kelton 2012 (MMT-MCT Fields Institute Seminar: Stephanie Kelton )

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MMT-MCT Fields Institute Seminar: Stephanie Kelton 
2012
https://youtu.be/khaypwRG5C0?t=23m

貨幣ヒエラルキー

 文字起こし yeah all right nice start so thank you for coming this morning so just to remind yourself what yourself what we are doing so it's team convene this visit is pretty much all right that's a stateless visit in the fields Institute for the month and then to have a forum for us to exchange ideas and said research problems to work in theater with father Kevin and regular series of sending us up in heaven then since that's what this is going to be the fit of those so we call it ruins and nonlinear economics and just to hand on a high note so we invited distinguished friends from other places so today would be all from the external researchers who have talks in the morning and to talks in the afternoon and the last one will be stiff stiff gets the privilege of having the last word so it's a great question I have is the first speaker Stephanie counsels from University of Kansas thank you thank you for helping them put this together thank you to see from the invitation suggested all together so I know this is the fields Institute and ordinarily you would come in you and have a nice rigorous mathematical presentation of some time but that's not what I'm going to do today this is a lecture that's intended for a general audience people who have an interest in some economic question those policy questions want to understand maybe the issues way that you don't often hear them explain in media and press and so forth and so I just want to begin by do we have time consent is how to projector on this attend on everything I'll say you just press ok so the it was all to get this kid here we go it's fine lay eggs again we've had what we have mr. Nesmith does anybody ever meant anything to chance okay here we go all right okay so the title of the talk is money is no object and I'm being provocative here in a couple of different ways and what I hope to convince you out of money and the hour is a cop look two things the way that we conventionally think about money is is wrong we tend to think of money as a thing and we most often the something that's finite in its existence money is an object and there's only so much of it out there right so we have to make difficult choices about what to do with money allocating money like any other scarce resource in the economy and so forth so I want to kind of pull that into question and then I want to extend that to say if money is not a physical thing whose limited and scarce like other resources and it can be created at will sense the money is no object when it comes to do the kinds of things that we want to do to sustain the math very funny at a targeted level of employment for example so this question what is money begs an answer and the usual description that you find in the textbooks is one that I find very unsatisfying and I like this from gentleman named Hyman Minsky who's an economist that many of you in the room are probably familiar with in Minsky's most famous work stabilizing an unstable economy Minsky says anyone can create money that's kind of nice to know anyone can create money the trick is to get it accepted hey how different does that sound from what if you've ever had a course in economics whether it's micro or macro from the principals level all the way up to the graduate level you've probably encountered a story that begins you get to the page that begins to talk about money what's the first thing you see once upon a time right it begins like a fairy tale why because it is once upon a time man conducted his affairs on the basis of barter right this is dominant within the discipline in economics it has its roots in the medalist tradition which is the bipolar right the opposite end of the spectrum from what I'm going to describe in a few moments the chart elasaur cartola state theory of money the old idea that money emerges spontaneously within the private sector as individuals make about how better to conduct their affairs.

so as Smith said man has a natural propensity to truck barter and exchange it's an art DNA it's what we do right we produce things or specialize at some point and then we pick those things up and we love them to the local trading venue called the market where we attempt to change that which we have into that which we desire we attempt to make a trade this is very clumsy specialize in something you're the best fisherman in the village so you catch fish and you go to the local trading venue and you have all the fish you need or want to sustain yourself but what you really need is a clay pot to cook your fish in maybe a new pair of shoes to walk around in whatever it is right so off you head to the local training venue with your surplus fish looking for someone who both has what you want and once what you have right so barter is inefficient it's clumsy it requires the famous double coincidence of wants unless the double coincidence of wants to satisfy no no trade can take place I barter involves these heavy transaction costs this week economists sometimes use the two terms shoe leather costs you have to presumably walk around for a long time in order to find someone who wants what you have and has what you want so money helps to take care of this problem right.

and what did the textbooks tell you old money and banking textbooks new money and making textbooks it doesn't matter the same story gets repeated in all of them and the story begins in that once upon a time sort of fashion where we struggle to overcome the inefficiencies of order and the first humans decide to use to mediate to alleviate the efficiencies of barter our primitive monks beads feathers calorie shells dancing ladies bigots and money-making textbook dancing ladies you know cattle fish stones all of these things that were supposedly early forms of money somewhere at some point in human history.

and then eventually the next stage of evolution the story goes well some of those things just don't make a very good money thing fish don't last forever right cattle are very hard to lug down to the marketplace and what do you do as cattle is your money thing and what you're after is just a pair of shoes or a clay pot what's the exchange value by the leg for a pot it's not divisible it's not a good money thing this is the story so humans decide precious metals that's what we should be using this makes a better money thing it's portable it's durable it's divisible.

this is this is what we ought to do so the next stage of the evolution in the story and the text books goes man invented commodity monies and then eventually you move away from having to actually pull out gold coins silver coins and make transactions you begin trading with paper but the paper is convertible into precious metals gold or silver so you have convertibility so when you're answering the question why would people take those pieces of paper in exchange for something of value like a cattle or fish whatever well it's because paper is as good as gold I convertible into gold and then we reached the next stage in the evolution of money which is where we are today pure fiat currency I intrinsically worthless not convertible into anything else at a fixed price what do people accept it this gets difficult for the conventional textbook story because if you ask them why do people accept to be hot like worthless oh well they take it because they know they can go down and go to the marketplace and spend it well why does the shopkeeper take it well the shopkeeper takes it because he knows that he can pay his worker well the worker takes it because they know they can pay their landlord well what you see where the problem is it's an infinite regress problem you never get a satisfactory answer to the question why do people accept intrinsically worthless fiat currency nevertheless The Economist's are undaunted by the problem and press forward with the simple once upon a time story what is money money is what money does primarily money is a medium of exchange it's not interesting in and of itself it's the thing we handed each other to get the real good or service it simply intermediates it's the exchange process it also serves as a mythical store value my money is what money does it's a veil over the real economy we don't too much have to pay attention to money it's there but it doesn't do anything important this is something that Steve Keene has been critiquing for an awful long time right that we don't really need money in our most important to bail it's just there to help us make the transactions that were pre-programmed in our DNA to make anyway right we don't even need it in Marmont sitting next to Steve Keen is Michael Hudson who's written a lot of work tell me a very different story about the nature and origins of money where does money come from why do people use money how do we tell a very different story and this story involves out of what we refer to as the card list for charmless theories of money an economist by the name of George Friedrich map wrote home while the state theory of money many other economists have written about this less extensively than an octave but in any event the story is there but it's best told not by economists most economists don't know their history they don't read outside of their discipline.

