Tuesday, April 23, 2019

TRNN - Modern Monetary Theory - A Debate Between Randall Wray and Gerald Epstein

There are four parts of this video.

The Real News Network

Modern Monetary Theory - A Debate Between Randall Wray and Gerald Epstein

PAUL JAY: Hi. Welcome to The Real News Network. I’m Paul Jay.
With the development of this concept of a Green New Deal, and there’s much more attention being paid to it now that it’s being talked about in the halls of Congress, especially people like Alexandria Ocasio-Cortez, the question of how to pay for a Green New Deal has become to the fore. And part of the Green New Deal is the idea of a full employment plan. These two things have been connected. And it’s of course not new, but far more in the spotlight than before. And one of the ways to pay for it that’s being presented, including by Ocasio-Cortez, AOC has hinted at this, is an idea that has been called Modern Money Theory or Modern Monetary Theory. And if I understand it correctly, essentially it recognizes what is clear, which is the government creates money when it needs it. And many times the government spends money, for example, this new military budget or a massive tax cut, without clearly showing that if you’re taking a dollar from here, you’d better find it from over there.
In fact, the government kind of just makes up the money, the deficit grows, and sometimes austerity hawks scream about it, and other times they seem not to care about the deficit. So the idea of MMT, if I understand it correctly, is this same kind of concept can be applied to the Green New Deal, to developing what would be essentially a full employment program, and that the way to fund it is create the money, but within certain limits. When you start to reach full employment or when inflation starts to get above, say, six percent, one could argue about what the two limits should be, then you need to rein things back in again. But there’s a lot of debate. This theory is being attacked from a more conservative right position, and there’s also a lot of debate amongst left economists about MMT. So we are creating a series of interviews with people that are kind of pro-MMT, people that are critical, and we’re going to put them up and hopefully have some panels and debates, and people can decide for themselves what they think of this.
So now joining us is one of the, I would say, fathers of modern MMT, anyway, Modern Modern Monetary Theory, is Randall Wray, and he joins us. He is Professor of Economics at Bard College, he’s a Senior Scholar at the Levy Economics Institute of Bard College. He’s the author of many books, including Modern Money Theory: A primer on of macroeconomics for sovereign monetary systems. Thanks for joining us.


Joe said...

Not a good performance by Wray imo. Paul Jay doesn't get it either. Probably one of the more pointless interviews. And the back and forth "debate" isn't a good format, and Epstein doesn't appear to have read anything from the MMT school. Sounds more like he read about MMT from someone like a Paul Krugman.

Paul's still acting like it's some new idea and not how money has always worked.

They got into the weeds way too fast, they could have covered more basic ground first and this would have cut Epstein off from the beginning. Put yourself in the shoes of someone new to this, Wray sounded a bit off.

Richard said...


Wray wasn't off, he carefully and politely tried to inform the moderator, debate opponent, and the audience about the correctness and benefits of MMT thought - including the focus on the real resource limitations of economic growth.

Bob Roddis said...

Epstein: The fundamental problem stems from a limitation that the MMT advocates themselves recognize. If nothing else, there is a limit on the ability of the government simply to print money to finance government spending: this limit is full employment/full capacity utilization. Once full employment (or full capacity utilization) is reached further demand for goods and service cannot be satisfied by new supply, but must be provided by labor and production capacity that is already employed doing something else. Hence, the new government spending will have necessarily “crowd out” the supply of other production and if this spending is to be effectuated, this crowding out can be accompanied by increases in prices (inflation). At this point, there is no “free lunch”, and all additional government spending has a “cost” in terms of other goods and services not being produced and possible further costs associated with high and increasing inflation if the policy is pushed too far.

Tis but a scratch!

AXEC / E.K-H said...

Safe assets ― how the State pampers the Oligarchy
Comment on Dmitrieva/Liz McCormick on ‘America’s Big Deficits Are Solving a Big Problem for Markets’* and on Paul Jay (host) on ‘Modern Monetary Theory ― A Debate Between Randall Wray and Gerald Epstein’**

Dmitrieva and Liz McCormick explain: “At home, the economy’s expansion is about to set records for longevity ― a reminder that it won’t last forever. When that kind of foreboding takes hold, it translates into demand for safe assets. And Trump is supplying them ― at a pace of about $1 trillion a year, matching the projected shortfalls in the U.S. budget.”

How can it be that the free market economy has problems and needs the State to solve them? Isn’t the free market economy the best problem solver humanity has ever invented?

To begin with, what is the “big problem for markets” that President Trump’s deficits are supposed to solve?

