Our guest is the OG of MMT. Listeners always appreciate Warren Mosler’s ability to slice through to the clear and practical fiscal implication of any policy consideration. Today he talks to Steve about the deflationary bias of Medicare for All, the countercyclical effects of a federal job guarantee, how to apportion the resources that will be freed up by M4A, and why it makes sense to replace the income tax with some kind of asset tax.

You don’t need a degree in economics to understand why expanding Medicare’s coverage from age 65 to age zero will result in an immediate reduction in overall spending on healthcare. Warren estimates $600 billion in savings. Meanwhile at least 5 million jobs will be lost. Economists call it a massive “positive productivity shock.” Whenever you can produce the same amount of goods or services for less money, it’s good for the economy, despite the job loss. Now those people can be deployed for something more useful than the advertising, marketing, and administrative tasks of private insurance companies.

With M4A, the costs for private firms drop because they’re no longer buying medical coverage for their employees. This is another good thing. There’s no sensible reason for the cost of healthcare to be built into the cost of products; business expenses go down substantially, putting downward pressure on prices. It’s a deflationary event.

The two things described above – increased unemployment and downward pressure on prices – work together to reduce inflation. As Warren says, “when you have that kind of impulse you don’t raise taxes or cut spending to offset it. That’s nonsensical. It just makes it worse.”

Eventually moving to M4A could have inflationary effects, but Warren explains the importance of timing. We have to think about what happens on “day one.” People and firms will have more money in their pockets because they don’t have to buy healthcare. Ultimately they’ll begin spending some of it. Increased consumer demand will cause prices to rise; corporations might increase production. But these effects don’t play out immediately. So, again, it’s ridiculous to start with a huge tax to offset the inflation that hasn’t yet occurred. There will be time to decide what’s needed.

In light of the number of people who will become unemployed from M4A, Steve asks whether it makes more sense to have the Federal Job Guarantee in place first. This leads to a broader discussion of the FJG. Warren compares it to the joke that says, to avoid being eaten “I don’t have to outrun the bear; I only have to outrun you.” The FJG doesn’t have to be perfect; it only has to be better than unemployment. There are no economic criteria where it’s worse than unemployment, so even if it’s merely equal, economically, we should do it because by every other measure it’s superior.

Mosler has always maintained that it must be transitional, while some MMT proponents see it as a chance to expand the public sector workforce, including within a Green New Deal. Despite some disagreements, the conversation has brought MMT awareness into the mainstream. This is a huge plus.

Once we get past the household analogy for the federal budget we can begin determining priorities for allocating resources, including labor. The US needs less than 1% of the population to grow all the food and 7% for manufacturing. Our productivity gains give us the luxury of allowing more time to be spent taking care of each other – with education, research, healthcare, and infrastructure, for example. In assessing the value of government expenditure, we aren’t limited to old notions of productivity. Solar energy requires more manhours to produce than an equal amount of energy from coal, but that’s no reason to continue using coal. When planning for the public purpose we can take the greater good into account.

Warren Mosler’s books are available on his website:
moslereconomics.com/

@wbmosler on Twitter

Macro N Cheese – Episode 58
Radical Honesty in the Age of Deceit with Warren Mosler
March 7, 2020

Warren Mosler [intro/music] (00:03):

The job guarantee functions to promote the transition from unemployment to private sector employment. Now, maybe not all the proponents of the job guarantee want it to do that, but that’s what it does, whether you like it or not. Here we are with the Fed talking about it, and the European central bank, all the MMT proponents out there, door to door, person, to person for people like yourself, trying to organize groups that got it up to that level. And I just congratulate you all on the enormous effort.

Geoff Ginter [intro/music] (00:41):

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

Steve Grumbine (01:34):

And this is Steve with Macro N Cheese. Today, we have the original MMTer, the ultimate guy who came up with Mosler Economics before it was MMT, and that is Warren Mosler. Warren’s been with us many, many times, and of course, when you’re the one that comes up with this stuff, I mean, why wouldn’t you have the original source to tell you all about it?

Today’s discussion is going to address three very key things that I think are important for, not only the movement that we support, but everybody, regardless of your political persuasion, to understand the rudiments of policy and the rudiments of real resources, as it pertains to policy development and assessing a policy. And so we’re going to talk about Medicare For All.

We’re going to talk about the federal job guarantee, what it is, what it isn’t and how we can fund a plethora of other things beyond the job guarantee. And then we’re going to talk about Warren’s ability and how he approaches assessing public policy through an MMT lens. So without further ado, let me bring on my guest, Warren Mosler. Welcome to the show, sir.

Mosler (02:45):

Thanks, Steve. Good to be here again.

Grumbine (02:48):

Absolutely. And I really appreciate your flexibility. You’ve been an amazing resource and I want to thank you very much for taking the time to be with us. So you heard the introduction there. I know that you’ve watched people talking about Medicare for all, and you see Senator Sanders offering up taxes as what Dr. Kelton would say offsets, but he’s saying that he’s going to be funding Medicare for All through tax increases.

In a previous discussion we’ve had, actually several that we’ve had, you made mention that Medicare for All has a deflationary bias and that it may actually call for a tax cut. I would like you, if you could, to explain that for our listeners, help us understand the role of taxation within the Medicare For All Program, why it is assessed the way you’ve assessed it and what are the real impacts to real resources as opposed to just the finances.

Mosler (03:46):

Okay, so I’m not a Medicare expert. I don’t have any more data than, you know, I read in the newspapers and see online. So I’m just looking at the macro part of it right now, and from, you know, an overall macro perspective. And when I say Medicare for all, I mean, right now we have Medicare that starts at age 65 and it’s free.

If you want to buy the Part B or supplement, you can buy whatever you want, basically, as soon as you turn 65, like I did six years ago, I’m on Medicare for free. And so what I’m saying is what would happen if we just lowered the age from 65 to zero and just made it free for everybody, you know. What happens to the macroeconomy?

