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2:00

week on the podcast

2:02

I have another extra

2:05

special guest with

2:08

Barry Ritholtz on

2:10

Bloomberg Radio. This

2:12

week on the podcast

2:15

I have another

2:17

extra special guest

2:19

Professor Stephanie Kelton teaches

2:22

public policy in economics.

2:25

She really came to

2:27

the four in the

2:30

2010s when she was

2:32

the chief economist for

2:35

the US Senate Budget

2:38

Committee and had previously

2:40

in her career revisited

2:43

the works of people

2:46

like Hyman Minsky and

2:48

Lord Keynes and Warren

2:51

Mosler who's... really probably

2:53

the single largest influencer

2:55

of modern monetary theory

2:58

which looks at the

3:00

overall economy not from

3:02

the perspective of federal

3:05

deficits but the federal

3:07

impact on inflation. Really

3:09

just a fascinating conversation

3:12

talking about what is

3:14

and it is not

3:16

heterodoxy and conventional thinking

3:19

in economics and why

3:21

the field is so hesitant

3:23

to change even when the

3:25

evidence is overwhelming that what

3:27

they're doing is false or

3:30

based on data that just

3:32

doesn't seem to add up.

3:34

Her book, The Deficit Myth,

3:36

was a surprise bestseller, came

3:38

out right in the middle

3:40

of the pandemic. and did

3:43

really well she's been on

3:45

all the you know top

3:47

100 lists most influential thinkers

3:49

women in finance policy influencers

3:51

she she's just really

3:54

a fascinating person with

3:56

a perspective that is kind

3:58

of hard to argue with

4:00

a lot of what she believes

4:02

is outside of the mainstream, but

4:05

it is really stood the test

4:07

of time when the traditional economists

4:09

have said and done things,

4:11

they've made forecasts, they've made

4:14

predictions about what will and

4:16

won't happen, and none of

4:18

it's come true. And so

4:21

when the mainstream economists are

4:23

getting it wrong... You have to

4:25

look at people who approach the

4:28

field from a different perspective. She's

4:30

done a really great job. I

4:32

thought the conversation was fascinating. And

4:35

I think you also, with no

4:37

further ado, my conversation with SUNY

4:39

Stony Brooks Professor Stephanie Kelton. Thank

4:42

you for having me nice to be here.

4:44

Nice to have you. I've been wanting

4:46

to have you here since the book

4:48

first came out during the pandemic and

4:50

will spend a lot of time talking

4:53

about it. But before we get into

4:55

that, I just want to get a

4:57

handle on your background. You

4:59

get a bachelor's, a B.A., and

5:02

a B.S., in economics and

5:04

business at California, Sacramento, then

5:06

University of Cambridge, Master's in

5:09

Philosophy, and Economics, then a PhD

5:11

in Economics at the new school,

5:13

that sounds like you were teeing

5:16

up for a career in academia.

5:18

What was the original plan? To

5:20

be a dentist? Really. Why a

5:23

dentist? I think, you just think,

5:25

you know, what do you do

5:27

for a living where you have,

5:29

you know? decent income and you

5:31

know there's going to be a

5:33

job and high suicide rates I didn't

5:35

think about that at the time but I

5:37

learned later I also didn't realize that you

5:39

had to work on cadavers and so I

5:42

figured out pretty early on that that wasn't

5:44

going to be the path and then I

5:46

you know I switched I was pre-law for

5:48

a while I was an accounting major for

5:50

a good period of time I got well

5:52

into the upper division stuff and then I

5:54

couldn't imagine myself as an accountant I thought

5:56

what do you do you sit in a

5:59

room all day doing tax returns or

6:01

something it's just not you know

6:03

that it seemed antisocial and so

6:05

then it became finance and a

6:07

series of accidents you know you

6:09

have that one professor who you

6:11

stumble on and it just changes

6:14

your life and my trajectory changed

6:16

to economics by accident really fascinating

6:18

so you end up teaching

6:20

at the University of Missouri

6:23

Kansas City for 18 years

6:25

from 1999 to 2017. Tell

6:27

us, I'm curious, California to

6:29

Cambridge to the new school

6:32

in New York and then

6:34

Kansas City, tell us

6:37

about this geographic progression.

6:39

Yeah, so I was doing my undergraduate

6:41

Cal State Sacramento. Were you

6:43

originally a California girl? No, we were

6:46

living in North Carolina. I was a senior

6:48

in high school. I was going to go

6:50

to the University of North Carolina. My dad

6:52

was in the military, so we lived all

6:54

over the place. And one day he came

6:56

home and he said, you know, we're sitting

6:58

at the dinner table and he announces that

7:01

he put in his retirement papers. And the

7:03

family was going to go back to California

7:05

and I could either stay on the other

7:07

side of the country by myself at 17.

7:09

you know, a college kid with a car

7:11

that used to break down on me all

7:14

the time, or I could follow them to

7:16

California. Of course, I missed all the application

7:18

deadlines, and so I ended

7:20

up going with them and

7:22

doing most of my undergraduate

7:24

work at Cal State Sacramento,

7:26

and that's where I... ended up

7:28

taking a micro theory course with this guy

7:30

named John Henry and you know I could

7:32

have picked any course in the catalog any

7:35

any Tuesday Thursday section I happened to pick

7:37

that one and he just kept encouraging me

7:39

to keep going and by the time I

7:41

took the history of economic thought I was

7:43

really hooked and he took me out to

7:45

lunch one day I was thinking about graduate

7:48

school because he said you know you ought

7:50

to think about it. And so he

7:52

took me to lunch and this

7:54

guy named Randy Ray happened to

7:56

be in town and Randy is

7:59

an economist. did his PhD dissertation

8:01

at Washview under Hyman Minsky. So a

8:03

lot of listeners will be familiar with

8:05

Minsky because it's stuff like the Minsky

8:07

moment and all that. And so Randy

8:09

came to lunch. I'd never met him

8:11

before. I knew who he was, but

8:13

John said to Randy, give her some

8:15

advice. Tell her what she should do

8:17

about graduate school. And Randy said. go to

8:20

Harvard and John said no no

8:22

no no don't listen to him

8:24

and he was totally opposed why

8:26

because I think he rightly understood

8:28

that if I had gone to

8:31

Harvard that I would have

8:33

received a certain kind of training

8:35

and by that point I was already

8:37

you know people will use the

8:40

word heterodox I don't like that

8:42

word but for lack of a

8:44

better synonym at the moment, I'll

8:47

just use it. But, you know,

8:49

I had been reading people like

8:51

Minsky, and I was really into

8:54

that kind of stuff. And Veblin,

8:56

and, you know, the history of

8:58

thought really grabbed me. And I

9:01

think John understood that if I'd

9:03

gone to Harvard, I would have

9:05

gotten a really conventional training and

9:08

I wouldn't have been exposed to

9:10

some of the really interesting,

9:12

and that's what I ended up

9:14

doing. Huh. So Thorsten Veblin

9:17

fascinating, probably the

9:19

earliest theorists on consumer

9:21

spending and materialism and

9:23

kind of interesting that

9:25

you gravitated towards that

9:27

and away from just being cranked

9:29

out of the factory to become

9:32

another consultant, not your path.

9:34

No, it wasn't. And you know, when I

9:36

was at Cambridge, I was there. It

9:38

was a very unusual program because, you

9:40

know, you show up straight out of

9:43

undergrad. You do four courses. Each course

9:45

is one year long. And at the

9:47

end of the one year period, you

9:49

start writing a dissertation. And then you're

9:52

a PhD economist having four courses at

9:54

the graduate level under your belt. And

9:56

I thought, how do you sell yourself

9:58

as an economist? Really? didn't feel right.

10:00

And I wasn't sure I could compete

10:03

for a job in academia, which is

10:05

four courses. And most of the kids,

10:07

I'll say kids, most of the people

10:10

that I did the master's degree with,

10:12

they were flying back to the US

10:14

and they were interviewing for Wall Street

10:17

jobs. And I knew that that was

10:19

not my path. And I already gotten

10:21

a fellowship from Cambridge University through Christ

10:24

College to go to the Levy Institute

10:26

and spend a year working on the

10:28

dissertation. And so I went to leave. Wait,

10:31

so this is this is a

10:33

year of four classes that are

10:35

full year classes. Yeah, kind of

10:37

reminds me a little bit of

10:39

law school where you're taking the

10:41

four gut courses, torts, civil procedure,

10:44

property, and, uh, no, a second

10:46

year. What was the contracts? And

10:48

they're like killer courses and you're

10:50

taking for them at once. Then

10:53

you have a full additional year

10:55

to work on your. Not PhD

10:57

dissertation, but master's dissertation,

11:00

is that right? No, it would

11:02

be the PhD. Oh, so you do a

11:04

year of four classes and then the PhD.

11:06

And then you write your dissertation

11:09

and you have a PhD. So I'm-

11:11

Hold a hoe, hoe, hoe, so you

11:13

get a PhD from Cambridge. And then

11:15

you go to the new school for

11:17

a PhD in economics. So, so I

11:19

started on the journey. I took, I

11:21

got the fellowship, which was go to

11:24

the Levy Institute of Bard College. going

11:26

to be in the Hudson Valley. Very

11:28

lovely up there. It's beautiful up there. And

11:30

so they gave me money and the Levy

11:32

Institute gave me office base and housing and

11:35

they had this arrangement with Cambridge and the

11:37

idea was you go and you spend a

11:39

year there and you start writing. and then

11:41

you would return and finish up the PhD.

11:44

So Walden Pond for Economics,

11:46

essentially. Honestly, it was like magic.

11:48

And I get there and Randy

11:50

Ray is there. He's on a

11:52

sabbatical, I think, and he's doing

11:54

research there. But I meet this

11:56

guy named Win Godly, and Godly

11:58

is just a fascinating. character. I

12:00

write about him a little bit

12:02

in the book. He really pioneers

12:05

the work around sectoral financial balances

12:07

and stock flow consistent modeling and

12:09

he's this old British guy who

12:11

was, you know, quite famous in

12:13

England as a policy advisor and

12:15

economic forecaster. He was known as

12:17

one of the, I think, seven

12:19

wise men and anyway, his office

12:21

was right next to mine. We

12:23

shared a wall. He would sit

12:25

in his office and play the

12:27

oboe and just an amazing person

12:29

and I learned so much from him

12:31

that I got there and I thought There's

12:33

so much more to learn. I've done

12:35

four courses, but I don't know enough.

12:38

So I started taking the train once

12:40

a week, I'd go down to New

12:42

York City, and I would sit in

12:44

on courses at the new school. And

12:46

I mean... I was surrounded by people

12:48

I thought were 10 times brighter than

12:50

I was. They were more thoughtful, they

12:53

were having conversations that felt, you know,

12:55

important and weighty, and I thought, oh,

12:57

there's no way, you know, I'm not

12:59

ready. I need to stick around and

13:01

do some more coursework, and so that's

13:03

what happened. I transferred, I finished

13:05

up at the new school when

13:07

Godly served on my dissertation committee,

13:10

and that's... That's kind of how

13:12

the journey unraveled. Really fascinating. How

13:15

do you end up in Missouri,

13:17

Kansas City? So another person who

13:20

had a major impact on my

13:22

life, a lot of people, if

13:24

they hear his name and recognize

13:27

it, they'll say, oh, Warren Mosler,

13:29

the father of MMT. So Warren

13:31

was funding. a small program at

13:34

the new school. He was supporting

13:36

some graduate students and he had

13:38

a faculty member there named Ednell

13:41

who had students kind of working

13:43

on Warren's ideas and I was

13:45

part of that group. And Randy

13:48

Ray who was at the Levy

13:50

Institute, another economist named Matt Forstatter

13:52

who was at Levy and I

13:55

all ended up going to UMKCAC

13:57

in the same year because Warren,

13:59

you know, provided some seed

14:01

money to help the graduate

14:04

student program really kind of

14:06

build itself up there, bring

14:09

some economists in, have

14:11

a, you know, what an outpost I

14:13

guess for MMT. And so we all,

14:15

we all went together. So what

14:17

brought you in 2017 to my

14:20

alma mater, Suny Stony Brook, what

14:22

led you to move over there

14:24

and what's your focus there?

