Episode 23 – The Progressive Gambit and Labour in the Balance with Robert Hockett

Macro N Cheese – Episode 23 
The Progressive Gambit and Labour in the Balance with Robert Hockett 
July 6, 2019 

Robert Hockett [intro/music] (00:00:02): 

I think that neither Bernie nor Liz is actually a socialist in, again, the classical European sense. Liz, I think, wants to avoid the socialist word because she thinks that it carries a kind of scary connotation. 

Robert Hockett [intro/music] (00:00:18): 

The form that the resource constraint takes in what van and call the monetary production economy is an inflation constraint. The worry about there being too much expenditure relative to the quantum of goods and services available that money can be spent on. 

Geoff Ginter [intro/music]  (00:00:40): 

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

Steve Grumbine (00:01:34): 

All right. This is Steve Grumbine with Real Progressives, and this is a new episode of Macro N Cheese. Today, joining me is Robert Hockett, who teaches finance and law at Cornell Law. Robert is also a senior fellow at the Century Foundation, and currently is advising Senators Bernie Sanders, Elizabeth Warren, and Congresswoman Alexandria Ocasio-Cortez on some of the most important pieces of legislation that are currently in play today.  

Bob, welcome to Macro N Cheese. Thank you so much for spending the time with me today. 

Robert Hockett (00:02:11): 

Thank you, my friend. It’s always great to be with you, and it’s wonderful to be with you again today on this very heady, I guess, after this past very heady week. 

Steve Grumbine (00:02:20): 

So in the introduction there, I spoke about Senator Sanders, Senator Warren and Alexandria Ocasio-Cortez. Can you talk a little bit about some of the legislation you’re working with them on? 

Robert Hockett (00:02:32): 

So there’s been a fair bit over the last year or so probably the most noteworthy in the case of Senator Warren would be the Accountable Capitalism Act that she proposed late last August. And before that, the Territorial Relief Act, which was essentially aimed at bringing actual relief to Puerto Rico after, of course, the dreadful storm and the dreadful inaction on the part of the current administration.  

With Senator Sanders, a little bit more of late, maybe two of the kind of, uh, highlights of late have been the Too Big To Fail, Too Big To Exist Act, uh, on the one hand and the Stop Walmart Act, on the other hand. And then with the Congresswoman, a number of different things I’ve been working with her team on of late, probably the two most conspicuous have been a Green New Deal related work on the one hand, and some finance regulatory work on the other most recently, the Loan Sharks Prevention Act. 

Steve Grumbine (00:03:24): 

Wow, that’s impressive. So, Bob, we are obviously in the midst of another presidential cycle and, you know, we recently were treated to the first round of debates here in, the first night we have Elizabeth Warren, the second night we had Bernie Sanders from the progressive ranks. And my question to you is this: We didn’t hear any, quite frankly, we didn’t hear any Modern Monetary Theory coming from either of them, both of them really were heads down on taxes paying for things, and they focused heavily on what appears to be a narrative that many of us would like to see radically altered in terms of how the monetary system works so that people have the capacity to dream a bigger dream.  

Can you elaborate a little bit on why these two candidates in particular who have people that are in the know, why their messaging is such, that it relies on the old paradigm? 

Robert Hockett (00:04:27): 

I think there are probably a couple of reasons, Steve. There’s a kind of a, sort of a general background reason that I don’t think we’ll be operative forever. And then there’s also a more sort of specific and immediate reason that hopefully will also not be operative forever. So the background reason is that as you know, probably better than most given the Lord’s work that you’ve been doing and from this sort of spread the Good Word on what monetary sovereignty actually entails is that it takes a bit of doing this sort of break people free of their sort of immediate intuitions, which have all been determined, even over-determined.  

So common for people to think that banks are sort of lending out what people deposit into the banks. And to think that the government is then, you know, raising money or borrowing money rather than issuing money. That’s so well ingrained in people’s minds when it comes to their imaginings of how things work, that it takes a bit of work to kind of, again, break people free of that and to sort of turn it on its head, right, to sort of conduct that Copernican revolution as it were and get them to start thinking that, well, actually, maybe the sun is at the center of the solar system rather than the earth being at the center.  

So that’s going to take a little bit of doing, and hence, it’s going to require a little bit of time, a little bit of explaining time, irrespective of the venue, right? No matter what the sort of background circumstances are, but that’s the background condition. The more immediate condition of course is that of these so-called debates that were held this past week, which it’s very difficult to call debates without scare quotes or without, you know, doing a spit take or something, you know; and as far as I could tell these weren’t debates at all.  

What they were was sort of soundbite and zinger opportunities, right? So the questioners, you know, kind of tee up a question and say, “Here’s your opportunity to throw out a one liner or that can get quoted in tomorrow’s paper. What do you got to say?” And you know, the political figures who are most comfortable with that sort of form of pseudo-deliberation of course walked in with all sorts of zingers in their back pockets, ready to throw them out like, “Hey guys, let’s not have a food fight,” or “Hey, I was that girl,” you know, they then walked in with that stuff ready.  

But interestingly enough, the two candidates who seem to have nothing in the way of pre-packaged soundbites or zingers or bumper sticker quotes to throw out were Bernie and Liz. So the thing is that in a circumstance like that, where you were basically given 30 seconds or 45 seconds or whatever trivial amount of time it was that they were given to address so-called questions, there’s no way that they could possibly begin, it seems to me, to sort of undermine the grip or sort of loosen the grip that this sort of false metaphor that most people are still operating with has over them, right?  

So I guess that’s a long winded way of saying that they need more time in order to get those points across. And certainly these debates are not the sort of forum or venue in which that kind of time could be had. 

Steve Grumbine (00:07:32): 

I’ve obviously spent an inordinate amount of time talking to what amounts to be regular voters, doing what I do. And you can take an hour to explain and you still have the deer in the headlights look. You can give them a cartoon, like the Modern Money Basics that Geoff Coventry put together and they still give you a dead stare.  

Stephanie has done some phenomenal short videos that explain this stuff and you still get people going, “But what about interest rates?” “What about, you know, this, that and the other,” and “What about confidence in the dollar?” And all these other things that just completely defy the point that a currency issuing nation can do what it wants, basically. It just defies logic. So I understand, I mean, what they have 45 seconds to actually answer these questions.  

