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June 7, 2021 - Freedomain Radio - Stefan Molyneux

02:03:02

MODERN MONETARY THEORY: The Freedomain Debate

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	Hello. Well, hello, everyone.
	Great to have you come by today.
	So, we are doing a debate, and the debate is regarding modern monetary theory.
	And I'm with Dylan and Nima.
	Dylan is on the left, Nima is on the right.
	I don't think technically they're one is taller than the other.
	I think it's probably just a matter of perspective, but they're trying to create that 3D view, which is great because this is going to be a very in-depth boom.
	Oh, there you go.
	There's your dad joke for the Sunday in-depth conversation.
	Now, my philosophy of debates is you can't lose.
	Like, you can't lose.
	Because if they instruct me, I end up better off.
	If I instruct them, they end up better off.
	And I'm sure there'll be a cross-pollination of good ideas.
	We've had one conversation before.
	Very smart guys.
	Very committed guys.
	And non-leftist, I think it's fair to say.
	So the fact that Bernie Sanders and Alexandria Ocasio-Cortez have all been keen on MMT, - Yeah.
	Doesn't mean that it is a...
	Sorry, what was the t-shirt? I just missed that.
	I love global warming.
	Well, you know, when we have more people and we produce more CO2, that produces more plants, which feed more people.
	I think it's beautiful. And we did, of course, save the entire planet from CO2 starvation because it keeps going down into the Earth.
	So, yeah, well, obviously, why not?
	Why not? So, yeah, we won't play the guilt by association stuff.
	The fact that there are a lot of leftists who really are into MMT is probably because the leftists are just economically illiterate and they think it just means free money.
	So it's a little bit more sophisticated than that, and it is growing in the movement, and it really came out of a traitor in the 1990s.
	Actually, he was noticing certain patterns in the In the 80s.
	And they made some money because there was this fear that Italy was going to default.
	And the modern monetary theory thing said, well, Italy is not going to default.
	It can't default. It won't default because that's a political decision.
	It's not an economic inevitability.
	So they made about $100 million betting that Italy wasn't going to default.
	And, you know, when your theory has netted you $100 million, I could see getting behind that.
	I could see that being a thing.
	So we're going to talk about modern monetary theory really as a discussion.
	There's stuff that I understand about it.
	There's stuff that I don't understand about it.
	I do want to learn more.
	I do have reservations slash fanatical oppositions, but I'm sure we'll get into those.
	So, without further ado, I guess if you guys would like to – and, you know, we've got time today.
	I booked off some chunk of time because it's a big and important topic.
	If you guys want to get started – we don't have any sort of formal structure.
	It's just kind of a conversation. If you want to get started and just let people know the story of modern monetary theory, how it came about, the influence that it's having, how you came into it, what has appealed to you, and also if you could mention a little bit about your own political leanings – That would be very helpful.
	Well, let's start with our own political leanings.
	Well, I would say, Steph, I got a lot of my political leanings from listening to you.
	So, I don't know, back in 2012 or something is when I discovered you and you converted me to anarchism.
	And I actually started learning about economics from listening to your podcast.
	And I was very staunchly an Austrian.
	Well, I consider myself aligned with the Austrian perspective.
	And it was actually Nima who apparently had a conversation with you back in like 2016 or something and started posting on your FDR boards when they still existed.
	That's how we met, by the way.
	Yeah. And I... He was posting this MOT stuff, which looked like entirely garbledy gook to me as someone who was the Austrian team, basically.
	And I started arguing with him, and he always had a very clear and concise answer back to me.
	And after several posts, I was like, give me your Skype information.
	I got to talk to you. And Nima just had these patient responses to everything I can get at him.
	And I was like, okay, this isn't...
	I don't like where this is going, emotionally.
	Because when you hear about MMT, it almost sounds like I'm telling you, up is down, left is right, and everything is just completely backwards from the way that you understand it.
	And it was... When I was listening to Warren Mosler, a speech by Warren Mosler, who is, for everyone who doesn't know, the person that Steph was just talking about who came up with the concept of MMT was Warren Mosler.
	And he was giving this speech at a college or something.
	And he had this graph in the back of, I think it's the...
	The deficit, the tax revenues, and the trade deficit.
	You know what graph I'm talking about?
	Okay, well, I believe it has those three variables on it, and they make this exact mirror of each other.
	The sectoral balance.
	Thank you. The sectoral balance chart.
	And Warren Moser was going, look, the reason that these are an exact mirror to each other, of each other to the penny, is because there's no other place for the money to come from because the government has the monopoly on the issuance of currency.
	And I went, I never thought of it that way.
	And then I had to go back to NEMA and say, okay, tell me everything again, because I'm not going to fight you this time.
	Sorry, this is the argument that the public sector deficit is a private sector credit.
	And to take it one step further, there's no other place for that credit to come from.
	Asterisk. We could talk about the private banking system and how that affects things.
	But the public sector deficit.
	So the easiest way to understand this is like filling up a bathtub.
	So if you've got a bathtub, there's a spout that comes in and there's a drain that goes out.
	And let's say the bathtub is the economy and the water is the money.
	If you turn on that faucet, it starts filling up the bathtub with water.
	Well, if you got it stopped and you just keep blasting at full water and it starts overflowing, that would be too much money in the system.
	Well, if you drain it out and you let all of it drain and there's no money in the system, that's taxes, that's not enough.
	And so MMT is, I mean, this is like the really basic way to look at it, is saying How do we control how much water is in that bathtub?
	And what does it mean when it's too full and overflowing?
	What does it mean when it's empty?
	And because if we look at money as a commodity that was derived from barter, this is really hard to understand.
	Because as I have understood the story that the Austrians tend to say of where money came from, is that originally people bartered, and then there was eventually something that got bartered more often than everything else.
	And at some point, that thing was a thing that became money, and that's why money goes back to being a commodity, versus there's this other theory that money is actually based off of a credit system, and that human beings naturally set up methods of keeping track of each other using credit.
	And we got a book here that...
	I just want to show the title.
	Debt, the first 5,000 years goes over this in explicit and painstaking detail and is very fascinating.
	And what MMT points out is that while human beings have this natural tendency to create credit systems, very quickly the state says, well, I want to monopolize that.
	And then I can control.
	So the only way to get credit is from me because the only credits that I will accept as taxes I don't know if you could say throughout history, and let me say this, modern monetary theory is kind of a misnomer.
	Actually, it's really a misnomer. I think it's probably more accurate to call it ancient monetary theory, because it explains any system all the way back.
	there's this argument that I often hear that modern monetary theory was designed by Warren Moser to explain the money system after 1970, whatever year it was that Nixon finally got rid of the gold standard.
	Oh, yeah, sorry, just interrupt very, very briefly.
	So this argument goes somewhere along the lines that we don't have a monetary theory that explains untethered fiat currencies 1971, Nixon ended the convertibility of gold and the US dollar.
	And we just don't have a way of explaining economics with a completely untethered economic fiat currency system.
	And MMT, I think, claims to be able to explain it in a way that older systems based upon the tethered to something fiat I think?
	By the government, and enforced by the government, you can't compete with it, you can't counterfeit, and of course you have to pay your taxes in government dollars, which is a foundational drive for why it has value in society.
	How do we explain a system that is unprecedented in human history, which is an entirely made-up financial system where the government has monopoly control over the creation of currency?
	MMT says, like, we finally caught up to what's been happening since 1971 and we can explain it better.
	I don't want to characterize it wrongly because you guys are the experts, but is that a fair way to put it?
	No, that's what we hear often and we're saying that MMT actually describes it all the way back.
	Okay, got it. So whether or not, and you're using the word tethered, the MMTers like to use the word fixed, whether it's a fixed monetary system or a floating, or a fixed currency or a floating currency.
	The MMTers say the rules are the same, but in a fixed system, these things happen, and in a floating system, these things happen, and you just have to understand what's going on.
	And I would also point out, and in debt the first 5,000 years, it goes over this as well, is that for the evidence that we have, And it's mostly Sumerian records because they put the records on clay, which did the test of time.
	And one of their favorite records to record were tax records.
	Is that credit money is older than...
	Gold and silver coinage.
	Gold and silver, so we have records of credit money going back to about, what was 3000 BC? That's when the...
	3500.
	35, okay. And then gold and silver coinage starts to come around, particularly in the...
	800 BC. Yeah, in the Mediterranean world, about 800 BC. And then around, I think, 600 AD, you start to see it disappear again and get replaced by a credit system.
	And around 1400 AD or so, we start seeing the world switching back over to gold and silver, coinage and bullion.
	And again, now in 1971, we're back over to credit again.
	So MMT just looks at it and says, well, here's the rules of money creation.
	You still have the tub with the faucet.
	Yeah.
	if you have the fixed currency, your ability to turn that faucet on whenever you want becomes restricted.
	And I understand that typically the Austrian argument is that's a good thing.
	However, we're going to make the argument that it's typically not.
	The point standing aside that we also agree that the government makes really, really stupid decisions and spends its money on really, really stupid stuff most of the time.
	So we're not arguing with that at all.
	And this is going to sound really weird, and I understand that.
	Employment is a government-created phenomenon.
	Or excuse me, I should say unemployment is a government-created phenomenon.
	Because I demand a tax in this arbitrary token that I made up.
	And you go, well, how do I get this tax?
	How do I get this token in order to pay this tax?
	And I say, well, you got to work for me.
	And I'll give you this token.
	It's the origin story of monetary systems, according to MMT, basically.
	What you're talking about right now, Dylan.
	Yeah. And I lost my train of thought.
	Where were we? So you need to pay someone that token.
	Yeah, unemployment. Yeah, thank you.
	So if there's unemployed people, and I understand this is more complicated, like with a welfare system, and you have people who have low IQ who can't necessarily be employed because they're too dumb to do it.
	But in an economy, the simple description is, if you have unemployed people, that means there isn't enough money to go around for everybody to pay their taxes.
	And that means the government is not deficit spending.
	I would even say that the word deficit is a bit of a misnomer when it comes to what the federal government is doing.
	It's not deficit spending enough for the population to have enough money to exchange with each other for everyone to be employed to pay their taxes.
	Pay the tax and to have the savings buffer that we observe.
	People have a certain demand.
	For a savings cushion so that they can be prepared for future eventualities, for future taxes, etc.
	So that's the liquidity preference that Keynes has talked about at one point.
	Which means that there has to be a certain amount of surplus money injected into the private sector through deficit spending in order for the economy to function.
	And one thing I want to add, because Steph, you mentioned Bernie Sanders and Acosta Cortez at the beginning of this that are big proponents of pushing MMT, and you mentioned that leftists hear this, and if they're not neoliberals, and they just shove it out to begin with, they go, oh my god, we finally found the free stuff here.
	Magic wand. Like, I can just have, you know, everything for free.
	I can get my housing for free.
	I can get my food for free. I can get my college for free.
	I'll get my student loans paid off and blah, blah, blah, blah, all this stuff.
	And I think the biggest error that the leftists see is they don't understand incentives.
	Like, I mean, learn from listening to your economic stuff over the years, is that if you give free incentives to everybody, you're just going to I mean, we're seeing this right now in the United States where so many people are being paid to stay home because they're making more money staying home than they are going to work.
	I mean, where I live right now, in the Seattle area, there's a complete labor shortage.
	And everybody's looking for help, but I mean, why would I work if I'm going to take a pay cut?
	Right. No, that's good.
	I wanted to just put a little bit in as far as I see the evolution of the idea and why.
