Episode 182 – The Citizens’ Ledger with Robert Hockett

Macro N Cheese – Episode 182
The Citizens’ Ledger with Robert Hockett
July 23, 2022

 

[00:00:03.970] – Robert Hockett [intro/music]

Every citizen and every business and every legal guest or resident of our republic would be issued a digital wallet. You can think of it as a bank account, and the wallet would be something in which you can save and something out of which you can spend.

[00:00:27.210] – Robert Hockett [intro/music]

We could, in theory, catalog every attribute of paper currencies or hard currencies that we value and we could code into whatever the digital dollar becomes those attributes.

[00:01:35.170] – 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.

[00:01:43.130] – Steve Grumbine

All right. And this is another episode of Macro and Cheese with your host Steve Grumbine. And I’m very excited, as I always am, because I love being a host. I enjoy talking to brilliant people. And today is going to be another conversation with another brilliant man who you know and love, Bob Hockett. He has just recently written a great novel, and I say great, I’m definitely putting the cart before the horse because I haven’t read it yet.

And this is becoming my resounding battle cry that I’ve got a lot of reading to do. But this is not a terribly long book. And it’s called “The Citizens’ Ledger: Digitizing Our Money, Democratizing Our Finance” by Robert Hockett. And it’s got some great names on the back of the book. Giving you your props here, Mr. Hockett, from Ro Khanna, Sarah Bloom Raskin, who you’ve spoken about many times, Jeff Madrick.

I’m just really impressed, and this is very timely for those of you who follow the podcast. You know, last week, we have Brett Scott who just issued a great book called Cloud Money, Cash Cards, Crypto, and the War for Our Wallets. And it’s quite an amazing journey into the world of fintech and digital commerce in general, payment systems and the underlying goals and objectives that big business and Silicon Valley have, privatizing the public commons.

You, however, are taking it from a different angle, and you are looking at taking that digital private space and turning it into a digital public commons. And it’s pretty exciting. So welcome, Bob Hockett.

[00:03:21.100] – Robert Hockett

Thanks. It’s so good to be with you again.

[00:03:22.950] – Grumbine

I love our talks. Tell me about this book. It’s in my hands. If you guys can’t see the virtual camera that’s in your brain, I’m literally holding a copy of his book in my hands right now. This tome, I believe, nets out at 197 pages. So it’s not going to be the longest read, but I guarantee if it’s Bob Hockett, it’s going to be a very informative read. Tell me about your book, sir.

[00:03:48.470] – Hockett

Well, thanks so much for asking, Steve. There are a number of angles, I guess, from which to approach it. You can view it on the one hand as a contribution to the burgeoning literature on CBDC or central bank issue digital currencies. On the other hand, you might view it as a contribution to the emerging discussion about fintech, particularly from a policy point of view.

You can also view it from the point of view of financial inclusion and commercial inclusion, including the concerns that we all should have for the unbanked and the underbanked. And then finally you could also look at it as at the highest level, you might say at the greatest level of generality. You could describe it as the meditation on what a financial system is meant to be, what it ought to be, what the role or purpose of finance is—and then a set of proposals that would essentially bring our current financial system into greater conformity with the view of the ideal financial system that I think emerges from a careful and critical reflection on what finance is for, what finance is all about.

So the book is doing all of those things at once but I’m hoping that it’s doing it through one single coherent story and then one single coherent policy package that emerges from that story. A couple of things may be worth saying from the outset just to dispel or preempt any confusions that might emerge because I certainly noticed these kinds of confusions tending to come up when one talks about, for example, CBDC or advocates some form of digitization.

So the first thing to preempt is any thought that this might be about getting rid of cash, physical cash or paper money or coins or whatever. It’s definitely not about that. I would definitely reject any proposal to do that and would definitely do all in my power to prevent something like that from happening. Indeed I think that the laws ought to be more fully enforced to require merchants to accept cash from those who would prefer to pay in that way.

In that light then, so you used your language before which I found very attractive. If we think in terms of commonses and partitioned or privatized commonses, you might say that what the private sector fintech industry is trying to do, and what the private sector crypto industry seems to be trying to do, is to displace actual physical cash; in effect to take away that commons and replace it with a bunch of proprietary fiefdoms.

Lots of these payment companies and payment platforms seem to be about that. And again lots of the cryptocurrencies and crypto-related proposals seem to be about that. What I’m advocating is, first of all, keep any forms of cash that we currently have as commonses but also in effect take over that currently-privatized digital space and provide a public option in that space as well so that you have a commons both in the digital realm, and of course, in the hard currency or hard cash realm.

So that’s one thing to preempt. Another thing to preempt, or a possible confusion to preempt, is to think that as you and I have talked about before, I call these people cryptopians, the people who think of Bitcoin or other forms of cryptocurrency as promising, strange, but exciting new times ahead where every individual is sovereign. You’ve probably seen this ridiculous phrase self-sovereign systems and so forth.

The idea that a money could be private is just a complete and total absurdity. And the idea that it ought to be that way is also an absurdity. I’m no enthusiast of that and I’m no enthusiast of the kind of decentralization that those sorts of people seem to have in mind when they use that latter word. This is very much about a centralized system that simply replicates in the digital space, the system that we took a long time to arrive at in the paper currency space over the course of the second half of the 19th century and the first one third or so of the 20th century.

So preempting those particular possible confusions might help us right from the get-go, avoid any unnecessary confusions or pseudo controversies.

[00:07:59.120] – Grumbine

Right. I’m guilty of doing a table-of-content surfing, but it’s logically laid out. And if I was to put this out there, we’re trying to differentiate this from other things. You’re talking about money creation and the concept of money finance and production in contemporary commercial republics. That is a word salad. I don’t know what to make of that. So I’m going to give you the opportunity to bring us into what you’re referring to and how that works.

[00:08:30.280] – Hockett

Oh, you bet I do. Try to set it up right from the get-go in a manner that contextualizes the discussion and sets it against the backdrop of longer-running, longer-term discussions of forms of polity, forms of nation-state or forms of political organization on the one hand. And then the role that money and finance, or the roles, I should say, that money and finance play in different models of polity.

