Current Affairs

The Origins of ‘Is MMT Real?’

It all starts with some questions and a chat with Stephanie Kelton.

Many months ago, Current Affairs colleagues Pete Davis and Sparky Abraham set out on a quest. They sought to answer one of our age’s most confounding questions: what exactly is modern monetary theory (MMT)? And could it, in fact, be real?

What ensued has become one of the most controversial projects ever attempted by Current Affairs or its associates. “Is MMT Real?” has featured passionate advocates for the concept and equally passionate denouncers of it. Many of them have gotten mad at us at some point. This is okay, because we have embarked upon a voyage of discovery, and choppy waters are a part of any journey. 

We put the question to you: is MMT real? Follow along on our podcast series and reach your own conclusions—starting with the unforgettable inaugural episode. Or wait (possibly a long time) for transcripts of each episode to be posted on our World Wide Web site.

The following transcript has been lightly edited and condensed for clarity.

PETE DAVIS:  

Hello listeners. As you can tell by that slightly augmented theme song, something special is afoot in this episode. I’m your host, Pete Davis. I’m here with Sparky Abraham, our finance editor at Current Affairs.

SPARKY ABRAHAM: 

Hi, Pete. 

PD: 

And we are embarking on a journey together, Sparky. 

SA: 

It is going to be a journey, yes, I expect so. 

PD:

The waters will not be calm throughout the whole journey. 

SA:

No, no. We’re going to encounter some storms, I expect.

PD:

Yes, storms. Interior, exterior—it’s going to be exciting. As you can tell by the title of this episode, this is the beginning of a series with the provocative title: Is MMT Real? Sparky, could you talk a little bit about why we wanted to do this series? 

SA:

Yeah, yeah, sure. So, here’s the thing, I don’t know anything. I mean I don’t know anything generally, but I really don’t know anything about macroeconomics. You don’t know anything either, right? 

PD:  

No. I didn’t even take economics in undergrad and someone will use that against me, that fact. But I don’t even know some basic stuff.

SA:  

That’s true, I also, come to think of it, did not take economics in undergrad. I had an economics class in high school, we’re talking 2005. I think that’s my last experience with formal economics training. But I’m on Twitter more than I should be. 

PD:

Heard of it. 

SA:

Heard of it, yeah, yeah, yeah. People talk a lot about this thing called Modern Monetary Theory. And they get really mad about it. They disagree about it in ways that I have not quite been able to sort out or understand. 

It seems very important. A lot of people think it’s very important. They’re really into it, or they’re really against it and we’ve done a little bit of work around it at Current Affairs. We’ve had a couple of podcast episodes about it. We had Raúl Carrillo and Ron Gray a while ago, very early in the podcast, I think.

PD:

Yes, two proponents of Modern Monetary Theory. 

SA:

Yes. More recently, we had Stephanie Kelton on—Professor Stephanie Kelton. 

PD:

Remember that, listeners? That will come up later in the episode. 

SA:

You’re going to get it again if you’ve already heard it, but if you haven’t heard it then you’re in for a treat.

PD:

You don’t need to stop to listen to it because we are embedding it in this episode. 

SA:

No, no, just keep going. You know, there are a lot of disagreements that I see on Twitter where it’s really obvious what’s right and what’s not right.  It’s obvious when people are trying their best or being cold or whatever. You can sort out what the underlying assumptions or the underlying issues or the alignments are. 

MMT is not like this for me. There are people who I think are very smart and that I respect who have extremely at-odds views on this stuff that I just have not been able to sort out… given I haven’t tried very hard. 

PD:

This is what I love about this, which is that usually with tribalism in politics, you have your big mega-tribes like the left, the center, the right. Usually, the divides are along the mega-tribal lines and all we do is advocate for the issues and people that are on our tribe and knock the ones that are in the others, but some things cross intra-tribal fights. That means you have to turn your brain on to actually think about what we should do. 

SA:

Yeah, you’ve got to think about it. 

PD:

You have to think about it. It’s why I love primary season much more than general election season, because everyone’s brain has to be on. Who do we trust? What ideas do we like? That’s what MMT is relative to, say, should there be mandatory minimums? 

SA:

Right. Right, right, right. Although, I will say, that’s what MMT seems to be to me right now. I honestly have no idea what we’re going to learn as we talk to people about this.

PD:

So, first off, we haven’t even said it yet: the goal of this podcast series is to answer the question, “Is MMT real?”  And the answer might lead Sparky and I to be partisans for or against MMT. 

SA:

Yeah, and I think I want to be clear, the goal of the podcast is not to answer the question, “Is MMT real?” in any broader sense than do Pete and I believe MMT? And maybe you, by listening, will come along and will agree with us or will not agree with us. But I see this as kind of a personal adventure that hopefully will be entertaining and helpful to other people. I don’t expect to become an expert on MMT or on macroeconomics generally through this. What I want to do is just get to a place for myself where I feel comfortable saying, “Okay, this is what I think.” 

PD:

You know, Nathan Robinson, he sits over us every night and he says, “Get your episode quotas in.” 

SA:

That’s right, he does. 

PD:

“Do it now or the beatings will continue.” And Sparky and I already have our episode quotas in. 

SA:

We’re done.

PD:

This is totally off the clock. We’re doing this just for us. 

SA:

Extra-curricular.

PD:

So, when Sparky says that we are just trying to literally figure this out for ourselves, that’s literally what we’re trying to do, and we can be a stand-in for you listening. But you could also call in to ask your own questions. You know, we’re trying to (maybe just for our own selves) be the referees of this fight. So, the best-case scenario for each side is you might get two more proponents by the end of this hundred-episode series.

SA:

Yeah, we’re the prize really. 

PD:

So, let’s talk about our beloved detectives here, the two of us. How did we first hear about MMT? 

SA:

Yeah, so I think that I probably first heard about MMT, first heard the phrase early on with the first Current Affairs podcast episode about it and probably didn’t pay much attention at that point. I actually don’t really know. 

