Episode 1 – Putting the T in MMT with Professor Bill Mitchell

Macro N Cheese Episode 1
Putting the T in MMT with Bill Mitchell

Bill Mitchell [music/intro] (00:00:03):

Well, in social sciences, there’s only one law and that is that we die.

Bill Mitchell [music/intro] (00:00:11):

They also just deny things. They just make stuff up. And they just deny that the global financial crisis was saved from total financial collapse by government deficits.

Bill Mitchell [music/intro] (00:00:27):

Someone said the paradigms don’t really shift until the dominant ambassadors of that paradigm die.

Geoff Ginter [intro] (00:01:26):

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. And this is Steve Grumbine with Macro N Cheese. This was a special broadcast we did on the Real Progressive’s network. Bill Mitchell, always stellar, joined us to discuss the T in Modern Monetary Theory. Enjoy.

All right, good evening, everybody. This is Steve with Real Progressives. I have professor Bill Mitchell joining me from Australia. Something very important to know about this – Bill Mitchell is one of the original founding developers of Modern Monetary Theory. And this is one of the most difficult things for lay people who are trying to advance the knowledge of Modern Monetary Theory, you know, both amongst each other and through the political parties and wherever we go, wherever we’re taking this knowledge, we’re always approached with the question why the T? What’s the deal with the T? What’s the deal with the theory thing, right?

But it turns out this is probably the most important thing for us to understand because in the world of economics, you’re surrounded by academia, surrounded by a lot of people that have a lot of stake in the game to make sure that their, their thoughts and their work are regarded. And more importantly, though, the truth of the studies comes to the forefront. So what I’d like to do is I’m going to bring on my friend, and the most brilliant economist I know, Bill Mitchell [inaudible] bring him on, and we’re going to talk a little bit about the T in Modern Monetary Theory. Bill Mitchell. Welcome to the show, sir.

Bill Mitchell (00:03:09):

Yeah, g’day, can you hear me?

Grumbine (00:03:10):

I hear you great. How are you?

Mitchell (00:03:12):

I’m okay.

Grumbine (00:03:13):

So tell us just a little bit about what a theory is.

Mitchell (00:03:19):

Well, when you think about it, you start off a person who’s thinking about trying to understand something a reality, if you like. We start off with a series of conjectures about reality and they’re just guesses or hypotheses, you know, they’re, they’re just, they’re just unsubstantiated or that stage. And so we might say, well, you know, A causes B. B being a reality and A being another thing in the reality that we’re trying to comprehend or understand, and, that’s not yet a theory in my view, that’s just what we call a conjecture, just a guess. And, to advance that a bit further, we have to then get what I call congruency.

Now that sounds like a pretty awful term, but all it means is that, the idea that you have about A and B has to stack up when you start going out and actually checking out what A and B is, and, you know, in the jargon, that means we do empirical research. We collect data and we check out whether what we said about A and B, the conjecture, stacks up. Whether you push A and B moves in the way you sort of broadly think it does actually happens. And if it doesn’t happen, then you’ve got a problem because it means that your conjecture is not congruent.

Now there’s a gotta avoid getting into the world of religion here, because we’re not searching for truth when we’re doing this type of theorizing, because how would we know the truth if we actually stumbled on it? There’s no way of really knowing whether we’ve actually found the truth. So when we’re talking about congruency, we’re actually talking about what econometricians say is a tentatively adequate representation of the data, a tentatively adequate representation.

And what that means in English is that for the time being the explanation you’re offering, hrovides an adequate depiction of the movements in the data in, you know, A and B. You don’t know whether it’s the actual truth, but for the time being, it’s the best explanation that you’ve got available for the relationship between A and B, in the real world. And for the time being you sail with that, you move along with that that’s your theory, it’s congruent. Predictions and never going to be a hundred percent accurate because What we call randomness in the world. But for the time being Basically are getting things correct. When, when you say this will happen, it broadly happens when you say this won’t happen, broadly doesn’t happen. And that’s what I think is a Theory.

Grumbine (00:06:26):

Tell me what is the difference between a theory and a hypothesis.  As you know, I think what happens now, you, you gave a very, very in depth explanation of what theory means in the real world. And probably a lot of people are like, wow, what does the word congruent mean? Let me Google that here. Let me Google that for you.

But when it comes to the bar room chatter that the random person has, they’re sitting there saying, well, I think my girlfriend cheated on me. I think this happened. All right. Well, that’s an interesting theory. You have no proof. There’s no none. There’s no congruency. There’s no, none of that. It’s a hypothesis. They’re guessing it’s like, this is something that, you know, maybe, maybe it could be happening.

You’re telling us that you’ve got empirical data. You’re saying that you’ve witnessed this. You’ve watched it repeatedly over and over again. And that makes congruent logical sense that this is the best data we have to date with the parameters and the variables that we’ve been able to establish this right here represents reality to the best of our ability at this moment, bar none. We’ve been able to repeat this and therefore it is risen to the level of a theory.

The next highest thing would be a law, which I would imagine, you know, very few things meet the criteria of a law that we’ve worked through. Can you step us through how the hypothesis you guys came up with for the thinking that became the theory came to be, what were some of the, the inputs that allowed you to put this theoretical framework together?.

