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US Fiscal Policy and the 'Deficit Myth' with Stephanie Kelton · Masters in Business

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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Master's in
0:11
Speaker 1: Business with Barry Ritholts on Bloomberg Radio.
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Speaker 2: This week on the podcast, I have another extra special guest,
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Speaker 2: Professor Stephanie Kelton teaches public policy and economics at sunny Stonybrook.
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Speaker 2: She really came to the four in the twenty tens
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Speaker 2: when she was the chief economist for the US Senate
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Speaker 2: Budget Committee, and had previously in her career revisited the
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Speaker 2: works of people like Hymen Minsky and Lord Keynes and
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Speaker 2: Warren Mosler, who's really probably the single largest influencer of
0:56
Speaker 2: modern monetary theory, which looks at the overall economy not
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Speaker 2: from the perspective of federal deficits but the federal impact
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Speaker 2: on inflation. Really just a fascinating conversation talking about what
1:13
Speaker 2: is and it is not heterodoxy and conventional thinking in economics,
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Speaker 2: and why the field is so hesitant to change even
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Speaker 2: when the evidence is overwhelming that what they're doing is
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Speaker 2: false or based on data that just doesn't seem to
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Speaker 2: add up. Her book, The Deficit Myth, was a surprise bestseller,
1:38
Speaker 2: came out right in the middle of the pandemic and
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Speaker 2: did really well. She's been on all the top one
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Speaker 2: hundred lists most influential thinkers, Women in Finance, policy influencers.
1:51
Speaker 2: She's just really a fascinating person with a perspective that
1:58
Speaker 2: is kind of hard to argue with. A lot of
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Speaker 2: what she believes is outside of the mainstream, but it
2:06
Speaker 2: is really stood the test of time. When the traditional
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Speaker 2: economists have said and done things, They've made forecasts, they've
2:15
Speaker 2: made predictions about what will and won't happen, and none
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Speaker 2: of it's come true. And so when the mainstream economists
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Speaker 2: are getting it wrong, you have to look at people
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Speaker 2: who approach the field from a different perspective. She's done
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Speaker 2: a really great job. I thought the conversation was fascinating
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Speaker 2: and I think you also. With no further ado, my
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Speaker 2: conversation with Sunny Stony Brooks Professor Stephanie Calton.
2:42
Speaker 3: Thank you for having me, Nice to be here, Nice.
2:44
Speaker 2: To have you. I've been wanting to have you here
2:46
Speaker 2: since the book first came out during the pandemic, and
2:50
Speaker 2: we'll spend a lot of time talking about it, but
2:53
Speaker 2: before we get into that, I just want to get
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Speaker 2: a handle on your background. You get a bachelor's a
3:00
Speaker 2: BA and a BS in economics and Business at California Sacramento,
3:06
Speaker 2: then University of Cambridge Masters in philosophy and economics, then
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Speaker 2: a PhD in economics at the New School. That sounds
3:14
Speaker 2: like you were teeing up for a career in academia.
3:17
Speaker 2: What was the original plan.
3:19
Speaker 3: To be a dentist?
3:20
Speaker 2: Really? Yeah? Why a dentist?
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Speaker 3: I think you just think, you know, what do you
3:26
Speaker 3: do for a living where you have, you know, decent
3:30
Speaker 3: income and you know there's going to be.
3:32
Speaker 2: A job and high suicide race.
3:34
Speaker 3: I didn't think about that at the time, but I
3:36
Speaker 3: learned later. I also didn't realize that you had to
3:39
Speaker 3: work on cadavers, and so I figured out pretty early
3:42
Speaker 3: on that that wasn't going to be the path. And
3:44
Speaker 3: then I, you know, I switched. I was pre law
3:47
Speaker 3: for a while. I was an accounting major for a
3:51
Speaker 3: good period of time. I got well into the upper
3:53
Speaker 3: division stuff, and then I couldn't imagine myself as an
3:56
Speaker 3: accountant and I thought, what do you do You sit
3:58
Speaker 3: in a room all day doing tax returns or something.
4:00
Speaker 3: It's just not you know that it seemed anti social,
4:03
Speaker 3: and so then it became finance and a series of accidents,
4:07
Speaker 3: you know, you have that one professor who you stumble
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Speaker 3: on and it just changes your life. And my trajectory
4:14
Speaker 3: changed to economics by accident.
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Speaker 2: Really fascinating. So you end up teaching at the University
4:21
Speaker 2: of Missouri Kansas City for eighteen years from nineteen ninety
4:25
Speaker 2: nine to twenty seventeen. Tell us, I'm curious. California to Cambridge,
4:31
Speaker 2: to the New School in New York, and then Kansas City.
4:36
Speaker 2: Tell us about this geographic progression.
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Speaker 3: Yeah, so I was doing my undergraduate at cal State Sacramento.
4:44
Speaker 2: Were you originally a California girl or well, we were.
4:46
Speaker 3: Living in North Carolina. I was a senior in high school.
4:49
Speaker 3: I was going to go to the University of North Carolina.
4:51
Speaker 3: My dad was in the military, so we lived all
4:53
Speaker 3: over the place. And one day he came home and
4:56
Speaker 3: he said, you know, we're sitting at the dinner table
4:58
Speaker 3: and he announces that he put in his retirement papers
5:01
Speaker 3: and the family was going to go back to California.
5:03
Speaker 3: And I could either stay on the other side of
5:06
Speaker 3: the country by myself at seventeen, well you know, a
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Speaker 3: college kid with a car that used to break down
5:11
Speaker 3: on me all the time, or I could follow them
5:13
Speaker 3: to California. Of course, I missed all the application deadlines,
5:16
Speaker 3: and so I ended up going with them and doing
5:22
Speaker 3: most of my undergraduate work at cal State Sacramento. And
5:25
Speaker 3: that's where I ended up taking a micro theory course
5:29
Speaker 3: with this guy named John Henry. And you know, I
5:32
Speaker 3: could have picked any course in the catalog, any Tuesday
5:35
Speaker 3: Thursday section. I happened to pick that one, and he
5:39
Speaker 3: just kept encouraging me to keep going. And by the
5:41
Speaker 3: time I took the History of Economic Thought, I was
5:43
Speaker 3: really hooked. And he took me out to lunch one day.
5:46
Speaker 3: I was thinking about graduate school because he said, you know,
5:49
Speaker 3: you ought to think about it, and so he took
5:51
Speaker 3: me to lunch, and this guy named Randy Ray happened
5:55
Speaker 3: to be in town. And Randy is an economist. He
5:59
Speaker 3: did his PhD dissertation at WashU under I'm in Minsky.
6:02
Speaker 3: So a lot of listeners will be familiar with Minski
6:05
Speaker 3: because it's stuff like the Minski Moment and all that.
6:08
Speaker 3: And so Randy came to lunch. I'd never met him before,
6:11
Speaker 3: I knew who he was. But John said, to Randy,
6:14
Speaker 3: give her some advice, tell her what she should do
6:16
Speaker 3: about graduate school. And Randy said go to Harvard, and
6:20
Speaker 3: John said no, no, no, no, don't listen to him.
6:23
Speaker 3: And he was totally opposed. Why because I think he
6:27
Speaker 3: rightly understood that if I had gone to Harvard that
6:31
Speaker 3: I would have received a certain kind of training. And
6:35
Speaker 3: by that point I was already you know, people will
6:39
Speaker 3: use the word heterodox. I don't like that word, but
6:43
Speaker 3: for lack of a better synonym at the moment, I'll
6:46
Speaker 3: just use it. But you know, I had been reading
6:48
Speaker 3: people like Minski and I was really into that kind
6:51
Speaker 3: of stuff and Veblen and you know, the history of
6:54
Speaker 3: thought really grabbed me. And I think John understood that
6:56
Speaker 3: if I'd gone to Harvard, I would have gotten really
7:00
Speaker 3: conventional training and I wouldn't have been exposed to some
7:03
Speaker 3: of the really interesting thinkers and theorists. So John Henry
7:06
Speaker 3: said go to Cambridge, not Harvard, but go to Cambridge University.
7:09
Speaker 3: And there were people there he thought were interesting. And
7:13
Speaker 3: that's what I ended up doing.
7:14
Speaker 2: Huh. So Thorstin Veblin fascinating, probably the earliest theorist on
7:19
Speaker 2: consumer spending and materialism, and kind of interesting that you
7:23
Speaker 2: gravitated towards that and away from just being cranked out
7:29
Speaker 2: of the factory to become another consultant. Not your path, No,
7:34
Speaker 2: it wasn't.
7:34
Speaker 3: And you know, when I was at Cambridge, i was there,
7:37
Speaker 3: it was a very unusual program because you know, you
7:40
Speaker 3: show up straight out of undergrad you do four courses.
7:44
Speaker 3: Each course is one year long, and at the end
7:46
Speaker 3: of the one year period you start writing a dissertation.
7:50
Speaker 3: And then you're a PhD economist, having four courses at
7:54
Speaker 3: the graduate level under your belt. And I thought, how
7:57
Speaker 3: do you sell yourself as an economist? Really, it just
7:59
Speaker 3: didn't feel right, and I wasn't sure I could compete
8:02
Speaker 3: for a job in academia, which is four courses, and
8:05
Speaker 3: most of the you know, kids, I'll say kids, most
8:08
Speaker 3: of the people that I did the master's degree with,
8:12
Speaker 3: they were flying back to the US and they were
8:14
Speaker 3: interviewing for Wall Street jobs. And I knew that that
8:16
Speaker 3: was not my path. And I've already gotten a fellowship
8:20
Speaker 3: from Cambridge University through christ College to go to the
8:23
Speaker 3: Levy Institute and spend a year working on the dissertation.
8:28
Speaker 3: And so I went away.
8:29
Speaker 2: So this is this is a year of four classes.
8:32
Speaker 2: I finished a full year class. This kind of reminds
8:35
Speaker 2: me a little bit of law school where you're taking
8:37
Speaker 2: the four gut courses towards civil procedure, property and uh
8:44
Speaker 2: law No klo was second year what was the contracts
8:48
Speaker 2: And they're like killer courses and you're taking forum at once.
8:52
Speaker 2: Then you have a full additional year to work on
8:55
Speaker 2: your not PhD dissertation. But master's dissertation. Is that right?
9:00
Speaker 3: No? It would it be the PhD.
9:02
Speaker 2: Oh. So you do a year of four classes and
9:04
Speaker 2: then the pH.
9:05
Speaker 3: And then you write your dissertation and you have a PhD.
9:07
Speaker 2: So I hold the who ho ho? So so you
9:09
Speaker 2: get a PhD from Cambridge and then you go to
9:13
Speaker 2: the New School for a PhD in economics.
9:15
Speaker 3: So I started on the journey I took. I got
9:18
Speaker 3: the fellowship, which was go to the Levi Institute. It's
9:23
Speaker 3: an upstate New York. It's right there on the campus
9:25
Speaker 3: of Bard College, kind of in the Hudson Valley. Very lovely,
9:28
Speaker 3: it's beautiful up there. And so they gave me money
9:31
Speaker 3: and the Levy Institute gave me, you know, office space
9:34
Speaker 3: and housing, and they had this arrangement with Cambridge and
9:36
Speaker 3: the idea was you go when you spend a year
9:38
Speaker 3: there and you start writing, and then you would return
9:42
Speaker 3: and finish up the PhD.
9:43
Speaker 2: So Wolden Pond for economics.
9:46
Speaker 3: Honest, it was like magic. And I get there and
9:49
Speaker 3: Randy Ray is there. He's on a sabbatical, I think,
9:52
Speaker 3: and he's doing research there. But I meet this guy
9:55
Speaker 3: named Wynn Godley, and Godly is just a fascinating character
10:00
Speaker 3: about him a little bit in the book. He really
10:02
Speaker 3: pioneers the work around sectoral financial balances and stock flow
10:06
Speaker 3: consistent modeling. And he's this old British guy who was,
10:10
Speaker 3: you know, quite famous in England as a policy advisor
10:14
Speaker 3: and an economic forecaster. He was known as one of
10:17
Speaker 3: the Seven Wise Men. And anyway, his office was right
10:21
Speaker 3: next to mine. We shared a wall. He would sit
10:23
Speaker 3: in his office and play the Obo and just an
10:27
Speaker 3: amazing person. And I learned so much from him that
10:31
Speaker 3: I got there and I thought, there's so much more
10:33
Speaker 3: to learn. I've done four courses, but I don't know enough.
10:37
Speaker 3: So I started taking the train once a week, I'd
10:39
Speaker 3: go down to New York City and I would sit
10:42
Speaker 3: in on courses at the New School. And I mean,
10:46
Speaker 3: I was surrounded by people I thought were ten times
10:48
Speaker 3: brighter than I was they were more thoughtful. They were
10:51
Speaker 3: having conversations that felt, you know, important and weighty. And
10:55
Speaker 3: I thought, oh, there's no way, you know, I'm not ready.
10:59
Speaker 3: I need to to stick around and do some more coursework.
11:01
Speaker 3: And so that's what happened. I transferred. I finished up
11:05
Speaker 3: at the New School when Godly served on my dissertation committee.
11:08
Speaker 3: And that's that's kind of how the journey unwrapped.
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Speaker 2: Really fascinating. How do you end up in Missouri Kansas City.
11:17
Speaker 3: So another person who had a major impact on my life.
11:21
Speaker 3: A lot of people if they hear his name and
11:24
Speaker 3: recognize it, they'll say, oh, Warren Mosler, the father of MMT.
11:28
Speaker 3: So Warren was funding a small program at the New School.
11:34
Speaker 3: He was supporting some graduate students, and he had a
11:38
Speaker 3: faculty member there named Ednell who had students kind of
11:42
Speaker 3: working on Warren's ideas. And I was part of that group.