so they don't but they're not simply just not aware of this other story about what motivates the use where do we find the origin of money what is the nature of money if you read the work vamp apologists sociologists misma tests Michael Hudson this is where you're going to get I think a much richer and much more historically meaningful tale about why societies began to use my Nana's ruins you find here the story focuses on the origin of money in early credit and debt relationships money evolves along with death right where you have not a society of people all deciding collectively hey let's use money it would be easier to conduct transactions but in authority who imposes debt on a population requires them to pay that debt and tells them how they can eliminate the obligation in order to eliminate the debt to meet the authority whether on the path of its apalis community whether other palace chief whether on the nation-state.

 I'm going to impose that on you I will tell you what you have to do to eliminate the death you will provide real resources to me I will pay for those real resources with something that you can then turn around and give back to me to eliminate your obligation right the purpose in all of this as Michael has told the story so about anything is that we should be focusing on the desire of the authority to get resources moved from the private to the public domain and the way that that's achieved is through by imposing liabilities on others that they have to work off in order to earn that which is necessary to pay the tax the fee find to the state so yeah can't you have both stories like in some places there is a strong state that does that and then maybe not the discipline that was both stories I mean can you do you have this article records of both alright this is my we may never know but they're not what other stars in there quickly that's worse than David greatest exactly.

I was gonna mention that yet that we're looking about societies you only find it quite trivial handful even if I'm in modern tribal society law and in historical records we find and what you tend to find we look at the star birth was ending cultures it's actually communal exchange that precedes the money period and what really goes on a mutual gift-giving which then generates mutual credit and that's part of how those societies evolved because they were cooperative.

 we're not you know in the barcode it again has it's the having like a couple of one of them wild animals that hunt alone and get together to exchange and don't have any communal relations but in fact it's a friendship thing and at the society to you I'll give you a gift you feel an obligation to me and you didn't return the gift later and I think what we see coming out of when we get to the agrarian societies and that I think that mutual or gift-giving becomes a mutual credit because encapsulated what the entity which is a combination religious state and commerce roots together yeah I think I mean great book goes out looking for answers and he goes out looking for examples where the other story actually hold certain water and it comes up with this steep set very few examples that in fact what economists have intended to do is to read the present into the past.

and so when you see tribal societies engaged in communal gift-giving and you see ones that go like that and the other cycle like that and you see wampum beats you know moving back and forth we say oh it must be paying with the beads that must be how they paid for the other thing so therefore beads were an early form of permanently it's not what's going on okay but that takes okay so forget all the history regardless of the origin of money what do we know today is now I want to move into the present and have a discussion about the kind of monetary system we have today and what needs regardless of where money came from all money exists.

and I argue and I have my viewed in many publications as simultaneously Democratic money at the end of the day it's a social relationship it involves two parties you must have a debtor and the creditor money exists is an asset and a liability all money is an IOU the eye is the debtor is the creditor okay all of these io u--'s money is a recording device money debt credit is recorded in some unit of account I would choose this punitive account in Australia the unit of account is the Australian dollar.

 in the US the US dollar in Canada Canadian dollars Japan the Japanese yen in Britain the British pound and in Italy what's different it turns out to be very important right the money of account the unit of account is an abstract convention it's not something you can feel it's not an object it's like an inch or a hectare or a yard or a year it's abstract it's something that only humans can conceive it represents a relationship it reports those social debts in any modern nation the money of account is chosen by the national government any place on the globe that you can point to the money that is circulating you can rest assured it's chosen state government this is something that's not new it's not modern in this sense it's something that if you go back to Aristotle you can find this it's certainly an Adam Smith and it runs through the works of a large number of economists so I do not even fully developed form in James's treatise on money which is the major work that he published just before the general theory Keynes tells us the age of journalists or state money was reached when the state declared what things should answer to the money of a cat to the Union what things should answer today all civilized money's beyond the possibility of dispute Chartist he says also in the treatise the state claims the right to write and rewrite the dictionary so think Italian government to write the dictionary it's clear and then to rewrite the dictionary cross out the lira and Europe right to write and rewrite the dictionary this is a right claimed by all sovereign governments so the sovereign government has four important things it defines the unit of account what will be the unit of account in that state it imposes taxes fees fines and other obligations it decides what it will accept in payment of those taxes fines fees and obligations and it chooses how it will make its owner payments those are four important decisions that any sovereign government makes most sovereign governments clearly not all choose their own unique money of account and issue their own currency in that unit of account the Japanese yen the Canadian dollar.

