₪₪₪ MMT CONFERENCE ₪₪₪

Conference Sessions
Session 1 - Bill Mitchell: "What is Fiscal Sustainability?" Session 2 - Stephanie Kelton: “Are There Spending Constraints on Governments Sovereign in their Currency?” Session 3 - Warren Mosler: "The Deficit, the Debt, the Debt-To-GDP ratio, the Grandchildren and Government Economic Policy" Session 4 - Marshall Auerback: "Inflation and Hyper-inflation" Session 5 - Randall Wray and Pavlina Tcherneva: "Policy Proposals for Fiscal Sustainability"

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₪₪₪ Bill Mitchell ₪₪₪

"What is Fiscal Sustainability?"
Bill Mitchell, Research Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW Australia, and blogger at billy blog. Session 1 — 1st Fiscal Sustainability Teach-In and Counter-Conference George Washington University, Washington DC, April 28, 2010 ________________ Additional Reading and Supplementary Material: Fiscal sustainability 101: Part 1, Part 2, Part 3, by Bill Mitchell The Fiscal Sustainability Teach-In and Counter-Conference, by Bill Mitchell PowerPoint Presentation in PDF ________________ TRANSCRIPT (Thanks to the Volunteer Transcription Team):

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Bill Mitchell: Good morning to all of you, and a good late evening to me. It’s just gone 10 o’clock in the evening. I run a research Center at an Australian university called CofFEE and we collaborate closely with the assembled panel here, over many years now. Before I start, I’ll just say thanks for you coming and some have traveled not quite as far as I but some distance; others have traveled locally. And I also want to thank Joe and his group, who seems to be a relatively amorphous group to me, but I think they’re all very hard-working to put this together in such a short period of time. [00:00:57] I think the relevant thing for me is that I run a conference every year, and others of us run conferences every year, and they’re academic conferences, and they are discussions among ourselves to some extent, and they to some extent extend the discussions we have among ourselves in the professional literature, the journals that we publish in. But the differentiating feature of this exercise, for me, is that it’s the first real grassroots endeavor that has come from the community. I’m just old enough to go back and identify the lineage of this event, the Vietnam protest teach-ins, that were the starting point, as I know, of the community resistance to something that they didn’t feel they had a voice in opposing the government policy of the day, and my country had a foreign policy in that period which was summarized by “All the way with LBJ.” And it took our boys, in those days mostly boys, into Vietnam with great loss as well. And it was the teach-ins here and the mass street marches in Australia that stopped our governments being involved in that endeavor. [00:02:34] And what I learned from that historically was that it’s community action that ultimately will stop things like… that the people will see they had no voice in, they eventually get a voice by banding together. Because the top end of town have got their voice: it’s called the money. And I ‘m sure if we go over to Peter Peterson’s session, we would see it as a fairly sumptuous event. They’ve got the money, they’ve got the contacts, that’s the nature of political lobbying. Alternative views, that we represent, don’t have any of that, never have had, and they rely ultimately on groundswell of public opinion. And I see this event as a starting in that sense. So I was asked to give a general overview into the idea of what fiscal sustainability is, and I’ll do that. [00:03:42] If I think back a couple of years ago, we’d had, maybe, in different countries, different lengths of this, but say in Australia we’d had 25 years of growing neoliberal – what’s now known as neoliberal – thinking, which I characterize by the abandonment of full employment by our governments. The introduction of a diminished

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or made sure they were provided by using aggregate demand management in the post-war period up until about the mid-1970s. fiscal policy.” that is the supply-side… the OECD agenda of making people ready for jobs. we’ve now seen this mass hysteria. and what have you. deregulations. no doubt about that. that had been sort of refined into this inflation-targeting regime that central banks pursued. which almost defies logic. but not actually providing jobs. [00:07:08] MMT Conference Page 4 . massive outlays relative to what had gone before – in fiscal outlays – were occurring all around the world without anybody saying “Boo!” It was very quiet. The introduction of a diminished social goal which I call “full employability. two years later. to me. it was very sort of surreal.characterize by the abandonment of full employment by our governments. nobody said a word. And I thought this was interesting. and what that meant was running budget surpluses. because the fiscal reaction hasn’t been sufficient. whereas under the “full employment” agenda. because this may demonstrate that fiscal policy really is the main game in town. two years later. in my view. because within a very short period of time. and this excessive reliance on monetary policy. reaction against that. if you get away with it. in defiance of the ultimate automatic stabilizer. this daily barrage of financial data. and we’re basically setting ourselves up again for the next crash. I call it “ratio fever. Yet. and I thought “Well. this is a chance…” [00:05:57] Now. with fiscal policy being a passive partner. monetary.” We’ve completely lost track of what’s happened. $80 billion dollars was announced as being injected into the economy. But two years later. and then this crisis comes along. after we’ve put some sort of floor into the downward spiral. fiscal policy has saved the world from a Great Depression. demolished everything you’ll read in modern mainstream macroeconomic textbooks about the efficacy of different types of macropolicy. It’s. and I thought at that stage that this was the sort of event that might generate a paradigm change in our thinking. which I’ll talk about. governments provided the jobs. not enough of a floor. a return of fiscal policy. [00:04:41] And we’d had 25-odd years of this sort of privatizations. just in case there was a job. after the handouts have been gratefully received by the top end of town.

and I can swim. and it’s getting noted… Luckily in Australia we don’t have Fox TV. But I stumbled on Fox News and they’re running this theme. and it’s sort of like a curiosity when I see it on TV here. this sort of alarmist rhetoric that comes out everyday. so I’m not too bad. and so I did a search on Google Earth and I realized the hotel was slightly downhill from the US Treasury. and I was really worried overnight that there might have been a tsunami of debt hitting me. But we don’t have it. And then I realized I was on the sixth floor. with all due respect. The owner is an Australian. but he’s rejected his Australian citizenship because he wanted to penetrate Corporate World here.I don’t need to remind you all. and last night I observed… I was trying to find BBC actually. “Drowning in Debt” is their current news theme. because that’s about the most civilized thing you can find in America. [00:08:12] MMT Conference Page 5 .

. And I could go into quotes every day from our political leaders about this. We’re getting quotes from our economic leaders. whether you like it or not. Ben Bernanke is one of the world’s economic leaders. and we get quotes that only talk about these ratios.We’ve become. it’s reached the level of irrationality. all just talking about financial ratios divorced from any context or what else is happening or what other goals you might have. MMT Conference Page 6 .

And when you think about it, the whole discussion of fiscal sustainability in the mainstream media and in our governments, in our parliaments, are all applying the logic – and what’s taught students in our universities out of textbooks – are all applying the logic that related moralists to a monetary system that ended in 1971. And people say to me, “Well, economists know that.” And I say, “Yeah I know they know that.” And so the agenda… They know the constraints that apply to governments now are not the same constraints that applied – and I’ll talk about what they are – to governments under the Bretton Woods system of convertible currencies with the US effectively running a gold parity. They know that. And so then you dig further and realize that the whole rhetoric is ideological – that they run a conservative approach to government. They hate government intervention in the economy unless it’s helping themselves, through handouts to the corporate sector, and so they’ve blurred the history and they just blithely go on teaching economics as if it’s the gold standard economics. [00:10:27]

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The other thing that’s becoming really central in the research literature – so if you read European Central Bank, Bank of International Settlements, if you read the IMF, if you read their research reports and I’ve spent far too much of my life reading that sort of stuff, I’m afraid, but I can’t help myself. If you read the economic literature from the academic institutions and the research think tanks, as they like to call themselves – I think it’s very generous of themselves to actually assert that they’re thinking [laughter] – you see the way in which the so-called respectable literature – and I’m not… differentiating that from the popular media – are talking about fiscal sustainability is increasingly in terms of these fiscal rules and so fiscal sustainability is defined in the EMU as exemplified by the stability and growth pact: deficits under 3% of GDP, public debt under 60% of GDP. [00:11:34] If you go back – and I’ve read that literature in absolute detail – here’s no rationale presented for why those particular ratios are. Someone did a back of the envelope calculation at the time and decided that was it. And you read the legislation relating to the fiscal responsibility act in UK, which was brought into law earlier this year, it’s absolute madness. You’ve got my government in Australia talking about as fast as possible getting back to 2% real growth in government spending and 2007 ratio of tax to GDP. That’s got to be their fiscal rule. Makes no sense. And in the textbooks and even in the progressive side of the debate – and those who read my blog know that I have a theme: with enemies like these, who needs friends – and that’s a regular theme. And the progressives even buy into this fiscal rule that you’ve got to balance budgets over the business cycle. And that’s meant to be a more reasonable version than the German constitutional fiscal rule that’s going to ban deficits in 2015. And this “balance the budget”: well, that’s reasonable because we recognize you’ve got to have some deficits sometimes, but then you’ve got to pay them back by running surpluses at other times, and if you balance it out you have a neutral impact upon the economy, independent of the context of what’s happening in the economy, what the other sectors in the economy are doing, how they’re behaving. You just impose these fiscal rules out of context and with no comprehension of what it means. So you get statements from conservative commentators, and I read them almost every day, that are, “We’ve had too much leverage in the private sector, so they’ve got to de-lever,” and “The public sector is about to explode, they’ve got to de-lever,” and meanwhile you’re running a current account deficit. Well if you understood macroeconomics even at the most elemental level you’d know you couldn’t achieve all of that. And it’s this mindless sort of application of sector-by-sector rules that just don’t add up.

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And of course, meanwhile, the real game out there, the thing that relates people to the economy, is on the back burner again. And these are just unemployment rates and you can see that they’ve been trending upwards over this neoliberal period but also very high now. This is how people are affected by the interaction of the economy. This is the real thing that’s going on out there. [00:14:35]

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and they wanted to have full employment without prosecuting wars any longer. they realized they’d solved the Great Depression by the military spending.I could go on and I’ve got other slides [slide 8 and slide 9] but I’ll show you this one. This red period was the post-war period up to the mid-70’s. because they were running a convertible currency and a fixed exchange rate. And all the countries brought out major macroeconomic statements where they committed to full employment. which bounced up and down depending upon the private savings intentions and what was going on with the external sector. through their white papers after the second World War ended. Australian government ran continuous deficits of different orders through that period. but they still managed to do it. we started to worry about deficits for the first time. and that allowed some very opportunistic territory seizure by the mainstream economists. and always maintained full employment. so they had to work out how to maintain full employment in peace times. 1861 to now. [00:15:33] And that red period was when fiscal policy was very active and in Australia we had unemployment below 2%. Governments would lose electoral office if unemployment went above 2% in that time. the monetarists. This is my country and this is not unrepresentative of what happened everywhere over this historical period. at that time that’s what they were called… we abandoned that concept of full employment. It was harder for them to do it in that period. Once we abandoned that in the mid-70’s… we got the confused signals from the OPEC oil crisis. [00:16:49] MMT Conference Page 12 . There was zero underemployment and zero hidden unemployment. It’s much easier now to actually do that. and they realized that required fiscal policy to behave in certain ways to offset the saving intentions of the non-government sector. where the governments.

I also like people to see this graph, this is US. It puts today’s fiscal parameters in some perspective, I think, relative to where they’ve been in the past. Most people… I get a lot of emails, maybe I get about 1000 emails per day at the moment, but I get probably 20 a day that are incredibly hostile, and they’re all sourced to IP addresses in the US, with all due respect [laughter]. And they tell me that I haven’t got the slightest idea of US history, that the US government always ran surpluses until recently [laughter]. Well you always ran deficits until recently, with some notable periods where you didn’t – they were very short and they terminated because they put so much fiscal drag into the economy. And you can see a couple of periods where that happened. [00:17:54]

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What’s fiscal sustainability? What isn’t it? You won’t find a definition of fiscal sustainability by making analogies between households and sovereign governments. If you go to mainstream economics textbooks, one of the myths that appears in those textbooks whether it’s explicit, and in some textbooks it is explicit, in some textbooks it’s implicit and it becomes explicit by the delivery in the lectures, you will see there is always a parallel drawn between the household budget and the government budget. And we had a prime minister in the mid-70’s, just after the OPEC crisis, who came out on national TV to give an address and he said, “What the Australian public has to understand is that the federal government budget,” and by now Brettons Wood had been abandoned and we were running a floating exchange rate with non-convertible currency, he said, “What the Australian public has to understand is that just like your budgets, our budget has to- we have to have budget discipline just like you.” Totally outrageous and wrong statement, but it’s that intuition that makes the deficit terrorists, their message so powerful, because people, the public, don’t know how to argue against that and it feels intuitive. But you won’t find a definition of fiscal sustainability in that analogy, it’s flawed at the most elemental level. The household uses the currency and always has to finance their spending whether it’s through earning income, whether it’s through borrowing, whether it’s through using up past savings or running down/selling assets. A national government who issues its own currency and floats it never has to do that. My colleagues later in the day will expand on that theme. [00:20:08] You won’t find a definition of fiscal sustainability by referring to these ratios that are now in everybody’s lounge rooms each night. These ratios are largely irrelevant. Largely. And you won’t find a definition of fiscal sustainability in the statement of a fiscal rule, a rigid fiscal rule whether it’s accepted by regulation or legislation or, in the German case, constitution. You won’t find a definition of fiscal sustainability in any invariant fiscal rule. [00:20:54]

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So where should we start in trying to come up with a concept of fiscal sustainability? And I add that what I’m doing really is just introducing ideas which will be elaborated on in great detail by my colleagues here. So I’m not explaining everything in detail for that reason. But where I think that you should start, and I think we all agree on this up here, is ask yourself the question “Why do we bother to have a government in the first place?” They take our freedom away from us. They force me to wear a helmet on my push-bike. They force me to drive slowly. They force me to do certain things down the beach that I might not want to do. They take away my purchasing power by taxing me. Why would we want them? They’re a nuisance. [00:21:48] The reason we want them is because they can advance the well-being of all of us, acting as our agents, in a way that we can’t do it individually. That’s why we’d want them. And we might call that the public purpose of government. And that might be a good place to start because fiscal policy is about governments, a government policy tool. So once we think about what we want governments to do for us, then that’s a good place to work out, Well, what does that mean in terms of the way they conduct fiscal policy?” [00:22:28]

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[00:23:32] Now. with decent working conditions and wage levels that provide them with a sustainable life in the cultural and social setting that we live in. that means. and they make their spending decisions based upon different motivations. [00:24:32] MMT Conference Page 16 . we – the state – should be responsible for maximizing employment: making sure everybody who wants to work can work. and my colleagues have different emphases here. [00:23:08] And then from my point of view. I think about the state. the way I think about it. That’s what my view of economic behavior is. what that means in a macroeconomic sense is that once the private sector has made its spending decisions – and I’m talking about households and firms. – once they’ve made their spending decisions – which also mean they’ve effectively determined through the income generation process what their saving desires are – once they’ve done that. that nobody should be wasted as a consequence of the way we structure our economy and the way that policy intervenes to manipulate the economy. That seems to me to be a basic element of what we mean by fiscal sustainability. And I have this thing that the sustainable goal of the economy should be the zero waste of the people in the economy. firms invest for different reasons and households consume for different reasons.So what are the dimensions of that? Well. The basic role of the state is to maximize the potential of all of us who live under its sovereignty. then the role of government advancing public purpose in this way is to ensure that its policy intervention is consistent with those private decisions such that you get full employment.

All that to me means that the government then has a choice. and accept the fact that in taking that decision you will have persistent and chronic underutilization of labor and ultimately that strategy will be self-defeating. the private spending won’t be sufficient. the non-government sector. wants to save over the business cycle.Now non-governments. to generate output and employment. based upon current productivity levels. And so if it’s typical that the non-government sector will want to save. This current period where we’ve had debt binges are atypical in history – private debt binges are atypical – and the accompanying budget surpluses that went with the private debt binges are also historically atypical in all of our countries. then there will spending gaps. And what I mean by spending gap is that spending won’t be sufficient. typically in historical terms as long as we’ve had data. which governments have been doing prior to the crisis. or it can decline to do that and either run smaller deficits than are required or even try to run surpluses. [00:25:57] MMT Conference Page 17 . It can either fill that spending gap with fiscal policy and ensure that advanced public purpose via full employment. to fully employ all of the available workforce.

increased poverty levels and nobody’s happy about that at all. you’re in the position we’re currently in now. [00:27:14] MMT Conference Page 18 . declining employment. then you’ll get declining income. but a bad deficit is one that’s driven by the automatic stabilizers. declining output. but that’s a bad deficit. you’ve just got a recessed economy with high unemployment. rising welfare spending. under those circumstances. by design.And this is where I introduce this concept of bad and good deficits. declining tax revenue. You’ll end up with deficits anyway. moving into a worse outcome than we had a year ago. as much as they earn – then if the government doesn’t use their spending to maintain aggregate demand at sufficient levels. that’s intent on saving – and that means not spending. They’re the automatic stabilizers that are built into fiscal policy and you’ll end up with a deficit anyway. So if you’ve got an external sector that’s in deficit and you’ve got a private sector. And then if you apply fiscal rule on top of that. a domestic sector. because at the end of it.

The alternative of course, if the government adopts what I think is a fiscally sustainable strategy, then it will run good deficits. And note I’ve got – IF the circumstances require, IF – and I’ll say what I meant by that. But it will create, it will still run deficits but with high employment, high income growth, falling poverty rates, and smiling faces. Now what do I mean by “if?” Well, with the private sector wanting to save a bit, budget deficits aren’t always appropriate. Take the Norwegian case. They’ve got such strong external sector that the government can oversee near full employment continuously, high levels of public service provision, first-class education, first-class health, very low inequality in income, great welfare benefits, and they still run surpluses. So it’s not always the case that fiscal sustainability requires the government to run a deficit. But mostly it will be the case, because by definition not every country can run external surpluses. [00:28:35] And so what I want to come out of that brief message is that you can’t define fiscal sustainability independently of the real economy and what the other sectors in the economy are doing. [00:28:51]

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The other important point is that you have to understand the monetary environment, that any notion of fiscal sustainability has to be related to the intrinsic nature of the monetary system that the government is operating. And so it makes no sense to apply logic that applies to say, a gold standard or a fixed exchange rate regime, to a fiat monetary system, which doesn’t have those constraints. One of the most influential books in the current debate has been Reinhart & Rogoff, and everybody– you read these commentators, “Ahhh the public debt ratios above 80%, we’re heading south quick.” And then you read the table with Greece and America and Portugal and Germany and Japan all in the same table, and the logic is very confused. And most commentators haven’t quite read the book anyway, because it only applies to debt – public debt – that is denominated in foreign currencies anyway. And even Rogoff blurs that when he goes into the public arena and gives media broadcasts. And so it holds out that it’s all public debt, whether it’s in domestic currency or not, and it’s a fraud. [00:30:26]

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The other point I would make is that a lot of people say to me, “Oh yeah, but you know these public debt ratios are rising, and the government is issuing debt.” And what’s happened is that governments have imposed, under political pressure, a series of voluntary constraints on their behavior that really mimic the actual constraints that they faced under the convertible currency system. So my government in the mid-80’s, the Australian government, explicitly changed policy such that the Australian government has to place debt into the private markets, dollar for dollar, to match its net spending. And at the time, if you read the historical documents, you’ll see it’s all about the need for fiscal discipline, that we’re unhappy with the option that the central bank might buy some of the debt that the government issued, more than it needs for, at that time, for liquidity management purposes. And what really needs to be exposed in this discussion are that all those constraints are voluntary. And in a fiat monetary system, the national government doesn’t have to issue any debt at all. And so fiscal sustainability can’t be caught – a pure concept of it – can’t be caught up and tied in with any of these voluntary constraints. [00:32:17]

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this debt issuance. that issue their own currency.. All of this sort of rhetoric. that issue it under monopoly conditions. And that just tells me that we need to work harder in this debate to really educate the debate as to what we’re dealing with here.And most people don’t understand the notion of a sovereign government. “Do the taxes have to increase? Where’s the government going to get the money from? The government’s going to run out of money. like a household. and so the microeconomic rules of monopoly apply to that sort of government in terms of setting price or quantity. in the main. We’re dealing with governments. We’ve had such a fiscal intervention we’ve run out of options. There’s no more money to spend. And what looks like to be funding operations. to facilitate funding of that spending. and that they can never be revenue-constrained even though it looks as though they are because of these voluntary constraints that they erect as edifices to hide the fact that they are actually sovereign. And we need to get the message across more vehemently that what that means is that our national governments can spend whatever they want. And it has no imperative. nothing of the sort. I don’t know how many times – I do quite a lot of media interviews in Australia on national TV and radio – and the question always comes out. [00:34:09] MMT Conference Page 22 .

” They’re not limits at all. for a sovereign government.” or in Europe. Their real limits. “Once the deficits go above 3%. and that’s the labor that has no bid for it in the private market. And when I look around and see high unemployment. persistently high unemployment.And what then emerges in a discussion of fiscal sustainability should be to really articulate what the limits of government spending are. And so when I see any unemployment. So that would be a good place to start. everywhere. [00:35:28] MMT Conference Page 23 . that’s it. if there’s something out there available for sale. that’s it. And we’re led to believe it’s all. And that’s a sovereign government. “Well. then I know that there’s at least one productive real resource that’s available to be purchased. the government can always afford to buy it. All of these financial ratios are not limits at all. I know that the government has no real resource constraint here. The limits are clear that a sovereign government can only buy what’s available for sale. once debt ratios go above 80%.

When governments… My government next month is going to announce its budget austerity plan – and it’ll be media attention about what the deficit ratio is and blahblah – they’re not costs. It’s the extra food and the extra materials that the unemployed that you’re going to bring into productive use utilize and consume. When a government prints their budget statistics for the month or whatever the frequency is. “Ooh-ahh. then the public arena debate’s all about financial costs – alleged financial costs – whereas I only think about it in terms of real costs. When government spends a billion dollars. look at that big figure in the piece of paper.” that’s not a statement about costs at all. Numbers on bits of paper aren’t costs. That’s the cost. and that’s understanding the nature of costs.And this then leads to another component of the journey to understand what fiscal sustainability is. that’s not the costs of the government program. So if you’ve got a jobs program what’s the real costs of that? It’s not whether it’s a half million dollars or 10 billion dollars. When we’re thinking about…when we juxtapose the concept of fiscal sustainability in the public arena to what I think it is. it’s getting bigger. a million dollars. whatever. [00:37:08] MMT Conference Page 24 . The costs of the government program are the extra real resources that are required to implement and sustain it. it’s gone above Rogoff’s ratio. and everyone goes.

part of the hysteria is that very soon taxes are going to have to rise to pay the deficit down. if the political settlement is such that you want to have that much public access command of real resources. And so that’s to regulate demand to avoid inflation. And you know. is growing too quickly for the real economy to absorb it. [00:39:02] MMT Conference Page 25 . But if they do. and my colleagues will talk about this in much more detail later. The role of taxation. And so if aggregate demand. then there’s a case to be made. It’s possible they’ll rise in the next 2 or 3 years. and therefore aggregate demand. then there’s a case to be made. it’s also possible they could fall. of your private sector. it will have nothing to do with the funding requirements of our sovereign governments. is to regulate aggregate demand growth. Now it’s possible that taxes will rise in the future. nominal demand. and if they don’t rise in the next two years. the poor little bastards. [laughter] are going to be so burdened by our prolificacy that we should hang our heads in shame. in a counter-stabilizing macroeconomic policy framework. It’s got nothing to do with funding. our poor children and their grandchildren. that you want to increase taxes and reduce the purchasing power. That’s the debate.And then we have to understand the role of taxation. But if they rise.

” And I say. you can do something about it.” And what it brings out is that in general. we hate it. that the public debate misses out on – and I play tricks when I give talks to business forums.The other point. And we go on as if we’ll have these fiscal rules. I think. “Well. and employ a few more workers. [00:40:52] MMT Conference Page 26 . as they are here. which really undermine themselves if they’re creating compatible scenarios with respect to what the private sector actually wants to do. as I said.” And they sort of look at me stupid. and create some more productive infrastructure. because business forums in Australia. then if you go and invest some more. the fiscal outcome – which is just an ex-post statement anyway of what’s been going on – is really what economists call endogenous: that means it’s determined largely by the spending decisions of the non-government sector. And we don’t understand that in this debate. “If you don’t like the size of the budget deficit to GDP. “Well how many people like the deficit at the moment?” And you know I can guarantee that almost all – and they’re all not shy to put their hands up – I can guarantee that the vast majority in the audience will say. are principal antagonists to any fiscal intervention – and I say to them. then the deficit will go down as a percentage of GDP and you’ll have solved your problem. “Yeah. and I say.

the OECD. I’ve spoken a lot about this on my blog and in my academic work. the IMF. They always – in the way in which all our international agencies. this sort of. the fraudulent.I won’t go into this. In other words. as estimated. our treasuries around the world construct them – they’re always biased toward being too expansionary. the summary of the structural balance is always more expansionary. [00:41:33] MMT Conference Page 27 . than it actually is in reality. And so it leads to an inbuilt bias towards contraction and therefore working against public purpose. you can read this. concept of structural budget balances.

we really did have to have a bit of fiscal intervention.” What are they talking about? Providing pensions to our elderly. providing a bit of health care to people who might need a few hip replacements. then all they need to do is type a few numbers into a computer and that’ll send some money to the bank. MMT Conference Page 28 . So the absolute irony is that the way in which fiscal austerity plans are implemented is – in our country and elsewhere – is to attack higher education and secondary schooling. the government’s going to be able to buy it no matter what. they just went and hid in their rooms. while the governments were bailing the economy out and putting a floor into the collapse of spending. So even though we were quiet for a little while. what’s emerging out of that – and this is sort of the way in which the mainstream work – they were so discredited by this crisis.So moving quickly. And if there is. It’s absolutely amazing that for the first few months. because we’ve got these long-term structural pressures that are going to blow the budget out of the water and make it unsustainable. “Look. And what I tell them is. But the reasonable ones come out now and say. it’s more generally known as demographic debate – the irony of it is that everything that the mainstream wants us to do now about it will actually undermine our capacity to deal with it in the future. we understand that now. so discredited and embarrassed by it. And if the government wants people to have a pension.” [00:43:08] And the irony of this whole debate about the – we call it the intergenerational debate in Australia. right-wing colleagues that I know just wouldn’t talk. the intergenerational debate is the sort of long-term attack on fiscal policy. and not realizing that investing in education is the way you get productivity growth and the way you deal with rising dependency ratios in real terms. And the only issue is whether the pension check that the pensioners get will be able to buy anything. but the problem’s worse than you think. It’s moronic. the only issue is whether there’s enough titanium available to put in our hips and our knees. “Oh yeah.

Last time I realized. it was the US government that issued the US dollar and I didn’t think that had been subcontracted out to China. [laughter] [00:44:12] MMT Conference Page 29 .Others will talk about the – particularly you people in America – have been living on China’s goodwill.

the other side of it is the debt side.The other element. So there is a sovereign debt problem in Greece. the sovereign debt crisis we’re all in now and – “Drowning in Debt. US. I’m glad I’m leaving because I’m going to drown [laughter] – the other idea is this notion of public solvency. Japan. unless they are totally perverse. UK.” that Fox News theme of the week. I don’t know how long it’s been going on. That’s because they voluntarily agreed to give up their sovereignty. For sovereign governments. and I’m just giving headings now because the others will elaborate in more detail. There’s no sovereign debt problem in the other countries that I mentioned. And the big governments – Australia (big to me). [00:45:14] MMT Conference Page 30 . these are the big governments – they don’t issue debt in foreign currency. they are totally solvent in their own currency.

in a darkened little room and I hardly talk to anybody – the challenge for people like me is to interact with people like Joe. and others who I don’t know in the audience. I think. And the challenge for us – I spend all my days in a little darkened room in front of a computer. is that what I think is required is a new macroeconomics narrative to emerge. to get this narrative out there in a way that’s packaged and understandable. to allow these ideas to expand and broaden in the community. the way forward. I go surfing in the morning or riding my bike and then I spend 12 hours or something in front of. to finish up. comprehensible. MMT Conference Page 31 .So to bring that out.

[laughter] It’s this idea that what the neoliberals have managed to do is to… An example is I’ve been doing work in South Africa on the public works program. roads. And we need to really emphasize that it is possible. Sorry. And we need to get these operational features of the monetary system out to people. That’s the words they use. What’s manifestly complex about that? There’s not a shortage of work. I mean. [00:48:12] MMT Conference Page 32 . you can. And I haven’t got a marketing bone in my body. I’ll get it organized. “What’s complex about giving them a bloody job?” We’ve just given a million people a job under this program and they’ve been building water systems. Take me down to the capitol building. In the first 5 years a million people were employed.” Well. I get emails from Americans. Poverty rates fall for those people who are employed. Their children have got a chance to go to school because the families that are getting these jobs have. “Sorry. to actually create full employment and make the lives of those who don’t have jobs eminently better than we’ve been offering in the past 30-odd years. to be able to have pithy ways to express these ideas. Their second-year plan we’ve just implemented is going to add three million people. you all could do it. for the first time ever. yes you can. which has the IMF regularly going in there. I’m told by the treasury. We need to teach people what the opportunities that a fiat currency system offers a sovereign government. it’s very easy. some personal risk management capacity. And I said. Yet. there’s just a shortage of funds to provide the work. community infrastructure.And we need some marketing people as well. better housing for themselves. that this problem of unemployment and poverty in South Africa is manifestly complex. Manifestly complex. But there’s no shortage if the national government realizes it’s sovereign. [laughter] you can’t possibly have 2% unemployment. because I’m never going to be pithy.

it is right. in this case. [00:49:40] MMT Conference Page 33 . And we have to really abandon this focus on financial matters and re-orient the debate to the real economy. And I remember Milton Friedman said. There’s this capacity for people to eschew the simple solution. because if you didn’t publish the data. They’re largely irrelevant and they abstract and re-orient the debate away from what really matters and that’s the real side of the economy and the capacity of our national governments to work on the real side to improve our lives and advance public purpose. nobody would know and you’d soon work out that the sky didn’t fall in. What we’ve got to stop is news broadcasts having a barrage of these financial ratios in our face everyday. can it? Well. and it was about the only thing that I think he ever said that was right – except probably that he loved his wife – but what he said was that we’ve got to get out of this balance of payments obsession and the best way to do it is not publish the data. that these things are not manifestly complex.We have to get those messages out. because it can’t be right.

MMT Conference Page 34 .

We can talk about maybe we want to release some resources from the public sphere so that the private sphere can use those. it’s perfectly legitimate to question whether the government ought to be hiring people away from the private sector.” I actually approach this like Warren Mosler does. the efficiency issue is completely irrelevant. as a number of the people I saw in the Huffington Post responded. there’s never a question of efficiency. So there are plenty of people out there who want to work and the private sector does not want to hire them. Until you get to full employment. You only need to raise the efficiency issue once you’re at full employment. and the reason why the theory interested. Randall Wray: I want to deal with one issue that always comes up when we talk about “the government can always afford to buy or hire any resources that are not being used. [00:52:00] Marshall Auerback: Just as a general point. Bill mentioned that we can look around and we can tell that there are… probably the most important resource that any society has is chronically underutilized: that’s labor. true full employment really never occurs. and we can ask those questions once we get to full employment. Let’s get to full employment and them we can talk about efficiency. so the efficiency question is completely beside the point. as someone who has been in the markets for almost thirty years. but the government is always less efficient than the private sector” so I want to deal with that issue. and now the government is actually taking resources that the private sector is already using. But until that point. but because it was an MMT Conference Page 35 . and other resources too. and you get any production whatsoever. the private purpose versus the public purpose. because I approach this more from the point of view of being a market practitioner rather than an academic economist. then you have to ask the question about the private use versus the public use. ________________ Session 1: Panel discussion and Q&A [00:49:54] L. Of course. But outside of World War II. it’s an improvement.Thanks very much. Because if you put them to work. And then you could raise the question: Is the government putting these people to a more efficient use than the private sector was doing? In that case. we’re just all “a bunch of pointy-headed academics.” and so one response will be “yeah. and finally convinced me was not because it was a theory at all. intrigued.

