Episode 267 – Demystifying Sellers Inflation with Yeva Nersisyan

Macro N Cheese – Episode 267
Demystifying Sellers Inflation with Yeva Nersisyan
March 9, 2024

[00:00:00] Yeva Nersisyan [Intro/Music]: When people talk about this being the greatest economy, I think I understand that in terms of their reference points. What are they comparing it to? They’re clearly not saying it’s the greatest economy ever because that would not be true. I think what they’re comparing it to is the expectations of how dire things were going to get during COVID.

You have created a system where you need a degree to have access to the kinds of jobs that provide you access to some kind of middle class lifestyle. And then that means people have to get the degrees. And that means they become the indebted person before they’ve had a chance to become a mortgage holder.

[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] Grumbine: Alright this is Steve with Macro N Cheese. My guest today is none other than Yeva Nersisyan. She’s a PhD and an associate professor of economics at Franklin and Marshall College and a research scholar at the Levy Economics Institute of Bard College. She’s a macroeconomist working in the Modern Money Theory, post Keynesian and institutionalist traditions.

Yeva has published more than 25 articles, book chapters, policy notes, and briefs on the topic of Modern Monetary Theory. And she’s here with me today to discuss a couple of things, “the greatest economy ever” and inflation, both sellers’ inflation, the monetarists who thought that was a good idea to raise interest rates, and those who thought it was transitory and where we are in that mix.

We’re also going to talk about military Keynesianism and some of the quiet parts that were said out loud by Joe Biden, as he mentioned that sending weapons to Israel and Ukraine, is a US jobs program for the job creators. It’s Empire 101. So without further ado, let me bring on my guest. And by the way, Yeva has been ill, and she was kind enough to come on and I feel bad, but she seems up to the task.

So I’m going to bring her on. Yeva Welcome.

[00:03:06] Nersisyan: Thanks, Steve. Thanks for inviting me.

[00:03:09] Grumbine: And thanks for making time for us. I do feel bad that you’re not doing so great, but it’s good to hear your voice and you sound like you’re on the mend. So I’ll be gentle.

[00:03:18] Nersisyan: Go easy on me.

[00:03:21] Grumbine: So this inflation thing has been going on for a long time and it’s been since the pandemic shortages, supply chain breakdowns, and we saw two different camps break out. We saw those of the monetarist group that wanted to raise interest rates to inflict maximum suffering on the people to suddenly bring about the decline in inflation that they sought.

And then we had what we’ll call team transitory that just believed if we just sit back and wait, everything will work itself out and it’ll be better. And then we have Isabella Weber who said there’s actually another element to this and that’s seller’s inflation and that we could have nipped some of this, which is a tremendous amount of the inflation we experienced and continue to experience by strategic price controls.

Price controls seem anathema to not only this administration, but every administration since I’ve been alive. So I think that runs against the neoclassical neoliberal model of interfering with free markets set by the government. What are your thoughts on inflation? Let’s get up to speed. Give us the background on this.

[00:04:35] Nersisyan: Yeah. So I was definitely in team transitory, at least in terms of the need for raising interest rates. Randy Wray and I, we wrote a Levy paper where we argued that the inflation was mostly coming from supply side disruptions due to the pandemic, at least that was the initial force that was creating inflationary pressures.

And that there was nothing the central bank could do with interest rate policy that would address any of that. In that paper, we argued that if there is anything that you want to do policy wise, it would be to try to alleviate supply side bottlenecks and to also engage in price controls as needed. Now, In our paper, we just have this passing reference to price controls, because as you said, in economics, it’s anathema to talk about price controls So in a sense, if we think of silver linings from this inflationary episode, it’s that people like Isabella Weber have been able to bring those kinds of things into the public discourse. And I think that’s a good thing because we do want to think about inflation. Not in just generalized terms where you just raise the interest rate and somehow the inflation comes under control because inflation itself is not a generalized phenomenon, necessarily.

It always starts in certain sectors, certain sectors always have an oversized impact on price increases. I’m thinking energy, for example, housing. So you have to think about inflation in those sectoral terms, and you also have to think about solutions in those sectoral terms as well. But the reason why we don’t like to do that is because that then means the government going in and getting involved in the economy in a way that involves some kind of planning potentially.

And of course you can’t say that word either. That’s one of the forbidden words. That’s just the nature of our policymaking. And in a sense, we do the same thing to some extent with fiscal policy during the New Deal, for example, before we had Keynesian economics or the mainstream interpretation of Keynesian economics.

We didn’t have the option of let’s send everybody a stimulus check and that’s going to get the economy going because we didn’t have that theoretical framework. We were thinking in terms of what is the problem? The problem is unemployment. How do we address the problem? We have to address it by creating jobs.

How do we create jobs? Well, we have to build things, for example. And that then leads you down the track of, well, what is it that we need? Do we need a dam? Do we need schools? Do we need post offices and so on? So then by necessity, because you don’t have that. mainstream Keynesian framework of let’s send everybody a stimulus check, or let’s give everybody a tax cut.