Mitchell (00:07:59):

Well, in social sciences is there’s only one law and that is that we die. So that’s a law, that’s a physical law. We die. In physical sciences, there are a lots of laws, you know, like gravity and stuff like that. They’re, they’re actual eternal verities that are ground within the, in the reality of the system, the physical system. In social sciences. We don’t have laws.

Now the person in the bar who’s worrying about his partner, whether it’s female or male, not engaging in fidelity would turn that conjecture into a theory. In my view, into something congruent by hiring a private investigator to go and take some camera shots. And certainly in Australia before we had no fault divorce, that’s what used to happen. You’d have these private investigators hanging off ceilings and busting into hotel rooms with cameras to get the evidence, to make the conjecture congruent.

What we start off with in social sciences are just guesses and intuitions or, or conjectures and those. And when I say a conjecture, that’s equivalent to the word you used, hypothesis, and our hypothesis is just a, an idea at that stage. And we don’t know whether it’s got legs or not. We then have to operationalize it and take it further to see whether it does have legs.

And so when we want to do that, we have to confront it with the real world. We have to say, okay, does this conjecture or hypothesis have empirical content? Which means it has an explanatory power, which means that it, when we say A is related to B in this particular way, that’s currently a conjecture. Then we see actually whether the data in the real world supports the view that A is related to B in the way we think it is. And that’s then becoming a congruency. For the time being, we’re validating our proposition by making statements about the real world and then finding out whether the real world behaves broadly in accordance with that.

Grumbine (00:10:26):

No, I’ve, I find it fascinating because we get a lot of pushback about the T, right? But you don’t get any pushback when talking about Milton Friedman’s quantity, theory of money. They don’t go, “oh, it’s just theory”. They’re like, “We’re all going to die. Inflation’s going to kill us all, my God, quantity theory of money. Apparently it’s gonna happen”. But there is no theory there – that’s already been debunked. I mean, it’s literally been debunked, turned on its head, thrown in trash. What do you suppose the rigor is that you all have gone through?

Because I mean, just, just in the small time that you all have been – and small is relative, but in the last 20 plus years that you all have been doing this, there has been incredible amounts of writing. You can go all over the place, you alone have written, you know, Hobbit levels of [laughing] tomes of work that is just amazingly deep, very detailed. There has been an incredible amount of rigor backing the theory of the, the conception of the theory of Modern Monetary Theory. Can you talk a little bit about the rigor that you all have gone through and in testing your conjectures and your theses and so forth?

Mitchell (00:11:37):

Yeah. Let’s step back one pace.

Grumbine (00:11:40):

Sure.

Mitchell (00:11:40):

A body of ideas contains a number of elements. So if we thinking about what we now call Modern Monetary Theory, it contains a number of distinct elements. It contains definitions. So any body of work has to have some definitions. In other words, defining concepts and meanings of things so that we can talk about things in a consistent way. So that we know when we’re talking about what, what do we mean by money? What do we mean by government? What do we mean by credit?

Any body of ideas has to have definitions. In Modern Monetary Theory and in economics as well. Gen – more generally we, because Modern Monetary Theory is just economics, we also have to have accounting structures. And so we have in macroeconomics, the study of aggregates, we have the national income accounting structure, which measures economic activity, GDP, gross domestic product, household consumption, business investment, government spending. These are all measured within an accounting structure that is agreed by statistical agencies.

And so that forms another element in Modern Monetary Theory. We take on national income accounting as it is. Now, this is where a lot of the misconception arises because one of the ways in which we view the national accounts and we didn’t invent this, but we’ve, I think we’ve brought it back into the mainstream via Wynne Godley and others, but is what I’m calling. What I’m talking about here is the sectoral balances and the sectoral balances is an incredibly important part of Modern Monetary Theory.

But as it stands, the most simple statement drawn from the sectoral balances is that the government deficit [surplus] is exactly equal dollar for dollar, whatever currency you want, to the non-government surplus [deficit]. In other words, if the government is running a hundred billion dollar deficit, then the non-government sector has to be running a hundred billion dollar surplus. And whatever other permutation you want.

Now, as it stands, that’s an accounting statement. It’s quite an interesting accounting statement because you can draw things out of it that are contrary to the way in which the mainstream narrative is presented in the media. So for example, if you want to make a case that the non-government sector has to reduce its debt levels, then you logically require the government sector to support that by not reducing its debt levels.

And you can’t have a world where you’re pushing the government sector to run surpluses at the same time as you want the non-government sector to run surpluses and reduce its overall debt levels. So at the accounting level, the sectoral balances have some interesting and significant insights that provide leverage in the public debate to contest a whole lot of mainstream ideas that are used against the idea that government should pursue prosperity for all. And a lot of people then turn around and say, “oh yeah, well, MMT’s just about accounting” that it’s got no theory. It’s just about accounting.

Well, the important point to understand is that when we draw that accounting relationship out and say that the non-government surplus is identical to the government deficit there’s theory underpinning that statement, even though that statement in itself is just an accounting statement. Now, what do I mean by that? Well, what I mean by that is that the sectoral balances are a static that is a snapshot at a point in time. That has to always be the case because it’s an accounting statement.

But the point is that the world’s moving all the time, that the components of the sectoral balances and what I mean here is household saving, business investment, exports, imports, government spending, taxation and revenue. The components of the sectoral balances are dynamic. They’re moving all the time. By behavioral decisions that hou.seholds and firms are making, that traders are making in the trading sector, that governments are making in the policy space. There’s a dynamism going on there that is continually driving shifts in those sectoral balances.

And so each time we take a snapshot and apply our accounting rules, the sectoral balances hold, but that’s only the accounting part of the story. The dynamism is in the behavioral relationships that are driving those components. Now that’s where you need theory. Because you need a theory of the behavior of households, of business firms, you know, what drives business investment.

Well, that’s not an accounting statement that you’re making, you’re making a conjectural statement. And so when we say that business firms driven by expected returns, by technological things in terms of indivisibilities, by costs of funding and how does the cost of funding impact upon business firm investments, cetera, et cetera. What are the time horizons? That’s theory.

That’s the exercise, a theoretical exercise, which then, and what drives household consumption? Well, in the most simple theoretical model, we think that’s disposable income and wealth. That’s the most simple explanation for what drives household consumption. Now the important point then is, if that theory stacks up, we can then understand that if something, one component of the sectoral balances changes well then that will drive changes throughout the economy, which will consistently be bringing back the sectoral balances into its accounting relationship.

What do I mean by that? Well, we know, let’s say that household saving is a, is, is a function. That’s a theoretical word. It means it’s just dependent upon disposable income. That’s a simple theory. In other words, there’s household income goes up, we’ll spend more on consumption. But we’ll also save more because we’ve got some leftover. We don’t spend every dollar that we get in extra income. And, if imports are a function of income too, so we’re national income goes up, we tend to buy more imports. We don’t buy as many imports as extra dollars outlay on imports as we’d get on extra household income. But that’s the theoretical statement.

And, you know, might be a theoretical statement to say that imports depends upon how much your football team wins each weekend. That would be a conjecture. But then if you’re confronted that with the data, it wouldn’t make much sense. Whereas if you confront the conjecture that imports depends upon national income in a positive way, and you confront that with the data, sure enough you’ll find that countries that have rising national income also have rising income in a proportional way. And so that’s a congruency with your conjecture and becomes your theory.

And why I’m saying all this is because linking those sectoral balance components to shifts in income gives you the understanding of how that accounting relationship is continually being met. Because what happens is let’s say household savings. As it stands, the accounting relationship tells you nothing, nothing about what would happen in the economy if households decided to consume less. What happens?

Well, the accounting doesn’t tell you anything, but the theory tells you if households consume less of their income, they therefore save more. And if they save more, they spend less. And if they spend less, firms observe inventories rising, and if inventories are rising, they cut back on production, and if they cut back on production, employment falls, if employment falls, household incomes fall. And so you start to see the linkage, the behavioral linkages in the economy, that then drive all of the shifts in the components. And at each point in time, there’s an accounting relationship satisfied, but we, we have a much deeper understanding then of how those behavioral shifts work and what brings all of those accounting entities into their accounting equality.

Grumbine (00:21:17):

You bring up some great points, obviously they’re fantastic points, but you bring up some points that cause me to harken back to a, another non-heterodox economist in Simon Wren-Lewis, who frequently talks about micro foundations. And is always trying to take pot shots at Modern Monetary Theory about a lack of micro foundations and what I’m seeing, what I’m hearing from you, which really pretty much closed the lid on that is that all these factors below are part of the consideration.

As you’ve taken into consideration factors of savings, factors of behavior, factors that are empirical in nature, studies that have occurred, et cetera, you can logically assume certain things. Is it going to always be that way? No, but it’s going to be that way most times so you can make your congruent statements. You can put this together into a logical train that does indeed sound like it has an incredible amount of micro foundations. Am I missing something here? Is Simon Ron Lewis, trying to obfuscate the obvious?

I mean, you know, obviously I don’t have the insight that someone such as yourself might have, but I know on the lay person level, at least at my level, anyway, that I hear him say that, and I think that it’s like, he’s not really addressing what we’re saying. He’s kind of addressing some other thing that he’s trying to reframe what we’re saying into his own language, which it doesn’t work because his language is wrong from jump. Can you explain what he means by micro foundations and explain the micro foundations that went into preparing some of this congruent conjectures turned into theory?

Mitchell (00:22:56):

Well, that’s a topic, isn’t it?

Grumbine (00:22:59):

It is indeed.

Mitchell (00:23:02):

We’ll start, we’ll start this way. Macroeconomics is the study of aggregates, and macroeconomics is essentially an abstraction. Now, what do I mean by that? Well, there’s no such thing as the price level. There’s no such thing as GDP. It’s an aggregate that we’ve conceptualized. And so when we talk about the price level, which, you know, we, we then derive an inflation rate from, that’s just a construction. It doesn’t actually exist. It’s an abstraction, because there’s millions of prices.

We’ve got to work out some way in which we aggregate all those things up to become a macroeconomic entity. Now, before the 1930s, there was no macroeconomics. There was only microeconomics – Marshallian Economics, and Walrasian Economics. And so they believed that you could come to understand what happens to a nation as a whole, the aggregate, by examining the, what happens at the individual level.