	So, of course, the Austrians have been saying, what is that old saying that Peter Schiff is right twice every 20 years?
	You know, that the Austrians have been saying that there's going to be inflation.
	It's going to be massive inflation because look at all this money printing.
	Look at all this money printing. And I've been hearing this.
	Oh my gosh, I'm trying to remember when I went to my first Libertarian conference.
	I was probably 18, maybe 17 or 18.
	And of course you hear, oh my gosh, look at this debt, look at this deficit, look at the money printing.
	My God, it's been untethered.
	There's no gold standard. There's no restraint.
	They're just like... 80s traders on cocaine, hooker's bellies, you know, the whole kind of thing.
	So I've been hearing about this.
	Now, there was, of course, significant inflation.
	Like here in Canada, I've told this story a million times, like the 10-cent candy bar that went to a dollar over the course of my childhood.
	And it's been fairly stable ever since, right?
	So they'd say, okay, well, look, if it's praxeological, like true by definition, there's no way around it.
	If it's praxeologically true that an increase in the money supply causes an increase...
	In prices, particularly, we're looking at 07, 08, right, where there's some estimates, they say officially about a trillion dollars, but there's some estimates about 27 trillion dollars went into the financial system.
	Okay, where's the inflation? The Fed keeps creating all of this money.
	And of course, the big one, which is one of the reasons why we're talking, the big one, of course, is COVID. Right?
	So you've seen a massive expansion in the money supply under COVID. Where's the inflation?
	Now, of course, people will say, well, the price of lumber has gone up and it's $30,000 more in housing.
	I get it. But that's not the kind of inflation that the Austrians have been talking about.
	You know, the Weimar inflation, the ancient Roman inflation, the French inflation of the 18th century.
	That's the hyperinflation, the wheelbarrows of money, all the complete dislocation, Zimbabwe-style inflation and so on, what's been going on in Venezuela.
	That's the kind of stuff they're talking about and they're saying, OK, look, your theory, your theory predicted that we would see massive inflation based upon all of this excess money.
	And then, of course, this is a big thing that the MMT enthusiasts point towards is, hello, Japan, 240% of, what is it, deficit on GDP, right?
	I'm sorry? Public debt to GDP. Highest of all industrialized nations.
	Yeah, and yet, they actually have to sometimes battle deflation.
	Now, I mean, my argument is...
	Can I interrupt you? Yeah, yeah, please go ahead.
	My wife is Japanese, and her parents live in Japan.
	They bought a home for a million dollars at some point, and they just sold it for $260,000.
	I went to Japan for a wedding ceremony.
	I could not believe how cheap stuff was.
	I've heard my whole life how expensive Japan was, and we were just like, our money's going so far.
	What the heck? Like, this is crazy!
	And the Austrian theory, of course, doesn't account for that.
	Now, I would put in a little sideways argument here.
	I don't want to derail.
	I just wanted to point out that I think a lot of what's driving the deflation in Japan is the collapsed birth rate.
	Because when you have a birth rate, you know, there's like more diapers required for old people than babies in Japan.
	You've got a birth rate that's like 1, 1.1 per couple.
	And so because you've got such a catastrophically low birth rate, you just demand this way down.
	Because people sit in their parents' basement watching anime and playing video games rather than going out and starting their own families and buying a whole bunch of stuff.
	You know, and you become a parent, it's like a bunch of ferrets just start attacking your wallet from here to eternity.
	I saw this being the other day of, you know, dads when their kids go to college and stop leaving the fridge door open.
	And it was just covered in money, just covered in money.
	And so I would say that you can keep inflation down even if you have a large deficit.
	But what you have to do is cripple the next generation so that they don't buy stuff because they're too depressed or whatever, right?
	And then I would say that the point you brought up, I completely agree that that's a factor.
	And I think what's important when understanding inflation and also hyperinflation is that it's a very complicated issue that has lots and lots of factors, one of which is money supply, one of which is the population, one of which is demand on services.
	And then, I mean, you brought up lumber.
	I'm actually in the... I'm a project manager in the construction industry and my subcontractors are just agonizing because I make them buy a lot of the materials of like, can you give us some more money because a sheet of plywood is now 80 bucks instead of 20.
	And from what I saw, the price of timber hasn't gone up.
	But the price of lumber has gone up like five times.
	And in the Seattle area, it completely confuses me because we've got the trees, we've got the lumber mills, and we've got the lumber yards.
	And I'm like, what's the problem?
	Why is it so much more expensive?
	And I think the reason is there was a supply shock that wasn't meeting demand that was really, really screwed up by the lockdowns because all the shipping got screwed up.
	And Was it Mike Norman who posted on the Lumber Futures?
	Apparently, Lumber Futures just tanked.
	I mean, you see it going up like this over COVID, and it just goes like a week or two ago.
	So I'm hoping that means that those prices are going to come down soon, so my subs will stop complaining.
	Just to finish the point before you say it, is when it comes to inflation and hyperinflation, One of the things we really want to emphasize is there's lots and lots of factors to talk about.
	And it's not just, more money equals inflation, less money equals deflation.
	And that's the end of the story.
	Right, yeah. It's just one of the many levers available in the economy.
	If I could just boil it down for the listeners, and you guys tell me where I go astray, because I certainly don't want to mischaracterize the perspective, but it's something like this.
	Look, we think that the government runs like a household, but that's completely false.
	So in a household, if we can't afford stuff, if we're too much in debt, if we've got too much debt, too much deficit in it, we've just got to cut back on our spending, and that's the only way we can get back on track.
	Or one of the statements from Charles Dickens that literally seared itself into my Protestant...
	Poverty brain as a kid was the following statement.
	I can't remember which book it is.
	And it was, expenses, 20 pounds a year.
	Income, 20 pounds, one shilling.
	Result, happiness. Expenses, 20 pounds a year.
	Income, 19 pounds, 19 shillings, result misery, right?
	And it's that fine line.
	And we've all had to juggle this if you've been in school and you've been in debt and you're broke and you've got to borrow to patch things along like you're trying to get off a desert island with some sheeting rock or something like that.
	So we all know.
	And because we judge the economy according to the standards of our own personal finances, our own personal household finances, we think of the government as the following entity.
	Well, you know, it gets a bunch of taxes.
	And if it spends more, that's its income, and if it spends more than it receives in taxes, you get a deficit, and eventually that causes Weimar, or that causes some economic catastrophe.
	And as far as I understand it, again, the idea of MMT is, well, you're just not judging, you're not comparing apples to apples, because you're comparing a household, which is a money consumer, with a government, which is a money issuer.
	And a money issuer is not at all in the same economic ballpark as a money consumer, right?
	Because we can't create currency...
	Sorry, go ahead. Yeah, I was just going to say that when I said at the beginning, it's going to sound like I'm telling you up is down and left is right.
	It's because for the government, and we mean specifically the federal government, this doesn't apply to local governments because they don't issue their own currencies.
	The federal government, the rules seem to feel like they're backwards.
	Where when they take in money in taxes, money gets lost.
	When they print too much money, more than they took in taxes, that's more money in the system.
	That's our money. Okay, so this is what I wanted to get a point.
	So I think the way that we look at it, and this is just mapping the territory we'll be discussing.
	So the way that we look at it, of course, is the government taxes our money and that's its income.
	And we'll know. No, not at all.
	The way that the government works is the government creates money, puts it out there into the economy, and then claws some back in the realm of taxes.
	So that's a very, very different scenario.
	If you go and you pay your taxes using cash, using dollar bills, They'll say, hey man, thanks for paying your taxes.
	And then, do you know what they do with those dollar bills?
	You guys can tell them. What do they do?
	This is literally what they do with your dollars if you go and pay your taxes.
	What do they do? Although, I have heard, because Warren Moser brought that up, they shred some of them.
	Yeah, they shred the old ones, but whatever.
	But it's still the same point where it's like, it's just a piece of paper that we make up and we'll make a new one.
	Fine. Yeah, you see what they can do, which you and I can't do, like somebody pays a debt to me in some old dollar bills, I'm not going to shred them.
	Why? Because I can't type new ones.
	Because I'm not a money creator.
	I'm a money consumer. And so if you pay, I don't know, a $10,000 bill, $10,000 tax bill in cash, $5,000 of those bills are old, they'll shred them.
	Why? Because they can just type another $5,000 into their own bank account.
	So the idea that the government creates the money, pushes it out into the economy, and then claws some of it back In taxes is a redirect of thinking that is a way of looking at the alternate dimension of money creation versus money consumption.
	Is that a fair way to at least start?
	Because I remember we talked about this last time and you're saying, look, The government creates a whole bunch of money and deficits allow money to stay in the private sector.
	Make me make sure I've got that correctly, right?
	Because if the government runs a deficit, it means that they're clawing back less money in taxes.
	There's water left over in the bathtub.
	Yeah, yeah. So, Steph, you're a big free market guy.
	I was a little spun around by the argument last time, but further research.
	You're a big free market guy.
	What the hell are you doing objecting to more money staying in private hands?
	Deficits are a way of just leaving money in private hands.
	You're a bad capitalist, man.
	Bad capitalist. I will admit, I actually still consider myself an anarchist.
	I don't know if you do too.
	This poses a serious philosophical conundrum if you subscribe to the non-aggression principle and the self-defense principle.
	It's like, well, if the government needs to spend in order for the money to be there for the private sector to work, that I'm kind of giving the government a reason to exist and I really don't like that.
	I don't know how to square that circle at this point.
	Well, let's leave that because that's a very abstract discussion and I think let's leave that a little bit later.
	So let's dig into some of this stuff as a whole, right?
	So I've got a couple of quotes here and you can tell me whether this...
	So the central idea of MMT is that the government with a fiat currency or that governments with a fiat currency system under their control can and should print or create with a few keystrokes in today's digital age as much money as they need to spend because they cannot go broke or be insolvent unless a political decision to do so is taken.
	Some say such spending would be fiscally irresponsible, as the debt would balloon and inflation would skyrocket.
	But, according to MMT, large government debt isn't the precursor to collapse we have been led to believe it is.
	Countries like the US can sustain much greater deficits without cause for concern.
	And a small deficit or surplus can be extremely harmful and cause a recession, since deficit spending is what builds...
	People's savings. Now, again, there's a lot of counterintuitive stuff.
	Hey, I don't mind counterintuitive.
	The speed of light being constant is counterintuitive.
	Time slowing down when you go faster is counterintuitive.
	The fact that the world is round is counterintuitive.
	I have no problem with counterintuitive, but this goes so much against what we both have been taught and what we experience in our own household income versus I mean...
	I would say partially, yes.
	There's a lot of things in there.
	For example, spend however much the government needs, that's pretty open to interpretation.
	How much do they need? Is it how much they claim they need?
	How do we assess how much they need?
	So we don't necessarily agree with that part of it, but a lot of it is basically what we're saying.
	And then I would nitpick at the very beginning.
	So it says here, the central idea of MMT is that governments with a fiat currency system.
	This implies that there's governments without a fiat currency system.
	And this is another thing that's kind of emotionally hard to get over.
	I think that's to differentiate from historical systems, like gold standard systems and so on.
	So the government decreed gold standard.
	It's still fiat. Well, I mean, early America, right?
	Without a central bank, without government control of the banking supply and so on, or, you know, there's some examples, right?
	Let's say early America as an example.
	Pennsylvania, for example, did specifically this.
	So Pennsylvania is an interesting case study.
	This is like colonial Pennsylvania, is that they would issue currency, paper currency, for public projects, and then collect it in taxes later.
	And they didn't have a gold standard.