So one of the things that happens, that’s a major factor you have to take into account, is there’s an immediate savings and the amount that is bandied around varies, but I’m going to use $600 billion. And that’s saved because all the private insurance companies have all the duplication of administration. The private insurance companies have to advertise and promote and sell, but once you have just a single payer, you don’t have any of that.

So that savings has been calculated, and it varies anywhere from $400 billion to $800 billion, but I’ll use a number like $600 billion. If you think it’s wrong, fine, you know, you can modify it accordingly. So if there’s a reduction of spending on healthcare of $600 billion, that’s $600 billion has to go to somebody. Somebody would have gotten that money and is no longer getting it.

So I look at, I think again, I just rough estimate, trying to be conservative, I turned that into like 6 million jobs are lost. Figuring each person would earn an average of a hundred thousand dollars. Now that’s probably high. And if I’m estimating too high, it just means more jobs would be lost. So conservatively, I say 6 million jobs lost.

Then just to be even more conservative and talk around numbers. I say, you know, we’re probably going to lose 5 million jobs by going to Medicare for All, simply by lowering the age from 65 to zero. Now this is what an economist would call a massive positive productivity shock, like robots or something like that, where you save all this money and you lose all these jobs.

And it’s a good thing for the economy because it means those people can now be deployed into something more useful than advertising for private insurance companies or marketing or whatever they were doing. And so, number one, it’s a good thing, but it does mean unemployment goes up by 5 million. Okay. So, okay. So that’s number one.

And number two, just to limit it to two things for now, costs for businesses drops because healthcare is no longer a business expense. All their employees are on free Medicare, business doesn’t have to pay for it. And of course, no economist I’ve ever heard of thinks that healthcare should be a marginal cost of production for a business.

That just makes no sense at all. Unless you’re in a business like coal mining where work tends to make you sick, the cost of healthcare should not be built into the cost of the products, right? So in fact, if anything, when you work, you’re healthier than if you don’t work. But anyway, but business costs go down by, you know, a fairly substantial amount.

They’re paying a lot of money for healthcare right now, whatever it is, when you have costs of business go down, where there’s a competitive environment, businesses competing for market share, competing with each other just to stay alive. That puts downward pressure on prices. Or if there was upward pressure, it reduces those upward pressures.

So it’s a deflationary event from that perspective. Okay. So we have two things happening. We have unemployment going up by 5 million, which is a big number. It’s about a 3% jump in unemployment, maybe four. And then we have downward pressure on prices, so the inflation number is lowered to something.

Maybe it goes from two to one and a half or two to one. I don’t know how much, but it’s going down and the unemployment is going up. So when you have that kind of an impulse, you don’t raise taxes or cut spending to offset it. That’s just nonsensical. It doesn’t make any sense. That makes it worse. Right? Why am I even explaining this, how hard is this?

Grumbine (08:07):

Well, let me ask you a question. Right now, currently, Senator Sanders has got a ridiculously huge, and I say ridiculous compared to normal politicians, but he’s got a bold, progressive agenda out there that includes many other programs.

And when you look at, if we were just going for Medicare For All by itself, these offsets, it would really put a lot of pressure out there cause so many jobs lost; but in a way it’s clearing room, if you will, if I’m hearing you correctly, it’s clearing room for these other major programs. Am I in the right vicinity there?

Mosler (08:43):

Yeah, but look, there’s a timing issue here. What I’m talking about is what happens on day one. We know people lose their jobs, we know downward price pressure, but also people are going to have a lot more money in their pockets, businesses and individuals, because they’re no longer paying for healthcare.

Grumbine (09:00):

Right.

Mosler (09:00):

And so to the extent they go out and spend that money, we have an inflationary bias — prices go up, demand goes up, sales, go up. And you know, that’s an inflationary bias to the extent that that happens, but that doesn’t happen on like day one. You don’t know what people are going to do with their extra money.

We have ideas about how much they’ll save and how much they’ll spend in, but they’re not always right. You could get more people paying down debt and you could get corporations, certainly not going out and spending and investing day one. Once demand picks up, they might spend and invest, but you know, that’d be a good thing.

And yes, it uses up, what you were just referring to, fiscal space. It’s a positive development and higher consumer demand in this market would be a positive development. But it’s a little bit like you’re driving down the highway and you know you have to turn left in five miles or three miles. You’re not exactly sure when that turns coming up. Well, you don’t just turn now and get it over with, you’re going to crash the car. So we have an immediate deflationary event.

We know we might have sufficient spending in the days, months, years ahead to offset it, to get all those 5 million people back to work with enough new demand to reverse those downward prices caused by businesses no longer having to pay for healthcare because of more demand. But we also have economies of scale and we have all kinds of slack in the economy to begin with, and we get all kinds of things going on here.

So, you know, we don’t know what the timing’s going to be an how all that slack we’re going to create gets used up. So what I’m saying is you don’t start out with a big whopping tax to pay for it and ensure that you’re going to have a total collapse. You wait, you watch the economy, you watch it start to grow, you watch how people react.

And then if it becomes appropriate to make an adjustment next year or the year after you do that. And there’s no serious penalty for waiting a little bit too long. We’ve all finally learned by now, I hope, that if inflation starts going up a little bit, it doesn’t just run away, from excess demand, inflation from excess demand, it doesn’t just run away, you have plenty of time to like reverse policy, cut demand, for whatever reason.

If you have inflation from other sources, such as, you know, an energy shock or something happens with the virus, well, that’s different, then it doesn’t matter all that much what you do on the monetary side. So, you know, whether or not we have Medicare for All or not, that’s not gonna change that, although it could alleviate it, right, just by having the real cost of medical care be lower. So we’ve got a big, positive productivity gain.

We have a big increase in spending by the federal government that feeds a large savings of money by the private sector. And to the extent that that savings of money causes the economy to take off, causes it to get too strong, we can like wait and see to make sure that happens before we decide it’s powerful enough to try and do something about it.

Grumbine (11:59):

Let me ask you a question. So, I want to save this for later and we will loop back to it, but it seems like if I was doing some algebra here, the order of operations that I would do, just given what you just said. If I had a job guarantee as part of my package before I did Medicare For All, I would Institute a job guarantee because that way, when that shock hits, there’s a way of handling that buffer stock in a humane way to prevent a total collapse of the economy while you’re ramping the other things up. Am I kind of in the right vicinity there?

