Episode 230 – Setting the Bar Low with Yeva Nersisyan

Macro N Cheese – Episode 230
Setting the Bar Low with Yeva Nersisyan
June 24, 2023

[00:00:00] Yeva Nersisyan [Intro/Music]: The idea that we charge students interest on loans, it’s just ridiculous, and it only makes sense in this mainstream framework where the government is financially constrained. It needs to make money off of things. That’s one of the ways that government programs are sometimes evaluated. Are they making money or they not making money? The government should not be making money off of students!

How many working class people are there in Congress? Or these people who are really old, who are so disconnected from what’s going on in the real world? They think rent is $600, $700 a month, stuff like that. So, there’s definitely that disconnect.

[00:01:35] 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] Steve Grumbine: All right. This is Steve with Macro N Cheese. My guest today is none other than Yeva Nersisyan. She’s a PhD and she’s an Associate Professor of Economics at Franklin and Marshall College and a research scholar at Levy Economics Institute of Bard College. She’s a macroeconomist working in the Modern Monetary Theory and post-Keynesian and institutional traditions.

Yeva, welcome to the show.

[00:02:08] Yeva Nersisyan: Thank you. Happy to be here.

[00:02:10] Grumbine: So I want to set the stage for our conversation. There’s a lot of indicators that the economy is the best it’s ever been. The low unemployment. The board rooms are saying they’ve never seen employees so happy to be at work. It’s just effusive with praise, and this is coming from people in elite circles, people who will never feel the burden of not being able to pay their electric bill.

It is not taking into consideration the deep pain of inflation that has swept the nation and the bomb that is getting ready to hit millions of people with student debt, and they’ve got no champions, because everybody’s too busy patting themselves on the back for what a great deal this is. And if you listen to my recent podcast with Pavlina Tcherneva, you know, she says that people aren’t really counting employment the way it needs to be counted.

People are excited about these numbers, but in reality, as our guest here will explain, these enthusiasms come from a bar so low, that it really isn’t telling the true story. And as a student debtor, I’m way down in the trenches getting ready for this tsunami to come sweep us out to sea. So I wanted Yeva to come on and talk to us about this because it’s not fair that people with specific, specialized knowledge within the economic space say: what are you complaining about? It’s the best ever. In fact, I was looking at a tweet from a renowned economist who frequently I would think of as somebody that would be sympathetic to the cause of labor. But Dean Baker said: ‘unemployment is near a half century low, we’ve seen the strongest real wage growth for the bottom quintile in 50 years, the conference board says that worker satisfaction has never been so high.’

All the while unions are at an all time low, and folks feel their agency – as voters, and as providers for their own families – slipping away. So I’m not sure that the disconnect is being measured by the people it really impacts, or impersonal, non-human models that they say looks great on the spreadsheet.

So, Yeva, what are we looking at here?

[00:04:34] Nersisyan: Yeah, so I’ve heard Dean Baker make that argument before. I think he made that argument in a debate that we had last year about whether or not the Fed was going to achieve a soft landing, and his argument was that it was going to do so, and he said that the media is focusing too much on inflation, and beating the drum, and ignoring the fact that this is a really good economy with unemployment rates low, and so on and so forth.

And I think if you look at what’s been going on in the economy, say in the aftermath of the global financial crisis or in the recovery from the previous recession, which was set off by the Nasdaq bust and so on, or even the one that was in the early 1990s, that business cycle, the downturn, and the recovery after that — those were jobless recoveries, so it took a long time for the economy to recover back to the previous unemployment rates.

I believe after the global financial crisis it took until 2017 for the unemployment rate to go down to the pre-recession levels. So about 10 years or so, or almost exactly 10 years. So that was a very, very slow recovery, an anemic recovery, you could argue that gave us President Trump, in some sense. And so in comparison to that, of course, the current recovery has been very fast. The unemployment rate went up very quickly. It also went down very quickly as well. So we had the so-called V-shaped recovery. So if you compare the current recovery to those other recoveries, then you would say, oh, sure, things are going really well.

But of course, by the standards of the 1950s and sixties, this would have been a typical recovery. And in fact, there would be nothing abnormal about the current unemployment rate. But I think the bigger point that economists like Dean Baker are missing, and I’m surprised that he’s missing that point, is that you cannot just take a snapshot of the economy and say things are well right now, and why can’t people just be happy about it?

Why can’t they be happy about the unemployment rate being so low? Well, they can’t be happy about it because of the past 30, 40 years where working class people have been stiffed of all the gains of productivity. Wages have not kept up with productivity. Minimum wage has not kept up with productivity.

Biden promised to raise the minimum wage to $15. He failed on that promise. And so if you take into account all of these things, the fact that people have not been able to build wealth, the fact that their wealth went down quite significantly during the global financial crisis, the fact that people have accumulated a lot of student loans, or even medical debt because of an unaffordable medical system, because of an unaffordable educational system, then you can understand why people are not so happy about it.

