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Episode 27 – Wage Stagnation, Inflation and the New Normal with Mark Blyth
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It’s not such a stretch to have Mark Blyth as a guest on our podcast. Although we normally feature proponents of Modern Monetary Theory, our interests are, above all, in the health of the planet and the social, physical, and economic health of our fellow citizens.
In this episode, host Steve Grumbine and Professor Blyth find that they share two concerns of utmost import: austerity, as both an economic as well as an ideological system, and the climate crisis.
Blyth is known for his pop culture references and his fantastic sense of humor. “A Lannister always pays his debts” leads to an illustration of the difference between public and private debt. Hint: the first is intergenerational. Grumbine may not agree that generations of private individuals are actually responsible for repaying the government’s commitments, but they both know that when wages are stagnant, personal debt is likely to be devastating and never-ending.
We think our listeners will get a kick out of Blyth’s irreverence as much as Grumbine clearly does. When Steve challenges Blyth’s comparison of Venezuela’s sovereign currency to that of the United States, Blyth retorts that it’s all “smoke and mirrors and bullshit.”
Professor Blyth is concerned that MMT proponents haven’t faced up to the reality of political obstacles. “Have you met Republicans?” They’re not going to agree to “just take the Fed, write a big check, stick a golden penny in the Fed, and we’ll do a green new deal.” Well, we can’t argue with that.
You’re going to enjoy this conversation that takes us back to 1315, revealing that there has been a downward trend in interest rates for 700 years. (Did we mention that Grumbine and Blyth agree that the threat of inflation is vastly overblown?) Whether you’re interested in Westeros or Brexit or the Grateful Dead, it’s an episode you won’t want to miss.
Mark Blyth is The William R. Rhodes ’57 Professor of International Economics, Professor of Political Science and International and Public Affairs at Brown University.
Follow him on Twitter @MkBlyth
Macro N Cheese – Episode 27
Wage Stagnation, Inflation and the New Normal with Mark Blyth
August 9, 2019
Mark Blyth [intro/music] (00:01):
States issue debt on an intergenerational basis. That is to say, there will be more Americans tomorrow than there are today. So if I issue a 30 year bond today, you might pay a bit of it, but your kids will pay more of it. The governments deciding to spend and then you back fill it with taxes, you’ll run into massive political problems, because the weakness I see in the argument is, well, we’ll just agree on what will spend.
Really? Have you met Republicans? My favorite line is Winston Churchill on the American. “The Americans will always do the right thing once they’ve exhausted every other conceivable option.”
Geoff Ginter [intro/music] (01:26):
Now let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.
Steve Grumbine (01:34):
And yes, this is Steve Grumbine with Macro N Cheese. Today is a little bit of a departure. And normally I am focused on Modern Monetary Theory, but I have had the distinct honor and privilege to be able to speak with Professor Mark Blyth of Brown University. Mark is the William R. Rhodes 57 Professor of International Economics, Professor of Political Science and International and Public Affairs.
He is also a political economist whose research focuses upon how uncertainty and randomness impact complex systems, particularly economic systems and why people continue to believe stupid economic ideas despite buckets of evidence to the contrary. He is the author of several books, including “Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century.”
He has also written “Austerity: The History of a Dangerous Idea” and “The Future of the Euro.” With that introduction, I’d like to welcome Mark to the show. Welcome, Mark. Thank you so much for joining me.
Mark Blyth (02:42):
Yeah, it’s a pleasure to be here.
Steve Grumbine (02:44):
You have got some of the greatest punchlines for a guy that is so brilliant and so well put out there. It’s just shocking to see how down to earth you are and self-deprecating. And some of the jokes that I’ve heard you say are just absolutely hilarious from the Shrek, being Shrek and talking about Game of Thrones, et cetera.
You have just managed to take mainstream popular culture and be able to make something that many people can’t focus on into something very exciting and very accessible. And I can really really say with full conviction, it is absolutely addictive. Thank you so much for being with me today.
Mark Blyth (03:27):
Well, thank you for such a kind introduction. I mean, basically I make that stuff up because half the time I’m boring myself. So I’m glad it’s got an audience.
Steve Grumbine (03:35):
So let’s talk a little bit about Game of Thrones just ended and many of us were really wrapped up into it. And not too long ago, you were able to break down the concept of private debt and taking out Lannister debt, in fact. Can you tell us the parable, if you will?
Mark Blyth (03:52):
Well, actually it was about public debt rather than private debt.
Steve Grumbine (03:55):
Oh.
Mark Blyth (03:55):
Yeah, here’s the story. So, basically, imagine you go back to 1315. The reason I picked the number is not because that corresponds to whatever they’re doing in Game of Thrones, but because there’s an interesting paper that came out recently from a guy at the Bank of England on long term interest rates since 1315.
And, basically, they’ve been on a giant downward slide for 700 years. Now we think that’s kind of weird because, back in the 1970s, interest rates, real interest rates when you adjust for inflation were very low. That is to say inflation was higher then the rate of interest. And then in the 1980s, when interest rates were jacked up by Paul Volcker and the Bank of England and the rest of it, then you ended up with abnormally high interest rates as inflation fell very rapidly.
So we tend to think of inflation as this ever present thing that’s caused by bad government policy, et cetera. But the interesting thing as we focus on interest rates, the price of money, the price of forgoing consumption. Now, it’s been falling for 700 years. Now, the way I explained it it’s very simple.
Imagine that the Lannisters are the dominant power in Westeros and you are the Bank of Braavos. And you want to lend them some money. There’s a very high probability, particularly after the death of the patriarch that Cersei Lannister will murder you rather than payback the debt. Consequently, you would want a very high rate of interest as your price for lending those people money.
And, of course, if John Smith and these guys managed to pull this off. John Smith? No. What was your name again? John,
Steve Grumbine (05:26):
John Snow.
Mark Blyth (05:27):
I don’t know where John Smith came from. John Snow and these guys pull this off, then your debt’s worthless. Now imagine that, you know, John Snow pulls it off and you have peace and prosperity for a hundred years. You don’t just have Lannister debt, you also have John Snow debt. You probably have a little bit of the people who are over the seas in the place that was warm despite it being winter whose name escapes me now and lots of different sovereign issues.
Well as the pool of capital expands, the price of money will go down. So what’s been going on for 700 years and particularly in the past 30 years with the integration of global capital markets is that you’ve got one giant pool of cash. And you also have, it seems, very, very low inflation baked into the cake.
So you’ve got very low interest rates and very low inflation going forward. And that actually changes the game because a lot of what we think about the economy is based upon the experience of the seventies and into the eighties with inflation always being everywhere, a monetary phenomenon, being an ever present danger.
Well, we just conducted this giant natural experiment after the financial crisis where central banks globally chucked an extra 20% into the global money supply in order to save all the banks around the world. And under still the standard understandings of the economy, you’ve got a fixed amount of goods and a fixed amount of currency denominated in it.
If you, basically, chucked 20% extra, and that’s got to show up in higher prices, and yet inflation, at least as measured by central bankers and other economic commentators, has continued to fall and interest rates along with it. So that takes us into a really interesting space. Probably more than you wanted but, anyway, that’s how the Game of Thrones things came up.
Steve Grumbine (07:02):
No, that’s fantastic. And definitely not more than I wanted. So, you know, when you had spoken some time ago about the role of inflation and stagnant wages, my concern was that it appeared that there’s no way out for the average person because without some inflation and without rising wages, we’re trapped. We’re stuck. Can you elaborate on the role of inflation and wages for the average individual post global financial crisis?
Mark Blyth (07:35):
Yeah, absolutely. So this links back to this story I was telling earlier. Remember I said it wasn’t really about private debt, it was about public debt that I was talking about, the Lannisters, all the rest of it, right? Big bond issue. Well, the other side of this is private debt and we’ve been told over the years to think, oh, terrible state debt, blah, blah, blah.
This is what made me write the austerity book. Here’s the thing about once states issue debt. States issue debt on an intergenerational basis. That as to say, there will be more Americans tomorrow than there are today. So if I issue a 30 year bond today, you might pay a bit of it, but your kids will pay more of it.
Families don’t get to do this. The notion of, like, we’re just like a family and you spent too much. You have to cut your spending. Absolutely not true. So, qualitatively, state debt is different. It’s intergenerational. It’s backed up by the coercive force of the state, et cetera, et cetera. Whether or not you’re an MMT person and think taxes come first or second, whatever.
It’s qualitatively different. Now go back to the 70s. If you were a baby boomer who was about 35 years old then and you bought a house, and that house had a mortgage and it was a 30 year mortgage and 5%. If inflation goes to 15%, what happens is, particularly if your wages adjust upwards to compensate for the inflation, you’re making the bank eat the loan because they’re basically getting paid back in essentially devalued dollars.
Now that was great for the boomers and that’s one example of how inflation can benefit people. It’s not always a cost because if you’re in debt on a fixed rate contract and inflation rate goes up, the lender’s the one who eats it rather than you. Now, what’s the world that were in now? Structurally low interest rates, structurally low inflation, which means that people have accumulated a lot of debt don’t have the ability of inflation to eat away at some of that debt and it’s not going to happen anytime soon.
But it’s a double wammie because of interest rates are low, that means you can kind of revolve your debt. Now let me put some flesh on those bones. Beginning in 1973, with depending on which country you look up, the link between pay and productivity for most workers just basically collapses. And this is when you start to get the big skew towards inequality.
So if wages aren’t growing, but costs are growing, cost of education, healthcare, all the big stuff that matters, particularly if you live in the United States, is going up. I mean, you know, apparel might be getting cheaper, toys from China might be getting cheaper, but really the big stuff is still going up in cost.
What do you do? Well, you borrow against your future. That’s totally fine. There’s no problem with that. So long as you expect to have more money in the future than you do today, otherwise this is a fool’s errand. So if you’re borrowing today and you expect to earn more tomorrow, totally makes sense to do it, particularly, if the inflation rate is low and the interest rate is low.
But what if you spend 20 to 30 years building up huge amounts of debt as American consumers and British consumers and others have done, and your wages aren’t growing? Well, then it’s very hard to pay back your debt. And you’re not going to get any relief with inflation because that seems to not be there.
That was the story about it disappearing despite 20% of the global money supply being expanded during the financial crisis. And, on the other hand, you’ve got interest rates have been falling since the 1300s. So what does that mean? You don’t get relief to your debt through inflation eating away at the cost of the debt, and you don’t get any relief through interest rates or rather you do, that as the same because they’re low, the interest rate you effectively get charged might be low enough that you can keep revolving it.
But even then, even though global interest rates are stuck at around one and a half percent, you and I are still paying 24 or 25% on our credit cards thanks to the deregulation that was wrought by Delaware and other States in the 1980s, which allows them to charge you usurious rates regardless of the underlying rate. But anyway, again, probably more than you wanted, but that’s how it plays out.
Steve Grumbine (11:13):
That was definitely not more than I wanted. That was beautiful. Let me ask you this question. As a regular individual that is trying to get their arms wrapped around the Trump phenomenon, if you will, in the most grotesque sort of sense of the word. You’ve spoken about Trumpism, global Trumpism and the new normal. Can you kind of address that with us as well?
Mark Blyth (11:36):
Yeah, so, I mean, here’s a pretty abstract way of thinking about it, but hopefully I’m gonna stop trashing him. So when you have this big pile of inflation going on in the 1970s, it might be good for people on fixed interest rate contracts who’ve got mortgages. But if you’re in the financial sector or you’re an investor, it’s a disaster.
