Dollar Diplomacy: Michael Hudson and Steve Keen on Real Progressives

Yves here. Macro N’ Cheese host Steve Grambine has a meaty talk with Michael Hudson and Steve Keen on some favorite topics: trade, the Fed, the IMF, and the past and future role of the dollar, all with an eye to MMT.

By Steve Grambine. Originally published at Real Progressives

Michael Hudson [intro/music]

A central tenet of the World Bank from the beginning is to convince countries not to grow their own food, but to create plantation agriculture to prevent family-owned farming of food, to grow plantation export crops and they become dependent on the United States for their grain.

[00:00:22.610] – Steve Keen [intro/music]

If you look at just the shipping involved in international trade, it’s something of the order of 20%, I think, of our carbon production comes out of the entire mechanics of shipping goods around the planet. And we realize we’ve massively overshot the capacity of the biosphere to support our industrial sedentary civilization. So, one way to reduce that is by reducing international trade.

[00:01:35.130] – Geoff Ginter [intro/music]

Now, let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

[00:01:43.110] – Steve Grumbine

All right. And this is Steve with Macro N Cheese. Another great episode for everyone today. I have two guests, two very good friends, and very happy to have them join me today. Professor Steve Keen and Michael Hudson. You can’t get two better guys than this. And we’re going to have a very action packed conversation.

We’re going to be talking about central banking, the IMF, World Trade Organization, World Bank. And we’re going to be looking at how the US uses the monetary system to bring about its imperial powers that it exerts on the world. And we’re going to look at some of the things that are happening with Russia and Ukraine right now that ship the US control over the global commerce and the behaviors of non US countries.

They’re starting to think for themselves and make some decisions, and we’re watching the facade crack a little bit. Steve Keen, who is the author of the book Debunking Economics and more recently The New Economics: A Manifesto, is joining me, as well as Michael Hudson, who has just recently written the book The Destiny of Civilization: Finance Capitalism, Industrial Capitalism or Socialism. So, without further ado, Michael and Steven, welcome to the show, sirs.

[00:03:04.530] – Michael Hudson

Good to be here.

[00:03:05.800] – Steve Keen

Thank you indeed.

[00:03:06.960] – Grumbine

So the reason why I brought us together, you guys are both phenomenal on your own, but together, I think that we can maybe tackle this. As an MMT advocate, I find myself friends with an awful lot of people, and you gentlemen have been doing this for a long time, and I know that you have some pushback within the MMT community.

In particular, this concept of “imports are a benefit and exports are a cost.” This is a core MMT staple. And some of the concerns that came out as a result of the Covid crisis showed us the resource based failures of a global supply chain and how some of the aspects of our financial system and the shipping of real resources from areas that had high Covid, how it impacted our abilities to take care of life on life’s terms.

It also became quite clear that the US hegemony over the world using dollar diplomacy is starting to show cracks in the foundation as well, as we watch Russia thumb its nose at US sanctions. So, getting into this, Steve Keen, I know that you have taken some issue with Warren Mosler’s prescription that imports are a benefit and exports are a cost.

Taking Warren’s position on this, I believe Warren is saying exports are real goods and services we’re sending out, whereas imports we’re handing pieces of paper to people. And this is a win for the importing nation. And we’ve seen the power of the US dollar and the ability to basically create colonial outposts, colonized communities living and dying off of US dollars. So there’s a power dynamic as well. What is your pushback with Warren’s import/export model?

[00:05:03.270] – Keen

There are quite a few elements to it. First of all, the idea that exports are a cost and imports are a benefit. One term that I’ve seen one Modern Monetary Theory advocate used to explain is to say, the opportunity cost is all theirs. In other words, they have therefore gone by sending a good to us like an automobile to the buyer in return for currency.

They’re doing without the opportunity of the vehicle. And when you take a good look at the manufacturing side of things, the reality for most firms is they have diminishing marginal cost and excess capacity. So the standard thing when you’re competing in a domestic market is you have spare capacity you’re not using, but you can’t get enough demand domestically.

Now, I know MMT can say that should be handled by the government using additional spending power and creating the spending power to absorb the excess capacity. But they don’t at the moment. So what tends to happen instead is that countries will use export-oriented industrialization to use their additional capacity more effectively, which is what’s led to the industrialization of China and in many ways the de-industrialization of America.

Personally, I don’t think the opportunity cost is the right way to think about international trade at all. It’s a neoclassical way of thinking. It assumes neoclassical conditions about production which are empirically false. I don’t think anything in MMT should be based on bad foundations and I think that is a bad foundation.

Then when you see the discussions about monetary sovereignty and saying that countries who don’t have to issue debt in the currency which is not their own currency, they have monetary sovereignty, those who have to issue debt in a currency which is not their own don’t have monetary sovereignty. One way you end up in not having monetary sovereignty is running large balance of trade deficits and not being the reserve currency of the planet.

So I think the advice that exports are a cost and imports are a benefit doesn’t make sense for countries which have been running a trade deficit, are importing more than they’re exporting, so they’re using their own pieces of paper fundamentally, initially, but if they keep on doing it, they’ve got to start using American pieces of paper, and then they’re in deep trouble. So I just think it’s a nice slogan, but I think it’s a bad idea.

[00:07:20.250] – Grumbine

So it makes sense to me given the nature of the pandemic. You and I spoke, I guess it was almost two years ago, about supply chains and pandemics, and we talked at length about how the iPhone is made in some 37 different countries – and countries that were isolated due to the pandemic. It also impacted production in general. Right now I’m in Information Technology, and I work with Cisco, and Cisco being the backbone of the entire Internet globally.

They have lead times even today of up to a year for some of the equipment, partially because of semiconductor shortages. But this is a piggyback to that in that there is the accounting identities of trading paper for goods and services, but then there is the actual functional output of that. And for countries like the United States, we do have Most Favored Nation status in the sense that we are the primary world reserve currency.

And I think part of that has to do with the fact that the price gas and gas purchases are done through US dollars as well. But overall, I think that we have to be aware that we’re not being a very good partner on the planet in general. A lot of the power plays the United States uses to be able to get those goods and services into the US Is done through warfare and sanctions, as we’ve seen all around the world. We use them to great harm in the global South.

However, we saw Russia here recently thumb their nose at us and say, the only thing we’re really lacking is high tech products, and we got China that can hook us up with that. All you’ve done is accelerated our departure from a dollar denominated world, which I guess brings us to you, Michael. Your book talks extensively about this. Can you help piggyback off of what Steve said regarding the supply chains and the impact of that import/export dynamic with what’s going on right now with Russia, China and Ukraine?

[00:09:34.590] – Hudson

Well, MMT has not spent much time talking about the balance of payments. It’s basically a theory of the domestic economy. The problem of the whole discussion that just took place is that trade is not the most important element of the balance of payments. For the United States, the trade balance has been just about in balance for almost 50 years, 70 years, actually.

What’s in balance is America’s military spending abroad. That’s the deficit that is pumping dollars into the world economy. But now to get back to Steve’s point, realizing that we’re dealing with trade, only a small portion of the balance of payments, Steve’s point is, let’s ignore all the other elements of the balance of payments – the debt service and the capital accounts and others.

If you import more than you export, and you have to actually pay cash for the imports and get cash for the export, then you have to borrow money. And once you borrow money, because most trade is denominated in dollars, this means you have to borrow US dollars. You don’t buy imports with your own currency. Now, MMT is all about how sovereign governments can create their own money and create their own currency, but they can’t print their foreign currency.

That’s the problem with having more imports than exports. And once you begin to borrow dollars, you have to pay interest on it. And all of a sudden, they’re running a deficit, it’s going to reduce your foreign exchange rates. Well, let’s look at what’s going to happen this summer as an example. We know that energy prices, oil prices are going way up.

