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The Biggest Lie About Debt Exposed: Why U.S. Can Never Go Broke | Warre…
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The Biggest Lie About Debt Exposed: Why U.S. Can Never Go Broke | Warren Mosler
(https://www.youtube.com/watch?v=k6RJOD2ksZ8)
Warren Mosler, widely known as the creator of the monetary philosophy known as “Modern Monetary Theory“, discusses the impact that the federal debt level has on the economy.
0:00 – Intro
1:47 – Debt and taxes
5:28 – Money printing and inflation
12:14 – Budget deficits, debt, and MMT
34:30 – Wealth gap
39:22 – Fed policy
44:07 – Mosler Automotive
50:13 – Ending remarks
Transkripzioa:
Intro
0:00
I can tell you what will not happen the government checks won’t bounce they’ll all clear it won’t drive up interest
0:06
rates only the FED does that and they vote on it at every meeting and if they vote lower rates like President Trump’s
0:11
asking the rates will go down no matter what the deficit is okay so there won’t be a funding problem won’t be a solvency
0:18
problem the government won’t go broke the US budget deficit hit a record high of
0:23
840 billion do over the past four months the Congressional budget office is now projecting that the budget deficit for
0:30
25 will be 6.2% of GDP more than twice the 3% level
0:36
that the treasury secretary Scott bent is aiming for now organizations like the IMF have warned about Rising debt levels
0:43
and their potential to trigger a financial crisis but my next guest says that this is not a major concern
0:49
potentially and that deficits may even be a good thing for the economy we’re going to find out why I’m joined by
0:55
Warren Mosler who is an economist and leading Advocate and proponent of modern
1:00
monetary Theory and one of the founders of this movement um he helped develop it
1:05
and he was one of the first to write about it and bring it to the attention of the academic Community he’s the
1:11
author of several books including uh the seven deadly innocent frauds of economic policy and his contributions to
1:17
economics has earned him an honorary doctorate from the Franklin University Switzerland uh he currently runs and
1:24
operates Valance company and uh it’s just a great pleasure to meet you Warren
1:29
good to have you on the the show H good to be here thank you for that introduction by the way off the line we were talking about how you also um was a
1:35
founder of an excellent motor uh Sports company and an automobile company a big car car fan guy people should look up M
1:41
their cars they’re beautiful cars um but um that’s not the uh um point of the
1:47
discussion we’re talking about economics um but I do want to play for you this clip by uh Margaret Thatcher and I just
1:55
want to get a respond this clip uh Warren because I know you have a different philos ophy on economics um so
2:02
I’m curious to see how you would respond to this take a listen please Mr President one of the great debates of
2:08
our time is about how much of your money should be spent by the state and how
2:13
much you should keep to spend on your family let us never forget this fundamental truth the state has no
2:21
source of money other than the money people earn themselves if the state
2:27
wishes to spend more it can do so only by borrowing your savings or by taxing
2:34
you more and it’s no good thinking that someone else will pay that someone else
2:39
is you there is no such thing as public money there is only taxpayers money what
2:45
is your response that you know I saw that first time around so I’m dating myself a little bit when you first said it but it’s uh
2:53
look I’m what you call Insider in monetary operations I visit used to visit to Fed regularly I work on the
3:00
money desk at Banker trust a primary dealer and everybody in monetary operations knows one simple fact and
3:08
that is the funds to pay taxes come from the government they don’t come from the private sector uh unless they’re
3:16
counterfeit and uh she’s just got it backwards and um the way they say it
3:22
inside the FED is we can’t do a reserve drain without a prior Reserve ad which means that the banking sector can’t make
3:30
payments to the government until after the government adds those that money to the banking sector by doing what they
3:36
call Reserve ad which would be a repurchase agreement or spending of some sort so the government has to spend
3:42
first before anyone has the dollars to pay taxes or to buy government bonds now
3:49
a real world example would be the football stadium nobody would ever get up there and say uh you know the
3:56
football stadium has to collect the ticket first and then sell it and that’s exactly what uh prime
4:02
minister thater was saying that all the tickets that use for the game come from
4:08
the you know the people going to the game the stadium collects the tickets first and then they sell it they can’t
4:14
sell tickets without collecting them first it’s just backwards the source is the football stadium they have to sell
4:20
the ticket first before they can collect it the source of dollars that can be used to pay taxes are the government and
4:25
its agents commercial banks are set up as agents of the government to do this for them they have to spend the money
4:31
first before anybody has it to pay their taxes and that’s just simple fundamental
4:37
and everybody’s got it wrong every Congressman thinks they’ve got to get the money by taxing and what they don’t
4:43
get they have to borrow or they can’t or they don’t have it to spend they don’t
4:49
understand that tax requirements tax liabilities which are tax requirements
4:54
cause the economy to need the government’s money and the only ource
4:59
for getting is government that enables the government to spend it people need it they will sell their goods and services to get it they will go to work
5:06