You had to be more involved in economic planning in that way that let’s build a dam and that’s going to create the jobs because the jobs was the focus because unemployment was the focus. But then during World War II, we learned that, well, we don’t necessarily have to do that, that we can just increase spending and then.

GDP is going to follow. Obviously people like Pavlina Tcherneva have argued that’s not a good way to do economic policy. That’s what we’ve fallen back on. We no longer want to think about, well, what is it that we need? And then approach policy from that perspective. It’s more, well, how much do we need to just.

inject into the economy to then have a certain amount of economic growth and to keep unemployment from rising above a certain point and so on and so forth. Those are the terms in which we’re thinking. And that translates into a similar policy for inflation. We’re not going to think in the sectoral terms, instead we’re just going to raise interest rates and hope that’s going to do the trick somehow.

[00:08:24] Grumbine: When I talk to people on main street, they’re really hurting. Not only the cost of just basic necessities is really high still. Groceries, for example, a simple midweek shopping trip where you’re getting some basics and you’re paying $75-$100 that used to be typically that 25, maybe 30 expenditure. And I see a lot of people talking about delaying healthcare because they just can’t afford it.

Their mortgage or their rent has gone up. The saying is one person’s spending is another person’s income. So I guess technically an aggregate that adds to GDP, which then ultimately makes it look like the greatest economy ever. People are not doing well. People are hurting. Claudia Sahm in her substack has recently talked about this is the greatest economy ever.

I think even Stephanie Kelton in her substack pointed to something of 3.2 growth. So on paper and in very technical terms, that looks really good, but it’s measuring an aggregate and it’s not really lopping out the outliers like the rich getting richer from this interest income channel, pumping their wealth up and the poor having to pay higher prices for credit and for things that they previously didn’t.

So. Help me reconcile greatest economy ever and the net infusions from the CHIPS program and the Inflation Reduction Act that show there is this money being spent. There is a number of people that have stated that due to a lack of fiscal, the interest income channel has largely kept us out of recession.

So on so many levels, this investment is not going toward Main Street. It’s going to the wealthy that have money and investments. Main Street is still dealing with the same pain and suffering that they were dealing with before. That reminds me of the 1980s when Ronald Reagan was pumping up the military, which Joe Biden has.

continued the spending spree, supporting the genocide in Gaza and funding the Ukraine military supplements. So what is different about today than during the Reagan era, I guess? And why would we consider this the greatest economy ever? Biden said the quiet part out loud the other day that the spending he’s doing is staying domestically here and is a jobs program for Americans.

Help me understand this. It feels so much like Reagan.

[00:11:02] Nersisyan: There was a lot in that question, but obviously when you look at macro data, You’re always going to miss what’s going on, the differences across different households in terms of income percentiles and so on, what’s going on at the bottom versus what’s going on at the top and so on and so forth. So that issue is always there when you’re looking at macro data, which people like Claudia Sahm are doing.

Now, when people talk about this being the greatest economy, I think I understand that in terms of their. Reference points. What are they comparing it to? They’re clearly not saying it’s the greatest economy ever, because that would not be true. I think what they’re comparing it to is the expectations of how dire things were going to get during COVID, that there was the sense that this was going to be a very prolonged and deep recession and the fact that it wasn’t prolonged and deep, and that we made a very quick.

v-shaped recovery, so then unemployment was lower than expected, and then economic growth was faster than expected and so on and so forth. So relative to those expectations, this, economy is doing really well. I think the other reference point that people have is also the recovery from the great recession, which was the slowest perhaps recovery.

It took us about 10 years for the unemployment rates or the employment numbers to go back to where they were before. The recession, 10 whole years. So it was a jobless recovery as jobless as it gets. It was difficult to even call it a recovery. The recession had officially ended in 2009. Now, obviously for a lot of households, it didn’t feel that way.

So then if that’s what you’re comparing our current period to, then you’re saying, sure, this is a great recovery because we don’t have unemployment rates that were stuck at 10, 9, 8%. The unemployment rate is now under 4%, for example. So in that sense. The economy is doing well, but I think what this story ignores is that there were problems in our economy even before 2007.

And there were problems in our economy, even after the recovery was complete. So to speak sometime in 2017-18 if you take that employment metric, we had issues of rising income and wealth inequality. We had a problem of a healthcare system that was becoming costlier and costlier, and a lot of people couldn’t afford it despite Obamacare and so on.

Education costs were high and rising faster than inflation. Housing was becoming unaffordable, obviously, during that recessionary period after the global financial crisis, housing prices did go down. So I’m not comparing it to that, but there was a crisis of affordable housing. Let me put it that way. And then there is the general trend of wages just not keeping up with productivity.

So worker productivity has been going up and wages have not kept pace with that. I remember during the Obama years was a year when for the first time ever real wages had gone up or something like that. And that was, for the median income, household income had gone up a little bit. And that was something that had to be celebrated.

So that economy is still our economy. Yes, we had this COVID interlude there, but that is still our economy. And to that, obviously you then have to add the fact that prices are just higher. Yes, inflation has moderated, but inflation is just measuring the rate of change in the price level. Just because prices are growing slower doesn’t mean that they’re not much higher than they were in, say, 2019.

