Interview: Teaching Graham Elwood Modern Money, and How the Progressive Media Gets It Wrong

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By Naked Capitalism reader aliteralmind, aka Jeff Epstein, an independent and progressive journalist and podcaster with Citizens’ Media TV. Jeff ran on the ballot with Bernie Sanders during the 2016 Democratic primary, at the request of the Sanders campaign. He was a pledged delegate for Sanders at the DNC, and one of only 60 finalists with Brand New Congress, out of 1,500 nominees nationwide. Jeff also just “Dem-entered,” winning a write-in campaign for Democratic County Committeeman. Originally published on Citizens’ Media TV

A lightly edited audio-only (podcast) version of both below videos. Link to SoundCloud

Part one. YouTube link

Part two. YouTube link

Interview conducted on June 27th, 2018, by Jeff Epstein, Editor-in-Chief of Citizens’ Media TV.
Article copy edited by Ben Szioli.

On Wednesday, June 27th, 2018, I had the honor of teaching the basics of modern money to progressive media figure Graham Elwood. Elwood is a stand-up comedian and semi-regular guest on The Jimmy Dore Show. He is currently on tour with Ron Placone, who is a guest on most of Dore’s shows. Elwood‘s show, The Political Vigilante, reaches tens of thousands, Dore’s reaches hundreds of thousands, and the main show on Dore’s network, The Young Turks, reaches millions.

Here is a link to the full transcript of our interview.

All of these truly progressive media outlets (along with Kyle Kulinski, Lee Camp, Caitlin Johnstone, Jen Briney of Congressional Dish, and many others) preach for and against exactly the right things, in exactly the right manner. They clearly and precisely describe how and why our current system is wrong and, just as clearly, what it can and should be.

Where they fail however, is when it comes to how we will pay for these programs and how federal taxes fit into the picture. That we bring up the “pay for” question at all reflects a fundamental misunderstanding of how our economy works. None of this, of course, is done with sinister intent, it is simply what most of us believe to be accurate and true.

Members of the progressive media – and to be sure, the vast majority of progressives, as well as all Americans – have been miseducated for their entire lives. These incorrect, misleading, and time-wasting concepts have been rammed into our brains for decades upon decades by our government, media, and education system.

We therefore demand things from a position of ignorance and continue to waste our time on pointless endeavors. That is why the powerless will never get the programs that they need to survive. The progressive movement’s leaders and media figures have the eyes and ears of millions. Until we learn modern money, the progressive movement will never be more than a thorn in the side of the Democratic Party. We are sabotaging ourselves with a Sisyphean task. At best, we are getting nowhere.

Bernie Sanders taught us that money in politics is the root of all evil. His incessantly repetitive and beautiful stump speech taught us step-by-step why and how this is true. Like putting on glasses after a lifetime of having blurry vision, for the first time, we were able to envision the world as it could be.

Modern money is no less profound, describing why we do not have programs for the powerless – and specifically why and how we can indeed have them. In fact, modern money shows that we could have had these things decades ago. After learning modern money, we can finally do what we should have done long ago: organize and march onto the halls of Congress and demand these programs. When a politician tries to distract you with the inevitable question regarding paying for it, the only reasonable response is to make their life a living hell until they either make it happen or get out of office.

Even my progressive idol, Nina Turner, unknowingly perpetuates economic scaremongering

Some notes about this lesson

If you remember only one thing from this lesson, remember this phrase:

Federal taxes do not fund federal spending.
Federal spending funds federal taxes.

This lesson is geared toward those who know nothing about modern money – those who don’t even realize it’s a concept, let alone a profoundly important one. Most of the challenge in teaching the initial concepts of modern money is first discarding the incorrect knowledge. This takes time.

At the moment, an hour and a half to two hours seems appropriate for a one-on-one interactive format. As a lecture, it is intended as an hour long presentation, with a half to full hour of audience questions. (Graham was a particularly gracious host, giving me an hour and forty minutes of his time, despite originally committing to an hour. It was a thrilling experience to witness his many lightbulb moments during our conversation.)

This lesson is not intended to teach the deeper nuances and intricacies of modern money. It is only meant to get those who have spent their entire lives miseducated to open their minds to modern money.

Appendix for Naked Capitalism Readers Only: Request for Feedback

I believe this presentation is reasonably solid, especially given my audience: people who know zilcho. However, there are particular concepts that I am pushing my knowledge with, such as Social Security, the debt, and borrowing. Any particular feedback of inaccuracies or improper framing you may have, I would be grateful. I am only asking here, because NakedCap’s audience is the rare gem on the web filled with MMT knowledgeable people. I want this presentation to gradually improve to the level of a solid lecture worthy of an MMT economist. It’s certainly reasonable for what it is, but since it’s my first time giving it (aside from a couple rehearsals), I don’t doubt it could be substantially improved. Also, be aware I never heard of MMT or modern money before February of this year. In particular, I am concerned about this critical statement:

It’s a travesty that the United States chooses endless war, excessive military, and tax breaks for millionaires. It is a travesty that the United States chooses to not give us Medicare for All and free college and living wage and to fix our poisoned water. But the even bigger travesty is that the American people have been tricked into thinking that we only have enough money for one or the other. That we have to choose. We spend most of our time analyzing and justifying and researching why and how we should be able to afford these things, when the United States can easily afford to give us all of it, at the same time. They can keep their endless war. They can keep their tax breaks. Let them have their toys. (Temporarily! This is not a good thing!) But the United States can indeed afford it all.

The injustices (excessive military, endless war, immoral inequality) must be cured as quickly as possible, of course, but it was my understanding that temporarily having all of these things is not unreasonable. But I have gotten feedback from two people saying that this may not be correct. That there may simply may not be enough real resources to go around. What I’m really getting at with the above statement, however, is to urge those focused on fighting for Medicare for All (and other programs for the powerless) to not spend one second distracted by the fight against the injustices. In an airplane emergency, you have to put on your own oxygen mask before you can take care of your kids. We as the powerless must fight for what we need before we can worry about the injustices. When we get these programs (or a big one of them, like M4A), then we’ll be in a much better position to confront them. Those who do want to fight against the injustices should be encouraged to do so. They should not be distracted by our fight. Attacking these problems from many different directions is only a good thing. Feedback on this or anything else you notice as you watch the video, would be appreciated. Thanks.


  • Thanks to Geoff Ginter of Real Progressives for dragging me into modern money in early February, when I knew nothing about the topic, including the fact that it was a topic. [Our interviews: one, two, three]
  • Thanks to Kathleen Trambley for contributing to this lesson, especially with the concept of war bonds.
  • Thanks to Kim Niles for being a guinea pig with a very primitive version of this lesson.
  • Thanks to Steve Grumbine and Real Progressives for accepting me into their group, and to its many members whose feedback helped greatly improve this lesson.
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  1. voteforno6

    This is quite long – I’m not sure if many people would be willing to spend that much time talking about a single subject. That being said, I do have some suggestions, not as an expert on economics or finance (my degree is in history), but as someone who would be the target audience. There’s a conceptual hurdle to overcome; I’m not sure what exactly led this to click into place in my mind, but once it did, the rest of it made a whole lot more sense. For most people, I think, this will require a Kuhnian paradigm shift. So, to get people to that point, perhaps you have to create that sense of crisis with how they think money and government finances work. A lot of people do implicitly understand that the Federal Reserve (or more broadly, the federal government) has the monopoly on dollar production. The above discussion went through the mechanics of dollar production. Maybe you could approach it from the opposite direction – if someone understands that the federal government has the monopoly on dollar production, yet also believes that federal spending is funded by tax receipts or by incurring debt, ask that person to explain the mechanics of money creation from that point of view. I think that the internal contradictions of that point of view would become readily apparent.

    After that, there are some very reasonable questions to ask – what are taxes for? What about debt? What about Social Security? I think I have some general answers for all the above, but I would want to confirm those with someone much more knowledgeable on this subject than I am. I think that the above discussion gives a good overview on the necessity of taxes. I think the section on debt can be better fleshed out. Why does the government issue debt? As I understand it, it’s because the law requires it, any time there’s more spending than tax receipts. That’s a relic from the days of the gold standard, I think. Also, when it comes to Social Security, isn’t the trust fund an accounting fiction, created by Congress? As I understand it, it was created by wall off Social Security from the rest of federal spending. Tear down that wall, and there’s no longer a Social Security solvency problem.

    I do apologize for the long response – I find this subject to be rather fascinating, one that I’m still wrestling with. It’s quite simple, once you get the gist of it, with profound implications.

    1. skippy

      I think the FDR story goes it was couched to pass through as such being an earned benefit.

      The currant monetary system is ad hoc gold standard left overs and soverign fiat.

      In my experience the issue with people on the ground is the environmental bias that money has to be earned. This does not help when attempting to show Gov spending [creating – issuing] moeny first as a tax credit or beliefs about money being a commodity or attached to commodities.

      Lastly the Fed controls its own interest rate, where banks control their commercial interest rates and are mandated to sell their bonds on foreign markets where they are compelled to create profits. E.g. Government sets the price and the market the volume, albiet if volume is vulnerable to upper bound fail rates, do to an arrya of unethical behavior and poor incentives – wellie its not government or price dictating human agency.

      my 2 bob

    2. aliteralmind

      I discuss this a bit in the “notes” section. I’m honestly not seeing how to make it shorter. So much to UNDO before the lesson can even begin.

      My specific goal is to teach it to the leaders of progressive and disadvantaged communities, in order to get a foot in the door with their large audiences. (Revolutions don’t start from the top down and all that.) Hence Graham, who reaches tens of thousands. I have a livestream lesson scheduled with the moderator of a very progressive group that wants nothing more than Medicare for All…but has historically spent much of its time on the pay-for question. There are 80,000 people in the group.

      Graham could not have been more gracious and welcoming – let alone granting me 66% more time than originally scheduled. I honestly can’t imagine it going better. He should also be commended for accepting the pretty strong criticism I laid on both him and his fellow media figures. That’s another reason it took so long. He could only truly understand what I was saying after most of the lesson was complete. I believe he was not offended in the least…but only because he “got it.”

      Finally, it’s one of Graham’s fastest growing videos in terms of views. Most of the YouTube comments on it (them) are extremely positive, excited that he’s open to learning it. So there is interest in the topic.

      1. Julia Versau

        This was wonderful. Thank you. I listened to both parts. I am not new to MMT, which I have been studying as best I can. Which means that I understand how huge a re-education campaign is necessary so that citizens understand how money is really created and really works.

        The ultimate question for me has always been, “Why would people who know better (including people in our own government) create such immiseration and poverty among the people?” Luckily, at the end of the second video, you gave an answer. It is about power. It is about the fact that elites will not be elites if they deign to allow others to rise and prosper. Ultimately — underneath everything about money creation, money allocation, taxation, and all the rest — this is a story about human nature. That story won’t have a happy ending unless the MMT folks win this battle.

        Thank you, Jeff, for your efforts. You are the vanguard of an effort which is in many ways bigger than simply running for office. I stand with you.

        1. Julia Versau

          Come to think of it — please make an answer to the question of why our “betters” would do this to the common man a part of your presentation. Amazingly, decent people still don’t grok the depravity of the rich and the mendacity of their government. The question of WHY this is happening and is perpetuated must also be answered. Otherwise, to many people of low knowledge and high goodwill, this entire thing will remain unbelievable.

          1. aliteralmind

            Glad you liked it.

            Come to think of it — please make an answer to the question of why our “betters” would do this to the common man a part of your presentation.

            Please elaborate.

            1. Julia Versau


              What I mean is that there are two aspects to the MMT discussion. The first is obviously economic. The second is social/ethical/political.

              In my own journey, the first hurdle was understanding what MMT is, how money actually is created and works, etc. Once understood, however, there is an unbelievable quality to it — because one says to oneself, “The MMT crowd is growing, but there have to be a whole lot of other people (in power/running things) that know this. Why would they create such suffering purposely?”

              To get people to see past the propaganda, you not only have to show them the economic argument, but also answer the purposeful suffering question. Because I think a lot of folks won’t be able to believe the people in power are this evil. I do, but that came from a whole lot of study.

              ANSWER THE QUESTION: Why are the powerful doing this? (I think you sort of do, suggesting it’s a matter of control of resources [human labor control] and maybe a way for the elites to remain elites because they create so damn many millions of non-elites to look down upon).

              I hope that helps. It’s not just the info about money that’s required learning. It’s info about the motivations.