14:27

Well, my husband was the associate dean

14:29

at the University of Kansas, and I

14:31

was the chair of the department at

14:33

the University of Missouri in Kansas City.

14:35

I had taken a bit of time

14:38

away to work on the hill. And

14:40

so, anyway, we were, you know, the

14:42

universities are about an hour apart. We

14:44

lived in Lawrence, Kansas. It's a great

14:46

little college town. We loved it. You

14:48

know, season tickets to the men's basketball

14:50

games and all that kind of stuff.

14:53

It was a lot of fun. But

14:55

he had one foot in the administration

14:57

and one foot in academia. And he's

14:59

a history professor. He writes a lot

15:01

of books. And so he kind of

15:03

put himself out there on the job

15:05

market. And he thought, well, I could

15:08

either go for a dean position or

15:10

I could go for some kind of

15:12

endowed chair somewhere, move up. And so

15:14

Stonybrook had a position for an endowed

15:16

chair in the history department and he

15:18

interviewed for it and they liked him

15:20

and then the provost at the time

15:23

was an economist. I think he had

15:25

been Jamie Galbraith's roommate at Yale and

15:27

he found out who Paul Kelton was

15:29

married to and then I think

15:31

the conversations between the dean and

15:33

the provost started and they said we

15:36

got to get this. This is a two

15:38

for him. Yeah. So we did. We

15:40

decided it was a great opportunity to.

15:42

you know, go and be together and,

15:44

you know, build and I could do

15:46

public policy and economics and that was

15:49

going to be, you know, really appealing

15:51

for me because I was just teaching

15:53

economics at UMKC.C.C. Now you just briefly

15:55

alluded to your time on the Hill.

15:57

You were the chief economist for the...

15:59

U.S. Senate Budget Committee during,

16:02

was that during the Obama

16:04

administration? For the Democrat

16:06

staff. So yeah, the

16:08

Republicans have one, the

16:10

Democrats have one. Yes. Who is

16:12

your, um, who is your peer

16:15

on the other side? Mike Enzi,

16:17

Senator Mike Enzi. Uh-huh. Uh-huh.

16:19

From Wyoming. Was the

16:21

Democrat or Republican on

16:23

the... Well, the Republicans had the Senate,

16:25

Democrats had the House at the

16:27

time, and so Bernie Sanders was

16:29

the ranking member, and he hired

16:31

me. Yeah. So wait, so you're

16:34

the chief economist for the Democrat

16:36

U.S. Senate budget committee, who is

16:38

the chief economist for the Republicans?

16:40

Bill something. So if not someone you

16:43

interacted a lot with or really

16:45

kind of got to that? No, when I

16:47

got to the hill, I think it was just

16:49

the first few days after I arrived, he reached

16:51

out to me. It was a really nice guy

16:54

and he said, you want to get together

16:56

and have coffee and I'll kind of tell

16:58

you how this whole thing works and I

17:00

said that would be sure that'd be really

17:02

nice so the two of us sat and

17:04

it was really interesting because you know he's

17:07

chief economist for the senators on the budget

17:09

committee the Republican side and I'm there for

17:11

the Democrats and he said look the we're

17:13

in charge because we have the majority so

17:15

periodically every week couple of weeks or whatever

17:17

we're gonna call a hearing we get to

17:20

decide what the hearing is about and we're

17:22

gonna get usually three witnesses to test to

17:24

find, you guys will get two. And

17:26

we'll try to give you as much

17:28

notice as we can to line your

17:30

witnesses up. We'll go for a week.

17:32

You won't always get that. But here's

17:34

how it's going to go. We'll say we

17:37

want to have a hearing on, you know,

17:39

I don't know, disability, fraud and disability, or

17:41

the budget crisis, or whatever the hell it

17:43

is. And, you know, maybe we'll reach out

17:45

to the people that Heritage or Cato or

17:47

Cato or AI or AI or some place

17:50

like that. you know, leading up to this

17:52

hearing because they want to make their points

17:54

as strongly as they can. He said, you

17:56

might want to reach out to the people

17:58

at CAP or the Center. around budget

18:01

and policy priorities or

18:03

Washington Center for Equitable

18:05

Growth or EPI, you know, like,

18:07

you know, you're just... It was. It

18:09

was. It was. Adversarial, because, you know,

18:11

when I was growing up, there were

18:13

different parties, but there was some

18:16

bipartisan, everybody seemed to be focused

18:18

on what are we going to

18:20

do to make life better for

18:23

everybody. And then it just sort

18:25

of devolved into this partisan wrangling

18:27

where the sort of collegial... dare

18:30

I say, academic relationship across

18:32

the aisle, that seems to

18:34

have gone away. Yeah, I mean,

18:36

we had a nice report. I

18:38

will say that most of it

18:40

felt to me very performative. You know,

18:42

it was, you said making people's

18:45

lives better. I don't think I

18:47

ever really had the sense that

18:49

that was what these hearings were

18:51

about. A lot of it was

18:53

allowing folks to have their five

18:55

minutes of, you know. I don't know.

18:58

Oh, I mean, this is

19:00

long before Obama, long before

19:02

W, George W. Bush, back

19:05

in the, I don't know,

19:07

maybe I'm romanticizing

19:09

Johnson, Nixon, Ford,

19:11

Carter, Reagan era, but

19:13

it seemed like Tip O'Neill

19:15

and Ronald Reagan, the joke

19:18

was, they would argue all

19:20

day and then they go

19:22

out and have a beer

19:24

together. Yeah. Well. I think

19:26

there was still some of that

19:28

around when I was there. And,

19:30

you know, there's certainly, you know,

19:32

Bernie's friend Sanders for all the,

19:34

you know, personality and so forth,

19:36

people associate him with a really

19:38

kind of cantanker, his old guy.

19:40

He's just as friendly as anybody

19:42

else on the committee. Mike Enzi,

19:44

the chair of the committee, he

19:46

was just like, you'd look at

19:48

him and think, that's my grandpa,

19:50

you know, he's just a mild-mannered,

19:53

soft-spoken, very easy. things have changed

19:55

obviously. To say the very least. This is

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22:25

So let's talk a little bit about the

22:27

book. First, what was the

22:29

inspiration to write this?

22:31

Frustration. Uh-huh. Really? You

22:33

know, I don't enjoy writing.

22:35

I don't like the process.

22:38

I don't, I don't like

22:40

sitting still that much. Uh-

22:42

That's really interesting. Yeah, yeah. I-

22:44

Could never write a book because I

22:46

wanted to I wrote it because

22:48

I felt like I had to

22:50

I've had that experience I've had

22:53

I've had both I just got

22:55

to get this out because it's

22:57

burning a hole in my brain

23:00

But I've also had the oh,

23:02

let's have some fun and play

23:04

with some interesting ideas. That's a

23:07

little less tedious and and cathartic

23:09

But this just had to come out

23:11

is that was that? You had to get

23:13

it out of your head or? I

23:15

had to get it out. It's so

23:18

funny that you use that metaphor or

23:20

that kind of terminology because I had

23:22

a conversation with Marianne Williamson. You know,

23:25

you know, you know, why do I

23:27

know that name? Because she ran for

23:29

president. Oh, okay. Okay. And I had just

23:31

moved out to Stony Brook. We just

23:33

moved to Long Island and I get

23:36

this email from this person I've never

23:38

heard of before and she said we

23:40

have a mutual friend and he says

23:42

that I need to talk to you

23:44

because I want to try to understand

23:46

economics better. Can I I will come

23:48

to you you know what would you

23:51

would you talk to me and I

23:53

said I guess so you know sure

23:55

you're gonna come to me so one

23:57

day I'm sitting in the house sweatpants

23:59

whatever. you know, t-shirt, we're in the

24:01

basement, my husband, I think we're watching

24:03

a football game or something, and all

24:05

of a sudden I get the notification

24:07

on my phone, you know, and it

24:09

says, Marian, we've heard of it before,

24:12

and she said, we have a mutual

24:14

friend and he says that I need

24:16

to talk to you because I want

24:18

to try to understand economics better. Can

24:20

I, I will come to you, would

24:22

you, talk to me? And I said,

24:24

I guess, oh, you know, sure, you're,

24:26

you're going to. come to me. So

24:28

one day I'm sitting in the house,

24:30

sweatpants, whatever, you know, t-shirt, we're

24:32

in the basement, my husband, I

24:35

think we're watching a football game

24:37

or something, and all of a

24:39

sudden I get the notification on

24:42

my phone, you know, and it says,

24:44

Marian Williamson is coming

24:46

at four o'clock or whatever.

24:48

And I thought, oh, she's running

24:50

by that time with like secret

24:52

service and everything. I said, oh,

24:54

Jesus. You know, my husband said,

24:56

what? And I said, somebody's coming

24:59

over. He said, who's coming over?

25:01

I said, I don't know. I

25:03

said, you got somebody coming over

25:05

and you don't know who it

25:07

is. So I Google. And I

25:09

see Larry King, New York Times

25:11

Best Seller, seven books and all

25:13

the stuff. I thought, oh, Jesus,

25:15

you know, I got to change

25:17

clothes. I went to the grocery store,

25:20

I got some, you know, things to

25:22

put out and host her and so

25:24

forth. of writing a book. And she

25:26

said, darling, you must be

25:29

pregnant with a book. I get

25:31

that. Okay. I didn't get it

25:33

at the time she said it,

25:36

but I understand it now that

25:38

it's exactly what you said. There's

25:41

something that's in you that you

25:43

just have to push out. And

25:45

that's the best I can. No, that

25:47

makes perfect sense, but pregnant with

25:49

a book is a great... Listen...

25:52

I got pregnant, Barry. It

25:54

wasn't expecting it. I, um... It's

25:56

funny because my last book was

25:59

15 years ago. and now I have

26:01

a new one coming out and the

26:03

next one will be in 2040.

26:05

I'm like, I'm clockwork every 15

26:07

years. Because it takes, not only

26:09

does it take a lot out

26:11

of you, but it's, you have

26:13

to really enjoy sitting alone in

26:16

front of a screen typing

26:18

and you end up spending,

26:20

writing is the easy part,

26:22

it's the edling that's so

26:24

difficult. The first draft is,

26:26

you know, the final version

26:28

is 10 steps removed from

26:31

the first draft and you

26:33

don't realize how much time

26:35

you spend thinking about why

26:37

a semicolon and not a

26:39

comma in this parrot, like

26:41

just dumb things, but it is

26:43

a birthing process and it

26:45

is messy and painful to say

26:48

the very least. But that brings

26:50

me to a really interesting

26:52

question. The book comes out

26:54

in June 2020. Instant

26:56

acclaim. New York Times bestseller

26:58

list. How giant of a

27:01

surprise was that reaction? Huge.

