.
all the markets pore over each word like it's
-a hermeneutic religious text. -Right.
So demystifying that through things like media
through things like this podcast is so important because otherwise
there's not- we're in that-
-We're in the Catholic Church speaking Latin. -Right.
We're in that phase of economic theory.
Although they were very good with fiscal policy
I have to admit, in terms of...
- They had great music. You got to give it to them. - Tremendous
How does what you're saying
differ from sort of more standard
Keynesian economics, or is it different?
It's different, Jon.
I think it's different
-almost from beginning to end. -OK.
It really is.
We are not talking about occasionally priming the pump
to get the economy back and running
and then turning everything back over to the central bank,
which is really what mainstream economics is about.
You turn to fiscal
to fiscal policy in a moment of crisis.
It's like on the wall with the glass through the thing in front of it -Yes.
-that says break glass in case of emergency. -Right.
Otherwise you do...
-You gotta...
-You gotta land the plane. -Yeah.
That's what they always say,
"Gotta land the plane."
Yeah. You do not touch fiscal policy.
You leave macro policymaking up to the technocrats at the central bank and you sit back
and you hope that by dialing the interest rate up and down,
you will somehow end up with
an economy that produces opportunity and good wages.
And so forth for everybody else.
You know, the kinds of educational opportunity.
And it won't work. It won't work.
But that is mainstream Keynesian economics
turn the dial mostly the interest rate dial
use fiscal policy for an emergency
put it back in the box,
work to bring down the deficit.
So we are
we are saying something completely different.
And when it comes to jobs, for example,
the mainstream central banker's theory for decades now
has been that there's a level of unemployment
that we have to tolerate.
It's sort of like saying, “Well, I’ve got a class and two out of 20 of my kids,”
“I'll never teach them, you know they’re unteachable. Let’s just give up on them.”
They call it the non-accelerating inflation rate of unemployment.
It was literally a way of saying
if we push unemployment below this level,
it's going to cause inflation.
So we're comfortable with calling 5% unemployment
full employment.
They just threw that 5% away
and they said, “Oh, that’s as good as we can get. So that is full employment.”
Why is it on the consumer level that when you stimulate that a little bit,
it creates this inflationary pressure,
but when you stimulate it at the corporate level,
there is no pressure.
It just makes sense then that they're just hoarding it.
The assumption there is that if the workers have more jobs,
then they'll be able to tell their boss
to go fuck themselves.
And demand a higher wage.
And if they do that,
then wages will translate into higher prices in consumer goods
because companies will take that higher wage cost
and put it straight into prices.
Let's not talk about their profit share,
which is often
many multiples of their labor cost.
They'll just translate it.
So that's the thing.
What's the lever you could use?
So to me, that's the only driver, right?
If people start doing better,
companies get used to
it's like when they say,
let's drop the corporate tax rate.
Well now that's the new high tax rate
they've become accustomed to.
So unless you drop it to zero –
I mean,
you almost foresee a point
where they're like, “Look, we'll pay you to stay here.”
“Don't worry about tax, we'll pay you.”
It's extortion.
So how do you get a company - if a Wal-Mart says, “Okay.”
“I’m going to pay these guys more, but the only way I can make it up is I’ve got to jack prices up.”
Why is that billion dollar profit
not in any way-
That's just that's the standard.
What are the levers that can deal with that?
We can regulate prices directly.
Right now, the Bank of England's governor, the Central Bank of England has literally said,
“Workers should try to ask for less wages to keep inflation down.”
So they're comfortable “regulating the price of labor.”
They’re saying the price of labor is too high.
We should keep it low,
but they will not regulate the profit margins of businesses directly.
So that's one thing we could do.
We could just say there's a there's a level of profits
beyond which we don't want to allow.
If it translates to higher prices.
It’s been done historically, excess profit taxes and so forth.
They do a luxury tax in baseball.
- You pay too much money on the thing, there's a luxury tax. - Yeah.
- If you make too much money, there should be a luxury tax. - Yeah.
They have a handicap in golf, you know.
You know, in Japan, their culture is very different, obviously.
But they do
there’s a practice that's pretty effective
and well known, and it's called jawboning.
And the government can quite literally
just sort of
say something that is in a sense, shaming companies for
you know, even thinking about raising prices.
They just go, you don't want to do that.
We're watching you.
That depends on a culture that can be shamed.
- I'm not so sure we have that. - Exactly.
Well, we do have the full muscle of the American federal government
- in the event that shaming doesn’t work. - But that's my point.
How the heck could they do $120 billion bond buys every month?
How could they do quantitative easing?
How could they do TARP
-and not have stipulations about- - Because we allow it.
- We allow it. - Yeah
- We allow it. We get the democracy
we deserve that kind of thing.
But Lina Kahn at the FTC for example,
is trying to start doing this.
So I think connecting what we are talking about
the the macroeconomic monetary level with that
- direct price market- - That’s-
that's the sweet spot
that micro antitrust
with the macro full employment
you know public goods
- that's the vision for the future. - and using-
monetary policy
as well as legislative impact,
I think is... that was the part
that I was trying to get to.
We've got this giant weapon
and we only use it in one direction
because we feel like politically,
if the stock market goes down,
it's devastating.
And B, that they'll just leave that oh, the corporations will just leave
if we don't, if we're not nicer to them.
Bonkers.
Yeah.
Alright, well, guys, is there anything else that you felt like
I really wanted to make sure that I
got through to this person
from his conversation with
Thomas Hoenig or about kind of the
the policies that we're talking about?
I think your initial instincts were good.
We can have nice things.
And this idea that we can, you know,
print money for the billionaires
or for the banks and not for the people is bad.
It's not a coherent idea.
And anyone that tells you so is gaslighting you.
The central bankers get very worried.
And, you know, when
when the bailouts happened after the financial crisis,
and it became so clear to everyone
that the central bank did have a money cannon
and that it could just unleash and, you know,
it was trillions of dollars in those years.
And people started to scratch their heads
and say exactly what you said.
Why for them?
Why do you aim the cannon only there?
And you started to hear people
across Europe and elsewhere say,
what about a people's quantitative easing?
What about QE for the people?
- And that's what really rattles the central bank. - Right.
Because people are starting to say it about the European Central Bank.
There are proposals to say, “Listen, we got a climate crisis.”
We have to have something like a Green New Deal.
Where are we going to get the trillions that that's going to require?
And they go, “Wait a minute. I remember.”
Mario Draghi, when he was the head of the ECB, said
that we can never run out of money.
I remember hearing him say that.
Neel Kashkari at the Minneapolis Fed last year said,
“We have an unlimited amount of dollars at the Fed.”
And I said, “When do you hear the word 'unlimited' coming from a central banker except to bail out the bankers?”
When Bernanke said,
- you can find this video online too- - Yeah.
and Bernanke said, “It’s not taxpayer money.”
“We just use the computer to mark up the size of the account.”
And people went,
“You use the computer? Well would you use the computer to mark up the size of my account?”
Oh, my Lord.
And that's when people like Jerome Powell have to remind us
that the Fed does not have the authority
to do that, that they could be given the authority.
But at present, they don't. The marking up of your account
can happen when Congress provides
the instructions to the Fed.
We're sending out checks.
Now go help us mark up these accounts.
And that's how it happens.
And these are the guys that are like,
"Crypto sounds like magic," you know?
Meanwhile, they're just like,
"Presto Change-o:
trillion dollars!"
Larry Summers is on the board
of a number of crypto and fintech firms.
But then he has got, you know,
nothing but contempt for sending out $600 checks-
Yeah. It's just, it's bonkers, right?
I really appreciate you guys coming on and engaging
with the conversation.
Thank you for having us.
Thank you, Jon.
00:00
Ladies and gentlemen,
00:00
welcome to the podcast.
00:01
We have an exciting, exciting podcast for ya.
00:05
Today's podcast is a rebuttal.
00:09
It is a further clarifying
00:11
of a former podcast that we did.
00:13
Our guests today,
00:14
very exciting.
