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Episode 261 – Mission: Inflation with Warren Mosler
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**Transcripts and “extras” are available for each episode of Macro N Cheese on our website: https://realprogressives.org/macro-n-cheese-podcast/
This podcast’s followers know we cover a range of topics from political theory to international events, but at some point, we always circle back to Modern Monetary Theory.
This interview with Warren Mosler was originally recorded for “Let’s Get Ready to Grumble,” Steve’s show on Status Coup.
As with any Mosler episode, this one is appropriate for both MMT newcomers and old-timers. They discuss interest rates, inflation, and the money supply. Warren goes over the key principles of MMT, emphasizing that government spending precedes taxation as well as the role of taxation itself.
The conversation also touches on rising fuel prices and the role of Saudi Arabia as monopoly supplier setting the price of oil.
Warren Mosler is an American economist and theorist, and one of the leading voices in the field of Modern Monetary Theory (MMT). Presently, Warren resides on St. Croix, in the US Virgin Islands. An entrepreneur and financial professional, Warren has spent the past 40 years gaining an insider’s knowledge of monetary operations.
@wbmosler on Twitter
Macro N Cheese – Episode 261
Mission: Inflation with Warren Mosler
January 27, 2024
[00:00:00] Warren Mosler [Intro/Music]: President Trump, 17 percent tariff on lumber because Canada wasn’t charging us enough. Kind of idiot policy is that? So what does Biden do? He doubles down on it. So it’s now 34 percent because they’re still not charging us enough. Who are these guys? And so if you need to send somebody out shopping for you, don’t send either one of them.
When you get inflation, you get a money supply shortage. So if you think about this, let’s say all prices were to double and you used to go shopping with $300 in your pocket. Now you have to have $600 in your pocket to go shop.
[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] Steven Grumbine: Hey, this is Steve with Macro N Cheese. From time to time, I’m invited to talk about MMT on other shows. This week, we’re bringing you an interview I did with Warren Mosler for Status Coup. I think you’ll find this topic as relevant as ever.
All right. And this is Steve. Today’s guest is going to be Warren Mosler and he is the father of modern monetary theory, what once was called Mosler economics, and I was lucky enough, I’m happy to have Warren Mosler be able to join me, not only to talk to you about what MMT is, but to talk about this damn inflation thing. It has me insane watching television, listening to other alternative media personalities describing the stuff. And in fairness, they always get it wrong. So let me bring on my guest, Warren Mosler.
Warren, thank you so much for joining me today.
[00:02:37] Warren Mosler: Ah, good to be here.
[00:02:38] Grumbine: Absolutely. Thank you. Absolutely. You have always been, in my mind, anyway, the father of MMT. And I know that when we first met, this was called Mosler economics. And your website, The Center of the Universe, has some great resources for anybody that’s interested in reading up on MMT.
Could you please tell the audience what MMT is, Modern Monetary Theory is, and why it matters.
[00:03:10] Mosler: I’d say the most important thing to understand is that, what I came up with years ago, is understanding that the dollars that can be used to pay taxes, come from the government. Now, this is in direct contrast to every member of Congress, every economist, everyone else out there who was saying that members of Congress would say, we have to get money by taxing, to be able to spend it.
And if we want to spend more than we tax, we have to go out and borrow money to be able and spend that money. And so any money that we want to spend in Congress here, we have to get it first, by either getting it by taxing or get it by borrowing. And sure enough, you saw President Obama with Secretary Clinton going to China in, I think, 2009 to make sure we could borrow money from our creditors.
China, who were creditors, to be able to fund the stimulus package. And what Modern Monetary Theory points out- and it’s something that the operations people in the Federal Reserve have always known since the beginning, and every other central bank as well have always known, and that is that- these dollars the government is spending, come from the government.
They don’t come from the private sector. They originate in the government. And if the private sector tries to originate dollars to pay taxes, that’s called counterfeit and you go to jail for that. Strict laws against that. So that makes an enormous difference in how you view things.
So, congressmen think they have to go out and look for dollars to be able to spend. The real struggle in the world is that us, the taxpayers, we are dependent on the government spending to get the dollars that we need to pay the taxes. Now, this does not mean that the government does not have to tax. It does mean that it spends first, and then we get the money, and then we pay our taxes.
But what the government has to do first is tax, and specifically, it has to impose tax liabilities, tax obligations. So just to keep the conversation simple, let’s imagine the only obligation it does, is it puts a tax on everybody’s house. So step one would be the government would put a property tax on everybody’s house.
This creates a population that now needs dollars to pay taxes. Before the tax, there was no particular need for dollars because this economy was getting it from day one. Once there’s a tax on everybody’s house, there’s this massive need for dollars, and it might be $3 trillion or $4 trillion taxed on everybody’s house.
Okay, so now people need the dollars, so they’ll go to work to earn dollars. They’ll sell things to get dollars, and they’re trying to get dollars. And now the government can hire them. You can say, I put a tax on your houses, you all need dollars, and so now if you want dollars, come work for me. If you’re a soldier, I’ll pay you $50,000 a year.
If you’re a Supreme Court justice, I’ll pay you $200,000 and so on down the line. If you’re a public school teacher, I’ll pay you whatever. And so the government can then pay people to do all the work that it wants done. And then after that, people can pay their taxes. So, what we point out is the sequence.
The sequence is first, a tax liability by a government that wants to provision itself. The government wants people in public service, it wants school teachers, it wants soldiers and public health workers. How does it get them? Number one, it puts a tax on your house. Number two, this causes you to now be unemployed and go out looking for paid work, work that pays in dollars. Number three, it hires you. Number four, you get paid. And then number five, you pay the tax.
So the purpose of the taxation was not for the government to get your money, it came from the government. They spend it first. The purpose of the taxation is to get you to need their money, so that you will go work for the government. So then they can pay you, and then you can pay the tax. And that’s the end of the line, is when you pay the tax. Once they understand that sequence, you realize that the whole idea of government solvency just doesn’t make any sense. It’s not applicable. It’s not like, where is the money going to come from?
The money comes from government, they just credit your account. With online banking, you can just look at your account and you might have a thousand dollars in your account, which is a one zero zero zero. And then here comes my social security check. And all of a sudden my account says four zero zero zero.
I just got three thousand dollars put into my account by the government. Okay, what did they do? Did they take a gold coin and hammer it in? No, all they did was change the one into a four, out of the keyboard. And they changed the number up in my account. That’s called crediting an account.
[00:07:54] Grumbine: Okay,
[00:07:55] Mosler: Okay. That’s all they do.
They’re the scorekeeper for this dollar. It doesn’t come from anywhere. They’re not going to run out of it or anything like that, any more than the scorekeeper at a football game is going to run out of points. Your team kicks a field goal. It’s not that kind of a problem. Once you understand that, then you realize the problem isn’t where’s the money going to come from, it’s is there anything out there for them to buy? Because they need these tax liabilities, these property taxes out there, in sufficient quantity, to get sufficient things for sale. So that their otherwise worthless currency, without taxes, it’s not worth anything.
The dollar is a tax credit – a thing that pays your taxes. Tax credit’s not worth anything without a tax. Are these tax liabilities creating enough things for sale so they can go buy? And if they’re not, the evidence might be that the government starts paying higher prices to buy the same thing. That’s evidence that their tax liabilities haven’t been strong enough to create enough selling pressure to keep prices going up.
Now, there are other reasons prices can go up. One reason would be that the taxation isn’t high enough. It’s not strong enough. There’s no demand for the currency. They haven’t spent enough. That’s one possible reason. Now, it’s a theoretical reason that’s certainly a possible reason. But my- how many years now- 50 years of watching this stuff, I’ve never seen it.
Okay, that’s not saying it- I’ll absolutely agree that it- is possible, but we always get price increases long before that happens, in my experience. And this latest bout of- what is called- inflation, is an example of that. So, is that enough to get you started here?
[00:09:35] Grumbine: Absolutely. So let’s jump ahead. A recent article came out from the Guardian that showed a bunch of the most profitable companies over the course of the last two years, many of which were claiming they needed to raise prices to offset inflation. And we’re talking about 800 percent profit, 333 percent profit increases.
These are increases, not just where they were, but actual increases over prior earnings,
[00:10:07] Mosler: Yeah,
[00:10:08] Grumbine: The actual salaries of individuals, however, only rose 1.6 percent as opposed to the 800 percent and 300 percent of Amazon and others. Is this not abuse of market power? Isn’t this the smoky room with the writing up and marking up of accounts?
The ‘maximize return on investment’ crap?
[00:10:30] Mosler: Well yes, but that’s what they’re supposed to do. That’s what the law says they’re allowed to do. And that’s what’s supposed to make capitalism great. That’s supposed to be what’s lifted us out of poverty, is that when there are large profit margins, it attracts new businesses, and then they get competition and brings it down.
Now, when that process isn’t working, the government already has the laws in place- the antitrust laws- to regulate and supervise and make sure these things stay reasonable. And so what you’re talking about at this point, could be a failure of government to recognize a non-competitive area, where they have an obligation to regulate.
Where it’s competitive, they’re supposed to stay out. Where it’s non-competitive, they’re supposed to regulate. And that’s not 1904 or something. I don’t know when Teddy Roosevelt brought in the antitrust laws, but it’s been a long time. But also, Steve, this has always gone on.
When we’re reading about this company that’s buying drugs cheap and then marking the price up 77, 000 million percent and selling it. You see all these poor people can’t afford their insulin and things like that. That was a long before COVID. It’s been going on my entire career. So I don’t see that as a change that’s material for the current inflation discussion.
And I think the Fed did a study of this- San Francisco or St. Louis or somewhere- and they said that it might be adding three tenths of a percent to the inflation rate. So I’m categorically against it. I see it as a failure of government to fulfill its responsibility to regulate, when there’s insufficient participants to have competitive markets. And it happens all the time.
And we see governments that get elected because they pledge to fail to regulate, cut the number of regulators, and they give corporations… just handing them these profits, because I guess they’re getting it back from donors or something like that, right? You get this negative feedback loops from business.
We have that. But I think if we’re going to talk about this inflation, I wouldn’t scapegoat it, going in that direction. I’ll go there for other reasons, but I won’t go there for this.
[00:12:26] Grumbine: So with that in mind, we see fuel prices going up absurdly high, and such a jump that the average person is struggling. Now, is this an issue of a lack of supply or is this price gouging?
[00:12:40] Mosler: Okay, it’s an issue of a single supplier, at the margin, setting prices, and has been setting price since 1973. And that’s Saudi Arabia. And in the last couple of years, it’s OPEC+, if you notice, that’s because Russia’s involved now. And Russia got involved during COVID when there was a collapse of demand that the Saudis couldn’t handle, because their production would have gone to zero.
And Russia agreed to share the cuts, but they don’t do this for free. And so now they’re sitting at the table with Saudi Arabia and they’ve become their weapons supplier. Saudis like them better than they like us because they don’t criticize them for killing journalists and for bombing Yemen. They support them and all this. So we’ve lost Saudi Arabia as a strategic ally.
And let me give you the best way to explain this. When I explain this to you, there isn’t a single oil analyst in the world that’s understood this, any more than any member of parliament, member of Congress understood that, the sequence that they were spending first, so that taxes could be paid afterwards. Yet everybody in the central banks/monetary operations knew this.
Everybody I’ve talked to for the last 50 years, there’s no discussion about it. It just goes without saying, that they can’t do reserve drain, which means the economy can’t make a payment to the government unless the government makes a payment to the economy first.
They call that a reserve add. It’s the Federal Reserve Bank and they call the bank accounts that they have at all the banks reserve accounts, just to confuse everybody. They say we can’t do a reserve drain without doing reserve add. We can’t debit an account unless we credit it first.
[00:14:14] Grumbine: What is a reserve drain? Just start right there, because this is a term most people have never heard.
[00:14:19] Mosler: Yeah, it’s a payment that a bank makes, that causes the money in its account to go down, like anybody else. When you check the account, write a check, the number goes down. That’s called a drain on your reserves. So, instead of saying, we’re just reducing their balance in their account, they call it a reserve drain.
Because their accounts, they’re at the Federal Reserve, so it’s a reserve drain or something, I don’t know.
[00:14:42] Grumbine: You got guys like Ro Khanna telling people that we should raise taxes on corporations to offset this inflation. Everything I’ve ever read from Randy Wray- and others- have been taxes on corporations are a pass through to consumers.
[00:14:59] Mosler: One of the major impetuses driving this has been energy prices. So let’s look at how the energy price goes up, and then tell me what a tax on corporations is going to do to this process. So, right now, the demand values around numbers is 100 million barrels a day. That’s how much we burn every day around the world.
If Saudi production is about 10 million barrels a day, and they export about seven, seven and a half million, they use the other three themselves. But Saudis are capable of producing 12, but they don’t, they’re only producing 10. And you’ve heard President Biden say he wants the Saudis to pump more oil.
And I’ll get back to that in a minute, which is an absurd statement. And you’ll see why in five minutes, three minutes. Let’s say the price of oil today is $115 a barrel, and the Saudis set their price at $120. So the rest of the world’s producing 90, the Saudis have the last 10, and they’re exporting 7.5. So the world needs 7.5 million barrels from the Saudis every day, or else we’d have to go shut the lights off. So if the rest of the world’s at 115, and they go around trying to buy the oil- they need 100 million barrels, total burning- then, the Saudis are using 3, so they need 97 more, so they’re not there. They can only get 90.