I might decide one day that I don’t like the Japanese yen and I might decide to short it and it might have nothing to do with any particular reason that I’ve seen out there because of capital flowing in or out. that. working in the markets. this is somebody else’s asset. there’s a reason why nobody on this panel is a household word in the United States. and that’s because if we were. I would say Jamie Galbraith. I sort of say. I say “Do you want the government to balance its budget. not really. but actually many of us spend time. intrigued. it’s the same thing with the debt. ask someone the next time they talk to you about fiscal responsibility. but there’s no actually capital that moves. go ahead.” The exchange rates move up and down for a number of reasons. Bill. by accounting logic. and we were hoping to have him here with us today. And as for the argument that you would see that reflected in the exchange rates. [00:54:32] Warren Mosler: I’d just like to add something to what Bill was saying. The idea that there is a solvency issue. I think this is one of the most effective ways that we can push back against this call for fiscal responsibility and governments to live within their means and balance their budgets is to say that there are two sides to the ledger. and is out there in the mainstream media. And I say “Okay. we wouldn’t be having this crisis.” so Bill. You are the non-government sector. anywhere? If there was. And so. So I think that’s one of the main points that I think is key to understand. and I think the whole thing changes very. that the government has run out of money. the problem would go away immediately. but unfortunately his schedule wouldn’t permit that. [00:56:36] Stephanie Kelton: For someone who does have a national reputation. or anywhere in the world. But we need more voices like that. a deficit?” And they have this in their mind. that’s going to push you in the deficit position. very different. so it’s time the government needs to cut back also.interested. or do you want it to run a surpl—. I like to call it fiscal responsibility. because our own experience is very. That’s basically the way it works. with better penetration. So. people are scratching their heads and looking at private saving rise and rise and rise. and finally convinced me was not because it was a theory at all. does anybody here see anyone. but because it was an operational reality. that people say always that we don’t really understand realities and markets. And that’s I suppose why we’re not intimidated by a lot of the junk that you hear coming out of the media every day. thank you. if the federal government is running a surplus. And look. Right? It’s the other side of the ledger. You probably ran out of patience watching before you heard them say that one. The idea that there is such a thing as fiscal. We don’t have a whole lot of work to do. [00:58:24] Pavlina Tcherneva: Just to elaborate on this very same point. very quickly. saying. you realize what this means for you?” And they don’t. it wouldn’t exist. I just want to add that to one of your lists of absurdities. and if the government takes the surplus position. I like to call it. in that some guy pushes a button in Brazil and another guy pushes a button in the US and numbers change on both sides of the ledger. in that you don’t actually see capital flowing from one country to another in the way you did under a gold standard system. and it’s probably because he hasn’t watched Fox News quite long enough. obviously. that you posed to your students: “What do you think of the of the government deficit? where do you want the government to be?” I do exactly the same thing with my students in Kansas City. and seeing this on a day-to-day basis. You take the deficit position. One of the other things that’s being said on TV is that it’s wrong for the government to be out there spending and hiring people when the private sector is pulling back. we only need to get one person who has the national media attention to understand this. the non-government sector will be in deficit. a lot of time. [00:57:00] One of the things I wanted to raise. If you’re going to look at the debt as the government liability. so. There’s any number of decisions that go into a currency movement and a private portfolio preference is not something that can be encapsulated into some sort of basically economic theory. because debiting and crediting bank accounts electronically is what I see on the screen every single day. And some of us have actually made money off the lack of understanding of public reserve accounting as well. they think the responsible thing to do is to have the government run a federal budget surplus. Because government checks don’t bounce. while the federal government’s deficit continues to rise and rise and rise. if you want the government to be in a surplus position. “well no. I don’t know. what Bill was talking about. So. guess which side you take. but it’s the same thing. who does understand it. related to your discussion. just means that every single private sector portfolio is going to lose a very valuable default-riskfree asset. People can decide one day. all of this argument about the government being responsible and paying down its debt just like households need to pay down their debts. [00:58:00] It is no surprise today. “everybody’s hurting except the government. and we’ll get into some of our other things. [00:58:52] MMT Conference Page 36 . there is nobody out there that’s got it right. so I’ll leave it at that.

so as formal speaker for this session I’m now the chair. occasionally. [00:58:52] And so. there were about 20 of us. And the other question. you have to look at both sides of the story. So. you should name yourselves. [01:01:55] Bill Mitchell: Okay. if we were to divide it equally.” And I thought he was correct. “No. It is our asset. Finally they couldn’t handle it. and MMT Conference Page 37 . You’ll be getting cash. It’s not our liability. this is the amount that each of you owes. if you want the government to reduce the debt. what about the constraints that are imposed on other countries. Where it had been capped at below market levels and so no one was producing any natural gas. what you will be getting is another asset. run out of resources.” and I was the last question. I’m sure it’s possible. as we just said. the donation of reserve currency by the external account? [01:03:17] Warren Mosler: I guess I’ll go to Bill’s point first. right. because of its external account doesn’t have any constraints. etc. and the inflation went away. over 15 million barrels a day in the early 80s. That is also a government liability. indicated. the electric utilities converted. How would you like to save? In the form of reserves – dollar reserves – or in the form of bonds? With or without interest? [00:59:33] Stephanie Kelton: Randy wrote a blog for the blog that we run out of the University of Missouri-Kansas City. people aren’t spending enough.” But the point was no one in Washington understood how that worked. And the other thing is. I said. you will be losing that asset. we have to sell our Treasury securities to get the money to pay the tax. and because you’ve forced us to name ourselves. the price collapsed. We don’t owe. the kind of inflation that you can get from the monetary system is the demand pull. but to the extent that they reside in your portfolios. Now there are other reasons we can get into: should the government be injecting all of these bonds in the market.” So I said “Okay. so I think it’s time to have questions. the deregulation of natural gas in 1978. for what purpose are they injected. whatever. what do I care if you think I’m wrong. “Well. and identify yourself before you ask the question. “this economy could be in trouble because of the low savings rate. I’ve frankly never seen that in my 40 years. I think. and you see it in some countries. It is what we own. and OPEC tried to sustain prices. when you run a surplus. and there’s microphones going around. I don’t attribute any of the success in the war against inflation. and I like this one very much because I hadn’t seen it done by anybody else. and that adds savings and investment to the economy. but you have to get to full employment. and he said. and he. please. Gerald Dellameade [??]: I just recently learned about Modern Monetary Theory and the question that keeps coming back to me – I’m sure you have answers for it. having mentioned that Norway. is that an issue. and we are hearing. And so there was zero understanding. and it takes away that much from the economy. it’s the highest it’s been since 1993. by population. [01:04:47] The other kind of inflation. it reduces savings for the rest of us. non-government sectors. our chair seems to have disappeared. are responsible for the increase in savings.” He goes. and that. “Owes? It’s not o-w-e. He said. and it went from $2 to $40 dollars. Now. and I’ll submit that there’s still zero understanding of that today. And in fact. “your share of the national debt. when we run a surplus. They cut production by. maybe 2000. to monetary policy at the time. there’s a whole question of what is actually inflation and what are just price increases. and those costs were passed through. because we had just been running a surplus. it’s o-w-n. the inflation broke after the cartel broke. when you talk we are seeing the national debt clock. the price went up to two-fifty or -sixty or something. “does anybody in Washington understand that when the government runs a surplus like we just did.” It is the assets that each of us. and how do you handle it? Bill mentioned taxation as a tool for helping to manage inflation. We lifted the cap. I think. [01:00:27] Warren Mosler: Let me just relay a quick story.free asset.” I said. you just take your pick.” And he said. “Bob. by exactly that amount. And you can read that savings are too high. [01:03:47] What happened in the 70s was we had an external monopolist in OPEC that was raising prices of oil. I think you’re wrong. and suddenly natural gas was everywhere. to the penny?” And he said. What was 1993? That was the last time we had a deficit that large. it is the amount that we own. “No. Randy did a blog on this point that Pavlina is talking about. We aren’t responsible for paying back the national debt. so I said to him. I just haven’t seen the answers – What about inflation. which was largely based on. and in this country we look at CPI. I was at Citibank for a private client meeting with Bob Rubin back in I think it was the late 90s. rightly so. There’s no understanding now that the large deficits. rather than the cost push. once again. I see it as an underlying thing. had nothing to do with monetary or fiscal policy. we buy Treasury securities. that you don’t get inflation until you’ve used up the resources.

[01:07:27] Bill Mitchell: That’s what I’m saying. but you have to get to full employment. [01:05:24] Bill Mitchell: The question about the OPEC is very interesting. trade deficits. [01:07:00] Bill Mitchell: Yeah. which is… that’s not inflation. as Warren did. It’s got nothing to do with the fears that are out there in the public domain now about these deficits generating runaway inflation. so far. [01:10:00] But we didn’t address your question about the reserve currency. we have an enormous output gap by any measures. And that’s where you do. if you think about what that means. and can that make a difference to help hold down price pressures? So we will deal with that. [01:08:23] Warren Mosler: The other thing is. you have to work out how to do that. You probably will run trade deficits if the rest of the world is trying to net save in your currency. but with slight nuance. Right now. and it’ll go out of the system fairly quickly. But the model’s a relative value model. In the mid 70s. You’ve got to understand what inflation is. because you don’t want to take the crunch. Well. first of all. whereby the workers will take a bit of the real wage cut. What governments did at that time was to. or they may be right. was to delay the dissipation of that cost shock. occasionally. and the government ratifies that through indexation. the mainstream model has an assumption that you need low and stable inflation or a conclusion for optimal long-term growth in employment. and then the second question wasn’t answered yet. Those are two completely different things. as they did with the Australian dollar. which is that we do have a state currency. That’s a completely different question. We’re saying the affordability is not a question. It’s a wrong conflation. within the context of the model but the assumptions of the model are not the real world conditions. but it’s not inflation. I’ll let somebody else continue. just to fill in. That’s an issue. they’re right. for example. it probably is true that when pension funds around the world decide to add your currency to their portfolio. whether the government can afford to hire underutilized resources or to buy them. or what it spends on. we do have the coercion of taxation. the “cost push from the demand pull” type inflation. Warren Mosler: Your decline in the real terms of trade. what that means is that there’s a real income loss to the domestic economy. When we’re talking about. because I think Australian experience was similar to elsewhere. So you can get an inflation then feeding on itself if the workers and the bosses have a slug-out fest in a distributional struggle where each of them has price-setting power and they can defend their own margin. All that means is that occasionally if you import a raw material. and then the government has to continue to be pushing it past that point. but it makes no difference to affordability within your MMT Conference Page 38 . you’ll be subject to price shock and you have to work out how to distribute that real income loss. they’re going to try to sell you output so that they can get the dollar assets. So it probably enhances your ability to run current account deficits. [01:09:10] L. That doesn’t mean that how much the government spends. which leads to the unemployment and the counter-cyclical policies we’re talking about. for political reasons. and you use the price signals. some might say it’s smaller than others. That real income loss has to be shared in some way. all of our oil-dependent economies had very major cost shocks to the system. It doesn’t include the currency as a public monopoly because it doesn’t include taxation as a coercive force. we’re not saying that the government should spend without limit. nothing at all. and the public debate tends to conflate housing booms with inflation. the government can always afford to buy anything for sale in terms of dollars in the United States. [01:06:05] And you’ve also got to differentiate. doesn’t matter for prices. and then the cost shock just dissipates very quickly. but it’s certainly large enough where that’s clearly not the problem. But that’s got nothing to do with using budget deficits to achieve full employment. run out of resources. and we will be addressing that question as we go along: what form should the government spending take. the real wage and the profit margin.you see it in some countries. and if you can’t get the inflation right then market forces will work in that direction. A continuous price… a price bubble within a specific asset class. that it increases the ability of your country to run current account deficits. that terms of trade shock. you don’t have a distributional consensus in your country. Randall Wray: I want to add something. Warren Mosler: Through indexation. so a real estate bubble is an issue. The question then was. They’re trying to accumulate dollar assets. you can get demand-side factors interacting with the supply-side factors. the bosses will take a bit of the margin cut. So.

So the government has to take away some of our spending power. I think. We talk about voluntary constraints as if they’re things that all we have to do is just involuntarize them. if I could. They know it. Treasury. [01:15:25] Joe Bongiovanni. when people pay their taxes. so those are the top two. I think. It would just blow the roof on prices. What’s happening in Sydney. “Look. is the government’s buying back all the toll roads. a fear. as unpleasant as the fact was that they were paying their taxes. everybody. and then turn the corner into the next road and negotiate another contract to access their road. which could be the same resources and same infrastructure provision in the private hands. to build things. it would just be inflation. the government needed my money to pay for things. now there’s a voluntary constraint. Roosevelt Institute: I have a question that has to do with both substance and messaging. I feel like we’re talking about the Copernican revolution in a sense here.” So.enhances your ability to run current account deficits. for being here. And another thing is. because if they didn’t. etc. I’m not sure that that’s something the average person on the street can hang their hat on. that’s a mistake. [01:14:43] People in Australia are so pissed off now about the private tollways in our capital cities that the successive neoliberal governments have implemented. Its a very easy story to tell. because it’s so counter-intuitive. it would be way too much spending for what’s for sale in the store. [01:12:47] Warren Mosler: Okay. in order for us to move into a place where Modern Monetary Theory becomes Modern Monetary Reality? [01:16:20] Warren Mosler: Let me just start with the first one. Any body else have anything? [01:16:54] MMT Conference Page 39 . It has to take away some of our spending power to make room for them to spend. and that need to be undone. Kettle Pond Institute: I want to thank you all. of voluntary constraints. and they play us for complete fools. it would be great. to what ordinary people walk around are thinking about. and if we all spent all the money we earned and the government spent all the money they wanted to spend. As Bill said. [01:13:54] Bill Mitchell: The narrative that I use is I ask people. you mostly just drive?” It’s very easy. “Well. from a messaging point of view. [01:11:11] Lynn Parramore. and things don’t go unsold and we have unemployment. that public provision has its place. think of the economy as one big department store. if there’s something more you can say about that. because people have become so hateful toward the private ownership of roads. which is the President of the United States has said more than once we’ve run out of money. flying over to China to negotiate with out bankers to make sure we can fund Afghanistan and health care. it just be a mess. that’s going to change from year to year as personal spending decisions change. very much. And as Warren said. I want to raise the issue. it went to pay for things. The way I say it is that the government takes away our money to make room for them to spend without creating inflation. Your government can always afford to buy anything for sale in terms of your own currency whether you’re a reserve currency or not. if you could comment on some of those issues. That’s not true. I think of it as we’re all shopping in the same department store. do you want to get into your car in the morning and drive down to the corner and negotiate a contract with the private owner of that road. The taxation affecting aggregate demand. of course. “Are we a monopoly issuer of currency in our country. And I don’t think that there’s enough of an explanation as to how voluntary constraints manifest themselves in real economies. so you’re got to take those resources off the private sector. Number two. and then on and on until you get to work? Or do you want to take those road resources off the private provider and have the government providing the roads. to understand the difference between public use of resources for public benefit and private use of that. and I wonder. many of the things that we’re describing. And I feel like I’m not 100% sure what the narrative is that we’re trying to get across here. so that we have the right amount of spending power between the two of us to go into that store and shop so that everything gets sold. they wouldn’t want to pay them? So I don’t know. even if the rest of the world has no desire to add your assets to their portfolios. It doesn’t impact your ability to spend domestically. I would guarantee if you ask the first 10 people on the street “What did you pay your taxes for? Where did the money go?” they would say. when Goldman Sachs is creating things that serve as money?” And why can’t we have a list of the voluntary that exist. we have the right amount of spending power in the store. for example. I wonder. except for toll roads. That’s completely not necessary either. I guess I would say. but it makes no difference to affordability within your country. you’re competing for those resources. For example. on the 15th. those are voluntary constraints. that if people really knew what their taxes were being paid for. So the idea is to balance the economy correctly so that when we all go shopping. Secretary of State. we’d just be competing. where you just drive. we see our Administration. what is the psychological impact on that kind of thinking about taxation? Is there. they felt some consolation in knowing that it was funding government expenditures. but not too much so we drive up prices fighting over the goods with each other. we’ll take turns.

I think you’ll find much faster responses.. And the six that I didn’t put out are my blog. when you finally get through to somebody. For example: two years ago I think I put out fourteen refereed journal articles.” The next response is. We’re boasting about that. make sure it goes through Congress. if we had people in the audience here that were cultural anthropologists. so we cede the territory to them. and they vote to raise the debt ceiling. [01:18:15] Warren Mosler: Also. my point is. and they understand what we’re saying. that will cause a state change faster than carrying this argument within economics. just to name a few. Randall Wray: Let me add one that is really important. Under-24s: twenty-six percent of them are unemployed or underemployed. and what we can do. heads have to roll. for example. [unintelligible] when there is a compelling reason.” and then we’re going to hold people accountable. “Okay. and a list of the voluntary constraints. I want to make issue with that.” Not because we couldn’t afford to spend more. and a suggestion to the idea things are not intuitive. studying tribes. Any body else have anything? [01:16:54] Stephanie Kelton: The debt ceiling is a voluntary constraint. “Alright. because sometimes. First we have the approval process. [01:21:34] Bill Mitchell: Just as a comment on that. we need this program. They’ve got to go through the process. last year I put out eight. operationally. To make a state change in a complex system like a national policy. the last six months. So yes. I have a ideological predisposition against government intervention. [01:18:48] Bill Mitchell: To put a finer point on that. nations. and two great examples of that are World War II and Reagan’s big run-up in the budget deficits. budgets. The other point about what’s plausible is. big MMT Conference Page 40 . if they don’t. “This is a program we want.” [01:19:25] Roger Erickson: I want to make a response. and what I see here is an operational problem. it’s understood. “Duh! What are we talking about here?” The point is. because even now. [01:17:17] L. I’m an operations person. I made the decision a few years ago that I would commit myself to writing this blog I wrote. you see no uproar over the idea that the Fed might have to raise interest rates soon. with unemployment 22% if you measure it the old way. but the way you constrain the government is by budgeting. but because we want to hold them accountable. which would be a problem. [01:22:28] Edward Harrison: I’m a finance blogger at Credit Writedowns. people change their minds very quickly. and when you want to get through that constraint. or cellular biologists. either unemployment or underemployment.the top two. Our central bank’s now put them up three times. we’re going to budget for it. budgets are absolutely necessary and that is how you constrain spending. and the almost-universal response is. it’s not easy to do every day. and I’ve made it a habit. that’s why I think… I know the others here have probably gone through a similar process. and they raise their hand. I do have some discussion of this in my presentation coming up. and you avoid that constraint as well. and if you get the information to the right people. “The government can always afford to buy anything for sale. we gotta constrain those guys!” Well. so my point is. even if it does have to be grassroots. the American population would rather see unemployment than inflation. “Uh oh. to other areas. yet inflation’s at the bottom of their so-called “target range. I think. yes. one of the things we have to plan for is you can’t win by pushing this upstream as a fight totally within the economics profession. That’s just common discussion. About thirteen and a half thousand are currently reading my blog. and why? Why isn’t there any? Because people are against inflation. and a comment. or biologists that studied ant nests and termite nests. “We thought people in economics knew what they were doing. Thirteen and a half percent. So we’ve got that built-in constraint in our psychology. Australia now boasts that we’ve got thirteen and a half percent labor under-utilization. there are wide ranges of people that understand this intuitively. It was an explicit decision. to make sure the program gets done without wasting a lot of real resources. We want to make sure that the funds aren’t just disappearing into the pockets of somebody. and something had to give. I’ve looked into that. and I don’t believe that many have ever read my academic work in the last 30 years. against government. and that’s an explicit way in which I engage now with people that I would never have engaged with before. we have to start firing people. And we boasted that we were the first to put up interest rates in the current crisis. I’m going to make the statement that I do think a lot of this is ideological. you put a bunch of guys and gals in a room. you do.” they say. rightly or wrongly. I come from a different ideological perspective than probably most of you here. They say. of contacting people outside economics and asking these questions. and history of cultures. and would say. inflation is a big constraint. next month it’ll put them up for the fourth time. Congress decides. If you go outside. you always only need to get the key information to the key people in the key institutions.” The outcome of that is very antagonistic.

You do have exogenous decisions made in Congress. We sit together. [01:27:47] Pavlina Tcherneva: To carry forward this point. this debt we actually own. if you would call it that. what is necessary. it’s consistent with a big government. if you look at my proposals. so it gives you no information. The discretionary impact of government policy is relatively smaller than the cyclical impacts. or to do less? [01:25:08] Edward Harrison: That’s what I’m saying. That in fact these are political decisions that are not necessarily made by individuals outside of government. political question: Do we want the government to do more. it’s just changing numbers down in an account. is going to be lower than that to provide for the savings so that the private sector will fully employ the resources that the government is not employing. and limit its own size. for the most part. And so. I think that’s just a given. but by the government itself. they’ve been a full payroll tax holiday. The difference between a federal government and a state and local government. against government. I think. free of the deficit hysteria. I agree with you. what’s the size government we want and then what’s the appropriate level of taxation?” Once we know what the government we want is. so those are endogenous expenditures. [01:25:29] L. that in a sense. the budget is endogenous in one particular sense. because the debt is the government’s debt. And so. it’s an ideological. if you look at it again from an accounting perspective: my debt is your asset. You don’t know how much you might need today to dedicate to unemployment insurance. or a business. I think people will understand. Number one. to people who want to logically understand we’re not passing this on to our children. and it comes back to the point I made about the endogenous budget deficits. about the government [inaudible] I would argue that it’s not endogenous at all. for example. [01:27:24] Edward Harrison: The second part of what you just said. or a local [government]. not the other way around. that’s actually correct. So. it’s very easy to make the argument that you can set the tax rate exogenously. or accept the fact the government will do something about it. in terms of how much debt is out there. what we are arguing is consistent with a small government. and I can tell you from my perspective how I feel about that. that’s a political decision. then the level of taxation. you should frame it those terms: Let’s get out of the ideology of big or small government and let’s go to the facts in terms of the two accounting principles. with regard to the economics of the idea. as Bill was saying. Now you say. over and over again. “Alright. but those are political decisions. I think those two pieces of information are very important. in times like these. Now. Second point is. it’s not endogenous. That is an exogenous decision. For a state. and how well it MMT Conference Page 41 . that the fact that we owe or that we own the debt is a key selling point. if you look at the government. is that we tend to look at the revenues to decide what government can afford to do. The main point we’re trying to make is affordability is not the question. So at the moment. now you have to drive the model the other way around.here. my deficit is your surplus. So when you start making arguments of the government doing X or the government doing Y. Warren Mosler: I’ll be doing that in my presentation. I think that you should understand that that’s something that’s not going to go over with a large population within the United States. Someone else might disagree and want an enormous public sector. but the revenue that you get depends on the underlying economy. or expansion. But you don’t know how many people are going to retire today. Randall Wray: I’d just like to say one thing about big government. that I think could get your points across that has to do with the accounting. the government having a net deficit is the equivalent of the private sector having a net surplus. So. more often than not. about what we want the government to do. to restore the private sector to employing the resources it had been employing in the last few years. and the mistake we’ve been making. If you hammer that point home. with regard to the government deficit. because that depends on the cycle. and what the government should do. then they just have to invest more. I think a lot of people are probably like that. there are two compelling arguments that you are making. it doesn’t get the revenues. the private sector determines the size of government. it’s not the private sector that’s directing that at all. we decide how much we are going to appropriate for different programs. I have a ideological predisposition against government intervention. [01:24:31] L. we pass a budget. however. And let’s get away from the deficit hysteria because it’s not factual. If the private sector thinks the government’s too big. then do something about it. And I think that that is a political question. or how many people will need to tap into Medicare. if you don’t like the size of government. and you’ll get chronic unemployment and wasted resources. Randall Wray: I agree with that. Taxation. So now we have to have a public discussion. [01:26:37] Bill Mitchell: I’ll just add to that. big government. Once you understand that. But for the federal government.

and the first part of the speech was very much restricted to levels of their competencies. did say that. but you’ve got to know: you’re dead wrong on Social Security. and of course then he started going on about wasteful government spending. You need to be looking at the size of the deficit with respect to what is happening to underlying conditions. So. so that when their budget became very expansionary following the bursting of their housing bubble more than a decade ago. And they began another downward spiral. So. and visits his former student. when he was interviewed by Scott Pelley and the question arose.” And then Social Security came up.” And Clinton’s response to him was. endogenously. I don’t think many of them really get it. Years ago. literally. and I think.” because I told him this story the other day. Bill Clinton’s professor. the budget deficit was going up. yet the deficit increased n response to the worsening domestic conditions.” He actually. and in many ways they expanded endogenously. as Bill has pointed MMT Conference Page 42 .” [01:33:35] On Japan specifically. Eisner was a professor of economics for decades at Northwestern University. “Well. and there was another political decision to try to rein in the deficits. because we don’t take proactive fiscal policy for the most part. We could. and he’s talking about fiscal sustainability again. and I lived there at the end of the bubble era.the tax rate exogenously. because I lived there for five years. Marshall said. but the revenue that you get depends on the underlying economy. When Bill Clinton was elected President. “On the whole. and his grandchildren. for a time. understand how a monetary system based on fiat money and flexible exchange rate works? And what about the Japanese government. Richard Koo’s account of this period is very good. and how well it is doing. “I don’t really want to speak about political matters. and the arguments. Do you really believe that nobody among the mainstream economists and politicians in the world. Bob. [01:33:08] It’s amusing to me because we were at the Levy Conference last week. and so Eisner makes the trip to DC. and I quote. or some of you guys gave them some advice. what do you think of my economic policies?” And Eisner told him. do they do this by accident. which is to help people understand the issues. Bob. and the beginning of the deflation that followed. [01:30:57] On the question of whether people out there have any real understanding. and then they made a political decision to try to rein in the deficits. [01:28:47] Warren Mosler: The way I frame that is: the way we do things now is endogenous. they’d make the right choices. [01:32:27] Marshall Auerback: Can I just add to that that sometimes the truth does slip out. perhaps that not always the case. both in opposition and in the governments. and so when it suits them. So they… I think they’re getting it right this time. In August of 2008 we could have had a major tax cut so that car sales didn’t have to drop from seventeen million to nine million. “Here we go. “Tell the Eisner story. and one of the presenters there was Robert Eisner. or …? [01:30:10] Stephanie Kelton: What I think Japan has learned from some of their mistakes of the past. it’s probably that they’ve learned from some of the mistakes of their own past. He says. in the absence of policy. “I know. [01:29:23] Raicho Markov: Just an MMT enthusiast. And because we believe if we could just get people to understand. this is politics.” And that was really discouraging for those of us trying to do what we’re here today trying to do. some of us who are here to day were at a conference in Knoxville. they began to recover. and Dick Fisher from the Dallas Fed made a speech. I’ve quoted this many times. what they’re going to have to pay for. he invited Bob to the White House. and we could have sustained demand in the private sector. and they went down again. Tennessee. “Where did all this money come from? Isn’t this money that’s going to be taken away from the people that you have to tax later?” And Bernanke basically spilled the beans. So I thought. and he was. And so they began another attempt at recovery: they allowed things to expand. But I see now that he’s gone back to the Dark Side. but you’ve got to understand. So. this is just electronic debiting and crediting on bank accounts. and the accounting. it’s pretty much misguided for us to be fidgeting with this accounting difference. they do convey the truth. I think he said that again yesterday. Warren’s quoted this many times. I wrote my question because for me it’s easier to place questions in written… I have some difficulties with spoken English. Eisner stood up at this conference and – Eisner wrote a lot about Social Security near the end of his life – and he stood up at the conference and he told us this story. Trying to hit a particular numerical target is probably not going to be possible anyhow. so far. I don’t know if any of you saw the 60 Minutes interview with Ben Bernanke last year. to some extent. and even to this day. He’s not a Modern Monetary Theorist. pretty good. and President Clinton says. I just want to speak about monetary policy. spreading into his non-competence in fiscal policy. But. an economics conference. but we didn’t. “No.

on the factual points. or policy makers. If we’re not careful. that don’t really understand the difference between various currency systems. they just hate the notion of government spending.Richard Koo’s account of this period is very good. we’re going to end up like Greece as well. get it right. I’ve met a number of people at the Bank of Japan and in the Ministry of Finance and about three months ago. “You know.netrootsmass. but he does. as Bill has pointed out many times in his blog.net/fiscal-sustainability-teach-in-and-counter-conference/bill-mitchell-what-is-fiscal-sustainability/> MMT Conference Page 43 .” So clearly there are people within the Japanese government. someone from the monetary policy… the governing committee of the Bank of Japan actually said. [01:34:34] Pasted from <http://www. And I can tell you that the Ministry of Finance itself is full of these deficit hawks. He’s not a Modern Monetary Theorist. It’s still a very large minority view there.

Senior Scholar at The Center for Full Employment and Price Stability (CFEPS). April 28. 2010 ________________ Additional Reading and Supplementary Material: PowerPoint Presentation in PDF ________________ TRANSCRIPT (Thanks to the Volunteer Transcription Team): MMT Conference Page 44 . Finance. Associate Professor of Macroeconomics. Research Associate at The Levy Economics Institute of Bard College. University of Missouri – Kansas City. and blogger at New Economics Perspectives Session 2 — 1st Fiscal Sustainability Teach-In and Counter-Conference George Washington University. Washington DC.₪₪₪ Stephanie Kelton ₪₪₪ “Are There Spending Constraints on Governments Sovereign in their Currency?” Stephanie Kelton. and Money and Banking.

and Professor Mitchell answered that question in the previous session and everyone was here for that. The title of the talk that I was asked to give is ‘Are there spending constraints on governments sovereign in their own currency’. So.Stephanie Kelton: Well. if you’d like to break for lunch… [laughter] Just kidding! [00:00:39] MMT Conference Page 45 . My name is Stephanie Kelton and I’m very happy to have an opportunity to come and elaborate on some of the things that we’ve started talking about this morning. which is very nice to see. I think we have the same crowd we had before. We haven’t put anyone off too terribly yet.

but we like them. So. we didn’t really distinguish what we’re talking about in Modern Money Theory from what most of the textbooks describe and what our students end up getting taught in most economics programs across the globe. One of the earliest was a German economist by the name of Georg Friedrich Knapp. who wrote a book called ‘The State Theory of Money’. the ideas aren’t particularly modern. so don’t be afraid. and what is money. The ideas are not theoretical. espousing exactly the same kinds of things that we’re talking about here today. What we’re doing is simply describing. publishing papers with titles like ‘Money as a Creature of the State’. we do not make assumptions. I could have filled the page with names of folks who’ve come before us. operationally. what happens on the other side of the equation? That’s really all we’re up to. a lot of this morning is really to talk about money. and they can most surely be found in the work of Abba Lerner. and blips on a screen and button pushing and so forth. It’s not a theory.I’m going to go ahead and say something anyway about this. What we’ve been describing to you today is not dependent upon any ceteris parabis condition or any set of assumptions about perfect competition or rational agents or anything else that you get exposed to when you study economics. [00:03:27] MMT Conference Page 46 . most specifically in his ‘Treatise on Money’ published in 1930. when one side of the equation moves. but this is the brand that we now. and what I’m going to say is based on what was described this morning as something called Modern Money Theory. [00:02:09] As I said. This is not a term that we came up with. I think that others who began to follow our work branded us with this title and started referring to us as the Modern Money School and to our ideas as Modern Money Theory and in many ways I think it’s kind of unfortunate. but rather an attempt to simply describe the way in which the institutional arrangements are set up. although we are economists. or the cross that we now bear. and the accounting identities and what happens in a balance sheet framework. They can be found in Keynes. I guess. What we’re doing is actually not modern at all. who wrote extensively on this kind of thing. [00:02:58] What we didn’t do. they are neither modern nor are they theoretical. because it is something of a misnomer. the way government finance works. Many of the same ideas that you’re hearing from us today can be found in the work of Knapp. And. while there were some references to accounting. and they aren’t particularly modern.

for this group. steal. so the story goes. and you turn to the page that begins to talk about money. the story is always told that this somehow happened spontaneously. and yet people will beg. backed by nothing of value. then of course. in that they would serve as a good store of value. and ‘once upon a time’ man trucked his wares to the local trading venue because he’s preprogrammed to truck barter in exchange. when you have a pure fiat money system. [00:04:10] Economists refer to that as the double coincidence of wants. primitive forms of money first. And this all happens without imposition from any authority. So you had to lug your clay pots and your shoes and your fish and whatever else you may have specialized in the production of. They choose to use money. in order to get these MMT Conference Page 47 . they hit on money. they were easily divisible. and there was no currency around. [00:04:58] But. The textbooks tell stories of things like pebbles and shells and feathers and beads and all of that. toil away the day. as Adam Smith told us. it’s as good as gold. [00:05:42] Then the story gets more difficult to explain. borrow. So the money is stateless. And. barter is this clumsy system for conducting exchange and. money evolves (I’m still in the textbook story) from things like primitive money to gold and then to paper with gold backing. nothing like that. that is intrinsically worthless. why do people accept currency.When you open up an economics textbook. no state. down to some local trading venue. over time. And. man suddenly decided – hey there must be a better way to organize – we should really think about finding some Thing that would be universally accepted. and later discovering money things like precious metals. So they continue to accept the paper. And so. People take paper in exchange for real goods and services and the argument is – well. where the only way the exchange could take place is if you happen to come upon the person who not only had what you wanted. inevitably you find a story that begins with something about barter. which had nice properties that fish and other commodity monies didn’t have. They decide what money is. The private sector figures out that there’s a more efficient way to conduct exchange. but wanted what you had. they were portable – you put your coins in your pocket and go conduct your exchange. lo and behold. Sometimes we call them the Metalists because. but at the end of the day.

but that’s not what I want to do. is the story that’s been dubbed. steal. and yet people will beg.S. I define the unit of account. dollars. the unit of account is the dollar. you can earn dollars. but it is imposed on them. Randy has written a lot about this in his. And so. which traces the nature and origin of money to the early authorities. The authority establishes that you all must pay something to me.backed by nothing of value. Marshall knows that Randy will take them. And there is some ordering. toil away the day. [00:07:34] So we have a very clear way to answer the question ‘Why is fiat money accepted?’. to eliminate obligations to the state. Now you need to do something to eliminate your obligation to me. It is chosen. the money does not emerge spontaneously by the will of the people. why does Marshall take them?’ ‘Well. or the approach that’s been dubbed Modern Money Theory. ’Well. ‘Understanding Modern Money’ book. I impose a tax liability on you. Now there are lots of things that obviously circulate as money things. Warren knows that he can pay Marshall when he rents a car from him’. borrow. whereas our textbook counterparts have some difficulty with that. In the United States. I make you indebted to me. In the United States. ‘Well. But. ‘Well. what we prefer. The government’s money is not the only thing out there. is the problem in that theory. And then you say. [00:08:39] MMT Conference Page 48 . that is. it does trace the origin and nature of money to some power authority. why does Warren take them?’ ‘Well.’ And you get into this infinite regress problem. So I say in what unit you must pay obligations to me and then I tell you what you have to do to eliminate those debts. They really have no answer. [00:08:08] So the Modern Money approach accepts that the currency derives its value from the state’s willingness to accept it in payment to the state. from the early temples and later to the nation states and we could go on and on about this. in order to get these otherwise worthless pieces of paper? [00:06:05] And so. what we like. And I tell you how you can do that. Pavlina accepts dollars from me when I go into her shop because she knows that she can pay Warren her rent with those dollars’. [00:06:43] How is it imposed on them? It is dictated by the authority. they say. That gives value to the government’s otherwise worthless pieces of paper. or hierarchy of money things. If you push them too hard. You pay your tax obligation to the state in U. Some are more generally accepted than others. and allows them to move real resources from the private to the public domain.