              1. aliteralmind

                I agree. I think the ”selfish whims” of the masters of the universe are so magnified by their billions, that, from the point of view of the powerless, it is pure unadulterated evil. The powerless understandably respond with anger, which creates a cycle of more blatant selfishness by the masters of the universe.

                1. ChiGal in Carolina

                  Careful though about demonizing the rich. All people seek power and connection; better to frame the drive as natural and therefore a natural thing for society to need to keep in check.

                  Moral outrage is a short-lived gratification: creating cognitive dissonance and showing there is a way forward is more lasting.

                  Just a thought.

        2. Blue Pilgrim

          The presentation is very simple and basic — stuff that everyone should know — and very few do. It’s a bit like having a presentation about what fire is as a chemical process instead of a volcano god.

          Still, even if we were still on money linked to commodities (like gold) instead of fiat, there is the issue of such widespread poverty, which did not always exist in many countries which did not have fiat. We can’t say that just the politicians and powerful knowing about how MMT and fiat works (which many do even if they won’t admit it) will fix the problems. They may say we don’t have the money, but we do have the wealth, and no matter how money is created the corruption, the waste and the wars, the greed, etc., must be addressed. MMT knowledge counters just 1/2 the lie they tell when they say we can’t afford decent living conditions for everyone; if they had the will they would find the ways regardless of not understanding money creation. They will get the will when the people get the power to force them.

          1. Carla

            Yes, but We the People need to understand money, and how it works, in order to be effective. Without the understanding, WE will not have the power.

    1. aliteralmind

      If you remember only one thing about modern money, remember this:

      “Federal taxes do not fund federal spending.
      Federal spending funds federal taxes.”

      Getting started with modern money

      – Hour-long video: Angry Birds and Deficits by Stephanie Kelton
      – Join the Facebook group “Modern Money Theory for Real Progressives
      – Website filled with modern-money aware articles and daily links: Naked Capitalism.
      – Many modern money resources at We Can Have Nice Things.

      *MMT (Modern Monetary Theory) economists*

      The Beatles:

      – Stephanie Kelton (Twitter: @StephanieKelton). Bernie Sanders economic adviser first 2016 campaign and Chief Economist on the U.S. Senate Budget Committee (minority staff) in 2015.
      – William Mitchell (@billy_blog)
      – Warren Mosler (@wbmosler): The father of MMT
      -L Randall Wray

      Other MMT economists:

      Fadhel Kaboub (@FadhelKaboub), Pavlina Tcherneva (@ptvherneva), Sandy Darity (@SandyDarity), Steven Hail (@StevenHailAus), Ellis Winningham (@elliswinningham), Darrick Hamilton (@DarrickHamilton), Raúl Carrillo (@RaulACarrillo)

      *Citizens’ Media TV (will teach you modern money)*

      Email, Twitter, Facebook, Website, Basic MMT Twitter tutorial, Twitter thread rant about how the progressive media gets modern money wrong, all modern money related articles and interviews.

    2. William Beyer

      Warren Mosler started it all; see his website:

      Also, the New Economic Perspectives website is chock full of info. Stephanie Kelton started that when she was at UMKC Economics department.

      Professor Randall Wray’s latest book on MMT is probably the definitive text, but I hear it’s huge.

      1. diptherio

        Not to nit-pick but….it depends on what you meant by “started it all.” The basic ideas of MMT have been around for a long time, under the name of Chartalism.

        But Mosler, Kelton, Wray, et al have certainly made it relevant again.

        1. Synoia

          MMT became dominate when the US exited the Gold Standard. Before that event, money was NOT created by fiat.

          1. Wukchumni

            MMT became dominate when the US exited the Gold Standard. Before that event, money was NOT created by fiat.
            Sorry, that’s not correct, as the US was on various standards, until 1933 which included Silver Certificates & Gold Certificate fiat banknotes, and purely fiat banknotes in the guise of National Currency Notes, Legal Tender Notes, United States Notes, Treasury Notes, and Federal Reserve Notes.

            Here’s a nice little overview to get you up to speed:


    3. Larry Coffield

      Even easier on the eyes, go to Left Forum 2018 and watch Stephanie Kelton and the legendary Michael Hudson explain QE for the people. Being that there is no need for the Federal Reserve except to prosper fem disaster, and trillions can be instantly conjured, these two voices explain why speculation must be taxed so the retail economy isn’t blamed for inflation.

      Inflation is always a wholesale manifestation. The private-banking parasites then play with fresh money while we have devalued money, i.e., the Cantillion effect.

    4. Larry Coffield

      Go to Left Forum 2018. A great overall presentation by Stephanie Kelton and the legendary Michael Hudson..

      1. Expat

        I have a masters in economics and reading all this is making me regret it. But I shall endeavor to persevere.

        1. aliteralmind

          Would love to hear more. Hell, would love to interview you. This subject fascinates me.

          You learned on gold-standard text books? What? I never heard of this stuff before February of this year, and I’m teaching YOU stuff? That says so much about our country.

          1. Expat

            Hmm, well we certainly studied the gold standard but also had professors who were on the front lines, so to speak, since I studied in DC. I vividly recall a guest lecturer from Treasury who came in to tell us (this was in about 1984) that deficits don’t matter. I seem to recall that his argument was that it was money we owed to ourselves,so while it was not MMT, it was at least a different approach.

            I have always believed deficits mattered and assumed blithely that the argument over social spending was linked to military spending and taxes. This was always sharply at odds with my fundamental belief in limits imposed by resources (yeah, we studied Adam Smith and his “infinite” resources theory).

            My wife’s grandfather, a surgeon, was a proponent of what we could call MMT, Modern Medical Theory. He said that whatever the advances and possibilities in health care, there would always be choices to be made because we can’t treat everything. He believed in triage and euthanasia as well.

            In a nutshell, MMT says that money is created by the government which distributes it and then selectively takes some back to shape and control society. Did I get an “A”?

            1. aliteralmind

              That last paragraph is a particularly insightful way of summarizing it.

              B+/A- :)

            2. common cents

              What MMT really should say is that they hope someday we will be wise enough to have the government create money, which it does not do now.

              1. Synoia


                What MMT really should say is that they hope someday we will be wise enough to have the government create money, which it does not do now.

                What do you believe US military spending, and ever increasing “deficits” are?

      1. common cents

        Watched the old owl in the video. Virtually everything he said was fiction and wishful thinking.

  2. Steve Ruis

    When I hear the “we can’t afford it” or “how will we pay for it” responses to healthcare discussions, I ask “You mean Medicare for all (or whatever) will be more expensive that what we have now, the world’s most expensive health care system? How can you defend that?

    Most people think of the taxes that are involved and not the $16K per year being paid for their healthcare now. We do, however, need to be careful that businesses don’t look at not having to pay that as a windfall. That money needs to go to workers … to pay their taxes … and enjoy the quite a bit left over.

    1. Expat

      It’s the American brain-washing that government is inherently bad and free markets are naturally good.

      If you ask conservatives if they trust Jamie Dimon, Martin Shkreli, or most CEO’s they will likely say they don’t. Yet, they want to turn over their health to these people. They complain about government waste, often citing things like $50,000 screwdrivers or $200,000 toilet seats that the Pentagon buys, but those prices (and frauds) are done by the private contractor! Workers complain about industries shutting down and firing them, siphoning off their pensions, and moving to Asia, but those are private companies.

      The Free Market is worshiped. But individuals are not! I teach markets and I teach that the Market is made up of people.

      The next time the child of a conservative is rescued, say from a flooded cave, we should present the parent with the bill for the rescue less a small portion of the taxes he paid that year. I think that would convince them that Free Markets suck.

      Medicare for all would reduce US healthcare costs by hundreds of billions, if not trillions. It would increase longevity and productivity and ultimately boost the US economy by directing the savings into “productive” activities. But then, big Pharma cant’ afford to buy Congress and we can’t have that, can we?

      1. HotFlash

        When people complain about “the government” to me, I always ask them, “You mean you want *COMCAST* running your life?” The usually give the pause for fruitful thought.

        1. Expat

          I don’t have the pleasure of Comcast here in France but it is so bad that I see their name pop up all over the place as example of how not to please customers.

    2. HotFlash

      Indeed! I just tell ’em, “The same way we afford bank bail-outs in the trillions, Quantitative Easing and endless war.”

  3. Farragut

    I’ve only begun reading about MMT/UBI/JG etc., but one thing I haven’t yet encountered is a satisfactory response on how massively increasing the money supply won’t spark inflation. Any thoughts?

    1. skippy

      A. in a deflationary environment inflation is the target, upper bound can be taxed away, funny how taxes are distributed when you think about it and how that reflects in certain asset classes.

    2. ChrisAtRU

      This is a good start from NEP. Not all “money” is created equal. QE is probably the best example of “increasing” the money supply not having the expected inflationary results (and actually having a deflationary impact) – testament to this was the inability of the Fed to see it 2% inflation target met for years after multiple rounds of QE. The short answer is that unless money is entering the “real economy” (in the paychecks of people on “Main Street”), where it can broadly bid up wages and prices, you won’t see inflation. Note also that QE did lead to one specific type of inflation, and that was in asset prices – in other words, banks used QE dollars to ramp up stock market speculation. Can’t find it now, but somewhere there is a graphic showing QE v Stock-market-indices and the correlation is noteworthy.

      1. Farragut

        Yes, I agree with your statements and I’ve seen the graph you’ve mentioned. I should have asked, “If we put billions into the hands of Main St, how could this not create price inflation of goods & services we use on a daily basis?” Admittedly, this would seem to be more of a concern with UBI rather than JG.

        A corollary to this: what’s the tipping point for a loss of confidence in the USD? In my naivete, it seems we should be there already, but do we hasten this loss of confidence through adopting MMT?

        1. John Zelnicker

          July 4, 2018 at 9:09 am
          Your first question is a good one, posed by many. And, your concern re: UBI is exactly right. Some answers are being provided by other commenters, so I’ll add my two cents.

          Putting money in the hands of Main Street can be inflationary only if the people try to spend it when there are not enough real resources to meet the demand. To avoid this, injections of money into the economy have to be done carefully so that production of goods and services can ramp up to meet the growing demand. Once full employment has been reached, spending needs to be constrained by the limits of real resource availability. Taxes can be effective in removing excess spending power from the economy if those limits are reached.

          This also relates to the UBI vs. JG debate. Bill Mitchell has one of the best explanations of the pitfalls of a UBI. Basically, the issue is providing the public with more money without also taking steps to increase production of goods and services. The result will be classic demand-pull inflation with too many dollars chasing too few goods and services.

          OTOH, with a JG, more goods and services will be produced for these newly employed folks to purchase. This also relates to one of the main reasons businesses are not using their new tax windfall to expand production (besides the insane greed). A business owner will not expand until they see that there is growing demand for their products that outstrips their current level of output. A JG provides this demand while also providing workers to increase the total output of the economy.

          On the question of confidence in the USD, I’m still uncertain how relevant that really is. There are several reasons why the confidence fairy may not matter. Investors know that Treasury securities will always have principal and interest paid (barring some idiocy from Congress); there is a long standing agreement with Saudi Arabia to price all oil sales in dollars, which helps support the USD as the most desired reserve currency; the US continues to have a massive trade deficit which puts dollars in the hands of the rest of the world that they will eventually want to spend. Most importantly, most professional investors and bankers understand, if only implicitly, the unlimited ability of the USG to issue as many dollars as needed to meet its liabilities and pay for the goods and services that it needs.

          My apologies for being so long-winded this morning.

          1. ChrisAtRU

            Great response. I was preparing my own long winded one, when I had to depart for parade festivities … ;-)

            I’ll only add this:

            The JG v UBI argument is superbly covered by P. Tcherneva

            Regarding the corollary, I also think that concern is a red herring. Last time one of those dreadful credit rating agencies reduced the US “debt rating”, the next auction went on all hunky-dory. Nobody (there) cared. US Bonds are bought by parties who would like to exchange a non-interest bearing asset (cash or equivalents) into an interest-bearing one (treasuries) with little/no risk. The confidence fairy should only get spooked if there is a genuine risk, like with countries in the EZ who are currency users not issuers, and not for fallacious ones based on “money supply”.

        2. saurabh

          Study the “equation of exchange”, MV=PQ, where M is the money supply, V is the velocity of money (how often each dollar is spent), P is the price of goods, and Q is aggregate demand.

          Now consider what may happen if we increase M. P may go up – inflation – but also, V may go down (everyone saves instead of spending), or Q may go up (people buy more stuff). In the case of QE, P failed to rise because V was very low, and the economy had plenty of spare productive capacity. In this situation inflation is unlikely.

