Macro N Cheese

This 2017 interview features a younger Steve Grumbine speaking with a younger-still Brad Voracek. Brad was in the first graduating class of the masters’ program at the Levy Economics Institute of Bard College. His real-world experience as a teacher and mentor in Arizona is vastly different from Steve’s, a father of nine in Pennsylvania, who has had to cope with the medical challenges and expenses faced by his late father -- and now, his own.

It’s refreshing to hear a young person explain how MMT makes sense based on his own observations and point of view. Rather than engaging in arguments about politics and economics, Brad tells us that he approaches each issue with simple questions: what is our purpose/what do we want? In his view, rather than battling over a basic income, let’s determine how to meet people’s basic needs -- after all, we already know how to pay for it.

Steve and Brad take the discussion of a job guarantee away from the usual talk of a transitional buffer stock of labor and delve instead into a broader range of human values. In redefining work we can find a kind of fulfillment that we don’t always associate with minimum wage jobs. Whether we find that fulfillment in creative fields, caring for the vulnerable, or public service in general, the possibilities are endless.

Brad is less riled by anti-MMT cynics than some of our older colleagues. This may be because of his early exposure to the concept of sectoral balances. It boils down to basic double-entry accounting; a debit on one side is a credit on the other. It’s always a two-sided transaction between humans. A government deficit means a private surplus.

Join us for this intergenerational conversation. You might see something in a whole new light!

Brad Voracek got his master’s degree at the Levy Economics Institute of Bard College. In 2017 he worked in AmeriCorps VISTA, observing how direct job creation programs work in practice. Now he is a high school teacher at Phoenix Coding Academy and lead mentor for the robotics team.

@bradvoracek on Twitter

Modern Monetary Theory is often accused of only being relevant to the US. While this is a ridiculous claim, some of us might be a bit guilty of lacking in-depth knowledge about Africa and developing nations. That ends today. We’re excited to introduce our listeners to Ndongo Samba Sylla, whom we met at the 3rd International MMT Conference where he delivered the keynote on “Money, Imperialism, and Development.” Fadhel, an old friend of this podcast, needs no introduction.

Ndongo is an expert on the CFA Franc, a currency imposed on the former French colonies in Africa, who cannot achieve monetary sovereignty until they rid themselves of it.

To provide context, he and Fadhel talk about the meaning of monetary sovereignty from an MMT perspective. It is important not to confuse it with political sovereignty. Political independence is limited without it. For full monetary sovereignty, a country must issue its own currency, tax the population in its own currency, be able to issue debt in the national currency (in other words, they don’t have to borrow and repay in another currency), and they don’t fix their exchange rate to gold, or dollars, or any other nation’s money.

Not all countries are equal. There are those with full monetary sovereignty, like the US, Japan, or China, and there are countries that have given up their national currency. Some, like the 14 nations that use the CFA Franc, did so involuntarily. Others gave it up willingly. Most developing nations fall somewhere in this spectrum.

Developing nations have structural weaknesses, like the inability to produce enough food or energy to meet the population’s needs. They tend to import, in addition to food and energy, capital goods, and export low value-added content, like manufactured consumer goods. Thus, they have trade deficits, placing downward pressure on the exchange rate of their currency. If their money is devalued, everything they import will be more expensive. In a very real sense, they’re importing inflation.

When prices go up on essentials such as food, energy, and medical resources, it leads to social and political unrest.

When discussing the economic problems of developing nations, we must look at the role of international institutions like the IMF and the World Bank, set up between World War I and World War II, to manage global financial activities. Remember that in 1945 when they were created, there were no developing nations; they were still colonies. Their economic concerns were not considered. But in the 1950s and 60s, as these countries achieved independence, economic problems began to emerge between the developing and developed nations. In the ensuing half-century, solutions prescribed by the IMF and World Bank have proven to be spectacularly harmful to the developing world.

MMT focuses on the reality of econ activity, unlike the global financial institutions. When a country exports, these resources don’t go to the citizens. When looking at trade surpluses and deficits, the IMF and World Bank do not consider quality but limit their attention to monetary value.