And President Biden just says they’re going to be with us for a very long time because his major contributors are the oil companies, and he’s promised them that he’s going to enable them to make super profits to help raise the Dow Jones average. And the other element is food. Well, America is going to make a killing on oil exports because the United States controls the world oil trade.

The United States is also a major agricultural exporter, and it’ll make a killing because NATO has imposed sanctions on Russia, preventing Russia from exporting oil and food – it’s the largest grain exporter – into the economy. So you’re going to have South America, Africa, and the global South countries all of a sudden running big deficits.

Well, at the same time, there’s an enormous deficit of debt service that they owe to finance all of the trade deficits that they’ve been running ever since they followed neoliberal ideals to open their markets to depend on foreign food and basically US manufacturers. The Federal Reserve has just begun to raise interest rates. And the result of raising interest rates has been the dollar is going way up against the Latin American currencies, the African currencies, the South African rand, the Brazilian currency.

So you’re going to have the global South being in an absolute currency squeeze this summer. What are they going to do? Well, President Putin has said, well, we’re going to offer an alternative in the form of the BRICS bank. Well, it’s true that a bank can’t create foreign currency. The BRICS bank can enable countries to run a deficit in two ways.

Number one, the bank can be fueled by each member giving, say, a trillion dollars or some kind of proportional currency to the bank. So currency swap agreements, just like the United States has been negotiating for the last 50 years. You can all have a currency swap. Also, the BRICS bank can create its version of Special Drawing Rights – IMF SDRs – or what John Maynard Keynes proposed in 1944: “bancors.”

It can create paper gold of its own and distribute to countries. Well, the problem is, Putin said, we’re willing to sell your grain and oil and to take your currency in exchange, but we don’t want to save your balance of payments simply so that now you can afford to pay the debt service that you owe to US dollar bond holders, bank holders, and the IMF and the World Bank that got you into the mess you’re in to begin with.

So the problem is the stability of insulating your trade from the foreign exchange going up and down requires a split of the world into two different economic zones: US/NATO, the white people’s economic zones, and let’s call it the nonwhite economic zones. And remember, the Ukraine say that Russians are not white and racially different. Basically, the Nazi ideology is that any country that’s not neoliberal is not white.

So you’re going to have the world splitting, and we’re really talking about how to create a monetary system for the world splitting. I want to get back to one other thing Steve said about the opportunity cost. If imports are a great advantage to the United States, is it worth having American corporations move to low wage labor abroad, shifting the production abroad so that America is deindustrialized?

Has that been an advantage? Or let’s look at it from Russia’s point of view. Until this last spring, Russia was importing food, cheese, raw materials. And because of the sanctions, Russia has had to all of a sudden develop import substitution. It’s producing its own cheese. It produced its own agriculture that’s thriving.

And President Putin has said that Russia is going to spend more and more of its oil export receipts on funding import-replacing industry. Well, that sounds like a good idea, because we’re really talking about independence. And the balance of payments ultimately determines a constraint on domestic policy. I think that’s what Steve was talking about for opportunity costs.

You can’t just look at the flows on a balance sheet: “Well, we’re getting something for nothing.” If you import more than you export, you’re running up foreign debt, and you’re becoming more and more dependent on foreign countries who are acting in their own interests, not your own interests. So you have to put this whole discussion in the political context.

[00:16:15.210] – Grumbine

So I would see this as a national security issue in that with these essentials – Fadhel Kaboub talks about the spectrum of sovereignty: energy sovereignty, food sovereignty, technological sovereignty, the ability to live without external supports. And each country has varying levels of that. And so each country would have to be looked at differently just based on what they’re even capable of producing.

I guess my question to you, as we think about countries in the global South that have had the kiss of the IMF on them and the debt peonage that they have been laboring under. In Africa, Sankara’s speech talking about “I can either pay you or I can feed my people.” You can see the role that US interests through the IMF have had to import their goods and services into our country.

They don’t have a choice. They are basically colonial states that have the US thumbprint on them. So the United States has exerted this imperial power in this geopolitical nightmare. We are watching them break away from that today.

[00:17:34.050] – Hudson

But you’re leaving one of the real villains in the piece, and that’s the World Bank.

[00:17:38.290] – Grumbine

Oh, yes.

[00:17:39.020] – Hudson

A central element of the World Bank from the beginning is to convince countries not to grow their own food, but to create plantation agriculture, to prevent family-owned farming of food, to grow plantation export crops, and to become dependent on the United States for their grain. Well, if imports are a benefit and imports mean that the United States can put a sanction on you and starve your people like the United States tried to do in China in the 1950s, do you really want to become import dependent on food?

Let’s compare the World Bank to the Chinese Belt and Road and the BRICS bank that’s proposed. The World Bank would only make foreign exchange loans. That meant it would only make loans to countries who would invest in infrastructure that would help its exports. Well, imagine how this works for agriculture.

If you were going to develop your agriculture in the global South countries, you’d do pretty much what the United States did in the 1930s that had the most rapid increase in productivity of any industry in the last few centuries. And that was because the government took the lead in agricultural extension services, seed testing, educating farmers as to seed variety, setting up local farm management organizations.

Before the time that Cargill and Archer Daniels Midland became the great intermediaries in promotion of domestic self-sufficiency for farms, the World Bank wouldn’t make any loans at all for this, even though the World Bank local commissions and reports all said that this is what they need. The World Bank was almost always headed by someone very close to the US Military, starting with John J. McCloy at the beginning and going through McNamara and all of the subsequent Pentagon people who were put in charge of the World Bank.

And above all, they wanted to continue to base America’s export boom in agriculture and to make other countries food dependent. And that is one of the things that has led them into debt. So if you have a country like Chile that has the richest land in the world because it has the richest supply of guano deposits in the world. It also has the most unequal land distribution in Latin America – latifundia and microfundia – not any kind of balanced food production.

So that all of Chile’s exports and copper, by specializing, have been overwhelmed by the costs of importing food that it could have grown all by itself. So the idea of free trade is shaped by what will the international organizations controlled by the US give credit for, ends up to create underdevelopment and dependency instead of development. And that developmental aspect is a different story from MMT money creation. And we’re talking about something else that is part of a much bigger system.

[00:20:43.410] – Grumbine

Steve, based on what Michael just said, I know that you are concerned with the environment and bringing production back home. And around the world, people that are not hip to the US empire are trying to convince countries to look at building bonds between each other to create trade zones that mitigate some of the US power over dominating their countries.

We’ve got a very tiny window to solve climate crisis as well. So all these things are converging at one time trying to deleverage US interests from the world interests and watching as the nonwhite countries are banding together and the white countries are banding together. And it seems like the opportunity to save ourselves from extinction is passing before our very eyes.

In the vein of what he just said, how do we marry some of the ideas that we have, the climate crisis with the geopolitical crisis that we’re battling here?

[00:21:49.110] – Keen

Well, the large part of it is that the focus of neoclassical economics has always been on specialization and doing it with so-called comparative advantage. And what that gives you is an incredibly fragile system, as we’ve seen with Covid, because if you actually distribute production across the planet and you have a long supply chain, then of course that can collapse in an instant with something like Covid coming along.

And equally, if you have a famine, if the major food baskets get wiped out by a famine or a war. We’ve got the war already. The famine may well come by a drought and a crop failure as well. Then suddenly you can’t feed your people and you have no domestic alternative. So I think we have to get away from the focus on efficiency and even in that sense, the gain of swapping paper for goods, which is part of the MMT slogan.

Start thinking: no, we need to be resilient and capable of handling a range of different disturbances which could come our way. And on that basis you need to have your production local.

[00:22:47.310] – Grumbine

So within that space mitigating some of the travel carbon footprint expenses that clearly solves one problem. But where you had smokestacks to create basic amounts of goods and services in one country, now you’re building smokestacks across the globe and I don’t see any meaningful effort to green technology to make those things happen.