I mean, I kind of remember you and I started talking about it because we felt like the discourse was both a little bit muddy. We couldn’t quite sort out who was saying what, and also some very grand proclamations are often made about MMT in terms of: if you buy into this theory or ideology or whatever, then this will open your eyes, almost in like a religious sense. Which I don’t think necessarily makes it untrue but it makes it, at the very least, interesting to me. That’s the kind of thing that’s intriguing. 

PD:

Well, that’s my story. I have this beloved friend who, in law school, came up to me and one of the first things he told me about himself is, “I’m an MMT devotee,” which is how it takes people. Just kind of vaguely passing around lefty-progressive circles, I’ve literally met four people who talk about [discovering MMT] like a conversion experience. People said, “I was doing something in my life, then I found out about MMT and I’ve remade my life.” 

SA:

It’s like the road to Damascus but for macroeconomics.

PD:

For macroeconomics. 

SA:

Well and this is very strange, I don’t know of any other economic theory that actually ends up forming a part of people’s identities, at least not on the left. Maybe on the right in some circumstances. 

PD:

And it’s weird because it’s later in life, like when you’re a freshman you might read Karl Marx or something or you might read about racism or sexism or Judith Butler or something but it’s like a theory—it’s a monetary theory that is doing the same work for people. And we sound like we’re belittling this but the whole reason we’re doing this thing is that’s incredibly intriguing. 

SA:

Yeah, yeah.

PD:

We’re not going to do a ten-episode series on inland fishery regulation, yet. 

SA:

Well, don’t speak too soon on that. Because you have to pick something that I would be really interested in.

PD:

Yes. 

SA:  

Yeah, yeah, yeah. And this is the thing: I think that some people make this point, like you said, in an effort to belittle [MMT] as if this should mean that it can’t be true. But actually, from the very little bit that I know, these seem like things that could be true or not. And if they are true, the arguments for them being really almost revolutionary—again from the little, tiny bit that I’ve seen of it and the very little that I know, nearly nothing—it doesn’t seem like there’s nothing there. It’s not hollow. There’s real content and there seems to be real disagreement so I’m really excited to try to get into it.

PD:

Strange things happen with MMT all the time. One time, Howard Dean, this is my favorite one, Howard Dean… 

SA:

Wait, Howard Dean, what? 

PD:

He starts as this kind of bold progressive, then he becomes kind of this very centrist establishment figure in the democratic party and then last year he tweeted, “I just had lunch with Stephanie Kelton. The Democratic Party needs to rethink everything about economics.”  It’s amazing. And there are all these elements to it that are like, “You need to watch this Alan Greenspan clip from 2006 or whatever. It reveals everything.”  Or something. 

And so, there’s some aspect about the sociology of this knowledge that’s also fascinating to me. There’s always been this thing about having secret knowledge, it’s been part of what cults are. And I again am not using that derogatorily, but there is something about like, “I have found the secret knowledge, it’s right in front of you the whole time, but I can see the pattern.” 

SA:

I mean look, we’re both lawyers and the law is also secret knowledge, right.

PD:

Yes, yes. And sometimes, I’ve had experiences like, let’s do general Current Affairs Chomskyan ways of thinking about things. You’re like 17 years old and some person says, “Oh, you know how everyone says America’s perfect and the government’s doing good things all the time? Let me show you through A24 articles in the New York Times that actually we’ve took the wrong side,” and you realize the New York Times is manufacturing consent. 

Your mind is blown and you feel like you have secret knowledge but it’s also true—all the secret knowledge Noam Chomsky talks about. Most of it, you know.

SA:

Yeah, and we already have and have had this sort of, the idea of being awoke, right? Which now has kind of a specific meaning but there’s also the idea behind it, of awakening to something that’s been right in front of you the whole time. 

PD:

Yes.

SA:

It’s, I think, actually an evocative description of what happens with racism, as people usually use it. But can happen with lots of things.  

PD:

This is being Keltonpilled. It’s amazing. Well, like here’s the opposite side of truth. 

SA:

Yeah. 

PD:

Okay, so we’re saying the positive stuff. Let me talk about a thing where secret knowledge is bad and just listening to the mainstream experts is good. Global warming. Vaccines. The right loves to say, “All the scientists are telling you one thing, but we know, and we have this one scientist that can…” and what’s amazing is that one scientist has a perfect explanation of why global warming is a lie. 

He has actually more charts than the other people, because always the people that are doing the quote-unquote—again, a very loaded word—“conspiracy theory”  often have all the materials of truth-making. They have a hundred citations, and the pattern seems to fit. But we want to believe the orthodoxy because the whole goal with global warming mitigation is having people believe the scientific orthodoxy. Stop being heterodox. 

SA:

And it’s also not that the heterodoxy in the case of global warming or climate change is, like, QAnon, for example. 

PD:

Yes. 

SA:

Right, it’s the appearance of authority, it’s the appearance of all the material and studies. I think the point is these are areas in which we necessarily tend to rely on experts, and they have all the trappings of an expert, and you actually have to kind of l dig in to evaluate the experts. 

PD:

Because there will be experts on both sides. 

SA:

Because there will be experts on both sides.

PD:

Sparky and me, we’ve taken tiny corners of politics where we’ve become experts on, or somewhat-experts to a level. But for the vast majority of politics, you have to just trust people. I trust what Bill McKibben says about global warming. I trust what Ralph Nader says about consumer protection. I trust what Graeber says about debt. You just have to trust someone. 

But what if you love Matt Bruenig and you also love Stephanie Kelton? 

SA:  

Right. Yeah, yeah. 

PD:

Who do you trust? 

SA:

Oh, and they don’t love each other. 

PD:

They do not. They do not. We’ve got to figure this out. So… 

SA:

I don’t know what we’re going to figure out, we’re going to figure something out. It might be something about MMT, it might just be something about ourselves. 

PD:

We’re going to trust no one here. We’re just going to trust our own intuitions and talk to people. 

SA:  

We’re going to listen to them, but we’re not going to trust them. We’re going to come to our own conclusions. 

PD:

We’re going to try to find out, “is MMT real?” on our own. 