[00:09:48] MMT Conference Page 49 . she knows she can find someone who does.And so here I have a quote from James Tobin just to give this some credibility because we pull out the Nobel Prize winner when we want to convince you that these ideas are not crazy and fringe. If she herself doesn’t. “In advanced societies the central government is in a strong position to make certain assets generally acceptable media by its willingness to accept a designated asset in settlement of taxes and other obligations. That’s why this thing is special and that’s why the government’s IOU is special and those of us that have done some work in this area. in talking about a hierarchy of money would argue that the reason that the state’s IOU.” [00:09:14] So Pavlina takes it because she has obligations to the state. the state’s money sits at the top of the hierarchy is because it is the most generally accepted and it gains its acceptability by virtue of the state’s proclamation that we all need it in order to eliminate our tax liability. and James Tobin said in a book in 1998. The government makes that asset acceptable to any who have such obligations and in turn to them and to others and so on.

by this definition. [00:10:21] So the question then becomes. all sovereign in this regard. that they are sovereign in their own currencies. Japan and Australia.So. Modern Money Theory stresses the relationship between the government’s ability to make and enforce tax laws on the one hand. examples of governments with sovereign currency. for a sovereign government. [00:10:51] MMT Conference Page 50 . and its power to create or destroy money by fiat on the other. UK. I would define as a sovereign government. how much can it spend? Can it afford Social Security? Medicare? Tax cuts? Is the current path sustainable? Isn’t inflation going to be a problem? Will we bankrupt our children and grandchildren? What if the foreigners decide they don’t want to hold our bonds? I am only going to answer a couple of those questions in this talk because many of those are designed to be answered by other panelists later today. a government that retains these powers. Canada. the United States. Among others.

I think. And we also teach that in our economics classes. the only way to pay for it is with the government’s money. or blame. deserves a lot of credit for the fact that people think in these terms today. Micro economics teaches students how to maximize utilities subject to some constraint. How much money can you spend? You can spend everything you receive. and Ross Perot. at the end of the day. interest earnings. This is what most students who study economics are taught.So. here we have the analogy. [00:12:05] MMT Conference Page 51 . either working or unearned in some capacity – gifts. plus everything you can borrow. as the case may be. face a budget constraint. That’s what you can spend. just like the government. what is the basis for this household government analogy? The household clearly has a budget constraint. and President Obama has told us that the government is out of money. So. When you purchase something. And when it comes to buying things in the United States there’s really only one way to make final payment. Ross Perot told us early on. every American has to live within his means. whatever it is – after taxes. There is no other way.

Only the government’s money can discharge a payment as final means of payment. Federal Reserve money. and what do you do? You write them a check. Is that the final payment? Well. Suppose that you go out to dinner and you purchase your meal with your Visa card. Is that the final payment? No. What it wants is a credit to its bank account and that happens as that check goes through a clearing process and Visa’s bank account is credited with reserves. maybe the last time you see anything happen. but it’s not the final payment.How does that work? And so here’s an example. We are the users of the government’s currency. You get a bill in the mail from Visa. [00:12:59] MMT Conference Page 52 . At the end of the day. government money. What are bank reserves? Government IOUs. Visa doesn’t want your check. It doesn’t want what you’ve written down.

It is a constraint that is imposed by Congress. And we say this. We talked a little bit about this earlier. things like debt ceilings. It doesn’t have to raise money by borrowing or collecting taxes in order to spend. so-called monetizing the debt. Government spending is not (we use this term a lot) operationally constrained by revenues. first? It first had to have spent those dollars into existence. That’s a self-imposed constraint. It doesn’t need tax payments and bond sales in order to fund itself. and sometimes people have a hard time understanding that. How can the government spend first? How can it not spend first? How could the government collect taxes. It is not operationally constrained. Rules that prevent the Treasury from running an overdraft in its account at the Fed. It is not like a household. The only relevant constraints are self-imposed constraints.36] MMT Conference Page 53 . That’s a self-imposed constraint. The government must spend first. The government must spend first. is a self-imposed constraint. Rules that prevent the Fed from buying Treasury bonds directly from the Treasury. Those of us in the private sector have to earn or borrow dollars before we can spend. the government is the issuer of its currency. [00:14.In contrast. in dollars. The spending has to come before the payment or the collection of taxes.

taxes are ninety and it sells bonds equal to ten. So what happens when the government spends? [00:15:24] MMT Conference Page 54 . What we see. As Warren likes to say. the government neither has nor does not have any money at any point in time. But that’s not really what’s going on. and what we hear all the time is that the government is spending a hundred. what we see is an attempt to coordinate the government’s spending with taxes and bond sales and it creates the illusion that what’s happening is that the government is taking money from us and using it to pay for the things that it purchases. So.How does the government actually spend? It spends by writing checks on its account at the Federal Reserve Bank. It is simply the scorekeeper.

We call that ‘high powered money’. ordinary everyday checking accounts. hang in there. and the more narrow definition of money. Those are the bank reserves. I chose Bank of America.S. So Bank of America marks up Halliburton’s balance by a hundred million dollars. The Fed marks up the size of Bank of America’s reserve account (this is some reserve accounting. What happens? The Fed marks down the Treasury’s balance. The money supply increases by a hundred million. Treasury issues a check for a hundred million dollars to Halliburton. [00:16:08] So what’s happened at the end of the day? What are the effects of government spending? The monetary base increases. It subtracts one hundred million from the Treasury’s account at the Fed. The monetary base increases by a hundred million. both high-powered money. So the money supply increases. [00:16:50] MMT Conference Page 55 . those are the deposits. Halliburton takes the check and deposits it wherever Halliburton happens to bank. credits Bank of America with a hundred million dollars in its reserve account. it’s a little dry). So what is the lesson from this? The lesson is that government spending creates new money. The money supply is all the checking accounts and traveler’s checks and a couple other things. They both increase as a consequence of government spending.Let’s suppose that the U. The Fed. in the clearing process. but by and large. bank reserves. M1.

The Fed marks up the Treasury’s balance by five thousand. destroyed. It doesn’t get anything. It doesn’t give the government anything. Everything just disappears. for all intents and purposes. Wells Fargo marks down the balance in your account. and the monetary base goes down as well.) The monetary base decreases. when you pay taxes. and the Fed marks down Wells Fargo’s balance by five thousand. The money supply also goes down because you drew on your checking account. Bank reserves go down by five thousand. and you bank at Wells Fargo. there’s nothing there. [00:18:06] MMT Conference Page 56 . What happens at the end of the day? The effects of paying taxes (See. minus five thousand. It eliminates those liabilities. The check gets sent from the IRS to the Treasury’s bank. So. The Treasury banks at the Fed. Paying taxes destroys money. so the base goes down. the money supply goes down by five thousand. They are. the narrow measure. M1.How about when the government collects taxes? What happens there? Say you write a check for five thousand dollars to the IRS on your personal checking account.

That’s where the Treasury banks. if they could use it to spend? Because they don’t use it to spend and they don’t need it to buy things. Goes to the Fed. I mean literally shred it. if they needed it to buy things. Apart from the shock of opening the envelope. usually of coins just to make it really offensive and difficult on some poor bean counter. What would happen if you actually sent the government your cash? Every once it awhile it seems like you hear about some crazy person who does this in protest. [00:19:06] MMT Conference Page 57 . Why would they shred it. They shred it. Let’s say you have a tax liability and it’s a hundred dollars and you just mail in a one hundred dollar bill.That’s if you pay with a check. They get a huge sack. what are they going to do with this? What do we do with this? Send it to the Fed. and what do they do with it? They shred it.

and the transaction is done. whether by cash or by check. ‘Thank you very much’. [00:20:42] MMT Conference Page 58 . It would take away the need that we have to acquire the government’s money. taxes maintain a demand for the government’s currency – that’s important – and the other thing they do. is they allow the government to regulate aggregate demand. Why bother collecting taxes? When we pay our taxes. one is that taxes give value to the government’s money. is returning to the government its own liabilities. And they say. They get their own IOU back from us. Lynn raised this question. so let’s suspend all collection of taxes’. that would undermine the value of the currency. if the government doesn’t need our money. and this goes back to the Modern Money Theory that I began with. [00:19:40] So. One is.So why bother collecting taxes at all. Too much spending power can be inflationary. ‘We don’t need taxes in order to spend. That’s the end of the transaction. why do it? Two reasons. If they were just to say. and this came up earlier. That’s all we’re doing. They don’t get anything that they can turn around and spend. all we’re doing at the end of the day. too little causes unemployment and recessions. Why would we work and produce things for the government? Why would the government be able to move resources from the private sector to the public domain if it can’t get us to do that by virtue of the fact that we are willing to work and provide things to get the government’s liabilities? So.

that there’s a tipping point out there. and Bill talked about this a little bit earlier with the Rogoff-Reinhart piece. A lot of people have argued.All right. well then. Won’t we sell too many bonds? Won’t the debt get too large? Isn’t there some point of no return beyond which the whole system collapses? What if the interest payments become too large? What if the rest of the world decides they don’t want to buy the bonds? [00:21:21] MMT Conference Page 59 . why does it sell bonds? What are bond sales all about? It’s not selling bonds to cover a shortfall because it needs to borrow money from us.

We give up dollars today and we receive dollars plus interest at a future date. Funds move from the checking account into what’s effectively a savings account. principal plus all of the remaining interest. It’s the interest earning asset. they move from saving back into checking accounts. So. So if the government sells bonds today. the government credits our account. funds get moved from checking accounts. People who have money buy the bonds. [00:22:04] MMT Conference Page 60 . that’s what we hold now. and the funds are converted back into checking accounts. When the bonds mature.Bonds are nothing more than a savings account at the Fed. IOU of the government.

the sum total of all of the outstanding bonds that the Treasury has issued. 12. It’s nothing more than that. It’s the national world dollar savings account. we should just rename it. [00:22:44] MMT Conference Page 61 . All it does is keep a record of the total amount that’s invested in savings as opposed to checking accounts at the Fed.I couldn’t get the twelve trillion. I wanted the actual number. what we would argue is we shouldn’t call that the national debt clock. And. wherever we are today.4. This is the national debt clock. but this is as recent as I could find.

Can the government run out of money? The U. some team scores some points and they appear on the screen and then the other team scores and some more points appear on the screen.Something about the issue of solvency. the tipping point problem. That’s not the way it happens. Every time a ball game is played at Washington National Stadium. government can’t run out of money any more than the Washington Nationals Baseball team stadium can run out of points. right? Look in the trust fund. we’re running out of points here’. you know. [00:23:30] MMT Conference Page 62 . You just add the points. And there’s nobody behind the screen going. ‘Hey Johnny.S.

“A government cannot become insolvent with respect to obligations in its own currency. So when we want to lend to a bank. this is a quote from Alan Greenspan saying largely the same thing. There is no solvency issue when you are the issuer of the currency. “Is that tax money the Fed is spending?” And Bernanke says.” [00:24:00] It’s exactly like putting points on the screen at the baseball game. Just mark up the balance.” [00:24:34] MMT Conference Page 63 . we simply use the computer to mark up the size of the account they have with the Fed. Can you run out of points? Can the government run out of money? No. OK. “It’s not tax money. have an account at a commercial bank. The banks have accounts at the Fed much the way that you do. So here it is in writing so that you know we didn’t make it up.Same exact thing with the way the government operates. A fiat money system like the ones we have today can produce such claims without limit. This is Ben Bernanke in an interview on Sixty Minutes just last year when Pelley asked him. and I like it too. And this is the quote that Marshall brought up earlier and the one that Warren likes to use a lot.

It didn’t for us. why are the PIIGS in trouble? Why are Portugal and Greece and Ireland and Spain and Italy. Then. why is there all of this talk about them not being able to fund themselves? I mean.My parents told me money didn’t grow on trees. why. they have a fiat currency. [computer glitch] Why are they in trouble? [00:25:07] MMT Conference Page 64 . if this is true.

The Euro is a stateless currency. You don’t get to take it in and ask for gold at the end of the day.And the reason they’re in trouble. It is a fiat currency in that it is non-convertible. But. it is not a sovereign currency in the way that the U. or any other commodity. [00:25:41] MMT Conference Page 65 .S. and that imposes certain constraints on the governments that use this currency. currency is sovereign. gave up their sovereign currencies in favor of a stateless currency. is that all sixteen nations that adopted the Euro. and this was discussed some this morning.

Illinois. Every one of them. They must borrow or raise taxes. [00:26:31] MMT Conference Page 66 . They are the users of their currency. They are all users of their own currency. They’re in the same relationship relative to the currency as are individual states in this country. New Jersey – they’re just like states in the United States. but Germany and France as well – every one of them could default on their debts if they’re unable to raise enough money by either taxing or borrowing from those who already have Euros. is a legitimate problem for the governments that use this currency. solvency. not just Greece and Portugal. It’s the only way they can do it. New York. much like California. they must collect money before they can spend.It means the default risk.

So the entire thing in Euroland is denominated in Euros. And that turns out to be a huge problem for Greece. What is the relationship between the currency at the top of the hierarchy and the government? In this example.This is the hierarchy of money. look at the hierarchy of money. the government does not control the currency that sits at the top of the hierarchy. For any particular government. [00:27:03] MMT Conference Page 67 . What is it that sits at the top of the hierarchy? It’s the Euro.

because I said that the currency needed to be a fiat currency. floating exchange rate. not just the Euro. 1995. Southeast Asian currency crisis in ’97. They all issued paper currencies. but we saw problems with Mexico. [00:27:45] MMT Conference Page 68 . nonconvertible. Every one of these countries had fixed exchange rates. And. But why did they have problems? Why did Russia default? Why were there currency crises? Isn’t that inconsistent with everything I’ve said? No. Non-convertible. as a result.And we’ve seen problems with other currencies. we saw problems with Russia in 1998. every one of their governments became the users rather than the issuers of their currency.

The U. I don’t know of one.I don’t know of a single example of a currency crisis or a debt default by a sovereign government that has issued obligations in its own currency when it has flexible exchange rates in a non-convertible currency. can control its currency and therefore. its economic destiny. by implication.S. [28:11] MMT Conference Page 69 .

There is a relationship between the power the state has in the monetary sphere and the power that it can exert in the political policy sphere. which was dollars. look. and finally they were paying 200 percent and there was no interest rate where people would rather have the rubles than the dollars and they ran out of reserves. and they were borrowing dollars in order to keep it going because people were— would rather have their dollars than a ruble.[29:00] ________________ Session 2: Q&A [00:29:15] Unidentified: I have one question. the ruble was fixed at 645 to 1. and you see that all the time. you can buy ruble securities.” So what happened in Russia [he laughs] was that they had a fixed exchange rate. when they ran out of dollars. Okay. MMT Conference Page 70 . can you explain the difference between what happened in Argentina and what happened in Russia? Because Russia defaulted voluntarily on its domestic debt versus Argentina had a problem with US dollar debt. Does that mean that we should spend without limit? No. you have three choices: You can do nothing. spending will need to be regulated to prevent inflation. No. and defaulted on their conversion obligation. interest rates went up and up and up. Now. And so what happened in Russia is as the treasury competed with the option to convert. But I would argue. the dynamic is. the interest rates are actually controlled by the market. and I think what we’re all here to argue today is that it’s time to stop allowing the monetary system to limit our range of policy options. or you can cash them in for the reserve currency. what most countries would do would be just to float the currency and say. Thank you. It is causing unnecessary human suffering and it’s time for us to begin to recognize the advantages of a Modern Monetary System. you know you start everything off with “So. Emphatically no. What they did in Russia. at that point in time. if you get paid in rubles. couldn’t borrow any. and so with fixed exchange rates. When you have a fixed exchange rate. [00:29:35] Warren Mosler: So… If any of you have been to the Fed. As the economy recovers. there are no more dollars for now and the ruble’s floating and just keep the money— the central bank operational. There is no revenue constraint for governments that control the money that sits at the top of the hierarchy. So with a fixed exchange rate the treasury competes with the option to convert.

and democracy reflects the will of the people. People don’t like it. three to one. [00:32:25] Unidentified: I was asking about Argentina… Warren Mosler: Argentina. and one night in a deflationary mess that followed with after thirty-two dead in the street one night Buenos Aires they reopened with the floating exchange rate. They could have kept it going if they wanted to. [00:33:24] Stephanie Kelton: Yeah. serve as on-time and in-full obligations that come due. where you could turn in and get— and they were guaranteed you could get enough pesos where you could convert those instantaneously into 40 billion dollars. Not because it’s not good for employment and output.S. when it blew up they just turned the lights off and went home. you can’t print money. Article 104. the difference was. they were at an index to U. [00:35:01] Bill Mitchell: If you read their book carefully — have you read their book? Bill Mitchell: If you read their book carefully. and they just shut everything down. So the U. and sure enough. the central bankers. Okay. Okay. okay. didn’t open for up four months later. which is the story I’ve heard also. if you look at Italy back in the eighties. they had one of the best economies in the world with debt-to-GDP ratios well over 100 percent and inflation rates in double digits. Now in Mexico they had the same kind of blowup and they just — what was it. and they wound up dishonoring their promises. When they did open up. three and a half to one. you know. or they were afraid for their lives.S. So the problem with inflation is not that there’s any real economic problem. and in actual fact it’s highly limited research and applies to a very small number of circumstances that we don’t find in very many countries. this is the definitive piece of research. There was a little bit of restructuring. Well. and you will get thrown out of office if you allow inflation. the ruble balances were still there. the circumstances surrounding the default. so the whole thing collapsed. they just turned out the lights and went home. *period*. and the reason they defaulted was because they said they weren’t going to pay back debts to their enemies. Okay? If you’re borrowing in a currency that you do not control.[00:33:06] [male] Just one corollary follow up question. like Greece cannot create the Euro. I think the lesson to be drawn from the arguments that I made are that the debtto-GDP ratio is largely irrelevant so long as the debts have been written in a currency that you have a monopoly over the issue of. and that was Japan. you cannot create. And so. when they ran out of dollars. it’s just considered immoral. See. truly sovereign government in modern history that has defaulted. but as long as the borrowing is done in yen. they just— and so the peso went to nine to the dollar or somewhere around there. they let the peso float. It is prohibited by the master criteria. It’s the government robbing us of our savings. on time and in full. it was a political decision. they were supposed to honor these tesobono obligations. you’ll see — and you go through each case and trace the currency systems being run. And they kept business as usual with the— as a floating exchange rate. any payment that comes due in U. What they did in Russia. and just left. 90% debt-to-GDP means. shut off the computers. And it has to be respected. they didn’t know what buttons to push at the central bank. where you were able to turn these in. and it had nothing at all to do with the question of solvency. and it was during the war. And so it was a fixed-exchange-rate collapse. it’s not a sovereign currency.[00:34:16] Warren Mosler: Let me just add to that. and they let the currency float. they ran out of dollars. or something like that? Was it three? Three to one back in about ’95. and hidden taxes and all these types of things. So they can’t always. [00:34:15] Stephanie Kelton: Keep in mind also that Japan’s debt-to-GDP ratio is roughly 200 percent. you’ll only find one example of a sovereign. it’s a political problem. necessarily. Yeah. [00:36:14] MMT Conference Page 71 . it’s not a problem. they went in through the hard drives. I think the book is being used very frequently now by commentators as. but that’s what happened. rolling some into Brady Bonds.S.S. dollars. there was no amount of pesos that could be converted into 40 billion dollars. and they were — they basically honored them.just keep the money— the central bank operational. dollar. so I don’t know if that answers your question or not. dollars. Government can always meet. Can you explain how this relates to the Rogoff Reinhart book? That is the debt in foreign currency versus in on your own currency and what these magic numbers. or blowup. Argentina was fixed one-to-one to the U. Russia. Same type of thing: Interest rates went up because of the option to convert. but nothing particularly serious on the interest-rate side.

So the states with the— whole corporations would trade arrears with each other. and so you get back to Stephanie’s point. you didn’t use before. I believe. and the reason was because the states taxed the population in these LECOPs and they negotiated that you could pay your utility bills in patacones. and I think we have to make clear to people that. is we tend to conflate the descriptive with the normative. the provinces were bankrupt. there’s always the ability to pay. . though. The question that rarely gets asked is. We’ve all heard. [Laughter] Marshall Auerback: I’ll be doing a full presentation Stephanie Kelton: That is the topic of Marshall’s presentation. I want to thank Stephanie very much for her very clear presentation. And even Russia was like that. most of us have heard now that we went off the gold standard under Nixon in 1971. after the central bank shut down. separating the difference between ability to pay and willingness to pay. They issued [patacornes?? lecops?? foreign terms]. [00:38:15] John Lutz: From the great state of New Jersey. granted. there may not be the willingness to pay. which is I thought a fantastic word for what things are. Nixon closed the gold window in ’71. and that happens to be one of them. One of the things that MMT Conference Page 72 . and that we don’t do well enough at times. they traded what they called arrears. you go to Argentina and you see every store says “Aceptavos patacones. There is no operational reason for it. so that the laws that were enacted in Congress are predicated on the old gold standard thinking. [00:37:45] Warren Mosler: In Russia. but in Argentina they could. [00:38:52] Roger Erickson: Another question about getting back to treasury bonds. and. Very different things. Well. When you’re talking about countries. . you know. And I think one of the things we have to do at times. “Why does anybody bother selling Treasury bonds anymore. I think the blog from a couple of days ago. Bretton Woods was completely eliminated in ’73. And so. Warren Mosler: What happens is that when new countries start. everybody believes you but you see that lurking look in their eyes and they say. so then they become real countries like everybody else. “Is there any country in the world that doesn’t bother doing that to any extent?” [00:39:21] Marshall Auerback: It’s the law. Once they floated. the varieties of local currencies. although everybody was up in arms and saying. Marshall.Warren Mosler: Look. but I hope Marshall can. Well. For years they were just central bank credits. Why do you trust the currency you didn’t have before. they are now downgrading on willingness to pay. then they start using treasury securities. I have seen that happen many times. That’s the short answer. or infamous. what they did is they actually issued their own IOUs. but then when they become real countries. [00:36:44] Pavlina Tcherneva: Just to add on to the Argentina story. and I think Bill’s been very good at this. what happened to Germany after World War I or the latest case. as it currently may stand. You can’t be using this system. Will you be staying for the full day? . so they had it right to begin with and then moved on to be like everybody else. can you elaborate on why? Marshall Auerback: Yeah.[00:39:44] Roger Erickson: But that doesn’t answer the question. When the state was bankrupt. that there are certain theoretical aspects which are impeded from happening in an operational sense because of these silly legal constraints. especially recently. Now. they just have what they call central bank credits.” It is very effective to launch this currency. at least very many of them. Okay. it didn’t last very long.” and a follow-up is. our states are prohibited from doing that. they had no need for them anymore. there’s no trust that was built in the system. the vast majority of people are not using. and the last time on that last goaround I sent you a copy of that. I’ve had very strong conversations with David Leibowitz of Standard & Poor’s about this. but they have stopped downgrading on ability to pay. then. I was going— Okay. so that by law you have to issue debt dollar for dollar to “fund” the spending. you know. So what we’re saying is. Zimbabwe? Could you explain that in clear terms? [00:38:36] Stephanie Kelton: No. but we didn’t sever the legal connections to that system at the time. it’s a legacy of — As you say. So it’s simply a legal legacy. Argentina actually is a very good case study of how you launch a currency. which is what happened with Japan. I did want to ask you a specific question. it’s instructive for another reason.

which is the antithesis to what I call fiscal sustainability. [00:41:12] L. And if there was a shortfall. they talk about the reason they’re issuing debt and structuring it in this auction system. Now we’re in the same situation. the government papers. so Canada no longer had any operational reason to sell treasuries. there was a constant public debate among the sort of characters that I hang out with.[00:41:57] Warren Mosler: From a function point of view. more 30 years. they’d decide on what yields they were going to offer. No. and they soon solved that anyway by creating a support rate. And the traditional system under the convertible currency was what was called a tap system of issuing date. [00:42:30] Roger Erickson: So I know Bill’s going to comment. and then they would announce the tap was turned on. [00:42:10] Warren Mosler: But if you want thirty-year rates to be higher. and let’s say they’d say 4 percent or whatever it was. Randall Wray: Yes. what they’re trying to do. don’t you guys want mortgage rates to be lower. Now I don’t think anybody thinks there is. they know damn well. if that was the public purpose. As to whether there’s any country that doesn’t. why are you doing that. although they may not understand this and they’re still selling treasuries and there could be a legacy of law also. After convertibility collapsed. [00:42:07] Roger Erickson: But you’ve pointed out many times that that only requires very-short-term bonds. my understanding is. so Canada had done this ten years before. we’re all caught up in the same ideological tangle. the end. and if you read all of their papers. the last unit of debt sold would be the highest yield that was being prepared to be paid by the private investor. now we’re paying interest on reserves. many people have blamed this area. And there was a really grand debate and what happened in the early ’70s they decided that the tap system was dangerous and they realized that — they decided to change the system. One of the things that we’ve talked about is that just let the Treasury run an overdraft facility with the Fed as opposed to issuing bonds. which in the United States until a year ago didn’t pay interest. Okay. A few months ago I was at. this is the interest-earning alternative to holding reserves. Well. and they turned to an auction system that was purely available to the private sector. and if people took up— if the private investors took up. and that happens to be one of them. I mean MMT Conference Page 73 . so they minimized the use of that. That would be the only reason you would sell ten-year securities would be some public purpose behind having higher ten-year rates. the worse it gets. it’s like why are you doing that?. and that is to pay interest on bank reserves. as a final comment and I’ll be quiet. and clearly that’s not what they want. one of the guys in debt management at Treasury and they’re extending the maturity of the treasury. it’s voluntary. because I know it very well. [00:46:44] Roger Erickson: Well then. we’re worried about downgrades. more 10 years. the ratings agencies have come in and told us if we don’t extend the debt we risk being downgraded.sense because of these silly legal constraints. so the deeper you look. if you want mortgage rates to be higher. but they won’t because they want to maintain what they call fiscal sustainability. but we still have the law. was to maintain fiscal discipline. they separated the debt issuance from treasury into a separate unit. I’m talking about mid-’70s onwards. but there’s no real reason for that other than the legal legacy. so what we needed to do was to put in place the alternative that doesn’t require selling treasury bonds. Could you also just slip in is there any country in the world that’s just forgone selling treasury bonds? [00:42:38] Bill Mitchell: The example that I’m going to tell you about is Australia. then they would. They knew damn well that the central bank could buy it all. One other thing. it was soon after that that we started to worry about budget deficits and the monetarist surge occurred. I talk to them regularly. they know the central bank could control the whole yield curve if they wanted to. wanted to hold the paper at that yield. the central banker would buy — strike forward. And you read the literature on this. Obviously. and what the government would do in that system would be. you could go sell ten-year securities to drive up rates. I know the reserve bankers very well. And the auction system then allowed the private sector to determine the yield of the issue. other than small amounts infrequently for operational reasons. why. they’re doing it for other reasons. about the dangers of the tap system and the dangers of allowing there to be any shortfall at all that the central bank might take up. But they won’t. as a professional economist. they minimized the need for that. But they’re all caught up. [00:46:19] Warren Mosler: Even worse. and so we don’t need to sell the treasuries anymore for operational purposes. the reason to sell term securities would be to raise the interest rates for the term structure. He says. they’d buy it. and they prohibited the central bank from buying any of the issue.

they won’t be able to competitively devalue against us. of a monetary union would ultimately lead to a political union.. good-as-gold. Do they actually understand the way things work? And so the possibility is. [00:47:14] Bill Mitchell: No. because the rhetoric is that the private sector is market-disciplined and the public sector isn’t. so-called freedom. So there is an awareness. I wanted to ask the panelists if this currency. and Roger all have raised a similar point. Well. I mean. so there was a political impetus from him. and the like. they do. is it a scheme or is it just the lack of information? [00:50:20] Marshall Auerback: No. We don’t trust the populace. because they thought. as a final comment and I’ll be quiet. [00:49:04] Teresa Sobenko: I’m not an economist. Lynn. it’s democracy. I don’t know what’s going to come of that. which I guess come out weekly or monthly. or was it something on purpose again that is being created right now? Where to look for the remedy for this. many people have blamed this area. and so it will help to sustain our competitiveness. because they wanted to — the whole paradigm and the whole ideology was to create freedom. the individual nation-states within the Eurozone. you know. In fact. Siemens. why did they create these problems by allowing countries like Italy and Portugal to come in in the first place? And that’s a much longer story. And I think that — But they also realize that politically the nations. industrial Germany. because I think Edward. etc. because ultimately that is what’s going to constrain the politicians. It’s entirely consistent. I’m an investigative journalist. But what I learned today. Randy has written about this since the mid-1990s. the Germany of BMW. on the mania for deregulating everything — Thatcher and Reagan and people like them — but. But there’s no monetary use for it. you can only trust the private sector. based on everything we’ve heard today. the question often then arises. we can lock them in at these exchange rates. which is inexplicable. He was just mentioning a few things. [00:47:41] L. and what is it there for? [00:48:40] Warren Mosler: Because they had it there before and they don’t want to sell it. because there’s no state connected to that.. [00:48:24] Unidentified: This may be a digression. Why is their goal — They do have treasuries they list as assets or liabilities — why do they have gold on the Fed balance sheet. but I listened to the president of the European parliament yesterday. it seems that everything else was deregulated at the same time we were hyper-regulating our monetary systems. it’s not inexplicable at all. And. MMT Conference Page 74 . who’s one of the hard-liners on — he’s one of the practitioners on strong money. ’cause you can’t trust the public sector. Randall Wray: Can I just add one thing. which the president is fighting. so has Jan Kregel and other colleagues of Randy’s. You know. is a problem right now. there is an awareness of the problems. Wasn’t there enough knowledge that they did that. But actually it is we don’t trust the voters. I mean the last thirty years in the deregulation of financial markets. they’ve been recognized right from the start. but I stumbled on to looking at the Fed balance sheets. and there’s some talk they’ve been using their— they haven’t been transparent about what they’ve been doing on the lending side. because that’s the way it is. It’s like the national forests or any other asset. no less than Otmar Issing from Germany. Bill’s written about it as well. I’ve written about it since early 2000. You know they do lend it also. you know. you’ve got the Germany represented by people like Helmut Kohl who believe that you want to bind Germany within a broader Europe within these European structures and to make it as wide as possible. Wow. but basically you’ve got three Germanies: You’ve got the Germany of the Bundesbank. and so we create these myths or frauds because this is how we’ll constrain the government because otherwise the politicians will run away and start growing the size of government. Yes. he readily conceded that a European monetary union in the absence of a political union longer term is not viable.Roger Erickson: Well then. the Euro. that’s why many things are probably pretty new to me. were not able to create this new entity called the United States of Europe. that is what it really is all about. and they rather like the idea of keeping countries like Italy and Spain in there as well. you know. and then you have Germany number three. because they are right now talking about introducing a common language. So there have been these institutional constraints. And the hope was that the use of a common. we don’t trust democracy. but there was a political restriction that I think kept it going. for the private sector and hamper the government sector from having any freedom. why didn’t they just keep it as a narrow bloc. etc.