Mosler (12:35):

Yeah. Oh look, it’s certainly much better than unemployment. And you know, it’s like, you know the story about, I don’t have to outrun the bear, I only have to outrun you. I think everybody knows that, I don’t have to repeat it. So like the job guarantee only has to be better than unemployment for us to switch, there’s nothing else to it. If it’s marginally better than unemployment, then why not, Right? And certainly there isn’t any criteria in which it’s worse than unemployment.

So even if it’s like equal, economically to unemployment, we should do it because on every other measurement it’s superior. Right? So the barrier to going to a job guarantee rather than unemployment is minuscule. A job guarantee would have to have some horrendous side effects that I’ve never heard of for someone to decide, you know, I’d rather have unemployment than a job guarantee.

So to me, that’s an easy one because it’s like, it only has to be equal to, or marginally better than unemployment by any measurement to just switch over to it because there’s no cost, there’s no downside.

Grumbine (13:36):

That’s fantastic. So let’s get back to Medicare For All for a minute. When I look at real resources, the things that go into making Medicare For All work. If you have this much pent up demand, people have been putting off treatments and so forth, and we are an unhealthy society, suddenly in the beginning, we have a huge push for people getting served. And let’s say, God forbid, there’s long lines or rationing or whatever.

Mosler (14:05):

Alright. So let me add the third deflationary aspect of Medicare For All, which I’ve been holding back, you know, just to, because I forgot, because I’m older now and I haven’t written any of this down, but you reminded me.

Okay, so my sister is a doctor and I have friends who are doctors, and some of them claim they spend half their time and more than half their staff arguing with insurance companies over, you know, whether or not they’re going to get paid and how to pay what. Now with Medicare For All that goes away, so in a sense, we’ve at least doubled available doctor-patient time with the existing number of doctors we have by just going to the single payer system.

Grumbine (14:46):

That’s amazing. So you’re talking about in smaller practices where the doctors actually doing the administrative work, or are you talking about the staff doing that? I mean, I’m just trying to understand the play here.

Mosler (14:58):

Yeah. Even when the staff is doing it, the doctor’s involved, they have to hire the staff, they have to supervise staff, they get all kinds of time in meetings and things like that, where there could be doctor-patient time. And if you do with Medicare, they’ve got it down where there’s a lot more doctor-patient time than there is with private insurance companies.

Now I haven’t done an official study on that. I only know anecdotally and what I’ve read over the last 10 or 15 years. So you’re gonna need to check that out. We’re all going to need to check that out to really study if it’s that important. But my thought, my guess, would be that it frees up doctor-patient time, a lot of it. Okay. And so again, a positive productivity shock. We now have more doctor hours per patient than we did before.

Grumbine (15:43):

Okay. No, that makes sense. So let’s look at the next piece of that. I mean, Alan Grayson came out the other day saying, you know, with the coronavirus coming through, for example. I don’t know how much is hyperbole and how much is like real science, but talking about, Hey, you know, we may need as much as 900,000 beds or something to that effect.

And just listening to that, it’s quite clear, we don’t have enough hospitals, we don’t have enough beds, we don’t have enough gurneys, and orderlies and other things. In a sense, you would think this would be a hiring boom to some degree within these areas. I’m just interested in hearing how you see that resourced.

Mosler (16:22):

When I hear the US spends the highest percentage of GDP on medical, I don’t know, I think that’s a good thing. You know, we only need less than 1% of the population to grow all the food. 7% does all the manufacturing, you could imagine if we ever got that to 8%, the whole world would be full of junk and couldn’t move. And the rest is all services, including medical services.

And so our productivity gains that have given us the luxury of having, you know, more of our time spent on taking care of each other. So that’s something to be proud of because we don’t have to like build the cars and all the stuff that China does for us. And that Japan does for us, Germany does for us, we can give each other medical attention.

And so the fact that it’s a high percentage of GDP is a good thing. I’d say the higher, the better, right? Because if productivity gains allow us to do things with fewer people, robotics and everything else. That just means we’ve freed up more people to work on medical research, and healthcare and everything else, which is vital to our standard of living, a real standard of living in a happy life. If you want to call it that.

Grumbine (17:31):

Okay. So let me jump here, you said research and development. Research and development, to me, this is a huge area that, you know, obviously our military has done various things throughout the years, discovering the internet, let’s say, DARPA and so forth.

But you look at the way pharmaceutical companies work and they obviously have an ROI and a profit motive and they address things that they see an opportunity for a significant windfall based on whatever they set their targets at. And you look at diseases, such as, and I use my father as an example because he had an extremely rare disease called progressive supranuclear palsy, and this is something that clearly is never going to be a moneymaker for anyone to solve.

And yet it was one of the most brutal deaths to watch over the years as he deteriorated. I mean, this is an opportunity, if you will, for our federal government to step in where there’s no profit motive whatsoever, it’s just a human motive to serve society better. Is this not an area where we could invest heavily to prevent deflationary pressures over here by heavily investing in R and D over there? Is there some opportunity?

Mosler (18:47):

Yeah. Once you’re growing enough food and producing enough cars and laptops, or whatever we’re producing, or buying, or the world is, then the rest of the people, what the rest of the people do is a political choice and you assign your priorities. So we can promote more university research into whatever medical direction we feel serves public purpose, and that’s what they should be debating when they’re running for Congress and running for the Senate.

You know, one of them might want to be promoting cancer research and another might want to be promoting something else and that’s who you vote for, right? So, you know, we haven’t even begun to get that type of thing into our debates right now. They think they have to cut back on all these things because they’re trying to balance the budget, right?

Grumbine (19:30):

We were talking about this the other day, and obviously, I’m not really long on patience with this stuff because I’m living close to the edge, and I look at this and what you just said is very pertinent. Once we get past this discussion about MMT, once the idea of just the very concept of fiat currency and state money, and it’s just a tax credit, stop making it scarce. Once we get past that hurdle, we really do get down to motives. We really do get down to priorities. It’s impossible to hide behind that any longer.

