Stephanie Kelton: Debunking the Deficit Myth | Town Hall Seattle

by texting Town Hall the words Town Hall to the number 4 4 3 2 1 relatedly if you're interested in supporting local independent bookstores by purchasing a copy say of dr. Kelton's book and let's be honest if we were gathered together tonight in the Great Hall nearly everyone would be picking up their copy please use the link on this livestream page to purchase through la baie book company to buy the book and we do buy at local all right then dr. stephanie kelton is a professor of economics and public policy at the State University of New York at Stony Brook and Bloomberg contributing column columnist she's been called a prophetic economist and a rock star of progressive economics by the way I'm sure professor kellton doesn't feel at all weird when people say that in her introductions formally that share of the economics department at the University so what's up at any rate formally the chair of the economics department at the University of Missouri Kansas City she was a research scholar at the university's center for full employment and price stability as well as serving at the levy economics Institute in upstate New York Stephanie is the founder of the blog new economic perspectives and a member of the top wonks network of the nation's best thinkers in 2016 Politico recognized her as one of the 50 people across the country most influencing the political debate Kelton was the chief economist on the US Senate Budget Committee it probably goes without saying staffing minority and an advisor to the Bernie 2016 presidential campaign she's a regular commentator on national radio and television and her op DED's have appeared in the New York Times The Washington Post a Los Angeles Times in blue bird mission to her many academic articles and publications she is the author of the deficit myth modern monetary theory and the birth of the peoples economy which of course is the subject of tonight's talk please join me in welcoming stephanie kelton thank you very much and thank you to the people who are joined here on this site and as I understand it people who are also watching on YouTube and other streaming services so I'm very very delighted to have so many of you interested in the book and in the topic and I noticed in the chat bar just a couple of seconds ago somebody said I can't wait to find out what mmt is so I hope that I'm gonna be able to do a lot of that here with you for the next I don't know 20 or 30 minutes before we open it up to questions the book is in an effort to lay out in much more thoroughgoing fashion the answer to this question about how how should I think about mmt but let me start by saying that I am a macro economist and that is distinct from being a micro economist so we look at the whole economy the big functioning of the macro economy and mmt is an approach a framework for approaching the questions that are related to the study of macroeconomics so it is a macroeconomic framework a lot of you probably know that in economics there are lots of different schools of thought and mmt has emerged I think it's safe to say as a new paradigm in economics or a new kind of approach or school of thought so let me talk a little bit about the book and why I wanted to write this book if you happen to already have a copy then you might have gotten as far as chapter 1 where I tell a little story and I lead with the old television show Sesame Street ok everybody is familiar with Sesame Street I grew up watching it I say in the book that I would sit with my sister and we would watch that segment of Sesame Street that they often did where you know they have a 2 by 2 matrix and 4 images would start appearing on the screen and they were trying to teach young people to categorize things right to take things that are similar and push them to one side and then find the the item that's different or dissimilar from the others and and identify that one and the game was called you know one of these things is not like the other and the song would go and so you know on the screen would appear a truck and scooter and a skateboard and a watermelon right and so you say oh I've got three modes of transportation and and I have this piece of so the watermelon that watermelons not like the other and you holler it out and play along with the television program and so basically I never grew up is sort of what's happening here and I just find myself yelling back at my television screen even though I'm no longer a child you know but I get very frustrated at a lot of the commentary especially around questions that I take up in this book and so the title of the book the deficit myth it would be nice if there was just one myth because we could just sort of approach that myth explain what's wrong and then fix it right the problem is there isn't just one myth there is this web of interrelated myths that get all tangled up in our discourse and whether it's our politicians or the people who host maybe the shows that we watch on Sunday morning and they interview the politicians or it's the newspaper articles or the magazine articles the radio programs it's just pervasive the the things that I think and I argue in the book that so many people are just getting fundamentally wrong when it comes to questions of money and taxes and debt and yes the deficits and so the book is an attempt to sort of walk readers through the big picture and to kind of correct our thinking and sometimes mmt economists will often say mmm tea is a lens okay well think about what a lens does right if you wear prescription lenses then the idea is that the lens improves your vision right it helps you see more clearly and with mmt a lot of what we're trying to do is just provide people with better vision right with a better picture of how the monetary system that we have today works and once we get a better understanding of our modern monetary system we can begin to ask questions like well how does that change the government's ability to run policy in the interest of the people so the subtitle to the book is modern monetary theory and the birth of the people's economy so let's just sort of start chipping away at some of these myths I say in the book I start with what I think is the most pernicious of all of the different