which is that. where they have a corridor which does that. in many respects. that would be sufficient to target interest rates. that you need the treasuries in order to keep the interest rate at a certain level. but again. states. Something that we probably should talk about. so it fits that part of the story. who knows. politically they never got there. Greece can go down. from an operational perspective. hold it a second. all the Fed has to do is set the overnight rate in terms of a bid and an offer. Although ultimately you would still have the same problems but it’s deferred the moment of reckoning. which is what they do in Canada and Australia. I think Belgium had one of the worst debt-to-GDP ratios. it was over a hundred percent. that’s a self-imposed constraint. My question about this is that if you prefer using monetary policy over fiscal policy as a driver of government action. the Euro might go up. from that point of view. But from an operational point of view. it sounds like there’s nothing backing up the Euro according to our scheme. and it actually doesn’t matter. and they sold it to the public as rail bridges started to crumble.So there were a lot of unique political circumstances that drove this. they wouldn’t do that. and likewise with Spain and Portugal. [00:54:43] Teresa Sobenko: Thank you. Now. that would never fly. it doesn’t matter whether the governments default on their debts. and the Netherlands. which is essentially part of. then the Italians were going to put up their hands and say. people ask. you don’t need treasuries for that. and because they were now obviously retiring debt as it became due. see. the Euro is still a tax-driven currency. if they’re going to be let in then we should be let in. [00:54:44] Warren Mosler: Let me bypass the question this way: If the Fed wanted a 2 percent Fed funds target. It could say I’m two bid two offered. Although if you ask the Germans. where the Fed has to use a repo market where they’re doing overnight loans back and forth where they’re required to use treasury securities as collateral. Luxembourg. In ’90–’96 we elected in Australia a conservative government — Warren will know this story I’m about to tell I think — and for the next ten out of eleven years they ran surpluses increasing. Okay. I’m just saying. Randall Wray: I’m glad you asked that question because I actually jotted down a little note.S. it’s sort of a bizarre situation. Well. and there was also the problem that you had a country like Belgium. you’ve got the Benelux countries— Belgium. they sold it to the public as getting the debt monkey off their backs. So sometimes I’ll get the question. Belgium didn’t. [00:57:08] Bill Mitchell: Just two points on that. you have to pay your taxes in Euros. but you couldn’t really well have a Eurozone where you allowed the Netherlands and Luxembourg to come in but you didn’t allow Belgium to come in. Well. that’s been the main issue. we’ll add it up at the end. Because my understanding is that treasuries are used in order to target a Fed funds rate. it’s a tax-driven currency. and you’re right. Warren Mosler: Right. you know. the Euro can remain strong. they would have preferred a much narrower core Eurozone and it would have been much probably much more workable. People will be glad Greece has defaulted and is now kicked out of the union so the Euro could be a very strong currency even while all of the member nations deteriorate and collapse. and. do whatever you want all day. public education started to crumble. The problem is that we don’t have the fiscal authority to issue that currency. The Netherlands and Luxembourg fulfilled the original Maastricht criteria. Edward Harrison: Here’s my question. we have individual nation-states. based on the way we’ve got our institutional structure. it’s tax-driven. [00:53:31] L. and so you saw them overcome this self-imposed constraint through a variety of things. so these are much more like U. they’d never be able to get away with that. it could just trade Fed funds. and what we saw after the middle of ’08 was they started expanding that collateral base because using treasury securities was ineffective. It’s about the operational necessity for having treasury bonds. and once Belgium was allowed it. hospital waiting lists started to increase. From a political perspective. So. banks. and by 2001 the bond MMT Conference Page 75 . always missing the point that all they really had to do was trade in Fed funds. don’t you need a constant flow of treasury securities in order to keep on the run securities constantly coming in order to keep a liquid market in that vehicle. then you’re correct in that sense. I think. [00:56:02] Edward Harrison: But that’s a political nonstarter. hand over heart. and why is it so strong then? Well. So it became politically unsustainable to pick and choose.

despite the fact that the top end of town were the ones that were leading the myths about the onerous debt burdens the deficits they used to run were causing. the affordability.selise]. as Randall was saying. and it ultimately comes down to saying. they caved into the pressure and announced that they would continue to issue debt at an agreed amount. they might vote no . Jeff Baum: I’m actually an investment manager. I kind of get the general idea of what you’re saying here. and what are the distributional consequences of that?[01:02:20] L. you want the government to spend on this. and if you do. So I guess my question is: Do you have any kind of summary about how this turns into a political question. There’s obviously some sort of distributional question. but I haven’t heard too much about what that consequence can lead to. and you’ll see all of the documents and all of the special pleading from the top end of town on why the government had to issue debt even though they were running surpluses. and they’re starting to pressure the Basel process to allow commercial paper to count as high-quality assets in the capital-adequacy calculations. You set your own. and let the population vote on it. One is that if we get the debate along the lines that you’ve suggested. [01:03:19] Marshall Auerback: Two points I’ll make. despite two facts. but I think that what the public needs to understand is if you’re saying you want the government to do this. But you got to realize that means less resources here. the Commonwealth government inquiry into the optimal level of debt when you’re running a surplus. and by 2001 the bond markets were so thin that there was a huge outcry. and they agreed. then we’ve effectively won the argument. can create currency. or. There’s an inflation consequence because of this. and this led to the government having an official inquiry —remember that Warren? — they had an official inquiry onto what the size of the bond market should be. so I come from a bit of an operational side. and because they were now obviously retiring debt as it became due. the banks are starting now to suggest that the deficits aren’t going to be high enough to produce enough debt for them to satisfy their requirements. I think that’s very ironic. I don’t know if you guys do that or if that’s for the politicians. okay. “Look. you are making a political argument. December 2002. therefore they can spend as much as they need to — I get that. basically as a guaranteed annuity in which they could price their risk off. it came from the Sydney futures exchange at the beginning. they caved into the pressure particularly from the Sydney futures exchange. and it’s all very new to me.their backs. One is that at the same time the recipients of the corporate welfare were leading the charge to deregulate the welfare state for the workers and deregulate the wage system and get rid of social security. that means we’re going to devote real resources to this. I haven’t heard that addressed. Now who did the outcry come from? Well. Warren? [00:59:01] Warren Mosler: We put a paper— Bill Mitchell: Yes. The second brief story is it’s very interesting now with Basel 3 about to emerge which will change some of the rules relating to the quality of assets having to be held by banks under the capital adequacy regulations. Do we want to devote an ever-rising share of our nation’s output to be put to taking care of aged people? Put it that way. the Fed. They might vote yes. I don’t know if you guys heard. even though they were running surpluses. and all of the other traders that were using the government debt as what I call corporate welfare. I respect that. so to get it out of the deficit hysteria. but that’s okay. I thought that was a really… Do you remember that. in my mind. I’ve had exchanges with people and I’ve written on blogs and often get these debates. . but it sounds like basically you’re saying that the government. then democracy wins and we do it. they continued to issue debt. because we’ve always said ultimately it’s a political argument. and so on. they came up with an agreed amount of millions per quarter. [00:59:12] Bill Mitchell: You can download it off my research center. and I guess that’s the political question. [laughter][01:00:45] Warren Mosler: Plus the idea that you need international bank standards makes no sense. But then it just changes the question from: “But we can’t afford this” to “What are we going to spend it on?” and maybe there is a big question there. this MMT Conference Page 76 . Randall Wray: I’m sure several people will comment. . that once the voters figure that out it turns into a big political fight. okay? That’s democracy. off CofFEE’s website [here . that was the official. and secondly. there’s some quote somewhere that says democracy can only last until the voters realize they can vote to the purse strings of the treasury. You and I might happen to disagree on the best ways that the government can use the money here. Warren Mosler: Yeah. that was a good paper if anybody wants to see it. it’s a real issue. go back to about 2002. and they were blithely running surpluses all the time. Do you really want the government to devote our nation’s capacity to supply you with this. so I’m trying to get my head around it. You know.

but that’s the logic of their position. [01:05:51] Pasted from <http://www. Oh. becomes a generational argument. so we’d better check with our bankers in China as to whether we can afford it or give them a line item and see if they want to red-line anything. And so the bigger the share of the interest. Or we don’t say. “Well. we’re running a budget surplus and can we afford to go to war?”. it’s applied in a very. one of the things that you hear a lot about now is the growing size of the national debt and the growing interest burden. we just do it. very selective way. as I’m sure you’ve noticed. but let’s at least get past the operational issue. okay? All of the interest payments will be made by the people who are alive at the time the interest payments come due. we’re going to buy this aircraft carrier. but that’s okay. “Well.netrootsmass. relative to the size of the economy. which it absolutely is not. so I think it’s more a reflection on our skewed value system than anything else. and we really need to make that a distributional topic. we don’t sort of say. And so that becomes a discussion that we definitely would want to have. this is a pluralistic society and we can have differences of views. the bigger the command of the goods and services the bondholders can wield against the rest of us. if you follow it through to the conclusion. I respect that. actually. and what we’re talking about is a shift of income from those paying taxes to those receiving payments because they’re bondholders.to disagree on the best ways that the government can use the money here. well. I mean.” And the other point I would make is that even the notion of affordability. But somehow when we get onto a subject like health care or Medicare or Social Security.” Nobody actually ever does that. [01:04:55] Stephanie Kelton: Just one point on the distributional issue. because it goes directly to this argument that we’re passing this on to the next generation and the generation after that. when we declare war.net/fiscal-sustainability-teach-in-and-counter-conference/stephanie-kelton-are-there-spending-constraintson-governments-sovereign-in-their-currency/> MMT Conference Page 77 . it’s like. affordability becomes an issue.

Randall Wray. and Bear Dollars: What Makes a Local Currency Tick?. Buckaroos. April 28. International Consulting Economist and blogger at The Center of the Universe Session 3 — 1st Fiscal Sustainability Teach-In and Counter-Conference George Washington University. by Warren Mosler PowerPoint Presentation in PDF On the Buckaroos: “The Buckaroo Program” and “BerkShares.” both by L.₪₪₪ Warren Mosler ₪₪₪ "The Deficit. the Debt-To-GDP ratio. ________________ TRANSCRIPT (Thanks to the Volunteer Transcription Team): MMT Conference Page 78 . Washington DC. the Debt. the Grandchildren and Government Economic Policy" Warren Mosler. 2010 ________________ Additional Reading and Supplementary Material: 7 Deadly Innocent Frauds.

I’m going to pay one per hour. Anybody want to stay and help? Okay. So you would have to go earn your buckaroos. not a lot of takers. you will work for these things if you want to get out. But you can recreate that… [00:01:08] [. “How do you turn litter into money?” So. [00:01:37] The way you earn buckaroos is that you can do public service. I take my business cards out here. whenever these were started. they were worth… And they were freely exchangeable. well if anybody wants to stay after and help clean up the carpet and tidy up the room. you will buy these. and these are twenty dollars a piece. And they pay one per hour. Stephanie talked about how taxes do it. there’s only one way out of here and there’s a man at the door with a nine millimeter machine gun. at some of the local institutions whether it’s the hospital.] There’s a currency that’s circulating at the University of Missouri Kansas City that we started way back called the buckaroo because we wanted to replicate a currency for the students to understand National Income accounting and how a currency works and that it doesn’t matter if you are a small open economy and what they did is that you need something like twenty buckaroos a semester to be able to get your grades in the economics classes. The man at the door is the tax man and that’s the function of taxes. Or five per hour. [00:02:09] MMT Conference Page 79 . You’d have to have twenty of them to pay your taxes. Back ten or fifteen years ago. No? Any takers? No? Okay.. I’ve now turned litter into money.Warren Mosler: The question is. community service. [00:00:19] All right.. one per hour. if anybody wants to buy any. or whatever. Now things have changed. [00:00:30] Then I add one more thing: Look. the police department or helping out locally. your buckaroo tax. Okay? And you can’t get out of here without five of my cards. Now.

I did the accounting at the Post Keynesian Conference for the buckaroos and it went something like this: The total tax was a thousand buckaroos across the classes. To the penny. the first year. What happened is that the price of student labor in dollars has changed and in euros has changed. you could do work for them. Today they are going for fifteen dollars a piece. [00:04:19] It happened to appreciate because other currencies… it was a small open economy. you just had to somehow get buckaroos to turn in. [00:03:35] And it’s being going on for years this way. Just like you have to pay your taxes here and whatever you do to get your money. They spent eleven hundred but they only collected a thousand. That was their first lesson in National Income accounting: The government’s deficit equals non-government savings of financial assets..taxes.. The other interesting thing is back then when students bought and sold them from each other they were about five dollars a piece. [00:02:09] But you didn’t have to earn them. The School ran a deficit.. It doesn’t predominate. And this particular buckaroo has outperformed the S&P 500 over that period of time by a very wide margin.] MMT Conference Page 80 . [00:02:23] So.] So. Now notice the school’s deficit… [00:03:01] [. You could buy them from other students. they spent 1100 and they only collected 1000. It’s an internally stable currency. It was defined as the value of one hour of student labor and it stayed the value of one hour of student labor the whole time. It was the best investment vehicle out there.. it’s been fixed to the value of one hour of student labor for fifteen years. But it works and it continues to function for what it was originally intended function which was provisioning the community with student labor — to move labor from the private sector to the public sector. they ran a deficit that’s equal to the student’s savings. And of course to teach National Income accounting and how a currency works to the students. Did this currency appreciate? No. Was it meant for that? No. [00:04:44] [. Students came and earned eleven hundred buckaroos. All kinds of currencies are traded there. And they paid a thousand for taxes. your buckaroo tax. [00:03:26] Parents would take some… Was it a problem that more community service was being done than was needed to pay the tax? Of course not. Did that affect their credit rating with the rating agencies or anything? Of course not. Nobody really cared what you did for them. the students would go to work and they would earn these things and at the end of the year.

You guys who are in the markets. We’ve had Japan with a zero interest rate policy for twenty years. How are they supposed to collect more than they spend? They have to spend them first and then collect them.” There is no such thing as a government saving in it’s own currency. when we’re paying for those forty four billion dollars in notes that were just sold — in the old days anyway. [00:05:59] Again. You still all remember the buckaroos I was just talking about? The value went from five dollars a piece to fifteen dollars. And do we see that happening in the real world? Sure.” “balanced trade.” “Federal trust funds and reserves. [00:06:54] MMT Conference Page 81 . [00:06:18] Could they even run a surplus? On day one they couldn’t. [00:05:33] It had a zero interest rate policy — It did not pay interest on these excess hundred buckaroos that were out there. that happens with our government. but we think we are and we think like we are as evidenced by “balanced budgets. collect more than they spend so they’d have them to give out later? There is no such thing as accumulating a reserve in your own currency when it’s a floating exchange rate like that. And if you look closely at the Federal Reserve and how the accounts clear. Was the School collecting them from these students to get the buckaroos to be able to pay them? No. The School has an infinite amount of them. the currency gained in value. if the School needed to anticipate paying buckaroos out the next year or the year after should they start trying to run a surplus. [00:05:14] Think of the University with the buckaroos. It didn’t go down in value. Does that mean the School is infinitely wealthy? No. With the lowest interest rates. It’s been one of the strongest currencies in the world. now we have excess reserves — but two years ago the Fed would have to come in and buy securities the same day that its selling them because it has to do repos to add the money so we can buy them back.What is money? We’re not on the gold standard. Did that cause hyper-inflation? No. you know that on the days when we buy treasury securities. It appreciated.

So they were always at the risk of running out of reserves and going broke and that type of thing.Okay. And the last way was “printing money” and that’s where the term “printing money” comes from. debt financed and money financed which was called “printing money. The P word. Debt financed you’d sell bonds and then you’d spend. and that’s why the rules that Randy was talking about that are left over from the gold standard include the requirement that Treasury borrow money before it spends. you could get gold from the treasury. [00:08:00] MMT Conference Page 82 . Inapplicable with today’s currency arrangements. It has no application to whatsoever with today’s currency arrangements but it’s still used and it still has the same connotations. [00:07:21] The reason they used to debt finance was because if the government spent by printing money and didn’t sell bonds to get that money back — that was a convertible currency.” Tax financed was easy. So any government deficit spending had to be…. you could cash it in. There are three ways to spend with a gold standard: tax financed. You taxed and then you’d spend.

It’s not that hard a word to remember is it? They tell me it gets worse. I happen to be running as part of the Democratic Party. What’s the evidence? Why did the Democrats cut Medicare? Why did the Democrats raise taxes? Why did the Democrats visit China? I’m using Democrats for… I can’t remember the word… emphasis. I’m using Democrats for emphasis. Why did the Democrats form the bipartisan committee to report back on ways to reduce the deficit? Why did the Democrats put Social Security and Medicare on the table? Why are we here? Right? [00:08:44] MMT Conference Page 83 . I just turned sixty last year.We’re still on the gold standard thinking.

[00:09:19] MMT Conference Page 84 . We’ve seen President Obama. It’s not because they are worried about inflation. Secretary of State Clinton. They think the government is spending now limited by how much it can borrow from the likes of China. Treasury Secretary Geithner go over to China to negotiate with our bankers to make sure everything is okay because they believe we are dependent on them to fund everything from Afghanistan to health care. We’ve all heard this many many times. leaving that debt to our children to pay back.Gold standard thinking. They think the government has run out of money. although they are or they might be.

we’ve already gone through this. I wanted to get resources from the private sector to the public sector.How does a non-convertible currency work? Well. I wanted to provision the public sector. [00:10:00] MMT Conference Page 85 . why was I doing that? It’s because I wanted to get the carpet clean. but even with my example. what’s the point of that currency? It’s to provision the public sector. Why does the University of Missouri put this buckaroo tax on. why do they. Does anybody need a repeat on turning litter into money? [00:09:31] In the first instance. with my cards. we’ve already heard that. what is the purpose of a currency? And what — I’ll just not go into the history.

One is through a command economy where you just conquer somebody. that was a popular way to provision the public sector. And that’s how we provision our public sector. and then show you what you have to do to earn the money to pay the tax. [00:10:36] MMT Conference Page 86 .There are a lot of ways that — there are ways this has been done in the past. You used to wake up with a lump on your head and you’d be in the British navy. take the slaves. with a man at the door with a 9 mm to enforce it. and they do the work for you to provision the public sector. We pretend to be more civilized today with our monetary economy. where we impose a tax.

the parents are going to take some home as souvenirs. as we define it. None of you were looking for paid work for my business cards when you came in the room. People looking for work who couldn’t find it. or go ahead and hire them to do what you wanted them to do. who need to get paid in that particular currency. plus any residual savings demand that comes from that tax liability. The whole point of getting the students unemployed with the buckaroos was to get student labor to help out in the hospital. The whole point of taxing to create unemployment is to then use those people in the public sector. Government spending then employs those we just unemployed. until there was a guy at the door who won’t let you out without five cards. You’re going to do a certain amount of work for me based on how many cards you need to pay in taxes. If we’re going to tax. otherwise why am I doing this? I didn’t tax you because I needed my money. and you’ll go away. and then not hire all of them and leave 20 million people looking for paid work who can’t find it. You either cut the tax and the people go away.Unemployment fundamentals: Unemployment is people looking for paid work. work that paid in my business cards. You’re going to lose a few in the wash. [00:13:03] We’ll save the questions for later. [00:13:09] MMT Conference Page 87 . You’re not going to be here beyond what you need to pay the tax and to net save. In the first instance the point of taxes is to create unemployment. which is the reason you started the tax to begin with. If I don’t want all that work I just cut the tax. The first thing that happened by requiring that tax is you all became unemployed. [00:12:39] Unemployment is the evidence that the budget deficit is too small. Taxes create unemployment. and we’re destroying our entire social fabric. The students were not unemployed until the school imposed a tax on them in buckaroos. [00:11:26] We take people out of the private sector. why are we doing this? We should lower the taxes. None of you were looking for paid work. that the government has not spent enough to cover the demand to pay its own tax. They didn’t do it for the currency. Suddenly they needed. we get their time out of the private sector with taxes. and because of our monetary system can’t support themselves. Unemployment can always be eliminated with a fiscal adjustment. they were all now willing and able to work to get buckaroos to be able to pay the tax. The whole point of unemploying you with my cards in the first example was to be able to then employ you to get the carpet cleaned when we left.

Government taxing: they simply mark down numbers in our bank accounts. 13 trillion dollars. and it’s called the deficit. They don’t get anything. [00:13:58] MMT Conference Page 88 . Government spending: how do they do it? Just like Chairman Bernanke said. We can call it whatever we want. The national debt is that difference from the beginning of time. it doesn’t use anything up. It doesn’t come from anywhere. they just mark up the numbers in our bank account. There’s a difference between the two. they don’t pile anything up. [00:13:37] Deficit spending: That means the guy in Treasury has changed more numbers up than the guy at the IRS has changed numbers down.Monetary operations: The federal government neither has nor doesn’t have dollars.

they’re going to say this. I threw the slide up. my conscience is clear. They’re going to say it anyway. but. you forgot about what can happen if you overspend. [laughter] [00:14:19] MMT Conference Page 89 . so I’m doing this. [laughter] There are some reporters in this room.Everybody says. So I just want. I don’t want anybody to say that. you know what you forgot? You forgot about inflation. look.

our reserve balances went up. they give it a fancy name and then when people say. they sound professional.) Reserve accounts are checking accounts at the Federal Reserve Bank. (All right. they don’t just throw it out the window. but all — they’re just checking accounts. well.Now after the government spends. I’m doing the second one first. They call them reserve accounts. but what they normally do is put it in a checking account at the Federal Reserve. [00:14:47] MMT Conference Page 90 . the Federal Reserve Bank. It’s called a reserve account because it’s the Federal Reserve Bank. then it would be in cash. they could.

taxing takes it out. I’ll just leave it at that. that’s called a savings account. or in your savings account.The national debt — okay and there’s another kind of account at this central bank. China. it’s held by you. it’s the same thing. it is a bank statement. They’re savings accounts. at the Federal Reserve Bank. If you put it in and don’t take it out. it’s going to be one of three places. There’s no other choice: the dollar has no other existence. just spends. me. you get it back with interest. You give them money. [00:16:28] MMT Conference Page 91 . It’s going to be cash in circulation. it’s a deficit. it’s our savings. Spending puts the money into the accounts. somebody’s savings account. it’s a thing you can use to make payments to the government for taxes. It says a hundred dollars. [00:15:04] Cash is the exact same information as your checking account but it’s written on a piece of paper. Cash is just a bank statement. called Treasury securities. [00:15:26] Once the government has spent. That’s how much the government has spent and stuck into those accounts. say on day one the government just spends a hundred dollars. or in a checking account. but hasn’t yet taxed and taken out of those accounts. that money appears in one of those three forms. There are thirteen trillion dollars or so in the savings accounts and checking accounts and cash equal to the penny to the cumulative deficit spending. you get to carry it around with you. So if the government spends without taxing. whoever owns Treasury securities. That’s already been covered. that’s called deficit spending. [00:15:36] And all of this equals the world’s net savings of dollar financial assets. other than those three places. so instead of getting your balance on a computer screen or bank statement.

because that’s easy. but you’ll lose track of the rest of what I’m saying. yeah. It appears in Randy’s book Understanding Modern Money. When the Fed buys securities from the private sector their securities go down and their cash reserves go up. over here we’ve got a big concrete building. If you start thinking of an income tax. [00:18:28] The only place that net financial assets can come from is government deficit spending. just to make it graphic. I don’t circulate them back. what if you work. but think of it as a head tax or a property tax. Where does it go? It goes to the tin shed in Canberra — the warehouse over on the right. it’s this tin shed. Now let’s start at the bottom: the government imposes a tax. and they’ll say.A little diagram to explain it here: to see how it works. There is no such thing. Up at the top. no theory. that has to add up to the penny. Goods and services to the government. it works. Trust me. or Treasury securities. Notice I have taxes going out — down into the drain. you have (I’ll do it from here so I have the microphone I guess). that I did a long time ago. This is all accounting. We have to pay this tax or we can’t get out of the room. what if you don’t work. In the middle you have the non-government sectors. just to keep it simple. it does work. And that’s how it’s held: it’s held in one of those three forms: cash. no philosophy. it’s always equal to the deficit. and now we need the money to pay the tax. or we have to stay late and find our arithmetic mistake. When the public wants more cash the reserves [sic] go down and the cash goes up. money to pay the tax. some gets paid in taxes. some gets saved. we’re going to lose our house and our car. The total is always the same. reserves. We ship real goods and services to the government — the government’s doing this because it wants to provision itself — and the government gives us the money we need to pay the tax. MMT Conference Page 92 . just think of a property tax. everybody except the government. In Australia. All that Fed operations do is shuffle around the difference between cash reserves and Treasury securities. that’s all of us. [00:17:19] So the government levies a tax. When I say tax. ask anybody at the CBO.

that money went into the warehouse. reserves. to the penny. Deficit spending adds to our savings. or cash. when you include all the nongovernment sectors. it’s now held as Treasury securities. otherwise known as savings. I think I just said that. and sure enough last year savings went up by exactly that amount. [00:19:05] MMT Conference Page 93 .So last year the government spent a trillion and a half dollars more than it taxed.

you get to choose your interest rate. and you’ve got the hundred dollars back in your checking account. deposits. highest price. They are money. so are you ready? Okay. we’re going to walk through an example that’s going to take intense concentration here. [00:21:06] MMT Conference Page 94 .Now. it’s voluntary. So you just took your hundred dollars out of your checking account. in their mindset. I wish the government would pay off these Treasury securities so I could get my money back. now you have a checking account and a savings account. and nothing is crowded out. and you held it in a the form of a savings account: you had a checking account. it’s just a self-contained thing. It has no effect on any other part of the private sector. So you say yeah. Washington hires a lot of consultants. [00:19:33] First thing they do is they offer for sale — we can start in anywhere. I’m going to buy it. and they pay you a hundred dollars. to pay you your consulting fees. So you go in and you give them some advice. ah. in fact it’s better than money. called a Treasury security. and the government wants to deficit-spend a hundred dollars to hire you as a consultant. it’s just in a savings account instead of a checking account. so I figured this is as good a thing as any of what deficit spending is — what money’s spent on. banking. Because you buy it at auction. Now the government “has the money”. anything. you held it in a warehouse. and the highest bidder gets it — the lowest bidder gets it. You now have the new Treasury security. we’re going to assume you’re the only person in the economy — we’re going to personalize this — and you happen to have a hundred dollars in your checking account. but I’m going to start with them offering a Treasury security — they offer you a hundred dollars worth of Treasury securities. [00:20:04] Have you lost anything? Has the government taken away your money? No. [00:20:20] So now you still have your hundred dollars. It has nothing to do with loans. the highest — lowest yield. and I don’t think anybody else has either. I like that yield on that Treasury security. the government spent more than it taxed. I’ve never heard anyone say. and they put it in your checking account. And if you remember my previous example. I’ll buy it. or you wouldn’t have bought it. and you say okay. it goes into your savings account.

to the penny. The deficit clock could be renamed the savings clock.Government deficits add to savings. This has already been covered — the same thing. MMT Conference Page 95 .

Spending is changing numbers up. taking numbers out of our checking accounts. Taxing is changing numbers down.Fiscal sustainability review: Spending is not constrained by revenues. there’s no solvency risk. we’re talking about there are no nominal constraints. There is no numerical limit to any of this. This is all we’re talking about. [00:21:56] The risk is inflation. it’s a nominal system. The government can always make any payment of dollars it wants to make. Borrowing is moving numbers from our checking account to our savings account. MMT Conference Page 96 . Paying interest is changing the number up in our savings account. putting numbers into our checking accounts. and not insolvency or not-solvency.

which tells the guy at Treasury. because back then. people could cash the money in and take the gold supply. which would be a default situation. There are debt ceilings.There are self-imposed constraints on this process. there are all these silly things left over from the gold standard. There’s a budget process. you can’t spend whatever you want. you can only spend what’s been approved. if they didn’t do it right. [00:22:29] MMT Conference Page 97 . there are no-overdraft rules. when it mattered.

to why we’re here: is Social Security broken? Well. we have to define what broken is: first.So now we can get to the main thing. what is the real problem? MMT Conference Page 98 . what’s the public purpose? What’s the presumed problem.

Public purpose of Social Security: Well why do we do this? To provision seniors at a level that makes us proud to be Americans. [00:22:53] MMT Conference Page 99 .

or some level. Every time we tax and the man at IRS changes down the MMT Conference Page 100 . that is. We have a housing problem. So what happens if we provision them too low. The trust fund is a record of what we’ve done. it’s consumption that we are forgoing for them to consume. You might disagree. and not at some level that’s too low where we’re embarrassed or a level that’s too high so it’s embarrassing. no matter how much money they have. I can understand that. and it doesn’t make us feel good. It’s certainly not the actual money. there’s no reason to limit the intake of our seniors. which I’ll call a minimum. and then spending it. [00:24:03] Collective provision versus individual provision: our seniors are not happy when they have to tap their children for money. which is vacant homes in record numbers. [00:25:02] Is the trust fund a limiting factor? Absolutely not. whether you want to look at it in real terms or in nominal terms. I can understand that. we really need it for the soldiers in Iraq. look. We’re producing 8000 calories per person per day. [laughter] [00:23:46] So the idea is. are they using resources we need? And the answer to those are no. there’s no reason to have them out on the streets. we know that. it doesn’t make them feel good. we’re feeding our seniors and that food. [laughter] If the problem is that they’re living at too high a standard of living. but it is still a shift in provisioning. If the problem is that. And it makes us all feel better to know that — and it gives the seniors a feeling of independence to be getting the money from the government collectively. So what is the presumed problem? Are they living too well. that’s fine. even though they know it’s coming from us — it’s taking. the public purpose is to provision our seniors at some minimum level.What’s the problem with Social Security? Are seniors taking their Social Security money and flying in private jets to the Super Bowl and staying in the box seats? No. I just think it’s a much better way to do things. and so we’re going to lose the war if we don’t starve our seniors. well then they’re eating out of garbage cans and we really don’t like those images on European TV where suddenly they think they’re better than we are — and Australian TV. and it allows — I believe — I like collective provisioning versus individual provisioning. which is what I was just talking about? Are the opportunity costs too high. That’s a political choice. or in Afghanistan. at a minimum that makes us proud to be Americans.

there isn’t any such thing. I don’t even know where that guy is — but whenever he changes down the number on our checking account. [00:26:09] MMT Conference Page 101 . I found my mistake. this went down a hundred and ten. The government never has or doesn’t have “the money”. and that trust fund helps us with the formula a little bit. it’s record-keeping. But it’s not “the money”. Now they have something to balance against. he changes the number up on the Social Security trust fund — why? Because those two balance and then he knows. When somebody changes the numbers up in our checking account to make a Social Security payment they change the number down in the Social Security trust fund. we’ve made a mistake. it’s not a constraining factor. it goes negative.The trust fund is a record of what we’ve done. we’re in balance. okay. this is a hundred. this went up a hundred. those are not dollars. Every time we tax and the man at IRS changes down the number — at FI — wherever the guy is. oh no. Now we also have a formula for paying out benefits. wait a minute. If it goes negative. because we have individual records. a light doesn’t go on and — you know — something breaks open and Bill gets drowned in the flood. “Accounting” means a count. I can go home. it’s a record. hundred and — okay.

manufacturing all the Poligrip for us to keep our teeth in. and. growing all the food. We can build cars now and put them away for fifty years. which has already been discussed — but I’ll just tell it my way for a second — if there is a real problem. because we think it’s a money problem. [00:27:48] MMT Conference Page 102 . but. we’ve got three hundred million people retired and one guy left working. plant and equipment. [laughter] Doing all the laundry. [00:26:51] Mainstream economists also agree that the only real thing that will be useful fifty years from now is knowledge and education. but that doesn’t work. therefore. actually physically. not the money.The real problem. and the mainstream economists agree. our software. we’ve got to make sure everybody’s going to have enough money to pay this guy. put twenty percent of our people out of work. And so. There’s hardly anything that we can build now. that’s not going to matter. ironically. If. is the dependency ratio. that people left us from fifty or a hundred years ago. the very first thing we cut is the only thing that they would agree they’re going to need. they say. and that type of thing. because look at how high the prices for laundry services are going to be when there’s only one guy doing it for three hundred million people. is our technology. that guy’s going to be really busy. we think the problem is these guys are all going to need a lot of money. what do they say. It’s not the hardware. that’s going to be of any value fifty or a hundred years from now. in thirty years. which is education. The one thing that we have. is the real problem. That’s the ratio of workers to retirees. our know-how. we need to cut back and sacrifice today and run surpluses and tax more than we spend. uh uh. However.

Well. They don’t understand actual operations. Why are they doing that? They’re not trying to do that. Why is a Democratic administration supporting a tax that taxes those people at the lowest income levels the most? It’s not even a fair tax. Because they think we’ve run out of money. It’s not even theory. It’s because they don’t understand the monetary system and monetary operations. and not what they intended to do. [00:29:21] MMT Conference Page 103 . maybe another five percent this quarter. it’s not their agenda. who is it? It’s somebody else. it’s completely regressive.More on Social Security: The trust fund is record-keeping. [00:29:00] We’ve seen a Democratic. That’s very high real growth. or because they think there’s something wrong with a progressive distribution to help aggregate demand. at six percent. populist administration preside over the largest upward transfer of real wealth from low-income to high-income people in the history of the world. Well then. They believe we’ve run out of money. It’s not the lower income group. Social Security contributions are regressive taxes that function to reduce take-home pay and aggregate demand. who’s getting all that real wealth? It’s sure not the people who’ve been losing their jobs or seeing real wages fall. Why are they contributing to the unemployment problem? Who is unemployed? We just grew at 5% for a quarter. That is not what they were elected to do. Why are they cutting these? Why did they just cut 500 billion out of Medicare? Not because they think we shouldn’t have it. [00:28:20] Social Security payments are progressive distributions that add to take-home pay and aggregate demand.

you gain efficiencies. not inflation. absolute collapse. a seventy-five percent drop. Right now if you look at core CPI the risk is deflation. let’s look at Mexico in approximately 1995. no faith in everything. pulled out the plug. I forgot about inflation. [00:30:15] If you look at the worst financial collapses in the last twenty years. the currency up in smoke. when you buy everything that’s for sale and use up all the excess capacity. which were entirely different situations. Will you suddenly gap from today’s prices to hyperinflation because somebody spent an extra dollar? Of course not. Everybody turned out the lights. So even in situations far more extreme than anything we can imagine. which we don’t have. I forget the dates. but certainly inflation can be an issue. But you do get supply-side considerations as volume goes up. [00:31:13] MMT Conference Page 104 . which Marshall explained. the peso didn’t go to a million-to-one. It didn’t drop to zero. It’s certainly not the case now. no faith in government. or Germany. [laughter] To get out of a hole. If you look at housing prices I don’t see a lot of inflation risk in that market. there just is no such thing. the excess demand can drive up prices. three and a half to one. and it went to nine. or you can’t fall out of a ditch. or do anything like Zimbabwe. It didn’t hyper-inflate.Oh — [laughter] — sorry. you don’t get sudden jumps in inflation. Yes. Russia totally collapsed. And you can even drive them up a little bit in the meantime. That’s not how it works. first you have to stop digging it. prices per unit volume come down. which were fixed-exchange-rate regimes blowing up. So it’s not clear that you’re going to get all that much. The peso was three-to-one. something like that. They had about a sixty percent drop. as they say. The ruble machine was shut down. The ruble went from 645 to 28. and left the central bank for six months.