 I most go with a one nation one money approach the money and the national borders most governments also require that taxes be paid in a currency that the state has the exclusive right to issue exclusive right it gives itself the monopoly to create that which is necessary to settle obligations to the state when it does these things its operating with sovereign currency why does that matter as long as the state has the power to enforce the tax obligations the people need the government's money.

we are so used to I think thinking in terms of the government need our money but if the state is the issuer of the currency and grants itself exclusive power to create the currency why not earth do they need to come to us to get the currency the currency comes from them.

and we accept it because we need it to settle obligations to the state the currency will have value people will be willing to work in order to produce in order to earn the currency because it's Cerie in order to settle death in order to settle obligations right.

whatever the government accepts in payment to itself becomes what George Friedrich Knapp called the definitive money of the system.

 my foot definitely definitive and it is the final means of settlement so here the Charter lists the card lists emphasize the means of payment function of money.

the the role that many pays and extinguishing obligations and eliminating death okay.

so go back to minute see anyone do create money the trick is to get it accepted anything can create life then make it think of a whole range of money things.

 I can create money Michael can create money he's got the gist of everybody in this room can create money.

the state can create money banks create money but all the money is not created equal some io u--'s are more acceptable than others some will circulate more rightly some will serve as a good medium of exchange.

and others will be rejected some will make a means of payment a final means of payment you can settle your debt by handing over the IOU up someone else others won't okay.

 what's the difference which I owe you use our most special I mean my argument is that the io u--'s at the top of the pyramid are the most special those are the io use the money things that are going to be the most accepted and whose io u--'s are those so if anyone can create money households can do it financial institutions banks can do it non-bank firms can do it government can do it who's io u--'s did you get a layering of I only use like a pyramid the most acceptable are at the top the least acceptable or at the bottom so imagine that after this lecture today I've allowed too much and I pay with my credit card I go into death is you in I owe you one myself and I get to eat the food and I get to walk out am I finished I'm not finished I a couple the weeks later I go to the mailbox there's the bill for visa what do they want they want to be paid for the meal but if they extended be credit so what do I do I get out my checkbook I write a cheque put it in the mailbox off to the center visa gets the check so I'm transferring the IOU of someone higher in the pyramid Lisa gets my check are they happy is it done visa doesn't want my shiny I have a really lovely signature but it's not at the end of the day with their actor they aren't happy with the cheque they want what happens after the cheque goes through it's clearing process what visa wants is a credit to its bank account which gives it a claim on I have to transfer the IOU of someone higher in the pyramid to get out of my home debt that results in the transference of another ionian higher in pyramid and the only way to ultimately eliminate my debt is to pay the state line and we have a long discussion about bank reserves and I'll add trust me at the end play what happens is that visa gets paid with something that gives it a claim on the government's IOU okay so if we look at the u.s. hierarchy it looks like this that what I want to emphasize is the relationship between the government and the thing at the top of the pyramid so in the case of the United States the pyramid looks like this the most acceptable form of payment is the US dollar is the only way ultimately to settle any debt denominated in u.s. dollars right the government's bends in u.s. dollars collects taxes in US dollars it issues the currency that sits at the top of the pyramid that currency the US dollar is non convertible it's a pure floating fiat currency we don't have a fixed exchange rate system the government doesn't promise to convert dollars into gold or anything else at a fixed price it's purely a fiat currency again why does that matter what are the benefits of issuing a currency that sits at the top of the pyramid it means all the stuff that at least in the US we hear every single day on the television and newsprint that the nation is on a fiscal fiscally unsustainable path that we're going broke that we're going to become like Greece all of that stuff is wrong the issuer of the currency can never run out of the currency that your assets of the exclusive right to issue can go grow you can't be forced to miss a payment in your own currency you can afford anything that's for sale in that unit of account so the upper limit to the US government's ability to spend what's for sale many dollars because I could have it all if I wanted to right if you're willing to sell something to me for US dollars I can I can have okay it doesn't mean to borrow its own currency in order to spend it issues the currency it can set the policy interest rate and any level it doesn't have to use its interest rate to defend or protect a stock of gold or another country's currency if it's on a fixed exchange rate system it has control of the policy interest ring this gives the state and expanded policy space it gives you more elbow room in terms of your ability to use primarily physical but also monetary policy to try to influence what's happening in the macro economy this is the u.s. before 1971 1973 two years matter here I go with 73 that's when the golden window is closed for good you're you're right I didn't say that there were no constraints I said there was no constraint on the government's ability to spend in its own currency that's very different and inflation is a real constraint we recognize that I'll come to that yeah I'm not saying that there are no constraints on spending I'm saying there's no constraint on the government's ability to create its currency and buy whatever's for sale in that unit account of different cities okay so before 1973 1974 lon a fixed exchange rate system that was known as international monetary system called renin with 44 countries participated 43 of them fixed the value of their currency to the US dollar and the US government as convertible into gold at a fixed price oh okay so it's a fixed exchange rate system under that monetary arrangement the government in the u.s. is promising to convert dollars into gold and a fixed price what sat at the top of the hierarchy under that type of monetary system was not the US dollar and that places constraints on the government's ability to issue the US dollar because if it issues too many dollars and it's going to happen before all that I want to start converting to gold then there's only so much because that is finite right so it constrains your policy space there's less fiscal room there's less positive space under monetary system like that same thing even after 73 you have lots of countries that continue to run fixed exchange rate systems and as a consequence you have lots of currents and crises and debt defaults Russia 1978 Argentina in early 2000 sadly station 97 Mexico in 94 95 all of these countries experienced payment problems as a consequence of the fact that they don't control the currency that sits at the top of a pyramid.

they get a debt in a currency that they have trouble then servicing debt because of the nature the monetary system that they've adopted it gives them limited policy space.