for the government to get it the government can then pay them then they have their money then they pay their taxes so they’ve got the sequence
5:13
backwards it’s been you know the reality of what we’ve been
5:18
living with for a long time and it’s the source of pretty much everything that’s gone wrong in the economy uh for the
5:25
last 40 50 years correct me if I’m wrong but I believe one of the tenants of mod monetary theory is that governments
5:31
don’t need to rely on collecting taxes which you just talked about in order to raise money they can just print money
5:38
correct and that there’s no on this let’s look at the football stadium
5:43
you’re saying well they don’t have to rely on the people going to the game to get tickets they can just print tickets
5:49
and give it to them it’s not that they can just do this that’s the only way to do it the government has to spend first
5:56
either by giving you green pieces of paper or crediting your bank account account or else you don’t have the money to pay your tax the football stadium has
6:04
to sell you the ticket first or you don’t have a ticket to go to the game it’s exact same thing there there’s like
6:10
no difference here well do you think that in this particular example the football stadium example if they print
6:15
more tickets the price of the tickets would change meaning go up well let’s
6:22
say they announced tickets to the Super Bowl are going to be $5,000 and they and they print tickets
6:27
in their ticket office to get ready for all the people to come and buy them does it matter how many they print no it’s
6:35
got look If the Fed printed up hundred trillion dollar in the vault just left it there nobody would even know about it it would have no effect on anything and
6:42
if it burned up it wouldn’t mean the government just lost 100 trillion dollars you know this is just like
6:47
scorekeeping so so printing money doesn’t directly lead to inflation is what you’re saying per se it doesn’t do
6:53
anything now spending is another matter okay spending is when you buy something
6:58
and that can drive the price up but if you’re just sitting in a room at the Federal Reserve and you print up dollar bills you’re not causing anything they
7:05
don’t go anywhere and uh the government does the Federal Reserve doesn’t even do that by the way when the when the
7:12
treasury spends what it does is it instructs the FED to put the money in your bank account it’s actually your
7:18
bank’s account on your behalf and the FED how do they put money in a bank
7:23
account they just credit the account it’s called crediting the account they just change the number so if you had
7:29
$5,000 in your account what do you have you have a a computer screen that shows
7:35
a five and three zeros right that’s all you have is a bank statement that says five and three Z so now when they want
7:41
to give you uh you know another thousand what do they do they just
7:47
changed a five into a six they just changed your score from 5,000 to 6,000 there’s no nothing moving around no
7:54
nothing came from somebody paying taxes they didn’t Hammer a gold coin in you know it’s just a simple scorekeeping
8:00
system well what have I what have I told you that if you overlaid the annual percent change of the M2 money supply
8:06
with the annual percent change of the CPI in other words inflation there’s actually been a pretty consistent
8:12
relationship how would you explain that relationship yeah absolutely what happens is as prices go up it actually
8:19
creates what I’ll use very you know simple language a money shortage so if prices
8:27
doubled now instead of going shopping with $200 in your pocket you need
8:32
$400 and you know now Apple computer instead of $200 billion on their banks
8:38
on their in cash at their bank they need 400 billion okay the the need in the
8:44
economy for liquidity for savings uh for everything else goes up accordingly with
8:51
the price okay and if that’s not accommodated by government the evidence
8:57
is unemployment and but with with a with a policy to keep unemployment at about 4% you’ll see that that money that money
9:05
shortage will be alleviated by what is casually called printing money but
9:11
that’s not what they’re doing they’re just uh spending by crediting accounts okay so Warren um the wealth Gap has
9:18
been widening and one of the criticisms of the US economy is that the rich are
9:23
getting richer while the poor are not getting richer to the same uh degree or magnitude now
9:29
in theory according to mod modern monetary theory if inflation is not a constraint of printing money why can’t
9:35
we just print more money and give it to the poor well we did that you know we did stimulus checks under covid but why
9:42
don’t we continue to do that why don’t we just have like Ubi or whatever yeah okay well before you get to Ubi but uh
9:49
there was but the reason we stopped was political will Congress decided they didn’t want to do that anymore they were
9:55
maybe concerned they were driving up prices but whatever it was it wasn’t because they didn’t have the money if they voted
10:02
on it it would have happened the checks would not have bounced interest rates would not have changed you know we
10:07
wouldn’t be on our knees at the IMF like they used to say you know turn into the next Greece and in fact nobody worries
10:14
about that anymore at all but yes if the government spends too much if you’re just giving money out like Social
10:20
Security or stimulus checks the people you give the money to become agents for the government you’re giving them money
10:26
to spend the same as if you spent it yourself and if you do too much of that and don’t do anything else they can
10:33
drive up prices absolutely and that is a consideration some people will call it a
10:38
limit but it’s a consideration because we’ve had you know our consideration is
10:43
that 2% inflation is the fed’s target why not zero why not 1% why not 4 per.