myths I take up six in the book the most pernicious myth I think is the myth that the government should run its budget the way that you and I operate our budgets the government is basically a big household and it should really play by the same rules that you and I play by okay we know that we have to balance the checkbook every month we know that we're supposed to watch the amount of money that comes in and the amount of money that goes out and we're supposed to manage our finances responsibly and that mostly means trying to keep spending in check where we don't spend everything that we make maybe we put something aside and we save we try to avoid borrowing and taking on too much debt and the reason is that we know that borrowing can get us into trouble we start borrowing to finance spending beyond what we can afford out of our current income we have to pay that money back and you know we don't want to sock ourselves in with so much debt that we get into a situation where we have bills coming due and we don't have the money to pay the bills okay because we could end up missing payments defaulting on some of our debt ruin our credit rating end up you know filing for bankruptcy it can happen it happens to people all the time happens to businesses okay can happen to corporations it can happen to state and local governments so we're beginning now I want to circle back to Sesame Street and in the book I put the matrix up with the four pictures and I ask readers to see that there's something different about the federal government's budget the federal government's finances so if you think of you know one of these things is not like the other you and I households you have to balance our budgets we have to live within our means we can't take on too much debt households businesses and state and local governments if you are you know paying attention to what's going on in the country today in terms of state budgets and you're listening to governor's and mayors across this country beg literally reaching out to this administration to the White House imploring the president to and Congress to send aid because state budgets are getting hammered and states are not like the federal government they have to live you know within their means they are constrained by the amount of money that they can raise in revenue and some limited scope for borrowing so one of these things is not like the other the federal government is not like the others what makes the federal government different why are governors asking Congress to send money because they don't have it if everybody's in a jam what makes anybody think the federal government can write the check and the answer is that the federal government is fundamentally different that it stands in a different relationship visa be the currency the dollar that the federal government of the United States of America is the issuer of our currency and everybody else is a user of the dollar so we categorize those you know for we compartmentalize households businesses state and local government put them in one category users of the currency the federal government is separate okay it's the issuer of the currency and it has the sole legal authority to issue our currency the US dollar the US dollar comes from the US government and it can't legally come from anywhere else you and I can't create it if we could we wouldn't worry about going broke my businesses wouldn't worry and if states could do it governors wouldn't bother waiting around for Congress they would just create the money themselves but they can't only the federal government can issue our currency so that's obviously a big big important point once you recognize that a lot of other things follow from there if you could issue your own currency would you ever worry that you were going to have debts coming due bills that needed to be paid that you couldn't afford to pay if the bills were you know the payment was due in the currency that you and only you could create I think pretty clearly the answer is no would you worry that there were certain things you couldn't afford if they were priced in dollars and you have the patent essentially write the copyright on the dollar would you worry about not being able to come up with enough money to meet expenditures to fund programs I think the answer should clearly be no now once we recognize the federal government is the issue or the currency people then immediately think oh my god you see you just want the government to to spend to infinity right and the answer is no you can't do that right it isn't that there are no limits there are limits but the limits are not in the government's ability to afford programs to make payments to service bonds and pay debt the limits are in our real economy and so this is where I go with chapter 2 in the book where we talk about inflation because well what none of us wants is to live in a country where prices are spiraling out of control ok nobody would want that inflation is a continuous increase in the price level and we work very hard to manage inflationary pressure and avoid allowing inflation to over time it Road the value of the currency okay so in the first chapter we make sure that we understand government is not like a household it is not constrained like state and local governments it has spending capacity well beyond the rest of us by virtue of the fact that it issues the currency but there are limits and the limits are in our real economy so if you think about it our economy runs on sales we have a capitalist economy businesses in a capitalist economy produce for profit right they don't businesses don't hire people because they want to be good Samaritans they hire workers because they need them in order to help them produce the output that they can sell and make a profit on okay so the question is how much economic activity can our economy support at any one point in time businesses would love to be swamped with customers because when a business is swamped with customers means they have lots of sales means their revenues are high means they have a source of profits and profitability and they are viable customers start disappearing sales fall revenues decline profits fall businesses might not survive you got to be profitable to stay in business so the question is