 it robs them of the ability to use the interest rate to set the interest rate anywhere they want to so in the case of Russia for example Russia is fixing the value of the ruble to the US dollar so they're pledging on demand to allow holders of ruble balances to convert rules into the US dollar to fixed price fun until everybody wants to do that right and when too many people start choosing to convert to the u.s. dollar problem because in order to maintain the peg you need a sufficient holding of your reserve asset which is the dollar and if everybody's converting into dollars you're losing your dollar reserves so what is the Russian government do they respond by trying to compete with the desire to convert to US dollars this they hold on you don't want US dollars what you really want are gkos Russian government bonds have a take this instead this pays interest you'll like it it's nice right and the rural people who were holding rubles said no I really just prefer the dollar things well hang hang on what about a higher interest rate wouldn't that appeal to you just raise the interest rate a bit come on take the G K up no go to the dollars I'm gonna have the dollar please oh wait wait wait wait a little bit higher a little bit higher interest rates with 150% before the fixed exchange rate system who love so these are very limiting types of monetary systems you give up control of your interest rate you constrain your policy space and you become heavily dependent on current account surpluses on trade because it's the only way to accumulate non-government sector for the private sector when you're constrained in your ability to run deficits the surplus in the private sector and I'll talk more about that okay what about the euro euro is an exceptional case it's not a fixed exchange rate system but it definitely limits the policy space and it introduces a relationship between the government's that use the euro and the hierarchy that takes away that relationship of one nation one currency I control the currency that sits at the top of the pyramid because they don't write all of these countries the seventeen countries that adopted the bureau gave up their sovereign currencies and adopted what's effectively a foreign currency to them modeled on the one market one money principle one impart we all do so much trade together why don't we for efficiency reasons just use the same thing it goes back to the old medalist apartment high money is just the thing we hand around and it's more efficient if we all hand around the same thing because we do so much trading together what difference could it make so it turns out it makes a huge difference I now these countries are users currency not issuers of the currency and because they no longer issue the currency that sits at the top of the pyramid they can run out of heroes they can go broke they can become insolvent they can be forced to miss a payment they have limited policy space and they have to pay market rates of interest so it turns out that money matters money is not this afterthought that you may or may not put into your model because it's really just like a veil over the real economy and that's what matters at the end of the day money matters and governments should be in control of the currency that sits at the top of the pyramid if they give up the control they also give up some of their policy space this is a bomber who was a contemporary of Keynes's.

and institutionalists post-keynesian economists who says by virtue of its power to create and destroy money by Fiat or to take money away from people through taxation the state is in a position to keep the rate of spending in the economy at the level necessary to achieve order and to sustain okay something that no pathless economy has ever achieved we have fleeting periods of what might be characterized as full employment unemployment rates of two and a half percent in Europe three percent three and a half percent in the US and you call that full employment but they're always fleeting and they usually come during wartime or speculative bubbles but no capitalist economy has never successfully sustained full employment and learner's arguing that if you have the right type of monetary system and the degree of policy space that comes with that then you can take advantage of that and you can actually do what hasn't been achieved before so how do currency issuers spend how does the issuer for the current extent it spends by giving instructions to have somebody else's account credited now with modern money the age of electronic money in support this frequently happens without the government even writing a check Social Security payments are made automatically you're sitting at home looking online at your bank statement and you see two thousand dollars in your account and then suddenly the numbers change you see I just got my credit they spend with keystrokes this is something Ben Bernanke it's been really forthcoming that Alan Greenspan has been very forthcoming this is how modern governments spend do we understand this no too often we don't so we have our president going on television and in response to a question are we are we out of money when we'll be running lady he says we're out of money now that's his response on television we're out of money it all starts really getting bad when this guy makes his appearance this is Ross Perot boy I did 92 so he goes on TV runs for president right he's famous with his flip charts and he's sort of the Pete Peterson of his day he goes around scaring the hell out of everyone telling them that if I ran you know my business the way this government runs its operations why I be bankrupting a little Texas accent you know and he just showed everybody that this is really really irresponsible the government is spending money it doesn't have its burdening our grandchildren you know the arguments all that it's kind of live within its means just like the rest of us do right so we think and this narrative that governments are like households it's just like one big household really needs to play by the same rules of the household when you and I type our belts it's responsible for the government to tighten its belt too.

 and so forth is that this have any sense at all does the government really like a household you know a fixed exchange rate system you know pledge to convert our currency in the gold or anything else we spend like hitting the keys on a keyboard but we act like we're still on one of these ancient monetary systems.

 I mean the world truly does change in 1971 Nixon closes the gold window we go off Bretton Woods completely by 73 it's all time everything changes and we play by the same rules that applied under the old monetary system why well for one thing we look around we see what's happening in other parts of the world that we say dear God if I don't get my fiscal house in order I'm going to end up like Greece Spain Portugal iron right oh this is very powerful the u.s. they hit this over and over again and Americans by and large are convinced because if you take polls Americans say the deficit is one of the most important problems we face today about the deficit to come down.

