Episode 30 – Framing the Message For Economic Justice with John Harvey

Macro N Cheese – Episode 30 
Framing the Message For Economic Justice with John Harvey 
August 24, 2019 

John Harvey [intro/music] (00:02): 

It’s not in the private sector’s best interest to hire everyone who is willing to work. The private sector minimizes the use of labor. To the private sector, labor is a cost. 

John Harvey [intro/music] (00:14): 

The climate change, I’m sorry, Diane Feinstein, but we can’t make a change of schedule. We can’t negotiate with it. It’s got its own timetable and it’s going to happen. We can’t have the world we want with the social values we want without the economy fixed and boy, if that hasn’t become clear, then I don’t know what people have been paying attention to. 

Geoff Ginger [intro/music] (00:40): 

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

Steve Grumbine (01:34): 

And yes, this is Steve with Macro N Cheese. And I am so excited to have our guest John Harvey, Professor John Harvey, Professor of Economics at Texas Christian University. John has been on the Real Progressives show with us before and recently spoke in Berkeley. It was wonderful opportunity to hear John lay out a grand plan for what a polite and quality-based economic system looks like. John, welcome to the show, sir. 

John Harvey (02:05): 

Thank you very much. 

Steve Grumbine (02:06): 

So John, you have been doing this thing called the Cowboy Economists lately, and I got to tell you, it is a raving success. Everyone loves listening to the Cowboy Economist. How did that come to be? 

John Harvey (02:19): 

Well, okay. I’ll back up to high school. We had a talent show and I did stand-up comedy and I enjoyed it so much that they had to open the curtains behind me to make me leave to the next act could come out. So, you know, for the most part, I’ve kind of gotten that performing part of me out in front of the classroom.  

But now that we have the technology that you can, you know, make good quality videos in your own home, I thought I write the Forbes stuff, but I feel like maybe I’m kind of funny.  

So I thought, well, I’ve got to take advantage of this. I got some money from the dean and bought some nice video equipment, but I don’t know why I put the hat on. That was really a last minute thing. I bought this hat years ago at Billy Bob’s here in Fort Worth and have hardly ever worn it. So anyway, I decided the donor is sort of a Stephen Colbert, the Colbert Report thing where, you know, some of we’re not pretending to believe that sort of conservative viewpoint.  

And then once I did it the first time I thought, well, that was kind of funny. And it was a lot of fun. So it stuck. 

Steve Grumbine (03:19): 

You also had, if I’m not mistaken, a GI Cowboy Joe going on too. That was pretty awesome. 

John Harvey (03:27): 

Yeah, you know, I totally forgot about that until I looked back at the video the other day? I totally forgot getting all of it cause I love military history. So I have a World War II helmet. My great uncle was killed in North Africa. I’ve got his portrait on my desk, stuff like that. So I’ve got things like Thompson submachine guns, just laying around the house. It’s a BB gun. Airsoft rifle. 

Steve Grumbine (03:52): 

So John, let me ask you this. As a economist in this era, it’s gotta be pretty interesting, seeing all the changes that are coming around, especially in pop culture.  

We’ve got Stephanie Kelton up there supporting Bernie Sanders and we have this incredible new vision, if you will, of a Green New Deal and lots of people dreaming a better dream suddenly, but it’s being met with a lot of cynicism and a lot of skepticism, both from, you know, the orthodox mainstream economics, to the politicians, to the voters at large. What do you think about that? Where do you think the cynicism comes from? 

John Harvey (04:35): 

Let me back up first and talk about what you mentioned here about this period of history where this MMT post-Keynesian view is becoming popular at least in some circles. Way back in grad school, when Paul Davidson, a big name post-Keynesian guy, came to Tennessee where I got my PhD after I was done with my classes, but I knew who he was.I was excited about it. So I was invited out to lunch, myself and another grad student, Chris Brown and Alfred Eichner was there, another wonderful man.  

He passed away in 1988, post-Keynesian, Anne Mayhew and Terry Neill, two big names, institutionalism. And so we’re all excited. We sit down for lunch and I’m not gonna say anything. I’m just a, you know, grad student, but I couldn’t wait to hear these, you know, four big names. You know what they said?  

“Remember back when we thought we could make a difference and we can’t,” and I thought, “Oh my God, this is not what I want to hear.” I haven’t even finished my PhD yet.  

And I’m already hearing from these people I look up to, “Yeah, we thought we could make a difference and we couldn’t.” Well, you know what? Now we are. That this period right now, I never thought I would see it come into being. It’s incredible. What are our chances of getting our policies in place? I don’t know, but they’re being talked about in the Washington Post. Krugman’s attacking it. Good Lord. That he’s even saying anything about it is incredible.  

So A, I can’t believe that such a moment has come up an that I have an opportunity to, you know, try to help this movement take place. It’s really unbelievable. And so you talk about the cynicism and boy, there really is. You know, one of the things that drives me crazy is when you see the article start off with “radical idea, radical plan.” It’s not radical at all. It is a description of the way we already do fiscal policy. It’s not suggesting we do something different.  

It’s suggesting we do what we’re doing, but with a better aim to it, with a better knowledge of how it operates and so forth, so it’s not radical. You put the word “radical” in to attack the view. And so I find that so frustrating, but of course, you know, so we’ve got the mainstream economics and it’s such a mess. One of the most recent Nobel laureates, David, I’m sorry, what’s his name? Romer.  

