Theory vs. Practice: The Father of MMT on Policy, Profits, and Politics

Published on
June 14th, 2019
Duration
57 minutes

Theory vs. Practice: The Father of MMT on Policy, Profits, and Politics

The Interview ·
Featuring Warren Mosler

Published on: June 14th, 2019 • Duration: 57 minutes

Modern Monetary Theory has become a hot topic of discussion. But is it well understood? In this interview with Real Vision’s Ed Harrison, Warren Mosler, the founder of MMT, describes exactly what Modern Monetary Theory is, and how the framework can be utilized. Particularly interesting is Mosler’s ambivalence about the political furor enveloping MMT. He sees the economic framework as more descriptive of monetary operations than prescriptive of policy. Mosler also outlines why MMT’s operational bent made it attractive to finance professionals long before it became a politically-charged debate among academic economists and politicians. Filmed on May 29, 2019 in New York.

Comments

Transcript

  • DS
    David S.
    16 June 2019 @ 00:57
    At least we know how to invest with inflation that will be caused by MMT as night follows day. The Japanese example does not work for us. The Japanese are amazing savers and work toward consensus. In the Reagan days the two parties fought daily, but also worked together to help the common good. Social programs were proposed, but the final bill included the strong input of the fiscal conservatives to lessen the abuse of the law. This was middle left and middle right working together some of the time. Of course, they all met in the evening without yelling and screaming at each other. If we in America continue this bipolar, antagonistic current political carnage, we will cannot succeed at governing ourselves. We will fall into a plutocracy of the far left or right depending on which TV network is most successful. Montesquieu believed that a republic relies on the principle of virtue, whereas despotisms rely on fear. Where is virtue today - singly or collectively? DLS
  • JQ
    Joseph Q.
    15 June 2019 @ 23:05
    Should of hit this guy head on. MMT is going to be what the 2020 elections will be about. Where debt matters!! Folks it does. Disappointed in interview.
  • AR
    Alejandro R. | Contributor
    15 June 2019 @ 22:55
    "The ELR offers a job at a fixed money wage (including a benefit package) to any individual ready, willing and able to work, which creates infinitely elastic labour demand at the ELR wage. All ELR employees can engage in a maximum number of hours of work per week (say 35) or less if preferred." "The buffer stock of ELR jobs expands (declines) when private sector activity declines (expands). A smooth transfer of labour between sectors occurs, because ELR workers are paid the minimum wage to avoid upsetting the private sector wage structure" Watts paper: https://drive.google.com/file/d/10Q8WbJvXLShS2qwcqQFPDtWV1i__E6x-/view?usp=sharing Job Guarantee (ELR) workers are paid the Minimum to avoid upsetting the private sector wage structure" Mr. Mosler forgot to mention that in his comments. Must explain why Bernie Sanders went to Walmart to ask for $15/hr. The current Federal Minimum wage is not $15/hr + benefits. It is $7.25/hr plus nothing. How exactly is a bunch of people working at $7.25 going to do anything for inflation? And who (in their right mind) leaves the Guaranteed Healthcare (and wage) from the government for something less secure?
  • CB
    Christopher B.
    15 June 2019 @ 22:02
    So the guy who cam up with MMT was someone who couldn’t hack it as an engineer, had a 2.5 GPA, and used economics as a fallback? I’m not even surprised. We get it, you can change a number in a spreadsheet and magic more money. How does Venezuela or Zimbabwe dig their way out of inflationary spiral? His whole concept is that it works until it doesn’t and we aren’t too sure why it doesn’t.
    • DB
      Daniel B.
      16 June 2019 @ 00:01
      me thinks the problem in Venezuela and Zimbabwe is probably more due to corrupt dictators than anything else ?
  • PW
    Paul W.
    15 June 2019 @ 21:39
    Lot of interesting comments here. I still have a hard time reconciling the claims made by MMT against the historical examples of failure, particularly in Zimbabwe where I had direct economic and humanitarian exposure. I was really disappointed that the interview did not elicit Mosley's theory on what happened there (and in Venezuela and Weimar Germany and...). I will definitely be interested in future interviews on this topic.
  • JS
    John S.
    15 June 2019 @ 20:16
    What a fascinating brilliant guest...but: What if the economy isn't a machine that can be easily controlled via levers of policy as if it were one's home thermostat? What if it is instead it is an incredibly complex system that can't be modeled or expected to behave in a constant state of equilibrium? I think MMT is something we would like to believe (and will eventually try) because it theoretically solves the greatest economic imbalances in human history with minimum pain. And if recent history has taught us anything, its that we fear pain more than death.
  • TS
    Tamara S.
    15 June 2019 @ 18:37
    Really a missed opportunity. A stronger interviewer might have been able to draw better info out of Mosler (David Salem would have been a good choice.) There were lots of theoretical arguments, with no reference to supporting data or evidence. Most of it struck me as sloppy and loosely reasoned. Maybe more time was needed to fill in the gaps. Many of Mosler's ideas made no sense to me, but a few of the more notable ones were: 1. Raise interest rates and you pay more to people with money (i.e., bond holders?). Wrong. Most bonds pay fixed coupon amounts until called or maturity. The payment amounts do not change. The value of the bonds declines, so "people with money" actually suffer a reduction in wealth. 2. Higher interest rates make inflation worse. Wrong. Paul Volker in 1981 is a classic example of raising rates to end an inflationary spike. 3. "I say monetary policy doesn't work." Wrong, at least partly. Volker proved that it can defeat inflation. Monetary policy's ability to defeat deflation or recession is weaker, but probably does have an impact. The interviewer never got an answer to his question about what caused hyper- inflations. He should have asked about the numerical values of fiscal multipliers. I suggest you invite Mosler back to talk with someone who will contest his ideas.
    • DB
      Daniel B.
      15 June 2019 @ 23:59
      1. any new bonds issued under higher interest rates will have a higher yield surely?
  • LP
    Lenny P.
    15 June 2019 @ 17:49
    Why wasn’t the last 10 minutes of the interview used to allow him explain why his version of MMT won’t eventually lead to hyperinflation in the US? The interviewer asked him this type of question at least twice, but he never answered it. He said he could go into it, but never did. This interview is very incomplete as a result. Please post a part 2.
  • lD
    lance D.