That’s all they’re producing, so they can’t get the last 7 million barrels. Which means about 3:30 every day, everybody’d have to shut the lights off and stop driving yourself. Because we’d run out of energy every day for a few hours, because we’re only getting 93% of what we need. The other 7% of our time- which is, how many hours is that, hour and a half or so, two hours- we’d be dark.
So, they have to go to the Saudis, because we need the oil on a daily basis to burn. And they’ve got it. And their price is $120. And there’s no market here, it’s a single supplier for that last 7 million barrels every single day. Their inventories now are down to a minimum.
You can say you can take it out of inventory. Fine. We’re already using the strategic petroleum reserve. We still need their last 7. Because Russia’s been cutting back, because we’re not allowed to buy it. And so you’re going to have to pay $120 to get those last 7 million barrels, period. Well, in the meantime, you’re not going to just jump from $115 to $120 as you get towards your 97- whatever you’re buying from everybody else, the three- you’re going to start offering more and more to try and get those last 7.
You don’t know it because you read it in the newspaper. Because they say, don’t have any, well, I’ll pay you $116, don’t have any. I’ll pay you $117, don’t have it. $118, please, I don’t want to pay Saudis, $119, I’ll pay you $120, we still don’t have. I don’t want to go to the Saudis, I’ll pay you $121, we don’t have it.
Okay. I’ll go to the Saudis and pay $120. What that does is it drives the price of all the oil by the end of the day to $120. No, it’s not just 1 day. There’s averages and there’s long term contracts and there’s delivery lags of 30 days. There’s boats going in and out, loading and unloading. But this is a concept underneath it.
And over a day, 2 days, 3 days, this is exactly what happens.
[00:17:58] Grumbine: This is a supply issue, but it’s an intentional scarcity where Saudi Arabia, who has a capacity to create plenty of oil, has chosen to keep supply down to drive the prices up.
[00:18:11] Mosler: No
[00:18:12] Grumbine: No?
[00:18:12] Mosler: No. there’s Here’s the point. The Saudis can set any price they want for that last 7 million, but they have to set a price. They can’t just say, we’re going to go sell it at the market. There is no such thing. It’s like if you’re the power company, and you have the electricity for the city, and you’re the only power company, you have to set a price.
Okay, down here, power is 50 cents a kilowatt. It’s a lot. Our water and power association, WAPA, W A P A, sets the price. They have a meeting, at the meeting they set the price. They set the price at 50 cents.. Now, usage might drop during the month. The price won’t fall. It’s still going to go to them and pay their 50 cents.
Usage might go up. They might run out of power and have brownouts. But the price won’t go up unless the board gets together and meets and raises the price. Because it’s a single supplier at the margin, at least. We have solar, we’re producing a lot of our own power, but at the margin, we need power from them and their power is needed. It’s a monopoly for the portion that’s needed.
Just like the Saudis have a monopoly for that last 7 million. And so they have to set a price. So they set a price. So let’s say the price of the market was $115 that day. Their price is good $115. So then we’d be in balance. How much would they sell?
They’d sell the same 7 million. They’re not going to sell more as they split the price. The world only needs a hundred, that’s it. If they raise the price to $120, they’re selling the same 7 million. If they lower the price to $110, the whole price structure will come down to $110 and they’ll sell the same 7 million.
It’s not going to change. Because that’s all the market needs that day, the demand can’t change day to day, just because the price changes. Some days that demand does change day to day, but not well. You don’t stop driving to work because the price went up 25 cents or a dollar or something. In fact, the price is going up. The last I saw American demand for gasoline has gone up.
So, it hasn’t even gone down with gas going $6 dollars a gallon. People have just been impervious to it for whatever reason. Maybe more people are getting jobs and have to drive to work. So, when you’re a monopolist like that, you can’t change the quantity. All you can do is set a price and let the market buy what it wants, at your price.
You can’t decide to pump more oil. You could decide to lower the price and maybe the market will buy more. They can lower it to $20, maybe they’d sell more. Probably would. They could raise the price to $200, maybe they’d sell less. Probably would. They have to do that, they have to change the price, and to let the quantity adjust. There’s no other way to do it.
You think about it. What else can they do?
[00:20:58] Grumbine: It’s a demand driven.
[00:21:03] Mosler: It’s a fixed demand
[00:21:04] Grumbine: Okay.
[00:21:05] Mosler: and there’s fixed supply and there’s excess capacities. Everybody else just sells everything they have. They say, well, the US has more oil than Saudi Arabia, so we’re selling more, why aren’t we the price setter? We have a thousand different sellers just selling at the best price they can get. Everybody else is just selling at the market, best price they can get, all they have. Saudis are looking at this saying, I don’t want to do that, if I sell my 12 million barrels at the market, try to do that, just lowers the price. It’s going to go down to zero or $10 or $20 dollars. It went negative not too long ago. And you can’t do that. It doesn’t work.
They have to set a price, or let the whole thing collapse. They don’t like doing this. They’d rather sell all 12 at the good price. But they can’t, because they try and sell 102 million barrels into 100 million barrel demand, you got a downward spiral till somebody stops selling or demand goes up.
[00:21:58] Grumbine: Is it an unfair ask that we do something to bring the price of this down, or is this something that we have to partially adjust to?
[00:22:07] Mosler: So, look, the president and everybody else- all the analysts- are saying Saudis need to pump more to get the price down. Now, do you see how that’s patently absurd based on that simple dynamics of a non-competitive situation? That is an absurdity. They say, oh, we’ll get Venezuela to pump an extra million barrels and the price will go down.
Why? That just means when the Saudis set whatever price they set, they’re going to sell six instead of seven. They’ll have an extra million of excess capacity. It doesn’t mean the price will change. We unleashed a strategic reserve of half a million or a million barrels a day. Price didn’t change, it went up… because the Saudis are raising their price.
If we hadn’t done that, they would have sold a half a million or a million barrels a day more. Instead of having two million excess capacity, they would have only had one, if we had done that. But all we did was change your excess capacity. Can you see the market force at work here? See how it’s completely different from what you thought it was 15 minutes ago?
[00:23:04] Grumbine: Yes. My question becomes this. As I go down the street here in Harrisburg, Pennsylvania, and I see the gas set at $4.65 a gallon, I’m not a petroleum producer, I don’t create barrels of oil, I don’t work in the industry, I’m just a guy that drives a car to get to and from work, I’m a rank and file voter that’s looking at the gas prices and saying, ‘what the hell, why isn’t my government doing for me to help me out of this, I can’t afford to eat.’ Then I look out in California and I’m looking at $8 a gallon and I’m saying what the hell?
So there are layers to this wholesale arrangement, to the retail arrangement and etc. Where is the inflation that we’re all experiencing at the pump? Where is that generating from?
[00:23:49] Mosler: Well, the margins is mostly tax. California’s all tax. So you have a lot of state taxes. If you look at the actual margin that the gas stations are making, it’s not where the problem is. The problem is the underlying price of oil. Now, in the UK, across Europe- where they’ve had much larger taxes, where it’s been $10 a gallon for a long time, and where the underlying price was only $2 a gallon for a wholesale price- their increase might be the same $2, but it’s only 20 percent instead of 100 percent is because it’s on a larger base.
And there are a lot of places in the world where there isn’t any tax. And so it’s still $3 and a half dollars, but the wholesale price is gasoline. So the wholesale price is coming from the suppliers and that’s doubled- more than double- and nobody understands where the price is coming from. So nobody’s doing anything about that, except making idiotic comments, like ‘they need to pump more.’ Which shows a complete lack of understanding of how the process works.
And I just got off exchanges with some of the major size oil traders, telling me I’m wrong. So, they don’t know how it works either. And how many Nobel Prize winners told me I was wrong about monetary sequence, it’s the same thing. That’s why the debate finally changed between Obama, to say Bush, to Biden.
Our B-level presidents, whatever you want to call it. And under the last COVID thing, all they talked about was whether this spending would cause inflation. Nobody once thought that checks would bounce. Nobody said, what happened to Paul Ryan talking about how we’re going to be the next Greece? It’s all gone.
What happened to going to China to check with our backers about borrowing? What happened to Paul Krugman with his ‘We’re going to run up interest rates?’ None of that, it’s all gone. So to that degree, MMT has had an enormous influence and it’s changed the debate from talking about solvency, ‘we’re going to go broke’, to talking about, ‘we might cause inflation.’
Now we’re here talking about, ‘are we causing inflation?’ And I’m telling you- for the most part- No. What we’re getting, are price increases from a monopolist, raising price. Not from any kind of a monetary inflation. And this monopolist is blatantly raising price and doing it in disguise method. They don’t just set the price, they set their spreads to benchmarks, which is indirectly doing exactly the same thing, driving the price higher continuously. It’s been trending up 6 or 8 months now, and it’s going to continue to trend up while they have the same pricing structure in place.
That’s a simple price setting mechanism that causes the price to go up, up, up, up… not every day, but week to week, month to month, until people stop using it, until it breaks the economy. Which is exactly what they did in 2008.
I think they got it up to $155 or $157, that broke the economy. Now, there are a lot of other issues that collapse with it, that we talk about. Nobody talks about what the price of oil did to the economy, but it was the same thing. But today- on an inflation adjusted basis- $150 is $300, right? That was 12 years ago, 14 years ago.
And so maybe it takes $300 dollar oil. I don’t know when the price breaks the economy and causes demand to collapse. It’s going to keep going up until the demand collapses. That’s the Russia strategy. This is their extended war strategy against the world. They’re working with the Saudis to make sure their OSPs, they’re called- official setting prices- are set at wide enough spreads to benchmark the posterior value, which causes the price to just go up and up and up, every week.
As it’s a stiff case of monopolist setting price in a very thinly disguised manner. And it’s not going to stop until that’s addressed, no matter what we do with interest rates, which we do backwards, of course. No matter what we do with taxes, they don’t care. They’re just going to keep raising the price of oil until it breaks.
It’s like a kid breaking his toys, just going to hammer and hammer and hammer, until the thing breaks. And that’s what they do. And there’s nobody addressing that, period. And they’ve got this NOPEC thing, where we’re going to file a lawsuit against them for having a cartel. This is like a Monty Python thing.
[laugher] Let’s file a lawsuit against the Romans. They’re violating human rights.
Okay.
[00:28:04] Intermission: You are listening to Macro N Cheese, a podcast brought to you by Real Progressives, a nonprofit organization dedicated to teaching the masses about MMT, or Modern Monetary Theory. Please help our efforts and become a monthly donor at PayPal or Patreon, like and follow our pages on Facebook and YouTube, and follow us on TikTok, Twitter, Twitch, Rokfin, and Instagram.
[00:28:58] Grumbine: Jerome Powell is talking about how we’re going to have to raise interest rates and it’s going to be a very painful experience. I talked to Randy Wray the other day, who’s written a paper recently saying there is no soft landings coming basically from the Fed jacking up Volcker rates. Can you talk to us about the seventies with the OPEC crisis and interest rates in Volcker and then bring it forward if you can,
[00:29:24] Mosler: I already did. It’s the same thing.
[00:29:26] Grumbine: Well, I understand, but I want to tie Volcker into this, if we can do that
[00:29:29] Mosler: Okay. We’ll just change the names. [laugher] So, you know, we had Arthur Burns and [G. William] Miller. That was when I was with my… back when I was your age, you know, in
my early 30s.
[00:29:40] Grumbine: Back when you were studding around in the Consulier race car, right? By the way, Warren Mosler designed the coolest race car of all time. Check it out.
[00:29:48] Mosler: This was long before I did that. I was born in 1949. So that was when I was 30, 1979, right? I was at William Blair, I went there in 1978. So that was around the middle of the fray, so to speak. So you’ve got the Saudis raising price and this cost push inflation is what they called it. The Keynesians didn’t know what to do.
They had been running things and everybody was doing things counter cyclically. And we’d had the golden years of low unemployment and all that kind of thing. And then when the price of oil switched from the Texas railroad commission, who was limiting production of our oil in Texas to make sure the price didn’t fall below two and a half dollars per barrel because we had overcapacity, but as demand picked up, we used up our overcapacity and so they couldn’t do that anymore. That wasn’t the problem anymore. The price was getting up over three dollars and the excess capacity had moved to Saudi Arabia. Now, they’re the ones setting price, and they had a different agenda than the Texas Railroad Commission.
The Texas Railroad Commission had kept the price stable for 14 and 15 years, and those were the golden years of economics. And everybody talks about what caused the golden years. It was the Texas Railroad Commission keeping the price of energy stable for the whole time. So it was an excess capacity of stable price of all the growth you wanted until they ran out and the excess capacity switched to the Middle East.
And then they had a different agenda to get as much money as they could. And they started raising the price. The price went from three to 40. That’s 11 times higher in about 10 years, which would be going from 50 today to 600 or 700 over the 10 year period of time. And it completely destabilized everything.
It was cost push inflation, they called it, through pass-throughs that caused prices to go up in general, about that much. And they took all kinds of measures to counter it. And the Keynesians said, the only way you can do this is with direct price and wage controls. Nobody wants to do that. So that was the last time we had any counter cyclical Keynesians.
They just totally discredited themselves. They didn’t recognize the way to go. That was not a viable policy. They deserved to go, in other words, if that was what they were going to propose. And the monetarists came in and started talking about how interest rates could take care of this. Yeah, like the Saudis even knew what our interest rate was, why do they care?
They’re just raising prices. So the price of oil kept going up and then inflation kept going up, which were price increases, which were caused by the price of oil pushing through to everything. Back then we used oil itself for a lot of things. And then we had President Carter and he started doing things that long term did help actually.
He deregulated natural gas, for example. Which allowed the utilities to switch from oil to natural gas. We had a lot of public utilities burning oil as primary source of power generation. And they couldn’t rely on natural gas because most of the wells were capped because there was a limit of two and a half dollars MCF.