SA:

And here’s something that you said earlier when you were talking about the sociology of MMT: we’re not going to let anybody tell us to go watch a video or read an article or read a book. You might think that this is us being lazy. And it absolutely is—it’s 100 percent definitely us being lazy. We need people to explain things to us in a way that we can understand. But if you can’t explain the idea that motivates you in a way that someone who’s not familiar with it can understand, then that seems like a problem to me. 

PD:

Yes. 

SA:

You should be able to explain it. 

PD:

So, that, listener, you’re starting to get an outline of what we’re trying to do with this series. We, every episode, are going to try to learn about MM— but it’s not through reading, it’s not through watching videos. It’s just through talking to people and asking them questions. 

SA:

I guess I could have justified this by saying this way the listener is guaranteed to go on the whole journey with us. 

PD:

Yeah, we’re trying to make a podcast.

SA:

There’s no part of the journey that-

PD:

But you gave away the game, Sparky.

SA:

The listeners aren’t glued on, but yeah, yeah, yeah, yeah. Okay, that’s true. That’s true, that’s true, that was a better reason than, “I’m being lazy.” 

PD:

Okay, so let’s recap so far. We’re doing a podcast series called “Is MMT Real?” It’s me and Sparky. We don’t know much. We kind of are intrigued by MMT; I’d say we’re sympathetic. 

SA:

Sympathetic, yeah. 

PD:

But we want to trust but verify. We’re going to verify. 

SA:

Trust but verify, ooh yeah, yeah, yeah. 

PD:

And we’re going to do it by, every episode, talking to someone to try to answer questions that we personally have, and the winner gets us on their side. 

SA:

Right.

PD:

A beautiful prize. So- 

SA:

In like a posting kind of way probably, I don’t know if it’s kind of much deeper than that but-

PD:

Yes, who will win “Is MMT Real?” 

SA: 

Right. 

PD:

No one knows about this podcast now, but the dream is by the end, America is watching. Where will we go? 

SA:

Oh yeah, yeah, yeah, yeah. 

PD:

Who will we pick? It’s like The Bachelor. The final two. 

SA:

Yeah, people are speculating.

PD:

So, the final thing we have to cover is: when we say “is MMT real?”—let me just be honest about something—we pitched some MMT people on this and they fought the name. They said, “Even to question if it was real is wrong.”  But we’re going to stick with it but here’s what we mean by- 

SA:

It’s evocative. 

PD:

It’s evocative. 

SA:

Intentionally evocative. 

PD:

Yes. Because we want people to listen so we’re trying to draw people in. If you’re listening, it’s because you paid attention to that title. If it were called “An Explanation of Macroeconomics and an Exploration,” you wouldn’t be listening right now. The final thing, though, is when we say, “is MMT real?” we actually mean multiple questions. 

The first of many, starting with something simple and it flowers in a million directions. So, what do we mean by is MMT real, Sparky?

SA:

Well, I think first of all we have to figure out what MMT is. And I have like a guess as to what MMT is, or at least I have an understanding of one aspect of it, which is there are some insights or propositions or just kind of statements at the core of MMT that I think you have to accept if you are going to be an MMT person.

And I want to know, are those things true? We have some propositions that seem like they could be true or false that are at the core of MMT. So I think we want to know: are the core MMT insights true? 

PD:

And that’s almost two questions, which is: what are the core MMT insights?

SA:

What are the insights, yeah?

PD:

Because there’s a lot of “no true Scotsman” stuff going on. For those who don’t know, no true Scotsman is when you say, “This is MMT,” and then someone says “That is wrong.” And you say “Well, that’s not exactly MMT. This is MMT.”  

So, we need to nail down, what is MMT? And then, is it true? But even if we nail down if it’s true, that’s not the only question. Because some of the fights [about MMT] are like, “Okay, it’s true but…” as you put it, Sparky, once, “Is it new?”  What do you mean by is it new? 

SA:

Yeah. So, a lot of the fights that you see will basically come down to the things that the MMT proponents say are things that everybody already knows. Every serious economist, every serious government finance thinker has been saying these things for years or decades. Or John Maynard Keynes said them, or Adam Smith said them. The idea is basically that MMT is like a new, faddish spin on something that is just already deeply embedded in the system as it currently operates. 

PD:

Yes. The Chartists, functional finance, there are different things. I’ll tell a personal history of MMT as a favor to my MMT friend in law school. I was in an event with Larry Summers and I got to ask a question and my question was, “What do you think of MMT?”  And he said, “Oh, I agree, it’s just not new. And their insights are wrong.” So, there are major people that say, “True but not new.” 

SA:

And I want to admit something about including this question, which is I don’t yet know whether it matters. I don’t yet understand why people argue so viciously about whether MMT is new or not, because it seems to me whether it’s true is the thing that matters. 

Whether it’s new…  it’s like, “Okay, so you’re calling something something else but that’s fine.”  If we come up with the answer that the core insights of MMT are true—and that they’re also just a repetition of something that someone said decades or centuries ago—I don’t think that’s necessarily going to change my thinking of it. 

PD:

It’s like people getting mad at Bernie for being a one-note pony or something, mixing metaphors. One-note cowboy. 

SA:

A musical pony but only in the limited sense.

PD:

But it’s like, well if Medicare for All was good in 1950 and it’s good now, who cares if it’s not the hot new take on the 21st century. 

SA:

Right. But people do get really animated arguing about this. So, maybe we’re missing something in terms of whether it’s new or not doesn’t seem to matter that much. 

PD:

Okay, so here’s the question. Let’s say some people agree it’s true. They agree it’s new. Your final question was, “Is it useful?”  What do we mean by “is it useful?” 

SA:

I guess it’s hard to get into this without getting into the little bit that we kind of know about MMT just through osmosis and being on Twitter and whatever. But there are kind of a constellation of strategies and policies that seem to go hand-in-hand with MMT, that the MMT people seem to really like and the anti-MMT people seem to really dislike. One of those might be—and you’re going to hear this when you start listening to Stephanie Kelton in a second—one of those might be a de-emphasis on taxes. Or another one might be a jobs guarantee. And from where I’m sitting right now, knowing little to nothing, these seem to me to be strategies that might follow from MMT but are not the core of MMT itself. 