    15 June 2019 @ 15:45
    i can not believe just how much i learn from this website - yoy rate of change of my brain is off the charts. str8
  • MS
    Mark S.
    15 June 2019 @ 15:43
    I’m looking forward to the day that Trump comes out in favor of MMT and the GOP twists themselves into knots trying to figure out how to support it.
  • TP
    Timothy P.
    15 June 2019 @ 15:09
    Anyone notice when the "godfather" of MMT was asked how it specifically would work, he went on a long ramble about how Taxation was the "pull" for using currency? Oh really? I guess he forgot about that long period in U.S. history where there was NO INCOME TAX and growth was high. At that moment in the interview, where he dodges the question and starts blustering, I became disgusted. This is the best an academic can offer? "Taxes make money work?". Get out of here with that bald-faced lie. I was hoping the interviewer would press for an answer, but that didn't happen. Ridiculous.
  • AT
    Andrew T.
    15 June 2019 @ 09:25
    The trouble with MMT is political as well as economic. Any economic system has a context so any complete analysis of any economic theory needs to venture into political economy. It is clear that nearly all MMT proponents are left progressives as their main motivation is to analyse the failings of crony capitalism. Nevertheless, it remains the case under fiat, unrestricted credit creation has the potential to improve the productive economy through monetary policy, at least in the short term. It It also likely to be the case that central political control of the printing press by democratic forces (an illusion given the reality of the principal agent problem) will crowd out the more efficient private sector that ultimately drives growth through innovation. (What economists call supply side economics) Eventually MMT does nothing more than delivers a highly centralised and inefficient economic system that will not be far removed from the crony socialism that left progressive MMT supporters refuse to accept as their likely legacy, The trade-offs in economics have never been resolved by resorting to simplistic insights from either the left or right.
  • PB
    Pieter B.
    15 June 2019 @ 07:14
    Thank you Ed & Warren! This was brilliant!
  • SS
    Shanthi S.
    15 June 2019 @ 06:57
    Agree wholeheartedly with many of the critical comments here. I posed this question to Prof. Steven Hail, an MMT proponent from Adelaide, "How will MMT not result in the eventual transfer of all assets from the private to the public sector?" Still waiting on an answer... maybe Mosler can answer. Anyone cheering on MMT is cheering on the wholesale enslavement of humanity. Can you imagine how many guns the MMT police state will need, to force people to continue to use their vile "currency"? Who's going to keep the fruits of their labour in the State managed donation box called negative-interest-rate bank accounts (unless their actual life depends on it)? This is the death of human incentive and the wholesale destruction of human freedom. Bye bye cash, bye bye privacy, bye bye productivity. The only Truth is the State. Ph*k the State. It's the reason for every problem it endeavors to solve. And what he said about price is total BS. Price is sacred. Value is REAL (not a miraculous by-product of central bank hubris). Just because you can build a boat doesn't mean you can price an entire economy. What a (sick) joke. This guy's the reason I've bean stacking beans. Full credit to Ed for the interview. Impossible to dislike the guy. Waiting for the follow up on the "Something else" issue.
    • KS
      Kathleen S.
      15 June 2019 @ 11:21
      Dude Humanity is enslaved --- it is call debt slavery.
    • SS
      Shanthi S.
      15 June 2019 @ 12:27
      Agreed. We’re certainly enslaved already to a great extent. No argument there.
    • PD
      Peter D.
      15 June 2019 @ 14:39
      "How will MMT not result in the eventual transfer of all assets from the private to the public sector?" That was a great question. Shanthi S. understands MMT better than Mosler, its supposed founder.
  • ET
    Eduard T.
    15 June 2019 @ 05:09
    As long as people are still motivated to continue putting in the hours of labour to earn a $USD or accept the $USD as a form of payment for their time, everything is fine - and the govt. can continue running up the national debt (and I view perpetually increasing national debt where the debt is just rolled over indefinitely as an implicit form of MMT). As soon as that is no longer holds true - people stop seeing the "value" of the $USD because the govt has printed too many, then you have a problem. Only question is when does this "breaking" point occur? When does the currency become the next Venezuelan Bolivar, where the quantity simply loses meaning? (we know that Venezuela can add all the 0s it wants - no one even cares any more if the currency has three 0s at the end or six 0s.)
  • BA
    Bruce A.
    15 June 2019 @ 04:02
    Ed did a great job, once again. Love your work Ed.
  • JC
    Jeff C.
    15 June 2019 @ 01:56
    Ed, questions to ask MMTers: 1. He keeps saying the gov't has monopolistic control of the price of its currency, but we live in a world of hundreds of monopolies that create their own currencies that derive their value in relation to each other on the FX markets, so doesn't that override the gov't control of the price (or value) of its own currency. Meaning, he's only right if the world was one gov't and one currency. Only then would it be able to control its value - until a black market currency arose as the people abandoned every cent in excess of the taxes they had to pay. 2. What happens to the bond market in a country that implements MMT? Why would the Treasury have to issue bonds if the gov't can spend its own currency into existence? And if there's no bonds, what would act as the collateral supporting the entire financial system, or provide the "risk-free" rate of safe returns? 3. If the gov't can give everyone a job via a guarantee or through its ability to issue its own currency, why would people have to work at all? Why not just send people money every month, or pay people to dig holes and then fill them back in? Doesn't a job need to be funded by the profits of a productive company that is only kept viable by the support of consumers buying their product or service?
  • GS
    Greg S.
    15 June 2019 @ 00:25
    I can understand why that guy had a 1.8 gpa & failed out of engineering. No one works for the purpose of paying taxes as he says. You can work and not pay taxes at all. Also the government doesn’t set interest rates, only Fed controls short rates. Otherwise yield curves would never invert. Unemployment is not by design due to taxation, it’s entirely a function of the productive capacity of the economy compared to needed labor. Everything about that interview was a waste of time other than reinforcing how dumb MMT is.
    • BM
      Beth M.
      15 June 2019 @ 14:20
      Thank you for your commentary...it saved me from watching this!
  • BP
    Bakulesh P.
    14 June 2019 @ 23:46
    Run fast. Voodoo economics
  • RK
    Robert K.
    14 June 2019 @ 22:55
    Dude is literally dangerous. Intelligent people can have idiotic ideas. What a perfect example. For god's sake study Austrian economics to see the consequences of these restarted ideas.
