Modern Monetary Theory

Andres Bernal
Policy Expert and MMT Advocate
Andres Bernal
Policy Expert and MMT Advocate

What is Modern Monetary Theory? How does it challenge how we think about money, government spending, federal deficit and debt, taxes and bonds, unemployment, and monetary policy?

Show Notes

In this episode we do a deep dive on Modern Monetary Theory (MMT). MMT stems from an alternative story of money which has significant implications for governments in countries that have sovereignty over the currency it issues. Under MMT, spending does not face financial constraints, taxes and bonds do not fund government budgets, federal deficits and debt are not problematic, and the lines between fiscal and monetary policy blur completely.

We were fortunate to be joined by Andres Bernal, leading MMT proponent and former advisor to help us understand the essential topic.

In this episode Jenny and Andres discuss:

  • Two stories of the origin of money [3:04]
  • Money as a social construct [9:58]
  • MMT defined [12:46]
  • Currency issuers vs. currency users [15:15]
  • Spending and its relationship to taxes [16:00]
  • Reconsidering federal deficits[16:44]
  • Monetary sovereignty and MMT [17:21]
  • Hyperinflation and productive capacity [20:15]
  • MMT and the role of taxation [23:36]
  • MMT and bonds [26:41]
  • MMT and monetary policy [30:15]
  • Rejecting the monetarist view of the inverse relationship between unemployment and inflation [33:43]
  • MMT and inflation [35:55]
  • Drivers of today's high inflation rates [41:55]
  • MMT and a Job Guarantee [50:17]
  • Job guarantee vs. guaranteed income [55:04]
  • De-growth vs. post-growth [59:39]
  • Current MMT landscape [1:01:53]
  • Common misconceptions about MMT [1:03:14]


[0:00:00] Andres Bernal (AB): With the US dollar, the issuer, as the US government cannot ever run out of its own currency. The policy realities that we can understand from that is that contrary, or inversely to how we usually think about this, the United States federal government doesn't first need to collect a bunch of US dollars in order to spend it, because that would not make sense. That would not make logical sense for US dollars to somehow appear out of thin air and then the government collects them and issues them and redistributes them. It's not the way it works. The taxation follows in terms of the order of operations. Taxes follow after spending. When you think of it that way, the US government doesn't need to tax to spend.

[0:00:50] Jenny Stefanotti (JS): That's Andres Bernal, economist and leading advocate for Modern Monetary Theory, also known as MMT. This is the Becoming Denizen Podcast. I'm your host and curator, Jenny Stefanotti.

In today's episode, we’re covering Modern Monetary Theory. Our guest is Andres Bernal. He's an expert in public policy, economic thought and social transformation. In particular, he's a leading advocate for both MMT and the Green New Deal. He's a lecturer at the City University New York School of Labor and Urban Studies, a Research Fellow at the Global Institute of Sustainable Prosperity and a Visiting Research Fellow in the Department of Economics at the University of Missouri, Kansas City.

Andres has also advised a number of politicians, including Alexandria Ocasio Cortez, who he supported during her historic 2018 campaign, which led to her becoming the youngest woman in history to be elected to the US Congress. AOC’s comments on MMT contributed to its place in the mainstream conversation behind which Andres played no small role. 

This is a slightly longer episode than usual. We cover the history of money, the framework of MMT, the implications for taxation and government bonds, and then tee in the context of the current inflationary environment, which is pretty key, because MMT is all about managing inflation. I was very curious to hear Andres’ thoughts about it in the current context, the jobs guarantee, which is a key component of MMT from a policy perspective, and the state of the current conversation.

As this is an essential topic, we've also created a summary on our website, There, you can also sign up for our newsletter, where we bring our content to you each week, alongside news from our many partners who work on the topics that we bring to you in this podcast.  I hope we're able to distill this complex topic into something that you can easily understand.


[0:02:35] JS: One of the things that I actually mention in the trailer for our podcast is that it's a place where we question our sacred cows. If you follow the logic of Modern Monetary Theory, or MMT as it's often referred, it leads you to question some very basic things about how the government works, or rather, certain kinds of governments and we'll get to that, that most of us would consider irrefutable, such as how federal budgets are funded, the role of taxation and the role of fiscal versus monetary policy. I'm very excited to dig into these foundational questions with you today. Thank you so much for being here with us today and helping us to understand this really important topic.

[0:03:14] AB: Thank you so much for having me. Really grateful to be here with you and have a great conversation about this topic.

[0:03:19] JS: Okay. Before we get into MMT, I actually want to talk about money, because it's Modern Monetary Theory. I think there's just some pretty basic things about money that are important to understand coming into the conversation. So I want to start there. Andres, tell us, what do we need to understand about money in order to understand MMT?

[0:03:40] AB: Yeah, it's a great place to start. Interestingly enough, when the term Modern Monetary Theory was first being thought of by some of the original scholars and founders, originally, some people would just call it Modern Money Theory. It's still referred to that way by a few old school MMT folks. As you mentioned, this issue of sacred cows, the way we think about money is definitely one of those sacred cows that's underlying so much of economics and politics, and even across political ideology. There are so many assumptions about money. MMT has an approach, or understanding of money that's very influenced by work in anthropology, actually.

If we go back to the beginning of where we think money comes from and what it is, there are two stories. One of them being the Orthodox common story, which really underlies a lot of mainstream economics and understandings of money today, and sometimes that's called the barter story. First, we started bartering and barter markets formed. Then that evolved eventually into the introduction of money as a medium to give an advantage, or lower transaction costs of that bartering system and make markets a bit more efficient. Some commodity had to be agreed upon that was very valuable for that process to make sense.

The tradition of metalism is very much behind that story as well. Some precious metal was found, or agreed upon, or people decided that that was the best way to make an efficient medium of exchange. The problem with that is that there's very little to no anthropological, or historical evidence for that being the way that economies evolved, whatsoever. That's a story that Enlightenment philosophers made up in the 18th century or so. It stuck around even though anthropologists who study that historically have mostly concluded that that's not the way it works. Modern Money Theory, instead of following that narrative, follows a different narrative, which is that first, some kind of society comes about, and those societies have some governance structures, some authority.