and this is part of the reason that we're so terrified but we don't understand what makes us different from those countries over there we still have our keyboard we have a currency to be issued we have sovereign money they adopted a foreign currency they can't issue the currency and because they gave up there are sovereign currencies and adopted something that they can't issue financial markets have a great deal of power that they don't have in a country like the US like the UK like Japan where financial markets know that the risk of default that's essentially nil if you can always pay the presumption is you will always be right there is the ability to pay and that gives financial markets confidence they don't make your payment's financial markets understand that Greece and Ireland and Portugal might not be able to come up with it's the only place they can get the eros is to raise it by collecting taxes and when your economy goes your tax receipts go and so to fill the gap as other forms of spending increased right automatic stabilizers kick in government spends more on social safety net programs taxes are falling off the deficit lightens have you fill the gap borrowing but you gotta go to capital markets hat in hand ask for euros and they say well well we have lend but the risk of default is getting fairly high so in order to make the loan we need a premium right that default risk premium begins to climb the penalty is assessed by the financial markets and these countries are now like individual states in the u.s. Greece is like Georgia Georgia can issue see Georgia has to go he borrowed the dollars in order to spend this is why they're such a crisis with state local governments in the u.s. they can't do what the federal government can do okay the eurozone countries have transferred the spending authority to the financial markets you tell us how much we can spend how much are you willing to lend you can shut us off completely I have been cross waterway the u.s. still has its keyboard we're not like Greece we're not going to be like groups we can never be forced to miss a payment we can't become insolvent we always have the ability to pay we can't run out of money any more than a scorekeeper a sporting event can run out of points right when was the last time with you Jake's played last night things I would say they beat my Kansas City Chiefs Oh see I don't even know the Royals right that's baseball it seems like last night and when was the last time you went to a sporting event and saw you know a really website a game one thing once besides just running away with it putting that point after point after point and your son in the stands and you thought oh god if they keep scoring at this rate they're gonna run out of points worry you'd never respond that way though never occur to you but this is basically how we respond but it's been government issuing its own currency as if it's somehow is an object that is finite and it's going to run out up at some point like money is not an object here's Alan raining spam on 60 minutes with an interviewer named Scott Pelley and stock pelvis ever visit your clothes i penny says is that tax money the Venice spending Bernanke says it's not tax money he says we just use the computer to mark up the size of the account I mean that's how we spent that's a quote my colleague at UMKC randy ray wrote a paper with a couple of PhD students looking carefully and we extend to the feds intervention and last but since it started 2007 I guess and they came up with a number of 29 trillion dollars the Fed has intervened to the tune of 29 trillion dollars since the start of a true 29 trillion no where did they get their 29th I think you served it into existence doesn't exist until it's cute stroke but once it's what is world GDP that's awesome about you trillion if 50 trillion original okay so the point I want to leave with I mean I don't want to leave and not have everyone at least remember that I said this the issue where the currency can always head and here's Alan Greenspan government cannot become insolvent with respect to obligations in its own currency if my debt is in the US dollar and I'm the US government of course I can always service the debt the dollar comes from me the US dollar comes from the US government a fiat money system like the ones we have today can produce such claims without limit that doesn't say it should produce such claims without limit that says it can right there's no operational constraint on its ability to create the currency it's the monopoly issuer the currency so if we can do all of these things and have all of this policy space why is the recovery so weak and we could all probably answer this question for one thing we significantly underestimated the severity of the damage our pocket with traditional pump priming a little pump priming and a good swift response from the central banks of the world cutting interest rates maybe little QB of necessary we can write this really just here's your use your policy tool same ones always used by believing that the Fed is much more powerful than it is believing that the money multiplier words that if you give banks reserves they will allow to make loans those ones will result in spending the spending will drive GDP growth employment and so we'll be on the road to recovery so all of these things were mistakes a failure to appreciate that what we're really dealing with is a balance sheet recession that the private sectors debt to income ratio is so high that even if you provide more income for a sustained period of time people are going to be paying down debt not buying newly produced goods and services the economy is going to take a long time so I think for all of those reasons we've been fighting the fight the wrong way on top of that you have all this fear about becoming Greece and all the deficit hysteria especially in the US okay so we have juice use the terms in Canada deficit Hawk who deficit though is a common term so you know that the dominant groups in the u.s. come from essentially the two different parties the party that likes to call themselves fiscal conservatives the Republicans there the deficit hawks I mean a deficit is a bad thing it's irresponsible it burdens the next generation we should never run them unless they're in office and you know you just don't want deficits at all you've been given you bad times you don't want deficit spending so they say they oppose it on principle and they say they favorite things like sound money and sometimes you hear people in this camp advocate for things like 100% reserve backing we ought to go back to the gold standard governments have to be restrained and what they can spend and that will restore fiscally responsible governments and so forth okay they would advocate things like balanced budget amendments amend the US Constitution to make sure that the government all these balances its budget today you have the deficit hawks the funders sorry-sorry does the deficit does thank you the deficit doubts are the kinder gentler anti-deficit folks they say well it's true that deficits are dangerous and it's true that we do need to tighten our belt to get our fiscal house in order but it's also true that unemployment is high the economy is sort fragile and if we start to tighten too soon we could jeopardize the recovery and so let's focus on deficits in the medium term but in the short run let's focus on you know growth and so forth we might actually have to spend a bit more to do that and but we'll take care of the deficit because you're right we agree with you deficits bad and then you have and I'm sure you've all heard of the deficit devil the deficit owl this this is part of this was taken from the Washington Post article that was written about the approach that I'm describing which is sometimes referred to as monetary monetary theory or modern money theory and it's been featured just this year in places like the Economist magazine in the Washington Post the Financial Times