Now remember that this is capitalism, right? What you may be able to do regardless of the air bags you’re building in the system is to invest in the future through deferred consumption now and then reap greater gains. That’s the whole game, right? You invest to make more money than you would get just eating it as hot dogs and beer today.
Now, if you have inflation in the system and you expect, let’s say, a 5% real rate of return, that is to say net of inflation, your money will make 5% this year and inflation goes to 10%. As I’ve said in many places before, you might as well take the money around the back of the house and burn it. And that’s, basically, what happened across the rich countries of the world in the 1970s as inflation built up and up.
So what we call the Neoliberal Project – Reagan, Thatcher, the kind of revolution and economic thinking in the time that, basically, put inflation front and center, the move towards independent central banks, the dominance of people like Trichet and Greenspan and Draghi even today, contemporary politics.
These guys who are technocrats was the big problem we had to deal with was the risk of inflation in all times, in all places. Okay, so what does all this have to do with Trump? Well, Trump’s just one example. Brexit’s obviously another one, but if you look deeply in Europe, for example, you’ll see the near meltdown of about one third of the political party systems that have been around since the end of World War II.
So one way to think about it is neoliberalism, what is it? It’s a set of ideas but it’s also a set of things you do. You privatized, you integrate, you downsize, you globalize and what you do in doing so is take away the ability of labor to basically push up wages and claim it’s productivity share.
That means massive returns to capital and it also means that inflation starts to collapse. If you’re, essentially, competing against Chinese labor on a global labor market, then your ability to push up wages is pretty much zero if you’re one of the co-workers. So with all of that in mind, what does that have to do with Trump?
Well, you’ve had 30 years of wage stagnation and you’ve had a political class that says, “everything’s fine, everything’s doing great, we’re doing fabulous;” and then you get a giant financial crisis. This causes real income losses amongst people who really can’t afford it, who are heavily indebted.
Those elites lose massive amounts of credibility. And this takes place at a time when a bunch of people who we know call populace have been shouting from the sidelines about the system being broken or hijacked or rigged or whatever it is for a long time. And suddenly that begins to make a lot more sense in the eyes of the people who have been listening to an elite, who are somewhat disconnected from them and have been reaping all the gains for the past 25 years.
While in many cases, not all, but in many cases, their communities have been hit and haven’t recovered. So it’s not about Trump. Trump’s a symptom, not a cause. Trump is an example, if you will, of the meltdown of political party systems that have failed to be responsive to the voters that they were meant to be responsive to.
I mean, one simple way to think about it in the US case is, it used to be the case that the Democrats constituency were, broadly speaking, workers. And that capital and small businesses were, broadly speaking, the Republicans. With the rise of finance, what then Democrats did was pivot away from labor and, basically, become the party of Wall Street and tech.
Well, you know, that’s great. It’ll raise you lots of money and, for a while, you’ll win some elections, but, at the end of the day, you’ll get mass desertion from the people that are your traditional constituents. And that’s what, basically, been happening over, in many places, not just in the United States, over the past 10 years.
Steve Grumbine (15:23):
So how is it, given where we are today, how is it that we can recover some of that space for regular people? I mean, what is your position, if you will, on the fiscal space available to sovereign nations, currency issuing nations in general? How do you view fiscal space as a solution to some of these problems?
Mark Blyth (15:45):
Well, remember, fiscal space is, actually, a very neoliberal term, which describes how much you can effectively spend before bond markets revolt. So, you know, let’s examine that, right? Are bond markets revolting anywhere? No. Is there more government debt than ever? Yes. Do serious economists actually think that there’s a shortage of global safe assets, which is to say there isn’t enough high quality government bonds around?
Absolutely. So we’ve doubled global public debt in many cases, in many countries and yet interest rates paid on those public debts have never been lower. So fiscal space then just becomes a very strange term in that case. We’ve been looking for the bond market vigilantes for a long time. As far as developed country debt goes, they seem to have, basically, exited stage left.
Now having said that, let me pivot in a slightly different way. Just because you’re a currency issue, it doesn’t mean shit. I mean, Venezuela’s a currency issuer. It’s not working out too well there, is it? So, you know, that in and of itself is not enough. The reason we can talk about things like MMT with countries like the United States is because the United States prints the global reserve asset, the dollar.
Nobody else has an alternative to it in terms of a basic savings bond for the planet, a safe asset. So essentially we can run huge deficits, be incredibly responsible in our politics, spend money on what we don’t need rather than what we do need and, basically, our interest rates and inflation rates barely budge.
Now this simply isn’t true if you’re someone like Britain. Britain’s a variable through Brexit. So the most obvious consequence of this is that the pound will lose value as people try to get out of British assets. When that happens Britain imports two thirds of it’s food. So that means that the cost of that food will go up and Britain’s a country just like the United States where the bottom 60% of people haven’t had a wage increase in at least a decade.
So you’re going to then give those people a really hard inflation hit through imports. Well, if you’re an MMT person, even in the most basic sense, the rule is you spend until you get inflation. Well Britain’s about to get inflation without spending simply because of Brexit. So, you know, we need to be careful about what we’re talking about here, fiscal space, bandying around that term, and also sort of how much room there is to spend.
If you’re the United States and you effectively license trillion dollar level of corporate tax evasion by your corporate elites and their companies, then, yeah, there’s lots of fiscal space. We could go after that if you think taxes are important. If you think it’s really just about the government’s deciding to spend, and then you back fill it with taxes, you’ll run into a massive political problem because the weakness I see in the argument is, “well, we’ll just agree on what we’ll spend.”
Really? Have you met Republicans? Right? They’re not just going, yeah you know what, you’re right. Just take the Fed, write a big check, stick a golden penny in the Fed and go do the Green New Deal, right? That never happens. Politicians don’t vote for tax increases. So, you know, as a description of plumbing, these things might be useful metaphors, but as a description of what’s possible in the economy, I think they massively understate what’s going on.
Steve Grumbine (18:57):
So let me ask you, you brought up Venezuela and I find that to be an interesting comparison. If Venezuela has pegged their currency to a foreign currency and is largely dependent on a single export being oil; so I would consider them to be kind of an apple and orange comparison. Can you explain to me why you felt like Venezuela would be a, you know, obviously yes, they do issue.
They lost significant amounts of flexibility from the fiat regime that they run, given that it’s pegged. What is your position on that?
Mark Blyth (19:29):
I think it’s all smoke and mirrors and bullshit. I mean, ultimately, you’ve got a kleptocratic government that’s been embedded in this country for a hundred years. You’ve got different factions of the elites stealing from each other and an acute case of Dutch disease, everything that can go wrong has gone wrong.
You’ve got 3 million refugees and, you know, hey, guess what? They’re a currency issuer with a peg. And that’s a like looking at a cancer victim and noticing that their nails are a bit long and then trying to generalize from that.
Steve Grumbine (19:59):
Okay, let’s go to Brexit for just a moment. As far as it goes, obviously the UK maintained its pound. It did not adopt the Euro.
Mark Blyth (20:08):
Which was a very good thing to do. I do not want to say that currencies are unimportant. I just want to hedge against this opinion that now we’ve discovered that under certain conditions, governments can basically spend a ton of cash, get shit done like World War II or whatever. And, even then, actually, if you look into the numbers, half of it was bond financed – that wasn’t really MMT.
We’ve discovered that fact and now it becomes, right, that’s it, problem solved. And I’m like, hmm, no. There’s a thing called politics. You see, there’s rich people out there that like the current regime and they like the fact that they have political power and the notion that they’re just going to hand you the keys to the printing press and everything’s going to be fine, simply isn’t going to happen.
Steve Grumbine (20:51):
I hear what you’re saying and I understand the political implications for sure. I wonder if the vantage point of populism kicks in and the potential of unrest and people finally waking up to the fact that they’ve been kind of left in a money famine of sorts for their own lives. The services have been continuously privatized under this neoliberal regime and people have been left to try to afford every meaningful thing in their lives on a stagnant wage while, effectively, the services become more and more austere.
I don’t quite understand. Here, perfect example, the US government just went ahead under Trump and authorized $750 billion of new spending while simultaneously cutting taxes. As I look over there at the UK, and I see austerity rearing its head from the Tories and the like, and I wonder where new labor and labor, et cetera, are coming up with their ‘remain strategy’ and their lack of fiscal space; it keeps diminishing there.
So my question to you, I guess in looking at both the US and, I guess, Venezuela, and then going back over to…
Mark Blyth (22:18):
Well, let’s leave Venezuela out of it. Let, you could use any other country. Look, could South Africa do this stuff, but I mean, let’s just ask a question, right? How many countries are we talking about that have the capacity, wherewithal and the desirability of their bonds plus the liquidity of their capital markets to make this stuff work?
Steve Grumbine (22:33):
Well, let’s take a look at Japan. Japan has got close to 300% debt to GDP ratio on its own and they have one of the more stable, more equal societies.
Mark Blyth (22:47):
Yeah, no, hey, I’m with you. absolutely. But a huge part of that story is the Japanese public regard public debt not as a menace but as an intergenerational savings outfit. So they actually have no problem piling it on because they prefer to keep their savings and they keep their savings there because they have a huge degree of financial repression in the financial system, which means the returns on those things are still marginally above everything else.
So the government finances itself. It also means that the government’s been buying 80% of the debt since 2012. So they’re effectively monetizing their debt with no inflation. All right, guess what? They’ve done all that. They’re still the oldest society in the world. They’re not doing immigration. They’re shrinking.
They’re not growing. What’s the end game? Do they go to 500? Do they go to 1000? I mean, what exactly is the model in this that makes it good?
Steve Grumbine (23:32):
Well, I guess you look at the standard of living for the people that are there.
Mark Blyth (23:37):
Fine. But was that caused by those policies?
Steve Grumbine (23:40):
That’s a good question. What do you think?
Mark Blyth (23:43):
No, I think it was caused by Japanese corporates making a shit ton of money between 1980 and 1990 and having the world’s largest car manufacturer.
Steve Grumbine (23:52):
Okay.
Mark Blyth (23:53):
And having the world’s largest manufacturer of electronic generators for export, Honda. I mean, you know, there’s a real economy there. It’s not just money in the government.
Intermission (24:10):
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Steve Grumbine (24:59):
Now, let me ask you, when it comes to Australia, for example, and China and Russia and Canada, even, I mean, these are countries that are what I would consider to be largely representative of being able to do the very things that an MMT proponent would suggest in regards to…
Mark Blyth (25:24):
Okay, okay, hold on. Walk me through Russia. Why is it any different? Why is it not Venezuela with nukes?
Steve Grumbine (25:27):
Well, I think in general, they’re the real resources backing their ability to produce and so forth, allows them a significant amount of policy space.
Mark Blyth (25:40):
But they’re dependent on oil, just like Venezuela. In fact, if they continue to export their oil, we will all die because of the climate crisis.
Steve Grumbine (25:47):
This is true. This is very, very true.
Mark Blyth (25:50):
And that seems to me to be massively more significant. I mean, you know, let’s go back to Brexit. You want to bring on Brexit. Here’s what’s going to happen. Boris is going to be the new prime minister. And Boris is going to give everybody tax cuts. He’s going to probably fund about 5% of GDP as a big giveaway to everyone, an end to austerity through tax cuts, all the rest of it.
And then maybe there’ll be massive public spending cuts after that. Maybe he’ll sell the NHS to Trump. We don’t know. But the one thing we do know is he will do that to secure his electoral popularity. And when he does that, Gilts, government bonds in Britain, will barely move, right? So in the one hand, yeah, he’s kind of doing MMT.
