Modern Monetary Theory and the Profit Equation

Published on
March 19th, 2019
56 minutes

Modern Monetary Theory and the Profit Equation

The Interview ·
Featuring Michael Green and Srinivas Thiruvadanthai

Published on: March 19th, 2019 • Duration: 56 minutes

In this timely and high-level conversation, Srinivas Thiruvadanthai, the director of research at the Jerome Levy Forecasting Center, speaks with Michael Green of Thiel Macro to discuss the fiscal and monetary outlook. Thiruvadanthai explains how he uses the economic thinking of Michal Kalecki and Hyman Minsky, as well as modern monetary theory, to forecast corporate profits. He also expounds on why demographic factors are driving inflation down and forcing the Fed to react, with severe consequences for asset prices and wages. Filmed in February 27, 2019 in New York.


  • RM
    Ryan M.
    20 March 2019 @ 01:53
    I'd argue that wage growth is only inflationary if productivity growth isn't keeping pace with it. Increases in aggregate demand aren't inflationary if prices aren't going up. Sure, consumers can draw down savings or borrow to spend and pull that consumption forward, but again, I'd argue that this is not necessarily inflationary. Eventually producers start passing on labor costs through prices, but as Sri mentioned, the pricing power needs to be there. There are some interesting discussions on this in the FOMC transcripts in the late 90's.
    • RM
      Ryan M.
      20 March 2019 @ 13:51
      Article on Bloomberg today with head of research for Bank of Spain, "Researchers said that an increase in unit labor costs isn’t translating into the upward pressure on prices that they had expected in December. Companies appear to be absorbing the increase in labor costs by shrinking profit margins in Spain, a surprising trend that central bankers are also observing across the euro zone, Arce noted." Sorry for spamming, but I thought it was interesting considering the timeliness.
    • MK
      Monty K.
      21 September 2019 @ 05:03
  • DP
    David P.
    20 March 2019 @ 03:58
    Very good interview. It's amazing how many economists directly or implicitly sight demographic issues as the primary issue regarding their battle against disinflation. What few seem to acknowledge, observed in this interview, is that massive asset inflation for those who are "labor rich and asset poor" leads those impacted to rationally opt to have fewer kids, etc. As always, it seems economists are attempting to address issues they are complicit in creating, and with no recognition that they or their predecessors' policies created the issues in the first place. The solution, not painless, is allow assets to deflate.
    • MK
      Monty K.
      21 September 2019 @ 05:01
      or allow the monetary system to inflate.
  • dm
    dude m.
    23 March 2019 @ 23:55
    So, why substituting services for hard goods not stimulate inflation? One household can buy only one dishwasher over a decade, for example. But an ageing couple could, theoretically, purchase healthcare services of a value far exceeding that.
    • MK
      Monty K.
      21 September 2019 @ 04:55
      because services are generally created as a result of hard goods creation. Less hard goods equals less services. In certain sectors this may not be true but in agregate I would argue is does.
  • IP
    IDA P.
    27 March 2019 @ 20:19
    so MMT is what Italy has been doing since 1982 pretty much....
    • MK
      Monty K.
      21 September 2019 @ 04:49
      Not really. I’d argue Italy ran a very bad form of MMT which started when the world moved off the gold standard in 1972. And since they gave their sovereign right to print money away when the Euro was formed, they find themselves trapped. What MMT is trying to demonstrate is that the current method of expanding the money supply (QE) by central banks is an incorrect model. My understanding is that MMT attempts to show that a floating exchange rate coupled with and expanding fiscal deficit could work when the currency/money is pegged to output capacity of goods and services as opposed to whatever the current system is trying to do.
  • DC
    Dan C.
    2 April 2019 @ 20:44
    BIS put a paper out last year saying decreasing demographics are inflationary not deflationary as people think. I’ve been an MMT advocate since 2016 after reading Randall Wrays MMT primer. You can follow Mike Norman too. He’s been an MMT trader for about 20 years. Follow the US daily treasury statements to see Govt spending in action. Current fiscal spending is highest ever which means huge amounts of money being created. As long as their is productive capacity in the economy then inflation will be tamed. Read Wray, Mosler, Mitchell or Kelton for MMT enlightenment 👍
    • MK
      Monty K.
