Episode 153 – Red MMT España with Stuart Medina Miltimore

Macro N Cheese – Episode 153
Red MMT España with Stuart Medina Miltimore
January 1, 2022

 

[00:00:04.070] – Stuart Medina Miltimore  [intro/music]

You, as a government, do all that is needed to ensure that there is full employment, either lower taxes or raise spending or introduce a job guarantee program. And then you let the fiscal balance sort itself out at whatever level is required. So it doesn’t become a target of policy. But in the European Union, it is the fiscal balance that is the only target of policy.

[00:00:28.390] – Stuart Medina Miltimore  [intro/music]

In general, the European Union has become a net exporter to the rest of the world. At least that’s what the statistics say, and that’s basically working long hours and letting others enjoy the fruits of your labor.

[00:01:35.150] – Geoff Ginter [intro/music]

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

[00:01:43.080] – Steve Grumbine

All right, folks, this is Steve with Macro N Cheese. My guest today is from across the pond in Spain. We have Stuart Medina Miltimore. He’s an economist and a founding member of the Red MMT Spain, of which he is currently the President. He is currently an advisor to parliamentarians of the progressive political movement. And I will let him break these names out because my goodness, I will butcher them.

Oh, man. There you go. In Basque country, he has developed his professional career in the biotechnology sector, where he has held a management position such as controller and director of business development. He’s also founded the consulting firm Metas Biotech and biopharmaceutical company, Proretina Therapeutics. He is the author of two books on modern currency theory, El Leviatan and oh, boy. Oh, boy. Dessen… I’m going to let you say it.

[00:02:48.500] – Medina Miltimore

Good try. Okay, El Leviatan Desencadenado, y La Moneda del Pueblo. That’s the second one.

[00:02:56.830] – Grumbine

Will you marry me, Stuart, that’s beautiful. I love it.

[00:03:01.230] – Medina Miltimore

Sorry, I’m already a married man. I think bigamy is not allowed in this country.

[00:03:07.350] – Grumbine

All right, with that ice breaker out, it’s been a long time. I’m so glad to have you on here. We’ve met at the MMT conference in New York City, and it is always nice to talk to the many, many voices in the growing MMT movement. And you have done so much work out there. Red MMT and Brazil, Portugal, Spain and France and Italy. And there’s just so many things popping up around the world. And you’re doing great work there in Spain. Tell us what is going on in Spain.

[00:03:43.770] – Medina Miltimore

Yeah, well, we could spend the whole night talking about what is going on in Spain. And the question is where to start, right? Well, I think the situation in Spain could be summarized in the unemployment figure, and that is 15%. And that is an astounding figure. And it doesn’t even begin to reflect the reality of the situation of this country.

In fact, we even had a 27% unemployment rate back in 2011, if I remember correctly. So these are depression era unemployment rates, which the United States hasn’t seen ever since. But we are suffering those unemployment rates currently, as we speak. And when you look at the details, when you look at the youth unemployment rate there, we’re talking of close to 40% unemployment.

It’s a tragedy because it’s just such a waste of potential, of human dignity, I think, is the right word. It’s just lives that are cut short. In some cases, people not being able to develop a career, a project, a life, getting married, having children, buying homes. It’s a tragedy. That is basically what is going on. If we’re to summarize it in a short phrase, I think that’s how I’d summarize it.

[00:05:11.430] – Grumbine

We know with MMT, as one of the core functions, we frequently look towards the job guarantee. And we understand that the nation state has the ability to provision itself for its citizens.

[00:05:25.730] – Medina Miltimore

Exactly.

[00:05:26.500] – Grumbine

And in Spain, being a part of the European Union, you have various things to contend with there. I know that the northern part of Europe has significantly greater financial resources than it appears the south of Europe does. Has a job guarantee ever been considered in Spain? And I guess, secondly, are there any people, aside from the Red MMT folks in Spain advancing this knowledge within government?

[00:05:59.490] – Medina Miltimore

Yeah. Well, to the first point, why Northern European Nations seem to enjoy more fiscal space, so to say, to provide a more solid safety net for their population and higher levels of employment. It has a lot to do with the fact that many of those nations are trade surplus nations and basically rely on external demand to ensure that there is sufficient aggregate demand in their countries, and hence they can tolerate lower government deficits, and they are ensuring enough demand for securing full employment for their population, not full employment, but closer to full employment.

I understand from people I’ve talked to who live in Northern Europe that, for example, in the Netherlands, there are currently more vacancies than job seekers. So it’s a situation which is very different from what we have in the Southern European Nations, which came into the European Union with the weaker economies, less competitive economies. One of the reasons why we have high unemployment historically is that a lot of the industry that we used to have in this country was either sold off and then dismantled or directly shut down.

Because in the early 80s and late 80s, it was understood that it was not a viable industry that could compete internationally. It was an industry that had been created by the state by industrial policy of the 1960s and 70s, funded by a public banking system, but within a very closed economy. And the consensus amongst mainstream economists at the time was that that industry did not deserve to be protected or sustained and had to be shut down.

And all this coincided with the Spanish baby boom generation, which is a little later than the American baby boom generation. It’s my generation, the one that was born in the end of the 1950s and the early 1970s, that’s when that generation reached the job market. So it was a perfect storm, which was made even worse by the fact that Spain then entered the monetary arrangements of the European Economic Community, which call for a fixed exchange rate systems or a peg system with very little leeway for some fluctuation within a very narrow band.

And these monetary policies contribute to creating fiscal policies which had a bent toward austerity and then insufficient spending. And that in essence, to make a long story short, is probably why Spain and other Southern European countries had already very high unemployment rates when the European Union was established in the 1990s. To your second question, is anybody talking about the job guarantee besides us? Unfortunately, not really.

There have been some progressive politicians in Izquierda Unida which is a coalition in which the old Communist Party is probably the cornerstone of that broad group of sort of progressive left wing parties. And some members of the Izquierda Unida coalition have talked about a job guarantee. But when you dig down into the details, you realize that they’re not really talking about the job guarantee as we understand it.

But they’re really talking about is a youth employment program, some sort of employment program for a limited time, maybe six months, usually not a living wage. So not our understanding of the job guarantee. Some of the more enlightened members of that party who have studied MMT have talked about the job guarantee, and I could mention Eduardo Garzon, who is a member of Association and is the brother of a member of the current cabinet governing Spain.

And he has written a book about the job guarantee. But then the issue we have is that those proposals try to fit the proposal within the framework of the European Monetary Union, and that is a straitjacket which makes it very difficult to implement a job guarantee program in Spain.

[00:10:41.830] – Grumbine

Let me interrupt momentarily. I spoke with Dirk Ehnts a month back.

[00:10:46.080] – Medina Miltimore

I remember that.

[00:10:47.510] – Grumbine

Yeah. He scrambled my brains a little bit because I had been operating under the idea that the fiscal space available to Euro-adopting countries was very minimal as non currency issuers. And he made the mention that that really wasn’t true. And he started talking about how there really was fiscal space, and it was up to you to figure out how to use that. And then he made mention of how Greece had rebounded, even though they had so much problems. There is fiscal space.

It’s a matter of having the imagination to use it. Then I talked to Marco Cattaneo, and he actually talked about what he called fiscal money, and it seemed a lot like banks basically providing credits to people almost like an alternative currency of sorts that allowed them fiscal space. How in the world, given the straight jacket, at least the overt looking straight jacket that you’re talking about of the European Union and the Eurozone and the Euro as a tool, how is it that you could find fiscal space?

Would you be dependent on the Troika doing something different or the European Central Bank? How would you be able to operate? Do you need to get your own currency back, or is there a way working within the space to pull it off?

[00:12:16.980] – Medina Miltimore

Well, first, I’ll make a Disclaimer. I am personally in favor of disbanding the Euro. Just to be completely transparent.

[00:12:24.360] – Grumbine

Sure.

[00:12:25.190] – Medina Miltimore

And we can talk about this a little bit later if we have the time and you want to talk about it. It’s true that the situation in the European Union has changed a bit from what we had when the crisis, the badly named debt crisis of 2008 2011, I guess, is the dates within which we had the worst events unfolding. The yields going up for the Treasuries of the Southern European Nations.

Greece had to be bailed out with this infamous troika, basically managing their affairs. Smaller bailouts were handed out to Ireland, Portugal and Spain and so forth. And as a consequence of those bailouts, these countries had to enact very harsh austerity policies and submit plans to reduce their deficits and their government debt below the thresholds that have been set up in the Mastrecht Treaty.

60% of GDP limit to the debt and the 3% limit for government deficit sort of changed the picture a bit was that the European Central Bank, which according to the treaty, could not fund the governments and could not buy Treasuries issued by these governments. Well, that provision was sidelined by these QE operations.

In other words, buying securities in the secondary markets after the government’s issue them in the primary markets in an auction. Right? And then these are bought by the banks and then the European Central Bank comes around and buys them from the banks. That sort of changed this scenario a bit because it lowered the yields demanded by markets.

Before that, basically, the governments of Southern Europe were hostage to the markets to the bond vigilantes, the famous bond vigilantes. After that it was clear that there were no bond vigilantes. It was basically in the power of the European Central Bank to decide what the interest rates are and what the yield on the public debt is going to be. Or at least control it within a reasonable premium with respect to the German government securities.

So basically, since 2012, it was clear to the markets that countries like Spain and Italy and Portugal were not going to become insolvent because they were aware that the European Central Bank was behind them, was willing to back up their securities, their Treasuries. However, all this assistance from the central banks.

I’m talking in plural, because in reality, it’s not the European Central Bank that supports the debt of the Spanish government or the debt of Italian government. It’s the old national central banks, which are still in existence who actually buy the Treasuries of their respective government. So currently the Bank of Spain owns about 32% of the securities issued by the Spanish government.

