Ep 308 - Working Class MMT with Bill Mitchell

What’s the point of understanding money if we don’t look at the power relations controlling its distribution? 

Bill Mitchell, a key figure in the development of modern monetary theory, is back for his twelfth appearance on the podcast, beginning with Episode One, Putting the T in MMT.  

As a key figure in the development of MMT, Bill articulates how this theory fundamentally challenges conventional economic wisdom by asserting that governments, as currency issuers, are not financially constrained in the same manner as households or businesses.  

This critical insight dispels the prevailing narrative that insists the government cannot afford to invest in social programs. This forces us to look not only at political choices, but the class power behind those choices. 

The conversation delves into the dynamics of class conflict, inflation, and the role of private banks in shaping the financial landscape. Economic austerity, rising costs, and stagnant wages force the working class to take on more and more private debt.  

Bill Mitchell is Professor of Economics and Director of the Centre of Full Employment and Equity (CofFEE) at the University of Newcastle, NSW Australia. He is also the Docent Professor of Global Political Economy at the University of Helsinki, Finland, and Guest International Professor at Kyoto University, Japan.  

Bill is a professional musician and plays guitar with the Melbourne Reggae-Dub band – Pressure Drop.    

Follow his work on https://billmitchell.org/blog/   

Episode Transcript

(00:42):
All right, folks, this isSteve with Macro N Cheese. I have
been definitely hitting themout of the park the last couple weeks.
I've been really, reallythrilled with some of the guests
that we've had on. The topicswe've had on have been timely. This
is no different. I am superexcited to have my friend, genius,

(01:03):
one of the best economistsI've ever spoken to in my life, Professor
Bill Mitchell joining me againtoday. For those of you who do not
know, Professor WilliamMitchell holds the Chair in Economics
and is the Director of thecenter of Full Employment and Equity
CofFEE and official Researchcenter at the University of Newcastle,

(01:24):
Australia. He also is theDocent professor in Global Political
Economy at the University ofHelsinki. He is also a JSPS International
Fellow at Kyoto University inJapan. He is one of the founders
of modern monetary theory, andhis blog is one of the leading economics

(01:45):
blogs in the world. With that,my guest, Bill Mitchell. Welcome
to the show, sir.
Yeah, thanks, Steve. I'm gladto be here, and thanks for the invitation.
You better believe it. I mean,our last episode was really fantastic.
It got a lot of listens, and Ithink people genuinely enjoy hearing
from you. Today is going to beno different, because I think that

(02:07):
after 300, I don't know whatit'll be by the time this is released,
but as of this recording,we've got 304 podcasts of Macro N
Cheese out the door. And you,sir, have done it multiple times,
but you have the distinctionof being podcast number one, and
that is Putting the T in MMT.And we talked about theory, we talked

(02:31):
about understanding what atheory was, and it was one of our
best episodes ever, folks.Most every one of our episodes, we
try very hard to make themevergreen. And that one, go back,
listen to episode number oneof Macro N Cheese, and you will learn
so much. But today, what we'rehopefully going to be talking about

(02:51):
in some detail is, you know,we've grown here at Macro N Cheese.
We've grown quite a bit,actually. And it's been nice as we've
tried desperately toincorporate a class awareness, class
consciousness into ourdiscussion points. And so as a result
of that, what we have done iswe have approached each and every

(03:11):
one of these episodes with theintention of changing the focus,
changing the lens so that thefocus is no longer on the investor
grade people, the investors,the PMCs. We're looking at the working
class. And the majority of thepeople around the world make up the
working class. It's a very,very small group of people that don't

(03:33):
make up the working class. Andthey're often the least talked about
and talked to. And they havevery few people that speak for them
or even try to translate theinformation we hear so that it's
meant for them. So what I'veasked Bill to do today is to kind
of take us through a trip onmodern monetary theory with a focus

(03:54):
on the working class andreally get a feel for some of the
things that, you know, I knowa lot of socialists have come to
Bill and said, hey, that'snot, you know, that's not right,
or hey, you know. And Bill isone of the guys that really does
get class. Last time wetalked, he talked about straight
up that his background camefrom Marx and Michał Kalecki and

(04:15):
so many other voices from theleft. And Bill wrote many great books.
One of them in particular iscalled Reclaiming the State, a very
important book. If you haven'tread it recently, he co-wrote it
with Thomas Fazi as well,please go out and get that book.
But for this conversation,it's going to be bringing it back
to basics. So, Bill, you know,I've been trying my best to come

(04:38):
up with a different way ofsaying this stuff over and over and
over the last decade.Sometimes I get it right, sometimes
I get it wrong. How would youdescribe modern monetary theory to
someone from the workingclass? In this era of Trump, in this
era where the working class isrepeatedly ignored, how would you
define and describe modernmonetary theory?

(05:00):
You know, the way I see theworld is that there's these complex
layers of power relations, andthese are sort of political lobbying.
They're essentially classlayers. And what I mean by class,
of course, and I'm not talkinghere about middle class or upper
class or lower class, I'mtalking about economic class in the

(05:21):
way in which Karl Marxoriginally conceived the concept,
the breakdown of society.Breaking it down into classes, not
breaking it up, is that ourstarting point to understand how
the system works, the powerrelations within the system, should
be to understand that onesector in the economy, in our society.