we've got all of these different sources of demand for goods and services that our economy can produce the private sector has households you and I right we go by consumer goods and that creates demand for firms products they like that businesses buy from each other right they buy intermediate goods they place orders and so forth that's good that drives sales and supports jobs in the economy government makes purchases and hires and employs people and that provides some support for spending in the economy and then the rest of the world buys some goods and services from us as well so those are the four ways that demand enters the economy right household spending business spending government spending and spending from the rest of the world the question is at any point in time when you add up all of that spending is it generating enough demand to keep the economy running at full employment where everybody who wants to work can find a job and the economy is healthy and balanced in a way that you don't have runaway inflation that the demand is high enough to create enough jobs for people but not so high that you're out stripping your economy's productive capacity if demand is running faster than firms can keep up with then the result is going to be inflationary pressure so it's not the only way that you can generate inflation okay inflation is kind of a complicated phenomenon and economists work very hard to try to study and understand inflation and model inflation and think about ways to attenuate inflationary pressures when they arise but you know the reality is that across the globe for a very long period of time most countries have been struggling to get their inflation rates up right that inflation has not been a problem except to the extent that in places like Japan they believe that inflation is far far too low and governments have been actively trying to stoke inflation most countries target inflation at 2% and most countries put the central bank in charge of basically running macroeconomic policy so here in the US Congress told the Federal Reserve essentially it's your job you steer the economy ok we're not going to worry too much about it except in times of crisis in normal times you use monetary policy and you adjust interest rates and you try to give us the 2% inflation rate that most central banks are targeting and give us the right amount of unemployment this is more than I can go into in this short talk but it's all dealt with in the book and it's one of the I think big problems that mmt has with a current approach to macroeconomic policy making is that Congress has put responsibilities on the central bank ok these are not elected officials we didn't vote for the people who are at the Federal Reserve its Federal Reserve has the ability to run monetary policy independently okay they get to decide how to change interest rates and so forth and they get to decide how much unemployment is enough or how much is too much and so what the Fed does is basically try to find the right number of people to keep unemployed in order to fight inflation and mmt says there's a better way to do this we could actually use full employment genuine full employment where everybody who wants to work can have a job and it would be a better price anchor a better way to mitigate inflationary pressures than what we currently do today and that's a lot to go through and I don't have time but maybe in the Q&A period we can talk a little bit more about the mechanics of how the job guarantee or buffer stock Employment Program or public service employment program whatever we want to call it how that would work but that's basically the idea is to use a federal job guarantee program to achieve genuine full employment while at the same time putting a lid on inflationary pressures or containing inflationary pressures so running our economy at its full potential the thing is it's almost always going to require the government's budget to be in deficit almost always and the reason is this gets a little bit macro wonky but there are demand leakages you know every dollar that I save and don't spend is a dollar that some business can't capture as part of their sales can't become part of their revenue in their profits every dollar that's taxed away from me is a dollar that I can't use to buy goods and services in the economy and every dollar that I use buying goods and services from abroad is a dollar that some US producer can't capture as part of their sales so those are three forms of demand leakages where I'm not putting pressure on the US economy's productive capacity because that pressure is leaking away okay and those leakages make room for other kinds of spending to come into place and to backstop or replace that spending and one way to do that is through fiscal policy the government can use tax cuts to try to replace some of the lost spending or it can spend on its own and directly replace some of that loss spending but the idea is to produce a balanced economy where you have enough total spending to support jobs at full employment but not so much spending that you're putting too much strain on the productive capacity of the economy and generating inflationary pressures and what I'm saying is because of the demand leakages there is almost always a need for the government through deficits to support jobs and productive activity in the economy to support the economy so if so think about it this way the deficit is the difference between two numbers right when we say the government has run a fiscal deficit we are saying that the government has spent more dollars into the economy then it has subtracted away by taxing us okay that's the government's deficit spend a hundred in tax ninety back out we label that a fiscal deficit and people have very nervous about that because we've been taught to think about the government's finances the way that we think of our own personal finances so we saying wait you're spending more than you're taking and that's so irresponsible stop that you know cut it out and balance your budget but think about what happens if the government balances its budget so it spends a hundred in to the economy and it taxes or removes a hundred back out well now the government's budget is balanced but somebody lost out on ten right when they