The Podcast of the Lotus Eaters - April 22, 2025


PREVIEW： Brokenomics ｜ MMT Basics


Episode Stats

Length

23 minutes

Words per Minute

170.22157

Word Count

3,977

Sentence Count

36


Summary


Transcript

00:00:00.000 Hello and welcome to Brokernomics. Now in this episode I have been pestered repeatedly by the
00:00:06.380 audience to cover MMT. Not something I was wildly enthusiastic about because I tend to like to talk
00:00:12.840 about things that I like and MMT is not on that list but nevertheless people wanted to hear about
00:00:19.360 it so fine we will dig into that. Because I'm not a proponent of it I did struggle for a while to
00:00:28.500 think okay how am I going to cover this one and I have reached out to an individual who has given
00:00:36.300 me a bit of back and forth on this one which we'll get into later in this episode so there'll be some
00:00:42.660 pushback on my views which will hopefully be helpful. Now let's start off with a little summary
00:00:48.900 of what MMT is in a nutshell. So it's basically MMT is modern monetary theory and it's essential
00:00:58.260 argument is that a sovereign government that issues its own fiat currency such as the US or
00:01:04.800 the UK can never run out of money and it doesn't need taxes, doesn't need borrowing to fund spending
00:01:12.560 instead it can just create the magic money out of thin air to fund you know public programs with
00:01:19.680 inflation being the main constraint as to where you would hold back. So I think in that little summary
00:01:27.840 kind of gives why I'm not attracted to this line of thinking you see I like the schools of economic
00:01:34.420 thinking that are logically consistent to any scale you know for the man on the desert island or space
00:01:40.180 age economy. Now my thinking is based around increasing the levels of productivity and innovation
00:01:46.860 which holds true if you're on that desert island or if you're colonizing Jupiter or whatever it is.
00:01:52.240 With MMT the argument is well you know you can just get yourself out of any bother just by
00:01:58.240 printing money out of thin air. It doesn't scale logically in consistency consistently at every
00:02:05.080 level. It doesn't work for the man on the desert island. If printing money was the solution to your
00:02:10.580 problems well you know in that case why not simply make available the PDFs of the 20 pound notes or the
00:02:17.720 20 dollar note and then everyone can just print them off at home and you know we can all be rich.
00:02:22.520 Obviously that wouldn't work because nobody would be working in the shops or the nobody would be
00:02:27.520 producing anything because what's the point you can just print the money off at home so there's no
00:02:31.360 point turning up to work. And the MMT is will say no no no you've taken it too far. So why doesn't
00:02:36.340 your theory work logically and consistently at any scale? But okay fine. So well let's let's dig into
00:02:44.400 their thinking. Now first thing to do I should I should clarify the types of thinkers who look at
00:02:52.160 this. So the mainstream economists who are not MMTers who are very much a dying breed at this point
00:02:58.720 because basically MMT has seduced the mainstream economists. But the mainstream economists would
00:03:05.380 accuse it of under-esclamating the risk of inflation and promoting you know irresponsible fiscal policy
00:03:11.900 and they argue that inflation can occur well before you get to full in full employment and that central
00:03:19.100 banks not treasury should control demand via interest rates. Like I say they were dying the mainstream
00:03:25.120 economist who is not also an MMT is waning at this point. There's the Austrian sort of free market view
00:03:33.700 which which which I would describe to and and we just see MMT is repackaged justification for central
00:03:40.700 control money printing state expansion. I think it's rife with moral hazards malinvestments
00:03:47.540 crippling innovation misunderstanding human nature reality. So so there is that. But I should also add
00:03:58.700 there is the MMT purist. Now we have to I think we have to start with those guys in a minute because
00:04:05.900 the MMT purist will tell you well no MMT is just a thought exercise it's a logical exercise you're not
00:04:13.380 actually necessarily supposed to apply it in the real world and anytime somebody does apply it in the
00:04:18.160 real world and it goes wrong and it leads to bad results well they can just say well you know the
00:04:22.860 theory is sound but you applied it wrong you didn't do you you you know you you you didn't dismantle