(05:47):
Now, society and economyaren't equivalent. One segment is
owning what we call a materialmeans of production, that is capital.
Now, in the industrial areathat was productive capital, machinery
and equipment and assemblylines, and even back earlier, spinning

(06:07):
jennies in factories. And it'sbecome more complex because we've
now got this sort of wholeoverlay of finance capital, which
is another sort of power line.So one section owns the material
means of production. And inother words, they don't have to work
personally to generate income,but what they have to do is hire

(06:31):
the other broad economicclass, the working class, to work
with that capital. And the wayin which the capital owning class
makes a living through theindustrial relations of our economy
is to force the working classto work for more hours in a day and

(06:53):
produce more things in a daythan the workers strictly need to
fulfill what we think of astheir subsistence needs. In other
words, subsistence doesn'tmean bare existence, it means what
we need to survive in thissociety. Food, shelter, clothing,
entertainment, whatever. Andso by being able to coerce, coerced

(07:19):
doesn't necessarily mean witha whip. It means using power relations
in the economy by coercingthose workers and forcing them to
work longer than they strictlyneed to to cover their own subsistence.
The capital owning class thencan expropriate what we call the
surplus value produced. And aslong as they can realize that surplus

(07:42):
value as profit by selling itinto the goods market for a profit,
in other words, price abovecost, then they generate an income
without having to work. Andthe big distinction is that the working
class accept that coercion,albeit reluctantly, because they've

(08:02):
got no choice. They have towork to survive, to get an income,
because they don't own capitalindependently. Now that's the raw
bones of the powerrelationship. And it gets much more
complex then when we addlayers, like the middle class and
the professional managerialclass. You know, I'm in the professional

(08:23):
managerial class as aprofessor, but of course I'm still
part of the working classbecause I don't have capital. But
there's much more complicateddynamics then. But the essential
point, the starting point thatI have of understanding the power
relations in the economy isthat those two broad economic classes

(08:45):
are in conflict with eachother. And the nature of the conflict
can be summarised in the mostsimple way. That the owners of capital
want the working class to workas long as possible and pay them
as little as possible, becausethat way they can maximize the surplus
value each day that they getout of each worker. Whereas the alternative

(09:07):
ambition for the working classis that they want to work for as
short a time possible, withless intensity, and get paid the
most. So you juxtapose thosetwo positions and you can easily
see that there's a conflict.Now, once you start understanding
that, starting from thatpoint, then you can understand the

(09:29):
dynamics of organizations, thecontrol and supervision structures
of management, the complexdivide and conquer strategies that
capital employ to ensure thatthe working class doesn't unite as
a whole. And so some of thestrategies are to exploit identity,
gender, race, poverty. All ofthese types of things are used to

(09:55):
create the impression thatthere isn't an homogenous working
class. So that's the firstelement in the way I understand the
world. Then we come to themonetary system, which is an aspect
of the economic system. Andthis is where modern monetary theory
comes in. Because tounderstand what we call a fiat currency

(10:18):
system now, that just meansthat the monetary system is introduced
as a legislative fiat by thegovernment, the currency issuing
government. And thedistinction you make is that in former
eras we had examples ofcommodity monetary systems which

(10:39):
were like gold or silvercoins, for example, and the currency
had intrinsic value because ofthe value of the commodity, the metal
in that case. Whereas thedistinction with the fiat currency
system is that the fiatcurrency are just worthless tokens
until they are brought intouse by government through the imposition

(11:03):
of an exclusive imposition ofa tax liability that has to be relinquished
through that currency. Andthat's what gives this worthless
token value, because we thenhave to get it, and we don't have
it until the government spendsit. Now, a lot of people, almost

(11:24):
everybody, has been led tobelieve that the government, like
the US Government, spendstaxpayers money. Now the reality
is that how can that possiblybe so? Because the US Government
is the one that issues thecurrency, it's their currency. And
the US taxpayers don't havethat currency until the government

(11:46):
spends it. Just a logicaltemporal set of reasoning. You can't
get the currency until it'sbeen spent. And that should militate
against thinking that thetaxpayers are funding the government
spending. Now, modern monetarytheory is a way, a superior way of
understanding the operationsof the fiat monetary system and the

(12:10):
capacities of the currencyissuing government and the consequences
of using that capacity. Sojuxtapose that with, say, mainstream
monetary theory, which startswith the presumption that a government
is financially constrainedlike a household, and therefore has
to seek sources of revenue inorder to spend. And then there's

(12:32):
a whole narrative built on theevils of taxation and the evils of
issuing government debt andthe inflationary consequences of
spending in excess of thosesources of revenue. And you juxtapose
that with MMT that says, welllook, the US government can't possibly

(12:53):
be financially constrainedunless it voluntarily brings in rules
to constrain itself. It can'tintrinsically be financially constrained.
And so therefore you've got toinvestigate, well, what's the role
of taxation, why do suchgovernments issue debt? And questions
like that. And what you findonce you start teasing those questions

(13:13):
out is that modern monetarytheory provides a totally at odds
explanation and understandingof the way in which the monetary
system operates, the way inwhich the institutions like the banking
sector operates, thecapacities available to government,
and the consequences of usingthose capacities. Now then, put those

(13:36):
two things that I've justdiscussed briefly, the power relations
together with the monetaryunderstanding. And this is the last
point I'm making as my firstresponse to you is a lot of people
get confused when they firstconfront modern monetary theory and
say, oh well, if we don't likeit, you know, it'll be dangerous,

(13:59):
et cetera, et cetera. Andothers perhaps with a more progressive
bent or saying, oh God, welove this, you know, we can have
hospitals and public schoolsand we can look after the environment
and we can have transportsystems and all the rest of it. And
of course they're both wrongbecause that understanding of the

(14:20):
monetary system doesn't reallyhave any policy structures. And go
back to that. The people whothink it's a regime, it's neither
left nor right, so it'sneither progressive or any ideological
position on the continuum. Anda lot of people really get this wrong.
They sometimes hear me talkand I'm on the left and they say,

(14:42):
oh well, the MMT must be left,whereas it's not. But the point I
make is that, you know, I'mlooking at my computer screen now
with my glasses on becauseotherwise I can't see very well,
given my aging eyes. And MMTis a set of lenses to allow us to
really investigate and drillinto the monetary system and understand

(15:05):
the sort of dynamics of thoseinstitutions and the way it works.
That understanding gives us amuch better feel for what would happen
if governments did A or B andcures us of the fictional blinders
that mainstream theory, whichreally doesn't give us any understanding.
Now to activate thatunderstanding into a policy space,

(15:29):
you need to impose your set ofvalues, your ideology. Now, a person
on the extreme right couldhave exactly the same understanding
of the monetary system as me.In other words, be an MMT-er, that
they would use thatunderstanding to advocate for free
market policies, you know,corporate handouts, whatever, whereas