11:45
Speaker 3: And Randy Ray who was at the Levy Institute, another
11:50
Speaker 3: economist named Matt Forstatter who was at Levy, and I
11:54
Speaker 3: all ended up going to UMKC in the same year
11:57
Speaker 3: because Warren, you know, provided some seed money to help
12:01
Speaker 3: the graduate student program really kind of build itself up
12:05
Speaker 3: there bring some economists in have a you know what
12:10
Speaker 3: an outpost, I guess for tea and so we all
12:14
Speaker 3: went together.
12:16
Speaker 2: So what brought you in twenty seventeen to my alma matas,
12:20
Speaker 2: Junie stony Brook. What led you to move over there
12:24
Speaker 2: and what's your focus there?
12:27
Speaker 3: Well, my husband was the associate dean at the University
12:30
Speaker 3: of Kansas and I was the chair of the department
12:33
Speaker 3: at the University of Missouri in Kansas City. I had
12:37
Speaker 3: taken a bit of time away to work on the hill,
12:39
Speaker 3: and so anyway we were, you know, the universities are
12:42
Speaker 3: about an hour apart. We lived in Lawrence, Kansas. It's
12:46
Speaker 3: a great little college town. We loved it, you know,
12:49
Speaker 3: season tickets to the men's basketball games and all that
12:51
Speaker 3: kind of stuff. It was a lot of fun. But
12:55
Speaker 3: he had one foot in the administration and one foot
12:58
Speaker 3: in academia. And you know, he a history professor. He
13:01
Speaker 3: writes a lot of books, and so he kind of
13:03
Speaker 3: put himself out there on the job market and he thought, well,
13:05
Speaker 3: I could either go for a dean position, or I
13:07
Speaker 3: could you know, go for some kind of endowed chair somewhere,
13:10
Speaker 3: you know, move up. And so Stonywork had a position
13:15
Speaker 3: for an endowed share in the History Department, and he
13:17
Speaker 3: interviewed for it and they liked him. And then the
13:20
Speaker 3: provost at the time was an economist. I think he
13:23
Speaker 3: had been Jamie Galbraith's roommate at Yale, and he found
13:27
Speaker 3: out who Paul Kelton was married to, and then I
13:30
Speaker 3: think the conversations between the Dean and the provost started.
13:33
Speaker 3: They said, we got to get this two for we
13:36
Speaker 3: got to get him, and so we did. We decided
13:39
Speaker 3: it was it was a great opportunity to you know,
13:42
Speaker 3: go and be together and you know, build and I
13:45
Speaker 3: could do public policy and economics and that was going
13:48
Speaker 3: to be you know, really appealing for me because I
13:50
Speaker 3: was just teaching economics at UMKC.
13:53
Speaker 2: Now you just briefly alluded to your time on the hill.
13:57
Speaker 2: You were the chief economist for the US Senate Budget
14:00
Speaker 2: Committee during was that during the Obama administration.
14:04
Speaker 3: For the Democrats stuff? So, yeah, there are the Republicans
14:08
Speaker 3: have one, the Democrats have one.
14:10
Speaker 2: Who was your who was on the other side.
14:14
Speaker 3: Mike Enzi, Senator Mike Enzie uh huh from Wyoming.
14:19
Speaker 2: Was the Democrat or Republican on the well.
14:23
Speaker 3: The Republicans had the Senate. Democrats had the House at
14:25
Speaker 3: the time, and so Bernie Sanders was the ranking member
14:30
Speaker 3: and hired.
14:32
Speaker 2: Wait, so you're the chief economist for the Democrat US
14:35
Speaker 2: Senate Budget Committee, who was the chief economists for the
14:38
Speaker 2: Republicans bill something, so not someone you interacted a lot
14:43
Speaker 2: with you, No.
14:45
Speaker 3: I when I got to the hill. I think it
14:48
Speaker 3: was just the first few days after I arrived. He
14:51
Speaker 3: reached out to me. It was a really nice guy,
14:53
Speaker 3: and he said, you want to get together and have
14:55
Speaker 3: coffee and I'll kind of tell you how this whole
14:58
Speaker 3: thing works. And I said that would be sure, that'd
14:59
Speaker 3: be really nice. So the two of us sat and
15:02
Speaker 3: it was really interesting because you know, he's chief economist
15:05
Speaker 3: for the senators on the Budget Committee, the Republican side,
15:09
Speaker 3: and I'm there for the Democrats. And he said, look,
15:11
Speaker 3: we're in charge because we have the majority. So periodically
15:15
Speaker 3: every week, couple of weeks or whatever, we're going to
15:17
Speaker 3: call a hearing. We get to decide what the hearing
15:19
Speaker 3: is about, and we're going to get usually three witnesses
15:23
Speaker 3: to testify, and you guys will get two, and we'll
15:25
Speaker 3: try to give you as much notice as we can
15:28
Speaker 3: to liign your witnesses up. We'll go for a week.
15:30
Speaker 3: You won't always get that, but here's how it's going
15:32
Speaker 3: to go. You know, we'll say where you want to
15:34
Speaker 3: have a hearing on you know, I don't know, disability,
15:38
Speaker 3: fraud and disability, or the budget crisis or whatever the
15:42
Speaker 3: hell it is. And you know, maybe we'll reach out
15:45
Speaker 3: to the people at Heritage or CATO or AI or
15:49
Speaker 3: someplace like that, and we'll say, I need a quick
15:50
Speaker 3: paper on X y Z, you know, leading up to
15:53
Speaker 3: this hearing, because they want to make their points as
15:54
Speaker 3: strongly as they can. He said, you might want to
15:57
Speaker 3: reach out to the people at CAP or the Center
15:59
Speaker 3: on Budget Policy Priorities or Washington Center for Equitable Growth
16:03
Speaker 3: or EPI. You know, like you know, you're just so is.
16:05
Speaker 2: That friendly and non adversarial because the you know, when
16:12
Speaker 2: I was growing up, there were different parties, but there
16:16
Speaker 2: was some bipartisan everybody seemed to be focused on what
16:19
Speaker 2: are we going to do to make life better for everybody?
16:22
Speaker 2: And then it just sort of devolved into this partisan
16:25
Speaker 2: wrangling where the sort of collegial dare I say, academic
16:30
Speaker 2: relationship across the aisle that seems to have gone away.
16:35
Speaker 3: Yeah, I mean we had a nice report. I will
16:37
Speaker 3: say that that most of it felt to me very performative.
16:43
Speaker 3: You know, it was you said, making people's lives better.
16:46
Speaker 3: I don't think I ever really had the sense that
16:48
Speaker 3: that was what these hearings were about. A lot of
16:51
Speaker 3: it was allowing folks to have their five minutes of
16:55
Speaker 3: you know, I don't know.
16:57
Speaker 2: Oh, I mean, this is long before a long before W.
17:02
Speaker 2: George W. Bush back in the I don't know, maybe
17:07
Speaker 2: I'm maybe I'm romanticizing. Yeah, Johnson Nixon, Ford, Carter Reagan era,
17:16
Speaker 2: but it seemed like Tip O'Neil and Ronald Reagan. The
17:19
Speaker 2: joke was they would argue all day and then they
17:21
Speaker 2: go out and have a beer together.
17:23
Speaker 1: Yeah.
17:24
Speaker 3: Well, I think there was still some of that around
17:28
Speaker 3: when I was there. And you know, there's certainly you know,
17:30
Speaker 3: Bernie's Sanders for all the you know, personality and so forth,
17:35
Speaker 3: people associate him with a really kind of cantankerous old guy.
17:39
Speaker 3: He's just as friendly as anybody else on the committee.
17:42
Speaker 3: Mike Enzie, the chair of the committee, was just like
17:45
Speaker 3: you'd look at him and think that's my grandpa. You know.
17:47
Speaker 3: He's just a mild mannered, soft spoken very easy. But
17:53
Speaker 3: things have changed obviously.
17:56
Speaker 2: So let's talk a little bit about the book first.
18:00
Speaker 2: What was the inspiration to.
18:01
Speaker 3: Write this frustration? Really? You know, I don't. I don't
18:06
Speaker 3: enjoy writing. I don't like the process. I don't I
18:09
Speaker 3: don't like sitting still that much.
18:12
Speaker 2: That's really interesting.
18:13
Speaker 3: Yeah, I could never write a book because I wanted to.
18:17
Speaker 3: I wrote it because I felt like I had to.
18:20
Speaker 2: I've had that experience. I've had. I've had both. I've
18:23
Speaker 2: had the I just got to get this out because
18:26
Speaker 2: it's burning a hole in my brain. But I've also
18:29
Speaker 2: had the oh, let's have some fun and play with
18:32
Speaker 2: some interesting ideas. That's a little less tedious and cathartic.
18:41
Speaker 2: But this just had to come out. Is that was
18:43
Speaker 2: that you had to get it out of your head
18:45
Speaker 2: or I.
18:46
Speaker 3: Had to get it out. It's so funny that you
18:48
Speaker 3: use that metaphor or that kind of terminology. Because I
18:52
Speaker 3: had a conversation with Mary Ann Williamson.
18:56
Speaker 2: You know, why do I know that name?
18:57
Speaker 3: Because she ran for president? Oh yeah, okay, and I
19:03
Speaker 3: had just moved out to Stonybrook. We just moved to
19:05
Speaker 3: Long Island, and I get this email from this person.
19:09
Speaker 3: I've never heard of before. And she said, we have
19:12
Speaker 3: a mutual friend. And he says that I need to
19:15
Speaker 3: talk to you because I want to try to understand
19:17
Speaker 3: economics better. Can I? I will come to you. You
19:20
Speaker 3: know what would you talk to me? And I said,
19:25
Speaker 3: I guess, so you know, sure you're gonna come to me.
19:28
Speaker 3: So one day I'm sitting in the house sweatpants whatever,
19:31
Speaker 3: you know, T shirt. We're in the basement my husband.
19:33
Speaker 3: I think we're watching a football game or something, and
19:36
Speaker 3: all of a sudden I get the notification on my phone,
19:38
Speaker 3: you know, and it says Marian Williamson is coming at
19:41
Speaker 3: four o'clock or whatever. And I thought, oh, was.
19:43
Speaker 2: She running by that time with like secret service. Oh no, no,
19:46
Speaker 2: so just a very casual drop by years.
19:49
Speaker 3: Before, years before that. And yeah, so I see this notification.
19:55
Speaker 3: I said, oh jesus, you know. My husband said, what
19:58
Speaker 3: I said, somebody is coming over? He said, who's coming over?
20:00
Speaker 3: I said, I don't know. I said, You've got somebody
20:03
Speaker 3: coming over and you don't know who it is. So
20:04
Speaker 3: I google and I see Larry King New York Times Bestsellers,
20:09
Speaker 3: seven books and all the stuff. I thought, Oh Jesus,
20:11
Speaker 3: you know, I got to change, So I changed clothes,
20:14
Speaker 3: I went to the grocer store. I got some, you know,
20:15
Speaker 3: things to put out and host her and so forth.
20:18
Speaker 3: So she's she's a very sweet lady, you know. She
20:22
Speaker 3: came to the house and I mentioned that I was
20:25
Speaker 3: kind of toying with the idea of writing a book,
20:28
Speaker 3: and she said, Darling, you must be pregnant with a book.
20:32
Speaker 2: I get that.
20:33
Speaker 3: Okay, I didn't get it at the time she said it,
20:37
Speaker 3: but I understand it now that it's exactly what you said.
20:40
Speaker 3: There's something that's in you that you just have to
20:44
Speaker 3: push out. And that's the best I can.
20:48
Speaker 2: No, that makes perfect sense. But pregnant with the book
20:51
Speaker 2: is a great listen.
20:52
Speaker 3: I got pregnant, Barry. It wasn't expecting.
20:57
Speaker 2: It's funny because my last book was fit fifteen years ago,
21:01
Speaker 2: and now I have a new one coming out and
21:04
Speaker 2: the next one will be in twenty forty. I'm like,
21:06
Speaker 2: I'm clockwork every fifteen years because it takes not only
21:10
Speaker 2: does it take a lot out of you, but it's
21:14
Speaker 2: you have to really enjoy sitting alone in front of
21:17
Speaker 2: a screen typing, and you end up spending writing is
21:23
Speaker 2: the easy part. It's the eddling. That's so difficult because
21:27
Speaker 2: the first draft is, you know, the final version is
21:31
Speaker 2: ten steps removed from the first draft, and you don't
21:34
Speaker 2: realize how much time you spend thinking about why a
21:38
Speaker 2: semi colon and not a comma in this parrot? Like
21:41
Speaker 2: just dumb things. But it is a birthing process, and
21:46
Speaker 2: it is messy and painful, to say the very least.
21:50
Speaker 2: But that brings me to a really interesting question. The
21:54
Speaker 2: book comes out in June twenty twenty, instant acclaim New
21:58
Speaker 2: York Times bestseller list. How giant of a surprise was
22:03
Speaker 2: that reaction?
22:05
Speaker 3: Huge?
22:06
Speaker 1: Huge?
22:06
Speaker 2: Right?
22:06
Speaker 3: For sure? The phone rang. My editor was on the
22:10
Speaker 3: line and he was just tickled, tickled pink, and he said,
22:14
Speaker 3: I want to be the first to congratulate you, and
22:17
Speaker 3: he he knew what the list was going to look
22:19
Speaker 3: like the next morning, and really.
22:21
Speaker 2: Yeah, wow, So number one on the New.
22:23
Speaker 3: York Times, No number one, but it was in the
22:24
Speaker 3: top whatever it made the list. I think there were
22:28
Speaker 3: fifteen and oh really thirteenth or something.
22:31
Speaker 2: Yeah, amazing, that's amazing. So the book publishes June twenty twenty.
22:36
Speaker 2: I'm going to assume you finished writing that before the pandemic,
22:40
Speaker 2: before the largest government stimulus since World War Two. What
22:45
Speaker 2: was the reaction to putting a book out in the
22:47
Speaker 2: middle of the pandemic?
22:49
Speaker 3: I was it was in January of twenty twenty. I
22:52
Speaker 3: was in Australia and.