What’s his first name? I presented the paper with him once really nice man, Paul? Paul Romer? I think it is. But Romer had written an article a couple of years ago about how macroeconomics in his school of thought, in neoclassicism, had gone backwards for 30 years. Now, I would only quibble with him over the 30 years.  

I think it was longer than that and on how bad it really is, but otherwise here’s a guy who just won the Nobel prize in neoclassical economics saying, “We’re in a period of post real economics. Nobody really cares about whether or not the economic theory has any relation to phenomenon we see in the real world.” For example, I don’t want to go in great detail with this, but like the real business cycle theory, it basically boils down to “stuff happens.” And that’s it.  

In fact, Romer says in his piece, “They have no way of explaining where these phenomenon come from. It just happens.” And he blames, and I do too, a big part of this on Friedman years ago, pushing the idea of this positivism in economics and the idea that it doesn’t matter how unrealistic your assumptions are. In fact, and I showed this quote in class every semester and you should see people’s faces.  

Friedman says, “In fact, the more unrealistic the assumptions, generally speaking, the more significant the theory,” or actually say that backwards. “The more, the more significant the theory, the more often they have really unrealistic assumptions.” I have a tough time believing that’s how they do science and physics or in chemistry or in any other science. It’s absolutely ludicrous. And in my opinion, the only reason to have such a, when I give talks, I have a slide where it was it Cole Porter, I think had that play, “Anything Goes,” but I have Cole Porter crossed out and Milton Friedman over the top because it’s Milton Friedman’s “Anything Goes,” you can say whatever you want.  

And the only reason I can see to do that is, you know what, I’ve already got my mind made up about what the conclusion is. I just need to make up some crap so that I come to that conclusion.  

And his conclusion of course is, you know, very little government intervention, let the market do what it will and so forth. So we’re talking about criticisms from the school of thought that is dysfunctional, especially in macroeconomics. We have neoclassical microeconomists in my department right now who would say, “Oh yeah, my macro classes were a waste of time.  

We couldn’t understand what are we talking about? This is so devoid of any institutional relevance to the real world. 

 There was a study back in 1990, it was published in 1990, where they asked graduate students at MIT, Harvard, and so forth. And they asked them to rank these seven items in terms of how important they were to being a successful economist and knowledge of the actual economy came in number seven out of seven and they’re right.  

They’re absolutely right, and things haven’t improved. So talk about the cynicism and the criticism from the economics discipline. My God.  

It is so frustrating because who in the general public would believe that economics is done so poorly? Oh, let me add one more thing about that. Generally speaking, mainstream macro models, leave out the financial sector entirely. And I can give you quote after quote from Nobel laureates, from very famous neoclassical economists saying, “Eh, we kind of usually don’t bother with stuff like that.”  

And I have a number of sort of high level methodological reasons of why they do that.  

But the bottom line is you ain’t predicting a financial crisis when your model doesn’t include a financial sector. So that’s how I view the criticism from the mainstream. Of course, it’s very difficult to then communicate to the general public: “You shouldn’t listen to Larry Summers. You shouldn’t listen to Kenneth Rogoff. You shouldn’t listen to Krugman because they’re crazy.” Well, if I’m in the general public, I’m not going to believe me either. So that’s always very frustrating.  

You know, we’ve done what we can in sort of counter-attacking. But then from the general public, of course, and especially the part of MMT about the US can’t default, that’s not what you’ve heard all your life. And I always go back to the last paragraph in the preface to Keynes’s general theory, where he says, “You know what, what I’m saying in this book really isn’t all that complicated; and it ought to be obvious.  

The problem is that, you know, I’m trying to replace ideas you already have in your head. And it’s the old ideas that are the problem, not the new ideas.” If we started from scratch, if we started the first econ classes people took back in high school or whatever, and explained, you know, an MMT post-Keynesian perspective, everyone would be like, “Oh yeah, of course, no problem whatsoever. 

 Problem is we’ve spent years building up these simplistic visions with analogies that are inaccurate, for example, that the US government can’t spend in excess of revenue indefinitely. Cause I picked out and one of my talks, I did one time, gosh, any one of Obama’s state of the union addresses where he says, “At some point and just like a family can’t go on spending forever, neither can we.”  

Well, yes we can. So I understand why the general public is reluctant and we need different tactics.  

Different people use different tactics. I know some of my MMT friends are more like assassins. So, you know, they go out there and attack people. I view myself as a diplomat. I want to get you on my side. And I guess it’s a judo thing. I want you to not realize the conclusion you just came to. And you’re like, “Oh my God, but I guess that makes sense. Oh my God. 

 So you sort of, I like to build up slowly and that’s what I do when I talk about it, because I can’t blame the general public for not understanding this. My own wife listened to me give this talk, you know, about the debt, the deficit, at least three times before she finally said to me, “You know what, now I get it.” But it took several times because you’re challenging so many conventional wisdoms. So in a nutshell, that was hardly a nutshell.  

I’m a college professor so that’s why I’m able to make a simple question into a nine minute soliloquy. But the cynicism, the criticism is coming A, from the mainstream economics discipline and that’s very hard for us to fight off and B, from people who have been taught differently for years and years and years. 