	And I know that there's actually a pretty big argument between G. Edward Griffin and the American Monetary Institute guys like Bill Still over what exactly was causing the Depression in the colonial era, whether it was a lack of gold and silver or whether it was a lack of simply paper money.
	But personally, I think it's a lack of understanding here where whatever one it is There needs to be enough of it.
	I mean, I would add to that, and I've explained this a couple of times, the gold standard is just a fiat money system with a fixed gold price.
	If you look at it that way, MMT makes much more sense in any given monetary system because the government still prints money under gold standard.
	They are just constrained in their printing by the requirement of keeping the gold price constant.
	So now we're keeping the price of a commodity fixed because people think it makes sense.
	That's just what we're assuming.
	But we're basically intervening in the market with the paper money that, once again, the government creates.
	Well, no, but I would say that, I mean, this comes back to, it's a kind of moral argument.
	It's a little bit extra economic, but I think I'm a moral philosopher primarily.
	So the question is, okay, who on earth can handle the power of currency creation?
	Who can possibly not be corrupted by the power to create currency?
	Currency. And so I think one of the arguments behind the gold standard is, okay, well, at least there was some constraint on the creation of currency because the currency markers, the fiat currency or the gold-backed currency had to be convertible to gold.
	So there was some kind of limit on what you could type into your own bank account.
	It had to be limited by the amount of gold available either in the bank or at the Fort Knox or whatever.
	And so when you get unconstrained money creation, Whatever economic arguments you might make for that, the argument which I'm going to push pretty hard, and I'm perfectly happy to be disproven on this, is that, well, human beings can't handle that kind of power.
	Like, you can set up whatever structure you want and say, well, you know, the government should spend money until it reaches maximum employment, and then it should scale it back a little bit, and if inflation starts, then it should raise taxes, not as a way of redistributing income or as a way of gaining income, but as a way of just cooling down inflation or whatever.
	The problem is, of course, that who can handle that kind of power?
	I mean, we certainly see that nobody can handle the kind of power that the fiat banking system has at the moment.
	I mean, we can very much see that they'll move the money printing based upon financial interest, they'll move interest rates based upon who they want to win the presidency and who they don't want to win the presidency.
	So I think that's I haven't seen that discussed much in MMT. And of course, one of the things that we mentioned earlier is that people, like the leftists don't respond to, they don't understand that people respond to incentives.
	So we look at incentives like, well, if you pay people to stay home, they won't want to go and get face-baked in the melting forehead scenario of being a dishwasher at a fast-paced restaurant for eight hours a day.
	They just won't want to do it because I'm pleasant being a plongeur in the George Orwell style.
	But In the same way, people respond to incentives, okay, so you have the power to create currency.
	You have the power to create currency.
	And then you have the power as to who it gets distributed to first, which is an enormous power.
	And I've not seen much in MMT, in fact, anything which says, okay, how are we going to deal with...
	The problem of power corrupting and power over currency is just about the most powerful thing that there is.
	Because it's not directly forceful.
	It's not a gun to your head.
	You get to steal through inflation.
	You get to reward your friends.
	And it all looks like you're managing the economy.
	It all looks pretty good.
	But the amount of power that people have in that is so enormous.
	And I don't know... And of course the government doesn't want to teach you how the economic system works because then you can try and figure out maybe the government isn't adding value in the way that they say they are.
	And I guess that's a big question, is the corruptibility of this power.
	I would say you're right that that's probably not discussed a whole lot because it's not really something, MMT doesn't claim to have the answer on this moral conundrum.
	MMT is more about observing the existing monetary system as it's here, as it's developed through history and understanding it.
	And there are some MMT authors who then come up with recommendations on what should we do.
	But I think it's important to understand the mechanics first and then there's, you know, different prescriptions.
	I agree with you.
	I mean, I agree with you that a big government can't be managed easily and that power corrupts.
	And so I would say as a libertarian who believes in MMT, I would say We need to keep the government small, as small as possible.
	Because if it's small, then taxation is low, then it doesn't need to spend as much to leave the private sector a bunch of money to function, if that makes sense.
	Well, okay, so the current conception Whether it's right or wrong, we can sort of put to the side for the moment.
	That's my recommendation, obviously, not a commandment.
	So the current conception is, well, the government's overspending because it's got a big deficit.
	And then people say, well, we've got to cut government, we've got to cut the size and scope and power of government and so on.
	And this happened in the late 90s in Canada when...
	The Canadian government was paying close to 40 cents on the dollar just in interest payments, and there was big cutbacks in the government, and it was actually done by the liberals.
	Like the Nixon going to China thing, only the liberals can cut spending, only the left can cut spending, because otherwise we all understand too much propaganda from the media on the right hates the poor and so on.
	And so if we have this conception and we say, well, we want to keep government small, I can't for the life of me.
	It could be a failure from my imagination.
	Maybe that's a good answer. I count for the life of me to say, in my own mind, okay, well, we're going to keep government small by giving them no constraints, really, even mental constraints like you're not taxing enough to cover your expenses, by giving them the capacity and the right, and it's a plus thing, to create infinite money at whim.
	How on earth could that be part of the mechanics that would keep government small?
	Well, it's not at whim.
	It's based on a process that is the budgetary process, and the Parliament passes appropriations bills so money can be spent.
	There's no other way around addressing this issue than that process.
	And if the process is corrupt, if we say we can't do anything, well, then that's not good.
	But MMT has no solution for that.
	But the main point I just want to make is that, you know, if we say the government is spending too much money on all these projects and I don't like it, let's put a gold standard in place.
	That's not an answer to the problem of too large budgets passed in Congress.
	So that would be my answer.
	If there's one place where this problem of overspending can be addressed, And it's not a complicated answer, right?
	It's obviously the process where the decisions are made to spend this money, not the plumbing and the mechanics of the banking system and of the public finance system that facilitates this economy.
	And I would add from another side is that In history, again, going back to the David Graeber goes into this in debt the first 5000 years, making the moral argument is that so we had these periods where credit money dominated or bullion money, gold and silver money dominated.
	And a pattern that you see is during the eras of bullion money dominating our ages of universal warfare.
	And I think the simplest way to understand it is gold and silver can be stolen.
	So if gold and silver is money and you got gold and silver, I can go plunder it and I can melt it down and nobody knows where it came from and I can go spend it.
	Whereas if it's a credit system, I mean, yeah, there's a way to hack into your bank account and stuff, right?
	But it's not the same, like, you know, how do we break into Fort Knox and get all the gold?
	There's a trust relationship associated with the token.
	You can't just eradicate a debt record, you know, you hack into it maybe, but it's much easier to steal gold and then to immediately deploy it, you know, deploy those funds and buy things with it or buy, sell them for money, etc., without ever anyone knowing where it came from.
	And to also to point back to what I said before is I don't know how to square the circle.
	I don't have the, now that I understand MMT, I don't have the solution for, well, here's how we solve the problem of giving an individual or a small group of individuals this incredible power on what to do, or I mean, on how to create money, and like you said, possibly even more importantly, who gets it first, or who gets it at all.
	Or gets to create the regulations on what you're allowed to do with it.
	And, you know, when we get into inflation and hyperinflation, I think that's also a very big factor of, okay, well, if we're in a communist country, and you're not allowed to do anything unless you have specific permission, well, we can give you all the money you want, but you're not allowed to do anything with it.
	So, of course, it's going to hyperinflate.
	Right. Sorry, go ahead.
	But... We were talking about gold money and the fact that I can't square the circle.
	I lose my train of thought really easily.
	You can't square the circle. What do we do with all this power?
	I did remember the last thing I wanted to say, sorry, is that what we felt was that the first step to answering that problem, even though we don't know what the ultimate solution is, is let's understand how the system works.
	Like, okay, we're playing a game of chess, and we realized someone taught us the completely wrong rules.
	I mean, they're telling us a pawn can move like a bishop, and a king can jump around like a knight, and we're just playing it completely wrong, and let's start with understanding the rules, and then we can start talking about, okay, how are we going to strategize how we're going to play this game.
	And also one more thing I would like to add to that.
	My primary focus in understanding MMT was not necessary to solve the world's problems, but rather to make smarter financial decisions for myself.
	And I think the same should apply to everyone else.
	And from there, you know, maybe then if we...
	If we get more influence and if we understand the system better, we can make bigger changes.
	But if we don't understand the rules, then that's not going to happen.
	Let me just get behind and push that forward a little bit, just to put it in context for my listeners, and I guess your listeners now too.
	If you think of the Austrians, of course, the Austrian school has been predicting hyperinflation since 1971.
	Now, some of it, of course, you've got inflation of 10.5% and stagflation under Carter in the 70s and so on.
	But ever since 2007, 2008, in particular, There has been this massive expectation of not just inflation, I think, but hyperinflation.
	Now, this is not all Austrians, but it's a lot of them, right?
	And so what have the Austrians done?
	What they've done, or the Austrian followers, the people who follow this school of thought, what they've done is they've gone to gold.
	They've gone to gold. Now, they didn't go to Bitcoin.
	They didn't go to S&P. They went to gold, and gold has stagnated for, you know, give or take a decade and a half, could be a little longer.
	So if you went to gold in 2007, 2008, you know, now 13, 14 years later, how has that investment decision paid off for you?
	You know, whereas if you maybe held off, got some Bitcoin or something else, right?
	Or even if you've just gone to regular economic standard, you know, S&P 500 stuff.
	So this is where, you know, always got to be willing to revisit your own perspectives and opinions.
	So when you're talking about specific financial decisions, the decision to go to gold.
	It was pretty bad in a lot of ways, but it was driven by an understanding that the money printing, and you know, you always hear Zimbabwe, the money printing is going to cause massive inflation, and gold is going to rise in value relative to the dollar and so on, which hasn't really happened.
	Now, Zimbabwe, of course, you look at these $100 trillion bills and so on, and you say, oh, well, it's the money printing.
	It's like, I think the MMT argument, correct me if I'm wrong, the MMT argument would say, look, it's not...
	You ended up with a $100 trillion bill, not because the government printed a lot of money, but because it printed way more money than the economy was producing in goods and services.
	So when you had Mugabe, I think it was.
	So Mugabe, of course, kicked out all of the farmers, particularly the white farmers, who were very skilled, and it was a very complicated thing, just as it is in South Africa.
	Sorry, go ahead. Well, that's the main thing that really happened in Zimbabwe, and that's what created the hyperinflation, is the fact that the land reform occurred, that the people who were able to produce off of that land were kicked out, and the farms were raided by activists and just politically connected groups and all that.
	And so the... The productive capacity of the economy collapsed.
	And when you destroy your productive capacity, that's how you create hyperinflation.
	That's MMT's theory about hyperinflation.
	For the most part, it's because of policies that destroy your productive capacity.
	Well, and then to add to it, this is the central point.
	So then when productive capacity collapses, prices go up.
	And when prices go up, the government has to print more money just because everything's more expensive.
	So the things that the government purchases also become more expensive.
	Because they're the money issuer, they have to print more and bigger bills to pay for those higher prices.
	So it's almost a causality might actually be inverse, where, you know, this policy of collapsing the economy creates the hyperinflation.
	And at the same time, prices go up and more money has to be printed to Pay those higher prices.
	Yeah, because the cause and effect in the Austrian school, and again, I'm no expert to my understanding, is something like, well, the government prints a whole bunch of money that wrecks the economy, but the Zimbabwe example, clearly the wrecking of the economy occurred before the escalation in prices, and you don't want to get cause and effect backwards, because cause and effect are all about investment decisions, because if you get cause and effect backwards, you're chasing everyone else, which means you're probably going to lose money.