Now, as you know, and as most of your listeners are going to know, the US was founded in the late 18th century as the polity that it is, more or less. And at that time all the rage among trendy political philosophers concerned itself with what was called a commercial republic or commercial republics. So the idea here would be that you would have, on the one hand, a polity of individual citizens who would be more or less economically independent or autarchic and in that sense not dependent on others.

And hence they would be capable of exercising independent judgment as citizens about the issues of the day or the common concerns or challenges facing the polity as a whole. That’s just the idea of a republic. But then in particular it would be a republic that in contradistinction to the old ancient Roman republic, and some of the other republics that follow that, it wouldn’t be a primarily agrarian republic.

It wouldn’t be simply based on agriculture in the way that the old Roman republic was and again in the way that the early British republic was. Instead, it would follow something more like what was then known as the Dutch model. That would be a republic with a mixed and diversified economy with lots of commerce, lots of trade back and forth between people which would then, in the final analysis, provide plenty of incentive for productive activities additional to agriculture.

So it was a vision of, again, a very mixed economy with lots of different industries, lots of different forms of value creation and value addition and so forth. But a polity of that sort, of course, only works if you have some kind of monetary unit into which all of these different kinds of products that are being produced and services that are being offered can be, in a sense, commensurated.

So you can in effect come up with a single standard of value against which to measure the value of very diverse and polymorphous products. So a money system was particularly important in the idea of a commercial republic. Now, there are further implications that follow from that that weren’t really seriously discussed in the late 18th century and that in my view, regrettably don’t tend to be discussed very much even to this day.

But they ought to be.  And one is, if we take ourselves seriously as a commercial republic, then we have to view a payment platform or payment mechanism, some mode or means of paying, as an essential public infrastructure, an essential public utility, in the same way that a traveling republic, a republic that involves people moving back and forth a lot has to have roadways that are in effect commonses, in effect spaces of public utility.

And in a commercial republic, if both the commerce piece of that and the republic piece of that, are taken seriously, then we have to think of payment mode or payment mechanisms as essential public infrastructure. And that means you can’t allow, it simply won’t do, for there to be any form of commercial exclusion, or financial exclusion for that matter.

Now, one way, of course, to solve that or to make sure that that doesn’t happen is to have a currency system of the kind that we have, say before digital currency, in the form of just the paper currency but the Federal Reserve issues, and in the form of bank money that is denominated in the same units as that paper currency that’s publicly issued.

That was a perfectly functional payments architecture or payments infrastructure. But one of the threats, I think, that’s posed by this faddishness, and especially until recently, I have to say just as a quick aside, I’m somewhat enjoying all of these crashes of crypto companies and cryptopian ventures left and right. But not to be too snarky about it, but it’s nice to see vindicated what so many of us halfway sensible people were prognosticating all along.

But leaving those recent developments to one side, I think one of the threats that are posed by some of these private sector payment platforms and payment companies and, relatedly, various private sector crypto ventures is precisely the one that you highlighted at the top of our time together here, Steve. And that is, again, in a sense, an equivalent of the old British enclosure movement, enclosure of the commons.

There’s an attempt to work enclosure in the commons that is the currency. And that is, again, totally inimical to the very idea of a commercial republic. And that’s, of course, then, one reason why part of the thrust of the book and part of the purpose of the book is to argue that insofar as digital currency or digital payment platforms are going to become a thing, we have to make sure that there is at least one public such platform that is freely available to everybody. Every citizen and every legal guest of the Republic.

[00:13:54.430] – Grumbine

I wonder, in light of the recent overturning of Roe v. Wade and some of the fears of tracking people on their cell phones, some of this, I’m sure, is part fear. But a lot of it is based in fear of fascists taking advantage of information that should be private: a woman that wants to get an abortion, or a man that is looking to have a procedure that I don’t want tracked.

I see a bunch of concerns in the entire concept of digital. Our sanctions have been executed with cutting off access to the Swift system. Our currency is digital and freezing bank accounts and assets. Some of the real concerns that I just immediately jump to as I even think about the subject, is privacy. And I know central banks are in the business of tracking people, but the CIA and FBI are.

And the January 6 insurrection of the things that have come out as a result of that. However, the left want other things to happen. And now we’ve got this overarching industrial surveillance apparatus that is now baked into our currency. This is terrifying to me. How does this play into that public space? Because I know that cash has a tremendously flat effect in that space.

It really is freedom. So I know we can speed up transactions. I know we have access to various digital platforms using it this way, but there’s fear. It’s not just fear of this particular subject, but fear in general of credit card companies and marketing companies. Is this a real fear or is it just people wringing their hands over nothing?

[00:15:45.920] – Hockett

Oh, no, I think it’s quite real, Steven. I definitely share it, and particularly lately, right, because in some ways it’s suddenly beginning to feel like all bets are off. Who would have thought that Roe actually would have been so overtly and crudely overturned? Who would have thought that the Chevron doctrine would be effectively eviscerated in order to stop the EPA from preventing the planet from burning into a crisp?

Who would have thought any of that crap would have happened? And who would have thought that there would actually be an insurrection with people wearing buffalo-horn hats running through the Capitol, smearing their excrement on the walls? There’s something a bit dystopian, almost like something out of a cyberpunk novel by William Gibson, or something, about the present time, such that lots of suggestions that might have been thought to be paranoid fantasies or whatever, even as recently as five to ten years ago, now seem altogether plausible as possible scenarios ahead, even if they remain somewhat improbable.

Just the fact that I would never in a million years want to discount that fear. I think the way that I find maybe most helpful to approach it is if we first think in terms of an ideal republic or an ideal republican polity and how things would work there on the one hand. And then look at the polity that we actually are living in at the moment and see how far short it falls in the specific ways in which it falls short.

And thereby then to highlight certain things that we really ought to be doing now to safeguard the privacy and the rights that we have. And to reclaim some of those that are currently being taken away. And then to safeguard them once we reclaim them. So to start with that ideal benchmark. If you actually had a country that was true to its own constitution and in particular was true to certain rights in the so-called Bill of Rights of our Constitution, then you could see right away why it might be very helpful for the cause of privacy to have the public sector handling any form of digital currency or digitization of commerce, rather than the private sector, because of two things.