      21 September 2019 @ 04:24
      I wouldn't have thought decreasing demographics would have been deflationary. When you die your wealth stays in the system and is passed on, therefore inflationary i.e. fewer people with more money chasing goods and services.
  • MK
    Monty K.
    21 September 2019 @ 04:14
    Is it possible to get Mosler and Green together and talk through this topic again. It would help tremendously to have them articulate a response to the others view on on certain aspects of MMT. Thanks Monty
    • MK
      Monty K.
      21 September 2019 @ 04:18
      I mean Thiruvadanthai and Mosler together with Green as the conduit for the discussion. It would be facinating. This topic deserves more thorough exploration.
  • VV
    Vanessa V.
    23 March 2019 @ 02:17
    Absolutely brilliant conversation! Thank you gentleman. A question, if I may: My parents-in-law are in their 80s and they definitely skew their purchases to services. However, both comment that because of low interest rates they are not able to afford to buy new goods because they need to preserve their capital in order to cover their basic living expenses. Their desire for goods has actually not decreased - they would remodel their home and replace goods in a heart beat if they were earning enough on their savings. It's their fear of running out of savings before they die that skews their spending away from goods. They are a modern, healthy and outgoing couple. Many of their friends are in the same position. Add to that the fact that if they sell their homes to downsize, they are penalised through taxation. Conversely, my 4 step-children who are all young adults complain that their savings are not earning enough interest for them to catch up on inflated asset prices. They are holding off on purchases in the hope that asset values decrease, and instead spend their excess earnings on travel and services. They have opted out of starting families not by choice but out of necessity. Could it be that no one has the stomach to tolerate the pain necessary to correct the imbalances in the system because perhaps they are overestimating the pain and how long it would take for rebalancing to take place? I wonder what assumptions are being made that might be limiting the thinking on the issues?
    • CR
      Chris R.
      23 March 2019 @ 14:50
      Great discussion—the most important point after all of this is that we are likely heading in the MMT or MMT-like direction—either by choice or by circumstance. The question is after this occurs whether politicians will have the stomach to do what is required to quench inflation when we finally get it—the answer is yes if it means raising taxes on the wealthy and, in my opinion, no if it means raising rates a la the 1970’s and early 1980’s. Reading any fincancial history text will tell you that CB in the late 19th and early 20th century routinely raised rates to maintain currency, and no one gave a damn about unemployment. The evolution of the expectation that governments should provide services and care about employment has made the possibility of raising rates to fight inflation extremely improbable, in my opinion. Especially with the debt loads as they are now...
    • PO
      Phillip O.
      15 August 2019 @ 02:49
      i.e. Ricardian equivalence summed up in one comment by Vanessa.
  • MN
    Maverick N.
    19 March 2019 @ 21:50
    This was great! Mike is a brilliant guy! Is there anything about the markets he doesn't know? Sickening, really. It would be a treat to watch Mike Green and Peter Thiel talk. Raoul/Mike, pls make it happen. Also, a 2nd installment of Mike Green and Chris Cole talking all things volatility.
    • bc
      bo c.
      19 March 2019 @ 23:50
      Agreed - would love to see Mike Green and Peter Thiel!
    • RP
      Raoul P. | Founder
      20 March 2019 @ 00:48
      Clearly, I am working hard on this...!
    • SB
      Stewart B.
      11 May 2019 @ 10:53
      I'd enjoy seeing Mike Green vs Jeff Snider.
  • SB
    Stewart B.
    11 May 2019 @ 10:49
    Fantastic. I think I'll need to watch this again to let some of the more subtle points sink in.
  • SA
    Stephen A.
    1 April 2019 @ 01:03
    An incredible interview. Both guests were incredibly knowledgeable and could explain succinctly very complicated concepts. This interview is one of the best I have seen on this platform. I feel honored to have been able to hear this conversation.
    • IP
      IDA P.
      2 April 2019 @ 19:54
      totally agree
  • YU
    Yoni U.
    27 March 2019 @ 17:37
    This was excellent. Mike is top notch. Sri is incredible.
  • RM
    Rob M.
    27 March 2019 @ 16:58
    Excellent. Takes an interviewer of Mike's caliber to facilitate worthwhile dialog with an intellect like Sri. Well done.
  • OD
    Orin D.
    27 March 2019 @ 07:38
    phenomenal interview
  • PJ
    Peter J.
    26 March 2019 @ 14:05
    Excellent. Covered a lot of ground very quickly (for me). Going to have to re-watch at least once or twice to get the whole picture.