(15:52):
a person on the left would usethat understanding to say, well,
we can have better schools,better public transport and those
sort of things. And they bothshare the understanding but have
polar opposite policy spaces.And that's the point, that it's not
a ideology or a regime thatyou move into or you can move out

(16:14):
of. It describes the currencysystems that we have in place today
in your country, the US in mycountry at the moment, Australia,
in Japan, in all over theplace. Now then, the last step of
the question is to form anunderstanding of why the government
uses its currency capacity inparticular ways. In other words,

(16:37):
what influences thegovernment's decisions? And that's
why you need a class analysis.Because unless you can understand
the context, the power contextin which governments are embedded
and influenced by, you can'treally get a feel for the likelihood
of one policy set afteranother. So I think that the complete

(17:00):
picture for a person wantingto understand how the economy works
is to have a good classanalysis basis, a good understanding
of class which leads you tointerrogate power relationships and
all of the obfuscating layersthat those power relations trigger
to hide them, make them lesstransparent to everybody. And you

(17:25):
also need to have a very solidunderstanding of modern monetary
theory so that you can thenunderstand the consequences of governments
using different policy toolsthat have been driven by the way
in which the power relationsdrive it. So that's sort of big picture,
nothing particularly specific,but that's the way I think of the

(17:47):
economy. Now, many MMTersdon't think like that. They don't
include the class and thepower element in a broad explanation.
You don't need the classelement to understand the mechanics
of MMT, but you need the classelement to understand how the government
is manipulated into doing onething or the other.

(18:09):
That's very, very well said.And one of the things that was intriguing
to me, and now mind you, thishas been said by several people,
so I don't know who to givecredit or blame to. Okay, but one
of the things that has oftenbeen said is that money does not
exist within the governmentsector. That money only exists once
it's spent into the economyand the private sector. When I think

(18:32):
about that, first of all, letme ask you, is that a true statement?
Well, I mean, what's the pointof the statement? That's the question
I would have. What's trying tobe elucidated by saying something
like that?
Well, I guess the point of itis that once it leaves government,
it's no longer neutral. It'snow been spent on something that

(18:54):
had a political or a classangle, a class interest, a policy
because government spendsmoney into existence.
There's no problem with that.But what problem are you thinking
about here?
Well, I think I'm looking atit from a standpoint of when we talk
about MMT in the theoreticalframework, in its very academic sense,

(19:18):
it oftentimes leaves peoplewondering. Well, hold on, if it's
neutral, then how come onceit's spent into the economy, it stopped
being neutral the minute thatCongress passed a law, the minute
that Parliament passed a law,the minute whoever it was that via
whatever legal framework theyhave to get it out there, someone's

(19:38):
class interests areimmediately dealt with once it is
out of the government sector.
Of course there's no problemwith that.
So from a person on the left,and I'm trying to be representative
of some of the questions thatcome my way in this space, they don't
understand that you'vebasically framed it in the first
answer. But within thiscommentary here, right, it's like,

(20:02):
well, MMT, once you spend it,we stopped just dealing with the
base case. Now we're talkingabout the values. We've entered the
values almost immediately.Once money came to be, when a leftist
or when a working classindividual, maybe it's not a leftist,
maybe it's just a regularworking class person that doesn't
have a developed theory ofvalues from a standpoint of a sophisticated

(20:28):
school of thought. Maybethey're just a rank and file human
being that sits there, goes towork nine to five, comes home, eats
dinner with the family maybeand turns on the TV and starts hearing
the news, which tells them allkinds of lies nonstop. I guess that's
first problem right there. Butwhen they hear this stuff from an
MMT perspective, where doesthe class kick in? When should someone's

(20:52):
ears perk up that understandthe government as the currency issuer,
when should they start reallypaying attention to the values?
Yeah, fine, I sort of getwhere you're going. I mean, anything
the government does isideological and political, obviously,
because they're politiciansand that's their business. So take

(21:13):
two really quite extremelydifferent examples. Yeah, you can
be controversial here. Thinkabout the current terrible state
in Gaza and the USgovernment's involvement in that.
Now I'm on the public recordof saying that the key to that conflict
is the US Government becauseit could force the Israelis into

(21:34):
a negotiating position bystopping funding their slaughter.
So that's quite clear. Youknow, it's hard to get your head
around how the billions ofdollars that are flying into Gaza
from rockets and weapons everyhour of every day, the billions of

(21:55):
US dollars that are justflying through the sky and destroying
communities and killingpeople. Now from an MMT perspective,
the insight you get is that,okay, the US can obviously never
run out of the US dollars tofund the military industrial complex
to produce these weapons andgenerate profit through procurement

(22:18):
contracts, can never run outof the US dollars. And there's no
question about that. So theGaza issue becomes not a, from an
MMT economist perspectiveisn't about how do you pay for all
of that, isn't about thegovernment will run out of money
if it's doing that. Thequestion then is, well, is that the

(22:39):
best use of the currencyissuing capacity of the US government?
Now obviously the dominantmajority thinks it is because it's
happening. That's thepolitical aspect, the power aspect,
the lobbying aspect. Whereas Ithink it's the worst use of US dollars
that you could ever imagine.Now then, take another example. And

(23:01):
we might think of it asimproving poverty in some of the
ghettos in Los Angeles or inBaltimore, some American cities that
cease to work as a healthyenvironment for people to live in.
There's all sorts of thingsthat social welfare and urban designers
would advocate to improvehousing. And you could ally this

(23:23):
with environmentalsustainability ambitions. You know,
improve the quality of housingso that they're more energy efficient
and sustainable, providebetter community facilities so that
children don't grow up with asense of hopelessness, provide guaranteed
employment to kids who arefalling out of the education and

(23:43):
training system and you know,all the things that would improve
the health and welfare ofthose very disadvantaged communities.
And why isn't it being done?Well, mostly it's not being done
because the government hasbeen lobbied to tell citizens that,
oh, we can't have everythingbecause we don't have enough money.