	Well, and then I think it's also worth pointing out in the example of Zimbabwe, and there's actually an analogous example to Weimar, is that they were on a fixed currency system.
	They had pegged their money to the U.S. dollar.
	And so when they had, because they were taking out loans in U.S. dollars, weren't they, right?
	So if they're taking out loans in U.S. dollars and they have to pay back in U.S. dollars, well, to Zimbabwe, the U.S. dollar is a commodity because they can't create it.
	So, in order for them to pay their loans back, they have to go on the open market and sell Zimbabwe dollars in order to buy US dollars.
	Well, if you're just cranking that printing press to just go on the open market and immediately sell all this money...
	Well, of course it's going to drive you.
	Your import prices go up, and that's another factor for hyperinflation.
	Well, so this is a very, very important point, I think, for people to sort of really process.
	If you look at the Argentinian example, right?
	Argentina borrowed a huge amount of US dollars because it could get a better interest rate from borrowing US dollars because they couldn't control US dollars, right?
	If you borrow U.S. dollars instead of using a currency that you yourself directly control as a government, then you could end up as a default, right?
	But if you borrow someone else, so sometimes when you look at hyperinflation leading to economic collapse, And they say, well, this pushes back against the MMT theory, if I understand this correctly.
	The MMT theory does sidestep this pretty neatly by saying, well, no, look, if you borrow someone else's currency, then you're a currency consumer.
	You're not a currency creator.
	And the household rules then apply.
	It has to be something that you can create yourself in order to conform to the MMT theory.
	Exactly. Okay, yeah, well, sorry, go ahead.
	No, you nailed it.
	Well, if we want to talk some more about inflation and what MMT actually thinks causes inflation...
	Well, that's the big argument against it is no such thing as a free lunch.
	If you let the government create as much currency as they want without the constraints of taxation, you're going to end up with massive inflation.
	And given that that's the first objection, and I always know, like, when you've got smart guys like yourself...
	In a theory, then it's not like you haven't heard the...
	What about inflation?
	Ha! That's a good point.
	I never thought about that.
	It's like, how do you get roads, man?
	How do you get roads? If you don't have a government, who's going to fund gain-of-function research for coronaviruses?
	Come on, man. You've got to have that stuff.
	Because, you know, if there's one thing that communists who study gain-of-function coronaviruses in order to help the human race, totally in alignment.
	Totally in alignment with communism, which always has as its number one objective the protection and enhancement of human life.
	Anyway. So this is the what about the roads question.
	So a lot of work has been done on, okay, so let's say we uncouple in a sense.
	We uncouple government spending from tax revenues.
	We get rid of the concept of a deficit as a bad thing.
	People think, of course, and then they hear AOC and Bernie Sanders.
	Oh, my God, the floodgates to the tsunami from hell of money printing is going to be opened.
	And this, of course, a lot of MMT people knowing that this is the first objection.
	I wonder if you can give the top couple of pushbacks on that.
	Before you go into what you want to say, do you want to hit the banking system to say that what the government prints isn't necessarily the main amount of money in the system?
	All I'm getting from this is that Dylan and Nima want to hit a bank.
	That's all I'm getting from this and I hope that that comes across clearly.
	Sorry, go ahead. No, just go in.
	The banking system, we should probably make that a separate topic.
	Okay, go ahead. But I just want to talk about what MMTers think creates inflation.
	So, first of all, just looking at money supply, the money supply is a very bad indicator for anything, really.
	Because the money supply could go up for reasons that are absolutely non-inflationary.
	For example, quantitative easing is an example where people who hold bonds in their portfolios and their savings deposits sell those bonds and the bonds are replaced by cash That the Fed has given them.
	And now what are they going to do with that cash?
	It's sitting in a portfolio.
	It's a savings account.
	They're going to find probably the next best bond or whatever they can find to just recycle through.
	And so that kind of money supply increases meaningless.
	It's a private sector asset swap and very little has changed in terms of spending money.
	Well, it doesn't end up at the mall for the most part, right?
	That kind of money doesn't end up at the mall.
	And this is the old 3-6-3 rule of banking.
	You probably heard of this before.
	3-6-3 rule of banking.
	Here's how to be a banking genius.
	You borrow at 3%, you lend at 6% and you go play golf at 3 o'clock in the afternoon.
	That's the 3-6-3 rule.
	And it is a form of welfare, of course.
	Create a bunch of money, drop it in a savings account, and then let banks borrow that at some sort of premium.
	And that's not the money leaking out into the economy as a whole.
	And again, correct me where I've gone astray, but that's what the Austrians, they look at this, oh my god, a trillion dollars.
	It's like, yeah, but that doesn't end up at the mall.
	That gets bogged up in the interest rate payment system.
	Siphon, drip, drip of the upper echelons of the financial system.
	Again, correct me if I've gone astray, but that's why you don't see this kind of inflation coming out of that kind of money creation.
	Right, exactly.
	There was a lot of R's in that right, so if you want to correct me on something, please go ahead.
	I meant to just move on to some other points regarding this topic.
	Okay, go ahead. MMT does acknowledge explicitly that deficit spending...
	Too much money will start leading to inflation at one point.
	And too much money means if you print beyond the economy's capacity, which is one thing that I've pointed out on our other calls.
	If you look at the US economy's capacity utilization, it'll help you understand why we haven't seen this inflation that the Austrians keep talking about.
	Because Even pre-COVID, U.S. economy capacity utilization was only 80% or so.
	Of course, after COVID, it collapsed down to something like 60% or whatever.
	So then all this money that comes in, the capacity is there to produce things that are purchased, that money chases.
	So that's the reason why it doesn't have to, even bigger deficits don't have to create inflation.
	Now, if the deficits grow so large and we Create more and more employment with full employment.
	At that point, we will start seeing some inflation because now the government is or whatever money comes into the private sector is chasing employed resources or is trying to pull employed resources out of the current employment.
	It turns into an auction, basically. You got to bid up the stuff that's already in use.
	But then at the same time, MMT says this can start causing some inflation.
	So that's why MMT-minded investors have been saying now, okay, because of all this deficit spending that's been going on, and it will probably continue, we're probably going to see levels of inflation that we haven't seen in a long time.
	At the same time, that doesn't mean we're going to see hyperinflation.
	It just means we're probably going to see inflation go above what we've grown used to over the past 20 years or so.
	It may go up to 4%, 5% or something like that.
	Well, I'm sorry, just because the government is printing money to pay people not to work.
	So they're putting money into the system while reducing labor goods and services out of the system.
	That's going to lead to an inflation, but simply the money printing itself Is not enough.
	And of course, the ideal, as far as I understand it, I mean, I don't know how this could be achieved except in a pure free market.
	You know, if the economy is going at 4%, you kind of want the money supply to grow at 4%.
	I think the in-use money supply, not all this backed up dirigible stuff.
	But you want so that you keep...
	Dollar value to goods and services relatively constant so you can make future calculations without having to guess what inflation is going to be in 10 years.
	And so, yeah, so I just really wanted to point that out that MMT as well as Austrian economics, but almost in a way, MMT would predict the inflation levels better because the Austrians will mostly look at money creation, whereas the MMT will look at, in other words, how much water is going into the bath, but MMT will say, well, how close is the bath water to the top?
	And that's the big difference.
	For Austrians, it's very binary.
	It's always hyperinflation or we have a gold standard and everything's perfect.
	And there's much more nuances if you observe the economy through the MMT lens.
	Now, I wanted to talk about other causes of inflation because, yes, I just acknowledged MMT does say deficits that are large, especially the closer we get to capacity utilization, It can cause some inflation.
	Also, if we're pre-capacity utilization, but all the money gets spent on bombs and wars, then that's also inflationary.
	Not just because you're not producing anything, but also because in the military, you have to hire very specialized people to build things.
	Engineers that have very rare skills and things like that.
	And those engineers get paid a lot of money, but in return, they don't produce any apples or oranges or whatever consumer goods We look at when we try to assess inflation levels.
	Well, the business is death and the business is good because it's worse than neutral because you're actually destroying resources.
	So, you know, you take a bunch of oil and you fuel a bunch of military planes that drop bombs somewhere and then you need a whole bunch of oil to rebuild whatever.
	Like, it's a massive net negative problem.
	On the economy as a whole, although, of course, if you just look at the payroll, it looks like it's going up, but the long-term undertow and drag on the economy is almost beyond comprehension.
	Right. So that's obvious.
	So you destroy, you know, but also the other inflationary factor is just paying resources a lot of money that don't produce consumer goods, but they will end up purchasing consumer goods from the consumer sector.
	So one of those is obviously the government sector because these things don't become available on the market.
	Another one of those sectors is the export sector.
	So if export surpluses grow as a percentage of GDP, that is inflationary because people from abroad who are using the currency of a different currency issuer show up in our country and buy up goods and there's more money in our system now and fewer goods for the consumer.
	So that's another inflationary factor, potentially, according to MMT. And then another inflationary factor is investment spending.
	Because investment spending means that basically any spending that's on machinery, on computers, on non-consumer goods, that means that the money goes to people who are employed in a sector that once again doesn't produce consumer goods, but ends up purchasing consumer goods from the consumer market.
	So that can push up consumer prices as well.
	At the same time, of course, they improve worker productivity.
	So there's hopefully sort of an anti-inflationary effect, but also a lot of these projects fail.
	So on the net, this could have an inflationary effect on the economy as well.
	Well, yeah, I mean, to invest in capital machinery, and I've always been trying to bring this big giant death star or starship of business-to-business transactions to the view of the average consumer because, you know, you go to the mall and you buy stuff and you have, oh, there's a store and there's a product and I've got my visa or whatever.
	That's like a tip of the iceberg of what actually goes on in the economy, the business-to-business sector, which is what I worked in for many years as a software entrepreneur.
	I was a business-to-business guy.
	I sold to big corporations I never sold to the end consumer.
	And, you know, to me, investing in improvements in capital machinery upgrades and so on, you know, you only do that because you're hoping to produce goods that are going to be bought by somebody, probably the end consumer and so on.
	And, you know, like when McDonald's puts their touchscreens in because the minimum wage went up too much.
	OK, well, they're going to they're doing that for the end consumer to keep prices low for the end consumer.
	It's really a consumer focused kind of investment.
	Yes, some of them fail.
	But if we're going to say, well, you know, capital allocations fail, that's kind of an argument against MMT, because if individuals spending their own money in their own corporations or at least their corporate money, if they have a significant chance of failure to the point where it might drive inflation.
	Then people in charge of other people's money through MMT are going to have a much greater chance of failure.
	I think, in general, those things tend to improve productivity.
	There's a huge amount of research done, test case scenarios, spreadsheets with n-dimensional learning curves and so on.
	They'll roll it out to a small number to check.
	The amount of cost-benefit analysis that I had to produce in order to sell a million dollars' worth of software to a Fortune 500 company was enormous.
	They really are pretty careful with that money.
	It certainly could happen and there are failures for sure, but in general, the money is spent pretty well.
	Where the failures occur, it's often because Bernie Madoff turned out to be running a Ponzi scheme or something like that, which is a bit of a white swan event.
	Yeah. So I think you're right.
	The inflationary effect of the investment spending is probably minimal.
	But I just wanted to sort of lay out the MMT theory of inflation.
	And it's basically, you know, the three things that I just mentioned.
	If the sum deficit spending plus export surpluses plus investment spending grows as a percentage of GDP, that can have an inflationary effect on the economy.