Mosler (20:03):

Yes. Yeah. It’s entirely political decisions at that point.

Grumbine (20:08):

That’s amazing. Folks, the mask that is pulled back on all the people as they gaslight you into believing that we can’t do great things. Once that mask is pulled back, you can see their ugly visions and begin to realize who’s got your best interest at heart. I think that to me is probably the biggest “aha moment” that MMT has given me besides the fact that, you know, so many have died in the pursuit of protecting this lie of scarcity. So, okay, let’s go to the next level.

So we’ve got three deflationary issues that you’ve raised. How would you position the real resources that we will need to accommodate the new domain? Because even though we have all this chaos and processing, you know, insurance payments and people going crazy, marketing insurance companies and finding ways to deny coverage, all this other stuff, all that economic activity going on over there.

There is not the real demand, or I shouldn’t say real demand, there isn’t the production of these other things. I don’t know that we’ve got a pipeline of doctors, nurses, and orderlies and phlebotomists waiting to meet the new demand.

Mosler (21:21):

I would suspect we do, number one, we’re freeing up doctor-patient time, which I talked about, and nursing time and everything else. By removing these administration burdens on them, of administering all of the insurance side of it.

Grumbine (21:34):

Okay. So that’s the care side, the people side, but there’s more to it than that. Like the whole, in other words, the training apparatus, the actual hospitals, the beds. I know there are some ways of doing alternative things where people can be treated even through the internet. You know, there could be a web conference if you will, rather than the patient actually physically going into the office. There’s a lot of that going on now, but in terms of efficiency, time is still of the essence.

You can only maximize it so much depending upon how you split the resources. How do you meet the new demand? I know that you said that they’ll have more time available. There’s a point where that cuts off and there has to be additional efficiencies. Are you assuming that that will take place because of technological advances or do we have it already in place? Does that already exist today? And we’re just not leveraging it to its fullest?

Mosler (22:28):

Well, look, there’s a limit to how much care we can give, how many people there are to give the care and the productivity of those people, which means all the tools at their disposal, including software and hardware and everything else. And we restrict our medical schools, right? So obviously we believe, politically, that, you know, we have too many doctors or prospective doctors, otherwise we’d open up medical schools.

And you’re not talking about that many people. With the population of 335 million, if we have to shift 500,000 more to a million more, 2 million more to medical, from being stockbrokers, we could do it. What percentage is in the FIRE section? You know, finance, insurance and real estate — what 30% or something?

Grumbine (23:14):

I guess that’s the next segue right there. So this FIRE sector here is going to take a hit because insurance companies are cash cows and people invest. What are the impacts beyond just the direct hit within the insurance industry? What are all the downstream impacts that tie to this? What does the feeding trough look like?

Mosler (23:35):

Well, it looks like a reduction in demand and aggregate demand, right? Which is what I was talking about as the deflationary event, offset by the fact that people have more money to spend, which means demand will go up in other areas where those businesses will presumably be, you know, hiring people. Markets will clear, and to the extent that government spending equals the need to pay taxes and the desire to save, you approach full employment.

You know, the unemployment problem is only a macro problem and it’s entirely a function of the government monopolist, right? They create unemployment by design in order to create people that they can hire with their otherwise worthless currency. And if the tax policy creates 5 million more people who are unemployed, then they want to hire or 10 million more.

You know, that means they made a mistake. Their tax created more unemployment than the government wanted to hire. They have to make a fiscal adjustment through increased spending and hire the people or reduce taxes, so that there’ll be enough demand in the private sector to take them back to correct their mistake, right? But you already know all of that, so I don’t mean to be repetitive.

Grumbine (24:42):

I know some of that, right. But I don’t know that everybody does because as you watch the debates go on, and this is not even just too far outside the MMT community, you see people maybe misrepresenting or maybe differently representing the intent of like the federal job guarantee, for example, which I guess we can segue into, since we just talked about unemployment being created by government maybe miscalculating here.

And you know, with the federal job guarantee, if I understand this correctly and I do believe I do, but let me just run it by you. The federal job guarantee provides a buffer stock, if you will, of unemployed people, but provides them jobs, as opposed to unemployed people. And it provides a means to roll on and to roll off as a countercyclical, automatic stabilizer.

But it’s meant to be the wage floor. It’s not meant to be a career position. It’s not meant to be, you know, the next doctor or lawyer. The job guarantee is intended to soak up slack labor within a downturn economy.

Mosler (25:46):

Steve say it this way, the job guarantee functions to promote the transition from unemployment to private sector employment. Now maybe not all the proponents of the job guarantee want it to do that, but that’s what it does, whether you like it or not. I can understand people who don’t want to do that, they don’t want to increase the size of the public sector.

They’re entitled to their opinion, but the job guarantee as it sits, promotes the transition from unemployment to private sector employment, because the private sector does not like to hire people who are unemployed and not working. It vastly prefers to employ people who are already working and there are all kinds of studies that have shown that.

And so what we’re saying is the residual unemployment is a mistake. You know, the taxes were too high, they created too much unemployment for the number of people government wanted to hire. Government doesn’t want to hire anymore, because if it does, it can just go hire them. It doesn’t need a job guarantee.

And the rest it wants therefore to correct its mistakes, so to speak, as a point of logic, it’s got an obligation to promote the transition of those people back to the private sector, which is where they came from. Taxation takes people out of the private sector, puts them in the public sector. And so are tax liabilities.

We’ve got to separate tax liabilities from tax payment, right? Tax liabilities remove people from the private sector that causes them to look for paid work. The funds can only come from the government. Government has a monopoly on the funds, the dollars needed to pay taxes.

And so, again, right now it uses what we call unemployment, mass unemployment when it creates more unemployed than it wants to hire, they stay in this pool called unemployed. They’re not working. They’re deteriorating in terms of their human capital, in terms of its readiness to be employed by the private sector.