But even if you look at simple things like wage growth. Sure wages have grown, but on average they have not kept up with inflation. So yes, the unemployment rate is low and wages have grown, but they have not really kept up with inflation. So even by that standard, you couldn’t say that workers are really taking advantage or they’re not really benefiting from a tight labor market, because they’re not seeing real gains.

If anything, they’re hardly just keeping up with inflation, and for many, they’re not actually keeping up with inflation.

[00:07:56] Grumbine: When the student debt discussion took place a few years back, when student loans were put on hold, and Biden kept kicking the can down the road, there’s still a lot of fear and trepidation, because you know that this is a dam with cracks, waiting to erupt. And when the levee breaks, as they say, there’s a lot of people that are going to be swept out to sea.

We already had ridiculous amounts of default on student debt because, to quote [Michael] Hudson, “The debts that can’t be repaid won’t be repaid.” And you can clearly see that these predatory debts put us in a form of slavery. And these are the things that are driving people right now. And Dean Baker’s assessment of this economics, it made my blood boil. It seems like there’s a lot of people, in the economics business, that are walking around with rather oblivious eyes. And if they saw the pain and suffering, they might reassess, either the models by which they judge, or the things they put out into the ether, because once they speak these things into the public space, people don’t have enough knowledge to be able to push back.

The only thing they can do is look at their own circumstances and say: this doesn’t measure up with what I am experiencing. And I think that this disconnect has gotten to such a level these days, that student debt bubble, it is terrifying. Everyone I talk to says: I can’t discharge it, if I refinance it I’ll never have a prayer of getting it paid off, not that this government would do it for me anyway.

But you guys have talked about, not only the wonderful stimulus of what student debt cancellation would mean to society through Levy and Bard, but honestly you’ve gotta have some idea of the impacts of turning it back on. What is that going to do to a lower class that is struggling mightily, in their own way?

What is the turning of the student debt back on going to do?

[00:10:05] Nersisyan: Yeah. So by the way, Dean Baker is a very nice person.

[00:10:09] Grumbine: Yes.

[00:10:10] Nersisyan: Just to put it out there. But I think what you’re saying, the disconnect, sure, it exists. And it’s not just about economists, because at the end of the day, the people who hold the real power are the politicians. And so even for politicians, you could make the same argument.

How many working class people are there in Congress, or these people who are really old, who are so disconnected from what’s going on in the real world. They think rent is $600, $700 a month, stuff like that. So there’s definitely that disconnect. Now, as far as the student loan payments go, we have to understand the simple macroeconomic reality, which is someone’s expenditure is someone else’s income.

So when the federal government says, you don’t have to spend this money on paying the student loans, that’s basically, you’re just keeping that. The federal government now, when they restart that, they’re going to siphon off all of that spending, all of the student loan payments, out of the economy.

Now, a mainstream economist would look at that and would say, well, that’s fine, that’s great, because that’s going to go somewhere, it’s going to close the government’s deficit, then that’s a good thing. And an MMTer looks at that and says, that’s ridiculous. The only reason why you want to take out income from the economy, is if you’re trying to solve a problem of let’s say, too much spending, too much demand.

So you want to use those kinds of things like taxation. So in that sense, it’s similar, it’s a payment from the private sector to the government. So in that sense, it’s similar to taxation. You want to use it as a sinking fund, if you have to. In this case, we don’t really have to and it’s just going to be a loss to the private sector and there is no gain on the other side, because the government doesn’t need that money.

So the idea that we charge students interest on loans, it’s just ridiculous, and it only, again, makes sense in this mainstream framework where the government is financially constrained. It needs the money, it needs to make money off of things. That’s one of the ways that government programs are sometimes evaluated.

Are they making money or are they not making money? The government should not be making money off of students. So even if you could make the case that a student lending program should exist, at the minimum it should be at zero interest rate. Now, ideally, of course, I would want a subsidized education like similar to what they have in Europe.

Anybody can go to school and the education is almost free or so cheap that it is like free. So that’s ideally the kind of system that we want. And from, again, the MMT perspective, money is not a constraint. That’s the kind of thing we want. That’s the kind of educational system we can have in the United States as well.

But with the student loan payments, when they restart, that’s going to be billions of dollars of income that will be taken out of the economy. So it is going to have macroeconomic repercussions, because that income doesn’t stay in the economy. It’s not going to be spent on groceries, it’s not going to be spent on anything. So it’s going to just leak out of the economy basically. But of course, at the individual level, it could also mean people not being able to afford what they were currently affording. And again, here, I want to go back to my previous point. It’s not like people have accumulated all this savings, that they can now say: well, if I have to pay another $400 or $500 a month in my student loans, that’s not such a big problem.

They haven’t. They’ve been hardly making ends meet. And in this inflationary environment, and an environment where rents have been going up quite a lot, and rents are oftentimes a big part of the income or expenditures of households, then it’s a problem. So you have rents going up, you have mortgage rates going up, home prices have not really come back down.