So we focus on an individual consumer and we try to work out how that individual consumer makes decisions about spending and saving, et cetera. And then the dodge was to get an aggregate from that, we could just simply add up all of the individual consumers. Now, the problem was that it doesn’t work that way. The aggregate was really greater than the sum of the parts.

And so in the 1930s, John Maynard Keynes and others showed categorically that if you tried to reason at the aggregate level, make statements at the aggregate level about the nation as a whole, for example, by drawing at inference or inferences that you make at the individual level, then you’ll make errors. And the classic one was paradox of thrift. And this, this was a classic error of logic that the mainstream economists were making when they were trying to make general statements drawn from the specific.

So how did that work, briefly? The argument was that if an individual could discipline themselves to save more out of their weekly income, or whenever they got paid, then as long as they are disciplined enough, they could do that. They could increase the proportion that they saved out of their own income. So then the question is, well, if everybody’s saved, so then you’re, that’s a specific observation.

So then if you go to the general level, if you generalize that statement, you would say that if everybody saved more, they could out of their income, they could increase the proportion of saving out of the income. But the problem is, and here we get to the logical fallacy. Problem is, if everybody, if one person saves more, it’s not going to have much effect at all on total demand in the economy, total spending in the economy.

So they stopped spending a little bit, they buy less booze and they go, go out less and stuff. Well, that’s not going to have very much effect in the market on total spending. But then if you apply that to everybody and everybody stops spending a bit and tries to save more, what happens – total spending falls. And if total spending falls, total income, national income falls, production falls, employment falls, incomes fall, and so, you end up not saving, and if savings is a function of income, you end up not saving more at all. And that’s the paradox of thrift – that if one person does it, they’ll do it, but if everybody does it, that falls down.

And so that the point about that was that the micro reasoning didn’t give you a reliable macroeconomics, didn’t give you a reliable understanding of what would happen at the aggregate level. Now that was one of Keynes’ great contributions. So jump forward to the 1960s, Milton Friedman and his gang were out there trying to debunk the Keynesian orthodoxy. And they were trying to push these new monetarist ideas that they’d been chipping away with through the 1950s and the sixties.

And they wanted to reinstate the sort of these classical ideas about the priority of microeconomic reasoning. So this is when this literature, this micro foundations literature really took off again. And they claimed that the government had to behave like a household. And that led to the, all of this micro foundations coming back in. Now, the problem is they couldn’t get over the earlier problem that I raised. And this is, this problem that there is no single individual consumer, there’s millions of consumers and they all behave differently.

And they all have different preferences and different constraints and so on and so forth. So the micro foundations concept is that people are rational. They optimize in their decision making. When they’ve got choices, they always take the best. And they make these choices with independent preferences, independent from each other. And that’s the sort of classic micro idea of rational human making these optimizing decisions.

Now, if you then try to say that everybody’s like that, well, obviously it doesn’t work. Do the aggregation of those. It’s impossible to do mathematically. And it’s impossible to work, to build a macroeconomics from that. Now I know that sounds very technical, but just it’s, it’s one of those things you have to believe me, you can’t do it.

And so the way in which the mainstream and people like Simon Wren-Lewis, who’s a who’s as an advocate of the sort of most modern version of mainstream economics, New Keynesian economics. The way they get around that aggregation impossibility is that they bring in what’s called the representative agent model. Now what’s that? Well, that’s very simple and very crude.

They say that they make the assumption that there’s only one consumer in the whole economy, and there’s only one firm in the whole economy. And that that firm behaves like the individual consumer of microeconomic theory. So New Keynesian economics, for example, has the representative agent model built into it. Let’s, let’s try to make this even clearer. So they’ve got this idea of micro foundations that optimization free choice of individuals who pursue their own self-interest will deliver the best outcome for the world for themselves.

And if you, if everybody behaved like that and you’ll get the best outcome for the world, that’s what they believe the most. And best is efficient, low cost production, consumer satisfaction mechanism, maximized welfare what they call welfare is maximized, but they can’t get a macroeconomics out of that by, in terms of the way they construct their mathematical models.

So they have to overcome that aggregation impossibility, by assuming that just like the at the individual household level is one consumer at the macroeconomic level, there’s this representative agent and it’s representative of all of us. And so what that means in reality is that they don’t actually have micro foundations. They say they have, but they they’ve got a representative agent. And of course the representative agent model has no correspondence with reality. The reality is that we have very interdependent preferences. You know, there’s the expression keeping up with the Joneses. Is that an American expression?

Grumbine (00:31:15):

I think so, yes, sir. [chuckles].

Mitchell (00:31:15):

You know, that you look when your neighbor gets a car, next door, a fancy new model car, you look at it and you say, gee, I better get one of those too, otherwise I’ll be looking inferior in my neighborhood. Or, you know, we, we, we have patterned behavior. We hunt in packs. We look at what other people are doing. We’re influenced by fashion trends and all of the rest of it. We don’t have independent preferences. And we certainly behave in irrational ways.

At times, we certainly behave in ways that are counterproductive, that are emotional and satisfy different types of needs. And so when Simon Wren-Lewis talks about micro foundations, he’s talking about a fiction that has no correspondence with the real world. And that plays out by the fact that this sort of predictive capacity, the congruency of New Keynesian models is just lacking badly. And that plays out in terms of, they didn’t even understand that we’re heading towards global financial crisis, for example.