          In any case, inflation is not so bad as long as wages keep up, since it destroys the value of debt and idle wealth.

    3. aliteralmind

      Increasing the money supply in consideration of what your real resources, your productive capacity, can handle, will not spark inflation.

      If you increase the money supply beyond that, then yes, inflation will be caused.

      This is a major topic in the lesson. Especially the first forty minutes.

      1. Mael Colium

        That’s close but a bit clumsy. Google “Mitchell Money Supply’ and that will give you an understanding as to how inflation is generated.

        1. aliteralmind

          I’m interested. That search is not giving me obvious hits as I expected. Please recommentpd a couple?

      2. JohnnyGL

        Separately, it also strengths the argument for Job Guarantee vs. Basic income guarantee. JG ramps up productive capacity. Writing checks doesn’t.

      3. Jabawocky

        Stimulus when the economy is not at full capacity can bring the economy to full capacity without generating inflation. Agreed. What happens when it is at full capacity is more interesting. Stimulus could then drive increases in productivity, not inflation. In fact, how else is productivity to rise?

      4. Synoia

        Increasing the money supply in consideration of what your real resources, your productive capacity, can handle, will not spark inflation.

        If you increase the money supply beyond that, then yes, inflation will be caused.

        That’s obviously not correct.

        It depends to whom the created money is apportioned.

    4. Adam Eran

      Just massively increasing the amount of money does not create inflation. Witness the $16-$29 trillion the Fed credited the FIRE sector in 2007-8 (the figures cited are from the Fed’s own audit). No surge of inflation. Just creating money does not do it if it’s paying off debt or not spending. *Spending* that money, getting into a bidding war with the private sector, could theoretically cause inflation.

      From Stephanie Kelton: “Not a single one of … 56 cases [of hyperinflation documented by a recent Cato study of such episodes] were caused by a central bank that ran amok. In virtually every case, the inflation was not caused by too much money but too few goods.” Farming collapsed in Zimbabwe, France annexed the industrial Ruhr depriving Weimar Germany of goods.

      “Inflation is overwhelmingly driven by cost-push variables… Printing money just doesn’t do it. If it did, Japan would have exploded decades ago, because they’ve been trying quantitative easing for nearly 20 years, and they can’t move the needle on inflation. We’ve been trying it here in the U.S. for about five years, and Bernanke can’t even hit his 2% target.”

      If you want to get really technical, an MMT discussion of inflation appears here.

      1. HotFlash

        I would have to observe that inflation, like unemployment and the future, is unevenly distributed. Here in Ontario the minimum wage went up to $15 per hour this spring. Result? In my working class but gentrifying neighbourhood rents are increasing as landlords seek to soak up all those new dollars coming into the economy. The resources are not exactly static, new condos are being built all over the ‘hood, but not for people at $15/hour, and certainly not for pensioners and others on fixed incomes. Keeping this from being a windfall for the landlords will require government regulation, such as rent controls, subsidies, encouragement of coops and/or public housing.

        The means bucking the banks, the landlords (largely corporate and many global, eg MetCap and Akelius), the real estate developers, and now even Google. No level of government has any appetite for this. The local and provincial, of course, actually do have to tax to spend, and the Federal government still likes to pretend it does.

        So, once again it comes down to government doing right by the people, and I am not encouraged by their record.

        1. Julia Versau

          Excellent point.

          A decade ago, I interviewed two former steelworkers who were encouraged to go get “training” to change careers. They knew about this scam. They told me that the year that Pell grants were increased by $2000, the school (Ivy Tech in Indiana) raised tuition costs by $1800, thereby taking all the money and increasing the debt of the men.

          I think the private market has gotten very good at stealing any increase in citizen wages and benefits. I don’t know how to fix this other than price controls (at least on essentials) — or open revolt.

    5. fibblewocky

      Massive increases in the money supply can cause inflation. MMT fully acknowledges this. If a Government really, really wanted to create high inflation it certainly has the power and means to trigger it through it’s money creation capacity. That said, Governments create and destroy money through spending (create) and taxing (destroy). Both of those levers are being used and are part of the balancing act that control inflationary pressures.

      Another part of the inflation equation is the question of what that new money is being spent on. Many MMT economists do have concerns about UBI being inherently inflationary, which is one reason why they advocate a Job Guarantee instead. Money spent on productive activities (work) adds to the overall supply and demand in an economy, which can then absorb the new money. Money spent on unproductive activities (Real Estate, Stocks) does not.

      Lastly, the overall economic conditions within an economy are also important. Many countries are fighting against disinflation right now, not inflation. There’s lot’s of room for more money under these current conditions.

      1. JohnnyGL

        Years ago I read some good points by a former guest blogger on here, Ed Harrison, who pointed out that hyper-inflation only occurs when the monetary base is inflated in combination with a LOSS of productive capacity.

        He pointed to Weimar Germany losing the Ruhr Valley and Zimbabwe losing tobacco exports (no more balance of payments) through land redistribution.

        Today, one can point to the sanctions on Venezuela causing them to struggle to finance imports.

        1. Wukchumni

          How does one explain the hyperinflation in Israel in the 1980’s?

          The State of Israel is at a critical economic crossroads: After living beyond its means for most of its existence, it now must deal with the reality of a hyperinflation that is running over 400 percent, and in a few days may be measured at the incomprehensible level of more than 1,000 percent a year.

          To make that number more meaningful, it represents the 25 percent rate of inflation for September that is expected to be announced on Monday compounded for a year.

    6. JohnnyGL

      “one thing I haven’t yet encountered is a satisfactory response on how massively increasing the money supply won’t spark inflation”

      We’ve got GDP of about 19trn, we’re running a deficit of around 4% of GDP. We’re ALREADY massively increasing the money supply this year of close to 1trn!!! It’s sparking inflation in the stock and corporate bond markets and in coastal property markets, and even some inflation in oil prices and some other commodities, but not so much in other areas.

      Jeff does make a good point about the importance of time to allow for a ramp up in productive capacity. We may not have enough productive capacity in certain areas of the economy, but that ramps up over time, just like oil drilling equipment manufacturing has ramped up over time in response to the shale/fracking revolution in the past decade (and yes, there’s inflation in those sectors, too)

    7. Blue Pilgrim

      First, the problem we have now is not inflation, nor real limits in production, but lack of demand because people don’t have money — which is a big reason retail stores are going out of business.

      We can also institute price controls, as Nixon did during stagflation, and which had good effect.

      Additionally, production is increasingly done with robots, and that increases production and also tosses people out of work. As time goes on we will reach a point where most people do not have full time jobs in production because their labor are not needed, and we have to start dealing with this now

      Also note that production has steadily risen over the the last 30 or 40 years but wages haven’t, leading to a type of debt deflation: the rich have gotten richer while other poorer, so we have huge amounts of money which should be in the hands of the people but isn’t, which is a cause for many problems. Infusing money into the hands of the people (Q.E. for the people) will help correct this.

      As people get more money, especially the poor and near poor, they will buy things and that will provide incentive for companies to hire and increase productive capacity, and save companies from going bust from lack of demand. The economy is not really supply driven at this point, but demand driven, and the austerity and unequal wealth distribution is killing us.

      One other thing I am not sure of, and haven’t been able to get good information about yet is endogenous money (which Steve Keen considers to be very important, as well as the high level of private debt which cash infusion could help with). Richard Werner, the British economist, said that exogenous money is only 3% of the money supply. I don’t know if this is correct, true only in Britain, or what, but if the endogenous money created by banks is really 97% of the money supply than the effect of the government creating exogenous money is greatly modified. I haven’t gotten this nailed down yet but it sounds a rather important question.

      And finally, restricted production is largely a problem of manufacturing policy such as planned obsolescence and advertising encouraging people to toss out perfectly function goods just to be ‘up to date’ or have the latest gizmo, restricting quantities to keep prices high, as well as simply cutting back because of lack of demand. The big problem is not that we can’t produce more but that we won’t or don’t. If we stopped making war on everyone and retooled from military gear to consumer goods we could produce much more for consumers. Granted this would take time and effort, but even that would put people to work as they ‘hammered swords into plowshares’.

      We need to start working on the real economy and what people need over how we do the accounting (with money, for instance) and manipulate the accounting (and money), and get past all the junk and bunk economics, and the ignorance or lies.

      1. Mel

        if the endogenous money created by banks is really 97% of the money supply than the effect of the government creating exogenous money is greatly modified. I haven’t gotten this nailed down yet but it sounds a rather important question.

        This gets covered from time to time at Bill Mitchell’s blog, albeit in a pretty technical way. The short answer is “Yes. The Central Bank’s control over the supply of circulating money is loose, to say the very least. You could maybe say ‘not worth worrying about.’ ”

        I had worried about how 97% of circulating money could possibly be borrowed. Steve Keen explains in Chapter 12 of Debunking Economics – Revised and Expanded Edition, under the heading of “The mythical Money Multiplier”. There’s quoting of Basil Moore’s writing; the tl;dr is “Businesses need credit in order to be able to meet their costs of production prior to receiving sales receipts, and this is the fundamental beneficial role of banks in a capitalist economy.” I.e. everything on the store shelves is there through borrowed money, and will be until you buy it. (And maybe beyond.)

        1. Blue Pilgrim

          Thanks. No book for me but I found them good search terms for videos and articles which I will see and read.
          One thing about the endogenous money is the interest, which does shift the money supply — towards the lenders. With that proportion of the money supply that would mean a LOT of interest (which would not disappear when loan is paid back) from the borrowers, and a lot of debt, it seems, even without a ‘mythical money multiplier’ (which I plan to soon explore).

    8. Yves Smith Post author

      The problem is it is too long for people who aren’t interested in learning, but Kalecki’s classic essay on why businesses will never generate full employment explains why governments need to net spend (as in deficit spend) pretty much all the time:

      The short version of this is:

      Assume an economy. You have business, households, and government. We’ll forget about the import/export sector because in the case of the US, it only makes the story worse.

      People intuitively think government net spending is bad because they have a picture of the economy where households save and businesses spend those savings. So if government spends too, they imagine it will crowd out investment.

      The first part of this story that is false is that borrowers do not use other people’s savings. Ever time a loan is made, the bank creates the deposit out of thin air.

      But aside from that, businesses around the world have not been spending. They’ve been net saving….except for China. US businesses have been saving (as in making buybacks and shrinking, and worse even borrowing to do that) since 2003.

      So you need government to spend to make up for the business saving. And it needs to spend until it has high labor utilization, which we do not have now.

  4. CommonCents

    As in the world of physics where there are various constructs and approaches to describing nature, so too for the monetary system. Even Ptolemy could predict the movement of the stars and planets using an earth-centered solar system. MMT attempts to force the failing current monetary system into submission while maintaining its fundamental structure and complex and arcane machinations. It relies on the redefinition of commonly used words, such as “debt” or “deficit” insuring that public acceptance and understanding will be elusive.
    Continuing to champion the Federal reserve paradigm where a central bank’s main function is to backstop the private banking sector will only lead to more of the same and a reliance on a vast and tangled web of regulation to achieve the progressive goals promised. MMT is, by no means, monetary reform in any sense of the word.

    While MMT acknowledges that private banks create virtually all of the money in the real economy, it then proceeds to ignore that fact swinging the spotlight onto the Fed as the money creator while at the same time admitting that the Fed is always reactive to the initiative of the private banking sector. MMT falls into the common trap of not seeing the forest for the trees and is incapable of stepping back to question the role of the central bank and a superfluous system based upon the concept of reserves.

    The great economists such as Fisher, Friedman, Simons and Minsky understood that the Federal reserve system, an experiment created in 1913, was just a construct, a construct that has outlived its intended purpose. Rather than continuing to think inside the box as MMT does, the new wave of monetary reform initiatives springing up around the world provide a clear alternative to the current opaque bank-centric paradigm. Money is truly and transparently issued by the government in a democratic manner directly for public purpose. The absurd pretense of the government borrowing what it can create, is eliminated. Money, under a reformed sovereign money system, is created as a public utility for the good of society and ultimately the private economy as a whole.

    1. HotFlash

      Thank you, CommonCents, this is a really good analogy. Even though we know (on some level) that the earth’s rotattion causes day and nigh, we still speak of the sun coming up and going down. Even astronomers do it — I know a few.

  5. jake

    You’re asking people to let go of notions about money they’ve always held as self-evidently true and which their own lives confirm every waking minute — it’s only natural to think of the federal budget in terms of your bank account and personal finances. This is emotional as much as thoughtlessly axiomatic: we all have painful unrequited relationships with money, full of anxiety, loss, fear, unsustainable joy. MMT won’t end that interminable affair.