00:16
Stephanie Kelton and Rohan Grey.
00:18
They are some of the leading authorities on what's called
00:21
Modern Monetary Theory,
00:24
which is kind of a new approach
00:26
to economics.
00:27
First, thank you for inviting
00:29
- both of us to come and talk to you about this. - I'm delighted.
00:31
Alright. So let me roll it back then
00:33
and we'll start a little bit at
00:36
my interest in this.
00:37
I did an interview with a gentleman named Thomas Hoenig who
00:41
I guess was chairman of the KC Fed,
00:45
and he had been voting “No" on quantitative easing from the Fed,
00:50
which is their policy of
00:52
of pumping a good deal of money
00:54
into the economy.
00:55
And he and I had a spirited discussion
00:57
where I,
00:58
without the knowledge of economics
01:00
or the language of economics
01:02
or the verbiage of economics,
01:04
was trying to understand
01:08
why the Fed can just
01:10
bring this money cannon
01:13
to corporate America
01:14
and not also maybe let,
01:17
as we say, in the old neighborhood,
01:19
let the people have a taste.
01:20
How 'bout a little taste?
01:21
A little something from the money cannon.
01:23
I guess I'm confused as
01:25
if we can print money,
01:26
you just said we're the only-
01:28
We can buy an asset.
01:30
OK.
01:31
Any asset by printing money.
01:34
- That is we- - But you can't pay
01:35
- debt by printing money?
01:36
You can buy debt by printing money.
01:39
- Or you- - So what are you just buy back our debt?
01:41
Well, because ...
01:43
all you're doing is-
01:44
I feel like I feel like
01:45
you're having trouble.
01:46
It's like talking to a monkey.
01:47
- No, no. - You’re like talking to a monkey and trying to figure out-
01:49
- Look it- - how do I communicate with this monkey?
01:51
- No, no. - I don't know what to do.
01:53
No, no, it. I totally.
01:55
I totally get it. It's confusing.
01:57
Stephanie and Rohan
01:58
were lovely enough to
02:04
comment on it on the internet
02:07
in a long chat form,
02:09
which made me think that neither of you
02:13
has a fulfilling life
02:14
because this is the part-
02:16
now we get to it.
02:18
How did this-
02:19
How did any of this come to your attention?
02:21
And explain to me how this came about.
02:25
So I, you know, I listen to the podcast
02:28
- and I'm on Twitter. - Yes. Stephanie.
02:29
Rohan's on Twitter,
02:31
- and there was quite a bit of chatter about this. - OK.
02:33
You, you guys pushed some buttons,
02:36
but you didn't push
02:37
the buttons that were pushed for me and I think for Rohan.
02:40
We were on the wrong buttons?
02:42
No, no, no.
02:43
I think that a lot of the interest
02:45
and some of the commentary
02:47
was surrounding,
02:48
you know, the impact,
02:50
potential impact
02:51
- of the Fed's quantitative easing program on inequality. - Correct.
02:55
but I wanted to take up a different part of the conversation
02:58
- and I listened to the whole podcast - OK.
03:00
and then I felt very sad.
03:02
- And you know- - Wow. That's-
03:03
that's our goal.
03:05
Any time you can listen to the whole podcast and feel sad,
03:08
I've done my job.
03:10
Misery loves company.
03:11
So I reached out to Rohan
03:13
and I said, “I feel very sad and I would like you to..."
03:16
"experience the sadness with me."
03:18
"Would you listen to it together?"
03:20
I'm going to give you guys a chance
03:22
to un-sadden yourselves by telling me
03:25
what I was getting wrong there
03:27
and where you thought the conversation should have gone?
03:30
What was it that that saddened you both
03:33
as you were listening to me talk about Fed policy with Thomas Hoenig?
03:39
Well, I don't think it was so much listening to you
03:42
It was the missed opportunity
03:44
of what you could have potentially pulled out of him
03:47
had he given you
03:49
- I think, you know, more candid answers, frankly, - A fair shake.
03:52
- to the questions. - Yeah.
03:53
- Yeah. - OK.
03:53
Yeah, I mean, I think the starting point is that
03:57
We often think of the Fed as the sort of only institution
04:00
in the federal government that has any monetary firepower, right?
04:03
It's the sort of printing press.
04:05
It's the one that can do
04:06
anything in a crisis.
04:07
But the reality is,
04:08
and I think COVID has done a great job
04:10
of demonstrating this,
04:11
that it's the fiscal firepower,
04:13
it's the budget side of things that really has the power
04:15
to actually save, you know, real people's incomes,
04:20
save industries, to invest.
04:22
And one of the big questions is if we accept that
04:24
we can do things with the budget and we should be,
04:26
what is the role of the Fed and how do they relate to each other?
04:29
And when it comes to things like
04:31
protecting financial markets from having a liquidity crisis
04:34
or regulating financial institutions,
04:36
yeah, it makes sense the Federal Reserve might be the place you look to.
04:40
But when you look at what the Fed is doing, when we say it's
04:42
sort of Fed injected trillions of dollars into the economy,
04:45
one of the things that it's doing is buying up assets.
04:48
So the first thing to think about is there's always two assets involved.
04:52
There's the sort of money that goes in
04:54
and there's whatever's coming back out, going to the Fed.
04:57
So if somebody said to me,
04:58
“Hey.”
04:59
"You've got trillions of dollars, but all you do is buy other dollars.”
05:04
That's going to be very useless to me if I'm trying to protect homeowners.
05:07
- That's correct. - Or people who've lost their incomes.
05:09
So then the question I think we have to ask ourselves when we look at what the Fed does with quantitative easing is
05:14
what is it buying up?
05:15
And this is where I think you started to get on something really interesting.
05:18
Let me maybe formulate it this way.
05:21
There's a certain orthodoxy to how we have to get out of it.
05:24
Right?
05:25
Right.
05:25
A slow raising of interest rates.
05:27
A tightening of monetary policy.
05:30
Maybe they burn off some of the money.
05:32
Should there be a rethinking
05:36
of that orthodoxy?
05:38
And the reason why I ask it is
05:40
you talked about this debt.
05:43
Right?
05:43
Right.
05:44
To me, and clearly, I'm a layman and don't understand the intricacies of it.
05:50
It feels made up
05:54
that this monetary policy
05:56
feels like a delusion of some sort.
06:00
And why couldn't they just cancel that debt
06:04
and have the country carry less
06:06
and then tighten the policy
06:08
where it would be less-
06:10
if you raise interest rates and the-
06:13
on big debt, right?
06:15
-Right. - Then we've got all this pressure on making those payments.
06:19
And why not have the Fed cancel the debt
06:22
and then raise interest rates
06:24
to reset the playing field?
06:27
Well, the difficulty with that is, of course,
06:31
this is debt owed by the government.
06:33
So now you're going to
06:34
you have this debt
06:37
and you're just going to say,
06:39
I don’t-
06:40
I don't owe it anymore.
06:42
When Tom Hoenig did not meet you where you were at,
06:45
you know, he sort of said,
06:46
“Oh, it's very complicated, you silly little boy.”
06:49
You know, but I think the reality is you are identifying a real question, which is if the Fed can swap
06:55
Treasury debt.
06:56
For money
06:57
and it basically has very little effect-
06:59
And it can print money.
07:01
The Treasury is “printing” the Treasury debt,
07:02
- and the Fed is printing the money
07:04
- to buy up the Treasury's printed debt. - Correct.
07:05
It's it's like mum issues an IOU
07:08
and then dad takes it out and then gives you cash from your wallet.
07:11
What's the actual
07:12
thing going on there?
07:13
What's the effect on the economy,
07:15
and Tom says
07:16
“Well, if you understand it like I do because I'm a very serious economist, remember,”
07:21
“then all you're doing is swapping one kind of government IOU for another.”
07:25
“Money is an IOU. Treasury debt is an IOU. Therefore, all we’re doing,”
07:30
“is swapping yellow for green. It’s exactly the same.”
07:34
And on one level, he's not wrong.