Seniors would be living too high. It’s a political choice.What happens if Social Security checks get too high? What happens if we are over paying? How would we know? Well. we’d start seeing the inflation. I’ve got to get to China…. The economy would grow too fast. Prices would start going up. whatever that means. unemployment would get too low from all the spending. Right now it doesn’t make any sense. (I’ve got to race on. whatever that means. then the option to raise taxes or cut benefits might make sense. It only makes sense if you think we’re running out of money because we’re running a deficit. [00:31:53] MMT Conference Page 105 .) Not because the government doesn’t have the money. but because spending no longer makes sense. And then what happens? [00:31:35] Well.

Then our debt management people take over. And what does the Fed do? They move the money from China’s checking account to China’s savings account at the Fed. And now we owe China all that money with all that interest and how are we ever going to pay them back? How are we going to pay back the whole 13 Trillion in savings accounts? Just like we do every week when 10s of Billions come due: we transfer that balance plus interest back to the checking accounts at the Fed. [00:34:04] MMT Conference Page 106 . what is the problem? What are we leaving to our children and grandchildren? They’re just going to need one accountant like we do to debit and credit these accounts. The think that to spend what we don’t tax we have to borrow from the likes of China. And then we transfer the dollars from their account to Deutsche Bank’s account and European Central Bank transfers euros from Deutsche Bank’s account to China’s account. Technically. Our leaders don’t understand the monetary system. There’s nothing to it. They sell things at Walmart and Kmart and in Target and in our department stores. I don’t know. [00:32:11] Let’s talk about China for a minute before I get to the Euro zone. Paid debt paid back. what do we owe them? We owe them a bank statement that shows how much they have in their checking account. They have three choices with what they can do with that checking account: leave it alone. Well. [00:33:26] Well. [00:33:44] So. They don’t know spending is not constrained by revenues. euros from Deutsche Bank or something. what if they spend it? Well then they go buy something. There’s all these other countries that are doing the same thing. How does China get their dollars? They don’t start out with any dollars. It’s all a tragic mistake of epic proportions.Why are Social Security Cutbacks ‘on the table?’ Only one reason. at Treasury. for our grandchildren to pay back. You could run that whole part of the Fed with about $100. And they get paid and their money goes into their checking account at the Fed. We now owe China that money. put it back in the savings account or spend it. The whole thing could be done on one spreadsheet. and they auction off Treasury securities and China buys Treasury securities. that’s part of the national debt.000 out of your budget if you wanted to.

to. There’s nothing to it.) [00:34:42] MMT Conference Page 107 . what happens if China dumps all their dollars and the dollar goes down? Whatever are we going to do?” At the same time. Figure out what you want. you can’t have it both ways. “Well. On the one hand they want us to revalue their currency up. the same people are saying that we need China to revalue their currency. (How am I doing here? I’ve lost track of time. I don’t have time to get into it. Their currency is under valued by 50%. [00:34:04] People say. which means have the dollar go down by 50% and on the other hand they are panicked over what will happen if the dollar goes down by 50%. but it’s not a problem either way. Guys.

MMT Conference Page 108 . ponzi works on the way up. That wouldn’t have happened. [00:35:02] Think about the United States in the last two years if we had all the states. They just change the numbers up like we do. businesses and households. Greece has to have money in its account or its checks will bounce. Instead the slowdown and collapse would have forced up the deficits of the state governments because they would have been making the unemployment payments and they would have been losing the revenues. That is not ponzi. They put themselves in this situation. I’ll just review a bit quickly. And we’ve been pointing it out from day one. Japan — Japan with 200% debt to GDP is not in ponzi — they don’t pay people by getting the money from somebody else. They’ve been in true ponzi. Europe has put themselves in ponzi from day one. The euro nations are revenue dependent like the US States. We had the Federal Reserve Bank. We’ve talked about this. The US government. but we didn’t have the US Treasury to run a deficit. It’s on the way down where it all comes apart. Ponzi is when you have to pay somebody back from getting the funds from the next person. No way. Ponzi is when you have to get it from somebody else. Same with all the other member euro nations. So did Stanford. but we didn’t have the US Treasury. Now. the US.What’s wrong with the euro zone? The UK. all that money went to the states and the people in the states. When the treasury ran a deficit of one and a half trillion last year. Madoff went a long time before he collapsed. That’s what’s happened in Europe. [00:35:38] Could they have sustained that kind of deficit spending without collapsing? California is ready to collapse and their deficit is only something like 5% of GDP or maybe a little less depending on how you measure it. Japan are not the next Greece. Greece is not the issuer of the euro.

[00:37:19] The other thing they did was they left the nations as financially independent like the US States. then it would become a race to the bottom. But then they’ve got their moral hazard issue. they would have no debt problems. Now they’ve got answers. However. Because you enforce it with fines.. Now they’re back to whoever deficit spends the most wins. And that was how do you balance the idea that you don’t want moral hazard risk for all your individual members. They could just have their banking system loan to these… buy all the government debt and not haircut… allow banks to buy all they want. market forces don’t come in right away. [00:36:27] And we’re seeing the dilemma they dealt with at the beginning when they set this thing up. Just to pass a rule that says banks can buy all of them.] MMT Conference Page 109 . So. on the way up they were okay. Whoever deficit spends the most wins. but again. They had the growth and stability pact which said you could only run 3% deficits which at the time we said and they knew was unenforceable. they had two constraints.. It doesn’t make any sense at all. If the central bank would guarantee all their debt. That’s just unenforceable because if you are allowed to run any deficit you want and you get fined. It’s only when things are on the way down. So. As soon as things started turning down with a vengeance like they did this time and suddenly the game’s up and they’ve got some serious problems. It would be an instant recipe for immediate hyper-inflation. That made the market forces enforce it. You have to have some kind of constraints. Whoever inflates the most wins. [00:37:57] [.We’re seeing the back end of this coming apart. you just run a larger deficit and pay the fine.

There is no credit worthy government entity to act counter cyclically… Thank you very much. the rest of Europe can be in a big problem. “Is anybody going to issue any debt to do that?” And eventually you answered me back and said.000 euros in their bank account. I’ll turn it over to questions. They are already having runs on the banks and it gets a lot worse.” Am I right about that? MMT Conference Page 110 . if you have federal pollution control laws you don’t have a race to the bottom. When you describe the moral hazard in the Eurozone. They don’t have credible bank deposit insurance. [laughter and applause] [00:38:37] ________________ Session 3: Q&A [00:39:04] Maurice Sanders [??]: Just a quick question for you. “No. it makes them compete with each other. [00:39:53] Joe Bongiovanni. So yeah. there would be no debt issued. That way I’m not using up my time. Kettle Pond Institute: When you floated your proposal on your blog about the European central bank paying out a trillion dollars.The shoes will have to fall. that consolidation would take care of it. If Greece goes down and people realize they are going to lose their 50. For example. I do have a proposal for the euro zone which I’ll save for question and answer if anybody wants to hear it. Warren. call it the European Parliament. I asked you the question. then you don’t have the race to the bottom. if the deficit spending was done at the new fiscal authority. It shuts the whole payment system down. It’s when you split things up. would your description then be different if there were a political superstructure to encompass all those nations in one political structure? Warren Mosler: Yeah. but if you have state pollution control laws then the state that allows the most pollution gets the most business.

Especially if it’s something that’s really simple to understand. you have no debt. because then you’re really throwing the onus on the other guy: “You’re either a complete idiot. So when the European central bank pays… makes a per capita distribution of a trillion euro [to] the member nations. Unidentified: As a foul-mouthed leftist blogger I can completely accept that. We book it as debt because we have a gold standard tradition that caused us to book it as debt.Warren Mosler: It’s just a payment. It’s just a store of nominal wealth for the other guy. it goes into somebody’s checking account. then? That is to say. when we’re going to deficit spend. they don’t owe it back to the European central bank. you presume innocence. so they don’t automatically call something debt that isn’t debt. is a far superior rhetorical technique.” It’s only when we move the money from the checking account to the savings account that we call it “debt.” it’s John Kenneth Galbraith’s last book. it goes into someone’s checking account. When the Federal Reserve makes a payment. is there a reason to choose the theory of the Tragic Mistake. The European central bank hasn’t started on a gold standard. But if the Federal Reserve makes a payment to anybody. our central bank. It’s not a loan. Speaking to the question of the Tragic Mistake theory. called “The Seven Deadly Innocent Frauds. It used to be called “debt” because we owed the gold that were in reserves. that you’re better off presuming innocence.” I never would have called it “debt” from the beginning. can they also just make the payment without issuing any debt? [00:40:33] Warren Mosler: What I’m saying is. It goes into a reserve account at the Fed. but the answer is that a payment from the European central bank is not booked as debt anywhere. but it’s better to presume innocence than to– how does that go? You know. through your member bank. Once the gold was gone. so they don’t have the problem of creating debt when they spend. Warren Mosler: Presuming innocence is more powerful.” and he said it more eloquently than I did. As part of the argument. it can either pay you money or loan it to you. does that hold true for deficit spending by us. it’s no longer debt. as opposed to a theory that this is a deliberate act of policy that’s meant to cause as many people as possible to suffer and die? How would I choose one theory as opposed to the other? [00:43:01] Warren Mosler: I forget the saying. If it pays it to you. It’s both– they’re all the same thing. Joe Bongiovanni: So. We don’t call that “debt. it’s a payment. Warren Mosler: Right. It’s a little bit of a technical answer. if the federal government pays you money. it’s not added to their debt. We don’t count that as… [00:41:13] Stephanie Kelton: It’s like helping our state governments. Unidentified: As a rhetorical tactic? Warren Mosler: To say the person is… I’m not sure how to… Yeah. We can call that a debt. it’s payment in kind. sure. based on the record of the last thirty years or so? [00:43:44] Warren Mosler: Only as a point of logic. what’s called “debt” at the Federal level I would not call it “debt. “The Economics of Innocent Fraud. you’re making a much stronger statement than imputed guilt. if we– it’s how you define which account that money is in. because the never have booked it as debt.” So. whether it’s a payment to the state of Connecticut or a payment that goes out and buys a box of pencils. as a rhetorical tactic. which is it?” [00:44:31] MMT Conference Page 111 . or you’re subversive. my book up there that I’ve got. [00:43:31] Unidentified: You would have evidence to back this up? Warren Mosler: Which? Unidentified: Why should we presume innocence. but it’s the idea that when you presume innocence. It’s not a debt. If it lends it to you. [00:42:29 ] Unidentified: Question for Warren Mosler: since I’m a foul-mouthed leftist blogger. you have a debt. right. I’m going to frame this as polemically as I can.

guy: “You’re either a complete idiot, or you’re subversive, which is it?” [00:44:31] Bill Mitchell: Someone asked me at lunchtime whether the European leaders knew about options to solve their current issue, and I said to them that if you read the documents, and the debates going back to the Delors papers, and then subsequently, you will be left with the unambiguous impression that they know all the options. Most recently, the German Finance Minister was interviewed and it was in German, I couldn’t find it in English. I was going to try to put it in the English version, but it was in German, but fine. [00:45:19] And what he said in the interview was that when they framed the common currency system, they had a choice. And they had a choice to add elements that would have made the current crisis much less a crisis. And those elements were a system to deal with asymmetric shocks, in other words, a fiscal redistribution system; and also, as Warren said, a single fiscal authority. And he said that that was debated, and if you go back to the original debates you see the debate there. And they chose, as an explicit choice, to exclude those characteristics from the system, the very characteristics that would have made the current crisis significantly less severe. They chose explicitly to exclude them from the system. [00:46:25] And as soon as the common currency came in, Germany then introduced their so-called Hartz reforms. And these were reforms that — because previous to that, they were able to maintain their export competitiveness through exchange rate movements. Once they lost that capacity because of the common currency, they had to work out another way to stay one up on the other countries, and so they brought in the significant deflationary measures in their labor market: casualized significant sections of their labor market, reduced workers’ real wages and conditions, the whole Hartz agenda. And these were all very explicit choices and decisions they made within the context of the institutional system they were setting up. They knew the alternatives. And they knew that once the crisis hit, then the weaker countries — in a trade sense — would melt down, as they are. So, I’m not so sure I agree with Warren in emphasis. I think that they… Warren Mosler: It’s rhetoric, though, just rhetoric. [00:47:32] Bill Mitchell: I understand the rhetoric. I think that I prefer to say that they aren’t innocent. They took an ideological decision. They were scared to death. There’s a cultural animosity within Europe stemming back to the Latin and the Germanic cultures. The second World War’s had an incredible influence on the way they’ve structured the evolution of the European community, and now the EMU, and the ideology surrounding all of that led them … The Germans dominate, they don’t trust the Italians and the Spanish, and particularly the Greeks. And they set up a system that would punish those countries in the event of a crisis, and they deliberately did it, and they know the options. They know all of the options that could reduce the pain, but they don’t want to do it. Warren Mosler: There have been statements out of Greece that they owe us these loans for war reparations. I’ve got my book here that I brought some copies of, which you can download for free at moslereconomics.com, or you can buy for $10. Shameless promotion here. [00:48:41] Bob Hahl, Kilowatt Cards: You said that, and it’s pretty clear, that raising taxes reduces demand for goods and services, but it also seems to reduce other kinds of things like greed, or power, unbalanced power — very rich people have enormous influence. I think back to the situation after World War II when the upper tax rate was 90%, and people always talk about that as if there were a lot of people paying 90% marginal rates, and I don’t think very many, if anyone, ever did. I don’t think anyone made that much money. What happened was, faced with a choice, if you’re an employer, of taking money out of your company and giving 90% of it to the government, or distributing some of it to the workers instead, and getting something for it, that that was a better choice. And so I can understand the idea of lowering taxes, but at the same time you’re also unbalancing society, and you’re letting people accumulate so much money and we don’t know what kind of crazy thing they’re going to do with it. How do you control that? We don’t let people keep bazookas and land mines to protect themselves, but we’re letting people get rich enough to compete with countries. [00:50:03] Warren Mosler: Second amendment. No, those are all very legitimate political decisions. Those are political decisions. Those are the consequences of policy, but it doesn’t mean the government’s going to run out of money. Unidentified: How does that jive with the notion that tax rates should be used to regulate aggregate

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Unidentified: How does that jive with the notion that tax rates should be used to regulate aggregate demand? Warren Mosler: We didn’t say tax rates– Unidentified: Ok, taxes. The tax code has been used to redistribute income, and in my opinion, right now it has been hijacked to favor upper-income households. Now we have huge income inequality in this country, so again, how does that jive with this notion of regulating aggregate demand? [00:51:02] Warren Mosler: There’s a bigger problem with that, because what also tends to happen is people wind up with the same after-tax money, so when you raise tax rates, and let’s say wages stay the same, tax rates go up, and government stays the same size, that means the higher incomes go high enough to adjust for the taxes. So after the Clinton years, you see, “Oh gee, look, we collected an extra trillion in taxes because of the higher rates.” Yeah, but those people earned an extra $5 trillion in income. So, it’s a moving target as well. There’s a lot of intuition, I guess we called it, and illusion as to what’s going on, when you dig down into it. Everything government does has distributive consequences, and those should be the first and foremost political decisions, not whether we’ve run out of money or not, or whether we’re going to borrow from China. [00:51:52] What these myths have done is taken our eye off the ball of what I would consider are the important decisions. I did a paper with Randy and James Galbraith, we gave it to the GAO and FASB on sustainability, and we said, “Look, the problem is 100% of your time, money and effort is going into figuring out government solvency, and none of it’s going into the inflation problem. So what you’ve got is 100% of your resources going into the thing that doesn’t exist, and nothing going into the thing that could actually be a problem.” And that’s indicative of what’s going on at all levels of government, because they don’t understand the monetary system. [00:52:31] Unidentified: But this is more than hypothetical, more than just political, we are talking economic. Income inequality is an economic issue that is challenging… In my opinion, it’s one of the biggest challenges to our democracy. Warren Mosler: Right. But what I’m saying is it’s not getting the attention it deserves because they’re worried things that shouldn’t be getting any attention. We’re not going to get attention to those issues until we get rid of the things that are taking all of our attention, like China, and the budget deficit. If we stop thinking about those, we’d have time in Congress to talk about something else. [00:53:02] L. Randall Wray: I want to add a couple of things. So, we’re arguing taxes drive money, taxes don’t pay for government spending. So that’s the fundamental point. And then the question is, “What kind of taxes?” And Warren said the head tax is actually the best thing to drive currency from inception. But once we– Warren Mosler: I said it’s the easiest thing to understand. L. Randall Wray: It’s also the best thing to drive it. But once we’ve got a monetary economy, then we can use an income tax, we can have an inheritance tax, and so on. So then the question is, “What other things can taxes do?” And so yes, we use taxes to punish certain kinds of behavior, “bads.” And then we can use tax breaks to encourage other kinds of behavior. We could use inheritance taxes to try to prevent accumulation of dynasties of wealth. We could try to use taxes to address income inequality. One word that you said that I don’t like is “redistribution” because we can always raise the income of people at the bottom, without taking from income at the top. The reason is because we don’t really take income and give it, because taxes don’t pay for the government spending. We can always have as much welfare as we want without taxing the rich at all. [00:54:19] Then just the final point I would make, I’ll just state it as a claim, and I think that you said this: in fact, taxes never reduced income at the top. It does not work. They have too much political power. They get the exceptions written into the tax laws. So you never achieve the 50% tax rates on the rich. So we should think about a different way to prevent income inequality, I don’t think the tax system will work. Prevent the income in the first place, that’s the best way to do it. [00:54:53] Unidentified: I would like to thank you for this explanation about the European Union, and I have a question. Many things are a matter of politics, and I had… the journalists got a very clear understanding of

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question. Many things are a matter of politics, and I had… the journalists got a very clear understanding of that yesterday, when there were questions about Greece and how to solve that. There was a clear separation that the President is not going into financial issues, there are so many other things that are coming up, and that are to be discussed with the American Congress, that he said it was not his venue, and my thinking is that at the time the decision was taken that some things were excluded. It was some time ago. The people who are right now deciding about things may have not heard about that, like they were busy doing other things in Europe, like there was Solidarity in power and then the President was then part of the movement. So my thinking is if there is a part of information, and knowledge that can change things, what I see here, there are actually people who could be in power to introduce some new things, new solutions, but they are not available. And because there is so much going on… [00:56:15] What I’m trying to say is that there should be a stronger voice of these statements that I hear here, just like out there. That may be the case, there are people who could make use of that, and it’s just not available. And I’m used to that as a journalist, because it’s our job to connect certain niches of the society. It might be even the case, right now it may not exist that much, but there was this opposition, this situation between Poland, Germany and Russia. So, there was this German influence at the beginning of the forming of the European Union. It may changed right now, and it may be time to try a little… I’m not trying to tell you what to do, but I’m trying to say what you represent may be really appreciated at the very high levels, only you know there is a way how to get it out there. There may some kind of lack of information. [00:57:22] Marshall Auerback: I’ll just say, well, you’re a journalist, you can write a story about this. That’s the short answer. The second point, in regard to the American context, is that there have been voices out there. In fact, I would say that virtually everyone on this panel has been amongst those voices. I’ve been reading Bill’s stuff many years, I’ve been reading Randy’s stuff, been aware of the stuff from the Levy Institute for at least the last twelve years, and they have been voices in the wilderness, they have been marginalized. The people that are Obama’s main economic advisors right now are the architects of the crisis in the 1990s — Larry Summers, the Bob Rubin-ites — they’re all in power. The argument at the time was, “This is a financial crisis, and we need experts who are familiar with the markets to deal with this.” And my response has always been, “Well, look, if I go to a doctor, and he botches up my surgery by amputating the wrong arm, I’m not going to go back to him just because he has greater familiarity with my body.” But that seems to be the general consensus, the way things operate.[00:58:33] In regard to the question on Europe, some of us have been writing about this. I’ve been writing a lot about this. Bill’s written a lot about this. Rob Parenteau has written a lot about this. And we’ve been going to London, and to many places in Europe over the last several months. I’ve been talking about the epicenter of financial instability gravitating from the US towards the European Union because of this euro problem that Warren described so well. And for a while, people couldn’t understand why I had this obsession with this stupid argument, but to me it’s very interesting, because even though we’d like to think about Europe as somewhat a more social democratic paradise than the US is, in fact, it’s neoliberalsim’s last stand. I think the most extreme ideological tenets of neoliberalism are now embodied in the Maastricht Treaty, the stability pact, and if this thing blows up, as I think it might be, this will be the classic over-reach moment, and I think this could be the area where all of sudden people are going to say “Well, some people did actually obviously diagnose this.” I remember Warren last summer saying, “There’s a solvency problem in Germany” and most people saying, “Germany? Are you kidding? That’s absolutely insane.” [00:59:43] But as this thing begins to metastasize a lot more, I think people are going to say, “What is it that caused this problem, and who is it that actually diagnosed rhis correctly?” So I think in that regard, what’s happening in Europe is very, very significant, maybe in some respects even more significant as to what’s hapening in the US. [01:00:07] Roger Erickson: I want to get back to the question that was raised by the person that was behind me, “How do we protect our systems against these kinds of disconnects?” And actually, if you go outside the narrow field of economics, there is very rich literature on this very question. If you look at the field of ecology, systems theory, anthropology, many others, and all the way up to military operations, there are literally thousands of tomes and books and theories, mathematical models, physics models written about this, and what ties them all together is system stability. So eventually, as people are saying, we’ll wake up and we’ll realize that things are going south. The general response about how you protect it is, the simple answer is, that in any complex system, what keeps system stability is eventually interaction, and the knowledge throughput, the data shared throughout the system. [01:01:05]

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” Until we have more crosstalk among these different professions.So the simple mantra that comes out of this is “Interaction drives awareness. our electorate and our elected officials are not going to have a general consensus on it. [01:01:18] Pasted from <http://www.net/fiscal-sustainability-teach-in-and-counter-conference/warren-mosler-the-deficit-the-debt-the-debt-togdp-ratio-the-grandchildren-and-government-economic-policy/> MMT Conference Page 115 .netrootsmass.

Washington DC. The Richebächer Letter. June 2009. 2010 ________________ Additional Reading and Supplementary Material: GIMMEBACK MY BUBBLE by Rob Parenteau.0 and New Economic Perspectives Session 4 — 1st Fiscal Sustainability Teach-In and Counter-Conference George Washington University. International Consulting Economist.₪₪₪ Marshall Auerback ₪₪₪ "Inflation and Hyper-inflation" Marshall Auerback. Zimbabwe for hyperventilators 101 by Bill Mitchell PowerPoint Presentation in PDF ________________ TRANSCRIPT (Thanks to the Volunteer Transcription Team): MMT Conference Page 116 . blogger at New Deal 2. April 28.

com). He wrote a very good piece on Weimar which first started to make a very good historical comparison. [00:01:48] MMT Conference Page 117 . but he wrote a piece on Weimar and he writes ‘The Richebächer Letter’ (www. [00:01:19] So will the US turn into a modern day Weimar Germany? So let’s start. he is often known as the father of functional finance. He was a Keynesian.’ so like Minsky who said he was standing on the shoulders of giants when he talked about Keynes.Marshall Auerback: Okay.richebacher. or technical problems. and as far as Zimbabwe goes Bill Mitchell has done. We’ve written a lot of stuff together and I know he’d want to be here today. I’ve got quotes here from an economist called Abba Lerner. I know some of this is stuff we’ve gone through it before but I’m going to start with a few operational points that been already made. so I’m doing the bit that you’ve all been waiting to ask. to show that we’re not the only ones making it. ‘Zimbabwe for Hyperventilators. I think it’s fair to say that he’s one of the progenitors or forbearers of modern monetary theory. I say the same thing about Rob and Bill and Randy and all the other people on this panel so I’m the hack by comparison. well Bill always does very very good work. because we get it all the time: Will the US turn into a modern day Weimar Germany or Zimbabwe? First of all I want to acknowledge that there’s been some excellent work done on this by one of my colleagues Rob Parenteau. but he did a particularly good piece on Zimbabwe. So I’m indebted to him. hopefully I’m not going to have any video problems here.

“that such and such money will not do. he said. the trick is done. even if backed by the most convincing constitutional evidence of the state’s absolute sovereignty. and it is as Warren gave you an illustration of it before.” as Warren showed you.” [00:02:27] MMT Conference Page 118 . “The modern state can make anything it chooses generally acceptable as money… It is true that a simple declaration.So his comment. But if the state is willing to accept the proposed money in payment of taxes and other obligations to itself.

” etc. we said they serve to regulate aggregate demand. Now I tell people that if I told you tomorrow that this piece of paper could be used as something with which you could pay your taxes I suspect it would be worth a lot more to you than the three cents whatever it is that you use to pay your taxes. its borrowing. “What sort of visual cues do you have?” I often do this at a conference. and this is one is just a piece of paper. which aren’t backed by anything. there’s no gold nugget. “The central ideas of government fiscal policy is spending and its taxing. You can use this basically to pay your taxes and that’s what confers the value. Here’s two pieces of paper. we talked about the purpose of taxes. We’re not particularly interested in some vague notion of a debt to GDP ratio which is considered unsustainable or the general concept of fiscal unsustainability. the other idea that I think was a very important insight by Lerner is that he said that. the effects of policy. its repayments of loans. That’s ultimately what we’re looking at. this one they tell you is worth a dollar and this one is probably worth about three cents. And again. And I often do this with Lynn Paramour and I would say. [00:04:02] When we talk about this being backed by the full faith and credit of the US government what we’re really saying is the US government guarantees that you can use these pictures of dead presidents. [00:03:19] The constraint as we’ve said is inflation. not to raise money so that government can afford to spend.The other point. [00:04:26] MMT Conference Page 119 . it’s not rimmed by platinum or any precious metal. This is one with a picture of a dead president on it. “should be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrines of what is sound or unsound. It’s not fiscal largesse or fiscal profligacy per se. etc.” So we look at the impact of policy. its issuance of new money.

So I’ve heard this so many times.Okay. [00:05:23] And many people at the time. we get comments saying. let’s go into the history lesson. The country’s productive capacity was absolutely shattered. So when we look at Weimar… let’s take a step back. Weimar Germany came into existence after WWI. so let’s get a sense of perspective here. hugely more damaging in many respects than WWII. you look at the Huffington Post blog yesterday you could. [00:05:55] MMT Conference Page 120 . a very damaging war. When we talk about these operational realities that I’ve mentioned earlier invariably. realized that this imposed a tremendously harsh economic consequences on Germany and that the imposition itself was going to be impossible to be repaid. and so did Rob. for example. such as Keynes. ah. and more importantly virtually the entire world was really pissed off with Germany and as a result the war reparations claims that they imposed on the country were extremely punitive. your going to turn this country into a modern day Weimar Germany. And what are we talking about in the US today? We’re talking about 8% of GDP I think it may have peaked at 10% and that’s including TARP. Half GDP. I mean I can tell you 9 times out of 10. that we decided to actually look at the history. Clearly. Well you’re just going to get hyper inflate. As I say here in 1919 it was reported that the German budget deficit was equal to half GDP.

assuming that GDP is what everyone thinks it will be. buy the foreign currency in the form of the financial markets. and over again. and that starts the inflationary process. So I think that is an important consideration to look at and I think more importantly is that the payments were demanded in a foreign currency.By 1921 in Germany. are nothing like they were in Weimar Germany. The US gets to use debt in its own free floating non-convertible currency. They weren’t being demanded in Deutsche Marks. They were being demanded in. So there is a big difference right there. which causes the prices of goods to go over higher. [00:06:37] So the scale of the fiscal responses. [00:07:21] MMT Conference Page 121 . it drives down the value of your own currency. the governments demanded huge gold reparations. One third. As I said earlier the US does not do this. So there’s no external constraint along the same lines as Weimar Germany. You keep doing that over. You can’t exchange the dollar into anything. although large. Weimar Germany then didn’t have the gold so they had to aggressively sell their own currency. I think the latest out of the CBO is about eight and a half per cent of GDP. war reparation payments equaled one third of got spending. I think it’s projected at. much as some people would like that. [00:06:25] Now by contrast as I said in the US you’ve got a fiscal deficit this year.

or any country for that matter. and it’s been allowed to happen. so you have to defer consumption expenditure in other areas to meet the cost to buy these essentials. nominal wage and salary growth can’t keep up with consumer prices. We don’t have that in the US. My point really here is that you had a very. so this creates this automatic feedback mechanism for price inflation to wage hikes and it keeps going on and on and on. but as Warren has already pointed out.Now I’ve also made this point here about German trade union membership. not hyperinflationary. and they had considerably more political power than in the US. let me repeat. in fact I think if we had more unions in this country. of course you can feed the inflation almost automatically. Absent such mechanisms in the US. I am not making the point that unionization is a bad thing. [00:08:56] Now the US as I say here does display some social democratic rhetoric. this administration. very significantly larger union membership in Weimar Germany than you do in the US. has presided over one of the most regressive wealth transfers in history. so ultimately the impact if you don’t do that is deflationary. As I say. It’s amazing to me that it’s happened. and that we shouldn’t have unionization. unions were able to negotiate cost of living adjustments in their wage packages after the mark fell in 1929. [00:08:15] If you build these cost of living adjustments into the wage contracts. and this is the point that Bill Mitchell made earlier. I am not. despite being an ostensibly progressive Democratic administration. You had a social democratic government which was by and large it was very ideologically sympathetic to unions. But that’s the reality and it could have been worse if we’d allowed some of these abominable programs like PPIP to go ahead. but more importantly. that unionization causes inflation. that’s potentially deflationary. which fortunately we didn’t do. your purchasing powers ultimately are going to go down. and stronger unions it would actually be better. If the price of oil and food and everything else starts going up in the US and your wage packages are not indexed to that in any particular way. [00:09:27] MMT Conference Page 122 .

but the mark simply went into freefall. The problem was that the Ruhr was one of the industrial powerhouse regions of Germany. They accumulated foreign exchange by paying with treasury bills and commercial debts denominated in marks. its not to the same degree but obviously its… the positions are reversed. it’s a very different situation from what we have today in the US. the straw that broke the camels back was by May 1921.So what finally broke down Weimar Germany. The Germans attempted to fulfill it.” You are seeing a small parallel to. So they finally said. [00:09:50] So an extremely punitive measure. and then hyperinflation. we can’t pay up anymore. So again. Effectively you take away their… the largest chunk of their manufacturing capacity is eliminated to begin with. and they exported a huge amount from that area. and they employed about a quarter of their workforce in that area. then you occupy a chunk of the country which has a huge portion of what’s left of manufacturing capacity. it was a condition virtually impossible to fulfill. the socalled London Ultimatum.” And you can see why a central bank printing money in that situation. it’s the Germans imposing conditions on the Greeks. won’t be able to call forth goods and services. The Germans were asked to make an annual installment in payments of 2 billion in gold or foreign currency. “You know. or creating currency in that situation. with that today in Greece. is not going to be able to do so. and then you say. “Now pay us the money. in addition to a claim on just over a quarter of the value of German exports. but it is an interesting parallel. [00:11:32] MMT Conference Page 123 . And you do create the conditions for inflation. [00:10:33] So the response to that was that the French and Belgium troops occupied the Ruhr to secure reparation payments. saying “You know you have to pay X” even though the Greeks don’t have the money. so they’re trying to get blood out of a stone. But we don’t clearly have hyperinflation in Greece.

[00:12:15] MMT Conference Page 124 . But by that point. low intensity guerilla warfare.Now the modern day example everyone likes to go with: Zimbabwe. but ultimately became much more serious to the point where ultimately there was an accord brokered by the British government. In 1980 President Mugabe became the new leader of the country in a coalition government. even before the onset of the land reform. that lasted through the sixties and seventies. even before Mugabe took over. Zimbabwe as you well know had a civil war. a large chunk again of the country’s productive capacity had been destroyed. It was a long-lasting civil war.

so that’s clearly a socially unsustainable situation.” because they lived in these absolutely gorgeous palatial mansions. There was some recovery. [00:13:29] MMT Conference Page 125 . as you can see. there wasn’t apartheid as such but you had a very very cushy lifestyle. So what was it that ultimately caused the problems in Zimbabwe? Well you have the legacy of colonialism. and it was positive throughout most of the decade of the 1980’s until a severe drought in the early 1990s which created great damage. So even though we had some problem with productive capacity the economy was growing. they had loads of staff working for them. But again there was a recovery from that. I used to have a girlfriend in Zimbabwe many moons back when I was at university and I remember visiting the country in 1982 and I thought.000 whites basically controlled over 70% of the most productive agriculture in the country. 11% in 1980. And 250. “God life is hell for these white farmers. a nation of six million people. did all right after Mugabe first came in. You had reasonably high growth.Now this just gives you an illustration. Zimbabwe.