And so to facilitate the transition from this unemployment where they’re damaged goods, simply by the fact that they’re not working, the private sector, considers them damaged goods. By giving them a job, a job guarantee, we’ve removed a large part of that stigma and make them again employable by the private sector and help them transition back to the private sector.

So at the same time, the job guarantee wage becomes a defacto minimum wage for the economy, right? It’s the government setting price and letting quantity adjust. It is a buffer stock. It’s countercyclical. Can I add one more thing here?

Grumbine (28:16):

Absolutely.

Mosler (28:17):

Okay. So it’s a good news, bad news thing, okay. So the bad news is that a lot of MMT proponents have promoted MMT in a way that’s, let’s just say from my point of view, not quite right, not quite logically consistent, subject to disputes, subject to all kinds of things, okay.

But the good news is, it’s caused the MMT proponents spreading MMT, have done an absolutely extraordinary job of getting it to become a household word and a household name and moving it up into preeminence in the field of economics, they’ve managed to change mainstream economics.

Now this serious economist might hear them, might hear some things that are misrepresentations, might criticize it on that incorrectly, but then they go out and read, okay. And they might read what I wrote and they might read what Randy wrote or Bill wrote. And even if some of that, isn’t quite right by them, they get the core message and it’s completely changing mainstream economics.

And I’d say within 10 years, it’s going to be just common knowledge. That’s how it’s understood. It’s not even going to be a discussion point; but right now it’s still in that transition. But so, you know, I owe a huge debt of gratitude to all the MMT proponents who have been out there promoting it and have absolutely succeeded in bringing this stuff into preeminence.

You know, at the same time I recognize that a lot of it is not quite right, for lack of a better word, and I’m coming back and backing in Philly to get the logic secured. But there’s a pretty good chance that if they had gotten all the logic right, and gotten everything correct at the beginning and gone around promoting it that way, it never would have gotten to where it is. Do you follow what I’m saying here?

Grumbine (30:04):

I do. I do.

Mosler (30:06):

So I can’t like, I can criticize it in terms of its technical correctness, but what I can’t criticize is it’s been a phenomenally successful effort, you know, maybe the most successful, most important effort in the history of the world. Okay. Even though it’s technically flawed, it is the message, was the message, needed to get it to be looked at more seriously.

And here we are with the Fed talking about it, and the European Central Bank, Draghi and Legard are both saying, we’re giving it more attention. And you know they’re talking to the technical people inside their central banks. The operations people were telling them, “Yeah, of course, this is what we’ve been trying to tell you for 50 years,” right.

But they’d never paid any attention. And it’s all the MMT proponents out there door to door, person to person, people like yourself, trying to organize groups that got it up to that level. And I just congratulate you all on the enormous effort.

Intermission (31:16):

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Grumbine (32:05):

No, I really appreciate that. I mean, we do the best we can to represent it the best way we can and the ears that hear, hear what they hear, you know, and say, we do the best we can. Right?

Mosler (32:16):

Steve, they go out, and people go, Oh, MMT is just, that’s when the Fed monetizes all the debt and they print money and you know, it’s, Zimbabwe and it’s Venezuela, you hear all that, right? At the same time you’re hearing Mario Draghi say, yes, we need to take a closer look at this, and you see Legard doing the same thing, and you see Powell talking about it.

So obviously it’s gotten through to them, at least it got their attention. Jackson Hole is half of MMT. The last business journal in the US, I forget the name of it, it’s a serious journal, had five articles on it. I’ve read some of them, they’re all completely screwball articles, but they’re there and the serious people read the articles, and they know and they recognize the screwball stuff and recognize the elements, the factual elements and the elements of truth inside and go back and sort it out. And it’s totally changed mainstream economics.

Grumbine (33:08):

I mean, it can’t be any worse than Mises Institute that makes billions sitting there and spreading disinformation, right? So I want to touch on this job guarantee thing again, because you hit something that I really hoped we could dig into. A

nd that is, you know, you made the mention that the job guarantee is to transition back into private sector work, and then you made mention that the federal government can hire anyone, but I don’t remember exactly what you said, but you can actually hire people at any wage you like, at any job categorization you like.

Let’s be clear, the job guarantee is not meant to take away scientists and lawyers and doctors and mechanics and engineers and things like that. The federal government can hire all of those things in perpetuity. It can hire however many it needs without impact.

Mosler (34:03):

Yeah. And that’s all in my 1997 or 98 paper, it’s in Pavlina’s math model. When she visited me that we put together in 1996 on how that all works. You know, that’s the way we’ve done it, but the MMT proponents are different. You know, you see them interviewed on Bloomberg or something and they go, well, what are all those people in the job guarantee going to do? Oh, lots of things, we need them for the Green New Deal. We need engineers.

We need this, we need people doing clean ups and all this stuff. And I’m thinking, no! Wrong! But, what they’re going to do, they’re going to transition to the private sector. All those people we need for the Green New Deal, we’re just going to hire them at normal federal pay scale and not trying to define the federal pay scale and have them do all this Green New Deal stuff.

I’m totally in favor of that. And so we’re not like job guarantee people that’s not pointed out, but that’s how they presented it. And it moved to job guarantee to absolutely the top of the charts. So I can’t like fault them, I can fault their logic and reasoning, but I can’t fault the success of what they’ve done.

It’s better lucky than good, maybe, I don’t know. Like just declare victory and move on. So I’m not here to like criticize the people misrepresenting it because they’ve been the ones who’ve achieved the success of the ideas that I never could do.

Grumbine (35:20):

It’s interesting you say that because I think that the people who the “lights went on for,” for just the simple explanation for, going back to Seven Deadly Innocent Frauds, and, you know, Randy’s longer, the primer, that he put in New Economic Perspectives that turned into the modern money book.

Those were what I cut my teeth on, and I still found the political economy taking a marketing idea, because you can have the greatest idea in the world think beta and VHS, and if it doesn’t get any traction, it doesn’t matter if it’s reality or not. It’s not going anywhere.

And so there had to be some way of crossing the divide between the lay person and understanding the possibilities on one hand and how you package it, and on the other hand, the pure nuts and bolts and operational reality that underlies it all. I can certainly see both angles there. Is that your take on it as well kind of?