	That's the one big factor.
	The other one is just if you have a commodity price, if you have a monopolist, for example, OPEC, That can set the prices of a commodity and they just raise it to some arbitrary level and the entire economy is affected by that because now all prices for industry, machinery, car, fueling, etc.
	go up. Then that will have an effect on consumer prices.
	And that's what we saw in the 70s actually.
	According to MMT, going off the gold standard wasn't really the trigger for the elevated levels of inflation that followed.
	But rather the oil price shock and the ensuing shortage in oil, the increase in the oil price.
	And in fact, I believe that the central bank tried to raise rates all the way through this.
	The rates ended up at 20% or so at one point.
	Inflation didn't stop.
	What did stop the inflation was the government deregulated the price of natural gas.
	Because now there was a competitive element in this whole thing, and the oil industry was constrained by whatever gas was available, etc.
	That's actually Warren Mostert, the creator of MMT's And another big thing, because we talked about Japan, deflation, etc.
	before, MMT suggests that raising interest rate actually is inflationary, not deflationary.
	Because when you raise interest rate, the net money that's injected into the private sector goes up.
	Because the money that borrowers pay on their loans is a wash when compared to the interest that savers earn on their savings accounts.
	But what adds the net money into the economy is the treasury securities and treasury bonds that pay interest.
	So if the interest rate goes up, there's a net increase in the money injection into the private sector.
	I call it a universal basic income for the rich because that's really what interest rates are.
	Sorry, finish your point.
	I have something to ask about bonds, but go ahead.
	If interest rates go below zero or if they go lower, even below zero, that's actually deflationary.
	So now we can understand why have we seen deflation in Japan all these years?
	Because they have negative interest rates and they think lowering the rates to even more negative is going to reverse it.
	So all they're doing is creating more deflation.
	Sorry, that was just what I wanted to say.
	Japan, of course, I forgot to mention this earlier, but it's pretty obvious.
	We can just touch on it. I'm sure we all agree that one of the reasons Japan is experiencing deflation is because it doesn't have mass immigration.
	Which, of course, drives up demands with people's needs.
	Okay, so according to MMT, we talk about government bonds, right?
	So government bonds are a big thorn in the side of people who accept the Austrian school because they say, look, the government is pretending to add value in the here and now by borrowing from the next generation at interest and kicks the can down the road, makes it worse, and so on.
	But MMT, if I understand it rightly, says, look, there's no need for the government to sell bonds.
	Why would you need to sell bonds?
	On your own. The government, you know, maybe they'll sell bonds to drain excess reserves, but the existence of bonds, mostly referred to them as savings accounts at the Fed, it's not a requirement for the government to have bonds or sell bonds, but it's a policy choice.
	And that is a little tough for the audience to process.
	But we see it now.
	So if the government just issued money and didn't sell bonds, there would basically be a perpetual zero-interest bond.
	That's what money is, really.
	And then people say, well, nobody would buy that.
	At the same time, we now see people are buying even bonds that are 30 year duration and pay a negative interest rate in Japan and in Germany.
	In the US, we're not there.
	I say fortunately, because I like to have some money in bonds in my portfolio for various reasons, but And that's really, I think that makes it very clear that we don't need to pay.
	I mean, the government doesn't need to pay interest on bonds.
	It's a choice. And it's obviously a choice that was probably, I mean, not obviously, it's probably a choice that was informed by people who have a lot of money and who want to earn free money on their bonds.
	And those people have a lot of influence in government.
	And at the same time, there's this whole narrative that the government needs to borrow and needs to pay this interest.
	That illusion keeps this whole system, this whole setup alive, basically.
	And there's another interesting point that you actually found this out.
	You can see this on the Federal Reserve website.
	Do you know where 98% of the interest that the Federal Reserve collects goes away?
	To the U.S. Treasury. Yeah.
	Right. So there's this whole thing like, oh my God, that the Federal Reserve is just extracting all this money from the population because they have the monopoly to create this money, and then we got to borrow it from them, and they charge interest on this money.
	Well, all the interest they get, it just goes straight back to the government.
	And the 2%, This is another thing for the Austrians listening.
	The 2% that doesn't go to the U.S. Treasury goes to the member banks.
	And then this is kind of where the mystique of like, oh, the Federal Reserve isn't federal.
	It's not government. It's privately owned.
	Comes from is that if you look at the Federal Reserve Act, it's written in corporate language as opposed to legal language.
	But I think it's important to understand it's still a legal document because it's a Federal Reserve Act from Congress.
	That in order to be a bank in the United States by law, which is the Federal Reserve Act, you must own stock in the Federal Reserve.
	And the Federal Reserve is going to pay you, I think it's 6% or something on the stock that you've purchased in the Federal Reserve.
	That's what that 2% is of paying back member banks.
	And it's not like the member banks are the secret cabal of people that actually own the Federal Reserve.
	It's like literally... Sure.
	Sure.
	Sure. It's spending too little while collecting taxes.
	So those looking for work, if they can't find the job in a private sector, they should be given minimum wage transition jobs paid for by the government, maybe managed by the local community, and stuff like pothole filling in and repairing various infrastructure things, stuff that's necessary, not just like dig a hole and fill it in.
	And this labor is like a buffer stock just to help the government control inflation You get these simplistic explanations.
	I know it's like a 20-sided dice in terms of causality, but what's the MMT focus on unemployment and its causes?
	I think the greatest example that I've seen of this is the MMT founder Warren Mosler was in a Was at a university and giving sort of a lecture about MMT and he wanted to demonstrate the MMT theory of unemployment.
	So basically he was sitting out there in front and he said, okay, I have some business cards here.
	Does anyone want to come here and do some public sector work for my business card?
	Clean up, you know, the front of the lecture hall or whatever.
	And nobody was interested.
	And he said, well, what if I told you that there's a guy with a 9mm at the door and if you want to leave this room, you need one of my business cards.
	Now you're all unemployed.
	You all need money, the money that I just invented, and you don't have it.
	So how do I make this money available to these people?
	I have to hire them to clean up the corners of the room or whatever, and I will pay them in this new token that I created, and now they're employed.
	And now, obviously, I understand we're talking about a completely simplistic communist economy, essentially, but But it illustrates the MMT theory of unemployment, if that makes sense or if that helps.
	Right. And so the solution to the issue or the problem of unemployment is for the government to simply hire people, keep them in the workforce, have them used to getting up in the morning, provide them some general skills and so on.
	And the reference is to transition jobs.
	So this is just like until the economy improves, just...
	Prime the pump, so to speak, as they used to say.
	Yeah, I mean, it actually...
	You could just also look at it as a permanent buffer stock.
	There are always going to be people who fall out of private sector employment, etc.
	I would actually say, because I'm a libertarian, so...
	Because you said earlier, the unemployment is because the government is not spending enough.
	And I don't necessarily agree with it.
	I would say... No, that's not my perspective.
	That's as far as I understand it, the MMT thing.
	Right, right. But I would say it's because the government taxes too much.
	Because there's two ways to increase the deficit.
	You can cut taxes or increase spending.
	So I would always prefer, let's cut taxes as low as we can.
	And then, if there's still unemployment, okay, then let's have a transition job.
	I agree that if the government has imposed this arbitrary debt on the people and people need this money to function, I agree that the government owes those people employment.
	I mean, it sounds...
	You write to a job and stuff like that.
	But given that they have imposed this system and that they demand payment in this token, they are required, I think, to provide the means to obtain that token.
	And there will always be some people who don't, who don't, who get laid off or don't have employment for whatever reason.
	But I think that would be a very low number.
	If taxation levels are very low, I think that would be a very small buffer stock of people struggling to find private sector employment.
	We should have a transition job program.
	It wouldn't cost, I mean, compared to the money that the governments are spending today, it wouldn't cost much to maintain such a system.
	Right. That's sort of the libertarian MMT approach, I think.
	Yeah. Again, I know it's multidimensional.
	I always get actually quite angry at people who say, well, you know, if the government just spent more and produced these transition jobs, you'd deal with unemployment.
	I think, no, unemployment is a result of Increased technological advancement, decreasing IQ, terrible education on the part of the government system, massive amounts of debt and mistraining of people through these terrible higher education cabals.
	It's a whole complicated thing.
	Unemployment is also driven by mass immigration, wage undercutting.
	It's just a massive amount of things.
	Unemployment is also driven by the welfare state.
	It's also driven by the fact that you have...
	Well, you have minimum wage, you're right.
	Unemployment is driven by the fact that you have these crazy OSHA and environmental regulations, Occupational Health and Safety Association.
	I know these regulations well because part of the software that I wrote was to help companies deal with that.
	This idea that, well, you know, if the government spends more, we're going to deal with the problem of unemployment.
	Boy, unfortunately, it's one of these multidimensional things, and whatever thread you pull at, it's going to be pretty tough.
	So, okay, so...
	All these problems should be addressed.
	I agree with you. Okay, so here's some pushbacks, and you can just, you know, I'll throw them up, and you can knock them down.
	This is from a Harvard guy, so maybe it's crap, but, you know, whatever, we'll find out.
	So he says in terms of just like the printing money thing, like I know MMT is not just like print whatever you want because the ideal is you print instead of tax to keep more money in the private sector and you tax to control inflation, not to redistribute income and all that.
	But here's what this guy says.
	He's got three major points and if you can push back on those, it'd be great.
	So he says, first, in our current monetary system with interest paid on reserves, any money the government prints to pay a bill will likely end up in the banking system as reserves.
	And the government, via the Fed, will need to pay interest on those reserves.
	That is, when the government prints money to pay a bill, it is in effect borrowing.
	The money can stay as reserves forever, but interest accrues over time.
	An MMT proponent will point out that the interest can be paid by printing yet more money, but the ever-expanding monetary base will have further ramifications.
	Accrucate demand will increase due to a wealth effect, eventually spurring inflation.
	So I won't expect you to remember all of that.
	At least I wouldn't.
	So I'll put this in the chat as well.
	And I'm so sorry to be – I should, of course, have internalized all of these, be able to nimbly argue them and so on.
	But it's a lot of stuff to process in a short amount of time, and it's just as efficient, I think, for you to respond to an expert directly.
	For sure.
	I would say, I mean, the easiest way to respond to this is, okay, then let's not issue interest-bearing bonds.
	That's not a bond thing, though.
	No, it's not a bond thing. They're saying that the bill's going to end up in the banking system as a reserve.
	The government's going to have to pay interest on those reserves.
	So it's not quite the same as a bond thing.
	I'm not sure if he's characterizing the mechanics of the monetary system accurately.
	Any money that's deficits...
	I mean, reserves are...
	Are the banking systems internal money?
	We don't ever see them.
	We have nothing to do with them.
	We don't receive reserves or send reserves.
	The only way that Reserves get drained if we get cash at the ATM. No, but we were talking earlier about one of the reasons why the Austrian school predicted inflation has not occurred despite massive amounts of quantitative easing is because the money is ending up in the high echelons of the banking system as reserves.
	The Fed's paying interest on that and they're just making money from that rather than putting it into the economy as a whole.
	And I think if that mechanic doesn't change, Then he's saying, look, you're just going to keep creating money, giving it to rich people, paying them interest on it, and that's just going to mean you're going to have to print more money to pay the interest and it doesn't actually get out to the market in the way that you might want it to in order to stimulate the private sector growth or something.
	Let's dissect this statement from the beginning.
	In our current monetary system with interest paid on reserves, I have to assume that what he's talking about here is the fact that A bank, a member bank that has a reserve account at the Fed receives interest payments on those reserves.