27:03

Huge, right? For sure. The phone

27:05

rang. My editor was on the

27:08

line and he was just tickled,

27:10

tickled pink. And he said, I

27:12

want to be the first to

27:14

congratulate you. And he. He knew what

27:17

the list was going to look like

27:19

the next morning. Really? Wow. So number

27:21

one on the New York Times? Not number

27:23

one, but it was in the top

27:26

whatever. It made the list. I think there

27:28

were 15. Oh, really? 13th or something.

27:30

Yeah. Amazing. That's amazing. So the

27:32

book publishes June 2020. I'm going

27:34

to assume you finished writing that

27:37

before the pandemic, before the

27:39

largest government stimulus since

27:41

World War II. What was the reaction

27:44

to putting a book out in the

27:46

middle of the pandemic? It was

27:48

in January of 2020. I was in

27:50

Australia and... Oh, so you were out

27:52

and about traveling? You know,

27:55

we didn't know. It was January.

27:57

We were in Florida in January

27:59

2020. and like you didn't

28:01

have a clue what was coming at

28:03

all. I was there and I had

28:06

the copy edited manuscript in front

28:08

of me and I remember just

28:10

going through it one one last

28:12

time and you know, two months

28:14

later, the world changed. And I

28:16

managed to get, there was room

28:18

on the last page of the

28:20

introduction or preface or something like

28:22

that, and they allowed me to

28:24

add a paragraph. As long as

28:26

it doesn't affect the pagination of the

28:29

rest of the book. That's exactly, I

28:31

got really lucky. And so there is

28:33

some commentary in the hardback, the very

28:35

first published edition of the book about

28:37

the pandemic, but that left my hands

28:40

in March. And in June, it was

28:42

out and in stores and in

28:44

stores. little bit about the deficit

28:46

myth. I've heard pretty much

28:48

since Ronald Reagan was

28:50

elected president in 1980,

28:52

deficits are going to crowd

28:55

out private capital, choke off

28:57

innovation. It'll reduce new company

28:59

formation. It'll make US borrowing

29:01

cost skyrocket. It'll devalue the

29:03

US dollar. It's going to

29:05

cause rampant inflation. And it

29:08

will act as a drag on the

29:10

overall economy. None of these things

29:12

have happened. So why should

29:14

we really care about deficits?

29:16

Well, so I wrote the book, not to

29:19

say we shouldn't care about

29:21

deficits, but to say... you know,

29:23

to address a lot of what you

29:25

just said. Why do people continue to

29:27

repeat these things, decade after decade after

29:30

decade? I mean, we're talking literally

29:32

45 years, 55 years, since 1980.

29:34

That's a long time, half a

29:36

century. It's funny because, you know,

29:38

you got Dick Cheney saying, Reagan

29:41

proved deficits don't matter, but everybody,

29:43

you know, really believes that deficits

29:45

have the potential. And in some

29:47

respects, not all of it is

29:49

wrong, you know, there are times

29:51

where deficits can create... problems, but

29:54

so much of the commentary and

29:56

the way we think about and

29:58

talk about and shape. around beliefs

30:00

around the dangers and risks of running

30:02

budget deficits, I just thought, you know,

30:05

you almost need a chapter for every

30:07

one of these different myths. And it's

30:09

not the deficits don't matter. It's that

30:12

they matter in ways that we aren't

30:14

paying attention to. And so the book

30:16

was really to try to get us

30:18

to, you know, flip our perspective around

30:21

to see that every deficit is

30:23

good for someone. I mean, you

30:25

know, so a lot of what

30:27

the book does is to try

30:29

to make clear why that's the

30:31

case. Why is every deficit good

30:33

for someone in purely financial terms?

30:35

Government deficits are just the mirror

30:37

image of a financial surplus in

30:39

the non-government part of the economy.

30:41

So we should talk about deficits

30:43

for whom, deficits for what, right?

30:45

Deficits can be used to accomplish

30:47

big things like, you know, um...

30:49

repairing crumbling infrastructure, improving our health

30:51

care education systems and so on

30:54

and so forth. They can also

30:56

get too big and they can

30:58

also exacerbate or cause an inflation

31:01

problem. So we don't diminish or

31:03

dismiss any of those things, but

31:05

really have a very different conversation

31:08

about the role of deficits in

31:10

the economy. All right, so let's

31:12

have that conversation. When you say

31:15

deficits... can get too big. I think

31:17

it was Ryan Hunt and

31:19

Rogoff's paper said 100% GDP to

31:21

debt ratio is a problem. 90%

31:23

tipping point. Right. I mean that

31:25

was that was the problem wasn't

31:27

the Excel spreadsheet error. uh... which

31:29

change their math the problem is

31:31

japan is running two fifty percent

31:33

and their economy seems to be

31:35

doing just fine their quality life

31:37

is higher than ours their life

31:39

expectancy is higher than ours their

31:41

income is comparable uh... if japan

31:43

can run what are we running

31:45

like one seventy five two hundred

31:47

in the u s oh we

31:49

just i mean publicly hell

31:51

like we just hit ninety nine percent

31:54

we just were about a hundred percent

31:56

japan is two and a half times our

31:58

size does that suggest we have a

32:00

long ways to go before the

32:03

deficit is a problem or are

32:05

there other potential issues? Well I

32:07

just don't think the ratio is a

32:09

very useful metric in terms

32:11

of you know thinking about

32:14

when you've quote-unquote gone too

32:16

far and I think you

32:18

know it's always interesting how

32:20

Japan tends to get left

32:22

out of the conversation right

32:24

because it really is the

32:26

counterpoint to so many of

32:29

these arguments. pre-covid had been

32:31

running large persistent fiscal deficits

32:33

for three. decades. Three decades.

32:35

They had, you know, the

32:37

tenure interest rate pinned at

32:39

zero more recently, but they

32:42

didn't interest rates didn't go up.

32:44

They didn't suffer the crowding out

32:46

problem of rising interest rates, you

32:48

know, pushing investment down. They didn't

32:50

get an inflation problem. They've been

32:53

battling deflationary pressures basically the entire

32:55

time. You never have a failed

32:57

auction. You don't have a situation

32:59

where, you know, bond vigilantes show

33:02

up and say that's it. All

33:04

of those things kept not happening.

33:06

And so we always pointed to

33:08

Japan and people would say, well,

33:11

it's demographics. There's some reason that

33:13

Japan is an exception to the

33:15

rule. But I think the truth is that

33:17

it's just, we've got so much of it

33:19

wrong that that's been the reason that all

33:22

these bad things that were supposed to happen

33:24

kept not happening. I just got an

33:26

email from. Washington DC

33:28

consultant Bruce Melman saying please

33:31

explain this chart to me

33:33

showing all these deficits and

33:35

how is the United States

33:37

up here and how is Japan

33:40

down here and I know the

33:42

answer is the Japanese Central Bank

33:44

is has interest rate set at

33:47

0.5% you can finance a lot

33:49

of deficits when the Fed is

33:51

it was at least over 5%

33:53

for a while and now is barely

33:55

below it. When you're a tenth of that

33:57

interest rate, hey, it's pretty easy to finance.

34:00

deficits, how do you look

34:02

at the relationship between a country's

34:04

central bank and its

34:06

ability to manage its own

34:08

debt? Well, the central bank, so

34:11

if we're talking about a country like

34:13

Japan or the US, what I'll call

34:15

in, what I call in the book,

34:18

you know, countries that issue their own

34:20

sovereign currencies. It's not... even an

34:22

issue at higher rates of interest,

34:24

right? Remember when Volker was Fed

34:26

Chair, Reagan was tripling the national

34:28

debt, right? A massive build-up in

34:30

military, you know, couple of huge

34:33

tax cuts, deficits were increasing, that

34:35

debt was increasing very rapidly, interest

34:37

rates were quite high, but it

34:39

still doesn't pose a financing challenge.

34:41

The central bank is just crediting

34:43

bank accounts. I mean, that's how

34:46

the payments are made, and you

34:48

can do that at very high

34:50

interest. you can do that at

34:52

very low interest rates, but

34:54

when you get that combination

34:56

of high interest rates and high

34:58

debt, right? You got a lot of

35:00

treasuries or a lot of JGBs. You

35:02

got a high debt to GDP ratio

35:05

and high interest rates. You

35:07

can very easily get into a

35:09

situation where the rate hikes themselves

35:11

are generating enough additional interest income

35:13

that it itself can become a

35:15

source of inflationary pressure. So I

35:17

would say that's always the relevant

35:19

risk. It's not that you're going

35:21

to run out of money. It's

35:23

not that you're going to turn

35:25

into Greece. It's not that you're

35:27

going to bankrupt the nation or

35:29

burden future generations or any of

35:31

that. It really is all about

35:33

inflation as a constraint. And

35:35

you can find yourself in a situation where

35:37

you have, quote, too much debt, but in

35:40

combination with kind of a central bank policy

35:42

that is pushing interest rates very up. And

35:44

you can get into that sort of. So

35:46

we had pretty high deficits

35:49

in the following the financial

35:51

crisis in the 2010s. We

35:53

had no inflation when there

35:56

was a huge, and I mean

35:58

huge, biggest since the... the Marshall

36:00

plan since World War II,

36:03

10% of GDP as a

36:05

fiscal stimulus, that combined with

36:08

the shift to products over

36:10

goods over services and snarled

36:13

supply lines and a lot

36:15

of other factors led to

36:18

a transitory inflation spike from

36:20

2020. peaked in June 2022 at

36:23

9% came back down. Now we're in

36:25

a 3% era as opposed to a

36:27

1% to 2% era. But it's not

36:29

the deficit that caused

36:31

that. It was the fiscal

36:34

stimulus, primarily as the driver.

36:36

Where do we see? Or

36:38

is that the wrong... Did you mean because...

36:40

I thought you were setting up a different

36:43

argument and then you went somewhere I

36:45

didn't... No, I'm going to say

36:47

it wasn't the deficit. It was

36:49

the fiscal stimulus. It was the

36:51

fiscal stimulus that was inflationary and

36:53

that inflation seems to be transitory.

36:56

We had, following the financial crisis,

36:58

we had very modest fiscal stimulus

37:00

and massive monetary stimulus and we

37:02

were in mostly a deflationary environment

37:05

when we shifted from monetary to

37:07

fiscal, seemed that... all at once seemed

37:09

like that's where we had our transitory

37:11

inflation spike. Or do you see it?

37:14

Am I framing it in a way

37:16

that is incorrect? Tell me what

37:18

what you see here. Well, so I think

37:20

a couple of things I would unpack,

37:22

rewind a second and go to QE,

37:24

and I don't know if you think

37:27

of that as monetary stimulus. I don't.

37:29

So you don't, you don't think

37:31

quantum, so the purchasing of bonds

37:34

in order to lower interest rates.

37:36

you don't think of as a monetary

37:38

policy how do you know i think

37:40

of it as monetary policy to be

37:43

sure the central bank was trying to

37:45

achieve something by doing that right in

37:47

part what they were trying to achieve

37:49

was pushing down rates at the long end

37:51

i think from everything i've read

37:53

the evidence suggests that it didn't do

37:55

very much at the long end i

37:58

mean i've seen estimates you know 20

38:00

basis points. So you just didn't get

38:02

a lot out of that. Now, they

38:04

hope that, you know, people would reach

38:07

for yield, you'd have a wealth effect,

38:09

maybe there was some of that kind

38:11

of stuff going on, but in terms

38:13

of stimulus, what I see in retrospect

38:16

and what I thought at the moment,

38:18

right at the time. was that, you

38:20

know, Bernanke and the Fed were thinking

38:22

that QE was going to be like

38:25

stomping on the gas pedal and revving

38:27

up inflation. And we'd watched the Bank

38:29

of Japan try and fail at this

38:31

for at least a decade. I couldn't

38:34

figure out why we expected a different

38:36

result here from what they got there,

38:38

but we went ahead and tried anyway.