  • NC
    N C.
    23 March 2019 @ 14:59
    Wonderful interview. I would appreciate it if Michael Green would allow his guest speakers to, well, speak more. I felt this for a while, and this interview confirmed it. Mr. Thiruvadanthai is saying "right" way more than he should as a guest speaker. He is not there to confirm Mr. Green's viewpoints or knowledge, but rather to give his own insights. Also, the video ends with Mr. Green giving the last comments. Who is the guest speaker here?
    • ND
      Noel D.
      24 March 2019 @ 22:19
      I agree there is truth in what NC says. However, I would like to see an expert view video with Michael Green alone on this topic (forgive me if he has done so and I have forgotten).
  • SS
    S S.
    19 March 2019 @ 12:17
    Someone needs to interview Mike Green, rather than him being the interviewer
    • IO
      Igor O.
      19 March 2019 @ 19:09
      There is one. Raoul Pal and Michael Green.. two years ago. Let's have an update!
    • AL
      Albert L.
      24 March 2019 @ 17:53
      More Prof Plum, please!
  • DF
    Dominic F.
    24 March 2019 @ 10:40
    I think Trump and Fed have an agreement. 1. Trump gets his Wall (why he is obsessed with it) 2. Controls immigration 3. Wages rise 4. Inflation 5. Fed allowed/required to Raise rates
  • CS
    Christopher S.
    23 March 2019 @ 19:57
    That was awesome! I requested under a previous video for a discussion on the investment implications of MMT and this was a wonderful start to that...
  • GL
    Gavin L.
    23 March 2019 @ 09:50
    As usual a great interview - really enjoy Michael Greens interview style and the intelligent questions he puts to the interviewees - more please
  • MT
    Mark T.
    22 March 2019 @ 17:35
    Mike asks "How do you escape the balance sheet expansion situation" several times. Starting around minute 17. The answer (in the form of a non-answer was the same every time "balance sheets continue to expand" presumably until an unspecified bad event happens. Ouch. Timing is the only unresolved issue as a recurring theme across many real vision interviews. It will take a long long time to run through the wealth of the US.
  • LI
    Lorrie I.
    22 March 2019 @ 10:05
    Don’t comment ever but a big thumb up for this piece. Extremely educational as well as objective! Truly outstanding content. One of the best on RV.
  • DC
    Dan C.
    22 March 2019 @ 06:57
    Whew - I'm going to have to watch this one a couple times - at 1x speed. I'd like to think I understand economics to a fair degree but there was so much subtext I'm sure I missed plenty. Can't get this anywhere else but RealVision. Beats the hell out of CNBUYBUYBUY. Measured against this interview it shows what junk is out there for financial media.
  • NR
    Nelson R.
    21 March 2019 @ 01:52
    It requires watching multiple Mike Green interviews to understand the sheer magnitude of how much knowledge is inside Mike Green’s head.
  • gg
    georgy g.
    20 March 2019 @ 23:31
    Mike I do not understand why CPI as defined today is in any way a good measure of inflation? Seems like the key parameter that is not well defined
  • SK
    Soobin K.
    20 March 2019 @ 21:34
    Excellent - Levy approach explained super clearly & excellent interviewer
  • DS
    David S.
    19 March 2019 @ 22:09
    Excellent interview as expected. The Fed does drive the financial markets. IMO the Fed can destroy an economy but cannot really save a high-debt economy. Great discussion on macro issues, but I believe the world economies are too complex for a coherent picture and creditable policy options. I am all in favor of these complex analyses, but we need more. This leaves me with trying options with feedback loops to help course corrections. I am sure we will print more money. I would like these funds over the next ten years go into infrastructure that is sorely needed in the US. This follows Mr. Koo’s strategy for reducing corporate and private debt. Infrastructure will also help a lot of unemployed laborers to rejoin the labor force – helping household incomes. When money gets into the hands of the less well off, they spend it. The internet and robots will help keep inflation down. DLS
    • CB
      C B.
      20 March 2019 @ 03:49
      Sometimes it seems as though everyone is always talking about growth. “We need more growth!”, they’ll say. What if the ultimate contrarian view is that the future is not larger, that it does not grow exponentially, that it isn’t about accelerating consumption. Surely capitalism can still deliver prosperity in that environment. It would just need a different money system to support it, one that does not require exponential growth for stable operation.