For an answer, one needs some elementary macroeconomics. The process of deficit spending and safe-asset issuance goes schematically as follows:

(i) The initial economic configuration is the elementary production-consumption economy. The initial state is characterized by budget-balancing of the household sector C=Yw, i.e. consumption expenditures C are equal to wage income Yw, and zero profit of the business sector Q=C−Yw=0.

(ii) The government deficit-spends. Deficit D is defined as public spending G minus taxes T in a given period, i.e. D=(G−T). Deficit spending on current production causes a one-off price hike (NO inflation) and the business sector ends up with macroeconomic profit Q=(G−T). With deficit spending, the government creates a free lunch for the Oligarchy.

(iii) The business sector fully distributes profit. The distributed profit Yd goes to the Oligarchy and takes initially the form of deposits at the central bank. The CB’s balance sheet shows government overdrafts on the asset side and the Oligarchy’s deposits on the liability side. Both sides are equal to the penny. Deposits at the CB are money.

(iv) The interest rates on both sides of the CB’s balance sheet are for a starter set to zero.

(v) If government deficit spending continues period after period deposits grow continuously. Since deposits bear no interest the Oligarchy’s desire for a safe investment opportunity becomes more urgent over time.

(vi) Now, the government consolidates its overdrafts at the CB by selling interest-bearing bonds. The bonds are bought by the Oligarchy and paid for with the deposits. The CB’s balance sheet shrinks again. The Oligarchy’s portfolio consists of bonds and money. After issuance, the bonds are traded on the secondary market which grows continuously.

(vii) In order to pay the interest on bonds, the government taxes the household sector and hands the money over to the bondholders, i.e. the Oligarchy. The disposable income of the taxpayers decreases and that of the bondholders increases. The IRS makes sure that the Oligarchy gets their interest on time and in full. This is the beauty of a safe asset.

(viii) The income redistribution from WeThePeople to the Oligarchy goes on as long as the public debt is rolled over.

So, the policy of permanent deficit-spending/money-creation entails some real benefits for the Oligarchy, i.e. (i) a free lunch because of Public Deficit = Private Profit,#1 (ii) a permanent safe interest income on a growing public debt which takes the form of safe assets = government bonds, (iii) a liquid secondary bond market.

See part 2

AXEC / E.K-H said...

Part 2

All this works fine: “As and when the U.S. Treasury market explodes due to more issuance, you’ll be seeing a lot of investors simply dashing for safety and buying that debt,’’ said Milligan at Aberdeen Standard. “Supply often creates its own demand in the bond market,’’ he said. “It’s a peculiar phenomenon.”

Very peculiar, indeed. The State sees to it that the Oligarchy gets a free lunch by deficit spending and then offers government bonds as safe asset which produces a safe interest income courtesy of the IRS. In the limiting case, it holds Private Financial Wealth = Public Debt.

Roughly speaking: The continuous creation of financial wealth and the supply of safe interest-bearing assets is, in the so-called free market economy, the first and foremost economic task of the State. In other words, the Oligarchy is on full life support of the State.

From this follows politically that MMTers are NOT the benefactors of WeThePeople but the useful idiots of the Oligarchy.

Egmont Kakarot-Handtke

* Bloomberg

** The real news network

#1 The complete macroeconomic Profit Law is given by Q=Yd+(I−S)+(G−T)+(X−M).

Kaivey said...

'How can it be that the free market economy has problems and needs the State to solve them? Isn’t the free market economy the best problem solver humanity has ever invented?"

I worked that one out, Egmont, Karl Marx was right, free market capitalism forces wages down too much which drives down demand. This is why MMT can work, it only builds on society's under capacity , that the free market produces, bringing the market up to full potential.

In that way, government and free market work with each other. The mixed economy, what we said was best all along. Don't believe me, then easy are the Chinese wiping us out?

Kaivey said...

You know those equations aren't advanced enough, they can't take in human emotions and feelings.

Kaivey said...

Amazon is super efficient and probably worked mathematically as your say, but if Amazon run the whole economy no one would have enough money to buy the stuff they sell. The minimum wage helps a bit - but that's government intervention.

AXEC / E.K-H said...


You say: “I worked that one out, Egmont, Karl Marx was right, free market capitalism forces wages down too much which drives down demand.”

Marx was a sociologist and political agenda pusher. He had no idea how the economy works and what profit is. It seems that you have not realized this.#1, #2, #3

Egmont Kakarot-Handtke

#1 Dear idiots, Marx got profit and exploitation wrong

#2 Here is the long overdue scientific death certificate for Marx and Marxists

#3 Profit for Marxists