I hardly think that that’s enough time to trip up their entire presidential aspirations with one quote that would be quoted around the world forever and would create such ridicule. Yeah. That makes sense. Yeah. 

Robert Hockett (00:08:36): 

Yeah. Yeah. I mean, you can just see it. I mean, you could just see the headlines already, you know, “Bernie Sanders is money crank,” or something, you know, or, you know, all those as, you know, Trump’s strategy, apparently if Bernie becomes the nominee or should we say when Bernie becomes the nominee is to sort of, you know, slap a new label on him or he call him “Crazy Bernie” and yet Bernie has like 30 seconds to sort of drop the MMT bomb.  

You can see it right away. You can see the headlines already and Krugman and all these others will be saying, “Yeah, you know, he’s crazy Bernie and he’s even, he’s apparently an adherent now to this crazy money theory. There’s more money crankery of the same sort that emerged back in the mid 1930s.”  

Yeah. So I can’t fault either him or Liz too much for, you know, kind of putting that one off at least provided that they’re actually listening to the right people; and I think that they both are. We know of course that Bernie is because Steph is once again, his chief economic advisor and my guess is that she’ll be head of the national economic council, or the president’s council economic advisor, pretty quickly, you know, if he were to take office or again, specifically when he takes office.  

So we know that he’s hearing from the right person and the right people. And I think we can trust them to do the right thing. I believe that the same would happen if for whatever reason, Liz ended up being president rather than Bernie, or if Liz were to be president after Bernie, if they sort of run as Sanders-Warren to begin with.  

And then later on down the pike, after two Sanders administrations, they become Warren-Sanders or something, because I could tell you that Warren people are great admirers of Stephanie as well. And again, I don’t think they would want to have anything to do with me if they thought that all of this was crankery. 

Steve Grumbine (00:10:13): 

Right. No, that’s a great point. You know, one of the things that jumps out at me and I want to get your take on this. Obviously, you know, you have two New England liberals – elite liberals in Sanders and Warren. This has been a knock for as long as I’ve been alive, 50 years running. And you know, every time you hear the New England Elite, I just wonder how a dual ticket of two New Englanders would play out in the typical politic that is American discourse at this point.  

And I also wonder . . . This is the other concern I have that I think is, you know, it comes from my business background and the succession plan. You’re looking to build an army. You’re looking to build a legacy and you’ve got two people that were born within a month of each other. It’s not a month, but you know, they’re close in age.  

Where is the lineage? Is this through Our Revolution? Is this just through the revolution that Bernie has already started and people like AOC? Where’s the hand-off to the next generation occur in such an environment? 

Robert Hockett (00:11:19): 

No, I guess I think a couple of things there, Steve. So the first is that it’s helpful for us to kind of keep mindful of sort of what is behind. Who were the sort of groups who might say, or what was the army, as it were, behind Alexandria Ocasio-Cortez and behind Bernie, for that matter. And then to remind ourselves the army is still very much a with us.  

So we’re really talking about a lot of very well organized grassroots movements. The Sunrise Movement of course is one such. The DSA is another such. The Justice Democrats are yet another such. Our Modern Money Network friends and Real Progressives friends are yet another such. And the kind of wonderful thing about all of these particular organizations is that A, they are indeed organizations, right?  

They’re very well organized and seemingly better so with every passing month. B, they are, you know, growing in skill and they are by and large populated by younger cohorts of people and people who are not in their seventies or even in their sixties and fifties, you know, for that matter. So my first thought, I guess, in response to generations, which I think are quite quite apt is that the really good news now this time around is that, you know, Bernie first and AOC second, and a lot of the other wonderful folks who were elected this past November with AOC are being kind of thrown up by this more sort of organic movement down below.  

And that shows no signs that seems to be a weakening or abating or compromising or thinning out, or what have you. So I guess that’s a long winded way of saying that there’s, you know, when Bernie eventually retires at the age of 140 or so there will be others. And when AOC eventually reaches, you know, the ripe old age of 35 and to become president, there will be a lot of late 20-something AOCs to kind of follow behind.  

So that’s I guess the first thing. The second thing I think with respect to the matter of East Coast or Northeastern elites or New England elites, I think one helpful thing, two helpful things; the first is that Liz for her part is actually originally from Oklahoma, and has really only been in the Northeast, for maybe about 25 years or so, maybe a little longer than that.  

And she still, I think, sounds like an Oklahoman if you hear her accent and I don’t think she’s code switching, I don’t think she fakes that. I’ve known her since before there was any evidence that she was thinking about politics and she’s always sounded like an Oklahoman. And it’s amazing to me, how many people still don’t know that she went to community college first and she went to a non-elite law school, right?  

And then she taught at a non-elite law school. And she basically made her way up to Harvard simply on her own merits because she’s just so smart and so devoted to the causes that her legal scholarship was all directed toward. So I think in that sense, she’s not the typical, let’s say Cambridge, Massachusetts-type candidate.  

She’s not a Kennedy, in other words. Bernie sort of similarly, although he’s up there in New England, he grew up in Brooklyn in a working-class neighborhood, came from a working class family, and still sounds it. And furthermore, the part of New England that he actually hails from is kind of backwoods New England.  

You know, it’s not like it’s not Boston, you know, he’s not a Brahman and he doesn’t come from Beacon Hill. I mean, certainly doesn’t look like it either, right? So I think there are worse possible New England tickets, maybe we could put it that way, than those two. Another kind of cool thing is that Bernie is actually about almost exactly eight years older than Liz.  

You know, she just turned 70 within the last week. So, and I think Bernie is either 77 poised to turn 78 or has recently turned 78. So, you know, to my mind, like what I immediately think which is again, probably a bit quixotic and again, maybe sort of stupid and boring too, but wow, eight years. All right.  

So Bernie can be president for eight years and she can be vice president and then I can flip it and she could become president when she gets to be Bernie’s age now. And by then, STEM cell therapy technology will be developed so thoroughly that we’ll all have 200 year lifespans. And so Bernie and Liz will be in great shape, you know, to kind of handle 16 years.  

We had to do a minor amendment to the constitution because you can’t actually be a vice president I don’t think if you’ve, if you’ve been president for eight years. So we had to do a little tinkering with the constitution to allow that, but being halfway, you know, kind of whimsical here anyway. You know, another possibility, of course, is that AOC herself runs she’ll be old enough under constitutional terms as of 2024.  