07:36
- He's not a 100% wrong. - OK.
07:38
But on the other side,
07:39
you were not wrong either.
07:41
Which is, is there a difference between
07:43
Treasury debt and money? Yes.
07:45
Is that difference quite small at an economic level the way that Tom was saying?
07:50
Yes.
07:51
But is it big at a social level,
07:53
at a political level, as you were saying?
07:55
Absolutely.
07:56
So if we have trillions of dollars of government debt out there,
08:01
people hold that as money.
08:03
You ask Goldman Sachs what's in their “cash account,”
08:05
-They’ll think you're talking about Treasury debt. -OK.
08:07
Because for them, Treasury debt is money.
08:10
So if you're swapping
08:12
Treasury debt for dollars,
08:14
it's like taking money from your savings account
08:16
and putting it in your checking account.
08:17
Do you have less money? No.
08:19
But from a political point of view,
08:21
from a cultural point of view,
08:22
you've "solved the national debt."
08:24
We've solved our grandchildren's crisis.
08:26
-That was the point I was trying to make. -We’ve solved the borrowing from China.
08:28
So I was trying to ask him
08:29
who holds our debt?
08:30
He said, "Well, China holds our debt, all these other...."
08:32
You can't just stop paying on the debt.
08:36
No, but you could just... couldn't you just
08:39
quantitative ease our debt?
08:42
What's the difference of making that money available to Goldman Sachs
08:47
as it is to making that money available to China?
08:50
Only one would lessen our debt.
08:52
You just print that money and pay debt.
08:55
If this is money that we've created out of thin air anyway,
08:59
what's to stop us from creating ten trillion-
09:03
You know,
09:04
I used to make fun of Paul Krugman for his idea of trillion dollar coin
09:07
-Yeah. Right. -You know and now
09:09
-I feel myself saying, -You’re in it.
09:11
"Hey, man."
09:12
-"Well- let’s just get ten trillion dollar coins." -Right.
09:15
"Give one to China, one to Europe."
09:17
Are we square?
09:19
"Good."
09:19
And then we start again because this whole thing seems
09:23
manufactured.
09:25
Swap it for them, for the debt.
09:27
And then at the very least,
09:29
we now control.
09:31
We've bought back our mortgage.
09:33
So now we can never foreclose on it,
09:35
even if interest rates go up.
09:36
We have a lot more control over our debt.
09:41
Does that make sense?
09:42
I mean. I think
09:42
I think one of the most important things
09:44
-you were trying to get at with him -Right.
09:46
was the idea that this thing we call the national debt, and this is Rohan's point.
09:52
We have yellow paper and green paper.
09:54
We have dollars and we have treasuries,
09:55
but they're thought of very differently.
09:57
We don't think of the green paper
09:59
as debt conventionally,
10:01
but we think of the yellow paper,
10:02
-the government bonds, treasuries as debt. -And that’s what the Fed is buying?
10:05
They're buying treasuries.
10:07
They're buying bonds.
10:08
They're buying debt.
10:09
Yeah. In Tom's mind, they're the same
10:10
because he thinks up at that central bank level.
10:12
So for him, they're just different liabilities on a balance sheet.
10:15
But down with us, you know, with the public
10:18
these are entirely different worlds.
10:20
Do you know the stock of public money in circulation Jon?
10:23
How many people know that?
10:24
-There's the national debt counter. -Right.
10:26
There's no national money counter underneath. Nobody’s counting that--
10:29
And they're increasing that supply
10:32
by $120 billion a month.
10:35
Still.
10:36
Yeah no grandchildren involved.
10:38
No China involved.
10:39
No bond markets involved.
10:41
It reminds me of the way our government says you need to pay for.
10:44
So any time we have a crisis or something crucial that the public needs,
10:49
the government will say,
10:50
"I'm sorry. We have discretionary spending."
10:52
"It's this amount. If you want to add to that, we either have to take it away from somebody else..."
10:57
“or create a pay for.”
10:58
OK.
10:59
“Well, also, we want to go to war.”
11:01
“Oh, OK. So what's our pay for it?”
11:03
“Yeah, that we're not going to have a pay for.”
11:05
“What do you mean?”
11:06
"Yeah, we're just-"
11:07
Freedom pays for itself.
11:08
"that we're just going to put out there"
11:10
"and we're going to pay for it."
11:11
But we're not going to-
11:13
That's going to be just debt that we don’t even think about.
11:17
We don't add it to anything.
11:18
It just is.
11:20
And that's the part that seems like,
11:22
well, you just get to decide then
11:25
what goes on our budget
11:27
and what's just air.
11:30
That's the part that I was trying to figure out.
11:32
That's the politics.
11:33
And you're exactly right.
11:34
And the way that I usually try to say it is,
11:37
you know, there's all this conversation about finding the money
11:40
We want to have health care, child care or we want to have a Build Back Better agenda
11:44
and all the rest of it.
11:45
They say, “How are you going to pay for it?
11:46
“Where were you find the money?”
11:47
And I always try to say,
11:48
“Look, if the votes are there, the money is there.”
11:50
Because the votes are what kicked the money out.
11:52
So just as you said,
11:53
every time the Defense Authorization Act comes up every year, they kick the money out.
11:58
There's no handwringing.
11:59
They don't pause to have a big debate or discussion.
12:02
Manchin doesn't stand up and say,
12:04
-“Wait a minute, I'm concerned about grandchildren.” -No pay for. No nothing.
12:07
Almost all United States senators-
12:10
It's the most bipartisan thing they do is vote for the defense authorization each year.
12:15
And not only that. They say, you know,
12:17
“How much did the Pentagon request?
12:18
“Oh, we feel extra generous today. We want you to have $20 billion.”
12:22
- "It’s more than you asked for.” - They gave 'em another $20 billion,
12:24
-Meanwhile- -Always.
12:25
-we're trying to get veterans health care from exposure to burn pits.
12:29
You cannot believe the shit they’re putting these guys through
12:33
for pay fors. For other-
12:34
they're going to cheap them on the back end.
12:37
It's as though
12:38
that's not part of the cost of war.
12:41
It's crazy.
12:43
And I'm just talking about the Fed
12:45
and maybe it's not their purview or anybody else,
12:47
but why can't they do
12:49
a $120 billion of municipal bonds
12:52
for infrastructure?
12:54
If you're just buying bonds
12:55
and debt and treasuries
12:57
why not buy infrastructure?
12:59
Why not use that money
13:01
rather than just to keep banks hoarding cash?
13:06
Why not put it to use?
13:07
Many years ago,
13:08
I went to Washington, D.C., at the request of Republican Congressman, Ray LaHood,
13:13
-who went on,to be- -Sure.
13:14
-Transportation Secretary Right, Illinois. -Yup.
13:16
And LaHood wanted to do exactly what you just said.
13:19
I mean, the man really wanted to invest in America's crumbling infrastructure.
13:23
Make these investments.
13:24
And he said we ought to use the Fed, that the Fed ought to be buying these bonds
13:27
at zero - effectively zero interest rate and facilitating the financing and so forth.
13:32
And a colleague of mine, Randy Ray and I
13:35
we wrote something about this and then I was asked to go to DC and meet with officials at the Fed
13:40
and walk them through and talk about how this would all work.
13:42
And so I went, I got to sit in Alan Greenspan’s chair, we had a lovely chat.
13:46
But at the end of the day, they said to me, “We prefer to see it go through Congress.”
13:50
and I said, “But it's kind of being six of one, half a dozen of the other" in these ways
13:54
that I showed them through the balance sheet entries and so forth.
13:56
And they said, “Well, we prefer the half a dozen to the six because one keeps us out of it..."
14:01
“and the other one integrates us into this process.”
14:04
Explicitly says the Fed is now financing other kinds of things and they don’t want any part of it.
14:10
Yeah, there's a big commitment at the Fed to not be seen as picking winners or losers.
14:14
Which is why in COVID, when they did for the first time establish this municipal lending facility they hated it.
14:21
It was barely used.