    And don’t look to established authority for comfort and wisdom. You’ll hear Nobel laureates repeating the same household budget nonsense, in one form or another. Witness a long and bitter debate with Paul Krugman, conducted in his and other blogs, who insisted on insisting that banks lend out his and your deposits, long after he had lost the argument , and his own backtracking and bad faith representations of the MMT arguments he was hearing made plain that he knew he had lost the argument. And still wouldn’t concede. I mean jeez — all the text books say the same! Loanable funds!

    Finding a way to undo years of received wisdom, professional orthodoxy and “common sense”– not to mention the enormous vested interests in promoting a view which forecloses on social spending — is going to be more difficult than producing a video.

    Perhaps it’s the 1% who need to be convinced — that we can have social spending but they can still keep their tax cuts.

    1. Jim Haygood

      ‘it’s only natural to think of the federal budget in terms of your bank account and personal finances’ — a theorem which has never been convincingly falsified.

      Every sustained attempt to spend freely without regard to deficits has produced some combination of inflation and currency collapse.

      Name one — just one — successful counterexample, so that we can reproduce this quid ex nihilo miracle for the benefit of all.

      ‘Perhaps it’s the 1% who need to be convinced — that we they can have social military spending but they can still keep their tax cuts.’

      This experiment is being run right now, as the deficit rises toward 5% of GDP in FY 2019. Year-on-year CPI is at 2.8%, with dearer oil (a leading indicator) suggesting it will surpass 3.0%. How high does it have to go before the plucked chickens commence to squawk?

      1. JohnnyGL

        Haygood, you keep waiting for the sky to fall because of federal deficits….but we’ve seen this before. Deficits were higher in the early 80s and in the early 2000s. The sky didn’t fall.

        Japan all through the 2000s….by all indications, the sky should have fallen on them. Debt and deficits as far as the eye can see….

        These things didn’t happen…you have to ask why? And then, realize that maybe your understanding is the problem, rather than the deficits/debts.

      2. JohnnyGL

        “the deficit rises toward 5% of GDP in FY 2019”

        Reframed: Private sector income is projected to be up 5% of GDP for 2019

        Not quite so scary seen this way, is it?

      3. jake

        How high? Easy to answer: until demand begins to exceed productive capacity and resources, at which point — as best I understand MMT — you raise taxes to take money out of the economy.

        Can’t speak to your case, but this equation might be easier to swallow, if not for underlying hatred of what MMT represents: If the government creates money, then it’s everyone’s money — a horrifying notion for the DeVos’ of the world.

      4. Jim Haygood

        Four replies, but none rise to the challenge of naming a successful example of MMT. Our Randy Wray thought he had one:

        I just returned from a conference held by the Central Bank of Argentina. Yours truly gave a talk on Modern Money.

        [Then BCRA governor] Ms. Marco del Pont kicked off the conference with a rousing talk, defending her central bank’s recent move away from a single mandate (inflation target) to pursuit of multiple mandates: financial stability, employment creation, and economic development with social equity.

        She laid out the need to rethink the role of central banks—to push them to directly provide finance for development and to ramp up their historic role of cooperating with the treasury to finance needed public spending.

        Argentina has been growing very quickly since its financial crisis in the early 2000’s … and it told the IMF to take a long hike to hell. It is not at all surprising that Argentina is experiencing inflation—somewhere between 10% and 25%. But inflation will come down quickly.

        How did this work out, more than five years on?

        – The peso, then at 6.5 per dollar, has lost over three-quarters of its value to 28 per dollar.
        – Inflation is even higher at 26.4 percent in May 2018.
        – Argentina is back in the arms of the IMF with a $50 billion credit line.

        MMT is a fast-track to currency collapse, inflation and debt default. It was ever thus.

        1. Susan the other

          The reason MMT is valid is because it understands money. That money is flexible; that it has no intrinsic value; that the value of money is in the spending and the better the spending the more valuable the society, the more valuable the currency. So inflation and devaluation are just balancing acts along the way of progress toward a better civilization. They are irrelevant for the most part.

        2. jake

          I think we’re talking about countries which (unlike Argentina) borrow in their own currencies. True, this assumes a well-developed economy and underlying wealth, but that’s the basis for MMT claims about money creation and sovereign currencies.

          So, among that group, how many false crises have you predicted, to date? And for how many years have you been wrong?

          What’s the rate again on ten year Japanese government bonds? And for how many years now?

          1. ChrisAtRU

            #Exactly …

            The currency crises that befall nations like Argentina have little to do with MMT, and more to do with foreign debt and the way it’s managed with soft currency pegs. This is where countries will float the currency but try to manage the exchange rate by buying back their own currency to keep the exchange rate within a band acceptable to foreign investors. This too causes a drain on foreign reserves and tends to only delay the onset of crisis where foreign debt default and steep devaluation are often the result.

            And yes, Japan, as a G7 nation, does not suffer original sin like developing nations. I sometimes joke that I wish I had a dollar for every article written about Japan’s debt to GDP ration being a harbinger of hyperinflationist doom.

        3. johnnygl

          Comrade Haygood,

          You’ve requested that someone give you an example of MMT used successfully. Fiat currency has been in effect in pretty much the entirety of the developed world, post-bretton woods. There’s been no serious monetary breakdown among any currency issuer since everyone went off gold standard.

          MMT is a description of how money and banking work as currently constituted in our economy. The frustrating thing is that lots of people are still insisting that the world is flat when it’s plain to see that it’s round and everything operates like it’s functionally round. Stop trying to insist that it’s flat!!!

          1. Wukchumni

            There’s been no serious monetary breakdown among any currency issuer since everyone went off gold standard.

            There have been many dozens of countries that have experienced hyperinflation since everyone went off the gold standard, perhaps as many as 100.

            For what it’s worth, prior to WW1, there were no instances of currency hyperinflation that come to mind aside from our 2 episodes, and in the midst of the French Revolution.

            That’s it.

        4. Grebo

          How did this work out, more than five years on?

          A Neoliberal government was elected in 2015 and Neoliberal policies reinstated.

          Examples of successful MMT style policies? Nazi Germany and Fascist Japan, I’m sorry to say. My impression is that they carried the policies on after the war to some extent too.

          1. Wukchumni

            For what it’s worth dept:

            The Nazis issued only coins made out of junk metal in the countries they occupied, whereas the Japanese issued only fiat currency in those locales they took over.

            Kind of interesting, eh?

        5. CommonCents

          What a bubble we live in here – as if MMT is the only approach to the money system. Dare to challenge yourself. Why attempt to stretch a failed and complex system when the problem is that Federal Reserve system is a failed system. Remember, it was set up in 1913 as an emergency measure to save the banking industry. Minsky understood that the Federal Reserve system needed to be completely discarded and replaced with true monetary reform proposed in the 1930’s and demonstrated in the 1860’s with Lincoln’s Greenbacks – money truly created and issued by the government.

          Despite the MMT claim that money is spent first into the economy, the Fed and Bank of England beg to differ. They explain that money is lent first into the economy by private banks.

          1. Plenue

            “What a bubble we live in here – as if MMT is the only approach to the money system.”

            It’s the only approach that accurately describes the real world function of the system.

            “Despite the MMT claim that money is spent first into the economy, the Fed and Bank of England beg to differ. They explain that money is lent first into the economy by private banks.”

            Both are true. Unless you want to claim the Federal Reserve is a private bank, which it isn’t.

            1. Larry Coffield

              The Federal Reserve is 100% privately owned. Alexander Hamilton was the first to sucker the masses into believing it was part of government. Jefferson quite rightly noted that private central banks are more dangerous than a standing army..

            2. Larry Coffield

              The Federal reserve is 100% privately owned. Why do you think MMT has anything in common with status-quo banking? MMT promotes itself as the antidote to austerity and hence privatization takeovers. All central banks in the West have been advancing neoliberalism since Thatcherism circa 1980.

            3. common cents

              You make a common and understandable error. The Federal Reserve is a system, not a bank. The 12 regional banks and the thousands of member banks of the Federal Reserve system are private corporations. Remember, the Federal Reserve was formed to support the banking industry, not the people.

  6. anon y'mouse

    i think it is a bit convoluted to teach it in this manner, with all of these hypotheticals about rich parents and poor parents and so on. also, the preface you give about not being able to handle further steps in the process, or confident counterdebaters also weakens your line. although it is good that you state “anyone can understand this”.

    i have taught MMT individually just by relying upon the listener’s native logic and reasoning, and by dragging in the banks into the discussion (their temporary “creation” of money begs the question of “who creates the interest?” since eventually that money comes back in to pay the loan off and then is “decreated”). admittedly, some people do not want to listen because they are stuck in their own point of view (“everything i have to spend, i have to earn somehow”), and not the government-eye-view. when they balk at this, it is time to say “why does the military have an unlimited budget, and why do politicians never worry about how they will pay for THAT?”

    it is the same kind of wall that one runs into when the 2008 collapse was on, and people were led to believe that Joe Smith’s by the hundred thousands had defrauded banks en masse to get their hands on “more house than they could afford”. i framed this as “i ask you for a loan. you know that i don’t make enough to pay you back. you can loan me the dosh or not. what do you do?” same kind of simple logic.

    where did the initial money come from? how did it get into our hands to be able to do anything with?

    i actually think all of this kind of talk, of rich and poor parents and ponies and such, plays right into the hands of the critics.

    very good of you to drop the “theory” part of the title. it is a nice attempt, with laudable motivation. but really, do not play into their hands!

    1. aliteralmind

      I thought it worked very well, exactly how I taught it. Both Graham and his viewers seemed extremely receptive. I want this lesson to improve both in accuracy and presentation (and I don’t doubt that I have much to learn from you), but I honestly can’t imagine it going better than it did. I mean, aside from a couple of rehearsals, this was the first time. You should teach it in the way that you think is best. Approaching this with many different styles can only be a good thing.

      The rich parent-middle class parent analogy is the first step in taking them from exactly where they are into the world of modern money. I don’t understand how this “plays into their hands.” As soon as he responded to the analogy, I explicitly made the point that there is a bigger picture than just money.

      Also, I’m not pretending it’s not called “theory,” I’m just choosing to not focus on it.

      I am grateful for your feedback. I admit a bit of defensiveness here, but that’s what’s coming to me at the moment.

    2. common cents

      Why do you say bank creation of money “begs the question of ‘who creates interest'” ? The answer is the same – the interest banks “earn” is created in same manner that money is permanently (not temporarily – unless you view 30 years as “temporary”) injected into the economy by bank lending. The economy is a huge ocean of money creation and destruction. There is plenty of bank-created money generated to cover any bank profits.

  7. ChrisAtRU

    Someone needs to arrange a MMT Summit and invite a wide swath of (erstwhile) progressive/Socialist/Dem-Socialist candidates to attend. It’s still amazing to me that with all the collateral out there in the form of sites like NC, NEP and videos on YouTube and Facebook, that so many still get it twisted. It’s not about monetary constraints, it about the choices – what government chooses to spend on. I sense a bit of exasperation of Nina’s articulation about “they can keep …” – it’s raw, but plausible. However, to me it neglects the human cost of war – the PTSD, the lost limbs, the destroyed families. These have real monetary costs as well – potential lost wages, loss of real human resources capable of contributing to productive output etc. I’m not sure Nina wants to go there. Her words about the Medicare Trust Fund are more problematic for me, to be honest. All these (so called) “projections” are invariably based on the same fallacious premise: “where will we find the money?”

  8. JohnnyGL

    I’ll throw in a few comments…

    1st one is a little slow (pony example was useful, but a bit cumbersome. Same with parent having competition between kids).

    2nd video is much better, you can see it with Graham’s facial expressions during the example of the dad using business cards as currency example. Warren Mosler used colonialism as an example in a lecture which I thought was good, because it pulled in actual history which is useful as a lens to understand how the world economy still works. For example….Honduras needs to produce palm oil, Guatemala needs to grow coffee….or else USD$-denominated debt, deficits, balance of payments crisis, etc.

    Maybe work in some double-entry accounting talk around the 38-45 minute mark? Public deficits are private assets….govt runs deficit of $1bn means private sector has profit of $1bn. Economy can’t grow in nominal terms without public deficits. Late 90s example should mention large build up of private debt (especially in telecom sector, dot coms too) while govt ran surplus (again, because double-entry accting) which sowed the seeds of the early 2000s recession.