    • DS
      David S.
      20 March 2019 @ 18:12
      C. B. – Good question. We are not looking for exponential growth, but you are correct that some level of growth is a base case in most of our thinking. Assumptions need to be questioned. Maybe RVTV could research the topic for a presentation. The benefits of growth may vary by population growth rate. Raoul has discussed GDP per person as an alternative growth metric. DLS
  • PG
    Philippe G.
    20 March 2019 @ 17:12
    Great conversation!
  • TH
    Truman H.
    20 March 2019 @ 17:10
    "Capitalism is about [making] stuff" but seniors are demanding services. In aging economies that impedes wealth creation. Brilliant & succinct -- just the sort of "stuff" I hoped I was buying with my subscription to RV.
  • VP
    Vijay P.
    20 March 2019 @ 16:36
    Excellent interview. Much kudos.
  • GH
    Gary H.
    20 March 2019 @ 14:07
    Almost didn't watch this. Glad I took the time. Excellent discussion on where we are in the current environment and possible solutions, Michael Green is very good as an interviewer
  • VS
    Valeriy S.
    19 March 2019 @ 09:20
    Wow! I follow these extremely smart guys on Twitter. I really wanted to watch them on RV! THANK YOU!
    • LP
      Lynn P.
      19 March 2019 @ 20:46
      What is their Twitter name? I'd like to follow them as well
    • JS
      John S.
      19 March 2019 @ 22:15
      @profplum99 ‏
    • VS
      Valeriy S.
      20 March 2019 @ 08:50
      and @teasri
  • CG
    Colin G.
    20 March 2019 @ 08:48
    Stunningly good. Thank you Michael and Srinivas.. Looking forward to the encore.
  • BM
    Beat M.
    20 March 2019 @ 07:23
    The term “negativ growth” says a lot about the subject, there will be growth, nothing else but growth, everything else is heresy.
  • JK
    John K.
    20 March 2019 @ 00:39
    Please poet Michael’s Twitter handle. Thanks
    • BM
      Beat M.
      20 March 2019 @ 07:10
      oh, in times dark as a moonless night, I shall give you light! @profplum99
  • BP
    Byron P.
    20 March 2019 @ 05:18
    what about the supply side of inflation and the cost of money if the bond market turns over like in the 70s? Everyone always focuses on the demand side....
  • VS
    Victor S. | Contributor
    19 March 2019 @ 20:56
    I Enjoy this kind of discussion (and Michael your a deep intellectual) but gents your base is not “blocking and tackling “ . Your thinking is not aimed at the political system, save a brief mention of China . The US has created a middle class of serfs. Liberty is virtually gone❗️A challenge: in five mins name 3 things you can do without govt permission,licenses, or that is not regulated? The CPI is 3.12% a year since 1913. Inflation is a function of who gets the money. Since QE -only investors get the money ,who invest it not spend it in general ,thereby low inflation. The republic is lost. Prepare for the worst. Sadly ‼️
    • DS
      David S.
      19 March 2019 @ 23:39
      Victor S. - I am also preparing for trouble ahead, but our republic is not lost yet. Policy needs to be promulgated to re-establish a strong productive middle class and eliminate the idea of a free lunch at all levels. All societies have the wealthy. It is the ability of the middle class to improve productivity that made the US strong after WWII. This ability is markedly changed by the internet. and robots. The question is how can we make the middle class more productive each year without a long-term free lunch? Infrastructure, which is necessary, and improving all education – especially retraining. The retraining must lead to a job, not just to be used as another form of unemployment. In Congress, it will take the middle left and the middle right to enact legislation like President Reagan’s tenure. Social issues were advanced, but restrictions were put in place from the beginning. Sorry for the soapbox. DLS
    • DP
      David P.
      20 March 2019 @ 04:07
      Well put. I did enjoy the interview, but have to acknowledge that the topic of inflation was tilted towards those who own capital - the potentially bad impact of wage inflation (BTW, wages / GDP is at about 70 year lows)… I'm about as far from a Marxist as there is, but there is a reason (as Jeff Gundlach cited in his interview here) an overwhelming majority of Americans support an asset tax. I'm convinced the root of the immigration question lies much less in left / right political idealism and more in a recognition that the country in the long term needs more debt serfs...
  • RP
    Ryan P.
    20 March 2019 @ 01:52
    Why is Mike Green so good ?