Maybe it was 50 cents. I don’t know. It was very low.
[00:32:50] Grumbine: What does MCF mean?
[00:32:52] Mosler: Milllion Cubic Feet of natural gas. It was 50 cents. So it was too low for them to bother to explore. So their wells were capped. And so even if the power companies wanted to use it, they couldn’t count on supply coming at that price. And they just didn’t do it. Once it was deregulated and they could drill for as much as they want.
They knew we were awash in natural gas, and they could start switching over to it. So that helped. There was also a big demand shock in 1979 with the recession. So what happened was Paul. Paul came in. That’s Paul Volcker. The guy we’re talking about, remember the Boston Celtics had small Paul and tall Paul. Paul Cyrus was tall Paul and Paul Wentz was small Paul.
So then we had tall Paul as our Fed chief. Deciding to cap foreign reserves, which is absurd. You can’t do that. You have no idea how monetary operations work. So all he did was shift interest rate determination from the Washington Fed to the New York Fed, who was stuck with this idiotic policy and had to accelerate at some point.
What happened was the inflation kept going. So the higher rates promote inflation because what do higher rates do? Higher rates are nothing more than the payment of interest from a government’s point of view. It’s the payment of interest on the government debt. The public debt, the dollars that the government has spent that haven’t been used to pay taxes and they remain out there until they’re used to pay taxes.
We know the government spends first, some of the money gets used to pay taxes. The rest is still sitting there in government accounts, reserve accounts. It sells securities. So some of that money switches to savings accounts, which we call Treasury securities, that are just savings accounts at the Fed . They’ll just sit there forever.
The only way they can disappear is if they’re used to pay taxes. You call it government surplus. Government raises taxes and people have to use that money to pay it. So the public debt, it’s just the money out there. It’s 30 trillion. Now, the government has spent 30 trillion more than it’s taxed. Maybe it’s spent 120 trillion and 90 trillion is used to pay taxes.
So that’s gone. You have 30 trillion still sitting there in Treasury securities and excess reserves with the Fed. The government pays interest on that money, and that’s an interest expense. It’s part of the deficits deficit spending. When it raises rates, it pays more interest. And so as they’re raising rates, they’re paying more interest.
So they were paying a couple of hundred billion, then it’ll go to 300 billion or 400 billion. So when they raise rates, it’s what I call basic income. It’s just income being paid by the government deficit spending, but only to people who already have money.
that have money, the rich people,
By definition, they already have money. You’re paying interest to people who already have money and in proportion to how much they have. So, you have some money, you get interest. If I have twice as much money as you, I get twice as much subsidy from the government. So, this is basic income, citizens’ income, but only for people who already have money in proportion to how much they have.
That the Federal Reserve votes to pay out when they raise rates, and that’s the only thing they actually do. They vote, they raise their hands, and they talk, and they write things down. And operationally, the thing that happens is they pay more money out to people who already have money in proportion to how much they have. Now, there are a lot of people in favor…
[00:36:00] Grumbine: One second. That, in essence, exacerbates wealth inequality
[00:36:05] Mosler: If you don’t have any savings, you don’t get it. This is like a stimulus program, but only for people who already have money. In proportion to how much they have. So think of it as a stimulus for people who already have money. In proportion, how much you have that’s what it is that is paying the stimulus.
And that’s supposed to bring down inflation – to pay money to people who already have money. And if it doesn’t work, they’ll pay more. It doesn’t work. They pay more. I call it like the carpenter with his piece of wood and he’s cutting and he says, you know what? No matter how much I cut off, it’s still too short.
The Fed starts paying interest and the inflation doesn’t come down. It goes up. They didn’t raise it a lot. Volcker raised it a lot. It went up a lot. So they pay more. So they’ve raised it some more. We’re not going to stop until this thing breaks. The beatings will continue until morale improves, right?
[00:36:52] Grumbine: What an idiot.
[00:36:53] Mosler: British Navy. All right, this is nuts.
Well, what does happen when you get inflation is you get a money supply shortage. So if you think about this, let’s say all prices were to double and you used to go shopping with $300 in your pocket. Now you have to have $600 in your pocket to go shopping.
You need twice as much savings or cash because that’s what it is. Or you need twice as much credit on your credit cards to buy anything. If Apple computer has 250 billion in cash and all the prices and salaries and everything doubled now, its cushion isn’t so much anymore. It’s been cut in half now. It needs 500 billion.
So what price increases do is create a shortage of net financial assets. The public debt’s 30 trillion. That was 100 percent of GDP. We doubled GDP because prices doubled -nothing else happened – from 30 trillion to 60 trillion. Now, the public debts only 50 percent of GDP. It’s not enough equity to support what credit structures needed to now support 60 trillion of GDP.
We’ve created a money supply shortage. Every inflation creates a money supply shortage. In the Civil War, they printed greenbacks. I’m sure it was because the inflation was creating a money shortage. You look at Weimar Republic. It was printing money like crazy. That was because of the money shortage created by the inflation.
That isn’t what caused the inflation. That was a follow up to the inflation because people couldn’t make change at their cash registers. They didn’t have enough money because all the cash registers suddenly need twice as much. If you have 100 percent a month in inflation, you need twice as much every month.
Otherwise you can’t run your businesses. The whole economy crashes down from a lack of money to make change. Just walking around pocket money. It’s just a big fat money shortage. So this happened in 1979. The inflation was 12%. The deficit spending was only six or seven. So the public debt, whatever it was back then, was actually shrinking.
Adjusted for inflation in real terms was the same as running a budget surplus. It was the same as 7 percent budget surplus and the whole economy just collapsed because of that, and they can always say the interest rates…
[00:39:02] Grumbine: It brougtht down the inflation, right?
[00:39:04] Mosler: Right. It also kept the elephants out of Washington. All this counterfactual stuff. So now this is happening again, we’re having price increases. We’re getting a money supply shortage. We’re getting a fiscal contraction at the same time. President’s bragging about how the deficit has come down by a trillion. And with 8 percent price increase, 8 percent of 30 trillion is 2.4 trillion. It’s like a collapse of net financial assets of 2. 4 trillion. And you see that in the debt to GDP ratio coming down. I don’t know how far down it is now. I don’t get month to month numbers, but it’s probably gone from 125 to 100. Pretty big correct. You see this after wars all the time. You get a big run up in spending during wars, prices go up and you get cutbacks.
There’s a crash in net financial assets, the real money supply and contraction of government spending. You get a big post war recession or depression. And so we had a big COVID war. We spent all this money. Prices went up because Saudis pushed prices up. I can show you statistically how they did. Very little came from the spending.
I’m sure it was less than 1 percent of the 8 percent came from the spending. There was some, but it wasn’t a lot. Total consumer consumption isn’t even up from where it was, hasn’t caught up. But it is a real fiscal contraction coming from this post war, the COVID war where we spent trillions. And what did we spend it on?
People who had lost their jobs got unemployment compensation. That was the big one. People got stimulus checks. It was largely unemployment compensation. Businesses got unemployment compensation. So nobody got more money than they would normally have. They just got paid to stay home instead of to produce mostly services, restaurants and movie theaters, subway rides, and things like that.
The good side slumped, but it came back pretty quick. And yes, they had more excess savings. Their savings went up. But the form that the excess savings took was reduced consumer debt. So the credit card balances went down and then they came back up at a slower pace. And they’re below where they would have been without all the stimulus.
So you can see most of the excess stimulus money. I don’t even call it stimulus money. Crazy. Some bought things, but the rest turned into lower debt burdens. So the consumer now has lower debt burdens than it had before. And so, yes, there’s pent up capacity to spend, but from debt. So people have room on their credit cards to spend, but they don’t have more money in their bank accounts.
There’s no money burning holes in their pocket. There’s credit card debt ready to go at 18 percent interest if you really want to do that. Nobody really wants to do that anyway, and you’re starting to see it happen now only because suddenly fiscal spending is down and the transfer payments are down. And so…
[00:41:52] Grumbine: I think Biden said that he’s celebrating this 1. 3 trillion in deficit reduction. Here we go. Like brother Bill Clinton.
[00:41:59] Mosler: And prices are up, you got to pay more for gas. So when you pay on your credit card, that’s up. And if you can’t pay it, it’s 18%. So we’re doing that because prices were up because of this, not because we’re partying for the good time.
[00:42:11] Grumbine: Well, if prices go up by percentage taxes go up. Whether it be sales tax, now government receipts at the federal level go up and we know that government taxation equals dollar deletion or destruction. Yeah. So this is creating the grounds for that surplus.
[00:42:30] Mosler: Yes, that happens every cycle. And so what it is, is the counter cyclical automatic stabilizers, the automatic stabilizers, the fact that taxes go up when the economy grows. Disproportionate cost deficits come down and ends the cycle. They’re far too aggressive. They ended any cycle. And all these people say, oh, we need more.
So we are too many already. They’ve ended every recovery. They’ve cut it short, cut it on his knees. And there’s some people say, well, that’s a good thing. It’s not a good thing, you lose real output. That’s the worst possible. There are other things you can do if they’re creating some kind of other problem, you can regulate lending or something, but you don’t have to cut the knees out, put people out of work.
So this inflation, what’s happened is inflation used to be something else. It used to be the continuous increase in prices. It was a monetary phenomenon. It was on the gold standard because your reserves would double or something like that. And the economy was always reserve constrained. So this would allow the economy to expand because prices were always relative to your reserves.
And I don’t want to go into that, but we don’t have that anymore, but this is not one of those monetary inflations at all. There’s not any element about it. I shouldn’t say there’s not any element. The Fed studies have shown. It’s maybe 0. 3 percent can be attributed to that, but we get 1. 5 or 2 percent inflation anyway.
And so it hasn’t added to that, that we were going to get anyway. Yes, we have isolated maybe more so than areas price gouging because we’ve had more consolidation. Because of COVID, supply considerations have changed. So there might be fewer suppliers of the same thing, so they have more market power.
Fine, but that’s all the realm of antitrust law. And that’s what government’s supposed to be doing on the antitrust side. And the fact that we’ve eliminated that department’s budget is not an inflation problem. That’s a regulation problem.
So we’ve got two final questions and maybe we can bubble them into one as we’re winding up here. Number one is when those interest rates go up and the payouts to the wealthy go up, they end up inflating a lot of assets like housing. Housing is going up exponentially and you see a lot of things getting crushed with these interest rates going up now as well.
But places like BlackRock, buying up mobile home parks, cities and states writing up laws to prevent cohabitation from sharing rent. There’s a huge asset bubble, at least that’s the way it feels anyway, that these prices are rising exponentially. You’re Joe Biden, God forbid, I’d feel bad for you if you’re Joe Biden, but you’re Joe Biden in this scenario.
And you have to fix this. Re elections coming up, the Democrats are getting ready to take a major bloodbath. In this next election is the return of Trump after watching fecklessness from the democratic party show its head and the resurgence of the far right fascists is about to take place. You got to try and save the party.
How do you fix the economy Warren?
Am I supposed to do this for free?
[00:45:35] Grumbine: No, no, no. Joseph Biden’s getting so much money to do this. I’m sure through his Ukrainian connections.
[00:45:40] Mosler: I know, I know.
[00:45:41] Grumbine: Give me the high level. How do we fix this?
[00:45:44] Mosler: Well, we have to identify what the problem is. Let’s say the problem is that We had a bad crop and all the corn crop died. We only have half as much. So the price don’t, it’s too expensive. And so people can only eat half as much corn at this price. They don’t have enough money to afford it. That did not used to be called inflation.
That did not used to be something you’d blame Biden. But the corn crop died and now it’s expensive. How are we going to make it affordable again? Because what are you going to do if you give everybody enough money to be able to buy corn at the higher price, they’re not going to get twice as much corn.
Just going to drive the price up higher. There’s only half as much corn. If you take everybody’s money away. So then now price of corn comes down because only half the people can afford it because you’re taking everybody else’s money away. Okay. You’ve got the price of corn down, but only half the people are going to eat the corn.
So when you have scarce resources, the markets allocating by price, That’s not an inflation, that kind of a problem has to be addressed either by people just eat less corn and start eating other things. And it’s just more expensive to live your real standard of living is down because there’s been this failure on the output side.
You don’t have the capacity to keep everybody’s lifestyle as high as you have before because of this supply side failure. And we’ve had a little bit of that, we’ve had quite a bit. Part of it was self induced from the tariffs, of course, President Trump, 17 percent tariff on lumber, because. Canada wasn’t charging us enough kind of idiot policy is that so what does Biden do he doubles down on it?
So it’s now 34 percent because they’re still not charging us enough. Who are these guys? So if you need to send somebody out shopping for you, don’t send either one of them. They go out and punish people for not charging them enough. So they can’t come up with another solution other than to punish them and try and force them to raise prices when we’re out shopping in the world.
And I understand all the ramifications, but that’s not how you address them. That’s the worst possible thing. And then they say, Oh, well, lumber prices are up. So we have this inflation. So now we’re going to take your crazy money away, raise taxes or something or raise rates, which is backwards. You got the gun backwards as they shoot themselves in the face.
But look, the policy was to raise prices. Now you’re asking me, what can we do to bring them down? We’ll get rid of the tariffs. Is your policy higher prices or lower price? Is your policy higher prices are better for America or lower price? You got to give me a consistent policy, President Biden, before I can tell you how to fix it.
You have to tell me what’s broken in a way that makes sense. Prices are too high. Fine. Remove your policies that are raised. Remove all the state taxes on gasoline. You don’t want the price so high. That’ll cut the price probably 2 a gallon everywhere. Wholesale price is three and a half. It doesn’t need to be any higher.