Mosler (36:17):

Sure, look, I developed electric cars in the mid 1990s and with golf cart batteries, golf cart motors and just regular lead acid batteries, and entered them into events, and they dominated everything by a factor of two or something like that. And I remember one, I got a 110 mile range on one vehicle, back with lead acid batteries in them, won some kind of an event, I think it was like a New York to Boston race, it took five days or something.

And I couldn’t sell anything or get anywhere with it. And if you looked at it fundamentally, it was twice the performance, the range, everything that a Tesla would get, but they got more range today, but the batteries are 10 times larger than everything else. But pound for pound, it was, you know, it was way in excess of anything out there.

But then Elon Musk comes along, bang, you know, gets somebody to drop $5 billion into his bank account, and he gets to do all this stuff. That’s kind of the same thing, right? It’s all marketing and sales and your ability to raise money and your ability to inspire people and to promote your idea.

Grumbine (37:22):

Well said. Yeah, exactly. Let me ask you a question. You created race cars and you’ve got a storied past, you owned banks and you’ve done a host of things. And one of the things that jumps out at me though, which is in the vein of this whole promoting ideas, was you made a bet that, you know, anybody that could disprove MMT you’d give them what was it like a hundred million dollars or something crazy?

I can’t remember the exact thing. But you were in Connecticut, I believe you were running for office at the time, and nobody took you up on it. At least I haven’t seen anybody that’s taken you up on it.

Mosler (37:57):

Right. No, nobody did.

Grumbine (37:58):

Tell the story of that real quick, because to me, you obviously had them baffled, they had no idea what to do with it, and clearly no one was going to take you up on it. So they just reverted back to the normal beating the drum of austerity. But what was that all about? Tell us the story.

Mosler (38:14):

So I’m trying to find a way, this was 2010, right, so it was shortly after the worst of the recession and we needed a very large deficit to get back to any kind of a normal economy. They were talking, whether the recovery would be U-shaped or V-shaped. I said, it’s going to be L-shaped because, you know, there just, wasn’t going to be enough of a fiscal adjustment to get any more than that, and that’s pretty, what happened.

You look at all the charts now, you know, the recovery has been much, much slower and flatter than anybody thought, than any prior recovery. And so I was trying to come up with a way to get attention and promote the idea of, it wasn’t called MMT back then, but just Mosler Economics and how the currency works.

So I just decided, to try a lot of things, and see what happens. So one of the things I said was that I would, it’s in the Huffington Post, so you can still look at the article, I don’t remember exactly where it was, but I put down three postulates where the government has to spend. First, it can’t be insolvent, and currencies, monopoly, whatever.

And if anybody can show otherwise, I’d give them a hundred million dollars. So it’s a little bit like the Lee Trevino story, where he was talking about pressure and he said, pressure isn’t looking at a six foot putt in a tournament for a hundred thousand dollar. (What’s the) difference whether you make it or not, he says. Real pressure is when you have a $10 bet, and you’ve only got $5 in your pocket.

I didn’t have anywhere near a hundred million dollars, but I was making an offer anyway, figuring nobody would take me up on it because they never have; but if they had, I would have had a serious problem if I’d have been proven wrong, that’s for sure. But anyway, nobody knew how much money I had, anyhow. I’m sure they assumed I was good.

Anyway, nobody did take me up on it at all. So maybe it helped, maybe it was one of the little pieces that help build the awareness of Modern Monetary Theory. You can’t say, you can just say there were a lot of things like that over time that got somebody’s attention, and got somebody to look at it, and got somebody to promote it, like yourself, on an individual basis.

You just try to get people started on it because nobody ever goes backwards, right? Once you recognize the government can’t run out of money, you don’t change your mind a few years later and say, “You know what? Changed my mind, the government can run out of money.”

Grumbine (40:27):

Once you see it, you can’t unsee it there’s no two ways around that. That brings me to the final point of this, and that is, Joe Q public is doing the best they can to try and understand this. People are shifting from the idea of the household budget analogy, to understanding the concept of state currency and understanding the role of the unit of measure here, being a tax credit.

You know, the dollar is not some finite thing we dig out of the ground and their heads are exploding with the concept of what the deficit and the debt is because they’ve been pummeled with bullshit for so long, but here we are now.

Mosler (41:03):

Well, we’re at 23 trillion and inflation is going down and, you know, interest rates are going down.

Grumbine (41:10):

We’re all going to die, right?

Mosler (41:11):

Well, they’ve totally lost confidence in any of the experts.

Grumbine (41:16):

Well they should. The (Paul) Krugman’s of the world have proven themselves to be charlatans, in my opinion.

Mosler (41:19):

Yeah, that’s a failure of the intellectuals, so to speak. It started with Obama, he was an intellectual and considered a failure by the Progressives, for sure. I mean, presiding over the largest transfer of wealth from low income to high income in the history of the world.

Grumbine (41:34):

You know I hate eating peas and he was famous for telling us to eat our peas, and a pea is like the grossest thing in the world to me. And I’ll never forgive him for that. I remember he had the opportunity to really do something special. He had the wind at his back and he still chose to be just a complete and utter idiot in my opinion. That’s just me talking.

Mosler (41:53):

You know, I think in his mind he was, you know, he had a certain amount of integrity, you know, a lot of integrity and thought he was doing the right thing, but he was just a neoliberal, conventional person. And that was his peer group and everybody around him, and they were “fiscally responsible” or whatever.

He voted against the debt ceiling in 2006 because he thought it was immoral. And so I understand people are like that, you know, he didn’t have any opportunity to not be like that. You know, what’s he supposed to be doing, listening to some guy in a pair of shorts, sitting at the pool in St. Croix, telling him he’s wrong?

Grumbine (42:25):

No, he should be listening to Steve Grumbine at Real Progressives and Macro N Cheese.

Mosler (42:29):

Exactly. Why would I have any credibility with President Obama? He’s a serious guy in Washington, I’m just like coming up with these little bits of logic that are one of the, just another monetary crank out there, right? I can understand that’s how it appears.