But I think maybe I don’t care about MMT very much if there’s no strategy that follows from it. I think one of the things that makes it compelling is that people who are MMT people say, “This is MMT. This is what it says and because it’s true, this is what we should do. This is why a jobs guarantee is better than UBI. Or this is why a jobs guarantee is necessary. Or this is why we need to stop talking about the deficit.” And I think whether a political theory is useful probably should be the animating question, and not necessarily just whether it’s true in an academic sense.

PD:

There’s one real possible end to this, I would say the null hypothesis. Like if there was a total tie: MMT shook off the deficit hawks, and then splintered into a bunch of micro-policies that didn’t take off. If their only success was beating back Pete Peterson, the famed billionaire funder of the deficit hawks. Maybe we’ll even talk to a right-winger, maybe one or two who actually is a deficit hawk. But the MMT people might be mad with us taking that as the prize because they’re like, “It’s not just that.”  It must also be all these other things.

SA:

Right. 

PD:

So, I think there’s a lot of ways this could go. 

SA:

Yeah. 

PD:

So, let’s get finally to it. How are we going to do this thing? We’re going to do a few episodes first, but then we’re going to try to have them come in every week after that so that we can get some responses from the internet before we bring on the next episode. 

And every episode we’re going to look where we’re at in the case of answering this question, is MMT real? By which we mean true, new, and good. The other thing is we’re going to bring someone on to try to answer questions we haven’t answered yet. Then we’re going to reflect, lather, rinse, repeat across many episodes. Pro-MMT people, anti-MMT people, neutral referees. 

SA:

If there is such a thing. 

PD:

That’s how we’re going to do it. And hopefully we learn, you learn, no one cancels us along the way. 

SA:

You know, if we get cancelled, we get cancelled. 

PD:

Yeah, I know. It’s probably a blessing. 

SA:

It probably is a blessing. And this is just the price you pay when you pursue truth. This is like the right way of understanding.

PD:

Yes. We’re actually intellectual. And remember the number one rule: we will not read anything; we will not watch anything. 

SA:

We’re not going to read a fucking thing. 

PD:

We will talk to you on Zoom.

SA:

If you come on Twitter and tell us to read a thing or watch a YouTube video, we’re just not going to respond. Just don’t bother, don’t waste your energy.  

PD:

But you could come on and explain it to us. 

SA:

Yeah, yeah. 

PD:

Because we want to bring the listeners along. And also, Sparky has revealed we just can’t do the reading.

SA:

We can’t do the reading. 

PD:

This is an audio class. 

SA:

I’m an audio learner. I do audio books for non-fiction. 

PD:

So, how do we begin? We’re here on episode one. We’ve done our long intro. You really get it, people, what we’re doing here. We thought you have to start the “Is MMT Real?” podcast series with the queen of MMT herself, Stephanie Kelton. 

SA:

Is that a fair characterization? Is she going to be okay with that? 

PD:

I think that’s fair. I think she’s the face of MMT. 

SA:

Yeah, she’s I think the person most publicly associated with MMT, that seems fair. 

PD:

Economics professor, advisor to the Senate, advisor to Bernie Sanders. Converter of Howard Dean

SA:

Over lunch, no less. 

PD:

She was in the wilderness. She’s now kind of in the thick of it. She has a new book out called The Deficit Myth. So, here’s what happened: we wanted to have her on to start the podcast and right before we were getting going in the podcast, she was promoting her book and Nathan had her on. 

SA:

Nathan scooped us. 

PD:

Scooped us and had her on the normal Current Affairs podcast. Sparky got on that episode. 

SA:

Yeah, yeah. I pushed my way in. 

PD:

For the cause. A good detective. And instead of just having her on again to repeat all the same things, we thought we’d just play that episode. I would pretend as if I were in there listening and taking notes and then we’re going to do the same thing where we reflect at the end of the episode. 

But then starting next week, we will actually have our first few people. But Kelton’s kind of the queen of MMT, and hopefully maybe at the end, she can be the final boss that we ask questions like on episode 40, after we’re really in the weeds. 

SA:

Don’t sell us short with only 40 episodes, Pete. We don’t know where this is going to go. 

PD:

Three-hundred forty. We are not stopping until we know the truth. Is there anything else we’ve got to say or are we good to go to the Kelton interview? 

SA:

Let’s dive in.


The original Current Affairs podcast episode featuring Stephanie Kelton can be found on Patreon (if you’re not yet a subscriber, we’d love to have you on board). You can also find a transcript of the conversation here.


PD:

Okay everyone. Welcome back. That was the Stephanie Kelton interview with Nathan and Sparky. That was our base text that we’re using to lay the groundwork of what MMT is. I hope you have some idea of what they think MMT is. I would like to maybe go through some of her points, Sparky, and talk about what we think about each of them. That work for you? 

SA:

Yeah, let’s do that.

PD:

So, the first basic gist that the government is not like a household—very compelling to me. Very compelling to me. This is like the central story that we do not need to bring in tax revenue as much as we put out. 

SA:

Right. What I heard her saying was that this is basically kind of a confusion about the order in which things happen. If I want to spend money, I have to collect money first. The government does not spend the money it collects, because it makes the money, it creates the money. 

PD:

Thus, it’s a sovereign currency. 

SA:

Yeah, it’s got “fiscal sovereignty”—I think is the term she used, and that she uses in the book. So, yeah, the idea that what we need to do is collect taxes so that the government can spend on services is wrong and backwards. I take this as the central idea. 

PD:

We’ve got it totally wrong. I guess taxes have two purposes. One is the very obscure purpose that taxes establish the money, like it establishes the currency as the thing that is worthy of value because you can pay taxes in it. 

SA:

Yeah, and she said dollars are U.S. tax credits.

PD:

Yes, they’re vouchers that you can turn in and they count as taxes. That’s the tiny part. The big part is taxes lower inflation. 

SA:

Right, and one other part that I think she touched on a little bit is that taxes can have a re-distributional effect. They can create more equality basically. 

PD:

Okay, so that’s three reasons for taxes. One, establish the sovereign currency. Two, take money out of what she described as the glass that you’re pouring the soda into to make room so there’s not inflationary pressure. And three is there’s all these rich people throwing around their power, you could just take money away to make them less powerful. 

SA:

Right, accomplish social goals. And I will say on that first “obscure point,” we actually kind of went into a little bit of depth on that with Lev Menand a couple months ago on the Current Affairs podcast if people want to go back and check that out. That was not an MMT podcast, but it was about the nature of money which is interesting. 

PD:

So, I buy that. That makes a lot of sense. A house doesn’t have a money printer, but the U.S. government has a money printer—it created the money in the first place. It doesn’t really make sense that it needs to ask the people for the money. 

SA:

Right. Where would the people get the money? 

PD:

She said this really interesting thing which is the people who are against MMT thinking without knowing what it’s about often say, “Inflation, inflation, inflation! What about Zimbabwe?”  And she had this really great turn on that where she said, “Wait, we are the ones that obsess over inflation. We say in MMT you should study inflation because inflation is the thing.” 

SA:

I don’t know if we’ve always had a deficit, but we’ve always had a debt. And people who think that what we need to do is zero out the deficit are just focused on something that doesn’t really matter. What matters is inflation. Then the question becomes, “What actually causes inflation?”  And I think that the kind of conventional thinking is, “Well, running big deficits causes inflation.” That’s why we can’t run a deficit. 

PD:

So, the real microeconomics level of what inflation is… I didn’t really know this until I looked this up finally and really thought about it. 

SA:

You didn’t read anything though, right? You didn’t read anything? 

PD:

I did not read anything. 

SA:

Okay, good. 

PD:

I just talked to someone. Inflation is basically, let’s say there’s an island and there’s one coconut and… 

SA:

Oh God, I don’t know where we’re going. 

PD:

Okay, I’m not going to do an example. Inflation means there are not enough real resources that people want and so prices will go up for that thing. So, actually here’s a great example. There was inflation on masks because there was a high demand, I think that’s called demand pull inflation. Maybe I’m wrong, someone will have to correct us. 

There’s a high demand on masks, and there was a limited supply so the price of masks went up. I think that’s like mask price inflation but what people think is, “all of society can have inflation if you have a lot of cash in circulation but not a lot of real resources that people are demanding with that cash.” 

SA:

Yeah, my understanding—which might not be right, and people can correct this, too— is that it’s basically just like normal supply and demand but applied to money. Like the real stuff in the economy, the actual resources are the demand, and the number of dollars is the supply. If you pour dollars in without a corresponding increase in real stuff, then basically the price for dollars would go down. 

PD:

The value of dollars goes down. 

SA:

The value of dollars decreases, yeah.

PD:

One dollar could buy you a mask before and now it takes ten dollars, so one dollar’s worth nothing if all you need is masks. 

SA:

Because there are so many more dollars. 

PD:

Yes. 

SA:

Right, right, right. 

PD:

So, you can solve inflation by increasing the number of resources or lowering the amount of dollars, is that correct? 

SA:

I think that’s right, either way. So, I think this is what Professor Kelton was saying: we need to be tracking whether our money supply corresponds to our real things in the world, and we need to use the tools that we have in order to adjust that balance. 

And one of those tools might be creating more real resources in the world. One of them might be taking money out of the economy for taxes, one of them might be messing around with it through interest rates. You know there are various ways of doing that, but that’s what we should be paying attention to. Deficits have operated as a rule of thumb. 

PD:

They’re like a vulgar measure of what inflation will be. 

SA:

A very vulgar measure and in fact, if you never ran a deficit then you would be guaranteed—I think, we should ask someone this—never to have inflation because you would never be putting money in. 

PD:

Wait, but if there’s not enough real resources and people want them, wouldn’t you have inflation even if the government never ran a deficit? The government’s not the only thing that causes inflation. Like if a fire burned down every car in America and there was one car left, that car would cost a trillion dollars and that’s inflation on cars. 

SA:

No, no, I think maybe we’re getting confused between inflation on things and inflation on money. Like money is the thing that’s being inflated. There’s too much money supply in an inflation situation, compared to things. If there’s too many things and not enough money, that’s deflation. 

PD:

But if there’s too few things and the money’s just the same and the government had never run a deficit but the things went away, wouldn’t that cause inflation? 

SA:

Oh, sure, sure, sure. That seems like it is probably right. 

PD:

We’ve got to ask someone. We should bring someone on the podcast to talk about inflation. This is episode one, everyone. 

SA:

Because we’ve got money supply and then we’ve got… like, things supply, I guess. 

PD:

I love that we started a podcast where we ask people to listen to us but we’re not actually promising-

SA:

Let’s just muse about some shit we don’t know anything about. 

PD:

You’re probably wondering the same thing, listener. So, don’t get high on your horse. 

SA:

Maybe you know the answer and you can be high on your horse right now but… 

PD:

Then you can come on the show.

SA:

Later on, come down off your horse and tell us. 

PD:

Okay, so we’ve got questions about that.

SA:

Yeah. 

PD:

I think this is what functional finance is—it’s about the function of different things, but I don’t know. We’re going to ask someone about functional finance. Another thing that’s not the deficit is the debt. Okay, this one comes with a lot of questions here. Kelton says it’s a historical record of the deficit. But it’s more than that because there’s Treasury bonds everywhere. 

SA:

Well, but those Treasury bonds correspond to what the deficit was at some point in the past. The process, as she explained it, is that when the government spends more money than it collects in a year—i.e., it has a deficit, which again is not a bad thing under Stephanie Kelton, at least—the process for doing that is to basically borrow the money in the form of Treasury bonds. It sells Treasury bonds to people. 

PD:

So, a Treasury bond is when you give a bond to someone to take their money away. 

SA:

Yeah, it’s debt. 

PD:

It’s like instead of taxing them, you actually issue an IOU to these people. 

SA:

Yeah, yeah, exactly. So, I’m like, okay, I need to fund this thing and so I need $10 to fund this thing. So I’m going to sell Pete a $10 Treasury bond, which is $10 worth of government debt. And Pete’s going to buy it from me because it pays out on some amount of interest and so he’s going to invest in the Treasury bond. 

PD:

Yeah, and I’ll get like $12 in the future or something. 

SA:

You’ll get $12 in a couple years. 