Well, yeah, but we want the higher price so that people will use less because we’re worried about climate. Yeah, we’re worried about the environment. Well, so am I. Great. So then why do you want prices lower? Well, because we want to bring inflation down. Well, what about the environment? Well, yeah, we want to keep prices up to protect people.
Come on. So when you ask me what advice to give these guys, they’re so inconsistent in their responses to anything, right? Yeah, you can’t give them any advice that’s going to work for them. Because they don’t have a consistent agenda, so it’s not an applicable question to their agenda. Their agenda is contradictory to the core.
And so the agenda is a core contradiction. And you say, okay, how do we fix it? Let’s get a consistent agenda. It’s not contradictory. And now we can give you some ideas. Asking the Saudis to pump more isn’t going to help anything.
[00:49:27] Grumbine: Exactly.
[00:49:28] Mosler: Giving Chevron the rights to get oil from Venezuela is not going to help.
[00:49:32] Grumbine: What I heard you say though, during this, is that we have a supply issue. That our supply chains are really what’s causing the bulk of this is what I’m hearing.
[00:49:41] Mosler: That’s what’s caused this one time adjustment. Part of it is self imposed by the tariffs that started the disruption. And then it continued with lockdowns and everything else.
[00:49:51] Grumbine: So if you were to take a fiscal approach to this, would you invest instead in the supply chains that are part of the national infrastructure, which would have a much longer lead time? I don’t know how many shovel ready jobs would be there to impact anything. But what might that be? It sounds to me like an investment in infrastructure is the best way the government can respond and lower tariffs.
States have the dilemma of trying to find revenues wherever they can find them, which is why they raise taxes on gas because they have to have tax revenues.
[00:50:28] Mosler: But the federal government could replace that.
[00:50:30] Grumbine: I agree a hundred percent. Yes.
[00:50:33] Mosler: And it could do it on a blanket basis, like, we’ll replace all the states equally, whether you already have a tax or not.
[00:50:39] Grumbine: End unfunded mandates?
[00:50:41] Mosler: Well, that won’t change the gasoline price. See, that’s what I’m saying, a consistent agenda. So we could say, all right, fine, what you said, but there’s not a consistent agenda for this, for infrastructure.
What kind of infrastructure? Do you want more oil drilling? I don’t think so. Yeah. Okay, well, what does that even mean? When we look at all the dirt that goes into producing electric cars, yeah, do we really want to do that? Nobody’s got a consistent agenda on what clean energy is. It’s just a slogan right now.
And when we went into COVID lockdown, within a week, our emissions dropped 50 percent across the board, roughly. It’s the first time you could see China from space. [laughter] Nobody had ever seen it. And we did it by eliminating non essentials. Nobody starved to death. Nobody went naked for lack of clothing. Nobody had any lack of real materials.
So
[00:51:36] Grumbine: there
[00:51:37] Mosler: were people that
[00:51:37] Grumbine: were already like that.
[00:51:39] Mosler: Yep. We didn’t give up any essentials and emissions were down 50%. We had just solved our emission problems times a thousand. Because we’re trying to get a one or two percent drop in 30 years or so. We just dropped 50 percent overnight, a hundred percent on conservation.
We still had our computers. We still had all our toys. We had more to go easily. We weren’t limiting electricity consumption. We hadn’t shifted. And so what do we do? We said, we’ve got to restore the economy, got to restore growth. Did anybody say, you know what? We just got this jump on emissions. We’ve just literally saved the planet for humanity.
We’re no longer have a problem of temperature increasing past one and a half percent. In fact, it may start reversing at these levels. This is something you hadn’t seen in 50 years. Why don’t we bring this thing back with things that don’t make this environmental problem worse, it’s going to make it worse.
Let’s just not do it. Was there any discussion of that whatsoever? No, the discussion was 100 percent on ‘We got to get GDP back. We got to get people back to work.’ A year later we’re reopening and everybody’s cheering because now GDP is improved the most on record. 15 percent. Because we dropped 20. if you drop 20%, you got to go up a lot more than 20 to get back to where you started.
That’s just a percentage. We’re applauding that we got back. And emissions are back to where they were. We just last week announced record gasoline consumption for US drivers. And everybody’s saying, congratulations. We fully recovered. Then they asked me, what are we going to do about the clean energy?
What are we going to do about the environment? What do you want to do about it? I tell the story about the Boy Scouts who came home and the scout master said, ‘Well, what was your good deed? What did you boys do?’ He said, ‘Well, five of us helped this old lady cross the street.’ He says, ‘Well, why did it take five of you?’
He says, ‘Well, cause she didn’t want to go.’ So Is there any political will of consequence? None
[00:53:40] Grumbine: So I got this point. And what I want to say is this is the final word, Warren, simple letter grade, A through F. What do you give Biden and Jerome Powell’s grade? They’re your students, you gotta pass or fail. What do you give them for handling this situation? Where do they fit? A, B, C, D, E, or F.
[00:54:02] Mosler: For handling it? Again, it depends on what…
[00:54:04] Grumbine: Rhetoric. Whatever, I mean, just in general.
[00:54:06] Mosler: Depends on what the agenda is. They’re serving some agenda for some people. And I’m sure those people think they’ve done a great job and other people think they haven’t and they have an election. So they’re running a popularity contest. So I guess you go by the polls,
[00:54:20] Grumbine: Polls say that Biden is losing big time. Nobody likes Joe Biden right now. There you go. All right. Well, Warren, thank you so much for joining me today. Thank you for being gracious with your time. I really appreciate it. Tell folks where they can find more information about you, sir.
[00:54:37] Mosler: WB Mosler on Twitter is where I’m most active now because I can say things very briefly. I like that. A few sentences can get it out there without going any longer. And MoslerEconomics.Com is my website, which links to my book, the 7 Deadly Innocent Frauds of Policy, which is free online. And it takes you about half an hour to read and it’s written in non technical terms that even a central banker can understand.
And so, along with all the other writings about interest rates and anything else you might want to know, and you can message me on Twitter also if you have a direct question.
[00:55:15] Grumbine: Awesome. Warren, thank you so much once again for joining me today. Again, folks, this is Steve Grumbine with Warren Mosler. We are outta here!
[00:55:27] 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.
“The state sets the terms of exchange for its currency with the prices it pays when it spends, and not per se by the quantity of currency that it spends. Demand originates with the state. Without state spending, the value of the currency is unspecified and there is no aggregate demand. Only subsequent to state spending can the currency obtain absolute value and non-government spending take place.”
~Warren Mosler, Modern Monetary Theory: Key Insights, Leading Thinkers
GUEST BIO
Warren Mosler is an American economist and theorist, and one of the leading voices in the field of Modern Monetary Theory (MMT). Presently, Warren resides on St. Croix, in the US Virgin Islands. An entrepreneur and financial professional, Warren has spent the past 40 years gaining an insider’s knowledge of monetary operations.
Warren’s Twitter is @wbmosler
PEOPLE MENTIONED
Ro Khanna
is a member of the United States House of Representatives with the Democratic Party serving California’s 17th District.
https://khanna.house.gov/about/about-rep-khanna
Randy Wray
L. Randall Wray is a Professor of Economics at the Levy Economics Institute of Bard College and is one of the developers of Modern Monetary Theory.
https://www.levyinstitute.org/scholars/l-randall-wray
Paul Ryan
is a former member of the United States House of Representatives with the Republican Party serving Wisconsin’s 1st District.
https://www.britannica.com/biography/Paul-Ryan
Paul Krugman
is an American economist.
https://web.mit.edu/krugman/www/
Jerome Powell
is an American attorney and investment banker who has served as the 16th chair of the Federal Reserve since 2018.
https://en.wikipedia.org/wiki/Jerome_Powell
Paul Volcker
was an economist, corporate executive, political appointee, President of the Federal Reserve Bank of New York, and Chairman of the Federal Reserve’s Board of Governors.
https://www.federalreservehistory.org/people/paul-a-volcker
Arthur Burns
served two consecutive terms as chairman of the Board of Governors of the Federal Reserve System, between January 31, 1970, and March 8, 1978.
https://www.federalreservehistory.org/people/arthur-f-burns
G. William Miller
was chairman of the Board of Governors of the Federal Reserve System from March 8, 1978, to August 6, 1979. Before joining the Board of Governors, he was a Class B director at the Federal Reserve Bank of Boston.
https://www.federalreservehistory.org/people/g-william-miller
INSTITUTIONS / ORGANIZATIONS
Organization of the Petroleum Exporting Countries (OPEC)
William Blair
is an investment banking firm.
https://www.williamblair.com/Investment-Banking
Black Rock
is a global investment management firm.
https://www.blackrock.com/corporate
Mosler Automotive
was an American sports car manufacturer headquartered in Riviera Beach, Florida. It was founded in 1985 by Warren Mosler as Consulier Industries, and manufactured the Consulier GTP, which was later rebranded and updated as the Mosler Intruder/Raptor when the company spun off its automotive division as Mosler Automotive.
https://en.wikipedia.org/wiki/Mosler_Automotive
EVENTS
History of United States antitrust law
is generally taken to begin with the Sherman Antitrust Act 1890, although some form of policy to regulate competition in the market economy has existed throughout the common law’s history. The Interstate Commerce Act of 1887 began a shift towards federal rather than state regulation of big business. It was followed by the Sherman Antitrust Act of 1890, the Clayton Antitrust Act and the Federal Trade Commission Act of 1914, the Robinson-Patman Act of 1936, and the Celler-Kefauver Act of 1950.
https://en.m.wikipedia.org/wiki/History_of_United_States_antitrust_law
CONCEPTS
Modern Monetary Theory (MMT)
is a heterodox macroeconomic supposition that asserts that monetarily sovereign countries (such as the U.S., U.K., Japan, and Canada) which spend, tax, and borrow in a fiat currency that they fully control, are not operationally constrained by revenues when it comes to federal government spending.
Put simply, modern monetary theory decrees that such governments do not rely on taxes or borrowing for spending since they can issue as much money as they need and are the monopoly issuers of that currency. Since their budgets aren’t like a regular household’s, their policies should not be shaped by fears of a rising national debt, but rather by price inflation.
https://www.investopedia.com/modern-monetary-theory-mmt-4588060
https://gimms.org.uk/fact-sheets/macroeconomics/
Modern Money Primer by L. Randall Wray
https://realprogressives.org/mmt-primer/
Federal Job Guarantee
The job guarantee is a federal government program to provide a good job to every person who wants one. The government becoming, in effect, the Employer of Last Resort.
The job guarantee is a long-pursued goal of the American progressive tradition. In the 1940s, labor unions in the Congress of Industrial Organizations (CIO) demanded a job guarantee and Franklin D. Roosevelt supported the right to a job in his never realized “Second Bill of Rights”. Later, the 1963 March on Washington demanded a jobs guarantee alongside civil rights, understanding that economic justice was a core component of the fight for racial justice.
https://www.sunrisemovement.org/theory-of-change/what-is-a-federal-jobs-guarantee/
https://www.currentaffairs.org/2021/05/pavlina-tcherneva-on-mmt-and-the-jobs-guarantee
Federal Job Guarantee Frequently Asked Questions with Pavlina Tcherneva
https://pavlina-tcherneva.net/job-guarantee-faq/
Taxation within a Fiat System
The monetary system that the United States employs is a state money, or fiat, system, and from that framing, the most important purpose of taxes is to create a demand for the state’s money (specifically, for its currency). Further, being the monopoly issuer of its own currency, the state really does not need tax revenue to spend and can never run out of money to pay debts or provision itself so long as it’s spending is denominated in its own currency.
https://realprogressives.org/a-meme-for-money-part-4-the-alternative-tax-meme/
Government Bonds
are basically tradable savings accounts for the government’s currency. For simplicity, we use the term bonds to refer to all forms of government securities, including Treasury bills (short-dated securities offered at a discount) and Treasury bonds (long-dated interest-earning government bonds).
https://modernmoneybasics.com/glossary/
Bank Reserves
are essentially accounting instruments that the central bank holds as assets to transfer between accounts to settle debts between banks, clear checks, and foreign currency exchanges. Bank reserves never leave the central banking system.
https://gimms.org.uk/2022/06/05/mmt-banking-primer/
Keynesianism
Keynesian economics, the body of ideas set forth by John Maynard Keynes in his General Theory of Employment, Interest and Money, and other works, intended to provide a theoretical basis for government full-employment policies. It was the dominant school of macroeconomics and represented the prevailing approach to economic policy among most Western governments until the 1970s.
https://www.britannica.com/topic/Keynesian-economics
https://www.investopedia.com/terms/k/keynesianeconomics.asp
Cost Push/Demand Pull Inflation
Inflation refers to the rate at which the overall prices of goods and services rises resulting in the decrease in the purchasing power of the common man, which can be measured through Consumer Price Index. Modern analysis of inflation revealed that it is mainly caused either by demand side or supply side or both the factors. Demand side factors result in demand-pull inflation while supply side factors lead to cost-push inflation.
https://keydifferences.com/difference-between-demand-pull-and-cost-push-inflation.html
Monetarism
school of economic thought that maintains that the money supply is the chief determinant on the demand side of short-run economic activity. American economist Milton Friedman is generally regarded as monetarism’s leading exponent.
https://www.britannica.com/topic/monetarism
PUBLICATIONS FOR FURTHER EXPLORATION
The 7 Deadly Innocent Frauds of Economic Policy by Warren Mosler
https://moslereconomics.com/mandatory-readings/innocent-frauds/
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**Transcripts and “extras” are available for each episode of Macro N Cheese on our website: https://realprogressives.org/macro-n-cheese-podcast/
This podcast’s followers know we cover a range of topics from political theory to international events, but at some point, we always circle back to Modern Monetary Theory.