I am curious what decentralizing production does in terms of the carbon footprint and how developing local supply chains will in turn impact our ability to stave off climate crisis.

[00:23:30.090] – Keen

Yeah, if you look at just the shipping involved in international trade. It’s something at the order of 20%, I think, of our carbon production comes out of the entire mechanics of shipping goods around the planet, and we realize we’ve massively overshot the capacity to support our industrial sedentary civilization. So one way you can reduce that is by reducing international trade.

I think that’s what’s going to start happening, partly because you have the example of Cisco. You suddenly wait a year to get a piece you used to wait two weeks for because of the breakdown of the supply chain. The same thing will become even, I think, even more extreme when climate change forces us to drastically reduce our production levels.

If you don’t have the domestic production capability, you’re going to lose the possibility of those goods. And in some cases, we have to drastically reduce our consumption of a range of goods. Automobiles is an obvious instance of that. But in others, we want to continue – and food production is one of those. Clearly, you want to produce your food locally.

So, again, I think we’ve been very blase about the physical side of production, and that’s what I would like MMT to start looking at. And in that context, I think it might change the attitude about imports and exports.

[00:24:57.730] – Intermission

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[00:25:49.010] – Grumbine

Michael, in the Russia example, where in one fell swoop they get cut off from the SWIFT system and the US is beating their chest, “We’ve got Putin on the run.” It doesn’t look like Putin is on the run at all right now.

[00:26:02.900] – Hudson

I’m glad you’re bringing up the NATO war against countries resisting neoliberalism, because you use the word “green.” And the European Greens basically are advocating two fuels of the future: coal and cutting down the forests. Germany, by blocking Russia’s gas, they are essentially replacing Russian gas and oil with Polish and Ukrainian coal – and digging down the forest.

I’ve walked very often through German villages, and most houses have whole stacks of cut-down lumber that they essentially burn in their fireplaces for heat. You’re having an enormous deforestation and replacement of gas with coal. And the Green Parties are the advocates for the major polluters in the world, and they’re the advocates for global warming.

And that’s because they’re part of the Cold War attack on Russia. And they say it’s worth having global warming as long as we can fight against countries that resist neoliberalism and resist the American European takeover. So you want to realize the politics – that the Greens of Europe are not friends of the environment.

Now, to get back to your question about the isolating of Russia. Isolating Russia hasn’t isolated it at all. It’s driven Russia together with China, in the first instance, and then China and Russia together have joined with India, Iran, Syria, they’re now joining with Brazil and Argentina all to create an alternative economic order and social order and political order.

And the political order is basically based on the main distinction between the non-neoliberals and the neoliberals, and that is: who will control the money supply. And China is the prime example. Instead of private banking creating the credit to create loans basically for financial reasons, China will create credit to spend into the economy the way that MMTers hope to see credit created.

Namely, spend to hire labor, to make new means of production, hopefully in an environmental way, as opposed to the commercial banks that look at “how do we make money in the short term?” Well, you make money in the short term by cutting down the forest of the Amazon. You don’t look at global warming.

And already you’ve had the heads of American oil companies and investment firms say “what do we care about global warming ten years in the future? We care about the next three months’ earning statement, and the next year. Ten years from now, the sea levels go up. We can deal with it then.” So you’re dealing with two different economic philosophies and as the world divides into these two different economies, this is an important element.

And as Steve just pointed out, neoliberal economics doesn’t take into account the environment because that’s long term. Economists call that exogenous, meaning it’s outside our tunnel vision. And the question is whether you’re going to look at the world economy as the overall system interconnected, which is what Steve and I do, or whether you’re going to say we’re going to just cut the financial sector apart and only look at the corporate and financial sector of how to make money quickly.

That’s really the difference. So obviously Russia was not really troubled very much by being cut off – or even by being isolated. What America is doing is driving Russia together with all of the countries that have refused to condemn it. And America basically is creating an iron curtain, locking these countries – isolating them from Europe and the United States – going their own way, which I don’t think Russia and China are unhappy to see occurring.

[00:29:54.480] – Grumbine

I completely agree with that. The idea that the US thinks they are going to knock these giants down and they’ve just said we’re going to invest in our own country. Instead of being a cooperative society, we see this as a combative society. We decided we have to fight them and create cold wars to isolate them so we can catch up.

But you nailed it with the concept of the private short-term thinking that private collateral, banking, loans, filling short-term needs because we can’t see out as far as those folks because they aren’t living and dying the same capitalist way that we do things here in the United States. They have invested in the public purpose.

China has got the ability to do just about everything. Do you think it’s going to take us getting our proverbial asses handed to us by the rest of the world to wake up? Do you think we’ll ever wake up? Or this is just the way it will always be, at least until tsunamis take us out?

[00:30:56.870] – Hudson

Who is the we? Who’s going to wake up? When you say we, it’s as if you mean American citizens in the population. But we are not the government who makes the policy. We are not the Davos Group and the campaign contributors. Their “we” are the oil industry, the big agricultural monopolies, the other monopolies, and Wall Street. That’s the finance, insurance and real estate sector [FIRE].

And they are going to just continue doing what they want. And you’ve seen from the recent Supreme Court rulings in the United States that the government is not permitted to enforce any climate preservation rules. That has been ruled unconstitutional unless Congress can pass environmental law. And in order for Congress to pass a law, as opposed to just an executive branch joining the environment, you have to have 60 out of 100 votes.

American dual politics doesn’t permit either party to get 60 votes unless there’s a landslide. And the only party that has a prospect of getting 60% would be the Republicans. So basically, even if the people wake up, the government people and their campaign contributors are just going to continue to make money to live in the short term. That’s what differentiates neoliberalism and socialism.

[00:32:17.630] – Grumbine

Very well stated. To me, I think of this as war. Murder. I don’t think of this as some polite gentleman’s disagreement. I see this as wanton death and destruction, all in the name of profit. How do we stop this? Can we stop this? Congress is bought and paid for. Our government, our Supreme Court doesn’t represent the people, and the President has proven to be a feckless neoliberal as well.

I see nothing to feel any sense of hope, and I’m not sure that hope is a requirement. It seems like the only alternative we have is in the street, is to become ungovernable, is to get rid of a government that is no longer representative of the people.

[00:33:04.010] – Hudson

[laughs]  Well, Steve’s gone to Thailand and I’m dealing mainly with China. That’s how we’ve coped. [laughter] Neither of us are going to be President of America.

[00:33:15.690] – Keen

No. The American political system is almost designed to stop anything being done. I was involved in the Australian election recently, as you probably remember. And though my party did extremely badly and money still was obviously vitally necessary to get a political profile, even in countries with good electoral systems, Australia does have a good electoral system, and America has got the best electoral system money can buy, and that’s a disaster.

It’s hard to get away from money enabling parties to have political position to be seen in the media. And that’s actually a great reason for MMT: create money for publicly financed election campaigns rather than having it out of private pockets. But given that, you have an electoral system where you don’t actually vote for anybody, the electoral college piece of nonsense, which itself is crazy.

Every state has got a different system, which is crazy. You don’t have the central bureaucracy handling the voting system, which is crazy. And you have gerrymandering because the boundaries are decided by local political groups, which is crazy. So the extent to which America needs to reform its political structure to approximate a democracy is ridiculous. And that’s partly why money interests can so easily dominate what happens in the American political sphere. And right-wing religious ideology as well.

[00:34:43.950] – Grumbine

Absolutely. The Calvinistic bullshit in this country is over the top. But there’s a tone policing aspect to this. I think there are people out there who don’t understand that this election system that we have in the United States isn’t getting us what we want or need. They think they just need to phone bank harder, vote harder.