And if you want to get a car loan, of course, then you also have to pay the high interest costs. So prices are going up, rates are going up, home prices are going up, rents are going up, and you are going to add student loan payments to that, that’s a problem. And I would go as far as to blame the Biden administration, because I think it’s kind of a cop out for them to say: well, it’s in the debt ceiling bill, we had to do it, that’s one of the ways we compromised, but they were planning to end it anyway.

And I don’t think they were going to continue it, because they would’ve said: well, the emergency is done, we can’t extend it because there is no rationale for doing it. So it’s kind of like, well, our hands are tied.

This is how Democrats always do things. They say: well, we can’t do anything better, so we just had to do it, we were in, like a bind, and this was the best we could get. So this is really problematic.

[00:14:53] Grumbine: You’re a breath of fresh air. People like me talk to other people like me and say: why doesn’t anybody ever say what you just said? And to hear you say it on this podcast, without actually prodding you to say it, makes me feel like somebody is really paying attention to what we’re seeing. There’s just so much glossing over this, and Randy, who you work with frequently, said: there’s never an excuse for making a political argument or an economic truism, politics should not shade the truth, just because you are afraid of telling the truth because it’s not politically convenient, doesn’t mean that that’s an economic argument, that’s nonsense.

And I very much appreciate Randy for saying those things as well. For the people that listen to this podcast that are trying to make heads or tails of what’s going to come, there’s fear, and it’s palpable.

And the Fed says: we’re not done raising interest rates. If you think about what the effect of raising interest rates is, it’s giving a basic income to the people that already have money. Putting even more burden on the people that don’t have money. This is, once again, exacerbating that hockey stick of income inequality.

I’m curious, what does the impact of raising interest rates at the Fed have, on people in particular that are going to be experiencing the resurgence of student debt?

[00:16:19] Nersisyan: That’s a good question, and I’m not fully sure if all student debt is adjustable rate, but if you have a student loan that is adjustable rate and it will be tied to some interest rate in the economy, and when the Fed raises interest rates, then all interest rates in the economy go up, then, of course, your interest rates are going to go up as well.

But it also affects the people who are currently students, who are going to borrow. Some of my students, and these are mostly first generation students, who are going to need to do the borrowing, and some middle class students as well, and then they’re going to have to borrow at higher interest rates. So this is setting us up for an economy of the future, where we have other people who are entering the same predicament, where they’re going to have the high student loan payments.

And I want to say that, and this is not my idea, but a colleague of mine who is saying that, well, the Fed is fighting price increases inflation, saying, well, it’s so bad people are hurting. And what is our solution? We’re just going to raise interest rates. Okay? So people aren’t going to pay higher prices, but they’re going to pay higher interest rates.

So we’re going to take your income, one way or another, whether it’s going to be in the form of higher prices, or in the form of higher interest rates. So at that level you have that. But there’s also, what is the Fed even trying to do? It’s trying to slow the economy down, and if they do slow the economy down again, who’s hurting?

It’s not the corporations. I think corporate profits tend to be pretty insulated from downturns, and it’s the workers who are going to have the short end of the stick here as well. They’re the ones who are potentially going to lose their jobs. We are seeing layoffs, so it’s not like there aren’t things happening in the labor market.

If you look at labor force participation rate, that hasn’t really recovered. So that’s the percentage of people who are participating in a labor market, whether they’re employed or looking for a job, as a share of all the people who are eligible to be workers, basically. That’s your labor force participation rate.

That hasn’t recovered to the pre covid levels. So even if you look at something like that, you would say, well, the labor market, I’m assuming Pavlina talked about that, is not as healthy as it was. And I think the question that you brought up, the political expediency, oftentimes Democrats and progressives, or you could say so-called progressives, go for that.

They say, well, like the social security debate, how are we going to make it right? We just have to raise taxes, and that’s how we’re going to make the system solvent. Once you say that, then you’ve lost the debate, because you are using the mainstream framing. You’re using the framing that says you do need to get more tax revenue to be able to send grandma her social security check.

And once you debate on those terms, then you already lost it. Because then they’ll say, well no, we don’t want to raise taxes. And if you can’t get the higher taxes, then you can’t go back and then say, well, it doesn’t matter, we have to keep the system the way it is anyway. You’ve already accepted the framing that there isn’t money to be paid out.

So then you cannot go back and say, no, no, I take it back. So that’s why you always have to be consistent. You have to be consistent, whether it’s the Trump tax cuts, whether it’s the social security question. And you have to consistently say: the question of taxes and government spending, it should not be about deficits, should not be about debt, it should be about: is this the right thing for the economy? Is this what the people want? Is this what the people need? That’s what you need to start with. And just because you want to raise taxes on the wealthy, which I do too, but I don’t want to tie it to things like social security, because I think that’s just a losing argument, and that’s just not true.