10:49
it’s a political consideration and I say oh we have to do this or it’s going to cause inflation we’ve had 2% 3%
10:56
inflation for 50 years you know sometimes more so it’s not that anything particularly
11:03
bad happens except as you spoke and it’s critical and it’s one of the things of my focus the distribution of income and
11:12
standard of living is is an obscenity in this country the way it’s been handled
11:17
and so I completely agree with you that there are distributional effects of how government implements policy and what
11:24
they’ve been doing I I’ve called it a crime against humanity okay so I completely agree with knew that you know
11:30
that’s been a serious problem and you could argue it brought it’s brought it’s what B brought president Trump into the
11:36
White House okay because of the way the previous administrations had handled that issue okay so let let’s come back
11:43
to the wealth Gap issue in just a minute because I am curious as to how uh mmt would go about solving that particular
11:49
issue so as I mentioned in the beginning of the interview wait let me just stop right here mmt is a framework to analyze
11:56
the issue it’s not something you do to stop it once you understand the issue once you understand the framework then
12:02
you can have policies you know informed policies that’s what I hope I’ll be able to show you some policies informed by a
12:10
proper understanding of monetary operations sure yeah yeah yeah the solutions under that framework so the
12:15
budget deficit as I mentioned has been rising um some economists argue that a
12:20
rising deficit past a certain point would lead to a financial crisis uh debt
12:26
service costs would become too high unaffordable unsustainable are you worried about a rising budget
12:32
deficit becoming excessive right now okay so when they say that they don’t say exactly what bad thing is going to
12:39
happen I can tell you what will not happen the government checks won’t bounce they’ll all clear it won’t drive
12:46
up interest rates only the FED does that and they vote on it at every meeting and if they vote lower rates like President
12:51
Trump’s asking the rates will go down no matter what the deficit is okay so there won’t be a funding problem there won’t
12:57
be a solvency problem the government won’t go broke they can drive up prices
13:03
under the current framework if they spend by spending money now the deficit
13:09
itself is the residual it’s an accounting residual it’s called it’s the
13:14
number that is recorded by the accountants after the spending has already taken place okay they say okay
13:21
last year the government spent $7 trillion last year $5 trillion was paid
13:28
in taxes therefore Two the government what we
13:33
that two trillion extra that the government paid that wasn’t used to pay taxes uh that’s called the budget
13:40
deficit okay it’s there it’s sitting in accounts it’s already been spent it’s not like doing anything it’s not like
13:46
some kind of um uh disease out there that’s gonna bite somebody or something it’s an accounting residual and it’s
13:54
money that people have already decided they would rather have that money than
13:59
whatever they sold to get it somebody sells their house they know how much
14:04
they’re going to get for it they’ve made a decision I’d rather have that much money than my house knowing about
14:10
inflation knowing about interest rates knowing whatever they know I’d rather have the $500,000 in my house I’d rather
14:17
have the $600,000 in my house otherwise I won’t sell it okay and so um and a
14:22
deficit spending can be public or private government SP spends more than its uh income it’s tax
14:29
and individuals spend more than their income when they take out a mortgage to buy a house so all government spend all
14:36
deficit spending is what sits in accounts that we call savings you know
14:42
is someone’s savings and that whoever’s holding those savings had made the decision that uh they’d rather have that
14:49
than whatever they sold you’ve never seen anybody say this ah man I got stuck with all this money I have to sell you
14:55
know they forced me to sell their house and save the money there there is no such thing it’s all voluntary and so it
15:01
deficit itself doesn’t do anything that’s just a recording a the accounting record of what’s already happened so
15:08
take a listen to what yeah scad treasury secretary had to say about reducing the deficit um let’s just what he had uh
15:18
well uh do yes sir yes sir we’re gonna have to respond to it together I’m with you on this one I want time and a half
15:25
for this emphasize is that we are not focused on the whether the FED is going
15:31
to cut not cut uh what we are focused on is lowering rates so we are less focus
15:37
on the specific of rate cuts and how do we get the whole curve down I mentioned that the tenure I believe is the
15:45
important price to focus on it’s mortgages it’s long-term capital formation so um and look I I think with
15:53
the president’s policies of energy dominance deregulation and nonin aary
15:59
growth I I think that the the 10e is going to naturally come down and then
16:05
look on top of it what if we do get some big savings on the spending side from the do programs like let’s think of a
16:12
naive formula government equals spending minus taxes for my entire career and
16:20
Beyond maybe even back to pre FDR
16:26
uh government equals spending minus taxes the S the Republicans but we like
16:32
spending we just wanted to raise it less the Democrats want to raise it more taxes Democrats want tax increases we
16:39
want tax cuts what nobody’s thinking about is what if the S actually went down what if it actually goes down
16:46
because of everything we’re doing right now all right well that logically makes sense just spend less money and the
16:52
deficit goes down what do you think oh I’m not sure where to start with all that okay ex except you know I wouldn’t
16:59
have that guy making coffee in my office but uhu what what uh so so what’s your
17:07
question yeah I guess well can you just evaluate what he said plan to reduce the deficit he said
17:13
so many over the place yeah yeah right so look um what we have because he’s got
17:21
the sequence backwards he comes up with that kind of stuff that’s comes from having the Margaret Thatcher sequence
17:27
you know in your head which is backwards when you have the sequence the correct way around that the money to pay taxes
17:33
comes from the government you know you don’t think of it that way and so you don’t cause the same problems in the
17:39
economy that he does but the first thing he talked about was interest rates okay so let me uh I thought you were gonna be
17:46
asking me about that do you want me to skip that part or do you wanna no you can yeah no you can comment on that please go ahead okay so why does he want