And especially if you look at things like groceries. Which is what people deal with every day it’s the kind of thing that you do at least every week, something like that. And you see prices are higher than they used to be. So I can see why the average person doesn’t necessarily feel like the economy is working for them, given this context.

And to that, you also have to add that housing is completely unaffordable right now, rents have gone up, home prices are high, there is no supply, and obviously interest rates are so high that. Housing has become extremely unaffordable. So then in this sense, even if you are doing okay, I think there is a sense that you don’t know what the future holds, even if you seem to be doing okay today, there is a lot of uncertainty about the future.

There is a lot of precarity about the future. There is, I think, a lot of anxiety about your children. For example, if you have children.

[00:15:45] Grumbine: Yes, indeed.

[00:15:46] Nersisyan: So I guess what I’m saying is that we don’t have the kind of economic situation where you can be sure that the next generations are going to be better. Economically, you cannot be sure that you are going to be doing fine a year from now, two years from now, five years from now, there’s a lot of economic precarity and that’s true even for white collar workers now, if you look at that with the rise of artificial intelligence, even.

Those kinds of people, I think, have to worry about their situation because it’s precarious.

[00:16:20] Grumbine: Absolutely. I don’t really focus on politics in that respect, but I see a lot of people trying to defend Joe Biden. And I know that you said that’s not really the greatest economy, depending on your point of where you’re viewing it from, you could say that’s great compared to the great recession, which I a hundred percent agree in that sense.

But I think that it’s really in bad taste. To slam main street. And I think this is why Trump is gaining ground, whether or not anybody can elect them, it’s irrelevant. People saying, I’m not okay with what you’re calling good. What you’re calling good. It’s not good for me, my family. We’re not happy with it.

And instead of saying, wait, let’s look under the hood and figure out why they’re saying this. There’s a public relations smear campaign on working class people. For daring to say, I’m hurting right now. And most people aren’t economists capable of understanding their own pocketbook, much less macro flows and trends.

They’re not thinking about that. They’re thinking about, I got to see if I can get my neighbor to drive my kid to school because I don’t have enough money for gas. What creates this disconnect between the flowery projections that are being shown everywhere?

[00:17:43] Nersisyan: Well, that’s an interesting question. And I think it may not be a question for an economist in a sense. I think there are obviously class differences. Most of the people who are doing this kind of analysis are part of the professional managerial class. And in a sense, that class has been doing okay in the US economy.

And there is also condescension in some sense, which I think is also class issue towards the working class people. Partly it’s while they’re voting for Trump. So the condescension is there, but I think the condescension was there even before. The centrist, Clintonite, Democratic party, which it no longer wanted to be the party of the working class.

The … service was paid to that every four years or so during elections. But I don’t think it saw itself as the party of the working class people. And so you’re right in that instead of looking at it and saying, well, people are hurting and what should we do about it? Instead it’s, well, we’re just going to lose these voters and who else do we get to vote for us?

I think that’s the attitude. Can we peel off some of these Republicans who live in the suburbs and then make up ground with that? And obviously I think that’s problematic because I don’t think the Republicans are going to be the party of working class. I’m not a fool to believe any of that. And I don’t think Trump has any working class people’s interests in mind.

And he’s not treated as a symptom. He’s treated as the cause. When in reality, I see him as the symptom. I see him as the symptom of the Democrats abandoning working class people. They’re abandoning new deal style. Economic policies in favor of the Clintonite neoliberal policies. And these are just those chickens coming home to roost.

And the response, as you said, hasn’t been, well, let’s look under the hood and see what we can do, because that is then going to require us to do meaningful policies and structural change that is needed to make sure that wages do keep up with productivity growth, that it will require us to address the income inequality and wealth inequality.

It requires us to address the rising costs of healthcare and housing and the unaffordability of all of that plus education, but we don’t want to do that. At least our policymakers don’t want to do that. In some sense, you could say. I can see why people are saying, well, Joe Biden again is the greatest president ever, because if you look at the things that were done during Joe Biden, it was heads and shoulders above what was done under Obama, for example.

So we had a much bigger stimulus, the 2 trillion that according to Larry Summers, of course, got us all this inflation. We had the infrastructure bill, 1 trillion, the CHIPS Act, the Inflation Reduction Act. Now, despite all the problems with those things, you can then look at that and say, we’ve done a lot more under Joe Biden than we had done under Obama, for example, or under Bill Clinton.

So you can take that approach. And I think there is validity to that. But in some sense, it may be too little too late because of all these issues that have been ignored over the years. And because these things may matter marginally, but are they really going to fundamentally change our economy and who it is working for?

That’s really the issue.

[00:21:15] Grumbine: One of the things that hit in October was student debt payments turning back on. And for three, four years, we went without payments and the debt collective put a tweet out the other day. It was interesting. I’ll just read this to you. Said debt is a form of social control. The reason some people hate free college is because they hate freedom.

They want people to have no choice and submit the control. And there was a Senator from my own state who Pennsylvania Senator Pennycuick, I think is her name, and the tirade railed against fairly funded public colleges and says poor inner city black, brown, whatever kids can get affordable college by joining the military.

And there are some rumblings that there may be an effort to reinstitute a draft. To try to supplement the lack of these things in people’s lives. I know this is not economist stuff, but that is the Pennsylvania budget discussions is a state level versus a federal level. That is a very prevalent opinion amongst people.

If you didn’t want the debt, you shouldn’t have gone to college. As if people have a real choice in the matter, cause there’s no jobs. If you don’t have a degree, but if you do have a degree, your degree won’t make you enough. To pay for your student debt and a house and a family and a car. This is behavioral and that’s not necessarily economics.

Although I think behavioral does play a role in that. But what is your thoughts on some of the things that are bringing about the pain, the inflation, higher prices, lack of wage growth? Sure. Well, what do you think the impact of student debt being turned back on as on society?

[00:23:06] Nersisyan: So I tried to look at some of the data, and we only have it for the last year, and you can see the interest payments that the government is receiving. They basically double something like that, which I think is coming from student debt. And obviously the government doesn’t need that money, there is no reason why they should be taking that income out of the economy, but they are.

For them, it’s not something they need, but for people who have to make these payments and they either can’t or they then have to make cuts elsewhere to be able to afford it. Now, the issue of education and I am in education and how expensive it is. We had a panel the other day with one of our former professors who.

I went to City University in New York or City College, and he was saying that it was free. And he just had to pay 70 for activity fee or something like that for the whole year. And we’re talking about the 1970s, 80s, and then how there was a push by the Republican governor of New York to make those institutions with tuition as well.

And so on. I think there is something to be said about how if you have debts and if you have obligations like that, then you’re less likely to ask for higher wages or threaten to quit your job. So you are more likely to be a more docile worker and more obedient in that sense. There is some truth to that.

[00:24:41] Grumbine: Uh huh.

[00:24:42] Nersisyan: The same thing can be said about medical care and insurance. If you’re in Europe, your job does not determine whether you have access to healthcare or not. You can be unemployed and still have access to healthcare. That’s not necessarily the case here that people fear losing their job because they’re losing more than just a job.

They’re also losing things like access to healthcare. And of course, that’s going to make our workers a lot less likely to try to rock the boat and maybe join a union or maybe start a unionization drive. So generally there is the assumption that once you have a mortgage. Then you are stuck in a way, and in the U.S. it starts even before a mortgage because before a mortgage, you are going to likely have a student loan. And so you become an indebted person very early on. And you’re right that without a college degree, it’s very difficult to find the kinds of jobs that provide access to middle class lifestyle.

There’s been this push towards decredentialing, trying to change the job descriptions. And trying not to require college degrees. Well, I was reading a piece in Bloomberg just yesterday saying that hasn’t really worked. That still the people who get hired, even when the requirements don’t list something like a bachelor’s degree, the ones who do have the bachelor’s degree are the ones who are more likely to get hired anyway, those kinds of things really haven’t.

Made a dent in terms of getting people without degrees hired. So yes, you have created a system where you need a degree to have access to the kinds of jobs that provide you access to some kind of middle class lifestyle. And then that means people have to get the degrees and that means they become the indebted person before they’ve had a chance to become.

[00:26:31] Grumbine: Let’s look at the seller’s inflation. You and Randy had written about this and touched on it. Isabella Weber’s work is leading the way on this. What is your take in terms of, is this something we need to fight on? It seems like monopoly powers can play here. What are the different components of this?

Where is the fight line? There’s an ideological framework that we discussed earlier. What are some of the ways that this is able to happen? What hides this? What allows it?

[00:27:05] Nersisyan: That’s a very good question, and I think monopoly is part of the answer. What’s important to keep in mind, which is something you do not get when you take an economics course, is that prices are set by firms. They don’t just happen, they’re not set in market, so to speak, through these personal forces of supply and demand.

So that’s the world that a lot of people think we live in, and it’s the world – when people talk about prices, they assume that’s the world we live in, but that’s not the world we live in. Firms set prices and they do so under certain constraints. You can think of it as constraints coming from competitors and constraints coming from customers, for example, that if you keep raising your prices, then you are likely to lose customers if your customers have somewhere else to go, for example, but perhaps you have the kind of brand loyalty where you can push that much, much further, for instance.

At the same time, you have to worry about what your competitors are going to do. If you raise your prices and they don’t, then are they going to capture market share from you? So firms have all of these strategies that they have developed, which helps them set prices in a way where there is no collusion, they still do things together in a way, you can have a price leader, for example, in the industry, when they raise the price.

It gives a signal to the others to do the same, those kinds of things. But obviously firms still have to be mindful of those competitive forces if those competitive forces exist. Now, during the pandemic, obviously it was easy to raise prices because there was this cover of the pandemic. Who can blame firms for raising prices?

The supply chains have broken down. The companies are having difficulty stocking the shelves and finding the things that they need to produce their things and so on. They thought that they could fly under the radar, so to speak. At the same time, they were giving all the signals to each other through their pronouncements during their earnings calls and so on that, yeah, we’re going to raise prices and their competitors obviously had an incentive to follow them.

They’re very open about it. They say the pricing environment has never been better for them. They say they’ve earned the right to raise prices, all these sorts of things that they. Openly say to their own shareholders, trying to signal to them that they are taking advantage of this pricing situation.

Frankly, when we did that paper, initially we did look at markups and we said a little bit about that, but it was pretty early on during this inflationary process. It was difficult to see where it was coming from necessarily. But I think a lot of times when economists think about inflation, they’re thinking about wages, are wages going up?

And seeing that as the propagating mechanism for inflation. So you had a supply shock, let’s say the oil prices went up, but then unless there is some propagating mechanism in the economy, that’s just going to be a one time price jump. It’s not going to propagate this inflationary process. And a lot of times economists think of workers and wages as that propagating force.

And so our argument was that, well, it’s going to be transitory because you don’t have a propagating force. In the form of a unionized workforce that can try to demand and get higher wages. I think what we were less attuned to was that firms and their profit margins could be this propagating force, and they were very much so.

If you look, wages have just been playing catch up with inflation. They haven’t been. The driving force. And then if you look at the profits of companies and their stock prices and the dividends that they’re paying out, all the stock buybacks that they’re doing, they are doing just fine because they’ve been able to raise prices to protect and oftentimes to also raise their profit margins.

[00:31:16] 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.

[00:32:07] Grumbine: This podcast and our discussions are for everybody. It’s not for just the elite and just the poor. I hope that we cut a nice cross section. But as somebody who tends to want to view the world through the suffering of the lowest, as opposed to the benefit of the wealthiest, economists are largely catering to that managerial bourgeois class. And they are trying to tell everybody how great the world is.

And the politicians, who are either bought off, ineffective, don’t have the clout, they’re not even putting up meaningful legislation. And when they do, it’s at a time in the legislative process, where it has no prayer of being considered. Here in the last couple of weeks, I think Ayanna Pressley put out more for the job guarantee.

Well, this is a time where that clearly isn’t going to get any traction from anyone. Talking about inflation, raise interest rates to try to create unemployment. So, a job guarantee isn’t going to gain any traction, at least I don’t see any energy at all. People in the MMT community who are advocates for a job guarantee are supporting that, and that’s great, but there’s no energy for that.

So, my message to people who are suffering right now is, ‘I don’t know what to tell you, you’re screwed, there’s no help coming for you.’ ‘You’re going to be told how great the economy is, and you’re going to be thrilled by it, or you’re just going to be leading a miserable life, because no one is coming to help you.’

That’s a terrible message, but no one’s coming. Do you see any energy within the economics profession? All I see is FIRE sector help. I don’t see anything for Main Street. In your travels, in your work, in the talk behind the scenes… is there anybody?

[00:34:09] Nersisyan: You’re talking to a pessimist.

[00:34:11] Grumbine: I am too, unfortunately. I don’t want to be, but I am, admittedly.

[00:34:15] Nersisyan: So let me, I guess, say the pessimistic stuff and maybe then some optimistic stuff, if I can find any. Part of the problem is that, when you look at the Democrats- for example- what is their economic plan for 2024 election? What is your economic agenda? I don’t know. I don’t see anything. Are you promising to raise the minimum wage? You promised and you didn’t deliver on that?

Are you promising student loan forgiveness? Are you promising legislation to prohibit hedge funds from buying homes? That’s another piece of legislation that was put out by some Democrats- of course, as you said- knowing that’s not going to go anywhere. But what is your economic agenda? And the answer is, I don’t know.

So, I’m very pessimistic right now because I just don’t see where there is energy- like you said- for good things to happen. At the same time, I think, if there is any flickering of optimism in me, is that, this period where we said, ‘well, the government policy is just to compensate for the occasional downturns in the economy, in the form of just more spending, stimulus checks, tax cuts.’ Which has been our prevailing economic thinking for 70 some years now. I think there are some attempts to change that a little bit.

I think there is something to be said for the return of reform, so to speak, if I may say it in those terms. So, for example, you see a re-energized movement around monopoly power. Trying to address that, FTC has been very aggressive- in a good way- in trying to prevent mergers, in trying to take big tech companies to court for various reasons.

I think that’s a good thing, and in a sense, it’s a return to that monopoly tradition, or during the New Deal there were all these people for whom the monopoly in corporate power, and addressing that was an important concern. So, there is that side of it, which gives me a little bit of hope, that there is some positive movement there.

I think there are also lessons to be drawn from the fiscal stimulus that happened, which was a good thing, because things would have been much, much worse without that. I think the people who say, ‘well, it worked and it’s great’ and that’s it. I think they are making a mistake for a couple of reasons. There were issues with it.

There were issues with the paycheck protection program. A lot of small business owners, I think- especially the wealthier ones- got a lot of money from the government. We see these things, right, during the student loan discussions, for example, all those Congress people who got millions and millions of loans, which were forgiven. That’s not the fiscal policy, by no means. What Europeans did, which was just to keep paying people’s wages, I think would have been the better approach to take.

So, I think there has to be a lesson learned on that front. Just because the economy needs fiscal stimulus, it doesn’t mean you just have to inundate it with money, because that is going to exacerbate the income inequality that you’re already dealing with and we do not want that. So, there is that. But I think there are also other things to learn that the government isn’t just there for these occasional things, that it has a role to play in the form of what the CHIPS Act is doing, for example, or what some of the provisions of IRA, which is capping the price of insulin.

Again, as I said, I’m a pessimist, so I’m trying to find these silver linings and say…

[00:37:56] Grumbine: I respect your efforts.

[00:37:58] Nersisyan: yeah, and what are some of the things that we can look to and say, ‘okay, at least this is a good thing that has happened.’ But I think a rethinking of the role of the government and the public sector- not the government, the public sector- that’s hopefully managed and governed in a democratic manner, that can be more than just compensating for the shortcomings of the market economy. But that, no, we can actually have more, interventionists, so to speak, policy where we can try to transition to a green economy, we can do things to build affordable housing, and we don’t just have to rely on the private sector to do those things.

Now again, how you do that, do you just give tax breaks and subsidies and so on? That’s not ideal for me, all the middlemen that are involved when the government spends even a dime, making a buck and hence, getting us to a point where the government spends a lot, but gets very little, in terms of real stuff. Like, how much it costs us to build affordable housing here versus Europe, for example.

It’s outrageous how expensive it is here. For what it’s worth, these are my silver linings. Just rethinking the role of the government, that it can be more interventionist, it can do this strategic planning for the economy. And we have to think about it in those terms and the monopoly attempts to try to limit monopoly power.

I see them in those same terms, a little bit of a return to this reform policymaking, rather than just, ‘let’s give everybody a bit of money and let’s just hope for economic growth, which is going to lift all the boats.’ Now, as I said, and the majority of fiscal policy was more of that, and there was just a little bit of the other thing, but I’m hoping that we can capitalize on that.

[00:39:45] Grumbine: I think Milton Friedman is smiling from the grave, because his idea was ‘the only thing wrong with capitalism is we need a little bit more.’ And in the case of where the money is spent, it’s not just ‘don’t spend money’, we should be spending much more than we are now, but it’s where and redirection of real resources to satisfy real people.

And I’ve been learning about class and history, and trying to integrate it with my understanding of modern monetary theory. And the one thing that Stephanie- and many others- have often said, is we don’t really have to worry about where the money comes from, we just have to find the real resources. But then there’s this cheeky saying of ‘we have to source the vote’, and I’ve taken great issue with that because of the electoral process in this country, and again, this is not economics.

If the idea of economics and public spending and understanding the monetary sovereign nature of our federal government, depends on a functioning democracy, and in order for any of this to really matter to people, in order for them to say, ‘yes, MMT is a game changer, let me advocate for it’, there has to be some agency there, and I don’t see that agency.

In fact, there was a study out of Princeton that showed that there is negligible- if any- evidence that public opinion impacts policy. And that’s damning outcome for the democracy we’re supposed to be saving. But how can you talk about public spending, without understanding the democratic process that enables that spending?

I think the two have to go together at some level. And right now it’s quite clear that people keep asking the wrong questions. They keep saying, ‘how come there’s money for war, but there’s never money for schools.’ And it’s that zero sum thinking that has clouded their view. They don’t understand, but I think it is a class issue.

I think it is fundamentally an anti-democratic lack of agency, that allows that to be the way it is, because I can’t imagine most people thinking that’s a good thing, when they understand it. What is the relationship between democracy and the MMT project, and its ability to enact the things that we hope and pray for, that we’ve been advocating for the last 10 years, 15 years- especially in the Bernie Sanders era. What is the relationship between MMT and real outcomes, when it comes to democracy?

[00:42:27] Nersisyan: I don’t know if- as an economist- I can answer that question. Maybe as a political economist, I can try to answer that question. Points well taken, of course. And I think what MMTers say is that spending reflects your priorities, and that’s exactly what you just said. What we spend on, reflects our priorities.

So, I too have an issue with people saying, ‘well, you have money to spend on this’, but basically saying, ‘well, we need to cut spending on this and that, so that we can spend on this other thing’, and that’s really the wrong approach. We can spend on this other thing and we can spend on both of those things.

The question is, do we want to be spending on military aid or just military spending in general, right? That really should be the question. And I think time and again, politicians show us that their priorities do lie- in say- more military spending, that it’s independent of political party. In that sense, the Pentagon budget just keeps growing and growing, regardless of who is in power.

So, that reflects our priorities. And as an economist- to me- it’s a little bit of this reflection that we have never demilitarized our economy since World War II. That quite a large part of our economy continues to rely on military spending. A lot of jobs are at stake. And the same thing can be said about fossil fuels.

And anytime you say, ‘well, we need to cut that’, the first question is, ‘well, what are you going to do about these people?’ And I think that’s where MMT can be useful in saying that, ‘well, you can do other things.’ And then if you think about it in terms of real resources, military spending is as big of a waste as it gets.

