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it's sis on the phone it's a pleasure welcome stephanie calvin she is the
associate professor
rat the university of missouri kansas city and a research associate at the
levi institute in new york city welcome to the program
entrapping thank you
uh... so uh... so i've got a lot of a lot of questions for you and i had
interviewed ah...
uh... bill black the other day and uh... want to ask him about uh...
modern monetary theory and he said well uh... stephanie kelton is the expert and
uh... so but let's start if if we could we aids
the uh... the gold standard and bretton woods can you
my tel
my in successfully
what what changed well when we left the gold standard
hope you you mentioned the bretton woods that on the other then the international
monetary system that would put in place at the end of world war two went into it
played in nineteen forty four
and it involved a forty four countries around the world
all agreeing to sixty their currently
to the u_s_ dollar
and through the u_n_ dollar into gold
and so the u_s_ government pledged to all these other forty three countries
that um... if you wanted
if you get dollars because you exchanger currently for the dollar at a fixed
price
you can then convert the dollar at another fixed price so many dollars
uh... brampton gold
and we give you the bowl and we have a monetary system like that obvious quake
not to be very careful about the way that you of run your polity because if
you allow
too many dollars to get out into the circulation
and people divide by brad and i hope the dollar i wanted to convert into gold
there's only grow much gold available right it's fine and so
uh... under then type of monetary with them
they actually had two very important implications for the kind of
fiscal polity you can run how much you spend in how much you collecting tackle
it
so we went off but it was in the nineteen seventy one president nixon
actually i've put the u_s_ off of bretton wood
in uh... nineteen seventy one though the dollar is no longer tied to gold
no longer convertible waiting for a purer
floating exchange rate aneta pure fiat
we have a fiat currency and so well what are the implications of that i mean it
seems to me in some respects we're we're we're still sort of like grappling with
the implications of that
well you know we are and i think that animal on the way the prosperity say
that the u_n_
government
have been really realize
that it's no longer on a cold standard so we basically run our policy
at different gold standard world not recognizing that going off of gold and
controlling your currency and letting it float means of it
you have been
physical politicking state that wasn't available to you anymore it wasn't
available to view previous bleak
but all the fighting although people could open up
and we don't take advantage of fayetteville moved like you know you
have a title four
and you think that you're only allowed to stand on two or three piled in the
room
and
in true people walk around the room anywhere you want because you got all
that extra space opened up it you can't find your svelter than little area in
the corner because you think you still want to go
what what is the what is the uh... policy uh... uh...
what is the policy that reflects outstanding on just those two or three
times
well most importantly the idea that
you don't want to com
have a budget deficit
that's too big
because you're worried about spending because you're worried that somehow
if you're definitely to get to bed
gets too big
they're gonna run into a situation where you can't pay it
and till we hear a lot of things
from polytechnic erstwhile makers talking about
the debt not being obtainable
the u_s_ going perot president obama said at one point work out of money can
work out of money you know i didn't the u_s_ government can run out of the u_s_
dollar
uh... so weak ac like we've got a clue keep supply of dollars to keep the level
in spending
constrained efficiently constrained
or terrible thing to happen we're gonna become like greek will go broke by two
household or private business
not recognizing
at the federal government and now
the issuer of the currently
and the rest of the folks argent simply users of the currency householder users
uh... private businesses
state and local governments and by the way all of the country that adopted the
euro
have plagued him so in the position of being the user of the current p
no longer
the issuers so if you look at italy
and you look at italy's debt to g_d_p_ ratio today
it's wrong rightfully
where acquired in the mid nineteen ninety two
but in the mid nineteen ninety two there is no democrats
why wasn't that distance benefited today
and now they have a decorators back then they didn't
any answers
it's fairly straightforward because before the debt with all denominated in
lira in the italian government controlled the lira
and financial markets new
the italian government colleague make payment canberra because they were the
issue of the current d
now the death toll euro denominated
financial markets recognizing
the euro doesn't come from the italian government so if we went to them that
cap is really now attach that had been used to have
and that's where the premium comes from an apt by the bond vigilantes
have too much power under this new monetary them but they don't they don't
have the same power uh... it is the bond the lindsey's done at the same power
over us because we have the capacity to print more money
where interest rate
short term are euro an even longer term right around one percent and the reason
that the pond vigilante
tactics attract a premium
netball levi's government it's because they know the government a panel we pay
you can't then you're in dc premium to contemplate for the record default
when the currently comes from all of these governments you know
lands
it said this is juncture
earth someone will say it will but that's arrests and that the recipe for
the uh... weimar republic where will be
bringing a uh...