    1. aliteralmind

      Thanks for the feedback.

      I wonder how much of your view, regarding the first video being cumbersome (you’re the second person saying this), is colored by the fact that you understand modern money.

      1. johnnygl

        The first video was more about what politics looks like in a world that functions on a fiat currency with no debt in foreign currency. You’re quite right that the USG should stop feigning poverty.

        It might be a bit off topic, but could be worth talking about external constraints (balance of payments, current accts) as well as internal constraints (inflation). It’s effectively non-existent in a US context since we issue the reserve currency of choice, USD.

        It might be useful to help understand the real constraints that most nations face.

      2. ChristopherJ

        Good point, Jeff. I am an Australian economist, who was taught classically in the 1980s, and much of it wrong too, including money. I read here everyday, but rarely comment as I find the timezones challenging – by time I’ve commented, people are onto the next set of links… For you, I will comment and hope that you read it.

        I have known about this much longer than you, and it came from my own deep dive into the creation of the (privately owned) Federal Reserve in 1913 following a meeting on Jeckyl Island off Georgia, and the richest banking and other interests that attended that gathering… Basically, it was agreed that the US government could deficit spend provided it borrowed from the banks and paid them interest. And, as the banks don’t need to ‘obtain’ money in order to lend it, that arrangement has seen interest paid into the hands of very rich people ever since…

        Since that time, I found Naked Capitalism and other sites and I am now fully on board about how money really works in a country like the US or Australia.

        You are right in your comment to JGL. I was watching the video (I watched both which is rare for me) and kept thinking, come on man, get to the point. Whereas, I need to put myself into the mind of a progressive who has been told all their life that federal spending (of a limited pool of taxes no less) is a political choice. ie, we can’t have free education without taking money from elsewhere to afford it. So we choose to spend defending your from terrorists rather than funding public institutions to educate our citizens for free. It is the concept that congress is constrained by taxes that is the lie.

        The parents analogy is good. One is constrained by his household budget, the other unconstrained, but he tells his children he is. Why does the rich parent do this? He could clearly satisfy both children. Does he use the lie of a budget constraint as a means to keep himself powerful and his children dependent on their father in order to have nice things bestowed upon them?

        That analogy took a long time and I suggest you condense it.

        The discussion about the Social Security Trust Fund. I understand wage and salary earners pay a tax up to a certain threshold and dollars earned above that are not taxed? Then pensions are paid from the fund, which is ‘invested’ only in Treasuries? Something like that.

        As you point out, the Fund is a mirage. This year’s pensions are paid from congress spending (passing a money bill), not from a Fund. But it serves the purpose of keeping benefits low, as any increase would need to come from a limited fund. It also maintains the lie that taxes (in this case a tax grab from the poorest wage and salary earners) are actually used in a spending program, rather than destroyed as you point out.

        When governments measure inflation, they only measure the things that don’t go up. Assets have been massively inflated (by debt, and particularly compared to wages of the 90%) and renters, home buyers and all the rest of us have witnessed huge inflation in our lifetime – because of debt and of people with ‘money’ seeking a return.

        So, great job and I will keep a look out for you and how you are able to influence. It is a tough task you have assigned yourself. The powerful won’t give it away, you will need to take it from them.

        1. skippy

          I would add that wages adjusted have not gone up after they diverged from productivity, whilst terms of credit and fee structures got the 2% ratchet solution. Strangely this all seems correlated to equities as HPM for the financial elites.

          Long time Brisbane based NC advocate.

          1. ChristopherJ

            Yes, Skip, and thanks for a coherent one. Massive rise in equities prices, not so much here tho since 08.

            (Hey, we just need a few more and we could have a Queensland meet up, ha.)

            1. skippy

              Difficult to be coherent about an inherently incoherent topic – regarding the histrionics involved. That’s my excuse anyway. There has been just so many PR memes spread over a long time which then just become common sense or conventional wisdom. Once these become dominate and reinforced by feed back loops as a mental anchor point, too attach all other views about self and society at large…. wellie…. your not discussing or debating economics any more.

              Second the motion on a NC meet up here in Brizzy

        2. aliteralmind

          You’re the second person that said to shorten the parents analogy. I completely rewrote that section 1 hour before recording this video. I was still scrambling rehearsing this section about 10 minutes before we started.

          FICA taxes go into a “trust fund.” But the trust fund is simply a record of what was paid. Not unlike a filing cabinet filled with tax returns. The money is not used for anything, it’s just a record of what people paid. That’s my understanding. But that meaningless trust fund is the only thing referred to when it is said that Social Security is going to run out of money.

          It’s just meaningless utter total nonsense.

          So I wonder again what your thoughts are on the first section now, where YOU know absolutely everything, but now, given the context of an audience that knows absolutely nothing.

          Thanks for your insights.

          1. ChristopherJ

            You use analogies to make a point and then link.

            Start by your most crucial message, that taxes do not fund Federal Govt spending and are not in fact needed for the Govt to spend real dollars into the economy.

            There are so many conclusions that it is very difficult to provide them and consume them in a short period of time. (And these only apply to spending by countries that issue their own exchange traded currencies and raise taxes in same.)

            Spending is unconstrained by taxes and government income
            Spending is only constrained by the real, physical, productive resources available in the economy,
            Spending precedes taxation
            Taxation destroys money the Government has already spent.

            the main ones I think.

            I agree with a previous poster that MMT has not been well thought out. Money isn’t modern and neither is the reality. It isn’t a theory and by using that word, you allow detractors to score points, as in you are describing a conspiracy, rather than the outcome of allowing wealthy people to buy the government and to use it to enrich themselves. ie corruption.

            Well done again, will check out more of your work. Lots of followers here for JD and his network. Takes courage living where you do and speaking truth to power.

      3. Yves Smith Post author

        I frankly found the examples (pony and parents and kids) to be told in far too elaborate a manner. If I had been on the receiving end, I would have deemed you to be condescending to me. It seemed as if you were talking to a child, not a fellow adult.

        1. aliteralmind

          Appreciate the candor.

          Perhaps my assumption of what non-modern money people DON’T understand has been taken too far. Hopefully the rest after those two analogies felt more respectful. I honestly didn’t see it that way myself (I mean, I chose to be extremely explicit, but…), so I’m glad to hear it. Two other people did mention that the father-twin analogy was too long.

          Thank goodness Graham was as gracious a host as he was.

          I’ll see what I can do.

  9. anon y'mouse


    the reason for taxes is to serve as a disincentive to accreted wealth enabling an aristocracy.

    on the business end, taxes could be used as a disincentive towards continuing “cheap” but public good-negative production methods, or management manuevers (stock buybacks as they are now, pollution).

    taxes at the local and state levels also fund maintenance and improvements. this is somewhat like the conversation i always get into with the “why do i have to pay the Bay Bridge toll booth?” people.

    1. HotFlash

      Has this been covered yet? Not all the comments are showing up, but if not then gotta say a MAJOR reason that a govt taxes is to give value to its government-issued currency. That is to say, you must have govt currency, legal tender, to pay your taxes, and you must pay your taxes on pain of government violence.

        1. aliteralmind

          This is the third reason I give for taxes: driving the currency, driving the economy. The business card allowance analogy. (Which I derived from Warren Mosler’s business card analogy.)

  10. Disturbed Voter

    You can afford guns or butter, if you will compromise. But you can’t have 100% guns and 100% butter, because you can’t have 200% of anything. But people are not only willfully ignorant of what money is, and what credit is … they are innumerate as well.

    So yes, assuming $1 trillion is a reasonable Federal budget, one can do a lot of things with that. And if you allocated enough of that you could have a pretty good national health plan, say comparable to Canada or France. But then you have to agree to cut back on other things. But no faction will accept a cut back, everyone wants an increase!

    1. HotFlash

      My dear Disturbed, whyever not? Guns come from mines and factories, butter comes from cows and different kinds of factories. The only resource they meaningfully compete for is (wait for it…) money. Which is a piece of paper with a number on it or even just keystrokes, and there’s no shortage of them.

      It would seem that the only restrictions would be physical capacity (amount of metal mined, number of cows, amount of pasture available) and of course there are ways to increase production of those items, should it be wanted, or change materials or processes (plastic guns, CAFO instead of pasture), and of course human labour, which can be augmented by automation or increased factory investment. So, it would seem that the only real, ‘natural’ limiting factor would be the upper level of guns or butter wanted in society.

      1. funemployed

        Money isn’t a real resource. People have to do the stuff, be it mining or milking. If you have ten people, one mine, and 4 cows, one butter churner, and one gun factory, you do have to make choices about what those people will do during their productive hours. You could have all the guns, or all the butter, or, as Disturbed Voter illustrated, compromise.

        1. HotFlash

          But if there were demand, that is ‘actual demand’, ie, backed by $$$, then more pastures would be made, more mines would be dug, different materials would be used for guns, it would just take time. But, oops! Under the current US capitalist system, there would soon be too many guns, too much butter, which is why we Canadians are very keen on our milk marketing boards and our egg marketing boards.

          We find it reduces suicide among our farmers.

    2. Brooklin Bridge

      As I understand it, you illustrate one difficulty in the first 6 words of your comment. You’re own logic dictates the sentence should be, “You can afford some amount of guns and some amount of butter if you are willing to compromise.” Instead you say, “You can afford guns or butter…” Obviously if you can only have guns OR butter, but not some of both, then there is no compromise even by your own logic (and I think that provides considerable insight into the ideology you are tenaciously clinging to – rather than reading/watching the videos of the post and comments). .

      Your next fallacy, the more important one, is to imply a budgetary limit (“you can afford”) which guns or butter (or whatever) can represent 100% of thus setting up an illusion of common sense when you assert that you can’t have both because that would be 200%. If you’ve been reading any of this thread, you will have noticed that as a country with your own fiat currency, you do not have a limit (in the sense of a family budget) on amount of money available to you. Rather there is an upper limit on amount of goods and services you can produce and/or import and even those are flexible (you can always produce more if needed up to a point which is far greater than what we are limiting ourselves to). In practical terms, we have the ability to produce considerably more destruction and vastly more public services than we are now producing and that is the limiting factor (and a flexible one at that); not some fictitious total amount of money beyond which we can’t go.

      Of course you can disagree with that, but if so, to be at all convincing, you need to point out why it is incorrect – not simply double down on the very fallacy that MMT disproves.

  11. anon y'mouse

    second video –incredibly more powerful than the first.

    i would just go back and reframe the first examples. use your two families to highlight and contrast right away.

    family a) normal life (parents buy stuff for kids with cash they earned, or perhaps even better, kids buy stuff with their “earned” allowance)

    family b) tokens, and constriction of spending within a family using tokens (i like your business card example)

    shoots you right into the different ways one needs to be thinking about households vs governments.

    as for the ponies—don’t play into their hands. i understand why you are doing that example over the long term, but think perhaps just pick some other thing.

    you are strongest on the moral issue. but one point of clarification: although you are absolutely right that we should not make our agenda contingent upon xyz (shrinking military spending) because, in theory we can have both without sacrifice, yet we should later shrink the MIC because war is immoral, in the real world money is a token to drive behaviors and resources. so for sure, on some level, every bomb represents food and security taken out of someone’s life because it destroys material resources. we as a society have decided that we have resources enough to kill people and destroy infrastructures and environments all over the world, but we don’t have enough to give everyone a roof, food, medical care and quality education. on some level, it is stealing from the mouths of babes. perhaps not american babes, perhaps on a worldwide level it represents material resources that we could have used to make those same droned-to-death people more secure.

    1. aliteralmind

      This is great.

      Repeating from above:

      I wonder how much of your view, regarding the first video being cumbersome (you’re the second person saying this), is colored by the fact that you understand modern money.

      Not repeating:

      That’s an interesting idea, consolidating the two father-twin examples. As if they’re both going into the store the same time. Parallel.

      I don’t understand what you’re suggesting about ponies. This is an extension of Stephanie Kelton’s sort of epic article on the subject:

      I particularly don’t understand what you mean regarding “over the long-term.”

      Your last paragraph is intriguing. I’m not sure how to respond to that. I would love an elaboration or a source. I need to think about it.

      Thanks again.