Playboy magazine last month serious five pages so anyway there there was this piece in The Washington Post they could be either this little family tree I kind of put a low stubs and Hawks up above to show the distinction here but what's a deficit owl okay this just tells us some of the people who are beginning to pay attention to this broad approach that I've been sort of describing to you for the last 35 minutes modern monetary theory or modern money theory departs sharply from the conventional textbook stories about most things certainly money in deficit spending and so forth focus is on unemployment as socially harmful and economically efficient and advocates for employment economy using the power that you have by virtue of the fact that you have the right monetary system says well then we ought to do it right you don't need 25 million people who want full-time jobs and can't find when we can make that happen okay so the MMT deficit or any deficit at all would assign no arbitrary limit to the size or the duration of the deficit you would never say if you're a deficit cowl the deficit should be cut in half by the year 2017 I know you might have a surplus trade balance reverses and get a huge current account surplus and your budget can actually move into circle you don't know today what your budget should look like in the future the policy bold target should not be the size of the deficit the target should be what's happening in the real economy except real bowls like full employment I can let the deficit move where it needs to to achieve that goal a deficit owl would you never consider the government's budget position isolation they would always think about where the government's budget is surplus or deficit with respect to what's happening any other sectors in the economy you have to you can't look at the government's budget in isolation so as a starting point you can say the government's deficit if the government is spending more than its collecting spend a hundred collect ninety or the other about the tenth non-government sector so the government's deficit is by definition into the penny the non-government surplus in financial terms right similarly if the government collects more than it spends Oh take a hundred and I'll spend ninety I I have the extra ten that you have lost ten so my surplus is your deficit right this is double entry bookkeeping it's true by definition follows the laws of accounting so what is it show it shows that in any certain period any sector in the economy can be spending more than its income running a deficit spending less than its income running a surplus or exactly spending equal to its in it's budget if we separate the non-government sector into private domestic and foreign then we have three sectors for dealing with domestic public domestic private and the rest of the world foreign sector all of those income parents purchasing newly produced goods and services savings the leaking leakages and injections in the economy everything has to come from somewhere and everything has to go somewhere has to end up somewhere so you have flows that results at the end in an accumulation or a drawdown to stop all right so it's a stop flow analysis of the payments that take place across the sectors in the economy it has to follow just one rule not everybody can be in surplus at the same time not everybody can get in deficit at the same time that should be intuitive right I can't run a surplus I can't earn more than I spend unless someone else spent more than their right so at least one sector has to be in deficit at least one could be the domestic private could be the domestic public could be the foreign sector but someone's gonna take that deficit position who who usually takes the deficit position this is a graph it's got full-leather put together and he maintains and updates and the rest of us are also grateful because we all lose it all the time this is the actual native this is not you know manufactured hypothetical stuff this is the actual data yes economy and the red is the public sector whenever the red is below the zero line government is running a deficit the green is the rest of the world so back in the back of the old days the u.s. used to run trade surpluses little ones foe beer and trade surpluses the rest of the world ran a deficit against us now we run trade deficits so the rest of the world is accumulating surpluses against us right so look what happens if the government is running a deficit it means they're spending more than they're taxing that ends up adding to the private sector surplus if the rest of the world is also buying more from us than there then we're buying from them that also adds to the private sector surplus so if you add these two together you get exactly that right what do you notice about the picture first thing it's a mirror image you can see that right why because the sum of all balances has to equal zero it has to the private sector is almost always in surplus public sectors almost always deficit look what happened during the so-called Clinton boom the Democrats would love to brag in the US this is a badge of honor to have been associated with the Clinton administration which brought us the first budget surpluses in decades we are the real fiscally responsible party to be you know however you a surplus well was that really good for the economy take the federal government's surplus which means they're taking more in taxes than they're spending driving the private sector down on top of the fact that the rest of the world is taking more from us because we buy influence then they're buying from us driving us further down so you get these huge private-sector deficits that are being financed by the private sector taking on more and more debt right so this is huge leverage building up here here results in a recession the government's budget moves right back into deficit where it normally is would plug along for a while we get the housing booming right house has become ATM machines people buy houses not homes you get more leverage you get another recession the government's budget boots sharply into deficit but what happens to the private sector they move sharply into surplus and so this is what's happening as a consequence of those huge government deficits that everybody's so worried about the private sector is being pushed back into surplus territory where they're now earning more than their spending income greater than expenditure the private sectors running surpluses and it's helping the private sector leverage it's helping them repair their balance sheets okay one thing I want to point out I'd love additional help in thinking this through and the math and all of this but there is something going on here that I always emphasize and this is the private sectors balance and what I try to point out is not only is the private sector usually in surplus but that it needs to be its surplus okay the private sector lives up here in surplus until recently when we start taking on so much debt and becoming so leveraged that we cross the zero line and we end up down here running deficits but what I notice these are recessions the US has had eleven recession since World War two 11 in every single case immediately preceding the recession you have a sharp reversal in the private sectors budget position it doesn't mean the private sector went into deficit it just means that either the surplus shrank significantly or that we moved into deficit but you have a reversal leading up to every one of these recessions you have right at every single time so it seems to me then what policymakers should be doing is focusing on havior of the private sectors budget position and anticipating those turning points that seem to proceed all of the recessions that we have since the end of World War two okay very quickly I'm almost to the end this is the deficit the government ran after the financial crisis and the ensuing economic meltdown through the budget deficit exploded look weighed in to the