22:54
Speaker 2: Oh, so you were out and about traveling.
22:56
Speaker 3: You know, we didn't know it was January.
22:58
Speaker 2: We were in flight in January twenty twenty, and like
23:03
Speaker 2: you didn't have a clue what was coming at all.
23:07
Speaker 3: I was there and I had the copy edited manuscript
23:10
Speaker 3: in front of me, and I remember just going through
23:12
Speaker 3: it one last time, and you know, two months later,
23:18
Speaker 3: the world changed and I managed to get there was
23:21
Speaker 3: room on the last page of the introduction or preface
23:24
Speaker 3: or something like that, and they allowed me to add
23:27
Speaker 3: a paragraph as.
23:27
Speaker 2: Well as it doesn't affect the pagination the rest what
23:30
Speaker 2: they said.
23:30
Speaker 3: That's exactly I got. Really lucky. And so there is
23:34
Speaker 3: some commentary in the hardback the very first, you know,
23:37
Speaker 3: published edition of the book about the pandemic. But that
23:40
Speaker 3: left my hands in March, and in June it was
23:43
Speaker 3: out in stores.
23:44
Speaker 2: So let's talk a little bit about the deficit myth.
23:48
Speaker 2: I've heard pretty much since Ronald Reagan was elected president
23:53
Speaker 2: in nineteen eighty. Deficits are going to crowd out private capital,
23:57
Speaker 2: choke off innovation. It'll reduce this new company formation, It'll
24:02
Speaker 2: make us barring cost skyrocket, will devalue the US dollar.
24:06
Speaker 2: It's going to cause rampant inflation, and it will act
24:09
Speaker 2: as a drag on the overall economy. None of these
24:14
Speaker 2: things have happened. So why should we really care about deficits?
24:18
Speaker 3: Well, so I wrote the book not to say we
24:21
Speaker 3: shouldn't care about deficits, but to say, you know, to
24:25
Speaker 3: address a lot of what you just said, why do
24:27
Speaker 3: people continue to repeat these things decade after decade after decade.
24:30
Speaker 2: I mean, it's we're talking literally my whole forty five years,
24:34
Speaker 2: fifty five years since nineteen eighty. That's a long time,
24:37
Speaker 2: half a century.
24:38
Speaker 3: It's funny because you know, you got Dick Cheney saying
24:41
Speaker 3: Reagan proved deficits don't matter, right, But everybody you know
24:45
Speaker 3: really believes that deficits have the potential, and in some
24:49
Speaker 3: respects not all of it is wrong. You know, there
24:51
Speaker 3: are times where deficits can create problems, but so much
24:55
Speaker 3: of the commentary and the way we think about and
24:59
Speaker 3: talk about and shape policy around beliefs around, you know,
25:04
Speaker 3: the dangers and risks of running budget deficits. I just thought,
25:07
Speaker 3: you know, you almost need a chapter for every one
25:09
Speaker 3: of these different myths. And it's not that deficits don't matter,
25:13
Speaker 3: it's that they matter in ways that we aren't paying
25:16
Speaker 3: attention to. And so the book was really to try
25:19
Speaker 3: to get us to, you know, flip our perspective around,
25:23
Speaker 3: to see that every deficit is good for someone, I mean, right,
25:27
Speaker 3: you know, So a lot of what the book does
25:29
Speaker 3: is to try to make clear why that's the case,
25:31
Speaker 3: Why is every deficit good for someone? In purely financial terms,
25:35
Speaker 3: government deficits are just the mirror image of a financial
25:38
Speaker 3: surplus in the non government part of the economy. So
25:41
Speaker 3: we should talk about deficits for whom, deficits for what. Right,
25:45
Speaker 3: Deficits can be used to accomplish big things like you know,
25:50
Speaker 3: repairing crumbling infrastructure, improving our healthcare education systems, and so
25:57
Speaker 3: on and so forth, that they can also get too big,
26:01
Speaker 3: and they can also exacerbate or cause an inflation problem.
26:05
Speaker 3: So we don't diminish or dismiss any of those things,
26:08
Speaker 3: but really have a very different conversation about the role
26:11
Speaker 3: of deficits in the economy.
26:13
Speaker 2: All right, so let's let's have that conversation. When you
26:15
Speaker 2: say deficits can get too big. I think it was
26:20
Speaker 2: Ryan Hunt and Rogoff's paper set one hundred percent GDP
26:24
Speaker 2: to debt ratio is problems and tipping point right. I
26:27
Speaker 2: mean that was that was the problem. Wasn't the Excel
26:30
Speaker 2: spreadsheet error which changed their math. The problem is Japan
26:35
Speaker 2: is running to fifty percent and their economy seems to
26:39
Speaker 2: be doing just fine. Their quality of life is higher
26:42
Speaker 2: than ours, their life expectancy is higher than ours, their
26:45
Speaker 2: income is comparable. If Japan can run, what are we
26:49
Speaker 2: running like one seventy five two hundred in the US? Oh,
26:52
Speaker 2: we just I.
26:53
Speaker 3: Mean publicly held. I think we just hit ninety nine percent.
26:56
Speaker 2: So we're about one hundred percent. Japan is two and
26:59
Speaker 2: a half times size. Does that suggest we have a
27:02
Speaker 2: long ways to go before the deficit is a problem
27:05
Speaker 2: or are there other potential issues? Well?
27:08
Speaker 3: I just don't think the ratio is a very useful
27:13
Speaker 3: metric in terms of, you know, thinking about when you've
27:16
Speaker 3: quote unquote gone too far. And I think you know,
27:19
Speaker 3: it's always interesting how Japan tends to get left out
27:23
Speaker 3: of the conversation, right, because it really is the counterpoint
27:28
Speaker 3: to so many of these arguments. I mean, the Japanese
27:30
Speaker 3: government pre COVID had been running large, persistent fiscal deficits
27:36
Speaker 3: for three decades. Three decades they had, you know, the
27:40
Speaker 3: tenure interest rate pinned at zero more recently, but they
27:43
Speaker 3: didn't interest rates didn't go up. They didn't suffer the
27:46
Speaker 3: crowding out problem of rising interest rates, you know, pushing
27:50
Speaker 3: investment down. They didn't get an inflation problem. They've been
27:53
Speaker 3: battling deflationary pressures basically the entire time. You never have
27:58
Speaker 3: a failed auction. You don't have a situation where you know,
28:01
Speaker 3: bond vigilantes show up and say that's it, two hundred
28:04
Speaker 3: and fifty percent, we're out of here. All of those
28:07
Speaker 3: things kept not happening, and so we always pointed to Japan,
28:10
Speaker 3: and people say, well, it's demographics. There's some reason that
28:13
Speaker 3: Japan is an exception to the rule. But I think
28:17
Speaker 3: the truth is that it's just we've got so much
28:20
Speaker 3: of it wrong that that's been the reason that all
28:22
Speaker 3: these bad things that we're supposed to happen kept not happening.
28:26
Speaker 2: I just got an email from Washington, DC consultant Bruce
28:31
Speaker 2: Mellman saying, please explain this chart to me showing all
28:35
Speaker 2: these deficits, and how is the United States up here?
28:38
Speaker 2: And how is Japan down here? And I know the
28:41
Speaker 2: answers that Japanese central bank has interest rates said it
28:45
Speaker 2: zero point five percent. You can finance a lot of
28:49
Speaker 2: deficits when the FED is it was at least over
28:53
Speaker 2: five percent for a while and now is barely below it.
28:57
Speaker 2: When you're a tenth of that interest rate, Hey, it's
29:00
Speaker 2: pretty easy to finance deficits. How do you look at
29:04
Speaker 2: the relationship between a country's central bank and its ability
29:08
Speaker 2: to manage its own debt?
29:12
Speaker 3: Well, the central bank, So if we're talking about a
29:14
Speaker 3: country like Japan or the US what i'll call in
29:17
Speaker 3: what I call in the book, you know countries that
29:19
Speaker 3: if issue their own sovereign currencies, it's not even an
29:24
Speaker 3: issue at higher rates of interest. Right, Remember when Volka
29:28
Speaker 3: was fedchair, Reagan was tripling the national debt, right, a
29:33
Speaker 3: massive build up in military, you know, a couple of
29:36
Speaker 3: huge tax cuts. Deficits were increasing, that debt was increasing
29:40
Speaker 3: very rapidly. Interest rates were quite high, but it still
29:43
Speaker 3: doesn't pose a financing challenge is the central bank is
29:47
Speaker 3: just crediting bank accounts. I mean, that's how the payments
29:50
Speaker 3: are made. And you can do that at very high
29:52
Speaker 3: interest rates. You can do that at very low interest rates.
29:54
Speaker 3: But when you get that combination of high interest rates
29:58
Speaker 3: and high debt, right you've got a lot of treasuries
30:01
Speaker 3: or a lot of jgbs, you got a high debt
30:03
Speaker 3: to GDP ratio and high interest rates, you can very
30:07
Speaker 3: easily get into a situation where the rate hikes themselves
30:13
Speaker 3: are generating enough additional interest income that itself can become
30:19
Speaker 3: a source of inflationary pressure. So I would say that's
30:23
Speaker 3: always the relevant risk. It's not that you're going to
30:25
Speaker 3: run out of money, it's not that you're going to
30:26
Speaker 3: turn into grease. It's not that you're going to bankrupt
30:29
Speaker 3: the nation or burden future generations or any of that.
30:31
Speaker 3: It really is all about inflation as a constraint. And
30:35
Speaker 3: you can find yourself in a situation where you have
30:38
Speaker 3: quote too much debt, but in combination with kind of
30:43
Speaker 3: a central bank policy that is pushing interest rates very
30:46
Speaker 3: and then you can get into that sort of.
30:49
Speaker 2: So we had pretty high deficits in the following the
30:52
Speaker 2: financial crisis in the twenty tens, we had no inflation
30:56
Speaker 2: when there was a huge and I mean huge, biggest
31:01
Speaker 2: since the Marshall Plan since World War two, ten percent
31:05
Speaker 2: of GDP as a fiscal stimulus that combined with the
31:09
Speaker 2: shift to products over goods over services and snarled supply
31:15
Speaker 2: lines and a lot of other factors, led to a
31:18
Speaker 2: transitory inflation spike from twenty twenty peaked in June twenty
31:24
Speaker 2: twenty two at nine percent, came back down. Now we're
31:27
Speaker 2: in a three percent era as opposed to a one
31:29
Speaker 2: to two percent era. But it's not the deficit that
31:34
Speaker 2: caused that. It was the fiscal stimulus primarily as the driver.
31:38
Speaker 2: Where do we see or is that the region me?
31:43
Speaker 3: I thought you were setting up a different argument than
31:45
Speaker 3: you went somewhere. I didn't know.
31:46
Speaker 2: I'm gonna say it wasn't the deficit that was a problem.
31:48
Speaker 1: That was.
31:50
Speaker 2: It was the fiscal stimulus that was inflationary, and that
31:53
Speaker 2: inflation seems to be transitory. We had following the financial crisis,
31:58
Speaker 2: we had very modest fiscal stick and massive monetary stimulus,
32:03
Speaker 2: and we were in mostly a deflationary environment. When we
32:06
Speaker 2: shifted from monetary to fiscal seemed that all at once,
32:11
Speaker 2: seemed like that's where we had our transitory inflation spike?
32:15
Speaker 2: Or do you see it? Am I framing it in
32:17
Speaker 2: a way that is incorrect? Tell me what you see here?
32:22
Speaker 3: Well, so I think a couple of things I would unpack,
32:25
Speaker 3: rewind a second and go to QE. And I don't
32:28
Speaker 3: know if you think of that as monetary stimulus.
32:30
Speaker 2: I don't, So you don't. You don't think quantity, So
32:34
Speaker 2: the purchasing of bonds in order to lower interest rates
32:38
Speaker 2: you don't think of as a monetary policy. How do
32:40
Speaker 2: you know?
32:41
Speaker 3: I think of it as monetary policy. To be sure,
32:44
Speaker 3: the central Bank was trying to achieve something by doing that,
32:47
Speaker 3: and in part what they were trying to achieve was
32:49
Speaker 3: pushing down rates at the long end, I think from
32:54
Speaker 3: everything I've read, the evidence suggests that it didn't do
32:58
Speaker 3: very much at the long end. I mean, I've seen estimates,
33:01
Speaker 3: you know, twenty basis points, So you just didn't get
33:04
Speaker 3: a lot out of that. Now, they hoped that, you know,
33:08
Speaker 3: people would reach for yield, you'd have a wealth effect.
33:10
Speaker 3: Maybe there was some of that kind of stuff going on,
33:12
Speaker 3: but in terms of stimulus, what I what I see
33:17
Speaker 3: in retrospect, and what I thought at the moment, right
33:20
Speaker 3: at the time, was that, you know, BERNANKI and the
33:24
Speaker 3: FED were thinking that QE was going to be like
33:27
Speaker 3: stomping on the gas pedal and revving up inflation, and
33:31
Speaker 3: we'd watch the Bank of Japan try and fail at
33:34
Speaker 3: this for at least a decade. I think you figure
33:36
Speaker 3: out why we expected a different result here from what
33:39
Speaker 3: they got there. But we went ahead and tried anyway,
33:42
Speaker 3: and you know, three rounds of QE and Operation Twist
33:45
Speaker 3: thrown in in the middle, right, and still we didn't
33:48
Speaker 3: get to two percent over the course of a decade.
33:51
Speaker 3: So if that's monetary stimulus, I don't know. You know,
33:55
Speaker 3: I'm struggling to see it that way.
33:58
Speaker 2: So let me throw something at you that is not heterodox.