If we want her to be “seasoned enough,” maybe she waits until 2028, we’ll see. Of course, we’ll also just see how many more AOCs we get in the coming elections, because my impression is that we’ve got a lot more in the making. 

Steve Grumbine (00:16:15): 

That’s great. So I guess I’m going to bring up another question here and I would be remiss in not at least, you know, coming to you with a somewhat hard question here in that, you know, a lot of folks that supported Bernie in the last election really do have some hurt feelings with Elizabeth Warren.  

What seemed to be her silence when she could have tipped the scales in his favor. There was some opportunities like with the Dakota Access Pipeline where she kind of stayed on the sidelines. There were other opportunities as it came to Flint, Michigan in the water, it just seemed like there was some real opportunities there to solidify.  

She was already progressive gold at that time, and everybody just thought it would be a natural thing that rather than support the neoliberal candidate and Hillary Clinton, that she would be a vocal supporter of Bernie Sanders. I understand politics probably played into that, but I just, I wanted to get your take, you know, for people out there who are really, really distrusting of her to kind of give them your perspective on why that maybe is misplaced or, or maybe there’s some valid concerns there, but what your take on it is. 

Robert Hockett (00:17:28): 

Yeah. So I would be, I think being dishonest, if I didn’t say that I share the concerns up to a point, right? That there’s a little bit of residual, I guess, concern in my mind about maybe how purely Bernie she might be. But that being said, again, of course as you know, we talked about metabolic optimism before.  

I think a corollary to that is kind of a readiness to sort of adopt the most charitable interpretation of an action or inaction, at least until it no longer is plausible to harbor it. So my thought about 2016 is that in a certain sense, it was kind of cool that she actually remained neutral rather than endorsing Clinton until after, you know, Bernie had endorsed Clinton because, you know, at the time it must have looked to her as it probably did to all people who are already in the Senate at that point that the Clinton machine was unbeatable.  

And that if you cross it, it’s going to sort of devote itself to, you know, kneecapping you for the rest of your political life and so forth. And so it wasn’t altogether clear to some people at least that Clinton was doomed and that Trump would beat her, that only Bernie could actually beat Trump. And, to those to whom that wasn’t clear to, I could sort of see why there might’ve been a thought, “Well, okay, I’ll just stay neutral until the nominee is chosen.  

And then I will jump aboard and help them to win.” Now, you know, I think that’s probably the calculation that was made there. And it’s hard for me sort of to declare like categorically, that that was the wrong choice or that it was a reprehensible choice. That being said, I can tell you what my brothers were and what I think that a truly savvy advisor would have advised Liz.  

And that is look in 2015, 2016, you are gold. And I remember Warren was gold. I mean, everybody, all the progressives loved her. So if she had indeed cast her lot with Bernie, I think it would have been all but certain that the two of them together would have taken the nomination. I think that they would have won it.  

I don’t think Clinton would’ve won it. I don’t even think that the Clinton superdelegates could have stopped that. It would have been such a head of steam behind that. And in so far as that’s the case, I think that her caution about trying not to alienate too quickly the Clinton people who might be able to destroy your political career were probably more timid than it had to be.  

But again, that was just my gut. And that was, I guess you could say it with my informed gut, but you know, they have a lot of polling data too, and they came up with a different sort of answer to the calculation. One thing I think we know for certain is that Liz did not refrain from endorsing either side in 2016 owing to any particular loyalty toward Clinton.  

You know, there’s that wonderful interview with her that’s up on YouTube from back in the early 2000s where she’s quite roundly denouncing Clinton for the role that she took in getting that so-called “bankruptcy reform legislation” through Congress and Liz never said, “Oh, that was a youthful indiscretion.” Or “I, I hereby repudiate, you know, that attack,” or, “Oh, I was shooting from the hip there and I was wrong.” I mean, she’s never turned her back on that statement and on that interview, which is floating all over the place. So I don’t think there was any sort of special like desire to kind of help out Clinton or any hope of being appointed to anything by Clinton either.  

So, I think it was just a different call that she made and it’s not the call I would have made. And of course it’s not the call that you or most of our friends and allies would have made, but I do think there’s at least a plausible explanation for the call that she made that sounds in something other than bad faith or cowardice. 

Steve Grumbine (00:21:22): 

Right. This is going to be a step above the last question. It’s going to be a little tougher, but I think it’s a fair question. When Donald Trump came out in his speech, state of the union speech, and he spoke about basically killing socialism, Liz Warren took to the, took to her feet and applauded.  

And there’s a picture as clear as day, Bernie Sanders sitting down square with his arms crossed and Liz standing there giving him an applause. That right there is probably the loudest voice a progressive could say without opening their mouth. I don’t know what to do with that. I still don’t know what to do with that. 

Robert Hockett (00:22:01): 

Yeah. 

Steve Grumbine (00:22:01): 

Any thoughts? 

Robert Hockett (00:22:02): 

Whew, what I do with it, and then again, this might just be a matter of sort of differing strategic or tactical judgment. So I think Liz and Bernie have two different views as to what is the best way tactically speaking to deal with the so-called “socialism” label or the “socialism” tag. But so Bernie I think is actually probably more of a kind of FDR, New Deal Democrat than he is a kind of classic European socialist.  

And that’s why he says “I’m a democratic socialist,” rather than, “I’m a social Democrat,” which is the European term for a socialist. And Liz has a somewhat different tactical take, let’s say terminological tactical take on this. Her plan is that, “Well, look what we’re talking about, including what Bernie’s talking about is not actually socialism.  

It’s rather a kind of accountable capitalism. It’s a kind of socially responsible capitalism.” Now, many people think that that’s more itself possible in the long run. Marx of course himself didn’t think it was possible in the long run, neither did Engels. And I have to say, I myself am skeptical about whether it’s possible in the long run, but here’s what I think is the key point for the moment.  

It’s that I think that neither Bernie nor Liz is actually a socialist in, again, the classical European sense of socialist. So the question then becomes, well, what do you call yourself? Liz, I think wants to avoid the socialist word because she thinks that it carries a kind of scary connotation that makes it too easy for Trump then to make his case.  

And so if she were like sitting down with her arms folded like Bernie, she’s probably imagining that the Trump people show this as like “You see? She is a socialist,” and she wants to deny them that capacity. By being able to say, “Look, I am a capitalist, too. I’m just a different kind of capitalist than you people are.  