PD:

But here’s what Kelton said, tell me if I heard this wrong, Sparky. 

SA:

Yeah, yeah. 

PD:

She said we could run a deficit without issuing Treasury bonds. 

SA:

I think she said that theoretically. I don’t know if that’s legal right now. I think maybe we have to do this because of the law, but Congress can change the law. 

PD:

So, the debt is not that we ran a deficit, the debt is we decided to run a deficit by issuing IOU’s. 

SA:

Yes. 

PD:

But she’s saying, conceptually we could just run a deficit; the money printer goes brrr and we don’t issue IOU’s and there wouldn’t be a debt. It’s deficit without debt. 

SA:

Right. In that case we would literally just be running the money printer. 

PD:

Yes, because we don’t actually… like one way to get money in is you tax people by force (I’m sounding like a libertarian). By force you take the taxes, you steal. And the other way to get money is you say, “Please give us the money, we’ll give you money later.”  That’s like, “Buy war bonds,” or something. 

SA:

Yeah, I think that I asked her kind of directly, “Why do we do this? Why do we do the Treasury bonds?” And the example that she gave was this Australia example. Do you remember the Australia example? 

PD:

Could you explain it again? 

SA:

So, what she said was that Australia has a similar thing that they do when they run a deficit: they sell bonds. At one point, they decided to stop doing that, I guess, or maybe it was that they were running a surplus or something. They were no longer running a deficit. But people wanted bonds. There was like a demand for government bonds. 

PD:

Well, and my sense was it was rich people wanted bonds. It was like a sweetheart Wall Street deal. 

SA:

Well, I don’t know. This is a thing that I’m also unclear on because I do know that pensions oftentimes will have restrictions in terms of what they can invest in. There are various types of entities that we say, “We don’t want you to invest in anything risky. The only thing that you can invest in is something that’s a government bond or the equivalent; like a Treasury bond or its equivalent.”  

This is the very safest thing and the reason it’s the safest thing, that the MMT people would say I think, is because it’s payable in dollars and the government makes dollars so the government can’t default. There’s never a circumstance in which the government can’t pay you back on your bond. It can always pay you back. 

PD:

Until the government falls. So, when I invest in McDonald’s, if McDonald’s ended as a company, I’d lose all the money. 

SA:

Right.

PD:

The only way investing in Treasury bonds would be over is if the U.S. government falls and we’d be in a totally different world then, so… 

SA:

Well but even then, it’s a little bit different right because McDonald’s could end as a company because it ran out of U.S. dollars. 

PD:

Yeah. 

SA:

The U.S. government can’t end as an entity because it runs out of U.S. dollars. It creates the U.S. dollars. 

PD:

So, it needs to really end as an entity. 

SA:

Something else has to happen. 

PD:

Yeah, it doesn’t, like, dissolve as a country.

SA:

And I guess one of the possibilities is it could create too many U.S. dollars which would create runaway inflation and might cause… 

PD:

Oh, yes. It could ruin the dollar as a value. 

SA:

It could ruin the dollar. 

PD:

It could say, “We’ll give you the dollars, but the dollars aren’t worth anything anymore.” 

SA:

It could still pay back the bonds, though. It’s just that the people who got those bonds would be mad. 

PD:

But here’s the question, when Joe Scarborough goes on Morning Joe and talks about the debt, as I’m sure he will as soon as Biden’s in office, he’s going to start immediately talking about, “The debit is $50 trillion, $40 trillion, $100,000 for every kid.”  But what Kelton’s saying is we could just pay that back anytime we want to because money printer can go brrr , right? 

SA:

And we are constantly paying it back. That’s what we’re doing, we’re paying interest on that. 

PD:

And is that causing inflation? 

SA:

I assume so. I mean, that’s what she said, is that the process of paying back the Treasury bonds is putting money into the economy. So, we’re increasing the money supply. It might not be causing inflation in the sense that maybe it’s not outpacing the amount of real value in the economy but- 

PD:

So, they’re telling us the national debt shouldn’t be worried about, but we should worry about inflation? But let’s say there is a debt bomb, like we run deficits for years and years and years and then we owe all of the Treasury bonds back and that causes inflation. Isn’t that a real problem? 

SA:

I don’t know. Seems like it might be. 

PD:

I don’t know, we’ve got to answer that. And what does it mean that China owns our debt when people say that? “You’re selling our grandkids to China.” 

SA:

Okay, I have to admit something, it wasn’t for this podcast, but I have actually twice read David Graeber’s book Debt. 

PD:

Okay, yes. We’ll allow it. 

SA:

The book goes into this stuff in an interesting way that is not really directly about MMT. So, I think part of what he says about the relationship of China or other countries owning our debt is that, just like countries aren’t like households, debt between countries isn’t like debt between a household and a bank or even between two different households. It is a thing that is establishing, in a lot of ways, diplomatic relationships between the countries. 

For example, I think that I read that until China became our main debt holder, most of our debt was owned, quote-unquote, by countries that had massive obligations to us. You might see that as us attempting to have an imperialist vassal state relationship with them. 

PD:

By them owning our debt. 

SA:

Yes. 

PD:

Oh, wow. Interesting. 

SA:

It’s almost like them buying our Treasury bonds was like a form of tribute payment or something. 

PD:

Oh, wow. Okay. 

SA:

I don’t know nearly enough about that to say any more. I just remember reading it and I think it was from David Graeber. 

PD:

One question about international MMT, okay? So, they’re all about this idea that if things aren’t being used because there’s not enough money, you can send the money to a different place to make it useful, and there wouldn’t be inflation. 

Here’s the question. Can MMT send money to developing countries? If the U.S. government just sent a trillion dollars- actually, we did. We sent a trillion dollars to Iraq and we built a bunch of things in Iraq with that trillion dollars. Did that cause inflation here? 

SA:

That’s funny also, because we didn’t send the trillion dollars to Iraq to build things, we actually gave trillions of dollars to United States companies. 

PD:

Yeah, to United States companies. 

SA:

To build things. 