    • ME
      Michael E.
      15 June 2019 @ 09:03
      Right on.
  • SA
    Shane A.
    14 June 2019 @ 22:36
    So.....the government sets the days wage? The only way the government can contract the money supply is by taxing it? The unemployment rate is subject to change in definition (politically). It kind of sound like a utilitarian approach to fiscal policies. That "something else" that creates Zimbabwe is politics failing the people, like discounting a check and balance of a budget. The moment our politicians are given free rein to inject money to their personal projects without regard is the moment fiscal responsibility is lost. Inflation and supply/demand are real. When our supply of dollars has no demand, they will return.
  • CH
    Charles H.
    14 June 2019 @ 22:13
    This is a really valuable interview, and I thank RealVision for it. It shows the extent to which the thinking behind MMT is utter rubbish. The narrative is entirely state-centric, the concept that money arises out of taxation and the need to provision the state, and that government deficit spending is only relevant as a book-balancing activity. The conclusion is that a government could generate any amount of currency for any amount of government spending, without repercussions. It is absolute rubbish. Deficit spending does matter. The natural end-state of MMT is a worthless currency, all assets in the possession of the state, and a state defaulting on its debt ledger through printing that worthless currency. As Mr Mosler suggests, it is essentially a way to covertly tax away the entire economy. With an annual deficit of US$867 billion soon to be approaching a trillion dollars, and the Fed as the Treasury purchaser on last resort, the US is effectively implementing MMT as a matter of chronic policy. We will soon see the implications of this gentleman’s monetary theory, although Europe and Japan will probably be ahead of the curve. Though he doesn’t seem to realise, Mosler explains the mechanism of the currency crisis, not its solution. Does Mosler honestly believe that he has discovered the theoretical framework for state success, which all other states and currencies throughout history have failed to do?
    • RK
      Robert K.
      14 June 2019 @ 23:06
      Yes this is shocking. On the other hand one can sympathize with his confusion: this guy never had a real value creating job. He has absolute disrespect towards hard working people whose struggle and and sweat ought to be remembered in the value preservation aspect of Money.
    • HK
      H K.
      15 June 2019 @ 10:22
      exactly. dude is a shockingly ardent statist. nobody works "to pay taxes and keep the rest as savings". the handing over of loot is to prevent further violence by the state - the protection racket
  • WM
    Will M.
    14 June 2019 @ 21:17
    I wanted so much to hate this as soon as I heard the title (and only gagged once when Alexandria Ocasio Cortez name was mentioned). However, Warren made some interesting points (interest rates having less impact on housing than perhaps folks might believe) and valid points (about Japan not defaulting like many said was going to happen, and the European debt ratios / non consolidation of debt). He also appears to have a good track record with fixed income investments. It appears to me that a massive expansion of debt is coming, all over the West. Both Europe and the USA will try anything to avoid a recession of any significance which would likely flatten the markets and bust pension funds. So a QE for the people that focusses on infrastructure appears certain. The question for me is one of confidence. At what point will the rest of the world reject the US $ as a reserve currency potentially due to a soar debt. I agree it may not be soon but if it happens dollars will come flooding back either as liquidations or as purchases of US assets. US debt is on an exponent path today. It looks like it will be $30 trillion by 2025 or very much sooner if there is a recession. Adoption of MMT appears to me to just worsen this problem. It just feels like another "its different this time"......
  • MH
    Michael H.
    14 June 2019 @ 20:23
    Edward: lose those shoes!
  • RT
    Rob T.
    14 June 2019 @ 20:16
    The Austrian economist Robert Murphy has taken apart MMT on several occasions and would be a great person to interview in response to Mr. Mosler: https://mises.org/wire/mmt-even-more-dubious-aocs-green-new-deal https://mises.org/library/upside-down-world-mmt
    • JA
      John A.
      15 June 2019 @ 14:59
      There is also a debate between this interviewee, Warren Mosler, and Robert Mosler on YouTube. “Those who don’t know their history are doomed to repeat it; those who do are doomed to watch it happen again”. I’m sure I butchered the quote, but you get the idea. https://youtu.be/cUTLCDBONok
  • JJ
    Joe J.
    14 June 2019 @ 20:01
    Great perspective, although there are some main underlying assumptions I disagree with. Government does not spend first in order to tax. A simple look back in history disproves this. An economy can exist without a government or a federal reserve. How did our economy work and grow without the federal reserve and the printing press or government taxes? As the government grew, it took money from the economy. 2nd assumption is that government is in complete control of the money supply. I would live to hear from MMT proponents explaining how weimar, Zimbabwe, John law's France and every other key printing press hyperinflation episode is different than the fed's printing press. To me this is what happens when you have an industry whose only experience has been falling rates. This is what the end of cycles look like. The longer it lasts, the bigger the whiteout will be.
    • JJ
      Joe J.
      14 June 2019 @ 20:02
      Edit....Government is in complete control of interest rates...not money supply
    • RK
      Robert K.
      14 June 2019 @ 23:12
      Agree. Makes me buy canned food.
    • LP
      Lynn P.
      15 June 2019 @ 00:02
      Historically, it was the abrupt transition to a WWI 'war economy' after the Fed's creation that led to the government "taking money from the economy", which led to the post-WWII transition to a massive Treasury market and 'monetary policy'. Gurley and Shaw (1960) opined that this was a necessary adaptation in order to fund capital investments. The once secret 1952 Federal open market committee ad hoc sub-committee's forecast of the government securities markets is a fascinating read as it correctly forecasts the importance of this market (later extended organically to other capital markets). All this information, and more, for anyone interested in doing a deeper dive into this, is available for FREE (Coursera.com) in Perry Mehrling's course on the Economics of Money and Banking, which is taught in a way consistent with Mosler's understanding of the nuts and bolts of how these markets actually work (literally, the debits and credits).
    • LP
      Lynn P.
      15 June 2019 @ 00:05
      I would love to watch an interview with Perry Mehrling, I believe currently at Boston University, and an expert on 'shadow banking', or modern banking and short-term funding of capital assets, with use of derivatives to lay off risks (but because liquidity is not a free good, as assumed in the Fed's economic models, leave the modern monetary system at risk for crises.
  • FA
    Frank A.
    14 June 2019 @ 19:57
    The US has being doing a form of MMT for a very long time. Instead of just changing the digits in an account we've issued bonds that pay interest that will never be paid without issuing more bonds. Only difference is someone (who he calls people that already have money) are getting paid "digitized interest income". Many of the things Mosler discusses are how the "plumbing" works. We have already been practicing a bastardized form of MMT.
  • jm
    joeri m.
    14 June 2019 @ 19:56
    Interesting interview. There is just one thing I find very strange about MMT. The government is seen as being central of pumping money into the economy. The government spends without taxing first because the fed writes up the accounts and voila, you have money in the economy. But nothing is being said about the private sector creating money. Almost the whole money supply is being created by private banks extending loans. How can you have a theory without acknowledging that our money supply is created by the private banking sector? Does MMT accept this and do they just add the fact that the government also creates money when they do deficit spending? The idea that private banks create the money supply has now (after a long time) been acknowledged by the BoE, the ECB, the Bundesbank and the BIS. Is there any proof that the government actually doesn't collect taxes before it spends or is it just an assumption that MMT makes that seems to work in practice? MMT seems to explain a lot, but endogeneous money theory (like post-keynesian economics) who accept the fact that private banks create the money supply, can explain all the same things and is more scientifically supported in my opinion. Looking forward to feedback.
    • jm
      joeri m.
      14 June 2019 @ 20:04
      When you take into account that banks create the money supply, a lot of MMT seems to fail, here is Culle roche explaining it: "The ability to tax or charge fees is not unique to a government, however. All banks charge a tax on their loans when they charge you an interest rate. This involuntary fee helps to create demand for bank money. Should we now argue that banks, as the primary issuers of money, create demand for money because they charge fees? Of course not. The reason there is demand for bank money is because there is desire to consume/invest in private output denominated in that currency. Most liabilities are issued with some form of involuntary obligation attached to them. The government is not unique in its ability to charge taxes/fees or impose obligations. We should not misconstrue this idea as being unique to government currency. This is related to the MMT view that the government “spends first” and “taxes second”. They have even gone so far as to claim: “it would be impossible to collect dollars from the private sector unless they had first been spent into existence by the public sector” Of course, this point is demonstrably false. I can borrow from a bank and the government can collect taxes without ever having spent a dollar into existence. The government doesn’t need to spend a single dime in order for it to collect a tax on inside bank money."
    • GS
      Gordon S.
      15 June 2019 @ 01:10
      Yes this "spend money first" theory is nonsense. Money flows in circles. Does it matter if it is: spend-tax-spend-tax or if it is tax-spend-tax-spend? It does not. Also, there is no real definition of money, all forms of debt are in some sense money. C.f. my other comments on this video. Also, highly recommended paper: Long Shadows - Collateral Money, Asset Bubbles, and Inflation https://www.cigionline.org/sites/default/files/inet2012marketfocus_long_shadows.pdf (or a summary here on my blog: https://gordonschuecker.com/2018/06/18/the-shadow-of-money/ )
  • JL
    J L.
    14 June 2019 @ 19:36
    off topic: 6 month real vision subscription being offered for 1$ today, my mate just got a promotional email, personally I think everyone should know to assess their options looking forward (yes I paid a premium when prices were said to be rising and was instead dealt a 6 year subscription out to 2024)
  • DS
    David S.
    14 June 2019 @ 19:32
    Mr. Mosler: “But just doing that is not what creates Venezuela or Zimbabwe or Weimar. It's something else.” Mr. Harrison: “What is that something else?” Mr. Mosler like a good magician pointed at another shiny object and did not answer the question. DLS
    • FA
      Frank A.
      14 June 2019 @ 19:40
      Agree, Ed never got back to that question of something else.....
    • RM
      Robert M.
      14 June 2019 @ 21:04
      Hyperinflation also needs an impairment in the supply of goods which was a feature of all of those examples. Venezuela - wrecked their oil sector; Zimbabwe kicked out their white farmers etc; Weimar caused by German high debt which slowed GDP as did war reparations, loss of territory after WW1, French occupation of Ruhr valley in 1923 further shut down German industry.
    • RM
      Robert M.
      14 June 2019 @ 21:14
      Having said that, Peter Bernholz notes it is the printing of government fiscal deficits of >20% GDP which are required for hyperinflation. But James Montier thinks these are a consequence of the above supply shocks, which he sees as primary.
    • KS
      Kathleen S.
      15 June 2019 @ 00:30
      Dude, you need to understand the difference between the US and these three examples -- Apples and Oranges.
  • EL
    Elizabeth L.
    14 June 2019 @ 19:29
    Just read your comment Ed about questions. This is very general question, but core to having a smoothly functioning society. How do we develop a system that allows us to produce what we need, when we need it while keeping everyone involved in the production process, in other words doing their share of the "work" and keep some from running away with the lions share of the "profits"?
  • EL
    Elizabeth L.
    14 June 2019 @ 19:23
    Hello Ed, I found this piece to be really informative and for the first time I think I have heard the true description of Modern Monetary Theory. Thank you Ed, for bringing Warren Mosler on RV. Will have to re-listen to take it in on a deeper level. We will see how it finds or not it's way into the general consciousness and into our daily lives. And get job interviewing, Ed, as always.
  • MC
    Minum C.
    14 June 2019 @ 18:41
    I very much enjoyed this. A unique perspective that I don't share, but I managed to watch the whole interview. What happens if (or when) the general public realizes they don't actually need what the monopolist has? One can reasonably argue this is a low probability event, but it is not a zero probability event. Hence there is a fly in the ointment. I think the boat analogy is flawed. Engineering a boat is (I assume) 100% physics and mathematics. Engineering the world's monetary system is definitely not (enter Taleb quote here). The basic issue I have
    • SS
      Shanthi S.
      15 June 2019 @ 05:03
      It’s only a low probability event if there’s a huge amount military and police enforcement of the system via threats to physical freedom and safety for anyone who attempts to avoid the monetary system. Without the threat of violence, the probability of people avoiding the MMT currency is about as high as probabilities get.
  • DS
    David S.
    14 June 2019 @ 18:40
    All fiat currencies rely on the fiduciary responsibility of the issuer - trust. Does anyone actually believe that Congress is or will be fiduciarily responsible regardless of how the money is accounted for? MMT is a perfect way for politicians to spend, spend, spend, spend. Does anyone believe that Congress needs an additional incentive to spend? Mr. Mosler may be able to make money out of this personally as in the past, but the government spending will go to the sky. (It is already through the roof.) Even in a closed system who would want the currency. Thank you RVTV for helping verify what MMT is. DLS
    • GS
      Gordon S.