They didn't come about secondarily to markets, but rather the way society is organized, whether it's in a small micro society, or in a larger one, before people agree to start trading, there's some authority system there. From there, the modern in Modern Monetary Theory, which is sometimes said that it's tongue in cheek, because modern speaks to 6,000 years, which is to say, when writing came about. When writing came about, accounting systems came about. People started keeping track of different debts and credits and obligations that they had to their society, tribute that needed to be paid, ways to reduce conflicts, or avoid blood feuds, ways to keep track of obligations to the community. You have to keep records of that, because especially at a certain size, that can't be done orally as well anymore.

Writing through basically a ledger, some form of to use contemporary language, assets and liabilities, but this idea of double bookkeeping and double entry accounting came into play. That was used as a way to organize the society's provisioning of resources. Through that process, societies themselves through whatever authority system they have determines what kind of unit of account is going to be that tracker, or record blog. Today, we have dollars, pesos and all of these units of accounts, which interestingly enough, have a linguistic connection to measurements, in the same way that a foot, or an inch, or a mile are not an actual thing itself, but they measure different things.

Units of account in a money system keep track of prices and debts and the different IOUs that people owe to one another. The most important IOU, IOU of that society's governance or authority system, which introduces, or issues out some of these debts to get things going, to get production going, or to get some social task going. They give out these tokens, which again, it could be a tablet, it could be a mark on a tablet, it could be a piece of gold, it could be a tally stick. But the point really is not the thing that's chosen. The point is that it has to be something that you can keep a record of, and that that authority system can ask for a part of it to come back in the end.

They issue out these tokens and they say, “Okay, at a certain point in time, you have to give X amount back as tribute.” That was a way to ensure that people did the work. Once that process is underway, people could also use that IOU system to clear debts amongst each other, too, and to participate in that process of provisioning and production at different points, or in different kinds of ways. That's the origin story of money in that story.

[0:09:38] JS: You're making a very important point that the lineage of MMT actually goes back predating writing and to where economy started, and points to a different story of money and what purpose money served in the one that we're all so deeply entrenched to think about in terms of a medium of exchange. Let's talk about money as a social construct.

[0:09:58] AB: Yes. I think a lot of times when we hear that something is a social construct, the tendency can be to say, “Oh. Well, then it’s not real.” People will hear somebody talking about MMT and be like, “Oh. Well, money's not even real.” Language is also a social construct. It's a representation of an idea. This goes into a bigger, I think, philosophical debate about the role of abstractions in the world, in reality.

As a social construct, it means that we create things in our everyday social life, through subscribing meaning to things, and institutions solidify this meaning into something that is agreed upon and reproduced. I think another important point when we hear about social constructs is that sometimes folks will say, money is just about trust. This is very libertarian.

If tomorrow, me and my friends decide, we don't trust the dollar anymore, then the dollar will cease to have any value. That's not really what a social construct is either, because it's not about individuals making decisions in a vacuum. The entire legal infrastructure and all of these laws that we've created that are premised on this thing called the Constitution, that all of these other institutions are premised on, that we've tacitly agreed upon in some way, not as individuals, but collectively, like whether we it or not and regardless of our opinion, we exist underneath this political infrastructure. In that political infrastructure, it accepts payment for things in this one unit of account called dollars. That's what really gives the United States dollar its value.

It's not trust in like, the you and me sense. It’s the fact that this entity, as long as it stands and we're underneath it and it's underpinning all of these legal institutions, it accepts payment for its taxes, and all these other things. Because it does that, that's what we call it driving the currency. It drives the currency. This legal, financial governance institution and infrastructure is a social construct in that sense, in the same sense that the English language is a social construct, in the same sense that the laws that govern this country are social construct. They're written in words. You go to certain places to make new ones. All of those things are social constructs. They're part of how our society creates agreements, creates some sense of cohesion. Money is no different. It is part of the infrastructure that mediates the debts, obligations and credits that we owe and give one another.

[0:12:46] JS: That point about having the power to impose taxes and fines and accepting it in a particular currency is what creates demand for that currency in the first place, which is a really key piece of the puzzle when we talk about MMT. All right, I'm going to ask you now the question that you answered hundreds of times. How many times have somebody said, Andres, what is MMT? I keep hearing about it. What is it? Can you just tell it to me, just in simple terms?

[0:13:11] AB: Great. Okay. MMT is a framework for understanding the way money works in an economy, the way that our financial system works. Through this framework where we see how these things function, we can then draw different policy possibilities in order to achieve something like full employment and the stability of prices. That could probably be as succinctly as I can put it.

[0:13:39] JS: Nice. Well, what's interesting is that once we accept this framework, one is that it opens up the possibility space from a policy perspective.

[0:13:49] AB: Yes.

[0:13:50] JS: But it also upends very basic things about how we think about how government spending is funded, what the role of taxes is, what the role of government bonds are, if they're issued, and also, the role of monetary versus fiscal policy. I mean, everything gets upended when we do that. First, let's talk about the framework and then let's spill over into these implications, because they’re really profound. I'm excited to get into them with you.

[0:14:19] AB: Yes. Okay. Policy implications, you mean?

[0:14:21] JS: Let's just make sure that everyone understands the framework. You already laid out a lot of the foundation and what you said about the social contract and about driving the currency through the imposition of taxes and fines, and this alternate story about money. Because it's interesting, if you think about it, okay, well, you see the circular models that we learn about in econ 101, but it's this chicken and egg thing. Where did the money get the economy in the first place?

[0:14:44] AB: Right, right. Okay. I mean, I think that's a great starting point, right? To ask ourselves the question, where does the money come from, or originates from that we use in a very real sense? Some people will answer that by saying, for businesses. Then you just ask like, where is the business getting money? From consumers. Where do they get – so, it is that chicken and egg circle.

The actual origin of all that money is the legal constitutional authority of the United States government, which has to issue that currency into circulation in the first place. The first thing is distinguishing between currency issuers and currency users. You and I, businesses, and to a large degree, local and state governments are currency users when it comes to the United States dollar. We are all users of the US currency. The issuer of US currency is the federal government, through the Treasury, and through its central bank, which it created through legislation, the Federal Reserve.