PD:

Okay, but the things—the resources–were over there. Let’s take a developing country. I don’t want to name one but take a developing country. You send a trillion dollars to them and they start building things with that money. As the effective altruists say, we should give directly. Does that cause inflation here if we never tax for it? Like what does MMT mean for sending money all over the world? 

SA:

Right, and maybe part of this question is: is there a difference between the domestic money supply and the global money supply? The domestic supply of dollars versus the global supply of dollars. 

There are a lot of things that I wished that I had asked in that Kelton interview looking back but I did not ask. One of the phrases that she said  was the “global reserve currency.” I don’t know what that means. I think the dollar is the global reserve currency, but yeah, that seems like an important thing somehow, I don’t know what it is. 

PD:

I have to share this one quote just while we’re talking about bonds and then we’ve got some other questions. Listener, this is going to get better. And actually, if you’re enraged about us not knowing something, just call in and we’ll play your voicemail. 

SA:

Yeah, yeah, tell us. 

PD:

Don’t tell us to read something, tell us the things we don’t know. I read this quote once and it’s stuck with me and now I think this might be our shot to understand it. James Carville, Bill Clinton’s aide, was interviewed and once said, “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter, but now I would like to come back as the bond market. You can intimidate everybody.”  

And there was this story of the Clinton presidency. He was a real deficit hawk, he actually got to a surplus, which Kelton would say is like a horrible thing, because it takes money out of the economy. I was reading about this quote and supposedly it’s a reference to the great bond massacre of 1993 and 1994-

SA:

How is that?

PD:

Where the bond market was demanding cuts in federal spending. What does that even mean? And these bond markets are real people, they’re made up of people demanding things because they’re not buying it at certain levels or they’re losing faith in the U.S. government. Were they delusional during the great bond massacre of 1993 to think the U.S. would default on its debt?

SA:

Right. Yeah, okay. I have no idea, I mean, I know in like the context of  development aid, quote-unquote “aid” to developing countries, like the IMF or World Trade Organization model, which was to make loans and then impose austerity as a condition of restructuring those loans of the country going to pay them back.

But I think the relevant fact you’re missing there was what the MMT people seem to call “fiscal sovereignty.” I think those loans were in dollars, and the country that they were going to couldn’t print dollars to pay them back. And maybe that has to do with [the dollar] being the global reserve currency, but I have no idea, how on earth could bond-holders- 

PD:

They said tenure yields climbed from 5.2 percent to just over 8 percent. It fueled concerns about federal spending, and then Clinton decided to be a deficit hawk more because of that and then he got the 10-year yields to drop to 4 percent by 1998 and consider that a success.  

SA:

These are tenure yields on Treasury bonds.

PD:

I don’t know, we’ve got to ask someone about the great bond master. 

SA:

We can ask someone. Is there a book about the great bond master that we could just make the author come on and tell us what it says? 

PD:

That’d be great, I would love that. I want to know all about bonds and why Clinton was such a deficit hawk. That will be answered on this podcast series. Okay, next question. 

Kelton had this interesting part where [you said we should] cut military spending for the sake of paying for other things. She said, “stop using that phrase! You should cut military spending just for its own sake and then also pay for other things.” Any reflections on that?

SA:

I don’t know that my question made sense on another listen to it. But yeah, I’m still confused by that. On the one hand, I can see why you’d want to say, “Well, we don’t have to cut spending for anything to pay for something else. We can just pay for the other thing as long as we’re not causing inflation.” 

PD:

Yes. 

SA:

Right, we should just pay for everything as long as we’re not causing inflation. But I think that the thing that was in my head was like, “But if we cut military spending…” Cutting spending anywhere, it seems like one of the things the MMT people talk about is we want to get to a fully… I can’t remember what the term is, but a fully functional economy. 

We want a fully monetized, full employment, firing-on-all-pistons economy. 

PD:

All the resources are being used. 

SA:

All the resources are being used, all the money is in, we’re kind of going full steam and so cutting a ton of spending, whether it’s for the military or for anything, seems like probably not what you’d want to do. Especially right now if their argument is that we’re at way-under economic capacity, then we’ve got to spend more money. And so I can kind of understand why you’d want to divorce cutting things from spending things. 

But it still seems to me that if you are going to stop spending money on one thing, you should spend that money somewhere else and also spend more until we get to whatever our goal is.

PD:

Well, you asked this great question which was, “cutting spending actually might be bad?” That’s the point you’re making. Because if you’re not replacing it, like there’s almost a call to spend all the money, which I think MMTers would agree with you. 

SA:

Yeah, I don’t know. I guess we should ask some more of them. Because it’s almost the opposite, right? The conventional wisdom that they think is wrong is to say, “Well, if you’re going to spend, you have to cut.” 

PD:

Yeah. 

SA:

And I think the thing that I was thinking was, “Well, actually, this kind of means if you’re going to cut you have to spend.” 

PD:

Yeah, if there’s not inflation and you’re cutting—and even worse, if there’s deflation—you’ve definitely got to spend. 

SA:

You’ve got to spend. 

PD:

But here’s a real interesting thing about why it might be worth cutting spending and giving it somewhere else. This is a point Nathan made, which she kind of brushed off a bit but I wish we could engage them more on this: that money with the rich people or with the Pentagon generals is being spent on real resources. So the money is dictating where real resources go, how they’re arranged, how they’re used. 

So, if rich people have it, it might not lead to inflation. But it’s taking a bunch of metal and services of people and making them be on yachts or in in tanks. A case for cutting military spending is you actually want to—money is not just a thing that can be inflated or not, it’s a thing that is a directive to move real resources in the real world. 

You might want to say, “Oh, the military employs 2 million people, why don’t we employ 500,000 people fewer and have those people be employed somewhere else?” So, there might be a case for cutting something just to get it out of the hands of people. 

SA:

Right, I mean I think a related point that she made—that I also want to try and get more detail on—is she was talking about the wealth tax and the ineffectualness of the wealth tax and talking about how the redirect was basically, “Oh, the billionaires won’t even feel it.”  Right, you won’t even notice it’s gone, it’s so little of your total amount of money. And what she said, I think, was that we don’t want that. We want them to feel it. 