First, the public sector doesn’t have a profit motive or profit reason to try to harvest your data and sell it to others because it’s not in business, so to speak. It’s not trying to make money or being in business for a profit. And secondly, because it’s constrained, again in theory, by the fourth Amendment to the US constitution, which is the prohibition on unreasonable searches and seizures by public officials of any sort.

And so if the US—again, if we actually had a Supreme Court that respected the Constitution as it actually is, and if we had a polity that remains mindful of and respectful of the fundamental building blocks of an actual republic rather than some mask that calls itself a republic—then you can see right off the bat why privacy concerns would be better protected by a public digital currency than they would by private digital currencies or the like.

Now, that being said, obviously, the polity that we currently are citizens of is falling short in a number of ways, and it seems to be falling short more and more all the time. And in a case like that, it does become a concern that, well, yeah, maybe Big Brother, so to speak, or Big Sister might be tracking our payments, basically all of our commercial transactions by watching what happens on our digital wallet ledgers.

And that might enable them to track us more thoroughly or do all sorts of other things to us that they might not otherwise be able to do, and that would, of course, reasonably worry us. But we can act to try to prevent that in a couple of ways. First is, of course, as I mentioned before, reclaim those rights that seem to be being eroded and put in place better safeguards, including, for example, significant criminal penalties against any public official who abuses any publicly-run or publicly managed or provided system, like a payment system or a digital wallet system that enables both value retention or saving or accumulating on the one hand, and then peer-to-peer spending on the other hand.

Another good example to look at, maybe, in this context, when it comes to what could be done, is the case of Sweden. Sweden has its problems and its flaws, of course, like old polities do, but it still seems to be a country that takes certain rights of citizens a bit more seriously than some of our public officials do these days. And they’ve actually got the world’s first functioning digital currency.

They began the trial run with the e-krona back about two and a half years ago, basically February of 2020. And the way they’ve structured the e-krona is essentially just code, into the digital currency itself, all of the salient attributes of non-digital paper currency or coin. So basically, any kind of transaction that you engage in that’s valued at less than the bank secrecy law threshold here in the US.

Let’s say it’s ten or $15,000, any transaction that’s valued at lower than that threshold, which triggers basically the requirements for banks to disclose the information to the Treasury Department, is already anonymized digitally, it’s just written into the DNA, you might say, of this very currency. And then various other attributes of paper currency that we tend to value are again, in effect, programmed into that digital currency.

And then if you engage in a transaction that’s valued at more than the threshold amount, say, 20,000 or whatever, that will immediately trigger the same bank secrecy laws that a cash payment in that amount would have triggered. So the lesson, I think, that’s worth drawing from that is that we could, in theory, catalog every attribute of paper currencies or hard currencies that we value, and we could code into whatever the digital dollar becomes, those attributes, then also add some additional legal ring fencing in the form of, say, again, really significant criminal penalties, including prison time, for any public officials who violate any of those encoded norms, and that’s at least some protection.

But again, it’s also important to keep the paper currency available, to keep the coin available just in case, it seems to me, at least insofar as people want it or demand it. In Sweden—there’s an irony here—one of the prompting considerations for the Swedish Riksbank, their version of the Fed, to go with the E-Krona project, was the fact that Swedish citizens just aren’t using cash anymore.

They were all using electronic payment methods. And so the Riksbank was beginning to worry that it might lose the capacity to modulate the money supply, given that nobody was using the paper currency that it itself issued anymore. And so that’s what made them decide to get into the space. So in Sweden, you might say, people apparently have so much trust in the public sector that  they’re willing, even, just to dispense with cash.

Americans, I think for very good reason are probably not going to be quite as trusting as that. And why would they be, after the nightmare four years of 2017 till early 2021, or even some of the other nightmare years before that? But again, to make a long story short, then we can also think of keeping hard currency as a fallback.

Maybe one final point worth noting here, Steve, is it’s probably noteworthy that this is not a problem that’s unique, of course, to the realm of currency or payment systems or commerce. Most people have iPhones or smart devices of one kind or another, and most of those devices of course, have GPS on them. And as you know, the company Google tracks all that stuff.

And it’s now quite routine for law enforcement agencies to demand that Google send them location data for specific phones that are thought to be held or owned by particular people who the law enforcement agencies are tracking. And I think where you go, the places that you go with your phone, can be quite as much a matter of privacy concern to you or me as where we spend, where we receive income from.

In the case of that, we don’t have any fallback. It’s not like we’re going to go back to landlines. Most people don’t even have them anymore. Landlines would’nt be particularly safe anyway. Those could be traced or tracked or tapped as they routinely were by law enforcement before digital phones. So in a way, if we’re truly worried that the federal government is out to spy on our every move or something, we’ve got a lot more problems than just the vulnerabilities to which digital currency would subject us.

[00:24:43.690] – Grumbine

Well, that’s a great lead-in. What is the case you’re making overall? We’re watching the public space get gobbled up by private interests and our government is the architect of that privatization. And in this case you’re proffering up a public option. Of course, people, they’re thinking bitcoin, they’re not understanding what this is.

So why don’t we dive into what you’re actually proposing and we can get into the structure. I’m also very interested in what the take rate on this is. Where is the interest lie in terms of the people that are policy makers? Is this something that they feel is very important? It’s something that I’m very interested in knowing where the push for this is coming from; we the people, or is it coming from the government that wants to be in this space? I know the government is supposed to be us, but it’s been a few years since I felt like that was the case.

[00:25:47.350] – Hockett

Yeah. I think, once again, there’s a few angles from which to approach addressing those queries. I’ll try to give a rich account by highlighting the specific angles from which you can approach an answer. Maybe the best thing to do first, Steven, is just to describe what I’m proposing, what I’m adding.

[00:26:04.750] – Grumbine

Yes.