were running a deficit they put a hundred in spend a hundred in tax ninety back out that leaves ten dollars somewhere in the economy so one of the most important points that mmt makes is that every deficit is good for someone right every deficit is good for someone because the government's deficit is nothing more than a financial contribution to some other part of the economy in my example it's a ten dollar contribution to some other part of the economy now a government surplus which might sound like the best of all worlds right not only do you balance the government's budget but you put it into surplus and we did this during Bill Clinton's administration from 1998 to 2001 for four years the federal government's budget moved into surplus so think about what that means right it sounds fiscally responsible you hear Democrats talk about how they were the last party to deliver not just balanced budgets but surpluses and then it was that rotten George Bush who came along and cut taxes and you know funded Wars and all of a sudden the surpluses disappeared okay so let's think about whether we really want the federal government's budget in surplus so what does that mean well it means the government is taxing more dollars out of the economy then it spends back into the economy so using simple numbers let's say the government tax is $100 out and it only spends $90 back in the government's budget is in surplus we'll write a +10 on the government's ledger but what happened to the rest of the economy they took a hundred away and only replaced ninety so the non-government part of the economy now on its ledger shows a minus ten so government deficits I sometimes say work like a blower you know they blow dollars on two somebodies balance sheet and a government surplus works like a vacuum you had Hoover's dollars off of people's balance sheets so the next time you hear a politician railing about fiscal deficits and saying that if you vote for them they will pledge to balance the budget or put the budget in surplus I'm talking about the federal government next time you hear a federal elected officials do this stop and say to yourself wait a minute why is this guy or gal pledging to reduce the surpluses of the rest of the economy right is that do we really want that now there may be times that the government's budget ought to be in surplus and it would make sense if you think that the economy is getting too much strength or putting too much strain on the productive capacity then it makes sense for the government to scale back some of its own spending or increase taxes or a combination of the two right that's one way to temper inflationary pressures but Mt would never look at the budget outcome itself surplus/deficit balance and say we should be targeting that right you don't know in advance where the government's budget ought to be you just know in advance what the state of the economy ought to be right full employment economy with managed you know low inflationary pressures okay so that's sort of the goal there in in economics there's a chapter in the book I'm not going to try to talk too much I want to leave lots of time for Q&A but the wonky a sort of myth that I get into in the book is the myth that's known in economics as crowding out and this one is you know you don't hear this one talked about so much if you turn on the TV or listen to the Sunday morning talk shows read the newspaper this one doesn't get the sort of headlines that some of the other myths get but it's very very powerful in Washington DC and this myth says that government deficits are dangerous because when the government runs a deficit spends more than it taxes away from us it has to make up for the shortfall somehow and it makes up for the shortfall by borrowing from somebody who has money so the deficit requires the government to borrow from savers and there's only so much money available to be loaned out and so when the government wants to borrow more it leaves fewer dollars available to others to borrow it's primarily private companies right and if the government's deficit gets bigger then its borrowing needs increase then it eats up part of the supply of dollars that would have been available to private businesses to invest in our economy but the government took those dollars and the competition for that finite supply of dollars drives interest rates up and as interest rates get driven higher private firms will borrow less because interest is the cost of borrowing and as private businesses borrow less we get a less dynamic economy was private businesses are just presumed to invest more efficiently and have you know greater long-term benefits for the economy driving productivity growth and so forth and so you get a slower growing less dynamic economy in the long run as a result of government deficits so in this chapter I just basically say you know this is like a stack of dominoes that the crowding out myth tells you if the government runs a deficit then it has to borrow if it has to borrow then there are fewer savings if there are fewer savings then the interest rate goes up because of competition if the interest rate goes out then investment goes down if investment goes down you get a slower growing economy so you get that whole string of offends and once you tap the first domino the rest just obediently give way and the reality is that the the support the empirical support for this kind of these assertions or this theory is just not robust you can get crowding in effects you could imagine the government making investments in things like education and R&D in infrastructure and having that spending give rise to higher economic activity that then swamps businesses with customers that then leads businesses to get excited about investing to build more capacity to satisfy higher demand so the point is that a lot of the myths that we're told even the more complicated economic myths we can we can unpick them and find out where the flaws in the arguments are so so much of what we're told to fear about deficits that governments are going to go broke just like a household would or I may wrap up on on this one or one other one that that will end up like a country like Greece ok many of you probably remember after the financial crisis in 2008 and the global economic