Stephanie Kelton on How MMT Won the Fiscal Policy Debate

For the past year or so, we've been talking a lot about the shift from monetary policy to your school stimulus, and that's a big component of mm T. Yeah, you used to every episode You're like, Joe, why I didn't Are you gonna bring up I m MT? But I guess we haven't really done that explicitly in a long time. Um, And so you stopped. You stopped joking about that with me. But today we aren't going to have to joke because that's actually literally what we're going to be talking about.

It is an MMT episode. Yeah, And you know, I think, Um, one of the things that's really striking to me, and I'll just say this is that on some extent, to some extent, I really think that MMT has completely won the debate. And by that, I mean we have this big fiscal expansion happening in the US, and deficits by historical measures are very high, and there are certainly people who are like upset about it or angry about it. But it really feels like the entire debate is like

essentially happening on MMT terms or MMT language. So you're right, we definitely don't hear UM many mentions of bond vigilantes anymore. We don't hear people talking about, you know, how are

we going to fund social programs? The deficit is so large, that sort of thing like that seems a little bit old fashioned now in many respects, I do wonder, I do wonder how much MMT can take credit for that versus the fact that we've just had such an unusual economic crisis, you know, this big exogenous shock basically, so people are able to use that as an excuse to overwrite those concerns UM. And this is something we spoke

about on a recent episode of the podcast. But like, it seems like this crisis was so unusual it really opened the door to people UM thinking about stuff differently. But but you're absolutely right, m MT. It's definitely not a fringe movement anymore now, And I think you're you're right. There's a lot of things that have happened, both in

this crisis and over the last decade. The persistent lack of inflation despite you know, FEDS balance sheet expansion, despite deficits that obviously perhaps changed people's thinking, the nature of this crisis, and the sort of unanimous nothing's unanimous, but widespread belief that the government had a role in underwriting

the recovery due to it's on usual nous. But it really is striking, like you know, coming out of a great financial crisis Greece and bond vigilantes, and there's still you know, there are critics of the existing stimulus for sure, and they didn't get a single Republican vote, but it's all on different terms. Now it's about inflationary pressures, which was always sort of the MMT view of like, well those the limits to spending, not the sort of credit

worthiness of the government. And so even though there's a long you know, there's still huge policy fights and debates happening. Um, they really have changed a lot, and I think it's a pretty legit question the degree to which m m T thinkers have made that happen. But I do think

it's part of what's really changed the whole discussion. Yeah, now you mentioned policy there, and I'm really, I really want to get into that particular topic when it comes to MMT, because I think one of the big criticisms of it as a school of thought is that it even if you agree that MMT is the best um way to describe the economic system, it might not actually lead to specific policy prescriptions, or it might not lead

to policy prescriptions that are all that different. So politicians can agree that spending is bound by inflation, but maybe they all have different ideas still about how best to spend money. So I would love to dive into that a little bit more. Great, Well, we are going to be speaking with the pre eminent person who, without question, has done more to advance the mm team message over

the last decade than literally anyone else. We spoke to her a couple of years ago, a year and a half ago at our Odd Lots Live event New York City, so excited to have her back on. We're gonna be talking, of course, with Stephanie Kelton, professor of economics and public Policy at Stony Brook and the author of the New York Times best selling book the deficit myth which just came out in paper at UM last week. And so

very excited Stephanie, thank you so much for joining us. Oh, it's really nice to be back with both of you. Thank you. Do you think that's right? I mean, I said I think that on some level MMT has won the debate at least in terms of how the debate is defined. Does it feel that way to you? Yeah? And you know, I'll tell you something that I don't really I don't think I've ever probably said publicly, but um, I started to feel like MMT was beginning to win

the debate before COVID. And you know, one of the things that I did early last year was to go UM to Washington, d C. At the invitation of House Leadership and to sit down. Scott Fellwiler was with me, and I won't say exactly who was in the room because I think we were probably not supposed to do that. But the point is we were there UM at their

invitation to talk MMT. And the reason that they wanted us is because, uh, they were thinking ahead, and they were thinking about what a Biden presidency with potentially Democrats and control of the House and Senate would mean for h legislatively right, what what could they do? How ambitious and bold could they be? And how should they begin to think now about you know, rethink, I should say, the federal budgeting process, how they approached the question of

you know, paying for their priorities and so forth. So that was pretty encouraging to me. And it was meant to be start of a conversation. And I was told, you know, we want to have you back in front of a bigger audience and uh. And then of course coronavirus happened. But I thought that was a pretty good indication of the you know impact that we were having. Um,