I think we talk a lot about income inequality in this country and to me.There were many attempts by the government to coax the white farmers into giving up a little then in order to make for a more equitable situation later and there was no give. [00:14:22] MMT Conference Page 126 . if its not something that’s addressed in a decent amount of time. As an aside. you do get a huge socially unsustainable situation which will beget an even more extreme political response later. So I think it is in that regard the situation of what’s happened in Zimbabwe in terms of the misguided reforms that were subsequently introduced. it’s a legacy of the fact that we didn’t deal with the problem of inequality much earlier in that country.

again. not surprisingly. and as Bill has pointed at on his blog. You don’t have foreign exchange to pay for raw materials. It’s a misguided land reform program. the land reform destroys domestic food production. So you have no funds left to import raw materials. Unfortunately many of them don’t have farming expertise and. It’s worse than what you had in Latvia over the last few years. [00:16:09] MMT Conference Page 127 . output fell by 29%… manufacturing output fell by 29% in 2005. Mr. even as cruel as that government was. But here’s the statistics. 18% in 2006. foreign exchange is used to buy food to prevent starvation because. the Bank of Zimbabwe uses foreign reserves to import food. you have 80% unemployment. Mugabe didn’t think that it would be a good idea to allow mass starvation in order to bring supply and demand back together again. The country then finds it is in a situation if in order to avoid mass starvation it has to use valuable foreign exchange reserves in order to import imported food. though self-inflicted. it collapses by almost 50%. I guess. agricultural production in the country absolutely collapses. I got this again from Bill Mitchell. He seizes land from the whites. Mugabe begins his land reform program. 28% in 2007.So what happens. so manufacturing capacity absolutely collapses and the end result is that you have about 80% unemployment. gives it to. manufacturing output collapses. [00:15:34] So you have no foreign currency to buy raw materials. mostly he gives it to his cronies in the ZANU party. That creates an additional problem.

again you could argue that this country does suffer from some political dysfunction. left. Obviously. almost from everyone. But in general as I said. it’s not quite as bad as Zimbabwe. there is no valid basis of comparison between the US and Weimar Germany or Zimbabwe. Mugabe use the foreign exchange reserves for their personal shopping expeditions to London and in general the government uses the foreign exchange reserves. to increase net spending without adding to productive capacity. well. So it’s effective use is as a personal piggy bank. what’s left of them. center. at least not yet. Mr. [00:16:39] It’s a totally dysfunctional situation you have there. You just basically steal what’s left in the piggy bank and use it for your own good.The government in the meantime uses. The loss of taxing authority during the civil war by the Confederacy is another example of a situation where a government’s inability to impose a tax ultimately did create hyperinflationary conditions. And again the analogy is the wrong one. but I think we would agree that. despite what you might hear from the propagandists on the right. [00:17:45] MMT Conference Page 128 . and Mrs. [00:17:25] So political dysfunction and the inability to tax is an extremely important means of safeguarding the value of a currency. [00:17:12] There are other examples of this. The same thing happened for example in the Philippines when the Marcos family was in power.

[00:19:03] MMT Conference Page 129 . which I think will be discussed at greater length later. not only is this good social policy but it actually means that you do create non-inflationary conditions because it means you are effectively retaining productive capacity. which can be used. as a few people have mentioned earlier. ready to be piled back into the private sector when private sector demand arises. Now I know we’re going to be talking about this later. that’s quite evident. [00:18:12] We talk about calling forth productive capacity and. the path of fiscal capacity provided by a fiat monetary currency system can always generate full employment and yet sustain price stability. the most effective means of calling forth productive capacity is by ensuring that you have a productive labor force. A sensible government using fiscal. And one of the means by which you insure that you have a productive labor force is by establishing a government job guarantee program. The point is that if you have a government that has shovel-ready labor.Any bad government can wreck an economy if it wants to. but one of the things I’d like to talk about briefly is productive capacity.

bring something back into the economy as a whole. So I think that’s an important conclusion to draw as well. eventually you’re going to default on your debt. Thank you very much. because anytime they run an inflation. misleading terminology. or any country in fact.” And we’ve both probed them on this question. we’ve had this Martin Wolf at the Financial Times. with let’s see. or that we’re not going to make a payment to a bond holder?” [00:20:01] They go. Warren and I have had these discussions with people and they talk about Greece. The only point I’ve made to these people is that if you buy a credit default swap in a country like the US or Germany. He’s a former member of the monetary policy committee the Bank of England. [00:20:57] So that’s my presentation. if you have long term unemployment it does create. [00:21:00] ________________ Q&A for SESSION 4 [00:21:49] MMT Conference Page 130 . you don’t get paid out if they run a rate of inflation.” We’ve had this debate. the social pathologies build up and you actually… these types of workers lose their productivity. “You know. I’d buy credit-default swaps in every single country that I could find. “What do you mean by default? Do you mean that the US is somehow going to. actually. I mean I’d love to. “No. it can potentially create difficulties if you don’t have these people in a position where they can actually call something back. no what we mean by that is that the currency is going to fall so much that you’re going to get huge amounts of inflation and therefore that is tantamount to insolvency. It’d be nice. Social Security checks are going to start bouncing. So again. any rate of inflation I can get paid.If you have long-term unemployed. [00:19:31] The other point I would make. with Caroline Baum at Bloomberg. Portugal and they talk about the US spending money and they say. misleading hints. and Charles Goodheart has even said the same thing. which also comes up a lot in these discussions. But clearly that’s not the way that we define default. So in fact even though you might have significant output gaps via unemployment. We say. You can always call people on that and I think we should do so much more aggressively in the future. are all examples.

which they’ve all said was a means of accounting. But the government was saying. from the Confederacy. if you take an economy. in their own currency. [00:26:44] Pavlina Tcherneva: On the point of hyperinflation. because taxes drive the currency. We then discovered Lerner. The securities function for interest rate maintenance and not to fund the debt. in the US you’re doing a pretty good job of trashing your supply at the moment. your supply side working again. I think the key components here are a supply shock. after coming up with the idea that governments don’t default because. [00:27:43] Edward Harrison: Okay. So what happens is I think historians who don’t know how the currency works don’t find these things because they’re not looking for them. it’s in real terms. You’ve got to reduce the demand with the tax system and you also have to have a reason why people will accept the currency. but see. but also I think you have to have a ratchet that you could have something that fuels additional expenditure. but you haven’t done it yet and the companies are still out there. Okay. That’s why they had hyperinflation. who said the same thing we’ve been saying about quantitative easing. It was non existent. Edward Harrison here again and I have two questions that are unrelated. what was the initial inflationary shock was fueled by some sort of indexation. And I think that falling off of the tax base will do that too. They trashed their supply. about circumstances to be able to recognize them as any kind of value. Which is not necessarily normally the way things work. then we go back in history and find reasonably prominent people who’ve said the same thing. You notice things. but you could fuel it artificially as opposed to what we were saying earlier that you have to let inflation dissipate by one mechanism or another through the economy. And in most cases that you observe around the world that have hyperinflation.Warren Mosler: Maurice [Samuels] and I went to Rome in 1993. a tax collection fall out. Now that’s a monetary mechanism. The first MMT Conference Page 131 . It had nothing to do with demand. those were used for money because you would. So yeah. Okay. whether it was of wages or prices. And I’m saying no. And so it’s interesting we came up with ideas first and then found the history afterwards. Secretary of the Treasury Memminger. And if you wanted to avoid hyperinflation in Zimbabwe then you would have had to have had mass deaths of the population from starvation. So. the Secretary of the Treasury was trying to tell the government. what you do is you have the clay ball and the stone would fit in when you took it out and spent it that would be the thing you’d accept for taxes. It was a supply issue. because you’ve just lost all that supply side. In Zimbabwe they lost it. we see how they work. we discovered Knapp. when you’re looking at something. there are still workers that will work for them if there’s enough demand for the products and all you need to do is get the production. About 60-70% was lost. whenever anyone raises at your dinner parties about Zimbabwe. Now we’ve discovered somebody last week. we discovered Innes. look we need the taxes to support the currency. It was a clay ball with holes in it where pebbles would fit in. our point is you’ve got to have the taxes in order to match the resources that you’re withdrawing. I think history is going to more and more find the things we’re talking about. Ruml. and afterwards I ran into Randy and Bill and Pavlina and then they all started looking up the history of these ideas. Private investment would have had to come to virtually a sudden halt. the ball with the holes in it from some four thousand years ago. And the last I know. Randall Wray: I’ll add something on the Confederacy because it helps to drive home points we’ve made in every one of these sessions. running down the capacity of your work force and your industrial structure. You knew it was the same stone when it fit into that clay ball. And so people would not accept the currency and that is why they had to just continually print out more and more and more. What’s that thing that was found back. You have to have enough knowledge of what. you trash about 60 or 70% of its productive capacity then any spending will start to generate inflation. said the same thing about how currency worked and explained that’s how he was going to set it up. we’re already putting such a huge burden on our population because they’ve got to fight the war and we’re taking all the resources away from them for the war effort and we don’t want to burden them also with the taxes. And a paper came out of that called Soft Currency Economics. Not to say that Marshall wasn’t exquisite in his oratory [laughter] but the simple way of saying it. because all they’re doing is spending first and then collecting later. is that his name? From 1946 the Federal Reserve president of New York. [00:25:50] L. [00:23:59] Bill Mitchell: I think the point about Marshall’s talk is very clear and really easy to understand in terms of the public debate now and the simple way of saying it. well hold it. All the record books show that this thing was an accounting mechanism to keep track of things with these stones you stuck in.

Now. if the currency goes down. Indexing wages passes through a lot more quickly because wages are a cost. However. [00:29:20] Edward Harrison: The second unrelated question I had had to do with what happens with the hyperinflation scenarios. [00:30:51] Warren Mosler: Right. Okay. aren’t interest rates a question in regards to currency depreciation – imported inflation via currency depreciation? [00:30:12] So. If. On the demand side it takes… all the nations are net savers. that creates inflation and as a result of that inflation. The first question I have has to do with indexation of retirement benefits. The concept of the Federal Reserve going out the yield curve and then setting rates. Because again. Japan has a very strong currency after all these years and so you look for the channels where zero rates would be deflationary rather than inflationary. and the Treasury does the opposite when it issues long. it’s once we get to full employment and a high level of aggregate demand. but that’s certainly a possibility. [00:31:39] The other thing is. they’re not going to go up. the larger the net savers. [00:28:44] L. it could be inflationary in the future. [00:30:31] Warren Mosler: Interest rates are set politically by the Federal Reserve. well most of the people in this room are going to be retired and on Social Security. One is on the supply side because the cost of inventory is very low. and my question on this is to the degree that the central bank really could go into the market and buy up any sort of securities that it wanted to. That we could over-provision a sector of the population and have to make adjustments. just to sort of just make it more plain what I’m saying is. Now a lot of people talk about a third outcome. [00:30:41] Edward Harrison: Then.Edward Harrison: Okay. a political decision. if it causes a shortage of real resources because the seniors are getting all the food or getting all the housing. in terms of a country that issues its debt — it has a sovereign currency — we were talking about the outcomes as being inflation or currency depreciation. the price of oil and other imported goods goes up. but I see a lot of reason to believe that those zero rates are actually deflationary. Edward Harrison here again and I have two questions that are unrelated. But let me suggest they also can set the long rate if they want to. or lack of it. you would normally expect interest rates to rise. yeah. I find that that sort of intervention not something I would support. [00:31:26] Warren Mosler: Okay. so you don’t get the kind of bottlenecks. so either way the government is setting long-term rates now — either by default or by active policy. That is Social Security and things of that nature. So you have the Bank of Japan set rates at zero for twenty years. [00:31:03] Warren Mosler: They say Fed funds are going to stay at zero for ten years and then a ten-year will be at zero. we’ve been in operational fact. It’s setting rates higher than otherwise. they set the short-term rate but the long term rate is effectively the imputed Federal Reserve funds rate going forward. prices have to go up. And so as wages go up. and I’m going to venture off into theory here. so you have positive supply side effects. so lower rates reduce income directly. right. and there’s not enough left for anyone else it’s a real problem that has to be addressed. And the other thing that tends to happen is bank net interest margins tend to grow as rates MMT Conference Page 132 . So I think that that’s a political problem. It’s not there yet. Which could be the case twenty years from now when we have. So unless they… that’s part of the reaction function. but that’s an ideological. and Social Security is it effectively indexed to the inflation rate? So how does that play into the situation? [00:28:24] Warren Mosler: Just quickly. and also the currency depreciation. which is interest rates increasing. not inflationary. Randall Wray: I agree. and it keeps the cost of production and new investment down by having a zero rate policy. you had mentioned that we don’t have a very strong labor movement in the United States but there is an increasing number of retirees. So I personally.[00:31:07] Edward Harrison: Right. and I guarantee you that lots of other people wouldn’t support that either. you know. obviously that is… that would control interest rates. but with Social Security. [00:30:55] Edward Harrison: That’s what I just said in terms of going in and doing so. and the larger the budget deficit.

you’re talking about the difference between permanent or an accelerating inflation versus a one-time… You would have inflation as measured by price levels at a specific adjustment. It’s a once-off price adjustment. such as the UMKC buckaroos. And the currency is a public monopoly. in this case it’s the price of unskilled labor. that is. there’s a real income loss to the economy. That’s a myth that’s commonly put out there. the price of natural gas… [00:35:39] Bill Mitchell: Yeah. [00:36:08] Bill Mitchell: No. Inflation is a continuous increase in the price level. You could say. inasmuch as import prices are weighted in your CPI or whatever your measure of inflation is. and at the end of the day the value of the currency is what you have to do to get it from the monopolist. We know where the value comes from. Edward Harrison: If your currency goes down. the price of oil. but the second point is that… Edward Harrison: So. [00:32:47] If you look at currencies that have zero interest rates. doesn’t that almost naturally mean… Bill Mitchell: It doesn’t naturally do anything. In other words just be on the bid side of the market and not pay the offered side. and my cards that I tell you you have to have to get out the door. well of course it’s going to be chaotic like it is. paying interest on buckaroos is not going to increase the value from fifteen dollars to twenty dollars. A monopolist always sets price and lets quantity adjust. it’s just a once-off. There’s just a couple of points I’d make and Ed. but we have the ability to set price and let quantity adjust. Bill Mitchell: That’s the first point. it’s ten cents a kilowatt and let supply adjust. Warren Mosler: That’s a one-time shift. but it’s not necessarily inevitable. or you could say we’re going to sell two billion kilowatts at the market. It’s the premise that’s always wheeled out. So you can have adjustments in Australia in July 2000. So in other words the price level is necessarily a function of the prices paid by the government when it spends. It comes from the monopolists setting price. And that’s where Bill’s JG and Randy’s ELR comes in. So through the interest income channels there seems to be – I have a lot of reason to think that zero interest rates are actually deflationary. which transfers income from savers with some reasonably high marginal propensity to consume to banks that have zero propensity to consume and reduces interest income. where in a market economy you only need to set one price. That’s the myth. at the point of spending. as an example. and spending policies have a whole lot more to do with the price level than anything else. First of all. So depreciation isn’t inflation.income directly. and let the market determine price. your first premise is disputable. For that to become inflationary there has to be some secondary effects where the participants in the real income distribution don’t agree to share the real income loss. And the other thing that tends to happen is bank net interest margins tend to grow as rates go down. that’s a myth. An example of that would be if you have the electric monopoly for the city of Washington. Warren Mosler: [inaudible] [00:35:16] Bill Mitchell: Yeah. [00:35:44] Bill Mitchell: It’s a one-time real income loss. With a currency monopoly we do the opposite. Warren Mosler: It has to be continuous. I think it’s [inaudible] [00:34:17] [audio cuts out??] [00:34:22] Bill Mitchell: Well if I keep talking I’ll stay awake. that’s the definition of inflation. okay. [00:33:26] There are two ways for monopolists to spend. we brought in a MMT Conference Page 133 . from the government. Edward Harrison: All the resources. so [laughter]. a depreciation in the currency is not inflation. We set the budget and let the price adjust. a once-off adjustment in the price level is not inflation. and we can get into that later. one is at market prices and the other is on a price constrained basis.

we brought in a ten percent GST. So you can have adjustments in Australia in July 2000. and ongoing relatively large deficits think about Japan. The second point is that there’s no intrinsic or inevitable relationship between a deficit position of government and the exchange rate. [crosstalk] Bill Mitchell: That’s the point I’m making: it’s one of the myths out there. because they accept two — what we’re calling — myths. central banks think this way and so these are to try to dispel. One is that if you raise interest rates that fights inflation. And then the second belief is that raising interest rates helps your currency to appreciate and what Bill is telling you — there are no variables out there that economists have ever been able to find that are correlated with the currencies. There just isn’t a correlation for this. So it’s a definitional issue. All that happened in Australia when we put in a ten percent — hold on — all that happened was for two quarters the measured CPI jumped up and then it just — that was it. And these characters here used to call us the half-price country. but don’t forget it was an active policy of intervention to push it up to 150 and then when they stopped intervening it got strong again. Edward Harrison: A lot of people would call that inflation. because raising interest rates is going to increase government spending on interest. [00:38:23] Warren Mosler: You’re right. And so you might actually stimulate the economy thinking you’re going to slow it down to fight inflation. a value-added tax and all it did for about…[crosstalk] [00:36:29] Edward Harrison: You can argue definitions but the reality is… Bill Mitchell: No. I’m arguing the reality. [00:40:35] Warren Mosler: We may not be visiting you in December. and that they should fight inflation that could result from currency depreciation and rising price of the commodities that you import for example. It didn’t get weak on its own. And it’s quite plausible that you could have a strengthening exchange rate with very large deficits as a percentage of GDP if those deficits were creating conditions that allowed the capital account to improve. sometimes it appreciates with a budget surplus. [00:40:13] Bill Mitchell: Yeah I mean the example in Australia we were running massive record surpluses and our exchange rate went down to 49 cents US. And they wanted to do that in fact.continuous increase in the price level. they’ve had deflation all of those years. They haven’t had any systematic meltdown in their currency. [laughter] MMT Conference Page 134 . They had to push it up. And if you really want to think about a country with — and I think Warren mentioned it — with a very strong currency and huge public debt. Edward Harrison: That’s exactly what I’m saying. Randall Wray: Can I try a different way of responding? Let’s put it in the framework of how does the central bank tend to react to inflation and currency depreciation? I think that you’re correct that they do tend to raise the interest rate. [00:38:34] L. Warren Mosler: Right. So there actually is no evidence that raising your interest rate appreciates your currency and as Bill was saying there’s no evidence that budget deficits are correlated with currency depreciation. [laughter] And now I’m here to advise you that you are now very cheap to come here [laughter] and you’re getting cheaper by the day and we’re running huge deficits. But yes. [00:37:55] Edward Harrison: Well they did go to 150 to the US dollar at one particular juncture in time. All the empirical work shows that there’s no systematic relationship between the fiscal balance and the exchange rate. I agree with you. Just plot the US budget deficit against our currency and there just isn’t any correlation. so given the fact they’re at 94 to the US dollar and they were at 150 you could say that that’s a fifty percent reduction in the real income of the people who live in that country relative to everyone else and as a result you would expect therefore people would be upset by that. There is no model that works. People call it that but that’s… [00:36:57] Bill Mitchell: That’s one of the myths out there that should be addressed. the highest in the world. Sometimes currency appreciates with a budget deficit. [00:36:47] Bill Mitchell: Once off adjustment.

in the seventies when there was an extremely close correspondence in all of our countries between real wage growth and productivity growth. their bargaining power goes up and they’re able to negotiate higher wages. either through some kind of Australian type of thing.Dennis Kelleher. but – let’s assume that a government has been enlightened and started practicing modern monetary operations and understanding it. they were smart enough to realize that you had to have someone to buy the stuff. etc – I don’t see the support for it either in the data or in mainstream theory itself. And the empirical studies have never been able to come up with a systematic relationship between wage share movements. week. and everybody else has one. But we didn’t have major inflation breakouts in the fifties. if you’re the last guy waiting for a job. if you like the terminology. And that’s been a systematic erosion of workers’ entitlements. I’m Bryce Covert. and my apologies if this has already been touched upon. I’m with New Deal 2. And it’s quite possible that if workers are enjoying… You know in Australia we’ve had a system of national arbitration. I’m not an economist so I’m not following everything. isn’t a fair game. unless there’s some kind of support. late seventies or eighties that was completely severed. And prior — when it was 62% for years — I mean Nicholas Kaldor used to call it one of the stylized facts — the constancy of the wage share. as the unemployment goes down. We saw no inflation during those periods. it’s a basic mainstream game model — the first year. And we saw unemployment fall below four percent in the late nineties even with the core inflation coming down. which is what you’re really talking about. [00:44:34] Warren Mosler: Do you know the game theory story? The other thing is. then people who are left unemployed. because the wage share is just the ratio of the real wage to labor productivity. and the link between wage growth and productivity was restored. and you’re offered a job and you don’t take it. there’s no reason to expect real wages to do anything except stagnate. Sometime in early. and there’s never never been… prior to that. now it’s 51%. And as long as the real wages don’t grow faster than productivity growth. Rebel Capitalist: I have a hypothetical question – I don’t know if I should have disclosed that. Inflation occurs — sorry Warren — inflation occurs if expenditure nominal demand growth outstrips the real capacity of the economy to respond to that. so that whole idea that there’s this NAIRU. The wage share in Australia used to be 62%. there are productivity differences also. but the fact is. and get a double whammy: steal the productivity in the first place and then load them up with debt so they could still realize the production. of game theory tells you that the labor market. So the idea is. whatever that is anyway. and that clearly in all countries has diverged in — depending where you start — but in the eighties and nineties clearly. but it seems like the danger that you do admit to MMT Conference Page 135 . you had a very close correspondence with that. and therefore as we get to lower… you know. And it’s only in this neoliberal era that that is no longer a stylized fact. in the sixties. When productivity increased wage growth – wage – grew with that. So now we have productivity skyrocketing. I mean that was in a way the capitalists. and it’s always considered that real wage… productivity growth provides the real space for nominal wage adjustments. [00:43:33] Warren Mosler: Or the price shock.0. where once you take a look at rudimentary game theory. [00:46:02] Bryce Covert: Hi. and in the eighties and nineties they worked out a different way and that was to load the workers up with debt. So… [00:41:46] Bill Mitchell: It’s the same the world over. because people have to work to eat. you’re unlikely to get nominal demand outstripping real capacity. Bill Mitchell: What’s that? Or a supplier price shock that’s not isolated from the distributional system. And the only way you could actually get ongoing aggregate demand growth that will engage your real capacity without indebting your household sector is to make sure real wages do grow in line with productivity growth. or some kind of support to at least make it more of a fair game. national wage determination like a Scandinavian system. What impact or potential impact would that have on inflation? [00:41:19] Warren Mosler: Which link is that? Dennis Kelleher: Pardon? Warren Mosler: Which link specifically? Dennis Kelleher: For years we had a linkage between wage growth and productivity. you’re still going to starve. wage growth stagnating. So you don’t have any more bargaining power because the unemployment pool is lower. and business only hires if they feel they can make an acceptable rate of profit.

or something like that. Jamie Galbraith makes this point very well. cut government spending. [00:50:41] So we really need to identify why we got the inflation. see. I understand the differences between the hyperinflation of Zimbabwe and Weimar Germany but in the US. what’s the risk? Well you’ll get fuller employment. something that we don’t have to deal with. that if I was a trader making a bet right now. And he simply says that. and their firms are willing to sell at very low prices. you can solve that through a tax. But the risks of inflation are political. Okay. the economy begins to grow again. not by clamping down on aggregate demand. unofficially by any honest measure it’s close to twenty percent. and you might eventually get inflation. [00:47:24] Marshall Auerback: I’ll make an additional point. So that’s the… you have a possibility of a significant relapse. you’ll get a lot more capacity being used. social welfare expenditures come down. it’s just about impossible to identify a way that we could get inflation going even if we wanted to. We have to remember that we just had two billion people come into the market economy. And this is where Japan has been for a very long time. I think it’s still heavily weighted towards the deflation side for all the reasons I’ve outlined. It’s just not a plausible argument. what everyone is talking about is the current outlook. look. Randall Wray: Yeah. that is going to cause an oil price shock to lead to a wage-price spiral. even if we got closer to full employment. maybe centralize wage bargaining would be a way to do it. [00:48:57] L. as Bill keeps alluding to. and figure out how you’re going to share the costs of adjusting to higher oil prices. And we don’t get hurt in terms of investment or anything else like that. when we thought it was going to go to one or two. And then finally. there’s a major danger of a relapse and that’s coming at a time when we already have. we really need to get into what we mean by inflation. You have very high debt levels in the US. and they’re willing to work at very low wages. even sustained price increases. studies show that it helps those things. so people can’t borrow and spend. I’ve seen him make it a number of times. If it’s because the currency is depreciating. and we need to distinguish between different things that might cause prices to increase. we might lose at the ballot box. that would not make any sense. in the kinds of institutional arrangements we have in the United States.upon. We don’t lose anything in terms of employment and output. you still have an ongoing housing crisis. Again. which is what Bill was trying to get to. [00:49:44] Now what happens if you have an oil price shock? Do you fight that by reducing demand? No. That’s how you fight that. in the United States this isn’t very plausible. 1937 style. you get the inflation. and he talks about the asymmetry of risk. that is where you’ve already fully employed your resources and you continue to increase spending. So that is when you need to raise taxes. and you’re talking about it a little bit now. equally likely. Now. you know you had that warning. that’s not inflation. the current situation in the United States. or. if you spend too much. If we’re wrong and inflation goes up to four or five percent. Now. again. more revenues come into the government. But you do lose at the ballot box. they’re not economic. True inflation only occurs when aggregate demand is too high. we don’t lose any wealth as a nation. maybe clamp down on banks so they can’t lend. but it is going to cause a redistribution of income. in a country like Mexico. [00:52:03] MMT Conference Page 136 . and in fact most studies show it’s actually more likely to improve things. officially. You have to find another method. other than. I’m not an economist so I’m not following everything. but it seems like the danger that you do admit to spending is inflation. So that in itself will start to create a fiscal drag on the economy so it seems to me that risks are so stunningly asymmetric in regard to not spending. if you don’t spend enough. how much of a risk do we have of that and are there things that should be done or can be done to prevent inflation that we’re not doing? Are we going to run that risk or do you think we’re pretty safe? [00:46:45] Warren Mosler: Let me just say I think we’re very safe. and the way to fight that is by reducing aggregate demand. or somehow get the private sector to stop spending. So Keynes had this definition. yes. or of government spending in our society. “true inflation”. that we’re going to get significant inflation pressures. So we do come up with policies that will cater to what voters want and how voters feel good about living their lives. because we don’t have very much indexing of wages in our society. an oil price inflation is going to end itself very quickly. they have very high feed-through impacts of currency depreciation into rising prices. the automatic stabilizers start taking care of themselves. That is true inflation. But we could have those and if we did. inflationdeflation bet. You want to change the institutions. and that can be done either through direct government spending or by massively cutting taxes. commodities prices could go up and we could have a very short-term increase of prices. if you don’t spend enough. It’s a very easy problem to solve. and they all want to produce stuff and sell it to us. nine and a half percent unemployment. Or you simply stop spending. so they’ve got to deal with that problem. Okay. then the way to fight that is through institutional change.

to get us to. Warren Mosler: Yeah. and I think it was Tobin who said it. one of the greatest successes of the neoliberal period has been able to convince us. And if MMT Conference Page 137 . [00:55:15] L. the Harberger triangles were these measures of inefficiencies. you’ve lost it.. [laughter] [applause] [00:55:20] [.2. Millions of dollars a day. is when they compute the output gap. the growth rates have to be much higher to get back onto path. which are huge now. to disabuse us of the notion that unemployment is a cost. And now they’re talking about moving that up to six and seven and eight percent. and it’s a damn shame. So what they do. Inflation will never go anywhere near that. when you’ve got. it’s about 17. And the answer to the question. So even the output gaps. and my country. inflation-first type policy emphasis. yes?. Bill Mitchell: Sorry. [00:56:00] Bill Mitchell: And millions and millions of dollars a day. but it wouldn’t surprise me if the losses are twenty percent of GDP every year. and I always thought it was curious that it was politically acceptable to discuss something as useless as that in a serious idea.Bill Mitchell: I think it’s really telling that — and it’s sort of building on Warren’s point — that we’re always talking about inflation threats.” [laughter] And the point about it is that the macro costs of unemployment and lost income and all of the related social pathologies and intergenerational pathologies that follow are massive. “How many Harberger triangles can you fit into one Okun gap?” And. so are the costs. the output gap. The costs of unemployment dwarf any other economic costs you can possibly identify.2 percent currently. Randall Wray: You’re giving our presentation. and everything pales in comparison. In some countries. maybe — I’m not sure in America. if we have twenty percent unemployment. yeah. microeconomic inefficiencies. and I gather that one of the reasons for that is that the thought of government paying people to do something useful which would compete with the private sector is kind of what makes you go into that sort of nonsense realm. I’m not sure. is they assume some minimum level of unemployment for inflation control. We’re now using the most costly pathology of market-based economies as a tool to discipline something that is nowhere near the scale of cost. And where I’m going with this is that we have repealed the laws against usury and made profit margins in certain financial endeavors very very high. Seriously. far underestimate what the actual output gap is if they didn’t have that artificial constraint of five percent unemployment. Even if inflation was a risk I wouldn’t worry about it right now because the relative costs are just not even commensurate. I mean. in Spain it’s at least 30 percent once you add in underemployment — of your labor resources unemployed. our countries are forgoing. I known not everybody’s equally valuable. and as relates to — Marshall said that the risks are just asymmetric. And basically what I’m thinking is that there is a sort of minimum profit margin that the private sector demands. And the only thing you can come up with is worrying about inflation. Warren Mosler: Well. [00:56:54] Unidentified: I think it was Keynes who used the example of paying people to dig ditches and then paying other people to fill them up again. for non-economists. and they don’t want government competing and employing people and lowering their profit margins. Once you change your path. And this goes back to a famous interchange between the American economists Arnold Harberger and Arthur Okun. That’s just gone forever. “How many of these microeconomic inefficiency measures can you fit into one macroeconomic inefficiency measure. we now use unemployment as a policy tool. of the sort that you might get with some inflation.][00:55:32] Warren Mosler: It’s probably fair to say that the losses from unemployment over the last two years just in terms of lost output are far higher than all the costs of all the wars the US has ever fought in its history combined. And the Okun gap was the lost output from having unemployment below — above full employment. And you’re sitting here in this country. for what they call the NAIRU. well. right? Ten. you use six measures? In Australia it’s 13. People who would become engineers instead become bond traders.” the answer is “Lots. We now under our central banking inflation-targeting. and other countries idly sitting by wasting forever billions of dollars of income generation every day. and unemployment should be a policy target. And that’s the success of the neoliberal era. well. And we’re worried about inflation. And that’s the big success of the neoliberal era.. [00:56:20] Bryce Covert [??]: Maybe that’s the graph we need. Plus the ongoing losses because it’s all path-dependent. or something close to it. every day. where Europe’s been at nine for how long? Forever.

well I think we all agree with you. But the other thing is. He wanted to hire people to do useful things. don’t we have to get a handle on usury? [00:58:11] Warren Mosler: I’ll be the first to say that the financial sector is. So downsizing finance. And if we’re ever going to focus people on doing useful work at perhaps lower margins. You want to ensure that they won’t compete with the private sector. we could at least hire them to dig holes and bury money. And let me just tell you. Randall Wray: He was being sarcastic. how much we want.everything pales in comparison. People who would become engineers instead become bond traders. but that will be addressed in the next panel. if you guys are so stupid you can’t think of anything useful for these people to do. we agree with you. Euthanasia of the rentiers. Randall Wray: Well of course. the next panel we’re going to talk about the job creation program. they won’t compete with the private sector. you want to complement the private sector. But the other thing is. It’s only part of the answer. he was saying. but I’ll let Randy — my tag line is “the financial sector’s a lot more trouble than it’s worth” — but I’ll let Randy comment on putting Keynes in context. and it’s there for public infrastructure. what Keynes wanted was full employment. [00:59:50] Pasted from <http://www. and so the people will do useful things. so that wasn’t his prooposal. And I think that that is a way to put finance back into its place. Digging holes and filling them in is not public infrastructure.net/fiscal-sustainability-teach-in-and-counter-conference/marshall-auerback-inflation-and-hyper-inflation/> MMT Conference Page 138 . by and large. So I just want to clear that up.netrootsmass. Go ahead and put Keynes in context. and euthanasia of the rentiers. a total waste of human endeavor [laughter]. probably all of us. [00:58:41] L. the size of government is a political choice. and I think many of us up here support that. He wanted to drive the overnight interest rate down to zero. [00:59:16] Unidentified: Do you have any notion that by repealing the laws against usury is part of what’s wrong? L.