wheelbarrow full of cash to go buy a loaf of bread or sampling what
whitewater is that not
danger to us i'm in a it tore is it
but the fact that we issued a currency
or the fact that we could spend enough
in order to get the economy a full employment
well i guess the idea that if we sit we we he sees the car and see if we started
uh...
i if we borrowed money and use that money to you
it together stuff on planet let's say like fiscally for instance
um...
and uh... but we kept the printing this money
at least the i think the
and i don't know if it's conventional wisdom but they're certainly some belief
in some uh...
sectors that that's a well that's what gives you uh... uh... hyperinflation
okay well hyperinflation in something that happened very specific reason
indicated weimar germany
well you had was uh...
in fact popular gold standard and place to have a war reparations
the german government was trying to repay its ward at they needed gold in
order to do that minority get all the bolded it needed
at the issue out the current leader by the golden co
lots of money creation
at the main time you had the belgians and the french coming to germany and
take over a large industrial part of the economy
which kept supplied out
so you know if you think milton friedman is the inflation is caused by too much
money chasing too few good
we'll had lots of currently
creation joy also had
uh... aka brushing of the supplied side of the economy because she simply didn't
have to capacity to produce good conservative *** similar happened in
been bob white
more returning camp a little hyperinflation ari period but there you
had mcgarvey coming in
take away land from the white farmers and redistribute land do two blacks who
didn't have to be experience farming the land
didn't quite know exactly what to do with it when they got it knowledge that
you ran into the plain kind to prompt on the supplied by it
we didn't have the cup at the data produced
able to keep up with the demand for these these through things and other
good conservative mto
you know demand outstrips supply in pride is what i hiked uh... really tough
conditions like that in the u_s_ and
it's clear that we can achieve full employment without hyper inflating the
economy the last time we reached full employment in the u_s_
within the late nineties and early two thousand tight
we had actually
one job vacancy for every job seeker it's the only time in our than the last
thirty
five years in the u_s_
it we achieved
in peacetime i mean no one thirty five years that that we had book
anybody could reasonably refer to as full employment
we didn't have high inflation in fact we had
very low inflation
the official unemployment rate was three point seven percent high productivity
growth economy did very well
we didn't hyperinflation
so the idea that somehow if
the government through it
ability to do it just pack it in government spending
plays a role and helping to move the economy to full employment
that's gonna blow up the economy that's gonna be hyperinflation
but it the private sector can do it
the risk of hyper-inflation enough cash registers don't discriminate
when you when u
spend money in the economy
there isn't a man on the other and then let the public or private today inning
at dollars spent as a dollars that right
the federal government could playfully lower taxes increased government
spending
allow aggregate demand increase because that problem that we have today twenty
three million americans who are full-time working camp find it
the the reason that the unemployment rate in eight point one percent in that
they're isn't enough demand in the economy
peering at it the simple problem and they really simple solution for that
problem
they'll create jobs
income create bail
raising packard reduces income and therefore reduced mail
cutting government spending reduced uh... someone incom
and therefore
reduced mailto
all we're trying to do is is
the gentle but because we have monetary system that we have
we don't have to go out to get the currency from china in order to spend
that weekend implement policy in a much more
uh... responsible way
to achieve full employment by the way it's when the economy operated at full
employment that definitely come down in the cave of the clinton years
they disappeared altogether
a strong economy naturally reduce deep inside the death of that can bring down
the debt so sweet and if we don't need to raise taxes
uh...
too
jeremy in other words we can just simply
print more money uh... uh...
why do we have taxes why do why do we need taxes why do we need to world
borrow money issue bonds
well we actually don't need to borrow money we don't need to be sure bond
tweed we do the evening
but we do them
voluntarily i mean it it's our rule so congress could in fact uh...
under current law
spend additional money
without
off leading through increased taxes or without borrowing
i'm not sure that i wanted tell you what that is because it sounds a little crazy
but there is a legend lation on the books that would allow the secretary of
the u_s_ treasury
do strike up a morning love any denomination at least choosing
deposit
the coin into the treasury's account that the bed
then from that account than spokesman the blog here have written about this
there's ample opportunity written gail located not it it's not as if the idea
hasn't been vetted
law professor at yale had looked at them in in fact
***
there in the law on the books that would allow
can bank narrative he wanted to do
today
to do that and that would mean that there would be fun in the treasury's
account
that could be spent wooden at a time
with its national debt
that would require higher taxes and it wouldn't require additional borrowing
and therefore you wouldn't have growing interest on the baton and all these
other things now
a lawyer there
we could do it
i'd never heard anybody
i was going to carry a talk about it at that you know you do have a lot
professor at yale three there there have been bulgaria spoke to talked about this
but
anyway we can't do that
so well when we collected taxes uh... is really uh... is it is it is just now
sort of a traditional or is it um... is it is it what gives value to our money
and then i think uh...