I’m a 1940s-style capitalist, which was a much more humane form of capitalism.” And that I think represents a different tactical again, choice than Bernie, which is to go ahead and own the “socialist” label, even though he’s not really that socialist. And I think that one can do that in good faith it seems to me. Now I, myself, I think would prefer something like I would probably say if I were in place of Bernie or Liz.  

Let’s say there’s a third possible candidate who progressives, some progressives like, and let’s say it was me. Not that that’s possible, but imagine that were me. 

Steve Grumbine (00:24:35): 

I’d vote for you. 

Robert Hockett (00:24:38): 

I would do something a little bit different from both Bernie and Liz. I would probably say “We should actually be striving for an actual socialism, not a kind of faux-socialism that we call “democratic socialism” instead of social democracy or social Democrat ideology, or what have you. And I’d say, “I’d like to kind of get there and one way to get there by leaps and bounds rather than by tiny steps is by starting with a much more humane form of capitalism that is a kind of state capitalism or kind of mixed capitalism, something halfway between what FDR was an apostle of on the one hand and what somebody like Huey Long was pushing for, on the other hand.  

I would be tempted to say, “It takes us a while to get there. Maybe we should have like a plan. Maybe it’ll take us 10 to 20 years to get there. And here are the concrete steps we can take between now and then, and until we actually get to the end point, we’re not really socialist, we’re just striving for socialism,” but I’m going to admit that we’re not there yet.  

And I’m also going to admit that the steps that we’re taking to get there are not all the way there, right from the get go. Now that of course requires a fairly complicated form of messaging, which is why I would never get voted in. So basically the question then becomes, “Well, what degree of nuance do you part with?  

How much nuance are you willing to sacrifice in favor of slogans in order to actually to get some traction?” And I think what happened is that, you know, Liz is basically willing to sacrifice a little bit more nuance than Bernie is. Bernie sacrifices just enough nuance to make him say democratic socialist instead of social Democrat. Liz, I think sacrifices even more nuance by saying “I’m a capitalist, but I’m an accountable capitalist.”  

And then if anybody asks her what “accountable capitalism” means, well, it sounds an awful lot like democratic socialism. As you know, the way I’ve been summing up the difference between her and Bernie is by reference to one very simple position that each of them take that differs by degree rather than time.  

Bernie, as you know, a part of the Accountable Capitalism Act that Liz put out last August; and so she wants 40% labor co-determination on corporate boards. So 40, you know, 40% of the decision power would be held by the laborers within firms. And 60% would be held by the so-called “capital contributors” or either shareholders.  

Bernie wants something pretty similar to that. He wants it to be a 50-50 split. Now, you know, needless to say, I would prefer 50-50 to 60-40; but, in fact, I would prefer even more than that. It’s not clear to me why you have to have any shareholders. I’m 100% labor, right? But that’s the way in a nutshell, if you really had to kind of sum up the difference between me and Bernie and Liz, again, not that I count for anything here, but since I’m talking to you, I would say 100% labor.  

So I can get rid of the co-determination thing altogether and just call it labor determination. Bernie wants it 50-50 between capital and labor. Liz wants it 60-40. Now it seems to me that the 10% margin between Bernie and Liz is not that huge when you get right down to it, particularly when you remind yourself that there’s a big giant why hanging out there, which is why not 100% labor, right?  

So that, to me, a real socialist like me, I suppose, would be the one-hundred percenter, and I think Bernie is kind of half-socialist. And that’s what he means. That’s why he says I’m a democratic socialist. And I think Liz is a 40% socialist. So I’m fine with the 40 or 50, if the choice was between one of those on the one hand and the zero percenters who are every bloody other person, by the way, on the other hand, every other Democrat is a zero percenter.  

I’m a hundred percenter. I’m guessing you’re probably something close to a hundred percenter. If not that, right, a hundred percenter. I think Bernie is a 50 and Liz is a 40, you know, I’ll take one of those two or ideally both before I’ll take any zero percenter, that’s for sure. 

Steve Grumbine (00:28:29): 

One of the things that I really love about what you just said, my feelings about Liz Warren, I would say, are a journey. We’ll leave it at that. I don’t know where I stand with her at this point. I do know that I’m, I follow the lead of the people who I value and who I trust. And you’re one of those people.  

So within that sphere, I want to state one thing, what I consider to be very important. You have just come out and said, “I am like straight up socialist. I believe in a hundred percent employee-owned companies. I see no reason for the shareholders.” I love it. Right. But I also love the fact . . .  

I don’t want to say that you’re a pragmatic, cause it starts sounding a lot like Hillary Clinton’s “I’m a progressive who gets things done.” But what you’ve done here is you’ve said, “What I want is this. And I’m making calculated decisions that the best way there is through these vehicles that are imperfect, but in understanding the world that we live in today, short of a bloody coup or a bloody revolution, this is the most humane way of transitioning to an economy and to a society that meets the needs of the people.”  

Would you say that that’s an accurate summary? 

Robert Hockett (00:29:47): 

Yeah, I think that is. I think that’s a fair summary, Steve. I would only add the caveat just as a way of ensuring that I don’t get confused with stuff in minds with the so-called Third Way types of the 90s, that I would want there to be a, kind of, I would want there to be a target date, so to speak.  

Kind of like we’re doing with the Green New Deal, right? We’re saying, okay, 100% carbon neutrality within 12 years, no longer. I think there’s nothing more galvanizing than a target date. And then also commit them to sort of working out the specific concrete steps that you’re going to take every month or every year over that say, 10 to 15 year period that you’ll call the transition period.  

Then I think it would be fair to call me practical and pragmatic. I’m sort of practical and pragmatic, but only in so far as there is a very specific and concrete aim and the timetable for getting to it. 

Steve Grumbine (00:30:38): 

See, you’re speaking to my heart here because my career is that of program and project management and everything that I do from whether it’s organizational change management to technology, it always has built in a just transition, which is something we’re hearing a lot about with this Green New Deal and enabling jobs for those who would be displaced by disruptive technologies and disruptive energy sources, etc.  

But what I’m hearing you say, which again is very vital, we’re setting deadlines, we’re putting milestones out there, we’re building a plan. We’re laying out the requirements and we’re getting to the end and we’re tracing back to make sure did we meet our requirements? Is this what we’re trying to do?  