Alright, great. Now, why does he then have to cut after that? Well, because he wants to if he decides to go down that path. Are there no limits to the British Gilt market? Woo, that’s an interesting one. You see, because as long as foreigners have your debt, they can affect your currency and it can affect all the other nasty variables like inflation and domestic costs and influence on investment and so on and so forth.
It’s really places like the United States, you have a global currency or China, you have three levels of currency controls and you do not allow the capital out unless you want it out, that can effectively do these types of policies. And interestingly, what you’ve got, politically, in both States is you’ve got Republicans with an effective veto on any spending they don’t like.
And you have an authoritarian Communist Party that dictates what will be spent and where. Now, put that in Britain and ask the British public, “We’ve discovered this wonderful thing called MMT. We’re going to do the Green New Deal. We’re going to do this. We’re going to do that,” all the rest of it.
My prediction is that, basically, two-thirds of them will be like, “No, I don’t want to do that. I’d rather have a tax cut.” So how do you force them to do it?
Steve Grumbine (27:38):
That’s a great question. You hope that people go hand to hand, you know, pub to pub, coffee house to coffee house, and water cooler to water cooler, you know, talking and building momentum to get the energy required to be able to create enough populous angst that it actually brings about the kind of change that they would want to see. That would be my approach.
Mark Blyth (28:00):
It’s so much easier just to hate the EU.
Steve Grumbine (28:03):
This is true. This is very true. And that, you know what? You bring up a great point. People have the attention span, you know, of very, very small children. It’s just tough stuff to stay engaged in and to do the due diligence. And it makes all of this quite challenging, no matter what the solution. It’s almost as if unless the rich people decide that we’re going to do something, nothing will get done.
Mark Blyth (28:31):
Oh yeah, but that’s normal. Look, there’s a brilliant book. It’s probably out, it’s dry, it’s academic, but it’s fabulous. And it’s called “Inequality in Democracy,” if I remember it. It’s by a guy called Marty Gilens came out in 2015 with Princeton. And what he does is he looks, basically, at how the government in the United States spends its money.
He then looks at the preferences of people on how the government should spend money across the income distribution. And guess what they find? The only time you get pro-poor policies is when rich people want it. And all of the time, the only preferences that government respond to are the top 20% of the income distribute.
And then a bunch of people went and replicated this study in places like Holland and other places in Europe, and Germany. Guess what? They found this is exactly the same. So it turns out that there’s a rich person’s skew to democracy. I think we kind of knew that, but I think there’s something peculiar about this current moment of social selectivity, internet bubbles, homophily in groups, the people we date, the people we talk to, the people we are neighborhoods with, you know, all that sort of stuff.
We all talk about diversity but we have the stunning lack of diversity in terms of the people that we interact with. So we then only talk to people who share the same views as us and we can’t possibly believe that there’s a whole bunch of people out there who might think that what we think is a good idea is a bad idea.
Steve Grumbine (29:52):
Very true. The echo chambers are a very real scenario.
Mark Blyth (29:56):
Absolutely, absolutely. So, I mean, I think that, you know, it’s sort of, you know, I always get desperately get worried when it’s sort of like, well we know what to do. Well, two questions, number one, who’s we? And number two, do what exactly?
Steve Grumbine (30:10):
Well, I think, you know, in terms of what’s going to kill you first, I look at it this way. If he believed the IPCC which comes out and says, hey, we’ve got what, you know, now I guess it’s 11 years. It was 12. It’s now 11. And that’s not to come up with a grand plan. That’s to have implemented one and actually make significant change.
And so you ask yourself, okay, so are we too broke to survive? Do we just need to die as a planet, just a mass extinction?
Mark Blyth (30:40):
No, no. I mean, again, you know, it’s not that I’m like anti-MMT. I’m not. And I think climate…
Steve Grumbine (30:46):
No, no, no, no.
Mark Blyth (30:46):
No, hold on, hold on. I find that climate change is the single most important issue that we’re facing. Everything else is kind of bullshit.
Steve Grumbine (30:51):
Right.
Mark Blyth (30:52):
So, therefore, do I believe in the Green New Deal? Yes. Even mainstream European politicians are now getting to that point because the writing is so on the wall it’s ridiculous, right? Now, here’s the thing. My favorite line on this is Winston Churchill on the American. “The Americans will always do the right thing once they’ve exhausted every other conceivable option,” right?
And it’s going to be the same with climate change. Unfortunately, this country is going to have to lose Miami or something like this through a massive hurricane before you take this seriously. It’s like smokers. There’s tons of information out there that it causes cancer and millions of people still smoke, right?As a species, we’re not very good at planning for the future.
So, you know, we need to, basically, have the attention for it and that’s it. Now there are multiple ways of financing a Green New Deal, given the planetary emergency nature that we’re facing. I happen to think spend now and worry about the debt later is exactly the way to go. Do you have to then buy the whole MMT line to get to that place?
No, you don’t. You’re just saying let’s just do it and worry about it later. And I think that that’s actually a better way to do it. If I have to convince everybody that everything they’ve ever thought about money and debt is actually wrong and then we can have a conversation about climate change, I think we’re doomed. I think we just have to have the conversation about climate change and go, “It doesn’t really matter. We need to do this now.”
Steve Grumbine (32:15):
You know, as somebody who walks amongst people that don’t even have the basic economic understanding of an 099, you know, freshmen class, you can clearly see that running against the brick wall of trying to explain to people even the role of government debt and how governments spend and so forth is incredibly challenging.
But the problem is, and maybe this is another area of agreement that we can come to. When it comes to movements like zeitgeists and some of the other money cranks out there that have really taken, you know, this conspiracy language to a new level, and they’ve been incredibly effective in terms of penetrating people that have never cared about economics a day in their life and are suddenly now experts in zeitgeists.
And they’ve watched a YouTube video and they’re suddenly an expert on all things, federal reserve, all things central banking, all things States spending and so forth.
Mark Blyth (33:19):
Yeah, the elite version of that is Ted talks. It’s like, you know, people will watch two Ted talks on neuroscience and they think they understand neuroscience. Like what, what, what just happened?
Steve Grumbine (33:29):
Exactly. You know, again, for me, obviously, you know, I’m coming to you trying to break out of my echo chamber because I find your views and the way you describe so much of the debt driven economy, really brilliant. And one of the things that, you know, I found myself doing is, you know, I don’t want to say getting stagnant, but I found myself asking the same questions to the same people, getting the same answers and beginning to provide myself with answers before they even give the answers.
Mark Blyth (34:03):
Try being an Academic for 20 years and going to the conference that you got your PhD in. Yep, you know what everyone’s going to say.
Steve Grumbine (34:09):
Exactly. And, you know, I find that some of the language that I am particularly given to, while it certainly makes sense in my mind and, obviously, those who are fellow travelers in this strain, I find that it’s very interesting to take a step back and hear . . . I find Michael Hudson’s explanations about debt and debt deflation and Steve Keen’s explanations about those very things, incredibly insightful and yours as well.
And so it’s not like I want to live in an echo chamber, but I find the plumbing to be fascinating because we’ve been so misled by the plumbing. And the plumbing has been used as a whip. It has been used as a means of keeping you and, well, maybe not you, but me for sure, in a very, very rough, you know, existence.
And, you know, you look around and you’re like, my goodness, I’ve got two master’s degrees. I’ve been gainfully employed. I’ve progressed. I’ve learned. I’ve done things. I have a track record. Why is it so hard to survive? And you scratch your head. And I, you know, I was three semesters into a PhD and had to drop out for a variety of reasons.
And the debt that $127,000 worth of noose of a debt is just unbelievable. I mean, my house is expensive, but you add in the student debt thing and it’s just crippling. And so you look around and you wonder, my god, how can anybody survive with this much debt on them.
Mark Blyth (35:39):
Right. So, therefore, someone comes along and says, there’s too much debt. And people go that’s, you’re telling me. So we need to have less debt. Yeah, that would make sense. I’d like to have less debt. But the only way you can do that is if you spend less, because that’s the only way and like, arithmetically, that’s absolutely true because, for countries, you can play a trick called growth.
So if the interest rate paid on the debt is lower than the rate of growth in the economy, it shrinks over time. The equivilent for a person is if your real wages are growing or growing faster than your debts, then you can do the same trick. But the problem is our debts are growing faster than our wages and that’s why people feel those stresses.
And it’s also why, you know, you get people get on the television and say, like me, they go, well, you know, inflation is really low and they go, bullshit it’s low. I have to pay this and I have to pay this and everything’s going up and all that and you keep telling me inflation’s low. You know, and inflation is a measure, not of the two or three things that really matter, unfortunately.
What it is, is a measure of the general level of all prices. And because of globalization and because of technology, the price of stuff has really been falling. Think about an iPhone. If you wanted an iPhone 10 years ago, that’s got the capacity and the things that could do now, it would have cost you a hundred thousand dollars.
Technologies keep falling in price. The problem as you can’t eat an iPad, or YouTube is not actually a university. So the cost of those things keep going up and up. And there’s this juncture between people’s lived experience and what so called experts are telling them about the way the world really works.
And the thing is it’s not that the experts are lying, right? Technically, this is what’s going on across a broad swath of the economy in terms of prices. They’re deflating rather than inflating. But what people feel and what they care about, their real debts, that’s the stuff that’s dragging them down.
Steve Grumbine (37:23):
And the lack of wage growth is really a huge, huge factor here. And, you know, one of the things that I noticed, and maybe this is something you can shed some light on as well. People that came out of the global financial crisis being displaced from long term careers, without the experience to land work, meaningful work at a level of which they were accustomed to it, which their debts were acquired under; these individuals had to retrench, find new opportunities starting from the bottom up in many cases.
We hear the constant story of the barista, the PhD barista and so forth. The gig economy has stripped away even more labor power. And now we’ve got people who not only were already in a stagnant economy without wage growth, but now they had to go backwards and carry that debt as well.
Mark Blyth (38:16):
And then, of course, just before the crisis, Congress tightened up personal bankruptcy to make sure those people could never get rid of their debts.
Steve Grumbine (38:23):
Exactly. And then on top of it, they made the student loans not tax deductible.
Mark Blyth (38:32):
Yeah, and you can’t default on them, absolutely. No, it’s a total scam and a total scandal, right? I mean, the one thing that, like, we know now, you know, most economists will admit this one is that recessions have real costs. It’s not just the kind of resetting of prices and sort of shaking bad investment out of the system.
What it does, if you have prolonged deeply recessionary periods is you basically destroy, even if you take a skills approach to wages which I’m somewhat skeptical of, you destroy the ability of people to, basically, up their skills or at least up their contacts, their experience, their networks, et cetera.
And if you destroy those networks as happened in 2008 for many people, and they have to start from scratch, their real wages over the lifetime never recover.
Steve Grumbine (39:13):
Never.
Mark Blyth (39:13):
And if that happens to you, meanwhile, you know, every day you switch on the television and we’re all going to be replaced by robots and Jeff Bezos is worth more than God and everything’s doing great and New York’s real estate prices are still going up. They’re actually going down, but you get my point, right?
Steve Grumbine (39:28):
Yes.
Mark Blyth (39:28):
Yeah, you know you can understand why some of those people feel that like, you know, never mind left behind, I’ve been ripped off.