Intermission (00:32:24):

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Grumbine (00:33:25):

As a lay person, I get into these discussions with him on an occasion. I watch others getting into discussions and he wades into the pools as somebody who’s … I almost feel like, it sounds terrible, but like, like that little demon that’s leading you away, “surely you’ll have the apple”. He comes in as a friend. Yeah, of course. And then he’s like, why, why do you come off so angry? Or why do you this? Or why do you that?

And it’s distraction throughout, but he always tries to act like, hey, we’re on the same team. No, no, no, no. And then when we’d say this stuff, it just it’s unfathomable to me because they always go back to things where, where these like fake rules that we’ve put in place somehow or another hold the merit of, of a law, like death. I mean, we’re talking about real honest to goodness, um like they, it’s a religion of sorts. Because, you know, I just see a lot of belief that it doesn’t matter what you present to them. They won’t even respond back within the context of what we’re talking about.

It’s like the language is so vastly different. The two are incompatible, there is no bridge. And this brings me to another discussion point for a debate that was going on JW Mason, and someone else wrote an article the other day, basically saying, hey, you know, MMT is basically completely in line with neoclassical economics or something to that effect. And it brought the hounds. I mean, we’re talking about the entire MMT crew came pouring out there. That’s crazy. It’s ludicrous. It’s not true.

And so there’s an awful lot of people that don’t understand MMT that try to assume MMT and try to assert things about MMT that MMT neither says, nor does, nor is in any way, shape or form, actually really representative of the body of work of MMT or the theoretical framework of MMT. I’ve probably said some things that were off putting or even incorrect over the course of my learning. But I’m also not parading myself around as the Christ. I always say, I’m the Baptist pointing to you guys?

Mitchell (00:35:30):

[Laughter]

Grumbine (00:35:30):

I’m being silly here. I mean, trying to have some fun with it a little bit, because it is, it is toxic when see this stuff. You’re trying to have a legitimate conversation with people and, you know, for our purposes, I mean the average person here probably gets to the point of understanding that bonds help control interest rates, that they don’t really actually finance government spending in a, you know, sovereign nation, you know, Fiat nation, et cetera.

And you go through some basics at this, you know, we go down a couple of layers and then there’s this whole like cloud beneath there that we’re like, I don’t really know what goes on in the cloud, but I trust these guys. But when you’re listening to this stuff, go on, it’s like, they think that we’re full of kimchi. And then we point to you all. And we show like, for example professor Kelton’s work about whether bonds finance government spending, and she says it’s clear that they can’t.

And you go back to Warren’s explanation of back in the day, you know, the first day, the once, once the kingdom issued the first tax, it created the very first unemployed person and says some of these like historical things that go into the historical makeup of MMT and the historical makeup of Fiat currency and chartalism, et cetera.

And then add in the framework that you have presented, it seems like they’re not even willing to acknowledge these stark differences. Cause I’ve been through Keynes, I’ve been through a lot of this stuff. And I came out the other side thinking I knew what I was talking about after I graduated with my MBA. And I realized, man, Oh man, I didn’t know a lot. There’s so much that I was snowed under. What do you think is that chasm there? I mean, it’s a huge chasm. It really is a monster of a chasm.

Mitchell (00:37:09):

Nope. I think Simon Wren-Lewis is one of the more reasonable ones of them, by the way. During the global financial crisis, I, I thought the game might be up for mainstream and I was wrong on that. And I was forced to read a literature that I hadn’t fully understood in the past. And this was the sort of literature in social psychology. I’ve now sort of studied, done fairly deep studies in that literature.

And my 2015 book on the Eurozone was entitled Group Think and Denial On a Grand Scale. That was a product of some of the research I’d done on social psychology on trying to understand why otherwise reasonable people in life, otherwise, highly inte- you know, all the people in academic life are highly intelligent. The way we measure those things. They’re clever characters. They’ve been through the hoops.

So you have to ask yourself the question and why do they hang on to ideas that are bereft of congruency, of empirical support? Why do they hang onto these ideas? Why do they keep saying that if the central bank runs quantitative easing, there’s going to be hyperinflation? Why do they keep saying that when, when it’s quite evident and it’s not just the most recent era of quantitative easing, you know, Japan’s been added since the early nineties and Japan is my sort of laboratory, my real world laboratory.

It just refutes almost all of the mainstream propositions that you want. That deficits drive up interest rates that quantitative easing drive expansion of central bank balance sheets drives up inflation. All of these things are just empirically, just don’t stack up. So why do they hang on to these ideas? And the reason relates to the psychology of groups, I think, and the way in which groups have patterned behavior.

And if you think about it, you know, a character like me you’ve done very well at secondary school. You go to university, you you’re among the better of the secondary school students, better in academics. I’m not talking about better, better. I’m talking about people who’ve done well in the way we measure academic progress. And then, you know, you do the selection process if through universities, is that by the time you, at the end of your graduate, your undergraduate years, the ones who are the really bright sparks academically are starting to show through.