[00:26:05.500] – Hockett

And then that’ll make it a little less abstract to explain what the attraction is to various constituencies. So the basic proposal, the basic idea that I land on, is every citizen and every business and every legal guest, or welcome guest or resident, let’s say, of our republic, would be issued a digital wallet. You can think of it as a bank account, and the wallet would be something in which you can save and something out of which you can spend.

Furthermore, all of these wallets would have peer-to-peer, P2P, horizontal connectivity. So basically, if I owed you money, Steve, I could make a payment to you simply by crediting your wallet and simultaneously debiting my wallet. And of course, you could do the same. If you owed me money, you could credit my wallet and debit yours.

And so you would have this horizontal connectivity among all people who have these digital wallets, and they would all be usable on smart devices. And it turns out that over 95% of the population has smart devices, whereas only 75% are not under-banked. So you would immediately have universally-accessible payments, a universally-accessible payments platform, and again, a universally-accessible savings platform because you could just save more and more money in your wallet as you receive payments.

And if you’re not making as many payments as you’re receiving, then you’re saving in that wallet. So that’s the horizontal dimension. The vertical dimension of the proposal is that all of these wallets, in turn, are part of one great big central-bank-operated or publicly-operated platform which you can think of as, in effect, the account book.

It’s like the big ledger in the sky, as it were, that all these wallets are attached to. And any vertical payments either toward the public, by individuals or citizens or what have you, toward the public sector or vice versa, could also be transacted over this particular network. So if you have a tax refund coming your way, Steven, that could also then take the form essentially of the IRS simply crediting your wallet.

You could also, of course, insofar as you had a tax liability that you had to pay, you could pay through that particular wallet. If you had to pay a fine for a traffic infraction, you could do that. If you receive some sort of public benefit under one or another public program, those could all be conveyed directly into your wallet.

And perhaps, maybe most exciting of all in this particular connection is when it comes to Fed monetary policy, which, you know, is all about essentially growing the money supply or shrinking the money supply, depending on whether you’re trying to stimulate more activity or contract or slow down economic activity. Currently, the way the Fed does that is to work through middleman institutions.

It basically alters the price of money borrowing that banks themselves charge when they do that particular lending. And so monetary policy as conducted by the Fed is quite leaky because it has to be run through these middleman institutions that are not in it for the benefit of the public. They’re in it to make yet another buck. But you wouldn’t have to rely on that anymore.

If the Fed decided it wanted to stimulate activity a bit, and it wanted to see a bit more spending, it could simply directly credit citizen accounts. Basically, the wallets could just say, hey Steve, here’s $1,000 in stimulus. It’s just going directly into your wallet. You now have more spending power, and by taking out the banks like that, you avoid, among other things, the famous pushing on a string problem that you’ll remember from back in 2009 and 2010, when the Fed was trying to stimulate more activity to counteract the debt deflation that was then underway.

It basically tried to get banks to lend more money, but people didn’t want to borrow. It was not a very good way of stimulating the economy. And so people said, it’s kind of like you’re pushing on a string. The thing at the other end doesn’t get moved. The string simply buckles. But you take the bank out and you’re taking the string out, no strings attached, you might say.

The Fed simply credits your account, and it’s not lending it to you, it just gives it to you, saying, yeah, we need this as stimulus. It’s basically helicopter money done through digital wallets. Similarly, the Fed could offer returns on your wallet savings. In other words, you could earn interest on your wallet account in the same way that you used to be able to do in your bank account before bank rates went down to virtually zero.

And the Fed could use the interest offered on wallet accounts then as another monetary policy tool. If it wants you and me to spend more because it’s thought that the economy needs stimulus, then it might lower the interest rate on our wallet account. And if it wants us to save more, it might raise the rates to encourage us to save more.

So it would be a much more direct, again, leak-proof and efficient, therefore, form of monetary policy. So that system then, being of that sort, it offers a number of very specific advantages. So I’ll just quickly rattle this off and then we can turn to more detailed questions. So one of the benefits of a system like this is of course that aforementioned leak-proof monetary policy.

Another of the benefits is again, it basically eliminates the problem of financial or commercial exclusion, in effect almost overnight in the sense that again at 25% of the population is either unbanked or underbanked. Well, now it would be less than 5% because the digital wallet would be a bank account, in fact, functionally speaking.

So you’ve got the inclusion and you basically use for social justice points this way; you also get—I think of this as a growth benefit—as you know, GDP, which is typically used to measure economic growth or economic health, which is problematic for reasons that we’ll probably talk about another show sometime.

But insofar as there is anything worthwhile to tracking GDP, it’s worth noting that essentially we measure GDP by reference to transaction volume. And if you have an easy, straightforward, seamless payment mechanism or payments mechanism out there with no charges, no fees or anything, it’s just direct crediting and debiting of one another’s accounts through our digital wallets, you’ve effectively made it possible for there to be a lot more transaction activity to take place within any given time interval.

And that means, all else being equal, you get greater growth, more transacting, greater transaction volume, higher GDP. So you can think of this as (an) efficiency benefit that complements that kind of justice or fairness benefit that universal accessibility of the payment system would offer. There’s also, again, maybe two more benefits worth noting.

One is, and this might initially sound ironic, but given what we talked about a few minutes ago, it will maybe seem less so, is there is a potential privacy benefit here. And that is that if people who are wanting to use digital payment systems use this publicly provided such system, then they’ll be using a system that’s run by an entity that is not a for-profit entity and hence does not have the profit incentives that typically motivate data harvesting and sale and the like.

And again, also they would be using the system that is operated by an entity that is subject to the fourth amendment to the US constitution. So that if you’re going to go digital, the privacy of your transacting is probably a good bit safer in that form of public-space digital than it is going to be, or would be, or currently is, in any sort of private sector digital system.

And then finally, fifth, the fifth maybe-benefit, this is one that you have to think about for a moment to see the idea behind it, so it’s not likely to be one that people immediately think of, but when you do think of it, it’s kind of cool. And that is, it might become possible to monetize and remunerate more forms of socially-beneficial or social-value-adding activities than it’s currently possible to do.