	Which is a very...
	We don't ever see that mechanism.
	It doesn't affect us in any way.
	I'm just going to read on and see if that's what he was talking about.
	Any money the government prints to pay a bill will likely end up...
	Well, not likely... Any money that the government creates becomes reserves in some bank account.
	Or if they pay someone else, then that money becomes reserves in some other bank account.
	So yes, any money that's injected into the economy We'll end up in reserves, and the government will need to pay interest on those reserves.
	Okay, then let's stop paying interest on reserves.
	Okay, so there's more that needs to change.
	Just so everybody says, MMT is not the same system that we have right now, but the government can print whatever it wants.
	So you need to make particular changes in the system as a whole.
	I just want to make that clear. Yes.
	I think in 2008 or so, when Ben Bernanke was Fed chairman, this policy was started.
	But I'd have to look up the exact history and if they're still doing it.
	They started paying interest on reserves that banks happened to have at the Fed.
	According to Bernanke, it was a...
	Stealthy way of recapitalizing the banking system, because all these interest payments become equity to the banks.
	Also, it means, of course, that the banks will leave the cash they get from the government, the banks will leave in these Fed reserves to get interest on, and that means that it's not going to go out into the marketplace and drive inflation.
	No, reserves never got in the marketplace.
	Reserves always stay between banks.
	So if a bank makes interest on reserves, all that does is it pushes up the lower bound of the interest that they're going to be asking other banks who are short on reserves temporarily and who would borrow reserves from this bank.
	All this does is, this is basically interest rate policy.
	Because Whatever the risk-free rates that the banks can earn in the interbank system determines what rate they're going to charge to borrowers.
	Or whether they're even interested in lending to the general public, right?
	Because lending to the general public, you know, for those of you who don't know, and it just takes a moment's thought, I suppose, but, you know, if the bank is making 1% on a loan, right, then if a loan fails, they need 100%.
	behave perfectly just to break even.
	So there's a huge amount of risk lending to consumers, which is one of the reasons why, you know, visa interest is so high, because so many people default and other regulatory and monopoly reasons as well.
	But, you know, this is one of the things that's really frustrating to those of us who just want resources to go out into the market is that all of these resources getting tied up.
	If the Fed is paying good interest on this stuff, why on earth would they ever want to, you know, it's compete all of this capital ends up not going out into the marketplace as a whole.
	And it means that the banks consider themselves geniuses because they just take easy free money from the Fed with some interest.
	And, oh, look, I'm Rockefeller.
	But again, reserves are never lent out into the private sector.
	And banks will always want to make loans as long as there's willing and able borrowers.
	Because every time the bank makes a good loan, it increases the bank's revenue.
	And the bank doesn't need to tap into their reserves to make a loan or anything like that.
	The bank makes a loan by marking up the loan recipient's checking account.
	And that's it. Yeah, just make the money.
	Yeah, because people forget that banks are also money creators as well.
	You go to get a loan and they just create it, right?
	Right. So the main point being is whatever happens with reserves here is a system.
	It's outside of the private banking system.
	It's outside of the consumer loan system, of any business loans or any of that.
	The banks are still going to do that.
	They do things on the reserve end to manage their reserves because they have to.
	And they have to keep certain amount of reserves for statutory reasons and no good reasons.
	And also they have to keep some money in reserves in order to be able to meet clearing demands and checking, sorry, ATM withdrawals and tax payments.
	Okay, so you said let's not pay interest on the reserves, right?
	So the guy, the Harvard guy, tries to deal with this.
	And again, I'll paste it over here and feel free to hack it apart like a Zorro style.
	So he says, second, if sufficient interest is not paid on reserves, the expansion in the monetary base will increase bank lending and the money supply.
	Interest rates must then fall to induce people to hold the expanded money supply, again putting upward pressure on aggregate demand.
	And inflation. So this is his, you know, feel free to break this down.
	It's a kind of voodoo-ish in its language.
	But, you know, he's from Harvard, so he's not a populist.
	But yeah, go ahead. Is this Jeffrey Myron from Harvard?
	Let's see here. I have the M-A-N-K-I-W. Skeptics Guide to Modern Monetary Theory.
	Oh, thank you.
	Okay. Yeah, I remember he wrote some important economics books for college students.
	So, if sufficient interest is not paid on reserves, expansion in the monetary base will increase bank lending.
	No. Like I just said, bank lending increases if banks find willing and able borrowers that will increase the bank's profitability and revenue.
	It has absolutely nothing to do with the money that they receive on their reserves.
	That would be my response. I mean, my response is this guy doesn't know how the banking system actually works.
	That's a big claim, which, you know...
	I know. And, you know, I'm not a big one for...
	Well, it's Harvard, so he's got to be right.
	There's an argument from authority. Well, I'm relying...
	I'm relying on the description of the banking system by Warren Mosler, who happens to own a bank.
	So that's my source.
	Okay, okay. Yeah, so again, I think what he's arguing is that, look, if the bank can't get money, free money from the Fed in terms of enough interest rates, then they'll have to lend out more, which is going to drive inflation.
	Sorry, what's free money from the Fed?
	What's free money from the Fed?
	So the Fed just puts a whole bunch of money and the bank gets access to it and the Fed pays interest rates on that.
	That's sort of my understanding.
	The Fed just shows up at a bank and says, here's some free money?
	No, this is back to his first point, right?
	In our current monetary system with interest paid on reserves, any money the government prints to pay a bill would likely end up in the banking system as reserves and the government via the Fed will need to pay interest on those reserves.
	So they pay interest to someone. I assume that's major financial institutions.
	But the government pays interest on government bonds.
	No, this isn't bonds.
	This is in the banking system, not the bond system.
	Okay, okay, good. Bank will have to pay interest on those reserves.
	Right. Like I said, I mean, let's not pay interest on those reserves.
	It's not necessary.
	What's more important, actually, is the government's open market policies where they sell treasury bonds in order to raise the risk-free rate Right now it's 0.25% or 0%.
	But if the government wasn't selling any bonds, then the banking system's interbank lending rate would always be 0% or near 0%.
	So, because the government doesn't, because for some reason we don't like this, we want to have the rate at 2% now.
	The overlords at the Fed have decreed the rate has to be 2% now.
	Okay, so now they have to sell treasury bonds into the interbanking system at a lucrative rate of 2% so that banks, if they want to lend to other banks, they will have to ask for more than 2%.
	Right. Or they can just put it in a treasury bond, treasury bill, and make 2%.
	So these are very arbitrary choices, which I'm trying to convey.
	We could as well just leave it all at zero and not do any of this.
	Right. And he's saying there's consequences to that too, but the consequences to that would, I think, be advantageous to the MMT theory, which wants to get money into the private sector as quickly as possible, not have it jammed up at this Fed interest rate.
	But once again, the money doesn't get jammed up like this.
	Like I said, the amount of reserves that a bank has in the reserves account at the Fed has nothing to do with the bank's desire to find willing and able borrowers in order to earn interest income.
	Well, I think it does, though, because if the bank is getting money from Fed interest rates, it has less of an incentive because that's guaranteed money as opposed to the more risky lending to people who might not pay it back stuff.
	Yeah, and sorry I disappeared and I came back.
	I've got two young children and they needed to be attended to.
	Hey, you're fighting for their future, man.
	That's totally fine. Maybe we need to bookmark this part.
	We can come back to it another time because there's something else that I wanted to mention as well with regards to inflation.
	So, theory of inflation, right?
	So, the mainstream media, sorry, the mainstream economics view, you know, high rate of money creation is inflationary, right?
	When you create money, inflation is inflation in the money supply, not the rise in price is just an effect, right?
	So, the MMT people as a whole question that conclusion.
	They assert that, and here's a quote, no simple proportion, sorry, no simple proportionate relationship exists between rises in the money supply and rises in the general price level.
	But however, in US data since 1870, the correlation between inflation and money growth is 0.79.
	Cross-country data exhibit a similarly strong correlation.
	So that aspect of things is tough, right?
	Because if you're saying, well, we can print more money without driving inflation...
	Then this 0.79 is, well, it's about as strong as you can get in economics, let alone social sciences.
	I guess you get more in physics, but that's no free will situation.
	So the correlation between inflation and money growth is 0.79, and not just in the US since 1870, but cross-country data is similarly strong.
	And is there an explanation from MMT as to why that wouldn't be the case?
	Well, is there correlation between inflation and rising sea levels?
	I feel that's a non sequitur because the standard belief is inflation and money growth, right?
	That's the standard Austrian thing.
	And the Austrians would say, look, 0.79 is about as strong a correlation as you're ever going to get in economics.
	So if you're going to start to bring in something that's completely sideways, that's not dealing with this argument.
	So correlation equals causation.
	Well, no, the word is correlation, right?
	I mean, it didn't say causation, but it's still a pretty strong correlation, right?
	Now, is your case like Zimbabwe that they wrecked the economy and then the prices went up?
	Well, okay, so we were looking at two different pieces of data, inflation and money supply, both of which tend to go up over time, all the time.
	So, of course, there's going to be a correlation between the two.
	Because money supply keeps going up and up and up.
	Inflation levels go up over time.
	No, that's not always the case, right?
	I mean, they fell from the 1970s and all that.
	Long term. Long term, I mean.
	Okay, wait. Do you mean deflation of the currency or inflation of the prices?
	I mean, I know those two sides are the same coin.
	Deflation of prices. I'm sorry?
	I'm saying inflation of prices goes up and up and up over time, and money supply also goes up and up and up over time.
	Didn't we just have your fine colleague there talk about 75% loss from his wife's parents on their house in...
	Sure, the inflation, and that's what we've seen in Japan for the past 30 or 40 years, that's a phenomenon we haven't seen in the West.
	No, but I mean, we're universalists here, right?
	If you're going to make a law of physics, you can't say, but it's the opposite in Japan, right?
	If you're going to make a law of physics, the prices go up, and we have 30 to 40 years of deflation in Japan, I don't think we can just wave that away, can we?
	Because I'm saying that there is no causation between those two factors necessarily.
	So you can have places like the US where we've seen all those two figures go up since 1800s, 1700s.
	We can have places in Japan where money supply goes up and price level has gone down over the past 30 or 40 years.
	That's entirely my point.
	That correlation doesn't necessarily imply causation.
	The data, though, is not that the prices just keep going up.
	It says the correlation between inflation and money growth is 0.79.
	That's a very strong correlation. I'm sure we can all accept that.
	Now, whether the data is correct, I don't know.
	It's just what I've read. So it's not saying that the prices are always going to keep going up.
	Where there's a contraction in the money growth, there'll be a drop in the prices.
	Where there's an expansion in money supply, there'll be an expansion or an upward pressure on the prices.
	And so he's saying that they dovetail with each other both up and down, not consistently up, but both up and down at 0.79.
	So again, we can dig.
	I'm happy to bookmark that one as well if we need more data.
	I'm just saying there's a pushback against the MMT approach that says it doesn't really matter.
	All right. Now, this is very interesting, which is, well, first of all, I really appreciate this conversation.
	This is all very interesting and fantastic stuff to talk about.
	Okay, so a lot of people think it's very lefty, but MMT is not part of the lefty orthodoxy because they say, okay, yeah, taxes can be fine if you want to lessen inequality, but they're not essential to pay for government.
	And that's really important because this, you know, soak the rich, screw the rich stuff, this populist, oh, he's only wealthy because he stole from your parents and you and all like, so they really push back against that.
	So you may have social engineering goals, but you don't need this for government.