34:02
Speaker 2: And my economist friends disagree with me on this, but
34:06
Speaker 2: I'm pretty convinced I'm right. I find the wealth effect
34:11
Speaker 2: at the very least has been greatly exaggerated, and then
34:15
Speaker 2: in the real world, I think it's kind of meaningless
34:18
Speaker 2: because look when you look at who. So the wealth
34:22
Speaker 2: effect is defined as a rising stock market leads to
34:26
Speaker 2: greater economic activity, which I think is backwards. I think
34:29
Speaker 2: you have good economic activity. People get hired, they get raises,
34:33
Speaker 2: they go and spend money. That ultimately leads to a
34:36
Speaker 2: rising stock market. And the reality is when the stock market,
34:40
Speaker 2: aside from crashes and like eight or nine one, people
34:44
Speaker 2: panic sold things and I don't mean just stocks, but houses, cars, collectibles, art, whatever.
34:52
Speaker 2: When you don't have the stock market rising, that doesn't
34:55
Speaker 2: affect eighty percent of the population. You know, the vast
35:00
Speaker 2: majority of equities are held by the top one percent,
35:03
Speaker 2: ten percent, twenty percent. I think top twenty percent is
35:05
Speaker 2: something like three quarters of all equities are less than
35:08
Speaker 2: the top quartile. So the wealth effect isn't an effect
35:13
Speaker 2: people raising wages affects people spending. And by the way,
35:18
Speaker 2: the wealthy, however you want to describe, it's the top
35:20
Speaker 2: one percent ten percent. They tend to spend no matter
35:24
Speaker 2: what the stock market's doing. You know, if they want
35:27
Speaker 2: a new car or a vacation or a new house,
35:30
Speaker 2: they tend to go get it regardless. So the whole
35:34
Speaker 2: concept if the FED was engaging in QE because they
35:38
Speaker 2: thought it would awaken the animal spirits via the wealth effect,
35:42
Speaker 2: well are we you and I in agreement that their
35:45
Speaker 2: fundamental premise is just completely wrong.
35:47
Speaker 3: We are.
35:48
Speaker 2: Yeah.
35:48
Speaker 3: I mean, maybe there was some kind of placebo effect
35:51
Speaker 3: associated with QE. If people thought it did a certain thing,
35:54
Speaker 3: they behave in that way and it has real impacts
35:57
Speaker 3: on the economy short term or something like that. But
35:59
Speaker 3: it sure didn't appear to do what the Central Bank
36:03
Speaker 3: anticipated and hoped it would do. And one of the
36:06
Speaker 3: things I can remember, you know, people like Janet Yellen
36:08
Speaker 3: and Ben Bernanki, when they would get pressed on this
36:10
Speaker 3: what are you hoping will happen? You know, they would
36:14
Speaker 3: bring up the wealth effect and the reach for yield
36:16
Speaker 3: and that sort of stuff. But you know, I remember
36:18
Speaker 3: Bernanki testifying before Congress, and Congress was really frustrated in
36:22
Speaker 3: the wake of the financial crisis, Like, you know, unemployment
36:25
Speaker 3: is still really high. The economy is clearly not getting
36:28
Speaker 3: juiced by whatever it is you're doing.
36:30
Speaker 2: Which, by the way, is a very typical post financial
36:33
Speaker 2: crisis scenario if you look at history, that's what those
36:37
Speaker 2: recoveries tend to look like.
36:39
Speaker 3: Yeah, I mean, you know, you got one fiscal package,
36:42
Speaker 3: the American Rescue Recogniact, Right, it seemed like a big
36:47
Speaker 3: number at the time, seven hundred and eighty seven billion,
36:49
Speaker 3: but it wasn't nearly enough given what we were up against.
36:52
Speaker 2: And so a third was a temporary extension of unemployment,
36:55
Speaker 2: a third was a temporary tax cut yep, and a
36:58
Speaker 2: third was remember shovel I do two hundred billion dollars.
37:02
Speaker 2: I mean, yeah, the first Cares Act was en x
37:07
Speaker 2: that it's a joke.
37:08
Speaker 3: It was. It was way too small, and as you
37:11
Speaker 3: just said, the way that it was put together was
37:14
Speaker 3: not going to provide a big shot in the arm
37:16
Speaker 3: for the economy. And so here's Bernanki sitting before Congress,
37:20
Speaker 3: and congressmen are really upset. They're saying, what is going on.
37:24
Speaker 3: You're supposed to fix stuff. You know, it's your job.
37:26
Speaker 3: We gave you the dual mandate. Why isn't it Why
37:29
Speaker 3: isn't it being fixed? And Bernanki said, and I mean
37:32
Speaker 3: I remember this, you know it's a quote. He said,
37:34
Speaker 3: let me just say that monetary policy is not a panacea.
37:39
Speaker 3: It's not the ideal tool.
37:42
Speaker 2: WHOA.
37:42
Speaker 3: When he said that, I was like, you know what,
37:46
Speaker 3: when he's not telling you that fiscal policy is the
37:49
Speaker 3: ideal tool, but he's telling you that fiscal policy is
37:52
Speaker 3: the ideal tool.
37:53
Speaker 2: Was that was he too nuanced for the geniuses in Congress.
37:57
Speaker 3: You have to think, you have to think, I mean speak.
38:00
Speaker 2: I'm doing your job and I don't have the tools
38:02
Speaker 2: that you have. Yeah, so don't expect the same results.
38:05
Speaker 3: I'm pressing the buttons at the keyboard. I'm buying mortgage
38:08
Speaker 3: backed securities and treasuries and I'm hoping it does something.
38:12
Speaker 3: But you all have the real firepower and you're not
38:15
Speaker 3: using it. That's what he said. And so when COVID came,
38:18
Speaker 3: I think we really did learn the lesson this time.
38:20
Speaker 2: Maybe you a little too much.
38:21
Speaker 3: And you know, but you had the collision. So, yeah,
38:24
Speaker 3: you have an economy that is largely shut down. As
38:27
Speaker 3: you said, You've got consumers who can't you spend money
38:30
Speaker 3: on services because most of that part of the economy
38:33
Speaker 3: is closed. So we all try shoving what money we
38:36
Speaker 3: do have into the goods pipeline, and goods have to
38:39
Speaker 3: be manufactured and shipped, and then we all remember what
38:42
Speaker 3: that was like, you know, backups at the ports and
38:44
Speaker 3: all the rest of it. So that collision of constrained
38:47
Speaker 3: supply and some demand. Yes, to be sure, the stimulus
38:53
Speaker 3: packages from CARES on through helped people right, not only
38:58
Speaker 3: replace income, but in some cases people ended up with
39:01
Speaker 3: more income than they had when they were working. And
39:04
Speaker 3: so all of those things together, and then you have
39:07
Speaker 3: to remember that the pandemic came in waves. It wasn't
39:10
Speaker 3: just you know, one time shock. We thought we were
39:12
Speaker 3: kind of, you know, moving beyond it, and then here
39:14
Speaker 3: came delta, and then here came omicron, and then different
39:18
Speaker 3: parts of the world closing at different times. So I think, Barry,
39:21
Speaker 3: when you look at the the autopsies that people have
39:24
Speaker 3: tried to do, say, where did all this inflation come from?
39:27
Speaker 3: Was it really that last stimulus package? Was it the
39:30
Speaker 3: fourteen hundred dollars checks that you know, some economists warned,
39:34
Speaker 3: we're going to put us over the edge. People who've
39:36
Speaker 3: gone and I think, done the really serious work here,
39:39
Speaker 3: you know, Peter Orzag, Robin Brooks and somebody else. They
39:42
Speaker 3: have a paper Bernanky and Blanchard, Olivia Blansharp and Burnet.
39:45
Speaker 3: You have papers. The IMF has looked at this, different
39:48
Speaker 3: federal Reserve banks have looked. When you cut across all
39:51
Speaker 3: of the research that's been published, I think virtually everyone
39:55
Speaker 3: lands in the direction of it was overwhelmingly the supply
40:00
Speaker 3: side stuff. It wasn't the demand stamus that played a role,
40:04
Speaker 3: but it was a modest one. And I'm writing about
40:06
Speaker 3: this now, so I'm really steeped in, you know, going
40:09
Speaker 3: back and revisiting.
40:10
Speaker 2: What so when we say supply side, how much of
40:15
Speaker 2: this were the where the we remember seeing all the
40:18
Speaker 2: ships off of the port and Long Beach. I have
40:22
Speaker 2: a vivid recollection of interviewing Professor Jeremy Siegel of Wharton
40:27
Speaker 2: after I don't remember if it was the first Cares
40:29
Speaker 2: Act or the second Cares Act. I'm pretty sure it
40:32
Speaker 2: was before the third Cares Act. So CARES Act one
40:35
Speaker 2: and two under Trump, one, Cares Act three under Biden.
40:41
Speaker 2: And I recall Siegel saying, we're gonna have a massive
40:45
Speaker 2: seventies like spike in inflation. No one's prepared for it.
40:49
Speaker 2: The only good news is it'll be transitory. And he
40:54
Speaker 2: like long before anyone was even using the I word,
40:57
Speaker 2: Siegel was all over this based on the fiscal side.
41:00
Speaker 2: Are you saying did he get lucky or was it
41:03
Speaker 2: fiscal plus supply shocks?
41:06
Speaker 3: Well, I'm saying it was fiscal plus. I mean, you know,
41:09
Speaker 3: I had a piece in the New York Times in
41:11
Speaker 3: April of twenty twenty.
41:13
Speaker 2: I kind of remember that.
41:15
Speaker 3: I mean, that was my sort of warning on inflation.
41:18
Speaker 3: I submitted it. It was just ready to go in March,
41:20
Speaker 3: but you know, they liked to hold things, and so
41:22
Speaker 3: it was published in April. But I don't think that
41:26
Speaker 3: that last fiscal package is what gave us that burst
41:29
Speaker 3: of inflation. This, this is what I'm suggesting, is you
41:34
Speaker 3: go back and you do a really careful retrospective on this,
41:38
Speaker 3: and yeah, it played a role, But was it the
41:42
Speaker 3: reason that we tipped over? We wouldn't have had the
41:44
Speaker 3: inflation that we had, you know, hitting nine percent by
41:47
Speaker 3: the summer of that year, by twenty twenty two, you know,
41:51
Speaker 3: getting that inflation. This was a global phenomenon, right, Countries
41:54
Speaker 3: that did massively less fiscal than we did still the
41:58
Speaker 3: same or more in some cases more inflation. So I think,
42:03
Speaker 3: you know, the truth is it was pandemic. It was
42:06
Speaker 3: pandemic related, it was supply chain, and inflation went up
42:10
Speaker 3: for reasons mostly related to the pandemic and the disruptions,
42:14
Speaker 3: and it came down for reasons mostly related to the
42:18
Speaker 3: working out of the kinks and the supply chains and
42:21
Speaker 3: you know, resolving some of those issues.
42:24
Speaker 2: So I have a vivid recollection of ed Yardini, another economist,
42:29
Speaker 2: who wrote, when you have very rapid increases in inflation,
42:34
Speaker 2: they tend not to be structural, and they tend to
42:36
Speaker 2: be resolved in almost a symmetrical way. The chart looks,
42:41
Speaker 2: you know, if you have a fast rise, you tend
42:42
Speaker 2: to have a fast drop off. He was pretty right
42:45
Speaker 2: about that. And when you go, and he was basing
42:47
Speaker 2: this on when you looked at the history of previous
42:50
Speaker 2: inflationary shocks, what you don't want is a long, slow,
42:53
Speaker 2: gradual increase that suggests structural underpinnings. You want, Oh, we
42:59
Speaker 2: have this temporary issue. It'll eventually be resolved. I think
43:02
Speaker 2: the problem was that transitory took longer than everybody expected.
43:05
Speaker 2: But that still doesn't mean it's structural. It was still transitory.
43:09
Speaker 3: Look, you're a brave man. I know using the T
43:13
Speaker 3: word is still the kind of thing that gets your
43:16
Speaker 3: head lopped off in certain circles. But I think that's right.
43:19
Speaker 3: And the part of the story that we haven't mentioned,
43:21
Speaker 3: of course, is the war and entered the role of
43:24
Speaker 3: energy and food. And you know, I spent the last
43:26
Speaker 3: two days I'm working on this new book. And so
43:29
Speaker 3: I went back and I reread every speech that Jerome
43:33
Speaker 3: Pell has given it Jackson Hall from twenty twenty to
43:37
Speaker 3: twenty twenty four, and you can see, you know, his
43:41
Speaker 3: thinking in real time. And when you read them all,
43:44
Speaker 3: you know, one after the other, you really see his thinking.
43:48
Speaker 3: Initially with the transitory and then the war starts and
43:52
Speaker 3: he starts emphasized.
43:53
Speaker 2: Twenty twenty two was the war Russian invasion of UK.
43:57
Speaker 3: Yeah, and so that becomes a much big part, and
44:00
Speaker 3: you can hear him saying, you know, this is where
44:03
Speaker 3: it's coming from. This is what's driving We still have
44:05
Speaker 3: problems with supply chains. Now we have this new problem.
44:08
Speaker 3: So it wasn't a supply side shock.
44:11
Speaker 2: It was a multiple Yeah.
44:13
Speaker 3: We were just getting hit left and right, shock after
44:15
Speaker 3: shock after shock, and they fed through the system. And
44:18
Speaker 3: then at some point when you get to energy, you know,
44:20
Speaker 3: then all bets are off because it's transportation, it's fertilizer,
44:23
Speaker 3: which gets food, which gets and then it's just you know,
44:26
Speaker 3: we we sort of live that before in the seventies.
44:29
Speaker 3: You know how quickly an energy price increase can bleed
44:33
Speaker 3: through into you know, broader consumer good categories.
44:37
Speaker 2: I just read an article somewhere online recently about used
44:42
Speaker 2: car prices are still elevated, and it's directly related to
44:46
Speaker 2: semiconductor's manufacturing. We're closed for a year or so. It
44:51
Speaker 2: takes a long time to ramp that up. So by
44:55
Speaker 2: twenty twenty three, when we finally get back to normal production,
45:00
Speaker 2: you have three almost four years of new car production
45:04
Speaker 2: down substantially worldwide. Hey, fast forward to or three years now,
45:09
Speaker 2: you have a shortage of used cars that's still out there.