Randall Wray Understanding modern money: the key to full employment and price stability. Professor of Economics. Washington DC. April 28. Senior Research Associate at CFEPS and Research Associate at The Levy Economics Institute of Bard College. Assistant Professor of Economics at Franklin and Marshall College. Research Director of CFEPS at the University of Missouri – Kansas City. 2010 ________________ Additional Reading and Supplementary Material: Teaching the Fallacy of Composition: The Federal Budget Deficit. by L. Randall Wray. by L.₪₪₪ Randall Wray and Pavlina Tcherneva ₪₪₪ "Policy Proposals for Fiscal Sustainability" L. Randall Wray PowerPoint Presentation in PDF ________________ TRANSCRIPT (Thanks to the Volunteer Transcription Team): MMT Conference Page 139 . Both blog at New Economic Perspectives Session 5 — 1st Fiscal Sustainability Teach-In and Counter-Conference George Washington University. and Senior Scholar at The Levy Economics Institute of Bard College and Pavlina Tcherneva.

[00:00:13] MMT Conference Page 140 . Randall Wray: I’m going to start off.L. and I’m going to set the framework. and then Pavlina will talk about the specifics of the policy proposal.

[00:01:19] MMT Conference Page 141 . and then abandoning the commitment to full employment – and this is almost the exact title of a book written by Bill Mitchell that is very good talking about this period. cause of unemployment – Bill was getting into this in his last comment. some lessons from the New Deal – which we gradually forgot. And then Pavlina will take over and talk about the Job Guarantee program in both theory and practice and how this can be used to achieve what we think are the appropriate goals of a sovereign government and contrast that with the view that growth alone is an appropriate goal. the appropriate goals for a sovereign government – and by that we mean what we’ve been talking about all day. one with a sovereign floating exchange rate.Here’s an overview: I’ll talk about the causes of unemployment. and then conclude. non-convertible currency.

growth without job creation.The causes of unemployment: I wanted to look at two different kinds of problems. we find ourselves in a deep financial crisis. and I’ll talk about two problems there: first. structural unemployment — that is. [00:02:10] MMT Conference Page 142 . The first is short-run causes of unemployment. we don’t normally achieve full employment. For example. and second. and what causes that. That is. and then turn to over the long run we also operate with chronic unemployment. demand gaps. with unemployment rates that are approaching Great Depression levels.

It’s not going to be adequate. We need a massive number of jobs. in the current crisis.So. it’s probably well above 20 million jobs. but also. Obviously it’s far too little. So there are lots of lost opportunities because of the crisis. Nobody is thinking on the scale of the kind of program we need. [00:05:07] Now the problem is that Washington during the first two years of the crisis really wasn’t focused on job MMT Conference Page 143 . that is. So even if it doesn’t get worse. they are saying the best case scenario is very high unemployment for a long time. But we also are losing opportunities for people who should have been coming into the labor force in the past two years. I think this is 1931. we were nowhere near full employment. I am told by by people who work with politicians in Washington that a new jobs bill is still possible. Nobody really is looking at big enough numbers. and of course career advancement has been hindered by the downturn. and I’ve put “already” down because I don’t believe we’re anywhere near through the crisis. we’re going to need 20 million jobs. because not only do we have to replace the jobs that have been lost and make up for the jobs that should have been created to take care of the people who would have come into the labor force if it had been operating at a higher capacity. even if the business cycle peaked back in 2007. [00:04:15] So. we lost over 8 million. We have people who have had to take part-time employment rather than full-time employment. for example. who are finding it very difficult to get any kind of job. to provide enough jobs to take care of those. And just contrast that with what Obama was promising when he came into office: We’re going to either create or save 2 to 3 million jobs. jobs already. and get us to something close to full employment. even if we only take the official projections of the so-called experts who do believe that we’re starting on the road to recovery. approaching 9 million. my college graduates. even they agree that unemployment is going to remain high for years. well over 20 million jobs probably. [00:03:42] I think that if we do a careful assessment of the number of jobs that we need right now. But. of course we’ve got that. [00:03:00] The lost opportunities from this period – Warren was talking about the lost output and so on. we’re 2 years into the crisis and we could very well see continued job loss for many years. but they’re talking about tens or maybe hundreds of thousands of jobs. much less a decent job.

this affordability. We’re not going to be able to save Main Street because we spent too much on Wall Street. oh no. We all know it was focused on saving Wall Street. But in any case the problem is that right now both the politicians and the population at large believe we’ve already spent so much money. So. it wasn’t focused on Main Street. Maybe it needed to do that. We’ve always encountered resistance to the idea that the government should be responsible for ensuring full employment. dealing with crisis and getting things going. that is sort of our short-run unemployment problem. It’s too late. Now there always is a barrier to proposing this program. and. how can we possibly afford to create 20 million jobs now.Now the problem is that Washington during the first two years of the crisis really wasn’t focused on job creation. [00:05:47] And so I think that this confusion about what’s affordable has become the major barrier. and we’ll try to make that case. But now. [00:06:38] MMT Conference Page 144 . that now the deficit hysteria is the main barrier to getting us out of this deep recession that I think will continue for many years. we’ve already spent so much money on Wall Street that we can’t possibly afford a reasonably-sized employment program. we probably have different opinions over whether that was necessary or not.

So. knows about the NAIRU approach.But we have had a long-run employment problem. and Warren described this process. that unemployment came to be used as a policy tool. policy actually was targeting unemployment. using that to keep inflation rates low. First is. and that really results from two really different causes. we’re trying to get unemployment up high enough that it will prevent inflation or prevent inflation from accelerating. so that was one aspect of the problem. those unemployed people are supposed to help keep wages from rising. unemployment was not a problem to be tackled by government policy. And so that is the use of unemployment as a buffer stock. and Bill was alluding to this. That is. [00:08:26] MMT Conference Page 145 . And so I know all the economists or anyone who studied economics. unemployment became the policy tool to deal with the supposed problem of inflation. Or. That is.” And so it’s sort of ironic that you had people like Milton Friedman adopt a Marxist ideology that we need that unemployed “reserve army” to keep labor in check. Marx called it the “reserve army of the unemployed. Okay. and this is dealt with in his book that I mentioned. No. And then that helps keep the pressure off prices and so it keeps inflation low.

And unemployment — every region in the world has to face major labor market challenges. and they emphasize this is in spite of strong economic growth. [00:10:52] MMT Conference Page 146 . and so the unemployment problem is becoming worse in spite of very strong productivity growth. So David Ricardo pointed this out back in the 1820’s. And meanwhile. global problem that growth alone will not create enough jobs. [00:09:11] So what they’re saying is that strong economic growth is not a solution to this unemployment problem. and they noted in 2007 — the date is important because this is at the peak of the business cycle — that we had 200 million unemployed people around the world. the economists in here will recognize this is David Ricardo’s machine problem. In fact. it’s not “in spite of.” it’s “because of. that through labor-saving technological advance we are going to create a growing pool of unemployed labor that we can’t put to use. No doubt this is a vast undercount. Okay.6%. but obviously it is a very large number. populations are also growing. And why is that? It is because growth fuels productivity growth. I don’t want to argue about that. He said this is going to be a continuous problem. But it has become a chronic. okay. of course. Okay. And again. I’m not going to read the long quote here. creating new sources of demand. on average around the world. but the ILO has produced a lot of research on structural unemployment.” [00:09:56] It’s because labor is becoming more productive that we don’t need as many workers in order to have economic growth. but jobs had only grown by 16. We were able to put this off for a very long time because we were able to find ways around this problem by opening up new markets. It is going to exist — even with strong economic growth. a structural unemployment problem.And then there is another aspect. which they said averaged 26% up to that business cycle peak over the past decade. So Ricardo was very pessimistic about the long-run outcomes.

and that this should be the goal of sovereign government. in John Kenneth Galbraith’s terminology. but taking a step back from that. But let’s make full employment a primary goal. we think that government ought to be focusing on full employment because it is much more important to have labor fully employed than it is to have. Okay. for political reasons. Okay. what we’re trying to do is to promote a program that can give you full employment with price stability. The problem is that for a very long time orthodoxy has thought these two goals are completely in conflict. not really for economic reasons. and just saying in the most general terms possible. what are the most important things that a sovereign government should do for us? Well. and it has the fiscal capacity to do this.So what do we think should be the goals of a sovereign government? Now I think there are many. we need to make price stability also a goal. say. so. our agricultural resources fully employed — although we ought to aim for that too. okay. And our argument is that it has the capacity to do this. as Warren keeps emphasizing. Economic growth and promoting economic growth alone is not going to give us full capacity use. [00:12:58] MMT Conference Page 147 . You cannot have both of these at the same time. And. Maybe we want decent social security for the aged. We have mentioned several times that we conceive of. or you can have price stability but you’re going to have to have a lot of unemployment. so there are things we want the government to provide for us. You either can have full employment and then you’re going to have inflation. [00:11:48] So. it ought to insure that we have full use of domestic resources. there is a public purpose.

and that is. You know. And so that’s what economists focus on. you get these open gaps. I don’t want to take a chance on you. partly because of behavioral changes. Okay. which are also huge. All right. so that’s one thing. whether it’s a real human capital loss or a perceived capital loss. GDP could have been higher. You become homeless and this is going to have a very long-term impact on your employability. they recognize [laughter] that unemployment does have a cost. okay. Okay. The loss of human capital. but to academic economists this is all new. we lose some net income because those people could have been working and earning income and producing goods and services. It promotes violence. and they are almost always ignored by economists. regional deterioration — because unemployment usually is regionally concentrated and all the Americans know we can identify parts of the country that suffer from unemployment to a greater extent than others — health issues. [00:15:33] MMT Conference Page 148 . this is well established in the literature outside economics. the losses in the past two years are just tremendous in terms of lost GDP. just run through very quickly: poverty. crime. So. Two years unemployed. and because I presume most people here are not academic economists what I’m going to say is pretty obvious to you.Bill sort of got into this in his last comment. [00:13:52] But… the sociologists and political scientists would point to these other things. Okay. And as Bill and Warren have been arguing. because when people are unemployed for a long periods of time they become unemployable. and hysteresis: long-term unemployed become unemployable because of all these things I’m mentioning here. family breakdown. it will prevent them from having the same job opportunities they would have had if we hadn’t gone through this two year period. as Bill was talking about. you don’t fully utilize. even terrorism. Now. school dropouts. ethnic hostility. but also because of the way that potential employers perceive them. and it’s significant. social isolation.

and economic stability are all promoted by full employment. There also is a multiplied impact greater than the sum of these individual benefits from achieving full employment. We went down there and we saw the benefits to communities of creating jobs in areas that had had no jobs before a jobs program was created. the economists are going to point to the first one: They produce goods and services. So. But there are lots of other social and political benefits of achieving full employment. social networking.Benefits of full employment: Again. Of course that is a big benefit. On the job training and skill development… If you are employed you will be increasing your human capital. but he couldn’t. reinforcing dynamics. so in a sense there is a multiplier effect of all these things. Pavlina will talk very briefly about Argentina. we get poverty alleviation. Social. they add to GDP. we get more GDP. political. There are positive feedbacks. And then finally there’s this notion that our colleague Matt Forstater has written about — and unfortunately he was going to be here. Poverty alleviation — I’ll mention this again in a few minutes. Community building. if you just add up the benefits. and so on. [00:17:05] MMT Conference Page 149 .

We created about 13 million jobs in the alphabet soup of programs that we had. and it will sound extremely familiar. the so-called shadow banking system. the commercial banks. which of course is natural profit-seeking behavior. innovations. and all these arguments that the growth will create the jobs so we don’t need the government to engage in direct job creation. all previous to the 1929 Crash. we massively downsized finance. [00:19:08] Now the problem is that gradually this first reform was eroded in the post-war period because financial institutions found ways around the constraints. Anyway. And then we constrained them. [00:20:17] MMT Conference Page 150 . Markets wanted to downsize Wall Street. the direct job creation. sound an awful lot like what we went through in the past decade. practices that were all put in place. And if we had left them alone they would have done it. the kinds of financial institutions. is that in the post-war fairly rapid economic growth we came to believe we don’t need these programs. The first was that finance was downsized and constrained. and of course we had two major reforms that I think had a huge impact on our experience in the post-war period. that are heavily regulated. made now. Growth alone. but we stopped them this time. rising tide raises all boats. the problem with second. This time around we prevented the markets from doing the downsizing. that are lightly regulated. and mostly that was not the government downsizing: The markets downsized it. And Marshall has written on this. so we need to reduce the regulations.Okay. we went through a period similar to what we’re going through now. but that’s because they counted these 13 million people as still unemployed even though they’re showing up to work. because I know some writers have argued that it didn’t reduce the unemployment rate. and the unemployment rate was greatly reduced by these programs. trickle down. [00:19:50] And. the growth of finance. So it really was a political decision. Okay. [00:18:26] The other kind of reform that we had was the direct job creation. Read John Kenneth Galbraith’s The Great Crash. to understate the true impact of the New Deal. The account he gives. can’t compete with the shadow banks. of course. and a regulatory response to that: Oh. so I’ve listed some of these here. By growing competition from unregulated financial institutions. the rising inequality. and this helped to promote financial and economic stability in the post-war period. Okay? So for all those reasons we got rid of most of the New Deal constraints on finance.

We had the… A lot of people misname the 1946 act. The developing world was growing faster than the UK did during the Industrial Revolution. the highest sustained growth rate. and all of these things are conducive to rapid economic growth with financial and economic stability — the problem is stability is destabilizing. [00:23:34] MMT Conference Page 151 . it was better than our Industrial Revolution. arguing that. every 20 years we had a depression. We had no financial crises in a twenty year period. Normally in US history. yes.. So. it was a golden age of capitalism. a high-consumption economy. I don’t have time to go into that. We had minor recessions. And so this was sort of a shock in Washington. they say the Full Employment Act. but we did embrace high employment. and Bill could tell you the same story about Australia. We achieved unemployment rates for white males of 3%. The developing world also had the highest sustained growth it had ever experienced. almost as good as Australia. But. And he also foresaw that we could start to get inflationary pressures building even before we get to full employment in this kind of economy. But it did commit the government to trying to maintain a low unemployment for most groups. We not only didn’t have a depression. the US rediscovered poverty. we had the golden age of capitalism. In fact. so he predicted that the financial institutions are going to gradually break free of these constraints and they’re going to engage in riskier behavior. But It wasn’t true just for the US. and so their unemployment rates were much higher than this. a generally high-wage economy. It’s a book by Michael Harrington [that] pointed this out. In the US. for the first two decades or so. a constrained-finance economy. if not full employment. it was the Employment Act. we had no financial crises. in 1962. [00:22:47] Okay. The problem is — Minsky started writing in 1957. anyway. [00:20:17] In the post-war period. But it was only white males. but it wasn’t the Full Employment Act. And it wasn’t just true for the developed nations. we never really embrace that. Now Bill would talk about a commitment to full employment in Australia and they probably came close to achieving that. [00:22:12] We had the creation of the US middle class over this period that was sustained by jobs and decent wages. We were not really committed to full employment.engage in direct job creation. but we recovered quickly. we have created the conditions for economic stability. in spite of this golden age. found out that actually we still had poverty in 1962. [00:21:12] We had a commitment to high employment. including women and especially African Americans. in a sense.

Why? Because. MMT Conference Page 152 . and then maybe you’ll be able to get a job. Okay. and he said the problem with the war on poverty is that you’re focusing on the supply side. got training. What we really needed to do is give them jobs. but it wasn’t. and they say the war on poverty is not going to reduce poverty. One minimum wage job per family would eliminate two thirds of poverty. But Americans don’t support giving welfare to lift people out of poverty. and actually wrote papers and was writing a book on poverty and employment at this time (he was at UC-Berkeley). economic growth is going to create jobs. Now the poverty rate did fall. we’re not creating any jobs for you. will support that. It had nothing to do with it. we gave welfare. And of course that prediction turned out to be true. and Minsky actually was involved in this War on Poverty. And Americans. Even if the minimum wage pays a total annual income below the poverty line. You’ll get rid of two thirds of poverty. and Minsky calculated that if we just supplied one minimum wage job to each poor family we would lift two thirds of all poor families out of poverty. the family is still getting income from other sources. he said. it’s demoralizing: You’re telling people who are unemployed — and poor — that you’ve got to reform yourself first. He was close to Shriver and Hubert Humphrey. he said. the Moynihan thesis. So we need to emphasize more training. So even if they did it. got educated. Americans believe that if you work you ought to be able to get out of poverty. And he wrote letters to all these people. Later Stephanie and I calculated the same thing in the Clinton boom. give ‘em jobs. maybe that’s a good thing. So. even if they went to school. and he wrote lots of letters to them. And then we’ll have welfare for the people who aren’t able to work. and then we just need to make sure we have workers that are ready for the jobs. Okay. but it was never enough to lift a family out of poverty. you’re going to provide welfare. It’s going to fail. and some people have wrongly said it was the War on Poverty. first. [00:24:28] Minsky said this is going to fail. The problem is that Americans are not going to support a generous enough welfare safety net in order to lift people out of poverty. Yes. and so on. [00:25:53] The final objection that Minsky had was. you’re trying to stimulate the supply side.And so they decided that we needed a war on poverty. okay. Without supplying them a job. came up with exactly the same number. he argued. and getting people to change their behavior. Okay? There was no significant job component in the War on Poverty. so that’s what the War on Poverty was. And so he actually went into the data and calculated one minimum wage job per family would eliminate two thirds. get rid of the culture of poverty. instead of the War on Poverty.

the poverty rate continued to fall until Reagan. And actually. So we greatly reduced the poverty rates to the elderly. and some people have wrongly said it was the War on Poverty. fell almost in half. So. the reduction of poverty rates from 1962 to 1973. If you actually look at the data. it was just a continuation of the trend. that had had been going on since World War Two.fall. just as Minsky argued that it would. And the other was the civil rights movement that increased the labor market outcomes. it was Social Security. it stopped falling in 1973. And that was a long-term trend actually. but it wasn’t. [00:27:39] MMT Conference Page 153 . it was almost entirely due to Social Security payments to the elderly. That had nothing to do with the War on Poverty. anyway the War on Poverty did fail. which was a large reduction of the poverty rate. It had nothing to do with it. For the US as a whole. for African Americans. mostly for African Americans.

the US. the Democrats sort of very strangely and ironically became the party of fiscal responsibility. because the economy performed very well in terms of growth. or neoliberalism. The problem is Clinton didn’t give them any jobs. But he didn’t provide the jobs. then. I think. If he had provided the jobs it would have been. when actually it was the rapid growth that created the budget surpluses. for most Americans the only thing they own is their house. a successful policy. oh. and what we have got going on in the United States. government is the problem. is a way that is going ensure that Americans are just going to lose their homes. which has always been the role of the Republicans. finally. many people call it financialization. Clinton arguing that we need to end welfare as we know it — and I actually think there was a very good aspect to Clinton’s agenda here. supply-side/trickle-down economics is all we need.From ‘73 forward. longer period than that — but MMT Conference Page 154 . talking about the ownership society — If you’re interested. and the only way to do that is to get them off welfare and into jobs. budget surpluses lead to rapid growth. anyway. the Democrats become the party that’s always advocating tightening fiscal policy. and — Bill argues in his book. you can go to the Levy Institute. Okay. He said we need to change the way Americans look at poor people. Minsky actually called it the rise of money manager capitalism. We need to make them see them as deserving poor. [00:28:55] Bush. now you go get a job. And this was associated with the rise of free market ideology. I think that was completely correct. And they learned the wrong lesson from the Clinton years. writing this in 2005. when we ran a budget surplus. [00:29:23] And. under Clinton. We can all remember Reagan’s campaign against welfare queens who supposedly drive Cadillacs. I wrote a paper in 2005 that said this promotion of the ownership society. it was a debt. so it’s actually going to reduce ownership in society. Now it became the primary policy of the Democrats: We’ve got to balance the budget. most — or is it Bill — all other developed nations abandoned the commitment to high employment and full employment outside the US. household debt. Of course. He said we’re going to take away welfare. But the lesson they learned was. fueled boom which was absolutely destined to eventually collapse. [00:30:22] And finally we had the rise of something that takes a variety of names. So. Jamie Galbraith called it the predator state. and that that over the past decade — well. or neoconservatism. of course.

So how do we do that? [00:32:20] MMT Conference Page 155 . so hang in there. I’d say a Smithian vision. This is my last sentence. Adam Smith said that the wealth of a nation rests within its people. with these numerical measures of government success. How do we utilize this operational understanding of government expenditures to get past the obsession with the financial ratios. So our vision is. So now we get to the vision. this is the final stretch.rise of money manager capitalism. and actually get to the real thing? Talk about financial ratios in context of what is happening to the real economy. Today most of the day we have mostly focused on our operational understanding of government spending. [00:31:00] Pavlina Tcherneva: Okay. longer period than that — but over the past decade has built up the conditions which finally led to this crisis. [00:30:57] Now Pavlina is going to take over and talk abut the specific policy proposal. This is what Bill was talking about. not wasting human resources. and that that over the past decade — well. Adam Smith’s vision.

So we are redefining sustainability in terms of employment creation. where the access to livelihood is a wage-paying job. even if we agreed that maybe deficit spending is sustainable. [00:35:00] And you know we’re arguing that this delivers more bang for the buck. I would say. we really need to re-orient our thinking about fiscal policy. [00:34:37] We have no sense of the sort of dynamic forces that are determining output. Economists constantly redefine their NAIRU or their inflationary barriers and you look at the data and its very difficult to find this particular level. This whole idea that Randy was addressing that somehow unemployment is a necessary evil. I like to argue that its done in a backwards way. we don’t really know how much labor went into the production of that potential output. So let’s just measure fiscal policy in terms of employment creation effects. That what we are attempting to do is plug some demand gap. So the way to flip fiscal policy is not to target a demand gap. as opposed to certain debt/GDP ratios. is very spotty on this. then that should be the criteria for responsible fiscal policy. because that’s not very clear what that means.So this is what we think of features of responsible fiscal policy. We do not know today how much more. we’ve got to deficit spend. This is how we tend to see things. whatever that means. These are the questions that sort of emerge from the historical perspective that Randy provided. even in the most sympathetic. er come up with measures of potential output. The empirical evidence first of all. [00:34:00] We have to switch the conversation. and we have to put up with it in order to maintain price stability. and also you will see how we believe that this kind of approach utilizes this operational knowledge that we’ve just built to build a very sustainable system. We MMT Conference Page 156 . And so long as we are living in a monetary production economy. commentators to the deficits I would say ‘look we need to push further. we fix our growth rate. We don’t use unemployment and human livelihoods as means to check inflation. but instead to target a labor demand gap. [00:33:34] But we can debate that. how much was output produced by labor replacing technology. price stability. what happened to the structure of the economy. So we would like to measure potential output in terms of men and women put to work. And Randy’s was alluding to this.

[00:35:38] How many people do you want to put to work? Obama wants to save and create 3 to 4 million people. which is Paul Krugman’s euphemism. we would like to achieve sustainable fiscal policy throughout the short and the long run. If you want to create ten million jobs you know what your budget is going to be and you have directly achieved the goal as opposed to going backwards through this vision of producing growth and hoping that somehow the growth will lift up all boats and trickle down to the economy and produce the kind of job growth. [00:36:44] MMT Conference Page 157 . ok put them to work. finally the return to Keynesianism is because we’re in a depression. we’ve got to deficit spend. In other words this is very different from depression economics. No. [00:36:06] So we see a responsible fiscal policy as an employment stabilization via direct job creation. So what we are proposing is that we actually tie deficit spending directly to the objective and you know exactly how much you need to spend. not for the short run but also for the long run. because the objectives are to guarantee full employment. commentators to the deficits I would say ‘look we need to push further. you know exactly what your wage bill is going to be. you’re going to find out your materials and your costs. We still don’t know how much we need to spend. how large deficit spending is large enough to produce the real outcomes that we are aiming for. and we see direct job creation as a permanent feature of policy making.say.

and an unconditional program it attains and maintains full employment. not the reserve army of the unemployed. we can use an employable. that is. This program is a job guarantee. [00:37:33] MMT Conference Page 158 . so what is the job guarantee in theory? Let me just synthesize some of these ideas very quickly. direct job creation. you name it.Okay. This is the job guarantee Bill refers to. There is an alternative to the NAIRU. as a permanent program. there are various other – public service employment. So I’ll explain a little bit about what that means. This way. But what that basically means is that you provide an unconditional offer of a public sector job at a minimum wage to anyone who wants to work. or employed pool of labor as the buffer stock.

that produces growth. Today the wage floor of labor is essentially zero.Okay. or has hired as much as they desire. you can stabilize the price of that stock by simply selling it when the price is too high. And that would be your stimulus. and buying it when the price starts falling. Once the private sector has been saturated. So. [00:39:50] So this is how. [00:38:48] As that demand trickles up to the economy and the private sector rejuvenates and starts demanding labor. we can talk more about this sort of mechanism. We like to always argue that this program offers both a job as well as an opportunity to improve skill through training and education. so essentially the features of the job guarantee is that this is a bubble up policy. You know MMT Conference Page 159 . The benefits of this program of course is that it also creates an employable pool of labor and it maintains and enhances human capital. or the way fiscal policy is conducted today. but this is a program that then deals with any kind of unemployment that you’re trying to solve: cyclical unemployment. then the private sector will be able to hire from the public sector pool. So you can envision labor as being a kind of a buffer stock [00:38:00] where you offer employment to all those who want a job at a base wage. so this is the part that we need to explain how the job guarantee serves as this buffer stock. It deals precisely with those that are either never employed or the ones that are last into a job and first out of a job. So essentially what this program does is it establishes a wage floor to labor. inflationary pressures.[00:40:42] It’s a targeted program as opposed to this indiscriminate aggregate demand that management plan that we seem to be implementing today. then those workers will be laid off and instead of moving into unemployment they move into the public sector buffer stock. seasonal unemployment. And I’m using Bill Mitchell’s terminology here. this is not trickle down economics. the long-term structurally unemployed. It is a policy that hires off the bottom. as well as the entrance into the labor market (you know. if you observe sort of an overheating economy. the private sector decides that it needs to downsize. by bidding up the wage. It operates with flexible markets via a buffer stock mechanism. it’s a bottom up approach. It’s very targeted. my college students that are looking for a job). because you can hire somebody that is willing to work at a premium above the zero wage that they are earning at the very moment. who basically made the case a number of years ago that. just like any other commodity buffer stock. essentially.

We all think that there are plenty of useful things to do. Of course the projects have to be useful and valuable. or the way fiscal policy is conducted today. [00:41:46] MMT Conference Page 160 . You’re not trying to educate people and hopefully they will find– they will become employable in the eyes of the private sector and find employment. You deal with distressed areas. You look at their resources.seem to be implementing today. you look at their needs and you mobilize them. You know where the unemployed are. It’s a safety net that captures the unemployed and prepares them for private sector work if they so desire. So this program can be seen as a transitional employment program. It also is an approach that takes workers as they are. you take the contract to the worker. and then also you provide other opportunities to train to become employable and transition to the private sector. So it’s a very targeted approach. It’s very targeted. You provide the opportunity.

nobody is forced into working for this job guarantee. It reduces their training costs. They have a visible pool of labor. and if you set the wage at the appropriate level that would lift people out of poverty. [00:42:56] Okay. I think I’ve already said a lot of the things that I’ve listed here. it’s a permanent program. and it has a transformative impact on workers. it might mean better distributed demand. what kind of experience they have received. however many people show up for work. and by permanent program again I just want to emphasize that it doesn’t mean more demand. and they benefit from that as well. they know what these potential private sector workers have worked. [00:43:07] MMT Conference Page 161 . on firms. on communities and on the economy. This is a policy that can lift the floor. so we’re going back to the earlier discussion about taxing the rich and how do we redistribute. [00:42:16] Firms also benefit from this because it replaces unemployed with employable workers. you don’t spend more than necessary and you don’t underspend in a sense. the spending level is always at the right level. that’s how much you spend.So just to summarize: it’s a voluntary program. well you can improve the income distribution by lifting the floor.

the job guarantee. but it’s definitely better than the unemployment buffer stock. you can use those resources then to direct them to the specific things you want to do. When the economy grows the budget automatically contracts as workers move out into private sector jobs. This is because the compensation package establishes the floor. and other things. as a program to address specific goals. Just let me touch on this once again. We may want urban inner city renewal. This is what previous speakers were alluding to previously. [00:45:10] MMT Conference Page 162 . This is not a solution for all labor market problems. the macro-stability. So that’s the counter-cyclical mechanism. This is not a panacea for all labor market problems. You fix the price of labor and then let the budget float with the needs of the economy. then will serve as an anchor to prices as well. We use labor as that anchor. And wages become the benchmark for the prices to the extent that wages are an input of production of all reproducible assets. When the economy decelerates the budget expands as those workers enter the public sector. labor market discrimination. the wage provides an inbuilt inflation control mechanism. This is the floor to the standard of living for the entire nation. We can use this program as an institutional vehicle. And the idea here is that we are establishing better anchors than the current system. maybe you want green infrastructure investment. so it has an expansionary effect. Again you spend on this fixed-price floating-quantity rule.Okay. There will be other things that you might want to deal with. [00:44:15] So full employment and price stability also promotes currency stability.

But it was a large-scale program. and especially on women and minorities who had access to these jobs. it stabilized output. but look higher than our official levels. So it’s job creation that produces growth as opposed to the other way around. I’ve looked at some of the measures and some of the more conservative measures is 2. the program was running. even though it was a smaller program it still exhibited the features that I was just discussing of this sort of macro universal job guarantee program. [00:46:52] It was counter-cyclical.So let me very briefly talk about Argentina. up and running in a few months. The government budget moved into surplus. the government gave them jobs. I want to emphasize it’s actually a limited program. Argentina is one of the most recent cases of implementing a program that mimics the job guarantee. and Argentina. and 2 million people showed up for work. Meaning that for every dollar spent on the program you’re creating 2.6 dollars of output. You look at the data and you find all of those indicators stabilize. it was implemented quite quickly and in our view effectively. it offered 4 hours of community work to the unemployed heads of households at a minimum hourly wage. This program had a considerable impact on the poor. people took to the streets. they demanded from their government jobs. There were a variety of things going on there but of course you’re generating large amount of incomes which are being taxed. The multiplier effect of this program. is coming down from 25% of unemployment. Just like the New Deal era experience. And they gave them jobs. [00:47:44] MMT Conference Page 163 . GDP growth was between 8 and 12% between from 2003 to 2007 and only in the last year it dipped to 5%.57. So we have been studying this program and looking at the macro effects as well as well as going to projects and visited those projects to see what they did and how they impacted people. [00:45:39] Now. It is not job guarantee. It was a part time job. granted. The Argentina program was implemented as an emergency measure. It was depression economics. This is about 13% of the labor force in Argentina. and currency. prices. So their levels were close to our real actual unemployment levels. we were able to organize things to do for the unemployed relatively quickly.

[00:50:06] MMT Conference Page 164 . Lots of food kitchens. they would be– when they transitioned to private sector jobs now they were working under contract. and from our visits as well it was obvious what kind of impact this program had on the poor. public libraries. From all the people that transitioned … sort of a wage floor. Those that used to work under the table were issued social security tax cards. it empowered. because it was a limited program. In Argentina actually there’s a very large share of the economy that is a grey economy. the government actually maintained a database of skill and experience of the unemployed. [00:49:27] Again. centers for the abused etc. carpentry shops or baby clothes tailoring shops or toy shops. I can tell you about all those institutional details. I like to see this as a new form of microfinance. locally administered. get them on their feet. it provided on-the-job training. how the resources were mobilized. helped them to transition to private sector jobs as well. One benefit of this was that it formalized the informal sector. how it was administered. every project that we went to see [00:48:00] had an adjacent room with literacy education. and pretty much every project that we saw was some people that set up shops. daycare center.Now. But from all the people that transitioned from the public sector job to the private sector. they were all hired at a premium. the economy stabilized very quickly. with training. But they were also products that were freely distributed to the poor. and what happened? Did people get stuck in the public sector? No. get them to produce something. with various other courses that they could take. The economy. as opposed to lending to people you just give them a grant for the wages and for the materials. but suffice to say it was federally funded. or something that they could then sell on the market. It was organized in a very interesting way. 97% of those were hired at a premium. elder care. the employers hired from the pool. The program established a wage floor. Actually what happened was that as the economy recovered many workers transitioned into private sector jobs.

and on and on and on. water irrigation.And communities were transformed. So these are some pictures of projects that we visited. subsistence farming. and lots of food kitchens. and recycling initiatives. but there were things like health promotion programs. but what was interesting was the unemployed themselves proposed a lot of these projects. etc. there were a lot of projects outside of the greater Buenos Aires area which we visited that dealt with agricultural projects. clay pits. they were the ones that actually invented the kinds of things that they did. [00:50:55] MMT Conference Page 165 . There were lots of poor communities. They did massive landfill cleanups. I can give you lots of examples.

it can harm the environment. this sort of pro-growth. So we are really looking at a bottom up approach that looks at full employment through direct job creation. growth itself is not the appropriate target.So again. a job guarantee. You can set an environmentally sustainable growth path and maintain price and currency stability [00:51:37]. We haven’t really said anything about the environment yet. It can promote inequality. or growth at all costs approach can promote inequality. We view this as a program for shared prosperity. you have to wed it to job creation. MMT Conference Page 166 .