      15 June 2019 @ 00:17
      But would you rather trust a banker? In my opinion, it is a choice between a rock and a hard place. MMT explains (though not well through this interview) how also states can create "money" by deficit spending. Why should the money supply only grow on the private side i.e. via bank liability expansion (which could also be interpreted by private sector deficit spending)? Hint: all that matters is the use of proceeds. If bankers create “money” to blow up subprime, the result will be catastrophic. If government creates “money” to fund various unnecessary wars, the result will be catastrophic. However, if bankers or government create “money” to fund useful and profitable projects (plug-in whatever you define as useful and profitable here), then prosperity ensures. Here I use “money” in quotes, as there is no clear definition of what “money” actually is. Bank liabilities and treasuries are - in good times - all fungible with reserves and nowadays even the highest part of the Exter pyramid - stocks, commodities and derivatives - are easily monetised, thus fungible. (I.e. this means that even the stock of incinerating advanced start-ups can be used as rock-solid collateral and “cash equivalent” (wink wink Softbank)).
    • DS
      David S.
      15 June 2019 @ 09:08
      Gordon S, - It is our fault for electing pawns to govern us. Normally in a republic the legislative branch makes the laws and they are enforced by the executive branch. If the legislative branch and the executive branch are being paid off by oligarchs (Yes Dorothy, we have them too.) Then the republic cannot function. It can be changed but that is very difficult especially without term limits. DLS
    • GS
      Gordon S.
      15 June 2019 @ 11:08
      David S. Agree. In the same way, banks are supposed to be regulated to serve the people. But if banks bribe lawmakers, that doesn't help either. Foster accountability is the way to go.
    • DS
      David S.
      16 June 2019 @ 01:06
      Gordon S. - I agree about the banks, but this is a result of poor legislation and poor enforcement. The root cause is a congress and administration who are not governing for a level playing field. It can be changed but it is getting less likely every day. DLS
  • TH
    Timo H.
    14 June 2019 @ 18:31
    To me, there's nothing "modern" in the MMT. The first experiment started quite exactly 100 years ago. It seems that MMT is not necessarily that far from how the finances of the Soviet Union worked. There the state had privileged access to mispriced funds. Initially, the arrangement seemed to be working and there was full employment. However, quite soon it became evident, that the investments of the state were of poor quality and caused the loss of competitiveness. The economy was "zombified". Because the efficiency of the economy degraded, inflation was not a problem for a very long time. Some assets just became unreachable to the common people. The inflation became a problem only, when the rotted structures collapsed AFTER 70 YEARS! We know today for a fact, that cheap money poured into one sector of the economy causes that sector to become inefficient and its role in the economy gets out of proportion. QE caused this to financial sector and MMT will cause the same to the public sector. This kind of development can happen again. The scary part of this is, that it does not result as a rapid collapse of the economy, but as a slow rotting. Has any MMT advocate ever discussed this aspect? Do the MMT folks even acknowledge, that the missing hurdle rate for investments could be a problem?
  • DS
    David S.
    14 June 2019 @ 18:12
    Buy Gold! DLS
  • SA
    Stephen A.
    14 June 2019 @ 18:07
    Earth shattering interview. Amazing!
  • EH
    Edward H. | Real Vision
    14 June 2019 @ 18:02
    Thank you for all the comments thus far. I have a request though: please comment more!! And the reason is simple. We are going to do an Exchange video in a couple of weeks as a bolt-on to this interview. It will have different personalities who understand MMT but have some pushback on it as well. And so the goal at that time is to answer some of the questions you had about THIS video. The comment that MMT "only applies to fiat currency regimes, which are inherently unstable" precipitated my comment here. I think that's a perfectly valid question to pose to our next guests on MMT. For example, it goes to whether having state money at the core of a financial system has some role in creating the ever-recurring crises we have had. And so, I look forward to our panelists' response. More questions like this please. I will make sure we incorporate many of them into the discussion.
    • DS
      David S.
      14 June 2019 @ 19:18
      Great idea. Looking forward to your Exchange video. I expect you may have to have several Exchange videos to get the depth needed. Maybe participants could do a one-page summary of their position which could be added to the transcript. DLS
    • SL
      Seth L.
      14 June 2019 @ 20:04
      If you want to go down the route of financial stability, you MUST have on George Selgin and/or Larry White to give you a historical perspective on the free banking movements/regimes. Adds importance nuance to some of the perceived shortcomings of the gold standard which I'd imagine is a position of MMT proponents. They show that banking regs were actually at play (no branching, etc)..
    • CH
      Charles H.
      14 June 2019 @ 22:38
      Thanks for this series of interviews, Ed.
    • CR
      Chris R.
      16 June 2019 @ 00:16
      Hi Ed, one thing that is never considered in the MMT debate is the the role that the belief that deficits matter plays in maintaining confidence in a fiat regime. That is to say, it is entirely plausible that confidence in a currency may depend in part on the belief that the issuer is committed to maintaining a degree of fiscal responsibility that will preserve the value of that currency. I believe that it is logically unsound to assume that that confidence would remain if the adoption of MMT resulted in the dissolution of the belief that deficits matter. Would be curious to hear thoughts on this—how can you be certain that investor behavior will not change dramatically if the “illusion” that deficits matter is shattered?
  • KV
    Konstantin V.
    14 June 2019 @ 17:57
    Dear all, Let's say I feel like I need more materials to learn about MMT. What would you suggest?
    • EH
      Edward H. | Real Vision
      14 June 2019 @ 18:32
      Here's what Mosler has on is site as "Mandatory Readings" http://moslereconomics.com/mandatory-readings/
    • AR
      Alejandro R. | Contributor
      14 June 2019 @ 18:48
      Martin Watts paper and Thomas Palley Paper: Watts Paper: https://drive.google.com/file/d/10Q8WbJvXLShS2qwcqQFPDtWV1i__E6x-/view?usp=sharing "There is nothing new in MMT’s construction of monetary macroeconomics that warrants the distinct nomenclature of MMT. Moreover, MMT over-simplifies the challenges of attaining non-inflationary full employment by ignoring the dilemmas posed by Phillips curve analysis; the dilemmas associated with maintaining real and financial sector stability; and the dilemmas confronting open economies. Its policy recommendations also rest on over-simplistic analysis that takes little account of political economy difficulties, and its interest rate policy recommendation would likely generate instability. " Palley Paper: https://www.econstor.eu/bitstream/10419/105973/1/imk-wp_109_2013.pdf
    • GS
      Gordon S.