(24:03):
And if we tried to do that,there'd be inflation or there'd be
higher taxes and we'd run outof money. Now what an MMT economist
immediately says, well, in thesame way you can never run out of
spending money on militaryequipment, you can't run out of money
on helping poor communitiesimprove their material circumstances

(24:25):
a little bit, can never runout of their money. And so the question
as to why you're not doing itis because your ideology doesn't
want you to do it, not becauseyou don't have the financial capacity.
The reason you're facilitatingthe bombing of Gaza and not improving
the drug-addled areas inBaltimore is because you've chosen

(24:48):
to do that. And I think that'sthe juxtaposition that citizens need
to start thinking about. Theyshould never buy the argument, oh,
the governments can't affordthis. Well, it might be that at certain
points in history you couldn'tafford to do anything like improve
housing in Baltimore, forexample, because there wouldn't be

(25:08):
enough carpenters available,in which case you'd have to take
a longer term perspective.That would be the constraint. But
the message of MMT is that allof those diversions about how to
pay for something and thegovernment will run out of money
and that we can't afford it,they're all diversions to hide an
ideological commitment tosomething that is likely to be unpalatable

(25:30):
to many people. And so I thinkthe working class of America should
get their heads around thefact that they're being kept in an
increasingly impoverishedstate with failed communities and
intergenerational disadvantagebeing inherited, while the US government
has all the resources it needsto reverse those things. But it's

(25:51):
choosing not to do that. Andit's also choosing to use some of
its infinite financialresources to kill the most disadvantaged
people in Gaza. I thinkthey're the sort of juxtapositions
that people should get theirheads around.
That's perfect. I was tryingto drive towards that once government
spends this stuff intoexistence, whether you like it or

(26:13):
not, it's never an issue ofsolvency. No, it's always an issue
of priority. It's always yourvalues coming into play once it leaves
the government sector, oncethey spend it into existence. Someone's
values were represented right there.
Absolutely.
And those values frequently,if not almost always, are not in

(26:33):
favor of the working class. Infact, the working class is led to
believe every election cyclethat these politicians are going
to do something wonderful forthem. And they didn't even try to
do that this past election.That's how bad it's got. They didn't
even try to sell anybodyanything. It was just, hey, you know,

(26:53):
you don't want this guy overthere or whatever. And we witnessed
the genocide that you wereaddressing there. And there was a
lot of reasons why peopleswung a certain way in the election.
Most of them economic. And youknow, as I think to myself, when
I started paying attention toMMT, I did not come to MMT because,
oh, isn't this just somethingneat? Cause I just love math and

(27:16):
I liked formulas and I liked,you know, economics. In fact, I did
okay. I got through gradschool, but I wasn't an all star
at this stuff and I learnedall the wrong stuff. It was when
my values kicked in and Iimmediately saw that I was fighting
stupid battles. I was fightingbattles that weren't real. And that
really irritated me. And Ithink that's what's kept me going

(27:38):
for 15 years. I've been doingthis stuff since 2007. So I guess
17 years.
Amazing.
Just a dork doing it for 17years. What is wrong with me? But
for 17 years it's been in mycraw. And for 17 years, my purpose
was my values first. I ledwith my values and I saw this as

(27:59):
a tool. I saw this as aframework for taking the things I
valued and bringing them tofruition and helping others see that
they were possible. And Idon't know what it is, but at some
point it just hit me like aton of bricks and I haven't been
able to get off the horsesince. But with what you're saying
here, you know, there's a lotof things that come up in the news

(28:22):
that people hear and like mostpeople that are not well informed,
they just run with whateverthe narrative is. And I want to throw
a few very importantnarratives out there right now that
kind of play into the base ofMMT and also from a class perspective.
You know, we talk about howthey cry poor mouth when it comes
to helping the poor, when itcomes to making the environment better,

(28:44):
when it comes to structuralchanges that would literally free
the working class of theburden of the sack, as they say,
you know, the freedom of thefears of being laid off. But that
fear is a ideological desireto train the working class how to
be. And so as I think tomyself about bonds, for example,

(29:07):
you know, they're alwaystalking about, well, what if they
lose faith in the dollar? Whatif they stop buying your bonds, Then
what? And I laugh and I think,well, Japan sure likes to buy their
bonds. The US likes to buytheir own bonds too. Almost every
government around the worldbuys their own bonds up when they're
not purchased by someone else.Help me understand the role of bonds

(29:28):
in the MMT lens. Bonds, gilts,whatever you want to call them.
Well, I mean, the first pointto understand is that once you accept
the notion that the currencyissuing government, like the US government,
has no financial constraint,then the concept of having to get
its own currency from thenon-government sector by selling

(29:51):
debt instruments--bonds--justbecomes absurd. So the mainstream
theory says, oh well, thegovernment's got a financial constraint,
therefore it's got to raisemoney by tax. And if it wants to
spend more than it raisesmoney from tax, it really has to
then go into debt. Now thatperfectly describes a household like

(30:16):
you and me that if we want tospend, we have to find a source of
income. And if we want tospend more than our current earned
income from our work, then wecan run down prior savings or we
can sell assets on ebay, or ifwe want to buy big things like a
house, we have to go to a bankand get a mortgage. So it's quite

(30:39):
clear that that's the behaviorand the financial constraints on
a household. But then tryingto suggest that those constraints
carry over to the governmentthat has its own currency and issues
it, is one of the greatest conjobs in history of the academy. It's
just totally untrue andimprobable if you think about it.

(31:02):
So then you think about, well,why does the government issue debt?
Why is it borrowing money fromthe non government sector if it doesn't
need that money in order tospend? And the answer is varied.
The essential point that Iwant to make is that it doesn't need
that currency in order tospend. That's the first point to

(31:23):
really get clear. WarrenMosler and myself started all this.
We've advocated that thegovernment just should stop issuing
debt altogether. There's novalue function in it. But when you
think about, well, whathappens when it issues debt? Well,
it's providing a risk freeasset to the non-government sector

(31:44):
to park some of their savings,some of their wealth they've built
up in a risk-free asset.Whereas all financial assets that
are issued by non-governmentbodies like banks, corporations,
you know, whatever, they'reall risky. But the debt that's issued
by the US government, forexample, or any currency issuing

(32:05):
government has no risk, nofinancial or credit risk. There's
no reasonable prospect toassume that such a government would
ever default on itsliabilities. Why? Because it can
always fund its liabilitiesbecause it's got its own currency.
So then the question is, whatare the consequences of it issuing
debt? And we're back into thevalue territory. And the question

(32:28):
is, well, whose ambitions doesit serve for the government to be
issuing debt? Well, the answeris quite clear, that it serves the
corporate interests. I call itcorporate welfare. And the reason
I say that is because itprovides the speculators in the financial
markets who add no substantivevalue to the wellbeing of our communities.