Grumbine (42:46):

Yeah. I mean, there are a lot of money cranks out there too. You look at AMI folks, and across the board and they just, there’s just no shortage of crankery, so yeah, I guess skepticism is what’s on the menu today. So I understand, I do get it, I really do. How do you look at policy Warren? When you see a new policy come across, if somebody says, Warren, does this make sense? Is this the right move? And how do you assess whether a policy makes macro sense?

Mosler (43:16):

Right. Well, you know, government is about public infrastructure for public purpose. So we look at what public purpose it’s going to serve. So in this case with the Green New Deal, okay, we’re going to make some effort to reverse some of the things we’ve done to induce climate change, according to our own understanding, right?

I don’t know if it will be too little, too late, or enough, but we can see it already happening, and we don’t know if it’s something we can reverse. But you know, rather than just watch and let everything fall apart, we’ve decided to take an initiative, which I support. And the first thing we have to decide is whether it’s a positive productivity shock, or a negative productivity shock; and nobody’s even doing that analysis or making that statement.

That’s the first statement you want to make. It doesn’t mean you will, or you won’t do it, but you’ve got to know what you’re dealing with. So I see it as probably an extreme, negative productivity shock, by the way we generally measure productivity.

You know, we’re going to have to work harder to have less, because it takes more people to produce a megawatt of solar electric than it does to produce a megawatt of coal. Now, as a result, we’re going to have cleaner air and the planet’s not going to melt down and that has its advantages I understand, but in terms of how much electricity we’re going to have available based on how many labor hours we’re going to have to put into it, it’s going to be a negative productivity shock.

It’s going to be the opposite of Medicare For All right? Like you said, Medicare For All might be making space to do this, freeing up the people we’re going to need to do this. A positive productivity shock is freeing up space for negative productivity shock. And so everything I’ve seen, all the massive investment, investment is a cost, it takes hours, it takes labor hours.

We can’t have medical research and everybody working on investment in the Green New Deal, okay, you can’t have both. There’s only a certain amount of labor hours to go around and you want everybody working at full employment. But at that point you’re limited, and this is such an enormous effort that I’d say done right or done in a way that is potentially successful.

Which might only be a 5% chance or 10% chance, I don’t know what it is, but certainly I think worth taking, then we’re going to be giving up other things. And, you know, even with our advances in productivity across the board, just because it’s such an enormous conversion to go from energy, the way we’ve been producing it, to a way that doesn’t do the damage that we perceive is happening.

Grumbine (45:47):

When we go through the process, like for example, Bernie Sanders offering up taxation, he’s clearly playing to a, like you gave Obama credit, Obama saying, Hey, you know, I’m a fiscal conservative, this is kind of what I do as a neoliberal, and this is kind of my peer group and so forth. Bernie Sanders within his peer group, you know, it’s always been about paying for things and taxing the wealth and so forth.

Is this sticking with that you think, or do you think this is more of a function of, Hey, look, people already think we’re crazy trying to do all this stuff. We better at least give them something that they understand and use this framing.

Mosler (46:28):

Bernie Sanders to me is not entirely logical, but he’s true to himself from what I can see, you know, as an individual. And he has an agenda where he wants to tax the rich to promote some kind of social equity. I’ve got 10 better ways to do it that would promote a lot more social equity, but that’s how he wants to do it. And he’s just not going to let some monetary crank story about the currency and monetary operations, trick him into not taxing the rich.

That’s how I see it. So I see it as a genuine, consistent internal position for him. I’ll give him the benefit of doubt on that. It’s like innocent fraud, right? I’ll give him the benefit of the doubt on that and I’ll take him at his word, and I think he’ll follow through when he gets into office. Cause why wouldn’t he? Why at his age would he be doing this except the follow through once he gets there? He’s not going to just declare victory as president and go out and take golf lessons and not do anything.

Grumbine (47:30):

I wanted to talk about the LVT, the land value tax, as a means of producing this social equity and balancing society. The Georgists had this belief and I’m becoming a convert, little by little as people weigh in on this. Where do you stand on land value tax?

Mosler (47:50):

Okay. So I’ve always thought that when I look at taxes, you have to look at the compliance costs. And I talked to people at like University of Chicago, they’re pretty straight laced, right? Economists. And they think the compliance costs are certainly in excess of 10% of GDP. For income tax, sales tax, all the transactions taxes, maybe 15% or more.

So if we eliminate all those taxes that are transactions taxes, we free up real labor, 15% of our real labor hours get freed up. 15% of GDP that can be employed doing something else creates enormous fiscal space.

Okay, now that alone is progressive because whatever those people do, whether it’s medical research, or get involved in education, or be involved in leisure time or anything, it’s going to be services, because we have enough manufacturing, we have enough agriculture.

It’s going to be services and it’s going to be services geared most predominantly towards lower income people, whether it’s medical or educational or health or anything like that. And our infrastructure, roads, and all the deferred maintenance we have in this country.

So it’s going to increase the real standard of living of lower income people by that 15%. So if the lower income people constitute 50% of the population and they get the majority of that 15%, you know, we’re talking about 30% increase in the standard of living or more for people of lower income.

In other words, it all flows to the bottom because the people at the top aren’t going to go from three meals a day to four. They’re not going to go from one vacation a month to a vacation every two weeks. They’re not going to be consuming any more than they’re consuming. Their marginal propensity to consume in real terms is pretty much zero at this point.

So additional available consumption goods can only go to the lower incomes whose marginal propensity is 110% because of their debt and everything, right? So that’s where it’s going to go, just by process of elimination.

So one of the most progressive things you can do is eliminate the income tax, and replace it with an asset tax, like a property tax or land value tax and I’ll get into both of those in a minute, which has almost no compliance costs, just put a flat 10% or whatever it is, tax on all real estate nationally.

And so the income effects might not look all that progressive, but the effects on real consumption are enormously progressive. And there are other ways to make the income effects in the economy more equitable, which I can go into. So the next thing with the Georgists is they prefer just taxing land and not improvements because if you tax improvements, you’re discouraging improvements.