14:22
They made it so difficult that only one or two states'
14:24
municipalities actually took advantage of it.
14:27
To go to your earlier question,
14:28
I think there is a little bit of a difference between government, federal treasury debt
14:32
and state and local debt in the sense that the federal government’s debt
14:36
is guaranteed by the same full faith and credit as the US dollar.
14:40
So it really is almost the difference between
14:43
-a large denomination bill- -Right,
14:44
and a small denomination bill.
14:46
With these others, you’re sort of
14:47
you’re sort of picking up the tab for state and local government.
14:50
-Which is a good thing. -But isn’t theother side of it
14:51
too, though, that state and local governments can't run a deficit
14:55
in the way that the federal government can.
14:56
-So if the Fed were going to do that, -Exactly.
14:58
it would actually be more impactful
15:01
and it would allow it because so much of
15:04
the federal spending
15:05
is really to cover holes
15:08
-that exist within state- -Absolutely.
15:09
and local municipal funding.
15:11
If you ask a federal Congress
15:14
members of Congress
15:14
whether or not New York City should run its own defense force,
15:17
I mean, putting aside the size of New York, NYPD,
15:19
they’d say no, that's a federal job.
15:21
-It's too important to be left to local governments- -National security for God’s sakes.
15:24
-state by state.
15:25
Well, then why not for infrastructure?
15:27
Why not for education?
15:28
-When the answer to why there’s some- -Health care.
15:30
Yeah, why there's something unique about the federal government?
15:32
-It has the power of the purse. -Right.
15:33
It has that printing press.
15:35
We're all using that system, right?
15:36
It's their world.
15:37
We just live in it.
15:38
So here's where we get into
15:40
where I thought-
15:44
This is sort of the difference and a very basic understanding I have of supply side economics and demand side economics.
15:49
And I'll explain it,
15:52
as best I can
15:54
without knowing what I'm talking about,
15:56
which is how I do things.
15:59
All right.
16:00
We've had supply side economics for,
16:03
I don't know, 40 years
16:05
and in the last probably 15 years
16:08
really hyped up with the Fed
16:10
pumping a tremendous amount of liquidity
16:12
into it, keeping interest rates down.
16:14
It's basically just
16:15
inflating larger assets
16:17
at the high level.
16:18
You're saying to people
16:20
saving your money means nothing,
16:23
but investing it in the stock market
16:25
or in real estate is everything.
16:27
If you keep interest rates low
16:29
and people can't get 4%, 5%, 6% on savings,
16:33
their only choice is the stock market or real estate or something else.
16:38
And generally,
16:40
money is flowing in there and inflating it.
16:42
The dividends and the buybacks and all those other things that are occurring
16:47
are creating
16:49
more and more inequality.
16:51
Now, supply side economics would say
16:54
"And that's going to trickle down
16:57
and create economic growth and development," right?
17:01
$1.9 trillion tax cut, 0% interest rates.
17:06
Total deregulation
17:07
and what did we gain in GDP or median income?
17:10
Very little.
17:12
And inflation doesn't do anything.
17:15
So basically all that supply side money doesn't seem to stimulate the economy in any way.
17:21
Now the pandemic occurs and we go,
17:24
“Just fucking give everybody $600 bucks.”
17:27
The economy goes 10%, 12% growth.
17:31
Suddenly, inflation is a problem.
17:33
It makes you think we could have been growing the economy
17:37
with far less artillery and keeping an eye-
17:43
It's only when workers get money
17:45
that inflation becomes a problem.
17:46
Explain to me in economic terms
17:49
what I just said and then grade me
17:53
and then just tell me if I'm going into the next year's class.
17:57
All right, so you're - what you're talking about,
18:00
are the two different policy levers.
18:02
The fiscal policy lever is what you described.
18:04
Giving people money,
18:05
-using Congress to pass legislation, what we just did. -Right.
18:08
- The thing you started with is monetary policy. - Correct.
18:12
It's the central bank.
18:13
It's the buying of assets.
18:14
It's the zero interest rate policy and all the rest.
18:16
And the deregulation and the tax cuts.
18:19
That's all very Thatcher, Reagan, supply side trickle down.
18:22
So you're quite right.
18:24
We have done this.
18:25
We have run this experiment over and over again
18:27
for some 40 years or so.
18:29
The evidence is in, and not just here in the US,
18:31
but around the world.
18:32
It does not work. It does work,
18:35
I think some might say, as it's designed to work,
18:38
- which is to widen income and wealth inequality, - Right.
18:41
but what it also does,
18:42
by shoveling all of the gains to the people at the very top,
18:46
who, by the way, don't tend to turn around
18:48
and spend that money back into the economy.
18:50
It gives us a slower growing, just crappier economy,
18:54
where fewer and fewer people get ahead.
18:56
Wage pressure isn't there because the labor market
18:59
never runs really hot because the economy
19:01
never really runs close to its, you know, kind of potential.
19:05
And so we have relied on central banks
19:08
to basically steer the economic ship.
19:11
You guys figure it out, you use your interest rates
19:13
and your, what did you call it, Rumplestiltskin skills.
19:17
- Your alchemy. Yeah. - You take care of it.
19:19
Yeah, your alchemy and fiscal policy.
19:21
We're just going to worry about trying to keep deficits down
19:24
and all of that sort of stuff.
19:25
So it is in large part, the reluctance to use that
19:30
fiscal policy lever and to leave all of the responsibility
19:34
to the central bank to try to engineer
19:36
some kind of economic growth.
19:37
And what do they have?
19:38
They have an interest rate tool. That's the primary tool.
19:41
So they do what they can,
19:42
which is lower and lower interest rate,
19:44
which if it works, Jon.
19:46
Monetary policy works by driving people into debt
19:50
because the purpose of cutting interest rates,
19:52
- is to induce the rest of us to borrow and spend. - Right. Right.
19:56
Whereas fiscal policy works by driving income into people,
20:00
- like you said, $600 bucks. - Demand.
20:02
Here you go. It's, you own it free and clear,
20:04
and you don't have to pay it back.
20:06
So they work very differently.
20:07
They serve different constituencies.
20:09
But Stephanie, the economy,
20:11
they say 70% of the American economy
20:13
is consumer spending.
20:15
Why would you stimulate it at the 15% of the economy,
20:21
when 70% of it is driven by spending?
20:23
You could stimulate that with such a smaller gun.
20:27
When you were talking about low interest rates
20:28
causing inequality and you mentioned
20:30
savers and people needing a place to put their,
20:32
to put their, you know, retirement money.
20:34
And I think this is a really important point,
20:36
because when you and I think of high interest rates,
20:39
it's a sort of double edged sword, right?
20:40
On one hand, our savings account is maybe earning more,
20:42
or things like that. But on the other side,
20:45
our mortgage is higher or our credit card interest rate
20:47
is higher or something like that.
20:49
And so there are ways around the world,
20:51
you know, I'm from Australia.
20:52
There are ways where you can create public pension systems,
20:55
public savings for consumers.
20:56
But what we have right now is a system where
20:59
if you want to pay a higher rate for,
21:01
you know, mom and pop savers, retirees,
21:03
those kinds of things.
21:04
You also have to pay a higher interest rate
21:06
on all of the hedge funds,
21:08
all of the other investment funds that hold Treasury debt.
21:11
And so you have this hostage situation
21:13
where low rates are seen to be the cause of A) inequality,
21:18
and B) starving savers and pensioners from their money.
21:21
Whereas the reality is, we should have high rates for them,
21:25
but maybe zero rates on all those investment vehicles.
21:28
- And there's no stipulation, so.
21:31
- No, there's not there's no distinction between the two. - Right.
21:33
It's not pension bonds and non pension bonds.
21:36
It's just bonds.
21:37
And a lot of them are held by investors
21:38
- who are not pensioners. - And I'll give you an example.
21:40
This easy money policy is what allowed
21:44
the American airline industry to become flush with cash.
21:47
And so during the time -- this is after 2008,
21:50
they become flush with cash.