(32:50):
They're the most unproductivesector in the economy. It provides
them with a risk freebenchmark upon which they can price
their other more riskyfinancial assets. So as a benchmark.
And it also gives them a safehaven when the speculative environment
becomes very uncertain. And sowhen you have financial turmoil and

(33:14):
it's not clear, that there'scompanies going broke and the corporate
bills are defaulting. Forexample, the existence of government
bonds provides a safe havenfor corporate speculators to shift
their funds into a risk freeasset which might have a lower return,
but is risk free. It's safeaway from higher, riskier assets

(33:37):
that are very uncertain. Andthe speculators form the view that
they may well lose theirfunds. So it's just corporate welfare
and totally unnecessary.Governments around the world should
just stop issuing debt.
You are listening to Macro NCheese, a podcast by Real Progressives.

(33:58):
We are a 501c3 nonprofitorganization. All donations are tax
deductible. Please considerbecoming a monthly donor on Patreon,
Substack, or our websiterealprogressives.org. Now back to
the podcast.
So when you think about themoney that's paid on the interest,

(34:20):
most working class people aresaying, hey, that's my hard earned
tax dollars going to givethose people that money that I have
to pay off that debt. And inreality that's not true at all. That's
actually new money being spentbased on a value system. The interest
on that stuff is new moneyspent into the economy, spent into

(34:41):
their bank accounts. Is that correct?
Yeah. I mean the government isproviding an income source for those
who hold financial assets. Nowthe ideological perspective or aspect
of that statement is to ask,well, what's the distributional implications
of that? Who's getting thisincome? There's no question the government

(35:02):
can fund that income at anypoint in time. The question that
should be asked is, well,who's benefiting from that whole
system? Now in the sense thatI call it corporate welfare, I'm
immediately telling you who'sbenefiting. It's not the working
class because they tend not tohold those sort of assets. Now it
gets complicated and remember,go back to the beginning of today

(35:25):
by these multiple layerserected on top of the pure class
layer. So you know, the middleclass who are part of the working
funnel have been extractedmore through mass education, et cetera,
into the professionalmanagerial class. They become a sort
of schizophrenic class becausethey're part of the working class,

(35:47):
but they serve the interestsof management above the pure interests
of the poor and the unskilledworkers. And that complication then
says that they have pensionfunds. You call them in America,
we call them superannuationfunds, but the same thing. And those
superannuation funds extractsavings from workers which they then

(36:10):
invest in government bondsthrough various regulations on safety
of their pension funds. Sothey also buy bonds. Now if we scrap
bonds, what would be theconsequences for the workers who
have invested in those, themiddle class workers? Well, there
would have to be some othersafe asset. Now my response to that

(36:31):
as a member of the workingclass is that the government should,
and always can, set upnational pension funds. We don't
have to have private forprofit speculative pension funds.
We can have governmentprovided pension funds which benefit
everybody and which couldnever go broke. You don't then, in

(36:52):
other words, have to have adebt issuing machinery to provide
that sort of safe asset forworkers savings.
And there you go. I mean, wehave in the US Social Security and
many people end up living onSocial Security and they have been
convinced that becausegovernment can go broke, because
the trust fund can go broke,et cetera, that they should privatize

(37:16):
this. And now with this newregime coming through, Trump and
his friends Musk andRamaswamy, they're looking to take
a scalpel out and cuteverything off. I mean, forget a
scalpel, they're looking for achainsaw. They're ready to take huge
agencies and just throw theminto the dustbin. And maybe that's
good in some cases, but it'snot in the interest of the working

(37:37):
class in particular. Butbecause the working class has been
so duped into believing thatgovernment is broke and it's their
tax dollars being wasted onthese stupid agencies, not realizing
once again it's an ideologicalthing, the government has chosen
to fund those things up tothis point. And that is new money.
That's not tax money. That isnew money being spent by the government

(38:00):
on those things, whichprovides many, many families, children,
you name it, lots of benefits,lots of good quality of life, et
cetera. But because they havebeen convinced that Social Security
can go broke, they want toprivatize it. Because they convinced
that these agencies aresucking away taxpayer dollars and

(38:21):
your hard earned tax dollarsgetting wasted on government largesse.
They have been convinced ofthis. So they're out there ignorantly
bleeding and begging for this.And as a working class individual,
I'm horrified that this iswhat we're up against, to get our
own people to have the valuesthat they think they have, but really

(38:42):
the right values because theyunderstand how the system works.
When you say that governmentcould provide debt free pensions
where they don't have to sitthere and worry about bondholders
and this, and they could justsimply fund whatever age they want
to pick, they could say fromcradle to grave, or they could say
from 50 to 100, whatever, butthat again is a value that's not

(39:05):
a financial constraint. That'snot an issue that the currency issuing
government could not achieve.So they are diminished by this lie
that is perpetuated by bothDemocrats and Republicans in the
United States, Tories andLabour in the UK and I'm sure all
the Greens and everyone elsein Australia, I don't think any of

(39:25):
them get it right, do they?
Well, look, you know, inAustralia, for example, we have a
broad aged pension systemthat's just totally funded by government.
Now if you're in the higherincome groups and you are members
of private pension funds orsuperannuation funds, well then it
may be that you generate toomuch income potential to receive

(39:49):
the government pension. Andthat's certainly the case. There's
no question that theAustralian government as the currency
issuer can always provide anaged pension at a reasonable rate.
It's not too bad actually inmaterial terms, there's no question
about it. So our system issomewhat different to the US system.