00:04:30.280 the old legacy of the fiat based system before you did it. So they could always argue that any time
00:04:37.520 that it is attempted and quite provably goes wrong they can just say well you know that that wasn't real
00:04:44.760 MMT it was it wasn't pure enough you you you know real MMT has never been tried which is not a line of
00:04:51.600 thinking that I would say that I'm amenable to because well we we've heard that before from
00:04:57.040 central planners haven't we. So a quick note on some you know notable proponents of of MMT
00:05:03.860 Stephanie Kelton she is a former Bernie Sanders advisor and now writes the the deficit myth
00:05:12.520 or author of the deficit myth she's a big proponent of it. There's Bill Mitchell
00:05:18.500 um an Australian economist um you might have seen him crop up on various well if you're into
00:05:24.300 this sort of thing you might see him crop up on various podcasts and kind of stuff you know he
00:05:28.220 strongly supports MMT for you know the job guarantee model that it gives. There's a version of him in
00:05:33.820 the UK Richard J. Murphy um he um he's done lots of videos in support of MMT. Interestingly enough he's
00:05:43.600 somebody I'd like to have a conversation with because we will disagree on absolutely everything
00:05:49.080 um but it would be fun to see if we could find any areas of agreement and if we if we do disagree
00:05:55.780 if we can dig down into into some of it so if anybody knows Richard you know put put the word out
00:06:00.460 I think a chat would be um interesting if not even even if we don't reach full accord uh on all matters
00:06:07.060 um and the main person that I should mention is Warren Mosler so he was he's a hedge fund an
00:06:13.800 American hedge fund manager uh wealthy successful guy and maybe 30 odd years ago he wrote a he wrote
00:06:20.340 a paper on MMT he didn't call it MMT we'll come to that uh he wrote a paper on this thought exercise
00:06:26.800 and within its own framework it is it is logically consistent so we you know we're you know we have to
00:06:34.540 talk about that um yeah so this paper written 30 odd years ago and he called it I believe soft
00:06:40.700 currency economics now let's just sort of take you through the point the key points that he makes
00:06:48.080 in that paper so we're at least starting with a a fair reflection of what the MMT purists would say
00:06:55.760 the theory sells effectively on this so they start off with MMT alone recognizes the US government
00:07:02.940 uh or the UK government and its agents are sole suppliers um of demand for the payment of taxes
00:07:08.760 that currency itself is a public monopoly and that US government levies taxes in US dollars
00:07:17.000 and US dollars to pay those taxes uh could only originate from the government so the government has
00:07:24.520 to sell goods or services or assets so that so the economy has to sell um good services and assets
00:07:30.580 to the US government uh or it will not be able to pay its taxes so so the key the key here is
00:07:37.940 with MMT you create the tax liability and you said to people well you must pay because because we've got
00:07:44.700 monopoly on force we've got the guns so here's a liability you have to pay it then people need to
00:07:50.840 go out and find a way to get that currency okay how are they going to do that well the government is
00:07:56.620 going to inject this money into the economy by buying things therefore putting money into this economy
00:08:03.400 and then at the end of it you collect the taxes so this is fundamentally different from the way that
00:08:09.300 the mainstream economists would think about it which is the the government raises the taxes and then it
00:08:14.540 spends it on things that it likes whereas MMT is no no no you've got to put the tax liability right at
00:08:20.120 the beginning and the tax collection right at the end and then you'll get your functional economy in
00:08:27.980 that bit in the middle where people are like oh no I've got a tax liability how am I going to pay it
00:08:31.800 all the way over here I know I'll do stuff and then what stuff can I do oh I'll do the stuff that
00:08:36.160 government has just printed some money for and I'll do that and then I get the money and then I can pay
00:08:41.180 the taxes yay pretty much the gist of it so according to the white paper the ramifications of this is that
00:08:50.120 the government and its agents you would say from inception they spend first and only then can the
00:08:56.840 taxes be paid so this is and this is the direct contrast with the old mainstream economic models that
00:09:06.660 states that the government must go out and get taxes uh and then spend it um and then issue
00:09:13.280 liabilities for the next year and collect them and spend them and it also recognizes the US government
00:09:18.000 needs to get dollars to spend uh but rather instead it is a driving force that makes the US government's
00:09:26.420 dollars uh viable uh by creating that liability and demanding that you must pay them because otherwise
00:09:32.040 you will well go to jail lose your house you know whatever whatever method that you want to use for
00:09:39.420 um backing up your tax liability demand that you you put out there so I'll read a little bit from
00:09:49.200 the introduction of the white paper to give you a flavor of the kind of things that these people are
00:09:53.920 thinking about in order to um why they felt they need to construct this worldview so uh
00:10:01.900 I quote here um in in the midst of great abundance our leaders promote privation we're told that
00:10:09.200 national health care is unaffordable while hospital beds are empty we are told that we cannot afford to
00:10:15.060 hire more teachers while many teachers are unemployed and we are told that we cannot afford to give away
00:10:20.500 school lunches while surplus food goes to waste for example thousands of young men and women are
00:10:27.520 constricted constricted into the armed forces when were women constricted into the armed forces I don't
00:10:32.300 know but that's what he wrote um the country oh as he uh the country would receive the benefit of a
00:10:37.880 stronger military force however if those new soldiers had have been home builders the nation may then
00:10:44.200 suffer a shortage of new homes the trade-off is basically a reduction in the welfare of the nation
00:10:50.640 uh if the U.S. decides that it puts more value on building homes than it does bombing wherever it is
00:10:57.640 it wants to bomb this week um however if the new military manpower comes not from people who are
00:11:05.780 building houses but from individuals who are unemployed well there's no trade-off now you've
00:11:11.260 just received uh you know net benefits the cost of conscripting home builders for military service is high
00:11:17.360 the real cost of employing the unemployed is negligible so you can see the focus here it's all about okay
00:11:24.000 well look we've got these unemployed people no economic system that I'm aware of has ever achieved
00:11:28.920 full employment maybe slavery did um no economic system has achieved un uh full employment uh we want
00:11:37.960 full employment because that's what we consider to be the key metric here not like me who thinks
00:11:43.780 productivity and innovation are the key metrics but they think full employment is the key metrics
00:11:48.740 um well why don't you just go out and employ the unemployed seems simple really doesn't it the
00:11:54.280 idea that people can improve their lives by depriving them of surplus goods and services contradicts both
00:11:59.960 common sense and any respectable economic theory so I guess I'm doing an unrespectable economic
00:12:05.320 theory then um when there were white when there is widespread unemployment resources as there are today
00:12:12.360 in the United States trade-off costs are often minimal yet these are mistakenly thought of as
00:12:18.000 unaffordable the deficit doves and deficit hawks who debate the consequences of fiscal policy both accept
00:12:25.160 traditional perspectives of federal borrowing both sides argue that to accept the premise of the federal
00:12:31.880 government borrows money to fund expenditure they only differ in their analysis of the deficit's effect
00:12:38.800 it is believed that federal deficits undermine the financial integrity of the nation
00:12:45.160 policy makers have been grossly uh misled by an obsolete monetary understanding consequently we face
00:12:52.120 economic underperformance now at this point I should probably get into the um the buckaroo
00:12:58.800 experiment so um you know the theory sales would say okay yes yes you know you know don't don't
00:13:05.380 blame us when MMT goes wrong in real life because um you know it is a thought experiment it is a
00:13:11.640 logical exercise but nevertheless they did come up with a real world application that fitted the
00:13:19.580 function of what MMT was trying to achieve quite neatly and quite efficiently and they often hold this
00:13:25.260 up as their prime example of look MMT can work so the example is um some you know I forget which
00:13:31.300 university some university they're convinced to do this MMT based experiment and they've been running
00:13:37.260 it for uh maybe 25 years at this point something like that I mean the original paper is a good 30