you know, where it matters most. And in Congress, I wanna delve into the policy prescriptions like I mentioned, But before we do, could you could you maybe contrast, you know, where we are now to where we were when you first started thinking seriously and writing seriously about MMT, Like how different is the environment back then versus you speaking to prominent politicians about how MMT could actually be enacted

in serious ways. Oh, Tracy, I mean I was just a kid in some respects when I first got I was in graduate school. I started, you know, in the mid nineties nineties. I graduated, I finished up my undergraduate degree, and I was supposed to go off to Cambridge University and start a graduate program. And I had this sort of gap where I graduated in December and Cambridge wasn't going to start until October, I think of the next year, and I had this this void in this time, and

my parents said, get a job. And one of my professors, my undergrad professor, said no, no, no, go to Denver and work with Randy Ray and spend some time there before you go off to Cambridge. And I thought, well, that's brilliant idea. You know, I get sort of a dress rehearsal uh for graduate school. And I went and I worked with Randy Ray, who's you know, was there on the ground floor. He was just beginning to write

UM a book called Understanding Modern Money. That was I think his first real entry into MMT, and that began to lay it out the scholarship, and so I got a little bit of it there with him. But then I finished up a year at Cambridge and I ended up at the Levy Economics Institute, and Randy was there.

And I'm sure we'll talk later about when Godly and people like that, and when was there and now MMT was really getting going, but I was still a graduate student, so I was writing papers and I ended up finishing my program at the News School. So you know the way that we were part of a team of academics, um, but we were mostly you know, presenting our work at academic conferences and doing the usual thing writing peer review journal articles take a year two sometimes more to get

in print. And then two thousand eight crisis came and that really changed everything. That's where you know, I got this idea that I would start a blog and we would try to use social media to become part of a larger conversation, uh and get our ideas in different ways of thinking about things out there. So that was an exciting time because for the first time we were having dialogue with people, you know, outside academia narrowly, and the media started to pay some attention and things just

evolved from there. Can you talk about that a little bit further. I mean, there are a lot of academics in all kinds of fields, I'm sure, economic, sociology, everything, who sort of toil away. I don't want say toil but write an obscure journals that get read by fifty people speak to classes, but don't really have any sort of like meaning. It doesn't really jump the chasm into

the mainstream discussion. Can you talk a little bit more about when you started noticing that happening with your work and MMT and just like the role of UH new media social media, twitter, blogs, etcetera in turning what what you know going from those journals into the discussion where

policy changes. Sure, I mean, you know, we started committing ourselves in writing on that blog that i UM launched called New Economic Perspectives, And you know, you're launching a brand new blog and nobody knows it exists, and it's very hard to start to get people reading it. And you're out there dropping links to everything you've written in other on other people's blogs the comments section. They don't always like that, but it was a way to try

to build a readership. And then there were some people who started to pay attention in the very beginning, some guy UH named Joe Wisenthal I think at Business Insider,

who's he's one of the first. I mean, honestly, he really was one of the first, I think financial journalists who started to take a look at what the kinds of things that we were saying and what we were writing, and um, and took them seriously enough to wonder, sometimes wonder aloud, and to repost things or whatever and and say, you know, the sort of curious what these people are saying and it's such a departure from what we normally here. And then you know, a handful of others started to

do it. I think even John Carney, who maybe was writing for CNBC at the time, he started to look more closely and and uh, Pedro DaCosta, who maybe was

at Reuter's or I don't know where he was. But there were a handful of you guys who were you know too, who were kind to us I think that's the right word in the early years, and weren't dismissive, didn't didn't just you know, go full on embrace of the ideas, but gave it a shot and gave it a mention, and it really did do a lot for us to to help us elevate, you know, the work that we were doing, and to give us a shot to prove ourselves credible and worth maybe you know, paying

a bit of attention to why do you think mmt resonated with I guess journalists and also a broader audience like what was the attraction or what was the thing that opened the door to people like I guess having an open mind towards a fairly radical like rethinking of traditional economics. Yeah, I mean I think maybe you know, I'm not a journalist, but if I were, I think I would be looking for things that are new and different that spark a bit of controversy. Um, you know

that that would be more fun to write about. I think those sorts of things and uh, pull new ideas in and and punch them around and see what happens. So I think to some extent, maybe we were red meat for some and we were an interesting new way of thinking for others. But uh yeah, I think people probably you know, used us in different ways over time. Um.