(40:10):
But yeah, I mean the US SocialSecurity trust fund issue has been
around for years and there'sbeen a whole conga line of economists
predicting it'll go broke. Andyou know, every few years you'll
get them coming out and as newgraduates get their PhDs, they get
the media voice and theypredict it'll go broke too. It can

(40:32):
never go broke unless thegovernment allows it to. It certainly
could go broke if it becomesprivatized. We've seen the folly
of privatised enterprisessince the mid-80s. They sometimes
go broke and they needrebalance from government again.
But the U.S. Social Securitysystem can never go broke. And the

(40:52):
only question that peopleshould ask of that is not their dollars
aren't funding it, it's the USgovernment's dollars that are funding
the government's contributionthat can never run out of money.
The only question is, is itgenerous enough? Is it providing
necessary material support forpeople who own either too old to

(41:14):
work, too infirm to work, orotherwise disabled? And that's the
only questions people shouldask. Is it serving that purpose?
The purpose of the trust fundis that. But the debate in America
is diverted into theseridiculous questions. Oh, it's going
to run out of money. And youget these economists who pretend
they're very erudite andproduce graphs showing when it's

(41:38):
going to intersect thesolvency threshold. It's just a lot
of nonsense. I never see anyof these economists saying, well,
when's the government going torun out of money to fund Israeli
Defence Forces? I never seethem say that yet the scale of the
investment in that venture,that disgusting venture, is massive

(41:58):
compared to the sort of scrapsthey hand out to disadvantaged communities.
So the thing that always comesup at this point in time and even
when you go to AI and you sayAI, tell me what MMT is, right, it
does pull some of you guys'sbrain trust, but it pulls a lot of
nonsense in there too. And atthe end it says things to worry about

(42:20):
with MMT. And this is, well,if the government spends too much
money, you could havespiraling inflation, okay? And I
laugh to myself because thisis the kind of fear porn that is
sold to the working class. Sothey're afraid to ask for anything.
They're terrified that theirtaxes will go up to pay for it. They're
terrified that if thegovernment spends money into the

(42:42):
economy, which does everystinking second, that it's going
to create inflation. And Iknow MMT has always centered inflation
as a real legitimateconstraint. But you know, what we
experienced here recentlyduring COVID and currently now coming
out of it is people are stillsuffering majorly from inflation

(43:04):
here in the United Statesbecause wages did not go up with
the cost of living. And as aresult of that, you know, one man's
spending is another man'sincome. The working class is getting
gouged again. And we'refinding through various people's
work that it is not just somefact of the government choosing to
pay higher prices. There weresignals sent to industry that the

(43:27):
government's spending moneyand they responded by hiking up prices.
And there were some businessesthat were seen to have gouged up
to a thousand percent profitover that period of time. And so
they, rather than asking theirgovernment to do price controls or
have anti-gouging laws or goafter the smoky rooms where those

(43:49):
people are incentivized tomaximize shareholder value instead
to maximize the well being ofthe working class or well being of
the entire country oranything. So you never think about
that. So Bill, from an MMTperspective, can you define what
inflation is and isn't and howit comes to be?

(44:10):
Well, look, that's a difficultquestion, but the most basic understanding
is that all spending in theeconomy carries an inflation risk.
Whether it be householdconsumption spending, whether it
be business investment onmachinery and equipment or infrastructure,

(44:30):
whether it be export sales,which is foreign spending coming
into your economy, orgovernment spending. There's nothing
exclusive about governmentspending in this context. And what
that risk is, it applies toall spending components, is that
if the nominal spending,that's the dollar value of the spending

(44:51):
grows in excess of thecapacity of the supply side of the
economy, that's the productiveside to respond by producing goods
and services in response tothat spending. Then you'll start
getting inflationarypressures, which we attribute to
being excessive demand,excessive spending. Now, the problem

(45:13):
is that that's a relativelysimplistic view of the inflationary
process because once you startthinking in class terms, then you
start to understand thatinflation can also emerge out of
the intrinsic class conflictbetween labor and capital. And you

(45:34):
know, the classic example isthe 1970s when as a consequence of
the Saudi response to the YomKippur War, which was again, the
Israelis sort of trying toillegally take land off the Palestinians
and were being supportedfinancially and militarily by the

(45:54):
US Government, the oilproducers decided to punish the US
by increasing the price ofoil, dramatic doubled overnight,
almost October 1973. And ifyou then think about, well, what
does that mean? Well, it meansthat all oil dependent countries
were immediately faced with amassive increase in imported raw

(46:16):
material costs. Raw materialsthat are dependent upon oil to run
their economies. And thequestion then for the economy is,
well, in terms of how muchyou're producing any particular time,
is that in real terms nowyou've got less income to distribute
domestically because anincreasing proportion of the income

(46:38):
you're producing has to go tothe rest of the world to fund the
higher price for the importedraw material, in this case oil. And
so once you start asking thequestion, well, how is that real
income loss going to beredistributed? Who's going to take
the real income loss? Well,then you've got class dynamics. So

(46:59):
are the workers going to takeit in the form of lower real wages,
lower purchasing power, or arethe bosses going to take it in the
form of lower real profitmargins, or are they going to share
it or what? And what we saw inthe 1970s is that trade unions at
that stage were much strongerthan they are now and had the capacity

(47:21):
to resist the real wage cutscoming from the higher prices as
the raw material priceescalation was being passed on. And
the corporations have pricesetting power, obviously, because
it's not a free market outthere. They've got power to manipulate
and set prices. And so you hada distributional battle where the

(47:44):
working class would push upnominal wage demands as the prices
were rising in order tomaintain some real wage target. And
the owners of capital weretrying to maintain a real target
rate of profit, a margin, inother words. And so they would retaliate
if there was industrial actiontrying to push higher money wages

(48:06):
to get this real wage target.And the price setters in the corporations
would then push the prices upbecause their cost structure had
now risen. And so you had aninflationary spiral emerging out
of a distributional struggle,a conflict over who was going to
take the losses of the rawmaterial price rises. Now to some