21:52
They do a ton of stock buybacks just to,
21:57
you know, kind of re-enrich their shareholders.
21:59
And then the pandemic hits,
22:02
and they don't have the cash on hand.
22:04
So we've subsidized their golden parachutes,
22:09
but not the industry that we rely on for transportation.
22:14
So I think the really difficult like, line to try to draw,
22:17
is not to say we should just throw interest rates super high
22:20
because that can put people out of, you know, into,
22:22
bankruptcy from debt and things.
22:24
But we do want to not have that easy money
22:26
that you're talking about.
22:27
So how can we put tighter financial conditions,
22:30
more restrictions on Wall Street,
22:31
more restrictions on these big companies?
22:33
If the idea is we can print money when we need it,
22:39
but the only time we ever use that is when
22:42
the financial system or the big banks need it.
22:46
It's the only time we'll really print it, is for them.
22:49
In this pandemic, we did it on a more Keynesian level.
22:53
And suddenly, inflation ran amok.
22:57
Again, putting labor over a barrel,
23:01
which is to say, "See? We tried."
23:04
"We gave you guys a little money, and look what happened."
23:07
It doesn't take into account the externalities
23:10
of supply chain problems in a pandemic.
23:15
It doesn't take into account that we never got ahead of,
23:18
we never planned for that influx of money.
23:21
So it kind of had nowhere to go
23:23
other than consumer spending.
23:26
So how do you battle the, perception at least,
23:32
that when you do have a more Keynesian approach,
23:36
it immediately destroys commodities like
23:41
gas, groceries and everything else that the people
23:46
who are struggling rely on in the first place.
23:48
So one thing is you look around the world,
23:52
and you see countries that did far less than the United States.
23:55
We had a tremendous response in terms of fiscal policy,
23:59
right, to deal with the pandemic and the economic fallout.
24:02
About $5 trillion from March of 2020 to March of 2021,
24:06
was committed through Congress.
24:08
So you see all these countries that didn't go anywhere close
24:10
to where we've gone.
24:11
Germany has inflation running at a 40 year high.
24:15
- China has inflation at a near 40 year high. - Oh, okay.
24:18
So, and these are the things that you're talking about.
24:21
Energy prices, supply chain, bottlenecks,
24:24
the, you know, problems related to the shutting down
24:28
and reopening of different parts
24:29
of the economy at different times.
24:31
- These are kind of the inevitable growth pains. - So the correlation is not causation in this case.
24:37
- That's exactly right. - Okay.
24:38
But you're - you're right to say, you know,
24:40
that there is a real risk that Keynesian economic policy
24:43
and that the policy response this time,
24:45
which was so much better than the policy response
24:48
after 2008, will come away with a real black eye
24:51
if people don't get a better understanding
24:54
of why the inflation is up at the moment.
24:56
If we start pointing our fingers and saying,
24:59
"Well, this is what happens when you try to help people
25:01
stay in their homes and be attached to their employers
25:04
and have some income to pay the bills."
25:06
Can't do that ever again. This was the punishment.
25:09
Can't let that happen.
25:10
If you think about the way the inflation is showing up,
25:14
you know, one of the things to look at is,
25:16
where are the real resources there
25:18
otherwise potentially being deployed?
25:20
So if somebody comes to a bank and says,
25:22
"I want to build a school."
25:23
That's going to need laborers. It's going to need bricks.
25:25
It's going to need other things.
25:26
Say there's somebody else in the next booth at the bank
25:28
and says, "I want to build a casino."
25:30
It's the same labor.
25:31
It's the same bricks.
25:33
It's the same electrical engineers, et cetera.
25:35
Now we don't have a mechanism today
25:38
to work out where we should put the blame,
25:40
between a private loan, private credit, and public spending.
25:44
We say, "Oh look, we spent a lot of money on school building
25:46
and now there's inflation in construction."
25:48
"It must be the schools."
25:50
Meanwhile, all those casinos being built next door
25:53
get off scot free because that's not taking place
25:55
- on the government's balance sheet. - Right.
25:56
So when we look at demand, we need to look at all
25:59
the sources of demand, not just the public's balance sheet.
26:02
Otherwise we're always inevitably going to blame
26:05
the one thing that we changed this time.
26:06
And of course, no one's saying we need to cut
26:08
military spending by a third.
26:10
That's not the part of the budget they're going to blame
26:12
at the end of this.
26:13
They're going to blame helping average people.
26:14
If it's that we have the resources, but right now,
26:17
private actors are hoarding them
26:19
or using them in private markets,
26:21
and they're not available for public use,
26:23
we need to make them available.
26:24
You know, it always strikes me that,
26:27
when you talk about that policy,
26:30
it's OK for the government to intervene.
26:32
You know, you said earlier about winners and losers.
26:34
It's always OK for the government
26:35
to intervene on corporate behalf.
26:37
For instance, you know, Wal-Mart is allowed to,
26:41
or a lot of those companies,
26:42
can pay less than subsistence wages.
26:45
But the American taxpayer subsidizes that
26:47
with social services. And food stamps is basically
26:52
a subsidy program for Kraft.
26:54
You know, it's government money.
26:56
So we always make money available for corporate America.
27:01
And it makes me come around to this idea of,
27:03
you know, a universal basic income
27:05
that is maybe smaller than what we thought about,
27:08
you know, in other ways.
27:09
But, we are subsidizing corporate malfeasance.
27:15
Like that's where a lot of our money goes.
27:17
So when you talk about our debt, or even, you know,
27:22
the deficit that's running every year,
27:24
a lot of that is based on underemployment, undereducation,
27:30
and there being no constraints.
27:33
You know what it is?
27:34
We always talk about, "We live in a free market system."
27:37
But nothing about this system seems free market to me.
27:41
It seems to be intervened on at all different angles.
27:45
It's only that if you intervene on behalf of workers,
27:48
is that called socialism. Everything else? That's just,
27:53
you know, it's crony capitalism,
27:55
but it's never called that.
27:57
You know, we're going to subsidize in some respect.
27:59
The federal government is going to try to find ways
28:02
to deal with the inevitable problems of poverty.
28:05
The collateral damage of capitalism.
28:07
Right. But whether it comes in the form of food stamps,
28:10
or some other form of income payment,
28:13
I don't think that's fundamentally challenging
28:15
and getting at the issues of a Wal-Mart
28:18
being able to continue to underpay workers.
28:20
- The way you do that, I think, is to create - Right.
28:24
an alternative workplace, so that if you had something like,
28:27
let's say, a federal job guarantee, and everybody had a right
28:31
to a job at a good wage with decent benefits and the rest.
28:34
That's the way you apply the pressure
28:36
to the Wal-Marts and the other, you know,
28:39
- Amazons and so forth of the world to make structural changes. - But, Costco.
28:42
Doesn't Costco basically do the same thing as Wal-Mart?
28:45
They just pay better.
28:46
It's kind of the same business.
28:48
And this - this goes to your question.
28:49
You know, I think Stephanie and I both believe that,
28:51
you know, people who with the low incomes
28:53
should have more money. As a, you know, unequivocal point.
28:56
But in my opinion, when you think of the future
28:58
of a universal basic income, it's sort of that old line
29:01
people say, "It's easier to remember - to imagine,
29:03
the end of the world than the end of capitalism."
29:05
So imagine you've got an Amazon gift card forever.
29:08
That's a UBI, in a sense,
29:10
because you've got your money,
29:11
you can buy everything you want
29:13
and it all goes through the Jeff Bezos machine.
29:15
- It all goes through the Walmart machine. - Right.
29:17
Now, if you go back to the beginning of COVID,
29:18
there was a point - Remember the hand sanitizer shortage?
29:21
It seems so long ago now.
29:22
I started that, by the way. That was me.
29:24
- That was, that was my hoarding of hand sanitizer - That was you?
29:28
that caused a lot of that.
29:29
You and Donald Trump, right?
29:30
That's correct.
29:31
There was a - there was a serious conversation at that point
29:34
about whether or not we could repurpose perfume factories
29:37
because the underlying chemicals
29:39
and process was largely similar.