I think people tend to think that it’s the European Central Bank that is doing these operations with us, and actually it is the national central banks who do this. But the backup of the central bank is conditioned on conducting fiscally responsible fiscally prudent operation of their public spending, and that means that they have to target  less than 3%.

In fact, the Constitution of Spain was amended in 2011, basically because the Prime Minister at the time, Jose Luis Rodriguez Zapatero, was basically blackmailed by the President of the European Central Bank at the time, Jean-Claude Trichet. He sent him a letter with a list of “structural reforms”, which is code for neoliberal reforms.

And also pressure from Germany and also then Vice President Biden, who came on a trip on a mission with instructions from Obama in a meeting and that’s recorded in his biography telling Zapatero that a credible ruler has to apply harsh austerity and has to prove himself by being tough and harsh on his population. Right. And the consequence was that a constitutional reform was introduced requiring or mandating that the government sustain a structural deficit of less than 0.4% of GDP.

Okay, which is, of course, impossible to achieve unless you want to provoke a deleterious recession, even a massive depression in the economy. So basically, Spain has been consistently not achieving its deficit commitments with the European Commission. So there’s a bit of hypocrisy, and there’s some leeway afforded. But the priority for the policy makers is still balancing the books.

They’re still operating with a neo Keynesian mindset, in which over the cycle the government books have to be balanced so they can tolerate the deficit during a period of crisis. But the government books have to be balanced over the long term, and as soon as the economy starts growing again, they have to start raising taxes or lowering expenditure.

So the mindset is still there. It’s true that during the Pandemic, the European Council, which all the European Union member States are represented, suspended temporarily the deficit limits. It means that for 2020 and 2021, governments are not required to meet their deficit targets. Of course, it’s sort of wishful thinking in any case, to think that the government would have been able to meet their targets anyhow under the circumstances.

But there’s a temporary suspension of rules. And probably Dirk Ehnts was talking about this temporary suspension of rules, which will probably be over by next year. And there’s an indication that the European authorities want to return to the path of fiscal rectitude in 2022. The European Central Bank had announced last year that was willing to buy €1.5 trillion in public debt and Treasury securities from the member States.

And sure enough, they have been buying that debt, and that has made the finances of the member States sustainable. But they have announced just last week that the party is over. The walk in the prison yard is about to end, and the inmates are requested to walk back into their cells as quickly as possible, meaning that they have to start thinking about adjusting their fiscal balances.

And they said that the Pandemic Emergency Purchase program, the 1.5 trillion program, would be over by March. They would just sustain balances and just won’t increase investment anymore. If there’s any maturities coming along, then it would reinvest those amounts coming from Maturities. But they won’t be doing any net purchases of securities from European governments anymore.

And the other major program, the asset purchase program would be gradually tapered down over 2022. It means that it’s time governments have to start thinking of raising taxes, lowering spending, et cetera. Right? Of course, that makes thinking about a job guarantee program nearly impossible because, of course, as you probably know from speaking to other economists in the MMT community, the whole idea, or one of the consequences of a job guarantee program is that the government balance becomes an endogenous variable.

In other words, it becomes a residual you as a government, do all that is needed to ensure that there is full employment, either lower taxes or raise spending or introduce a job guarantee program. And then you let the fiscal balance sort itself out at whatever level is required. So it doesn’t become a target of policy. But in the European Union, it is the fiscal balance that is the only target of policy.

But even if the rules have been suspended temporarily this year and last year, the mindset has taken such a strong grip of the minds of our policy makers that even when they’re allowed to walk out of their cells, the inmates prefer to stay inside this, fearful of walking out and venturing into the unknown land of fiscal expansion. So it’s been interesting.

And one of my jobs right now is to review the general budgets of the regional governments of the Basque country. And I’m going to spare you the complexities of the institutional structure of Spain. But there are several regional governments there, and each one has their own general budget. And when you see the increases in spending, they’re quite tepid.

They’re very moderate. And in fact, last year, rather than increasing spending, they decided to cut back a bit. And specifically, one of the budgets I’m looking at, they cut back by 1% of their previous year’s budget, and this year spending has increased. But the reason it has increased is because we got out of lockdowns and the economic activity recovered and we sort of went back to some form of normality.

Well, tax revenues rebounded automatically and consequently they had more money to spend without increasing their deficits substantially. The real problem is that the mindset is still there. The other problem is we have just layer upon layer upon layer of rules and restrictions that make it nearly impossible for a legislature to approve a budget that doesn’t fit within the narrow constraints that have been established by all these layers.

So just to give you an idea, we start with, of course, the Treaty of Mastrecht, the European Union treaties and all the fiscal compacts and the six packs and took back all these arrangements and agreements between the member States to review the budgets. So national budgets have to be submitted to the European Commission.

The European Commission reviews them and approves them. We have these so called European semesters where the government submit their structural reform plans and they get a pass from the European authorities. So a body of technocrats, basically, and these pre approved budgets come back to their parliaments.