38:40

And, you know, three rounds of QE

38:43

and operation twists thrown in in the

38:45

middle. And still, we didn't get... to

38:47

2% over the course of a decade.

38:49

So if that's monetary

38:52

stimulus, I don't know, you know,

38:54

I'm struggling to see it that way.

38:56

So let me throw something at

38:59

you that is not heterodox

39:01

and my economist friends disagree

39:03

with me on this, but

39:05

I'm pretty convinced I'm right.

39:08

I find the wealth effect

39:10

at the very least is... has

39:12

been greatly exaggerated and then in

39:14

the real world i think it's

39:17

kind of meaningless because Look, when

39:19

you look at who, so the

39:21

wealth effect is defined as a

39:23

rising stock market leads to greater

39:25

economic activity, which I think is

39:28

backwards. I think you have good

39:30

economic activity, people get hired, they

39:32

get raises, they go and spend

39:34

money, that ultimately leads to a

39:36

rising stock market. And the reality

39:39

is, when the stock market, aside

39:41

from crashes and like O809, when

39:43

people panicked old things, and I

39:45

don't mean just stocks, but houses

39:47

cars. collectibles art whatever when

39:49

you don't have the stock market

39:52

rising that doesn't affect 80%

39:54

of the population you know

39:56

the vast majority of equities are

39:58

held by the top 1% 10% they

40:00

tend to spend no matter what

40:02

the stock market is doing. 3

40:05

quarters of all equity. So less

40:07

than the top quartile. So the

40:09

wealth effect isn't it affect people

40:11

raising wages affects people spending and

40:14

by the way the wealthy however

40:16

you want to describe it at

40:18

the top 1% 10% they tend

40:21

to spend no matter what the stock

40:23

market's doing. You know if they want

40:25

a new car or a vacation or

40:27

a new house. they tend to go

40:29

get it regardless. So the whole concept,

40:31

if the Fed was engaging in QE

40:34

because they thought it would awaken the

40:36

animal spirits via the wealth effect,

40:38

well, are we you and I

40:41

in agreement that their fundamental premise

40:43

is just completely wrong? We are. Yeah,

40:45

I mean, maybe there was some kind

40:47

of placebo effect associated with QE if

40:50

people thought it did a certain thing,

40:52

they behave in that way, and it

40:54

has real... impacts on the economy short

40:56

term or something like that, but it

40:58

sure didn't appear to do what the

41:00

central bank anticipated and hoped it would

41:02

do. And one of the things I

41:04

can remember, you know, people like Janet

41:06

Yellen and Ben Bernanke, when they would

41:08

get pressed on this, what are you

41:11

hoping will happen, you know, they would

41:13

bring up the wealth effect and the

41:15

reach for yield and that sort

41:17

of stuff. But, you know, I

41:19

remember Bernanke testifying before Congress, testifying

41:22

before Congress was really frustrated. the

41:24

economy is clearly not getting juiced

41:26

by whatever it is you're doing.

41:29

Which by the way is a

41:31

very typical post-financial crisis scenario if

41:34

you look at history. That's what

41:36

what those recoveries tend to look

41:38

like. Yeah, I mean, you know,

41:41

you got one fiscal package, the

41:43

American Rescue Recovery Act, right? It

41:45

seemed like a big number at

41:48

the time, $787 billion, but it

41:50

wasn't nearly enough given what we

41:52

were up against. And so a

41:54

third was a temporary tax cut.

41:56

And a third was, remember, shovel

41:58

ready. I do. hundred billion dollars.

42:01

I mean, the first CARES Act

42:03

was 10x that. It's a joke.

42:05

It was way too small and

42:07

as you just said, the way

42:09

that it was put together was

42:11

not going to provide a big

42:14

shot in the arm for the

42:16

economy. And so here's Bernanke sitting

42:18

before Congress and and congressmen are really

42:21

upset they're saying what it what is

42:23

going on you're supposed to fix stuff

42:25

you know it's your job we gave

42:27

you the dual mandate why isn't it

42:29

why isn't it being fixed and Bernanke

42:31

said and i i mean i remember

42:34

this you know it's a quote he

42:36

said let me just say that monetary

42:38

policy is not a panacea it's not

42:40

the ideal tool Whoa, when he said

42:42

that, I was like, you know what?

42:44

He's not telling you that fiscal policy

42:47

is the ideal tool, but he's telling

42:49

you that fiscal policy is the

42:51

ideal tool. Was he too

42:53

nuanced for the geniuses in

42:55

Congress? You have to think, you have

42:57

to think, you have to think, I

42:59

mean, it's like, hey, I'm doing your

43:01

job and I don't have the tools

43:03

that you have, so don't expect the

43:06

same results. I'm pressing the buttons at

43:08

the it does something, but you all

43:10

have the real firepower and you're not

43:12

using it. That's what he said. And

43:15

so when COVID came, I think we

43:17

really did learn the lesson this time.

43:19

Maybe a little too much. And you

43:21

know, but you had the collision. So

43:24

yeah, you have an economy that is

43:26

largely shut down. As you said, you've

43:28

got consumers who can't spend money on

43:30

services because most of that part of

43:33

the economy is closed. So we

43:35

all try shoving what money we

43:37

do have to be manufactured and

43:39

shipped. and then we all remember

43:41

what that was like, you know,

43:43

backups at the ports and all

43:46

the rest of it. So that

43:48

collision of constrained supply and some

43:50

demand, yes, to be sure, the

43:52

stimulus packages from CARES on through

43:54

helped people, right, not only replace

43:57

income, but in some cases, people

43:59

ended up... with more income than they

44:01

had when they were working. And so all

44:03

of those things together, and then you have

44:05

to remember that the pandemic came in waves,

44:08

it wasn't just, you know, one-time shock. We

44:10

thought we were kind of, you know, moving

44:12

beyond it, and then here came Delta, and

44:14

then here came Omicron, and then different parts

44:17

of the world closing at different times. So

44:19

I think, Barry, when you look at the...

44:21

the autopsies that people have tried to

44:23

do, say where did all this

44:25

inflation come from? Was it really

44:28

that last stimulus package? Was it

44:30

the $1,400 checks that, you know,

44:32

some economists warned we're going to

44:34

put us over the edge? People

44:36

who've gone and I think done

44:38

the really serious work here, you

44:40

know, Peter Orzag, Robin Brooks and

44:43

somebody else, they have a paper,

44:45

Bernanke and Blanchard, Olivia Blanchard, Benb

44:47

and Bernhardt, the IMF, has looked

44:49

at this, different federal reserve. I

44:51

think virtually everyone lands in the

44:53

direction of it was overwhelmingly

44:56

the supply side stuff it

44:58

wasn't the demand stimulus that

45:00

played a role but it

45:02

was a modest one and

45:04

I'm writing about this now

45:06

so I'm really steeped in

45:08

you know going back and

45:10

revisiting what so so when we

45:12

say supply side how much of this

45:15

were the were the we remember seeing

45:17

all the ships off of the port

45:19

in Long Beach I have a vivid

45:22

recollection of interviewing Professor

45:24

Jeremy Siegel of Wharton after,

45:26

I don't remember if it was the

45:28

first CARES Act or the second CARES

45:30

Act, I'm pretty sure it was before

45:33

the third CARES Act. So CARES Act

45:35

1 and 2 under Trump 1, CARES

45:37

Act 3, under Biden. And I

45:39

recall Siegel saying we're going

45:41

to have a massive 70s

45:43

like spike in inflation. No one's

45:45

prepared for it. The only

45:48

good news is it'll be

45:50

transitory. Like long before anyone

45:52

was even using the

45:54

I-word, Siegel was all over

45:56

this. Based on the fiscal side, are

45:59

you saying... Did he get lucky

46:01

or was it fiscal plus?

46:03

supply shocks. Well, I'm saying it

46:05

was fiscal plus. Yeah, I mean, you

46:07

know, I had a piece in the

46:09

New York Times in April of 2020.

46:12

I kind of remember that. Do you?

46:14

I mean, that was my sort of

46:16

warning on inflation. I submitted it was

46:18

just ready to go in March, but

46:20

you know, they like to hold things.

46:22

And so it was published in April,

46:24

but I don't think that that that

46:27

last fiscal package is what gave us

46:29

that burst of inflation. This is what

46:31

I'm suggesting is you go back and

46:33

you do a really careful retrospective

46:35

on this. And yeah, it played

46:37

a role. But was it the

46:40

reason that we tipped over, we

46:42

wouldn't have had the inflation that

46:44

we had, you know, hitting 9%

46:47

by the summer of that year,

46:49

by 2022, you know, getting that

46:51

inflation? This was a global phenomenon.

46:54

massively less fiscal than we did.

46:56

Still had the same impact. But

46:59

the same or more in

47:01

some cases more inflation. So

47:03

I think, you know, the

47:05

truth is, it was pandemic,

47:08

it was pandemic related, it

47:10

was supply chain, and inflation

47:12

went up for reasons mostly

47:14

related to the kinks and

47:17

the supply chains and, you

47:19

know, resolving some of those

47:21

issues. So. I have a

47:23

vivid recollection of Ed

47:25

Yardini, another economist who

47:28

wrote, when you have very rapid increases

47:30

in inflation, they tend not to be

47:32

structural and they tend to be resolved.

47:34

uh... in almost a symmetrical way the

47:37

chart looks you know if you have

47:39

a fast rise you tend to have

47:41

a fast drop-off he was pretty right

47:43

about that and when you go and

47:46

he was basing this on when you

47:48

looked at the history of previous inflationary

47:50

shocks what you don't want is a

47:52

long slow gradual increase that suggests structural

47:55

underpinnings you want oh we have this

47:57

temporary issue it'll eventually be resolved

47:59

I think the problem was

48:01

that transitory took longer than

48:03

everybody expected, but that still

48:06

doesn't mean it's structural. It was

48:08

still transitory. Look, you're a brave

48:10

man. I know using the T-word is still

48:12

the kind of thing that gets your head

48:14

lopped off in certain circles, but I think

48:17

that's right. And the part of the story

48:19

that we haven't mentioned, of course, is the

48:21

war, and the role of energy and food.

48:23

And you know, I spent the last two

48:25

days. I'm working on this new

48:28

book. And so I went back

48:30

and I reread every speech that

48:33

Jerome Powell has given at Jackson

48:35

Hall from 2020 to 2024. And

48:37

you can see, you know, his

48:40

thinking in real, real time. And

48:42

when you read them all, you

48:44

know, one after the other, you

48:47

really see his thinking initially with

48:49

the transitory and then the war

48:51

starts and he starts emphasizing

48:54

energy. invasion of Ukraine?

48:56

Yeah. And so that becomes a much

48:58

bigger part. And you can hear him

49:01

saying, you know, this is where it's

49:03

coming from. This is what's driving. We

49:05

still have problems with supply chains. Now

49:07

we have this new problem. So it

49:10

wasn't a supply side shock. It was

49:12

a series. Yeah. We were just getting

49:14

hit left and right shock after shock

49:16

after shock. And they fed through the

49:19

system. And then at some point, when

49:21

you get to energy, you know, then

49:23

all bets are off because it's transportation.