uh... i think it's in david gray boers book
that i think where
uh... where it you know the idea of of of borrowing money uh... government
borrows money and then basically gives value to the currency by saying
odd that this is the way that we'll pay off our debts essentially
yeah i mean this is the way that government historically
have moved resources from the private domain into the public domain the public
sector
want something who want standing army that want bridges and roads and other
sorts of things and historically
what government did when they want to be things with doing promos
taxpayers on a population of people to make them in debt to the government and
then to tell them
the way that you get your smile outed added to work and produces for me
in order to occur and might currently
which i pay you and then you pay back a portion to me in the form of taxes and
that eliminates your debt
answer yes kramer's book is a very good example of uh... study that looked
carefully at uh... how that has been done
over the course of thousands of years by different government
so technically speaking and then we don't need to really we don't need to
to collect taxes and it is that it is that
is that right deming
well i don't think that i think you can be very careful because as you as you
read a moment ago tak please give value to the government currently and hope we
get to spend it
every form of payment the government altogether the
the monetary system would collapse so why would anybody be willing to accept
with otherwise worthless paper intrinsically worthless
if it didn't have used in terms of settling obligations and most
importantly debt i've put a state and and just go back as i want also uh...
talk about uh...
our debt and deficit in this sort of notion of that government should tighten
its belt when families tighten their belts uh...
which is always to me crazy but i want to just make sure that in terms of
inflation worries we had uh... seventeen percent there some odd uh... inflation
uh... back in the uh...
seventies what what
what was that eighty function a
and uh... why should we not be concerned to have that again is it simply because
we have another capacity unused capacity in our economy right now are or what is
it
now we can pick up and admit that i need to really show that you can have a
highly quite right and elation in spite of the fact that you're not using your
capacity total period in the nineteen seventies with often referred to as a
period of stagflation right where we had
simultaneous trade high inflation
and high unemployment
or the information that we experience seventies was not the result of
government trying to operate it it uh... simple polity twitchy full employment
the inflation that we achieved in the that uh... that uh... we experience
seventies
was moral i can do stumping along a line to what happened and then bob way or or
weimar independent that it was supplied by pressures that drove those inflation
federal that inflation total oil price shock bright oil uh... bike in the
nineteen th letting these on a couple of different occasions anyone it may be
three i think in a narrow path to a fax because it takes to much energy to move
good conservative to produce other things a bit bed through into date
generalized pregnant extended p_p_i_ so
uh... you can definitely have inflation you could have inflation because of
commodity prices right makes feeding into the praises of other good
conservative
quite independent of the fact that you're not a full employment
so if i don't
didn't count i don't get account uh... concern about inflation
but if we're talking about demand poll inflation
too much
uh... money chasing too few good conservative
then i think that
that there's not there's not a good reunion
right now to be concerned that if we were to spend more
that we would generate inflationary pressure to get everything that you have
watch luca patties at capacity uh... in terms of the factories operating well
below
historically high utilization rate when you have a lot of
labor that wants to contribute but is unable to find work
sold-out family get inflation on the the plight of night
right but we don't have enough demand right now to create that dynamic attwood
rod
they created a man poll dynamic okay
you could have a speculative
bubble
that cv into commodity pricing greeted
that then feed into pregnant in general
but i wouldn't have anything to do with trying to right near economy a full
employment
dell
the deficit because of course you know everything that we hear now it's it's
dominating our politics is this uh... is this notion uh...
the fiscal class which gets which it which is really sort of um...
it's it's sort of a stunning in a way because it was
all that we've got to be afraid of of falling off this fiscal cliff
and so the the solution that we keep hearing or at least all the solution
that we seem to keep hearing whether it's uh... uh... you know uh...
uh... the uh... simpson ball
all's letter as it is i call it or uh...