recession that followed that there were there were debt crises across much of southern Europe that many countries got into deep trouble and you know I could turn on the nightly news here and I could hear who let me think Brian Williams right I would I could remember standing in the kitchen and hearing the the scary music come on like it's you know six o'clock five o'clock news whatever I goes Don John and Brian Brian Webb says the debt crisis in America and I'm thinking wait a minute what debt crisis do we have in America but the ledian was what was happening in Europe it was what was happening in Greece and Italy and Spain and Portugal and Ireland and these countries were in trouble and here we were sitting in the United States looking across and convincing ourselves that if we didn't get serious about reining in deficits that we were gonna end up just like the Greek government you know that we were gonna have debt payments do that we were not going to be able to make and so forth and so on so in the book I point out the difference between let's say the Greek government and the US government and remember we started off the conversation recognizing that the federal government the United States of America is the issuer of the dollar problem in Greece and Spain in Italy and others is that these countries when they joined the economic and monetary union gave up their sovereign currencies and when they gave up their sovereign currencies they adopted a effectively a foreign currency hey these countries are no longer issuers of their own sovereign currency they are currency users much like a state in the United States so these countries were in the same sort of position that Governor Cuomo and governor Newsom and other governors around the country are in in that they cannot simply authorize expenditures and know that the payments will be made they don't issue the currency so Greece got into trouble countries around the world Venezuela Argentina Russia the list is long over a historical period countries that borrow in foreign currencies can and do encounter problems respect to debt they can miss payments they can be forced into default but a country like the US like Australia like the UK like Japan is a perfect example these are all currency issuing governments and their fiscal capacity is just very different from governments that give up sovereign currencies and start borrowing in currencies that they don't control countries that like Ecuador or Panama that just outright adopt the US dollar as their currency and they can only operate to the extent that they can earn enough US dollars to keep the public services financed so it is a big difference and I talk about all of that in the book I need to talk about one more topic and then I would like to go open it up to Q&A but this topic is really close to my heart because well before I started working on the book I wrote a number of papers on social security and so I have a chapter in the book where I take up Social Security and I think it's really important especially now because you you know we are already hearing now with Congress passing multi trillion dollar spending bills and the deficit is increasing the national debt is increasing and the hand wringing is beginning to start and that's not good we definitely do not want lawmakers getting anxious about the impacts of the current economic fallout and the spending bills that they've put in place so far to try to support the economy giving them cold feet prematurely because if fiscal support is withdrawn prematurely or if not enough is done then we as a nation are going to end up with an economy that is struggling to recover we could be looking at a period of many many years where the unemployment rate could be stuck in double digit territory 10% 12% 15% who knows but we don't want Congress getting cold feet and we're already beginning to hear things like well now that we've increased the deficits so much and now that the debt has increased it's time to start thinking about entitlement programs Social Security and Medicare and this is often it's often argued that these are the real drivers of our long-term debt crisis that you know our short-term finances were okay before coronavirus came now they're much worse than they were but in the medium and longer term we're gonna have to start making some tough choices and figuring out how we're going to change Social Security or change Medicare so that the government can spend less money because the argument is that these programs are unaffordable and you know again if you just go back to the first chapter and the first point I made federal government of the United States of America it's the issuer of the dollar the issuer dog can never run out of money it can never have bills coming due that it can't afford to pay so think about what that means for Social Security okay Social Security is a program that provides financial benefits to not just retirees but to their dependents in many cases and to the disabled so the federal government has created a program that is an automatic entitlement program in the sense that once you qualify for the benefits you're in the program and the benefit payments are supposed to be made to you there are people who believe that the federal government can't afford to keep its promises that the system is running out of money there are trust funds that are set up think of that as a sort of piggy bank or a savings account where someone has stuffed dollars in locked them into place with the intention of releasing them in future years to pay retirees as our aging society the demographics are such that workers are moving out of the workforce and into retirement and as they go on to Social Security we're supposed to make that payments to them people say we can't afford to do it there's not enough cash being paid into the system to allow the federal government to meet its obligations in full in perpetuity to which I say it why would you worry about trapping dollars in a trust fund like locking up digital spreadsheet entries and thinking that somehow that's what makes you able to meet future obligations that if we don't tie up enough dollars trap them on a spreadsheet somewhere then we won't be able to mail benefit checks or send the dollars out in the future to retirees