17:54
interest rates come down the 10 year is about 4 and a half% the over rate’s about four and a half I don’t know how
18:00
low he thinks it’ll come down if they leave the overnight rate there a few basis points you know I I remember I was
18:07
you know probably your age back in the U the late 1970s when mortgages were 15%
18:13
and we had twice as many housing starts per capita than we have now and it’s not exactly twice as many but was way up
18:19
there okay with with 15 to 16% interest rate and at the same time uh you know
18:25
not you know Japan you know I was on a phone to somebody was it’s in the 80s I
18:30
think and uh no it must have been the 90s early 90s and I was talking to
18:36
somebody in Australia and I real estate agent I said how’s the housing market he said well rates are 17 and a half
18:42
percent but it’s still pretty good I think if we put them up to 18 we’re going to kill it then I’m on the phone
18:47
to somebody in Japan I was trading jgbs at the time said how’s the housing market he says well it’s pretty sluggish
18:52
rates are at three and a half percent I think if we lower them to three it’ll get going here so look the interest rate
18:59
is not the key thing with the housing market except in the very short term and and and this guy coming up here saying
19:06
that we’re going to we want this policy to bring the 10e note down quarter of a percent or something why interest rates
19:12
I don’t know but there’s a more fundamental problem with interest rates that I started pointing out when the FED
19:17
started its rate hike policy and that is they’ve got the whole thing backwards because our public debt is so high all
19:24
right what that means is when they raise rates they’re
19:30
actually making the economy stronger when they’re lower rates they’re actually making the economy weaker which
19:36
is exactly what’s happened for the last three years as they rais rates the economy got stronger unemployment came
19:41
down and they couldn’t figure it out their forecasts were wrong time and time again our models aren’t working they’re
19:47
broken but the models are working there assumptions in the models are what’s wrong okay and so let’s take a close
19:55
look at what interest rates actually do okay what happens when the Federal Reserve raises rates the only thing that
20:03
happens at the governmental level is the government pays more interest on the public debt 36 trillion in the public
20:10
debt now yes so when they raise rates they have to pay more on that a lot of it’s shortterm they pay more immediately
20:17
some of it’s longer term when those bonds come due and they sell the new ones and they have to pay more interest
20:23
at that time but they have to pay more interest and what we’ve seen at after
20:28
they raise rates as the government interest expense go straight up it’s gone from 4 500 billion a year to over
20:35
1.2 trillion it’s become the largest expense so when the FED decides to raise rates the government spending to pay
20:43
interest goes up dramatically now because the debts so high and that is all deficit spending they don’t raise
20:51
rates and then put a tax in place to pay for the interest they just plain old raise rates and so deficit spending goes
20:58
up so if you look at today’s deficit spending of 1.8 trillion annualized I think it was 1.2 trillion this year is
21:06
going to be interest expense that’s like 60% of it or something is interest
21:11
expense that the Federal Reserve created by raising rates so most more than half
21:17
of the deficit spending today that is causing the potential inflation problem and is supporting prices and is keeping
21:24
unemployment Low by the way is the deficit spending created by the interest
21:30
rate hikes and lowering interest rates would take away that deficit spending so if
21:36
you want to cut if they ask me how would I cut deficit spending over the next 10 years I’d say go to a permanent zero
21:42
rate policy like we had for seven or eight years under chairman bernacki you know I’ll cut 10 trillion dollar in
21:48
interest expense right there rates go down the government stops paying it but they that you’ve never even heard that
21:54
discussed right as a possibility and that’s the largest source right now of the deficit it’s not even being
22:00
discussed all right so here’s the problem with it you say okay it helps
22:05
the economy it raises rate you know people have an extra 1.2 trillion it’s spending but it’s the most obscenely
22:12
regressive public policy you can imagine who gets interest only people who already have money interest is paid on
22:19
bank accounts and treasury secur people with money if you don’t have any money you don’t get any interest right so the
22:24
Federal Reserve has decided unilaterally to fight inflation by
22:29
paying out $1.2 trillion a year only to people who have money in proportion to how much they already have and that’s
22:36
how they’re fighting inflation it’s like what who voted for this okay only the
22:41
FED would Congress have voted for it sure you haven’t seen them oppose that
22:46
you know chairman Powell just was in front of Congress nobody questioned why are you paying out 1.2 trillion in
22:53
annual deficit spending only to people who have money in proportion to how much they already have
22:58
how does that affect the distribution problem you’re talking about it’s huge
23:04
it’s the largest factor out there it’s the lwh hanging fruit to get rid of the distribution problem and it isn’t even
23:10
discussed you know it isn’t even remotely discussed by anyone in either
23:16
party okay including this great doggy agency that’s supposed to be cutting
23:22
spending it’s the low hanging fruit and they’re completely ignoring it you know what’s going on here the interest
23:27
expense that you brought up okay it it is kind of a problem for some people in
23:32
the sense that first of all it’s over a trillion dollars now it’s over it’s exceeded defense spending so at do you
23:40
think Warren at some point that expense uh expenses on interest payments
23:46
will be so high that it would possibly Force the bank uh the government to uh
23:52
go bankrupt in some way okay so the government spends by instructing the
23:58
treasury spends by instructing the Federal Reserve to credit the account so when interest comes due they tell the
24:05
FED to change the number and whoever has a million dollars in treasury Securities to a milon 50,000 because that’s their
24:11
interest payment and the FED changes the number okay how can they like not do be
24:17
able to do that what are they going to get an electric shock or something if they try and change the number you know
24:23
can you say if the score gets too high in the football game could the stadium not be able to award the extra points
24:28
it’s not an applicable question to the to the the monetary operations that we
24:34
have to this s to the monetary system we have it doesn’t you know it’s not even like remotely applicable to what’s going
24:41
on I heard President Reagan say if it ever got to 90 trillion to 90 billion we’re all doomed it’s 36 trillion we’re
24:49
not all doomed because they just keep crediting accounts you say and and that’s the only way to do it and it’s the way it’s always been done well by
24:57
changing numbers why have a debt ceiling what like what what’s the point of debt
25:03
it makes no sense first Congress authorizes a spending which causes spending to exceed taxes and then
25:10
they’ve decided that they can’t actually spend unless they further agree to let
25:15
spending exceed taxes you know so they vote on the same thing twice so the
25:20
first time they vote on it and approve it the second time they vote on it and because a minority can hold it up they
25:27
demand all these concessions in order to get it through it’s complete nonsense no other country does this you know nobody
25:32
would ever do it in their own personal accounts or anything it’s a political theater and it’s disruptive and it’s uh
25:40
shouldn’t be there should there be a hard debt ceiling that’s actually
25:45
respected in theory why I mean I I don’t see why if Congress wants to spend more
25:50
than they tax it’s the same people who will vote on the debt ceiling you know they just do both there’s no numerical
25:57
limit it’s up to the will of Congress if the Congress has the will to do one obviously they have the will to do the
26:02
other it’s the same thing there’s no difference you know is there any downside to increasing the debt to GDP
26:09
then at some point is problematic yeah the debt ceiling and the debts of GDP
26:15
your questions are slightly different here okay now if you if you were at a zero interest rate policy where like
26:21
Japan has been for 30 years like the US and Europe were for about 10 years each
26:26
then the to GDP doesn’t matter because uh you’re not paying any interest on the
26:33
excess money that’s been spent it’s just sitting in accounts at the FED called treasury Securities that earn zero and
26:39
you know no matter what the debt to GDP is that number will earn zero however if you go to raise rates then you’ve got to
26:45
pay interest on all that then the size does make a big difference so today Japan is talking about raising rates
26:52
their debt to GDP is 260% a lot of it’s intergovernmental it’s probably 160 or 170
26:58
you know held by the public and if they raise rates that’s going to increase their deficit spending and their
27:04
pressure on the economy the financial pressure you know buy a lot because they’re paying it on so many you know
27:12
trillions of uh again outstanding uh if you have another country where the debt
27:17
GDP is much smaller then when you raise rates it doesn’t make that much difference the US used to be 35% where
27:23
raising rates didn’t make that much difference today at 100% held by the public
27:29
15 or 20% total it makes a big difference okay so does it matter for
27:34
government solvency no does you know it’s not the only thing it matters for
27:39
is how much increasing interest rates will affect deficit spending and if you’re going to leave rates at zero
27:46
which I’ll argue is the base case for analysis and there’s really no reason not to ever then it doesn’t matter at
27:52
all the debt to GDP doesn’t matter for that purpose at all different countries obviously have different debt to GDP
27:59
levels yes uh how would you as an economist assess whether or not any one
28:04
particular country should have an optimal debt the GDP level if there is such a thing well you okay so you look
28:11
at the the short answer is you look at the unemployment rate okay so the government starts by the sequence the
28:18
correct sequence is not you raise tax money first and then you spend it is you put a tax liability in place you put a
28:24
tax requirement on the population now we use income tax taxes which I’m
28:29
categorically against for other reasons but I for this example I’m just going to use a property tax so that you can
28:35
follow the logic uh more easily but it’s all it works out the same if you work
28:40
through an income tax as well you know with an imputed tax on income that’s unreported but anyway um so let’s say we
28:48
put a property tax in everybody’s house to get the ball rolling you now have a population that
28:54
needs however many dollars that is and it has no where to get them except from the
29:00
government and so now you have a population that’s looking for work that pays in dollars or else they’re going to
29:06
lose their house and let me give you a real world example of uh where this
29:13
happened so when the Europeans went into Africa they wanted people in these Villages where there wasn’t any money
29:20
they weren’t monetized to work in the coffee plantations let’s say for example
29:25
so what they did was they put a tax on everybody’s house in this script that they just dreamed up
29:31
for this purpose and they said okay everybody owes a tax of so many you know
29:36
script so many let’s call it the crown so many Crown per month you know and if
29:42
you don’t pay it we’ve got the military here we’re going to burn your house down it was called The Hut tax you can look
29:47
up Hut taxes you know online and it’ll show you how it worked in colonial Africa and so they put a tax on
29:53
everybody’s height and that created a population that suddenly needs these
29:59
Crown uh are they going to get their House burn down and so they said well what do we have to do to get them they
30:04
said oh come down to the plantation and grow coffee for us and we’ll pay you so
30:10
many Crown a day to grow your coffee and people would come down to the plantation
30:15
they work all day they get paid then they had enough money to pay their Hut tax and not have their house burned down
30:22
okay and that’s the sequence first there’s a tax requirement that creates people looking
30:28
for paid work we call that unemployment so what I’ve said it’s been
30:34
a contribution to the history of thought how you think of Taxation that the purpose of Taxation in the first
30:41
instance is to create unemployment and in in fact it’s actually the only source
30:47
of unemployment when you under close examination so the purpose of taxes tax
30:52
liabilities tax requirements we’re not talking about tax payments here but the tax requirement
30:58
is to create unemployment people looking for paid work why why would the government create unemployment for the
31:04
further purpose of hiring those people to serve the government in this case on the coffee plantation in our case it
31:11
would be the military or the public education or the legal system or whatever so the British the French they
31:17
put a tax on everybody’s house people that creates unemployment those people would show up the plantation they would
31:23
then get paid okay and then the last step is they would pay their tax okay
31:30
and that is the actual sequence and so if people why did they go to work in
31:37
the plantation to earn Crown what could they possibly do with those Crown collectively as an economy only one of
31:44
two things they can either pay the tax or save them hold them so if they got paid 100 crown and they only had 10
31:51
Crown tax bill they’d pay 10 and they’d have the other 90 did they want those other 90 apparently why would they you
31:58
know go sweat the coffee plantation earn them if they didn’t want to have them right so people go to work for only two
32:07
possible reasons collectively as the economy okay money the government pays
32:12
money the French and British paid the crowns were either used to pay taxes or they were not used to pay taxes and
32:18
retain as Savings of some sort cashing somebody these Pocket Change in a
32:23
business or something like that did the entire population go to work no only a portion of it did and the
32:31
wages were high enough so that enough could be earned uh so that those people
32:36
could then go back and buy things from other people who didn’t want to grow coffee and everybody could pay their taxes and everybody could satisfy their
32:43
savings they always deficit spent people always earned at least enough to pay the
32:50
tax or you’re going to get your House burn down that would be a balanced budget but they invariably earned more
32:56
than that the British the French and invariably spent more Crown than we needed to pay taxes because people
33:02
wanted extra for savings for a money supply in the economy for security the
33:08
parents took them home as souvenirs for all kinds of reasons that would happen okay and so what is the
33:16
evidence that the population had enough to pay taxes and
33:22
enough to satisfy their desires to save just they weren’t showing you know
33:28
showing up anymore for work there were no unemployed if anybody was unemployed looking for work they could run down to
33:34
the PO to the um you know to the coffee farm and earn it okay so this so yeah so
33:43
unemployment is the evidence that the government hasn’t spent enough to cover the need to pay
33:50
taxes and the desire to save otherwise there is no unemployment so at the macro
33:56
level unemployed in the economy always indicate that enough there hasn’t been
34:01
enough spending to cover the need to pay taxes and the desires to save it’s
34:07
created by the government if the total tax was 10,000 crown and they decided to
34:12
spend only 9,000 Crown what would happen there’d be unemployed there’d be houses
34:17
getting burned down it’s like why would they even do that you know why would they set up a system to do they set up a
34:23
system for people to grow coffee not to go burn down somebody’s house and create unemployed people who can’t find work
34:29
yeah go ahead let’s let’s go back to my earlier question about yeah the wealth Gap so here’s here’s what the wealth Gap
34:35
looks like right now you can see it widening how would you as an economist
34:41
uh propose solving this problem which is to narrow the wealth Gap yeah oh number
34:47
one i’ cut rates to zero which would eliminate 1.2 trillion of income to the
34:53
people who already have money in proportion to how much they have would make a very large dent in the wealth Gap
34:59
to start with that and then I um there’s a very old principle in
35:04
economics you know that Adam Smith wrote about that every Economist knows about that they’ve written about and that is
35:11
that the labor market is not a fair game as they would say it’s all mainstream
35:16
this is not even mmt at all uh it’s a Elementary Game Theory which everyone
35:22
studies in college who studies economics now and that is people have to work at the margin people go to work because
35:28
they need to eat they need to pay their bills they need to live business only hires if they think uh they can make a
35:34
profit off that labor you’re not going to hire extra people for your business unless you think sales justify it and
35:39
you’re going to make some money which is fine that’s how capitalism Works no no problem there but what that is is a
35:45
massive disparity of power it means even if you’re the last person looking for
35:51
work and somebody offers you a job if you don’t take it your family’s going to starve okay and so you don’t have extra
35:58
bargaining power because unemployment’s low you know there is no such thing at the individual level you know because
36:04
Game Theory tells us this isn’t GNA this doesn’t work and that without some kind of support to offset this massive
36:12
disparity of power wages will gra gravitate towards subsistence levels towards minimum wage uh in the economy
36:19
and that’s exactly what we’ve seen ever since the early 1980s where uh
36:25
International competition opened up business has lost their pricing power unions lost their bargaining power labor
36:31
lost any semblance of support gradually it took about eight or 10 years you can see in the numbers that
36:39
um the wage share of the economy has dropped profits have gone up and that’s
36:44
to be expected because of this disparity of power so somehow you have to either say okay that’s how we want to run our
36:51
economy where people at the bottom get squeezed for every last dime they’ve got
36:56
or we’re going to have to offer some kind of support to not live in a world like that because we’ve set up a system
37:03
here where people have to work to eat business only hires if they feel like it
37:08
this is the consequence of our current institutional structure we either live with it or
37:13
change it and there are different ways to change it uh you know one way is
37:18
using things like minimum wage and uh that type of thing and other ways are
37:24
what I like to look at as a job guarantee which is my basee case for analysis which is what the British and
37:31
the French and everybody else who’s done this clean sheet of paper does where they offered a job to anybody who showed
37:37
up at the coffee plantation and if they paid you know one Crown an hour for
37:42
working at the coffee plantation nobody in the economy is going to pay any less than that because they can always go
37:47
down there by default to get a job so they didn’t have to have a minimum wage law by by having universal access to
37:53
this source of income and you had to work for it they weren’t giving any away was hard work so the money was worth a
38:00
something it was worth a lot because you have to work to get it okay uh then that establishes the minimum and