45:12
Speaker 2: How long are we going to be dealing with the
45:14
Speaker 2: fallout from the supply side shock of the pandemic in
45:18
Speaker 2: twenty twenty it's half a decade later, we're still feeling
45:22
Speaker 2: effects of that.
45:24
Speaker 3: Yeah, I mean, we have words for things like this
45:26
Speaker 3: when the labor market experiences a really negative shock and
45:31
Speaker 3: then in the disrupt it doesn't sort itself out. We
45:33
Speaker 3: talk about labor scarring and historyesis and this sort of stuff.
45:37
Speaker 3: I don't know that there's a term to use for
45:40
Speaker 3: stuff like this, but maybe there needs to be. And
45:43
Speaker 3: you're right. I mean, once we finally got chips again,
45:45
Speaker 3: they weren't the right kinds of chips, and so it
45:48
Speaker 3: does take a very long time. An event like, this
45:51
Speaker 3: is not something you flip the switch off and then
45:54
Speaker 3: you know. I used to say, when the pandemic started,
45:57
Speaker 3: you could park your car in a garage, turn the keys,
46:00
Speaker 3: you know, turn the engine off, toss the keys in
46:03
Speaker 3: the in the front seat of the car, and go
46:06
Speaker 3: on vacation to Europe and come back eighteen months later
46:08
Speaker 3: and start the car and drive and everything would be fine.
46:11
Speaker 3: But you can't shut the economy down that way and
46:14
Speaker 3: just turn it off and then expect to come back
46:16
Speaker 3: a year later. You got a vaccine, let's open everything up,
46:18
Speaker 3: turn it back on, and things work smoothly. It's just
46:21
Speaker 3: not going to happen.
46:22
Speaker 2: And then complicating things are following the financial crisis, at
46:26
Speaker 2: least in the US. I can't talk globally. We underbuilt
46:29
Speaker 2: single family homes here for pretty much a decade that
46:33
Speaker 2: didn't lack of supply didn't help pricing for either homes,
46:37
Speaker 2: starter homes or rentals. But I want to address a
46:41
Speaker 2: labor which you mentioned and hysteresis and scarring that. You
46:46
Speaker 2: have a very interesting line in the book that kind
46:49
Speaker 2: of struck me. Unemployment is always a policy choice. Explain
46:55
Speaker 2: what that means.
46:57
Speaker 3: Well, it means that if you truly wanted to eradicate
47:03
Speaker 3: I mean big thinking, right, involuntary unemployment? What is involuntary unemployment?
47:08
Speaker 3: Anybody who wants a job, is ready, willing and able
47:11
Speaker 3: to work, but can't find a job, you're involuntarily unemployed.
47:15
Speaker 3: Suppose you had a policy whereby you said, the federal
47:22
Speaker 3: government will fund a job for anybody who wants to work,
47:25
Speaker 3: wants to contribute, can't find work anywhere else in the economy,
47:29
Speaker 3: at some base wage maybe benefit package. You have a
47:33
Speaker 3: federally funded, locally administered job. Right you can contribute, you
47:38
Speaker 3: could eliminate involuntary unemployment. I'll scay quote unquote overnight. Right
47:43
Speaker 3: once the policy is announced and you're prepared to provide
47:47
Speaker 3: the jobs for people to have actual things for them
47:50
Speaker 3: to do, then anybody who's still walking around without work
47:55
Speaker 3: is voluntarily unemployed. We tend to worry about people who
47:58
Speaker 3: are involuntarily unemployed.
48:00
Speaker 2: So what does MMT do for us in terms of
48:05
Speaker 2: this unemployment issue. We don't really worry about it these
48:08
Speaker 2: days because unemployment has a four handle on it. But
48:12
Speaker 2: for most of my adult life we've had unemployment rates
48:15
Speaker 2: as high as five six seven percent outside of crises.
48:21
Speaker 2: Why haven't we been more aggressive the way let's say
48:24
Speaker 2: Germany or Japan or Switzerland act when there's an economic contraction. Really,
48:30
Speaker 2: isn't a whole lot of people involuntarily unemployed in those countries?
48:36
Speaker 3: Well, I mean, I think unemployment had a three handle
48:39
Speaker 3: before the pandemic. That would have been an outstanding time
48:44
Speaker 3: my opinion, to introduce a program like this, right, because
48:47
Speaker 3: the take up rate would have been relatively.
48:49
Speaker 2: Small, would have been cheap to do.
48:51
Speaker 3: Yeah, So you put it in place then, and for
48:53
Speaker 3: people who say sometimes people say, well there was no unemployment,
48:56
Speaker 3: I say, great, then that's exactly the right time to
48:58
Speaker 3: do it. Announce whatever you're willing to pay, and say
49:01
Speaker 3: that you're willing to hire people. And if no one
49:03
Speaker 3: shows up, that's just fine. Right, But now the policy,
49:07
Speaker 3: you've stood up the policy and the program is there
49:09
Speaker 3: so that when an event like COVID happens, you don't
49:13
Speaker 3: have to throw twenty thirty million people into the ranks
49:17
Speaker 3: of the unemployed. You can transition people from the job
49:21
Speaker 3: that they're about to lose into some new job and
49:25
Speaker 3: would truncate the downturn. It would replace income or a
49:28
Speaker 3: portion of income, probably not replacing full income for most
49:32
Speaker 3: people who lose jobs, But it would be a very
49:35
Speaker 3: powerful automatic stabilizer. Those people could transition into paid work.
49:40
Speaker 3: They'd have a job record, and future employer could call
49:43
Speaker 3: and say, what kind of work is you know buried?
49:45
Speaker 3: Does he get there on time? Does he picked fights
49:47
Speaker 3: with his coworker? Is you a pretty good guy? And
49:49
Speaker 3: then as the income is supported and the economy begins
49:53
Speaker 3: to recover, those people can transition back into private sector job.
49:57
Speaker 3: So it works like a very powerful buffer stock, like
50:00
Speaker 3: a cushion for the economy through the business cycle.
50:04
Speaker 2: Sounds a lot like what Claudia Sam form of FED
50:07
Speaker 2: researcher and creator of the Sam rule, has talked about
50:11
Speaker 2: putting automatic stabilizers in place so that it's not a
50:14
Speaker 2: partisan hot potato. When there's a big downturn, there's a
50:19
Speaker 2: way to cush in the blow and reduce the unemployment rate.
50:25
Speaker 2: So we're talking about modern monetary theory, we're talking about spending.
50:30
Speaker 2: What we haven't really talked about is taxes. What are
50:33
Speaker 2: the role of taxes in deficits and modern monetary theory?
50:40
Speaker 3: Well, taxes are for subtraction. That's how I think of it.
50:43
Speaker 3: I don't think at the federal level. I don't think
50:46
Speaker 3: of taxes for revenue's sake. Really, Yeah, I know it sounds.
50:54
Speaker 2: Well, it sounds Trumpian because some people have argued that
50:57
Speaker 2: he wants to move to a tariff system, which is
51:00
Speaker 2: effectively like a European vat tax only at the border
51:04
Speaker 2: instead of a consumption. I don't know if it's a
51:08
Speaker 2: negotiating stance, so what have you? But less focus on
51:13
Speaker 2: federal taxes, more focus on other revenue sources.
51:16
Speaker 3: Right, But he's still thinking of tariffs as a revenue source,
51:19
Speaker 3: so he just wants to change the allocation where the
51:22
Speaker 3: revenue comes from. I don't think he's thinking that. You
51:25
Speaker 3: know that taxes or tariffs don't generate revenue that the
51:29
Speaker 3: federal government in a sense needs to pay the bills.
51:33
Speaker 3: So what I'm saying is for the federal government, I
51:36
Speaker 3: don't think of taxes or the role of taxes as
51:39
Speaker 3: generating revenue that the government needs in order to pay
51:42
Speaker 3: the bills. So what do taxes do. Well, they subtract
51:47
Speaker 3: money from the rest of us. So every dollar that's
51:49
Speaker 3: taxed away from you is a dollar you don't have
51:51
Speaker 3: and you can't use to chase after goods and services.
51:53
Speaker 3: In the economy. So one important function of taxes is
51:58
Speaker 3: to reduce purchasing power in the non government part of
52:03
Speaker 3: the economy, right, so consumers, businesses have less to spend.
52:07
Speaker 3: That makes room for the government's own spending so that
52:10
Speaker 3: it can spend money into the economy without creating inflationary pressure. So,
52:14
Speaker 3: right now, the federal government this last fiscal year spent
52:19
Speaker 3: let me just use rough numbers, let's call it seven trillion, right,
52:22
Speaker 3: and collects five point two trillion in taxes and other revenue,
52:28
Speaker 3: mostly from taxes, So get a one point eight trillion
52:31
Speaker 3: dollar fiscal deficit. So what does that mean. It means
52:34
Speaker 3: that they've made a deposit of one point eight trillion.
52:37
Speaker 3: That's a financial contribution that goes into the broader economy,
52:42
Speaker 3: and we can then talk about, you know, where it
52:44
Speaker 3: goes and what good it's doing in the economy. But
52:48
Speaker 3: taxes are important because they pull money out and our
52:52
Speaker 3: one potential way to regulate inflationary pressure. Obviously, they can
52:56
Speaker 3: be used it make changes to the tax code if
52:58
Speaker 3: you care about the distribution of come in wealth and
53:01
Speaker 3: you want to make some kind of change because you
53:03
Speaker 3: think things have gotten too concentrated, or you can use
53:06
Speaker 3: it for incentivizing and disincentivizing behaviors, but the big one
53:10
Speaker 3: is regulating inflationary pressure.
53:14
Speaker 2: So let's talk about the opposite of MMT. Right after
53:17
Speaker 2: the financial crisis, when a lot of economies around the
53:20
Speaker 2: world were precariously balanced at the knife edge, you had
53:26
Speaker 2: the Austerians come out and very puritanical belief that deficits
53:33
Speaker 2: excess fiscal spending, really any good time is problematic, and
53:39
Speaker 2: we must all pay for our sins. And so we
53:41
Speaker 2: saw that in the UK, we saw it to some
53:43
Speaker 2: degree in Greece other parts of Europe. How do you
53:47
Speaker 2: look at these folks that are pushing on austerity argument
53:53
Speaker 2: into a weak economy.
53:56
Speaker 3: I mean it's economically illiterate, okay, I mean it certainly
54:01
Speaker 3: didn't work out well to say nothing, we'll hold Brexit aside.
54:06
Speaker 2: The UK's recovery was pretty weak, Europe generally was pretty weak.
54:11
Speaker 2: Of all places, Greece seems to be doing really well today.
54:15
Speaker 2: Germany is in and out of recession, like wherever you
54:18
Speaker 2: look around, France and Poland and just Spain is doing okay.
54:24
Speaker 2: But all these countries have been having ongoing economic contractions.
54:30
Speaker 2: Do they need to raise their deficit. Do they need
54:32
Speaker 2: to do a little more fiscal spending? What's the economic
54:36
Speaker 2: malaise source in Europe?
54:39
Speaker 3: Well, I mean it's just what Cain's told us in
54:43
Speaker 3: nineteen thirty six. It's a lack of effective demand. I
54:46
Speaker 3: don't think it's necessarily the case that it's got to
54:49
Speaker 3: be government fiscal deficit. But somebody's got to spend more.
54:53
Speaker 3: So how do you do that? I mean, there are
54:55
Speaker 3: two ways to generate this thing we call economic growth.
54:58
Speaker 3: Somebody's some part of the economy has to spend more
55:01
Speaker 3: than its income, and if the private sector does it,
55:04
Speaker 3: that can work for a period of time. But that
55:06
Speaker 3: generally involves leverage.
55:08
Speaker 2: Right, a little bit of credit, borrowing whatever.
55:10
Speaker 3: Yeah, barring, and that can be fine. But as the
55:13
Speaker 3: engine of growth, what we've seen is that when you
55:16
Speaker 3: rely disproportionately or sometimes entirely on private sector to generate
55:22
Speaker 3: that growth, it ends very badly. That's basically what happened.
55:25
Speaker 3: You know, when Bill Clinton was president and you had
55:28
Speaker 3: the budget, federal budget in surplus for four years in
55:31
Speaker 3: a row, ninety eight through two thousand and one. The
55:34
Speaker 3: government's budget was in surplus, and a lot of folks
55:36
Speaker 3: looked at that and said, oh my god, we finally
55:38
Speaker 3: did it. You know, let's celebrate the miracle of the
55:41
Speaker 3: federal surpluses. Isn't this a great thing? And there were
55:44
Speaker 3: people like I mentioned earlier when Godly who were writing
55:48
Speaker 3: about this in real time and saying, man, this is
55:50
Speaker 3: going to end badly because those government surpluses that everybody
55:54
Speaker 3: is celebrating are being built on the backs of private
55:58
Speaker 3: sector indebtedness. That it was the private sector that was
56:01
Speaker 3: spending more than its income, running deficits year after year.
56:06
Speaker 3: Wind said, it can go on for a while, but
56:08
Speaker 3: it can't go on forever, and when it ends, it's
56:11
Speaker 3: going to be really bad. Of course, we had a
56:13
Speaker 3: recession in two thousand and one and then the surpluses disappeared,
56:17
Speaker 3: government's budget moved back into deficits. So, yeah, these countries
56:20
Speaker 3: have to figure out some way to generate the demand.
56:24
Speaker 3: And it doesn't have to be from government, but it
56:27
Speaker 3: tends to be the more sustainable way to sort of
56:34
Speaker 3: create enough demand to keep an economy operating in close
56:38
Speaker 3: proximity to full employment.
56:40
Speaker 2: So, following those four consecutive years of surplus, we had
56:45
Speaker 2: the dot com implosion and then the recession, and then
56:49
Speaker 2: towards the very the last month or two of the recession,
56:51
Speaker 2: we had September eleventh, and then eventually we ended up
56:55
Speaker 2: with not just the creation of homeland security and a
56:59
Speaker 2: whole bunch of increase in wartime and defense spending, but
57:03
Speaker 2: you also had a pretty substantial tax cut under President Bush.
57:08
Speaker 2: Did that giant tax cut and all that extra deficit spending,
57:14
Speaker 2: did that then shift that private sector deficit over to
57:21
Speaker 2: the government, and did things end up a little better
57:23
Speaker 2: balanced because the economy wasn't terrible, it was just over
57:28
Speaker 2: leveraged as we had headed into the financial crisis exactly.
57:32
Speaker 3: Yeah. I mean when consumers pull back right, because the
57:38
Speaker 3: government surpluses are like they work like a hoover. They're
57:41
Speaker 3: just vacuuming up net financial assets. They're sucking dollars off
57:46
Speaker 3: of the balance sheets of the private sector. That's what happens.
57:48
Speaker 3: And at some point the private sector christ uncle, and
57:51
Speaker 3: they want to spend less and save more. That alone
57:54
Speaker 3: will tend to move the government's budget back into deficit.
57:57
Speaker 3: So much of the you know, year to year movement
58:00
Speaker 3: in the fiscal balance is driven not by what Congress
58:03
Speaker 3: is doing, but by what the private sector wants to
58:07
Speaker 3: do do they want to save more they're trying to
58:09
Speaker 3: save more or are they okay spending more and saving less.
58:13
Speaker 3: Government's budget is endogenous in that way, will automatically move around.
58:17
Speaker 3: As the economy started to slow down, George W. Bush,
58:20
Speaker 3: Republicans realized, oh, we should have a policy response. The
58:24
Speaker 3: economy is slowing. So you got the tax cuts in
58:26
Speaker 3: two thousand and one, and then you got another one
58:28
Speaker 3: in two thousand and three. Right move. I mean, the
58:31
Speaker 3: right impulse was to relax fiscal policies. So I give
58:35
Speaker 3: them credit. Maybe I wouldn't have structured the tax cuts
58:37
Speaker 3: the way that they did, and you got a big
58:39
Speaker 3: expansion of medicare as well r D.
58:42
Speaker 2: Right, that was really substantial. So last question on the book.
58:49
Speaker 2: You're right that Obama was essentially a fiscal conservative when
58:54
Speaker 2: it came to policy. I don't think the average person
58:57
Speaker 2: thinks of Barack Obama as a fiscal conservative or certainly
59:01
Speaker 2: a fiscal policy conservative.
59:03
Speaker 3: Explained, Well, like we were talking earlier about that fiscal package.
59:09
Speaker 3: You know that's seven hundred and eighty seven billion dollars.
59:11
Speaker 3: When he was coming in to office, the first time,
59:15
Speaker 3: the wheels were coming off, they were off the economy,
59:18
Speaker 3: and he had people around him. You know, Christina Romer
59:22
Speaker 3: was an economic policy advisor, you see, Berkeley professor. She
59:25
Speaker 3: went on to become chair of the Council of Economic Advisors.
59:28
Speaker 3: But she told Barack Obama, this is your holy moment.
59:32
Speaker 3: She was trying to say, this is not going to
59:35
Speaker 3: be your garden variety recession. You can't do some little,
59:38
Speaker 3: you know, tinkering and some modest fiscal package, and all
59:41
Speaker 3: of this is going to be in the rear view mirror.
59:43
Speaker 3: This is this is big, right, and she could see
59:47
Speaker 3: that this had the potential to be the worst economic
59:49
Speaker 3: downturn since the Great Depression. And her memo was to
59:54
Speaker 3: encourage Barack Obama to go really big on fiscal Now,
59:57
Speaker 3: a lot of people have written about this, and and
1:00:00
Speaker 3: there were others in Barack Obama's.
1:00:02
Speaker 2: Circle, the guys Larry Sommer.
1:00:05
Speaker 3: Yeah, Larry Summer's David Axelrod, I think I put in
1:00:09
Speaker 3: my book famously said you cannot be talking about anything
1:00:13
Speaker 3: that has the tea in it, not trillion trillion meaning trillion.
1:00:16
Speaker 3: You're going to give people sticker shock, he said. And
1:00:19
Speaker 3: so you know, they the I think the men basically
1:00:22
Speaker 3: said don't listen to Christina Romert, you got to go
1:00:25
Speaker 3: for something more modest. And then what he did was
1:00:28
Speaker 3: try to negotiate with Republicans to try to bring some
1:00:31
Speaker 3: of them on board. Didn't get any but ended up
1:00:34
Speaker 3: changing the package so that you had about a third
1:00:36
Speaker 3: of it in the form of tax cuts, hoping to
1:00:38
Speaker 3: sweeten the deal and pull some Republicans in. Didn't work.
1:00:42
Speaker 2: Uh.
1:00:42
Speaker 3: And then when it became clear that the fiscal uh,
1:00:46
Speaker 3: that the fiscal response was too small, and voices came back,
1:00:49
Speaker 3: and you have people like Paul Krugman and all kinds
1:00:51
Speaker 3: of people saying, you know, Congress, you got to get
1:00:53
Speaker 3: back in there, you got to do another package. By
1:00:56
Speaker 3: that point, you know, Barack Obama and the economists around
1:01:00
Speaker 3: him had pivoted to austerity. They were talking about, you know,
1:01:05
Speaker 3: what can we do with a commission to try to
1:01:07
Speaker 3: get the deficit down by four trillion dollars at least,
1:01:09
Speaker 3: and all this sort of stuff. And we're looking over
1:01:11
Speaker 3: at what's happening to Greece and Spain and some of
1:01:14
Speaker 3: the periphery countries that how can we.
1:01:16
Speaker 2: Make those same mistakes? Yeah? Right, it seems sort of
1:01:20
Speaker 2: I have a vivid recollection of having a dinner with
1:01:23
Speaker 2: about eight ten people, and Paul was one of the
1:01:26
Speaker 2: people at the dinner around this time, and I remember
1:01:31
Speaker 2: sort of floating the idea, Hey, you know, this is
1:01:35
Speaker 2: the first time I've seen in my lifetime that the
1:01:39
Speaker 2: party that doesn't hold the White House is actively trying
1:01:42
Speaker 2: to sabotage the economy to regain the Like we you
1:01:47
Speaker 2: mentioned economic literacy. I said, you can't come out of
1:01:52
Speaker 2: a financial crisis and say no fiscal stimulus, and that's
1:01:56
Speaker 2: effectively what Congress said, And it kind of got hooopooed
1:02:00
Speaker 2: back in twenty eleven and twelve ten years later, people like, oh, okay,
1:02:06
Speaker 2: maybe this, you know, there was some purposeful economic literacy
1:02:13
Speaker 2: that conveniently made the economy less attractive for a president
1:02:19
Speaker 2: running for reelection.
1:02:20
Speaker 3: Yeah, so we ran the opposite experiment. It's just too
1:02:23
Speaker 3: bad that it had to run against the backdrop of
1:02:25
Speaker 3: globally constrained supply chains, because we don't still have an
1:02:30
Speaker 3: opportunity to just road test what if we really just
1:02:33
Speaker 3: engaged the fiscal lever and instead of relying so much
1:02:37
Speaker 3: on monetary policy, which is what we did for the
1:02:39
Speaker 3: previous three decades. It's just the central banks will take
1:02:43
Speaker 3: the economic steering wheel and fiscal can mostly worry about
1:02:46
Speaker 3: just trying to balance the budget or something.
1:02:48
Speaker 2: Well, certainly, since eight oh nine, to let's call it
1:02:53
Speaker 2: twenty seventeen, the Tax Cuts and Job Act pure monetary policy,
1:02:58
Speaker 2: almost no fiscal policy, see, and we saw the result.
1:03:02
Speaker 2: It was a subpar weak job creation, little wage gains,
1:03:07
Speaker 2: poor sentiment, poor consumer spending. As soon as the fiscal
1:03:11
Speaker 2: spigots opened up, things seem to begin to By twenty seventeen,
1:03:15
Speaker 2: things seventeen things had already sort of gotten better. But
1:03:21
Speaker 2: you know, that was a trillion and change, so I
1:03:23
Speaker 2: only had a positive effect on GDP.
1:03:26
Speaker 3: Monetary policy works by trying to get people to spend
1:03:28
Speaker 3: more out of the same income, and fiscal policy works
1:03:32
Speaker 3: by trying to get people to spend more out of
1:03:34
Speaker 3: more income. So this shouldn't be a huge surprise, which
1:03:37
Speaker 3: one tends to be. The more you know, have, the
1:03:40
Speaker 3: more potent response.
1:03:42
Speaker 2: Especially when you're coming off a decade or two of
1:03:44
Speaker 2: low interest rates. It's one thing when your mortgage goes
1:03:47
Speaker 2: from eight percent to four percent. Hey, we could refinance,
1:03:51
Speaker 2: and we have a little extra cash in our budget.
1:03:53
Speaker 2: But you can't do that from three percent to two percent.
1:03:56
Speaker 2: It's just there's no juice left in the limit. Let's
1:04:00
Speaker 2: talk a little bit about what we've been seeing over
1:04:03
Speaker 2: the past couple of decades and what it means for
1:04:06
Speaker 2: public policy today. I have to start by talking about
1:04:11
Speaker 2: how few recessions we've seen over the past twenty years.
1:04:15
Speaker 2: We had the financial crisis, that the recession began in
1:04:19
Speaker 2: I think October seventh or December seven, something like that,
1:04:23
Speaker 2: and then we ever so briefly had a pandemic recession.
1:04:29
Speaker 2: That's pretty much it. It seems we're having fewer recessions
1:04:34
Speaker 2: and we're responding to them quicker than we used to.
1:04:36
Speaker 2: How do you see the depth and frequency of recessions
1:04:41
Speaker 2: these days?
1:04:43
Speaker 3: Yeah, it's a good question. I definitely agree we've had
1:04:48
Speaker 3: longer stretches between them when they've happened. With the exception
1:04:53
Speaker 3: of I guess the global financial crisis, they have been
1:04:58
Speaker 3: somewhat weaker. That was obviously a big When COVID has
1:05:01
Speaker 3: it is its own unique thing. I don't know, Barry.
1:05:06
Speaker 3: I mean sometimes I feel like Larry Summers had it right,
1:05:10
Speaker 3: you know, years ago when he said we only know
1:05:14
Speaker 3: one way to grow the economy and that's through bubbles
1:05:18
Speaker 3: that we get a good run up in. You know,
1:05:21
Speaker 3: whether it's the SNL period or the dot com era
1:05:25
Speaker 3: or the housing bubble. You know, something comes along and
1:05:29
Speaker 3: provides a nice tailwind, and we get a what looks
1:05:33
Speaker 3: like a long, robust expansion, except it's sort of sowing
1:05:37
Speaker 3: the seeds of its own destruction. And then we end
1:05:40
Speaker 3: up with a recession. But we've gotten very good at
1:05:43
Speaker 3: clean up on Aisle four. You know, we respond, and
1:05:47
Speaker 3: then we set the table and we do it again.
1:05:49
Speaker 2: I'm always happy to push back on anything Larry Summers says,
1:05:53
Speaker 2: because he is so frequently wrong and yet so widely
1:05:58
Speaker 2: louded and regarded. Hey, the twenty tens a gradual, slow
1:06:03
Speaker 2: recovery from the financial crisis, despite the lack of fiscal stimulus,
1:06:10
Speaker 2: and despite the FEDS zup policy that wildly stimulated asset prices.
1:06:19
Speaker 2: We didn't have a bubble the pandemic. We still don't
1:06:22
Speaker 2: have a bubble. If you want to say maybe crypto
1:06:26
Speaker 2: is a bubble or AIS a bubble, I guess you
1:06:29
Speaker 2: can make that case. But so far there's the difference
1:06:35
Speaker 2: between a broad society wide bubble like the led to
1:06:40
Speaker 2: the financial crisis where you had really the bubble was
1:06:44
Speaker 2: in mortgages. We no longer care about your ability to
1:06:48
Speaker 2: service the debt. We just want to It's all about
1:06:50
Speaker 2: our ability to sell the debt to a securitizer that
1:06:54
Speaker 2: was clearly a bubble. It's kind of hard to say
1:06:57
Speaker 2: we're in the midst of a big bubble of me today.
1:07:01
Speaker 2: It's always obvious in hindsight. Are we in a bubble today?
1:07:06
Speaker 2: Can we say that this has been a pretty robust
1:07:10
Speaker 2: fifteen year run with no bubbles?
1:07:14
Speaker 3: Look, I don't I don't know. I think that things
1:07:18
Speaker 3: have felt awfully bubbly to me for at least a
1:07:23
Speaker 3: few years. I mean, you can it was the spackfa
1:07:27
Speaker 3: the spack craze.
1:07:28
Speaker 2: Oh god, that's a decade ag, I.
1:07:30
Speaker 3: Know, but it you know, these things come and then
1:07:32
Speaker 3: they transition, and then it's the next thing. It's you know,
1:07:35
Speaker 3: we did the memes stock thing. Now we have AI
1:07:38
Speaker 3: at Crypto and it feels tenuous. Let us I.
1:07:44
Speaker 2: Try and draw a distinction between these giant, bubblicious, impacting
1:07:51
Speaker 2: society things that you know, feels like it's just taken
1:07:55
Speaker 2: over everything that dot COM's felt like it just took
1:07:57
Speaker 2: over everything in the late nine these and people forget
1:08:01
Speaker 2: the Greenspan speech was ninety six, the irrational exuberance speech.
1:08:05
Speaker 2: You still had another for almost five years of growth.