(48:27):
extent, COVID was a replay ofthat with a major difference as the
supply constraints wereemerging and people were ill, and
factories were being closedand shipping was being disrupted
and governments were forcingpeople to stay at home because they
hadn't quite worked out howwe're going to deal with this unknown

(48:48):
threat. The question then was,well, who was going to take the losses?
And the corporations soonworked out that their trade unions
were now so weak that theyweren't going to resist. And so the
price inflation that emergedfrom that supply side constraints
drove the real wages of theworkers down systematically because

(49:10):
they couldn't resist themanymore. And then of course, many
corporations who had pricesetting power worked out, well, you
know, we've got a party onhere. We can really take advantage
of this power imbalance andnot only defend the margins from
the increased costs ofproduction from the supply constraints,
but expand our margins andtherefore expand our real profit

(49:33):
margin. And that's what theydid. The inflation persisted and
amplified by the fact thatcorporations all around the world,
not just in the US, inAustralia, not everywhere, most places,
took advantage of their pricesetting power, their lack of competitiveness
within their segment, theproductive segment, took advantage

(49:55):
of that and went crazy. Andthe way in which the policymakers
responded was to assume it wasjust a simple excess demand case,
the case I made in thebeginning. And that's why they started
to push interest rates up.That was their avowed justification.
But really the problem was thetransitory constraints from the supply

(50:17):
side or from the productiveside arising from COVID and then
Ukraine and OPEC [Organizationof Petroleum Exporting Countries].
But on top of that, this pricegouging you mentioned, because the
imbalance between unions andcorporations and all of those things
were really not sensitive tointerest rate changes, which meant
the monetary policy changesthat occurred were a total farce.

(50:40):
I want to take us down twoquick paths before we close out Bill.
And by the way, thank you somuch for your time. The last one
I guess is a two parter, sowe'll make it one here. You know,
people are looking around forways of surviving this. My family,
we have a special needs child,and we're watching the government

(51:01):
threaten to strip awayservices for special needs kids,
and services across the board.And so people are looking into different
asset classes to try to gamblewhat little savings they may have,
to try to get ahead of it toprotect their families. And so you've
got the rise ofcrypto[currency] and people see this

(51:21):
as hey... In fact, some of thecomments we get back to some of our
substack posts about MMT arethis is an old thinking, this is
old money thinking, this isn'treal, this is old money. You've been
bypassed by crypto, guys,you're crazy. And so the vast majority
of working class people, thosewho do have some money and those

(51:42):
who don't have some money, arelooking at crypto as a way out and
they're thinking that thiswill kill the monetary system. And
the second part to that is therole of private banks in terms of
how people see money. Thecombination of going in debt by taking
out loans as opposed to buyingthis crypto. Two questions, one theme.

(52:04):
They're scrambled and they'retrying to find a way out, either
via loans or via speculativeassets like crypto. I guess question
number one is, is that justbecause crypto is something that
people invest in, doesn't meanthat it makes the old monetary system
null and void. In fact, Iwould suggest that it's built on
top of it. And the other thingis that the idea of private banks

(52:26):
creating all this money, thisis typically thrown at us in the
same way. And they use this astheir reason why they're buying crypto,
because after all, they'rediluting the value of the dollar
and so forth. But the role ofprivate banks in lending, I mean,
this is a policy, this is onceagain a value discussion. Am I correct
in that? I mean, the reasonfor private banks, as opposed to

(52:46):
just having everythingcentralized through the government,
is a policy decision. It's avalue system that they would rather
do. And so when you take outprivate debt, that's real debt, you
gotta pay back when thegovernment spends it on you. That's
not the same thing. Can youelucidate on both of those points?
Well, look, I think there'sbeen overblown ambitions for cryptocurrencies.

(53:09):
They're never going to replacethe currency of the state. They've
made some people very well offand they've made many others desperately
not well off. And I guess whatI would say is that the vast majority
of the working class inAmerica are not in a financial position
to speculate in financialmarkets per se, and certainly not

(53:32):
in cryptocurrency markets. Thedata suggests that they don't even
have very good pensionentitlement buildups and savings.
The vast majority of Americansdon't have any savings. And certainly
the hollowing out of themiddle class over the last 30 years
has meant that more and moreAmericans are in the lower income

(53:54):
category with very constrainedfinancial asset holdings. Now, many
of those people voted forDonald Trump. And I think that most
voting is on emotion. And whenyou then add an economic component
to it, it's also built aroundthe mainstream fictions that we've
talked about. And going backto earlier on in our discussion,

(54:17):
that's one of the reasons whyI think modern monetary theory is
valuable. In my view, it willprovide an increased quality to our
democracies because the sortof questions we'll ask politicians
and the sort of answers we'llbe prepared to accept change dramatically.
An MM framework leads aperson to reject outright statements

(54:40):
like we can't afford thatbecause we'll run out of money or
you'll have to pay highertaxes. It forces us to change our
focus to real resourceavailability. And then that says,
well, how are we going togenerate skills in the future when
we need investment in trainingsystems? Not that we can't afford
them, but we need them. Sothere's all these different questions

(55:04):
and answers come up whichwould improve the way in which we
interact with our politicalclass. But a lot of the voters who
voted for Donald Trumprejected the Democrats quest for
joy. Kamala kept saying, let'srestore joy. Well, it's very hard
to be joyful when you'reliving at the bones, living on the

(55:24):
margin of personal insolvency,forced by cost to living pressures
and low stagnant income, wagegrowth and declining services. You're
forced to a very mediocre lifeand a very high pressured life. So
they bought the Trump message.So I'm not sure they're the ones

(55:44):
you're referring to that arescrambling to look after their future
in the face of what Elon Muskand his mates might do to the bureaucracy.
My feeling is that they stilllive in hope that Donald Trump will
restore the industrialheartlands in the [Great] Lakes District,
et cetera, and will get rid ofillegal entrants to the country who

(56:06):
are deleting the welfaresystem or whatever. You know, all
of those narratives, right?But I think what is very scary, and
this is taking an MMTperspective, is yes, you might argue
and hold the view that thespending on the Department of Environment
[EPA] and the spending on theDepartment of Education, all those