00:13:43.360 years old um so this this buckaroo experiment so so what's the buckaroo experiment so basically what
00:13:48.060 you do is you is you go to a university and you um remember how they say you've got to create the
00:13:54.680 liability first and the tax collection at the end and then the stuff that happens in the middle
00:14:00.340 that's when you inject the money and the whole thing works so what's the buckaroo experiment well
00:14:03.920 it's you go to these students and you say you have a liability um at the at the end of this semester
00:14:11.080 or a term or whatever end of this year at the end of this academic year you have to turn in a hundred
00:14:16.880 buckaroos and if you do not hand in a hundred buckaroos well you won't get your um you won't get
00:14:24.240 your grades so the university has real taxing power here it has it has a taxing monopoly because
00:14:32.660 you know it's a credible threat you know you want your grades I mean otherwise you wouldn't be there
00:14:36.940 and you know if you don't pay in your hundred buckaroos well what are you going to do so you
00:14:41.540 so it creates a a genuine and viable need to go out and get these buckaroos how do you earn a
00:14:48.240 buckaroo well you earn a buckaroo by spending an hour of work in a nominated institution so you know
00:14:57.680 they list a whole bunch of non-profits um and the local hospital and things like that so you do an
00:15:04.600 hour of work down the local hospital and you are issued a buckaroo do that a hundred times and you
00:15:11.000 know there you go you've got your was it was it 10 times something like that you it might have been
00:15:15.020 10 times so you you you collect your 10 buckaroos you pay them in uh before the end of the academic
00:15:21.800 year and therefore you become eligible for your grades so um in order to you know so they created
00:15:30.060 the liability collection comes at the end and in the meantime they are going to inject these buckaroos by
00:15:34.800 buying uh the government in this case the university by buying services off the unemployed
00:15:41.960 unemployed scroungy students uh in exchange for turning them from unemployed people to people
00:15:47.880 who are doing something which they would say is useful in one of these hospitals now um already we're
00:15:55.700 starting to to deviate somewhat from from my world view on this because you know they would say well
00:16:01.160 look um a hospital is a useful place okay uh i don't argue with that if you are um if you have some
00:16:09.920 malady or you know you're giving birth or you know whatever it is um hospitals are genuinely useful
00:16:15.940 um places for that sort of thing and i can well imagine that if you're running a hospital
00:16:21.320 and one student comes and knocks on the door and says and and and the setup with this is that they'd
00:16:26.960 never turn anyone away so people turned up to do an hour of work they would always accept them
00:16:32.240 so let's say one student turns up at this hospital and says i'm here to do uh whatever four hours of
00:16:40.000 of work in exchange for four buckaroos i don't doubt that it's quite straightforward to find something
00:16:48.940 for that able-bodied youngster to do um when there's one of them you know you you can find somebody who's
00:16:57.120 doing something who's shifting boxes around or mopping something or whatever it is and you can
00:17:02.320 say look just go and help that person now even if even if it's nothing more than going changing the
00:17:06.640 mop water every now and again or or just being an extra pair of hands moving some boxes of surgical
00:17:12.100 gloves around or whatever uh what what what happens if if if half the university were to turn up at the
00:17:19.280 same hour what if what if 2 000 students were to turn up at 9 a.m on saturday morning at this at this
00:17:26.660 hospital can you have you got useful work for them to be doing well the the mnt um purists don't
00:17:33.280 consider that the the idea of the work being useful or productive or in it in any way is is is outside
00:17:40.360 the scope of this the the sheer fact that people um are unemployed and they could be employed on
00:17:46.120 something assumes that that adds value now let's say that this this hospital employees to say let's say
00:17:52.240 it's a small hospital and it employs 200 people if 2 000 extra students turn up one morning
00:17:59.140 does that make the hospital 10 times more productive you know is is somebody who was going to be in a
00:18:06.020 coma for 10 days now going to be in their coma for one day um is a pregnant woman going to deliver in
00:18:11.300 0.9 months instead of nine months you know i don't think so the the assumption is that is that you can just