And I think that people would be well advised to consider that anything that doesn’t have a plan is a plan to fail. And what you just laid out there to me is a really, really brilliant summarization of some of the things I think people need to be aware of as they put both Liz and Bernie and anything else that comes across our table.  

The news headings, anything. When you read them, read them with an understanding of where we are today versus where we’re trying to go and the steps it would take to get there. That’s my take. I really believe that’s vital in anything that we do here. I think that transition is always left out in the discussions.  

People ignore it. They want immediate gratification. They don’t realize how important it is to make people whole, as you change their lives. 

Robert Hockett (00:32:11): 

Yeah, I think you could even say that it’s tempting for me to sort of adopt a really slightly oversimplified sort of three stage gradation of, or three stage ranking of seriousness. And so probably the most serious people are those who, like you and I are doing right now, I can call them, you know, sleeves really rolled-up people, not fake sleeves rolled-up people like Biden, who rolls them up to look like he’s working.  

But any people who really are serious, it seems to be give timetables. They have target dates. They have basically timetables and they say, “Look, here’s what has to be done at each particular step.” I think the second most serious, or the actually the second least serious, let’s say in the middle are those who say, “Oh, I view it as aspirational,” or “I like the concept,” right?  

Was it Kaptar or, I’m sorry. Was it that Klobuchar or somebody who said, “Oh, the Green New Deal is aspirational?” That’s a real sign that you’ve got a real problem on your hands. And then finally the worst are those who basically don’t say anything at all – we just basically don’t even view it as a thing that should be aspired to.  

To me, I mean, as soon as somebody uses the word “aspirational” or they say, “Oh, I like the concept,” I mean, that’s just a big red flag. That’s just saying, “Oh, you know, I want you to think that I’m with you, but I’m not really prepared to commit to anything or make anything happen.” And it’s just another variation on the “talk is cheap” idea, you know? 

Intermission (00:33:44): 

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Steve Grumbine (00:34:34): 

So this brings me to the next point. And that is that one of the things that expanded my mind and horizon beyond the regular university education was the exposure to Modern Monetary Theory and the shackles that ripped away from my eyes and my dreams, my imagination went wild with what we can do now in this environment.  

It changed everything. So as I listened to Bernie Sanders and he gives a Rolodex of every progressive program anybody would ever want just like, “Bam. Bam. Bam. Just yeah. Yeah. Yeah.” And then you realize that people are still thinking “pie in the sky” because of, they don’t understand how we’re going to pay for it.  

They have no idea how we’re going to pay for it. There’s still people out there who have heard this message a million times that are still asking “How we’re going to pay for it?” This is a very, very big deal – he “How we’re going to pay for it” thing. You wrote a great article in Forbes, basically breaking down how to pay for it is not a thing. It’s not really a thing. Can you talk about that for a second? 

Robert Hockett (00:35:43): 

Yeah, sure, sure. So, the point is sort of two-fold in that, in that piece and I have to, you know, by the way, if one needs a cause for optimism, I proposed the number of hits that that thing has drawn is one cause for optimism. It’s somewhere around 80,000 hits at this point which is just totally flabbergasting to me.  

I never would have expected that. I mean, the typical number of hits I get, as you know, I put out these Forbes columns every week or so; and I think the average number of hits after a month or so is probably around 5,000 or something at the most. But in this particular case, it’s close to 80,000; it’s just under 80,000.  

And that seems to me to suggest that it touched a nerve, that there is indeed interest in this question, which I guess means that you and I have some reason to be hopeful, right? That, that the message can get through. So that’s the first point, right? The second point then exposes, what is the thrust of the piece?  

Well, it’s sort of a two part thrust, right? The first thrust is the familiar point that you and I and our friends are often making, which is that yeah, there are constraints. Yeah. You can’t get something for nothing, but, it’s crucial to sort of identify correctly what the constraint is or what the constraints are.  

And as you and I know, the constraint is the resource constraint. It’s a matter of what capacity do you have? And the capacity has to be understood in material terms, not in pieces of paper terms or keystroke terms, right? Because there is no practical limit on the amount of paper that you can put out or the number of keystrokes that you can click or what have you, right?  

So the first point is just to make that point, which is again, a very obvious point to people like you and me, but, and to our various friends in the movements, but isn’t familiar to some folks who are still in the grip of orthodoxy. And then the second point is to unpack what the resource constraint itself actually means and then ask to what extent that’s a constraint?  

In other words, it’s kind of quantify as it were or to take the measure of the real constraint. So as you and I also know, and as our friends also know that the form that the resource constraint takes in what JM Keynes called the monetary production economy is an inflation constraint, right? There’s the worry about there being too much expenditure relative to the quantum of goods and services available that that money can be spent on.  

But then if the constraint is best identified, then as a kind of inflation constraint, then we have to take account of, well, to what extent are we actually butting up against the limits? And I know it’s how close are we in other words to an inflationary moment? And so the article proceeds then to say, if give you all the reasons why we shouldn’t consider ourselves to be anywhere near a moment.  

And by the way, that’s reflected in the title of these two. Cause remember it says “How to pay for it isn’t a thing.” And then dash “And inflation isn’t either.” And the reasons of course that inflation is not “a thing” for present purposes are multiple, they’re manifold. So it’s very easy to run through them, right?  

I mean, one is of course that we’ve been trying to reach a 2% inflation target from below for 10 years now and we’ve barely ever made it. We’ve managed to make the 2% target a couple of quarters in the last 10 years. Second, of course we’ve spent literally trillions on wars and tax cuts over the last 15 years or so, and there’s still no move in the direction of inflation.  

Thirdly, right, there’s the fact that we have lots of independent evidence that suggests there’s a great deal of slack still in the economy, a great deal of capacity, underutilization not withstanding these sort of ersatz unemployment numbers that we keep getting from the BLS, which of course don’t really measure actual unemployment of the sort that matters.  

And then in addition, there is the fact that the Green New Deal expenditures would be productivity enhancing measures, meaning in turn that you would actually be growing the quantum of goods and services out there with the money supply. And that’s really what counts when we’re talking about inflation, because inflation, as I like to say to the nursery school kids, inflation is a relation, right?  

It’s a relation between the quantum or the velocity of money on the one hand and the quantum of goods and services that could be purchased on the other. It’s the relation between those two quantities. And so if you’re growing the goods and services supply with the money supply, then you’re in effect acting in a deflationary way at the very same time that you’re acting in an inflationary way.  