When we understand currency issuers versus currency users, the currency issuer has an endless capacity to issue that thing. With the US dollar, the issuer, as the US government cannot ever run out of its own currency. The policy realities that we can understand from that is that contrary, or inversely to how we usually think about this, the United States federal government doesn't first need to collect a bunch of US dollars in order to spend it, because that would not make sense. That would not make logical sense for US dollars to somehow appear out of thin air and then the government collects them and issues them and redistributes them. It's not the way it works. The taxation follows in terms of the order of operations. Taxes follow after spending.

When you think of it that way, the US government doesn't need to tax to spend. If it spends $10 and it taxes back $3, those $7 is what today we call the federal deficit. I would probably say, that naming it that, but I think we'll learn that the role of abstractions, language naming things and how we do that plays such a key role in political life. Because I think naming that deficit serves a reactionary purpose of making people feel that governments are just like households and can go broke, or need to tax first, or need to balance their budgets. In reality, that deficit is the private economy surplus, because they mirror one another.

[0:17:21] JS: We haven't made a really important point and I want to make sure that we make it. There is something specific about the US Dollar as a currency that enables the US government to do this, and some governments around the world, but not others. Let's make sure that that's clear. Then I'll spill over into the implications. Let's talk about a sovereign currency, or fiat currency, particularly that has the characteristics that enables these outcomes.

[0:17:45] AB: Okay, so when we're thinking about what a government that issues a currency can do, it can also impose restrictions on itself. For example, when governments adopted a gold standard, it imposed a restriction on how much you could spend through something like, balancing out a ratio with gold. There are other ways you can impose restrictions, including pegging your currency to someone else's currency, or to the price of some commodity. Those things all reduce the options that you have to spend. Ideology has a lot to do with it. In addition, nations can also lose their monetary sovereignty, meaning, how much can you actually use this capacity to issue currency?

We can think of it in a spectrum, and think of a government like the US, but also the United Kingdom, Canada, Australia, Japan, as countries that have full sovereignty to use their currency. Then we look at nations within the European Union and we see that Greece, Spain, Germany, France, etc., they gave up their currency and they all adopted the Euro. Now, the Euro authorities and the European Central Bank now have that capacity, but they don't use it. They have very much internalized a very austerity-based, neoliberal-based framing for how they think about these things. They don't have any monetary sovereignty.

Greece went bankrupt. Their nuclear option, interestingly enough, was to just introduce their own currency at the end. That's where those tense negotiations got to at the end. But they had no ability to do anything else after a while. They didn't have a currency. It's funny when people compare, “Oh, the US will become the next Greece.” It's just such a radically different context.

[0:19:41] JS: Right. Critical point being that there has to be sovereignty over the currency. It can't be pegged to something else. It can't be on a gold standard. This wasn't an option in the US pre-1971, when the US went off the gold standard. I just wanted to make sure that people understood this critical point, that it is currencies that have certain characteristics that yield this outcome, this framework that we just talked about, which is that there is no restriction on spending financially. Meaning that the money is always available to spend. But there is a restriction that's important to highlight, right? Because many of us have heard these stories about governments that just spend money indiscriminately, and then you get to hyperinflation. There is an important constraint to consider.

[0:20:26] AB: Right. The key there is that MMT takes the attention away from the very common, where's the money? Where do we get it? How do we raise it from where? And actually, asks governments to look at the deeper trade relations, legal relations, to ask where are the resources? It's really all about the resources. That brings us to your other point about hyperinflations and the things that people freak out about when you bring out these things, and the constraints of spending. When we say that governments that issue their own currency have an endless, infinite capacity to spend that currency, that's true. Then we get into this question of what are the –

[0:21:05] JS: Economic implications of doing that.

[0:21:07] AB: - of sovereignty? Yes. Then the bigger one is that, so we can take Weimar Germany after World War I. Keynes and these other economists, they knew that this would happen, so they fought for the Treaty of Versailles to not put Germany in a situation that was going to make it impossible for them to recover as a society. They thought that you needed to invest, basically, what we did after World War II to countries that lost, so that this horrible thing wouldn't repeat itself. Ultimately, these ideas didn't win. Germany's economy was decimated. Their productive capacity was destroyed. They were indebted to France and some other countries after World War I in other currencies, and they had no way to get out of this.

When you don't have the resources available when your productive capacity has been destroyed, it's likely that you will have a hyperinflation, because you don't have anything to produce. It's not about the money. I mean, they would have had a big problem with hyperinflation, whether they spent or they didn't spend, because that's what war can do to a place and political instability, debts in foreign denominated currencies. Similar to Zimbabwe. I mean, they had a very bloody revolution that followed a genocide. It was a very unstable place for a lot of geopolitical reasons. They unfortunately did not have some of the agricultural technological know-how after a revolution. You end up with a similar situation, right? There's a lot of reasons that one can imagine hyperinflation occurring.

What I think is really interesting is that with a floating exchange rate, which is when you don't fix it to something, you allow your exchange rate to float in somewhat of a stable democracy, there's never been a hyperinflation. Countries that do experience hyperinflation, either have some peg, or have some deep political instability.

[0:23:08] JS: Interesting. All right, let me bookmark that. The critical punch line that comes out of MMT is that government spending does not come from taxes and bonds. They don't raise money. It comes from the fact that it can issue currency. There is no financial constraint to what the government can do. However, there is a resource constraint in terms of the capacity of the economy to absorb that money.

[0:23:35] AB: Correct.

[0:23:36] JS: That is the constraint that we are managing around, not how much money we can raise from X versus Y. Now, this has profound implications for why we tax, or why the government issues bonds. Can you speak to that? What is the role of taxation? Why do we tax if the government can just spend money?

[0:23:59] AB: Right. Great question. The first one that I think should be obvious by this point is that the tax is one of the most critical things that gives the currency value by driving its demand. When we have to pay taxes, we need to find that currency. We need to use it. With that said, other things that taxes can do. They can incentivize different things. We can think about putting a tax on carbon, or sugary drinks and drive the price up. Because we think that there's a problem with something, we want to disincentivize it and we want people to consume in other places, we can tax there as well.