      15 June 2019 @ 01:12
      Watch Kevin Muir's RV interview. It is in my opinion much better than this one to understand MMT (sadly). https://www.realvision.com/tv/shows/interviews/videos/prepping-for-a-market-melt-up
    • je
      james e.
      15 June 2019 @ 20:30
      Read Atlas Shrugged. It's utterly insane to give the Federal Government more money (power) which will crowd out entrepreneurial incentives. This will not end well (as AS book vividly describes).
  • SW
    Scott W.
    14 June 2019 @ 17:52
    Masterful deductive reasoning and mathematically consistent statements matter only in so far as the predicates to those are valid. Mr. Mosler has contestable predicates; these tend to get glossed over and buried by technical economic minutiae. Some objections: He states that one needs government money in order to have savings. Disagree. Savings are an excess of what one produces. I can have my savings in gold, silver, grain, farmland, houses, floor joists... Dollars are the most convenient and fungible vessel FOR NOW and for as long as I accept them as such. He states that government can simply employ the currently unemployed and obtain value. But this is very simplistic - it assumes employment is merely paying a person x$ for y hours of output. But output of what? How is that value determined? Wealth accrues because people produce "things" that others value and are willing to trade their produce for. Is wealth created by having X number of people dig holes and then fill them back in in perpetuity? No. I would never trade my produce for that; wealth is actually destroyed in that manner. Queue Bastiat here as well. He claims that a state somehow spontaneously arises and forces acceptance of monopoly money, rather than evolving from an extant functioning society and economy based upon exchange of real things (gold). He ignores that an accepted currency has value to a society only when certain conditions are met. Stable currency is a more desirable condition than mere barter for a number of reasons well stated elsewhere. But currency is not a precondition for trade or an economy, and a currency does not have value et ipso facto. He executes a sleight of hand by taking as a given that state assets (currency or bond) have value, and as such one can do A, B, C... AOC. Models fall apart when it's not a given.
    • MC
      Minum C.
      14 June 2019 @ 18:34
      Scott, your comment is the best so far in my opinion. Well done!
    • IO
      Igor O.
      14 June 2019 @ 20:04
      I assume it will require banning cash, gold and crypto for that matter in order to work. And it will need a green new deal or whatever to channel guaranteed employment into.
  • SL
    Seth L.
    14 June 2019 @ 17:33
    This was a very good interview. I hope it helps illuminate the failings of MMT as an economic theory. True, it explains how fiat currency regime operate. But that is precisely the problem; it only applies to fiat currency regimes, which are inherently unstable. MMT does not have any wider applicability to monetary regimes or economies as such. Such is its failing as a theory. Furthermore, it incorrectly places the state at the center of economic activity. I don't think it's an accident that Mr. Mosler notes that Marx was misunderstood a couple of times. Really?! Mr. Mosler is no dummy, but I think he (and all MMT proponents) simply misunderstand central planning's place in economics. It's no coincident that all previously existing fiat currency regimes failed. Centralized systems (monetary or fiscal) are unstable systems. I'd expect disciples of Minsky to know better. Perhaps their technocratic desires have blinded them.
  • JB
    Jason B.
    14 June 2019 @ 16:53
    From 2008-2011 the MMT crowd were all saying how China was the best example of and the future of MMT for every country because of their infrastructure spending. When I was a lowly IAR in 2007-2008 and was just waking up during and after the 2008 financial crisis, I started researching MMT back then and became friends with a handful of really outspoken ones in the MMT community who hated Peter Schiff, Austrian School Economics, any form of capitalism, and anyone making a profit at all. Most of the MMTers back then were very hardcore socialists or Marxists. I am sure that they will disavow China as the model implementation of MMTm now that China is having immense problems just like how socialists, including Bernie Sanders, Jeremy Corbyn and Joseph Stiglitz have disavowed Venezuela as the mode for socialism. But, they were indeed praising Venezuela in 2008-2009 under Hugo Chavez. Same types of people. Bernie Sanders' main economic advisor is MMT (Stephanie Kelton). So the socialists see MMT as a means to an end.
    • SW
      Sean W.
      14 June 2019 @ 17:34
      Well said, and this mirrors precisely my observation as well!
  • RM
    Richard M.
    14 June 2019 @ 15:14
    Wow - great interview! Mr Mosler is obviously a very intelligent and sophisticated individual (and seemed like a very enjoyable character!) and explained MMT quite well. I still did not understand all the nuances of it but at least I have some broad based knowledge of the concept now. Still don't think it will work with our economic system or just the general behavior of human beings when presented with "free cash", but it is an interesting theory. [Also, Mr Mosler had a great analysis of the European/Euro situation.] Ed, thanks for bringing this to us and your great questions in trying to flesh this out!
  • KS
    Kathleen S.
    14 June 2019 @ 14:07
    Amazing --- I think you have to change the indoctrination of how you think US govt funds itself and how in reality it actually does. Mosler does a great job of debunking the narrative that governments that create their own money - are required to borrow first and then spend. How can someone lend a govt money in a currency it doesn't have? The government has to spend the money (jobs program, infrastructure spending) or just give it to the banks in reserves to get the money into the system in the first place. This false narrative about money creation has EVERYONE thinking about it the wrong way and it blinds you from seeing how the system really works. People that point to the Weimar Republic as why this can never work, completely miss the point that Germany had to pay reparations denominated in a currency that it didn't control. I agree with Mosler, questions are about fiscal policy and not monetary policy. Venezuela and Zimbabwe both show what can happen when bad fiscal policy is implemented - people should research both these countries and the reasons for their runaway inflation before assuming the same would happen in the US. I would love to see a tax break for labor, or govt guaranteed jobs program - these fiscal policies would put money in the hands of people who would spend it into the real economy and this in hand would stimulate growth.
    • GS
      Gordon S.