Steve Grumbine (39:35):
Yeah. There was a recent study in the UK that said that austerity is social murder. And, for me, I use the moniker on Twitter, austerity is murder. And I look at this and I say to myself, the suicide rate for the hopelessness that this economic malfeasance creates is so brutal, so truly, it sucks the oxygen out of your life.
There’s got to, let’s cap this up. What would you do to make this global exchange, if you will, between the haves and the have nots? What would you do that has a meaningful, legitimate chance of success given the political realities that you’ve so aptly pointed out? What would you say is the answer, if there is such a thing? I know that’s kind of putting it in a box and I know…
Mark Blyth (40:32):
When you’re emperor from, when your name is Odin and you’re emperor, what would you do in Valhalla?
Steve Grumbine (40:36):
Umm, alright.
Mark Blyth (40:36):
So, I mean look, the key thing is a Green New Deal. I mean, just massive investment creates massive amounts of jobs, creates much better than minimum wage, a living wage. The other thing you can do, and this is the other reason that I don’t want to go MMT. I’m deeply suspicious of any philosophy that says really rich people never need to pay taxes again because we can just spend.
And then we’ll only need to use taxes for inflation control. I mean, is it an accident that some of the biggest names in this field are hedge funders? I mean, come on, join the dots, right? One of the reasons that we brought taxes in the United States, wasn’t a raise revenue for World War I, it was the tame plutocracy at the end of the 19th century.
It was to discipline the plutocrats. So how about we are actually taxing the people that have made off with all of the gains of the past 30 years. I’m sitting here with a PowerPoint presentation that I’m putting together. And if I go to lost revenue slides, right, US corporations will avoid almost 1.3 trillion in taxes in the next decade due to deferral of their offshore taxes due to the deferral loophole.
That’s just one loophole. Apple pays, effectively, no taxes through routing it through the various countries and taking advantage of various arbitrage regimes and then gets an enormous cash pile, which is basically it’s dodged taxes and uses that as collateral to issue bonds and then it buys back its own stock thereby proving to everyone it’s a valuable company.
Meanwhile, it hasn’t made a decent product, in my opinion, in seven years. This is a cancerous system. So how about you, basically, raise taxes and get people who can pay to pay a shit ton more and you take climate change seriously. And if you do those two things, I’ll go, yeah, let’s say how far that goes.
Steve Grumbine (42:21):
Well, I do want to say something quickly. And that is every single academic that I associate with, every last one of them adamantly believes that we need to tax the rich and tax behaviors at a significantly higher. In fact, you know, Alexandria Ocasio-Cortez, who is oftentimes mentored by Stephanie Kelton, has come out recently with going back to, you know, 70, 80% tax rate. We’re not talking about not being for taxes. The only clarify….
Mark Blyth (42:52):
Okay, no, hold on, hold on, no, no, no, no. This is intellectually coherent. If you only need taxes for inflation control and you can spend up to the level of the inflation rate you can tolerate, you don’t need taxes. So why, then, are they doing taxes?
Steve Grumbine (43:05):
So two, two things. Number one, taxes are seen as the carrot and the stick, the driver of the currency. That’s number one. Number two, the other thing is solving for income inequality and bringing about a more equal society. You know, Beardsley Ruml, who we oftentimes will reference in 1946, Taxes for Revenue are Obsolete.
His particular statement laid out four basic cases for what taxation is for: is to maintain the strength of the dollar, to lower or raise buying power, to be dissuading of behaviors that are not favorable to the markets, or to go ahead and give somewhat of a cost accounting, more of a tally stroke than actually funding these operations.
But the idea of taxation has always been long championed as a very vital to creating a just society. I think the issue is just a matter of which comes first in the MMTers’ mind. And it would be that, hey, let’s save the people. Let’s save the planet and then let’s sock the rich right in the mouth. They, the idea is to…
Mark Blyth (44:17):
Look, the way that it’s sold, right, is that you don’t have to sock the rich in the mouth through taxes, we can just do it anyway. I’m like, let me put my MMT hat on now. You really, if you’re the United States, you really can do this now if you’re the United States, precisely because inflation is nowhere to be seen and interest rates are a 700 year low.
So you literally could do this. I’m not saying that you can’t. I’m saying how do you get all of the Princes of Denmark or to use a less, a less Shakespearian analogy, all those Republicans and climates change skeptics to go along with you? That’s my real concern.
Steve Grumbine (44:49):
Sure and you know what? It’s an extremely valuable insight you just laid out there. And I want to say, as a former Republican, I’ve come to believe and I, I got suckered into speaking at a Trump rally without realizing it was a Trump rally. I thought it was a bunch of Bernie Sanders supporters and it turns out to be Trumpers. And when I went there…
Mark Blyth (45:14):
They’re actually not so different. They just don’t trust the word people like me say. And they’ve got some reason.
Steve Grumbine (45:18):
I had to, kind of, switch my game up but I realized instantly these individuals, they despised immigrants. Why did they despise immigrants? Because of a host of, I’m sure, different reasons, but one of them was, how is it that we can not take care of our returning veterans, but yet you want us to pay for this, that and the other with the immigrants?
And I started realizing it was like, you know, here’s the thing. What if I told you, you didn’t have to choose between a just economy for group A and group B. What if you could create a just economy that served both. And I was met with incredible amounts of applause, which was shocking. I didn’t expect that.
And we’ve talked about autism because autism is one of the things that comes very, very close to home with my son. And I said, you know, we don’t take care of, it took a year for us to get the support for my son. A year. And I said why is that? Because there’s a shortage of people. Why is that? Well, because they can’t.
What, what? Tell me. Because they’re underpaying people and people are going into different fields. Exactly. Why can’t you fund this most incredibly important thing? Why would we not do that? And they jumped to their feet and applauded and I was blown away.
Mark Blyth (46:34):
But they’re the same people that will also then turn around and vote down a school bond issue at the local level because their kids are gone already and they don’t want to pay anymore taxes.
Steve Grumbine (46:42):
Exactly. Look, we’re on the same page in this. The political fight is the $20 challenge, right? I mean, this is how, how do you unscrew? I want to say a different word there, but how do you unscrew society’s brain that has been gas lit into submission for, I dunno, 40 plus years and suddenly explain to them that, “yes, we can indeed have nice things,” and get them to vote in their own best interest? That’s the question.
Mark Blyth (47:12):
The thing is either way there’s a political fight, because let’s say that you go full on MMT. Let’s say that Trump implodes for whatever reason. The Republicans lose both houses and you have a progressive caucus that’s able to take it forward; and there’s a big climate change incident that really changes people’s minds.
Let’s say all the stars aligned for this, right? And then you just start doing it. Well, what will happen is, you know, the people in this world that liked it the way it was before, start with the Kochs and work on down – they’re not just the monetarily opposed. The ideologically opposed will then regroup their forces and will start the propaganda campaign; will start to point at all the government waste that goes on in these things.
And of course it will never work fast enough to really make changes in people’s lives over a five year period. So then the project becomes fragile and then the other guys come in and say, “Look, they spent all this money. The debt’s gone up. What do we have to show for it?” And you get another round of tax cuts that go to the trillionaire club.
There’s a real difficulty in this one even if the stars align. I’m not saying you shouldn’t try, right? But I’m saying . . . what just one thing. Let’s be open about the obstacles. The obstacles have never been economic. They’re always political.
Steve Grumbine (48:21):
Can I . . . I want to bring up something. This will be what we end on because I know we’re out of time. But one of the most exciting and horrifying things is the boomer, millennial disconnect. The boomers were raised to fear the red scare. I just did a show the other day on McCarthyism and how the duck and cover of the, you know, nuclear scare back in the day, and so forth, still impacts people.
I mean, my own mother talks about these things. And, you know, as this aging group of people, you know, I don’t want to sound morbid, but as they move on and the millennials come through, I really do believe that there is a fundamental shift in terms of societal norms. And hopefully that doesn’t skew libertarian in sense of, I got mine, screw you.
But, you know, Ayn Rand has shown her head here recently in the United States. So it’s not inconceivable, but I tend to stray in the word of hope, just based on the generational shift I see. Do you think that there is any merit in that, or do you think that I’m wishing on a star?
Mark Blyth (49:26):
No, this is a big question. Nobody knows the answer. I mean, you know, people who study this stuff talk about, you know, is it a cohort effect? That is to say, you have certain preferences when you’re young and then as you become another cohort, your preferences change. Or do you have fundamentally different ideas and you carry them through the life cycle.
I mean, we just don’t know, but there’s two big structural differences. And they’re really important. The first one is the millennials are the first generation that America’s ever had, and we could expand this to other countries but it’s particularly true here because of one and a half trillion in student debt, that they have debt before they’ve had a chance to form assets.
And what that means is they put off marriage, they put off kids, they put off houses and they’re much more aware and much more accepting of climate change. So many of them are choosing not to buy assets, not to have kids because, frankly, they’re terrified of the future. Now it’s very hard to imagine a great positive forward looking economy with people who are drowning in debt and are afraid of the future.
And that’s the other side of that one, right? Now, on the other hand, you’ve got the boomers and the boomers basically went really through the best of all possible times. Real wage growth, and then real asset growth, declining inflation, high interest rates and then they get the whole shebang bailed out in 2008 and a lot of people have to pay the costs.
And you know, they’re going to, basically, live forever or at least try to and drive medicare costs with the ceiling. And at the same time, they vote twice as much as millennials. So every politician has an incentive to care about seniors. And, remember, I looked into this for a research project a while back.
Your average rate of poverty among seniors who have social security coverage is 4 to 7% across the country. When you look at millennials, it’s 21 to 25%. So what kind of forward looking country, regardless of it’s politics, one that will exist in the future, shorts its young to pay for its old?
Steve Grumbine (51:18):
Yeah.
Mark Blyth (51:20):
So, yeah. Intergenerational politics are really important. The politics of climate change denial and holding back what we need to do is incredibly important. The politics of money and power, that, basically, there’s an elite who have scrammed off, basically, pretty much all the growth of the past 30 years to themselves and they like things just the way they are and they don’t want to give it up.
That’s your real challenges. It’s not whether you got a right story about the printing press or not. It’s utterly material in the real world.
Steve Grumbine (51:48):
You know, on a punchline note, you know, it’s a shame they got to experience the Grateful Dead. And they came out, you know, the way they did. It’s like, come on, guys.
Mark Blyth (51:59):
Yeah really, like, they’re the perfect, honestly, they’re the perfect band for them. It’s kind of like, self-indulgent just nonsense that like, you know, at the end of the day, it’s like, what are your cultural achievements? The Grateful Dead. Oh for god’s sake. And you give millennials a hard time for YouTube. You know, give me a break.
Steve Grumbine (52:18):
Alright. Well, Professor Mark Blyth joining us today. And I want to say what a pleasure it was and I’m so grateful that you took the time with me today. This was a great opportunity to talk to you and I really appreciate the time.
Mark Blyth (52:33):
Well, I look forward to listening to the edits where you cut out all my dumb shit and make me sound smart.
Steve Grumbine (52:39):
Yeah, you know, we should just do it unedited.
Mark Blyth (52:46):
There’s some little bits that you may want to take care of. Like where I go, what was I talking about again? You probably want to get rid of that.
Steve Grumbine (52:46):
Yeah, alright, well look, thank you so much and I hope I can talk to you again soon.
Mark Blyth (52:53):
Absolutely. It’s been a pleasure.
Steve Grumbine (52:54):
Have a great one, sir.
Mark Blyth (52:56):
Have a good one. Bye, bye.