49:25

We sort of lived that before in

49:28

the 70s. You know how quickly

49:30

an energy price increase. This is

49:32

what's driving. We still have problems

49:34

with supply chains. Now we have

49:36

this new problem. So it wasn't

49:38

a supply side shock. It was

49:40

a series. Yeah. We were just

49:42

getting hit left and right shock

49:45

after shock after shock. And they

49:47

fed through the system. And then

49:49

at some point, when you get

49:51

to energy, you know, then all

49:53

bets are off because it's transportation.

49:55

We sort of lived that before

49:57

in the 70s, you know how quickly and

50:00

energy price increase can bleed

50:02

through into you know broader

50:04

consumer good categories. I just

50:07

read an article somewhere online

50:09

recently about used car

50:12

prices are still elevated

50:14

and it's directly related

50:16

to semiconductors manufacturing

50:18

with closed for a year or

50:20

so it takes a long time

50:23

to ramp that up. So by

50:25

2023 when we finally get

50:27

back to normal production You have

50:29

three, almost four years of new

50:31

car production down substantially worldwide. Hey,

50:34

fast forward two or three years.

50:36

Now you have a shortage of

50:38

used cars that's still out there.

50:40

How long are we going to

50:43

be dealing with the fallout from

50:45

the supply side shock of the

50:47

pandemic in 2020? It's half a

50:49

decade later. We're still feeling effects

50:51

of that. Yeah, I mean we have

50:54

words for things like this when the

50:56

labor market experiences a really negative shock

50:58

and then it doesn't sort itself out.

51:00

We talk about labor scarring and Hysterices

51:02

and this sort of stuff. I don't

51:04

know that there's a term to use

51:06

for stuff like this, but maybe there

51:08

needs to be and you're right. I

51:11

mean, once we finally got chips again,

51:13

they weren't the right kinds of chips.

51:15

And so it it does take a

51:17

very long time. An event like this

51:19

is not something you flip the switch

51:21

the switch off. and then you know

51:23

I used to say when the pandemic

51:26

started you could park your car in

51:28

the garage turn the keys you know

51:30

turn the engine off toss the keys

51:33

in the in the front seat of the car

51:35

and go on vacation to Europe and come

51:37

back 18 months later and start the car

51:39

and driving everything would be fine. But you

51:41

can't shut the economy down that way and

51:43

just turn it off and then expect to

51:45

come back a year later. You got a

51:47

vaccine. Let's open everything up. Turn it back

51:49

on and things work smoothly. It's just not

51:51

going to happen. And then complicating things

51:53

are following the financial crisis. At least

51:55

in the US, I can't talk globally,

51:57

we underbuilt single family homes

51:59

here for... pretty much a

52:01

decade. That didn't lack of

52:03

supply, didn't help pricing for

52:06

either homes, starter homes or

52:08

rentals, but I want to

52:10

address labor, which you mentioned,

52:13

and histories this and scarring,

52:15

you have a very interesting line

52:17

in the book that that kind

52:20

of struck me. Unemployment

52:22

is always a policy

52:24

choice. Explain what that means.

52:26

Well, it means that If you

52:29

truly wanted to eradicate, I

52:31

mean big thinking, right? Involuntary

52:34

unemployment. What is

52:36

involuntary unemployment? Anybody who wants

52:38

a job is ready, willing,

52:41

and able to work but

52:43

can't find a job. You're

52:46

involuntarily unemployed. Suppose you had

52:48

a policy whereby you said

52:50

the federal government will fund

52:52

a job. for anybody who

52:54

wants to work, wants to

52:56

contribute, can't find work anywhere

52:58

else in the economy. At

53:00

some base wage, maybe benefit

53:02

package, you have a federally

53:04

funded, locally administered job, right?

53:06

You can contribute. You could

53:08

eliminate involuntary unemployment. I'll say

53:10

quote unquote overnight, right? Once

53:12

the policy is announced and

53:14

you're prepared to provide the

53:16

jobs for people to have actual

53:19

things for them to do, then... Anybody

53:21

who's still walking around without

53:23

work is voluntarily unemployed. We

53:26

tend to worry about people

53:28

who are involuntarily unemployed. So

53:30

what does MMT do for

53:32

us in terms of this

53:34

unemployment issue? We don't really

53:36

worry about it these days

53:38

because unemployment has a forehandle

53:40

on it, but for most

53:43

of my adult life, we've

53:45

had unemployment rates as high

53:47

as 5, 6, 7 percent.

53:49

outside of crises. Why haven't

53:51

we been more aggressive the

53:53

way, let's say, Germany or

53:55

Japan or Switzerland act, when

53:57

there's an economic contraction, really

53:59

isn't? lot of people involuntarily

54:02

unemployed in those countries. Well I

54:04

mean I think unemployment had a

54:06

three handle before the pandemic. That

54:09

would have been an outstanding time.

54:11

my opinion to introduce a program

54:13

like this, right? Because the take-up

54:15

rate would have been relatively small.

54:18

Would have been cheap to do. Yeah. So you

54:20

put it in place then, and for

54:22

people who say, sometimes people say, well,

54:24

there was no unemployment. I say, great,

54:26

then that's exactly the right time to

54:28

do it. Announce whatever you're willing to

54:31

pay and say that you're willing to

54:33

hire people, and if no one shows

54:35

up. That's just fine, right? But now

54:37

the policy, you've stood up the policy

54:40

and the program is there, so that

54:42

when an event like COVID happens, you

54:44

don't have to throw 20, 30 million

54:46

people into the ranks of the unemployed,

54:48

you can transition people from the job

54:51

that they're about to lose into some

54:53

new job. and would truncate the downturn,

54:55

it would replace income or a portion

54:57

of income, probably not replacing full income

55:00

for most people who lose jobs, but

55:02

it would be a very powerful automatic

55:04

stabilizer. Those people could transition into paid

55:06

work, they'd have a job record, future

55:09

employer could call and say, what kind

55:11

of work is, you know, buried, does

55:13

he get there on time, does he

55:16

pick fights with his coworkers, you're pretty

55:18

good guy? And then as the income

55:20

is supported and the economy begins to

55:23

recover, people can transition back into

55:25

private sector jobs. So it works

55:27

like a very powerful buffer stock,

55:29

like a cushion for the economy

55:32

through the business cycle. Sounds a

55:34

lot like what Claudia Somme,

55:36

former Fed researcher and creator

55:38

of the Sommer rule, has talked

55:40

about putting automatic stabilizers in

55:42

place so that it's not

55:45

a partisan hot potato. When

55:47

there's a big downturn, there's a

55:49

way to cushion the blow. and

55:51

reduce the unemployment rate. So we're

55:54

talking about modern monetary theory,

55:56

we're talking about spending,

55:58

what we have a rule. talked about

56:00

is taxes. What are the

56:03

role of taxes in deficits

56:05

and modern monetary theory? Well

56:08

taxes are for subtraction. That's

56:10

how I think of it.

56:12

I don't think at the

56:14

federal level I don't think

56:16

of taxes for revenue's sake.

56:18

Really? Yeah. I know it

56:20

sounds... Well it sounds Trumpian

56:22

because some people have argued

56:25

that he wants to move

56:27

to a tariff... system which

56:29

is effectively like a European

56:31

VAT tax only at the

56:33

border instead of that Consumption I

56:35

don't know if it's a

56:38

negotiating stance or what have

56:40

you, but less focus on federal

56:42

taxes, more focus on other revenue

56:44

sources. Right, so but he's still

56:46

thinking of tariffs as a revenue source,

56:48

so he just wants to change the

56:50

allocation, where the revenue comes from. I

56:53

don't think he's thinking that, you know,

56:55

that taxes or tariffs don't generate revenue

56:57

that the federal government in a sense

57:00

needs to pay the bills. So what

57:02

I'm saying is that the, for the

57:04

federal government... I don't think of taxes

57:06

or the role of taxes as

57:09

generating revenue that the government needs in

57:11

order to pay the bills. So

57:13

what do taxes do? Well, they

57:15

subtract money from the rest of

57:17

us. So every dollar that's taxed

57:19

away from you is a dollar

57:21

you don't have and you can't

57:23

use to chase after goods and

57:25

services in the economy. So one

57:28

important function of taxes is to

57:30

reduce purchasing power. in the non-government

57:32

part of the economy, right? So

57:34

consumers, businesses have less to spend,

57:36

that makes room for the government's

57:38

own spending so that it can

57:40

spend money into the economy without

57:42

creating inflationary pressure. So right now,

57:45

what, the federal government, this last

57:47

fiscal year, spent, let me just

57:49

use rough numbers, let's call it

57:52

7 trillion, right, and collects 5.2

57:54

trillion in taxes and other revenue,

57:56

mostly from taxes, so you get

57:59

a 1.8 trillion. dollar fiscal deficit.

58:01

So what does that mean? It

58:03

means that they've made a deposit

58:05

of 1.8 trillion. That's a financial

58:07

contribution that goes into the broader

58:09

economy. And we can then talk

58:11

about where it goes and what

58:13

good it's doing in the economy,

58:15

but taxes are important because they

58:18

pull money out. and are one

58:20

potential way to regulate inflationary pressure.

58:22

Obviously they can be used. It

58:24

make changes to the tax code

58:26

if you care about the distribution

58:28

of income and wealth and you

58:30

want to make some kind of

58:33

change because you think things have

58:35

gotten too concentrated or you can

58:37

use it for incentivizing and disincentivizing

58:39

behaviors, but the big one is

58:42

regulating. inflationary pressure. So let's

58:44

talk about the opposite of

58:46

MMT. Right after the financial

58:48

crisis when a lot of

58:51

economies around the world were

58:53

precariously balanced at the knife

58:55

edge, you had the Australians

58:58

come out and very puritanical

59:00

belief that deficits, excess

59:02

fiscal spending, really any good

59:04

time, is problematic and we

59:07

must all pay for our

59:09

sins. And so we saw

59:11

that in the UK, we

59:13

saw it to some degree

59:15

in Greece, other parts of

59:17

Europe. How do you look

59:19

at these folks that are

59:22

pushing an on austerity argument

59:24

into a weak economy? economically

59:27

illiterate? Okay. I mean it

59:29

certainly didn't work out well. To

59:31

say nothing, we'll hold Brexit

59:33

aside. The UK's recovery

59:35

was pretty weak. Europe generally

59:38

was pretty weak. Of all

59:40

places, Greece seems to be

59:42

doing really well today. Germany

59:45

is in and out of

59:47

recession. Like wherever you look

59:49

around France and... Poland and

59:51

just Spain is doing okay,

59:54

but all these countries have

59:56

been having ongoing economic contractions.

59:58

Do they need to? raise their deficit?

1:00:01

Do they need to do

1:00:03

a little more fiscal spending?

1:00:05

What's the economic malaise source

1:00:07

in Europe? Well, I mean, it's

1:00:09

just what Keynes told us in

1:00:11

1936, it's a lack of effective demand.

1:00:13

I don't think it's necessarily the case

1:00:16

that it's got to be... government fiscal

1:00:18

deficit, but somebody's got to spend more.

1:00:20

So how do you do that? I

1:00:23

mean, there are two ways to generate

1:00:25

this thing we call economic growth. Some

1:00:27

part of the economy has to spend

1:00:29

more than its income. And if the

1:00:32

private sector does it, that can work

1:00:34

for a period of time, but that

1:00:36

generally involves leverage, right? A little

1:00:39

bit of credit, borrowing, what have you?

1:00:41

And that can be fine, but as

1:00:43

the engine of growth, what we've seen

1:00:45

is that when you rely... disproportionately or

1:00:47

sometimes entirely on private sector to generate

1:00:49

that growth. It ends very badly. That's

1:00:51

basically what happened, you know, when Bill

1:00:54

Clinton was president and you had the

1:00:56

budget, federal budget in surplus for four

1:00:58

years in a row, 98 through 2001.