Taxes can also break up concentrations of wealth. If you have billionaires, and you think it's politically a problem for a stable democracy, you can tax them to take away some of that political power. It's not going to finance anything. It's going to ensure that wealth can accumulate in certain places, so we have to think about where those taxes are the most effective right? From inheritance taxes, to income taxes, where do we put it? Where do we draw the line there? Those are really major ones. Shaping institutions, shaping incentives, driving the currency and addressing some levels of accumulation of wealth.

[0:25:16] JS: Well, I think that there's a really key piece, which is that you're taking currency out of the economy when you tax. We can judiciously think about what we tax and how we tax, because we want to shape it and change incentives. There's also just a question of, when we take money out of the economy through taxes and issuing bonds, we create more capacity for the government to spend before they hit the resource constraint, correct?

[0:25:43] AB: Yes, that's another one, too. That leads into this question of bonds, which is when I was first learning MMT, that piece was the hardest one for me to understand at first. You learn the 101 things, and that already is a big paradigm shift. In general, taxation can also take some of this money out of the economy, which can open up some capacity, or in a way, slow the economy down a bit.

[0:26:11] JS: Yeah. I mean, a lot of the reading that I did around MMT basically said that taxes in addition to creating demand for the currency in the first place. It's an important policy tool around inflation.

[0:26:22] AB: Yeah. That's a big thing in the 101 literature and the introductory stuff. There's a lot more debate as to how ideal, or effective that is, if you really actually have inflation. I zoomed in that world, because I just wrote a report. I just published a report on inflation and the climate crisis.

[0:26:37] JS: I want to double click on inflation in a second, because that's so important.

[0:26:40] AB: Yes.

[0:26:41] JS:  I just want to stay on this really quickly, just this implication. When it comes to bonds, the story that we have around government issues a bond, because it needs to raise money, and it doesn't want to raise taxes. There's a story about the implications of that, because then that raises interest rates and it crowds out private investment. If you have a story of MMT, where you can just create money, because you have a monopoly on the creation of money, then the only reason to have a bond is not because you need the money, it’s to take the money out of the economy. This is that as I understand it.

[0:27:13] AB: Right. In the mainstream story, you can tax, as you said, or you can borrow. The mainstream story tells you that selling bonds is borrowing, and so you're indebted. When people call the national debt, which is different from the deficit, so we’ve already explained the deficit was what remains after you spend in tax, that's in the economy to private surplus. The deficit is this other thing that the mainstream story says is what we borrow from the financial system. What MMT figured out when they were looking empirically into the way central banks work and all of these different assets and liabilities work and why they're doing this thing, what they figured out is that when the government deficit spends, and more money gets deposited into banks from that deficit spending, right, the government is crediting all of these accounts, and that money is mostly going into banks. That means that those banks have more reserves.

When those reserves go up, they have an excess of reserves, where they have more reserves than the requirement is. When that happens, the banking system doesn't really need to borrow reserves from one another, or from the central bank anymore, for technical reasons we don’t have to go into, but that causes the interest rate to go down to zero.

[0:28:32] JS: Sure. Or to go down to something.

[0:28:35] AB: Yes. It pushes the interest rate down.

[0:28:37] JS: Sure.

[0:28:38] AB: When we've adopted a monetary policy based on setting an interest rate target, the Federal Reserve doesn't want that to happen. What it does is it drains those reserves by buying them, or exchanging them, I think is the best way to put it. Exchanging reserves for Treasury securities. These securities then get held up. They are different kinds of accounts. The way it’s been explained to me, I think is really useful is we can have a checking account, where we have some of our deposits, or we could have a savings account.

Similarly, reserves in banks are like a checking account. Securities are like a savings account. I mean, we could buy securities right now if we wanted to and that's like having a savings account with the federal government. It's a different kind of money. It's like exchanging green money for yellow money. They do this to drain these reserves from the financial system, so that they can keep the interest rate where they want it. It's not a debt. That's the big revelation. It's not an actual debt. This national debt is the net amount of securities held in circulation around the world at any given time and you get an interest on it.

[0:29:53] JS: Makes sense. That was the earth-shattering piece, right? You don't need to raise money from taxes and bonds. You can spend money in taxes and bonds have a fundamentally different purpose in the economy. I mean, obviously, taxation and how we choose to tax is very much about shaping the economy, to your point. But it doesn't have this requirement around, that's where the money comes from for what the government does.

[0:30:15] AB: Right. MMT’ers have, on this point of issuing reserves and the way we do monetary policy, there's a lot of conversation about what MMT’ers actually advocate for. Many of us say, “We need to completely change how we do monetary policy.” Leave the interest rate at zero, and do something else that's more effective than interest rate tinkering. Some of us in this moment of crisis, have advocated for minting a trillion-dollar coin to get around this tedious process. That's become popular in the mainstream.

The United States Mint has the authority to basically create a coin of any value. We want it to create a trillion dollars in a coin. If it does that, then all of a sudden, the Treasury has a trillion dollars. That's one way of also getting around this whole federal debt thing. Yes, so these are legal obstacles and institutional obstacles that we face, but are not somehow inherent to the structure of money, or something like that.

[0:31:19] JS: This another really critical implication, other than what we talked about the role that taxes and bonds actually play is really important, which is it totally upends how we think about monetary policy, and who does monetary policy. Who is responsible for employment and price stability and addressing economic fluctuations?

[0:31:38] AB: There's a really interesting amnesia that we're facing as a society from all of the very interesting and more robust policies that we were doing during that new deal, World War II era, that were just completely washed away in the 70s. Especially when Paul Volcker came into being the chair of the Federal Reserve. He came in with just a radically different ideology, very influenced by Milton Friedman, and just completely upended the way the public thinks about money and policy. We're still reeling from the effects of that.

Back in the day, the Treasury was very responsible for price stability. For a lot of people, that's unimaginable now. The Treasury and other parts of the government would use fiscal policy, regulatory policy, all kinds of things to ensure price stability. We've really gotten to a point where it's like, because mainstream economists that I would argue, completely missed and misused the legacy of Keynesians. People that are called Keynesians today are very, very different. I mean, there's a huge debate and that's what's important to them.