But but a good story. You know, there's this sort of group of economists who don't come from the Ivy League universities, nobody's ever heard of or and they're out here saying some some really unusual things. And so it became a story of sorts. If I could just talk first person for one second. One of the attractions for me,

for your work and others. Very early on two thousand and ten or so, was that there just seemed to be a lot of things happening in the economy the um the mainstream writers and thinkers didn't seem to have very compelling answers for And the biggest one to me was why is it that government debt is exploding and we don't seem to have higher interest rates or hyper

inflation or uh, you know, dramatically weakening currency. And so it's like these were just this was like a puzzle out there to me, and you know, I was like looking for answers, and I it's not that I was like entirely convinced right away, oh that you guys have the answer, but at least like you're supplying I thought, like something, but I'm curious, like you know how much.

One of the things that we talked about on a recent episode was this idea that the between the Great Financial Crisis and the coronavirus crisis, there seemed to be a lot of things that actually happened in the real world that we're not helpful to mainstream macro. So we didn't have hyper we didn't have inflation, let alone hyper inflation, and the unemployment rate went down a lot further than people would have, um expected. All kinds of sort of

mainstream views didn't seem to work out. Que didn't really have much of an effect. Talked to us about that as well. That's sort of like that period in which it felt like mainstream views became a little bit discredited by facts on the ground. That's exactly right. Everything that the mainstream had been warning about for decades really kept

not happening. Uh. And as the evidence mounted, and you know, I think this is one of the things that really did earn us some some cred, some street cred, was that we were writing in real time, Uh as the you know, European debt crisis was unfolding. Um, we we

were taking positions and had taken positions early on that. Um. You know, there was this design flaw in the Mastic Treaty, and that a debt that a debt crisis was entirely possible due to the fact that these countries, in giving up their sovereign currencies and adopting this common currency which they could no longer issue, would mean eventually the financial markets would figure out that they were lending two currency users, and they would begin to price that default risk in

and yields could blow out. And I mean, we had written it all up years before the thing happened, and when others became surprised and then later confused, because if it can happen to Greece, then it can happen here. Only our deficits got very large, you know, ten percent of GDP uh and interest rates went down, not up, and then we had the downgrade, you know, US government bonds were downgraded, and people said, oh, this is the end.

You know, yields are going to spy it, and we said no, no, no, And of course the rates went down the next day. And then you can always look to Japan and the warnings for years with respect to their debt and persistent deficits and currency holds up and they can't get inflation anywhere close to the two percent targets.

Some would say in spite of QUI I would say maybe even partly because of I mean, there's just the models and the things that we thought we understood about relationships between deficits and interest rates and and dead and um and printing money so called, and inflation, and so

we're just kept not bearing any fruit. And at some point, you know, we were writing all along about why we understood things to work differently and why what was happening was consistent with our models UM and so I think you know, as I said, I think it earned us some credibility. So I want to pivot slightly to UM specific policy prescription from mm T. And as I mentioned in the intro, I think this has been one of the criticisms. But what does an MMT policy actually look like?

Is it focused on reaching full employment or can it be related to you know, any sort of government spending. Well, I think you know, we generally accept the idea that you know, the dual mandate makes sense. The goals of the dual mandate. You want an economy high levels of employment and low levels of inflation, you know, broadly balanced

macro economic conditions in the economy. For from the very beginning though, we just thought that the central Bank was not the proper institution, at least not to bear primary responsibility for delivering on those objectives. That uh, in fact, fiscal policy was a more durable, reliable, appropriate tool, if not you know, as a replacement, at least is a very strong front facing part of the way that you

get that outcome, that you achieve a balanced economy. So MMT does not come with a prepackaged set of policy proposals. You hand someone this set of ideas and say, here, go do this. This is mm T m T S. You know, I sometimes say it's not a verb, it's an adjective. It's mostly a description of the nature the monetary system and the mechanics of government finance. Uh. And

you can apply that lens. You can use that m m T understanding to look at any country in the world, understand their monetary system, and explain the mechanics of how government finance will work in that country, what the constraints would be given different types of monetary systems and other things, um. And then you can craft policy based on the spending capacity of that country. But you the policy prescriptions themselves don't fall out of an m m T box. They

come out of the political process. So if we accept that MMT is more of an adjective or a description of the existing system or like sort of more of a state of mind than a set of policy uh prescriptions, Like I'm curious, how much does that change things in your opinions? So if tomorrow every single person in the world woke up and accepted MMT has like, you know, the way the economy actually works, what do you think