	And I also wanted to point out that MMT has never said deficits don't matter, right?
	Because that's a mischaracterization, right?
	Because if you have deficits significantly bigger than Then the free market sector of the economy as a whole, then, yeah, you're going to have a problem.
	And the University of Chicago Booth School of Business published a survey of prominent economists that misrepresented MMT that way, which is they say, oh, they say that deficits never matter.
	No, no. MMT, I just, you know, let's not straw man it.
	MMT says that if you have two bigger deficits, you can cause excessive...
	I'm a guy who's been mischaracterized, well, more than once, I think, on the internet.
	And they don't say that deficits never matter.
	They don't say that you don't need taxes at all, or taxes don't matter, because, again, you may have...
	A lessening inequality goal that would mean that you would tax the rich more and so on.
	So I just wanted to be clear for people who are looking at MMT, don't necessarily believe the straw man stuff, if that makes sense.
	And that's the mainstream literature is full of straw man arguments with MMT and everything else, too.
	And then I would even say that MMT jumps up and down emphasizing that deficits do matter, like they're super duper important because it's not just that, yeah, you know, we could spend more because there's more capacity for the economy to absorb it.
	It's also if we don't have it, we can crash the whole system.
	Right. Okay, let's let's dip into I know we've got we've maybe a little 20 minutes or so if you guys have it.
	So sectoral balances, which really sounds like something medieval that you'd use to balance your humors.
	But this is from Britain's wind godly concept of sectoral balances.
	Okay, this I'm still working on.
	So, you know, forgive me, but explain it, you know, like I'm three years old.
	The accounting truth that when the government runs a deficit, the non-government sector must run a surplus and vice versa, which I think is really, really key, not just to this first conversation, but to the value you guys see in MMT as a whole.
	Like, wouldn't you want the government to have less and the free market and the private sector to have more?
	And when you have a deficit, this seems to be praxeological in the MMT framework, the non-governmental sector is going to have a surplus, that these two things are...
	Inverse, if that makes sense.
	So can you just break that out for me a little more?
	Yeah. So if we...
	The simple version is we look at an economy with balanced trade, where if the government spends money into existence without taxing a corresponding amount of money, where does that money go?
	It ends up in a private sector bank account, either in some corporation or some individual's bank account.
	So, the government spends a thousand dollars on a social security check.
	The government books a thousand dollar deficit and the recipient of that security check books a thousand dollar profit.
	Does that make sense so far?
	Yep, I'm with you. Surplus might be a better word.
	Surplus, yeah. The third sector is the foreign sector.
	So in this sectoral balance equation, we're looking at the issuer of the currency, the user of the currency, and the issuers or users of a different currency.
	So the latter is the so-called foreign sector, where if somebody from Canada purchases beef from the US, let's say $1,000, then The Canadian individual goes to their foreign exchange or bank,
	purchases US dollars, The foreign exchange basically takes those Canadian dollars, at the end of the day takes it to the U.S. Fed and receives a thousand U.S. dollars, hands it to the buyer and then that person can purchase the beef from the U.S. with a thousand dollars.
	So now there's a thousand dollars that's come into the U.S. economy and the Canadian sector is short a thousand dollars.
	So the foreign sector's deficit is the private sector's surplus, just as the public sector's deficit is the private sector's surplus in any countries, in any economy basically, any fiat money economy.
	And if you map these out, these sectoral balance charts, you will see that the private sector surplus is always the inverse of the Public sector's deficit plus the foreign sector's deficit.
	Okay, good.
	Now, there's another thing that blows my mind a little bit about MMT, right?
	So, conventional economics would say...
	If the government is running a huge budget deficit or the budget deficit is going up, interest rates are going to crank up, right?
	Because they're competing for resources and there's a great demand for resources and therefore interest rates are going to go up.
	But MMT says, no, not really the case.
	If you understand these sectoral imbalances, if the government spends more, where does the money end up?
	The money ends up in the private sector.
	Private sector gets this government money based on deficits put in the banking system.
	So now you have more money in the banking system, but no massive or concurrent increase in demand for it.
	So interest rates will tend to fall, not rise.
	Now, the exception being if the government soaks up reserves by selling bonds, but doesn't have to do according.
	I mean, I think MMT is like, you know, screw bonds, man.
	To hell with it. Screw interest rates on reserves and all of that.
	And so they're saying, look, if the government runs a deficit, it ends up in the banking system.
	There's more money to lend.
	There's not a huge amount of increase in demand.
	So there's more supply of money, less demand for it.
	So interest rates are going to fall.
	And again, this is like Alice in Wonderland stuff for mainstream econ, but I can certainly see the case.
	Is that a fair way to put it? What you described is exactly the process of how excess reserves are injected into the banking system.
	And you're right. If the government didn't choose to sell bonds to the banking system, then the interest rate would always be at zero.
	The interest rate that's paid on bonds is always a policy decision and nothing but a policy decision.
	The thing is, So, for short-term rates, that's literally the case.
	The Fed decreased. This is how much you make on your short-term bank deposits.
	And the 3-month, 6-month, 1-year, 10-year, 30-year bond rates are basically just a reflection of the investors' expectations of the Federal Reserve's short-term rate over that same period.
	So basically, if I buy a 30-year bond right now, it pays something like 2.26% right now, I'm betting that the average of all the short-term decreed one-month rates within that same 30-year period will be somewhere below the 2.26%.
	Short-term bond rates are literally determined by the Federal Reserve.
	Long-term bond rates are determined by the investor's expectations of what's called the dot plot chart of where the Fed is going to raise or lower rates at any given point in the future.
	If the Fed declared today that we're done with this whole interest rate thing, we're going to leave them at zero forever, then all these rates would come down to zero.
	Right. And so, again, it's a wild scenario.
	And what I do is I sort of imagine a pure free market environment for money and how would things work.
	And again, we're talking government and all of that.
	So just so everyone understands, there's no need for taxes in an MMT environment.
	There's no need for selling treasury securities.
	There's no need for taxes because the central bank, under the control of the treasury, can pay for everything by coming up with electronic money.
	Now, of course, a lot of people...
	There is a need for taxes.
	There's a need for some taxes because otherwise there would be no drain on that money.
	The money would have no value.
	That's the one purpose.
	No, no, because if you only created the money that correlated to an increase in economic output, then – but there will be times where you need to have both levers, money creation and money destruction, so to speak, and taxation would be a form of money destruction.
	And so you need offsets to keep inflation under control.
	And I think the argument is that the taxes under MMT drain just enough money from consumers and businesses so that the total economic spending isn't over the top.
	But there is another reason for taxation is literally so that people have a demand for that money to begin with.
	Because if there was no taxation, why would the private sector even want the dollars?
	They could come up with their own.
	They could use Bitcoin or whatever.
	Hang on. Wait. Sorry.
	I just went on to my Bitcoin happy land.
	All right. Another point, I do have some issues with this.
	So MMT says that inflation isn't just the result of massive growth.
	They say that, or a lot of them say, it's business's excessive pricing power.
	So the work to break up monopolies, stop banks from making too many loans and so on.
	And here's a quote three MMTers wrote in a letter to the Financial Times.
	Recently, they said, the more actively we regulate big business for public purpose, the tighter the full employment we can achieve.
	So this sounds like old lefty monopoly baiting and so on, that it's price gouging, you know, all this kind of stuff.
	So excessive pricing power, is this capital relative to employees?
	Do you know what they're talking about here?
	Yeah, so there is a whole theory that Minsky has written a lot about, what's called market power, which is, why does a business make decisions?
	What he's saying is, a business wants to to to to they always want to raise their prices by as much as they can because that increases inflows of money and obviously there are ways to do that through legislative means by lobbying etc there are ways to do that by being very persuasive in marketing and by having a universal marketing strategy across the whole country and all these things Anything that a business can do,
	privately or publicly, or through lobbying, that enhances their ability to set prices, to raise prices, is what that means, basically.
	Pricing power? What did you ask?
	Market power? Yes.
	So, they say that...
	Sorry, let me just get the right...
	Excessive pricing power.
	Much of inflation is based upon businesses' excessive pricing power.
	Power, this is a quote, so before trying to choke off growth to kill inflation, they would try to break up monopolies and stop banks from making too many loans.
	And the quote is, the more actively we regulate big business for the public purpose, the tighter the full employment we can...
	So there is a certain amount, again, corporations and, you know, we're not in a free market system at all, not just because of money in the Fed, but because of corporatism as a whole, which would never fly in a free market society.
	But this idea that there would need to be some monopoly attacks and stop businesses from banks from making too many loans and so on, that some of the inflation is driven by, you know, greed, which, you know, everyone's greedy.
	And I don't know that that, you know, Blaming a particular financial situation on greed is like blaming an airplane crash on gravity.
	Like, okay, it's involved, but it's always involved, right?
	Right. Well, and then can I add this about that?
	I wanted to get into the banking system today.
	I guess we didn't have time. And I don't think you got into it while I was gone.
	We solved it all. All of it.
	No, I'm just kidding. I think it's important to point out it's really not accurate to call it the private banking system.
	I mean, yeah, it's a business that's able to get profit and stuff, but the bank's ability to do what it does is a special license granted to it.
	The bank has the ability to create money Buy permission from the government.
	So they should really be viewed as a public-private partnership that has the permission to create money from the central money-creating authority.
	And so when we're talking about, well, maybe banks should be more regulated or maybe banks should be less regulated, if we jump immediately into free market talk and say, well, the more regulations are bad, well, a bank is a regulation.
	It's kind of like saying, well, we should have the military do this.
	And someone goes, well, no, no, more regulations are bad.
	Well, it's like, well, yeah, all it is is a regulation.
	There's no other way to address it.
	And in particular, because in the banking system, and I think we mentioned this briefly in the last call, the banking system creates the majority of the money in the system.
	In the economic system.
	And I think it's something like 90% of the money, if I remember correctly.
	The reason that we focus so much on what the government creates is that with the banking system, whatever's generated has an equal debt.
	So if I get a $100,000 loan, I have a $100,000 liability, and the bank has a $100,000 asset.
	If you net the whole thing together, it's $0.
	However, if the government gives me $100,000, There's just a $100,000 asset and there is no liability because the government doesn't need it back for anything.
	Yeah, I mean, the argument being that the liability is either debt or inflation to spread out.
	Yeah, well, um...
	Slippery slope.
	Yeah, I guess it's a slippery slope.
	Or taxation, which is more direct, but sorry, go ahead.
	Well, and I mean, it's not as direct as what I'm talking about right now.
	We're literally on the paper, okay, there's a $100,000 asset here, there's a $100,000 deficit here from this loan put together.
	You can't double-entry bookkeep inflation.
	It's a bit hazy, right?
	What do you mean? Well, I mean, so if you've got $100,000 liability because you borrowed money from the bank and the bank has a $100,000 asset, then they balance out.
	You can put them on a sheet and so on.
	But if it turns out that the bank got that money from a counterfeiter and then they have to kind of spread it all out among all of their depositors and shareholders to try and get the money back, that's a bit more fuzzy.
	So it's just not going to...
	I think it's important to point out that the bank didn't have that money when they lent it to you.
	They created it out of nothing. And that's the way that the system is set up, whether we like it or not.
	And when we're talking about, okay, there's these MMT-ers that say we need to curtail the amount of bank loans that are going out.
	And, you know, this immediately sets off our free market sensibility.
	It's like, oh my God, we're introducing regulations.
	I think it's important to keep in mind that the bank creating the money comes, that authority comes from the same source as the federal government creating money.