Ending Credits (00:01:35.280)
Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts, and promotional artwork by Mindy Donham. 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.
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Show Notes
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It’s not such a stretch to have Mark Blyth as a guest on our podcast. Although we normally feature proponents of Modern Monetary Theory, our interests are, above all, in the health of the planet and the social, physical, and economic health of our fellow citizens.
In this episode, host Steve Grumbine and Professor Blyth find that they share two concerns of utmost import: austerity, as both an economic as well as an ideological system, and the climate crisis.
Blyth is known for his pop culture references and his fantastic sense of humor. “A Lannister always pays his debts” leads to an illustration of the difference between public and private debt. Hint: the first is intergenerational. Grumbine may not agree that generations of private individuals are actually responsible for repaying the government’s commitments, but they both know that when wages are stagnant, personal debt is likely to be devastating and never-ending.
We think our listeners will get a kick out of Blyth’s irreverence as much as Grumbine clearly does. When Steve challenges Blyth’s comparison of Venezuela’s sovereign currency to that of the United States, Blyth retorts that it’s all “smoke and mirrors and bullshit.”
Professor Blyth is concerned that MMT proponents haven’t faced up to the reality of political obstacles. “Have you met Republicans?” They’re not going to agree to “just take the Fed, write a big check, stick a golden penny in the Fed, and we’ll do a green new deal.” Well, we can’t argue with that.
You’re going to enjoy this conversation that takes us back to 1315, revealing that there has been a downward trend in interest rates for 700 years. (Did we mention that Grumbine and Blyth agree that the threat of inflation is vastly overblown?) Whether you’re interested in Westeros or Brexit or the Grateful Dead, it’s an episode you won’t want to miss.
Mark Blyth is The William R. Rhodes ’57 Professor of International Economics, Professor of Political Science and International and Public Affairs at Brown University.
Follow him on Twitter @MkBlyth
Macro N Cheese – Episode 27
Wage Stagnation, Inflation and the New Normal with Mark Blyth
August 9, 2019
Mark Blyth [intro/music] (00:01):
States issue debt on an intergenerational basis. That is to say, there will be more Americans tomorrow than there are today. So if I issue a 30 year bond today, you might pay a bit of it, but your kids will pay more of it. The governments deciding to spend and then you back fill it with taxes, you’ll run into massive political problems, because the weakness I see in the argument is, well, we’ll just agree on what will spend.
Really? Have you met Republicans? My favorite line is Winston Churchill on the American. “The Americans will always do the right thing once they’ve exhausted every other conceivable option.”
Geoff Ginter [intro/music] (01:26):
Now let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.
Steve Grumbine (01:34):
And yes, this is Steve Grumbine with Macro N Cheese. Today is a little bit of a departure. And normally I am focused on Modern Monetary Theory, but I have had the distinct honor and privilege to be able to speak with Professor Mark Blyth of Brown University. Mark is the William R. Rhodes 57 Professor of International Economics, Professor of Political Science and International and Public Affairs.
He is also a political economist whose research focuses upon how uncertainty and randomness impact complex systems, particularly economic systems and why people continue to believe stupid economic ideas despite buckets of evidence to the contrary. He is the author of several books, including “Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century.”
He has also written “Austerity: The History of a Dangerous Idea” and “The Future of the Euro.” With that introduction, I’d like to welcome Mark to the show. Welcome, Mark. Thank you so much for joining me.
Mark Blyth (02:42):
Yeah, it’s a pleasure to be here.
Steve Grumbine (02:44):
You have got some of the greatest punchlines for a guy that is so brilliant and so well put out there. It’s just shocking to see how down to earth you are and self-deprecating. And some of the jokes that I’ve heard you say are just absolutely hilarious from the Shrek, being Shrek and talking about Game of Thrones, et cetera.
You have just managed to take mainstream popular culture and be able to make something that many people can’t focus on into something very exciting and very accessible. And I can really really say with full conviction, it is absolutely addictive. Thank you so much for being with me today.
Mark Blyth (03:27):
Well, thank you for such a kind introduction. I mean, basically I make that stuff up because half the time I’m boring myself. So I’m glad it’s got an audience.
Steve Grumbine (03:35):
So let’s talk a little bit about Game of Thrones just ended and many of us were really wrapped up into it. And not too long ago, you were able to break down the concept of private debt and taking out Lannister debt, in fact. Can you tell us the parable, if you will?
Mark Blyth (03:52):
Well, actually it was about public debt rather than private debt.
Steve Grumbine (03:55):
Oh.
Mark Blyth (03:55):
Yeah, here’s the story. So, basically, imagine you go back to 1315. The reason I picked the number is not because that corresponds to whatever they’re doing in Game of Thrones, but because there’s an interesting paper that came out recently from a guy at the Bank of England on long term interest rates since 1315.
And, basically, they’ve been on a giant downward slide for 700 years. Now we think that’s kind of weird because, back in the 1970s, interest rates, real interest rates when you adjust for inflation were very low. That is to say inflation was higher then the rate of interest. And then in the 1980s, when interest rates were jacked up by Paul Volcker and the Bank of England and the rest of it, then you ended up with abnormally high interest rates as inflation fell very rapidly.
So we tend to think of inflation as this ever present thing that’s caused by bad government policy, et cetera. But the interesting thing as we focus on interest rates, the price of money, the price of forgoing consumption. Now, it’s been falling for 700 years. Now, the way I explained it it’s very simple.
Imagine that the Lannisters are the dominant power in Westeros and you are the Bank of Braavos. And you want to lend them some money. There’s a very high probability, particularly after the death of the patriarch that Cersei Lannister will murder you rather than payback the debt. Consequently, you would want a very high rate of interest as your price for lending those people money.
And, of course, if John Smith and these guys managed to pull this off. John Smith? No. What was your name again? John,
Steve Grumbine (05:26):
John Snow.
Mark Blyth (05:27):
I don’t know where John Smith came from. John Snow and these guys pull this off, then your debt’s worthless. Now imagine that, you know, John Snow pulls it off and you have peace and prosperity for a hundred years. You don’t just have Lannister debt, you also have John Snow debt. You probably have a little bit of the people who are over the seas in the place that was warm despite it being winter whose name escapes me now and lots of different sovereign issues.
Well as the pool of capital expands, the price of money will go down. So what’s been going on for 700 years and particularly in the past 30 years with the integration of global capital markets is that you’ve got one giant pool of cash. And you also have, it seems, very, very low inflation baked into the cake.
So you’ve got very low interest rates and very low inflation going forward. And that actually changes the game because a lot of what we think about the economy is based upon the experience of the seventies and into the eighties with inflation always being everywhere, a monetary phenomenon, being an ever present danger.
Well, we just conducted this giant natural experiment after the financial crisis where central banks globally chucked an extra 20% into the global money supply in order to save all the banks around the world. And under still the standard understandings of the economy, you’ve got a fixed amount of goods and a fixed amount of currency denominated in it.
If you, basically, chucked 20% extra, and that’s got to show up in higher prices, and yet inflation, at least as measured by central bankers and other economic commentators, has continued to fall and interest rates along with it. So that takes us into a really interesting space. Probably more than you wanted but, anyway, that’s how the Game of Thrones things came up.
Steve Grumbine (07:02):
No, that’s fantastic. And definitely not more than I wanted. So, you know, when you had spoken some time ago about the role of inflation and stagnant wages, my concern was that it appeared that there’s no way out for the average person because without some inflation and without rising wages, we’re trapped. We’re stuck. Can you elaborate on the role of inflation and wages for the average individual post global financial crisis?
Mark Blyth (07:35):
Yeah, absolutely. So this links back to this story I was telling earlier. Remember I said it wasn’t really about private debt, it was about public debt that I was talking about, the Lannisters, all the rest of it, right? Big bond issue. Well, the other side of this is private debt and we’ve been told over the years to think, oh, terrible state debt, blah, blah, blah.
This is what made me write the austerity book. Here’s the thing about once states issue debt. States issue debt on an intergenerational basis. That as to say, there will be more Americans tomorrow than there are today. So if I issue a 30 year bond today, you might pay a bit of it, but your kids will pay more of it.
Families don’t get to do this. The notion of, like, we’re just like a family and you spent too much. You have to cut your spending. Absolutely not true. So, qualitatively, state debt is different. It’s intergenerational. It’s backed up by the coercive force of the state, et cetera, et cetera. Whether or not you’re an MMT person and think taxes come first or second, whatever.
It’s qualitatively different. Now go back to the 70s. If you were a baby boomer who was about 35 years old then and you bought a house, and that house had a mortgage and it was a 30 year mortgage and 5%. If inflation goes to 15%, what happens is, particularly if your wages adjust upwards to compensate for the inflation, you’re making the bank eat the loan because they’re basically getting paid back in essentially devalued dollars.
Now that was great for the boomers and that’s one example of how inflation can benefit people. It’s not always a cost because if you’re in debt on a fixed rate contract and inflation rate goes up, the lender’s the one who eats it rather than you. Now, what’s the world that were in now? Structurally low interest rates, structurally low inflation, which means that people have accumulated a lot of debt don’t have the ability of inflation to eat away at some of that debt and it’s not going to happen anytime soon.
But it’s a double wammie because of interest rates are low, that means you can kind of revolve your debt. Now let me put some flesh on those bones. Beginning in 1973, with depending on which country you look up, the link between pay and productivity for most workers just basically collapses. And this is when you start to get the big skew towards inequality.
So if wages aren’t growing, but costs are growing, cost of education, healthcare, all the big stuff that matters, particularly if you live in the United States, is going up. I mean, you know, apparel might be getting cheaper, toys from China might be getting cheaper, but really the big stuff is still going up in cost.
What do you do? Well, you borrow against your future. That’s totally fine. There’s no problem with that. So long as you expect to have more money in the future than you do today, otherwise this is a fool’s errand. So if you’re borrowing today and you expect to earn more tomorrow, totally makes sense to do it, particularly, if the inflation rate is low and the interest rate is low.
But what if you spend 20 to 30 years building up huge amounts of debt as American consumers and British consumers and others have done, and your wages aren’t growing? Well, then it’s very hard to pay back your debt. And you’re not going to get any relief with inflation because that seems to not be there.
That was the story about it disappearing despite 20% of the global money supply being expanded during the financial crisis. And, on the other hand, you’ve got interest rates have been falling since the 1300s. So what does that mean? You don’t get relief to your debt through inflation eating away at the cost of the debt, and you don’t get any relief through interest rates or rather you do, that as the same because they’re low, the interest rate you effectively get charged might be low enough that you can keep revolving it.
But even then, even though global interest rates are stuck at around one and a half percent, you and I are still paying 24 or 25% on our credit cards thanks to the deregulation that was wrought by Delaware and other States in the 1980s, which allows them to charge you usurious rates regardless of the underlying rate. But anyway, again, probably more than you wanted, but that’s how it plays out.
Steve Grumbine (11:13):
That was definitely not more than I wanted. That was beautiful. Let me ask you this question. As a regular individual that is trying to get their arms wrapped around the Trump phenomenon, if you will, in the most grotesque sort of sense of the word. You’ve spoken about Trumpism, global Trumpism and the new normal. Can you kind of address that with us as well?
Mark Blyth (11:36):
Yeah, so, I mean, here’s a pretty abstract way of thinking about it, but hopefully I’m gonna stop trashing him. So when you have this big pile of inflation going on in the 1970s, it might be good for people on fixed interest rate contracts who’ve got mortgages. But if you’re in the financial sector or you’re an investor, it’s a disaster.