And I completely agree that if you tax improvements, you’re discouraging improvements, but to me right now in the United States in the year 2020, we want to discourage improvements. We don’t want more development, more shopping centers, more of all this stuff, I don’t think. And so we would want to just have a property tax on all real property and not just land.

Now when the time comes where we feel there’s a shortage of improvements, then we could address that with some kind of a tax reduction, something like that. The other thing that a flat real estate tax does, which provides the tax liabilities, which I’ll use the word carefully here to make a point, “funds” government spending, right?

It’s not the tax revenues that fund spending, the government doesn’t need your money, but it needs tax liabilities to create sellers. And the creation of sellers is what’s “funding spending” — not by providing the funds but by making the sellers who demand dollars in exchange for the services available, okay, that’s what creates the fiscal space, the tax liabilities.

And so by creating all the tax liabilities that fund the fiscal space the federal government uses through this 10% land tax, that discourages foreign ownership of residential properties, non-resident ownership. Because if you own these properties, you’re funding the whole government, not just the city of New York or the town of Boulder or something like that, you’re funding the entire federal government. And so 10% tax on your property becomes enormous.

You buy a $10 million condo in New York to use a couple times a year and you’re paying a million dollars a year in federal taxes on that. You know, you’re going to think twice about that, and it’s going to keep prices from going up. Now, the residents all have to pay it, but they don’t have to pay income taxes that they would have paid.

And so they’re actually probably going to be money ahead because of all those transactions costs that are down. So in terms of real standard of living and what their paycheck buys after tax, they’re going to be ahead. But the non-resident he’s now, instead of paying 2% or 3%, or one or two on his properties, jumped up to 10, maybe it’ll be 11 or 12, I don’t know.

And so it has a positive aspect for our cities, which have had the problem, kind of like London, where it’s all owned by outsiders, and so there’s nobody in the streets, nobody doing the shopping, the life of the city is dead. And the importance of cities is that they’re much more efficient, power consumption per capita is much lower, energy usage per capita is much lower, so a more energy efficient way to live. So we don’t want to have government policy working against it, which is what our policy does now.

Grumbine (53:21):

It seems like there is a balance between A, the obligation that we require to keep the currency where we want it to be, but also B, there is the Pigovian aspect or sin tax aspect of it, that is a training mechanism as well. Am I hearing you correctly? It’s like a dual purpose?

Mosler (53:43):

I’m not sure.

Grumbine (53:43):

It seems like you’re training away foreign investment. You’re putting this tax on there that is absolutely serving as a behavior modification tax, not just for the funding purposes.

Mosler (53:55):

Let’s put it this way, right now, what we have is behavior modification, to the extent that it’s drawing in foreign investors.

Grumbine (54:02):

Right. In the other direction. Yes, exactly.

Mosler (54:06):

And if you understand the currency, you realize that there’s no particular need for that. That doesn’t serve any particular public purpose. I suppose on some level it could help you in real terms of trade, but it’s a stretch to get there.

Grumbine (54:19):

Understood. So let’s cap this off. If you were Senator Sanders and you know, you’re 78 years old, and you’re running for president and this is the last hurrah. You know you’re not going to run for office again, maybe reelection, if you get through, and you had the money story at this point. I know that you wrote one of these things for him at a previous time.

What would be your advice to him, because I believe that his framing, even though he comes by it honestly, it’s internally consistent, et cetera, I do believe that his framing obviously puts a hindrance on his ability to impact those programs because simply it just puts too many barriers in front of him for it to be able to happen that way, or at least that’s my opinion. What would be your advice to Senator Sanders if you were advising him in that regard?

Mosler (55:12):

Well, I don’t know him. I only met him once for 15 minutes in his office. I don’t know him well enough, but we need one of these guys to get up there and say, look, I know I’ve said these things over the years about balancing the budget, about paying for it, but you know, I was wrong.

And maybe it’s better to say it if he’s eliminated, you know, rather than now when he has a chance of winning, because if he does it now, it’s probably going to cost him the nomination. So maybe that’s too much to expect.

But you just got to get up and say, look, I’ve had it wrong, I just talked to the Fed operations people, and you can mention the names of the people in their senior staff at the Fed, and, you know, Modern Monetary Theory is absolutely correct, and I didn’t know it until last week when I went in and met. My curiosity was up.

I had Stephanie Kelton on my staff, you know, I didn’t want to go there for the longest period of time because I have a personal agenda to tax the rich. But I did do it. I went to the Fed. I talked to these people. I’ve got them sitting right here next to me to answer your questions. I was wrong. And as John Maynard Keynes said, when the facts change, I change.

And this is how it works guys. And this is what we’re dealing with. It doesn’t even have to be Sanders, any one of them can do that, walk up on the stage with two people from the Fed’s monetary affairs, senior operations people, and just let them explain how it works.

I mean, I worked with Vince Reinhart for years, he was the right hand man, head of monetary affairs for Greenspan for a long time, and then for Bernanke, and he helped me write some of my speeches. To these guys, this is not anything they even need to talk about. It’s just how it works. And so, anyway that’s what I’d like to see happen. So in that sense, I recommend it.

Grumbine (56:57):

Right. Well, Warren, thank you so much for joining us today. This was really insightful and I hope Senator Sanders listens to this because I really hope that he’ll go out there and do that. I want the guy to win. I can’t even hide it. I mean like between my advancement of Modern Monetary Theory, at least in my own lens, on one side, and through my love for the program space and the movement on the other side, it’s like living on a razor’s edge.

You see things going on, you just want so badly for it to come true, and it’s a bit overwhelming. And guys like you who give us your time and allow us to hear how it really is, give me some grounding and let me dream a better dream. So Warren, I really appreciate everything you’ve ever done for me and what you’ve done for RP and Macro N Cheese. I really appreciate it, sir, Thank you.

Mosler (57:47):

Good to see you out there fighting the good fight, and all the best.

Grumbine (57:51):

Thank you, sir. Well have a good day. We’ll talk soon. Bye bye. That was Warren Mosler and Steve Grumbine Macro N Cheese, everybody have a great time, we’re out.

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