Fact is, in my 53 years, I have not seen any meaningful legislation passed. I do not consider the ACA meaningful legislation. I’ve seen a lot of bad legislation pass that hurts us. And this is not really intended to be an America-centric show, except that America seems to be the big bully. It’s creating a lot of the problems. It’s got its own citizens in hell and it’s trying to create hell on earth for the rest of the world.

I spend a lot of time trying to get this information out the door. It’s very important information, but it’s only important in the sense that it’s good to know. I don’t see any of it amounting to a movement, a passing of legislation. We can tell people that if we don’t consider the economy in the world as a superorganism and degrowth, we don’t have anybody thinking this way.

[00:36:00.090] – Keen

There is actually – I don’t know the name of it, but I do know that there’s a political group in America which is campaigning to have Australia’s electoral system adopted by America. Have it include an electoral commission that determines borders between one electorate and another, a single centralized system that counts the votes rather than the crazy range of stuff you have at the state level.

And controls on the size of electorates so they can be no more than 20% larger or smaller than a target – and they should be 10%. And then preferential voting so you don’t just vote for one candidate, like if you vote for the Greens in America, you guarantee the Republicans win the election because the Green votes are taken away from the Democrat.

So have preferential voting, which means you can actually put the party you prefer first and know that the party that’s your fallback will actually get the vote if your first party doesn’t get up. So all these sorts of reforms. I know that there are people who are campaigning about it because the frustration that you’re expressing is very widely felt in America. But of course, try getting that through a Republican-dominated Congress. It ain’t going to be easy.

[00:37:01.170] – Grumbine

No. It does leave you wondering if this is not just political theater. I talked to Warren the other day and Warren asked the question to me. He said, “you ask, are they doing a good job? And I answer back, well, for whom?” Somebody’s doing okay right now. It just isn’t the regular people in society. Somebody’s doing great, though. And I don’t see a path. As much as I want to, I see no path forward.

I don’t want to feel this way, but I don’t see a path forward. Michael, with your international perspective, I guess my question to you, given the fact that you’re focusing on China and you see the US through the lens that we’ve just discussed, do you see an ending to this that is positive for the world, that gets us to a successful conclusion, meaning we survive? Do you see any hope whatsoever in changing that narrative? And if not, what’s next?

[00:38:01.530] – Hudson

There’s no path forward in the way that we’ve been talking about because the suggestions that Steve makes cannot be legislated by Congress. They are limited by the Constitution. And in order to do what Steve recommends – very good ideas – you would need a new Constitutional Convention. The right-wing, the polluters, the monopolists, the bankers, have been preparing for a Constitutional Convention for about 30 years, and it wouldn’t be very nice.

[00:38:32.370] – Grumbine


[00:38:32.370] – Hudson

Our Constitution in America was written for the slave owners to permit any states to block any federal power because they worried that the federal power might try to free the slaves. Well, now that element of the Constitution, of state’s rights, is enabling the oil industry, the polluting industry, the banks, the credit card companies to essentially prevent any solution along any lines except those of the ultra right-wing.

But the problem goes beyond America and beyond Europe. Western civilization took a wrong track about 3000 years ago. The Near East and almost all of Asia had a tradition of canceling the debts when they threatened the economy. In Japan, you had revolutions, you had the Near East rulers canceling the debts. That’s what my books are about.

And you had essentially the jubilee years throughout the Near East. And this promotion of economic growth and in effect, prosperity, was always run by a central ruler. There had to be a ruler, the job of divine kingship or undivine kingship, throughout the Near East, Asia, all the way to China. And India. All of these cultures sought to prevent a commercial class and a financial class from emerging and taking over.

And the merchant class was realized as playing an important role, but it was not allowed to dominate society. But around the 8th century BC, when Syrian traders began to move into the Aegean and Mediterranean to Greece and Italy. There weren’t any kings. The west didn’t have kings. They had local chieftains who were a Mafia-type society.

And the result is that ever since Greece and Rome, you had a completely different set of laws and legal philosophy than what you had in the Near East and Asia. You had pro-creditor laws making what is called the security of contracts and the irreversibility of land being forfeited to creditors. And the result is you had creditors oligarchy evolving.

So when President Biden said the current war of NATO against Russia and China is a war of democracy against autocracy, what it means by democracy are Western civilization’s oligarchies. There haven’t been any democracies, really – maybe very briefly in Athens – but the Western cultures are all oligarchies. What he calls an autocracy is a government strong enough to prevent a financial oligarchy from developing and taking over the land and taking over politics and making its own laws for itself.

And it’s a civilizational difference. And both Steve and I have spent a lot of our time talking about how the Western economies cannot evolve further without a debt write-down, without writing down the debts that are of the 99%, they’re owed to the 1%, the oligarchy that’s controlling all of Western politics. Asia has a way to go a different way.

China doesn’t have a financial oligarchy because it treats money and credit as a public utility through the Bank of China. And so the Bank of China, as we said, makes loans to actually develop the economy. And that’s what Russia says it’s going to begin doing, not to create a financial class to make money at the expense of the 99%. So we’re dealing with a civilizational problem.

And the question is, which form of civilization? Can you rescue Western civilization from the wrong track? Well, only by creating an alternative on the right track and leaving Western civilization and say, well, you’re missing out on the development. Do you want to continue in poverty or are you going to have a revolution?

[00:42:31.650] – Grumbine

You’ve seen yellow and blue profile pictures for everybody totally sympathetic to Ukraine. And our government saying “we are not going to abandon them no matter what.” Biden has signaled that we have unlimited money to give to Ukraine, and he can’t possibly write down $2 trillion in student debt. This weird split dichotomy of truth and lies passes right by the average person.

With what you just stated, which side is going to win? Sadly, the bad guys seem to always win. I rarely see the good guys win. Who is “the good guys”? In full disclosure, I’m a socialist. We don’t even have a left party in the United States. There’s no appetite for that kind of thing in the United States. And those of us that want it are the minority. How do you envision this playing out?

[00:43:26.670] – Hudson

I thought I just said it: a different civilization going its own way.

[00:43:31.740] – Grumbine

Well, what you said was the question of good and evil, basically, which one is going to win? I’m asking you, how do you see it playing out? Because the US can’t continue doing what it’s doing and grow. You need the debt jubilee. We’ve chosen not to. Asia has those systems built and they have choices. So the question I’m proposing, given that, do you see any chance of the US coming to grips with itself? Or do you see this being a one-way trip to destitution?

[00:44:03.570] – Hudson

The latter.

[00:44:05.010] – Grumbine

Fair enough.

[00:44:05.830] – Hudson

That’s all I can say. There is no sign at all of a change. The fact that Steve and I can be on your show – we are not published in the major magazines anymore. We’re not on the major network shows. What you call the bad guys always call themselves the good guys. What you call evil calls itself good. So the question is, what kind of good guys you’re going to have?

The good guys that want to blow up the world and impoverish society, which is what neoliberalism says are the good guys or the good guys for the 99%, which America says are autocracies that we have to fight?

[00:44:41.830] – Grumbine


[00:44:42.670] – Keen

I think I might put a bit of a perspective. People often say, “what’s your alternative?” And what they really mean is “what’s your alternative that I’m going to like?” And I think there is an alternative, but as people feel, “I don’t like it” then other people won’t like it as well. And that is that given the scale of the environmental crisis we’re facing and the fact that it’s coming far sooner than we’re being led to believe, because courtesy of believing their classical economists on it.

When it hits, the countries that are most likely to survive will hold together are those that the West calls authoritarian. And the defining feature of those cultures when you’ve actually been inside them, is that, yes, there is a very strong state and yes, it tends to get its own way and people do what they’re told to some extent, but it’s because at the same time they know they’ve benefited from that state.

So back in China, when you talk to people in China, they will be critical of the Communist Party and say at the same time, the industrialization since then has been incredible and their lives have improved radically over that period of time. I know people who were literally in Mao suits in 1969 who are having a very comfortable retirement when they faced far worst terms back under the old strictly communist regime.

But what you have with a country like that is if China decides it has to radically ramp up renewable energy resources, also install nuclear if necessary, it’s going to do it and not face the opposition the German Greens give to new nuclear power stations, for example. So the capacity to have a top down society is more likely to be then you’re going to survive the crisis that comes forward from climate change.

I can’t see countries that call themselves democracies succeeding in that situation because they will not be able to agree on the level of cutback that’s necessary and who it gets imposed upon. We’re a more centralized society. We’re more successful at doing that and more likely to hold together during the downturn the climate will cause.

[00:46:40.110] – Hudson

You need a strong enough government to check the power of an oligarchy and to prevent a creditor landowner oligarchy from developing. And libertarians, while pretending to be for liberty, they’re for a centrally planned economy, but a centrally planned economy by the oligarchy, by the financial sector, and by the real estate owners. So every economy is planned. And the question is, who’s going to do the planning?

[00:47:05.190] – Grumbine

Yes. And with that in mind, I want to read to you some stuff that came out of this NATO 2022 Strategic Concept – just so that people understand exactly how bad it is. Document defines Russia as the most significant and direct threat to the allies’ security while addressing China for the first time and the challenges that Beijing poses towards allies’ security interests and values.

Documents also state that climate change is a defining challenge of our time. Strategic Concept is updated roughly every decade as NATO’s second most important document. It reaffirms the values of the alliance, provides a collective assessment of security challenges, and guides the alliance’s political and military activities. Previous version was adopted at the NATO Lisbon Summit in 2010.

Point I’m making is they’re bringing more countries in and now setting up China and Russia as the bad guys. This has been going on for a long time, I guess Reaganism with the Cold War. And you brought it up, I think it’s worth mentioning, towards the end of the Chinese Revolution and the US efforts back then to do these same things to China then.

All these institutions, World Bank, IMF, the Peace Corps, all these different NGOs, these were brought out as a direct counter to Russia’s communism and a fear that communism would spread to the global South to prevent them from getting in bed with the Russians. But our country, the United States in this case, has been instrumental in setting up these shadow organizations to prevent any kind of socialism or people-led initiatives around the world.

And it seems like this is going to become the next war. If it’s not going to be just another Cold War, it’s definitely going to be some war because they are lining up the Axis and allies already. I guess. Take us out on this note.

[00:49:13.290] – Keen

I think I take it over a different angle and say that the global politics we’ve had over the last 80-100 years, actually, since the dominance of America, which we pretty much say from the end of the Second World War, has been completely oblivious to the impact we’re having on the planet. The biosphere itself. And the biggest political player on the planet is the biosphere.

And that’s going to start determining what the wars are in future. And I don’t think any country in the world is prepared for that battle. China has maybe probably the most effective capacity to respond to the challenges that are coming this way, but there’s no way America or Russia or anywhere in Europe are aware of the threats they face.

This is a warfare against an implacable foe which we’ve created by destroying the sustainability of the biosphere, by expanding human industry to three to four times the scale that the planet could actually support. That’s the real war that is coming our way.

[00:50:08.600] – Hudson

And Steve, you mentioned how global shipping and trade adds to the global warming. Obviously, the military spending is a huge, huge factor. So the Americans and the Green Parties of Europe are on the wrong side of history. They are doing just the opposite of preserving de-development. They are the advocates of more and more global warming. So literally, you have a group, a bloc, wanting to destroy the environment and a bloc trying to protect itself from the Western destruction.

[00:50:40.830] – Grumbine

Yeah, very scary. And then we’ve got a lot of folks that think that they’re going to appeal to their greater sense of reason to get them to suddenly stop all this, vote their way to a Green New Deal, and it’s all just going to go away. Gentlemen, thank you so much for this time. I really appreciate it. It’s rare to have two such phenomenal guests at once, so I really do appreciate this immensely. Michael, tell us where we can find more about your work.

[00:51:07.230] – Hudson

Well, on my website,, and on my Patreon account. Steve also has a Patreon account. He got me onto Patreon. And the books that I describe what we’re talking about are available on Amazon. The Destiny of Civilization and Super Imperialism.

[00:51:27.450] – Grumbine

Very good. Steve, I know we got you on Patreon, but tell us a little bit about your books and where we can find more of your work.

[00:51:33.710] – Keen

Okay, well, again, my main recent book is The New Economics: A Manifesto, and that’s published by Polity press. So you can get it through Polity or you can get it through Amazon. There’s more than one way to get a hold of it. And the main thing I’m doing is developing the software package to enable us to think about the economy the way we should think about it, which is dynamically, non equilibrium, monetary and so on.

And that’s Minsky, which people can find at SourceForge, the open source software package site, SourceForge. Search for SourceForge and Minsky together and you’ll find it. But those are my main two things. I’ve also opened up a substack account recently – – mainly because Patreon loses a lot of customers by stuffing up their credit cards. So Patreon, Substack and Minsky.

[00:52:18.030] – Grumbine

Very good. All right. And with that, my name is Steve Grumbine. My special guests, Steve Keen and Michael Hudson. This is the podcast Macro N Cheese. We’re out of here.

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  1. Regular Prole

    What’s missing in this analysis is of course the class struggle. Both the host and the guests go in circles around the question of what to do (or as one might say, What Is To Be Done?), while avoiding the obvious: the same China that they all rightfully admire so much is a People’s Republic governed by a Communist party. They are a dictatorship of the proletariat and peasantry and are thus able jointly to exercise political control over the capitalist class. In historical terms, the thing that enabled them to be a dictatorship of the proletariat and to have this control is a revolution led by the very same Communist party.

    So if the host and guests (and maybe curious NC visitors) want to know what to do, what can be done: read Marx, Lenin, and Mao. Join a worker’s organization, preferably the communist party of your country. Prepare for revolution because the choice we have to make is – socialism or extinction.

    1. Susan the other

      I disagree, mostly because times have changed. In the 50s we (USA) set out to prove that we could mass produce and compete with the world to create a material prosperity for everyone. And we did. At the expense of the planet. But both socialism and capitalism have relied on providing material prosperity – the problem now is how debt exponentiates and production must keep up with it to service both debt and prosperity and we have finally spun totally out of our orbit. So separating the blocs into the old neoliberal-imperialist traders and the new BRICS multi-laterals will be interesting. It could prevent war because war is so very expensive – if the neoliberal warmongers can’t create a profitable war by churning trade to their advantage then the war effort will fizzle. There will be no point in any of it. They, unfortunately, cannot simply demand demand. And demand will not be there if it is satisfied by a better system. So things might turn out OK.

    2. norm de plume

      ‘So if the host and guests (and maybe curious NC visitors) want to know what to do, what can be done: read Marx, Lenin, and Mao’

      Perhaps it’s you who needs to do some more reading. This is from an autobiographical post on Michael Hudson’s website:

      I was born in Minneapolis, which is the only city in the world that was a Trotskyist city. During the 1930s it was a center of Trotskyism and my parents worked with Leon Trotsky in Mexico. When I was 3 years old my father was put in jail under the Smith Act as a political prisoner for having the works of Lenin and Marx on his shelves and for being one of the leaders of the Minneapolis general strikes from 1934 to 1936. So I grew up knowing many members of the Russian Revolution, members of the Central Committee when Lenin was in power.