And the two things cancel each other out. And then finally, if all of that weren’t enough, we have a huge number of macroprudential finance regulatory tools at our disposal to deal with inflation in the highly unlikely event that it were to come out. And this is what I teach, right? I mean, I teach financial regulation and have been teaching it for the entirety of my time at Cornell and financial regulation, which sadly, most finance regulatory people don’t seem to understand, is all about basically modulating credit money aggregates to the macro economy.  

Basically anytime you hear about capital regulation or what’s also known as leverage regulation, or anytime you hear about reserve requirements or any time you hear about what is the value ratio requirements or debt-to-income ratios or the like, anytime you hear about macroprudential finance regulatory tools of that kind, you are really hearing about monetary policy tools, too.  

And the unfortunate thing is, again, most experts on finance regulation don’t seem to understand that, on the one hand, and most monetary policy experts don’t seem to understand that on the other hand. And that’s because they don’t understand what money is. They don’t understand the credit nature of money.  

In my view, one of the greatest services that our friends in the MMT movement have done is to sort of emphasize that sort of credit basis of money, right? You don’t even have to be an MMTer to kind of understand this much, right? That at the core of it, money is credited, a credit relation. And once you understand that you have kind of at your disposal everything that you need to understand why it is that financial regulation is itself a form of inflation regulation, and hence why it is then that as long as we have not only a Fed, but an FSOC and an FDIC and an OCC and a CFTC and an SEC, and I could go on and on with all these Cs, we have everything that we need to sort of make sure that inflation never does become a problem in the very unlikely event that it were to begin to sort of threaten to become one.  

But as you know, people who want more detail and more nuance of course can just go and find the Forbes piece, but that’s essentially what the Forbes piece is trying to convey. 

Steve Grumbine (00:42:23): 

Very, very good. So with that, it kind of leads me to the next and final tie up on this. And that is that obviously the economy is not working for regular people today. It just isn’t. So you see a lot of people trying to work different angles. You know, we talk about the Federal Reserve. People are concerned about the Federal Reserve.  

They don’t really fully understand what it does. They’re also concerned and looking for ways around the government and you see them looking at digital currencies, cryptocurrencies, even at Facebook now trying to come out with Libra, working with various folks across the industry space to bring about this digital transaction tool I’ve been told it’s likened to PayPal.  

Can you talk, I guess a little bit about the role of the Federal Reserve and some of the concerns that regular people have in terms of how the economy’s working and then why things like Libra keep coming up? Kind of put it in its proper place. 

Robert Hockett (00:43:26): 

Sure, Steve, that’s a great question. Um, so maybe let’s start let’s, how about we sort of telescope from the more general to the more particular? So starting with the more general, you and I were talking just a moment ago about credit aggregates and how that could be variable. That’s the thing to kind of keep an eye on when we’re thinking by inflation.  

If we add just a little, just one layer of nuance to that, but we would note then is to basically note the following: Somebody has to be modulating credit aggregate. That’s the case. Somebody has to be overseeing the total quantum of credit out there in the economy relative to the quantum of goods and services that credit money can purchase, right?  

Now, strictly speaking, or technically speaking, that’s what we want the Fed to be doing. That’s sort of what a central bank or a monetary authority typically is. Maybe more accurately one would say that the entire group of, the entire college, or ensemble of financial regulators and putting the money regulators like the Fed are all together, working on modulating, basically the credit aggregates out there in our economy as a whole.  

But now look, if we add one layer of nuance, what we would say is that, “Look, it’s not just about modulation of credit aggregates. It’s also about the allocation of credit aggregate,” that the reason that people were able on the one hand in the early 2000s to say that we’re in the midst of a great moderation with no inflation and out of the other sides of their mouth, to say, “We have a bubble in the housing markets,” is precisely because the allocation matters.  

In other words, we did not actually have zero inflation during the so-called great moderation. We simply had hyperinflation in one particular market, the housing market, which then over time bled over into other adjacent markets like the market for mortgage related securities; and then like the market for derivatives that were associated with or that basically used as their references underlyings that were mortgage related securities.  

So we had a hyperinflation or hyperinflations in those markets even while we had deflation underway in the so-called “real sectors” of the economy, especially the real goods and services sectors, ignoring commodities for the moment. So allocation is a critically important function as well. And indeed, if you don’t get the allocation right, you’re not going to get the modulation right.  

You’re not actually going to be adequately modulating credit aggregates unless you’re adequately allocating those aggregates. Two, now what does that mean for your and my purposes? It means among other things that the public really ought to be taking a much more active role in directing credit or credit money to those sectors that actually need it to, for example, people who don’t have access to banking services or to credit or to financial services of the garden variety sorts.  

They also ought to be allocating more credit for start-up businesses that individuals are starting up rather than Silicon Valley types – in other words, allocating credit to small businesses that you or I might be trying to create rather than that those that Elon Musk is trying to create. So, that allocation question is crucial.  

And I think that one reason that some people are interested now in community currency, community cryptocurrencies, or various forms of what we might call fringe banking and the like is precisely because underneath it all, they understand that there’s something tremendously mucked up about our credit allocation system.  

Right? So that’s the second thing to say. So the third thing to say then is “All right, well then are the schemes that people are counting on or proposing, are they the answer? Do they fit the bill? Do they handle the financial inclusion problem or the mis-allocation problem or the, ‘it takes money to get money’ problem?”  

And I think the answer to that question is quite clearly, no, they don’t. They don’t even come close. And so then the question becomes, “Well, what would, what should we do?” So let me say just a couple of things about what I think we ought to be doing and then what that would mean for what is currently on offer, ok? Is that a suitable way to proceed? 

Steve Grumbine (00:47:35): 

Absolutely. 

Robert Hockett (00:47:36): 

So it seems to me that we ought to have at least one entity that is essentially a public entity that channels capital forthrightly to those who have need of it and who can put it to productive use because this capital is basically a common resource. It’s essentially a public resource. What we’re really talking about here is the monetized full faith and credit of the United States.  

It’s our collective credit in effect is what it amounts to. And so it’s odd to me that we don’t have a collective agent that is actively involved in trying intelligently to channel our collective public credit in productive directions, right, that enable all of us to lead more productive lives and to build more productive lives.  

So what would that look like and what would that mean? Well, one thing it might mean is let’s say that you and I, Steve Grumbine and Bob Hockett, decide they want to start a business and they need some capital to get started. Well, currently, we have to try to talk some private capital suppliers into making that capital available to us.  