This interview with Warren Mosler was originally recorded for “Let’s Get Ready to Grumble,” Steve’s show on Status Coup.
As with any Mosler episode, this one is appropriate for both MMT newcomers and old-timers. They discuss interest rates, inflation, and the money supply. Warren goes over the key principles of MMT, emphasizing that government spending precedes taxation as well as the role of taxation itself.
The conversation also touches on rising fuel prices and the role of Saudi Arabia as monopoly supplier setting the price of oil.
Warren Mosler is an American economist and theorist, and one of the leading voices in the field of Modern Monetary Theory (MMT). Presently, Warren resides on St. Croix, in the US Virgin Islands. An entrepreneur and financial professional, Warren has spent the past 40 years gaining an insider’s knowledge of monetary operations.
@wbmosler on Twitter
Macro N Cheese – Episode 261
Mission: Inflation with Warren Mosler
January 27, 2024
[00:00:00] Warren Mosler [Intro/Music]: President Trump, 17 percent tariff on lumber because Canada wasn’t charging us enough. Kind of idiot policy is that? So what does Biden do? He doubles down on it. So it’s now 34 percent because they’re still not charging us enough. Who are these guys? And so if you need to send somebody out shopping for you, don’t send either one of them.
When you get inflation, you get a money supply shortage. So if you think about this, let’s say all prices were to double and you used to go shopping with $300 in your pocket. Now you have to have $600 in your pocket to go shop.
[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] Steven Grumbine: Hey, this is Steve with Macro N Cheese. From time to time, I’m invited to talk about MMT on other shows. This week, we’re bringing you an interview I did with Warren Mosler for Status Coup. I think you’ll find this topic as relevant as ever.
All right. And this is Steve. Today’s guest is going to be Warren Mosler and he is the father of modern monetary theory, what once was called Mosler economics, and I was lucky enough, I’m happy to have Warren Mosler be able to join me, not only to talk to you about what MMT is, but to talk about this damn inflation thing. It has me insane watching television, listening to other alternative media personalities describing the stuff. And in fairness, they always get it wrong. So let me bring on my guest, Warren Mosler.
Warren, thank you so much for joining me today.
[00:02:37] Warren Mosler: Ah, good to be here.
[00:02:38] Grumbine: Absolutely. Thank you. Absolutely. You have always been, in my mind, anyway, the father of MMT. And I know that when we first met, this was called Mosler economics. And your website, The Center of the Universe, has some great resources for anybody that’s interested in reading up on MMT.
Could you please tell the audience what MMT is, Modern Monetary Theory is, and why it matters.
[00:03:10] Mosler: I’d say the most important thing to understand is that, what I came up with years ago, is understanding that the dollars that can be used to pay taxes, come from the government. Now, this is in direct contrast to every member of Congress, every economist, everyone else out there who was saying that members of Congress would say, we have to get money by taxing, to be able to spend it.
And if we want to spend more than we tax, we have to go out and borrow money to be able and spend that money. And so any money that we want to spend in Congress here, we have to get it first, by either getting it by taxing or get it by borrowing. And sure enough, you saw President Obama with Secretary Clinton going to China in, I think, 2009 to make sure we could borrow money from our creditors.
China, who were creditors, to be able to fund the stimulus package. And what Modern Monetary Theory points out- and it’s something that the operations people in the Federal Reserve have always known since the beginning, and every other central bank as well have always known, and that is that- these dollars the government is spending, come from the government.
They don’t come from the private sector. They originate in the government. And if the private sector tries to originate dollars to pay taxes, that’s called counterfeit and you go to jail for that. Strict laws against that. So that makes an enormous difference in how you view things.
So, congressmen think they have to go out and look for dollars to be able to spend. The real struggle in the world is that us, the taxpayers, we are dependent on the government spending to get the dollars that we need to pay the taxes. Now, this does not mean that the government does not have to tax. It does mean that it spends first, and then we get the money, and then we pay our taxes.
But what the government has to do first is tax, and specifically, it has to impose tax liabilities, tax obligations. So just to keep the conversation simple, let’s imagine the only obligation it does, is it puts a tax on everybody’s house. So step one would be the government would put a property tax on everybody’s house.
This creates a population that now needs dollars to pay taxes. Before the tax, there was no particular need for dollars because this economy was getting it from day one. Once there’s a tax on everybody’s house, there’s this massive need for dollars, and it might be $3 trillion or $4 trillion taxed on everybody’s house.
Okay, so now people need the dollars, so they’ll go to work to earn dollars. They’ll sell things to get dollars, and they’re trying to get dollars. And now the government can hire them. You can say, I put a tax on your houses, you all need dollars, and so now if you want dollars, come work for me. If you’re a soldier, I’ll pay you $50,000 a year.
If you’re a Supreme Court justice, I’ll pay you $200,000 and so on down the line. If you’re a public school teacher, I’ll pay you whatever. And so the government can then pay people to do all the work that it wants done. And then after that, people can pay their taxes. So, what we point out is the sequence.
The sequence is first, a tax liability by a government that wants to provision itself. The government wants people in public service, it wants school teachers, it wants soldiers and public health workers. How does it get them? Number one, it puts a tax on your house. Number two, this causes you to now be unemployed and go out looking for paid work, work that pays in dollars. Number three, it hires you. Number four, you get paid. And then number five, you pay the tax.
So the purpose of the taxation was not for the government to get your money, it came from the government. They spend it first. The purpose of the taxation is to get you to need their money, so that you will go work for the government. So then they can pay you, and then you can pay the tax. And that’s the end of the line, is when you pay the tax. Once they understand that sequence, you realize that the whole idea of government solvency just doesn’t make any sense. It’s not applicable. It’s not like, where is the money going to come from?
The money comes from government, they just credit your account. With online banking, you can just look at your account and you might have a thousand dollars in your account, which is a one zero zero zero. And then here comes my social security check. And all of a sudden my account says four zero zero zero.
I just got three thousand dollars put into my account by the government. Okay, what did they do? Did they take a gold coin and hammer it in? No, all they did was change the one into a four, out of the keyboard. And they changed the number up in my account. That’s called crediting an account.
[00:07:54] Grumbine: Okay,
[00:07:55] Mosler: Okay. That’s all they do.
They’re the scorekeeper for this dollar. It doesn’t come from anywhere. They’re not going to run out of it or anything like that, any more than the scorekeeper at a football game is going to run out of points. Your team kicks a field goal. It’s not that kind of a problem. Once you understand that, then you realize the problem isn’t where’s the money going to come from, it’s is there anything out there for them to buy? Because they need these tax liabilities, these property taxes out there, in sufficient quantity, to get sufficient things for sale. So that their otherwise worthless currency, without taxes, it’s not worth anything.
The dollar is a tax credit – a thing that pays your taxes. Tax credit’s not worth anything without a tax. Are these tax liabilities creating enough things for sale so they can go buy? And if they’re not, the evidence might be that the government starts paying higher prices to buy the same thing. That’s evidence that their tax liabilities haven’t been strong enough to create enough selling pressure to keep prices going up.
Now, there are other reasons prices can go up. One reason would be that the taxation isn’t high enough. It’s not strong enough. There’s no demand for the currency. They haven’t spent enough. That’s one possible reason. Now, it’s a theoretical reason that’s certainly a possible reason. But my- how many years now- 50 years of watching this stuff, I’ve never seen it.
Okay, that’s not saying it- I’ll absolutely agree that it- is possible, but we always get price increases long before that happens, in my experience. And this latest bout of- what is called- inflation, is an example of that. So, is that enough to get you started here?
[00:09:35] Grumbine: Absolutely. So let’s jump ahead. A recent article came out from the Guardian that showed a bunch of the most profitable companies over the course of the last two years, many of which were claiming they needed to raise prices to offset inflation. And we’re talking about 800 percent profit, 333 percent profit increases.
These are increases, not just where they were, but actual increases over prior earnings,
[00:10:07] Mosler: Yeah,
[00:10:08] Grumbine: The actual salaries of individuals, however, only rose 1.6 percent as opposed to the 800 percent and 300 percent of Amazon and others. Is this not abuse of market power? Isn’t this the smoky room with the writing up and marking up of accounts?
The ‘maximize return on investment’ crap?
[00:10:30] Mosler: Well yes, but that’s what they’re supposed to do. That’s what the law says they’re allowed to do. And that’s what’s supposed to make capitalism great. That’s supposed to be what’s lifted us out of poverty, is that when there are large profit margins, it attracts new businesses, and then they get competition and brings it down.
Now, when that process isn’t working, the government already has the laws in place- the antitrust laws- to regulate and supervise and make sure these things stay reasonable. And so what you’re talking about at this point, could be a failure of government to recognize a non-competitive area, where they have an obligation to regulate.
Where it’s competitive, they’re supposed to stay out. Where it’s non-competitive, they’re supposed to regulate. And that’s not 1904 or something. I don’t know when Teddy Roosevelt brought in the antitrust laws, but it’s been a long time. But also, Steve, this has always gone on.
When we’re reading about this company that’s buying drugs cheap and then marking the price up 77, 000 million percent and selling it. You see all these poor people can’t afford their insulin and things like that. That was a long before COVID. It’s been going on my entire career. So I don’t see that as a change that’s material for the current inflation discussion.
And I think the Fed did a study of this- San Francisco or St. Louis or somewhere- and they said that it might be adding three tenths of a percent to the inflation rate. So I’m categorically against it. I see it as a failure of government to fulfill its responsibility to regulate, when there’s insufficient participants to have competitive markets. And it happens all the time.
And we see governments that get elected because they pledge to fail to regulate, cut the number of regulators, and they give corporations… just handing them these profits, because I guess they’re getting it back from donors or something like that, right? You get this negative feedback loops from business.
We have that. But I think if we’re going to talk about this inflation, I wouldn’t scapegoat it, going in that direction. I’ll go there for other reasons, but I won’t go there for this.
[00:12:26] Grumbine: So with that in mind, we see fuel prices going up absurdly high, and such a jump that the average person is struggling. Now, is this an issue of a lack of supply or is this price gouging?
[00:12:40] Mosler: Okay, it’s an issue of a single supplier, at the margin, setting prices, and has been setting price since 1973. And that’s Saudi Arabia. And in the last couple of years, it’s OPEC+, if you notice, that’s because Russia’s involved now. And Russia got involved during COVID when there was a collapse of demand that the Saudis couldn’t handle, because their production would have gone to zero.
And Russia agreed to share the cuts, but they don’t do this for free. And so now they’re sitting at the table with Saudi Arabia and they’ve become their weapons supplier. Saudis like them better than they like us because they don’t criticize them for killing journalists and for bombing Yemen. They support them and all this. So we’ve lost Saudi Arabia as a strategic ally.
And let me give you the best way to explain this. When I explain this to you, there isn’t a single oil analyst in the world that’s understood this, any more than any member of parliament, member of Congress understood that, the sequence that they were spending first, so that taxes could be paid afterwards. Yet everybody in the central banks/monetary operations knew this.
Everybody I’ve talked to for the last 50 years, there’s no discussion about it. It just goes without saying, that they can’t do reserve drain, which means the economy can’t make a payment to the government unless the government makes a payment to the economy first.
They call that a reserve add. It’s the Federal Reserve Bank and they call the bank accounts that they have at all the banks reserve accounts, just to confuse everybody. They say we can’t do a reserve drain without doing reserve add. We can’t debit an account unless we credit it first.
[00:14:14] Grumbine: What is a reserve drain? Just start right there, because this is a term most people have never heard.
[00:14:19] Mosler: Yeah, it’s a payment that a bank makes, that causes the money in its account to go down, like anybody else. When you check the account, write a check, the number goes down. That’s called a drain on your reserves. So, instead of saying, we’re just reducing their balance in their account, they call it a reserve drain.
Because their accounts, they’re at the Federal Reserve, so it’s a reserve drain or something, I don’t know.
[00:14:42] Grumbine: You got guys like Ro Khanna telling people that we should raise taxes on corporations to offset this inflation. Everything I’ve ever read from Randy Wray- and others- have been taxes on corporations are a pass through to consumers.
[00:14:59] Mosler: One of the major impetuses driving this has been energy prices. So let’s look at how the energy price goes up, and then tell me what a tax on corporations is going to do to this process. So, right now, the demand values around numbers is 100 million barrels a day. That’s how much we burn every day around the world.
If Saudi production is about 10 million barrels a day, and they export about seven, seven and a half million, they use the other three themselves. But Saudis are capable of producing 12, but they don’t, they’re only producing 10. And you’ve heard President Biden say he wants the Saudis to pump more oil.
And I’ll get back to that in a minute, which is an absurd statement. And you’ll see why in five minutes, three minutes. Let’s say the price of oil today is $115 a barrel, and the Saudis set their price at $120. So the rest of the world’s producing 90, the Saudis have the last 10, and they’re exporting 7.5. So the world needs 7.5 million barrels from the Saudis every day, or else we’d have to go shut the lights off. So if the rest of the world’s at 115, and they go around trying to buy the oil- they need 100 million barrels, total burning- then, the Saudis are using 3, so they need 97 more, so they’re not there. They can only get 90.
That’s all they’re producing, so they can’t get the last 7 million barrels. Which means about 3:30 every day, everybody’d have to shut the lights off and stop driving yourself. Because we’d run out of energy every day for a few hours, because we’re only getting 93% of what we need. The other 7% of our time- which is, how many hours is that, hour and a half or so, two hours- we’d be dark.
So, they have to go to the Saudis, because we need the oil on a daily basis to burn. And they’ve got it. And their price is $120. And there’s no market here, it’s a single supplier for that last 7 million barrels every single day. Their inventories now are down to a minimum.
You can say you can take it out of inventory. Fine. We’re already using the strategic petroleum reserve. We still need their last 7. Because Russia’s been cutting back, because we’re not allowed to buy it. And so you’re going to have to pay $120 to get those last 7 million barrels, period. Well, in the meantime, you’re not going to just jump from $115 to $120 as you get towards your 97- whatever you’re buying from everybody else, the three- you’re going to start offering more and more to try and get those last 7.
You don’t know it because you read it in the newspaper. Because they say, don’t have any, well, I’ll pay you $116, don’t have any. I’ll pay you $117, don’t have it. $118, please, I don’t want to pay Saudis, $119, I’ll pay you $120, we still don’t have. I don’t want to go to the Saudis, I’ll pay you $121, we don’t have it.
Okay. I’ll go to the Saudis and pay $120. What that does is it drives the price of all the oil by the end of the day to $120. No, it’s not just 1 day. There’s averages and there’s long term contracts and there’s delivery lags of 30 days. There’s boats going in and out, loading and unloading. But this is a concept underneath it.
And over a day, 2 days, 3 days, this is exactly what happens.
[00:17:58] Grumbine: This is a supply issue, but it’s an intentional scarcity where Saudi Arabia, who has a capacity to create plenty of oil, has chosen to keep supply down to drive the prices up.
[00:18:11] Mosler: No
[00:18:12] Grumbine: No?
[00:18:12] Mosler: No. there’s Here’s the point. The Saudis can set any price they want for that last 7 million, but they have to set a price. They can’t just say, we’re going to go sell it at the market. There is no such thing. It’s like if you’re the power company, and you have the electricity for the city, and you’re the only power company, you have to set a price.
Okay, down here, power is 50 cents a kilowatt. It’s a lot. Our water and power association, WAPA, W A P A, sets the price. They have a meeting, at the meeting they set the price. They set the price at 50 cents.. Now, usage might drop during the month. The price won’t fall. It’s still going to go to them and pay their 50 cents.
Usage might go up. They might run out of power and have brownouts. But the price won’t go up unless the board gets together and meets and raises the price. Because it’s a single supplier at the margin, at least. We have solar, we’re producing a lot of our own power, but at the margin, we need power from them and their power is needed. It’s a monopoly for the portion that’s needed.
Just like the Saudis have a monopoly for that last 7 million. And so they have to set a price. So they set a price. So let’s say the price of the market was $115 that day. Their price is good $115. So then we’d be in balance. How much would they sell?
They’d sell the same 7 million. They’re not going to sell more as they split the price. The world only needs a hundred, that’s it. If they raise the price to $120, they’re selling the same 7 million. If they lower the price to $110, the whole price structure will come down to $110 and they’ll sell the same 7 million.
It’s not going to change. Because that’s all the market needs that day, the demand can’t change day to day, just because the price changes. Some days that demand does change day to day, but not well. You don’t stop driving to work because the price went up 25 cents or a dollar or something. In fact, the price is going up. The last I saw American demand for gasoline has gone up.
So, it hasn’t even gone down with gas going $6 dollars a gallon. People have just been impervious to it for whatever reason. Maybe more people are getting jobs and have to drive to work. So, when you’re a monopolist like that, you can’t change the quantity. All you can do is set a price and let the market buy what it wants, at your price.
You can’t decide to pump more oil. You could decide to lower the price and maybe the market will buy more. They can lower it to $20, maybe they’d sell more. Probably would. They could raise the price to $200, maybe they’d sell less. Probably would. They have to do that, they have to change the price, and to let the quantity adjust. There’s no other way to do it.
You think about it. What else can they do?
[00:20:58] Grumbine: It’s a demand driven.
[00:21:03] Mosler: It’s a fixed demand
[00:21:04] Grumbine: Okay.
[00:21:05] Mosler: and there’s fixed supply and there’s excess capacities. Everybody else just sells everything they have. They say, well, the US has more oil than Saudi Arabia, so we’re selling more, why aren’t we the price setter? We have a thousand different sellers just selling at the best price they can get. Everybody else is just selling at the market, best price they can get, all they have. Saudis are looking at this saying, I don’t want to do that, if I sell my 12 million barrels at the market, try to do that, just lowers the price. It’s going to go down to zero or $10 or $20 dollars. It went negative not too long ago. And you can’t do that. It doesn’t work.
They have to set a price, or let the whole thing collapse. They don’t like doing this. They’d rather sell all 12 at the good price. But they can’t, because they try and sell 102 million barrels into 100 million barrel demand, you got a downward spiral till somebody stops selling or demand goes up.
[00:21:58] Grumbine: Is it an unfair ask that we do something to bring the price of this down, or is this something that we have to partially adjust to?
[00:22:07] Mosler: So, look, the president and everybody else- all the analysts- are saying Saudis need to pump more to get the price down. Now, do you see how that’s patently absurd based on that simple dynamics of a non-competitive situation? That is an absurdity. They say, oh, we’ll get Venezuela to pump an extra million barrels and the price will go down.
Why? That just means when the Saudis set whatever price they set, they’re going to sell six instead of seven. They’ll have an extra million of excess capacity. It doesn’t mean the price will change. We unleashed a strategic reserve of half a million or a million barrels a day. Price didn’t change, it went up… because the Saudis are raising their price.
If we hadn’t done that, they would have sold a half a million or a million barrels a day more. Instead of having two million excess capacity, they would have only had one, if we had done that. But all we did was change your excess capacity. Can you see the market force at work here? See how it’s completely different from what you thought it was 15 minutes ago?
[00:23:04] Grumbine: Yes. My question becomes this. As I go down the street here in Harrisburg, Pennsylvania, and I see the gas set at $4.65 a gallon, I’m not a petroleum producer, I don’t create barrels of oil, I don’t work in the industry, I’m just a guy that drives a car to get to and from work, I’m a rank and file voter that’s looking at the gas prices and saying, ‘what the hell, why isn’t my government doing for me to help me out of this, I can’t afford to eat.’ Then I look out in California and I’m looking at $8 a gallon and I’m saying what the hell?
So there are layers to this wholesale arrangement, to the retail arrangement and etc. Where is the inflation that we’re all experiencing at the pump? Where is that generating from?
[00:23:49] Mosler: Well, the margins is mostly tax. California’s all tax. So you have a lot of state taxes. If you look at the actual margin that the gas stations are making, it’s not where the problem is. The problem is the underlying price of oil. Now, in the UK, across Europe- where they’ve had much larger taxes, where it’s been $10 a gallon for a long time, and where the underlying price was only $2 a gallon for a wholesale price- their increase might be the same $2, but it’s only 20 percent instead of 100 percent is because it’s on a larger base.
And there are a lot of places in the world where there isn’t any tax. And so it’s still $3 and a half dollars, but the wholesale price is gasoline. So the wholesale price is coming from the suppliers and that’s doubled- more than double- and nobody understands where the price is coming from. So nobody’s doing anything about that, except making idiotic comments, like ‘they need to pump more.’ Which shows a complete lack of understanding of how the process works.
And I just got off exchanges with some of the major size oil traders, telling me I’m wrong. So, they don’t know how it works either. And how many Nobel Prize winners told me I was wrong about monetary sequence, it’s the same thing. That’s why the debate finally changed between Obama, to say Bush, to Biden.
Our B-level presidents, whatever you want to call it. And under the last COVID thing, all they talked about was whether this spending would cause inflation. Nobody once thought that checks would bounce. Nobody said, what happened to Paul Ryan talking about how we’re going to be the next Greece? It’s all gone.
What happened to going to China to check with our backers about borrowing? What happened to Paul Krugman with his ‘We’re going to run up interest rates?’ None of that, it’s all gone. So to that degree, MMT has had an enormous influence and it’s changed the debate from talking about solvency, ‘we’re going to go broke’, to talking about, ‘we might cause inflation.’
Now we’re here talking about, ‘are we causing inflation?’ And I’m telling you- for the most part- No. What we’re getting, are price increases from a monopolist, raising price. Not from any kind of a monetary inflation. And this monopolist is blatantly raising price and doing it in disguise method. They don’t just set the price, they set their spreads to benchmarks, which is indirectly doing exactly the same thing, driving the price higher continuously. It’s been trending up 6 or 8 months now, and it’s going to continue to trend up while they have the same pricing structure in place.
That’s a simple price setting mechanism that causes the price to go up, up, up, up… not every day, but week to week, month to month, until people stop using it, until it breaks the economy. Which is exactly what they did in 2008.
I think they got it up to $155 or $157, that broke the economy. Now, there are a lot of other issues that collapse with it, that we talk about. Nobody talks about what the price of oil did to the economy, but it was the same thing. But today- on an inflation adjusted basis- $150 is $300, right? That was 12 years ago, 14 years ago.
And so maybe it takes $300 dollar oil. I don’t know when the price breaks the economy and causes demand to collapse. It’s going to keep going up until the demand collapses. That’s the Russia strategy. This is their extended war strategy against the world. They’re working with the Saudis to make sure their OSPs, they’re called- official setting prices- are set at wide enough spreads to benchmark the posterior value, which causes the price to just go up and up and up, every week.
As it’s a stiff case of monopolist setting price in a very thinly disguised manner. And it’s not going to stop until that’s addressed, no matter what we do with interest rates, which we do backwards, of course. No matter what we do with taxes, they don’t care. They’re just going to keep raising the price of oil until it breaks.
It’s like a kid breaking his toys, just going to hammer and hammer and hammer, until the thing breaks. And that’s what they do. And there’s nobody addressing that, period. And they’ve got this NOPEC thing, where we’re going to file a lawsuit against them for having a cartel. This is like a Monty Python thing.
[laugher] Let’s file a lawsuit against the Romans. They’re violating human rights.
Okay.
[00:28:04] Intermission: You are listening to Macro N Cheese, a podcast brought to you by Real Progressives, a nonprofit organization dedicated to teaching the masses about MMT, or Modern Monetary Theory. Please help our efforts and become a monthly donor at PayPal or Patreon, like and follow our pages on Facebook and YouTube, and follow us on TikTok, Twitter, Twitch, Rokfin, and Instagram.
[00:28:58] Grumbine: Jerome Powell is talking about how we’re going to have to raise interest rates and it’s going to be a very painful experience. I talked to Randy Wray the other day, who’s written a paper recently saying there is no soft landings coming basically from the Fed jacking up Volcker rates. Can you talk to us about the seventies with the OPEC crisis and interest rates in Volcker and then bring it forward if you can,
[00:29:24] Mosler: I already did. It’s the same thing.
[00:29:26] Grumbine: Well, I understand, but I want to tie Volcker into this, if we can do that
[00:29:29] Mosler: Okay. We’ll just change the names. [laugher] So, you know, we had Arthur Burns and [G. William] Miller. That was when I was with my… back when I was your age, you know, in
my early 30s.
[00:29:40] Grumbine: Back when you were studding around in the Consulier race car, right? By the way, Warren Mosler designed the coolest race car of all time. Check it out.
[00:29:48] Mosler: This was long before I did that. I was born in 1949. So that was when I was 30, 1979, right? I was at William Blair, I went there in 1978. So that was around the middle of the fray, so to speak. So you’ve got the Saudis raising price and this cost push inflation is what they called it. The Keynesians didn’t know what to do.
They had been running things and everybody was doing things counter cyclically. And we’d had the golden years of low unemployment and all that kind of thing. And then when the price of oil switched from the Texas railroad commission, who was limiting production of our oil in Texas to make sure the price didn’t fall below two and a half dollars per barrel because we had overcapacity, but as demand picked up, we used up our overcapacity and so they couldn’t do that anymore. That wasn’t the problem anymore. The price was getting up over three dollars and the excess capacity had moved to Saudi Arabia. Now, they’re the ones setting price, and they had a different agenda than the Texas Railroad Commission.
The Texas Railroad Commission had kept the price stable for 14 and 15 years, and those were the golden years of economics. And everybody talks about what caused the golden years. It was the Texas Railroad Commission keeping the price of energy stable for the whole time. So it was an excess capacity of stable price of all the growth you wanted until they ran out and the excess capacity switched to the Middle East.
And then they had a different agenda to get as much money as they could. And they started raising the price. The price went from three to 40. That’s 11 times higher in about 10 years, which would be going from 50 today to 600 or 700 over the 10 year period of time. And it completely destabilized everything.
It was cost push inflation, they called it, through pass-throughs that caused prices to go up in general, about that much. And they took all kinds of measures to counter it. And the Keynesians said, the only way you can do this is with direct price and wage controls. Nobody wants to do that. So that was the last time we had any counter cyclical Keynesians.
They just totally discredited themselves. They didn’t recognize the way to go. That was not a viable policy. They deserved to go, in other words, if that was what they were going to propose. And the monetarists came in and started talking about how interest rates could take care of this. Yeah, like the Saudis even knew what our interest rate was, why do they care?
They’re just raising prices. So the price of oil kept going up and then inflation kept going up, which were price increases, which were caused by the price of oil pushing through to everything. Back then we used oil itself for a lot of things. And then we had President Carter and he started doing things that long term did help actually.
He deregulated natural gas, for example. Which allowed the utilities to switch from oil to natural gas. We had a lot of public utilities burning oil as primary source of power generation. And they couldn’t rely on natural gas because most of the wells were capped because there was a limit of two and a half dollars MCF.
Maybe it was 50 cents. I don’t know. It was very low.
[00:32:50] Grumbine: What does MCF mean?
[00:32:52] Mosler: Milllion Cubic Feet of natural gas. It was 50 cents. So it was too low for them to bother to explore. So their wells were capped. And so even if the power companies wanted to use it, they couldn’t count on supply coming at that price. And they just didn’t do it. Once it was deregulated and they could drill for as much as they want.
They knew we were awash in natural gas, and they could start switching over to it. So that helped. There was also a big demand shock in 1979 with the recession. So what happened was Paul. Paul came in. That’s Paul Volcker. The guy we’re talking about, remember the Boston Celtics had small Paul and tall Paul. Paul Cyrus was tall Paul and Paul Wentz was small Paul.
So then we had tall Paul as our Fed chief. Deciding to cap foreign reserves, which is absurd. You can’t do that. You have no idea how monetary operations work. So all he did was shift interest rate determination from the Washington Fed to the New York Fed, who was stuck with this idiotic policy and had to accelerate at some point.
What happened was the inflation kept going. So the higher rates promote inflation because what do higher rates do? Higher rates are nothing more than the payment of interest from a government’s point of view. It’s the payment of interest on the government debt. The public debt, the dollars that the government has spent that haven’t been used to pay taxes and they remain out there until they’re used to pay taxes.
We know the government spends first, some of the money gets used to pay taxes. The rest is still sitting there in government accounts, reserve accounts. It sells securities. So some of that money switches to savings accounts, which we call Treasury securities, that are just savings accounts at the Fed . They’ll just sit there forever.
The only way they can disappear is if they’re used to pay taxes. You call it government surplus. Government raises taxes and people have to use that money to pay it. So the public debt, it’s just the money out there. It’s 30 trillion. Now, the government has spent 30 trillion more than it’s taxed. Maybe it’s spent 120 trillion and 90 trillion is used to pay taxes.
So that’s gone. You have 30 trillion still sitting there in Treasury securities and excess reserves with the Fed. The government pays interest on that money, and that’s an interest expense. It’s part of the deficits deficit spending. When it raises rates, it pays more interest. And so as they’re raising rates, they’re paying more interest.
So they were paying a couple of hundred billion, then it’ll go to 300 billion or 400 billion. So when they raise rates, it’s what I call basic income. It’s just income being paid by the government deficit spending, but only to people who already have money.
that have money, the rich people,
By definition, they already have money. You’re paying interest to people who already have money and in proportion to how much they have. So, you have some money, you get interest. If I have twice as much money as you, I get twice as much subsidy from the government. So, this is basic income, citizens’ income, but only for people who already have money in proportion to how much they have.
That the Federal Reserve votes to pay out when they raise rates, and that’s the only thing they actually do. They vote, they raise their hands, and they talk, and they write things down. And operationally, the thing that happens is they pay more money out to people who already have money in proportion to how much they have. Now, there are a lot of people in favor…
[00:36:00] Grumbine: One second. That, in essence, exacerbates wealth inequality
[00:36:05] Mosler: If you don’t have any savings, you don’t get it. This is like a stimulus program, but only for people who already have money. In proportion to how much they have. So think of it as a stimulus for people who already have money. In proportion, how much you have that’s what it is that is paying the stimulus.
And that’s supposed to bring down inflation – to pay money to people who already have money. And if it doesn’t work, they’ll pay more. It doesn’t work. They pay more. I call it like the carpenter with his piece of wood and he’s cutting and he says, you know what? No matter how much I cut off, it’s still too short.
The Fed starts paying interest and the inflation doesn’t come down. It goes up. They didn’t raise it a lot. Volcker raised it a lot. It went up a lot. So they pay more. So they’ve raised it some more. We’re not going to stop until this thing breaks. The beatings will continue until morale improves, right?
[00:36:52] Grumbine: What an idiot.
[00:36:53] Mosler: British Navy. All right, this is nuts.
Well, what does happen when you get inflation is you get a money supply shortage. So if you think about this, let’s say all prices were to double and you used to go shopping with $300 in your pocket. Now you have to have $600 in your pocket to go shopping.
You need twice as much savings or cash because that’s what it is. Or you need twice as much credit on your credit cards to buy anything. If Apple computer has 250 billion in cash and all the prices and salaries and everything doubled now, its cushion isn’t so much anymore. It’s been cut in half now. It needs 500 billion.
So what price increases do is create a shortage of net financial assets. The public debt’s 30 trillion. That was 100 percent of GDP. We doubled GDP because prices doubled -nothing else happened – from 30 trillion to 60 trillion. Now, the public debts only 50 percent of GDP. It’s not enough equity to support what credit structures needed to now support 60 trillion of GDP.
We’ve created a money supply shortage. Every inflation creates a money supply shortage. In the Civil War, they printed greenbacks. I’m sure it was because the inflation was creating a money shortage. You look at Weimar Republic. It was printing money like crazy. That was because of the money shortage created by the inflation.
That isn’t what caused the inflation. That was a follow up to the inflation because people couldn’t make change at their cash registers. They didn’t have enough money because all the cash registers suddenly need twice as much. If you have 100 percent a month in inflation, you need twice as much every month.
Otherwise you can’t run your businesses. The whole economy crashes down from a lack of money to make change. Just walking around pocket money. It’s just a big fat money shortage. So this happened in 1979. The inflation was 12%. The deficit spending was only six or seven. So the public debt, whatever it was back then, was actually shrinking.
Adjusted for inflation in real terms was the same as running a budget surplus. It was the same as 7 percent budget surplus and the whole economy just collapsed because of that, and they can always say the interest rates…
[00:39:02] Grumbine: It brougtht down the inflation, right?
[00:39:04] Mosler: Right. It also kept the elephants out of Washington. All this counterfactual stuff. So now this is happening again, we’re having price increases. We’re getting a money supply shortage. We’re getting a fiscal contraction at the same time. President’s bragging about how the deficit has come down by a trillion. And with 8 percent price increase, 8 percent of 30 trillion is 2.4 trillion. It’s like a collapse of net financial assets of 2. 4 trillion. And you see that in the debt to GDP ratio coming down. I don’t know how far down it is now. I don’t get month to month numbers, but it’s probably gone from 125 to 100. Pretty big correct. You see this after wars all the time. You get a big run up in spending during wars, prices go up and you get cutbacks.
There’s a crash in net financial assets, the real money supply and contraction of government spending. You get a big post war recession or depression. And so we had a big COVID war. We spent all this money. Prices went up because Saudis pushed prices up. I can show you statistically how they did. Very little came from the spending.
I’m sure it was less than 1 percent of the 8 percent came from the spending. There was some, but it wasn’t a lot. Total consumer consumption isn’t even up from where it was, hasn’t caught up. But it is a real fiscal contraction coming from this post war, the COVID war where we spent trillions. And what did we spend it on?
People who had lost their jobs got unemployment compensation. That was the big one. People got stimulus checks. It was largely unemployment compensation. Businesses got unemployment compensation. So nobody got more money than they would normally have. They just got paid to stay home instead of to produce mostly services, restaurants and movie theaters, subway rides, and things like that.
The good side slumped, but it came back pretty quick. And yes, they had more excess savings. Their savings went up. But the form that the excess savings took was reduced consumer debt. So the credit card balances went down and then they came back up at a slower pace. And they’re below where they would have been without all the stimulus.
So you can see most of the excess stimulus money. I don’t even call it stimulus money. Crazy. Some bought things, but the rest turned into lower debt burdens. So the consumer now has lower debt burdens than it had before. And so, yes, there’s pent up capacity to spend, but from debt. So people have room on their credit cards to spend, but they don’t have more money in their bank accounts.
There’s no money burning holes in their pocket. There’s credit card debt ready to go at 18 percent interest if you really want to do that. Nobody really wants to do that anyway, and you’re starting to see it happen now only because suddenly fiscal spending is down and the transfer payments are down. And so…
[00:41:52] Grumbine: I think Biden said that he’s celebrating this 1. 3 trillion in deficit reduction. Here we go. Like brother Bill Clinton.
[00:41:59] Mosler: And prices are up, you got to pay more for gas. So when you pay on your credit card, that’s up. And if you can’t pay it, it’s 18%. So we’re doing that because prices were up because of this, not because we’re partying for the good time.
[00:42:11] Grumbine: Well, if prices go up by percentage taxes go up. Whether it be sales tax, now government receipts at the federal level go up and we know that government taxation equals dollar deletion or destruction. Yeah. So this is creating the grounds for that surplus.
[00:42:30] Mosler: Yes, that happens every cycle. And so what it is, is the counter cyclical automatic stabilizers, the automatic stabilizers, the fact that taxes go up when the economy grows. Disproportionate cost deficits come down and ends the cycle. They’re far too aggressive. They ended any cycle. And all these people say, oh, we need more.
So we are too many already. They’ve ended every recovery. They’ve cut it short, cut it on his knees. And there’s some people say, well, that’s a good thing. It’s not a good thing, you lose real output. That’s the worst possible. There are other things you can do if they’re creating some kind of other problem, you can regulate lending or something, but you don’t have to cut the knees out, put people out of work.
So this inflation, what’s happened is inflation used to be something else. It used to be the continuous increase in prices. It was a monetary phenomenon. It was on the gold standard because your reserves would double or something like that. And the economy was always reserve constrained. So this would allow the economy to expand because prices were always relative to your reserves.
And I don’t want to go into that, but we don’t have that anymore, but this is not one of those monetary inflations at all. There’s not any element about it. I shouldn’t say there’s not any element. The Fed studies have shown. It’s maybe 0. 3 percent can be attributed to that, but we get 1. 5 or 2 percent inflation anyway.
And so it hasn’t added to that, that we were going to get anyway. Yes, we have isolated maybe more so than areas price gouging because we’ve had more consolidation. Because of COVID, supply considerations have changed. So there might be fewer suppliers of the same thing, so they have more market power.
Fine, but that’s all the realm of antitrust law. And that’s what government’s supposed to be doing on the antitrust side. And the fact that we’ve eliminated that department’s budget is not an inflation problem. That’s a regulation problem.
So we’ve got two final questions and maybe we can bubble them into one as we’re winding up here. Number one is when those interest rates go up and the payouts to the wealthy go up, they end up inflating a lot of assets like housing. Housing is going up exponentially and you see a lot of things getting crushed with these interest rates going up now as well.
But places like BlackRock, buying up mobile home parks, cities and states writing up laws to prevent cohabitation from sharing rent. There’s a huge asset bubble, at least that’s the way it feels anyway, that these prices are rising exponentially. You’re Joe Biden, God forbid, I’d feel bad for you if you’re Joe Biden, but you’re Joe Biden in this scenario.
And you have to fix this. Re elections coming up, the Democrats are getting ready to take a major bloodbath. In this next election is the return of Trump after watching fecklessness from the democratic party show its head and the resurgence of the far right fascists is about to take place. You got to try and save the party.
How do you fix the economy Warren?
Am I supposed to do this for free?
[00:45:35] Grumbine: No, no, no. Joseph Biden’s getting so much money to do this. I’m sure through his Ukrainian connections.
[00:45:40] Mosler: I know, I know.
[00:45:41] Grumbine: Give me the high level. How do we fix this?
[00:45:44] Mosler: Well, we have to identify what the problem is. Let’s say the problem is that We had a bad crop and all the corn crop died. We only have half as much. So the price don’t, it’s too expensive. And so people can only eat half as much corn at this price. They don’t have enough money to afford it. That did not used to be called inflation.
That did not used to be something you’d blame Biden. But the corn crop died and now it’s expensive. How are we going to make it affordable again? Because what are you going to do if you give everybody enough money to be able to buy corn at the higher price, they’re not going to get twice as much corn.
Just going to drive the price up higher. There’s only half as much corn. If you take everybody’s money away. So then now price of corn comes down because only half the people can afford it because you’re taking everybody else’s money away. Okay. You’ve got the price of corn down, but only half the people are going to eat the corn.
So when you have scarce resources, the markets allocating by price, That’s not an inflation, that kind of a problem has to be addressed either by people just eat less corn and start eating other things. And it’s just more expensive to live your real standard of living is down because there’s been this failure on the output side.
You don’t have the capacity to keep everybody’s lifestyle as high as you have before because of this supply side failure. And we’ve had a little bit of that, we’ve had quite a bit. Part of it was self induced from the tariffs, of course, President Trump, 17 percent tariff on lumber, because. Canada wasn’t charging us enough kind of idiot policy is that so what does Biden do he doubles down on it?
So it’s now 34 percent because they’re still not charging us enough. Who are these guys? So if you need to send somebody out shopping for you, don’t send either one of them. They go out and punish people for not charging them enough. So they can’t come up with another solution other than to punish them and try and force them to raise prices when we’re out shopping in the world.
And I understand all the ramifications, but that’s not how you address them. That’s the worst possible thing. And then they say, Oh, well, lumber prices are up. So we have this inflation. So now we’re going to take your crazy money away, raise taxes or something or raise rates, which is backwards. You got the gun backwards as they shoot themselves in the face.
But look, the policy was to raise prices. Now you’re asking me, what can we do to bring them down? We’ll get rid of the tariffs. Is your policy higher prices or lower price? Is your policy higher prices are better for America or lower price? You got to give me a consistent policy, President Biden, before I can tell you how to fix it.
You have to tell me what’s broken in a way that makes sense. Prices are too high. Fine. Remove your policies that are raised. Remove all the state taxes on gasoline. You don’t want the price so high. That’ll cut the price probably 2 a gallon everywhere. Wholesale price is three and a half. It doesn’t need to be any higher.