      When my father got out of jail we moved to Chicago and where he got a job editing Traffic World and Traffic Supply News. He had graduated from the University of Minnesota with a Master of Business in 1929 and the depression came. He had wanted to go to Latin America to become a millionaire and when the Depression came he thought that capitalism wasn’t fair and that’s what made him a Trotskyist and he became editor of the Northwest Organizer which was the labor newspaper. So when I grew up I had the old German Communist Party members, Americans, they would all come to the house and tell me the stories of the revolution so that when I grew up I was supposed, expected to lead a revolution if conditions were right. So down through my teens we discussed what are the right revolutionary conditions…

      When my father was in jail, one of the things he did was to compile a dictionary of all the things Lenin and Trotsky had said about various subjects. I would raise my hand and the other professor would say where did Lenin say that and I’d say in volume 6 page 322 and my student yes yes here it is. I like being hated by the right wing because it made me a lot of friends and so while the Stalinist called me a fascist and the fascists called me a communist I recruited many members into the socialist youth groups in Chicago…

      In 1960 when Leon Trotsky’s widow Natalia died, the executor of his estate Max Schachtman assigned me the copyrights, saying that since I was Trotsky’s godson, I should do a publishing company. So I wrote. I’d had a correspondence with György Lukács, the Hungarian literary critic and he gave me his copyrights and I came to New York, thinking that I would start a publishing company while I studied conducting with Dimitri Mitropoulos, who was the conductor of the New York Philharmonic.

      Well I couldn’t get anybody to publish these or other works. Lukács insisted that I have a student of his, Arthur Kahn, do the translation of his work. It was an awful translation. I wanted to edit it and he wouldn’t let any editing be done, so I sort of gave up doing that.

      Then, an event happened that changed my life. My best friend growing up was Gavin MacFadyen. You may know him as a famous documentary film maker and founder in London of the Centre for Investigative Journalism. He had introduced me to Terence McCarthy who was an Irish communist and was the translator of Marx’s Theories of Surplus Value…

      I don’t think Prof Hudson needs to bone up on communism. It is hard to think of any other living person having such an intimate familiarity with the history of socialism and the class struggle. Nor indeed of finance capitalism as, presumably because he believes you should know your enemy, he has spent his working life studying capital both from inside the belly of the beast on Wall St and from the vantage point of senior posts in academe.

      Indeed the autobiographical piece above was based on an interview ‘conducted at Peking University for the Second World Conference, May 7, 2018’, where Hudson holds a visiting professorship in the School of Marxist Studies. He has been a consultant to the Chinese government, among many others. As he says:

      ‘The one country that is independent and not taking the advice of the World Bank and the International Monetary Fund is China. So we’re hoping to do what we can to make the Chinese economy successfully resistant. What that means is how is China going to handle its real estate, how is it going to handle its debt, how is it going to handle its tax system. What I’m trying to do is what David Harvey was trying to do in the speech he gave yesterday: getting Chinese Marxists to read volume 2 and especially volume 3 of Capital, where Marx discusses the dynamics of finance. Marxism is much more than volume 1 of Capital. You have to read volumes 2 and 3, and especially the elaboration that Marx wrote in the drafts that he left for volumes 2 and 3, his Theories of Surplus Value where he discusses the history of economic thought leading up to him’

      Prof Hudson groks the idea that the Communist Chinese leadership ‘exercises political control over the capitalist class’ and that our civilisation’s reversal of that power dynamic sentences us to eventual decline. In fact that is the subject of his latest book ‘The Destiny of Civilization – Finance Capitalism, Industrial Capitalism or Socialism’. Perhaps you could read it.

      1. Regular Prole

        I’m familiar with Hudson’s biography and I do not intend to denigrate his work and success. But maybe you could then explain, with this illustrious career, why has he failed to mention these things in the interview, when in fact the question was posed very clearly: what can we do about all these interlocked crises? Why did he not at any point mention the necessity of class struggle in the fight against capital? The need for a vanguard party and mass organizations? The need to develop a mass line? Why is the focus on electoral and legislative strategies?

        The reason is obviously that Hudson, despite being influenced by Marx etc., has definitely removed the revolutionary content from his analysis and maintains only the superficial, the economistic. Typical of all stripes of revisionists and opportunists. Lenin knew them well:

        “What is now happening to Marx’s theory has, in the course of history, happened repeatedly to the theories of revolutionary thinkers and leaders of oppressed classes fighting for emancipation. During the lifetime of great revolutionaries, the oppressing classes constantly hounded them, received their theories with the most savage malice, the most furious hatred and the most unscrupulous campaigns of lies and slander. After their death, attempts are made to convert them into harmless icons, to canonize them, so to say, and to hallow their names to a certain extent for the “consolation” of the oppressed classes and with the object of duping the latter, while at the same time robbing the revolutionary theory of its substance, blunting its revolutionary edge and vulgarizing it. Today, the bourgeoisie and the opportunists within the labor movement concur in this doctoring of Marxism. They omit, obscure, or distort the revolutionary side of this theory, its revolutionary soul. They push to the foreground and extol what is or seems acceptable to the bourgeoisie.”

        Of course I would not dare to argue the finer points of finance with the prof., but anyone reading can clearly see the practical paralysis of these esteemed guests when confronted with the question of strategy. I would be extremely happy to be proven wrong by Hudson saying clearly he thinks the correct solution is the forcible seizure of the state apparatus, it’s dismantling, and the establishment of the dictatorship of the proletariat – and along with this support in words, also support in deeds. I will retract any criticism I’ve made if I’m shown it is wrong in his actual, concrete practice. Otherwise he is, by simple observation, not a revolutionary, maybe at most an anti-imperialist economist (better then neoclassical baloney of today, but without the revolutionary content, about as advanced as Ricardo).

        None of this is to say that Hudson (or the others) are not allies of the working class, or at least potential allies. But they are no revolutionaries and unfortunately a revolution is what’s needed to supercede capitalism at it’s current, imperialist stage. In fact revolution is not merely needed, but, if we have Lukács in mind, a real actuality.

        More specific points can be made:
        1. “…which is the only city in the world that was a Trotskyist city. During the 1930s it was a center of Trotskyism and my parents worked with Leon Trotsky…” – I don’t think it’s necessary to examine the general opinion of the communist movement on Trotsky and Trotskyism in depth here to note that this is an obvious source of the opportunism in Hudson’s analysis.
        2. “It is hard to think of any other living person having such an intimate familiarity with the history of socialism and the class struggle.” – if this is the case, then you would expect a different focus in his theory, a focus on practice and on the organization of the working class into a class-for-itself. It is of course not the case, since other living marxists include the body of the CPC, communists which achieve in practice what Marx, Lenin and co. have actually proposed, and based on their success have proved they are masters of class struggle greater then Hudson.
        3. “Nor indeed of finance capitalism as, presumably because he believes you should know your enemy…” – this very focus on finance capital as in opposition to industrial capital, when severed from concrete analysis (and in Hudson’s work this opposition attains trans-historical dimensions) is merely Kautskyism disguised in modern language.
        4. “…groks the idea that the Communist Chinese leadership ‘exercises political control over the capitalist class’ and that our civilisation’s reversal of that power dynamic sentences us to eventual decline…” – this is a concentration of the problems mentioned above. If he “groks” it, why isn’t this his immediate prescription for the west? Is it “our civilization” that determines what happens, or the struggle between classes? Is it “us” who are sentenced to eventual decline, or a specific class?

        1. Skippy

          The revolutionary bit about Marx is problematic because it starts off from a future removed*, and secondly some made him a bit of a post turtle and went off into the weeds post morte.

          * Marx like Keynes if exhumed would not have any clue to this timeline because geopolitics and other machinations are completely different to what they not only studied but lived. Hence its a bit of a stretch to comport those views off into eternity.

          FYI not a big fan or advocate of the classical notion of capital vs labor in this day in age because so much has changed and its a wee bit more dynamic e.g. in a restaurant setting is the dynamic only about the owner and the staff … what about the customer – ????

    1. aj

      Thank you, expat. Just came down to the comments to ask that question. This is a perfect thing to listen to on my commute.

    2. HotFlash

      Thanks for this. Hearing it with my own ears cleared up a lot of the, um, transcription problems.