Anyways, they did not know how to respond to stagflation, when there was both high prices and high unemployment, and they didn't know what to do about it. Milton Friedman came in and took over the discourse. Since then, we've had monetary policy through central bank interest rate tinkering as the dominant tool to manage price stability and inflationary pressures and allegedly, unemployment. Now, we have things like central banks claiming that full employment means 5% unemployment, and that if you are over your inflation targets, if you start seeing higher prices, the thing you're supposed to do that most of these orthodox economists agree is to raise interest rates in order to reduce demand by slowing down incomes, reducing wages, raising unemployment.

[0:33:43] JS: Yeah. This is where there was a belief, Friedman had believed that there was a fundamental tension between employment and inflation, and there was a trade-off that you had to manage and MMT’ers reject that.

[0:33:54] AB: Yes, exactly. I mean, it's just like this alleged inverse relationship between unemployment and inflation, and to claim that they have a model for it. Yet, that model has never been shown to actually be true. Like a lot of things about orthodox economics, you get bombarded by a lot of mathematics and models and stuff. It's like, it doesn't matter if it's true or not. It’s just so much information that looks like it’s true, that ultimately, people are just like, I guess, this must be the way the world works.

[0:34:24] JS: Well, yeah. It's interesting. What I was thinking of as you're speaking earlier, as we've talked about this in some of our conversations, but just the history of economic thought, where there was a rigorization of economics. We wanted to have these nice, pretty mathematical models, just like the physicist did. We stripped out so much complexity.

[0:34:41] AB: That's so key. I love that that stood out to you, because a big influence on me is this economic historian named Philip Mirowski, who wrote a couple of books, one of them is called More Heat than Light. It traces the origins of Orthodox economics, through 18th century and 19th century physics. Yeah, and how they tried so hard to just create the same thing.

[0:35:03] JS: Exactly. They lost all the nuance. Now we're trying to figure out what happened to get it back. I did remember something that I listened to, you talked about how the MMT community is much more interdisciplinary.

[0:35:17] AB: Yes, yes. A lot of my friends are into humanities. I, myself come from an undergraduate background of philosophy, so we take a different angle. Sometimes I don't like to stay just in the wonky economist policy space and try to take a step back into the broader, philosophical implications. A lot of the fundamental premises of neoclassical economics and in general, classical political economy is driven by these implications of gravity. The world is about things getting pulled one way, or another way. As you said, the nuance and the social constructivist nature of all of this gets lost in that process.

[0:35:55] JS: Really appreciate that that's come up in this conversation. I want to talk about inflation, because that's such a key piece of this. It sounds like you've been putting a lot of thought into this lately. On a number of fronts. One is that MMT’ers believe that the constraint to government spending is not financial, but it's what latent resources are there in the economy to employ. In fact, we'll get to this in a minute, but there's just the implications in it, there's something immoral about not spending to full employment. We'll talk about the job guarantee, because that's an important thing.

Then what the government is managing spending to ease that full resource utilization of the economy where inflation starts to take hold. That's the threshold, right? You also just mentioned that some of these models about inflation and employment, they actually don't – they don’t really make sense and they don't pan out, and you just get so lost in the math that you're like, “They must be right.” What insights do you have around inflation as an MMT’er? I'm particularly interested in your perspective now, because so much of what I've seen has looked at, “Oh, we're in a low inflationary environment. We've been in a low inflationary market for so long.” But obviously, that no longer holds. Now, we have a very different story around inflation. I mean, we hit a four decade high in the middle of this year, 9.1%. So I’d just love to hear your thoughts around inflation, because it's such an important piece of the puzzle.

[0:37:16] AB: Absolutely. Okay. I mean, the first thing I would say is that our culture, I think, going back a couple 100 years has very much had this idea of scarcity in the forefront. I think before we talk about inflation, that's a very important point to make. We've naturalized scarcity. The fact that money is viewed as this scarce commodity as well, plays a really big important part in that. Things like unemployment and poverty and exclusion from the economy are seen as a natural reality of a scarce world, where we just don't have the political tools to include everybody. Because that's just tough luck. That's nature. That's the way it is. That's the economy. That's the market. People will always be left out.

There's this sense in the way inflation comes in and philosophically for me is that when you disrupt that by introducing too much money, the whole thing starts to implode. Inflation usually invokes a sense of impurity. The currency gets devalued against impure. Society starts to break down. There's, I think, a racial component to inflation as well, where people think that in social castes and hierarchies where certain ethnic groups are minorities and are marginalized, there's a sense that those people becoming part of an included culture threatens purity. I think that's in our collective unconscious of we think about -

[0:38:47] JS: Appreciate that.

[0:38:48] AB: - instability of the markets and economy. With that said, MMT’s understanding of inflation differs from this legacy of, I think Milton Friedman and the monetarists had a huge impact. Even people that don't consider themselves monetarists are influenced by what they wrote about. It's this idea that money loses its value when you introduce too much of it. Because too much of something is not good, right? It's the scarcity that gives money its value. You see this very clearly in the crypto world.

Behind all of these things we’re talking about is the idea that crypto brings money back to scarcity. The mainstream economists are like its people, their wages are too high. They're demanding too much. When incomes are too high, people are buying things and there's just not enough supply for what they want. We have to bring down wages a bit. That's a little problem. That's what you're hearing a lot today with inflation returning, from everyone, from Democratic Party establishment people to Republicans. It's usually some version of, “The Biden stimulus is too much. We gave people too much money. Now, consumers have too much money. They're spending too much.” or “the Biden stimulus devalued the US dollar and that's the problem.”

MMT changes this conversation and asks us to not just look at the CPI, which itself is a social construction.  Because core CPI versus headline inflation, one includes energy and food, the other one doesn't. Economists have decided, “we're going to exclude energy and food from core CPI, because that's too volatile.” It's like, oh, that's the whole point.

[0:40:39] JS: That's pretty fundamental to everyone's consumption.

[0:40:44] AB: Right, right. That in itself is a social construction. The agreed upon orthodox consensus is that there's some general market, or general price level, for everything all together and the economy is all balancing out. That's the price level and we'll see it when it gets too high. MMT is coming in and saying, “Wait a second. Let's start to look into all of these different industries where we're seeing prices go up and let's think about the context. What is happening? What's the environment? What are the conditions? What are the political realities? What are the resources involved? And let's try to have a more accurate understanding of what's causing these costs to go up.”