1:01:00

The government's budget was in surplus. And

1:01:03

a lot of folks looked at that

1:01:05

and said, oh my God, we finally

1:01:07

did it. You know, let's celebrate the

1:01:09

miracle of the federal surpluses. Isn't this

1:01:11

a great thing? And there were people

1:01:14

like I mentioned earlier when Godly. who

1:01:16

were writing about this in real time

1:01:18

and saying, man, this is going to

1:01:20

end badly because those government surpluses that

1:01:23

everybody is celebrating are being built on

1:01:25

the backs of private sector indebtedness, that

1:01:27

it was the private sector that was

1:01:30

spending more than its income, running deficits

1:01:32

year after year after year when said

1:01:34

it can go on for a while,

1:01:36

but it can't go on forever. And

1:01:39

when it ends, it's going to be

1:01:41

really bad. Of course, we had a

1:01:43

recession in 2001 and then the surpluses

1:01:46

disappear. government's budget, move back into

1:01:48

deficit. So yeah, these countries

1:01:50

have to figure out some

1:01:52

way to generate the demand.

1:01:54

And it doesn't have to

1:01:56

be from government, but it

1:01:58

tends to be the more. sustainable

1:02:01

way to sort of create enough

1:02:03

demand to keep an economy operating

1:02:05

in close proximity to full employment.

1:02:07

So following those four consecutive years

1:02:10

of surplus we had the dot-com

1:02:12

implosion and then the recession and

1:02:14

then towards the very the last

1:02:17

month or two of the recession

1:02:19

we had September 11th and then

1:02:21

eventually we ended up with not

1:02:23

just the creation of Homeland Security

1:02:26

and a whole bunch of increase

1:02:28

in wartime and defense spending, but

1:02:30

you also had a pretty substantial

1:02:33

tax cut under President Bush. Did

1:02:35

that giant tax cut and although

1:02:37

that extra deficit spending, did that

1:02:40

then shift that, uh... private sector

1:02:42

deficit over to the government and

1:02:44

did things end up a little

1:02:46

better balanced? Because the economy wasn't

1:02:49

terrible. It was just over leveraged

1:02:51

as we headed into the financial

1:02:53

crisis. Exactly. Yeah, I mean, when

1:02:56

consumers pull back, right, because the

1:02:58

government surpluses are like, they work

1:03:00

like a Hoover. They're just vacuuming

1:03:02

up. net financial assets. They're sucking

1:03:05

dollars off of the balance sheets

1:03:07

of the private sector. That's what

1:03:09

happens. And at some point the

1:03:12

private sector cries uncle and they

1:03:14

want to spend less and save

1:03:16

more. That alone will tend to

1:03:19

move the government's budget back into

1:03:21

deficit. So much of the, you

1:03:23

know, year-to-year movement in the fiscal

1:03:25

balance is driven not by what

1:03:28

Congress is doing, but by what

1:03:30

the private sector. wants to do?

1:03:32

Do they want to save more?

1:03:35

Are they trying to save more

1:03:37

or are they okay spending more

1:03:39

and saving less? Government's budget is

1:03:42

endogenous in that way. We'll automatically

1:03:44

move around. As the economy started

1:03:46

to slow down, George W. Bush,

1:03:48

Republicans realized, uh-oh, we should have

1:03:51

a policy response. The economy is

1:03:53

slowing. So you got the tax

1:03:55

cuts in 2001 and then you

1:03:58

got another one in 2003. Right

1:04:00

move. the right impulse was to

1:04:02

relax fiscal policy. So I give

1:04:04

him credit, maybe I wouldn't have

1:04:07

structured the tax cuts the way

1:04:09

that they did, and you got

1:04:11

a big expansion of Medicare as

1:04:14

well. Part D, right? That was

1:04:16

really substantial. So last question on

1:04:18

the book. You write that Obama

1:04:21

was essentially a fiscal conservative when

1:04:23

it came to policy. I don't

1:04:25

think the average person thinks of

1:04:27

Barack Obama. as a fiscal conservative

1:04:30

or certainly a fiscal policy conservative,

1:04:32

explain. Well, like we were talking

1:04:34

earlier about that fiscal package, you

1:04:37

know, that $787 billion when he

1:04:39

was coming in. to office the

1:04:41

first time, the wheels were coming

1:04:43

off. They were off the economy.

1:04:46

And he had people around him.

1:04:48

You know, Christina Romer was an

1:04:50

economic policy advisor. You see Berkeley

1:04:53

professor. She went on to become

1:04:55

chair of the Council of Economic

1:04:57

Advisers. But she told Barack Obama,

1:05:00

this is your holy shit. moment.

1:05:02

She was trying to say this

1:05:04

is not going to be your

1:05:06

garden variety recession. You can't do

1:05:09

some little, you know, tinkering and

1:05:11

some modest fiscal package and all

1:05:13

of this is going to be

1:05:16

in the rear view mirror. This

1:05:18

is, this is big, right? And

1:05:20

she could see that this had

1:05:22

the potential to be the worst

1:05:25

economic downturn since the Great Depression.

1:05:27

And her memo was to encourage

1:05:29

Barack Obama to go really big

1:05:32

on fiscal. Now a lot of

1:05:34

people have written about this and

1:05:36

there were up... in Barack Obama's

1:05:39

circle, the guys. Larry Summer. Yeah,

1:05:41

Larry Summers, David Axelrod, I think

1:05:43

I put in my book, famously

1:05:45

said you cannot be talking about

1:05:48

anything that has the tea in

1:05:50

it, not trillion. Meaning trillion. Meaning

1:05:52

trillion, you're going to give people

1:05:55

sticker shock, he said. And so,

1:05:57

you know, I think the men

1:05:59

basically said don't listen to Christina

1:06:01

Romer. You got to go for

1:06:04

something more modest. And then what

1:06:06

he did was try to negotiate

1:06:08

with Republicans with Republicans to try

1:06:11

to try to to bring some

1:06:13

of them on board didn't get

1:06:15

any, but ended up changing the

1:06:18

package so that you had about

1:06:20

a third of it in the

1:06:22

form of tax cuts, hoping to

1:06:24

sweeten the deal and pull some

1:06:27

Republicans in, didn't work. And then

1:06:29

when it became clear that the

1:06:31

fiscal... that the fiscal response was

1:06:34

too small and voices came back

1:06:36

and you have people like Paul

1:06:38

Krugman and all kinds of people

1:06:41

saying, you know, Congress, you gotta

1:06:43

get back in there, you gotta

1:06:45

do another package. By that point,

1:06:47

you know, Barack Obama and the

1:06:50

economists around him had pivoted to...

1:06:52

austerity. They were talking about, you

1:06:54

know, what can we do with

1:06:57

a commission to try to get

1:06:59

the deficit down by four trillion

1:07:01

dollars at least and all this

1:07:03

sort of stuff and we're looking

1:07:06

over at what's happening to Greece

1:07:08

and Spain and some of the

1:07:10

periphery countries that had a real...

1:07:13

How can we make those same

1:07:15

mistakes? Yeah. Right? It seems sort

1:07:17

of... I have a vivid recollection

1:07:20

of having a dinner with about

1:07:22

eight ten people and Paul was

1:07:24

one of the people at the

1:07:26

dinner. around this time and I

1:07:29

remember sort of floating the idea,

1:07:31

hey, you know, this is the

1:07:33

first time I've seen in my

1:07:36

lifetime that the party that doesn't

1:07:38

hold the White House is actively

1:07:40

trying to sabotage the economy to

1:07:42

regain. Like we, you mentioned economic

1:07:45

literacy, I said you can't. come

1:07:47

out of a financial crisis and

1:07:49

say no fiscal stimulus. And that's

1:07:52

effectively what Congress said. And it

1:07:54

kind of got poo pooed back

1:07:56

in 2011 and 12. Ten years

1:07:59

later people like, oh, okay, maybe

1:08:01

this, you know, there was some...

1:08:03

purposeful economic literacy that conveniently made

1:08:05

the economy less attractive for a

1:08:08

president running for re-election. Yeah, so

1:08:10

we ran the opposite experiment. It's

1:08:12

just too bad that it had

1:08:15

to run against the backdrop of

1:08:17

globally constrained supply chains. Right. Because

1:08:19

we don't still have an opportunity

1:08:21

to just road test, what if

1:08:24

we really just engaged the fiscal

1:08:26

lever? And instead of relying so

1:08:28

much on monetary policy, which is

1:08:31

what we did for the previous

1:08:33

three decades, it's just the central

1:08:35

banks will take the economic steering

1:08:38

wheel and fiscal can mostly worry

1:08:40

about just trying to balance the

1:08:42

budget or something. Well, certainly since

1:08:44

08-09 to let's call it 2017,

1:08:47

the Tax Cuts and Job Act.

1:08:49

Pure monetary policy almost no fiscal

1:08:51

policy and we saw the result

1:08:54

it was a subpar weak job

1:08:56

creation little wage gains Poor sentiment

1:08:58

poor consumer spending as soon as

1:09:00

the fiscal spigots opened up Things

1:09:03

seem to begin to by 2017

1:09:05

things had already Sort of gotten

1:09:07

better, but you know that was

1:09:10

a trillion in change certainly had

1:09:12

a positive effect on GDP Monetary

1:09:14

policy works by trying to get

1:09:17

people to spend more out of

1:09:19

the same income and fiscal policy

1:09:21

works by trying to get people

1:09:23

to spend more out of more

1:09:26

income. This shouldn't be a huge

1:09:28

surprise which one tends to be

1:09:30

the more, you know, have the

1:09:33

more potent response. Especially when you're

1:09:35

coming off a decade or two

1:09:37

of low interest rates, it's one

1:09:40

thing when your mortgage goes from

1:09:42

8% to 4%. Hey, we could

1:09:44

refinance and we have a little

1:09:46

extra cash in our budget. But

1:09:49

you can't do that from 3%

1:09:51

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1:09:53

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visit microsoft.com/challengers. So let's talk a

1:12:27

little bit about what we've been

1:12:29

seeing over the past couple of

1:12:32

decades and what it means for

1:12:34

public policy. Today, I have to

1:12:36

start by talking about how few

1:12:39

recessions we've seen over the past

1:12:41

20 years. We had the financial

1:12:43

crisis that... the recession again in

1:12:45

I think October of 7 or

1:12:48

December of 7, something like that.

1:12:50

And then we ever so briefly

1:12:52

had a pandemic recession, that's pretty

1:12:55

much it. It seems we're having

1:12:57

fewer recessions and we're responding to

1:12:59

them quicker than we used to.

1:13:01

How do you see the depth

1:13:04

and frequency of recessions these days?

1:13:06

Yeah, it's a good question. I

1:13:08

definitely agree. We've had longer stretches

1:13:11

between them when they've happened with

1:13:13

the exception of, I guess, the

1:13:15

global financial crisis. They have been

1:13:18

somewhat weaker. That was obviously a

1:13:20

big one. COVID has its own

1:13:22

unique thing. I don't know Barry.