Steve Grumbine (12:40): 

It makes sense that you say that because I look back and. You know, I’m not a doctor. I wish I was, it is something that I really wish I was able to complete. But you know, even through both master’s degrees, we’ve got an incredible amount of economics lessons throughout there. And yes, we learned the neoclassical orthodox, you know, “Banks lend the federal government money and government’s going to be broke. 

 And we learned all these things and really it was very supply-side Reaganesque monetarism. You had the Milton Friedman side, the Hayeks. And, and for me, ultimately it took so much to dismantle that, get away from gold standard thinking and understand this is not a ideological stance. The fact is Richard Nixon took us off the gold standard. We literally live in a sovereign, free-floating, non-convertible, fiat currency regime.  

What does that mean to us? And that right there for me, because I am willing to take the long dive, was enough to keep me coming back and learning more. But the average person that was just word salad that I just threw out there. That that means absolutely nothing to them. And how do we take the very, very important nuggets of gold? 

John Harvey (14:09): 

Yeah. 

Steve Grumbine (14:10): 

So to speak. Yeah. And lay this out for them in such a way that it connects in, you know, you said something that I think is really important. You know, obviously I wouldn’t call myself an assassin, but I did liken myself to the guy that would go out there in the middle of the night on the lake and drop dynamite into the lake and bring the fish to the top.  

And the reason for that was my own personal journey through this, because I realized this is such an earth-shaking change.  

It’s such a shift in understanding. And yet at the same time, it’s like watching paint dry. It’s like watching grass grow. If this ain’t your thing, it ain’t your thing. So how do you make somebody who doesn’t really get economics, doesn’t really even care about economics, to suddenly say, “Oh my goodness, this is the most important thing in the world. 

 And so for me, I took that approach because I was talking to huge amounts of activists that had never even given five seconds thought to what I was talking about. But I’m coming around to your side here, John. I’m seeing more and more that now that we’ve gotten through this large first wave, probably 20th wave, millionth wave, of penetrating through these lines of defense that we’re finally seeing cracks in the armor.  

And there is an opportunity there for dialogue with people that are genuinely starting to be open to the idea that, “Hey, whether it be climate change, we only got, what, 11 years, we better do something quick.” You know, these are some real gotchas that make people stop and think. 

John Harvey (15:51): 

Yeah, I think that’s right. And I think that my own personal strategy when I’m trying to explain all this to people is to hook their interest at the level of college debt, or as you say, climate change or what I especially use is sort of thinking about it this way several years ago, it’s not in the private sector’s best interest to hire everyone who was willing to work.  

The private sector minimizes the use of labor. To the private sector, labor is a cost.  

So there’s absolutely no reason to ever expect the private sector, except by coincidence, to hire everyone who’s willing to work. And I have found that conservatives, liberals both like, “Oh yeah, that makes sense. That makes sense.” So just like one little small piece of logic I spoke to the Colleyville Executive Organization or something like that. Colleyville is a little small city around Dallas-Fort Worth.  

And the mayor of Colleyville was there and he is, you know, very conservative guy, but we were talking about this. He’s like, “Oh yeah, no, that’s right. That the private sector doesn’t want to hire you. They want to use as few workers as possible.” Okay. So that’s a problem, isn’t it? All right. So, you know, and then you sort of go from there to and gee, last time I went to McDonald’s and as an introvert, I really liked this.  

I was able to do my order right there on the little screen.  

I ain’t got to talk to anybody. All they do is call out my name; but now why did McDonald’s do that? Because they thought people wanted to play the little machine in the front of the store, or because they wanted to lay somebody off? And this doesn’t make McDonald’s bad people. Maybe they are, maybe they’re not.  

But you know, the application of technology is what we want the private sector to do to lower costs for the rest of us. But then we got a problem.  

What are we going to do with all the people that may potentially be an increasing number of people that really aren’t necessary on a regular basis to produce the output that the rest of us demand? And by the way, so we have this pool of labor that isn’t going to necessarily get hired in the private sector and say, on the other hand, we have these terrible life-threatening problems that the private sector will never address because they are not profitable to address.  

So if wa-lah, why not take the people who are laid off at McDonald’s, for example, to give it again sort of a concrete example, or the self-checkout lines at Walmart or whatever, take those people and have them work on cleaning up the environment, whatever we want to do with the Green New Deal. Because not only do we need the jobs, but we have things out there, we have tasks that are not profitable, but desperately need to be done.  

You know? And then, well, what about the police department? Oh yeah, that’s right. I guess that is good that we have the police department that is really run by the government cause that way the poor also get police protection. Maybe not as much as we’d like, but you know, nevertheless if police protection were private, then only the rich would have police protection and fire protection.  

So I have found it not that hard, and of course, most of my audiences here in Texas are going to be fairly conservative, but to use specific examples like that, to say “Oh yeah,” and you can’t convince everyone of everything in one talk. You’ve got to plant ideas. As you were saying a moment ago, as you work through these things yourself, you have to do that. You have to churn through. And so I just kind of want to plant a couple of things.  

And I do go through when I do my usual talk about the debt and the deficit and about how the public sector’s debt is your surplus and so on. But if they don’t take that away with them after the first talk, I’m not terribly disappointed. I want them to start thinking that the private sector can’t solve the problem and we need the government.  

They’ve got to make that shift first. And that the climate change, I’m sorry, Diane Feinstein, but we can’t make a change of schedule.  