In other words, certain forms of care work and other kinds of pro-bono publico sorts of activities that people engage in might be incentivized more. So take for example, a kid who is good at math in school, maybe the high school or 9th or 10th grade, and she generously offers some of her free time after school tutoring other kids in her class or kids in lower grades when it comes to doing their mathematics homework, and she does it out of the goodness of her heart.

Well, if everybody has a digital wallet and we have some sort of proof-of-work mechanism of the sort that some of the digital currencies use, and you can get a verification by the beneficiaries and maybe their parents on this system, of the fact that this beneficent student, this beneficent young high school student had helped them with their math homework, and then if the public sector realizes or notes that, well, more people being better-educated and knowing mathematics better leads to a more productive society over time and leads to more public revenue over time, then you might imagine public programs being put into place to provide some sort of financial reward or some sort of a crediting of the wallets of the people who offer that care work and thereby incenting more such beneficial activity and also giving credit where it’s due, so to speak.

So that would be a fifth and maybe final benefit for present purposes that it seems to me that a system like this offers. Now, given all that, it’s easy to get back to your question about who tends to like it. So progressive types do seem to be attracted, and when I say progressive types, I mean people to whom I’ve advocated this, including in the US congress.

Progressive Democrats, for example, in Congress seem to be attracted to, first of all, the universality of it, the idea that you wouldn’t have a problem with the (unbanked) or underbanked any longer. They value that and they value the idea of there being a public option rather than just leaving people prey to the depredations of private sector entities instead.

And they of course oftentimes express admiration or excitement about the rewarding care work feature as well. And the privacy piece of the story benefits one, three and five. To some extent, some of the progressives also like the idea of a leak-proof monetary policy, particularly insofar as they are disgusted by the way that middleman institutions tend to skim from the top and basically you’re just taking rents, just extracting rents that they haven’t done anything actually to earn.

But at the same time, interestingly enough, some Republican types seem to be attracted to the idea as well, but owing to different features among those five that I rattle off. So of course, the idea of greater transaction volume and hence larger GDP or faster GDP growth appeals to some of those people because a lot of those people better-size GDP (“mine’s bigger”), as it were.

So they seem to like that. Some of them value the privacy aspect as well. As you and I both have experienced, privacy seems to be in some ways a bipartisan issue for people in the sense that there are some right-wingers who care about that, too. And then another thing that some of the right-wingers of the Republicans kind of like about this, which seems kind of weird to me because I think this is sort of an uninteresting feature of it, but some Republicans are freaked out by the fact that the People’s Bank of China is developing a digital renminbi.

They purport to be worried that if China digitizes its currency before the US does and the dollar will lose its global role. And so they are attracted to this idea because digitizing the dollar would then maybe prevent that horrible occurrence from happening. That, I think, is a silly reason for a couple of reasons. One is we should be very happy if the dollar loses its global hegemonic role.

It’s been pretty bad for US industry and working class people. For another thing, if it is going to lose its role in that way, it’s going to happen anyway. It’s not going to be because of digitization. It’s going to be because the US has deteriorated to a shell of its former self. But leaving all that to one side, it’s another feature I hadn’t really thought of as an advantage here, but that some Republicans seem to see as an advantage.

And so, believe it or not, a number of Republicans are attracted to the proposal here as well. It might even end up being legislated by Congress bipartisanly this very summer, but I’ll keep you posted on that one.

[00:39:16.130] – Intermission

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[00:40:07.170] – Grumbine

I expect that you’re going to have strange bedfellows at any level of this. This is a disruptive technology on so many levels. And I’m going to bring two friends of ours into this conversation. One is Bill Black and the other is Warren Mosler. And when we were talking with Warren about public banking, for example, Warren made the distinct and truthful statement that we already have public banks.

We failed to regulate them. We allowed them to become these beasts. So creating public banks is a bit of an oxymoron because the reason why we have bank charters and the government provides access to creating banking is because they were intended to be public purpose entities.

[00:40:52.110] – Hockett

Exactly.

[00:40:52.840] – Grumbine

They have not. And so public banking is kind of a lazy man’s way of getting out of the regulatory business and we can’t fix what we broke, so let’s just create a new one. And I’m strongly in Warren’s camp there, I understand the rationale for doing it. But then Bill Black stated pretty unequivocally that one of the keys to the fraud recipe is high speed transactions, massive amounts of them.

And that’s one of the key things that you raised as a potential benefit is the ability to realize GDP quickly. How do we address both of those? Do you see a concern there?

[00:41:34.470] – Hockett

I think it’s a serious concern, Steve. And as most of Bill’s concerns tend to be, as you and I both know, he’s a very savvy fellow and if he spots a problem somewhere, it is in all likelihood a real problem. The hope that I take from the proposal that I put forward is that it’s pretty easy with the system itself to address Bill’s very concern.

So my guess would be that Bill would agree with the following claim: the high speed transaction problem is a problem not in the goods and services markets, but in the financial markets, where people are buying non real stuff, so transacting at literally the speed of light, which is what they’re ultimately approaching—trying to do.

And it’s actually why somebody at the Wall Street banks have purchased space underground, just like 50ft away from the stock exchange or 50 feet away from New York. That is precisely so that they can get some kind of tiny little nanosecond advantage on timing over their competitors simply through the physics of being physically close to these institutions–that’s all about financial transactions, where you’re buying and selling in the blink of an eye.

You’re buying and selling at a rate that’s so rapid that it’s not even humanly perceptible. It’s only tractable by sophisticated equipment. That is a place where high speed is not only not helpful or useful, from a social or public point of view, but it’s actually, again, as Bill himself is at pains to emphasize, is destructive.

It seems to me there are two ways to deal with that; one involving the system that I’m proposing, and the other not requiring any such system at all. So the latter, the thing to do about it in a manner that doesn’t require any new-fangled systems of any kind, is simply to prohibit it, just make it not permissible.