So that goes back to Randy’s point. You can’t just say, well, right now we have to do this because it’s what’s right, politically. You can’t do that, because in the long run you’re going to lose.

[00:20:14] Grumbine: All the different things that we’ve debunked over the years as an MMT community. Rohan Grey said that there was a point where The Deficit Myth made us all a closed fist, and we were very strong and united, and we were able to fight the deficit myth for a while. But then the inflation story came through, and we weren’t as united, we didn’t have that same cohesion.

We weren’t a solid fist, and I’m seeing fractures at various points throughout this as well. People are saying politically, it’s a quagmire. There’s no value in investing ourselves in working in this space right now, because there’s nothing rational about it. There’s no logic to be had in the political space, it’s all nonsense.

When I read McCarthy’s tweets and I listen to the debt ceiling debate, both Republicans and Democrats, I have never been more appalled to be an American citizen, watching these fools act like they’re being very serious about the debt ceiling. When we not only know that we could have minted a coin, and we had loud MMT champions fighting for that cause.

We also had legal precedents that would’ve wiped out this debt ceiling, starting with the fact that there were other laws that have been passed since the law of 1917, that basically made it irrelevant. And we also had laws that were passed against Nixon ,for him impounding spending, the anti-impoundment law of the seventies.

But then we had the 14th amendment, that said that these bills will be paid. And there was Joe Biden, ready to bow at one knee of the Republican party, and give them something that he didn’t have to give them.

[00:22:00] Nersisyan: Right.

[00:22:01] Grumbine: And there are people that will defend him, and it’s just ridiculous, the level of gaslighting that occurs.

The beauty of MMT was, it cut through the gaslight.

[00:22:13] Nersisyan: Right.

[00:22:14] Grumbine: MMT says, let’s demystify that. You have an opportunity to make some choices. You can make a different choice. That’s what MMT gave me as an activist. Now as a practitioner, Yeva, you’re witnessing this stuff and you’re constantly being asked to answer for the hope that has been yanked away from us, by politicians, and by journalists writing just absolute fantasy novels in major papers and publications, that are very unserious discussions by people that really don’t know what they’re talking about. Or worse they know, and are misleading us.

How does an economist, especially a heterodox economist, swim in this sea of misinformation?

[00:22:58] Nersisyan: Yeah, it’s not fun. I would say that. I’ve had a few op-eds published recently, and all of that was because of me watching somebody say something stupid in the news, and then just sitting down and in an angry fit, typing something out soon quickly. Because the silliness cannot continue. But of course, it’s just a few of us working against the tide.

I would say, at least in the current debt ceiling debate, unlike what happened under Obama, nobody was seriously saying that we’re on the brink of default, we’re going to default if we don’t do it, deficits are terrible. I don’t think anybody takes that argument really seriously anymore. You have to be in some kind of a bubble to still continue believing that, then say it with a serious face.

Sure, they probably do say it with a serious face, but it’s hard to take it seriously anymore. I think in 2011, whenever that was happening last time, there was more alarm over the deficits, and the debt, and so on, and the average people were taking that more seriously, I would say.

So on the question of the debt ceiling, what could be done about it? Of course, Democrats could have raised it when they had the majorities, but they didn’t do it. When they came to power in 2018 in the house, Nancy Pelosi, wasn’t one of the first things she did was reinstitute the pay for rules? That all spending had to be paid for, the “pay-go” rules and so on.

So it’s like they get to a point where they say: well, we can’t do anything anymore. But you could have done it. And of course, the debt ceiling is not the only thing. And with the 14th amendment, they were saying, we don’t have time to do it now. Okay, now you did the debt ceiling and you know it’s going to happen again.

Are you going to do something right now? Are you going to challenge it using the 14th amendment? You don’t have the time constraint anymore. You gave away whatever you gave away. So if you want to challenge it through the courts and say, this is unconstitutional, the debt ceiling, go ahead and do it. But of course I’m not going to hold my breath, they’re not going to do it.

That’s not going to happen. And I wrote this op-ed, which was never published, again in one of these angry fits that I had. Janet Yellen, the Treasury Secretary, had said ‘the coin’ was a gimmick, and I said, of course it’s a gimmick. It’s not like the people who are proposing ‘the coin’ don’t understand that it’s a gimmick, but so is the debt ceiling.

So are all the fake constraints we’ve put on ourselves where we say: well, the Fed cannot lend to the treasury, the Fed cannot buy bonds directly from the treasury. We have all these rules, which are silly. They do not make sense. We don’t need to have them, and yet we have them. They’re gimmicks too, but we don’t call them gimmicks.

We take them very seriously, and we take the debt ceiling very seriously too, at least some people do. And so I said, well, ‘the coin’ is one gimmick to put to rest all the other gimmicks. So they could have used it in that way, but from the get-go they say, we’re not going to do it, we’re not going to use it. So they don’t have any plan Bs.