or other plans to impose austerity
all seemed to be the solution to the cisco clip-on
all seem to be
dumb
let's
off of something tall and then it doesn't and they did it say
this solutions to the fiscal club don't seem to be solutions but they in
themselves seem to be the fiscal click now there was this desire to close the
deficit what
what is important for us to know about deficits
uh... well i think it important for us to know that way
the government spends more than a collector but the government to spend
two hundred and packing list back ninety
we kinda have to remember that the extra ten went somewhere
if they spend a hundred and only take back ninety someone got the extra can
and someone who get the extra ten
in the non-government
vector
at though we can't forget we we focused on the government a definite that and
the worst so accustomed to thinking in terms of our own personal finance moon
that'd feels a wrong
if somebody spending more than their income camping for the people that can't
be good
it could be a friend when the currently comes from you on the one hand
and you also have to drop in pink
well very definite become dollar
surplus and so
if if people are saying we need to cut fort safe
both hinson
we need to reduce definite by four trillion dollars over the next ten years
it even equivalent statement today poll clinton advocate cutting the
non-government
there plunged by four trillion dollars over the next ten years
ozark equivalent statement
but if you ask people are you in favor of the government cutting your sister
plan
everybody would mean no i'm pretty sure
only they all deport the government beginning its definite not recognizing
that their opposite knight the campaign calling
and and so
in in other words the there is no uh... this notion that somehow if the uh... i
guess if the government borrows too much
money or something it's taking it out of the economy it's not taking out economy
it's actually putting
more money back into the economy
well it's permanent financial at its back and when you have a pic barabar so
let's go back to the example if the government spend a hundred
packages in ninety
and then valve government bond
in the amount of ken
let me put it in terms of billion
well then into a bed of
ten billion in non-empty non interest earning government dollars
you end up with ten billion dollars in and u_s_ treasury make interest-bearing
your adding financial admitted to the non-government factor
under pani when the government definite defendant whether it borrows or not
and so uh... there's there's them and i've seen you say that there's there's
three at aspects i guess to
to contextual as the deficit
the did the government uh...
the domestic government sector in the domestic private-sector and there
the rest of the world there is a one-to-one inverse
relationship there is that right
yet so you've been dividing into three parts which is what you just did or you
can buy simplify and you have a government and non-government
where the non-government include the domestic private and the rest of the
world though if the government is running a deficit that six percent of
g_d_p_
and non-government
mugged by definition have a surplus equal six percent of g_d_p_
now some of that they're applying is accumulating in the rest of the world
because the u_n_ runs trade definite and though
a portion of that surplus accumulate somewhere else
but very large portion of it the even a bigger portion
accumulate here at home
domestically and poopy comes with their plan in the house hope sector eight
address
through the saving of the um...
corporate nectar
so you business and household
benefit financially
from the government deficit spending and wherever
where government deficit or ever time whereever government deficits are a
problem
killer
the death of my jennica definitely can be too small
the government a definite can be to pick and that too real risks that uh... one
would want to pay attention to your talking about whether the deficit is
cupid
are inflation and the exchange rate
so if the government
runs a definite that begins to get to large it's true that you could get
inflationary pressure
and it was true that the currently
could come down in value in other words at the dollar could depreciate on world
market what would be the effect of the things we kind of talked about the
inflationary effect already and we can agree that inflation he wrote the real
purchasing power of the currently in that that is something the government
should
avoid
uh...
with respect to the currency the deficit gets too big in the dollar
loses value on uh... global market but then it means that we're gonna pay more
for the good conservative that week
perchance from abroad
they means the wrath of the world is gonna pay less for the things that they
applied from modern so
independent a weakening dollar
improves the current account no there were two pid the trade balance with tend
to improve if the dollar were to weaken
which would then add to that g_d_p_ which but then
bring down the deficit so there may be found
uh... stabilization that occurs there even at the currently kept weaker and so
uh... well what are
or what are the steps that we can take one week
perceived that the deficit or what are the signs that the deficit is too large
in those instances
well yest if you begin to get inflationary pressure
and you can identify an entry that inflationary pressure to demand
then the way to uh... reducing inflationary pressure is to reduce
demanded to reduced spending in the way that you reduced spending in the dirt
by defending let yourself through the government spend a lot
if u won a uh... have
everybody else banlab
then you're a packet so that they have weapon income available to spend
government should really be watching to things which should be watching
unemployment and it should be watching inflation
and if inflation and not a problem
and unemployment is a problem and it's an indication that the government
deficit too small
inflation begins
to become beauty begin to be in line with inflation is becoming a problem
an indication of the government definite maybe to march
oh with yet
the fiscal cliff what what what do you think that really we should be doing at
this point uh... in terms of
bush tax cuts expiring and the
sequestering uh... the
automatic cuts to the budget
um...
on implement benefits and aimed at separate set what what is it that we
should be doing it
well vocal quickest in haphazard and reckless policy instead
much just make up a paul when shipping that are going to happen
and if we don't do anything the ending automatically take place you want
lawmakers to actually um...
deacon delivered and review and when they put it
uh...
olympian
into placement so you want to give it a national priorities you want lawmakers
plan to their constituents you want them to uh... pay attention what happening in
the real economy if it
it's clear that the economy event
achieving the macro goal for the full employment and below inflation
and you want them finding out what it is that they need to spend more money on or
who is taxes they are to be
um... and for the ideal situation would be for for folks to recognize that
they audit
mhm make
division that are
haphazard in nature
and make good macroeconomic policy that obviously not what happening with
different coke listener to really know what happening
with i any attempted straighten it sort of a grand bargain to avoid the physical
plant because
you know those ur
sort of different versions of the brain saying apothecary either way the
different music in the timing and the particulars of the deal
but the
implications are either way taxes go up on number-one
and spending goes down on something
insistent finally i mean to just let me give me a sense that it is sort of uh...
it's sort it's fascinating to me that
um... theirs
still the sense that in some ways
uh... we as a society are still try to figure out the implications come out the
gold standard and indeed
do you have a sense of of
and and
error perspective on this is uh...
i don't i mean i don't know enough about uh...
uh... the the different schools of thought
didn't economics but it it certainly not one that is
uh... presented the in uh...
you know on a cable news
news shows
um... do you think it means give me a sense of
how
was the
institution of economic said they were uh... i guess you know the
the education all of the
the institutes and whatnot are
are they coming too
this understanding of our monetary system uh... they
of our economy or is it uh... is their is their growth in this in terms of lou
people
beginning to perceive the way that our economy works in this way
i think that i really think that there are at what happened to be slowly
provide
personal page but
you know when when you start letting econ one of the first things you're
confronted with when you take question economically the budget constraint
and you talk about how how they hope to have to allocate there's scarcer
resources among all these competing walking
and when you move up to the aggregate level
it becomes moving story and you've got federal government saving up
a budget constraint without the recognition that there's a difference
between
bingaman who went to her and the currently or borrow the current him
being the person from home the currently company issuer of the currently though
when you publish bulk
on an issue and we've been pushing now for almost two decades uh... for people
to begin to recognize that there's a fundamental difference between what the
user the currently can do and with the issuer of the current we can do
we got a lot of pushback early on you know these
the light beer there very difficult to
three years now prob
but people like just a quick nobel prize winning economist paul krugman another
nobel prize winning economist dean baker
uh... very popular on the continent to right not a lot on that uh... you know
more progress beside him to go forth
pocketing people for a very long time and it first the reaction what sort of
nilesh early you know government
yep spending and unconstrained way
or not i don't know it's not intend to train the constrain his inflection
to constrain at the exchange rate
i'm telling you if you read wed
these people are writing now it looks fairy different from what they were
writing even three years ago
you're beginning to be recognition and today paul krugman column in interviews
with stiglitz in being baker's work and and others as well but these are the
ones with the big megaphone and they're starting
nicotine caviar in into their people is where they have a well of course
different if you're the person who would be just the current the if this is a
white green different from the u_n_ which is why the u_s_ can never become
great
now we're getting there
and um...
hi i hope that will continue to move in that direction because you know the
implications are so important
for the widest so many million in the parekh and
policy makers and period to vote on their hands and cry poor
when you got many of the people who want to contribute and want to be part of it
you know create i mean that we have a or that we could have
isin
not only from trading it's it's really just quite bad
do you think i mean uh... by do you think that the
in a that is still function visit
that there's just more of a
a political agenda or is it the next i mean you know is p peterson just sort of
living out uh...
did
vivero before
or are we went off the gold standard or is it that justice disorder feels like
it's not really appropriate for people to uh...
to have
did they have any type of lack of uh... financial pressure working there
uh...
when they're intuitive senior citizens
well i think
it's pretty clear what pete peterson one pete peterson one
uh...
among other things i think he wanted powell meant very much on the table but
in particularly want social fickle session security delivered to all of the
street
that's really ultimately what this is a backup
uh... they want privatization or at the minimum number starts partial
privatization of social security
i had to get very much politically motivated
well uh... stephanie galvin thank you so much for joining us associate professor
university of missouri kansas city a research associate at levi institute in
new york thank you for joining us today