  2. Skippy

    So at the end of the day were right back to contracts quality, enforcement, and more importantly whom they serve and why … cough … the global rules[tm] order and everything done for decades to advance that agenda regardless of the endless body count in War Inc or say Covid response …

    Makes the event of Hudson running down in Mexico back in the day for questioning the debt owned[tm] a thing to ponder …

      1. Skippy

        All Human relationships are a factor of formal and informal contracts, as such, the letter and spirit of the laws that shape human relationships shapes all other outcomes.

        This can be viewed from many different perspectives like regional cultural, historical time line, ideological agendas by those with the wealth and power to achieve set goals et al e.g. the roll back of the FDR agenda.

        For a basic example I would note the effect of the mindset “Caveat emptor” in how it allowed certain anti social behavior, more so, it structured enough of society in accepting it as fait accompli and many that may have not ascribed to such a perspective did so anyway just to get ahead or miss the boat.

        This then leads us back to currency theories and how they relate to various schools of thought about it. Hard/Sound theories are grounded in moralizing an inanimate object so the human user is compelled to act in response to a deductive rationalized moral code in bringing a virtuous society which needs little state involvement e.g. EMH, freedoms and liberties, unfettered individual potential, et al …

        Where Functional theories are grounded in how government leads all outcomes depending on the social imperative it administrates.

  3. digi_owl

    Read the transcript back when it showed up in a Links article a few days back, and i really love Keen’s take on international trade.

    It really nails down how you can end up in a situation like Venezuela, perhaps even Sri Lanka.

    Sadly he and Hudson will never get mainstream coverage, outside of highlighting when they are wrong, because their observations and suggestions are hostile to the monied elite.

    Keen’s work on a dynamic modeling tool should have gotten massive interest, but instead it seems to get scorn. That is if fellow economists even understand what it is.

  4. rob

    It seems that they both have little belief that MMT will ever be “made real” in the west.
    The MMT they describe is aspirational. China is doing what MMT’ers want the US/west to do..russia is thinking along these terms to “implement” this tool.. but we(the US/west) can’t; because we don’t actually have a system where that is the law.
    The federal reserve is those “commercial” banks that suffer from short-termism. And all the local creditors/banks.. making loans for real estate and the rest.. aren’t doing it for any “greater good” either.

    How is it not clear to people who WISH for a better situation that if they ever want monetary sovereignty, we need to change the law. Monetary Reform. is what is required.

    right now, banks and other creditors…”make money” when they create loans. this mean for a profit only. Not “for the good” of anything but their bottom line.
    Why do people believe people/bankers/hedge fund guys like warren mosler who don’t really seem to have the inclination to tell the truth about his “gimmicky” explanations that don’t jibe with reality?

    If we want to take on the system, the first thing we ought to do is change how our money is made. then we would be in the realm where we might even begin to get someone to “create dollars”, FOR a good purpose.

    the NEED act 112th congress, 2011/2012… this bill already has be proposed in the house. It has already been through the legal scrutiny of “what is legal” and possible… under the constitution.

    There is a big thing to do… and if anyone wants MMT to be true someday in the US.. what to get done is clear.
    The American Monetary institute and the green party plank of “greening the dollar”…. is there for everyone to inform themselves of what is actually plausible.

    1. Yves Smith Post author

      Huh? MMT is how fiat currency issuers work. The government spends by having the Treasury debit its account at the Fed. We never worry about where the money for the next bombing run in the Middle East is coming from. The issuance of bonds comes after the fact as a required legal formality.

      1. digi_owl

        My impression is that MMTs see them bonds as pointless. An appendix from when currency meant metal coins, not paper notes or numbers on a ledger.

        Their basic premise being that the government can spend money into existence at will, and then remove it again via taxation in order to hit whatever target amount is desired in the economy.

        But that requires a nation completely self-sufficient. As Keen so nicely points out, once balance of trade enters into the equation things go awry pretty quickly.

        And i am becoming more and more convinced that the elefant in the room is the currency exchange market. As in what kept the world somewhat sane after WW2 was not the gold standard, but the fixed exchange rates.

        This again so nicely illustrated by Keen with how nations give up sovereignty by developing a trade deficit, as over time their economy becomes beholden to their major trade “partner”. And in turn said “partner” can make their economy scream (as Nixon so nicely put it) by screwing with the exchange rate.

          1. jsn

            Because, as Keen explains, MMT doesn’t concern itself with the reality of carbon emissions from transport resulting from imports.

            MMT is a description of how fiat monetary systems work. That is a reality independent of the physical realities of various activities money incentivizes and otherwise affects.

            It’s the combined reality of these activities, the monetary system and the overarching propertarian value structure in the post Roman West that has structured Finance Capitalism as a suicide pact to convert all living realities into a dead, monetary representation. Until a value system that prioritizes life over money forces itself, profit will continue to burn the world. Maybe the CCP will offer such values to the world, but so far it appears to be providing a nationalist form of managed Capitalism.

      2. rob

        I could agree with a statement saying mmt reflects the federal gov’t s ability to run up a debt from their use of us dollars, also eminating from the federal reserves account. I would agree that there is a description of many of the mechanics of the transactions. I suppose the original sin, is “whose country” is sovereign. NOT MINE… or any other american, not in the masters class.
        MMT may be the way business is done today. I agree with that. But isn’t that the problem here?
        dr hudson’s description of the finance capitalism model the west is so ingloriously clinging to in the neoliberal world order they have worked out , IS the problem.
        So many problems come from money. lack of it, for the good fight. endless streams, for what ails this planet and all it’s inhabitants. That IS MMT.
        So, my disconnect is when people imagine there is good to be had, by supporting THIS system. now.
        I understand, MMT, could be described of as a tool, like fire. But now, the fire is going to burn down our house. and the neighbors too. The fire has intrinsic uses, but also dangers.
        and for us to leave the FIRE sector, with the tool of fire… is our doom. This is what we are living. now. whereas,
        if there was monetary reform, and we changed the rules , of who was allowed to create money, that fire would be contained into safe and useful purpose. that is a goal. that is a progressive goal. I always get stuck when people conflate mmt with anything, progressive, or good… mmt may be the bankers monetary system, that was codified with the federal reserve act. but the goodness of that, seems only to be understood by bankers. The rest of us see it as the money, the corporations use to rob us of political choice. real people see it as what pays to abuse the planet. it is used to pollute the water. it is used to support the merchants of death and the war machine. So, yeah… it IS how it is. and that is the problem, that needs to be fixed.
        After all, most of the money made now, is for profit. be it war, loans,central planning expenditures… all to our own MMT, isn’t good.

        and in this talk, and dr hudsons recent take of the current situation he has often stressed out how china is keeping their monetary creation powers as a public good. contrasting that to ours, which is determined by private activity. either exactly at the point of creation, or at the behest of lobbies, for industries monopolies… for our oligarchs.and their minions.
        His pessimism is what I meant in that they don’t seem like big fans of “mmt”… because that is what we have…. and it will be the death of us if we let it.

        1. Yves Smith Post author

          No, you do not understand MMT. The Federal government does not need to issue debt. It can always create more dollars. It cannot go bankrupt. It can create too much inflation by generating too much demand in the economy.

          1. rob

            I agree with everything you said. I bang on rocks for a living. I am more a student of history than economics, but you can only look at history so long before you see, one effects the other.
            So, the federal gov’t may not NEED to issue debt, but it does. And in so doing it has created a whole class unto themselves. These are our central planners. and no one elected them. no one likes them…. except themselves.
            this is neoliberalism. gov’t creates the marketplace. for what otherwise does not need to exist.
            the difference here seems to be a value choice. You seem to value the current system of money creation, more than I do. I see it as “the problem”. I don’t know how you see it. I’m 100% sure you have a better picture of the daily workings of the system as it stands, than I do. I know plenty of people will not agree with me, but what about the ones that do? I am only trying to engage in discussion.
            Like how does MMT have any prescriptive value if almost all of our money is made when commercial entities create it for profit seeking loans ?How can there be central direction if at the ground level it is bankers, deciding what they want to have happen, and fund ?
            and the gov’t hasn’t seemed to “pay” for it’s debt yet. It is allowing a 23+trillion to go on growing, while still needing debt servicing from the budget. When will MMT, type thinking “balance the books”… and how many tens of trillions of dollars will it take before other factors run amok in the system? After all , the 15 to 20 trillion that was just added in the past couple of decades… seems like a big deal. Something that ought to be addressed before it does have consequences.