So then of course, Republicans look at it and say, yeah, they’re going to negotiate, despite what they say, we’re not going to negotiate, and so on. And that’s exactly what happened, they negotiated. Now, frankly, I thought they were going to give away more than what they did, and I’m not downplaying what they have given away, but I thought that was going to be much worse.

So maybe the Democrats think they won this one, but I would say, really winning would mean, to put an end to this because it’s ridiculous.

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[00:27:31] Grumbine: I, as an activist, and a socialist, and a guy who’s looking at labor first, every time one of these situations comes up, it becomes quite clear that absolutely not a single one of the politicians, is ever going to take a risk for labor. It’s always going to be a capitulation, and it’s always going to be little people suffering the consequences. And what is the motivation there? We know that large donors play a part in this, but you go back to the third way, when Bill Clinton was running against Bush Sr. Bill Clinton divorced himself, and the Democratic Party, from what was, at least pseudo working class liberalism. The Third Way, this new Democrat, which Obama heralded to, really was the full embrace, by the Democratic Party, of the neoliberal era. And it really tacked the entire Democratic Party very far to the right, tied it close to Wall Street and business. And when I say: repeat after me, no new taxes, well, I can go to Joe Biden to say: nothing will fundamentally change.

And he’s absolutely right, nothing did change, and nothing has changed. Obama proudly wore the new Democrat logo. And to this day, most people don’t really understand the impact of what the neoliberal era has done to them as an individual, much less the embrace of the Democratic Party to the neoliberal order. It feels very performative that the Democrats act like they’re actually fighting for the working class, and it’s only because of the sheer insanity that comes out of the Republican mouths, that there’s any credibility given to Democrats. With that said, what are your thoughts on where the strength for labor is going to come from?

Because I don’t see it from either of them, and without that, I don’t see any way of defeating this. This is going to be the reality, in perpetuity, without a strong labor movement, or without somebody being a champion. And so all the ideas that we come up with, within the MMT space, we talk about on the show, they end up being paperweights. How does any of this ever come to be? And I know that you’re not a politician, you’re an economist, but as you write these great papers, you and Randy strategize, does it not drive you mad to know that there just isn’t anyone out there that’s going to take them to the finish line? Or do you have hope?

Is there hope somewhere that I’m not seeing?

[00:30:10] Nersisyan: Yeah, I think I have less hope these days than I had, say in 2021, when the possibility seemed bigger in some sense. So I want to say, this neoliberal era is the reason why people like Dean Baker, look at the current economy. So it kind of goes back to that point, right? This neoliberal era, where it was the end of the big government as we knew it, and that’s Bill Clinton’s words. It’s not the Republicans who said it.

And so in that context, of course, then you look at the current situation and you say, well, we got the infrastructure bill, we got the inflation reduction act, things that just seemed impossible. So in that sense, you could say, well, we got something. And I think that’s how people like Dean Baker look at it, because compared to the previous period, things looked really hopeless, compared to say, what happened under Obama.

I do think people understand it though. They might not call it neoliberalism. They probably don’t call it neoliberalism. But if you look at the working class people who are now turning to, say the Republican party, the working class people who voted for Obama twice and then turned around and voted for Trump, they do realize that the system isn’t really working for them.

Now, are one of the two parties going to be their champion? I very much doubt that, and again, I’m not a political scientist, so I don’t really know. But I think one thing I can say is that the New Deal didn’t just happen because the Democratic Party said: oh yeah, we’re now going to be the champions of the working class because we just like them so much.

It was the workers. It was the working class movements that really threatened the existence of the system as we knew it that prompted these changes. And I think that’s the only way that you are going to get some kind of change, and even these things that we got this time.

So let’s say we didn’t get an infrastructure bill under Obama. We didn’t get that 2 trillion dollar Biden stimulus bill and so on. We didn’t get the Inflation Reduction Act. We didn’t get those things then, but we got them this time. And I think that’s because of people like, I want to say Bernie Sanders for example, who reignited, in some sense, some kind of a progressive movement, which got some gains, I would say.

Now, of course, I’m not saying that was enough. These are not fundamental gains. We haven’t fundamentally changed a system where wages are going to keep growing and people’s living standards are going to go up. No, we don’t have those things, so we haven’t gotten those things. But I think there was more of that kind of fear, that something has to be done this time, than there was under Obama, and the reason for that, of course, is Trump. So the election of Trump in some sense was a little bit of a wake up call, and some things were done. But I don’t think it was enough of a wake up call to say, we have to stop with this neoliberal project. That’s not going to happen.

And the existence of somebody like Trump is also why economists are running cover for Biden, to some extent, or other people. They don’t want to criticize Biden. They might have criticized him under different circumstances, but they don’t want to do it because there is that fear of this orange monster that’s going to come for them.