MMT allows us to consider root causes and craft solutions that address them. To that end, Ndongo and Fadhel announce an upcoming conference in Tunisia, November 6-9. “The Quest for Economic & Monetary Sovereignty in 21 Century Africa: Lessons to be Learned and the Way Forward” (see link below) will assemble economists, historians, Marxists, political scientists, to build on the advances of MMT in developing a plan to benefit Africa and the developing world.

MES-Africa.org
live-tweeting: @mon_sovereignty

Dr. Ndongo Samba Sylla, a Senegalese development economist, is a Senior Research and Programme manager at the West Africa office of the Rosa Luxemburg Foundation in Dakar 

@nssylla on Twitter

Dr. Fadhel Kaboub is an Associate Professor of economics at Denison and President of the Global Institute for Sustainable Prosperity

@FadhelKaboub and @GISP_tweets on Twitter

For non-economists to learn essentials such as the balance of payments, currency exchange, and trade between nations, presentation matters. The brilliant Bill Mitchell, as always, distills complex concepts in such a way that everyone comes away with valuable knowledge. He doesn’t simplify, but presents them as common sense. We recently came across this gem from Steve’s interview with him last year and immediately saw that it’s too valuable to gather dust in the library.

Bill begins by addressing a criticism of MMT that has confronted him since the 1990s: "it only applies to the large, closed economy of the US." He explains MMT’s relevance to his home country of Australia - a small, open economy - as well as to developing nations. Material conditions and availability of resources will differ, affecting the balance of imports vs exports, and their respective standards of living reflect these realities. Regardless, the insights afforded by MMT are just as legitimate.

MMT economists start with real-world behavior. Financial flows associated with trade can easily be traced. You go into a car dealership, buy an import, write a check or hand over your credit card, and ultimately your account is debited. But where do those numbers go? Some believe that when you buy foreign goods the money leaves the country and those dollars simply disappear. Bill points out that they can all be traced. “It’s not high intellectual stuff, it’s just detail” -- careful analysis of accounting conventions in real-time existence.

By looking at interactions between commercial banks and central banks - and interactions across currencies through international exchange markets - one can clarify the process and solve the mystery.

With a similar appeal to common sense, he punctures the mystique of the petrodollar, a favorite bug-a-bear of MMT critics. He talks about the changing role of central banks and the IMF from World War II until the present.

The conversation veers to the philosophical when Steve expresses frustration with naysayers and merchants of doom. Bill reminds him -- and us -- that most of us are ignorant outside of our limited realm of knowledge.

We extemporize our own experience which is narrow, ill-informed and emotional. We take advice from experts, relying on them to actually know what they’re talking about. He finds the "experts" in his own field to be a disgrace. In economic matters, we are guided by our individual life experience and that of our friends: debt is a matter of concern in our own household budget, so it must be the same on the national level. Then, we hear the “experts” reinforcing that view. It’s no surprise that we’re operating out of a fog of ignorance that reflects the dominant view.

It’s heartening to hear Bill Mitchell’s take on the cynics and pessimists who predict failure for the Job Guarantee, for they have “such a negative view of human capacity.” Imagine the complex physics, astronomy, and engineering that was required to put a human on the moon 50 years ago -- yet they’re saying we can’t put together a few jobs? The limitations aren’t financial.  Whatever logistical constraints might exist will require foresight, planning, and imagination. Certainly we can rustle up a sufficient amount to make big changes.

Bill Mitchell is Professor of Economics at University of Newcastle, Melbourne, Australia and creator of the first blog devoted to MMT.

http://bilbo.economicoutlook.net/blog/
Twitter @billy_blog

https://www.macmillanihe.com/page/detail/Macroeconomics/?K=9781137610669

Regulatory agencies taking on Savings & Loan fraud may not be everyone’s idea of a swashbuckling tale, but for us nerdy types at Macro N Cheese it’s pure gold. It has villains like Charles Keating and the Keating 5. (No, that’s not an English rock group from the 70's.) It has unsung heroes whose names aren’t known to most Americans, including our special guest, Bill Black, and the cofounders of Bank Whistleblowers United. Had people like them been allowed to do their job, the Great Financial Crisis of 2008 might have been prevented, along with the economic devastation of millions of people.

