Continuing with the gift of podcast ideas, which I started yesterday with a link to a podcast of Steve Keen talking with Michael Hudson on the Debunking Economics podcast, here is another podcast to which you might not yet be listening but which you might consider adding to your lineup: Macro & Cheese, hosted by Steve Grumbine.
Recently, Steve did two back-to-back episodes featuring Warren Mosler, a successful investment manager whose understanding of how banking works became the paradigm known today as MMT, or "Modern Monetary Theory" (episodes 90 and 91, embedded above and below the text of this post).
Warren Mosler is always worth listening to, but these two interviews are particularly important, because Steve asks Warren to enumerate the contributions MMT has made to our understanding of how the world actually works, and in the process, we get some of the clearest explanations of how "movement of money" actually takes place, and why taxation necessarily creates unemployment.
Understanding these concepts is critical to preventing the seizure of a nation's natural resources by oligarchs through austerity and privatization, and to preventing the wasting of the gifts and talents given to men and women through the scourge of unemployment and underemployment.
In discussing the first paradigm-shifting contribution of MMT, which Warren Mosler identifies as the "the sequencing idea" (introduced at 0:04:49 in the first of the two interviews, which is episode 90), Warren introduces a terrific metaphor in this interview, one which I personally have not heard him use previously.
By "the sequencing question," he means the question of the "sequence of spending" -- does the government of a nation first tax the people, in order for that government to be able to spend, or does the government spend first in order for the people to be able to have currency, some of which is then taxed?
This question is critically important, because proponents of austerity regularly declare that the only way that nations can spend is by taxing their citizens first, in order to get whatever funds they want to spend. We can hear a famous example of Margaret Thatcher making that exact declaration in a video I made in September of this year entitled "Money Creation vs Unemployment and Indebtedness," beginning at 6:00 into the video, in which she proclaims:
One of the great debates of our time is about how much of your money should be spent by the state, and how much you should keep to spend on your family. Let us never forget this fundamental truth: the state has no source of money other than the money people earn themselves! If the state wishes to spend more, it can do so only by borrowing your savings or by taxing you more. And it's no good thinking that someone else will pay: that someone else is you. There is no such thing as public money: there is only taxpayers' money.
Clearly, this position constitutes a powerful argument against any increased government spending on anything, and that is exactly how it is always used. I have made another video (entitled "Austerity and Rent-Seeking vs Public Infrastructure and Prosperity") explaining that certain opponents of government spending have an ulterior motive, which is their desire to privatize the public domain in order to give themselves the ability to impose what amounts to private taxation upon their fellow citizens.
However, as Warren Mosler explains and as he and other MMT researchers have shown beyond any doubt, Margaret Thatcher and those who argue that the government must first tax or borrow "your savings" before it can spend have the "sequencing" exactly backwards!
Warren explains, at 0:06:40 in the interview of episode 90, that -- far from the government needing money from taxes or money from bond purchases in order to spend -- the situation is exactly the opposite:
The money to pay taxes or buy bonds comes from the government or its agents. In other words, the government has to spend first, before the US dollars are there that can be used to pay taxes or to buy bonds.
But where does that money "come from," many will immediately wonder.
It "comes from" changes which are made in balance sheets at banks, which the government authorizes to be made in those account balances based on spending that is authorized by its fiscal authority, which in the United States is a function that is given to Congress to authorize (Congress is given control over fiscal policy in Article 1, Section 8 of the Constitution).
Because money actually originates in balance sheet changes, Warren explains that it actually doesn't "come from" anywhere, in the sense of an object that moves from one place to another:
So if the sequence is: first the government spends -- and technically, they're crediting, for the most part, crediting "reserve accounts" at the Fed, which are like checking accounts at the Fed for all the member banks -- so first they spend by putting money in all the member banks' checking accounts at the Fed, called reserve accounts, OK? And, those balances that they put in member banks' accounts can only go to other member banks. They can transfer them between each other, but they can't, like, jump off the balance sheet and run overseas or something -- there is no such thing. It's just an entry on a spreadsheet. They can only debit one account and credit another. There's no independent existence for these balances. OK, so they spend first: some of those balances are used to pay taxes (so that they would then debit your account). And whatever's left over can be used to buy government bonds, so they sell government bonds. When those get paid for, they shift the money from these "checking accounts" at the Fed to government bond accounts where they're just savings accounts -- time deposits.
OK -- and so the first thing is the sequence: that they spend first and then taxes are paid or bonds are purchased. Well, if that's the case, the whole idea of "where does the money come from" is inapplicable! It's just the Federal Reserve changing the numbers in somebody's bank account, at the Fed -- another bank's bank account at the Fed. That's where the money comes from. It doesn't come from taxing. It doesn't come from borrowing. It doesn't come from anywhere.
In order to illustrate that the money doesn't actually "come from" or "go to" anywhere, Warren brings out a very helpful metaphor about so-called "money flows." Continuing from the passage just cited above, which itself follows immediately after the first quoted passage that begins at 0:06:40 in the interview, Warren says (beginning at 0:08:20):
People visualize money as "flowing," so it moves from this account and goes into that account and goes somewhere else. And the analogy I like to give for money is a television screen. So if you look at your television screen today you saw a tennis match between Nadal and Djokovic, and you saw them running around, and you saw the ball going around. But there was nothing moving on your television screen. If you got up really close to your screen [. . .] what you'd see are little dots going on and off. There is nothing moving on that screen. And if you look at money -- at least in the banking system -- what you see is numbers in accounts going up and numbers going down, but you don't see anything moving in-between accounts. All right? It's just accounting -- it's score-keeping. One score goes up and another score goes down, but there's nothing actually moving.
This is a fantastic analogy, although I think it is even easier to visualize using a video game than a live tennis match, because here (at least in older video games, such as Joust from 1982, which I remember playing quite a lot) you can actually see the pixels which turn from one color to another in order to simulate all the appearance of motion on the screen:
That these subjects relate directly to the world's ancient wisdom may not be immediately obvious at first, although during these interviews Warren Mosler makes quite clear that even though the paradigm which has grown out of his observations has come to be known as "MMT" for "Modern Monetary Theory," all money in ancient civilizations followed the same "sequencing" (which he points out using a story from his visit to the ruins of ancient Pompeii).
However, as the previous post discussing Professor Michael Hudson and his work should make evident, the ancient myths and scriptures -- including those included in the Bible, from first to last -- have as one of their central themes the subject of debt and debt-cancelation, as a protection against oligarchy and against the privatization of the gifts bestowed by heaven upon all the men and women of the land.
And, as Warren Mosler goes on to explain in the interviews cited above, an imbalance between levels of taxation and government spending leads unavoidably to the scourge of unemployment (and its close relative, underemployment), which by its very nature results in the squandering of the gifts and abilities given by the divine realm to men and women, and to a host of concomitant social ills besides.
Indeed, as Michael Hudson's research has shown, the forms of oppression and exploitation and rent-seeking behavior that descended upon western Europe following the dismantling of the world's ancient wisdom during the period of the Roman Empire led directly to the policies which are identified as "neoliberalism" today, which Professor Hudson has said could also be properly labeled "neo-feudalism" (see for instance here and here).
I hope you will take the time to listen to these two important episodes in which Steve Grumbine interviews Warren Mosler, and to think carefully about the implications of the concepts being discussed -- concepts about which, it should be quite clear, we are being kept in ignorance deliberately, by those who (like Margaret Thatcher) want to impose austerity and privation upon the people.
And, if you find that information valuable, consider letting Steve Grumbine know and sending him some encouragement for bringing us these important interviews.
For previous posts referencing the work of Warren Mosler, please see for instance:
