Everything You Want to Know About Modern Monetary Theory

our topic today is everything you wanted to know about modern monetary theory i'm christina lindblad i'm the economics editor of bloomberg business week magazine i'm joined today by peter coy way on my left who was our senior economics writer and by randall ray who is one of the most important voices and proponents writing about modern monetary theory so at a time when republicans and democrats seem to have lost interest in deficit control mmt proponents kick it up a notch by saying that the u.s and particular countries that issue their own currency have a much greater capacity to spend because they can also issue debt in their own currency um this um doctrine or theory has been around for several years but it's getting a lot of attention in the last few years and there's a lot of debate and i would say a lot of confusion right about what mmt is so today we're going to try to clear some of that up so um just before we get started some housekeeping there's a question window on the right side of your webcast console so please send your questions um as we're talking and we'll i will get to those uh not too long into our webcast so let's get started thanks for joining us thanks for inviting me so i think um the first thing i'd like you to do is just give a brief description of what mmt is all about okay well first let me say that what we argue is that a sovereign government that issues its own currency is actually nothing like a household or a firm even though we hear this analogy all the time if a government issues its own currency and imposes tax liabilities or other kinds of liabilities in that currency and spends only in its own currency and issues debt only in its own currency then it basically can never run out of money that is the the basic of the argument so what does it what do you mean by never run out of its own money spell that a little bit it's always able to make all payments as they come due so any payment that it has promised to make whether it's your social security retirement pay or it is interest payments on government debt denominated in its own currency it can always make those payments by doing what well the way it used to work is that the government actually would print up the currency or stamp the coins and make the payments today it's all handled electronically and so i don't know if we want to get into nitty gritty details but the way that the u.s treasury spins is by having the fed credit the reserves of a bank and that bank credits the deposit of the recipient of the government's spending that's how all government spending occurs today so the one question that everybody asks about mmt is well does that mean there's no limit at all to how much the government can spend what's the answer to that one well the limit would be the resources available for the government to hire or purchase and how is that limited well we we do have um you know a limited number it's a very large number a limited number of workers available we have a limited number of natural resources they could be put to use to pursue the public purpose um so the the government can't run out of finance right but the united states could run out of resources that are available and how will we know when we're hitting up against that limit well we will start to get inflation okay and so there is an inflation barrier and we need to worry about that okay i think inflation is one of the things people often are concerned about when they read about mmt we often hear about well the weimar republic is one people ask or venezuela which is a more recent example so i don't know if you want to just take a couple minutes to explain how these are different kinds of yeah when we say that the government can't run out of money we're not saying the government should spend without limit the government should be constrained by a budget so congress puts together a budget the president signs it that tells us how much the treasury is allowed to spend for the year and this is a good thing when we formulate the budget we need to consider resource availability how close are we to full employment once we start getting close to full employment we don't want to increase government spending unless you know there's a very good reason to move resources out of the private use and into the government use such as a world war during a world war that is what we do that's right we will impose taxes we will have a bond saving campaign patriotic saving we will use rationing if necessary we will use wage and price controls if necessary in a war in order to move more resources to the government sector without causing inflation if we don't do those things and the government keeps ramping up its spending we will get inflation right and does mmt have anything to say about where we are today and how close is say the united states to that point where it can't spend anymore yeah well it's pretty clear that uh we still have slack in the economy we have sufficient slack to increase government spending and uh you know even uh the chairman of the fed admitted that recently in questioning the the old thinking was that you couldn't get the unemployment rate below about six percent the official measure of the unemployment rate without sparking inflation but we've seen year after year we've lowered the unemployment rate below 4 and we still don't have any inflation pressure that's visible which tells me there's still a lot of slack now i think the official unemployment measure leaves out many people who don't have jobs and want to work or who are part-time employed and want full-time jobs so i think that that number is misleading the we have looked into this and it looks like there are between 12 and 15 million people probably who would take a full-time job if it were available and that would equate to what kind of an official unemployment rate that's hard again because the official unemployment rate exclusive most people it it excludes uh about two-thirds of the the people that i'm counting as people who would want a job um i think that you know if a job were available then we will get down to what's called frictional unemployment people between jobs people who just graduate from college right i think it'll be in the one or two percent range we talked about people's misconceptions about what countries you know um associated with mmt i mean are there any countries today that sort of practice anything close okay all the major countries in the world that will immediately come to people's minds already operate mmt they already do they have sovereign currencies right okay they issue their own currency they impose taxes in their own currency they collect their own currency and payment of taxes and they issue bonds in their own currency all of those are mmt countries the united states britain china japan these are all mmt countries all of the european nations that joined the euro were all mmt countries before they joined the euro and then they adopted essentially a foreign currency and so people think that we're we're describing a new policy we're not we are describing reality we're describing the way the u.s government spends the way the british government spends okay now we do have policy recommendations that go beyond that so changing some of the policies um in order to have the economy work better what would be one of the most prominent ones well the one that mmt is most associated with is the job guarantee program which is a a program that would offer a job to anyone who wants one okay an unconditional universal offer of a job to anyone who wants to work that's the job guarantee we can go into a lot more detail well one version of that calls for a minimum wage of something like 15 an hour is that right well so we can set the wage uh either at the current minimum wage or we could set it at the 15 an hour which many people are pushing for and this is something that i think most mmt advocates uh agree with the 15 an hour wage phased in over four years so we would move it up from the current minimum wage within four years get up to the 15 an hour but the point is you can have a job guarantee with any wage that you want right now one of the criticisms of that that people say is that if you had a number way up like that it would really hurt a lot of private sector employers because they would lose all their people who are getting paid less than that okay look we need to separate two things one is raising the minimum wage so there are many people advocating raising the minimum wage 15 an hour many states and cities have increased their own minimum wages and they're getting close to 15 an hour within four years i predict 15 an hour will be a minimum wage in much of the country if not the whole country okay if we put in place the job guarantee at the same time phase it in at the same time raise the wages in the job guarantee program in step with that phase in of the 15 an hour wage actually with the job guarantee there's less impact on the private sector because we have higher employment and that increases aggregate demand that increases the ability of the private sector to afford 15 an hour by ensuring we're at full employment all the time so it actually the job guarantee eases the phase in of the 15 an hour minimum wage okay i wonder if you talk a bit about how mmt evolved as a theory um in in academic circles and also had outside people who were interested also in in funding research and also in uh developing the theory yeah because it seems to a lot of us like just dropped out of came out of yeah okay yeah well it started about 25 years ago um and there was a one of these very early internet discussion groups i don't even remember what they were called back then um the post keynesian uh thought discussion group and bill mitchell and i were on that along with a lot of other heterodux economists who bill mitchell is okay bill mitchell is the one of the developers of mmt in australia and he has a very well-known blog called billyblog he writes every day mmt thousands of words so anyway we were on this discussion group and we were discussing the kinds of things post keynesians and other heterodox economists discuss and this guy named warren mosler came on and apparently he was sent there by our laffer who said i think your ideas sound a lot like post keynesian and so warren came on and there were lots of similarities but also he had some uniquely different ways of viewing some things and he would post them and i think bill and i and a couple other people said yeah he's using different words but we see what he's saying and he's right many other people said this guy is crazy but let's stop for a second i also tell people who warren mosler okay warren moser was a sovereign debt bond guy a hedge fund guy um who had independently come to these ideas on his own he was not an academically trained economist at all um so we sort of took our discussion off the side and uh we discussed with warren and we started getting together we would meet uh just about every year in australia or in america and work on advancing the theory and we would go to conferences we would do all the things academic economists do and every year we would meet with warren he'd say okay how many people get it now you know and we say well we think we're up to five and a year later well a couple years later we're up to 10. um and uh it was very tough going 10 years ago no sorry 12 years ago at a meeting at warren's house bill and i he was encouraging bill and i to write a textbook and we finally agreed to do it 12 years ago we started writing the textbook okay and it just came out is that um i mean that's what's over there interlude i wasn't trying to long distance station period this is the textbook came out this year and uh so anyway that was you know a way to try to advance it in the economic curriculum we did journal articles and lots of other stuff and it's been a very uh long road and do you think that reflects partly how fast change comes about in the field of economics that it's hard for people to give up their old yeah you know warren wasn't an academic economist and and he thought that you know we'd hold a conference we'd explain it clearly and everyone would get it and go home and they'd all adopt it we didn't call it mmt back then but you know what we now call mmt it wasn't that way at all and i was always skeptical because i know academic economists have spent years and years of study in a phd program years devoted to writing their dissertation they don't easily change their minds and so i knew it was going to be a long road but uh it was much more difficult than i thought yeah um and it's still difficult with academic economists what what happened uh to get the ideas out was the development of blogs so bill developed a blog and then stephanie kelton who was my colleague colleague at um university of missouri kansas city started a blog and this is how the ideas got out it wasn't through academics it wasn't through the conferences those are almost a complete bust it was the blogs well in a way your textbook could not have come out at a better time so it's probably good that it didn't come out 10 years ago maybe because the my next question is what do you think it is about this moment that now people you know it's it's amazing to to go from like you say having this sort of kind of pushback even for in your own profession to people saying mmt like it's you know it's already an acronym you know yeah um [Music] so the blog spread the word and there literally are tens of thousands of followers now who understand the basics of mmt and some of them way beyond the basics i mean they they really could go head-to-head and i think win a debate with paul krugman easily uh i mean on the merits of the arguments um there are thousands of people like that now there are you know movements populist movements in some countries especially in italy where there are thousands of followers populist movements where warren mosler can fill a football soccer stadium in italy people coming out to hear mmt imagine that yeah but what happened in america really was bernie sanders and aoc stephanie kelton became an advisor to bernie sanders and then aoc picked up mmt and got it out in a way that um you know we couldn't do and i think uh just to help people understand it's not so much that they've been talking about the particulars of the of the theory right but it's also because they've linked it to as a way of financing particular platforms that are become important to certain groups of of the population and i think the green new deal is probably one of the most well-known yes so saying you know we're not going to play that pay for game anymore yes but yeah i i know you've said it already but talk again about what that means the pay for theory is and why that's you don't buy into it okay well the way most people think is that the federal government needs to get the tax revenue before it can spend okay and what we argue is that you know that's never been true uh all the way back to colonial america the the government spends first and then collects back its currency and tax payment so you spend then collect back the tax revenue you don't really spend tax revenue today since tax revenue just reverses the process that i talked about before the fed debits your bank's reserves and your bank debits your demand deposit whenever you pay taxes really what happens is it's a destruction of money it destroys your demand deposit by crossing it off the spreadsheet that is how taxes are paid there's nothing there for the government to spend the government spends by crediting accounts so it's entries on balance sheets so just as a you know a matter of fact governments don't spend tax revenue back when they used to issue paper money governments actually burned the tax revenue every dollar that they received they would burn okay redemption of the currency that's what it was called so governments don't really spend tax revenue anyway the purpose of the taxes is to create a demand for the money and the purpose of removing that money from the economy is to prevent inflation and so uh let's say we have a green new deal and let's say that that it costs the government is going to spend an amount equal to five percent of gdp that's my we have a paper at the levy institute that goes through an estimate of what we think it will take to implement a green new deal it's about five percent of gdp so we're going to ramp up government spending by an amount equal to about five percent of gdp we don't need the taxes to pay for that might we need to add a tax to prevent that spending from becoming inflationary that is possible okay so i think we need to continue to work on this i think with the slack we have today it's not necessary i think that even people who are sympathetic to the mmt would still say again with unemployment is low as it is now and you say can go lower but it's it's low by historical standards um and capacity utilization pretty high to add a lot of spending on new forms of energy and add a lot of jobs through a jobs guarantee would push the economy beyond its limit they just all the slack would be used up and we would be into an inflationary environment well i mean that's an empirical question right so first as we start to implement the green new deal programs we need to look at what kinds of resources will they demand right okay and we will be releasing some resources let's say that we do move away from petroleum and towards solar we're going to lose release some resources and we're going to employ some resources and so we need to look at resources that will be released and where can we put those in the green new deal program and you know do as careful a calculation as we possibly can and then if we decide that you know actually we are going to put too much pressure on resources we're going to have to figure out how do we release more resources and taxes are one way to do it we could go back to the world war ii experience and what we learned from that now think about it this week world war ii was a challenge to the u.s economy in some ways green new deal is a similar challenge in some ways it's even a more important challenge than world war ii was because possibly human survival depends on it um during world war ii we moved 50 percent of gdp to the war effort fifty percent okay and i'm saying that by our calculations we're talking about five percent for the green new deal we handled fifty percent last time the budget deficit reached 25 percent of gdp okay you know we've been running budget deficits of 5 in the depths of the global financial crisis we reached 10 percent world war ii reached 25 budget deficit we managed to keep inflation low during world war ii it was the first major war we had without high inflation okay because we had a plan okay we used postponed consumption that's what that patriotic saving was that's what the deal made among government labor union and employers were we're going to give you retirement we're going to postpone your consumption we're not going to give you a wage increase now we're going to give you a better retirement in the future okay that's what we did that's something we do this time too people need better retirements and we we could say you're not getting a wage increase during this green new deal push but you're going to get it later you can use rationing you can use taxes and when you modeled i don't know if you modeled all of this that you just explained but what would be the time horizon then for you know all of these policies going you know being on the world basically a lot of people are using a decade and so we used a decade okay it looks like maybe we have a dozen years if we don't do it right we're in big trouble okay so we used a decade the uh there would be more sort of um resorting to a planning board right isn't mmt involved having planners who would estimate supply and demand and constraints and so on and tweaked and tweaked the knobs based on that rather than being completely laissez-faire there's no such thing as laissez faire in the real world okay everything is always planned right it's always planned the question is who does the planning okay for the green new deal we are going to need guidance from the federal government this is something we can't leave to individual corporations to try to plan and um of course a labor union power is very much reduced uh so it's not a matter of just corporations and unions negotiating the federal government's going to have to play a role in to have a successful green new deal we're going to need some planning but beyond just the green new deal i'm talking about generally macroeconomic policy how does it get set i mean one big difference we haven't talked about yet is that you see very different roles for fiscal versus monetary policy well as i think the world has learned over the past uh dozen years monetary policy is extremely weak and by the way monetary policy of course is setting interest rates i mean there are other things we could include in monetary policy regulation and so on yeah that also has been uh has not been done very well yeah uh in the lead up to the global financial crisis and then afterward but yeah let's cutting rates doesn't really get an economy going i would say it goes beyond my theory it's it's a fact okay this is just a bold fact that everyone now recognizes you know you can lower interest rates to zero what how many what is it there's 12 trillion of government bonds with negative rates right now in the world businessmen still can't get inflation yeah come on lowering rates doesn't do it and why not by the way according to mmt businesses have to see uh profitability in the future it doesn't so what if i can borrow of course i'm not going to borrow a corporation is not going to borrow at a negative rate it's the governments are issuing debt at negative rates even if i only have to pay three percent i mean i i can go buy houses right now at 3.75 percent am i out there buying more houses no i think we've hit the peak and i think they're going to go down so lowering the interest rate isn't going to do it and it doesn't do it they've been trying to get inflation up to two percent and they can't do it and this is a global problem now there's venezuela in a few places that managed to get inflation i'm talking about the developing world price controls and exchange controls at the same time the developed world has not been able to get inflation even with zerp and with [Music] trillions and trillions and trillions of dollars of quantitative easing didn't work we said it won't work it did not work so that means that puts more weight on fiscal policy taxing and spending only fiscal policy works right monetary policy i would even go further than saying it doesn't work it could be that we're mistaking the brake pedal for the gas pedal and vice versa we're not even sure which direction it works i would say i don't think there's good evidence that raising rates slows things down or the lowering rate speeds things up there isn't good evidence for this fiscal policy works and many people who thought monetary policy would work have come around to this yeah fiscal policy works now what happens if you start getting higher than desired inflation and the government says okay folks we're going to raise your taxes sex means highly unpopular policy to be hard to enforce yeah and what you want is automatic stabilizers um because their discretion takes time and it takes time to get a tax bill through congress and taxes are not popular so what you want is automatic stabilizers the job guarantee is an example of an automatic stabilizer the spending automatically goes up when the private sector lays workers off automatically goes down when the private sector hires those workers back out of the job guarantee program uh progressive income taxes are automatic stabilizers they when income is growing rapidly you move into higher tax brackets and the uh total tax revenue will go up our tax system actually does its job uh people well now i have not looked carefully after the trump changes but before that if you looked any time the economy grew at a good pace five or six percent of gdp federal tax revenue exploded and it was growing at 16 per year okay that's what you want we've already got it our tax system maybe even takes too much out when we grow rapidly and of course during global financial crisis it all reversed tax revenue just fell through the floor when the economy dipped into the recession so our tax system already does this we don't need to change the tax law okay it does it automatically which is what you want well we don't want to monopolize you in terms of questions because i know we have people who've been sending questions in so why don't we just open up the floor to uh some of our viewers today um and i see one recurrent theme and the questions are coming up is is are there sort of constraints or limits to how much debt or or the size of the deficits that the u.s could carry under an mmt scenario well okay financial affordability is not an issue and so whether the debt ratio is a u.s 100 percent of gdp or a japanese 250 of gdp our governments can always make the interest payments on that debt so there's no magic ratio okay we can always make the payments the the budget deficit is uh largely uh we say endogenously determined by the performance of the economy when our economy grows rapidly the budget deficit goes down and so the amount of debt that's issued declines and if we grow fast enough the debt ratio will go down when we slow down the debt ratio will go up because the budget deficit increases and gdp is not growing rapidly so the debt ratio will go up so it sort of adjusts on its own we can always make the interest payments there there is a question about whether you want the government to spend a lot on interest right now when we're at very very low interest rates government spending on interest is not very big if we had a japanese like 250 uh debt ratio and if we got interest rates you know up to eight percent government spending on interest would be huge and uh in a lot of ways government spending on interest is very inefficient it's also regressive isn't it it can be regressive a lot of it can go abroad so you're not stimulating your own economy so it's a very inefficient kind of government spending and so i i and many other mmt people do personally think that we don't want to spend a lot on interest how do you avoid that well the interest rate is always within the discretion of a policy so you you during world war ii we kept the short-term rate at three-eighths of one percent all through the war where we got the debt ratio up to 100 percent of gdp with the deficits of 25 percent of gdp interest payment was very low because it was policy to keep the interest rate low but uh what about longer term interest rates which are less under the control of the government they are perfectly under the control of the government uh so the i don't remember what the long term rate was but it was two percent more or less you can keep the long term rate at two percent so uh the the central bank uh can uh maintain the interest rate anywhere it wants and the central bank is a creature of congress okay um another question that we've received several ones is does mmt depend on the dollar being sort of the top the foremost reserve currency well obviously not australia has the dollar australia is a sovereign currency country a dollar yeah yeah i know every dollar the australian dollar is not the internet the main international reserve currency it is an international reserve currency but australia is a small very open economy and all of the principles of mmt apply to australia so the answer is clearly no okay you don't have to have the us dollar you can have the australian dollar you can have the british pound you can have the japanese yen you can have the chinese rmb but you but you suggested that europe isn't a different well because italy was fine before they joined the euro right italy had the lira mmt principles applied to italy italy had budget deficits uh of a hundred percent of gdp they had you know massive interest payments because their central bank was keeping the interest rate at 10 um the government still made all the payments as they came due everyone thought they were going to default warren mosler actually went over to italy and told them you're not going to default you have some currency and the finance manager says oh yeah you're right they didn't default everything was fine now they've joined the euro and now things are very different for them now everything depends on the ecb and there's still worries about default well there are more yeah where are we yeah because it will depend on the ecb right [Music] um the um [Music] it's going to ask you a question about the constraints again one of the concerns is that overspending might cause a crisis of confidence is that something to be concerned about well i concerned i guess i mean it's something to consider we are so far away from that point so i know people say well you know we could become venezuela think about that really is that a serious worry that we're going to become venezuela well you know venezuela did not meet the conditions that i laid out at the very beginning yes they had their own currency but they're pegging to the dollar they had lots of dollar denominated debt they basically produce one thing that they sell and they sell it for dollars and it seemed safe okay we got oil revenue comes in dollars we can issue dollar debt hey what happens if the price of oil collapses you're in big trouble yeah okay we're not in that situation uh and none of the other big developed uh countries are in that situation and i i developing countries face lots of problems that we don't face we are not in danger of becoming one of those countries something's not a real coming back to what christina said in her intro that in the u.s it seems like both the democrats and the republicans are becoming more deficit friendly we just had a budget deal announced between chuck schumer and pelosi and donald trump that lifts the debt ceiling and raises spending caps and relaxes a lot of the constraints that are put on in back in 2011. is that good news to you well sure the the the debt limit is a pretty crazy restriction on the government um it's been in place since 1913. for most of the history since then it has never been an issue congress would just raise the debt limit when they needed to raise it um and occasionally in the distant past it would become a political issue and now it's been an almost continual political issue depending on you know which party is in power and the so the re when the democrats are in power the republicans try to use it look congress already approved a budget the president signed it uh you need to raise the debt limit in order to spend according to what you already budgeted so it's kind of crazy to try to go back and say well we approved that budget but now we've changed our mind because of the debt when the debt grows simply because of the operating procedures we've adopted that allow the treasury to spend okay we we could change those operating procedures and stop issuing debt it's perfectly possible we can just leave the reserves in the banking system it's sort of a permanent quad quantitative easing that's an alternative to issuing bonds into the markets the markets won't like that markets like government debt you know so congress would have to deal with the the market reaction hey why are you taking away our government bonds we love government bonds but we've got this crazy debt limit that prevents the treasury from issuing the bonds the markets want and that are necessary to allow the treasury to spend according to the budget congress already approved so it's a crazy limit i i don't think no country i know of has this except the united states you can sort of understand why they did it back in 1913 but it's a very bad idea now you have more questions well i mean it makes me think though even though you say they don't have a constraint i mean i think what to my mind when i grew up in argentina what would be more palatable about you know trying out mmt in a in a country like the us is that there are checks and balances in the system you know so um i think that it sounds like it's not really a great option for developing countries for various reasons not just governance but also because sometimes they may you know they're they're maybe overly dependent on you know single streams of revenue that are denominated in another currency or they're they're semi-pegged um they owe money in other currencies yeah that's right well first owing money and other currencies is probably almost always a bad idea governments should not do that governments should not issue debt in uh foreign currencies i i think that the citizens should impose that on their government say we don't want you to do that because there's no uh generally accepted international bankruptcy procedures for governments right uh so it's okay to let your corporations do it because we can handle it through bankruptcy you can't do that for government yeah it's almost a cachet to it you know india is preparing to do its first international bond offerings country and never done them before and it's it's you know people are sort of saying oh it's a sign of maturity you know well it's fine if they do it in their own currency because they can always make the payments in their own currency now other things about mmt you know was developed to look at sovereign currency countries so we are talking about the biggest developed rich countries so most of our focus has been on that now australia is a small country and bill mitchell has written on uh countries that are outside uh the the big rich development countries and my former student fidel cabood is from a developing country and he has also applied mmt to to developing countries um so they're actually part of our literature does deal with their situation and we're not trying to minimize how difficult it is for a developing country to become a developed country it's not simply a matter of okay now let's just issue our own currency impose taxes and only issue debt in our own currency by itself that's not going to go a long way toward developing you you need to develop your country so you're not relying on one export okay relying on one export is very dangerous export-led growth that relies on one export is very problematic you're probably not going to be successful at developing we also advocate floating the currency because if you're not floating your currency essentially you're really promising to deliver that foreign currency usually the dollar so if you're paying the dollar your debt really is a promise to deliver dollars right if you've pegged and so uh you're not really free you don't have a lot of domestic policy space usually so we prefer floating the currency but i'm not going to say every country in the world needs to immediately float the currency okay in some cases this could be a disaster in some cases it actually makes sense to manage your exchange rate in the way that china has done china has very successfully developed while managing their exchange rate they will float their currency at some point in the future okay but they've adopted a very successful strategy so far and because they've been so successful at exporting they didn't give they don't give up any policy space right now even as they manage their currency they don't need to worry no one is going to attack their dollar reserves now they have a little bit of a problem domestically but you're not going to have george soros attacking china's dollar reserves it's too big you know one thing that strikes me about mmt is that it's almost as much of a political project as an economic one there are a lot of economic principles here that uh fairly mainstream growing out of john maynard keynes and so on but they've been sort of recast in a different way it's like you're sort of looking at them from a different perspective and with the result that you believe there's more fiscal space for spending and so on but but because it's a political project then it needs to be looked at that way for the political feasibility and so just to pick one the jobs guarantee one of the concerns i would have is that you give a lot of there's a recession a lot of people get jobs through the government and then the economy recovers and in order to prevent uh excess stimulus you start basically dropping those people off the rolls which is tough even if theoretically they should be able to get jobs in the private sector there's going to be some frictional unemployment different reasons why they might have trouble finding jobs in the private sector so one of two things happens either you do that and there's a big backlash and a lot of people are angry that they're being treated as pawns in some big macroeconomic scheme or you keep them on the payroll in which case you get that excessive inflation well no no no the way that it works is that as the private sector starts growing again in the recovery they need workers yeah where do they go get them they go shop in the job guarantee program you have people who are already employed they have a work history you know what skills they're learning on the job you recruit from that so it's all completely voluntary it's not that the government says you and you and you you're fired okay no no no they stay in the program until a good offer comes along so the the private sector recruits out well i can see that that does solve one problem creates a different problem which is now that that government jobs program becomes the place where people go when they have no better alternative which doesn't feel like a good way for the federal government to do its job yeah but you you have to compare you know apples to apples not apples to oranges is it better to have them unemployed and losing skills and perhaps picking up bad habits and not having a work record to present to employers beyond about six months it becomes very hard to get hired whether the the employer's view of them is correct or not the employers do not want to hire long-term unemployed people or have them employed i think it's better to have them employed so it could it could well be true that the private employers would rather hire them from other private employers yeah but the second best option is to hire them from the job guarantee program itself now we we want these workers to be productive yeah we want them to be learning skills on the job we want them to do useful things that benefit society so you know that's the ideal and you can never reach your ideal but hopefully we can be close enough with a lot of these workers that they really are doing something useful and learning skills that will be useful in private employment okay well unfortunately we're out of time and clearly we could have gone on for longer people still have a lot of questions i think one of the best ones that actually came in at the end is and asked you to put on your predictor hat and said how long will it take for mmt to become the mainstream economic thinking um what back 25 years ago warren thought it would be three years um so a few more you know paul samuelson apparently he didn't come up with this but he used to say economics does make advances one death that's right and so you know the people who learned the orthodox economics are most likely are not going to change their minds but the young students coming up who are being exposed to mmt they're going to carry that with them i had a student who one day last day of class brought in these glasses that that change your vision you know completely different he made everyone put him i says this is what mmt is like he said once you've seen it your view of the world changes and you will never go back to the other way of thinking and so gradually mmt will win out because it's correct eventually uh the the correct views went out we we don't have many people who still think the earth is flat eventually you know the people who believed it was flat die out and the same will happen thank you thank you thank you for joining us

Channel: Bloomberg Television

Views: 86,666

Keywords: Bloomberg

Id: 7sd-ElKMbPI

Length: 48min 52sec (2932 seconds)

Published: Fri Jul 26 2019