Financial fraud is somehow beyond the ken of neoclassical economists whose assumptions about the behavior of corporations render them blind to reality. They are left baffled and unable to explain the S&L debacle and the GFC. But, as Bill reminds us, seeking profit is risky; it’s a gamble. “Why would you think the CEOs are gambling when fraud is a sure thing?”

 
In the 1980s and 90s, regulators noticed that S&Ls were behaving in a way that made no sense under traditional economic models but made sense if they were engaging in what was called “control fraud.” The explicit targeting of Blacks, Latinos and the elderly became known to the rest of us during the subprime mortgage crisis - there have even been movies about it - but regulators saw it even then. “Control predation” functioned under the assumption that people who were less likely to be economically sophisticated would be easy marks.

The history Bill relates is long enough to write a book about. And he did -- The Best Way to Rob a Bank is to Own One: How Corporate Executives and Politicians Looted the S&L Industry.

This interview begins with the tale of Long Beach Savings, which morphed into Ameriquest, the Johnny Appleseed of fraud and predation. Through successful manipulation of the system it managed to avoid prosecution, the fate of numerous other financial institutions in the early 90s. It landed outside the jurisdiction of the federal regulators and was allowed to grow for 13 years, pumping out 75 billion dollars in tainted loans. Ameriquest served as a blueprint for the other frauds and predators in that industry.

Another stream of this narrative takes us through what Bill Mitchell might call “capturing the state.” It involves increasingly outrageous political appointments, placing industry foxes in the regulatory henhouse. With Reagan appointees diverting prosecutions from within, and lobbyists and Senators applying pressure from without, a whole lot of criminal activity was allowed to flourish in the most powerful financial institutions in the world. Bill Clinton and George W. Bush took the axe to legislation, like Glass Steagall, designed to protect consumers.

The industry used its power to launch a smear campaign against the regulators at a time when anti-government ideology was taking hold throughout conservative and “New Democratic” politics. Our listeners will recognize the names of a number of the players, such as Alan Greenspan, appearing here as a lobbyist assigned to recruit Senators in support of Charles Keating. Keating, the CEO of Lincoln Savings, will be forever linked with the Keating 5, a group of US Senators, including John McCain, to whom he made huge political contributions and from whom he received outrageous favors. Greenspan and the Senators insisted that Lincoln Savings had a clean bill of health. The fact that it ended up with a loss of 3.4 billion dollars -- the largest failure in US banking history until the GFC -- didn’t deter Clinton from appointing him as Chairman of the Fed.

Bill Black is an Associate Professor of Economics and Law at the University of Missouri-Kansas City.  He is also a white-collar criminologist, a former financial regulator, former banker, and serial whistleblower.  He is a co-founder of Bank Whistleblowers United (BWU).

https://www.goodreads.com/book/show/1144371.The_Best_Way_to_Rob_a_Bank_Is_to_Own_One

Mitch Green joins host Steve Grumbine to talk about his work with Democratic Socialists of America in Portland, OR, and the role Modern Monetary Theory can play in DSA.

As an eco-socialist, Mitch’s focus is on the climate crisis, and as an economist, he uses MMT to answer the ubiquitous question concerning solutions: “how will you pay for it?” Even when people are not open to accepting MMT, he finds it effective to simply ask them the price of continuing to live like this. The standard posture is to simply “tax the rich” but given the political climate, that probably won’t fly. So, what should we do? The clock is ticking. If we consider the costs of catastrophe, even standard cost-benefit analysis will tell us we must act and take what he refers to as a moon-shot approach, opening up the spigot of federal money creation. None of this is to say we shouldn’t tax the rich. But we need not rely on their money to implement the necessary policies. We can apply the levers of the state. People can be taught that the laws of economics are not immutable; they are social phenomena -- of human creation.