Now remember that this is capitalism, right? What you may be able to do regardless of the air bags you’re building in the system is to invest in the future through deferred consumption now and then reap greater gains. That’s the whole game, right? You invest to make more money than you would get just eating it as hot dogs and beer today.
Now, if you have inflation in the system and you expect, let’s say, a 5% real rate of return, that is to say net of inflation, your money will make 5% this year and inflation goes to 10%. As I’ve said in many places before, you might as well take the money around the back of the house and burn it. And that’s, basically, what happened across the rich countries of the world in the 1970s as inflation built up and up.
So what we call the Neoliberal Project – Reagan, Thatcher, the kind of revolution and economic thinking in the time that, basically, put inflation front and center, the move towards independent central banks, the dominance of people like Trichet and Greenspan and Draghi even today, contemporary politics.
These guys who are technocrats was the big problem we had to deal with was the risk of inflation in all times, in all places. Okay, so what does all this have to do with Trump? Well, Trump’s just one example. Brexit’s obviously another one, but if you look deeply in Europe, for example, you’ll see the near meltdown of about one third of the political party systems that have been around since the end of World War II.
So one way to think about it is neoliberalism, what is it? It’s a set of ideas but it’s also a set of things you do. You privatized, you integrate, you downsize, you globalize and what you do in doing so is take away the ability of labor to basically push up wages and claim it’s productivity share.
That means massive returns to capital and it also means that inflation starts to collapse. If you’re, essentially, competing against Chinese labor on a global labor market, then your ability to push up wages is pretty much zero if you’re one of the co-workers. So with all of that in mind, what does that have to do with Trump?
Well, you’ve had 30 years of wage stagnation and you’ve had a political class that says, “everything’s fine, everything’s doing great, we’re doing fabulous;” and then you get a giant financial crisis. This causes real income losses amongst people who really can’t afford it, who are heavily indebted.
Those elites lose massive amounts of credibility. And this takes place at a time when a bunch of people who we know call populace have been shouting from the sidelines about the system being broken or hijacked or rigged or whatever it is for a long time. And suddenly that begins to make a lot more sense in the eyes of the people who have been listening to an elite, who are somewhat disconnected from them and have been reaping all the gains for the past 25 years.
While in many cases, not all, but in many cases, their communities have been hit and haven’t recovered. So it’s not about Trump. Trump’s a symptom, not a cause. Trump is an example, if you will, of the meltdown of political party systems that have failed to be responsive to the voters that they were meant to be responsive to.
I mean, one simple way to think about it in the US case is, it used to be the case that the Democrats constituency were, broadly speaking, workers. And that capital and small businesses were, broadly speaking, the Republicans. With the rise of finance, what then Democrats did was pivot away from labor and, basically, become the party of Wall Street and tech.
Well, you know, that’s great. It’ll raise you lots of money and, for a while, you’ll win some elections, but, at the end of the day, you’ll get mass desertion from the people that are your traditional constituents. And that’s what, basically, been happening over, in many places, not just in the United States, over the past 10 years.
Steve Grumbine (15:23):
So how is it, given where we are today, how is it that we can recover some of that space for regular people? I mean, what is your position, if you will, on the fiscal space available to sovereign nations, currency issuing nations in general? How do you view fiscal space as a solution to some of these problems?
Mark Blyth (15:45):
Well, remember, fiscal space is, actually, a very neoliberal term, which describes how much you can effectively spend before bond markets revolt. So, you know, let’s examine that, right? Are bond markets revolting anywhere? No. Is there more government debt than ever? Yes. Do serious economists actually think that there’s a shortage of global safe assets, which is to say there isn’t enough high quality government bonds around?
Absolutely. So we’ve doubled global public debt in many cases, in many countries and yet interest rates paid on those public debts have never been lower. So fiscal space then just becomes a very strange term in that case. We’ve been looking for the bond market vigilantes for a long time. As far as developed country debt goes, they seem to have, basically, exited stage left.
Now having said that, let me pivot in a slightly different way. Just because you’re a currency issue, it doesn’t mean shit. I mean, Venezuela’s a currency issuer. It’s not working out too well there, is it? So, you know, that in and of itself is not enough. The reason we can talk about things like MMT with countries like the United States is because the United States prints the global reserve asset, the dollar.
Nobody else has an alternative to it in terms of a basic savings bond for the planet, a safe asset. So essentially we can run huge deficits, be incredibly responsible in our politics, spend money on what we don’t need rather than what we do need and, basically, our interest rates and inflation rates barely budge.
Now this simply isn’t true if you’re someone like Britain. Britain’s a variable through Brexit. So the most obvious consequence of this is that the pound will lose value as people try to get out of British assets. When that happens Britain imports two thirds of it’s food. So that means that the cost of that food will go up and Britain’s a country just like the United States where the bottom 60% of people haven’t had a wage increase in at least a decade.
So you’re going to then give those people a really hard inflation hit through imports. Well, if you’re an MMT person, even in the most basic sense, the rule is you spend until you get inflation. Well Britain’s about to get inflation without spending simply because of Brexit. So, you know, we need to be careful about what we’re talking about here, fiscal space, bandying around that term, and also sort of how much room there is to spend.
If you’re the United States and you effectively license trillion dollar level of corporate tax evasion by your corporate elites and their companies, then, yeah, there’s lots of fiscal space. We could go after that if you think taxes are important. If you think it’s really just about the government’s deciding to spend, and then you back fill it with taxes, you’ll run into a massive political problem because the weakness I see in the argument is, “well, we’ll just agree on what we’ll spend.”
Really? Have you met Republicans? Right? They’re not just going, yeah you know what, you’re right. Just take the Fed, write a big check, stick a golden penny in the Fed and go do the Green New Deal, right? That never happens. Politicians don’t vote for tax increases. So, you know, as a description of plumbing, these things might be useful metaphors, but as a description of what’s possible in the economy, I think they massively understate what’s going on.
Steve Grumbine (18:57):
So let me ask you, you brought up Venezuela and I find that to be an interesting comparison. If Venezuela has pegged their currency to a foreign currency and is largely dependent on a single export being oil; so I would consider them to be kind of an apple and orange comparison. Can you explain to me why you felt like Venezuela would be a, you know, obviously yes, they do issue.
They lost significant amounts of flexibility from the fiat regime that they run, given that it’s pegged. What is your position on that?
Mark Blyth (19:29):
I think it’s all smoke and mirrors and bullshit. I mean, ultimately, you’ve got a kleptocratic government that’s been embedded in this country for a hundred years. You’ve got different factions of the elites stealing from each other and an acute case of Dutch disease, everything that can go wrong has gone wrong.
You’ve got 3 million refugees and, you know, hey, guess what? They’re a currency issuer with a peg. And that’s a like looking at a cancer victim and noticing that their nails are a bit long and then trying to generalize from that.
Steve Grumbine (19:59):
Okay, let’s go to Brexit for just a moment. As far as it goes, obviously the UK maintained its pound. It did not adopt the Euro.
Mark Blyth (20:08):
Which was a very good thing to do. I do not want to say that currencies are unimportant. I just want to hedge against this opinion that now we’ve discovered that under certain conditions, governments can basically spend a ton of cash, get shit done like World War II or whatever. And, even then, actually, if you look into the numbers, half of it was bond financed – that wasn’t really MMT.
We’ve discovered that fact and now it becomes, right, that’s it, problem solved. And I’m like, hmm, no. There’s a thing called politics. You see, there’s rich people out there that like the current regime and they like the fact that they have political power and the notion that they’re just going to hand you the keys to the printing press and everything’s going to be fine, simply isn’t going to happen.
Steve Grumbine (20:51):
I hear what you’re saying and I understand the political implications for sure. I wonder if the vantage point of populism kicks in and the potential of unrest and people finally waking up to the fact that they’ve been kind of left in a money famine of sorts for their own lives. The services have been continuously privatized under this neoliberal regime and people have been left to try to afford every meaningful thing in their lives on a stagnant wage while, effectively, the services become more and more austere.
I don’t quite understand. Here, perfect example, the US government just went ahead under Trump and authorized $750 billion of new spending while simultaneously cutting taxes. As I look over there at the UK, and I see austerity rearing its head from the Tories and the like, and I wonder where new labor and labor, et cetera, are coming up with their ‘remain strategy’ and their lack of fiscal space; it keeps diminishing there.
So my question to you, I guess in looking at both the US and, I guess, Venezuela, and then going back over to…
Mark Blyth (22:18):
Well, let’s leave Venezuela out of it. Let, you could use any other country. Look, could South Africa do this stuff, but I mean, let’s just ask a question, right? How many countries are we talking about that have the capacity, wherewithal and the desirability of their bonds plus the liquidity of their capital markets to make this stuff work?
Steve Grumbine (22:33):
Well, let’s take a look at Japan. Japan has got close to 300% debt to GDP ratio on its own and they have one of the more stable, more equal societies.
Mark Blyth (22:47):
Yeah, no, hey, I’m with you. absolutely. But a huge part of that story is the Japanese public regard public debt not as a menace but as an intergenerational savings outfit. So they actually have no problem piling it on because they prefer to keep their savings and they keep their savings there because they have a huge degree of financial repression in the financial system, which means the returns on those things are still marginally above everything else.
So the government finances itself. It also means that the government’s been buying 80% of the debt since 2012. So they’re effectively monetizing their debt with no inflation. All right, guess what? They’ve done all that. They’re still the oldest society in the world. They’re not doing immigration. They’re shrinking.
They’re not growing. What’s the end game? Do they go to 500? Do they go to 1000? I mean, what exactly is the model in this that makes it good?
Steve Grumbine (23:32):
Well, I guess you look at the standard of living for the people that are there.
Mark Blyth (23:37):
Fine. But was that caused by those policies?
Steve Grumbine (23:40):
That’s a good question. What do you think?
Mark Blyth (23:43):
No, I think it was caused by Japanese corporates making a shit ton of money between 1980 and 1990 and having the world’s largest car manufacturer.
Steve Grumbine (23:52):
Okay.
Mark Blyth (23:53):
And having the world’s largest manufacturer of electronic generators for export, Honda. I mean, you know, there’s a real economy there. It’s not just money in the government.
Intermission (24:10):
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Steve Grumbine (24:59):
Now, let me ask you, when it comes to Australia, for example, and China and Russia and Canada, even, I mean, these are countries that are what I would consider to be largely representative of being able to do the very things that an MMT proponent would suggest in regards to…
Mark Blyth (25:24):
Okay, okay, hold on. Walk me through Russia. Why is it any different? Why is it not Venezuela with nukes?
Steve Grumbine (25:27):
Well, I think in general, they’re the real resources backing their ability to produce and so forth, allows them a significant amount of policy space.
Mark Blyth (25:40):
But they’re dependent on oil, just like Venezuela. In fact, if they continue to export their oil, we will all die because of the climate crisis.
Steve Grumbine (25:47):
This is true. This is very, very true.
Mark Blyth (25:50):
And that seems to me to be massively more significant. I mean, you know, let’s go back to Brexit. You want to bring on Brexit. Here’s what’s going to happen. Boris is going to be the new prime minister. And Boris is going to give everybody tax cuts. He’s going to probably fund about 5% of GDP as a big giveaway to everyone, an end to austerity through tax cuts, all the rest of it.
And then maybe there’ll be massive public spending cuts after that. Maybe he’ll sell the NHS to Trump. We don’t know. But the one thing we do know is he will do that to secure his electoral popularity. And when he does that, Gilts, government bonds in Britain, will barely move, right? So in the one hand, yeah, he’s kind of doing MMT.