I think it’s a very justified fear, obviously, but you can’t let that fear cloud your judgment. Again, you have to tell the truth about the economy, even if there is the fear that say, somebody like Trump could become president again, and do all the deregulatory things that he did with respect to the environment, and so on.

And it’s not like Biden has been great on the environment. We have all these new oil projects that are going to happen.

[00:34:01] Grumbine: Yep. Let me add the political economy to this, and you can add the economic assessment to go with it. From my vantage point, when Trump was in office, the standard fundamental establishment Democrats decided that it would be better to focus on Donald Trump. They avoided talking about a Green New Deal, and Medicare For All, and canceling student debt. They avoided doing anything with a super majority, and they blamed it on the parliamentarian. They put every single bit of political anything into the mockery of Donald Trump. And many of those people, right, wrong or indifferent, are disillusioned working class people that the Democrats have lost forever. And so as a working class individual, you’re stuck. These things become partisan issues that completely cloud the economic truths.

And if you dare cross the political tides, you will be dubbed by the people as a Putin puppet, these ridiculous reductionist responses. Well, what do you do with that? There’s no debate, there’s no discussion. And so every step along the way, Yeva, every one of the things that we’ve been advocating for — a job guarantee, the layer cake of the Green New Deal was so powerful to me, and yet it all just fell away and we lost four years of our lives, as we sat there and built up this thing, and created more enemies and more hatred.

Clara Mattei spoke very eloquently about this ‘capital order’ and austerity, and how the capital order imposes austerity on the working class, to discipline them, and it was used to discipline labor. It’s creating fascists.

Austerity breeds crime and desperation. And yet, two parties are advocating for austerity. We wonder why the fascists are rising.

[00:36:09] Nersisyan: Yeah, it’s not like we don’t have a historical precedent of that. Yeah, Keynes, of course, said that that was going to happen in Germany, that there was no way they were going to be able to pay the reparations, that that was going to emiserate the people there. And that can lead people to different directions.

[00:36:29] Grumbine: Sure.

[00:36:29] Nersisyan: Fascism, or could be socialism. For some reason, it always is the fascism that seems to win, even in the current circumstances, I think. I think that was a good way to distract from the failures of the Democratic Party, the Third Way, the Clinton Democrats, the Obama Democrats.

So just focusing on Trump, and that he somehow won the election unfairly, there was something not kosher about it. So just blaming things on that, rather than saying, oh yeah, we really screwed up.

And when I say we really screwed up, it wasn’t just about running like, an unpopular candidate, like Hillary Clinton. It wasn’t just about that. It was about the past 20 years, 30 years, that the Democratic Party had abandoned working class people, and at some point working class people had had enough of that, and so they abandoned the Democratic party, I guess, at least some of them did. And that’s going to continue if the Democrats don’t get their house in order with something like a Green New Deal. And I think the infrastructure deal and the inflation reduction acts, those are some kind of attempt at doing that.

But of course, they don’t go far enough. We don’t have Medicare For All, we don’t have education that is affordable, we don’t have housing that is affordable, the main things that people spend their money on. So those are like bandaids, in some sense. I think in hindsight, that’s what it’s going to look like.

[00:38:05] Grumbine: I know that there’s a lot of different kinds of inflation, cost push, demand pull, and then supply chain bottlenecks that play into that. Like the pain points in the economy where you would go to fix them. Because most people, when they talk macro, just simply reduce it down to: you printed money or you spent too much money and therefore it created this thing.

Society is really deeply conditioned to believe that inflation is from printing money.

[00:38:36] Nersisyan: Right.

[00:38:37] Grumbine: And I don’t know that we overcame that nearly enough, and it’s having its resurgence right now, with the inflation, and the lack of a coherent story. We heard about the supply chains. A lot of the supply chains are healed right now and we’re still seeing inflation.

And then Isabella Weber’s work that shows “greedflation” or just profit maximization. But ultimately, the pricing that companies put out there, I think they got some loose change in their pocket, let’s go ahead and jack prices up another quarter and see how much of that slack we can pull out of the economy.

So in that particular case, that would generate a type of the relative value story or inflation as a whole. I know inflation is persistent rise in all prices, or at least the CPI of some variety. How would you qualify the current inflation? What was the creation of it, and what continues to be the creation of it, and what would you say is the solution?

[00:39:43] Nersisyan: Yeah, well, so I think it started with the pandemic, obviously, and supply chains getting all clogged up. And it was all of these factors that had lowered prices over the past 30 years. Things like those globalized supply chains, where you could make things far, far away and ship them home. It’s firms who could keep very low inventory, so as to lower their costs and then boost their profits, which is what Wall Street wanted, so that they could do all the share buybacks, pay out the dividends, and so on.

So all of these factors that came with the globalized supply chains, they broke down with Covid, and I think that was the initial setting off of the inflation. So at the time, a lot of us MMT people, so Randy and I made that argument, and Bill Mitchell has made that argument, which was that this inflation was going to be transitory.