Mitch sees the Green New Deal as something bigger and bolder than any list of traditional policy objectives. It is a bold statement that says we want to change every aspect of our society. It takes the threat of ecological collapse and uses it as a way to galvanize many interests into one organized body of action. The GND is an opportunity to change how, where, and for whom we produce things, irrespective of financial price tag. We’ll do it in such a way that protects and respects the people who are immediately affected by the transition.

When Steve asks him about the challenges we face, Mitch talks about the need to get money out of politics. (Fans of this podcast may remember Scott Ferguson insisting that we only need to get private money out of politics and, in fact, should have an injection of public money into the process!) The truth is that most Americans don’t “do” democracy very well. We must have a theory of democracy that understands power. If we’re naïve about power in politics we’ll be frustrated by the inability to change.

Mitch expresses optimism for the future. His experience working with DSA has shown that people have a proclivity for community and stewardship. Organizing with a rights-based framework is inspiring and powerful. We see that conservatives are animated by the fear of losing their rights, and while this is mainly concerned with their right to own guns, everyone wants the right to a dignified life. It is up to us to seize control of the narrative and tie it to the right to a job, a clean environment, health care and housing. This is where our power stems from.

The discussion goes into the difference between micro and macroeconomics. They talk about Steve’s view of the job guarantee as a democracy enhancer. And they go into greater detail about the possibilities arising from the Green New Deal.

Mitch Green is a Research Scholar at the Global Institute for Sustainable Prosperity. He has taught courses in political economy, economic statistics and applied microeconomics at Franklin & Marshall College and currently moonlights as an adjunct economics instructor at Portland Community College.

https://www.salon.com/2019/09/02/this-economist-debunked-all-the-right-wing-talking-points-about-the-green-new-deal/

In 1946, Beardsley Ruml, chairman of the NY Federal Reserve, published an article entitled “Taxes for Revenue are Obsolete.” According to Randall Wray this was consistent with the thinking of the time. In the 1930s and 40s, politicians and economists understood that taxes did not finance the federal budget. In fact, during World War II the government ran a deficit that was 25% of the GDP and a national debt equal to 100% of GDP.
 
This 2017 interview begins with Wray giving credit to Warren Mosler for the MMT insight that, in short, “taxes drive money.” We need only to look at colonial America for the basic facts. The colonies passed, simultaneously, the laws allowing for issuance of currency simultaneously and allowing the government to levy taxes in that currency. The purpose of that tax was to redeem those notes and burn them, a low-tech way of achieving the same effect as today’s keystrokes debiting our accounts when we pay taxes.
 
During the postwar years, the understanding that tax revenue does not fund federal spending was lost. It is politically expedient for those opposed to relying on government to solve social problems. They argue that we cannot expand spending on social programs unless we “find” more money somewhere. They claim that raising taxes will cause a reduction in private investment, thus stunting economic growth. There is not much daylight between the positions of conservatives and liberals. Whether they’re opposed to or in favor of government social programs, both sides believe that the money would have to come from taxpayers and, more specifically, from taxing the rich. Wray maintains that by tying these programs to taxing the rich, progressives are defeating their own policy.
 
In this episode, L. Randall Wray and Steve Grumbine discuss the difference between “good” and “bad” taxes, the role of the Federal Reserve and how it could be reformed, and the historic connection between attempts to repay the national debt and the onset of periods of economic depression. Finally they look at the connection between state and federal economies, and how taxes serve each. In the past, states were given block grants to make up the shortfall in their budgets. There is no reason not to do this again. Wray concludes with the observation that it is possible to create all the jobs that we need, providing income on the one hand and necessary services on the other.
 
Isn’t it interesting how nearly all discussions among proponents of Modern Monetary Theory lead to a federal job guarantee? This is not a coincidence.
 