Alright, great. Now, why does he then have to cut after that? Well, because he wants to if he decides to go down that path. Are there no limits to the British Gilt market? Woo, that’s an interesting one. You see, because as long as foreigners have your debt, they can affect your currency and it can affect all the other nasty variables like inflation and domestic costs and influence on investment and so on and so forth.
It’s really places like the United States, you have a global currency or China, you have three levels of currency controls and you do not allow the capital out unless you want it out, that can effectively do these types of policies. And interestingly, what you’ve got, politically, in both States is you’ve got Republicans with an effective veto on any spending they don’t like.
And you have an authoritarian Communist Party that dictates what will be spent and where. Now, put that in Britain and ask the British public, “We’ve discovered this wonderful thing called MMT. We’re going to do the Green New Deal. We’re going to do this. We’re going to do that,” all the rest of it.
My prediction is that, basically, two-thirds of them will be like, “No, I don’t want to do that. I’d rather have a tax cut.” So how do you force them to do it?
Steve Grumbine (27:38):
That’s a great question. You hope that people go hand to hand, you know, pub to pub, coffee house to coffee house, and water cooler to water cooler, you know, talking and building momentum to get the energy required to be able to create enough populous angst that it actually brings about the kind of change that they would want to see. That would be my approach.
Mark Blyth (28:00):
It’s so much easier just to hate the EU.
Steve Grumbine (28:03):
This is true. This is very true. And that, you know what? You bring up a great point. People have the attention span, you know, of very, very small children. It’s just tough stuff to stay engaged in and to do the due diligence. And it makes all of this quite challenging, no matter what the solution. It’s almost as if unless the rich people decide that we’re going to do something, nothing will get done.
Mark Blyth (28:31):
Oh yeah, but that’s normal. Look, there’s a brilliant book. It’s probably out, it’s dry, it’s academic, but it’s fabulous. And it’s called “Inequality in Democracy,” if I remember it. It’s by a guy called Marty Gilens came out in 2015 with Princeton. And what he does is he looks, basically, at how the government in the United States spends its money.
He then looks at the preferences of people on how the government should spend money across the income distribution. And guess what they find? The only time you get pro-poor policies is when rich people want it. And all of the time, the only preferences that government respond to are the top 20% of the income distribute.
And then a bunch of people went and replicated this study in places like Holland and other places in Europe, and Germany. Guess what? They found this is exactly the same. So it turns out that there’s a rich person’s skew to democracy. I think we kind of knew that, but I think there’s something peculiar about this current moment of social selectivity, internet bubbles, homophily in groups, the people we date, the people we talk to, the people we are neighborhoods with, you know, all that sort of stuff.
We all talk about diversity but we have the stunning lack of diversity in terms of the people that we interact with. So we then only talk to people who share the same views as us and we can’t possibly believe that there’s a whole bunch of people out there who might think that what we think is a good idea is a bad idea.
Steve Grumbine (29:52):
Very true. The echo chambers are a very real scenario.
Mark Blyth (29:56):
Absolutely, absolutely. So, I mean, I think that, you know, it’s sort of, you know, I always get desperately get worried when it’s sort of like, well we know what to do. Well, two questions, number one, who’s we? And number two, do what exactly?
Steve Grumbine (30:10):
Well, I think, you know, in terms of what’s going to kill you first, I look at it this way. If he believed the IPCC which comes out and says, hey, we’ve got what, you know, now I guess it’s 11 years. It was 12. It’s now 11. And that’s not to come up with a grand plan. That’s to have implemented one and actually make significant change.
And so you ask yourself, okay, so are we too broke to survive? Do we just need to die as a planet, just a mass extinction?
Mark Blyth (30:40):
No, no. I mean, again, you know, it’s not that I’m like anti-MMT. I’m not. And I think climate…
Steve Grumbine (30:46):
No, no, no, no.
Mark Blyth (30:46):
No, hold on, hold on. I find that climate change is the single most important issue that we’re facing. Everything else is kind of bullshit.
Steve Grumbine (30:51):
Right.
Mark Blyth (30:52):
So, therefore, do I believe in the Green New Deal? Yes. Even mainstream European politicians are now getting to that point because the writing is so on the wall it’s ridiculous, right? Now, here’s the thing. My favorite line on this is Winston Churchill on the American. “The Americans will always do the right thing once they’ve exhausted every other conceivable option,” right?
And it’s going to be the same with climate change. Unfortunately, this country is going to have to lose Miami or something like this through a massive hurricane before you take this seriously. It’s like smokers. There’s tons of information out there that it causes cancer and millions of people still smoke, right?As a species, we’re not very good at planning for the future.
So, you know, we need to, basically, have the attention for it and that’s it. Now there are multiple ways of financing a Green New Deal, given the planetary emergency nature that we’re facing. I happen to think spend now and worry about the debt later is exactly the way to go. Do you have to then buy the whole MMT line to get to that place?
No, you don’t. You’re just saying let’s just do it and worry about it later. And I think that that’s actually a better way to do it. If I have to convince everybody that everything they’ve ever thought about money and debt is actually wrong and then we can have a conversation about climate change, I think we’re doomed. I think we just have to have the conversation about climate change and go, “It doesn’t really matter. We need to do this now.”
Steve Grumbine (32:15):
You know, as somebody who walks amongst people that don’t even have the basic economic understanding of an 099, you know, freshmen class, you can clearly see that running against the brick wall of trying to explain to people even the role of government debt and how governments spend and so forth is incredibly challenging.
But the problem is, and maybe this is another area of agreement that we can come to. When it comes to movements like zeitgeists and some of the other money cranks out there that have really taken, you know, this conspiracy language to a new level, and they’ve been incredibly effective in terms of penetrating people that have never cared about economics a day in their life and are suddenly now experts in zeitgeists.
And they’ve watched a YouTube video and they’re suddenly an expert on all things, federal reserve, all things central banking, all things States spending and so forth.
Mark Blyth (33:19):
Yeah, the elite version of that is Ted talks. It’s like, you know, people will watch two Ted talks on neuroscience and they think they understand neuroscience. Like what, what, what just happened?
Steve Grumbine (33:29):
Exactly. You know, again, for me, obviously, you know, I’m coming to you trying to break out of my echo chamber because I find your views and the way you describe so much of the debt driven economy, really brilliant. And one of the things that, you know, I found myself doing is, you know, I don’t want to say getting stagnant, but I found myself asking the same questions to the same people, getting the same answers and beginning to provide myself with answers before they even give the answers.
Mark Blyth (34:03):
Try being an Academic for 20 years and going to the conference that you got your PhD in. Yep, you know what everyone’s going to say.
Steve Grumbine (34:09):
Exactly. And, you know, I find that some of the language that I am particularly given to, while it certainly makes sense in my mind and, obviously, those who are fellow travelers in this strain, I find that it’s very interesting to take a step back and hear . . . I find Michael Hudson’s explanations about debt and debt deflation and Steve Keen’s explanations about those very things, incredibly insightful and yours as well.
And so it’s not like I want to live in an echo chamber, but I find the plumbing to be fascinating because we’ve been so misled by the plumbing. And the plumbing has been used as a whip. It has been used as a means of keeping you and, well, maybe not you, but me for sure, in a very, very rough, you know, existence.
And, you know, you look around and you’re like, my goodness, I’ve got two master’s degrees. I’ve been gainfully employed. I’ve progressed. I’ve learned. I’ve done things. I have a track record. Why is it so hard to survive? And you scratch your head. And I, you know, I was three semesters into a PhD and had to drop out for a variety of reasons.
And the debt that $127,000 worth of noose of a debt is just unbelievable. I mean, my house is expensive, but you add in the student debt thing and it’s just crippling. And so you look around and you wonder, my god, how can anybody survive with this much debt on them.
Mark Blyth (35:39):
Right. So, therefore, someone comes along and says, there’s too much debt. And people go that’s, you’re telling me. So we need to have less debt. Yeah, that would make sense. I’d like to have less debt. But the only way you can do that is if you spend less, because that’s the only way and like, arithmetically, that’s absolutely true because, for countries, you can play a trick called growth.
So if the interest rate paid on the debt is lower than the rate of growth in the economy, it shrinks over time. The equivilent for a person is if your real wages are growing or growing faster than your debts, then you can do the same trick. But the problem is our debts are growing faster than our wages and that’s why people feel those stresses.
And it’s also why, you know, you get people get on the television and say, like me, they go, well, you know, inflation is really low and they go, bullshit it’s low. I have to pay this and I have to pay this and everything’s going up and all that and you keep telling me inflation’s low. You know, and inflation is a measure, not of the two or three things that really matter, unfortunately.
What it is, is a measure of the general level of all prices. And because of globalization and because of technology, the price of stuff has really been falling. Think about an iPhone. If you wanted an iPhone 10 years ago, that’s got the capacity and the things that could do now, it would have cost you a hundred thousand dollars.
Technologies keep falling in price. The problem as you can’t eat an iPad, or YouTube is not actually a university. So the cost of those things keep going up and up. And there’s this juncture between people’s lived experience and what so called experts are telling them about the way the world really works.
And the thing is it’s not that the experts are lying, right? Technically, this is what’s going on across a broad swath of the economy in terms of prices. They’re deflating rather than inflating. But what people feel and what they care about, their real debts, that’s the stuff that’s dragging them down.
Steve Grumbine (37:23):
And the lack of wage growth is really a huge, huge factor here. And, you know, one of the things that I noticed, and maybe this is something you can shed some light on as well. People that came out of the global financial crisis being displaced from long term careers, without the experience to land work, meaningful work at a level of which they were accustomed to it, which their debts were acquired under; these individuals had to retrench, find new opportunities starting from the bottom up in many cases.
We hear the constant story of the barista, the PhD barista and so forth. The gig economy has stripped away even more labor power. And now we’ve got people who not only were already in a stagnant economy without wage growth, but now they had to go backwards and carry that debt as well.
Mark Blyth (38:16):
And then, of course, just before the crisis, Congress tightened up personal bankruptcy to make sure those people could never get rid of their debts.
Steve Grumbine (38:23):
Exactly. And then on top of it, they made the student loans not tax deductible.
Mark Blyth (38:32):
Yeah, and you can’t default on them, absolutely. No, it’s a total scam and a total scandal, right? I mean, the one thing that, like, we know now, you know, most economists will admit this one is that recessions have real costs. It’s not just the kind of resetting of prices and sort of shaking bad investment out of the system.
What it does, if you have prolonged deeply recessionary periods is you basically destroy, even if you take a skills approach to wages which I’m somewhat skeptical of, you destroy the ability of people to, basically, up their skills or at least up their contacts, their experience, their networks, et cetera.
And if you destroy those networks as happened in 2008 for many people, and they have to start from scratch, their real wages over the lifetime never recover.
Steve Grumbine (39:13):
Never.
Mark Blyth (39:13):
And if that happens to you, meanwhile, you know, every day you switch on the television and we’re all going to be replaced by robots and Jeff Bezos is worth more than God and everything’s doing great and New York’s real estate prices are still going up. They’re actually going down, but you get my point, right?
Steve Grumbine (39:28):
Yes.
Mark Blyth (39:28):
Yeah, you know you can understand why some of those people feel that like, you know, never mind left behind, I’ve been ripped off.