But there they are basically bonded or chained by all the other restrictions that are in place. For example, the number of public employees cannot grow. It has been basically frozen for the last 15 years. So we’ve had the same number of public employees in the Basque country since the year 2011. If I remember correctly. And we’re not allowed to hire more people in the local governments, it’s just simply not allowed.

This year, for 2022, the central government of Spain made an exception by people in the healthcare system and a few other areas where they allowed 1.2 people to be hired for every person leaving employment in the public sector. And that’s an exception. But it hasn’t been picked up by the Basque government, which is in charge of managing the health system. So the irony is that they’re allowed to walk out of their cells, but the inmates prefer to stay indoors. You know, it’s crazy.

[00:25:02.490] – Grumbine

You did a great interview with Warren Mosler himself on inflation and you’ve got incredibly high unemployment. But you have given up much of your manufacturing as well. So ultimately you have a net importer position. Correct?

[00:25:20.790] – Medina Miltimore

Actually, no. We used to that’s one of the changes that happened as a consequence of the austerity policies that were imposed by the European Union as part of the bailout package. Before the financial crisis of 2008. In Spain, as in other countries like the United States, Ireland, the UK, there was a real estate bubble that was created funded by the commercial banks.

It was a massive real estate bubble. The irony is that the Euro was established in 1999, that’s actually when the changes were declared irrevocable and basically that’s when the Euro came into existence. And one of the consequences of the Euro was that interest rates, which until then had been kept fairly high to ensure the exchange rate of the Peseta versus the other European currencies to make sure that the Peseta did not depreciate.

That’s when interest rates start falling down to negligible rates compared to what we had seen in the previous years. And banks just start this orgy of mortgage loans and loans to builders and developers. And we were for a few years the country that was building more houses than the rest of Europe combined in the year 2007. It was that crazy.

And of course, come the global financial crisis, the whole thing went bust, several bankruptcies, including several banks that had to be bailed out, massive rise in unemployment. And the recipe that was prescribed by the European authorities and the experts was, “well, the problem is you have too much debt and you’re not competitive. Your workers are earning too much.

You need to change your economy to an export model. You need to do what is called internal evaluation, since you cannot depreciate your currency versus other European currencies because the currency does not exist anymore you’re inside the European Monetary Union. The only thing you can do is bring down your salary, so you have to repress salary growth, try to get the standards package, making sure that trade unions lose their grip and the labor force make sure that labor laws are deregulated.”

And it worked. The truth is that wages have been stagnant. In fact, have declined for a few years and the trade balance was reversed from a deficit to a surplus. We’ve had a surplus for several years, now. This is heralded as good news by most of the profession, most of the economists and the media. It’s presented as a positive that the country has a surplus.

But as you know, from other MMTers, we see exports as a real cost and imports as a real benefit. And what basically that means is that our standard of living is lower than it was before the global financial crisis. In other words, we’re working probably as much at least those who have a job, not those who are unemployed, are left unemployed to discipline the rest of the workforce.

But we’re working basically to the benefit of other countries, consumers in other countries. In general, the European Union has become an exporter to the rest of the world. At least that’s what the statistics say, and that’s basically working long hours and letting others enjoy the fruits of your labor.

[00:29:09.190] – Intermission

You are listening to Macro and Cheese, a podcast brought to you by Real Progressives, a nonprofit organization dedicated to teaching the masses about MMT or modern monetary theory. Please help our efforts and become a monthly donor at PayPal or Patreon like and follow our pages on Facebook and YouTube and follow us on Periscope, Twitter and Instagram.

[00:29:58.070] – Grumbine

We have so many people that are always talking about bring back the manufacturing, these precarious jobs, and in the absence of imagination seeking to serve real people’s needs versus the needs of capital, we pin ourselves into a little corner where we see no options, and I’ve never been to Spain. I’ve never been to Europe. I have no firsthand perspective of what it’s like, but it seems like the Eurominded forms of governance and the senses of right and wrong and the culture.

I know it’s not homogenous, but there is an overall European culture, and with that in mind, I wonder how in the world does Europe go from being the big ruler, so to speak, to suddenly having to retrench and become the factory of the world again, it’s more than a business cycle. There’s a whole lot more going on there. How do you think that came to be?

[00:31:02.330] – Medina Miltimore

That’s a very interesting question. Although I said before that the Spanish industry was perceived as uncompetitive and that’s what justified closing a lot of the industry down. I always compare what we experienced with what South Korea experienced in the last three or four decades. In late 1970s, Spain was one of the larger industrial powers in the world, 11th, 12th 13th, depending on the year the statistics you choose largest economy and one of the largest exporters and one of the most industrialized nations in the world.

And it’s true that that has to do a little bit with our experience with the dictatorship of General Franco because this industry was perceived as the product of a state intervention and autarchy and a regime that was certainly not Democratic but had been successful in developing all this industrial fabric, also on the backs of wage repression, in truth.