L. Randall Wray is Senior Scholar at the Levy Economics Institute and Professor of Economics at Bard College
 
Papers: www.levyinstitute.org/publications/?auth=287
 
Co-editor Journal of Post Keynesian Economics
ISSN 0160-3477 (Print), 1557-7821 (Online)
www.tandfonline.com/toc/mpke20/current
 
New Book: Why Minsky Matters: An Introduction to the work of a maverick economist, Princeton University Press http://press.princeton.edu/titles/10575.html
 
New Book: Modern Money Theory: a primer on macroeconomics for sovereign monetary systems, Palgrave Macmillan http://www.palgrave.com/page/detail/modern-money-theory-l-randall-wray/?isb=9781137539908

When we talk about debt, it’s not just what someone owes, it’s also that someone has something owed to them. That’s the absurdity of the World Debt Clock. If the entire planet is in debt, who will we pay? Jupiter?

In the second half of our interview with Rohan Grey, he begins with the fact that all money is debt, but the cash in our pockets is not recorded as part of the national debt, which is concerned with debt instruments. He compares a $100 bill and a Treasury note to a checking account and a savings account. Only the latter pays interest.

When Rohan goes through the realities of this secondary market for government debt -- wholly a creature of the Fed -- it is clear that all worries are for naught. Most T bonds are rolled over, and if someone wants to cash out, there’s always someone else who wants them. If there arises a situation in which nobody wants to buy them, the central bank itself will do so.

The question of government debt comes up whenever there’s talk of the Green New Deal. Some have suggested it be financed by public banks, either because of political calculations or because those proposing it do not understand how money is created and believe we should take advantage of the huge pools of private wealth. Rohan points out the danger of both of those approaches. Lending rather than spending is a trap. If you need to be convinced of that, look no further than the student debt crisis. Rather than fund higher education, we said “let them eat loans!” As for the second option, well, the marrying of corporate financing and the public purpose is a good definition of fascism.

Asking the Green New Deal to give a return on the investment is entirely misguided. Do we ask school children to pay back the cost of their education by the time they turn 18? Do we insist that the military to turn a profit? When we try to turn public service into a revenue-generating endeavor, we distort the entire industry. Profit itself becomes the motive force, and the actual service takes a back seat.

Nowadays it’s impossible to have a conversation with a Modern Money Theorist without talking about the ubiquitous Yang gang and the UBI. Our objection can be summed up in the words of C. H. Douglas, an early creator of the UBI. His goal was to create “a democracy of consumers and an aristocracy of producers.” That says it all, doesn’t it? In their debate with Matt Bruenig in “In These Times,” Raul Carrillo and Rohan Grey expressed the demand for a world where the production process is as democratic and empowering for workers and average people as the consumption process.

Steve Grumbine often speaks of the job guarantee as a democracy enhancer. The community determines which work needs to be done. Democracy at the workplace is just as important as at the ballot box. Steve and Rohan talk about democratizing the fruits of intellectual labor as well as more traditional concepts of work. They address the hysteria about robots replacing all the workers. Certain jobs can be automated, however any job that requires human beings to interact with other human beings, by definition cannot be automated.

Some of our listeners may be surprised to learn that Rohan’s view of the job guarantee is significantly different from Warren Mosler’s. Tune in to find out how.

Rohan Grey is the founder and president of the Modern Money Network, a research scholar at the Global Institute for Sustainable Prosperity, and a J.S.D. candidate at Cornell Law School, where his research focuses on the law of money in the internet society.

http://inthesetimes.com/features/job-guarantee-universal-basic-income-up-for-debate.html

https://modernmoneynetwork.org/

https://www.lawschool.cornell.edu/admissions/degrees/graduate-legal-studies/JSD-Student-Profiles-Rohan-Grey.cfm

With climate catastrophes in the news on a regular basis, we thought this 2017 interview was worth revisiting. Drs Philip Lawn and Steven Hail are Australian modern monetary theorists who focus much of their work on the economics of resolving the climate crisis.

As an ecological economist, Lawn believes that the economy cannot grow forever because growth requires continual use of resources and constantly generates waste. He claims that a non-growing economy can still improve and likens it to a human being. The body stops growing around age 20, but one can continue to develop as a person.

Hail calls himself an agnostic regarding growth, but believes we need to have the discussion. He is interested in looking at people’s levels of life satisfaction and well-being and how this relates to GDP.