Steve Grumbine (39:35):
Yeah. There was a recent study in the UK that said that austerity is social murder. And, for me, I use the moniker on Twitter, austerity is murder. And I look at this and I say to myself, the suicide rate for the hopelessness that this economic malfeasance creates is so brutal, so truly, it sucks the oxygen out of your life.
There’s got to, let’s cap this up. What would you do to make this global exchange, if you will, between the haves and the have nots? What would you do that has a meaningful, legitimate chance of success given the political realities that you’ve so aptly pointed out? What would you say is the answer, if there is such a thing? I know that’s kind of putting it in a box and I know…
Mark Blyth (40:32):
When you’re emperor from, when your name is Odin and you’re emperor, what would you do in Valhalla?
Steve Grumbine (40:36):
Umm, alright.
Mark Blyth (40:36):
So, I mean look, the key thing is a Green New Deal. I mean, just massive investment creates massive amounts of jobs, creates much better than minimum wage, a living wage. The other thing you can do, and this is the other reason that I don’t want to go MMT. I’m deeply suspicious of any philosophy that says really rich people never need to pay taxes again because we can just spend.
And then we’ll only need to use taxes for inflation control. I mean, is it an accident that some of the biggest names in this field are hedge funders? I mean, come on, join the dots, right? One of the reasons that we brought taxes in the United States, wasn’t a raise revenue for World War I, it was the tame plutocracy at the end of the 19th century.
It was to discipline the plutocrats. So how about we are actually taxing the people that have made off with all of the gains of the past 30 years. I’m sitting here with a PowerPoint presentation that I’m putting together. And if I go to lost revenue slides, right, US corporations will avoid almost 1.3 trillion in taxes in the next decade due to deferral of their offshore taxes due to the deferral loophole.
That’s just one loophole. Apple pays, effectively, no taxes through routing it through the various countries and taking advantage of various arbitrage regimes and then gets an enormous cash pile, which is basically it’s dodged taxes and uses that as collateral to issue bonds and then it buys back its own stock thereby proving to everyone it’s a valuable company.
Meanwhile, it hasn’t made a decent product, in my opinion, in seven years. This is a cancerous system. So how about you, basically, raise taxes and get people who can pay to pay a shit ton more and you take climate change seriously. And if you do those two things, I’ll go, yeah, let’s say how far that goes.
Steve Grumbine (42:21):
Well, I do want to say something quickly. And that is every single academic that I associate with, every last one of them adamantly believes that we need to tax the rich and tax behaviors at a significantly higher. In fact, you know, Alexandria Ocasio-Cortez, who is oftentimes mentored by Stephanie Kelton, has come out recently with going back to, you know, 70, 80% tax rate. We’re not talking about not being for taxes. The only clarify….
Mark Blyth (42:52):
Okay, no, hold on, hold on, no, no, no, no. This is intellectually coherent. If you only need taxes for inflation control and you can spend up to the level of the inflation rate you can tolerate, you don’t need taxes. So why, then, are they doing taxes?
Steve Grumbine (43:05):
So two, two things. Number one, taxes are seen as the carrot and the stick, the driver of the currency. That’s number one. Number two, the other thing is solving for income inequality and bringing about a more equal society. You know, Beardsley Ruml, who we oftentimes will reference in 1946, Taxes for Revenue are Obsolete.
His particular statement laid out four basic cases for what taxation is for: is to maintain the strength of the dollar, to lower or raise buying power, to be dissuading of behaviors that are not favorable to the markets, or to go ahead and give somewhat of a cost accounting, more of a tally stroke than actually funding these operations.
But the idea of taxation has always been long championed as a very vital to creating a just society. I think the issue is just a matter of which comes first in the MMTers’ mind. And it would be that, hey, let’s save the people. Let’s save the planet and then let’s sock the rich right in the mouth. They, the idea is to…
Mark Blyth (44:17):
Look, the way that it’s sold, right, is that you don’t have to sock the rich in the mouth through taxes, we can just do it anyway. I’m like, let me put my MMT hat on now. You really, if you’re the United States, you really can do this now if you’re the United States, precisely because inflation is nowhere to be seen and interest rates are a 700 year low.
So you literally could do this. I’m not saying that you can’t. I’m saying how do you get all of the Princes of Denmark or to use a less, a less Shakespearian analogy, all those Republicans and climates change skeptics to go along with you? That’s my real concern.
Steve Grumbine (44:49):
Sure and you know what? It’s an extremely valuable insight you just laid out there. And I want to say, as a former Republican, I’ve come to believe and I, I got suckered into speaking at a Trump rally without realizing it was a Trump rally. I thought it was a bunch of Bernie Sanders supporters and it turns out to be Trumpers. And when I went there…
Mark Blyth (45:14):
They’re actually not so different. They just don’t trust the word people like me say. And they’ve got some reason.
Steve Grumbine (45:18):
I had to, kind of, switch my game up but I realized instantly these individuals, they despised immigrants. Why did they despise immigrants? Because of a host of, I’m sure, different reasons, but one of them was, how is it that we can not take care of our returning veterans, but yet you want us to pay for this, that and the other with the immigrants?
And I started realizing it was like, you know, here’s the thing. What if I told you, you didn’t have to choose between a just economy for group A and group B. What if you could create a just economy that served both. And I was met with incredible amounts of applause, which was shocking. I didn’t expect that.
And we’ve talked about autism because autism is one of the things that comes very, very close to home with my son. And I said, you know, we don’t take care of, it took a year for us to get the support for my son. A year. And I said why is that? Because there’s a shortage of people. Why is that? Well, because they can’t.
What, what? Tell me. Because they’re underpaying people and people are going into different fields. Exactly. Why can’t you fund this most incredibly important thing? Why would we not do that? And they jumped to their feet and applauded and I was blown away.
Mark Blyth (46:34):
But they’re the same people that will also then turn around and vote down a school bond issue at the local level because their kids are gone already and they don’t want to pay anymore taxes.
Steve Grumbine (46:42):
Exactly. Look, we’re on the same page in this. The political fight is the $20 challenge, right? I mean, this is how, how do you unscrew? I want to say a different word there, but how do you unscrew society’s brain that has been gas lit into submission for, I dunno, 40 plus years and suddenly explain to them that, “yes, we can indeed have nice things,” and get them to vote in their own best interest? That’s the question.
Mark Blyth (47:12):
The thing is either way there’s a political fight, because let’s say that you go full on MMT. Let’s say that Trump implodes for whatever reason. The Republicans lose both houses and you have a progressive caucus that’s able to take it forward; and there’s a big climate change incident that really changes people’s minds.
Let’s say all the stars aligned for this, right? And then you just start doing it. Well, what will happen is, you know, the people in this world that liked it the way it was before, start with the Kochs and work on down – they’re not just the monetarily opposed. The ideologically opposed will then regroup their forces and will start the propaganda campaign; will start to point at all the government waste that goes on in these things.
And of course it will never work fast enough to really make changes in people’s lives over a five year period. So then the project becomes fragile and then the other guys come in and say, “Look, they spent all this money. The debt’s gone up. What do we have to show for it?” And you get another round of tax cuts that go to the trillionaire club.
There’s a real difficulty in this one even if the stars align. I’m not saying you shouldn’t try, right? But I’m saying . . . what just one thing. Let’s be open about the obstacles. The obstacles have never been economic. They’re always political.
Steve Grumbine (48:21):
Can I . . . I want to bring up something. This will be what we end on because I know we’re out of time. But one of the most exciting and horrifying things is the boomer, millennial disconnect. The boomers were raised to fear the red scare. I just did a show the other day on McCarthyism and how the duck and cover of the, you know, nuclear scare back in the day, and so forth, still impacts people.
I mean, my own mother talks about these things. And, you know, as this aging group of people, you know, I don’t want to sound morbid, but as they move on and the millennials come through, I really do believe that there is a fundamental shift in terms of societal norms. And hopefully that doesn’t skew libertarian in sense of, I got mine, screw you.
But, you know, Ayn Rand has shown her head here recently in the United States. So it’s not inconceivable, but I tend to stray in the word of hope, just based on the generational shift I see. Do you think that there is any merit in that, or do you think that I’m wishing on a star?
Mark Blyth (49:26):
No, this is a big question. Nobody knows the answer. I mean, you know, people who study this stuff talk about, you know, is it a cohort effect? That is to say, you have certain preferences when you’re young and then as you become another cohort, your preferences change. Or do you have fundamentally different ideas and you carry them through the life cycle.
I mean, we just don’t know, but there’s two big structural differences. And they’re really important. The first one is the millennials are the first generation that America’s ever had, and we could expand this to other countries but it’s particularly true here because of one and a half trillion in student debt, that they have debt before they’ve had a chance to form assets.
And what that means is they put off marriage, they put off kids, they put off houses and they’re much more aware and much more accepting of climate change. So many of them are choosing not to buy assets, not to have kids because, frankly, they’re terrified of the future. Now it’s very hard to imagine a great positive forward looking economy with people who are drowning in debt and are afraid of the future.
And that’s the other side of that one, right? Now, on the other hand, you’ve got the boomers and the boomers basically went really through the best of all possible times. Real wage growth, and then real asset growth, declining inflation, high interest rates and then they get the whole shebang bailed out in 2008 and a lot of people have to pay the costs.
And you know, they’re going to, basically, live forever or at least try to and drive medicare costs with the ceiling. And at the same time, they vote twice as much as millennials. So every politician has an incentive to care about seniors. And, remember, I looked into this for a research project a while back.
Your average rate of poverty among seniors who have social security coverage is 4 to 7% across the country. When you look at millennials, it’s 21 to 25%. So what kind of forward looking country, regardless of it’s politics, one that will exist in the future, shorts its young to pay for its old?
Steve Grumbine (51:18):
Yeah.
Mark Blyth (51:20):
So, yeah. Intergenerational politics are really important. The politics of climate change denial and holding back what we need to do is incredibly important. The politics of money and power, that, basically, there’s an elite who have scrammed off, basically, pretty much all the growth of the past 30 years to themselves and they like things just the way they are and they don’t want to give it up.
That’s your real challenges. It’s not whether you got a right story about the printing press or not. It’s utterly material in the real world.
Steve Grumbine (51:48):
You know, on a punchline note, you know, it’s a shame they got to experience the Grateful Dead. And they came out, you know, the way they did. It’s like, come on, guys.
Mark Blyth (51:59):
Yeah really, like, they’re the perfect, honestly, they’re the perfect band for them. It’s kind of like, self-indulgent just nonsense that like, you know, at the end of the day, it’s like, what are your cultural achievements? The Grateful Dead. Oh for god’s sake. And you give millennials a hard time for YouTube. You know, give me a break.
Steve Grumbine (52:18):
Alright. Well, Professor Mark Blyth joining us today. And I want to say what a pleasure it was and I’m so grateful that you took the time with me today. This was a great opportunity to talk to you and I really appreciate the time.
Mark Blyth (52:33):
Well, I look forward to listening to the edits where you cut out all my dumb shit and make me sound smart.
Steve Grumbine (52:39):
Yeah, you know, we should just do it unedited.
Mark Blyth (52:46):
There’s some little bits that you may want to take care of. Like where I go, what was I talking about again? You probably want to get rid of that.
Steve Grumbine (52:46):
Yeah, alright, well look, thank you so much and I hope I can talk to you again soon.
Mark Blyth (52:53):
Absolutely. It’s been a pleasure.
Steve Grumbine (52:54):
Have a great one, sir.
Mark Blyth (52:56):
Have a good one. Bye, bye.
Ending Credits (00:01:35.280)
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