would change, Like how different with the world look? Well, I you know, I've often said that I think the big breakthrough will be that we start having more fruitful debates, that we stop debating and wringing our hands over things that aren't of concern, that aren't legitimate. You know, I will often say that MMT is about replacing an artificial, fake, phony, imaginary budget constraint with a real resource constraint, with an

inflation constraint. So when I say the debate would change, I mean that we would not be bogged down and debating all the kinds of things. Joe opened the program talking about, you know, we're gonna run out of money. We're going to burden the next generation. The bond vigilantes will come after us. We will China will turn off this picket and no more dollars will come out. All of those things that hamstrung us, you know for so

many years. When we think about what's possible, we could set those things aside and then start having a very different kind of debate if we could all come to some kind of agreement about, you know, the low hanging fruit, how much fiscal space do we think is available, then we would just be debating how do we want to use that fiscal space. And that's where the politics are unavoidable.

Republicans will want to use up physical space doing tax cuts and you know other things, and Democrats will want to use physical space doing healthcare, education, or infrastructure, climate. UM. So you still end up with a healthy debate, I think a healthier debate because you're no longer um worrying about things that won't happen, and you start focusing on

on the real areas of concern. So the next criticism that comes, or the sort of logical sequence of this I see it in discussions all the time, is that, Okay, you're right, the real constraint is inflation, real resource constraints. But you have no way of measuring actual physical capacity. You have no way of really defining where we knowing

where we are in terms of real resources. When you're talking to either in academic circles or you're talking to policymakers that have to make these things, how do you think about gauging resource capacity? And avoid unwanted inflation. Well, you know you do it. I think you take a specific policy proposal. If you want to ramp up, you know, a major infrastructure spending program. Then you know, in the old days, somebody might do some sort of input output analysis.

You you say, I want to do three trillion dollars of infrastructure. Okay, what is your infrastructure program include? While it includes some broadband and high speed rail, I want to build more community health centers. I want you know, you lay it out. This is what I want my infrastructure to do, solar panels and all this kind of stuff. So what are the real resources that you would need to carry out that program? And oh, by the way, how quickly do you want to spend three trillion dollars?

Is it a five year program? Is a two year program? So you need a lot of information. And then you say, all right, so I know what I want to do. I know what I want to construct, build, you know whatever, And now what do I need to do it? How much steal, how much concrete, how many machines, how many

workers I need? Construction workers, architects, engineers. You can actually get a sense of how readily available these things are because you know, we have measures like you know, unemployment by occupation, how many out of work construction workers are there? In engineers and architects, how much slack is there in manufacturing capacity. We know this stuff by you know, production and moving equipment and so forth. So it's an imperfect world.

You're not going to know precisely what the actual number of people available to you are. You can get a pretty good sense of whether it is realistic to think of three trillion dollar infrastructure plan rolled out over two or three years, given the capacity that you have. You call Caterpillar and you say, if I were to place an order with you folks for you know, X dollars and this much equipment of this type, becauld you fill

that order? They'll tell you. I have a slightly weird question, but I'm just curious, like in Washington, are there specific people or like, which politicians would you say have grasped the basics of MMT or are embracing mmt UM the most Well, you're not asking me the name name, Sorry, Tracy, Well, I I kind of I was hoping, but like, okay, let me rephrase it, Like, is there a body of politicians that are embracing it more than others. And like, I guess the obvious answer to that is the Democrats.

But we're just getting to that policy debate. Like Republicans could easily embrace MMT as a reason to do tax cuts, as you mentioned, just as easily as Democrats could embrace MMT as a way to do you know, some sort of social spending or something like that. So I'm curious, is there is there an underlying like feature of politicians who are interested in MMT. Uh. Probably, but look, let's let's be very clear. Tax cutting taxes is in the GOP, d n A. They do not need MMT uh justify

tax cuts. They have always done that. They've been doing it for decades, long before MMT existed. And uh, I mean the existence of m MT doesn't I don't think boost their enthusiasm for tax cuts in any way. They're going to do it no matter what if they get a chance. Um. Yeah, you know. I after the November election, when uh President Biden, when Biden became the nominee m the Congressional Progressive Caucus reached out and it is chaired

by Congresswoman Promilagia Paul. She asked if I would address the caucus. Now there are I think a little over a hundred members of the CPC, and every Tuesday they do a call, and I was the first Tuesday call after the elections. So h that's just one example. I think there are some people. You know, I won't out people, but if somebody like Senator Brian schatt out people as mm tears, I won't. I won't talk about private conversations

that I have. But you know, Brian Schatz, Senator shots from Hawaii, was out there tweeting about how much he was had enjoyed the book and how I think he's done interviews. In fact, I know he has. I read some of them where he talked about being on a Senate it's either banking or Finance committee, and he said, we're talking about it, you know, I'm talking about MMT