38:08
that establishes how much real wealth is going to go to the lower income versus higher income groups and so there it’s a
38:14
long you know we’ve got a relatively short interview here but there’s there’s a lot of ways to address that issue we
38:20
also have institutional structure that is just outrageous so we use treasury Securities that we don’t have to
38:27
treasury could if we had a permanent zero rate policy the treasury could just go to all three month bills which trade
38:32
at zero the whole bond trading industry government bond trading industry would
38:37
go away because it wouldn’t be any government bonds and all those people would have to do something else and they’re making often times tens of
38:44
millions of dollars a year each trading these government bonds that don’t have to exist only exist because of
38:50
government policy on interest rates government policy on duration other government policies that you know have
38:55
no function in in our economy so we’ve got massive amounts of institutional
39:02
structure adding to this disparity of income that can be very easily remedied you know uh over a long weekend actually
39:10
yeah okay that that’s an interesting perspective that deviates from a lot of mainstream Economist I I’d love to have
39:16
you on discuss this with another Economist um another time anytime anytime yeah that’ll be that’ll be an
39:22
interesting discussion I want to move on to the last topic of our conversation which is f policy and what that’s going to do to I heard you say on another
39:28
media channel recently that you believe that a Fed rate hike may actually be
39:34
stimulative for the economy correct me from wrong I think that’s what you said um how would that work what’s your
39:40
thesis there well if the FED races rates 1% It ultimately adds for example
39:45
1% of GDP to the government deficit that would add about you know if the de public debt
39:52
held by the public is 28 trillion now I think a 1% increase with ultimately add
39:58
$280 billion a year to deficit spending it would be a spending increase by the government to pay interest of 280
40:05
billion so that has a positive effect on you know direct effect on income
40:10
unemployment on growth on prices on everything and you can argue that it has
40:16
less of an effect that a of a stimulus check going to somebody in a lower income group will spend all of it but it
40:23
does you know there is a large part of it that does get spent I’ll argue otherwise the economy wouldn’t be where
40:29
it is now sure yeah and so um so raising rates adds to the deficit adds to
40:36
deficit spending and all the things that deficit spending does and it does it in the most regressive way possible and
40:42
that’s what fed policy does raising rates also also curtail consumer
40:47
spending thus making it the opposite of stimulative if you look at consumer spending over the last three years since
40:54
they started raising rates it’s been growing at a extremely high rate and in
40:59
defiance of all their forecasts for to go down for the reasons you’ve talked about what you’re saying is you know is
41:06
a uh paring of mainstream Theory which was developed when debt to GDP was much
41:12
lower and the interest expense uh effect would have been very much smaller maybe
41:17
a third than what it is now and it would have been you know minimal but now it’s a major effect we’re in we’re in a
41:23
different world now postco what do you think would happen then if we have the opp opposite of a Fed rate hike which is
41:29
a Fed cut which is what they’re kind of doing right now is it the opposite you
41:34
apply yeah that would have a depressing effect on the economy that would have to be offset by a spending cut by a tax cut or
41:42
a spending increase so depending on your political persuasion you might op for tax cuts or an increase in public
41:49
services you know so that’s what would happen we would need an off offset in that direction generally speaking then
41:55
let’s just finish off on the budget deficit gener generally speaking would you be more of a proponent of cutting cutting spending or raising taxes in
42:02
order to shore up the budget deficit well it’s not to shore up the budget deficit it’s just support the kind of
42:08
economy we want so right now the budget deficits at more or less a level that’s coincident with the
42:15
kind of economy we want at the macro level the distributions horrible but at the macro level we have low unemployment
42:22
we have uh 3% real growth you know that’s kind of where we want it so that tells us that the budget deficit is
42:28
approximately equal to savings desires at this point in time that could change at any minute we might need to adjust it
42:35
but right now and for the last year you could say it’s been roughly in line call let’s call it neutral right now at 6% of
42:41
GDP so I would op for a major spending cut by cutting interest rates to zero
42:48
that’s a 1.2 trillion spending cut annually that’s the largest spending cut in the history of the world okay and uh
42:56
which nobody’s even looking at the people want to cut spending they’re looking to cut student loans or
43:01
something I don’t know but you know they can cut 1.2 trillion and instead they’re cutting cancer research of a 100 million
43:08
to make sure we don’t get our medication anyway um I don’t I don’t want to get too cynical here but uh so I would cut
43:15
that now that would mean we would have to have a uh spending increase somewhere
43:22
to offset that or lower taxes to offset that so if I cut interest rates to zero we could lower taxes I would start with
43:28
a regressive tax if I had to lower taxes uh you know I might have lower F tax that would charging on Social Security
43:34
because that’s uh a very regressive tax very punishing tax for lower income groups you know so I would start by
43:42
eliminating that tax if if if uh the economy weakened because of the interest
43:47
rate cut I’d wait to see how the economy does I wouldn’t wait too long if I saw any sign of weakness I would start and I
43:54
had to cut a tax to me that’s obvious Target there are other regressive taxes
43:59
out there that I would consider cutting as well but again I’ve only got about 10 minutes here so I’ll just leave it with
44:05
a short answer in the last couple minutes I’m actually going to talk about some of your other Ventures uh and this
44:11
is a great discussion on economics I’m just really curious because I’m a car guy and you had a car company I what was
44:19
it like running a car company did you enjoy being head of Mosler Automotive Mo
44:25
versus an economist and uh just put a picture of a car that your company has produced this is the mt900 just a
44:32