1:13:24

I mean, sometimes I feel like

1:13:27

Larry Summers had it right, you

1:13:29

know, years ago when he said,

1:13:31

we only know one way to

1:13:34

grow the economy. and that's through

1:13:36

bubbles. That we get a good

1:13:38

run up in, you know, whether

1:13:40

it's the S&L period or the

1:13:43

dot-com era or the housing bubble,

1:13:45

you know, something comes along and

1:13:47

provides a nice tailwind and we

1:13:50

get a, what looks like a

1:13:52

long robust expansion, except it's sort

1:13:54

of sewing the seeds of its

1:13:57

own destruction and then we end

1:13:59

up with a recession, but we've

1:14:01

gotten very good at cleanup. on

1:14:03

aisle four, you know, we respond

1:14:06

and then we set the table

1:14:08

and we do it again. I'm

1:14:10

always happy to push back on

1:14:13

anything. Larry Summers says because he

1:14:15

is so frequently wrong and yet

1:14:17

so widely lauded and regarded, hey

1:14:19

the 2010s, a gradual slow recovery

1:14:22

from the financial crisis despite the

1:14:24

lack of fiscal stimulus and despite

1:14:26

the Fed's ZERP policy. that wildly

1:14:29

stimulated asset prices. We didn't have

1:14:31

a bubble. The pandemic, we still

1:14:33

don't have a bubble. If you

1:14:36

want to say maybe crypto is

1:14:38

a bubble or AI is a

1:14:40

bubble, I guess you can make

1:14:42

that case, but so far, there's

1:14:45

a difference between a broad society-wide

1:14:47

bubble like the led to the

1:14:49

financial crisis where you had really

1:14:52

the bubble was in mortgages, we

1:14:54

no longer care about your ability

1:14:56

to service the debt. We just

1:14:58

want to, it's all about our

1:15:01

ability to sell the debt to

1:15:03

a securitizer. That was clearly a

1:15:05

bubble. It's kind of hard to

1:15:08

say we're in the midst of

1:15:10

a big bubble economy today. It's

1:15:12

always obvious in hindsight, are we

1:15:15

in a bubble today? Can we

1:15:17

say that? This has been a

1:15:19

pretty robust 15-year run with no

1:15:21

bubbles. Look, I

1:15:24

don't, I don't know. I think

1:15:26

that things have felt awfully bubbly

1:15:28

to me for at least a

1:15:30

few years. I mean, you can,

1:15:32

yeah, it was the spack phase,

1:15:34

the spack craze. Oh God, that's

1:15:36

a decade ago. I know, but

1:15:39

it, you know, these things come

1:15:41

and then they transition and then

1:15:43

it's the next thing. You know,

1:15:45

we did the meme stock thing.

1:15:47

We are, now we have AI

1:15:49

and crypto and it feels. tenuous.

1:15:51

I try and draw a distinction

1:15:53

between these giant bubbleitious impacting society,

1:15:56

things that... you know, feels like

1:15:58

it's just taken over everything, the

1:16:00

dot-coms felt like it just took

1:16:02

over everything in the late 90s.

1:16:04

And people forget the Greenspan speech

1:16:06

was 96, the irrational exuberant speech,

1:16:08

you still had another four almost

1:16:10

five years of growth. Well, that

1:16:13

was Kane's point, right? The market

1:16:15

can stay irrational longer than you

1:16:17

can stay solvent, which is what

1:16:19

makes it so tough to find

1:16:21

the entry point to come in

1:16:23

and say, yeah, we're here. I

1:16:25

still don't understand why so many

1:16:27

people fight against what have been

1:16:30

such self-evident observations by Keynes. Of

1:16:32

course when you have a contraction,

1:16:34

it's the government that should spend,

1:16:36

but no one wants to do

1:16:38

the flips out of that, which

1:16:40

is when you have a robust

1:16:42

economy, that's where the government should

1:16:44

be. That's where you can think

1:16:47

about a deficit, not in a

1:16:49

contraction. Why do so many economists?

1:16:51

ignore the brilliant insights that Lord

1:16:53

Keynes had a century ago. Well,

1:16:55

I think he got, you know,

1:16:57

stripped of most of the really

1:16:59

interesting stuff. when Hicks and Hansen

1:17:01

gave us the sort of ISLM

1:17:04

interpretation of John Maynard Keynes. It

1:17:06

took out a lot of the

1:17:08

really interesting, you know, the role

1:17:10

of expectations and psychological impulses and

1:17:12

all that sort of stuff, and

1:17:14

it became this kind of static,

1:17:16

you know, LM curve go up,

1:17:18

IS curve go down. We pretend

1:17:21

we can analyze the economy as

1:17:23

having two separate and distinct spheres

1:17:25

of monetary and a real side

1:17:27

of the economy. And I just

1:17:29

don't think people go back and

1:17:31

read the original text. And so

1:17:33

the rich stuff too often gets

1:17:35

left out. Meaning explain the rich

1:17:38

stuff from canes. The animal spirits?

1:17:40

Well, people use the phrase animal

1:17:42

spirits, but they use it loosely

1:17:44

to just. mean that when people

1:17:46

start feeling good, optimistic, that it

1:17:48

means they're willing to take on

1:17:50

some more risk, make more investment,

1:17:52

they'd sort of turn it into

1:17:55

that, where I would say Chapter

1:17:57

17 is the most important chapter

1:17:59

in the general theory. It's also

1:18:01

the hardest one. for most people

1:18:03

to understand, but that's where Keynes

1:18:05

deals with things like the own

1:18:07

rates of interest and liquidity preference

1:18:09

theory. And that's what I'm talking

1:18:12

about. That's very hard to tease

1:18:14

out and to bring forward in

1:18:16

the ISLM framework. It's kind of,

1:18:18

you can argue that it's embedded

1:18:20

in the LM curve. It's there

1:18:22

somewhere, but nobody sort of manipulates

1:18:24

the standard Keynesian model in ways

1:18:26

that really reflect that. deep concern

1:18:29

of caneses in terms of the

1:18:31

role of long-term expectations and liquidity

1:18:33

preference and that sort of stuff.

1:18:35

So we're recording this towards the

1:18:37

first quarter of 2025. We're in

1:18:39

full-dosh administration mode. The Department of

1:18:41

Government Efficiency, how do you look

1:18:43

at all these federal layoffs, all

1:18:46

these people in DC that we

1:18:48

don't know if these... job losses

1:18:50

are going to stick with the

1:18:52

courts are going to say, but

1:18:54

hypothetically we lose 10 or 20%

1:18:56

of the federal government 3 million

1:18:58

workers. What does that do to

1:19:00

the economy? Well, it throws a

1:19:03

lot of people out of work

1:19:05

and then through a multiplier effect,

1:19:07

now we go back to Keynes,

1:19:09

it's not just the person who

1:19:11

loses their job and now has

1:19:13

no income or has income replaced

1:19:15

on, you know, unemployment at a

1:19:17

lower rate or whatever. It's the

1:19:20

jobs that are tied to those

1:19:22

jobs. And so when... millions of

1:19:24

people or hundreds of thousands of

1:19:26

people in this case, I guess,

1:19:28

start losing their jobs. It means

1:19:30

less spending, which means less income

1:19:32

for someone else, which means they

1:19:34

go on to spend less. I

1:19:37

think it was, you'll probably know

1:19:39

very better than I will. I

1:19:41

think it was Torsten's lock. I

1:19:43

think who put out a note

1:19:45

for clients just maybe a week

1:19:47

or so ago that said basically

1:19:49

three X whatever you know if

1:19:51

you think that a hundred thousand

1:19:54

people are gonna lose their jobs

1:19:56

it's more like three it's it's

1:19:58

three to one right you're not

1:20:00

just that one Keynesian multiplier effect

1:20:02

of the the macro effects so

1:20:04

I don't know this haphazard thing

1:20:06

do you respond to an email

1:20:08

or this is no way to

1:20:11

go about looking for smart ways

1:20:13

to trim you know and find

1:20:15

efficiencies in government so From a

1:20:17

modern monetary theory perspective, what are

1:20:19

the smart ways to approach public

1:20:21

policy? Do you think about deficits?

1:20:23

To think about spending. Well, the

1:20:25

big thing that frustrated me when

1:20:28

I served on the budget committee

1:20:30

was the fact that no one,

1:20:32

and I mean not a staffer,

1:20:34

not a senator, not anyone on

1:20:36

either side of the aisle, ever

1:20:38

gave the briefest moment of concern

1:20:40

care attention. to inflation. Really? That

1:20:42

is genuinely shocking. Absolutely shocking, frustrating,

1:20:45

maddening. You got people writing bills,

1:20:47

you know, a trillion dollar infrastructure

1:20:49

bill, a Medicare for all bill,

1:20:51

this bill, a budget, or whatever.

1:20:53

And the mentality is, if you

1:20:55

can just stitch up the numbers

1:20:57

such that the amount of money

1:20:59

you want to spend is offset.

1:21:02

by you know savings elsewhere in

1:21:04

the budget or new revenue then

1:21:06

you've done your job because now

1:21:08

you have deficit neutral legislation and

1:21:10

you're good to go and you

1:21:12

can go vote and you've been

1:21:14

fiscally responsible and Kelton is sitting

1:21:16

in the room going oh my

1:21:18

god you guys you know you're

1:21:21

talking about spending let's say trillions

1:21:23

of dollars into the economy and

1:21:25

let's suppose it was some big

1:21:27

ambitious green new deal infrastructure whatever

1:21:29

program trillions of dollars and your

1:21:31

plan is to completely offset that

1:21:33

spending with new revenue, which you're

1:21:35

only going to get the new

1:21:38

revenue from a handful of people

1:21:40

at the very time. of the

1:21:42

income distribution, a corporate tax increase,

1:21:44

a wealth tax or a financial

1:21:46

transaction, whatever it is, you know,

1:21:48

they throw all this stuff around,

1:21:50

you're potentially opening us up to

1:21:52

a huge inflation problem because you're

1:21:55

going to broadly spend trillions into

1:21:57

the hands of people in the

1:21:59

economy while only removing... by taxing

1:22:01

money from people at the very

1:22:03

top of the income distribution. And

1:22:05

I look at that and say,

1:22:07

this is not fiscally responsible. If

1:22:09

you're doing this in a fiscally

1:22:12

responsible way with an MMT lens,

1:22:14

you're not asking. How do I

1:22:16

ensure that my spending is deficit

1:22:18

neutral? You're asking, how do I

1:22:20

ensure that my spending will be

1:22:22

inflation neutral? And that's an entirely

1:22:24

different problem for an agent, you

1:22:26

know, congressional budget office, for OMB,

1:22:29

for other people who are thinking

1:22:31

about and writing federal legislation. You

1:22:33

have to approach this in a

1:22:35

completely different way. So I'm going

1:22:37

to assume you're not a big

1:22:39

fan of the Elizabeth Warren wealth

1:22:41

tax sort of thing, or even

1:22:43

some of what... Bernie Sanders has

1:22:46

proposed with another tax bracket for

1:22:48

the wealthiest people. I don't think

1:22:50

that's how people generally perceive MMT.

1:22:52

Am I mischaracterizing this or is

1:22:54

that accurate? I mean you're accurate.

1:22:56

We talked earlier about what is

1:22:58

the purpose of the tax and

1:23:00

I said the big one is...

1:23:03

removes income from somebody. And why

1:23:05

would you want to do that?

1:23:07

Well, one reason is to make

1:23:09

sure that they don't have those

1:23:11

dollars and they can't spend them

1:23:13

because it helps you regulate inflationary

1:23:15

pressure. But I also said you

1:23:17

could make changes to the tax

1:23:20

code if you have deep concerns

1:23:22

about concentrations of wealth and income.

1:23:24

If you think things have gotten

1:23:26

to extreme, there are things you

1:23:28

can close loopholes. You can think

1:23:30

about new ways to raise revenue.