            1. Basil Pesto

              You don’t really seem to have an altogether coherent grasp of MMT, just snatches of it. I’m not sure where you got your information from. Bill Mitchell’s blog as well as Kelton’s book are good places to get started (Mitchell’s blog is not really organised as an ‘Intro to MMT’ so it can be a bit of a rabbit hole for beginners and consequently hard to orient yourself, though there are some perennial posts on certain topics that he will constantly link to)

              to return to your post:

              and the gov’t hasn’t seemed to “pay” for it’s debt yet. It is allowing a 23+trillion to go on growing, while still needing debt servicing from the budget. When will MMT, type thinking “balance the books”… and how many tens of trillions of dollars will it take before other factors run amok in the system? After all , the 15 to 20 trillion that was just added in the past couple of decades… seems like a big deal. Something that ought to be addressed before it does have consequences.

              Huh? The whole point of disseminating MMT to a layperson audience, the whole crux of it really, is so that people understand that the “debt” such as you describe, that you hear about on Fox News and CNN, is a chimera. There is no $23T debt that the United States owes to anyone. There are treasury bonds, but as Yves alludes to these are vestigial formalism, they are not intrinsically necessary to a functional modern monetary system. It explains that the “balance the books” canard is a completely erroneous: the concept simply does not obtain in the United States’ monetary system. That you have made a mistake like this suggests you need to read more closely what MMT is and what it means from primary sources (sorry to be condescending, I hope I’ve given you some good starting points)

              Earlier you wrote:

              and in this talk, and dr hudsons recent take of the current situation he has often stressed out how china is keeping their monetary creation powers as a public good. contrasting that to ours, which is determined by private activity. either exactly at the point of creation, or at the behest of lobbies, for industries monopolies… for our oligarchs.and their minions.
              His pessimism is what I meant in that they don’t seem like big fans of “mmt”… because that is what we have…. and it will be the death of us if we let it.

              When you ask rhetorically what the true prescriptive value of MMT is, you miss the point. Its value is not prescriptive. It is a description of money creation that allows us – that is, westerners – to better understand that instead of the duplicitous rhetoric and practice surrounding money creation in the west today, our monetary policy can actually more closely resemble China’s, ie money as a public utility. It merely helps us understand how and why things don’t have to be the way they are (which is why there is such a strong status quo backlash against it)

              * Though it’s not strictly true to say that it has no prescriptive component as many MMTers like Mitchell, Tcherneva support a job guarantee as part of MMT, to maximise the flexibility and readiness of potential money creation, as I understand it.

  5. Dave in Austin

    The article says: “A central element of the World Bank from the beginning is to convince countries not to grow their own food, but to create plantation agriculture, to prevent family-owned farming of food, to grow plantation export crops, and to become dependent on the United States for their grain.”

    I agree with the first part (don’t grow food, grow export crops) but, based on my Washington years and knowing World Bank people from that era, the aim was not as stated.

    I was personally connected to the World Bank people dealing with South Asia and Mexico. The Mexican problem was that with a predictably rapid adult population growth (birthrate plus 18 years) it was obvious that the Mexican tradition of “Many children and split up the farm” had reached the end.

    Ten acres of corn on a hillside in Michoacan would support a family of six children but when they grew-up and split the farm between the three boys, 3.3 acres would not work. The choice was “move to the big city”, immigrate, or import low-cost grain and use the land for intensively farmed, high value crops like avocados and marijuana. Most of Central America faced the same problem with coffee.

    And both the Mexican and American governments knew this. Now that the Mexican birth rate has come down the problem (for Mexico) has vanished. I’m not sure what other policy choices were open to the decision-makers.

  6. orlbucfan

    Every time I hear/read the words “America,” “Empire,” and “Corporate,” the first accurate word that flashes in my head is “Stupid.” Back to reading something positive: the James Webb Space Telescope.

  7. HotFlash

    I am astonished that there are so few comments on this article. I read the thing through, then went to the podcast (thanks so much, Expat2uruguay!) and then listened to it, which cleared up some problems with the transcript. This dialogue betw Prof Steve and Prof Michael and the MC Gambine guy has explained a lot about MMT which had previously eluded/confused me: the foreign trade side. Domestic is easy, but getting into foreign trade had always baffled me.

    As a Cdn, my country is both a raw resource exporter (colonial mode, ie., without ‘value added’, eg, our oil), and a colonist*-style exploiter of resources in other countries. Oh wait, here too. The list is so long, I only linked to a Swiss Cows search; do your own.

    So, looking at the drift, with which I do agree and have longly done, I conclude the best chance of personal survival is emigration. Ya gotta pick a place with a proven record of acting for (their) society, or, as we used to say, “the people”.

    Me, I pick Cuba, it is not so far away and I think I could (and am) learning Spanish. HUGE bonus, the climate is great. At least, in my projected lifespan, which is 20 yrs tops. Other candidates incl Russia and China. Yes, yes, drawbacks to either, but do you want you and your family to live, or be ‘free’ to not wear masks and own coal-rollers??

    * as we are beginning to find out, “white man) style.

  8. Mark A Oglesby

    This article literally took my breath away: Excellent piece which needs to be read over and over again.

  9. Dick Swenson

    I never cease being amazed at how the explanation of MMT (Yves’s comments should be read carefully as they explain what I describe here) is simply a reality of the power of a sovereign nation to issue and remove currency. Policy is a description of when and how this might be done to accomplish some purpose.

    The idea that this is a “theory” unnecesarilly confuses the situation. Why is this so difficult to understand?

    Long ago there was a series of cartoon graphics showing the MMT process. I wish that I could find it. I think that it was produced by D W Alt who was not an economist. They were clear explanations in pictorial terms of MMT.

  10. Ben Page

    I find economists like Hudson and Keens analysis invaluable as it informs and inspires my actions as a workplace union rep in a respite unit for learning disabilities. But I find their blank and defeatist opinion about any hope of the people of western nations (the UK in my case) being able to push back against oligarch oppression disappointing and actually a bit insulting.
    We need thinkers like this to be actively finding ways to connect with people like me so their analysis can be spread and translated into workplace strategies of resistance. They devalue and dismiss the vast majority off people struggling through ordinary jobs and their potential to do something.
    I think the problem is despite their obvious intelligence and insight they lack experience of the tyranny of the average workplace, of the suffocating psychological affect it has on those under it. The rule it teaches is you have no choice, no alternative, no escape. I believe it’s the primary psychological weapon the oligarchy uses to stop the development of resistance to their rule. I also think school as a watered down version of the “workplace” and is the beginning of the crushing of choice and opportunity.
    We need these thinkers to realise the huge potential and need that exists to escape this tyranny. It just needs to be unlocked.
    We don’t need to be told we’re all fucked, there’s no hope. We need to believe we can learn to build genuinely democratic communities that decide what purpose work and education serve.

    But I don’t actually agree China or Russia will tackle climate change, at least not effectively. They might do more than our oligarch run government’s but this problem isn’t new what have they actually done so far?
    I also suspect once the U.S. begins to fade as a power the lessons Russia and China learned to counter it will slowly be forgotten (unless the U.S. wipes us all out with a nuclear tantrum) and the influence of money will also turn them into oligarchies committing the same crimes on what’s left of humanity.

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