And the reason for that was because you didn’t have labor unions, who were negotiating contracts for three years in advance, which could say, well, we expect inflation to be say 8%, two years from now, so we’re going to bake this into our wage contracts. And that could then lead to this wage price spiral, in a way that, even if that initial inflation was gone, or at least the impetus was gone, there would be that propagation, because of said contracts. Of course, that’s not the way the labor market works. You don’t go and say, hey, I expect inflation to be 8%, so I’m going to ask for a raise in advance. You are lucky if you can make up for the inflation that has already happened. So that’s why we said this is not going to be persistent, and so the Fed should not be doing anything, and cause the interest rates were the wrong tool anyway.

Now the demand plays a role in that. I would say, sure you could make the argument that if people hadn’t got any of, say the stimulus, or the unemployment benefits, things like that, if they were super poor, then we might have had an economy with lower inflation. And of course that would also mean much, much higher unemployment, if we hadn’t done all of those programs.

So, in some sense, to say that those kinds of things caused the inflation, is a little bit silly. If we hadn’t done it, would there be any inflation? Probably not, because our economy would be so depressed. I think there would still be some inflation though, because of the supply chains breaking down, then it took much longer to fix them, than I think the expectation was. But of course, one thing that people seem to forget, is that prices don’t just happen, they’re set by firms. And I was lucky to take my microeconomics with the late Fred Lee, who always made this point, that the prices aren’t set in markets, they’re set by businesses. This was the theory of administered prices, that enterprises calculate their costs with, and then they add a markup.

And the markup can depend on a lot of things. But basically the idea was that firms set prices to accomplish certain goals, and it’s not just about profit maximization. The first goal, obviously, is to stay in business.

So at the minimum, your price should be sufficient to ensure that you remain a going concern. And that might also mean setting prices high enough where you have retained earnings to make certain investments, so let’s say new technologies, and so on. It might also mean trying to set prices in a way where you can make investments to capture market share, or to try to maintain your market share. So there are all these considerations that enterprises have when they’re setting their prices.

One other thing that I also remember from those courses, even though I’ve never liked microeconomics, except for this one course that I took with Fred Lee. So the other thing was that it wasn’t just large businesses that do it. It’s not just about monopoly power that people talk about, it’s even your local coffee shop. That’s the way that prices are set.

And so I think that’s important to keep in mind. But the other thing was that firms generally like to keep prices relatively stable, and there are a variety of reasons for that. It’s not like they wouldn’t want to raise prices, of course they would. It’s not that they wouldn’t want to raise their margins, they would.

But there are some constraining factors, and those constraining factors could be, for example, competition. If, let’s say, you are firm and you raise prices, and other firms don’t follow suit, then you might lose market share. Similarly, if you lower your prices, then that might give a signal to other firms that you’re trying to say, engage in a price war, and then they might then engage in a price war.

So generally, firms don’t collude, like officially, usually, but there were strategies. You follow the leader, or you send signals to other firms, about what you’re planning to do, then all of that happens in that way. And I think the pandemic has removed a lot of these constraints. That while it’s under the cover of inflation, we don’t have to worry about consumers saying: why are you raising prices? We’re going to go to someone else.

You can say: well, it’s inflation. Costs are going up. We just have to do it, it’s not like we’re choosing to do it. And of course, that applies to all the firms, so they’re all doing it at the same time. And so, I think there is, under the cover of the pandemic, and the supply chains, and so on, and firms, just all of these constraints that would generally apply to their price setting behavior, those have been removed, or at least attenuated to a great extent, which has allowed them to try to raise their margins.

If you see the Wall Street Journal saying that margins are causing some of the inflation, that’s very much the truth. These newspapers, including the New York Times, were kind of late to calling them out on that, saying that it’s firm behavior that’s doing this. So we’re not getting that price wage spiral that everybody was so afraid of, it’s more like price profit spiral, that we’re getting, then wages are still playing catch up.

[00:45:46] Grumbine: One of the things I took out of my old marketing classes was the price and positioning, and what you price for. So maybe you’re pricing for exclusivity, because you could have the same exact product, like for example, a Toyota Camry versus a Lexus. Same car with just a different logo on the back and maybe one or two extra bells or whistles somewhere, to give off this broader appeal.

But in reality, you’re going to pay a $20,000 markup for that exclusivity of having this luxury mobile. And like the Xbox, or the PlayStation, when they go to release them at Christmas time, they purposely release a limited number at a really high price, to drive up a scarcity that makes it special. kind of like baseball cards, to try to make people feel like, I’ve gotta get this, and they’ll camp out all night waiting. Same with tickets for a concert.