1:23:32

You can look at the estate

1:23:34

tax. You can look at and

1:23:37

that's a legitimate thing. to do

1:23:39

or to think about through an

1:23:41

MMT lens independent of how much

1:23:43

revenue will it raise? And that's

1:23:45

how Senator Warren, Senator Sanders, They

1:23:47

tend to think of these as

1:23:49

I need to get money to

1:23:51

pay for X, Y, and Z.

1:23:54

Rich people have a lot of

1:23:56

money. Therefore, let's tax rich people

1:23:58

so that we can be fiscally

1:24:00

responsible and pay for our spending.

1:24:02

And I just think from an

1:24:04

MMT perspective, that is not the

1:24:06

way to go about it. The

1:24:08

Willie Sutton theory of taxation. So

1:24:11

I doubt that you're going to

1:24:13

get this phone call, but hypothetically...

1:24:15

This administration reaches out to Professor

1:24:17

Kelton and says, hey, we're really

1:24:19

thinking about extending the 2017 Tax

1:24:21

Cuts and Job Act. We could

1:24:23

do it for 10 years because

1:24:25

that's what the rule is. We

1:24:28

could do it for five years

1:24:30

and not worry about the offset

1:24:32

at someone else's problem. What do

1:24:34

you tell them about? uh... the

1:24:36

tc j a which some people

1:24:38

accused of being very and and

1:24:40

a lot of the data supports

1:24:42

it was very happy towards the

1:24:45

top pick a number ten percent

1:24:47

five percent two percent of of

1:24:49

of earners I mean, the number

1:24:51

that gets quoted a lot is

1:24:53

that 83% of the benefits went

1:24:55

to people in the top 1%

1:24:57

of the income distribution. That's on

1:24:59

the personal tax. Have you seen

1:25:02

the prices of portions and Ferraris?

1:25:04

They've gone through the roof. These

1:25:06

people need some help. So, look,

1:25:08

I mean, on the... I always

1:25:10

think... of inflation, kind of that's

1:25:12

my first stop on the train

1:25:14

ride. So I heard a lot

1:25:16

of people saying if these tax

1:25:19

cuts are extended, it's going to

1:25:21

exacerbate the inflation problem. And I

1:25:23

said, no, it's not. I mean,

1:25:25

come on, right? We're just talking

1:25:27

about a continuation of what's been

1:25:29

in place already for better part

1:25:31

of the decade. This is a

1:25:33

new stimulus of any kind. So

1:25:36

that, I set that aside. So

1:25:38

if this is, if TC JA

1:25:40

is renewed, noninflationary. But there's still

1:25:42

some inflation out in the economy.

1:25:44

And they're talking not just about

1:25:46

an extension, but... know they might

1:25:48

have to fiddle with the numbers

1:25:50

because they've only given themselves I'm

1:25:53

saying only only only giving themselves

1:25:55

four and a half trillion in

1:25:57

headroom on the tax side so

1:25:59

if the president wants things in

1:26:01

there like no tax on Social

1:26:03

Security no tax on overtime no

1:26:05

tax on tips well you're not

1:26:07

gonna fit that in that four

1:26:10

and a half trillion so now

1:26:12

what are they gonna do they're

1:26:14

gonna go and take a look

1:26:16

at some of the corporate stuff

1:26:18

some of the personal stuff maybe

1:26:20

they go for an extension of

1:26:22

three or five years so that

1:26:24

they can create a little bit

1:26:27

of headroom to add some of

1:26:29

these other things. There's inflation potential

1:26:31

in that. Now you hear talk

1:26:33

of a doze dividend and $5,000

1:26:35

checks. I mean we're we're getting

1:26:37

into some serious money here. If

1:26:39

the $1,400 Cares Act 1 was

1:26:41

inflationary... What does that mean for,

1:26:44

what would a $5,000 check do

1:26:46

for Peter? Okay, so let's remember.

1:26:48

The first CARES Act was March

1:26:50

of 2020, and that package included

1:26:52

$1,200 checks. That was President Trump.

1:26:54

And then at the end of

1:26:56

the year, in December of 2020,

1:26:58

you got the $900 billion package.

1:27:01

That included a $600 check. That

1:27:03

was President Trump, is after the

1:27:05

election, but he's still president. He

1:27:07

didn't want to send a $600

1:27:09

check. He was really mad about

1:27:11

that. He said he wanted at

1:27:13

least $2,000, $4,000. Yeah. That's a

1:27:15

big number. It's a big number.

1:27:18

And he said it ought to

1:27:20

be 2,000. In fact, he said

1:27:22

600 is like an insult. And

1:27:24

he said, I want 2,000 per

1:27:26

the individual and 4,000 for family,

1:27:28

but he couldn't get it. So

1:27:30

he had to settle for the

1:27:32

$600 check. And then it was

1:27:35

Biden three months later in March

1:27:37

of 2021, who came in with

1:27:39

the 1,400, which when you added

1:27:41

to 2,000, which is what Trump

1:27:43

wanted all along. Ironically, are the

1:27:45

loudest at complaining about that $1,400

1:27:47

check being the thing that tipped

1:27:49

us into you know the great

1:27:52

inflation of the... It's never one

1:27:54

thing. It's always a multiplicity of

1:27:56

different factors. Yeah, so all of

1:27:58

those things definitely put a lot

1:28:00

of money into people's hands and

1:28:02

it definitely helped support consumer spending

1:28:04

and it, I mean, it modestly

1:28:06

increased inflationary pressure. So now I

1:28:09

think they're talking about... you know,

1:28:11

a $5,000 check going to households,

1:28:13

what, 70, 76 or so million

1:28:15

households. Wow. Yeah, but they're saying,

1:28:17

no, don't worry because that money

1:28:19

was going to be spent by

1:28:21

government anyway, and we're finding all

1:28:23

these efficiencies, and so we're just

1:28:26

going to let you spend the

1:28:28

money instead of letting the federal

1:28:30

government spend the money. Problem is,

1:28:32

the math doesn't work. Well, you

1:28:34

know, math. Who really believes numbers

1:28:36

should add up anyway? I did

1:28:38

not meet him, but I had

1:28:40

a couple of encounters with him.

1:28:43

The head of the math department

1:28:45

was a guy named Jim Simons,

1:28:47

who eventually set up Renaissance Technologies.

1:28:49

You've been there. Did you ever

1:28:51

get a chance to meet Professor

1:28:53

Simons? I did not meet him,

1:28:55

but I had a couple of

1:28:57

encounters with him. One, in particular,

1:29:00

it was kind of funny. I

1:29:02

was right. in the middle of

1:29:04

the pandemic 2020. I don't remember

1:29:06

what month it was, but it

1:29:08

must have been reasonably nice out

1:29:10

because I was sitting in the

1:29:12

house drinking coffee one morning and

1:29:14

I happened to look over my

1:29:16

shoulder into our backyard and I

1:29:19

see we live on the north

1:29:21

shore of Long Island and I

1:29:23

see these two kayakers pulling this

1:29:25

little. dingy boat up to our

1:29:27

dock and there are two older

1:29:29

people in the boat and I

1:29:31

said to my husband go find

1:29:33

out what is going on who's

1:29:36

getting towed up to the dock

1:29:38

and so he leaves he goes

1:29:40

outside and I see the couple

1:29:42

climb out of this little boat

1:29:44

and they tie it up to

1:29:46

the dock and they go walking

1:29:48

up and my husband's gone for

1:29:50

a while and he finally comes

1:29:53

back and he says to me,

1:29:55

you'll never guess who that was.

1:29:57

And I don't know what made

1:29:59

me say it, except I knew

1:30:01

he lived in the area. I

1:30:03

said Jim Simons, and he said,

1:30:05

how did you know that? I

1:30:07

don't know. I just... Unbelieve. Yeah,

1:30:10

there he was, you know. I

1:30:12

pictured a yacht, but no, it

1:30:14

was a tiny little outboard. I'm

1:30:16

sure there's a yacht or two

1:30:18

floating somewhere in the Mediterranean or

1:30:20

down in the Caribbean. Right, let's

1:30:22

jump to our favorite questions. What

1:30:24

have you been doing to stay

1:30:27

entertained? What are you watching or

1:30:29

listening to these days? I feel

1:30:31

like it was a long dry

1:30:33

spell where we couldn't agree on

1:30:35

anything. You're talking about streaming like

1:30:37

Netflix or whatever. We could not

1:30:39

agree. My husband will start something.

1:30:41

I watch half of it. I

1:30:44

hate it. We stopped. We stopped.

1:30:46

So good. Yeah. and then although

1:30:48

it did kind of go off

1:30:50

the rails in the last couple

1:30:52

of seasons well we enjoyed that

1:30:54

was okay we both love that

1:30:56

and then two nights ago we

1:30:58

started streaming nineteen twenty three the

1:31:01

second season oh really i love

1:31:03

i watched that's part of the

1:31:05

yellowstone yeah i was on an

1:31:07

airplane and i never heard of

1:31:09

the thing and years ago i

1:31:11

watched i think they had five

1:31:13

episodes available and i just ate

1:31:15

them up right and i came

1:31:18

home and said you got you

1:31:20

got to watch this with me

1:31:22

i'll start it all over with

1:31:24

you. And so a couple days

1:31:26

ago, I think season two came

1:31:28

out. So I'm going to I'm

1:31:30

going to definitely have to check

1:31:32

that out. Tell us about the

1:31:35

mentors who affected your career, who

1:31:37

helped shape the economist you are

1:31:39

today. Well, I mentioned John Henry

1:31:41

early on. That's an undergrad mentor

1:31:43

and then graduate kind of my

1:31:45

masters. That's Randy Ray. I also

1:31:47

mentioned. And then when Godley came

1:31:49

after and then Warren Mosler. I

1:31:52

know those are the four men

1:31:54

who I think more than anyone

1:31:56

else shaped not just my professional

1:31:58

life but in a lot of

1:32:00

It's just my life. Really interesting.

1:32:02

Let's talk about books. What are

1:32:04

some of your favorites? What are

1:32:06

you reading right now? Although I

1:32:09

know when you're wrapping up a

1:32:11

book, there's no time to read

1:32:13

other books other than research. It's

1:32:15

exactly right. I go back and

1:32:17

I consult books now mostly for

1:32:19

the purpose of working on this

1:32:21

book. But I'm an old school,

1:32:23

you know, like... I think people

1:32:26

should read Veplin. I think they

1:32:28

should read the theory of business

1:32:30

enterprise. I think they should read

1:32:32

the theory of the leisure class.

1:32:34

I think people should read Minsky.

1:32:36

I think, you know, stabilizing an

1:32:38

unstable economy is really hard to

1:32:40

plow through, but can it happen

1:32:43

again is a wonderful little book.

1:32:45

People should read anything by John

1:32:47

Kenneth Galbraith. Right now I'm reading...

1:32:49

Galbrae's son James Galbraith and his

1:32:51

co-author Jing Chen have a new

1:32:53

book just came out last month

1:32:55

called Entropy Economics so I just

1:32:57

started that. You know that's the

1:33:00

worst part about writing a book

1:33:02

is you just have to put

1:33:04

all your reading that's not related

1:33:06

off to a side it's it's

1:33:08

no fun. Our final two questions

1:33:10

What sort of advice would you

1:33:12

give to a recent college grad

1:33:14

interest? What sort of advice would

1:33:17

you give to a recent college

1:33:19

grad interested in the career in

1:33:21

either economics or academia? I think

1:33:23

anybody who wants to study economics

1:33:25

should try to find a program.

1:33:27