that's obviously very silly so the federal government can afford to keep its promise to every future retiree their dependents and the disabled with or without this thing called a trust fund with her without dollars locked up digital right they don't even exist in physical form we're just numbers you know typed into a computer keyboard that show up in this thing we call the trust fund the challenge is think again about where the limits are it's our economy's real productive capacity it's our real resources inflation is the thing to worry about so if we're looking into the future and we see the demographic changes taking place we say the US workforce is shrinking because we're an aging Society people are moving out of the workforce and into retirement once they retire they're no longer working and producing goods and services but they still consume goods and services so they want to buy some of what's produced the question then becomes if we keep our promises if the government keeps its promise to all future beneficiaries sends those checks out will people who receive those benefit payments be able to turn around and spend that money back into the economy without creating undue inflationary pressure unwanted accelerating inflation that's the risk to manage it's not we won't be able to afford to keep promises of course we can afford to keep promises the question is and this is what politicians really should be wrestling if they want to have a fight have a good fight have a meaningful fight right figure out who's got the best ideas for the kinds of investments that we need to make in our economy today to make sure than in 10 20 30 years the US economy is productive enough that when those benefit payments go out we are able to produce enough stuff right the goods and services so that the working population and the retired population can all spend money into an economy where it's able to keep up with that demand where there's enough productive capacity enough supply so that we can have a full employment economy everybody gets the output that they want it can be produced without inflationary pressure so you know if I had to say in a nutshell and I want to wind up so we can do QA what is the point of mmm tea mmm tea is about replacing artificial artificial phony constraints with a real resource constraint which is an inflation constraint and by the way and it's also in the book a real a natural resource constraint right an ecological constraint by Oh economic constraint that we can't place excessive pressures on our factories and machines and on our planet and expect things to work out well for us so it's about getting away from an obsession with the stuff that doesn't matter and turning our attention to the things that do matter and so chapter 10 chapter 10 I didn't write yet ten chapters I wrote eight chapter 7 is called the deficits that matter and that's where I really hope that we can start turning more of our attention to the the legitimate deficits that are pervasive in our economy so with that I think I will stop and look to take some of the questions that you all have submitted hmm let me give a quick look here well Jeff Jeff asks how can the American public be educated about mmt to build political support I think that's a great question Jeff and I'm not an organizer but I know a lot of good ones and I know how important that work is you know I think that it has to be a multi-faceted effort it can't be we're not going to spread a better understanding as a spread bad word we're not gonna achieve a better understanding better public discourse without you know journalists playing an important role they're the ones who sit down with politicians and if the first question out of their mouth is how are you going to pay for it and then haranguing them over the numbers and whether the math adds up and whether it will add to the deficit that's not helpful we need journalists to start asking better questions so if somebody says you know I want Medicare for all don't say how are you gonna pay for it say well are you sure we have the doctors and nurses the long-term care facilities where we have mental health professionals where we have the hospital beds but we have the infrastructure the real resources to produce and to make good on that promise of Medicare for all or whatever the case may be tuition free college right you have to have people on the ground you have to have I think people like me you know we have to teach better and we have to teach each other and we have to have discourse on a whole bunch of different fronts so I like that question a lot it's just it's not easy to get there I'm doing my part how much debt is too much is one of the questions and how do we know when we get there so I didn't really get to I didn't get to spend a lot of time on any one subject but on the debt that the debt is is just a misnomer in some respects it's got a rotten calling card and I say this in the book you know because people think well there's too much debt and this is what this question is about the national debt this thing we call the national debt is nothing more than a historic record of all the past instances where the government spent more money more dollars into the economy than it taxed back out and those dollars are currently sitting in the form of US Treasuries government securities if that's the that's the name we've given to it sucks frankly we call it the national debt and it's just a stock pile of Treasury securities that you could think of as part of the u.s. net money supply you can just think of it as part of the money supply part of our money supply is inter sparing and part of it is non-interest bearing Treasuries our interest bearing dollars so if the question is how many interest bearing dollars are too many interest bearing dollars then my answer is well it depends are they creating any kind of problem okay are they creating inflationary pressures if you've got interest bearing dollars out there and somebody's being paid interest income I'm a bond holder right so suppose I have fun and because I hold bonds I'm being paid interest income and that interest income then allows me to spend more right so if all of the bondholders are getting all of this interest income and those dollars start going out and chasing