Well, yeah, but we want the higher price so that people will use less because we’re worried about climate. Yeah, we’re worried about the environment. Well, so am I. Great. So then why do you want prices lower? Well, because we want to bring inflation down. Well, what about the environment? Well, yeah, we want to keep prices up to protect people.
Come on. So when you ask me what advice to give these guys, they’re so inconsistent in their responses to anything, right? Yeah, you can’t give them any advice that’s going to work for them. Because they don’t have a consistent agenda, so it’s not an applicable question to their agenda. Their agenda is contradictory to the core.
And so the agenda is a core contradiction. And you say, okay, how do we fix it? Let’s get a consistent agenda. It’s not contradictory. And now we can give you some ideas. Asking the Saudis to pump more isn’t going to help anything.
[00:49:27] Grumbine: Exactly.
[00:49:28] Mosler: Giving Chevron the rights to get oil from Venezuela is not going to help.
[00:49:32] Grumbine: What I heard you say though, during this, is that we have a supply issue. That our supply chains are really what’s causing the bulk of this is what I’m hearing.
[00:49:41] Mosler: That’s what’s caused this one time adjustment. Part of it is self imposed by the tariffs that started the disruption. And then it continued with lockdowns and everything else.
[00:49:51] Grumbine: So if you were to take a fiscal approach to this, would you invest instead in the supply chains that are part of the national infrastructure, which would have a much longer lead time? I don’t know how many shovel ready jobs would be there to impact anything. But what might that be? It sounds to me like an investment in infrastructure is the best way the government can respond and lower tariffs.
States have the dilemma of trying to find revenues wherever they can find them, which is why they raise taxes on gas because they have to have tax revenues.
[00:50:28] Mosler: But the federal government could replace that.
[00:50:30] Grumbine: I agree a hundred percent. Yes.
[00:50:33] Mosler: And it could do it on a blanket basis, like, we’ll replace all the states equally, whether you already have a tax or not.
[00:50:39] Grumbine: End unfunded mandates?
[00:50:41] Mosler: Well, that won’t change the gasoline price. See, that’s what I’m saying, a consistent agenda. So we could say, all right, fine, what you said, but there’s not a consistent agenda for this, for infrastructure.
What kind of infrastructure? Do you want more oil drilling? I don’t think so. Yeah. Okay, well, what does that even mean? When we look at all the dirt that goes into producing electric cars, yeah, do we really want to do that? Nobody’s got a consistent agenda on what clean energy is. It’s just a slogan right now.
And when we went into COVID lockdown, within a week, our emissions dropped 50 percent across the board, roughly. It’s the first time you could see China from space. [laughter] Nobody had ever seen it. And we did it by eliminating non essentials. Nobody starved to death. Nobody went naked for lack of clothing. Nobody had any lack of real materials.
So
[00:51:36] Grumbine: there
[00:51:37] Mosler: were people that
[00:51:37] Grumbine: were already like that.
[00:51:39] Mosler: Yep. We didn’t give up any essentials and emissions were down 50%. We had just solved our emission problems times a thousand. Because we’re trying to get a one or two percent drop in 30 years or so. We just dropped 50 percent overnight, a hundred percent on conservation.
We still had our computers. We still had all our toys. We had more to go easily. We weren’t limiting electricity consumption. We hadn’t shifted. And so what do we do? We said, we’ve got to restore the economy, got to restore growth. Did anybody say, you know what? We just got this jump on emissions. We’ve just literally saved the planet for humanity.
We’re no longer have a problem of temperature increasing past one and a half percent. In fact, it may start reversing at these levels. This is something you hadn’t seen in 50 years. Why don’t we bring this thing back with things that don’t make this environmental problem worse, it’s going to make it worse.
Let’s just not do it. Was there any discussion of that whatsoever? No, the discussion was 100 percent on ‘We got to get GDP back. We got to get people back to work.’ A year later we’re reopening and everybody’s cheering because now GDP is improved the most on record. 15 percent. Because we dropped 20. if you drop 20%, you got to go up a lot more than 20 to get back to where you started.
That’s just a percentage. We’re applauding that we got back. And emissions are back to where they were. We just last week announced record gasoline consumption for US drivers. And everybody’s saying, congratulations. We fully recovered. Then they asked me, what are we going to do about the clean energy?
What are we going to do about the environment? What do you want to do about it? I tell the story about the Boy Scouts who came home and the scout master said, ‘Well, what was your good deed? What did you boys do?’ He said, ‘Well, five of us helped this old lady cross the street.’ He says, ‘Well, why did it take five of you?’
He says, ‘Well, cause she didn’t want to go.’ So Is there any political will of consequence? None
[00:53:40] Grumbine: So I got this point. And what I want to say is this is the final word, Warren, simple letter grade, A through F. What do you give Biden and Jerome Powell’s grade? They’re your students, you gotta pass or fail. What do you give them for handling this situation? Where do they fit? A, B, C, D, E, or F.
[00:54:02] Mosler: For handling it? Again, it depends on what…
[00:54:04] Grumbine: Rhetoric. Whatever, I mean, just in general.
[00:54:06] Mosler: Depends on what the agenda is. They’re serving some agenda for some people. And I’m sure those people think they’ve done a great job and other people think they haven’t and they have an election. So they’re running a popularity contest. So I guess you go by the polls,
[00:54:20] Grumbine: Polls say that Biden is losing big time. Nobody likes Joe Biden right now. There you go. All right. Well, Warren, thank you so much for joining me today. Thank you for being gracious with your time. I really appreciate it. Tell folks where they can find more information about you, sir.
[00:54:37] Mosler: WB Mosler on Twitter is where I’m most active now because I can say things very briefly. I like that. A few sentences can get it out there without going any longer. And MoslerEconomics.Com is my website, which links to my book, the 7 Deadly Innocent Frauds of Policy, which is free online. And it takes you about half an hour to read and it’s written in non technical terms that even a central banker can understand.
And so, along with all the other writings about interest rates and anything else you might want to know, and you can message me on Twitter also if you have a direct question.
[00:55:15] Grumbine: Awesome. Warren, thank you so much once again for joining me today. Again, folks, this is Steve Grumbine with Warren Mosler. We are outta here!
[00:55:27] 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.
“The state sets the terms of exchange for its currency with the prices it pays when it spends, and not per se by the quantity of currency that it spends. Demand originates with the state. Without state spending, the value of the currency is unspecified and there is no aggregate demand. Only subsequent to state spending can the currency obtain absolute value and non-government spending take place.”
~Warren Mosler, Modern Monetary Theory: Key Insights, Leading Thinkers
GUEST BIO
Warren Mosler is an American economist and theorist, and one of the leading voices in the field of Modern Monetary Theory (MMT). Presently, Warren resides on St. Croix, in the US Virgin Islands. An entrepreneur and financial professional, Warren has spent the past 40 years gaining an insider’s knowledge of monetary operations.
Warren’s Twitter is @wbmosler
PEOPLE MENTIONED
Ro Khanna
is a member of the United States House of Representatives with the Democratic Party serving California’s 17th District.
https://khanna.house.gov/about/about-rep-khanna
Randy Wray
L. Randall Wray is a Professor of Economics at the Levy Economics Institute of Bard College and is one of the developers of Modern Monetary Theory.
https://www.levyinstitute.org/scholars/l-randall-wray
Paul Ryan
is a former member of the United States House of Representatives with the Republican Party serving Wisconsin’s 1st District.
https://www.britannica.com/biography/Paul-Ryan
Paul Krugman
is an American economist.
https://web.mit.edu/krugman/www/
Jerome Powell
is an American attorney and investment banker who has served as the 16th chair of the Federal Reserve since 2018.
https://en.wikipedia.org/wiki/Jerome_Powell
Paul Volcker
was an economist, corporate executive, political appointee, President of the Federal Reserve Bank of New York, and Chairman of the Federal Reserve’s Board of Governors.
https://www.federalreservehistory.org/people/paul-a-volcker
Arthur Burns
served two consecutive terms as chairman of the Board of Governors of the Federal Reserve System, between January 31, 1970, and March 8, 1978.
https://www.federalreservehistory.org/people/arthur-f-burns
G. William Miller
was chairman of the Board of Governors of the Federal Reserve System from March 8, 1978, to August 6, 1979. Before joining the Board of Governors, he was a Class B director at the Federal Reserve Bank of Boston.
https://www.federalreservehistory.org/people/g-william-miller
INSTITUTIONS / ORGANIZATIONS
Organization of the Petroleum Exporting Countries (OPEC)
William Blair
is an investment banking firm.
https://www.williamblair.com/Investment-Banking
Black Rock
is a global investment management firm.
https://www.blackrock.com/corporate
Mosler Automotive
was an American sports car manufacturer headquartered in Riviera Beach, Florida. It was founded in 1985 by Warren Mosler as Consulier Industries, and manufactured the Consulier GTP, which was later rebranded and updated as the Mosler Intruder/Raptor when the company spun off its automotive division as Mosler Automotive.
https://en.wikipedia.org/wiki/Mosler_Automotive
EVENTS
History of United States antitrust law
is generally taken to begin with the Sherman Antitrust Act 1890, although some form of policy to regulate competition in the market economy has existed throughout the common law’s history. The Interstate Commerce Act of 1887 began a shift towards federal rather than state regulation of big business. It was followed by the Sherman Antitrust Act of 1890, the Clayton Antitrust Act and the Federal Trade Commission Act of 1914, the Robinson-Patman Act of 1936, and the Celler-Kefauver Act of 1950.
https://en.m.wikipedia.org/wiki/History_of_United_States_antitrust_law
CONCEPTS
Modern Monetary Theory (MMT)
is a heterodox macroeconomic supposition that asserts that monetarily sovereign countries (such as the U.S., U.K., Japan, and Canada) which spend, tax, and borrow in a fiat currency that they fully control, are not operationally constrained by revenues when it comes to federal government spending.
Put simply, modern monetary theory decrees that such governments do not rely on taxes or borrowing for spending since they can issue as much money as they need and are the monopoly issuers of that currency. Since their budgets aren’t like a regular household’s, their policies should not be shaped by fears of a rising national debt, but rather by price inflation.
https://www.investopedia.com/modern-monetary-theory-mmt-4588060
https://gimms.org.uk/fact-sheets/macroeconomics/
Modern Money Primer by L. Randall Wray
https://realprogressives.org/mmt-primer/
Federal Job Guarantee
The job guarantee is a federal government program to provide a good job to every person who wants one. The government becoming, in effect, the Employer of Last Resort.
The job guarantee is a long-pursued goal of the American progressive tradition. In the 1940s, labor unions in the Congress of Industrial Organizations (CIO) demanded a job guarantee and Franklin D. Roosevelt supported the right to a job in his never realized “Second Bill of Rights”. Later, the 1963 March on Washington demanded a jobs guarantee alongside civil rights, understanding that economic justice was a core component of the fight for racial justice.
https://www.sunrisemovement.org/theory-of-change/what-is-a-federal-jobs-guarantee/
https://www.currentaffairs.org/2021/05/pavlina-tcherneva-on-mmt-and-the-jobs-guarantee
Federal Job Guarantee Frequently Asked Questions with Pavlina Tcherneva
https://pavlina-tcherneva.net/job-guarantee-faq/
Taxation within a Fiat System
The monetary system that the United States employs is a state money, or fiat, system, and from that framing, the most important purpose of taxes is to create a demand for the state’s money (specifically, for its currency). Further, being the monopoly issuer of its own currency, the state really does not need tax revenue to spend and can never run out of money to pay debts or provision itself so long as it’s spending is denominated in its own currency.
https://realprogressives.org/a-meme-for-money-part-4-the-alternative-tax-meme/
Government Bonds
are basically tradable savings accounts for the government’s currency. For simplicity, we use the term bonds to refer to all forms of government securities, including Treasury bills (short-dated securities offered at a discount) and Treasury bonds (long-dated interest-earning government bonds).
https://modernmoneybasics.com/glossary/
Bank Reserves
are essentially accounting instruments that the central bank holds as assets to transfer between accounts to settle debts between banks, clear checks, and foreign currency exchanges. Bank reserves never leave the central banking system.
https://gimms.org.uk/2022/06/05/mmt-banking-primer/
Keynesianism
Keynesian economics, the body of ideas set forth by John Maynard Keynes in his General Theory of Employment, Interest and Money, and other works, intended to provide a theoretical basis for government full-employment policies. It was the dominant school of macroeconomics and represented the prevailing approach to economic policy among most Western governments until the 1970s.
https://www.britannica.com/topic/Keynesian-economics
https://www.investopedia.com/terms/k/keynesianeconomics.asp
Cost Push/Demand Pull Inflation
Inflation refers to the rate at which the overall prices of goods and services rises resulting in the decrease in the purchasing power of the common man, which can be measured through Consumer Price Index. Modern analysis of inflation revealed that it is mainly caused either by demand side or supply side or both the factors. Demand side factors result in demand-pull inflation while supply side factors lead to cost-push inflation.
https://keydifferences.com/difference-between-demand-pull-and-cost-push-inflation.html
Monetarism
school of economic thought that maintains that the money supply is the chief determinant on the demand side of short-run economic activity. American economist Milton Friedman is generally regarded as monetarism’s leading exponent.
https://www.britannica.com/topic/monetarism
PUBLICATIONS FOR FURTHER EXPLORATION
The 7 Deadly Innocent Frauds of Economic Policy by Warren Mosler
https://moslereconomics.com/mandatory-readings/innocent-frauds/