So these kinds of games typically are not what would drive up inflation. However, this push for electric vehicles, that was one of the things in the Inflation Reduction Act that is touted about. We’re going to give these rebates for electric vehicles. Well, go out there some time and price a standard basic electric vehicle, and imagine a working class individual buying an electric vehicle. Mazdas at $70,000 Mustangs for $70,000-$80,000. Cars that were previously muscle cars for regular people, suddenly now elite class driven vehicles for double the price because they’re electric. Is that just early adopter? They’re trying to get the patent money back? Is that just the cost of renewables? If we’re in the middle of an existential climate crisis and electric vehicles, or moving to sustainable energy as the answer to all these problems? What in the world would make it priced at that level?

Why in the world will we allow that? If we are in an existential climate crisis, you would expect different behaviors. I don’t understand.

[00:47:54] Nersisyan: Yeah, well, I think you’re exactly right that if we really take climate change seriously, electric cars are not the answer. Everybody owning a Tesla is not the answer.

[00:48:07] Grumbine: Mm-hmm.

[00:48:08] Nersisyan: I’m in Europe right now. I took the high speed train. A seven hour drive was only three hours, very comfortably. The two floors on the train, a lot of people, pretty full, and I’m thinking this is a self-driving electric car right here.

I don’t need to drive it. I’m not driving it, and yet I can get to my destination very fast and it’s electric. I would say public transportation really is the solution. And if we were serious about it, that’s the way we would go. But of course there is that individualist aspect to the US economic system where it has to be my own car, my car, and I’m not blaming people for it.

That’s just marketing right there and so on. And even the government policies are reinforcing that. So instead of spending a lot of money to build a lot of public transportation, to cut back on our need for cars we’re instead saying, well, we’re just going to get rid of all these cars, which we’ve already produced, the regular cars, and instead we’re just going to produce a bunch of new cars using a lot of resources that are electric.

And where does that electricity come from? If you don’t make the source of your electricity clean, does that really solve your problem? And so I don’t think electric cars really solve our climate crisis problem. And so, It’s very bad that we wanted a Green New Deal and instead we got $7,500 credits for electric cars.

[00:49:35] Grumbine: My BS detector is on full time and I am so frustrated because I don’t get paid to be an economic activist. It’s something that I just see as so vital, and I see guys like Ben C and other big climate activists talking about how bad things really are. Yeva, thank God for people like you.

[00:50:00] Nersisyan: Well, it’s not like I have any power though.

[00:50:05] Grumbine: You’re misunderstanding me. If we’re going to go off a cliff, we may not have any power to stop it, but there’s something to not being insane as you go off the cliff. To at least see clearly. And I think that talking to someone like you, whether you have power to physically change it or not, I don’t hold you accountable, but you’re a truth teller.

And even if we die trying, we get to explain the truth and whether people hear us or not… I want them to. But at least we are able to not live in a gaslit world where we’re being force fed lies about how great things are, and I just want to thank you for providing peace of mind if nothing else, and an explanatory vision of what really could be and what was done as opposed to what could be.

You’ve improved the quality of my life by allowing me not to be lied to. So thank you.

[00:51:02] Nersisyan: Thank you. I always find that the left just thinks about the possibilities differently than the right. Maybe from the right, they think the same thing about us. They say, well, the left always thinks so big. Because you look at the right and you say, oh, they got Roe v Wade overturned. Nobody thought that was possible.

I frankly didn’t think that was going to happen, but yet it happened. I think they dream bigger than we do in some sense. We’re always the rational crowd, the technocratic “Well you can’t do this, you can’t do that. You have to be happy with the little that you got.” I think considering how little we’re getting, we have to ask for even more to get a bit more than what we got.

So we have to rethink the limits of possibility, I think, in a way that we haven’t done

[00:51:54] Grumbine: And I think that’s where MMT really gives us opportunity.

[00:51:58] Nersisyan: Right.

[00:51:59] Grumbine: On that note, Yeva, you are always working on something. What do you got cooking? Where can we find more of your work?

[00:52:06] Nersisyan: Well, I have that book project that I have to finish. It’s lingered for too long. I have a couple of things on the Fed’s new policy framework, the so-called new policy framework. That’s what I’m working on, basically arguing that it’s like old wine in a new bottle. And it has put them in a corner, and it has gotten to a point where you have economists now calling on them to go back to the preemptive rate hikes.

And so I’m worried that that’s what’s going to happen. So as bad as the current monetary policy is, it would be even worse if they were doing it preemptively. We can all agree on that. So that’s one project that I’m hoping to finish soon.

[00:52:46] Grumbine: Well, I appreciate your time here very much. Hope we can have you back again real soon. I really do appreciate all your work and all your writing.

[00:52:55] Nersisyan: Thank you.

[00:52:56] Grumbine: Anyway, thank you for making the time for us.

[00:52:58] Nersisyan: Sure. Thanks. Pleasure to be here.

[00:53:01] Grumbine: All this is Steve Grumbine, host of Macro N Cheese, with my guest, Yeva Nersisyan. We are outta here.

[00:53:14] End Credits: Macro N 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.