They go through the postgraduate studies, they get a PhD, they get an academic job. They’re the creme de la creme. And they think of themselves as being real sharp characters, really bright characters. We’re now talking, how old are you? 28 or something by now or 30 even. And you’ve invested a lot of your formative life in getting this PhD to get into the Academy. And you’ve got in economics mostly, you’ve got a very defined set of work tools and you’ve invested a lot of time and effort. And you’ve forgone a lot of, lot of income to get there.

And not many academics become top line researchers. Most of them become textbook pushers. And so by the age of 45, you’ve reasoned to a certain rank in the Academy. Not normally that’s the end of your, your increase, the ones who are the real, really good researchers go on further and get in the America in the English system, like the Australian British system, you get full chairs or something. You get to be called a professor. Slightly different in the American North American system.

But you know, by the age of 45, your career’s on the way. Some people then have reached the ceiling and their life is filled with pumping out stuff from a textbook that the publisher brings around every year and pushes and pushes to you. You tend to sit in a lot of meetings and you fill up your time, because you’re not succeeding in research, you fill up your time as an administrator, teacher, something like that.

Now the end of life syndrome approaches and all you’re waiting for then is to get to retire on your superannuation or your pension and play golf or go sailing, and do a bit of traveling and hope that your health holds. Now, what the hell is that? Why, why would that person then abandon all of those tools midstream and admit that they were wrong?

What’s the motivation for that, particularly when you’re in a group that has got incredibly rigid rules with respect to promotion, with respect to assigning status, with respect to getting any publications and research money or any of those things. These are really, this is a really disciplined community in economics. And you’ve learned to play the game. You’ve learned not to rock the boat, and you’ve got up to your career progression, and then you’re waiting for your retirement.

Now, why would a person in that situation say, God, Modern Monetary Theory, that’s got congruency, let’s go for it. Why would they do it? Because it’s against all of our social psychology, our group behavior. To do that would be defying your Scholastic community, would be to jeopardize any future hope you’ve got for promotion, would be to stop yourself, a young person stopping themselves, making progression, getting research, money, getting publications, those reinforcing powers are so…

So in other words, the group membership becomes your priority. And there’s lots of examples in academic life, not just economics, where people within the academic specific community will forgo all of their doubts when empirical things come in and show that what they’re teaching is just nonsensical.

They’ll forgo what you would expect to be a revision of their ideas. They’ll forgo those doubts because maintaining membership and status within the group becomes more important. And so groups work out all sorts of ways of behaving then. When there’s anomalies coming in from the real world, they revise history.

Now just look at what look at all of the revision of what happened during the great depression. It’s absolutely amazing some of the stories that are now being told about what happened to the great depression that it wasn’t saved by the, in America, by the New Deal or by the onset of the second world war, all these historical revisions. So people do that.

They also just deny things. They just make stuff up, and they just deny that the global financial crisis was saved from total financial collapse by government deficits. They just deny that. And that’s the why that they overcome their own personal doubts and maintain membership of the group. That’s foundational in social psychology, that sort of group think behavior. And so that, to me explains why when some rebels come along and what ultimately happens is that the group think collapses.

A classic example is neurogenesis. This is the idea that the brain – it’s now the dominant idea in psychiatry – that the brain can repair itself. Up until the early sixties, psychiatry believed that if you had a brain injury, tough luck. The question then was how impaired would you be? And a young academic came up with the idea in the early sixties that the brain could actually repair itself. So brain injury wasn’t going to be a terminal problem that there were all these sort of things.

I don’t know, all the story, you know, all of that, the medicine of it, but there all these electrons that would presumably sort of reconnect in different ways and fix themselves up in some way, shape or form. Now, because that view from that academic was contrary to the dominant view and all of the senior professors in the profession at the time held onto the dominant view, because it was their view.

They were the ones that had established their career on the basis of that view, that young academic, that view was vilified. You know, it was just shut out. Now ultimately then the empirical world started to show that brains to repair themselves. And it wasn’t until the sort of, I think the late 19 middle of the 1990s, that another academic came along with the view of neurogenesis, that the dominant paradigm that had been slowly being undermined by the empirical observations that the brain does repair itself, that it wasn’t until the nineties, that that view became popular.

And there’s a … I’ve forgotten who said it, someone, one of your viewers, one of the people watching this will probably know someone said that paradigms don’t really shift until the dominant ambassadors of that paradigm die, that you’ve got to wait till the senior professors all die out so that there’s an open playing field again. And I think that’s, that explains what’s happening with MMT now that it’s quite clear that the empirical challenge to mainstream economics is powerful, but there’s incredible resistance by the mainstream professors because they’ve got a lot at stake.

So you’re getting many sort of spurious things like that JW Mason thing was just a total disgrace. They were holding, like they held it out. I mean, this was INET – Institute for New Economic Thinking. And they were Roosevelt scholars. And they tweeted that, you know, how does MMT stack up theoretically against mainstream? Well, you know, that there’s not much difference. They tweeted that.

And of course the article, if you read it, was nothing to do with MMT. It said, it characterized MMT as functional finance only. And it said let’s abstract from all of the distinctive characteristics of mainstream economics. So it was a, it was consistent with this view of paradigms, trying to protect themselves and bring back any rebels back within the mainstream and try to bring back any new ideas as if we knew it all along, well, that sort of idea.