We can’t negotiate with it. It’s got its own timetable and it’s going to happen. And by the way, Steve, I hate to tell you this. But I saw some German scientist the other day said that’s not 11 years, it’s 18 months. 

Steve Grumbine (19:33): 

So it’s scary. It’s terrifying. 

John Harvey (19:36): 

Horrifying. So, and so many young people are really fired up about how screwed up their world is and they want to hear, and they aren’t as deeply steeped into the Reagan philosophy as the older ones are, the ones my age are, so they’re easier to get to. So anyway, that’s been my strategy.  

So how do we solve this problem? And how do we address problems that in the society that aren’t profitable – child social services is not profitable? We wouldn’t have someone going and checking on the welfare of children if we just left it to profit; and now maybe people think that’s unimportant and that’s certainly something we could debate. But if it is important, then the private sector will never do it.  

And if cleaning up those massive islands of plastic in the ocean are not profitable, but they still need to be done, well then guess what? We don’t use the private sector. 

Steve Grumbine (20:26): 

I guess, to piggyback on that. You know, one of the fundamental flaws that I think we as progressives of whatever stripe you bear is understanding the role of the currency issuer and the currency user and understanding the differences where we all fit in within this mix. Because you look at like states, you see Puerto Rico suffering.  

You look in Detroit, they’re suffering. You look at places where we’ve got rust belts and like Pittsburgh, back in the day before it came back to life.  

I mean, you’ve got Kansas, which is a perfect example under Brownback. You’ve got all these places where you’ve got this state-based race to the bottom because the states themselves are currency users. And they’re heavily dependent on tax receipts and bonds and other things that will fund their operations.  

But there is a fundamental difference between that and a currency issuer like the federal government, which has the power to do these great and glorious things, because it can never run out of US dollars. It is the creator of these things that are inches or pounds or feet or whatever. They’re just a unit of measure.  

So how could we run out of them, right? How do we get that relationship boiled down in such a way that people can appreciate why the federal government needs to step in to those very issues you laid out there? 

John Harvey (22:03): 

Well, you know, it’s funny, you should mention the currency issuer/currency user. After my talk in Berkeley, somebody suggested to me that I should have framed it that way. And people use two things. I guess one, the person who is sort of giving the lesson, they’re going to use different approaches and furthermore, people who are listening, some things are going to work better for them; other things work better for somebody else.  

I don’t even go into that or not explicitly.  

What I go with is, and I do the World War II thing. I say, “Okay, now what are we going to do that we have massive unemployment?” When it was bombed Pearl Harbor real quick. Okay. So we got Pearl Harbor bombed and the story is, and I love that Ken Burns series “The War,” but it made me so sad that he spent so long praising America for paying for its own war.  

Who the hell do you think pays for any war? I mean, I know it’s not quite as simple as that, what they thought Venezuela was going to pay for it? Yeah, of course we do. But he made it sound like these bond drives were absolutely key. Without these, America, the factories that were capable of making tens of thousands of Sherman tanks would have just sat empty if Americans hadn’t bought bonds – of course not.  

And in fact, bigger than that in 1941, average unemployment was still almost 10%. Right.  

So yeah, it was a hell of a lot better than it had been a decade earlier, but it’s almost 10%. And so you think people had lots of savings laying around? You think people, well, I know we’re all hungry and stuff, but actually I’ve got, you know, several thousand dollars into the mattress. So, hey, now that we’re at war I’m going to use that several thousand dollars; I’m going to go buy a government bond, a war bond.  

Then the government’s going to use that to build a factory.  

And then I’m going to get a job there. No, no, no, no, no. The government built the factory first and this is the way the currency issuer and currency user, the government is activating resources. And I’m a big computer gamer and board gamer, and there are games where you do that. You know, where you, “I’m going to spend this to activate that resource. 

 So I don’t know, I think that way, but what was the government doing in 1941? They were activating idle resources, right? That’s what they were doing. And they clearly logically could not have borrowed that money because the people didn’t have it. And why should they need to? I mean, they make dollars as you have said, and so they make dollars. So then, so the line of causation is not, or the sequence of events is not people buy war bonds.  

The government uses that money to build a factory and then people get a job at that factory. Instead, the government builds the factory with money they made up out of thin air, just like banks do. I’ve been pushing out a lot lately too, because I feel like when I say, and again, I may have a more conservative audience than most people here in Texas.  

But when I say “the Government can make up money,” “Oh my God, that’s horrific.” Your bank does that every day of the week.  

When a bank makes a loan, they’re just making it up. They are putting the same number down on the asset liability side. So the government does nothing different than what we already think is okay in the private sector. So anyway, the government makes up some money. They build the factory. You get the job and then you buy the war bond.  

And the reason you buy the war bond is because the government needs you not to spend that money right now, because all our resources are being used to build tanks and planes. We haven’t got a lot of cars, or radios or gasoline. And so if you went out and tried to spend your money, then that would cause inflation.  

And if you read the documents from the people at the time who were running the war bond program, the words inflation comes up over and over like, “Well, we gotta make sure there’s no inflation. So we need to raise taxes.” But of course they told everyone, “This is patriotic,” but that’s not really what it was fulfilling because we really wanted the money out of the hands of the people; and that money just disappears.  

That’s something you can’t always explain to them.  

Let me sidetrack there a bit. When I was doing my talk for Berkeley, I was really excited. I had put in a big section with the little T account for a bank with assets and liabilities, and I make poor Melanie sit and listen to these things when I practice and I hit that part and she’s like, “What?” We went over, as I said, “You can’t do that. That’s too complicated.” So I took that out completely.  

So I would like to be able to show people how, when the government collected those taxes, that money disappeared, but I don’t. It felt like it was too much. But anyway, so you know, the people who were running the war bonds program were very, self-consciously taking money out of the hands of the public to prevent them from spending it and causing inflation.  

They weren’t taking the money in order to build the factories because the line of causation could not logically have worked that way.  

Talk about the American recovery and whatever the act was in 2009, that fiscal stimulus – what you think we borrowed that? We think that people who had all this unemployment had lots of savings sitting around? Nah, we just made it up. Now the problem there of course is someone is going to always ask about China, but yeah, that’s a completely different issue than that is from the trade deficit, not the budget deficit. 

Intermission (27:00): 

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Steve Grumbine (27:47): 

Can I touch your point that you were making there about World War II before we go any further? This to me is probably one of the most exciting light bulb moments in this journey. When you understand that these bonds and tax hikes and so forth are basically seeking to diminish purchasing power, if you will, or delay purchasing power, because we have a certain amount of real resources available to us.  

We can’t make more real resources, but we can make more real dollars.  

And the thing is, is that these real resources are, that’s what the economy is really about – the efficient movement, provisioning of real resources throughout society. And for me, understanding that those not only were war bonds not used to collect money so that we would suddenly have money that we create at will to pay for these things, but it was this big “inflation” word that we were staving off, we were trying to keep away from.  

Inflation is so poorly understood today. It’s probably always been poorly understood, but it’s even more misunderstood today because we’ve got so much anti-knowledge out there. What about bonds? And what about taxes serve to act as a break in an inflationary time? 

John Harvey (29:15): 

Yeah. Well, I mean, if you go back to World War II, not only, and I thought this, but never said it just now, the government wasn’t simply activating idle resources. They were also taking resources from the private sector. They were taking steel that would have been used to build a Ford and instead using it to build a Sherman, you know? And so they were actually taking resources away from the private sector.  

So at the same time that people had more and better jobs than they’d had in many, many years, they also had fewer things to buy because not only did the government, you know, activate the resources that were idle, they also then took some from the private sector.  

So in a sense, while certainly people had enough food and shelter, the price of consumer goods went way up, right? So how do you prevent that from just going through the roof? How do you prevent the people who were used to being able to buy gas whenever they felt like it, and they’ve got plenty of money in their pocket, so they’re not worried about paying more for the gas.  

How do you prevent them from going out and bidding up the price of what little gas is out there and potentially especially hurting those at the lower levels of income? Not everyone’s making the same amount of money. You bid up the price of gas, who’s going to get hurt? Always is going to be the poor people. Price of food goes up – poor people. So how do you prevent that from happening? Well, I take the money out of your hands and so I can tax it away, which destroys money.  

And the really good thing about the bonds was not only did it take the money out of your hands so that you’re not trying to spend it on gas that isn’t out there anyway, and certainly there are wage and price controls, but it was also the black market. So you’re still going to have a movement in prices, even if we have the wage and price controls. But with the bonds, they were going to get the money back later.  

And why that was so important was because they were really worried that after World War II, there would be a recession like there was after World War I. They thought that once the government shut down all the military spending and that, there’d be a deep decline.  

And they thought, well, this way, when the government shuts down all this activity at the end of World War II, hey, that’s when the bonds will becoming mature and people will have cash and they will be making the transition from a military to a civilian economy so much more smooth as they had the money to go out there and demand the refrigerators and so forth. 

Steve Grumbine (31:16): 

That is exactly it. I mean, you think about this for a minute, right? The idea here is currently folks always jump whenever we talk about fiscal space, whenever we talk about spending on the people, they always jump straight to this big “hyperinflation” word. It’s either no inflation or hyperinflation, right?  

We don’t have anywhere in between. And the fear that has been pumped into people about hyperinflation and inflation in general, you know, really kind of is founded in nothing.  

We haven’t been able to crack inflation in any meaningful way in an incredibly long time to the detriment of debtors and society. I mean, I guess the idea here is that I want to be able to give our audience the opportunity to understand inflation as it pertains to fiscal spending, as it pertains to this unique opportunity that Democrats have.  

And really quite frankly, progressives as a whole have with advancing the platform of Bernie Sanders and Stephanie Kelton and the like that the fear of inflation is prevalent even within the progressive movement. 

John Harvey (32:38): 

You’re absolutely right, and I guess part of that goes back to the 70s and the oil crises, but okay. So I’m not a conspiracy theorist. I think that they’re not clever enough to pull this stuff off, but I do think that the individual motives have sort of worked to create what a conspiracy could have just as easily created.  

Cause what I’m saying is that trying to stop inflation has been a very anti-progressive thing. The Federal Reserve regularly tries to stop the economy from expanding.  

What the hell? I mean, why would it be a problem if the economy is at full employment and that people are demanding so much, that prices are being bid up? Well, that’s fantastic. And you have to think about which prices will be bid up. And let me back up here, a very basic post-Keynesian institutionalist concept of inflation is it is always and everywhere a redistribution.  