And when Spain became a Democratic nation again in 1975, after the death of the dictator, it just happens to coincide with the ideological victory of neoliberalism and the idea that state intervention is nothing desirable and potentially causing our welfare cost or creating our welfare cost and not efficient.

So basically the Spanish elites decided to dump the whole public led industrialization program in 1960s and 70s, which had been, I think, relatively successful and transformed a country that had been really less industrial than certainly the UK had been or France or Germany and decide for a deregulation and let the market decide and so forth to shut down all the public banks and so forth.

And I’m not sure it has been a successful model. You have South Korea at the other end of the planet. South Korea happens to be a Peninsula like Spain. South Korea also suffered a right wing dictatorship, by the way. And South Korea also has around 45 million people. So there was our twin in the Far East and they opted for developing their industry and meeting  these [inaudible 00:33:28] titles.

And I know that the South Korean model has a lot of things that can be critiqued and criticized, and I know that life can be pretty grim for South Koreans, but their unemployment rate is less than 3% today. And the fact is that industrial jobs, at least from the statistics I’ve reviewed in Spain to be slightly better paid or significantly actually better paid and tend to be a lot more stable than the jobs created by the service sector, so it’s sort of a mixed bag feelings.

I know that industrial work can be a bit grim as well, but it tends to be more stable and pay a little better than jobs in the service sector. But however, I don’t think this is going to come back. I think a lot of the industry moved to the Southeast Asia to China. South Korea, for example, Spain was the largest manufacturer of ships in the 1970s by tonnage.

That advantage was lost to South Korea in the 1980s. Today, South Korea has a higher GDP per capita than Spain does, when in fact, in the 1980s it was Spain that had a higher GDP per capita than South Korea. So the failure to protect our industry and to choose with this open market, no state intervention or minimum state intervention model.

This decision of the elites of Spain to enter this European project, I don’t think has been extremely successful. There are things to be said for it, but in general, when I look at what other countries have done, I think Europe has made a strategic historical mistake. I think in general, the west has made some pretty large mistakes in the last few decades.

[00:35:11.810] – Grumbine

The global north has an outsized carbon footprint. In this time of climate change, people like Jason Hickel have written extensively about the debt the north owes to the south as we have plundered and extracted and used the WTO, the World Bank and the IMF to exact a huge price in terms of preventing subsidizing national industries and bringing about the conditions that allow advanced industrial societies to steal from these countries that are just trying to develop some form of food sovereignty, energy sovereignty, monetary sovereignty.

As Fadhel Kaboub, friend of the show, would say sovereignty is something you have to work for. It’s something you have to earn. But when you’ve got the IMF and the WTO laying structural adjustments down on you and pinning you down, it doesn’t seem to be any way out. Why would Europe, why would Spain take on that IMF style belief system? It has to be aware that it’s plundering.

So why would a state plunder itself? Why would it choose to do that? And I guess I’m a little confused given Europe is operating under a non state bank, the European Central Bank, in the sense, why would it allow itself to be set up in such a way that it would allow that kind of plunder on its own soil?

[00:36:52.430] – Medina Miltimore

Well, it’s basically a project of the elites, and I think in general, well, some countries have actually done pretty well, considering Northern Europe has sustained a lot more of its industry and industrial employment. Not so much the UK, but countries like Germany, especially in Denmark. The Scandinavian countries have managed to retain a lot of their industrial fabric and preserve a bit of their market share in this global market. Right?

It’s more the peripheral nations that seem to have lost their market share. I’m thinking of Italy, for example, Italy has been one of the major industrial powers of the world for decades, and it was certainly experienced this miracle growth period in the 1960s. That’s probably the golden era of the Italian industry. But when you go to Northern Italy today, which is the region that concentrated most industrial production, you notice that there’s a feeling of gloom there.

They’re aware that they’re losing their edge and that they’re losing market share and that there isn’t enough investment. And I’m seeing the same thing happening in the Basque country, which was an industrial powerhouse until the 1980s, seeing a loss of industrial jobs. And the question is, why did the elites of countries like Spain or Italy decide to give up their monetary sovereignty and relinquish their capacity to mobilize national resources through their government budgets?

Why did that happen? And it’s hard to answer. But it has to do a lot with, I think, the perception of the elites of these countries that somehow their countries have been less successful than the Northern European countries and that they somehow was looking up towards Germany and France and the UK and the Scandinavian countries as they’re really successful nations.

And somehow this feeling of being less than or not as talented as a Northern European country. So there’s a little bit of this inferiority complex which pervades in the elites in Southern Europe, which is a problem, because there isn’t that much truth in that. Yes, of course, we are slightly poorer than the Northern European countries and had been late to industrialize and so forth.

But still, we are much better off than the rest of the planet. We were much better off than the rest of the planet. Right. So there was this element of this inferiority complex as the elites of Spain. I think you can probably go back to the Spanish American War of 1898, which was a total failure, perceived as a total failure by the Spanish elites. And that’s when these feelings of Spain is a declining power sort of took grip.