  • LS
    Lincoln S.
    20 March 2019 @ 01:25
    Great interview! Funny how in the end, the only conclusion from two incredible intellectuals is that nobody has any clue what is going to happen next, inflation, deflation, etc. :D Nobody has any clue what is happening in the world. All you can do is buy low, sell high, and try to hang on!
  • DF
    Dominic F.
    19 March 2019 @ 21:51
    Very interesting discussion by both parties. Thank you. However, I have a theory.... As humans perceive that they become 'smarter' we seem to have become bored. So we try to devise ways to 'Solve Problems' by COMPLICATING life. Even where there is no problem, our need to solve things using the mind, which is also the ego, becomes greater. Just like the way the Financial System has become more and more sophisticated by very smart people this sophistication is not helping the system at all, it is actually making more problems. So these smart people have to devise more ways to 'solve' a problem that was never there, or at least was not as large as it is now. We see this with sporting bodies constantly changing the rules, using technology to complicate the game. It seems we must keep inventing sophisticated financial products to hide the fact that we are greedy. If we just simplify things instead of complicating them the human race will be far better off :-)
    • DS
      David S.
      19 March 2019 @ 22:43
      Dominic F. - I agree, but I also believe that we need both and additional. It is an essential step, however, to build in feedback loops to see what is working. IMO the major problems now are caused by the Congress looking for any theory that supports their positions, i.e. campaign donors. Without feedback loops we are at the mercy of lobbyist. DLS
  • JH
    Jesse H.
    19 March 2019 @ 22:13
    As cliche as this may sound, I have seen hundreds of RV interviews and this is right up there with THE BEST OF THE BEST. I strongly second the assertion put forward by others - Mike Green is SUPER smart and my brain has to really work hard to keep up with him. Unbelievable brain training. Lol. Fantastic job by Sri as well - don’t want to take anything away from his great and key discussion points / responses here. But Mike Green - holy cow!!
  • KR
    Kieran R.
    19 March 2019 @ 21:06
    Great interview. Mike Green is amazing. Is there anything the guy doesn't know? We need someone to interview him again. Been too long
  • SI
    Sundar I.
    19 March 2019 @ 13:52
    This was one of the key point in the thesis of Balance-sheet recession by Richard Koo (Also an excellent interview by Grant Williams). who runs the balance sheet and why the order matters. excellent interview.
    • HJ
      Harry J.
      19 March 2019 @ 17:54
      Good luck trying to find someone able to ask challenging questions and keep up with him. Maybe Grant or Kyle Bass. It would be great to see. No doubt we would learn a ton. If we can follow what they say.
    • DS
      David S.
      19 March 2019 @ 20:32
      I like the Interview with Mr. Koo also. Grant did an excellent job of presenting Mr. Koo's base case - balance sheet recession. I feel Mike Green has the background to expand Mr. Koo's base case best in a new interview. DLS
  • HJ
    Harry J.
    19 March 2019 @ 18:46
    Absolutely outstanding.
  • RM
    Ryan M.
    19 March 2019 @ 17:58
    Seriously, Mike Green has become the best interviewer on Real Vision. Give this guy a stake in the business! Good god!!
  • JC
    Juan C.
    19 March 2019 @ 16:30
    Great interviewer.
  • SF
    Simon F.
    19 March 2019 @ 11:15
    Blimey, I go from the Josh Wolf conversation straight to this and my mind is well and truly boggled. Sri's exceptional clarity and rigour combined with Michael's equal ability to forensicaly sort the wheat from the chaff allows - me at least! - to appreciate stuff way above my pay grade and thereby inform my own understanding of the things that drive our world economies.
  • VK
    Viresh K.
    19 March 2019 @ 10:20
    Two of the best.
    • VK
      Viresh K.
      19 March 2019 @ 11:04
      Just a comment on Sri’s discussion re: how war enables the closing off private b/s while the government takes over enabling them to repair themselves. Realistically, isn’t this what happens in downturns/ recessions? This is when most of the deleveraging that occurred in the US took place. The private sector closed off, as risk sentiment was low. The government took over. However if you try and do this during a boom period, and especially a long book period, you’re risking the flaring up of risk sentiment, causing both the private sector and the government sector to expand their b/s.
  • MP
    Matthew P.
    19 March 2019 @ 10:05
    Mike green is so smart and awesome