private sector balance remember they move opposite to one another as the government begins to cut its deficit it's cutting the private sectors surplus why is that a concern because of the last graph I just showed you that when the private sector's balance turns sharply down it tends to proceed a recession okay I just I've already said that okay so I'm making the argument that the private sector needs to be in surplus and so how do you do that there are three ways to put the private sector the surplus a combination of a government deficit government spending more than it takes leaves you with a surplus plus the rest of the world spending more buying from us than we spend buying from them leaves us with more so those two things together guarantee you a private sector surplus or if you're like the US and you run current account deficits you have to have a government deficit that's bigger than your current account deficit to offset the outflow that's happening because of the trade deficit and keep your private sector in surplus so you if it would require the government deficit bigger than whatever your current account deficit is or you could have a current account surplus like the lucky countries in the euro zone those Germany those that are able to achieve current account surpluses can afford to run the smaller government deficits and still keep their private sector in surplus only countries with trade surpluses can avoid running government deficits what I'm saying is to keep their private sector in surplus okay the problem with that is as wonderful is it sensible then the solution is for everybody to run a trade surplus and then we don't have to have deficits anymore promise of course that everybody can run a trade surplus because one country surpluses so we can't all adopt that strategy I'm sorry Germany right we can't all do what you've done okay these are questions that came up and I scared him off with provisions and Bymark Germany and so he's gone now but but maybe they'll come back so what are the things that prevent us from moving forward with more sensible macroeconomic policy I think the usual responses that it would set up hyperinflation if we were to use the government's power to spend in the way that I've described that somehow it would cause interest rates to or love because the deficit goes up the interest rate will go up it's all the Orthodox thinking about loanable funds markets and crowding out and all this the Chinese we can use them to buy our debt and you know people losing faith in the dollar whatever sewins are resolved of those fears unfounded as I think they are we end up in this muddling along sort of economic situation where these are graphs that were actually done by Bill Mitchell who said well let's just project out the red line is where we would have been have there never been a financial crisis and an economic downturn the red line is sort of a path that we were on the blue line is where we actually ended up that's actual real GDP the difference is the it's all the output that we're giving up we're not producing it's the income being generated because we continue to stay on that lead path and so what he does is estimate that on a daily basis this is for the US every single day we don't bring about a strong recovery and get back on that red line we're giving up the equivalent of nine point eight billion dollars every day like leaving nine point eight billion on the table every day right it's it's the opportunity cost of sustaining and and muddling along as opposed to getting back to full employment so in the u.s. we have now one in four children officially living in poverty we have an eight point three trillion dollar infrastructure deficit on the Corps of Engineers surveys all of the country's infrastructure a B - C D plus F overall the brain in the u.s. led 2.3 trillion they say it would be needed just to get us up to pass so we have tremendous needs we have unemployment vaccinating workers construction workers people with skills to build things stuff that needs to be built repaired maintained and we can't seem to figure out how to put the two together and as I said 25 million Americans who want a full-time job and can't find work so it's a colossal failure of policy and they think it's a failure of policy that derives directly from our failure to understand the nature sister the flexibility that it gives us to do things why we're not linked Greece and so very quickly just in closing the policy proposals that many of us have been putting forward for the last few years or so I don't heels the economic downturn what should we do we sent these three things like a full payroll tax holiday in the u.s. we all have income withheld from every paycheck pay into Social Security for retirement you think it's suspended just stop taking that income stop it altogether cut back to zero that would put additional income into the pockets of those who most need it 95% of Americans pay Social Security tax on every single dollar they earn so if you eliminate for a time garol tax holiday that tax you're putting the money right where it needs to go some folks who are struggling with high debt levels would use it to pay down debt that's a good thing other folks like me will go out and buy something that's a good thing both need to happen and so we like that policy revenue sharing just recognizing state local governments or users of the currency they're not issuers they're in the deep trouble and because they're in deep trouble they continue to cut so everything the federal government is trying to do that the left hand to stimulate is being snatched away with the right hand by state local governments who are doing exactly the opposite and the last thing is as I said before no matter how good your macro policy is fiscal monetary policy you're not going to keep very funny you can do it your fun there are always going to be people who want jobs you can't find them and for those folks when you get all the policy as good as you can get it you're still gonna leave some people behind and so for those people we like that yeah of an employer of last resort or job guarantee program something caught along with FDR did under the new deal which Works Progress Administration WPA program the Civilian Conservation Corps the CCC which was about sustainable development vitalizing pay attention to energy use and environmental concerns and so forth put people to work there was a National Youth administration we need something to get you back on the board it's interesting that the people you call over the deficit that they call the deficit doves are actually the depth Hawks their solution is not only to run a government never said before important they say if only we can get the banks lending again the economy can are worse way out of debt yeah so their solution is no more government set before public debt and or public sector debt and that's really will here in the later cost the problem today they are the difference is that government debts never have to be repaid Adam Smith said that no government and I would paid the debt over time it goes up and up enough private debts have to be repaid or else you lose the property of pledged as collateral so what they're doing is invest their solution with the downturn is to increase the debt deflation and increase the riskiness of the economy because they're unwilling to see that running the government deficit is a good thing because the government money doesn't have to be repaid by the government deficit if the economy grows faster and that's it back to GE we'll pull the plate yeah we're so preoccupied Hartley with the numerator into those equations it's also the deficit to GDP ratio debt to GDP ratio everyone focuses on the numerator and nobody pays attention to the denominator and says if you want that ratio for whatever reason if you want it to come down grow the denominator then they need to run a product deficit there's another way to look at that I'll be talking about my own days.