      1. anon y'mouse

        meaning, i understand why you chose to use something as an example of “what if the government just decided to give us all free stuff?” simply as a way to get ideas flowing about that. i just dislike the “pony” metaphor because it is almost always used so disparagingly, even by the people on this website, against ideas that they find ridiculous. maybe i am not giving you enough credit for trying, in some way, to turn the idea of “free stuff doesn’t come from trees, moron!” into a deeper conversation and turn those assumptions on their heads. it is a good thought experiment to have with people. also, i think that example right there would be the one where you would get the most resistance due to a clash with “native” intelligence (deliberate misinformation, as you put it). the other part is that people get real satisfaction out of denying each other stuff that they might even want for themselves (“those loafers don’t DESERVE xyz. they live immorally, and to support them is to encourage them”).

        not sure how to elaborate for you the idea that material resources are at stake, eventually.

        say we could do both in this country—we can have all the bombs, guns and military goodies that we like. we can also “afford” all of the public services that we like. we are a geologically and climate-blessed country, so this is possible. then your “we shouldn’t do that for moral reasons” applies totally.
        but what if we were not? what if we had only enough water to produce crops to feed people, or to use in manufacturing processes to make more bombs, guns, drones, etc.? on that basis, you could clearly say every item of death is one against supporting life. i firmly believe this to be true, from a worldwide standpoint (our planet’s productive capacities are not unlimited). i believe that for reasons of power, we would rather spend a trillion times MORE bombing people, co-opting governments and intimidating countries to make them all insecure rather than just giving them resources, training, and infrastructure.

        my economics professor (who had worked professionally in Applied Economics for a governmental body somewhere) said that the study of economics is the study of how to do what is best with limited resources. it is a study of tradeoffs, opportunity costs, etc. one doesn’t have the time nor energy to do IT ALL. eventually, one must choose. i believe that is why the “government is like a household” IS so intuitively obvious. that is their reality. i personally played a different reality with myself long ago. the “what if i DID win the lottery? what if money was not really an issue for me anymore?” and i realized at the heart of it was not being able to spend on material goods necessarily, but to be healthy and secure and deepen my engagement with art, culture and pursuit of the mind.

        as for me “understanding” mmt—i am a high school dropout who just managed to finish college at 40. i taught myself this stuff with the aid of this website and others, and using logic (and having faith in my own ability to use logic, since common explanations never made any sense). and throwing my college Econ 101 textbook (Krugman’s) against the wall multiple times. give yourself credit, man! i would never have the cojones to put myself out there the way you have done.

      2. ChristopherJ

        I agree to some extent Jeff. The free pony for everyone could have a better analogy. Like Trump getting tired of his Limo going over potholes and his visitors complaining about the state of US infrastructure, so he signs an order to spend $10 Trillion on roads, bridges, high speed rail and so on. Then, just think of the resource constraints that example would tease out…

        Just a thought

  12. RMO

    What really made me open my mind to MMT and take the time to read the material was that I noticed that all governments and all people in positions of power regardless of ideology act in a manner compatible with MMT when it comes time to spend money on something they want or to avoid taxes they don’t want This could be a starting point when trying to get someone to seriously consider MMT.

    1. aliteralmind

      So when it really comes down to it, suddenly MMT becomes the truth again. They cheat when they’re not being watched, but then they bring up the rules when it’s convenient to use against their opponents.

      I think that’s what you’re saying. Do you have any other examples are links That emphasize this?

      1. RMO

        A few examples: the Reagan administration saying you can’t afford “Cadillac driving welfare queens and their steak eating strapping young buck sons” but for some reason an immense increase in military spending and tax cuts for the rich were just fine, Thatcher pulling out the TINA rationale when it comes to cutting social spending of all sorts but having unlimited funds for ballistic missile submarines and the Falklands war, Germany insisting that Greece can’t afford pensions, unemployment insurance, health care or food but that they can and must continue buying German made military equipment, there’s no money for a stimulus, health care or infrastructure in the U.S. but (once again) upper level tax cuts, trillions in money to keep large banks functioning and paying lavish salaries and bonuses to the people who destroyed the economy, war all over the world and a whole new nuclear arsenal is just fine. The list could go on for a long time.

        As far as I can tell our overlords use lack of money as an excuse to not do things that they don’t want to do but there is always money available to do the things they do want to do.

        1. HotFlash

          Yes! That is why we need to understand MMT ourselves, to see that is BS, and we can have whatever we want. But, for some value of ‘we’, apparently what we want is socialism for corporations, endless war for the MIC, burgeoning prisons for the incarceration industry, propping up of the stock markets and a health’care’ industry that — oh, you know all this. The question is, how do we stop *that* ‘we’ from continuing on, after having bribed us with ponies, flat-screen TV’s and maybe even Medicare for All? Or should I just go long pony trainers, electronics and hospitals? Our record so far is not encouraging.

  13. Steven Greenberg

    Jeff Epstein gets a lot of things very right, but he also gets some things wrong. I have mixed feelings about whether a novice would learn more right than wrong by listening to this lecture.

    At the end of part two, Epstein goes into a tirade about delinking money spent on the military from our ability to spend money on domestic policy. He is right about the money part, but he seems to forget about the real resource part which you cannot delink. The real resources in labor, manufacturing capacity, and raw materials that we use on the military does impact what we can use on domestic priorities. That link is real, and something we should argue about. The money that moves these resources around is not the issue just as he does say.

    1. aliteralmind

      I agree that this is the biggest issue with my presentation. I spoke with my own MMT teacher about just this, yesterday.

      As best as I understand it, I am not so far off in what I’m actually trying to get across: urging those that choose to fight for progressive policy, to not spend a one second distracted by the fight against society’s injustices. And vice versa.

      But that’s not quite how I said it.

      If we demand, say, forgiveness of all student debt, that really doesn’t directly affect the military at all. Of course, people will have more money which will put pressure on some physical resources, but that’s pretty secondary as I see it. On the other hand, the most impactful policy regarding the military would probably be the Federal Job Guarantee. Because some people are in the military, not because they want to be there, but because it’s the best job opportunity available. If they suddenly had a satisfying local public job as an option, now the military has to compete, so they’re going to give some pretty serious pushback.

      So these human resources may change hands (and the secondary pressure on physical resources that come from it), but this is a reflection of our society’s moral decisions, more than a direct choice of which resource should go where.

      In other words, yes, real resources may indeed need to be transferred from the military to progressive policies, but that’s a behind the scenes consequence of giving people what they need. It is NOT something that people who fight these fights need to worry about.

      Phew. I am still learning. This is not a totally solid argument, but it’s in the ballpark. Maybe in the cheap seats…

      1. johnnygl

        I’ll take a shot at refining this.

        Late ’60s to early 70s shows what happens when we do guns and butter, simultaneously, so to speak. Full employment was combined with Great society spending and Vietnam War spending. This led to economic overheating and caused a rise in inflation. The banking interests that dominate economic policy making really, really hate inflation as it erodes the value of the assets that banks hold (lots of various types of bonds and loans).

        The elite solution to this was to crush unions and squeeze social spending to ensure that inflation stayed low.

        If there’s a pick up in social spending, then you are create tension between banking interests and the MIC. Those two would rather avoid fighting each other and make the general public pay the real costs.

      2. Steven Greenberg

        The problem with this one thing in the presentation is that you left out the part that you had acknowledged earlier that the actual limit is resources. It is true that the current economy has plenty of slack for now. However, as the inflation of the late 60s and 70s showed, the slack can be used up and inflation can ensue. A lot of the inflation was caused by an unexpected source. The oil producing entities decided that the price of oil was not keeping up with the then current rate of inflation, so they decided against all economic reason to cut production to get the prices up (and to teach us a lesson). Don’t ever assume that the good will of the participants will always be aligned to let the USA do whatever it pleases. Donald Trump is in the process with his trade wars and such to test those limits.

        The mathematical truth of the sector balances in the accounting sense of an analysis of money and its flow is unassailable. However the economy is dynamic to such an extent that neither a static analysis nor even a quasi-static analysis like accounting will give you an accurate prediction or understanding of the economy. MMT fails when it tries to claim that high-powered money is different in some aspects than is private bank (or even shadow bank) created money. The key aspect where they are not different is that the time between when a loan is made and a debt is put on the accounting books and the time when the debt and loan is fully paid back there can be significant economic activity generated by the loan and debt. A quasi-static sector balance argument seems to assume that economic activity away.

        Short cuts in analysis may be adequate in one given situation, but as the situation changes that shortcut comes back to bite you. As an undergraduate student of physics and engineering, I found that shortcut explanations came back to bite in graduate study where we looked deep enough to see the flaws in the shortcuts. To some degree, it made me angry that I was lied to just enough to reach the right answers in limited situations.

        I point out the flaws in the presentation of MMT to try to save MMT from the anger people will feel when they come to the situation where the shortcuts to understanding become obviously untenable. That situation may not arise in the foreseeable future, so I may be being overly particular. It’s just that my sense of honesty gets offended by tricks even if they seem to work.

        I do not know who youre MMT teachers are. However, if you bandy my name around the ranks of the “Real Progressive” you might find out I am being shunned because I try to speak this inconvenient truth.

        1. aliteralmind

          Lots to think about.

          I will be sure to not forget resource constraints when I bring this up again, and also present it as urging to not be distracted, as opposed to a simple and casual “we can have it all.”

          Beyond that, I will consider these things as I continue to learn.

    2. HotFlash

      The real resources in labor, manufacturing capacity, and raw materials that we use on the military does impact what we can use on domestic priorities.

      Well yes, but only if there are not enough of them to go around. Which I doubt. Me, I don’t use a lot of depleted uranium in my daily life, and I have little need for rare earths or even steel and copper — the stuff I use lasts a long time. My house is 150 years old and my bike is at least 40 years old. It’s not like I shoot my stuff from guns or drop it from planes to explode.

      Currently the US has high unemployment, so labour is not a real issue at this time, ditto mfg capacity, or it could be refurbished/increased (wouldn’t that be a good thing?) and as for raw materials, again, if we have real shortages, which I kinda doubt, then it might be worth thinking about being more sustainable in general, or perhaps not spending so much of of effort and energy on, um, killing folks? Or if that is too big a stretch, perhaps develop carbon-fiber tanks, mud-brick bombers and recyclable bullets.

      It will be a long time before actual resources, as opposed the will, are the constraining factor.

      1. Blue Pilgrim

        I think at least one resource can be strained: intellectual, technological and design. A lot of good science and engineering takes forever to make it’s way into the consumer sector, and often in a distorted form — as well as planning resources as the big brains go to school for, and figure out how to make war instead of dealing with hurricanes. Also diverting tooling and manufacturing facilities.
        You actually do use depleted uranium, which ends up in weapons, from nuclear power plants because we put so little engineering into sustainable power generation.

        War is essentially wasteful, destructive, and polluting — and it doesn’t much help our trade relations either. We blow up roads, bridges, and buildings in the middle east, and then rebuild them, while our infrastructure falls apart. I can’t help but think there is a connection somehow. And let’s not forget the real costs of ‘homeland security’ and all that. A war economy is not efficient.

        I think there are also mental or ‘spiritual’ costs to the psyche of the country, and the way people think about each other, especially the encouragement to the public to demonize others and think in terms of being violent. There is a karmic price to pay. It’s all tied up together, and what goes around comes around.

        Jeff said “forgiveness of all student debt, that really doesn’t directly affect the military at all” but is it not that paying all the military costs while neglecting students (and the poor and sick) is now part of the national normative values? And what are the students learning, to get jobs which pay well? Weapon design and other similar things are popular choices. Should one study computer science for better medical diagnostic equipment or for deadlier fighter planes, and cyber warfare? Which will pay better, with a more easily gotten job? Morals are not just about ethical and religious ideas, but practical systemic priorities and goals.

        1. HotFlash

          You actually do use depleted uranium, which ends up in weapons, from nuclear power plants because we put so little engineering into sustainable power generation.

          You are right, I suppose I do, but I do my best to not. I Bullfrog.

  14. Norb

    Using the tactic right off the bat that everyone can have everything they desire is the wrong strategy. The tactic should be that with discipline and work, these things are achievable. The main factor is discipline and hard work, not lack of money. Resource management and distribution are the issues, not money and affordability.

    In order to undo the damage and brainwashing that has occurred, the fundamental points that refute the current understanding must be simply stated and repeated. The neoliberal order continues to thrive because supporters are relentless in their pursuit. The main tactic is to turn an opponents strength into a weakness. The same tactic can be used against them.

    The main ideological stumbling blocks:
    The Government is the root of all evil and must be “downsized”.
    Government taxes fund spending. The illusion that private property funds government spending- works in tandem with evil government infringing on private property.
    The view of human nature as selfish and prone to corruption.
    Discipline and human virtue cannot be trusted- endless stories of the lazy and shiftless working class.
    Economy cannot be planned, but must be left to freely evolve without any organized control.