It is interesting to find that these two are not in lock step regarding growth. There’s something reassuring about knowing that MMT has reached the point where such differences can exist. Both Lawn and Hail say that the good news is that governments can afford to deficit spend for the purposes of creating full employment. Perhaps countries like the US and Australia do not need to grow their GDP; perhaps it’s a question of distribution.

This fascinating three-way interview goes on to look at differences and similarities between the US and Australia and other, less developed, economies. They delve into complex questions that have no simple solutions. But, as Dr. Hail says, we must begin the discussion.

Dr. Philip Lawn is a Research Officer at the Southgate Institute for Health, Society and Equity at Flinders University. In addition, he is a Visiting Lecturer in the School of Economics at the University of Adelaide, a Research Scholar at the Global Institute for Sustainable Prosperity, and a member of the Wakefield Futures Group of Concerned Scientists.

Dr. Steven Hail is a Lecturer in Economics at the University of Adelaide, where he has lectured in financial and macroeconomic since 2002. He is also a Research Scholar at the Institute for Sustainable Prosperity.

@StevenHailAus on Twitter

Have you seen Eric Tymoigne’s recent tweet destroying the top myths about Modern Monetary Theory? If not, listen to this episode and hear the myths evaporate.

Tymoigne begins by giving an elegant explanation of MMT as a theoretical framework explaining how governments issuing their own currency, or monetarily sovereign, operate in the economy.  Understand that and you understand the importance of government policies in promoting full employment and price stability. And now, the myths:

#1 MMT ignores Minskian financial instability.
Listen to Eric’s explanation of Minsky's Financial Instability Hypothesis.  He describes why, in the last financial crisis, people took on mortgages they were unable to afford, giving them no choice but to borrow more, default or attempt to sell their assets. 

#2 MMT ignores capital controls.
Capital controls regulate the flow of money into and out of a country. Ideally, you only allow money that is productive and limit speculative activity through taxes or other barriers.

#3 MMT only applies to the US.
Wrong. MMT applies to any country with monetary sovereignty. What does that mean? When a country issues its own currency it is monetarily sovereign. Similarly when it issues debt only denominated in own currency, imposes taxes only in own currency, and makes payments using its own currency, it satisfies the definition of monetary sovereignty.  Plenty of nations do that.  
Eric explains what’s special about the US is having foreign demand for the US dollar. When the   foreign sector wants to save in US dollars, the federal deficit must increase.  But even the US has constraints making it appear not to have sovereignty. The public debt ceiling, which has been used for political gain, has created disruptions and self-inflicted constraints.

#4 MMT says nothing about developing economies.
(Editor’s note: anyone who has listened to Fadhel Kaboub knows that this is patently false.)
Development involves complex decisions regarding how to develop production and provide for the needs of the people in housing, education and healthcare. Monetary sovereignty gives you some freedom to work through these issues.  

#5 MMT doesn’t recognize there can be tradeoffs.
MMT economists are constantly confronted with examples of hyperinflation in Zimbabwe and the Weimar Republic. They understand these were unique circumstances; when spending runs close to a nation’s productive capacity, there are potential inflationary pressures. In the US and other developed, monetarily sovereign countries, we are far from full productive capacity today.

#6 MMT is for monetary financing of government spending.
Eric explains the complex relationship between the central bank and the Treasury. This is a complicated issue, coordinated in an extremely refined manner.

#7 MMT says deficits don’t matter.
Eric explains that deficits matter quite a bit because deficits inject income into the private sector. The government can always afford to deficit spend. MMT is concerned with the availability of real resources.

Eric Tymoigne is an Associate Professor of Economics at Lewis and Clark College, Portland, Oregon; and Research Associate at the Levy Economics Institute of Bard College. His areas of teaching and research include macroeconomics, money and banking, and monetary economics.

https://college.lclark.edu/live/profiles/51-eric-tymoigne

https://www.tandfonline.com/doi/abs/10.1080/05775132.2019.1639412?journalCode=mcha20&