	The only difference is when the bank creates money, there's a liability attack.
	The asset equals the liability.
	Versus with the government, it's just out there.
	Now, talk of inflation and stuff aside, there's no direct debt on me personally that you need to pay this $100,000 back or we're taking your house or whatever.
	And so when the banking system runs amok and says, okay, let's start putting all these loans out, there's specific guarantees attached to those specific loans.
	And so I think what the M&Ters there are trying to say is if we could Get that power drawn back a little bit and push it more toward the government where the money's just simply out there.
	That's actually more beneficial for the general private sector, because it's not putting all the power in the hands of a couple of banking oligarchs.
	If deficits are larger, the private sector is less dependent on bank loans.
	Right, right, right.
	Now, there is a little bit of magic thinking, and we can sort of close up on this part.
	I'm going to keep this under two hours.
	Fascinating though it is for me, I go all day.
	There's a little bit of magical thinking here, and probably it's because you guys are more familiar with the space than I am.
	But here's a quote from an article.
	MMT's critics argue that trying to use fiscal policy to steer the economy is a proven failure because Congress and the President rarely act quickly enough to respond to a downturn.
	And they say politicians can't be relied upon to impose pain on the public through higher taxes or lower spending to squelch rising inflation.
	MMTers respond that they also oppose fine-tuning and instead want to use automatic stabilizers, including the jobs guarantee, to keep the economy on track.
	So that phrase, automatic stabilizers, it seems akin to magic.
	And I don't know if there's better answers or if that answer is a shorthand for something that's less magical, but if you could respond to that, I'd appreciate it.
	Yeah, because you've recognized earlier how the transition job program would function.
	That's all it is.
	Automatic stabilizer in the context of an MMT who supports a job guarantee program or transition job program, as it's more accurately called, that's the automatic stabilizer.
	If somebody becomes unemployed in the private sector, they can always get a government job in the transition job program.
	And no programs need to be passed, no bills need to be passed, it's just a program that's there and it functions and it stabilizes the economy lastingly.
	That's the idea behind automatic stabilizer.
	I mean nowadays we also have things like unemployment, social security, actually unemployment, that's an automatic stabilizer actually.
	Not necessarily that I agree with it or whatever, but That's what they're talking about when they say automatic stabilizers, the things that kick in when people lose their jobs or other things happen.
	Well, and I think even more importantly for the federal transition job, which I don't know, I heard you guys talk about before, I don't know if you mentioned that the lefties completely take this The federal transition job out of context and seem to see it as a permanent way of employing a large swath of the population as opposed to temporarily catching them to get them back into the private sector.
	So if we take, let's take a village economy or a small town economy and we have Warren Mosler's We've got 50 people here who need to be employed and due to the foreign deficit we only have 40 cards.
	And so now we have 10 people who are unemployed.
	Well, because we have the federal transition job, those 10 people could go get jobs, and the money that they're paid isn't in the system.
	It's getting created from the money creator.
	And then once they have 10 more business cards get introduced into the system, The private sector now has enough money to afford to buy them back out because, and then putting it back more into real terms, let's say that the wage that they pay is $15 an hour at the federal transition job, which would effectively create a minimum wage without a minimum wage law.
	And then they, you know, that $15 an hour generates day after day after day and gets put into the local economy.
	And then the local business owner finally says, hey, I got enough patrons here that I can afford to pay you $17 an hour to get you out of that.
	And then what that does, this is the automatic stabilizer, is that that stops the money creation.
	That was what was happening while he had that job.
	Right, right, okay. Does that make sense?
	Yeah, so you're trying to put in unattended Fuses or self-adjusting kind of stuff that's not individual choices.
	It's not magical, basically.
	It's rather you're removing limitations that were imposed on the private sector by government decree.
	That's how I would look at it, at least.
	Right, right. Okay. So, you know, it's funny because I know this is supposed to be a big debate, but I really wanted people...
	I think we should have another conversation about it.
	I really wanted people, and myself, of course, to really understand where this was coming from.
	And I think I've got it okay.
	Okay, you know, I wouldn't pass a PhD level exam on it, but I think I'd get past grade three.
	I wouldn't either. I just learned it from him.
	Yeah, yeah, yeah. No, listen, what I wanted to say is that, look, none of the three of us are going to be able to affect this as a whole.
	Don't listen to the cliches about MMT. Oh, they don't care about deficits, and they don't care about deficits.
	But... What this can be used for is looking over investment decisions that you're making at a personal level, right?
	And this is why I started off with the Austrians went into gold heavily like 20 years ago.
	And how's that paid off for them, right?
	It's an important question because economics should not just be a way for us to understand the world, but also a way for us to improve our own situation.
	And so given that neither of us are about to be granted or none of us are about to be granted any control over government policy, I think it's worth spreading these ideas because what you can do is you can look at the track record of predictability.
	I think that the MMT theory would have said pretty well that gold would not have been the best because a lot of money is getting...
	The fiscal stimulus, the quantitative easing is getting soaked up at the top echelons of the banking system and the financial system and it's not going to flow down and drive inflation, other things like that.
	And this is just my particular perspective on it, that it's really, really useful to have more than one way of looking at the world so you can test the models against predictions and outcomes.
	And if MMT has a way of explaining some of these things, then, you know, the cause and effect as opposed to, like, if you look at Zimbabwe and you say, oh, well, you know, the reason the economy died was because of the hyperinflation.
	And you say, well, no, the economy died and that provoked the hyperinflation.
	If you get that kind of jump ahead on investment opportunities or ways of looking at the world, It's very advantageous, right?
	I mean, you only have to be 17 seconds ahead of the next guy to make more money in some of these situations.
	So if you...
	I have more than one way to look at the world and I've been looking at it through the Austrian lens and I really appreciate this new lens and appreciate you guys bringing it to the attention and it is a way of looking at the economy that is different, right?
	That it's not like a household and I'll put my notes to...
	I've got all of my notes for this conversation.
	I'll put those with the sources in the show notes here so that you can look at further.
	If you guys want to send me stuff like, you know, best stuff to read, best books to read and so on, I'd be happy to...
	Include those in the show notes, but I'll give you the final say on what is compelling to you about it and how you've been rewarded for learning and applying it.
	Well, I would say, and I've pointed this out in our last call too, that to me it really is primarily about how can economics help me make better decisions with my money?
	And MMT has helped me with that.
	It helped me understand How the economy functions.
	I'm not against gold or whatever.
	Actually, I have gold myself.
	But MMT has also shown me what other assets I need to own in order to have a balanced mix.
	And I have made better decisions for it.
	I think that's the most compelling thing to anyone.
	We all want to feel financial security and all that stuff.
	MMT has helped me with that.
	Talking about it and discovering challenges or potential flaws with it has only helped me refine the understanding of how the economy functions more and more over time.
	I can tell you've done a lot of research on MMT, now more so than during our previous call, and at that point also more than during our previous call.
	So I can tell that there's something interesting there, and there's something that entices you to look more deeply into it.
	And to me, it was really, like you said, the personal financial issue.
	Education and making better decisions for it.
	I mean, obviously that's a huge reason, but I've got two more on top of it, which is just...
	Psychological well-being. When I was in the Austrian camp, I was ready for the sky to fall at any second.
	I'm like, what am I going to do?
	How do I prepare for this?
	Oh my God, it's going to crash. It's going to crash.
	And what that also did is it prevented me from making, I mean, you know, investment.
	I mean, talk about investment decisions.
	Just decisions on like, well, what should I do for work?
	What should I do for a job? Where should I move to?
	You know, these sorts of things.
	I mean, it's just like...
	The volcano next door is about to explode, so I better get away from this volcano, right?
	All that's gone. I mean, it's...
	I feel so much better not...
	You're biting my nails thinking that the world's about to end.
	I mean, maybe it's about to end for other reasons, but that's not one of them.
	And then the other thing was...
	This is like the fourth time I've said this today, right?
	I lost my train of thought. It must have been very important.
	You know what? You've got young kids.
	You've got daddy brain. I remember having exactly like nine cups of coffee to have one coherent sentence in a podcast when my daughter was young.
	So look, I totally get it.
	If you want to take a moment, that's totally fine.
	I can always ramble until your thoughts come back.
	But yeah, two points.
	And we're really talking about the value of studying this, although we can't change government policy and it's misrepresented and leftists like it and so on.
	But we're talking about just the value in your personal life, about having this as a different way of looking at the world and its predictive value and its value maybe in investing.
	You're talking about the peace of mind stuff.
	It's really, really important. You know, really, really important.
	And so maybe it had something to do with...
	Your personal investment decisions, something like that.
	Go ahead. It was actually a political thing.
	So, it also helps me not be manipulated so badly by the political classes.
	Because what I've noticed, and Nima was the first person to point this out to me, is that, for example, in the United States, whatever party is not in power is the party freaking out about the budget.
	And when you recognize that there is no budget Like, it's just, they can just type whatever they want in there.
	What they're actually doing is they're trying to control the actions that the other party is trying to do.
	And because the general population is thinking, okay, we're in a household, I mean, particularly the right side of the population thinks we're in a household, it's really effective at pressing their buttons.
	And I feel like if the conversation started shifting In the national discourse, or even the international discourse, of, okay, we're really starting to get the idea of how this money works.
	So, hey, politicians, here's how the pressure is going to start applying to you.
	And if the pressure that applies to them lines up more accurately with reality, I mean, I feel like that's Got to be at least a bit beneficial.
	We're always trying to focus on reality here, so for sure.
	Yeah, that we're not scared of our own shadows of, oh my god, the national debt, the national debt, ah, ah, ah, everything's going to implode.
	Oh, all this money to China, you know, ah, all this sort of stuff.
	You know, none of that affects me anymore.
	And if I were to talk to a politician, I feel like I could have a much more clear conversation with them and say, okay, I understand what you're doing, and I think you should do this for these reasons, and this whole budgetary constraint and where we're going to get the money stuff, you just forget it, because we could have a more constructive conversation now.
	Fantastic. Fantastic. All right.
	Well, guys, I really, really appreciate your time this afternoon.
	And thank you for giving me a deadline with which to get up to speed to some degree on this stuff.
	And I would recommend learning about it.
	It's a little mind-blowing. I think having your mind blown is always a good thing as a whole, assuming it's not totally chemical.
	But yeah, I've got here four reasons government is obviously not like a household and so on and I'll put all of those in the show notes and let's keep the conversation going and I do want people to provide your feedback.
	What do you like? What do you not like?
	Does it work for you? And certainly whatever it can do to calm people's sense of imminent doom if the doom is not imminent and certainly it hasn't been for the last 30 years that I've been hearing, 40 years almost that I've been hearing about it.
	So Yeah, thanks so much for your guys' time today.
	Are there any websites that you in particular wanted to mention, just in case people don't go to the show notes?
	I guess you'll send me maybe a bit of a reading list, but is there anything else you wanted to mention as a resource, personal websites, anything like that before we close off?
	Yeah, I think economicsjunkie.com and also economicsjunkie on Twitter.
	That's where you can find my rants and ramblings and the occasional MMT thoughts as well.
	Well, I mean, you've got some articles that you used to write back in the day that are very concise.
	And then, you know, one of the things I recognize with NEMA is that there's really no place to go for non-lefty MMT information.
	And we're kind of it at the moment.
	So, I guess check out our stuff if you want non-lefty MMT information.
	I will put that at economicsjunkie.com.
	Great pleasure, guys. Have a wonderful afternoon.
	Thanks again for your time. All right.

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