And that means we either have to bend over for them, or we have to give them a huge ownership stake in our firm, thereby making them co-owners meaning that then they’re going to demand some say in the determination of the firm, meaning that they’re the people who Liz is going to give, you know, 60% of the say to, and that Bernie is going to give 50% of the say to.  

But if they were a public entity that was ready to channel that credit to us, if we had a good business plan, we wouldn’t have to bend over for any private party. And there wouldn’t be any need to say, “Oh, let’s get private capital which requires a 50% vote or a 60% vote.” We would just do it all ourselves.  

And we would simply borrow the money from the public entity or make use of this money that was granted us by this public entity to start our business. And all we would do is, again, we’d have to show them a plausible business plan, that there’s some reasonable likelihood of success, so on and so forth.  

Now, if you extrapolate from this humble little story that I just sort of opportunistically taken right off the table, since you and I are talking, to the full panoply of possibilities out there, small businesses that people might want to start up, or business expansion plans that firms might want to adopt, or conversion plans to employ ownership by firms that would like to that, that are otherwise going to be sold to private equity firms and then be parted out.  

If you expand it that way, then you would really have the prospect of an actual ongoing public financing of employee-created firms or work group-created firms, basically labor co-ops of various kinds, and something like that; interestingly enough, is what the Reconstruction Finance Corporation, which was the largest bank in the world during its heyday, was trying to do during the Roosevelt years.  

We never hear about the RFC anymore because people had an interest in our forgetting about it, but for a good, almost 20 years, we had a gigantic public banking institution called the RFC that was largely about doing that. It was also rescuing existing firms and the like; but a big piece of its portfolio was to publicly finance private startups by individuals who wanted to start up firms that they would be the employees of as well, rather than using simply to employ other people.  

But then of course, you know, the Cold War breaks out and in 1947, they sort of take it apart because it sounds too “socialistic” or whatever. So that’s the kind of thing I think we ought to be looking at. And that’s one kind of project I’ve been trying to work with some of the Congress members on developing and then writing up a big plan along these lines even right now.  

Now contrast that to what we have in the way of proposals actually start with Libra, which is just comical, which is ridiculous. So, basically this is just Facebook offering a kind of glorified PayPal that they’re trying to sort of pass off as some cool kind of currency. And they’re saying, “Oh, we’re going to be able now to offer financial inclusion, you know, because all sorts of people will now have access to payment services through their Facebook accounts and they can simply send money to one another by Facebook messenger and so forth.”  

Well, yeah, that’s great. I mean, they can do that with PayPal already. And of course, if they were Chinese, they’d be able to make payments off of their phones for everything already, because of course almost the entirety of the Chinese population uses their iPhones or their smartphones to do payments.  

And so that’s fine as far as it goes, but it’s a joke to think that that’s a currency that what Libra is offering is a currency or that it’s actually a way of getting more capital into the hands of more people or what have you. What would actually do that? I think that the way to do that is partly through the kind of institution that I just mentioned and then have that accompanied by one additional innovation.  

And that would be to have every citizen have a right to having an account with the Fed, I call these “citizen accounts.” So you and I at birth would now have a Fed citizen account. So, as you know, currently the only entities that can have Fed accounts are banks and a few other financial institutions that the Fed is willing to treat as if they were banks. And so when the bank, when the Fed conducts monetary policy, let’s say it wants to counteract a deflation, a debt deflation through expansionary monetary policy, and let’s say it has to innovate with new forms of this.  

And so it starts something that it calls QE and then it calls QE1 when it comes up with a QE2; and then it calls QE2 “QE2” when it comes up with a QE3. Well, the thing about most of those innovative strategies that Bernanke sort of helped pioneer was that they still relied on private bank middlemen, right?  

The bank says, “Well, we want there to be more credit getting out to the Steve’s and Bob’s so that they’ll start up their businesses. And so let’s just make money cheaply available to banks. And then we’ll pray. We’ll get on our hands and knees and pray, like Hank Paulson did to Nancy Pelosi, that the banks will then see fit to lend money to, Bob and Steve.”  

Instead of doing that, why not just cut out the middleman and say, “Hey, Steve and Bob have a Fed account. They have citizen accounts here at the Fed. So we, the Fed will simply credit their accounts. We’ll do a helicopter drop in the Minsky store, or we’ll do a kind of a direct infusion of, basically of, money to Bob’s and Steve’s accounts so that they’ll spend some of it instead of hoping that the banks will do it and then be confronted with a ‘pushing on a string’ problem.”  

That’s, I think, a much better way of doing things. And then let’s say the opposite happens. Let’s say that you have inflation beginning to actually to loom, not that that’s likely to happen, but if it were to loom, now the Fed has a much more potent repression tool as well. It’s simply offers interest to you and me on our accounts.  

And it raises that interest rate to incentivize us to keep more money in our account and spend less. So that basically sucks a certain amount of spending out of the economy and puts then downward pressure on the inflation rate to counteract whatever upward pressure is building up on that rate. In other words, you’d have a much more potent because a much more direct monetary policy tool.  

And if you combined, it seems to me a system of Fed citizen accounts with a new public entity, which would be a latter day version of the old Reconstruction Finance Corporation, I think of it as a kind of a national investment bank, you combine those two things together and you have then a much better form, seems to me, a credit modulation and credit allocation than we currently have.  

And now you’d actually have a monetary system that would be operating first in keeping with what our friends in the MMT movement have been telling us is the case, and which would then operate in a much more just manner than our current system, which pretends that only private parties are fit to allocate our public credit on the other hand. That sort of makes sense? 

Steve Grumbine (00:55:10): 

Absolutely. I didn’t want to interrupt you cause you were on a roll. This is beautiful. One of the things that I guess jumps out at me in all of this is the fact that there’s obviously a reason why people are ferreting around for these things and it comes down to right now, currently we completely lack any visible view of what prosperity might look like for regular people.  

So they’re digging under the covers, under the mattresses, anywhere, any three o’clock in the morning blog to come up with some new crypto, anything to just because the despair is so deep and thick and it just doesn’t seem like the government is responsive in any way. It sounds like these banking institutions that you’re talking about, these secondary institutions, if you will, that would help fund these initiatives and stuff would in fact bring about immediate changes right off the bat that would allow people to suddenly see what I consider to be hope, possibilities, dare I say freedom, from waiting on bad actors to fulfill promises they never meant to fulfill.  