Not a waste of money, it’s a waste of our real resources. So, from that perspective, if you understand that you’re wasting resources, if you understand that money is not the constraint, then you can say, ‘well, let’s use that money as a tool and put these people to work to do something else, something that is useful for us, like building the affordable housing, addressing the environmental degradation, and then transitioning to a more sustainable economy.’

But as you said, all of that requires a democratic process, which unfortunately, we don’t seem to have. The politicians decisions do not necessarily reflect the public opinion, the opinion of the electorate. And I don’t really know what the solution to that is. The party system is obviously part of the problem.

When you look at places like Europe- not that things are going great there either- but at least there is a chance to vote your conscience, in a way that you don’t necessarily have here oftentimes.

[00:45:11] Grumbine: I talk to Fadhel [Kaboub] frequently, and we just had him on recently, and I’ve really spent a lot of time on non US guests. I just recently spoke to Daniel Conceição about Milei. I spoke with Fadhel about Africa. Hamza Hamouchene, regarding green colonialism and Germany forcing Tunisia to produce its green energy.

That’s real resources and economics is about real resources. What is the cost of the empire on the US economy, as we try to institute IMF structural adjustments in other nations, and how does that impact inflation and pricing with the way that we operate globally? The goal is to provide free and clear access in these countries, to extract all of the wealth in their ground and their production, while leaving them without the basics for their own sustenance.

But let’s just focus purely on importing inflation. What impact does that scenario have on US inflationary status.

[00:46:22] Nersisyan: Well, if anything- actually, in our case- imports help us with taming inflation. That this globalized economy has actually worked to tame both inflation and wages in the United States. Because if you can outsource, then you can keep wages tamed here. And then, if you can also then bring cheap goods from China for people to buy with their low wages, then you are not going to create as much discontent.

That the poor people here- whose wages are not growing- can just shop at Walmart, and I guess now Amazon, with all its cheap stuff. And in a sense, that’s been our model for the past 30, 40 years or so. So, in this import business, I guess, we have been- to some extent- on the winning side, if you think about it in terms of, we don’t produce things here, but we get to consume them.

We don’t have to deal with the pollution, China and India have to deal with it. At least we don’t deal with it directly, in that sense. Obviously it affects all of us, at the end of the day, and then we get the cheap goods. But of course, it’s been bad for us in the sense that wages have been kept stagnant, because of all of those dynamics of outsourcing.

But of course, if you think about it from this real resource perspective, for the exporting countries- especially for the developing world- it’s been the opposite. It’s been, yes, their economies have grown, if you look at China and India- I guess- is joining the ranks as well. Their economies have grown, but all of it has been at the expense of just environmental degradation and extraction, and then resources getting extracted and shipped from everywhere, for us to consume here and Europe- obviously- as well, developed countries in a sense. I don’t know if that addresses your question.

[00:48:14] Grumbine: It did absolutely. And in fact, I’d take it just a little bit further. I think it’s important to understand the high cost of low prices and what we’re doing as a nation to achieve the deflationary results we’re hoping for. And we have exported the manufacturing to all these other countries, now they’re using old manufacturing stuff that we no longer needed.

And they’re not producing for their own domestic economy, they’re producing for export to pay off external debts and debt denominated in US dollars, typically. And if we think that the US dollar is ‘dying’- and I think it has to do with the barrel of a gun and the imposition of structural adjustments, and the enforcement thereof, just like the basic understanding of the buckaroo and the money story that Warren talks about, and most basic 101 of MMT- is it’s the imposition of an obligation. And we have imposed across the world, a sort of obligation- similar to the tax- through the structural adjustments and the IMF debt, to- in fact- create the same net effect as a tax in those countries. Would you agree with that statement or am I off?

[00:49:35] Nersisyan: Well, I don’t think you’re off. I think the MMT approach to development has always been that this is the wrong way to do it. Export orientation is the wrong way to do it, because in terms of your real resources, you’re just shipping them abroad for somebody else to use, when you have your own needs that are unmet. Which is ridiculous, if you think about it from that perspective.

So, MMT has never advocated for this kind of export-led economic development model. If there is any development model that MMT has advocated for, it’s been the employment focused, domestic resource focused, domestic currency focused approach to development. That you take your domestic currency, you put your domestic resources to work, to try to do two things: to provide employment and incomes on the one hand, and also to fulfill the needs of your population that go unmet.

And of course, we’ve always been against taking on debt in foreign currency, especially if you’re taking on that debt, but you’re not using the foreign currency to create the conditions for it to be able to repay the debt. Take the foreign currency and you don’t build something that’s going to help you earn foreign currency, then you are in trouble, because then you don’t have the cash flows in foreign currency, to help you pay those debts in foreign currency.

So, the focus has always been on domestic currency, you’re using your resources domestically, and in some sense- I think- that creates the opening for creating a different kind of economy. And it leads to a different kind of development model, that the goal is not growth. The goal is not economic growth.

The goal is on fulfilling the needs of your population. And if you can do it in a way where your economy is not growing at 4% a year or 5%, 10% a year, perhaps that’s even better. If you can do it in an environmentally sustainable way, because a lot of these economies used to have their own model, before the colonial powers intervened and tried to change those economies, to be more on the extractive side.