So in a sense, the European Union is sort of a surrogate Imperial project to replace the old Imperial project, right. There might be an element of that. There’s also the fact that the elites of Italy and Spain somehow needed or wanted some tool to control the restless trade unions, the industrial unrest of the 1970s and early 1980s. And let’s face it, these elites are not doing badly.

Some of these elites are doing extremely well. You have some very wealthy individuals making heaps of money. You have billionaires like Amancio Ortega, who owns chain Zara. You might have seen shops in the United States. The banks have done handsomely. The telephone company Movistar has done well. The automobile industry, although mostly in the hands of foreign multinationals, is exporting a lot.

So those who are living of exports, those who have an export led growth model, are doing well. And of course, they are interested in this system. They’re interested in the access to the European markets, they’re interested in keeping that open. They’re interested in repressing wage growth. They’re interested in fiscal rectitude because it helps to discipline the workforce and either consciously or unconsciously, they know it’s in their best interest to enter into the arrangements of the European Union.

The European Union is a neoliberal project. It is the project of the European elites, and they control the media. And they have convinced most of the population, I would say, is in agreement that the European Union has been good for Spain. And if we have high unemployment, it’s probably because we have some kind of cultural… We must be backward.

[00:41:40.460] – Grumbine

You must be lazy, right?

[00:41:42.000] – Medina Miltimore

Yeah. We have some kind of structural problem with our society. It’s a bit of that.

[00:41:49.200] – Grumbine

I got to ask you this question. So Warren Mosler often talks about how imports are a net benefit and exports are a net cost. And I talked to Steve Keen, and Steve Keen is like, of all the claims that MMT makes, that is his most contentious one. So I understand the accounting angle of this. We’re trading pieces of paper for real resources, for real goods and services.

But in Europe, in particular, net exporters are the ones doing the best. And net importers are doing the worst. And I think it’s a pretty easy way to understand that if you are in a net importing position, you need to offset that net importing with fiscal spending.

[00:42:37.800] – Medina Miltimore

That’s right.

[00:42:38.250] – Grumbine

From the state.

[00:42:39.060] – Medina Miltimore

That’s right.

[00:42:39.800] – Grumbine

And without that, then you will always be hurting. So in the US, it’s particularly easy to see this, but we are the ultimate neoliberal project. Our chief export is neoliberalism. So talk to me a little bit about imports versus exports in the framework of the European Union, because Warren’s position on this is very clear. MMT stands by Warren’s position, but it’s quite clear also that this pandemic showed us how maybe not in an accounting sense of the word, but in a logistics sense, relying on imports is a risky proposition. Can you explain that?

[00:43:22.690] – Medina Miltimore

Yeah. I agree with Warren. And of course, provided that you are the sole issuer of the currency, and you hold on to that power, that you are the sole issuer of the currency and can compensate the leakages from the economy, which basically imports are a leakage to the economy and exports are injections to the economy.

So provided that you’re wise enough to understand that your government has to sustain, if the country has a current account deficit, then the government has to sustain a fiscal deficit, you’ll be okay. Look at countries like New Zealand, for example. By the way, the country has managed the pandemic, possibly the best management, at least amongst Western style nations. Right.

Some of the East Asian countries have also managed it pretty well, but they have a floating exchange rate. They have a more or less current account deficit most years, and they also have a government deficit. And that’s okay, because what you can do is when you are benefiting from those imports say you lose part of your industrial fabric. Well, you can mobilize those resources.

People have been rendered unemployed by international competition. You can put them to work in something else. For example, you could invest in public infrastructure, or you can invest in R and D, and research centers and come up with the next blue sky invention that will change the market and create a new industry.

And in a sense, that’s what the advantages of the United States has. And although the politicians might not understand it very well, the United States has invested massively in R and D and it also helps the United States has a huge military industrial complex, right? Military spending is probably also a big factor in explaining why the United States, even though being a neoliberal project, is sustaining relatively high levels of employment compared to Spain.

I know that unemployment is still high in the United States, but it’s certainly much lower than Spain. Problem is, when you are in a lesser developed economy, like in most African countries or South American countries, which have traditionally exported raw materials, which have no value added on it. They’re price takers, so they have to accept.

Prices are determined elsewhere in international markets and hence are prone to see very large swings in the value of their exports. I think particularly dramatic is the case of Venezuela. Venezuela just exports basically oil and not very good quality oil, crude at that, they don’t even refine it. We actually refine Venezuelan oil in Bilbao, believe it or not. They export gold and diamonds and oil.

So of course, the price of their oil comes down. Oil has plummeted last year. It’s gone up this year, but doesn’t fetch a good price in the market. They import everything else. All consumer goods are imported. Well, those imports are a benefit, but you need to change your model you probably need to do some sort of input substitution strategy because otherwise you’re just going to be like a rudderless boat in the ocean in the middle of the storm.