And I think there are two aspects to that. One of them is this third reason for taxation that you were talking about earlier, which is like a re-distributional purpose. We don’t want people having way, way, way, way, way more wealth than everybody else. But another thing that I kind of want more clarity on is it seemed like one of the things that she was implying was that if they’re not even going to feel it, that means they’re not using the money. If it’s just kind of like sitting somewhere… 

PD:

Savers versus spenders. 

SA:

Savers versus spenders. Yeah, exactly. If it’s just being saved, then it’s already kind of out of the economy. 

PD:

Yeah, so, money in a billionaire’s bank account that’s not moving any real resources seems to be to Kelton equivalent inflation-wise as if that money were taxed away, if they never spend it. 

SA:

Right, well and I don’t know if that’s true. I don’t know if she’d say that, and I don’t know if that’s true because it’s not in a savings account. It’s in stocks or it’s in bonds or it’s in something else, which actually means it is being used by somebody for something. 

PD:

Oh, yes, you’re right. Okay. 

SA:

Theoretically. I mean even if it is in a savings account then it’s probably being used as a reserve for the bank, wherever it is, to be able to do more lending. 

PD:

Here’s an interesting thing, though. So, if you go to Jeff Bezos’ vault and you burn a billion dollars and you go to Jeff Bezos’ vault and you tax a billion dollars, it’s exact same thing according to Kelton, right?

SA:

I don’t know, we should ask somebody. 

PD:

Because don’t they say when the money comes into the taxes in the Treasury, it just goes poof like it’s just gone? It’s not sitting in the Treasury. 

SA:

If what taxes are doing is taking money out of the economy, if that’s their purpose, they’re not a prerequisite for anything else. They’re just taking money out of the economy. They’re a tool that controls inflation. Then yeah, I think so. 

PD:

We’ve got to ask about the savers, because if they’re all spending, they’re doing inflation. But  part of me wonders: do the MMTers want a VAT tax that’s actually not hitting the wealthy because they want to hit spenders? Because if you’re taxing for inflation, inflation is caused when you spend the money and move real resources. I want to get the car from there to my house. That is putting pressure on the price of a car. 

SA:

I mean really, they don’t want to do any of this right now, right because they think we just need to be pouring money into the economy at this point. 

PD:

Yes. And they have examples in the past where we did. And then here’s a question: technology. Real resources aren’t a set amount of things because, for example—and we’ll get into this with jobs guarantee—if you want a juggler at your birthday party and I learn how to juggle, I’ve added a new juggler to the economy. And that increases the supply of jugglers, which lowers price pressure on juggling. 

So, we can actually create more real resources, or you invent a new way to use lard or something. We can make more real resources and that’s what basic Kantianism was. By spending a lot, you can eventually have growth which is more real resources by technology, human capital increases, inventing new supply of products that people want. 

SA:

I mean I think that they might even go a little bit farther and say that government spending is the main, or maybe the only way, that you can have growth. 

PD:

Why is that? 

SA:

You have to put money in in order to grow the economy. 

PD:

Like is the amount of money in circulation now more than it was before? 

SA:

Yeah. 

PD:

Yeah, it has to be, there’s more people. 

SA:

Has to be. 

PD:

You know, we’re creating people. I made this elaborate juggler thing, but we actually can create people out of other people and so-

SA:

And also there has been inflation, right? There has been both growth of resources and also inflation in that things cost more now than they did before. There’s healthy inflation. 

PD:

Yeah, we actually assume all of the inflation. Inflation is just a relative idea. 

SA:

Right. 

PD:

Okay, here’s a question: local versus federal. We’re going to have to bring this up. 

SA:

We’re going to have to bring this up. 

PD:

You know, I had this question, can you send a trillion dollars to the developing country? Here’s a question, could you send a trillion dollars to Nevada? 

SA:

I think this gets to a few related questions, too, that I really don’t understand at all. But when I was talking to Lev, one of the things we talked about was most of the money in the economy isn’t really U.S. dollars—most of it is Bank of America electronic bucks. The banks actually create money. Banks are allowed to create money. 

And I don’t understand how that fits into this puzzle, and I also sort of understand what the fiscal sovereignty thing is and that the U.S. government issues tax credits and tax credits are dollars, etc.. Local governments also tax. Counties tax, states tax—can they issue their own currency? Can there be California tax credits that they start printing out? 

PD:

You get some hardcore MMT people, they’re really into this. 

SA:

Yeah. 

PD:

They want to do the digital dollar, they want to do the public banks, they want to do this stuff. And so, there’s a lot of fruitful questions there. 

SA:

Yeah, this is like little mini-dollars. Different kinds of things. 

PD:

Do you have any other questions that Kelton’s interview raised? 

SA:

When I was in the moment, I felt like, “Okay, this is all kind of making sense.” And now, looking back on it, I feel almost more confused than I did before. Which is not a knock on Professor Kelton, like I think that her explanations-

PD:

She has a very hard job. 

SA:

She has a very, very hard job. We asked questions, she answered them. I need more. 

PD:

There’s more. Okay, so listener, you’re sitting here, you kind of like the premise. It’s like the first episode of Lost

SA:

Are you dooming us already?

PD:

It was a great show. 

SA:

Well, okay. 

PD:

It was a great show. 

SA:

People are very unhappy about the ending. I don’t know why. 

PD:

We can have a better ending. We’re going to have the answer. It’s going to be Lost except a better ending, like the Leftovers, the spiritual sequel to Lost. The first section of this episode was like the plane crash. Very intriguing, all these characters, what are Sparky and Pete doing? Good, interesting character development with Kelton in the middle. 

The end, we just introduced a hundred mysteries and you’re sitting there going, “What’s the smoke monster? What’s the hatch?” All that jazz. But you kept watching Lost and some of those answers were answered. So, that’s what I’d invite you to do with this. Start discussing with your friends all these questions we’re raising. Call in if you know any answers or have any theories. 

SA:

Or have other questions. 

PD:

Or have other questions. We’re not stopping until we figure this out. Is MMT real? 

SA:

Is MMT real? 

PD:

So, please stay tuned for our next episode where we’re bringing another person on to help get us closer to the answer or maybe even more questions. Stay with us. 

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