goods and services and the economy's productive capacity is already at its maximum then you could get inflationary pressures so the answer to the question how much debt is too much is when the when the debt becomes a problem is when it starts to give rise to inflationary pressures and that's how you know when you get there and you can manage that okay please elaborate on how the pandemic response of funding oops the question jumped the elites and corporations four or five trillion exposes the lie that deficits even matter okay so that's a good question so here's a here's what happened and I know the person who asked the question knows but just for everybody else to make sure we're all on the same page you know we just not too long ago got through 2019 and for pretty much the whole of that year we watched a very crowded field of Democrats Democratic hopefuls presidential hopefuls pitching their platforms and saying you know vote for me I'd like to be President and these are the things I would like to do and at every turn the question that dogged candidates and those with more ambitious platforms really got it right but everybody got it was how're you gonna pay for it how are you gonna pay for how you gonna pay where is the money going to come from how are you gonna finance this stuff and people twisted themselves in knots to try to say well we can find revenue here and we can raise taxes there and we can come up with all the money we need and then roll the clock forward to March of this year and the corona virus pandemic begins and all of a sudden dollars are materializing out of Congress legislation is being passed left and right nobody paused for a second to say how are we going to pay for it whose taxes have to go up where is the money going to come from Congress wrote and passed bills left and right for in in very short order and I think what this question from David is about is doesn't that just expose what a farce this whole pay for game was all through 2019 listening to this question about how there's no money for anything can't afford to do any of these things and now were Congress's authorizing trillions and you know the house has passed a bill for another three trillion which the Senate has yet to show an appetite for but the point is we can very quickly come up with four or five six and more trillion and is that in some sense vindication of the sort of stuff I've been talking about that's the question here and I think the answer is yes I think it's a very good real world real-time example of exactly how Congress can and does pay for things when they deem there to be a sufficiently urgent need okay if there's a priority they will fund it if they're not funding something it's not because there's no money it's because they've decided it's not a sufficient ly high priority okay just don't want to fund it please talk about the ideology of deficits I think I I think I might have hit that one Martha threw out let's see what is the need okay here's one what's the need if any of having federal income taxation under mmt so if what I've been saying is that the government is the issuer of the currency doesn't need to get the dollar from anyone else in order to spend doesn't rely on tax revenue doesn't rely on savers to finance borrowing a deficit spending then what's the purpose of taxes why do we even have them so this is more than I can do in the time that remains but in the book I go through this in a lot of detail but one thing clearly is that if the government was simply authorizing spending bills and suspending taxes like I'm not going to tax anything back I'm only going to spend dollars into the economy we'd pretty quickly run up against that inflation constraint right so the the spending creates new dollars every time the government spends a dollar it is new money creation those dollars are newly created digitally minted dollars and when the government taxes its retiring those dollars okay so the the question is about the push and the pull how many are we pushing into the economy and how many are being pulled back out of the economy you need to pull something back out and that's for preventing accelerating inflationary pressure how many need to be pulled back out that's a function of the demand leakages that I talked about earlier I know it seems like it would be really nice for all of us if we just didn't have to pay income taxes at all but it does help not just manage inflationary pressures but because of the progressivity of our income tax system it also helps but not enough I would argue with preventing the distribution of income from being even more extreme now what it already is today [Music] yeah so there's a question about climate change and it jumps to because y'all are typing and then things kind of skip upwards yeah it can how can mmt function Linna asks alongside or contribute to calls to pursue D growth or you know a growth in response to growth associated climate change I I mean I spend a lot of time in the book on climate change in the chapter called the deficits that matter and in the closing chapter to the book I think this is critically important climate change is an existential threat that is my position so I think it has to be dealt with when I talk about the economy's productive capacity remember I'm also talking about the climate's capacity to handle it the goal of mmt is not to maximize growth it is in fact I think that so much of the growth obsession is bound up in the debt obsession because people often think that the way to get yourself out of a debt problem if you think the debt is a problem which I toned if you think the debt is a problem people often say well the way to deal with it is to grow your way out of debt see and so they look at a ratio where the debt is in the numerator and GDP is in the denominator so it's the debt to GDP ratio and if you want to bring the ratio down you just juice the denominator you grow your economy as fast as you can so that the ratio will come down and then people say oh we're growing our way out of debt but if you don't view the debt as some sort of existential threat then you don't you can let go of that growth obsession you don't view growth as the solution to your debt crisis and you can start recognizing I think which is what Lynne is asking about