We're thinking about this. I think there was a article in the New York Times two or three weeks ago that you know, disclose that I have been working in an advisory capacity with Senator Schumer's office and staff for a number of months. We had regular calls and I wouldn't have spoken publicly about that that they did, and it was in the Times, and I do this with lots and lots of House members, and I'm just I feel very, very lucky to be in a position now

where so many people will reach out to me. Chairs of powerful committees in the House. You know, after the book was published, I one of them reached out and said, I've been a deficit hawk my entire time in Congress, and I read your book and you've completely changed my views. And he said, I want to know if we can start working together. So so, you know, Randy Ray worked with Senator Rubio and his staff on something I think a year and a half or so ago, I worked

with very briefly. One Republican UH senator his staff reached out and wanted some input from me on the legislation they were drafting. Wanted to think about it from an MMT perspective, and I I was trying to be helpful there. Well, this this brings me to an interesting question. And you mentioned that someone reached out to you and said I used to be a deficit hawk and now I'm not,

which gets to the question. It's like, and it kind of speaks to what you were saying earlier about MMT doesn't end the debate, but maybe it gets us to a healthier debate where we're actually talking about the real things. And there are of course going to be politicians who who say oppose expansion of government healthcare, but they don't really want to say and they say things like we can't afford it, or they say, you know, we're going to pass the costs onto our children, or we just

the cupboard is bare, we can't do it. How many you know, in your experience deficit hawkery, how much is it actually people care about this gap between federal government tax receipts and outlays the technical deficit versus how much the deficit is cited as a pretext for opposing some policy that actually the person opposes for deeper ideological grounds. Yeah.

I mean it's such a convenient um, you know, foil if if you can empathize with your constituents when they ask you, why aren't we doing more to you know, better fund our educational system or healthcare or whatever it is, and you can just say, listen, I I completely agree with you. I wish we could do these things too, but you know, we got this deficits, and we've got this you know, twenty three trillion dollar dead or whatever, and it's sort of a get out of jail free card.

They don't have to offer much more by way of opposition, and to just you know, pat their pockets and say I wish I could help, but you know, obviously there's no money for that. I think that is useful um to a lot of people are perceived as being useful. Other people, I think, you know, would like to not have to lean into that narrative, but they don't see a clear pathway out. And that's what that visits that I mentioned early on, right before COVID really hit in

the US, when I was on the hill. So much of what we talked about in that meeting was about messaging. It was about Democrats feeling like they had backed themselves into a corner for years, I coming back with these talking points, always bringing up the deficit, um hitting Republicans over the head for adding to the deficit, blowing out the national debt. They've said these things and now their views are changing and they don't know how to unsay them.

And they've talked about the Clinton surpluses as this sort of badge of honor and tried to paint themselves as the party that holds themselves to a different and they think higher standard by being the party that wants to try to pay for their priorities and worry about the deficit and remind people that the last time the budget was balanced and in surplus, it was under Democratic leadership, right,

President Clinton. And so they they're looking for ways to message their way out of that and into a new place. And that's what we spent a lot of time, uh talking about. Hm, that's an interesting point. I hadn't thought of. So we're so used to people using the deficit as an excuse not to do something. I hadn't thought of people using it as, you know, a sort of um

badge of honor in that way. UM. I wanted to ask you about something else that's going on at the moment, which is we have seen a rise in bond yields and inflation expectations. And for some reason, I was looking at one very crude measure of inflation expectations earlier today. But for instance, if you look at Google trends, the word inflation is being searched for um more than ever um or at least in the history of Google trends. And I know you're on the record saying that m

m T S overriding concern is inflation risk. I also know that you get a question about inflation every time you do this, but I would love to hear your take on on what's going on now in the bond market and how much that ties into this embrace of fiscal policy in d C, Like, how much has that actually impacted inflation expectations in your opinion? Yeah, I mean, Joe has written about this in a way that I think is is really useful and largely reflective of the

way that I think about this. Uh. You know, anybody can look at the kind of backup in yields and and create a narrative that fits whatever it is that they're looking to defend with respect to what's happening. You know, I think that, um, it makes a lot of sense to me to say that, you know, no, nobody can really tease out inflation expectations, as you said, we can come up with these sort of crude ways of trying