      15 June 2019 @ 00:58
      Actually, this segways perfectly well into how non-reserve currency operate. Say a third-world country wants to stabilized itself, by pegging itself to the USD. For that it needs USD. How does it get USD if it doesn’t have any? It sells commodities for USD of course (or to some extent higher order products). This works out pretty well for a reserve-currency. Print USD with a keystroke and receive commodities in exchange. And the good news is that these reserves just sit at the reserve-currencie’s central bank to defend the third world country’s currency and are not floating around the global financial system to bid up asset prices (well except treasuries). What if the country gradually loses reserve currency? Maybe the third world country doesn’t need that many dollars anymore and sells some? More dollars start to circulate. The third-world country also doesn’t need to do that much “zero-velocity-reserve-USD” for commodity swap deals on the margin, i.e. more USD are needed to pay for commodities and the received USD will now be spent, entering circulation. Commodities have been rising for a while, but today copper futures are up 20% on no news. Next day, another 20% up. Now more traders want to get a piece of the action and start to sell treasuries to buy copper futures. Treasuries yield blow up. The Fed intervenes, decides to buy treasuries at a yield of 1%. Cool, now I get even more money for my treasuries than I thought and can buy “more” copper (although quantity-wise only half of what I would have gotten yesterday). Well, one gets the idea. Hyperinflation starts when trust disappears and money starts to chase hard assets. Then printing more will not be a remedee, on the contrary. However, lots of things can happen before that. The reserve currency country goes to war to secure more of that commodity by force, futures’ margins are increased, shaking out leveraged players. Various reserve requirements are increased to prevent banks from playing with hard assets, etc. (Of course gold could be particularly interesting here, especially if a nation finds itself with only “synthetic” gold in its vaults.)
  • KC
    Kirk C.
    14 June 2019 @ 13:58
    The problem with all economic theory is that it is perverted to support government's goal of growing itself at the expense of the freedoms of the governed. Look first to the assumptions used in the various theories. MMT assumes that people will hold their government currency beyond what is required to pay the taxes owed. The loss of in the confidence in the currency happens quickly and the people will hold balances in anything but that currency. Zimbabwe, and Venezuela being the most recent examples.
  • AR
    Alejandro R. | Contributor
    14 June 2019 @ 13:11
    You should have asked Mr. Mosler about where MMT sets the policy rate. His words exactly: "I would make the current zero interest rate policy permanent. This minimizes cost pressures on output, including investment, and thereby helps to stabilize prices." -Warren Mosler This would cause the mother of all asset bubbles. MMT is wholly silent on this glaring hole in their theory.
    • EH
      Edward H. | Real Vision
      14 June 2019 @ 13:27
      It's a fair point. There were a number of nuances I didn't get into that I thought could be important simply because I think an hour is pretty long! One is controlling inflation, where I know Warren has definite views to counter my criticisms. And this is another. The sense I get is that Mosler sees zero rates as a policy starting point, where the control valve would become fiscal policy instead of interest rate policy. And my understanding is that he believes yield spreads between Treasuries and corporates would widen to fully reflect the default risk differentials rather than stoking an asset bubble. I am sceptical. But, if we do get a follow-up, it's a good question to ask.
    • AR
      Alejandro R. | Contributor
      14 June 2019 @ 13:35
      "Banks should not be allowed to accept financial assets as collateral for loans. No public purpose is served by financial leverage." -Warren Mosler Hey, if you get a chance, ask about this one too. Thanks Ed!
  • RP
    Raoul P. | Founder
    14 June 2019 @ 12:57
    Looking forward to the comments section outrage today ;-)
    • RM
      Richard M.
      14 June 2019 @ 15:28
      Mocking thoughtful debate is beneath you! Or perhaps I just haven't had my coffee yet and am not in a civilized mood and don't see the humor in it. Anyway, thank you (and the team) for providing the Real Vision platform to see/hear new ideas and the chance to debate issues in the comments section. RV has a tremendous group of individuals as subscribers and I'm always learning new things from the great discussion that goes on here.
  • EH
    Edward H. | Real Vision
    14 June 2019 @ 12:24
    As the interviewer, let me give you my take. The most interesting part to me that Mosler first developed MMT to make money -- and that he did consistently make money using MMT as a operational framework. For me, that's the first litmus test. It says there are benefits to understanding what he is saying that can either help avoid losses (in bond markets) or make profits (as in his Italian bond trade example. But, just because he made money doesn't mean the framework is perfect (or even good). The second litmus test for me was the European situation, where apparently he and the MMT folks were early in assessing the flaws in the eurozone's design. If you followed that call, you could have made a lot of money. And, personally, I think there is still money to be made there i.e. via a divergence in spreads (in the underlying and in CDS market) depending on the ECB's backstop for specific debtors as the European business cycle turns down. We are already seeing Italy and Greece in trouble. So, as an operational framework, it does a pretty good job - certainly better than the mainstream (New Keynesian) framework has done. The problem I have with MMT is on policy. And while I know Warren says it's not ABOUT policy (for example, notice that he doesn't advocate for the Green New Deal but simply says it's a policy option), that's exactly where the trouble lies for me. That's because, IF MMT became accepted as the framework through which to conduct standard macro fiscal policy, I think inflation would be a problem. I am not at all convinced that you can control it if everyone and is brother steps up to the plate asking for pet projects against which to deficit spend, with the understanding that the government can't ever default. For me, that's where the rubber hits the road. We're not there yet. But, in the next downturn - with monetary policy stopped out - we could be. That's my take. I hope you enjoyed the interview. I certainly did.
    • CD
      Colin D.
      14 June 2019 @ 16:36
      Good interview thanks. I will need to take more time to get my head around the issues and implications. You asked him twice why MMT would not create a Weimar, Zimbabwe or Venezuela and he intimated he was happy to go into this. However to my mind this issue was left unanswered and I would be interested to know what is so different. I also think there are questions to be asked about the cross-border implications of MMT, as it strikes me the monopoly power he mentions is only really effective in a largely or totally closed economy.
    • LP
      Lynn P.
      15 June 2019 @ 02:11
      " apparently he and the MMT folks were early in assessing the flaws in the eurozone's design" Milton Friedman pointed out the potential flaws much earlier.
    • TJ
      Terry J.