So I think Warren is totally correct in what he says. But you need to be able to export things in order to get those benefits back. You need to send out containers that are full of goods and stuff that people elsewhere will want to buy, so you can get those containers back full of stuff that you want to enjoy. You can’t just send them containers out and hoping to get something back in exchange.

You need to send something out. So it’s a productivity story, as Warren says. So I don’t think the logical conclusion from what Warren is saying would be, oh, it doesn’t matter that you become dis industrialized and your industrial towns become ghost towns. I think you have to realize that if that is happening because China is more competitive or is willing to provide goods and services for a very low price, well, then you have resources that you can use for something else and construct something even more valuable than you had before.

And that’s where I think policies fail in the more advanced nations. Right? That’s where I think they have failed to see that China becoming an industrial powerhouse was an opportunity if they had known how to take advantage of the opportunity. Instead, a lot of these governments have allowed their industries to dwindle and disappear and not replace it with anything else.

And that’s where problem comes in. Not to mention that the fact that we pushed emissions to China, of course. So now we’re still issuing, when we brought down our emissions. Basically, we have a surrogate. China is the surrogate emitter of CO2, another noxious gases. Right?

[00:48:20.210] – Grumbine

Every time you bring back the industry, you bring back the pollution.

[00:48:23.970] – Medina Miltimore

That’s right.

[00:48:25.310] – Grumbine

You bring back the waste.

[00:48:26.970] – Medina Miltimore

But it’s got to be somewhere on the planet. Yeah.

[00:48:29.470] – Grumbine

Yes. So ultimately, I think that it’s important because as we head into 2022, we know that we have a desperate climate situation happening and we have to revitalize how we manufacture and distribute. It has to change or we will not survive.

[00:48:47.950] – Medina Miltimore

Right.

[00:48:48.610] – Grumbine

And I want to finish us off on this idea here. I had a gentleman come on called the Blockchain socialist right, and really neat guy. He said, I hate seeing Blockchain be left to the right wing, and he broke out some use cases where blockchain and cryptocurrencies not taking the place, by the way of fiat, so much as being used strategically for countries that are being oppressed by US or IMF and WTO hegemony and predatory behaviors.

It allows them the ability to bypass that by using defi and different crypto spaces. He specifically spoke of countries like Iran. But I wonder in a country like Spain that has such high unemployment and has lost a lot of its manufacturing base. What is the play on cryptocurrency in Spain?

[00:49:47.330] – Medina Miltimore

Well, Interestingly. Last week, the major squares in the middle of Madrid. There was a building undergoing renovation. They had using the scaffolding with this huge ad and biding people to speculate with Bitcoin. So they are really taking advantage of especially young people. I think they’re going to lose their shirts if they’re not careful. There’s just falling prey to a very speculative type of asset. So I think Bitcoin is definitely it’s not even occurrence. It’s just a speculative asset.

[00:50:18.330] – Grumbine

Absolutely.

[00:50:19.150] – Medina Miltimore

I’ll have to listen to your guest and his ideas on Blockchain. I think blockchain is not a very efficient way of managing a currency system. From what I understand it, Bitcoin is extremely inefficient in terms of energy use and also conducting a transaction. It’s just apparently very slow. Other than that, I know there’s other currencies that are not relying on blockchain and are not based on a decentralized system.

I’m not an expert in digital currencies. There has been, however, some talk about creating a European digital currency. It’s just talk so far. I think I’m not sure they really understand what they’re trying to achieve with that. Not sure if they want to replace physical currency with accounts with the central bank, that would be a form of digital currency. That would mean bypassing the banking system.

In fact, I remember I had a conversation with a former governor of the bank of Spain who had this idea, but his idea was basically to have the central bank insure currency, because unless I’m quoting him literally, because I don’t want politicians to be making the decisions about spending, so that would be complete dystopia that’s the last thing I want.

I think when you put the word crypto in there, I think people mean different things. I don’t think there’s agreement on what they mean. Obviously, Austrians and these more radical, anarcho-capitalists, as I like to call them, would like to see something more similar to gold, and they’re thinking in terms of a gold standard system, that’s what they would like to see.

So basically, the government is not in control of the money supply. Not that the government is in control of the money supply anyways, but that’s their thinking. So there’s that group of people, the gold bugs. Let’s call them crypto bugs if you want. And then there’s a lot of confusion. You had Venezuela issuing a digital currency a year or two ago, and they still have hyperinflation.

They still have massive problems because they really are not addressing the root causes of their problems. And I don’t think a digital currency is going to sort it out if it’s issued by private companies. Well, we had private currencies before. As far as I can remember, I remember this Department store chain in Spain that created their own paper currency, and when you bought things in their shops, they would try sometimes to get the change back in their currency, which I always refused to take.

Of course, as Hyman Minsky would say, the challenge is not to create a currency but to get it accepted. Right? So there’s the threat of Amazon trying to set up and Google tries to set up their currencies, which I think is a threat because I don’t think you want Amazon. And I think Raul Carrillo has done some work on this.