1:08:09
Speaker 3: Well that was Kine's point, right, The market can stay
1:08:12
Speaker 3: irrational longer than you can stay solvent, which is what
1:08:15
Speaker 3: makes it so tough to find the entry point to
1:08:17
Speaker 3: come in and say yeah, we're here.
1:08:19
Speaker 2: You know, you know Canes had. I still don't understand
1:08:23
Speaker 2: why so many people fight against what have been such
1:08:28
Speaker 2: self evident observations by Canes. Of course, when you have
1:08:34
Speaker 2: a contraction, it's the government that should spends, but no
1:08:39
Speaker 2: one wants to do the flip side of that, which
1:08:41
Speaker 2: is when you have a robust economy, that's where the
1:08:44
Speaker 2: government should be. That's where you can think about a deficit,
1:08:47
Speaker 2: not in a contraction. Why do so many economists ignore
1:08:53
Speaker 2: the brilliant insights that Lord Kaines had a century ago.
1:08:58
Speaker 3: Well, well, I think we got you know, stripped of
1:09:01
Speaker 3: most of the really interesting stuff. When Hicks and Hanson
1:09:06
Speaker 3: gave us the sort of islm interpretation of John Maynard Kaynes.
1:09:11
Speaker 3: It took out a lot of the really interesting you know,
1:09:14
Speaker 3: the role of expectations and psychological impulses and all of
1:09:19
Speaker 3: that sort of stuff, and it became this kind of
1:09:21
Speaker 3: static you know. LM curve go up, I curve go down.
1:09:25
Speaker 3: We pretend we can analyze the economy as having two
1:09:28
Speaker 3: separate and distinct spears of spheres, a monetary and a
1:09:31
Speaker 3: real side of the economy. And I just don't think
1:09:34
Speaker 3: people go back and read the original text, and so
1:09:37
Speaker 3: the rich stuff too often gets left out.
1:09:41
Speaker 2: Meaning explain the rich stuff from Canes the animal spirits.
1:09:47
Speaker 3: Well, people use the phrase animal spirits, but they use
1:09:49
Speaker 3: it loosely to just mean that when people start feeling good, optimistic,
1:09:56
Speaker 3: that it means they're willing to take on some more risk,
1:09:58
Speaker 3: make more investment. They sort of turn it into that.
1:10:01
Speaker 3: Where I would say Chapter seventeen is the most important
1:10:04
Speaker 3: chapter in the general theory, it's also the hardest one
1:10:07
Speaker 3: for most people to understand. That's where Caines deals with
1:10:12
Speaker 3: things like the own rates of interest in liquidity preference theory,
1:10:15
Speaker 3: and that's what I'm talking about that's very hard to
1:10:20
Speaker 3: tease out and to bring forward in the ISLM framework.
1:10:24
Speaker 3: It's kind that you can argue that it's embedded in
1:10:26
Speaker 3: the LM curve it's there somewhere, but nobody sort of
1:10:30
Speaker 3: manipulates the standard Canesian model in ways that really reflect
1:10:36
Speaker 3: that deep concern of Kynes's in terms of the role
1:10:39
Speaker 3: of long term expectations and liquidity preference and that sort
1:10:41
Speaker 3: of stuff.
1:10:42
Speaker 2: So we're recording this towards the first quarter of twenty
1:10:47
Speaker 2: twenty five. We're in full DOGE administration mode, the Department
1:10:54
Speaker 2: of Government Efficiency. How do you look at all these
1:10:58
Speaker 2: federal layoffs, all these people in DC that we don't
1:11:02
Speaker 2: know if these job losses are going to stick with
1:11:05
Speaker 2: the courts are going to say, But hypothetically we lose
1:11:08
Speaker 2: ten or twenty percent of the federal government three million workers.
1:11:13
Speaker 2: What does that do to the economy, Well, it throws.
1:11:16
Speaker 3: A lot of people out of work, and then through
1:11:18
Speaker 3: a multiplier effect. Now we go back to Keynes, it's
1:11:21
Speaker 3: not just the person who loses their job and now
1:11:24
Speaker 3: has no income or has income replaced on unemployment at
1:11:28
Speaker 3: a lower rate or whatever. It's the jobs that are
1:11:30
Speaker 3: tied to those jobs. And so when millions of people
1:11:34
Speaker 3: are hundreds of thousands of people in this case, I
1:11:37
Speaker 3: guess start losing their jobs, it means less spending, which
1:11:41
Speaker 3: means less income for someone else, which means they go
1:11:43
Speaker 3: on to spend less. I think it was You'll probably
1:11:46
Speaker 3: know very better than I will. I think it was
1:11:49
Speaker 3: Torsten's lock. I think who put out a note for
1:11:52
Speaker 3: clients just maybe a week or so ago that said
1:11:54
Speaker 3: basically three x whatever. You know, if you think that
1:11:57
Speaker 3: one hundred thousand people are going to lose their jobs,
1:11:59
Speaker 3: it's more like three. It's three to one. Right, You're
1:12:01
Speaker 3: not just.
1:12:02
Speaker 2: Looking canes and multiplier.
1:12:03
Speaker 3: Effective to the macro effects. So I don't know this
1:12:07
Speaker 3: haphazard thing. Do you respond to any email or this
1:12:11
Speaker 3: is no way to go about looking for smart ways
1:12:15
Speaker 3: to trim you know, and find efficiencies in government.
1:12:19
Speaker 2: So from a modern monetary theory perspective, what are the
1:12:24
Speaker 2: smart ways to approach public policy? Do you think about
1:12:28
Speaker 2: deficits to think about spending?
1:12:31
Speaker 3: Well, the big thing that frustrated me when I served
1:12:34
Speaker 3: on the Budget Committee was the fact that no one
1:12:36
Speaker 3: and I mean not a staffer, not a senator, not
1:12:40
Speaker 3: anyone on either side of the aisle ever gave the
1:12:43
Speaker 3: briefest moment of concern care attention to inflation.
1:12:48
Speaker 2: You're seeing there that is genuinely shocking.
1:12:52
Speaker 3: Absolutely shocking, frustrating, maddening. You got people writing bills, you know,
1:12:58
Speaker 3: a trillion dollar infrastructre your bill of Medicare for all,
1:13:01
Speaker 3: bill of this bill of budget or whatever. And the
1:13:04
Speaker 3: mentality is if you can just stitch up the numbers
1:13:08
Speaker 3: such that the amount of money you want to spend
1:13:11
Speaker 3: is offset by you know, savings elsewhere in the budget
1:13:15
Speaker 3: or new revenue, then you've done your job, because now
1:13:18
Speaker 3: you have deficit neutral legislation and you're good to go
1:13:22
Speaker 3: and you can go vote and you've been fiscally responsible.
1:13:25
Speaker 3: And Kelton is sitting in the room going, oh my god,
1:13:28
Speaker 3: you guys. You know, you're talking about spending let's say,
1:13:32
Speaker 3: trillions of dollars into the economy, and let's suppose it
1:13:36
Speaker 3: was some big, ambitious, green new deal infrastructure whatever program,
1:13:39
Speaker 3: trillions of dollars, and your plan is to completely offset
1:13:44
Speaker 3: that spending with new revenue. But you're only going to
1:13:47
Speaker 3: get the new revenue from a handful of people at
1:13:50
Speaker 3: the very top of the income distribution of corporate tax increase,
1:13:53
Speaker 3: the wealth tax, or financial trans out, whatever it is.
1:13:56
Speaker 3: You know, they throw all this stuff around, you're potentially
1:13:59
Speaker 3: open us up to a huge inflation problem because You're
1:14:04
Speaker 3: going to broadly spend trillions into the hands of people
1:14:06
Speaker 3: in the economy while only removing by taxing money from
1:14:11
Speaker 3: people at the very top of the income distribution. And
1:14:14
Speaker 3: I look at that and say, this is not fiscally responsible.
1:14:18
Speaker 3: If you're doing this in a fiscally responsible way with
1:14:21
Speaker 3: an MMT lens, you're not asking how do I ensure
1:14:25
Speaker 3: that my spending is deficit neutral? You're asking how do
1:14:28
Speaker 3: I ensure that my spending will be inflation neutral? And
1:14:31
Speaker 3: that's an entirely different problem for an agency, Congressional budget office,
1:14:37
Speaker 3: for omb for other people who are thinking about and
1:14:40
Speaker 3: writing federal legislation. You have to approach this in a
1:14:43
Speaker 3: completely different way.
1:14:44
Speaker 2: So I'm going to assume you're not a big fan
1:14:46
Speaker 2: of the Elizabeth Warren wealth tax sort of thing, or
1:14:50
Speaker 2: even some of what Bernie Sanders has proposed with another
1:14:55
Speaker 2: tax bracket for the wealthiest people. I don't think that's
1:14:59
Speaker 2: how people generally perceive MMT. Am I mischaracterizing this or
1:15:04
Speaker 2: is that accurate?
1:15:05
Speaker 3: I mean you're accurate. We talked earlier about what is
1:15:08
Speaker 3: the purpose of the tax, and I said, the big
1:15:10
Speaker 3: one is it removes It removes income from somebody, and
1:15:14
Speaker 3: why would you want to do that. Well, one reason
1:15:16
Speaker 3: is to make sure that they don't have those dollars
1:15:19
Speaker 3: and they can't spend them, because it helps you regulate
1:15:21
Speaker 3: inflationary pressure. But I also said you could make changes
1:15:24
Speaker 3: to the tax code if you have, you know, deep
1:15:27
Speaker 3: concerns about concentrations of wealth and income. If you think
1:15:31
Speaker 3: things have gotten to extreme, there are things you can do.
1:15:34
Speaker 3: You can close loopholes, you can think about new ways
1:15:36
Speaker 3: to raise revenue, can look at the estate tax, you
1:15:38
Speaker 3: can look at and that's a legitimate thing to do
1:15:42
Speaker 3: or to think about through an MMT lens, independent of
1:15:46
Speaker 3: how much revenue will it raise. And that's how Senator
1:15:49
Speaker 3: Warren's Senator Sanders. They tend to think of these as
1:15:53
Speaker 3: I need to get money to pay for X, Y
1:15:56
Speaker 3: and Z. Rich people have a lot of money. Therefore,
1:15:59
Speaker 3: let's tax rich people so that we can be fiscally
1:16:02
Speaker 3: responsible and pay for our spending. And I just think
1:16:05
Speaker 3: from an MMT perspective, that is not the way to
1:16:08
Speaker 3: go about it.
1:16:09
Speaker 2: The Willie Sutton theory of taxation. So I doubt that
1:16:14
Speaker 2: you're going to get this phone call. But hypothetically this
1:16:18
Speaker 2: administration reaches out to Professor Calton and says, hey, we're
1:16:22
Speaker 2: really thinking about extending the twenty seventeen tax cuts and
1:16:26
Speaker 2: job ACKed. We could do it for ten years, because
1:16:29
Speaker 2: that's what the rule is. We could do it for
1:16:31
Speaker 2: five years and not worry about the offset at someone
1:16:34
Speaker 2: else's problem. What do you tell them about the TCJA,
1:16:40
Speaker 2: which some people accused of being very and a lot
1:16:43
Speaker 2: of the data supports it was very heavy towards the top.
1:16:48
Speaker 2: Pick a number ten percent, five percent, two percent of earners.
1:16:53
Speaker 3: I mean the number that gets quoted a lot is
1:16:56
Speaker 3: that eighty three percent of the benefits went to people
1:17:00
Speaker 3: the top one percent of the income distribution that's on
1:17:02
Speaker 3: the personal tax.
1:17:03
Speaker 2: Have you seen the prices of portions and ferraris, they've
1:17:06
Speaker 2: gone through the room. These people need some help.
1:17:11
Speaker 3: So look, I mean, on the I always think of
1:17:14
Speaker 3: inflation kind of that's my first stop on the train ride.
1:17:18
Speaker 3: So I heard a lot of people saying, if these
1:17:21
Speaker 3: tax cuts are extended, it's going to exacerbate the inflation problem,
1:17:25
Speaker 3: and I said, no, it's not. I mean, come on right,
1:17:27
Speaker 3: we're just talking about a continuation of what's been in
1:17:29
Speaker 3: place already for the better part of that new stimulus
1:17:34
Speaker 3: of any kind, so that I set that aside.
1:17:37
Speaker 2: So if this is, if JA is renewed, non inflationary,
1:17:43
Speaker 2: but there's still some inflation out in the economy, and.
1:17:47
Speaker 3: They're talking not just about an extension, but you know,
1:17:51
Speaker 3: they might have to fiddle with the numbers because they've
1:17:53
Speaker 3: only given themselves I'm saying, only only given themselves four
1:17:56
Speaker 3: and a half trillion in headroom on the tax side.
1:17:59
Speaker 3: So if the president wants things in there like no
1:18:02
Speaker 3: tax on social Security, no tax on overtime, no tax
1:18:05
Speaker 3: on tips, well you're not going to fit that in
1:18:08
Speaker 3: that four and a half trillion. So now what are
1:18:10
Speaker 3: they going to do. They're going to go and take
1:18:12
Speaker 3: a look at some of the corporate stuff, some of
1:18:15
Speaker 3: the personal stuff. Maybe they go for an extension of
1:18:18
Speaker 3: three or five years so that they can create a
1:18:20
Speaker 3: little bit of headroom to add some of these other things.
1:18:23
Speaker 3: There's inflation potential in that. Now you hear talk of
1:18:28
Speaker 3: a doze dividend and five thousand dollars checks. I mean,
1:18:31
Speaker 3: we're getting into some serious money here.
1:18:35
Speaker 2: If the fourteen hundred dollars Cares Act one was inflationary,
1:18:40
Speaker 2: what does that mean for what would a five thousand
1:18:42
Speaker 2: dollars check do for PEDA.
1:18:44
Speaker 3: Okay, so let's remember the first Cares Act was March
1:18:49
Speaker 3: of twenty twenty and that package included twelve hundred dollars checks.
1:18:54
Speaker 3: That was President Trump. And then at the end of
1:18:56
Speaker 3: the year, in December of twenty twenty, you got the
1:18:59
Speaker 3: nine hundred bills billion dollar package that included a six
1:19:03
Speaker 3: hundred dollars check. That was President Trump was after the election,
1:19:06
Speaker 3: but he's still president. He didn't want to send a
1:19:09
Speaker 3: six hundred dollars check. He was really mad about that.
1:19:11
Speaker 3: He said he wanted at least two thousand, four thousand.
1:19:15
Speaker 2: Yeah, that's a big number.
1:19:17
Speaker 3: It's a big number. And he said it ought to
1:19:19
Speaker 3: be two thousand. He's in fact, he said six hundred
1:19:21
Speaker 3: is like an insult, and is said, I want two
1:19:24
Speaker 3: thousand per the individual and four thousand per family. But
1:19:27
Speaker 3: he couldn't get it, so he had to settle for
1:19:29
Speaker 3: the six hundred dollars check. And then it was Biden
1:19:32
Speaker 3: three months later in March of twenty twenty one, who
1:19:35
Speaker 3: came in with the fourteen hundred, which when you added
1:19:37
Speaker 3: to the six hundred two thousand, which is what Trump
1:19:40
Speaker 3: wanted all along. Ironically, it's a lot of the Republicans
1:19:44
Speaker 3: who are the loudest at complaining about that fourteen hundred
1:19:47
Speaker 3: dollars check being the thing that tipped us into you know,
1:19:51
Speaker 3: the great inflation.
1:19:53
Speaker 2: Of the It's never one thing, it's always a multiplicity
1:19:56
Speaker 2: of different Yeah.
1:19:58
Speaker 3: So all of those things definitely put a lot of
1:20:01
Speaker 3: money into people's hands, and it definitely helped support consumer spending,
1:20:06
Speaker 3: and I mean it modestly increased inflationary pressure. So now
1:20:11
Speaker 3: I think they're talking about you know, a five thousand
1:20:14
Speaker 3: dollars check going to households what seventy seventy six or
1:20:17
Speaker 3: so million households.
1:20:19
Speaker 2: Wow.
1:20:20
Speaker 3: Yeah, but they're saying, no, don't worry, because that money
1:20:23
Speaker 3: was going to be spent by government anyway. And we're
1:20:25
Speaker 3: finding all these efficiencies and so we're just gonna let
1:20:28
Speaker 3: you spend the money instead of letting the federal government
1:20:31
Speaker 3: spend money. Problem is the math.
1:20:32
Speaker 2: Doesn't work well, you know math who really believes numbers
1:20:37
Speaker 2: should add up anyway? All right, before we get to
1:20:39
Speaker 2: our favorite question, I just have a curveball to throw
1:20:44
Speaker 2: at you. When I was an undergraduate at sunny Stony Brook,
1:20:50
Speaker 2: the head of the math department was a guy named
1:20:53
Speaker 2: Jim Simons who eventually set up Renaissance Technologies. You've been there,
1:20:58
Speaker 2: Did you ever get a chance to to meet Professor Simons?
1:21:03
Speaker 3: I did not meet him, but I had a couple
1:21:05
Speaker 3: of encounters with him. One in particular, it was kind
1:21:09
Speaker 3: of funny. I was right in the middle of the
1:21:12
Speaker 3: pandemic twenty twenty. I don't remember what month it was,
1:21:15
Speaker 3: but it must have been reasonably nice out because I
1:21:17
Speaker 3: was sitting in the house drinking coffee one morning and
1:21:20
Speaker 3: I happened to look over my shoulder into our backyard
1:21:23
Speaker 3: and I see we live on the north shore of
1:21:25
Speaker 3: Long Island, and I see these two kayakers pulling this
1:21:29
Speaker 3: little dinghy boat up to our dock, and there are
1:21:32
Speaker 3: two older people in the boat. And I said to
1:21:34
Speaker 3: my husband, go find out what is going on. Who's
1:21:37
Speaker 3: getting towed up to the dock. And so he leaves.
1:21:41
Speaker 3: He goes outside, and I see the couple climb out
1:21:44
Speaker 3: of this little boat and they tie it up to
1:21:45
Speaker 3: the dock and they go walking up and my husband's
1:21:48
Speaker 3: gone for a while and he finally comes back and
1:21:50
Speaker 3: he says to me, you'll never guess who that was.
1:21:53
Speaker 3: And I don't know what made me say it, except
1:21:55
Speaker 3: I knew he lived in the area. I said, Jim
1:21:57
Speaker 3: Simon's and he said, how did you know that? I
1:22:00
Speaker 3: don't know.
1:22:00
Speaker 2: I just un believe.
1:22:02
Speaker 3: Yeah, there he was. You know, I pictured a yacht,
1:22:05
Speaker 3: but no, it was a tiny little outboard.
1:22:09
Speaker 2: I'm sure there's a yacht or two flowing somewhere in
1:22:11
Speaker 2: the Mediterranean or down in the Caribbean. All right, let's
1:22:14
Speaker 2: jump to our favorite questions while we still have you,
1:22:18
Speaker 2: starting with what have you been doing to stay entertained?
1:22:22
Speaker 2: What are you watching or listening to these days? Yeah?
1:22:25
Speaker 3: I feel like it was a long dry spell where
1:22:28
Speaker 3: we couldn't agree on anything. You're talking about streaming like
1:22:31
Speaker 3: Coflix or whatever. We could not agree. My husband will
1:22:35
Speaker 3: start something, I watch half of it, I hate it.
1:22:37
Speaker 3: We stopped. So we went back and rewatched Miss Masel
1:22:40
Speaker 3: because he loved that at the same time.
1:22:42
Speaker 2: Yeah, and then although it did kind of go off
1:22:45
Speaker 2: the rails in the last couple of seasons.
1:22:47
Speaker 3: Well we enjoyed that was okay. We both loved that.
1:22:50
Speaker 3: And then two nights ago we started streaming nineteen twenty three,
1:22:54
Speaker 3: the second season. Oh really, I love I watched that.
1:22:58
Speaker 2: That's part of the Yellowstone.
1:23:00
Speaker 3: Yeah, I was on an airplane and I'd never heard
1:23:02
Speaker 3: of the thing. And years ago I watched I think
1:23:05
Speaker 3: they had five episodes available and I just ate them up,
1:23:08
Speaker 3: and then I came home and said, you got you
1:23:10
Speaker 3: got to watch this with me. I'll start it all
1:23:11
Speaker 3: over with you. And so a couple days ago, I
1:23:14
Speaker 3: think season two came out.
1:23:15
Speaker 2: So huh, I'm gonna I'm gonna definitely have to check
1:23:17
Speaker 2: that out. Tell us about the mentors who affected your career,
1:23:22
Speaker 2: who helped shape the economists you are today.
1:23:25
Speaker 3: Well, I mentioned John Henry early on. That's an undergrad mentor,
1:23:30
Speaker 3: and then graduate kind of my masters, that's Randy Ray
1:23:34
Speaker 3: I also mentioned, and then when Godly came after, and
1:23:40
Speaker 3: then Warren Mosler. I know, those are the four men
1:23:44
Speaker 3: who I think, more than anyone else, shaped not just
1:23:48
Speaker 3: my professional life, but in a lot of ways just
1:23:52
Speaker 3: my life.
1:23:53
Speaker 2: Huh, really really interesting. Let's talk about books. What are
1:23:56
Speaker 2: some of your favorites? What are you reading right now?
1:23:59
Speaker 2: Although I know when you're wrapping up a book, there's
1:24:02
Speaker 2: no time to read other books other than research.
1:24:05
Speaker 3: It's exactly right. I go back and I consult books now,
1:24:09
Speaker 3: mostly for the purpose of working on this book. But
1:24:12
Speaker 3: I'm an old school you know, like I think people
1:24:16
Speaker 3: should read Veblin. I think they should read The Theory
1:24:19
Speaker 3: of Business Enterprise. I think they should read the Theory
1:24:21
Speaker 3: of the Leisure Class. I think people should read Minski.
1:24:24
Speaker 3: I think, you know, Stabilizing an unstable Economy is really
1:24:28
Speaker 3: hard to plow through. But Can It Happen Again is
1:24:31
Speaker 3: a wonderful little book. People should read anything by John
1:24:35
Speaker 3: Kenneth Galbraith. Right now, I'm reading Galbray's son, James Galbraith
1:24:42
Speaker 3: and his co author Jing Chen have a new book
1:24:46
Speaker 3: just came out last month called Entropy Economics, So I
1:24:49
Speaker 3: just started that.
1:24:50
Speaker 1: Huh.
1:24:51
Speaker 2: You know, that's the worst part about writing a book
1:24:54
Speaker 2: is you just have to put all your reading that's
1:24:56
Speaker 2: not related off to a side. It's no fun. Our
1:24:59
Speaker 2: final two questions, what sort of advice would you give
1:25:02
Speaker 2: to a recent college grad interest in the career and
1:25:05
Speaker 2: either economics or academia.
1:25:09
Speaker 3: I think anybody who wants to study economics should try
1:25:12
Speaker 3: to find a program where they can get exposed to
1:25:16
Speaker 3: a broad array of you know, diversity of views, a
1:25:21
Speaker 3: pluralist program if you like something where you know, every
1:25:25
Speaker 3: class you walk into isn't going to be some version
1:25:28
Speaker 3: of itself general equilibrium theory and that sort of thing.
1:25:32
Speaker 3: Try to find places where to as much as you
1:25:35
Speaker 3: can you get what might have won one day been
1:25:37
Speaker 3: called political economy. You know, where you can actually read
1:25:41
Speaker 3: interesting thinkers and do more than just i'll say sterile
1:25:47
Speaker 3: agent based modeling and all that. You want the real
1:25:50
Speaker 3: world in there. You want finance and banking. You know,
1:25:52
Speaker 3: these people who came out of economic and finance programs
1:25:57
Speaker 3: ahead of the GFC. A lot of people said, I
1:26:00
Speaker 3: couldn't make sense of what was happening because we never
1:26:03
Speaker 3: had any room in our models for finance or banks
1:26:06
Speaker 3: or credit. We didn't talk about any of those things.
1:26:08
Speaker 2: Huh, really interesting. And our final question, what do you
1:26:12
Speaker 2: know about the world of failing the blank? Public policy, economics,
1:26:17
Speaker 2: deficit spending today? You wish you knew twenty five or
1:26:21
Speaker 2: so years ago when you were first getting started.
1:26:23
Speaker 3: So that conversation I had when I was an undergraduate
1:26:27
Speaker 3: about where to go to graduate school, and I can
1:26:30
Speaker 3: remember Randy Ray saying, if you go to Harvard, you
1:26:34
Speaker 3: won't suffer the slings and arrows that you'll suffer if
1:26:38
Speaker 3: you go to a program like Notre Dame at the time,
1:26:42
Speaker 3: or the New School or something like that. I'll never
1:26:44
Speaker 3: forget him saying you can avoid the slings and arrows.
1:26:48
Speaker 3: That was thirty years ago, and I think I didn't
1:26:52
Speaker 3: take the advice. I went to Cambridge, England, and then
1:26:54
Speaker 3: I went to the News School, and I have definitely
1:26:57
Speaker 3: suffered the slings and arrows over many years. I think
1:27:01
Speaker 3: I wish I had known or understood better just how
1:27:07
Speaker 3: petty and aggrieve a lot of academics can be.
1:27:11
Speaker 2: What's the old joke, Why is academic politics so vicious
1:27:15
Speaker 2: because the right there is so little at stake. Yeah,
1:27:19
Speaker 2: it's really true.
1:27:20
Speaker 3: Yeah it is. I didn't understand at the time, but
1:27:24
Speaker 3: I live to learn right.
1:27:25
Speaker 2: But you know, the academic lifestyle is really not a
1:27:29
Speaker 2: bad lifestyle. You get to work with bright young students.
1:27:33
Speaker 2: It's usually college towns or lovely parts of the country.
1:27:40
Speaker 2: It sounds like you enjoy being a professor and your
1:27:43
Speaker 2: husband enjoys being a dean.
1:27:46
Speaker 3: Well, he's a professor, sob.
1:27:48
Speaker 2: Is he still teaching or is he head of the
1:27:50
Speaker 2: department or both?
1:27:51
Speaker 3: He's he's a professor. He's got an endowed chair in
1:27:54
Speaker 3: the history department, but as of a month or so ago,
1:27:58
Speaker 3: he is once again back in the day office. He's
1:28:00
Speaker 3: an associate dean now, so he's doing both well.
1:28:04
Speaker 2: Stephanie, thank you for being so generous with your time.
1:28:08
Speaker 2: We have been speaking with Stephanie Kelton. She is professor
1:28:12
Speaker 2: of economics and public Policy at Stonybrook University and author
1:28:17
Speaker 2: of the best selling book The Deficit Myth. If you
1:28:21
Speaker 2: enjoy these conversations, well, check out any of the five
1:28:25
Speaker 2: hundred and fifty or so we've done over the past
1:28:28
Speaker 2: ten plus years. You can find those at iTunes, Spotify, YouTube, Bloomberg,
1:28:34
Speaker 2: wherever you find your favorite podcasts, And be sure and
1:28:37
Speaker 2: check out my new book, How Not to Invest The
1:28:41
Speaker 2: Bad Ideas, numbers, and behaviors that Destroy Wealth, coming out
1:28:46
Speaker 2: March eighteenth of this year. I would be remiss if
1:28:50
Speaker 2: I did not thank the crack team that helps me
1:28:52
Speaker 2: put these conversations together each week. My audio engineer is
1:28:56
Speaker 2: Andrew Gavin. Anna Luke is my producer, Sean Russo is
1:29:00
Speaker 2: my head of research. Sage Bauman is the head of podcasts.
1:29:04
Speaker 2: Here at Bloomberg, I'm Barry Retorts. You've been listening to
1:29:08
Speaker 2: Masters in Business on Bloomberg Radio,