that we can function perfectly well with low growth or D growth and have a healthy habitable thriving economy and and planet and society so anyway it's dealt with in much more detail in the book what metaphors that's an interesting question and I don't see the name of the person but what metaphors will help us understand modern money and what old metaphors should we jettison so I think communication is is key I really do I think framing matters a lot I think that a lot of the damage that's been done to all of us is accomplished through clever turn of phrase through framing you know when people say the debt is gonna you know you're stealing from your children and grandchildren okay that's framing that those are metaphors okay borrowing from China those are little phrases that very quickly tap into our insecurities about you know the outside world or fear of hurting our children and grandchildren or something like that so I try in the book to introduce new different framing new metaphors one of my favorites I think is trying to say that you know the goal should not be to force your economy to balance your budget but instead to use the budget to balance your economy and so there's a figure in the book where I show the scales you know sort of like the scales of justice the scales and government spending is heavier than taxes or you have the government running a deficit but your economy is in balance you have full employment and you have stable prices so I want to call this a balanced budget because it delivers the economic outcome the balanced economy that I think we should be after so I I'm always playing with this because I think it really does matter and helping to give politicians new and more constructive ways to carry on discourse about government finances is not sure I understand that question if the Fed uses unemployment as a measure for inflation it jumped again duck on it I started to read and then it jumped hmm I don't know what the question was I'm so sorry it popped out of you there it is wouldn't a guaranteed live okay if the Fed uses unemployment as a measure for inflation wouldn't a guaranteed livable income have kept inflation at a healthy percentage so the Fed maintains a certain amount of slack in the labor market this is how they would describe it and a certain number of people are kept unemployed for the sake of preventing the labor market from getting too tight and the ideas when it becomes too easy for people to find jobs when the labor market gets too tight workers have more bargaining power they can negotiate higher wages and if wages increase then employers might respond to the increased wages by raising prices to protect the profit margins and so higher wages push prices higher and then you get inflation and then you can even have a wage price spiral if the bargaining intensifies so the question is could you somehow avoid that remember we don't have inflation accelerating could you avoid that with a guaranteed livable income I assume this person's asking about something like a universal basic income or something like that there are proposals right now to get cash payments to virtually everybody in the country and given the slack conditions in the economy there is scope there's definitely capacity to do some of that I would have to know more about how much and for whom and under what conditions but you know are the MMT preferred way to handle unemployment is just more targeted right so that the dollars go not to everyone in a blanket not targeted fashion but that you target the spending directly to the unemployed yet the dollars in the hands of people who are looking for jobs but locked out of employment and employ them put them to work doing socially useful things things that enhance the community enhance the planet caring for people caring for planet caring for our communities so I'm not where none of us I think are opposed to some form of basic income support especially for those who can't or shouldn't be in the workplace and that could include some homecare work as well so I think with that it's 10 o'clock and it I'll take one last question the the last one this is a great question is is GDP it jumped it is GDP a good way to measure I think okay is the GDP a useful measure of the economy great question norm it's it's useful in some respects but it definitely has its has its shortcomings there's an Australian economist who has developed an alternative indicator and he calls it the genuine progress indicator his name is Phil Phil lon I hope I'm getting that right Phillip lon I believe and his genuine progress indicator says look GDP has all these shortcomings there are lots of costs and lots of benefits that aren't captured in this measure of economic output or economic activity so we can improve upon that and we can get things in there that give us a better sense of our genuine economic well-being and he's just one example so it it's the dominant but I think that lots of economists are working on alternative measures of well-being so thank you all for for joining for this whole hour conversation I really really enjoyed it and I'll be doing more of these so if you didn't get your question answered tonight maybe there will be other forums and you can pop over and get your question answered there thank you very much well thank you for everybody tuning in this evening and I also want to thank professor kellton for being here if you enjoyed this event you can find many more just like it on our website townhall Seattle org we also hope that you'll consider making a donation to townhall Seattle as your support will continue to allow us to provide events just like this one if you're interested in making and purchasing a copy of the book the deficit myth modern monetary theory and the birth of the people's economy please use the link on this livestream page purchased through our friends at Elliott Bay book company finally I want to thank everybody again for being here tonight and I hope you have a great evening

Channel: Town Hall Seattle

Views: 65,502

Keywords:

Id: a9pAPIUYXxQ

Length: 59min 5sec (3545 seconds)

Published: Mon Jun 15 2020

Reddit Comments

[u/timedstudent]

This is one of the most transformative videos I've watched on MMT. I'll definitely be centering my senior thesis around this.