[00:53:24.900] – Grumbine

Yeah, Rohan Grey, too.

[00:53:26.430] – Medina Miltimore

And Rohan Grey. And I don’t think you want companies like corporations like Amazon or other private corporations managing your money system. In the end, I think it’s just a lot of confusion. What do you mean by cryptocurrency? What do you want it for? What do you want to achieve with it? Unless you have a clear MMT view of what you’re going to do with money, you’re probably going to be making a lot of mistakes thinking that you’re going to solve problems which you cannot solve by issuing a cryptocurrency.

I think the principles of MMT are there, regardless of what physical or virtual form your currency takes. Right? And I think the case of Latin American countries like Argentina and other Latin American countries, Costa Rica. We have good friends in both of those countries, in our Association. And the real issue there is that these countries, the governments of those countries have been issuing debt in foreign currency.

97% of the public debt of Argentina is denominated in US dollars. Of course, Argentina is not an issuer of the dollars. That means Argentina has to get a hold of the currency. As long as the economy of Argentina can export and is competitive, it can generate the reserves it needs to sustain and serve its debt. But as soon as they run into any sort of trade balance problem, they’re going to run into a crisis.

The currency will start to depreciate. They’ll try to sustain the value of the currency by depleting the reserves. And that will work until they ran out of reserves. Country like Argentina under President Macri, he decided to allow everybody to issue foreign denominated debt. So even the provinces, the municipalities, the government were allowed to issue debt in US dollars.

The result was that the country pile up this enormous amount of debt in US dollars. I’m sure the US dollars ended up in the pockets of wealthy individuals, mostly Argentinians. And then the result was that Argentina had to request a bailout from the International Monetary Fund…

[00:55:37.100] – Grumbine

…And then the structural adjustments.

[00:55:39.010] – Medina Miltimore

Right then the structural adjustments, et cetera. And then now there’s a progressive government.

[00:55:43.610] – Grumbine

They’re not money sadly .

[00:55:45.540] – Medina Miltimore

No, they’re trying to renegotiate the terms with the IMF and the creditors to extend payments and so forth. But basically, I think Argentina just should default under a foreign debt. They’ve done it before. That’s when the famous Corralito Crisis in 2001, they defaulted on their debt. And they did very well. The economy started to grow.

They implemented this plan Jefe is this sort of imperfect job guarantee program. The economy started to grow. Unemployment diminished drastically, employed 3 million people in less than a year. It was absolutely spectacular. And the economy started to grow and they say, oh, you can’t default in your currency because then foreign creditors will not be willing to lend you money.

Well, from my point of view, I would change the Constitution and I will get rid of that balanced budget clause that we have in the Spanish Constitution. Instead, I would replace it with banning the government from taking debt in foreign currency because you want to issue a non convertible currency. You want to issue a currency that is your currency, the sole issuer and that currency if you use it wisely, you will be able to secure full employment for your population.

Instead, a lot of economists in Latin America have this export led growth model in their minds. Unfortunately, most of these countries are exporting raw materials, so it’s a risky model. At the same time, they want an export led model, which means technically you would want to have a depreciated exchange rate like China has had for decades.

Instead, they also want to have an appreciated exchange rate. So it’s just absolutely neurotic economic policy where you want high exchange rates with an export lead model which never works. It always results in deteriorating balance of payments, financial crisis and devaluations financial crisis. Rinse, wash, repeat. They just do it again and again. And unfortunately, there’s not enough understanding of modern money theory in Latin American policy.

[00:57:43.430] – Grumbine

We got to change that, don’t we?

[00:57:45.220] – Medina Miltimore

We have to. Absolutely.

[00:57:47.330] – Grumbine

All right, Stuart, it has been an amazing hour with you. I really enjoyed this. I wish it hadn’t taken me this long to get you on, but I am really glad that I did. Tell everyone where we can find your work.

[00:57:59.750] – Medina Miltimore

Okay, well, other than those two books I mentioned, we have a website for Association, and there’s Red MMT. Red, it’s interesting. I didn’t think about it when we decided what to call Association, but “red” in Spanish means network. So it’s the MMT network in Spanish, but I like the play of words in English. It would be red, as in the color, MMT.

[00:58:24.340] – Grumbine

We’re all communists.

[00:58:27.350] – Medina Miltimore

Or Republicans, right, red. But anyway, there we have a website in Spanish. We also publish in Catalan, so we have both languages. So www.redmmt.es Dominion, and we also have a YouTube channel and Twitter, et cetera. So you could also find me on Twitter @Smiltim. And we also invite you and you’ll be our guest in one of our podcasts when we start a series in January, so I’m sure you’ll be one of the guests sooner or later.

[00:59:05.490] – Grumbine

Fantastic. That sounds great. Well, look, I want to thank my guest. Stuart Medina Miltimore, thank you so much for joining me today. And with that, I’m Steve Grumbine with Stuart, we’re outta here!

[00:59:24.880] – End Credits

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