It is impossible for everyone to be hurt by inflation in the same sense that the government’s debt is the private sector’s surplus. If you’re spending more, somebody’s getting more, right? So it can’t possibly be a situation where everyone’s worse off and that’s the way we’ve described it for years and years and years that you know, “Oh, everyone’s being hurt.” No, they’re not. Somebody is getting better off.  

For example, in the OPEC oil embargo who got better off? Well the oil exporting countries got one hell of a lot better off. Now, did they also “suffer inflation” because when the owners of the oil fields bought their Mercedes, they were more expensive. Yeah. I mean, that’s right. But their incomes went up three times and the price of the Mercedes went up by 25%.  

They’re a hell of a lot better off, right? So it’s always a redistribution of income.  

Sometimes that redistribution, we would say, it’s fair. What if there is? Oh, what if they discover that chicken cures cancer, right? Well, there’s going to be a massive increase in the demand for chicken. And at first there won’t be enough chickens out there for everybody, and this will bid up the price of chickens. Well, this will then cause people to, you know, create more chicken farms and to perhaps do research into . . . well chickens, what about turkeys, you know, and so forth.  

That’s one of the times the market actually does something that works and that is, it creates an incentive to produce more of whatever it is that’s very popular with people. What’s wrong with that kind of inflation? During the oil embargo, the price of ceiling fans went up, ceiling fans again, very popular. “Oh no, we should throw the economy into recession.” Why? I mean, the economy is redistributing income in an economically logical manner.  

Now, if we have a situation where a, okay, let’s take the pharmaceutical industry, all right. Is that an economically logical kind of inflation or do they have so much economic power they don’t face much competition? They are able to draw income towards themselves and redistribute it away from us towards them. That’s the kind of inflation we don’t like.  

You have to ask yourself always, always, always “Who’s getting better off?” I don’t know if this is true or not, but I use this example in class. I’m assuming that after the emancipation proclamation and after the end of the civil war, that cotton became more expensive. “Oh no, we should never have freed the slaves.” No, that’s not the way to think about it.  

Yes, people had to pay more for cotton, but because the people who were making the cotton in the first place, the slaves were not being paid fairly. So that’s the first thing. The second thing is you hear these things about, oh gosh, I just saw one of these headlines the other day. Oh, I think I used it on my PowerPoint in Berkeley that MMT is a recipe for hyperinflation. It says that the government can spend as much as it wants to.  

But what if I had in my garage an air pump to put air in my tires and left there by the previous owner and doesn’t cost me anything. It took up infinite supply of air. Is that going to cost me to blow up all four tires and explode in my garage? Or am I going to say once I have enough air in there to drive carefully, “Oh, I’m done. I’m not going to put any more in there because my goal wasn’t to use as much air as possible.  

My goal was to make the tires safe,” and you know, likewise with government spending, the goal is not, “Hey, let’s spend as much as possible.” The goal is the Green New Deal. The goal is solving these social problems. The goal is making it to where people don’t have to work just to make enough money to send their kids to daycare. That’s illogical. And by the way, that’s one of the things I like to emphasize, too, about a jobs program. Don’t forget.  

We don’t need to define jobs the same way we do right now. A job could be that you stay home and raise your kids. That someone earns an income for that. Now my wife’s always big on, she says, “Now, when you say that, you have to make sure that you’re going to tell people that there will be checks on this, make sure that you’re not buying the kids a 12 pack of beer every day or whatever.” Absolutely. You know, maybe the kids want that.  

I don’t, but, but a job doesn’t have to be making money for someone else. A job can be contributing to the welfare of the United States of America and to your community. 

Steve Grumbine (37:38): 

If you don’t mind, I’d like to see if we’re on the same page here. So I liken the job guarantee that is put out there as part of this Green New Deal and what you hear Pavlina Tcherneva and Fadhel Kaboub and Bill Mitchell and Warren Mosler and the rest of the gang.  

The thing that I often think of is the job guarantee is the ultimate democracy enhancer, because ultimately you’re talking about federal funding, which means they’re going to have plenty of funding for this job guarantee program, but you’re going to have local administration, which means people are going to go down to the local town hall. They’re going to go to their local elections.  

They’re going to participate because this is going to directly impact their lives and the community in which they live in. What better democracy enhancer than have the community be able to have a stake in the game as to what they compensate? And so I can really see this driving voter registration. I can see it really getting people that were previously on the sidelines or disinterested suddenly caring about what’s going on.  

And I can also see, you know, you drive down these streets and you see roads that are just destroyed, messed up. And you’re like, what’s going on? And the state government’s budget is broke and they’re not cleaning it up. So now all of a sudden we’ve got a situation where there’s so much work that’s not being done because it’s not deemed, as you said earlier as profitable, then it’s just left go.  

And in reality, we could have such a better existence if we tended to our own backyard and said, “What do we need done? What do we want done?” 

John Harvey (39:16): 

Right, right, right. 

Steve Grumbine (39:17): 

And I just think the job guarantee program is a democracy enhancer. It’s a superior automatic stabilizer, and it literally takes away the stress and the pain of the business cycle for regular Jane and Joe Q. Public. I just think it’s a beautiful thing. Am I in the right ballpark there? 

John Harvey (39:36): 

I will say this. I had never thought of it that way, and I think that’s absolutely right. I had been thinking to myself, well, first of all, about something you said there.  

When I started my talk in Berkeley, I was talking about didn’t you kind of expect 30 years ago, you expected the world today to be better than it was 30 years ago? Remember the day when children thought they would have a better life than their parents? Where’s our golden age? There’s absolutely no reason whatsoever from a logical standpoint, that today’s life isn’t, you know, X number of times better than it was 5, 10 years ago.  

I don’t know if anyone listening has ever played the game “Civilization.” I love the game, but in “Civilization,” when your technology goes up, your society gets better. So this is a huge problem. And what you’re saying there about local administration of the programs, I absolutely agree because we are tribal. We are social animals and this is one of the things I have against the universal basic income is that we have things need to get done.  

I mean, I could just pay you this income, but there’s still that pothole. There’s still the kids who need after school care or whatever – those problems still exist if we have the UBI. And I’ve heard people say, “Well, people will volunteer.” Well, yeah, that’s what Bush said about the thousand points of light. We are social animals. We have an obligation to the tribe.  

So, you know, locally we decide what are our problems? And then what you’re saying is that if at the local level is where we’re deciding what are our problems, I want a voice in that because I’ve know of some problems too. And I want to make sure that my priorities are reflected in the way the job guarantee is carried out. I think it’s a very good point. I hadn’t even thought of it. 

Steve Grumbine (41:12): 

You bring up the UBI, and I feel like this is an incredibly important thing to discuss. And we could probably do five shows on this, but the UBI to me, represents status quo. If everybody gets it, then what have you done? There’s nothing there. There’s no production to meet the new increased demand. However, there’s a whole bunch of things that could go wrong. Number one, just right off the top, and this is not, could go wrong.  

Without laws in place, I could see the capitalist class using this as subsidized bad wages like Walmart does. Right on the heels of that, I also look at this and I say, “Where’s your price anchor?” and I don’t find a price anchor anywhere in there. I look at this like a student voucher, school voucher.  

You go down the street, the rich people get a voucher. These people get a voucher. You still end up with the rich people at the rich school and you didn’t get what you thought you were getting.  

And where’s the guarantee for the services that the people really need? Because if the services go up to $1,001 and all your UBI was a thousand dollars, you don’t get the services. But if you get the services, which is part of the New Deal, it doesn’t really matter to the federal government what it costs because it is the currency issuer. It’s a monopoly currency issuer. It can handle that. You care about getting the service.  

So to me, this is an end around game for libertarians and more conservative folk who don’t trust the government, who do not want us to have those government services, who would rather trust the free markets to handling these things. And they trust that “Here’s a thousand dollars. Knock them dead, kid. And if it doesn’t work out, eat your peas.” It’s frightens me. 

John Harvey (42:59): 

Yeah, I think it’s, and I shouldn’t use this, they’re sort of champagne liberals. I’m pretty well off myself. I’m a college professor. I don’t live a terrible life, but I don’t consider myself a champagne liberal or the ones who are supporters of the sort of neoliberal Democratic party that to them it’s like, “Yes, that’s a good idea.  

Let’s just give everyone some money.” But as you say, then the social problems are still there, right? And so the things that aren’t profitable are still like . . 

. how’s that fix the environment? How is that even going to begin to address the, you know, climate change and then the cataclysm that is coming you know, for us, who knows how soon? And that does nothing for that. And I also think, and this is one that my wife’s really big on – people would be resentful that depending on however you do it, it’s going to continue that stereotype of lazy, poor person. And so, that shouldn’t be a main concern for us, but it’s still there. It’s still there.  

And not only that, there’s actually a real concern. And that is the fact that we aren’t getting these other issues addressed that the private sector isn’t going to do, there’s no way the UBI addresses those things. I don’t know what they’re thinking. And that’s another thing too, that sort of establishment branch of the Democratic party. You said this a couple of times, just now, the UBI is still basically using the market. It’s still basically relying on the market system.  

People have got to get that out of their head, that it is the source of all the solutions for our problems, that the private sector is going to do it. And that to me is the problem with the Clintons, with the Obamas, with the Bidens is that their view is still, you know, they have the right feeling in their heart, I think about social issues, but they’re still thinking that the market system is the way to address these issues. You’ve got to get that out of your head.  

We didn’t use the market system for World War II. It turned out that we had no philosophical or moral problem whatsoever with using the hell out of the government in World War II. And that’s the big shift you see, you know, from the Great Depression to World War II, as I’m sure many of the listeners know, it was at 37 or 38, when they’d finally brought unemployment down from 25 to 14, they decided, “Uh oh, we’re becoming like socialists. We better try to balance the budget. 

 And they went from 14 to 19. Well, they sure as heck, didn’t worry about how big the deficit was once the war started. It was a philosophical shift, as you’ve said yourself, as these things have clicked. Although unfortunately it didn’t click that we can also do this during peacetime, but it was a philosophical shift that, “You know what?  

It’s okay for the government to spend all this money.” And, you know, that’s when you have that peace at the end of the war. Oh, that famous piece from the Fed about no longer needing taxes for revenue. 

Steve Grumbine (45:38): 

Oh yeah, Beardsley Ruml in 1946, “Taxes For Revenue Are Obsolete.” Yes. 

John Harvey (45:44): 

Yeah, and so, you know, if we can get the Democratic party away from the idea that the market is the source of all our solutions, that would be a huge thing in and of itself. And that to me is the massive divide in our party, and what causes a key difference between the neoliberals and the Bernie Sanders, for sure, and I guess Elizabeth Warren, although she’s using a couple of neoclassical economists for advice. So . . . 

Steve Grumbine (46:09): 

I have a hard time, cause I know that she listens to Bob Hockett, who I have incredible respect for, but I also see the outcomes and they don’t look, they don’t look like what I’m hoping for. So let me bring us in to the stretch run here. Obviously we’re in a very important election cycle and you and I offline were able to kind of compare notes and obviously we see something truly special in not just Bernie Sanders, but the economic team that backs his work.  

What, in your words, would you say is the key here for Democrats to embrace what they once were, which is a party for labor, a party with vision, a party of Franklin Delano Roosevelt, and a kind of party that really puts the people on its back? Is that not who Bernie Sanders is or at least isn’t that what the message is? Isn’t that what Democrats should embrace? 

John Harvey (47:11): 

I think so. And you know, to me, I’ve had friends say, “You know, well, as long as you don’t get Trump.” Okay, let’s say we get by, we switched the quick death to the slow death. I don’t want the slow death. I want the cure. And so in my mind, first of all, what the candidates say and so forth during the campaign kind of important, obviously, but I want to know who their advisors are because those are the ones who are telling them how they should solve these problems.  

They don’t know how the economy works; I’m sure they don’t know about many of the issues they’re talking about. They’re depending on advice and the only candidate by far who has someone who knows what she’s talking about is Bernie Sanders and, you know, Stephanie Kelton of course being the economist.  

And I don’t think anyone else is going to fix the problem for us. And so when I have friends who say, “You know, well, as long as it’s not Trump,” I was like, “No, no, no, no. 

 “Well, they’ll label Sanders as a socialist.” I don’t care. I would rather take the chance with him as the Democratic candidate that he didn’t end up getting elected because they successfully labeled him as a socialist. Although honestly, that doesn’t appear to be a bad word anymore. I would rather take that chance. I would rather go with Sanders.  

I don’t believe this. I believe he’ll have an excellent chance, but maybe I’m fooling myself. But let’s say Biden would have a better chance.  

So I would still rather have Sanders in there with a less chance of beating Trump than I would have Biden because Biden’s not going to solve the ultimate problem. We can’t have the world we want with the social values we want without the economy fixed. And boy, if that has it become clear than I don’t know what people have been paying attention to.  

Both parties, Democrats and Republicans went on during the presidential campaign about the fact that the middle class is being destroyed, the problems of debt. I mean, it has become things that post-Keynesian and institutionalist economists have been talking about for years are now so obvious even the Republicans had to talk about. So if we don’t address those, then we are screwed. I think that would be my bumper sticker right there. 

Steve Grumbine (49:11): 

Yeah. I agree with that. That really does get to the core of it because, you know, I jokingly say I’m done putting band-aids on heart attacks. We need the shockers. We need a cure. We need a heart transplant.  

And when I look at this, you know, the neoliberal era going back to the 60s and coming through here and the declination of labor and Reagan destroying, and you can see the hockey stick of income equality starting around 73, 74, 75, and going straight up straight into the stratosphere under Reagan, and it never slowed down under Clinton and just do a bypass from H.W. and going right on through Shrub and Obama.  

And it just keeps going up, up, up, up, up, up, up, up, up, and regular people have not seen any increase in their ability to survive. It’s been truly running from an ax. This austere way of life, this neoliberal existence, where it’s survival of the fittest, Ayn Rand has stuck her ugly mug into this and has really perpetuated a rugged individualism that exceeds even Teddy Roosevelt.  

We are talking about the new beatitudes. “You’re on your own.” And it’s a real devastating thing to see.  

And then you see a guy like Bernie Sanders come through with an economic team that can show you how to not only lay neoliberalism to waste, but how to build a caring economy for the 99%. To me, it’s just a no-brainer. I mean, I’m sold. 

John Harvey (50:49): 

Yeah, yeah absolutely. 

Steve Grumbine (50:50): 

I am sold. Well, John, look, I want to thank you so much for your time. I want to give you a chance here. You gave us the bumper sticker, but I want to give you the close here. You have so much going on. And the Cowboy Economist is so entertaining. How do we find you? 

John Harvey (51:09): 

I reserved the domain name, www.cowboyeconomist.com. And just in case I’m an idiot just in case I also reserved www.thecowboyeconomist.com. So that’s the easiest way right there. And then at TCU, the economics department. You can go there, but the Cowboy Economist one has a link to all the videos and then my link to my Forbes page and so forth. And I hope to be getting back in the saddle, so to speak. We had a really bad summer on a personal level.  

And so things are starting to settle down again. Other than the fact, we have a new puppy and I may be able to do another video soon. I’m hoping, hoping. 

Steve Grumbine (51:46): 

Well, I look forward to it very much. And John, thank you so much for the time. I really appreciate you working with us both at the Berkeley event and coming on here on Macro N Cheese. You sir are a wonderful man and I am so proud to call you friend. Thank you so much. 

John Harvey (52:03): 

Well, thank you very much for having me on here. It really is wonderful that people are actually interested in this stuff. 

Steve Grumbine (52:09): 

Have a great one, sir, we’ll talk soon. 

John Harvey (52:17): 

You, too. 

 
Ending Credits (00:01:35.280)  

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