29:40
Now in that moment, is that socialism?
29:43
To take over Christian Dior and Chanel
29:46
to help people not die?
29:47
Or is that just a national defense of our lives policy?
29:51
And whether or not we're willing to do that,
29:54
I think is a really big question.
29:55
And if we can envisage a production side alternative
29:59
to these companies, not just a demand side,
30:02
we want more money in people's pockets,
30:03
but we want them to be producing.
30:05
So what's - what's the argument against that?
30:08
Is the argument against that that
30:10
A) The government will naturally not be
30:13
efficient enough and shouldn't own-?
30:14
Yeah, have you seen the Post Office?
30:16
And also that it will hold such a competitive advantage
30:19
against other companies?
30:21
But is there another way where you can hold companies...
30:26
Look, they get the benefit of our stability
30:30
and our infrastructure, but none of the
30:32
responsibility or accountability.
30:35
They can hold all their money offshore.
30:37
They can comparison shop for the lowest interest rates
30:43
around the world to hold their debt.
30:45
They can take their workers as long as they're not a service economy.
30:49
They can take their workers and shuffle them off to a place
30:52
where the standard of living is much lower.
30:54
They've got every advantage
30:57
and none of the responsibilities and accountability.
31:01
And so is there another way that isn't
31:06
coming up with a competitor for them.
31:08
Is it just holding them to account?
31:10
I think you can do both.
31:12
You can do both. And we should do both.
31:14
We have to - You know, these problems are so multifaceted.
31:19
The hollowing out of our communities through trade deals
31:22
- written over the years, the tax laws being rigged, - Right.
31:25
and written over the years, our labor laws,
31:27
our environmental standards, all of it.
31:30
- We need a holistic reform agenda. - By the way, we do that.
31:33
I didn't mean to say like, it's just overseas,
31:35
like we undercut each other in America.
31:38
One thing that I will give serious credit,
31:40
to the Biden administration. Their push on anti-trust
31:43
has been incredibly heartening to see.
31:45
Because one of the things you're talking about is,
31:47
if we're going to let you to have these benefits.
31:49
And I think one of the biggest benefits
31:50
that we never talk about is limited liability.
31:52
If you set up a corporation, you can take on all this risk.
31:55
And if that company goes under,
31:57
- You just walk away. - Right.
31:58
You just start another company.
31:59
That's one of the biggest handouts from the public.
32:02
It's socialism.
32:03
It's socialism of losses.
32:05
- They privatize their profits, - Yeah, that's right.
32:07
but they socialize their losses.
32:08
And the justification is we wouldn't have any investment.
32:11
You wouldn't have any risk taking if we didn't do it.
32:13
OK, so we're publicly subsidizing risk in the market
32:17
because we think that's a good thing.
32:19
What do we get in exchange?
32:20
What does the public get back for this?
32:22
Having that conversation, the quid pro quo.
32:24
If we're going to bail you out every time there's a crisis,
32:26
if we're going to give trillions of dollars
32:28
of lending and support services,
32:31
what are we getting back?
32:32
Do you think maybe we could get back
32:33
a slightly cheaper internet rate or something?
32:35
- You know. - That's a fantastic point.
32:37
And here's maybe something and you guys tell me
32:39
what you think of this.
32:40
Why don't we subsidize risk for people?
32:44
You know, one of the things
32:45
that makes it so difficult for people to
32:49
get out of their situation is child care, health care.
32:55
You don't want to leave your job because you're not
32:57
going to get health care.
32:58
We make it impossible for people to take risks
33:03
because they're treading water to just stay afloat.
33:06
Yet for corporations, we say if we don't backstop you,
33:11
you'll never take a risk.
33:13
So why don't we do that for people?
33:15
Why don't we view people as human capital to be invested in
33:22
in that same way?
33:23
This is what basically FDR wanted in the second bill
33:27
of economic rights.
33:28
To provide certain protections, safeguards for all Americans.
33:33
So health care, you mentioned, housing, education,
33:36
the right to a secure retirement,
33:38
the right to a job with a good, you know, wage attached to it.
33:41
These were the things that FDR fought for
33:43
and the Democratic Party for many years fought for
33:46
as part of the party platform.
33:48
You know, basic protection, safeguards, rights, economic,
33:52
an economic bill of rights. And it,
33:55
you know, the party just, sort of at some point,
33:57
stopped fighting for those things.
33:59
I mean, to give one example,
34:00
my wife is a second grade teacher.
34:02
She had to get a master's degree to even be qualified
34:05
because we want good quality people looking after our kids.
34:07
That - that master's degree at a public university in New York
34:10
ended up causing - incurring about $50,000 worth of debt.
34:14
Now, there's no way in hell she’s going to pay that back
34:16
relative to the interest rate,
34:18
and right now scholars like Luke Herrine
34:21
have shown that the Biden administration
34:22
could cancel tens of thousands of dollars of student debt,
34:25
all of it, if they wanted to with the stroke of a pen.
34:27
They cannot blame Republicans for that.
34:29
They cannot blame congressional intransigence for that.
34:32
That is purely an ideological commitment
34:35
to the idea that higher education and not just sort of
34:38
studying the classics under a tree,
34:40
you know, pondering philosophy and Plato,
34:42
but getting the skills you need to be
34:44
- a nurse, a doctor, an engineer to do those things. - Right.
34:47
you have to become a debt slave for the rest of your life.
34:51
And we could change that tomorrow
34:52
and they just don't want to.
34:54
So this is the flip side of easy money.
34:57
Educational institutions understand that-
34:59
they always tell you this.
35:02
If you don't get a bachelor's degree, man, your life is over.
35:06
Now, they don't mention that a high school —
35:08
a white high school graduate has more wealth
35:10
than a Black college graduate.
35:12
That's a whole separate conversation.
35:13
But basically a bachelor's degree is the ante.
35:19
And that's going to be $100,000, $200,000.
35:22
That's your ante to get into the world.
35:27
- And is it-
35:28
and we've seen an astronomical —
35:30
talk about inflation.
35:32
The inflation in education.
35:36
Is that —
35:37
Is that the danger of easy money?
35:41
Because they know
35:42
people have nowhere else to go
35:45
and they know they're going to do whatever
35:47
they've got to do to get there.
35:49
And they know they're going to have customers
35:51
who will desperately take out loans
35:54
and they can inflate their administrative costs
35:56
and they can inflate everything else.
35:57
And they can have an endowment of $3 billion
36:01
and still be inflating their year to year costs.
36:04
Well, you're right. I mean, the credentialization of everything
36:07
and it's not just the bachelor's degree.
36:09
They really get you with you need the extra letters
36:11
behind your name beyond the bachelor's degree.
36:15
- Master's is the new bachelor's degree. - Yeah.
36:17
And then they make it very, very easy to borrow
36:19
tens of thousands of dollars to to get those degrees.
36:23
But what they don't do is really anything to ensure
36:26
that there's a there's a job with an income
36:29
that's going to be high enough to allow you
36:31
to ultimately get out from under that debt on the other side.
36:34
So what's the foundation of what you guys would
36:36
recommend is the reset?
36:39
If you're recommending a reset
36:41
and what are the tent posts of that
36:44
in terms of what that would look like
36:46
when you think about monetary policy
36:49
and congressional appropriations
36:53
and
36:54
you know, corporate policy. What's — how does that work?
36:57
I think when it comes to higher education
36:59
I think this goes to the same point we were talking about
37:01
with the COVID crisis, which is do we want a system
37:04
where you have to go into debt servitude
37:06
to be able to get a higher education degree to do
37:08
you know, the basic services we think are necessary
37:10
like nursing and education?
37:11
If not, then at the very least
37:13
we need to commit to making that free
37:16
and cancel existing debt, say, "This was a huge mistake."
37:19
- "We went the wrong direction. We want to turn the page."
37:22
But the next day or even the same day,
37:24
we need to reform the way that we are financing higher education.