beautiful machine uh built in the 2000s I I believe George Lucas took delivery of one of those but yeah he took the
44:38
first one it was in Darth Vader black and I believe he still has it and is I think he had a 10 12-y old son who said
44:44
dad you gotta get me that car you gotta buy that car so so he bought that one yeah uh yeah I like that I like the
44:51
competitive aspect I had a bunch of guys working for me who I’d hired from you
44:56
know they’re working in garages T changing tires and things like that and uh really top driver kid named Chad
45:03
Phillip who was just circle track driver you know and uh we went out and just
45:09
conquered the world I mean you know our cars won the 24 Hours of Daytona in WoW
45:15
2002 or three or something like that then they kicked us out of the series we won the Supercar series got kicked out
45:21
of that we won the one La of America Car and Driver three times got kicked out we won Nelson Ledges race got k out and you
45:28
know and uh in Europe Martin Short was my U not not the comedian but the race
45:33
driver he took over Mosel Europe and he dominated in British GT and Spanish GT
45:39
and got kicked out and penalized and everything else so I enjoyed it from that unfortunately it couldn’t sell
45:46
enough cars to pay for it so it was a money loser and after moving to St Croy
45:51
in 2003 where I wasn’t near the shop and able to do it Hands-On it I lost
45:57
interest in not being able to just do it one what was a company for you was it was a passion project or something else
46:05
it it was you know I had always had a car disease as a kid but I I thought I
46:11
truly thought I could make money doing it because I thought we had a car that would be attractive to people and that
46:16
they’d want to buy and it just didn’t work out that way and uh sales total sales over those years were maybe 50 or
46:24
60 cars so it just weren’t enough fires uh and I didn’t have I didn’t have the
46:30
celebrity status or the connections that it took to get those cars sold it didn’t
46:35
have the U it wasn’t a Ferrari and it wasn’t a Lamborghini and it wasn’t a Corvette it wasn’t a Porsche and and uh
46:43
but it performed on equal footing like you like you said no absolutely not it was it was far superior I mean it just
46:49
ran Rings okay every place we took it they would add weight and put restrictors on the motor otherwise we
46:55
couldn’t even run so all the races we won were with highly restricted cars in fact last year Martin’s son Morgan won a
47:03
race with a you know 18-year-old car maybe more maybe 20 years old uh that uh
47:10
you know against new cars and they were still restricting them so it’s still the top performance car in the world and we
47:15
got banned from several series and never allowed to compete in the uh why were you
47:21
B uh because it’s marketing you know it’s kind of like professional wrestling almost where the manufacturers don’t
47:28
like the idea of a small company getting in winning and you know they’re there to sell cars and to look good and it’s
47:35
theater and I can understand that and uh you know they have to make money also
47:40
the racing series and they have to have people showing up to race and they’re not going to do that if they allow cars
47:45
like ours in there I’m going to finish off with this what do you think of the current direction of the car industry um
47:53
I know that’s a loaded question there’s a lot of different Subs sectors within the car IND industry you know this thing
47:58
that I’m showing the screen apparently goes 0 to 60 in 3.5 seconds and Tesla’s go faster now so um common saying in the
48:07
car Community uh you know just because it goes fast like a microwave doesn’t taste better than the grill but I I
48:12
don’t know I’ll let you I’ll let you comment on what you think going on two things contestant accelerate faster sure
48:20
because they have four-wheel drive and mine was a two- wheel drive and that’s all you were permitted you were not permitted to run fourwh drive and any
48:27
kind of racing so if I built cars to go racing that’s what it had to be with four-wheel drive it would have been the
48:32
same you know as Tesla because the maximum acceleration is based on tires
48:37
and tire patch and uh my cars are a lot lighter and and my big Advantage was to
48:42
be able to build a car that was a th000 pounds lighter than any of the competition and with that kind of a weight Advantage there was no
48:49
competition and still isn’t now I built electric cars in the 1990s and I built
48:54
those you know my car were 2500 lb when the electric cars were 4,500 lb and
49:01
Teslas today are over 4,000 lb so you know I was 200,000 pounds lighter I you know I could take a Tesla and build it
49:09
the way I buil cars it would look the same and it would be at least 1,000 pounds lighter and it would get more
49:15
range and you know go faster if you want or do whatever burn a lot less
49:20
electricity um but when I built them then same thing nobody would buy them
49:25
and I wound up think yeah do you think that the future of cars is EV do you think that’s I like electric cars I I
49:32
have an electric truck it’s the best car I’ve ever owned it’s best handling everything and my wife has an electric
49:38
uh seven seater and they’re just it’s just uh they’re just phenomenal and I
49:43
that is definitely the way to go and uh as the Battery Technology improves it’s
49:49
it’s you know the gasoline cars I think I don’t think anybody’s going to want them anymore so uh and and B cost have
49:57
already come down from like I don’t know $400 to $100 a kilowatt or something like that it’s just going to keep going
50:03
in that direction so yeah I’m I’m that that’s the way to go and that’s what’s going to happen I believe interesting
50:10
all right Warren uh excellent talk great meeting you where can we learn more from you where can we follow your work okay
50:17
wbm on X used to be Twitter uh also on Blue Sky same thing
50:24
and uh all my uh papers I’ve written published papers everything on this topics media videos everything’s on
50:31
Mosler economics.com great we’ll put the link down my my very
50:37
short book it’s more like a pamphlet The Seven Deadly innocent frauds economic policy is what’s uh kicked off the whole
50:45
mmt Revolution it’s gone from me and then two people then four then eight and 16 to Millions including yourself uh
50:53
that’s free online the seven deadly innocent frauds you download it take you a half hour to read it maybe an hour and
51:00
I highly recommend it yeah okay okay we’ll put the links down there so check out the book check out uh Warren’s other
51:06
work and uh check out uh Mosler cars I know they’re not being sold new anymore but I’m sure they’re still in auction
51:12
they beautiful cars um thank you very much waren good to meet you okay thanks night
51:25
byebye but
oooooo