So, if you can develop your own model, independent and separate from this world capitalist, growth-first kind of economy, then even better for you.

[00:52:01] Grumbine: Thomas Sankara famously said ‘debts the cannot be paid, will not be paid.’ And ultimately, his choice was ‘I can either take care of my people or I can pay you your debt.’ They can’t do both. And watching the rise of fascism around the world is directly resulting from austerity measures, that are brought on by inflation, that was imported via these debt traps and foreign debt. Venezuela and Argentina and Brazil. You got Milei, you got Bolsonaro. Wherever there is austerity, the rise of fascism kicks up, because there’s artificial scarcity now.

The rise of fascism- I believe- is directly related to austerity. And we wonder why the Trump phenomenon even happened, and it’s just so baffling. And yet, the austerity on main street versus that privileged, managerial business owner- or capitalist- class that’s doing just fine, looking at their stock portfolio. It doesn’t seem like rocket science to me, why this is happening. What are your thoughts on inflicting pain and expecting better results?

[00:53:17] Nersisyan: Thats a good way to put it. I completely agree. It’s the austerity chickens coming home to roost for sure. That’s how I see it. And it’s going on in the US, it’s going on in Latin America, but it’s also going on in Europe. You hear these stories about the rise of the fascist parties in all these different countries.

We had the election in Italy, you have the rise of that party in Germany, obviously in France, there’s always been that stronger far right, which has become even stronger. And to me, it’s a no brainer as well. There is only so far that you can push people down this path of neoliberal economies, where the economy is not built to work for the people.

And you cannot do that forever. There is going to be a pushback. What puzzles me, is how ineffective the elites in these different countries have been, in not recognizing that you cannot continue this for too long. I remember reading a book by a sociologist a few years ago, called The Ineffectual Elite or something like that, and how the elites had basically forgotten, that you do have to give something to the rest of us, otherwise people won’t have a buy-in to the system, and it’s going to crumble down. So, I am an economic determinist in that sense- if I may say that- in that, I see a lot of these political upheavals happening here and there, as a result of the economic conditions in which people there are living.

There was an article in Bloomberg just a few weeks ago called ‘Germany is Rich, Germans are Not.’ So, even when you’re looking at a country like Germany, which was supposed to have this economic model that has worked so well, where the others have not worked. During the Euro crisis, everybody was told to be more like Germany.

And even then I was thinking, but are Germans better off? Because the German economic model is predicated on keeping wage growth as slow as possible. And Germany did all these- sorts of- labor reforms, trying to strip away labor protections, trying to make it easier to fire people, creating these temporary jobs, mini-jobs.

The goal of all of that was to keep wage growth slow, so that Germany could remain competitive- and hence- continue to maintain its export driven model. But who has it helped? When we say it has helped Germany- when you’re thinking about countries in those terms, obviously Germany is better off than Greece in that sense- but the people in Germany, are they better off?

And the answer was, that they’re not. That a lot of this economic gains from this particular economic model had accrued to a small percentage of the population, while the rest of the population was not doing well. So, if that’s the state of affairs in Germany- and I would say also in France- then what can we say about countries like Spain and Greece and so on, which have been dealing with double-digit unemployment for the past 10 years, 14 years now, or so. So, is it that difficult, to then put two and two together and say- in a country with 14% unemployment- a lot of people are going to be disaffected about the economic system? And if they don’t have a stake in it, they’re okay with burning it down. I can put those two and two together.

[00:56:36] Grumbine: I’ll let you have the last word on inflation, Yeva. Thank you, by the way, so much.

[00:56:44] Nersisyan: The last word on inflation?

[00:56:46] Grumbine: Yes.

[00:56:48] Nersisyan: I’m hoping that the Fed is going to cut interest rates soon, but even that is not guaranteed. I’m surprised- actually- at how resilient the economy has been, in terms of its ability to withstand the higher interest rates, and not break. But of course, it’s not just about how high interest rates go, it’s also about how long we keep them that high. So, that may be what’s going to break the economy eventually, if interest rates are kept too high for too long.

So, I guess I’m just hoping that policy makers at the Fed are going to see the light, and they’re going to lower interest rates, so that, as bad as we’ve talked about our economy being, it would be even worse if we had another recession and if we had unemployment rates going up, and I would hate to see that happen, because interest rates are kept too high for too long.

[00:57:41] Grumbine: Thank you. That’s fantastic. I really appreciate you coming on and talking with me. I really do. I hope I can get together with you in the future again soon.

[00:57:49] Nersisyan: Sure. Thank you. It’s been a pleasure.

[00:57:52] Grumbine: All right. This is Steve Grumbine with my guest Yeva Nersisyan. Podcast is Macro N Cheese. Please become a donor. We are a 501c3 with Real Progressives. Go to our Patreon at Patreon.com/realprogressives. And you can also go to our website, Realprogressives.org, go to the donation page and become a donor.

And with that, I want to thank you all for joining us today. For Steve and Yeva. We are out of here.

[00:58:27] Geoff Ginter [Intro/Music]: 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.