37:27
Right? People joke that Harvard University is a hedge fund
37:29
with a university attached for nonprofit status right?
37:32
We need to think about that process.
37:35
There are ways to provide you know, cheaper goods
37:37
for everybody that require us to take
37:40
a bit more active intervention in how those markets
37:42
and industries are structured.
37:43
Modern Monetary Policy is maybe an effective tool
37:50
or a new way of looking at things.
37:53
What's the reset for
37:55
how corrupt the system currently is,
37:59
and what are some of the tentposts
38:01
of what it would look like otherwise?
38:03
I don't think either one of you is just saying
38:05
"Yeah, we can just print money and use it for whatever we want."
38:08
But it's a reprioritizing and seemingly
38:14
being more agile and less doctrinaire
38:17
in how we use monetary policy
38:20
and legislative agenda.
38:21
Well, I mean, most of the focus is on fiscal policy.
38:24
So it's on what we can do legislatively through Congress.
38:27
And I think what we did and what we have seen
38:30
Congress accomplish over the course of the last 20 months
38:33
or so is just astonishing, right?
38:35
That you can with the stroke of a pen, one provision
38:39
in a single piece of legislation, the Child Tax Credit
38:43
that one provision lifted more than
38:46
40% of all the kids living in poverty out of poverty.
38:50
Which is why we had to end it, Stephanie. We had to end it.
38:53
We had we had to stop it.
38:55
You know. So, Jon, it's like we have
38:58
everywhere you look in the economy,
39:00
you will find deficits that matter.
39:02
You will find them in education,
39:03
you will find them in infrastructure,
39:05
you will find them in housing,
39:06
you will find them in child poverty,
39:08
and senior, you know, ability to retire with dignity
39:11
and all the rest of it and on and on. And you're quite right,
39:14
that you can't solve every problem with a piece of legislation,
39:19
but the budget is a way to express our values as a nation.
39:22
It is a way to prioritize and it is a way to begin to fund
39:27
some of the long standing, underfunded
39:30
and addressed deficiencies in our economy.
39:32
So we have to figure out what are our priorities are.
39:34
I would go back to that
39:37
economic bill of rights
39:38
that I referred to earlier,
39:39
I think is a very good blueprint
39:40
and a very solid place to start.
39:42
Start with the jobs,
39:43
start with a job with a good pay,
39:46
with healthcare and a right to housing and an education-
39:48
And you're saying deficit spending
39:51
is the way to address this, that people
39:54
that deficit spending won't --
39:56
It's not a necessity
39:58
that that drives inflation
39:59
and it's not a necessity
40:01
that it saddles future generations
40:03
with debt.
40:04
It's not a necessity that saddles future generations.
40:07
It is not the case that deficits are inherently inflationary
40:10
but it is true
40:12
that deficits can get too big.
40:14
And one possible way for that to materialize
40:18
is in the form of inflation.
40:19
So, again, you can't spend willy nilly.
40:21
You can't drive trillions and trillions too rapidly into a very narrow hole.
40:26
You have to figure out over what period of time can I safely make these investments in infrastructure.
40:32
And you have to be able to resource what it is you’re trying to do.
40:35
Rohan said it earlier.
40:36
If you want to do infrastructure,
40:38
you have to be sure that you have available to you
40:40
the the contractors, the engineers, the architects,
40:43
the steel, the machinery.
40:45
But that you can get ahead of.
40:46
That's the kind of thing that planning -
40:48
- Oh, oh, Jon. - What?
40:51
- You said the P — - Should I leave?
40:52
I'm just gonna go. I should leave.
40:54
You said the P-word.
40:57
You're not getting invited back to the Christmas party now.
40:59
I apologize.
41:00
This is a scary word
41:01
because you just said "planning."
41:02
You have to plan. Yes.
41:03
You have to plan for prosperity.
41:05
And by the way, boardrooms are invented for the purpose of planning.
41:09
That's what corporate America does.
41:10
They go walk into the boardroom for the purpose of planning.
41:13
So we have to be
41:14
willing to plan for prosperity.
41:17
We have to be willing to do that.
41:18
Let me ask you a question though, about
41:21
what you said about legislative priorities,
41:24
because there is a part of me
41:25
that feels that democracy,
41:26
and especially our system,
41:27
is analog in a new digital world,
41:29
and it's not agile.
41:30
And we did in the middle of a crisis,
41:33
do what we can.
41:35
But as far as the
41:36
the structure of capitalism
41:38
and the government
41:39
moving forward,
41:40
it doesn't seem particularly suited
41:42
to addressing the public's needs.
41:46
It seems more suited to status quo
41:50
and keeping those that are winning,
41:52
winning more
41:53
and keeping those that are losing entrenched.
41:56
Can we also use the power of monetary policy
42:00
for those kinds of
42:05
those kinds of effects that can help bridge that gap?
42:10
This is where I think your conversation with Tom to sort of go back to the beginning was so helpful
42:14
because until we're clear about what’s actually going on
42:17
and until the people who know how this works can
42:20
be honest with someone
42:21
like you asking very authentic questions,
42:23
we are not going to have those changes.
42:25
So take, for example,
42:26
let's make all fiscal spending, deficit spending, financed by new money creation.
42:30
The trillion dollar coin idea that you sort of laughed at ten years ago
42:32
now you come around
42:34
let's have that be the basis of all fiscal spending.
42:36
If the Federal Reserve wants to tighten financial conditions
42:40
or manage inflation,
42:41
let's make sure it has the right tools to do that.
42:44
Let's combine with other agencies
42:46
like the antitrust divisions,
42:47
like the planning divisions to make sure
42:49
we don't hit those inflationary barriers.
42:52
And let's simplify a lot of this stuff
42:55
to the level we can have conversations with the public
42:58
-so that it's not something- -Yes.
42:59
that the monkeys feel so dumb
43:01
they can't have an opinion on.
43:02
But don't you think it's purposefully complex
43:05
-and purposefully obtuse? -Yes.
43:06
They don't want transparency in any way.
43:10
And those central bankers- they're trained in the art
43:13
of very careful language.
43:14
-You make a central bank announcement, -Yeah.
43:16
all the markets pore over each word like it's
43:18
-a hermeneutic religious text. -Right.
43:20
So demystifying that through things like media
43:23
through things like this podcast is so important because otherwise
43:26
there's not- we're in that-
43:27
-We're in the Catholic Church speaking Latin. -Right.
43:29
We're in that phase of economic theory.
43:32
Although they were very good with fiscal policy
43:34
I have to admit, in terms of...
43:35
- They had great music. You got to give it to them. - Tremendous
43:37
How does what you're saying
43:39
differ from sort of more standard
43:42
Keynesian economics, or is it different?
43:45
It's different, Jon.
43:46
I think it's different
43:47
-almost from beginning to end. -OK.
43:49
It really is.
43:50
We are not talking about occasionally priming the pump
43:54
to get the economy back and running
43:57
and then turning everything back over to the central bank,
43:59
which is really what mainstream economics is about.
44:02
You turn to fiscal
44:03
to fiscal policy in a moment of crisis.
44:05
It's like on the wall with the glass through the thing in front of it -Yes.
44:08
-that says break glass in case of emergency. -Right.
44:10
Otherwise you do...
44:11
-You gotta...
44:12
-You gotta land the plane. -Yeah.
44:13
That's what they always say,
44:14
"Gotta land the plane."
44:16
Yeah. You do not touch fiscal policy.
44:18
You leave macro policymaking up to the technocrats at the central bank and you sit back
44:23
and you hope that by dialing the interest rate up and down,
44:25
you will somehow end up with
44:28
an economy that produces opportunity and good wages.
44:32
And so forth for everybody else.
44:33
You know, the kinds of educational opportunity.
44:35
And it won't work. It won't work.
44:37
But that is mainstream Keynesian economics
44:40
turn the dial mostly the interest rate dial
44:42
use fiscal policy for an emergency
44:44
put it back in the box,
44:45
work to bring down the deficit.
44:46
So we are
44:48
we are saying something completely different.