so if you're going have a growing economy and there are two sources of money creation in the system and when it's growing both of the macro which means you have to have muses of private debt exceeding refinements and new issues of government spending exceeding taxation if you don't have them both happening roughly proportion of the economy you're going to have one or two things happen if you're going to have the cipro or the government as well secret ballot sharing if the government runs a zero balance for example then the local money's going to grow relative to the level of say and you're going to get this we actually have seen happen in the last 40 years so I don't take exactly the same phenomenon but I'm sure everything a different insight if you guys have growing economy then you have to have growing private debt and growing government created mine surely we would say that too yeah but if you simply looking at the same home with Lorena a different way it's the first that yeah part of my argument again is that it's when you say and the sexual downside in a private sector saving is a protector deficit it's partly arguing that it has to be otherwise the system can wear it means imply that we on this deserve it we raised that way the period of the disservice to this whole second aspect to have the account if I'm a little bit about well knock the table to find out resolving not necessarily including the change of that it's on side there too we need to have a comprehensive one that does all of that so how do what I'll make you know what it's a principle that having yes probably take the deficit his private sector say when you have the entire property to and include banks as part of it doesn't differentiate them but we need to get the size we differentiate all of that and then push you get the relationships where shine that you created that you know if you can have the difference when spending the comic will be the sum of all the tops of transit deprecating into the system let me connect oh yeah this particular graph is it's about understand an indicator of instability that's what it is so when you see the blue coming down too far that's an indicator cue that there may be Minsk infertility build-up it's so we can't we shouldn't critique this by expecting it to be telling us information that it's not intended to tell us yeah okay feels like it's yeah it's to me it's saying it okay so dude which is like and it's necessary I think half the West are both are true yeah what I said it's like what you turn out if you turn I have a bike is exactly the same composition was different emphasis right that's really right whatever people misunderstand both yes yeah so you put that on the graph you learn that have the recession's under grade yeah so so the thing is that when the private sector of the surplus is going down that's the point where there's an expansion they're averaging so I bet that there's growth there so the problem is not that point the problem is the threat there's enough surplus which is paint and it's just depended less that is the recession the private sector hole pulling back the upturn begins I mean you need to begin right yes besides exhibition point and that's that that's for you if you could show the pyramid that you started again with the government at the top which yes yeah the government at the top amazingly enough the Europeans don't understand this the Europeans in the euro say that the government can up run a deficit and that's a tan 123 of their the EU Constitution so they say because the government there was no central bank governments all the government deficits have to be financed by the bank so in Europe the banks are on top and that means when the government created runs a deficit they have to pay interest to the banks whereas the US government doesn't and it's so different over there it's cognitive business they cannot understand this they just imagine that a central bank is to lend money to the banks to lend money to the governments and it's a completely different almost biological structure it's a different Kingdom and they don't understand this central bank will be part of it but in Europe the Sanko bank is part of it's part of the banking systems right not part of the government so they can I show the banks are on top determining everything not the government so in Europe the free marketers believe in central planning much more than Soviet Union and much more even the Nazi Germany they believe that both central planning should be in the hands of Wall Street in the City of London not the government why they say Angela Merkel got so upset the priest said you can't ever referendum over this you have to appoint a technocrat meaning a bank lobbyists someone like Alan Greenspan someone who does what he's told by the bank the other thing that tried to be personally crazy is the idea that you can legislate the budget position then you can say your deficit may not exceed 3% of GDP right so so you say no no I mean the idea that governments have control over the size over the side the budget so you get a government like you know well Spain it's running a surplus right that's right this but some surplus sits on its hands touches nothing all of a sudden the economy tanks taxes fall off automatic stabilizers payments kick in for an employment conversation and all the other stuff sir I haven't done anything my deficit is exploding around me and it's completely out of my hands tonight you know this idea that this is a willful policies profligate spending at all that kinds of I didn't do anything prank the taxes went this way and the government spending automatically went that way and the difference became my lightening deficit the idea that you know first it's the stability and growth pact then it's the fiscal pact will end you you but only if you promise to really really really stick to the rules this time the kids stick to the rules didn't have to follow the rules because they had current account surpluses in case the buyer when they have a big current account surpluses which allowed them to keep the private sector in surplus not have a big government so the economy was held via running big trade surpluses and so we got there widely praised right true shame comes up everybody says look at Ireland the Celtic Tiger the model for the rest of you but there's a poor sector she left out and that's bro he visited an assumption that the government is the since the US government gives its own currency so it's in some it's not easy yes very can afford to do the things I said so the kind of policy measures that he mentioned it seems that the government would like it's it's in that it's just one part of the story because at one point of time fifty government is very lots of deficit will at the end lose faith in the commitment you put that take the kind of policy measures that you are seeing that the government always there there it is I mean we didn't lose face but over the course of two hundred and forty seven years is that the right a number of US history the US government has been no eight times in your periods but they have all ended in either depression or recession me well I guess what what a dick say saying is that so you need to tell the story there's a specific for each of the countries of this holds for the US and over this always receivers also happen to be dominant military power of relationship holds for every company has a PowerPoint that will show you about you know you see many court cases as we're talking before that you know some countries did the fortune and you say what but they were all the circumstances for the country for example they were in a fixed exchange no no no not that I was in Brandon Brandon policy - so why would our government want to be in the fixed exchange rate to begin with they must have had good reasons for their it's not that they are you know dumb and stupid oh I just wanted must that must have been other reasons about training because without a fixed exchange rate people wouldn't invest in their country and there were political reasons there were there were demonstrations before there were economic or perceived economic reason right but don't underestimate the importance of having the wrong paradigm I mean we've had Steve here for five weeks fighting against the wrong paradigm don't underestimate I understand but now you know talking amongst friends yet so understand them what the right paradigm is healing to see that each of the countries has a particular historical economic cycle but I think I can show you lots of data for lots of countries that are not global superpowers they have sustained deficits for decades and decades and nobody's lost faith in the government the currency or anything I could show out of that independent of a country's reserve statuses and reserve currency issue or the fact that most of the debt is held domestically I mean I can do it for anything but I guess what it is isn't is that you know sometimes shape happens to countries that try to do that it's a hyperinflation different into well you know people taking all these not investing in the trenches at all so there must be some reason when we talk about the job guarantee what we're saying is let the government bid for labor that the private sector has a zero bit off so you're not competing for any resources or not bidding up the price of anything right when we say to rebuild the infrastructure we're talking about taking resources that are currently in by the private sector you have tons of slack we're not saying use the government's power and push the economy beyond for employment but when the resources are available and especially labor wanting to be employed at a wage should employ it I guess expenses despite the correctness of the paradigm after all initial conditions matter of how you got to do right if if Greece left the euro okay and which went to the back to the drachma and was it currency issue were just like Stephanie's talking about the fact their initial conditions would matter a whole heck of a lot for the other countries but as far as India is concerned India was not in a very good position but in a decent position the 8485 but the new prime minister claiming he was new he tried to be miss Lottie they largely many other things the public sector things at the end India ended up in 1980 crash like crisis they did not have enough money to pay the 14 days of 400 that was because of the incident like the yet denominated in dollars or something well sure then you're taking on remember I said if you always have the ability to pay debt denominated in the unit of account that is you are crazy by addition to attending you are not always be everything in your currency so that whatever secret means any half part of the story at one point of time you people be loose with your currency you have to sorry miss Scott is gonna talk enhancer so many shows in the night next speaker is Michael burner so just to take a few minutes break with this 英語 (自動生成)