    Being and acting like a pig is good. (Greed is Good)

    There is no free lunch. (The elite work hard at maintaining their social position)

    Inequality is the natural order for humanity.

    Every one of these points must be refuted by acting in the opposite manner.

    Social change is gradual, but change in fundamental intellectual understanding is instantaneous.

    There is no free lunch, but we can decide what to eat should be the message.

    1. aliteralmind

      Hard work and discipline to what end? The most important thing is what we as a society define as moral and right and just.

      1. Norb

        A moral argument that cannot be backed up with concrete effort in the actual world is hallow- or ineffectual. It is why pacifists are defeated by those willing to use violence. It is why neoliberalism has triumphed over social democracy and continues its relentless approach at world domination. Morals are important but political power is the final arbiter.

        Americans are apolitical. As Chris Hedges has pointed out, we practice a form of non-politics. Talking in terms of emotion, morals, and justice without figuring out how to wield political power is a recipe for disaster. One must be prepared for dire consequences when challenging political power.

        Look at how America deals with the rest of the world and consider the wrath that will be unleashed if economic power is actually challenged domestically. Capitalism is an amoral system so it is difficult to combat with moral arguments, they are just ignored. They become irrelevant. You can’t have your capitalism and morals too.

        The videos were great. But any explanation of the function of money must always be seen in a political context. It just as easily explains why we can’t have the things we need- it is used to keep the status quo in power.

        Hard work and discipline to achieve political power must be the goal. Without that, we just become someones slave.

        I know its a bummer, and most people don’t want to hear that message, but it is a reality we face.

  15. anon48

    The author requested feedback…I’m still skeptical, so I’ll give it a go…

    The following excerpt seems to encapsulate the author’s foundational argument”
    Jeff Epstein: Yes. So just like we said, when the “federal government spends,” that is exactly the same as the “federal government creates” the dollar. They choose to spend ten billion dollars for the pony bill and that by definition means that they create ten billion dollars.

    In a hypothetical universe, based solely upon math, which he utilized in an analogical fashion, this would make sense. (BTW I constantly work with math, appreciate it, understand it is the essence of logic, am comforted by its eternal ability to provide truthful conclusions so long as each of its underlying premises is based upon precisely calculated fact).

    But we don’t live in that universe. In our universe, the number of variables can be infinite from a relative perspective, so that it can be quite difficult to derive universal foundational arguments (other than scientific) that can be proven repeatedly. It’s worse than that, as you know math can be used at times as a tool to deceive…just requires one to tinker a little bit with either one of the underlying premises to get the answer that you seek. Such as making mass generalization based upon one’s one own limited knowledge (e.g. if your only experience in life with a particular race was with one particular person, and it was negative, your own “logical” conclusion might inappropriately be applied to the entire race.)

    Now I clearly don’t think the author’s intent was to deceive…just the opposite. He’s presented a solid case for consideration.

    But my skepticism arises from what I see as a simple underlying flaw. Maybe I’m missing something. We don’t live in a universe governed solely by math. Its nothing more than a tool. To be more specific in addressing the author’s conclusion- my belief is much more simplistic. Whether a government can print an infinite supply of money at any particular moment without consequence is based mostly upon the perception of people (in the case of the U.S. potentially all the people of the world) rather than math. Complex mathematical analysis becomes a tool that can be used to validate, refute or question the continuing validity of that perception. Same as when a customer borrows money from a bank. The bank’s perception can change over time depending upon how the internal and external factors that can impact that particular customer evolve. And my belief is that any government can eventually lose the confidence engendered in people, in the same fashion as bank customers.

    And while I wish he were right, the author’s conclusion can’t be validated mathematically (because of the infinite number of variables). Further, if you accept his conclusion, you’re also accepting it as a universal fact that will never be subject change. How can that be when things are constantly in flux? Especially whenever new information becomes available. I really find that part really hard to believe unless you have a working crystal ball.

    i respect that fact that the author openly sought input from others.

    1. TroyMcClure

      We can’t know everything and we can’t know the future.

      Got it.

      Agnotology masquerading as skepticism.

    2. aliteralmind

      Jeff Epstein: Yes. So just like we said, when the “federal government spends,” that is exactly the same as the “federal government creates” the dollar. They choose to spend ten billion dollars for the pony bill and that by definition means that they create ten billion dollars.

      In a hypothetical universe, based solely upon math, which he utilized in an analogical fashion, this would make sense…. But we don’t live in that universe.

      I don’t understand. It is literally and exactly true that when the federal government spends X dollars, that it by definition creates X dollars.

      If this can’t be concluded mathematically, as you stated, then what exact alternative can be concluded mathematically?

      To be more specific in addressing the author’s conclusion- my belief is much more simplistic. Whether a government can print an infinite supply of money at any particular moment without consequence is based mostly upon the perception of people rather than math

      We can indeed print an infinite supply of money at any particular moment without consequence. Which would cause hyper inflation, which is why we should not do that. This is a rather large point that I make throughout my presentation.

      We also have the power to stay up all night and play video games for 72 hours straight. Doesn’t mean we should.

      1. anon48

        Ok if government shouldn’t or can’t Print an infinite amount of money W/O consequence…what is the ultimate point you tried to make?

        1. aliteralmind

          I would appreciate some reassurance that you actually watched the entire video.

          1. anon48

            No I didn’t ( I use these computers for work and never click on any videos for security reasons) I clicked the link that said it was the transcript for the full interview and read through that…does that make a difference?

            1. aliteralmind

              Yes. It does. I am glad that you read the whole transcript. The video is much more impactful, but I am glad that you read it all through.

              My point is that the government can create currency in such a way that serves the public good, and they currently choose not to. It is up to us to coerce the government into doing so. But we will never be successful until we stop doing it from a position of economic ignorance.

  16. Newton Finn

    IMHO, the best vehicle for grasping the big idea of MMT is Stephanie Kelton’s “Angry Birds” video, easily found by searching the net. Once my eyes were opened by this video, I began to email it to friends and also linked it to much of my internet commentary. As an aging Boomer who has struggled to keep some of the old 60s idealism alive, I’ve reluctantly come to the point where I think that most of my generation should simply be written off. We won’t be around that much longer anyway, and most all of us have been relentlessly conditioned into neoliberal thinking since our college days. Ever so briefly in those wild and crazy years (late 60s, early 70s), a lot of us came to understand and condemn “the System” and “the Man”–only to leave school and, in so many cases, climb the career ladders they extended to us, eventually melding with them. Sadly but not surprisingly, my younger friends were able to get what Kelton’s video was trying to convey, while the vast majority of my Boomer friends were hostile or indifferent. If there is any hope for a better world, the kind of hope that MMT should instill, it must lie with the young, by which I mean Millennials and younger (what some are calling Linksters). I think that THEY should be the primary focus of MMT outreach, and the goal must be to figure out, with their guidance, the best ways to communicate with them. That said, I applaud your outreach efforts to somewhat older progressives and thank you for undertaking this difficult task.

    1. Julia Versau

      Thanks for that comment, Newton Finn. I agree with you. I’m 63 and I have a harder time getting people my own age to grok this than I do younger people. Caveats: 1. my own children are millennials (oldest is 30) and even they have some mental blocks, abetted by me raising them to work hard and respect authority 2. the young that are most resistant are elite/rich kids, who intuitively understand but do not want to risk their privileged statuses.

  17. Susan the other

    Jeff: I thought it was great. I almost never indulge in 2 hours of interview because it’s so much faster to read a transcript. But his morning I was bleary eyed and just wanted to listen. You’ve done a good job. All your points are accessible. The reason America is struggling with these concepts is because we are going to have a stranded ideology. It’s 10:30 here and the USAF just streaked across the sky, close to the ground to give everybody their 4th of July rush. And as much as I hate those flying dinosaurs, they always give me sort of a sense of courage. MMT is just up against such a vested ideology. But I see all sortsa people talking about it now. I think it cannot be ignored. For feedback, I’ll give you this stuff: A question I struggled with was currency exchange rates and bond vigilantes and keeping the dollar strong. I realize it’s just a game, as you say, of keep away but it takes a while to see how intricate it all is. Stephanie Kelton says don’t worry about the currency holding it’s trading power – all we have to do is manufacture things that other people want to buy and problem solved. I think, however, a small tutorial on the misuse of money as a trading commodity is due. That it is almost fraudulent to speculate in currencies, force governments into austerity, and have no restrictions on the carry trade. Money making money is a big problem, imo. And I like your insistence on spending Not Being a Zero Sum Game. Because I want to spend plenty on Medicare for All and I also want to spend plenty on the Environment – and, god forbid, I want to expand the Military into peaceful endeavors. We just did Space Force, now let’s do Peace Force and Eco Force. They’ve got lotsa equipment and they’re already set up. Etc.

    1. aliteralmind

      Nice, thanks. I am slowly, painfully slowly, how this all fits into the global sphere.

  18. skippy

    Fantastic to see all the responses above.

    Something about information changing and ones mind thingy, you know, how our species is still around considering all its blunders…..

  19. funemployed

    As a fellow non-economist with a passion for educating others about complicated stuff, I can’t offer much on the nuts and bolts of MMT (my understanding is probably roughly in the neighborhood of yours), but I have been trying to have this conversation with anyone and everyone for a few years now, so I figured I’d share what has worked best for me so far.

    Firstly, I think you are very right to ditch “theory.” I’ve gone even farther recently. I don’t use “modern” either. I talk about “how money works.” “Modern” automatically raises questions in the listener’s mind about different kinds of money, which is a question that few people have any interest in, is beyond my ability to answer authoritatively, and is basically always entirely irrelevant to whatever point I’m trying to make. It also, I think, makes me sound wonky and maybe even a bit arrogant/condescending, and has problematic associations to many – particularly those who think we’d all be better off if things in general weren’t quite so “modern.” Besides, MMT really is just a description of “how money works,” and if anyone wants to try prove me wrong on that front by doing his/her own research, that’s all for the good.

    Secondly, I always foreground resource constraints, and treat money as a second order consideration. Partly because I believe it is (you can have an economy and economic activity without money, but you can’t have money without an economy). But mostly because, practically, 1) most people correctly intuit that any economic activity, by definition, requires time, resources, knowledge, skills, and some amount of human effort. The most common critique, by far, of MMT that I’ve seen is based on the assumption that MMT folks don’t understand that pies do not fall from the sky. We aren’t idiots, of course, so I structure my rhetoric to minimize the chances I ever wind up on the defensive on that front.

    And maybe more importantly, 2) I think it’s vital to frame economic activity as encompassing much more than that which results in a financial transaction. I believe it was David Graeber who recently pointed out that we talk about the production and sale of a cup as part of the economy, but talk about the work of washing that cup a thousand times before our cat breaks it as something else. It isn’t. If I arrange a dinner party, invite my friends, go to the store, spend all day cooking, and feed my friends delicious food, I am adding value with my resources, time, effort, and skill to the ingredients I purchased, and producing something of value. If a parent has to choose between raising a child who is healthy, happy, and well educated vs. working long hours to provide the same child with basic material needs, that is an economic trade off with very long-term and irreversible economic consequences. If we don’t shift people’s paradigms to consider economic health as related firstly to stuff (defined broadly as both “I got some stuff you might want” and “I’ll do some stuff for you”), and only secondarily to money as a means to best allocate our activities and resources, we can’t make those arguments.

    Thirdly, before I get to “money,” I always make sure to recognize and explain both opportunity costs and path dependency. Opportunity cost is a very intuitive concept that almost everyone can understand. When you spend time, resources, knowledge, and energy doing one thing during a certain time period, you don’t spend it on another during that same time period. This concept makes it very easy to shift the conversation from pragmatism to values (i.e. what is most worthwhile to do, given that we obviously can’t do everything at once, cos resource constraints).

    Path dependency is the other prong of the pincer movement. Major shifts in economic activity tend to have large initial costs. The easiest example of this is the QWERTY keyboard, which was designed to be as inefficient as possible (so the letters don’t stick together – young ‘uns might need a little extra splainin here). Shifting to an efficient keyboard would have extraordinarily massive economic benefits, but the transition would be brutal and provoke massive resistance, so we don’t bother (in the US and UK, shifting to the metric system is also a good example). It is certainly true that radically adjusting our system of providing, for example, health care, would not be easy, and that upfront costs might exceed upfront benefits. I think you do a really good job with the pony example of showing how this works, and it’s important to consider and discuss if you’re going to convince anyone. I also think talking about this is a good opportunity to pose a challenge framed in terms of resource constraints + nationalism. Maybe health care is like the QWERTY keyboard – too hard to be worth it – can the great exceptional America really not rise to this challenge?