You might remember Arthur Levitt, who is the chair of the SEC back in the late Clinton years. The Levitt SEC put out a proposal in early 2000 saying “let’s ban this.” Let’s simply prohibit high speed trading. It is inherently manipulative. It’s never motivated by any legitimately value-adding consideration at all. It’s just pure rent extraction. You’re simply trying to beat somebody to the punch with some information that has no actual public significance but just has significance when it comes to the pricing of certain assets whose prices are constantly going up and down, and all of Wall Street is basically just a betting market on those price movements.

And that was smacked down, of course, by our dear friend Larry Summers who was then Treasury Secretary and by our dear friend Alan Greenspan who was then the Fed chair and by various other swinging dicks or towel-snapper types who were part of the Clinton administration. And that proposal has yet to be revived or seriously entertained or talked about, but that could be done, again irrespective of any new-fangled system.

But if that’s not going to happen, maybe because the SEC is captured at this point or something, then you could certainly write it into or program it into a system of the kind that we’re talking about right now. You could basically say that these wallets can transact quickly but they can’t transact in terms of like millions of shares of Microsoft stock or something in a millisecond or whatever.

You can just make that not workable or not operable on this particular system. In fact you could make the system usable only in commercial transactions, that is to say the purchase of goods or services but not the purchase of financial instruments of any kind. You could program all that into it and that would be a nice way of essentially keeping financialization out of commerce and thereby quarantining and then shrinking more and more and more of the space within which financialisers are able to operate.

Another kind of cool thing about this system it seems to me, Steve, is that if people decide to use these wallets as their primary savings vehicles and they’re using them instead of private-sector bank accounts so that there’s some migration from private sector bank accounts into this publicly maintained wallet system then it’s going to be a lot harder for private-sector commercial banks to comply with the liquidity requirements, basically the reserve requirements, that they’re subject to which are key.

The liquidity capacities that the bank has, place limitations on what kind of lending activity the banks can engage in. And so you could view a system of the kind that I’m putting forward here then also as a means by which the public begins to retake some of its earlier-held territory where essentially lending is concerned. So here I’m in a sense alluding to something that you and I have talked about before, some other writings that I’ve done before that you and I discussed, namely the “spread-the-Fed” idea where the original vision for the Federal Reserve System was that it was essentially a kind of a network of regional-development finance institutions.

And what they did was they monetized commercial paper issued either by private sector firms in the real sector of the economy (not the financial side) or they monetized loans made by banks to such companies, and what that meant was that Federal Reserve money-creation, so to speak, never flowed towards speculative activities or speculative ventures.

It only flowed toward productive ventures again in the real economy. And as you know I’ve been arguing for quite some time that we have to restore that particular Fed system. Well, this particular wallet proposal offers a real easy means of doing that because if the Fed now is directly connected to all of the citizenry or if it’s the Treasury operating it, which it could also be, then you could have the Fed just directly lending to individual companies or directly providing liquidity support to individual companies, provided that they meet certain criteria again, namely the criterion of engaging in productive rather than speculative activity, basically operating in the real economy rather than in the financial economy or the Wall Street economy.

So it would really offer a nice easy means in the same way that building railroads made it a lot easier to invade other countries because you could transport your troops over there. Well, here is a benevolent form of invasion or maybe like a reclaiming of territory that used to be the public sectors, anyway. If you actually have the system or the network in place it’s just a lot easier to move back to that original system that the Fed amounted to.

I should maybe just really quickly, before we move on to the next question, I should also just note, just to clarify something, a confusion that might have come up, and I said the treasury could also do this, in the book I sort of suggest you can do this in any number of ways but one way would just be to have the Fed do it.

But another way to do it would be to start with Treasury, and one thing that would recommend starting with Treasury, maybe two things. One is that Treasury is more democratically accountable of course than the Fed is. But another is that the Treasury already has, you might say, the beginnings of, or an incipient form of, this very network that I’m talking about. There’s a system called Treasury Direct.

And if any of your listeners just Google TreasuryDirect as all one word, they’ll be taken immediately to a site that the Treasury Department operates and at TreasuryDirect you can open an account online and in that account you can purchase, or through that account you can purchase, treasury securities at any time and then you can also redeem treasury securities at any time.

So basically any American can open up an account with the US treasury. All you’ve got to do to turn that into a system of the kind that I’m talking about is two things. First, you allow people to hold dollars in that account and not just treasury securities. And another way to say that would be to say you let them then hold Fed securities in addition to treasury securities because of course the dollar bill just is a Fed security, right?

It’s called on the one hand a promissory note or a Federal Reserve note, and there are, interestingly, treasury notes. It’s also sometimes called a dollar bill. And as you know there are treasury bills, and that terminology itself is something of a tip-off that dollars are not altogether unlike treasury securities particularly once the Fed itself starts offering interest on reserves or IOR and that’s what these wallets would be doing. So now in effect even the Fed account is kind of like the treasury security because it has a coupon, it offers a return.

But in any event, so first you allow this other form of security to be held in there along with the treasury securities, namely dollars. And then second, you just convert the accounts into these P2P-accessible digital wallets with the horizontal dimension in addition to that vertical dimension. When I first put out this proposal a few years back I contacted US Digital Service USDS which is an agency within the executive branch of the government that was established during the Obama years, and it exists essentially to upgrade on a regular basis all of the technologies used by all the federal government agencies and so they would be clearly the ones to upgrade treasurydirect then into a digital wallet system.

So I called up and talked to some folks there a few times some years back and just asked them, I said what would it take to do this kind of a conversion and how long would it take? And to my astonishment they said that wouldn’t really take more than a few months. It’s not a particularly difficult undertaking. The technology is fairly familiar and straightforward to techy types.

So it’d be very easy to start then with treasury. And you know the papers I put out on this once called, I think, Digital Greenbacks in honor of the first green dollar which was called the Greenback and was issued by the treasury rather than by the Fed which didn’t yet exist. So a number of papers out there with titles like Digital Greenbacks or the Treasury Dollar Act of 2020 was another thing I put out, basically a model act.

Those are all about the treasury mode of doing this but then another mode of course would be to have the Fed do it. And you could even do both. You could start with treasury because treasury is a little bit more nimble and fast moving than the Fed tends to be. Fed is kind of a slow moving ship. So you might say “well, let the Fed get comfortable with it.”