(56:29):
salaries, are just a totalwaste of money. But in saying that
you will say that you preferthat spending to be elsewhere. Because
if you then say, oh, we can dowithout all of that government spending,
then you've got a problem withwhat's going to replace it. Because
if you don't replace it, thenthe level of economic activity and

(56:49):
employment levels will falland unemployment will rise and poverty
will rise. So even if youdon't like what the government's
spending its money oncurrently, it is spending that money
into the economy and that'sproducing jobs. Now, you might not
want those jobs to be wherethey are, but I see nothing in what
Musk and those characters aresort of intimating to suggest that

(57:12):
they've got the slightestmacroeconomic understanding. Spending
equals income. And if you cutthat spending, well, then what are
you going to replace it with?Because if you don't replace it with
something else more to yourideological preference, then you're
going to have a massiverecession. And I think that's the
missing part of the debate atthe moment. Yeah, I can accept that.

(57:32):
A lot of Americans think thatthe Department of Education and the
Department of Environmentprograms are a waste of money and
they don't like them and theywould prefer them not to be there.
But they've got to havesomething to replace them, otherwise
you have a spending collapse.And that's the missing link in the
debate at the moment. That'swhat I think is scary that those

(57:52):
guys don't really have a clueabout macroeconomics, and they're
going to feel very warm andfuzzy as they carve up the public
sector and get rid of workersin the Bureau of Labor Statistics
and Department of Employmentand all of those other things that
they hate. But I don't seethat they've got a plan to replace
it other than to continue tofeed their mates in the military

(58:15):
industrial complex. That's my observation.
Well, I think that this kindof ties into the second part of that
question about private banks,because when there is, if you look
at the sectoral balances andwe. I don't want to dive too far
down that runway, but thereality is, is that that money's
got to come from somewhere.And I guess they're looking over

(58:36):
there at disposable income andthey're saying, hey, good way to
get rid of all that excesscash in people's pockets is to make
them go into private debt. Andthe private banks are there to accommodate
that. You know, that is oneway. You know, you got federal spending,
you've got imports or exports,I should say, as another means of
bringing cash into theequation. And then you got private

(58:59):
banks, people taking out loansto fill the void that neoliberalism
or this slash and burnapproach puts them into.
One of the successes of theneoliberal era, which really became
apparent as we entered theglobal financial crisis, was that
the first strategy was tosuppress the ability of workers to

(59:20):
enjoy wages growth in linewith productivity growth. Now, during
the 1960s and 70s, in almostevery country, the real wage, the
purchasing power of theworkers wage, grew in proportion
with productivity growth,productivity being the grossing output
per unit of input. In otherwords, we're able to get much more

(59:40):
output for a given level ofinput than we could 20 years prior.
Now, the reason why real wageshave to grow in proportion to productivity
growth, which they reallyhaven't since the 1980s, is because
of a realization issue that ifyou're producing more and more stuff,
then how are you going toconsume it and sell it and make profit

(01:00:03):
from it? So the first part ofthe story was to suppress real wages
growth and redistribute morecash to profits. That was the first
part. But then you had to workout, well, if you're going to do
that, how are you going toensure that those redistributed profits
are actually realized throughsales of goods and services? Because

(01:00:23):
ultimately the capitalistclass has to sell stuff to make profits
from the services, otherwisethey don't. And the characteristic
innovation of the neoliberalperiod was to solve that problem
by deregulating financialmarkets and abandoning financial
oversight of the financialsector and letting the greed run

(01:00:47):
wild. And so they worked outthat, well, we don't have to pay
the workers to consume, we canenslave them in debt and make money
off them two ways. One, bysuppressing their wages growth and
then making money off interestrates on debt we push onto them.
And so, you know, in Australiain the 1980s, you just get this massive

(01:01:09):
invasion in the Daily Mail.Credit cards being issued to 4 year
olds and 10 year olds. Youknow, their banks went crazy under
deregulation. And what you sawin Australia was household debt as
a percentage of disposableincome in the 1990s was about 60%,
approximately. Now it's closeto 200%. And that was perfect because

(01:01:31):
the capitalists could suppressyour wages growth, but then still
sell all the stuff throughcredit. Now the only problem with
that strategy, which the GFC[Global Financial Crisis] exposed,
is that it's finite becausewhile the government can have as
much debt as it ever wants, itissues the currency, the non government
sector can't. And the nongovernment sector will eventually

(01:01:52):
get to a point where it's tooprecarious to keep borrowing, and
so then they'll stop spending.At that point, you have financial
recession, bankruptcies, andall sorts of chaos. So, yeah, for
a short time, you can fundgrowth through private debt increases,
but that's finite and isunsustainable and leads like the

(01:02:15):
GFC to crisis.
I think that's what we saw inthe Bill Clinton era as he slashed
and burned the government.
Absolutely.
They had the "Goldilockseconomy" because everybody was deep
in debt and they were allloving it until the bubble burst.
Absolutely. All around theworld it happened.
Absolutely. Well, Bill, I wantto thank you for taking us through

(01:02:36):
this. I hope that my questionsdidn't come off as stupid. I was
trying really hard to ask whatI thought were good questions. Is
there anything that I missedthat you think would be pertinent
to this conversation?
We could go on all day talkingabout this stuff, but in the interest
of brevity, I think we'll callit quits. I think that the sort of
issues you articulate are theissues that people are talking about,

(01:03:00):
and I hope I provided someperspective on them for you. Thanks
very much.
Absolutely. All right, folks,my guest, Bill Mitchell. Friend,
thank you so much. Iappreciate you, sir. My name's Steve
Grumbine. I'm the host ofMacro N Cheese. We are a very small
nonprofit. We need your help.It is a 501c3 in the United States,

(01:03:22):
and that means your donationsare tax deductible. Please consider
becoming a donor if you findthe material that we produce worthwhile.
And with that, like to thankmy guest one more time, Bill Mitchell.
On behalf of Macro N Cheeseand Real Progressives, we are out
of here.