So in that sense, I see this as a tremendously optimistic view to great vision. But what do you think is the chances of us being able to enact something like that? Do you see that in either Bernie or Liz? I mean, I know obviously the idea of having Fed accounts is something that I’ve heard from various people.  

Warren Mosler has even raised something about that at a different time. You’re in good company there. What do you think of the chances of such things happening? What kind of air cover will we need? What kind of marshaling of resources will be needed to get something like that even into the sphere of possible? 

Robert Hockett (00:56:54): 

So, if we start with the idea of a kind of natural investment bank, again, a kind of a latter day version of the RFC that I mentioned first, there it’s already in a certain sense underway. So one senator who you love very much, another senator who I think you are at least prepared to complement, and yet a third Senator whom I haven’t even mentioned yet, all three of them are very interested in this and have been asking, I’ve basically been working with to try to develop a version of it for them to use.  

So that is something I think that we’re very, very, very close to, right? When, even not just the two best, but even what I’ll call the third best in this, because she signed on to this idea, is interested in this. I think that there’s still great hope. Now, when it comes to the citizen account idea here, too, I think there’s great hope for sort of two reasons.  

The first is, as you doubtless know, and have noticed already, central banks worldwide are in the midst of sort of upgrading their payment system. One of the things that the central bank or monetary authority in every distinct national jurisdiction has charge of is the national payment system. And the Fed is no exception in that the Fed administers our national payment system here in the US.  

Now these payment systems as they currently stand are a bit long of tooth. They rest on a technological infrastructure that’s decades old. And so the central banks are looking to, again, to upgrade or modernize those payment system infrastructures and not surprisingly given all of the developments of late in this space.  

And most of them are looking at one or another version of, or some form or variant of distributed ledger technologies. My guest then is that the Fed will probably do something similar right along those lines. Now, if it does, it has an absolutely golden opportunity while at it to add on the functionality of citizen accounts.  

Why? Because you just say, “Well, look, the cryptography, that’s going to be used to maintain the security of the new payment system that the Fed will administer also enables to the Fed to administer a system that includes security for each individual citizen’s citizen account. So now, it’s sort of in a way, it’s no longer just technologically feasible.  

It looks just outright technologically attractive or beckoning. So that’s the first reason to be optimistic on that score. The second reason is you won’t be surprised to hear that the same senators I’m working on investment bank idea with I’m pushing the citizen account idea with; and here I’m also pushing the idea with a number of fairly influential members of the House as well, right?  

And they’re on the right committees, Senate banking and House financial services. So I’m actually getting increasingly optimistic that some kind of, you know, again, arrangement is going to prove as feasible, as practicable, and even as politically popular, at least among the right candidates as the national investment bank idea.  

And so I actually think more likely than not, that we get either Bernie or Liz or both in the White House or in as a presidential administration come 2021, we have outright majorities in both the House and Senate with 50 to a hundred more AOCs. And then, you know, maybe 200 more sort of, not quite as good as AOCs, but still better than what we currently have.  

And so we have basically a kind of a New Deal style Congress, as well as a New Deal style administration. And then, “Katy bar the door,” as they say, we actually will have, I think, a massive Green New Deal mobilization, a new national investment bank that focuses on properly allocating public credit rather than just modulating it, which you really can’t do without properly allocating it; and a new payments infrastructure that everybody can access through their telephones of basically Fed administered citizen accounts. 

Steve Grumbine (01:00:57): 

That my friend, wow. 

Robert Hockett (01:01:01): 

[inaudible], right? Nobody needs, you don’t even need post offices or any other kind of public facility. I mean, we’d still presumably want some of those, right? But people could just do it with their phones, right? This is, of course, as you know, and a lot of countries in Africa and central Asia now they’ve leapfrogged straight from the 19th to the 21st century skipping over the 20th century entirely.  

You’ve got much more inclusive financial systems in those countries. Now it’s all done on people’s phones and that’s perfectly neat. There’s no reason that can’t work for everybody as long as you get the, again, the technology right. And it seems to me that what the Fed and what other central banks are looking at is precisely that, some version of the right technology, 

Steve Grumbine (01:01:39): 

It just breeds hope. That to me, to capsulate everything that I just heard from you, it is metabolic optimism. And it’s also genuine hope all the way, all the way through. 

Robert Hockett (01:01:51): 

I like to think of it as informed optimism at least, right? 

Steve Grumbine (01:01:55): 

No. Well, there’s nothing you said there that in my opinion, should raise any red flags for anybody who’s actually trying to bring about a fair and just society. And more to the point, I think that it should help provide some energy to a movement that I feel has been kicked in the stomach so many times.  

And they’re almost living in a perpetual state of waiting for the other shoe to drop that I think it diminishes some of their efficacy in terms of not only activism. I know it impacts me. I know I start going into the negative territory because they start seeing the uninformed voices more loud than the informed voices.  

But what you’ve just done is carved out a very, very nice vision that I think explains not only some of the concerns people have but also a path forward. And I want to thank you very much for this time that we spent together. I look forward to seeing you very soon and hopefully we’ll get to spend some time together at the Third Annual Modern Monetary Theory Conference.  

And with that, Bob, thank you so much for being a supporter of Real Progressives and our work here. We really appreciate you. You’re a very, very loved and revered man. So thank you for everything. 

Robert Hockett (01:03:18): 

Thank you so much, Steve and the love definitely goes both ways. And just in case you didn’t know, I always learn a ton through these conversations you and I have, too, so I always come out of this I think a better informed and more thoughtful human being than I was entering into them so thank, thank you and again thanks for you know, boy, basically doing the Lord’s work, getting the, getting the word out to so many people.  

And I hope to see it before September, but if not, then September at the latest. 

Steve Grumbine (01:03:42): 

Absolutely. All right, Bob, thank you so much for your time. We’ll see you later. This is another great episode of Macro N Cheese. Thank you again, Bob. 

Robert Hockett (01:03:50): 

All right. 

Steve Grumbine (01:03:50): 

We’ll talk to y’all soon. 

End Credits (01:03:57): 

Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts, and promotional artwork by Mindy Donham. Macro N Cheese is publicly funded by our Real Progressives Patreon account. If you would like to donate to Macro N Cheese, please visit patreon.com/realprogressives.