Let them get prepared for it while the treasury runs it. And then once the Fed is ready then you can migrate the system over to the Fed and then integrate it into the broader Fed monetary policy apparatus or maybe have the Fed and treasury work jointly on administering this where the Fed keeps the monetary policy stuff before the eyes of treasury in running the system while treasury, for its part, actually does the actual administering of the system.

Those would be a number of ways to do this and I think time will tell what’s going to be the easiest route. But I think all of them in theory would be functionally equivalent in the end.

[00:52:36.870] – Grumbine

So if I’m hearing you correctly we’ve got the actual unit of account which still remains the dollar, correct?

[00:52:44.030] – Hockett

Yes.

[00:52:45.510] – Grumbine

So it’s just like I got a dollar bill, I’ve got a dollar in my bank account, I’ve got my ATM card, I’ve got a dollar. It hasn’t become a piece of paper yet but it’s still a dollar. This is a dollar nonetheless just in a different architecture. Is there interoperability between all the different systems? What does that architecture look like?

[00:53:08.570] – Hockett

Yeah. So you could easily enough make something like this interoperable with all the other systems for one thing simply by the mechanism of every entity that engages in commerce having such a wallet. So one way to make a deposit in your bank account if you wanted to, through this system, would be simply to send money from your wallet to your bank because in effect what you’re doing, of course, when you make a deposit in a bank, is you’re crediting that bank.

You’re basically lending to the bank in the form of a demand deposit. In other words, a contingent time-dated loan to the bank when you make a deposit like that. Because in effect what you’re saying is look, you get to use, in whatever way you wish, this particular amount of credit that I credited you with in the form of this deposit.

But also, of course part of the demand deposit contract is you can withdraw your money at any point which is another way of saying you can call the loan in at any point. So you deposit in the bank you’re basically doing that. You’re engaging in a contingent time-dated lending with the bank and there’s no reason you couldn’t do that through your wallet in the same way that you currently do it by depositing a check over there or by bringing a bag of cash from your restaurant or whatever and making that deposit.

So that would be one way to render it interoperable. That would be, I think, pretty straightforward and easy. There will be other ways as well that would be a little bit more complicated but it doesn’t seem to me that it would be particularly challenging or a difficult thing to do. My guess furthermore is that if the system gets off the ground and people start using it and they realize it’s actually pretty easy to use it’s safe and nobody’s collecting your data you’re not getting mysterious advertising blitzes coming your way after making expenditures out of your wallet in the way that happens now when you’re using private modes of paying for things.

When people start seeing how easy this is to do and noticing that Big Brother isn’t sending them adverts for nautilus equipment or something just because you bought some boxing gloves the other day, your people are going to start using it more and more, and they might even get to the point where they’re thinking, I don’t really even need this to be interoperable.

Everybody I want to pay is on this system, so I’ll just pay them through this system. And everybody from whom I am entitled to receive payments is on the system as well, including the IRS, when it sends me a tax refund or whatever. So I’ll just use my wallet, thank you. Who needs to do the rest of this crap, which is pointlessly and gratuitously complicated and headaches-causing oftentimes.

[00:55:48.220] – Grumbine

That’s an interesting way of saying that the IRS would have easy access, not that they don’t already, because they can garnish your pay. They can do any number of things. But I am curious, though, what we’ve seen with the Swift system and Russia and all the other countries that we have levied sanctions against. We’re in dystopian times here. There’s no way out of that.

Some of the benefits that I think of with this sort of thing are highly dependent on a functional government and a regulatory environment and the fear of Big Brother closing your ability to make a payment for bread and other things because he purchased a cartridge of medical marijuana in New Jersey. I know you kind of addressed this previously in the sense that this isn’t causing us these problems, that maybe we’ll just use it, period.

Then I hear the IRS. To me, I could see this being a real challenge because of the government hasn’t exactly shown itself to be on our side lately. And more to the point, things that seem obvious to regular people, the legislation and the talks that are happening doesn’t sound like they’re representing us. So with that in mind, I do wonder.

The role of government has typically been to protect private property and protect capital, and I don’t see anything in our constitution or any laws that are shifting to change that to what we think it should be versus what it is. You roll something like this out in Dystopian times, there’s a whole lot of moving parts converging on this digital world. And so there is a real strong push, I believe, to get ahead of that, to ensure that we’re not worshipping Elon Musk or some other Silicon Valley oligarch.

[00:57:53.010] – Hockett

Yeah, I think it’s a really important set of concerns, Steven, I definitely share them. I guess maybe the best way to address this time is to give you an idea of where I’m coming from. It’s almost like a meta-principle, a methodological meta principle that I tried to observe here, and it’s this: I try to think of the privacy matter, at least as far as public action on providing a payment system is concerned, I try to think of it as a one way ratchet in the following sense.

If doing this public system would render privacy more vulnerable than it currently is with private sector firms in this space, then maybe don’t do it. Or at the very least, if it introduces new vulnerabilities, make sure that they’re somehow outweighed by benefits. In other words, explicit that there’s a trade off, that there’s these possible risks but then there are also these possible benefits.

But ideally I prefer that it not be a trade off at all and that it’d be again what I call the one-way ratchet, meaning that you basically get more privacy, not less and it’s not even less privacy but in return for more of something else but rather just no less privacy and probably more privacy. Now, it seems to me that the system as I’ve laid it out in the book meets that latter criteria that it might not provide privacy perfection but it certainly doesn’t make things worse than they already are and if anything makes them better than they already are, it seems to me.

And the reason for that goes back to some things we talked about before, the FBI or the Department of Homeland Security or the DOJ. Any federal agency that’s ready to overreach because of the imperfection of our government now, is quite able to overreach through existing private sector mechanisms. You can get everybody’s GPS at it from Google routinely, for one thing.

You can get people’s payment histories and payment behavior from banks or from PayPal or from other entities that purport to be protecting your privacy. Again, anytime one of these government agencies overreaches like that. And then meanwhile, even apart from the government, these private sector firms also have private incentives to compromise your privacy because, again, they’re for-profit entities and you can make a buck off of selling people’s data.