      15 June 2019 @ 21:06
      Like man people, I genuinely share your concerns about inflation Ed and that if the MMT genie were ever allowed to escape, there would be no way back. I would love to see you and RV interview Dr Lacy Hunt on tis topic. As an economics history scholar I find him peerless on these subjects. In the latest quarrel economic review from Hoisington Investment Management, he comments on MMT and says, "Harvard Professor Kenneth Rogoff, writing in Project- Syndicate.org (March 4, 2019), states “A number of leading U.S. progressives, who may well be in power after the 2020 elections, advocate using the Fed’s balance sheet as a cash cow to fund expansive new social programs, especially in view of current low inflation and interest rates.” How would MMT be implemented and what would be the economic implications? The process would be something like this: The Treasury would issue zero maturity and zero interest rate liabilities to the Fed, who in turn, would increase the Treasury’s balances at the Federal Reserve Banks. The Treasury, in turn, could spend these deposits directly to pay for programs, personnel, etc. Thus, the Fed, which is part of the government, would be funding its parent with a worthless IOU. In historical cases of money printing, the countries were not the reserve currency of the world, as the U.S. is today. Thus, the entire global system could be destabilized in very short order if this were to occur." Dr. Hunt concludes, "There would be no real increase in services or money since very little time would lapse before people realized increasing inflation was not increasing real purchasing power. If the government responded by issuing more central bank legal tender, the inflationary process would become self-perpetuating, and as was the case in numerous historical instances this would lead to hyper-inflation. Moreover, the central bank would have no capability of reducing the money supply. All they could offer would be the zero maturity, zero interest liabilities of the government, but there would be no buyers. This would mean that hyper-inflation would be difficult to stop." I think Dr Hunt would be the ideal guest to counter some of Warren's arguments and explain to me and other RV subscribers the very serious potential implications of MMT ever being permitted in the US.
    • CR
      Chris R.
      16 June 2019 @ 00:39
      Terry—your comment about people quickly realizing that the additional dollars were not increasing their purchasing power...what policy makers don’t understand is that, like the rapid development of resistance by bacteria that can occur when exposed to an antibiotic, the aggregate of human behavior will respond to a new environmental stimulus in an evolutionary fashion, quickly moving towards an optimal solution in aggregate. In this case, the evolutionary optimal solution will unfortunately be the increasing velocity of money.
  • PD
    Peter D.
    14 June 2019 @ 12:19
    Modern Monetary Theory isn't modern*, has nothing to do with money** and isn't a cogent theory***. * Dates back to Georg Friedrich Knapp's state theory of money a century ago. ** Gold. *** The idea that you can give any group of people a printing press and that they will be able to control their spending defies historical evidence.
    • PD
      Peter D.
      14 June 2019 @ 23:00
      A couple of additional points after a second viewing: 1. The most important implication of MMT is not its theoretical framework, it is the growing (erroneous) realization by politicians, interest groups and the public that they can get "something" (infrastructure will likely be a first test case) for free. After that, it will be a short step to paying out all the entitlement debt using MMT. 2. Mosler's semi-prediction of a coming issuance of euro bonds provided a nice "ah-ha" moment. Time to think through how that will play out. 3. Most important, on the public policy front: because pretty much no one understands how MMT works (sorry maybe 1% of the population), in practice, there will soon be no more effective checks on the growth in government spending. 4. Ed Harrison really hit it out of the park again. The interviewer's credibility makes a huge difference in this type of programming. Someone commented on Ed's shoes. I say if Ed keeps this up, Real Vision should give him any darn shoes he wants.
  • ME
    Michael E.
    14 June 2019 @ 12:07
    MMT would result in inflation and inflation would destroy the currency. MMT is not for reserve currency. If MMT was a magic bullet, how come it hasn’t worked for Japan????
    • EH
      Edward H. | Real Vision
      14 June 2019 @ 12:50
      That's because Japan hasn't used MMT. Every time the Japanese run up deficits, they eventually try to claw them back once they believe the economy has hot escape velocity. They are threatening to try and claw back those deficits even now. See here: https://finance.yahoo.com/news/japan-having-own-heated-debate-130000343.html The real question is what happens if MMT became standard procedure in a major industrialised country - which it has not. And I agree with you; my take is also that inflation would be a problem.
    • DS
      David S.
      14 June 2019 @ 18:21
      Japan may try to claw back deficits, but so far they are not successful. DLS
  • LJ
    Liam J.
    14 June 2019 @ 11:02
    The problem i have with "negative interest rates is a tax on the rich" is that it's simply not because the rich don't have cash they have assets that grow in value simply because of the fact that money loses value. Smart guy but i feel like alot of his arguments are completely flawed and naïve.
  • BJ
    Brian J.
    14 June 2019 @ 09:57
    I think the RBA need to listen to this interview so they understand how shit works
  • PU
    Peter U.
    14 June 2019 @ 09:48
    Wow! I need to watch this again. I am not sure I want to share this, but my immediate thoughts were "master snake oil salesman" and even "antichrist". HOWEVER, I am not sure why these came to me. I really need to try to wrap my head around what he is saying. It goes against all of my prior understanding(s). I have an economics degree, an accounting degree, a masters in finance and this hurt my head.
    • PU
      Peter U.
      14 June 2019 @ 11:46
      Watched it again. . . . . he mixes true and proven economic principles with sham economics in such a smooth way that he is very convincing. Nothing but sham economics/monetary policy.
    • KV
      Konstantin V.
      14 June 2019 @ 17:41
      Hi Peter, could you please elaborate on where you see contradictions/mismatches in his explanations? I do not advocate MMT, but asking rather out of curiosity.
  • BJ
    Brian J.
    14 June 2019 @ 09:25
    This is very interesting, has changed my view on how I see a lot of things in regards to central banks.
  • TE
    Tito E.
    14 June 2019 @ 09:25
    Very enlightening. I need to digest this for a bit..
  • JS
    John S.
    14 June 2019 @ 08:54
    MMT just doesn't pass the smell test for me. Please invite Lacy Hunt to critique. My understanding is that he thinks it's a crock
    • rr
      rlw r.
      14 June 2019 @ 21:59
      ... yes, what John said
    • tr
      tom r.
      15 June 2019 @ 01:37
      Very interesting almost like magic. The question is how long does it work and what happens when it no longer does if ever. Reminds me of the saying "if it looks to good to be true it probably is." A very talented man however. I really enjoyed it as it really makes you stop and think. Maybe it's the new Keynes.