I just want to show you that in perspective you get. So we have a deficit in convictions. costs here are not in terms of financial costs. and produces and delivers goods in such a way as to sustain an acceptable standard of living.We can do it. not necessarily in the ability to fund. if you target your programs. but just the wage bill. just the wage bill of hiring 20 million people at a – I think Warren has proposed $8 an hour – where you could do a living wage of $10-$12 an hour. in real terms. And let me end with a couple of quotes. And in my opinion I think Obama just needs a Rooseveltian resolve. we have done it once in the past. a deficit in cleverness. It’s the right thing to do. Compare this to the other expenditures. it’s not necessarily the problem. I think we could debate this but you know I want to get back to the point about having access to a job as a basic human right. as have other countries in one form or another. One is by FDR that says that the liberty of a democracy is not safe if its business system does not provide employment. [00:53:07] MMT Conference Page 167 . I think. you deliver so much more bang for the buck in real. we’re looking at 350-500 billion dollars. [00:52:25] But I want to emphasize. We can talk more about this later.

and that’s this idea that we have to keep 5% or 10% of the population in idleness. “The Conservative belief that there is some law of nature which prevents men from being employed.And the last quote is a quote from Keynes this is something we as academics constantly run against.” [00:53:45] MMT Conference Page 168 . the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years. that it is rash to employ men (or women) and that it is financially ’sound’ to maintain a tenth of the population in idleness is crazily improbable.

twelve years. ten. A job guarantee would eliminate the need for a minimum wage. I advocate a universal living wage. instead of having to deal with this issue every seven. correct? I mean a federal minimum wage. ________________ Session 5: Q&A [00:54:17] Dennis Kelleher. The size of this employed buffer stock. [00:55:55] Just wanted to add something I just remembered to Pavlina’s. but the cost of housing. it’s based on region. And I think our friends at the Cato Institute would appreciate this. the cost of housing in a region. you could do away with it because the government is. So for right now. let’s just say we will pass a wage that is indexed to the cost of housing — not necessarily CPI. It’s a wage that’s based on. And HUD has an index it has that does that on a regional basis so it’s not straight across the board based on the entire country. and I’m not sure you if you wanted to talk about it.Thank you. Certainly there is no objection to that and I’m sure–would support it. Rebel Capitalist: Two things. if maybe the mainstream would think maybe we needed maybe 4 or 5 percent unemployed for price stability under normal circumstances. that says. [00:54:42] The other thing is that. right? I think they would love that. certainly if the political will is there for that. I’m curious. a movement. there is a theory. since we have this insane policy of waiting ten. we’d expect it to be much smaller than the pool of unemployed for a given level of price stability. [00:56:36] MMT Conference Page 169 . Is it possible to use something like that as a means of a base wage? [00:55:45] Warren Mosler: Yeah. twelve years to increase minimum wage. the government is basically setting the base wage. you know what. that says let’s pass a universal minimum wage. this might be only 2 or 3 percent because it’s a much better buffer stock than unemployed because labor can actually flow back and forth and so it becomes more of a transitional job between unemployment and private sector employment than it does…there still would be elements of just a career public service job.

yeah there’s a lot you can do. like Warren says in political terms. civilized country. short of having a major depression or a war. of course. are large military groups and they do what you would expect from any systems theory. What we’ve heard described here is options for how we could be doing things differently but that’s not how we can get this group or this population currently in this country to start exploring or selecting some of these other options. of groups that have done this very large scale. India’s got a bigger population than the U. and the only example I can think of. is how we address this is we either have a war or a severe depression.In terms of what you want to do politically with it. it’s employed millions of people. you could put anything in it you want and introduce benefits from the bottom up — health care — and so competitive markets for courses would move those benefits up the scale. you’ve got no aspirations to be a sophisticated. as a national employment guarantee. [00:57:52] And. The only thing we’ve learned. Otherwise. of course. you’ve got…the approach I used. You could say two weeks vacation and then the private sector would have to have two weeks vacation to compete. not some penurious sort of penalty rate. But it is the minimum wage and you have got to set it at a level that you aspire to be the actual living minimum. sophisticated country is what is the minimum price you want people to be able to do business at? And that minimum price has to be a wage that provides people with an inclusive capacity to interact in society. and India has introduced the rural Job Guarantee. You could say child care. Bill Mitchell: I’m just explaining how they did that. that what you’ve got to decide in any nation is that aims to be a civilized. And so the job guarantee wage is. And. it becomes the minimum wage. because one of things I’ve been doing was designing a minimum wage framework for them which would embed in the public works program we’ve been working on. We have to find a mechanism where a population can become self-aware enough to address this kind of…what it’s leaving on the table. Unidentified: We’d love to hear how they did that. whoever became aware first got the attention of their politicians. as Pavlina said. [01:00:14] The problem is scaling up to large populations. it gives us a tool for that which is the American approach to things so it is a hybrid type of approach that gets rid of the moral hazard aspects of other approaches. Listen to this. all these things get worked out through affinity bonds because the group is small enough that everyone is aware of group options as well as individual ones. I said this to the Treasurer of the country. then you find out that there’s objections from the government: 30% of private employers are paying well below what you’ve suggested as your minimum wage. Roger Erickson: Okay so… [01:01:32] MMT Conference Page 170 . [01:00:55] Bill Mitchell: I mean. which was urban-based in technology and construction… [01:01:21] Roger Erickson: I’m sorry to interrupt you but just to make it brief. we’ve had a really big debate about it. and if your private sector are paying below that then you don’t want them in your country. I’m reminded again of something in a different field and the question is about policy. already. [00:58:40] That’s the reality. in Australia we call them social wage benefits: child care and access to all sorts of other benefits that are outside the direct employment contract. it’s not what they did but how.S. you can introduce benefits from the bottom up. If you look at small group theory. [00:57:21] Bill Mitchell: In the South African case. [00:57:05] So what it does is allow us to use competitive market forces to achieve goals. you don’t do away with the minimum wage. they drive interaction and awareness through absolutely political or operational decisions. one is historically and we have lots of to go on. So there are two ways to look at this. [01:01:11] Bill Mitchell: They did it because the growth in the Indian economy. to help out the process. [0:59:30] Roger Erickson: I’m Roger Erickson again. to use poverty lines and nutrition rates and things like that. I’ve learned today. you can add on whatever. And then you can add on whatever. and over there.

we’re talking about. I can’t be fired. effectively. You know. progressive think tanks that are hopefully…will get on board with something such as this. a lot of times I get. right? This is a socialist idea. we’ve got to do it and they did it. Who’s going to do it? The private sector isn’t going to do it. [01:05:16] Jeff Baum: Yes so. it got a surprising degree of what I would call bipartisan support. I don’t know if I’ll see it in my lifetime. conservatives. what stops every minimum wage worker saying. it’s going to support wages and therefore we’re not going to be competitive with government. [01:05:47] But following on what you just said. Where’s the argument there? [01:06:18] Warren Mosler: Look. [01:01:55] Bill Mitchell: Solution: Create jobs. soon. So it will be an incredibly difficult endeavor to do something like this but it doesn’t mean we don’t undertake the effort to do it and to start advocating this on several needs. [01:02:08] Roger Erickson: So the hundred dollar question is what do we have to do to make the existing Congress aware of things that it has taken them years to become aware of? Bill Mitchell: That’s a good question. right-wings have had an incredible noise machine that they have used for several decades now. several levels. I’m sorry not drive wages down. [01:04:28] Funnily enough. but you say it makes welfare redundant because you have this program in place it does actually tend to command a lot more appeal. There’s no reason why people on the left can not. especially India. [01:03:39] Marshall Auerback: I disagree. lot of speeches. again this is obviously coming to a lot of political questions and I think the big difference between the United States and basically every other country. Funnily enough. our political system is seriously dysfunctional. we’re going to have active fiscal policy that keeps. I presented it once when I was in a debate with the former Governor of the Bank of Canada and. is that there’s just so much. There are certain think tanks out there. especially when you sell them on the idea that it makes. in the first instance it can be a little bit deflationary because if you have someone who’s been paid. he’s been on the campaign trail so he’s had probably more media interaction but. actually. But it’s going to take a long time. I think as Randy said. I mean America is genetically averse to anything that sounds socialist. say. Millions of jobs have been created in the second largest population in the world. for a given size government. number 1. So I actually think this is one of our winning ideas which actually could get much greater political acceptance than you think. how do you stop. the motivation was that they were faced with an urban crisis because the rural poor had no option but to try to flood into the cities to enjoy the growth that was occurring there and they knew that wasn’t sustainable for housing and other reasons and so they suddenly realized that the reason this migration is occurring is the lack of jobs in the rural sector.” And. To get anything. $40 an hour and all of a sudden he’s lost his job and he has to go to $8 there is a once off adjustment but then the adjustment mechanism the other way which is much easier.Bill Mitchell: They were faced. keeps taxes low enough so that the private sector will be able to have the means to hire everybody which means MMT Conference Page 171 . that’s the kind of argument you’ll get from industry is that you’re going to compete against private industry and that’s going to drive wages down. So. [01:03:00] You know. we believe in private industry so regardless of the merits of the argument there’s all the noise. It’s going to have to come from the grass roots because of. how dare you. don’t have to do the same thing and particularly do it on a grass-roots level. Warren and I have both talked about this. there’s so much noise and. I’ve had objections from unions rather than from on the Right because what the unions think is that you’re trying to create a slave class of labor that’s going to undercut their wages and you have to try to explain you’re trying to fill the gap and create a full employment pool which ultimately enhances their pricing power. if this becomes the minimum wage. it’s possible. actually. [01:02:18] Unidentified: Well that’s a serious political question and I…it’s going to take a grass roots effort. it’s not that we want to eliminate welfare. something like this out of our current political system is just unrealistic. “Why should I work in private industry? Why don’t I just go work for the government. whenever I’ve presented this idea. and I’ve presented it at a number of conferences. we can do it. a lot of people on the right like the idea that you can legitimize government expenditure by work and.

[01:09:45] L. if there’s a tax to get out of this room and of. Look the thing is. Randall Wray: I wanted to correct a misunderstanding because a lot of people do jump to this. and don’t forget when I told you about my cards in creating. [Laughter] Jeff Baum: Well. We don’t understand a buffer stock always anchors a monetary system. oh. we allow too much aggregate demand and then our pool of buffer stock workers shrinks to zero then. that’s capitalism. well then they’ll never get fired. why did I do it? Something’s really wrong with my policy. [01:09:56] They don’t show up. it’s no longer a buffer stock and then you lose control of prices on the upside just like with any other buffer stock. we don’t want to spend. It’s larger. Right? I should be increasing my spending or cutting my taxes. [01:08:18] We want to minimize it but we also want to have a buffer stock as a price anchor. unless we over stimulate…we have too much aggregate demand. they’re going to have to work instead of welfare.taxes low enough so that the private sector will be able to have the means to hire everybody which means they’re going to have to still have the means to pay a higher wage. where Bill started. So. they don’t do their work they are fired. they show up drunk. unemployment is an unemployed buffer stock. Now. well that’s part of it. you can always take an ounce of gold and sell it to the government and get money for it. I don’t think anyone quits their private sector job for that or very few people. Anything that the private employer can do. We never said that. And you ask them. we use unemployment as a buffer stock. well. it’s true. We’re going to guarantee a job offer for anyone who is ready and willing to work. [01:06:41] [Inaudible] Warren Mosler: Well yeah. [01:09:35] Warren Mosler: Well I’ll just just give you the benefit of the doubt for rhetorical purposes. right now. we’re going to require that people who ought to be working. “Oh. they just don’t care and it serves their interest. On a gold standard. Sheep are fully employed. you can always monetize it. deeper more flexible. We got to get discretionary fiscal policy to the point where these people we’ve taken out of the private sector and not used in the public sector because either we don’t want them. and most important. there’s always a bid for wool. let’s say. define disabilities I think very narrowly. We should be using an employed buffer stock. first of all that’s not going to be disruptive. whatever. whatever.” They wouldn’t call it socialism. has got to be minimized. I should be lowering the tax or giving you more work. So if we start off at an $8 an hour. “What would you call that system?” All Americans are going to call that. What we’re saying is an employed buffer stock is far superior to an unemployed buffer stock and far superior to a gold buffer stock. [01:10:39] MMT Conference Page 172 . So — you’ll get a few and then we conduct discretionary fiscal policy so that this pool. yeah. every monetary system uses a buffer stock policy. and then I don’t hire enough. It’s full-time work. I don’t offer enough jobs so you can get the money to get out of this room. of course. a gold standard is a gold buffer stock. [Laughter] No. No. the private sector hires these people away and maybe they’ll have to pay ten or eleven or twelve dollars so it will be some spread but then that spread will stabilize and then that will be the stabilized private sector wage. the employers in this program will do. [01:08:57] In a wool buffer stock. There’s always a bid for the buffer stock. [01:07:21] But if we conduct policy to keep it at two or three percent. I think if you tell most Americans what we’re going to do. whereas before we had unemployment at four or five percent we’ve actually reduced the public sector because the unemployed are in the public sector. I just think once again from someone who said before…I think that you kind of assume that everyone does because they don’t understand it? Or they do understand it. [01:09:21] Jeff Baum: I get that point. gold is always fully employed. legally do to their employees. Not only do we not understand the monetary system we don’t understand that. There are still people who are going to work baby-sitting and whatever. And socialist. I could say a lot of other things that you probably don’t want to hear. it’s always fully employed. whatever your buffer stock is. [01:09:40] Warren Mosler: Privately. And then they say. you tend to do that a lot. this clearly shows we don’t have any idea what we’re doing.

And it worked by the federal government when the private market didn’t want to buy as much wool as was put onto the market the government bought it up and stored it in big sheds. But that tells you where the unemployed are. it was 1978. It’s very easy to persuade them. “Well are you happy about that?” And I can get them to say. Every bit of wool that was produced was employed. and I said I don’t really care about wool so much but I care about labor and we could use a buffer stock to do that for workers. and you’ll obviously do that again. So then I say to the assembled businessmen. “Nothing. We’re talking about the government providing for public infrastructure. they’re all in suits and what have you. And I remember sitting in this very cold winter day in Melbourne. that’s a recognition. Randall Wray: Well…but without the jobs. a million. The bastards. Well. And when the markets were strong the government wanted to stabilize the price. but secondarily it allowed the economy to expand at very high rates without labor bottle necks.” And then I say. [01:11:56] Bill Mitchell: Just in terms of your concern about the business sector. that’s enormous. we’re 750.Jeff Baum: Didn’t they all ready say they converted from welfare to workfare? I don’t know exactly what that meant but wasn’t that Clinton’s big thing? [1:10:45] L. [01:13:31] But the point about business is. what is it. was it more than that? Pavlina Tcherneva: Yeah. [Laughter] And in the end they become supporters of the job guarantee doing community-based development work. it just released the wool out of the sheds and back into the market. People who never would have done this before. well one — all the direct things.” [Laughter] [01:14:47] And I say. in Victoria. What. “Well what are they doing in the public sector?” And I can get them to chant. I think it was more. Public infrastructure is all the things you hire people for and then you’ve got this transition pool where you facilitate the transition from…back to the private sector and that’s what this does.” And once you go through this logic you can sneak up on them. typically men. I often give talks to the business community and they’re as right wing in Australia as they are here and I’ve given talks in the Netherlands where they are as right wing as they are in South Africa and elsewhere and its more to Warren’s point. I ask them the question. where right now private labor does not flow from unemployment to the private sector very well at all. never held a private sector job. you have to sell your time and that has value. their ideologies and their prejudices would rather see them doing something than nothing. [01:11:22] Warren Mosler: More like half. to the detriment of all of us. It’s an extreme facilitation of the private sector. thinking well I didn’t really care about…it seemed like a full employment of wool scheme. “No. either in the shed or in the private sector somewhere. I say. doing environmental care services. since I was an undergraduate. And at that time Australia was just going into very high unemployment. I think out of the 2 million in Argentina 750. [01:15:22] Unidentified: I would like to echo what Marshall was talking about. because they would rather. we’re not talking about the government owning the means of production.000 went to private sector unemployment within two years. they’re in the public sector. [01:10:47] Warren Mosler: At a minimum. The biggest service this did to the economy. “Well wouldn’t you rather they’d be doing something productive in the public sector?” And they say. And look. given the skull and the crosses I would imagine. And it was very successful. thirty-two years now. I’m not sure of the direction. It was very successful. Now you are having debates in Congress somewhere down there or up there. These are people who had never been in the private sector. it was used to satisfy the rural lobby to stabilize their income so they weren’t fluctuating. doing aged care services. It kind of surprised me and woke me MMT Conference Page 173 . where I grew up. and I say where are the unemployed now? And its a question they’d never really asked I don’t think and eventually I get them to admit or understand that the unemployed are all ready in the public sector. “Yes. It takes a lot of demand pull to get that done which is to everyone’s disadvantage. Warren Mosler: Since the second grade. but in Australia we have the unemployment benefits guaranteed.000. I got the idea sitting in my fourth year at Melbourne University and I was sitting in an agricultural economics class and at that time the Australian government was running what’s called the wool price stabilization scheme. [01:12:13] Bill Mitchell: Well as Warren said. about extending unemployment benefits. I’ve been on about this for.

What’s wrong with that. right? But now it is a whole different ballgame. I mean the things related to this. “Put them to work and they’ll pay taxes. So it was considered a great success through the Clinton Goldilocks years. literally. poverty did not change and. [01:20:15] Unidentified: This is more of an idea than a question but just on the question of how do we kind of implement getting this idea on to the mainstream. in Australia. That’s a key point.Unidentified: I would like to echo what Marshall was talking about. I want to ask. [01:17:43] Pavlina Tcherneva: Just one final note on the work-fare. these kinds of things. But none of us made that choice. that’s going to increase productivity. I think everyone knows the President’s debt commission is going on right now. I have right wing friends. work-fare with the state-administered program and one of the reasons why it didn’t work goes back to the old argument that states don’t create currency so it creates. [01:19:49] But we know lots of people who have suffered the slings and arrows. the government sets the price and says we’ll take anybody. well not a job guarantee related question. we call it “work for the dole. [Laughter] Joe Firestone: We have a question back here. What’s wrong with that?” [01:17:24] Most people won’t do that but some people might. I’m sure you do. And so you have also these additional issues if you would like to facilitate this transition from the public to the private sector as well. Let’s say that our goal was to get a position at Harvard. And then it’s up to the private sector to restructure their jobs. you absolutely would have to hide this and wait until you had tenure and then you could finally promote this and write the kinds of things. too but there’s one thing that does echo with them. But even at that it did reduce the welfare rolls for a time when you had employment being created. “Well what if someone wanted. [01:18:37] Joe Firestone: You have a question. You gotta provide some sort of transportation. an Australian economist and he told me he had to give up on his academic career because he had not mainstream views. And I think we all know people…yeah at Notre Dame. Whereas a job guarantee is an ongoing guarantee and people say to me. and their wages and conditions offered to make themselves competitive. “Well. but it can administered on the local and state level but it has to be funded at the federal level. [01:18:38] Unidentified: Yes.” And believe me. Randall Wray: I don’t think anyone here did but we were special cases. It kind of surprised me and woke me up. Yale yes. Believe it or not… [01:15:45] Marshall Auerback: By the way work-fare. obviously you’re professors so you teach students? Did you have to initially hide your true vision in economics in order to get the jobs? [01:19:25] L.” And its nothing like a job guarantee because it’s… a job guarantee is an unconditional offer. I don’t know if everyone knows that since they have no budget they’re actually outsourcing their roles to the Pete Peterson Foundation. The government wants you to do something for the pittance of welfare they offer. they agree with me on nothing else and they think it is a good idea. liked working in the job guarantee?” And I say. what’s wrong with liking your job? It sounds to me like a good thing if you actually settled into the job guarantee for life and made it a career move. including the listening tour is actually going to be MMT Conference Page 174 . economics departments implode over differences between those who hold these kinds of views and those who hold the more conventional views. It’s typically not anything like a living wage. there was an external constraint. not an entitlement. [01:16:18] Bill Mitchell: I meant to say something about work-fare. Work-fare and “work for the dole” are compliance programs to force people to do sort of like Shylock in the Merchant of Venice. Unidentified: The Fighting Irish. in fact the income they received was less than if they had remained… The income was through jobs was less than what they would have gotten on welfare. It’s usually short term projects not doing very much at all. We’ve seen university departments. you also have to provide certain protective services if you will. day care services that will facilitate this transition into the private sector so there are things to do. It’s a program. I have a friend. It was considered a success only because of the reduction in welfare rolls but when you look at the actual conditions of the recipients. So I want to ask did you have to hide your true views in order to advance in your.

Warren Mosler: I think you just said it all. Not everyone is raising their hands. [01:23:24] Stephanie Kelton: I think this comes back to what we’ve been hammering at all day long which is that there are all kinds of self-imposed constraints. Joe Firestone: We got all kinds of bloggers. You focused really. the Disability Insurance Trust Fund DI and you put them together and you get OASDI and you get what everyone commonly refers to in everyday language as the Social Security Trust Fund. wholly on the job guarantee with respect to the policy implications or policy considerations. The Foundation went to America Speaks with a bag of money to do it all themselves and they said they wouldn’t do it if it were just the Peterson so they got MacArthur to lend their name but it’s all Peterson money. Why is there this difference? Why are the other three going broke but this one is perfectly fine? And it happens to be that the government has guaranteed to make all payments for Medicare Part D and Medicare Part B out of General Revenue and tied the payment of benefits for other Medicare payments. [Laughter] Stephanie Kelton: I was… [01:23:18] Joe Firestone: I’d like to hear you say it. [01:22:33] Joe Firestone: Just a question. There are twenty hearings around the country on June 26 and the thing is they’re all open to the public. As far as the Trustees can see. It may be even an invitation-only although it may have the appearance of being open to the public and a mix of everyday common Americans. they’re kind of in the background but. So. Could you comment some on the health care issues and the environmental issues and some of the other policy issues where we are not attempting to meet any of our problems due to budgetary considerations? Those considerations always come in first and seem to control the agenda. And so. if we can get people into those meetings then we can raise this and at least pull the discussion to a more balanced place than where Pete Peterson wants it and he paid millions of dollars to make sure they end up with the recommendations that he wants. I was looking at the Trustees Report from 2009 for Social Security and Medicare and what the Trustees are projecting for the Old Age Survivors Insurance Trust Fund OASI. or so. [01:24:19] hose are both projected to go bankrupt at some future date. I was telling Warren yesterday. hospital benefits. In the 2009 Report. We know what Peterson wants to do with it. again. [01:21:57] Stephanie Kelton: I understand. If you say that you’re only going to fund Social Security out of the payroll tax and you use. that the groups are pre-screened. 75 years and beyond. and Randy and I heard yesterday some things like you’re talking about but I understand these are very difficult to penetrate. I say it all the time but I don’t hear you say it [inaudible]. this is off the table because it costs too much or that is off the table because it costs too much. you establish these Trust Funds and you say the Trust Fund must have a positive balance or else we’re not going to clear the checks at the level that’s been promised then we’re only going to be able to meet 77 percent. the day of doom is now 2037 on those two programs. The Supplementary Medical Insurance Trust Fund (SMI) is projected to be solvent into the indefinite future. of promised benefits after some date. That’s supposed to go bankrupt. and Social Security to the availability of the funds in the Trust Funds. the organization is America Speaks and I feel like this is something that this group could do by email and try to get folks into as many of those meetings as possible with this idea offered up as something that the people want. Warren Mosler: Any bloggers in here? Unidentified: One or two. there is no problem with the SMI Trust Fund which is Medicare Part D and Medicare Part B. Warren Mosler: Can’t hurt. Health Insurance Trust Fund. I mean it’s crazy. including the listening tour is actually going to be the listening tour that America Speaks is putting together that the Pete Peterson Foundation is paying for.outsourcing their roles to the Pete Peterson Foundation. But my impression is there is a gatekeeper and it might be pretty difficult to penetrate those meetings. can’t hurt. the Medicare care side is also projected to blow up. it’s right there in the Trustees Report and they say MMT Conference Page 175 . [01:21:10] So this is the exact type of thing that if there is a coordinated effort. I was rereading.

forward markets provide a counter-party for a manufacturer who wants to hedge exchange-rate exposure on some manufacturing contract that crosses borders. The only speculation I would allow is that there can be readily attached to the real sector. I would…The future to our inter-generational challenge dependency ratio challenge is first class education at all levels and public education in my country services. that’s fine. and your government is toying with the same sort of nonsense as my government. Give it twenty years and then close it down. for example. it’s the biggest coal exporter. by far. [01:26:26] Bill Mitchell: Here’s a snippet of policies that are current and that I’ve written about and that are on my blog. And I would immediately outlaw almost all OTC trading and redirect those workers into other jobs that might help us solve cancer and create environmental care solutions and things like that. it’s right there in the Trustees Report and they say it very clearly that the reason Supplementary Medical Insurance plan is solvent as far as the eye can see is because the government says so. The sort of emissions trading systems that Europe has been implementing are dysfunctional and will create a worse problem. not speculators. It’s a rules-based approach. [01:27:59] Financial sector. And nobody suffers from lack of income in relation to health care. And I would have massive injections of public spending into education to increase their productivity. That’s speculation that serves a real purpose. it is an accounting problem. I mean it’s crazy. at least. [01:30:12] Joe Firestone: One more question and then I think we’re going to have to wrap it up. [01:25:45] Warren Mosler: Just to your last question. So. As our dependency ratios will surely rise we will be able to get more output per unit of worker and not have to worry about the real resource shortages that might arise. market-based trading schemes are ridiculous. It’s as simple as that. so many of these things that go on are in the name of creating jobs when that shouldn’t be the case. most of this audience knows about different parts of the United States so. Any speculation that doesn’t should be outlawed and I would create public sector jobs to provide gambling advice to those that I’ve outlawed. I think we also tend to agree that unemployment is a large cause of the environmental degradation. Banks need to go back to being financial intermediaries. Universal Health Care. America has a crazy health care system. at least I’m very curious to know. we should be at full employment anyway and then the pressure for that would go away. It’s a dysfunctional health care system and you could be very well advised to look at the Australian system. You need rules-based schemes. We’ve added now three countries as examples of that social unrest provided the impetus to get policy makers’ minds focused on this. [01:26:00] Warren Mosler: So look. [01:27:20] Environment. the greatest majority of people and I’m not so sure here but probably secondary school still does here. Health care. the formal ceremonies for the day. it’s not a financial problem. in say Australia’s case.of the funds in the Trust Funds. So I think Universal Health Care is something you should aim for. And so. is there any significant difference in the resistance of people to discussing these ideas in Australia as compared to the United States? [01:31:03] MMT Conference Page 176 . We all know. I’ve written that. But as we said this morning the irony is the solution we’ve adopted is to trash our education systems and therefore we are undermining our future when we think we’re actually supporting it. Can you pass over the microphone before you start? [01:30:26] Unidentified: This should be a short question. So there’s a few snippet policies. then you could redeploy people who I’m just about to be put out of jobs in the financial sector as doctors and health care professionals. The government will always be able to afford that if there’s enough real health care resources available and if there’s not. we need radical reform of the banks. Nobody cuts the trees down when they don’t need the money and don’t need the jobs. [Laughter] [01:29:05] So there’s some policy initiatives. Stephanie Kelton: Exactly. Emissions trading schemes. That is you need to identify. Coal is not a viable long term industry in environmental terms. The poorest person in Australia has immediate access to first class health care whenever they want it. Joe Firestone: So the whole problem with respect to Social Security and also Medicare is just to have the government say so? Warren Mosler: Yes.

I mean. [01:35:13] Unidentified: So is it just like when you have a two year old who can crawl all over you and do terrible things but the reason he does that is because he doesn’t know he can hurt you. even your enemy is a mate in Australia. you would MMT Conference Page 177 . “When you add all these things together it’s a disaster. And one of. in our. All my life I’ve seen the right-wingers arguing for things that are plainly destructive and you just said they were trying it in Australia and they couldn’t succeed but what are they doing it for? Why do we have so many people trying to do this kind of stuff? [01:34:24] Marshall Auerback: You know I’m Canadian and just a little anecdote. Randy. goes back to the settlement. L. to make life more interesting. [Laughter] And I think you’ve commented. Randall Wray: But a big part of it is.. we would think it was a joke. [Laughter] But the type of journalism wouldn’t survive in Australia. It’s too culturally embedded in us. we won’t allow them to go without housing if they haven’t got income. so you can step back and look at the big picture but there are little stories about each one of these.” I think that’s part of it. they haven’t succeeded in doing that and they never will. and our ANZAC tradition and all of that stuff. Unidentified: It seems to me it’s somewhat for the fun. At the end of the day we will not allow a fellow worker to go without health care if they don’t have income. the dialog is more civilized in Australia. we have this concept called mate-ship. they’re advocating for things they see as in their own individual interest and then we can step back and we can say. Just to follow-up on that. It’s more civilized. we were having a conversation with someone this morning. each individual sector is trying to get a bigger share. Randall Wray: It’s more intelligent. if you’re Goldman Sachs and you’re going to be peddling Credit Default Swaps and you’re betting against your customers. when you’ve come across. And I think that they haven’t been successful in getting rid of Universal Health Care. One of the reasons we almost didn’t avoid the sub-prime bubble was because AIG came up to Canada when the Harper Tory government come into power in 2006 and they argued for us to liberalize our insurance markets so they could offer programs like Credit Default Swaps that was AIG’s doing. [01:31:21] Bill Mitchell: he boss exists. Now. and everybody’s a mate. [01:32:29] Bill Mitchell: It’s more intelligent Randy’s saying. we have a more. it just wouldn’t happen. when you’ve been interviewed by our press. To make it more exciting. goes back to our war efforts.[01:31:03] Bill Mitchell: No. are these guys like just children trying to get what they can and do what they want and not know that it has consequences? Bill Mitchell: I don’t think there are any psychologists on the panel. But our welfare state has been degraded but not destroyed. Fox News couldn’t exist in Australia. [Laughter] Warren Mosler: I think they do it for the funding. Well I wasn’t going to sort of say it [Laughter]. And so. I do believe in conspiracies. [01:33:56] Unidentified: Just one. they haven’t been successful in getting rid of a decent minimum wage system. [01:35:50] L. And the Tories were no more ideologically predisposed to do this than the previous Liberal government was. We were criminals after all. And that’s a very strong collective tradition. They’ve tried all of those things. what I would call the extreme right in Australia is more civilized than Fox News. they haven’t been able to completely trash public education. But at the end of the day the neo-liberals invited us too. one of the differences might be I sense there is much more of a religious zeal here than there is in Australia. Joe Firestone: There is one last question. Unidentified: What do you mean? He came that way.S. Even the. that you were surprised by the sort of questions the press and the way in which the public discourse and policy discourses is played out. that’s why we got rid of him. With all due respect. we’re a more collective society than the U. We don’t have the fundamental sort of puritanical origins. too — but I don’t think you have to go there to explain why. Maybe they just wanted to expand their money-making machine across the world and maybe they always want to do that. so each individual firm.

Unidentified: Yeah. of course. Whereas in Australia we had a very early fiscal intervention and a relatively large fiscal intervention. less government and that type of thing. we didn’t have an 80/20 rule we had a 75/25 rule. Unidentified: There used to be moral. was that. But when did good debt become toxic debt? When people lost their jobs. I mean the big difference between Australia to here in the financial sector is we really kept the regulations on the banks. and I think you’ve made this point sometimes too. there was no doubt at the margin that people who should never have got loans. Like you ditched your 80/20 rule. And that’s cultural and. [01:38:57] Pasted from <http://www. And the banks had to insure them. [01:37:48] And the other big difference. What are you doing? You’re going to kill us. And not one bank went close to failing in Australia. [01:36:56] Bill Mitchell: Yeah.” But it saved us. And that’s a fundamental difference. You didn’t do that here. and there used to be regulation too. I didn’t say it. And it stopped a lot of the good debt becoming bad debt. I think the question about regulations is important.and you’re going to be peddling Credit Default Swaps and you’re betting against your customers.netrootsmass. there used to be things you wouldn’t do. whoa. I mean we didn’t even have a recession because the financial implications were very muted in Australia. intelligence. And you’re not going to stop that. it’s just human ego.net/fiscal-sustainability-teach-in-and-counter-conference/pavlina-tcherneva-l-randall-wray-policyproposals-for-fiscal-sustainability/> MMT Conference Page 178 . And that’s because we still maintained most of the regulations. “This is ridiculous. is that when did the sub-prime crisis become a crisis? When did we get this sort of debt melt down? We got it when we. And the deficit terrorists were saying. You could have avoided a whole lot of the bad debt problems if you had an earlier and more substantial fiscal intervention. The modification we had was anybody who wanted to go without a 25 percent deposit had to insure. Warren. [01:36:35] Warren Mosler: But the other thing is you have a lot of successful people who think that it was because of their own doing and then fund organizations that support self-reliance and all these things we consider rightwing types of things. [Laughter] Warren Mosler: When you’re upside down the blood goes to your head. as Randy says. you would like to see that allowed. we didn’t ditch it.

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