Move away from this sense that prices are just a natural result of some supply and demand, which itself is very much nonsense. Looking at all the different ways that prices are being set by different firms, different industries, looking at what's happening in the environment. To land some of this conversation today, as you mentioned, we're seeing inflation back in the conversation, back in the mainstream, prices have risen to 40-year highs, etc. I think the story there is quite straightforward.

We had an international deadly pandemic. We went into a quarantine around the world. Different types of businesses all shut down. When that happened, you actually saw price levels go down. Everything went down in prices. Part of the reason why inflation has hit these highs, it's not the whole reason, but it's part of it, is because the jump was so massive afterwards, because it went down so much in prices, so the difference is higher. Everything, like most things, dropped in prices pretty radically. Then when we started opening up again. I think we all have to keep in mind that that was not a smooth process. Reopening was full of, especially in the United States, and you have different countries trying different methods. I mean, it was a shitshow. That process of reopening again was pretty abrupt. You see inflation started to really hit when we started getting stories about bottlenecks, shortages and delays in the supply chains.

[0:43:06] JS: This all makes perfect sense. You just had a decrease in the productive capacity of the global economy, because everybody stayed inside for a year and some change. Then suddenly, we go out and yeah. Because a typical stimulus spending is assuming that the productive economy, that productive capacity exists and is just not being utilized. The pandemic was a unique, an outlier situation.

[0:43:28] AB: Yes. I mean, the thing was, we were like, people need to pay the rent and their bills, and nobody's working. That's why MMT’ers were like, “No, we need to spend money, because this thing is going to get really bad really quick.” There's going to be a crisis of payment settlements for all kinds of things. That's going to be way worse than the potential problem from people buying things, where businesses are shut down.

[0:43:51] JS: Right. Yeah, makes sense.

[0:43:52] AB: That was one piece of it. Then yes, and the other thing was reopening again, after we had all closed down and our product capacity. There's a number of factors that I think are interesting. One is that for example, car manufacturers were not expecting people to buy from them, even while they were quarantined. It turns out, people did.

That's a communication problem between industry and not having those kinds of pathways to be able to anticipate what the trends are. A lot of car manufacturers closed down production, and then they're like, “Oh, shit. We need to open it back up again pretty fast.” That was very delayed. Another thing, I think, that gets under reported is that people – workers were sick. In a globalized supply chain economy that had an imperfect, flawed vaccine rollout around the world, you have a lot of workers that were getting sick and I mean, productive capacity was reduced that way as well.

[0:45:01] JS: Makes a lot of sense. There's a piece of the story that hasn't come out yet that's really important. There's a story about the productive capacity of the economy and the pandemic. There's also a story about predatory pricing.

[0:45:13] AB: Yes.

[0:45:14] JS: I want to make sure that that comes out, too, when we look at the current inflationary environment.

[0:45:17] AB: Absolutely.

[0:45:18] JS: And just inflation in general, when we talk about MMT and the policy implications.

[0:45:23] AB: There's the reopening story. All the supply chains are all screwed up. Got all these bottlenecks, etc., etc. We don't know what to do. The Fed is going to raise interest rates and we're like, “Why don't we fix the supply chain system? These people don't have infrastructure.” There's that story. A piece of that story, too, is Omicron and the variants, because the variants hit our productive capacity. When we were all good, you see this in the graphs, inflation spikes. It starts coming down and it spikes again, when Omicron and the other variants hit. That's another thing.

Then, absolutely, there's this story of decades of corporate consolidation in shipping, energy, food, all of these major industries that became massive conglomerates with huge market power in areas that people depend on for their livelihood. There is tremendous price setting ability there. We're also, we're at a point politically where maybe until now, price controls and some of these regulations have been taboo. As soon as this happened, they took advantage of the situation and this evidence came out of the corporate boards having their calls and whatnot and many of these chief executives, discussing how happy they were with the profits that they were generating. I mean, they had record setting profits in many of these industries.

When you have pricing power and people depend on your product and you control the industry, there is a high likelihood that you're going to price gouge. That is another part of the story where you have record profits being made and industries raising their prices or keeping them up, because they can.

[0:47:12] JS: Yeah. What I find so interesting about MMT is one, that it opens up the possibility space, because you don't have the typical funding constraints, the way that we're used to thinking about it. Then it has these profound implications for what taxes and bonds are for. It also has really nuanced implications of how the government is engaging in industrial policy. There's more of an onus on that, because rather than thinking of those as simultaneously, or largely instruments for raising capital for the government to spend, right? It's actually an economy shaping set of interventions.

[0:47:49] AB: That's absolutely correct. When prices were at their peak, a lot of fossil fuel companies were being asked to produce more, because gas prices were so high. We know that that's a huge political issue in the United States that was threatening the midterms. A lot of the oil producers didn't want to produce more, because they understand that their time is limited. They wanted to take advantage of the inflation. If they produced more and lower down prices, I mean, they were going to miss out on a killing on profits. They did a survey, and their shareholders didn't want them to do that. That was the consensus there.

That I think leads to the third piece, so we can talk about supply chain vulnerability from the opening and closing. I mean, there's a link there to market power and the supply chain vulnerability. That is this process of corporate consolidation involves the infamous just in time logistical system, where there was once a time where inventories were stored. This has had some backups. The just in time system is just reducing costs as much as possible. A lot of the gig economy is connected to this. Independent contractors trying to do things as quickly as possible. The idea of businesses having backup, or inventory is not really part of the model anymore.

[0:49:12] JS: This is just the fragility that is fundamental to a system that optimizes for a single variable.

[0:49:16] AB: So fragile. That system cannot withstand shocks very well.

[0:49:22] JS: Yeah. Makes perfect sense.

[0:49:24] AB: Boom, pandemic comes. It's a mess. There's that. There's the price setting. Then there's war in Ukraine. The problem of not only how volatile fossil fuel prices are in general, but also how connected they are to geopolitical conflict and war. You have this situation in another part of the world affecting the entire world, because everything from wheat to the energy that comes from Russia and Ukraine that isn't just about oil, but fertilizers, agriculture, all kinds of stuff, is now sent into disarray, because of the conflict out there.