Grumbine (00:47:52):

There’s a guy here and I don’t want to bring him up specifically, but he he, he has some alternative views, but he had one really, really powerful view. And he wrote a great article and it was called why I’m tired of doing the Semmelweis. And, you know, I’m sure, you know, the story of Ignaz Semmelweis, who was a Hungarian doctor who had discovered that, hey, you know, if we clean our hands with bleach and stuff, that’ll get rid of the stench of the cadavers that these students were working with.

But it also miraculously started dramatically dropping the child bed death that was occurring in the mothers because the bacteria from the cadaverous remains on their hands were left in the woman and they were dying. And for years, and years and years, he tried to get the mainstream doctors, the orthodoxy, if you will, to recognize that, hey, you know, washing your hands stops this stuff, but it directly contradicted their lifelong practices.

It put the guilt on them because my God, after all, you know, these people are, can’t be dying because of us, we’re doctors. And, you know, I think it was like 171 years after his death. You know, Semmelweis died, frustrated and maddening because he was trying to explain this important thing. Took 171 years or something to that effect. And finally it’s like, hey, you know, by the way, if you wash your hands…

Mitchell (00:49:12):

The other classic example is the Helicobacter virus. For years and years, we, we believed that ulcers, you know, stomach ulcers where due to stress or diet – too much booze, too much tomatoes in your diet, acidic food and too much stress. And the pharmaceutical companies came along with their, you know, the largest drug that the pharmaceutical companies sell is a it’s marketed in Australia. Zantec, you know, I’m not sure what it’s called in America, but same thing, you know what I mean?

I mean, it’s saying, well, we can’t treat them. We can just ameliorate the symptoms with Zantac and every three months or every six months or whatever the frequency, you go to a gastroenterologist who sticks a tube down just to check up on how your ulcers are going and you get a bill for 500 bucks or whatever it is. And the pharmaceutical companies are pushing Zantec onto doctors. And they come up with new remedies, blah, blah, blah.

There’s a massive vested corporate interest in maintaining the idea that ulcers were to do with stress and other things like that. Anyway, a young postgraduate student in Western Australia at one of the universities in Perth, came up with the idea that, that actually it was nothing to do with those things. It was a bacteria, not a virus, sorry. It was a bacteria called Helicobacter. And like all bacterias you can treat them with antibiotics. And he actually established that.

I understand, if I’m correct, by infecting himself, he basically drunk [laughter] some of the bacteria and then treated himself and showed that it was the case. Now he published that work I think it was in the early seventies, but you can correct me if I’m wrong, but it was a while ago. And he took that research to international conferences and was absolutely vilified by the mainstream profession in medicine who refused to acknowledge that.

Now, sure enough, the news leaked out and doctors started, rebel doctors started to prescribe antibiotics and the pharmaceutical companies resisted it dramatically. And now what’s the mainstream treatment for stomach ulcer. You go to your doctor, you get a antibiotic, and within a week or two weeks, your ulcer mostly is gone. And the gastroenterologists are losing money, the pharmaceutical companies, and they are not making as much money.

And that’s the, you know, the interaction within a capitalist system of vested capitalist interests, interacting with the Academy that’s got these group-think resistance to change because it undermines their own status. That’s the problem that we’re up against. And in economics, we’re up against the group-think within the Academy, but also the massive corporate vested interests that have got a dominant paradigm of privatizing returns, socializing losses.

And for them, the mainstream economics is the way that they can, you know, deregulate, privatize, cut welfare, bail out the banksters, you know, that’s the paradigm. And they’ve got all these mainstream economists mouthing all of this stuff, which really preserves the status of the Academy .and the stuff that they’re mouthing delivers policies that redistribute national income to the corporates away from workers. What’s, what’s there not to like about that? That’s the thing.

Grumbine (00:53:03):

I want to ask you. We’re, we’re a little over time, but I there’s two things I wanted to ask before we go. First things first, you’ve got MMT University and a textbook ready to be launched here in the not too far off future. What’s the status of MMT University and the textbook?

Mitchell (00:53:21):

The textbook we’re at the moment, we’re in the final of edit of copy editing. So, you know, publications go through sequence of stages and the final stages is the copy editor basically lays out all, lays out all of the manuscript that’s been pored over by various editors and authors like us. And then they come back with responses, clarifications, small, not substantive changes just “is this correct – this date?”, or triviality in a way.

And we’re up to that stage now where I think last night we sent back chapter 24 of 33 chapters. So we’ve got 11 chapters to finalize now, and each chapter takes about a day in this part of the process. And the layout is now almost finished. And so McMillan, which is the largest textbook publisher in the world has told us it’s going to be February, 2019 now.

So the book will be available in, I’ve been, we’ve been delaying the launch of the MMT University, which by the way, might change it’s nine because there’s resistance by national authorities to Johnny-come-lately is establishing a university without accreditation. So we might call it MMT Education or MMT College. Let’s just get …the name won’t matter. We’ve been delaying the launch of that so that we had a viable curriculum to offer people.