00:18:18.020 add a unit of labor to a thing um and then that thing becomes more productive but anyway okay so
00:18:28.660 anyway this this buckaroo experiment um like i say it's run for 25 years um the other interesting thing
00:18:35.480 you find is that the buckaroos themselves become tradable as you as you'd expect actually so when
00:18:42.040 they started the experiment people would work extra hours and earn extra buckaroos more than they
00:18:47.580 needed and then they would trade them and they started off trading them for five dollars per buckaroo
00:18:52.200 so some people were happy to work and earn and other people were like yeah no i'm not doing that i'll
00:18:58.420 just i'll just buy the buckaroos off a fellow student um and so what that did is it and they ended up
00:19:05.860 with a with a tax liability of whatever it was let's say it was a thousand buckaroos across
00:19:11.040 10 students or you know 100 students they actually issued um something like 1200 buckaroos
00:19:18.660 so effectively they had a deficit of 200 buckaroos so the mmt is look at that and say well look we
00:19:24.920 generated money out of nothing we ran a deficit of 200 buckaroos um what's not to like i mean
00:19:32.500 everything worked you know the taxes were paid uh work was done unemployment was pushed down
00:19:39.820 you know in the purest mmt world well the whole experiment has just worked wonderfully um and then
00:19:47.580 as time rolls on um i think like i said this has been going for 25 years at this point a buckaroo is
00:19:52.720 now trading at 25 dollars per buckaroo and they would say well look you see there's been no inflation
00:19:59.540 because one buckaroo is the reward for one hour of work and that has remained consistent for 25 years
00:20:07.760 there has been no inflation well yes there might have been inflation of the dollar during that period
00:20:13.840 uh because you know one buckaroo used to be worth five and now it's worth 25 but um you know that's um
00:20:20.880 you know that that's not within the buckaroo system that that's just the dollar inflating over there
00:20:25.740 so uh hopefully that gives us an idea of what the uh the purists are are arguing in their point and
00:20:33.340 the purists will often get uh upset with the with the applied mmt is who is basically everybody else
00:20:40.860 apart from the original theory sellers and a few other sort of theory sellers on this they
00:20:46.600 are not abstractists they generally the the the real world the other people that i talk about
00:20:55.320 the real world mnt is what they like to do is well turn it the other way around they don't like there
00:21:01.420 being limits on government spending and deficits because they believe ultimately that that government
00:21:06.540 is the solution to problems whereas somebody like myself of course would say that government
00:21:11.360 is the cause of um many many if not most problems that we have today and therefore more government
00:21:20.160 is a bad thing whereas the an mmt proponent uh you know will tell you that mmt is a good thing
00:21:25.900 right so with that out of the way let's turn our attention to uh the applied mmt is which is becoming
00:21:33.240 um the uh i would i would say it's it's well on its way to becoming the majority of the mainstream
00:21:40.560 view at this moment and look at each of their arguments so what's the what's the first key
00:21:47.800 tenant of mmt uh monetary sovereignty a country that issues its own currency us dollar uk pound
00:21:56.680 it can't go bankrupt in its own currency it could always create more money to pay domestic debts
00:22:03.400 now my response to that is okay yes but in doing so that you're debasing the money itself
00:22:10.280 add to that the cantillion effect which basically says that the closer you are to the money creation
00:22:16.100 the better you off are as a result of it which is why wherever you inject this money
00:22:21.720 so in the current system money is created basically the nexus between government and the financial
00:22:26.720 services and that's why government and financial services continue to grow but wages are a long way
00:22:33.180 down the list of who gets new money when it flows into the system therefore wages always lag the
00:22:39.020 growth in government and financial services which as a result means that um well i mean it used to be
00:22:45.820 that your granddad could buy a you know a four-bed home and support a family and a stay-at-home wife
00:22:51.820 whereas you cannot even afford yourself let alone let alone children if you would like to see the full
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