[0:50:04] JS: Yeah. No, I appreciate those insights on the drivers of the current inflationary environment. I want to talk about – we are covering so much. I know that this is a lot to try to make sense of in such a short period of time. I want to talk about the job guarantee, because this is a really important point, part of MMT that we would be remiss to not cover. Again, as I had mentioned earlier, there's this implication that there's something immoral about not spending to the point of full employment, because the capacity exists within the economy to do so and not run up against inflation.

What I find interesting is that there's an angle job guaranteed shared across the MMT space. You can tell me if I'm wrong here. That it's an important automatic stabilizer for macro-economic policy. Well, there's another view that I think there's a predominantly left-leaning ideological stance of the MMT community, which just sees it more from their set of political views, rather than strictly from a economic stability perspective. I'd like to just talk a little bit more about the job guarantee and where that fits into MMT.

[0:51:12] AB: Absolutely. Also, I just want to say and commend you, Jenny, because the research you've done is just outstanding. So many people out there start writing and talking about MMT and they don't read anything. In a short amount of time, you become a bigger expert than every Orthodox economist that exists.

[0:51:30] JS: Well, this is part of the value that I'm providing for everyone. I have to say that I do wish that I had more time to go more deeply into this, because I think it's a very, very important topic. I knew I had the top line enough to hold this conversation. Thank you for that.

[0:51:45] AB: One of the influences of the job guarantee comes from this idea of a buffer stock. We actually had this policy, prior to the neo-liberalization of the US, in things like grain and other kinds of agricultural commodities, where farmers would produce a surplus of something that wasn't being bought. Instead of letting it go to waste, the government would buy it and store it. Then when there were shortages, it could sell what it had saved. That's a buffer stock. It acts as a stabilizer in that sense, that when times are good, the government spends to save what you have. When times are bad, you can buy it.

That's one of the intellectual foundations in terms of macroeconomic stabilization. Yes, there's another big one and I would argue the more important one comes from the Civil Rights Movement as both a response and also an overlap with the New Deal Economic Bill of Rights, or the argument that everybody deserves the right to dignified employment. Martin Luther King Jr's March on Washington, the full name is March on Washington for Jobs and Freedom, I believe it was called. In a lot of the civil rights movements, activism was rooted in the idea of full employment as a moral and justice-based idea that people were being excluded from the capacity to contribute to their communities, and receive the income that was desperately needed and still is by communities that were segregated in the United States.

That was the big point that unemployment is a huge factor in poverty and misery and social isolation and the breakdown of families and the breakdown of generations in the difficulty in building generational wealth, and just feeling like you're part of society. At least in the US, the MMT community has integrated these social justice perspectives with the more wonky macroeconomic things, but also understanding that you need to be nuanced, and you can't be dogmatic about the job guarantee either.

We're in dialogue with one another to try to design the idea as effectively as possible. Because as you said, people are definitely not grain. It's not a buffer stock in the same way. We definitely push back when any economist and thankfully, the ones that I work with the closest, don't do any of this. There's some international economist, they'll talk about a job guarantee and this buffer stock sense. It's like, no, we’re talking about people here, right?

The way we've thought of it, the federal government through MMT principles, obviously has the financial resources to spend on full employment. The people that won't be hired by the private sector can be hired by the federal government, just logically, through what we've learned about MMT. That allowing people to not have a job when they want a job is a policy choice, because we are the monopoly issue of the US dollar, we can buy employment from anybody.

[0:55:04] JS: There's an assumption here about a right to work, rather than assumption about a right to certain basic needs being met, period. We're looking at an envelope of society that happens to be measured by GDP and prices, versus very valuable activity that someone might do that's not compensated, particularly care. One of the conversations that we had, it's actually the first episode of the podcast, was on guaranteed income and UBI. I know that you used to be really into UBI, but you changed your mind. Because it does beg the question, okay, well, if we can print money, why don't we just give everybody a basic income, particularly, if you look at this in the context of MMT and you rethink the role of bonds and taxes, UBI is totally doable. We basically say, we're giving everyone a universal basic income and are extracting a sufficient amount of money out of the economy through taxes and bonds to enable that. It's done, right?

[0:56:04] AB: Yes.

[0:56:05] JS: Why a job guarantee versus UBI?

[0:56:09] AB: I'm totally cool with a complementary basic income. I'm much more against the Andrew Yang version of it, to be clear.

[0:56:18] JS: Well, can you characterize the Andrew Yang version of it? Isn't that just that $1,000 a month?

[0:56:22] AB: It was $1,000 a month. It was very premised on this idea that there's nothing we can do about automation. That's the way the world works. Let's just give everybody $1,000 and call it a day. Also, the universal component of it, meaning that even Bill Gates gets a $1,000 check, it’s just a little reductive and shallow for me. See, it gets complicated, because when we think about who would be in that position, like there's so many things we can do. We can think about students who would benefit from a basic income. Yeah, I’m a 100% for it. A thousand dollars isn't enough. In some of the pilots on basic incomes and some of these experiments, they're paying people a really small amount of money. It gets me that we have these experiments and it's like, that's not going to do anything. People need much more than that to meet their needs, if they're serious about a basic income.

As you just mentioned, I think it is essential to complement and also focus on opportunities for people to be able to just get a job if they want one, in a way that expands our definition and understanding of valuable work. Moves away from the idea that work is only a toxic experience aimed for profit for somebody else kind of experience, that many people in the disability space will never be hired, because they don't have any value in the capitalist economy. There's a lot of things, I think, people can do. I think it's good to offer these opportunities for people to contribute to their community.

A lot of the understanding around the design of a job guarantee is for the federal government to accept the standards, provide financing, but regional or local communities to be able to provide the job proposals and projects and things like that, so it could have both the protection of the macro, but also the distributed administration. That's not an easy thing to figure out either, because a lot of local and regional politics can be quite hostile to minority groups. I think there's something important there.

I guess, the main thing I want to say is that if we just give people a basic income, that's not going to change the quality of production. That's the key. People are going to have their check, their income, and what we have to consume is going to be the same. We need to have public employment, or a job guarantee in order to change the quality, especially given this climate crisis. That it's not just like Amazon, Walmart, etc., that's what we purchase from, but people are engaged in more of these community regenerative efforts, that we're now getting the infrastructure and support they need.