    By this point, I can usually get even your stereotypical conservative businessman to start nodding along. Only then do I make the fundamental point of MMT: money is not a scarce resource. This is when I go for the kill. After all, only a nutty naïve leftist who doesn’t know jack-shinola would obsess about a non-scarce resource while pretending that the real resources are not scarce, right? Are you, Mr. conservative businessman, a nutty leftist? No? Then why do you focus on money while making easily refuted arguments about the actual real resources in our economy? Perhaps you should find a safe space to talk about this to one of your conservative economist friends so you can figure out how money actually works and stop being such a naïve idealist.

    I don’t belabor the point though, and usually express humility about the fact I’m not an economist and would greatly appreciate being proven wrong about the scarcity of money. As soon as I’ve made that point, I return immediately to practical, material considerations. Can you quantify the real resources that go into providing health care for your employees? Does the fact that some businesses can do that much more easily than others undermine competition on an open market? How does providing health care fit into your business’s mission and vision (seems to me like an extraneous annoyance)? Why do we spend 7% more of our GDP on health care than other nations who provide much better care than us? Does that affect our international competitiveness? Wouldn’t it be nice to fire some folks whose whole job is dealing with that?

    In any case, my ultimate goal is to start out by undermining flawed assumptions using common sense that most people (even in our exceptionally cruel country) understand. Most importantly, the assumptions that money is a scarce resource and that all economic activity can be understood through a monetary lens. Once I’ve done that, the underlying moral assumptions held by those who reflexively reject MMT are often flushed out. Specifically, that starving people (even children), denying them medical care, destroying real resources that future generations of the opportunity for similarly productive economic activity, etc. are the best ways for us to make and do the stuff that will lead to the best life/society we humans can achieve. Even staunch conservatives will rarely admit that they hold these assumptions, and even if they do, not only is it easy to argue how flawed they are using readily available facts, but those of us who so argue will be on the front foot regarding the whole pragmatic vs. idealistic paradigm.

      1. Blue Pilgrim

        Yes, good — and there is an important point made which the MMT experts often said, which should not be forgotten: MMT is not prescriptive but descriptive — it’s how money (exogenous, at least) is constitutionally created in the US fiat system, not some scheme which we may or may not try to implement.

        1. aliteralmind

          Yes. Descriptive, not prescriptive. I choose to use the knowledge of modern money (the description) towards my own progress of goals (prescription).

    1. Code Name D

      Interesting. I have kind of gone in the opposite direction, that MMT is the first “genuine” attempt to apply the scientific method in order to understand economics. I have found this useful when appealing to a skeptical audience that is sensitive to scientific vs pseudoscientific topics. But I will admit that keeping track of the literature of late kind of makes this hard to defend as heterodox economics fall back into bad habits. Indeed, the argument of weather science even applies to economics remains unsettled. Even though I argue that science can and must be applied here.

      I recently gave a lecture on this my self last year, where I handed out actual business cards to use as a currency and used that to demonstrate the concept. If I (the government) only spends 100 units into existence, then by definition I can only tax out 100 units, and no more. PS: This wasn’t my idea, it’s a common approach I have seen used by many MMT lectures – to use business cards as currency. I then recruited to members of the audience, gave them Nerf guns, and had the go out and collect “taxes” to explain why everyone would want to use my business cards as currency.

      To me, the “twins” analogy didn’t help much with the explanation. The business card approach is simpler, faster, and far more powerful.

      This served my lecture well as I also tackled exogenous money as well; how debt also expands the money supply, which to me is just as important as MMT.

      I really appreciate this post. It dumps in a number of resources I wish I had when I was preparing my lecture. But I will wish for more of course, things like charts and data sets to use with my power-point would have been nice.

      We really do need to start spreading this. We should take a page from Al Gore’s playbook. Experts produce packets of material that can be mass-produced and given to lay presenters to study on their own and power their own presentations.

  20. Anarcissie

    I found the videos boring because I don’t have a problem with debt, deficits, money printing and so on per se, and the videos spend a lot of time arguing against my non-existent problem. Any kind of money will be effective as long as (1) people believe in it and (2) have the resources to make it good by exchanging things of value (labor, goods, services, idea, other kinds of money) for it. The question is, how do you get people to believe in it? History gives some examples.

    One is the appearance of colonizers with a money system and military force among people who had previously operated on local resources (hunting, fishing, gathering, subsistence farming) and a gift economy. After conquering the natives, the government of the colonizers then declares that everyone must pay taxes. The only way the natives can pay taxes is by giving goods, services, and resources to the government. The government then gives the natives tokens for the valuables. If there are any tokens left over after paying taxes, the natives can exchange them with each other. Now we have money, which is founded on the use of the Gewaltmonopol, the government’s monopoly of original legitimated violence. I believe this scenario has actually been enacted many times in both the ancient world and in modernity.

    The tokens can be physical, made out of, say, attractive shiny metals; or they can be abstract, like marks on a wall or a tablet. Eventually many people will come to believe that there is something intrinsic in the substances or the marks that gives them value. That delusion can be useful to the managers of the tokens; once they can elicit labor and goods with the tokens, they can make a lot of them even without the immediate use of force. Often, some sort of mumbo-jumbo can be invoked to reinforce the delusion.

    Therein lies a second problem with money as we know it (the first being the use of violence as its foundation). Human beings have a weakness for confusing symbols with the things they symbolize. Our present money system is like that: first there was actual value, based on labor; then an act of violence allowing the labor to be symbolized; then physical money (specie, commodities) came to symbolize that relation; then, monetary documents to symbolize specie; then, credit to symbolize monetary documents. At each step, it’s not hard for the managers of the tokens to introduce fictive values into the system (for example, fractional reserve currency). Eventually we reach the point where a government can make billions of tokens flick in and out of being without regard for the fact that the tokens are supposed to represent labor — that is, people’s lives — which is how the lower orders, the proles, have to deal with them.

    From the carefully cultivated delusions, many disorders flow. People intuit that something is wrong, hence the fretting about debts and deficits. But I suppose this rant is too long already.

    1. HotFlash

      Your example is an excellent one, I was composing one about “the company store” and company script, but yours is better. Yes, and I heartily agree, once you see that the emperor has no clothes, can’t ever be unseen, and your insight about the human trait (fallacy) of assigning actual worth to symbols/tokens is very important to understand why it is so hard to get (most) people to get their heads around this concept.

  21. HotFlash

    Scott, about the War Bonds example, yes it was definitely to soak up the money from the general population (1.) all those Riveting Rosies all of a sudden had money to spend (2.) many commodities were in short supply due to wartime supply-line breakages and/or diversion to war materiel (eg, butter, ladies stockings, gasoline and Lucky Strike Green). And meat, eggs, fuel… So, a worthy cause to spend your $$ on, or even just tie them up for a few years, reduced domestic unrest.

    But, that was before 1971.

    Oh yes, there was the War Deficit and later the New Deal Deficit, which did npot kill the economy because even then deficits didn’t matter. But the US currency wasn’t officially fiat back then*, so may be confusing.

    *but, I would say, it was in fact.

    1. aliteralmind

      You caught me. This was the one flaw brought to my attention by my own teacher. It didn’t register that war bonds was, of course, before we went off the gold standard in 1971. But as I understand it, we did go off the gold standard during the depression and then went back on it after the war. So I was accidentally correct.

      1. Wukchumni

        before we went off the gold standard in 1971. But as I understand it, we did go off the gold standard during the depression and then went back on it after the war. So I was accidentally correct.
        Only foreign governments that wanted to exchange USD for Au @ $35 an ounce, were allowed to do so until 1971, no individuals were afforded the privilege.

        It was called ‘The Gold Window’.

  22. rn

    I read most of the transcript. I think your understanding of MMT is good. But I think MMT does not explain few things well even though MMT’s explanation of how things work is better than Ron Paul’s understanding. To be fair, both MMT and austrian guys get few thing right and few thing wrong.

    My understanding is as below:
    (1) In a closed system (ignoring international trade / finance)
    Federal expenditure has nothing to do with federal taxes. Let’s say federal expense is 100$ and the distribution of expenses across different cross sections of the society (different sector, different regions etc) is fixed.

    It is possible to have 10$ taxes and 90$ federal debt. Alternatively it is also possible to have 90$ taxes and 10$ federal debt.

    In the first case, interest burden is high. Both nominal interest rate and nominal GDP growth will be high. There will be very high inflation (in asset prices or consumer prices or both).

    The real GDP growth will be the same in both the cases, even though nominal GDP growth rate will be different.

    The real purpose of federal taxes is to withdraw excess money/liquidity in the system. Federal taxes have nothing to do whatsoever with the federal spending.

    (2) The above statements are not true, with respect to tax and spending policies of state / local governments as they do not have the authority to print their own money. Their finances are similar to that of a household.

    (3) The primary purpose of the central bank is to exchange treasury debt (with non-zero duration and non-zero interest rate) with cash, which has zero duration and zero interest rate. This enables them to control the interest rate across the interest rate term structure (across the entire spectrum of duration of the treasury bills/notes / bonds from 3 months to 30 years).

    (4) With respect to international trade and finance, the economic behavior is almost similar to that of a household. The major difference between a household and a sovereign country is that the value of the currency can go up or down depending on the balances (current account and capital account)

    1. Anarcissie

      The difference between a household and a sovereign state is that the ordinary household cannot use force to create currency, but a state can and does on the territory it controls. In a community of states of approximately equal power, the situation is as with individuals; a medium of exchange would have to be agreed upon voluntarily and believed in. However, imperial and hegemonic states can simply take value from their subjects and subordinates and create whatever kinds of money they please, at least while they’re winning.

        1. Anarcissie

          I don’t understand your objection. By ‘individual’ of course I also include collective actors such as housholds and companies, and I don’t exclude cooperative interactions — the creation of a nonviolent money system would require just the opposite. The point is that such actors can’t create money without voluntary cooperation, but sovereign states can, because they can use force to do it.

    2. skippy

      economic behavior

      That says more about the dominate ideological paradigm neoliberalism than its does about architectural system features or potential aka political policy.

  23. UserFriendly

    Late to the party but here are some notes. I did find the first part a bit slow but I bet that was largely because I knew where you were going. I do think that trying to condense the two families is a good suggestion. When you talk about the government running a deficit having to be equal to private sector savings I think it might be useful to add the foreign sector in there. I think that is crucial because it helps people understand why we aren’t doing much better despite our massive deficit (and why Trump is intent on shrinking our trade deficit.) I usually point out that having a huge trade surplus is the only reason countries like Norway can run consistent government surpluses without massive unemployment. It also allows you to point out that the sectoral balance is just accounting 101. And should you get roped into EU questions you can explain that Germany’s trade surplus with the rest of the eurozone is why they are doing well and the inability of the other countries to just run a government deficit to pay for it is why the Euro is failing.

    Personally I also like making the point that since the government can print as many dollars as it wants whenever it wants (assuming away politics) it can also print bonds as much as it wants whenever it wants and there is absolutely no risk that it will default, except politics. Which is why Banks and other market participants treat bonds just like dollars that pay interest, cause that is all they are. If I waved a magic wand and turned every bond into a dollar it would be deflationary because all I did was remove an interest stream from the economy. (That is why QE was deflationary)

    The 2nd paragraph might be a bit too much for beginners, but at the very least it is some background for you so you don’t have to say you don’t understand bonds. They are just a safe asset the government offers. What gets slightly more confusing is how much interest they pay. Which is pretty much a function of the Fed Funds rate and how much inflation the market expects to happen, but a bit more complicated.

    Good work though!

    1. aliteralmind

      I will think about this. I do want to better understand how it all fits into the global sphere.

      I am going to work towards boiling down the twins analogy.

      Thanks, Userfriendly.

  24. Darius

    Jeff. At about one hour and eight minutes, you speculate that America was blessed with natural resources. I would say that it takes the ability to mobilize human resources to exploit natural resources. A lot of nation states have failed despite abundant natural resources. We have been able to mobilize slave and low-wage labor effectively to build the country.

  25. Wukchumni

    I am well versed on OMT, and am skeptical of MMT, as on the surface it just seems like more monkeyshines in a money menagerie all backed by nothing much, but i’ll watch the videos with an open mind and get back to you…

    1. aliteralmind

      What is OMT? Object-modeling technique is the only thing I’m seeing in a search that seems related.

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