And so it’ll come, it’ll start around March next year, I think. I’ve also been trying to pursue a funding model so that we can offer these courses for free. In other words, in other words you know, I don’t want people’s personal incomes to be a constraint on their educational aspirations. And what that requires me to do is try to get some ongoing, fairly… Not massive sponsorship, but significant sponsorship.

I need to get some rich characters out there who want to promote progressive ideas to say to me here’s some money that I can guarantee for a decade for you. Now we’re not asking much, but we need it because we need to employ a couple of people to run it. So we’re looking for about 150,000 bucks a year at the moment. I have some money, but I need a little bit more yet. So I’m working on that.

And then we’ll be able to launch it, and it’ll be, I think it’ll be available free. That’s my objective. And we’ll offer a kindergarten cause within the structure. A kindergarten course for really basic, you know, like how we learned how to speak. In my case English, we learned very basically to speak and become literate. And we’ll also push it right through to university level education. I’m hoping to do deals with some established universities to give credit within their programs for studies they’ve done at certain levels of our program.

Grumbine (00:57:00):

That’s a winner.

Mitchell (00:57:01):

Whether I can get, pull that off I’m not sure. I think I probably can, but we’ll just have to wait and see. But I mean the top level courses will be uncompromising university level courses taught by university level academics. That’s the aim. We’re building up a lot of video content. We’re building up, you know, supporting technical content and let’s wait and see what happens.

Grumbine (00:57:32):

I’ll tell you what we, we, one way or the other, we’re either going to help you with this, or we’re going to be distributing this because you know, part of what we’re doing, sometimes it doesn’t always show up on the screen because a lot of stuff’s happening in behind the scenes. We’ve got, we’re really working hard behind the scenes. This is something I’m going to talk to you about when we meet.

By the way folks, this week, we’ll be in New York City at the second annual Modern Monetary Theory convention. Conference I should say, World Modern Monetary Conference at the New School. And I’m very, very excited. We’re going to be meeting a bunch of Real Progressives there, including Dr. Mitchell, Dr. Hail. I believe Phil Lawn will be there and a whole cast of characters.

I think Warren will have to take off this time and I’m pretty sure new daddy, Fadhel Kaboub, won’t be there as well, but there’ll be all the others there. It’s just going to be very, very exciting. But I know for a fact, you know, we’re, trying to figure out ways of taking our network, our grassroots network that we’re developing now, as we speak and be able to take this information and push it out far and wide. I mean, we’re uncompromising and we want to change the world and you’re the validity.

You’re the… It’s your message. It’s your work, not us. I mean, we are just messengers. We want to be carrying this message because your work is the work of hope. And I’m, you know, I’m not, I think I’m underselling that right now quite frankly. You, you all are doing something so truly amazing.

Mitchell (00:59:09):

Stay calm Steve, stay calm. [laughter].

Grumbine (00:59:09):

Believe me, when I look at the people and I know for a fact what people are doing, they’re ready, you guys have been giving us incredible amounts of hope. You’re explaining things that have caused people to go and lose their minds because the despair is so great from, from not understanding why things are so crazy.

And, you know, your book, Reclaiming the State, explained things incredibly well. And your description tonight of how the theory was put together, gives it a lot of confidence in the work everyone’s doing. So I want to thank you, sir. And yes, I will stay calm. [laughs]

Mitchell (00:59:46):

Look, it’s a long haul. Breaking down the sort of processes we were talking about today is a long haul. It doesn’t happen overnight and you have to be patient. You have to be relentless and you have to be clever. You have to work out. And, and we’ll be talking in New York later in the week about how you, how you be clever in your messaging.

There’s a lot of research on how to use social media nicely. And and there’s lots of examples I think, where social media is used, not nicely – and I mean efficiently, effectively. And so I think we’ve got a whole story yet to work on.

And your work, the messaging is incredibly important because no one really listens to academics. I mean they’re just out there in their little tower and that’s it, but you’re, you’re the conduit and your group and all the other people that are, that are the conduits, and that’s incredibly important. And that’s the bit that we’ve now got to work on more than anything, I think.

Grumbine (01:01:01):

Thank you, sir. I cannot tell you how much I appreciate this. Folks, Bill Mitchell, spending a full hour with us plus. Again, thank you so much for your time. And just so you know, the article that sparked this conversation tonight is in the narrative. I also put it into the chat window.

So please, if you have any questions, please go ahead and leave it for us and so you know, Bill’s pretty good at responding to things. When you ask questions on his blog, even, he’s very interactive. So if you read the article and you have questions, feel free to ask. Bill Mitchell, thank you so much, sir, and tell your wife I said hello. Hopefully we’ll be seeing her as well.

Mitchell (01:01:41):

Yeah. You’ll see her. Take care.

Grumbine (01:01:43):

You too, sir. Good night, everybody. Bye. Bye. All right. That was Bill Mitchell joining me. Folks, that was amazing. I mean, I want to just give a special shout out to all the founders and developers of Modern Monetary Theory, all the, you know, activists that are out there, slugging it out every single day.

All the people that are working, the politicians and, you know, working the different media outlets, you name it. Folks, we are working butts off and I Am just so thankful for all of your help and all the work everyone’s doing around the world. So with that, we’ll see you next time on another episode of Macro N Cheese, have a great day. [Music]

Announcer (01:02:37):

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. [Music]