So given all of that, it seems to me that what I’m proposing here doesn’t make it any easier for overreaching federal agencies to do what they’re already doing. It’s already too easy. And then second, you at least take away some of the incentive for entities doing this because of course the fed is not trying to make money and so it’s not going to sell your data to make money.

And furthermore, again if it did there would be significant criminal liability attaching to any Fed officials who tried to do that and likewise treasury officials. So in those senses I think it’s a net gain. But I don’t want to sound too utopian about it. I don’t want to say therefore everything’s perfect and we’re all going to have perfect privacy henceforth.

Obviously it’s like a never ending quest to get our data protected and to prevent overreach by federal agencies and state agencies for that matter and the like. But all I mean to say is that I don’t think that introducing the system introduces new vulnerabilities that aren’t already there.

[01:01:15.270] – Grumbine

Fair enough. And I didn’t mean to seem redundant. And coming back to that, I know what I see from regular people whenever we talk about these sorts of things. And given the prescience of Assange and what the world is cracking down on and what it’s turning a blind eye to, I think people have a genuine fear of political retaliation.

I think they have fears of “what if you see that I donated to the Democratic Party or the Green Party?” Again, I’m just trying to be a voice of the everyday guy and I want people to have some confidence that what we’re talking about. Sure, there are some possible issues, but what we’re really talking about is a framework.

And it sounds like you’ve done a little bit more because you’ve socialized this with members of Congress and there could be some potential things coming up. Why don’t we go into that final phase of this discussion? Let’s talk about what real legislation might look like and where we might go from here.

[01:02:16.120] – Hockett

Yeah, so there’s a draft bill that I put out as a proposal back in early 2020 and it’s just called the Treasury Dollar App. That is one possible template where it’s just focused on the system itself, just basically making this digital system. There’s another draft bill that I put out about a year later called the National Reconstruction and Continuous Development Act of 2021 and that includes this proposal, but also does other things.

It establishes a National Reconstruction and Continuous Development Council that’s made out of the heads of the various cabinet level agencies, on the one hand, and then various private sector folk and state and city officials, on the other hand. There’s an upgrading of the Federal Financing Bank within treasury to enable the federal government to do a lot of direct investing in new industries and new infrastructures.

And then there is a spreading of the Fed, a return of the Fed to its earlier status. And then finally, plank four is the creation of the system. So if your listeners were to Google my name and SSRN in either National Reconstruction and Continuous Development Act or Treasury Dollar Act, they’ll basically find the bare bones of this particular system as it would be legislated.

Now, a number of Congress members on both sides of the aisle and in both chambers, both the Senate and the House, have been willing to talk with me about this. And there’s been, again, a surprising amount of enthusiasm from both Republicans and Democrats. So I’m thinking that we’re probably going to be seeing some version of this actually introduced on the floor within the coming months before summer is done, I suspect.

So it’s maybe worth keeping an eye on all of this for that reason too, that something like this might indeed be done. And it seems to me, again, insofar as the Fed itself has jumped on the CBDC bandwagon and it’s doing all sorts of exploration, various regional Feds notably, New York, Boston and San Francisco are looking into or thinking through what an optimally designed CBDC might look like.

Seems to be they can stop all of that and just go with this. It’s just much simpler. What most of the stuff that they seem to be considering or contemplating right now. And again, as I mentioned before, USDS said that they could do this within just a few months. As Congress was serious as soon as this autumn. We could just overnight, in effect, get rid of the problem of the unbanked and underbanked and get rid of the problem of middleman institutions mediating monetary policy, and get rid of all forms of financial and commercial exclusion or non-inclusion and make transacting between people more efficient and all of those other benefits that we talked about.

[01:05:06.630] – Grumbine

This is fantastic. So, folks, just want you all to know, the book is called the Citizens Ledger digitizing Our Money, Democratizing Our Finance by Robert C. Hockett. Look it up. I have the book. There’s a picture of me smiling, holding it up on Twitter.

[01:05:22.590] – Hockett

Beautiful picture.

[01:05:23.950] – Grumbine

Thank you. Look a little bit like Santa Claus holding it up. And that is not an indicator that I’ll be sending them out to everybody, but please go get yourself a copy of this. Robert Hockett, thank you so much, sir. I really appreciate this. So tell everybody where we can find more of your work. The book we’re trying to get out there, I think we’ve even got this on our own Real Progressives bookshelf.

[01:05:46.920] – Hockett

Oh, cool. Thanks so much.

[01:05:48.020] – Grumbine

Yeah.

[01:05:48.660] – Hockett

Thanks so much, Steve. Again, I always learn so much from our conversations and really just love these. And any of your listeners who found any of this interesting and want to follow up: for one thing, if they Google my name, they’ll probably find a bunch of stuff, because while Hockett doesn’t sound like an exotic name, it turns out there aren’t many Hocketts out there.

But if they want to get a little bit more boolean about it, they can Google my name and SSRN, which is where all the scholarly papers are posted. Or they can Google my name and Forbes, where I write a regular column, typically about four or five columns a month, or sometimes two or three a month, depending on how busy I am with other things. But if they start that way, Googling my name and SSRN or Googling my name and Forbes still finds a ton of stuff that’s relevant to what we’ve been talking about here.

[01:06:35.800] – Grumbine

Fantastic. You had a New Statesman article the other day, if I’m not mistaken, correct?

[01:06:40.380] – Hockett

The Nation.

[01:06:41.210] – Grumbine

The Nation. Thank you.

[01:06:42.840] – Hockett

Yeah, you bet. Having a little fun at the expense of our good friend Larry Summers.

[01:06:47.450] – Grumbine

Yes. All right, Bob, thank you so much for joining me again. This is Steve Grumbine with my guest, Bob Hockett, from Macro N Cheese, saying…

[01:06:58.770] – Hockett

“We’re out of here.” Thank you, my friend.

[01:07:07.510] – End credits

Macro and Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts and promotional artwork by Andy Kennedy. 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.