44:49
And when it comes to jobs, for example,
44:51
the mainstream central banker's theory for decades now
44:54
has been that there's a level of unemployment
44:56
that we have to tolerate.
44:57
It's sort of like saying, “Well, I’ve got a class and two out of 20 of my kids,”
45:01
“I'll never teach them, you know they’re unteachable. Let’s just give up on them.”
45:05
They call it the non-accelerating inflation rate of unemployment.
45:09
It was literally a way of saying
45:11
if we push unemployment below this level,
45:13
it's going to cause inflation.
45:14
So we're comfortable with calling 5% unemployment
45:17
full employment.
45:18
They just threw that 5% away
45:20
and they said, “Oh, that’s as good as we can get. So that is full employment.”
45:24
Why is it on the consumer level that when you stimulate that a little bit,
45:29
it creates this inflationary pressure,
45:31
but when you stimulate it at the corporate level,
45:34
there is no pressure.
45:35
It just makes sense then that they're just hoarding it.
45:38
The assumption there is that if the workers have more jobs,
45:41
then they'll be able to tell their boss
45:43
to go fuck themselves.
45:44
And demand a higher wage.
45:46
And if they do that,
45:47
then wages will translate into higher prices in consumer goods
45:51
because companies will take that higher wage cost
45:53
and put it straight into prices.
45:55
Let's not talk about their profit share,
45:56
which is often
45:57
many multiples of their labor cost.
45:59
They'll just translate it.
46:00
So that's the thing.
46:01
What's the lever you could use?
46:03
So to me, that's the only driver, right?
46:06
If people start doing better,
46:08
companies get used to
46:09
it's like when they say,
46:10
let's drop the corporate tax rate.
46:12
Well now that's the new high tax rate
46:15
they've become accustomed to.
46:16
So unless you drop it to zero –
46:18
I mean,
46:18
you almost foresee a point
46:19
where they're like, “Look, we'll pay you to stay here.”
46:22
“Don't worry about tax, we'll pay you.”
46:25
It's extortion.
46:26
So how do you get a company - if a Wal-Mart says, “Okay.”
46:32
“I’m going to pay these guys more, but the only way I can make it up is I’ve got to jack prices up.”
46:39
Why is that billion dollar profit
46:44
not in any way-
46:46
That's just that's the standard.
46:48
What are the levers that can deal with that?
46:50
We can regulate prices directly.
46:52
Right now, the Bank of England's governor, the Central Bank of England has literally said,
46:56
“Workers should try to ask for less wages to keep inflation down.”
46:59
So they're comfortable “regulating the price of labor.”
47:02
They’re saying the price of labor is too high.
47:03
We should keep it low,
47:04
but they will not regulate the profit margins of businesses directly.
47:08
So that's one thing we could do.
47:09
We could just say there's a there's a level of profits
47:11
beyond which we don't want to allow.
47:13
If it translates to higher prices.
47:14
It’s been done historically, excess profit taxes and so forth.
47:17
They do a luxury tax in baseball.
47:19
- You pay too much money on the thing, there's a luxury tax. - Yeah.
47:21
- If you make too much money, there should be a luxury tax. - Yeah.
47:24
They have a handicap in golf, you know.
47:26
You know, in Japan, their culture is very different, obviously.
47:30
But they do
47:31
there’s a practice that's pretty effective
47:33
and well known, and it's called jawboning.
47:35
And the government can quite literally
47:37
just sort of
47:38
say something that is in a sense, shaming companies for
47:43
you know, even thinking about raising prices.
47:45
They just go, you don't want to do that.
47:46
We're watching you.
47:48
That depends on a culture that can be shamed.
47:50
- I'm not so sure we have that. - Exactly.
47:54
Well, we do have the full muscle of the American federal government
47:57
- in the event that shaming doesn’t work. - But that's my point.
47:59
How the heck could they do $120 billion bond buys every month?
48:03
How could they do quantitative easing?
48:04
How could they do TARP
48:06
-and not have stipulations about- - Because we allow it.
48:08
- We allow it. - Yeah
48:10
- We allow it. We get the democracy
48:12
we deserve that kind of thing.
48:13
But Lina Kahn at the FTC for example,
48:15
is trying to start doing this.
48:16
So I think connecting what we are talking about
48:18
the the macroeconomic monetary level with that
48:21
- direct price market- - That’s-
48:23
that's the sweet spot
48:25
that micro antitrust
48:26
with the macro full employment
48:28
you know public goods
48:30
- that's the vision for the future. - and using-
48:32
monetary policy
48:33
as well as legislative impact,
48:35
I think is... that was the part
48:37
that I was trying to get to.
48:38
We've got this giant weapon
48:40
and we only use it in one direction
48:45
because we feel like politically,
48:48
if the stock market goes down,
48:49
it's devastating.
48:50
And B, that they'll just leave that oh, the corporations will just leave
48:55
if we don't, if we're not nicer to them.
48:57
Bonkers.
48:58
Yeah.
48:59
Alright, well, guys, is there anything else that you felt like
49:01
I really wanted to make sure that I
49:04
got through to this person
49:09
from his conversation with
49:10
Thomas Hoenig or about kind of the
49:14
the policies that we're talking about?
49:16
I think your initial instincts were good.
49:17
We can have nice things.
49:19
And this idea that we can, you know,
49:21
print money for the billionaires
49:22
or for the banks and not for the people is bad.
49:25
It's not a coherent idea.
49:26
And anyone that tells you so is gaslighting you.
49:28
The central bankers get very worried.
49:30
And, you know, when
49:32
when the bailouts happened after the financial crisis,
49:35
and it became so clear to everyone
49:37
that the central bank did have a money cannon
49:40
and that it could just unleash and, you know,
49:43
it was trillions of dollars in those years.
49:46
And people started to scratch their heads
49:47
and say exactly what you said.
49:48
Why for them?
49:49
Why do you aim the cannon only there?
49:52
And you started to hear people
49:54
across Europe and elsewhere say,
49:55
what about a people's quantitative easing?
49:57
What about QE for the people?
49:59
- And that's what really rattles the central bank. - Right.
50:02
Because people are starting to say it about the European Central Bank.
50:05
There are proposals to say, “Listen, we got a climate crisis.”
50:08
We have to have something like a Green New Deal.
50:10
Where are we going to get the trillions that that's going to require?
50:12
And they go, “Wait a minute. I remember.”
50:14
Mario Draghi, when he was the head of the ECB, said
50:17
that we can never run out of money.
50:19
I remember hearing him say that.
50:20
Neel Kashkari at the Minneapolis Fed last year said,
50:23
“We have an unlimited amount of dollars at the Fed.”
50:25
And I said, “When do you hear the word 'unlimited' coming from a central banker except to bail out the bankers?”
50:29
When Bernanke said,
50:31
- you can find this video online too- - Yeah.
50:32
and Bernanke said, “It’s not taxpayer money.”
50:35
“We just use the computer to mark up the size of the account.”
50:38
And people went,
50:39
“You use the computer? Well would you use the computer to mark up the size of my account?”
50:43
Oh, my Lord.
50:45
And that's when people like Jerome Powell have to remind us
50:49
that the Fed does not have the authority
50:52
to do that, that they could be given the authority.
50:55
But at present, they don't. The marking up of your account
50:58
can happen when Congress provides
51:00
the instructions to the Fed.
51:02
We're sending out checks.
51:03
Now go help us mark up these accounts.
51:05
And that's how it happens.
51:06
And these are the guys that are like,
51:07
"Crypto sounds like magic," you know?
51:10
Meanwhile, they're just like,
51:11
"Presto Change-o:
51:12
trillion dollars!"
51:13
Larry Summers is on the board
51:15
of a number of crypto and fintech firms.
51:17
But then he has got, you know,
51:18
nothing but contempt for sending out $600 checks-
51:21
Yeah. It's just, it's bonkers, right?
51:23
I really appreciate you guys coming on and engaging
51:27
with the conversation.
51:28
Thank you for having us.
51:29
Thank you, Jon.
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