[0:59:15] JS: Right. This is the point that we were making earlier about MMT really raising the importance of thinking through industrial policy and the government's role in shaping the economy, to actually employ people to do the things that are good for society, and not just aggregating wealth in fewer and fewer people's bank accounts, which is effectively what's happening now.

[0:59:39] AB: Exactly. Also, this is where I distance myself from the growth versus degrowth debate, because –

[0:59:46] JS: Yeah. I'm glad you said that, because that's where I was going next.

[0:59:48] AB: Right, right. I mean, for me a lot of that debate reifies, or naturalizes GDP too much, which is just another concept and accounting mechanism atheist. Growth is very much viewed and materialized under this GDP model. Degrowth is in the name. It's counter to that growth. My position, which I think aligns more with something like post-growth, or a growth, or there's been other perspectives, is that we can change the whole way that we think about what we're doing. We need less of a lot of things that we do, because it's harmful, but we need more of other things. We need more care. We need more infrastructure to support people. We need more health and mental health services. We need more green energy.

The way it's been framed that I think I most connect with is that being agnostic to growth, or being agnostic to GDP signifies that's not our main concern. There may be some instances, especially, as we're trying to get to this green economy without radically reducing people's quality of life in areas of the world where they're already not good, especially in the global south and whatnot, or without causing some depression, or recession. We're trying to transition to a green economy, so there may be instances where in some cases, GDP goes up. There's definitely going to be instances where GDP goes down and that doesn't matter. None of that matters, because the point is social environmental objectives.

[1:01:26] JS: Yeah, I mean, I think that's the position of the degrowth community, as I understand it. They just think a lot of the larger economies, they're already so far past the ecological constraints that that's the direction that they have to go. I think it's just very interesting, because I get wrapped around the axle around, well, if the entire tax base is based on the size of the economy, which then fuels the defense budget, whicH has these enormous geopolitical implications, then how could that possibly make sense? MMT breaks you out of that constraint.

[1:01:52] AB: Right. Yeah, it does.

[1:01:53] JS: Which I find fascinating. Let me ask one more question. I would just love your perspective on the current landscape around MMT. We talked a little bit about inflation. There was a lot of debate around MMT and then the pandemic happened, and all of a sudden, the money materialized and we did exactly what MMT tells us to do, which is just put the money in the bank accounts. How would you characterize this current landscape of MMT?

[1:02:17] AB: I think it's interesting, because we have moments where there's these huge breakthroughs. Then we find ourselves doing the steady climb up the mountain again. When the pandemic first happened and the money appeared. It was just like, “Yeah, we told you.” Then as inflation has become a problem, you've seen a lot of the economics community openly and intentionally be a little extra hostile to MMT. You'll see a lot of people publishing blog posts, or articles, or whatever, about “MMT is dead. Inflation is the thing that proves it.”

Even though we have been saying like, inflation is the whole game the entire time. Or just bad faith arguments about MMT’ers only call for taxes to address inflation. Where are they now? We actually have a number of ways to address inflation that isn't just about raising taxes.

[1:03:14] JS: It's worth noting the common misunderstandings, which are one, that MMT doesn't care about inflation, when it actually says, no, it's not a budgetary constraint, it's an inflation constraint that drives all of your policy decision-making. Secondarily, there's an oversimplification of how MMT’ers think about addressing economic goals in general, inflation being one of them. Tax is not being the primary tool to do that, but actually being a whole suite of tools in the toolkits that get employed in a judicious and nuanced fashion.

[1:03:46] AB: Correct.

[1:03:47] JS: Okay. There's been this extra hostility right now, due to inflation. As I understood, for some of the reading that I did, it has been misemployed in some countries around the world, which has hindered MMT community's arguments around the viability of this approach. Where countries that didn't understand the nuances, or didn't have the capacity to understand the nuances of the implications. They're just printing money past inflationary territory, or that the currencies weren't entirely sovereign.

[1:04:13] AB: I think another thing is to, yeah, people thinking MMT is just spend. It’s just around spending, or printing and the framing around printing money. When we first started this conversation, I mentioned that first and foremost, it's a framework. That framework is in doing MMT, or not doing MMT. The components of that framework are how to put it into practice, but all of them, it's not just spending money. Some people will point to, like you mentioned, a country that, I don't know, had a big deficit and it was misused, or not very wisely used or spent. Then they suffered the consequences. They're like, oh, you see MMT is nonsense, or whatnot. 

First and foremost, the framework applies to any country around the world not in the same way, and that has to do with the spectrum of monetary sovereignty and the bigger conversation, which gets politically more complicated around, “how do we guarantee that we can establish some full employment, sustainable, just economy, internationally?” That's a conversation around trade and all kinds of stuff.

Talking about, okay, if a country spends a lot of money, it's like, we have to ask ourselves, well, on what? What did it try to do? What was its productive capacity and questions about its industry, and things like that? I mean, there are things like Japan having large deficits and near zero interest rates and not having inflation, which we often point to as part of the evidence that a major component of MMT is true. That's not to say, Japan uses MMT. It's just to say, you can have large deficits and low interest rates and not have a huge inflation problem. In fact, they have the opposite in a lot of ways.

[1:06:02] JS: Yup. I appreciate that. All right, we've covered a lot.

[1:06:07] AB: We have. I think just to answer that last question, I mean, MMT, at this moment, we went through our era of getting our name out there and  getting the principles out there, making a big buzz. Lately, we've been doing behind the scenes work, like working with staffers in Congress, understanding that not everything, I think, is about the big public image of it. There will be the moments where that's going to be very necessary, of course, and I think we'll be ready for that. We've been doing a lot of behind-the-scenes work, building a lot of relationships with staffers on the hill with progressives, and slowly but surely just trying to work to internalize this paradigm as much as possible.

[1:06:46] JS: I'm glad we started with the narratives about money, the story of money, and a very different story of money that leads to, again, these paradigm shattering conclusions about how the government works – federal governments that meet these criteria – how its funded, what taxes are actually for, rethinking the role of monetary versus fiscal policy, the moral imperative to have a job guarantee, understanding this view of money. I appreciate how we veered into current events and a lot of what's happening in other countries. There's so much there to cover and I really appreciate your time.

[1:07:23] AB: I think that this conversation is bringing me back to life, to be honest.


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