to get at what's happening here. But you know, Chasey, I guess my sense is that mostly, you know, this is a fairly modest move up, and that what is probably telling us is that, you know, people are expecting the economy to do better, and that they think that the FED might have to move sooner, and they think

that inflation is going to move higher. And I think that, you know, when Powell comes out and tells us that the FED fully anticipates that we could see some you know, pressures over the summer as the stimulant or the recovery of money rolls out and so forth, that they're prepared for that they expected to be transitory. Maybe there are some people out there who have, you know, different expectations and think that the FED might follow a little bit

behind the curve and have to move sooner. You know. I think I think by and large it reflects UH optimism and enthusiasm for the economic outlook. What do you think about this new FED? I mean, obviously MMT emphasizes, of course, fiscal fiscal power as the sort of key lever for macro stabilizations we've been talking about. But this does seem to be a FED that's undergone changes and how it thinks and how it thinks about measuring full capacity and full employment and whether it needs to preempt

inflation lest it sort of get away from us. What's you're thinking on this sort of like evolution of the FED under sort of the yelling um Powell period. Well, I think that, you know, in a lot of ways, the FED has become somewhat more humble in the sense that you know, they're Jerome Powell made a very clear

time and time again. I think he used virtually every opportunity when he spoke publicly to say, we don't have this, Okay, do not expect the central bank to have the ammunition that's going to be necessary to get a sustainable recovery underway, that it is going to take uh, fiscal policy. We need a partner. And that was different, right Bernankee sort

of did that, but in much more subtle ways. I think that and it's not just Powe, it's it's central bankers around the world, and now, helped by you know, institutions like the I M F and the O E c D. You know, everybody is sort of coming to agreement around this idea that fiscal policy has to play a dominant role in the in the recovery so on inflation.

You know, Powell had to admit that the FED might have tightened preemptively that you know, unemployment, it clearly was possible for unemployment to safely move lower without causing inflation to move higher. And I think they're doing a lot of rethinking, you know, some of their own understanding. You have people like Daniel Tarullo, who once served on the FED Board of Governors, who after his term expired, went out and started stating publicly that the FED does not

have a reliable model of inflation. Now that was a really incredible thing to say, and so it's it's a good sign when you know what you don't know and you're willing to go back to the drawing board and rethink, you know a lot of your priors and what the FED can do. And Powell keeps reminding us the FED can lend, but the FED can't spend. And so I think it's helping to shift us into a sort of new paradigm where we are going to see a more permanent role uh from you know, the fiscal partner, and

much less reliance on central banks. And I think that's to the benefit. Um. We have asked central banks for too long to do too much and and in many ways, I think you know, we're we've paid the price for that. With central banks just constantly, you know, getting more and more creative, pushing interest rates lower and lower. The only thing they know how to do is try to engineer growth via some kind of run up in in asset prices,

whether it's real estate, commercial, residential equities. So you mentioned like knowing what you don't know there, and I think like it is probably fair to say that MMT is still in um sort of testing mode, like this is probably this is we're seeing the beginnings of this embrace as we've been discussing, and we're going to see more fiscal programs rolled out in the States, and we're going to get an actual test case of some of these

theories being put into action. What would it take to like give you pause, Like what would actually make you think like, oh wait, maybe there's something in mm T that we you know, got wrong, or maybe there's something that we underestimated, something that we need to rethink or tweak or revamp. Is there a specific thing that you're watching out for, Well, yeah, I think so much. Again,

so much of mm T is descriptive tracy. Like, right, if if Congress wants to pass big and big spending packages, they can do it, and this is what we said. You know what's interesting for me actually is think back

to the Republican tax cuts. In the Republicans were getting ready to push through these massive tax cuts, and you had economists, I won't name them, but they were leading names, right, big name economists who came out in opposition to the tax cuts, and one of them made the argument that if the Republicans are successful in pushing these tax cuts through, that we will be these were his words, living on a shoe string for decades to come because of the

deficits that will be created. Because of the deficits, he went on to say that it would put us at risk because if the economy were to slow down and go into recession, that we would no longer have the capacity to use fiscal policy to counter the recession because what we had done these tax cuts, that left us unable to do to act with fiscal policy. Another leading top economists was right ing, you know, deficits matter again.

After Donald Trump took took office and so forth, warning that if if you tried to do anything with fiscal um in terms of stimulus, that you would be pushing interest rates higher, that you would get crowding out effects, that the economy would slow down. Now the Republicans passed their tax cuts, and unemployment went down, not up, and growth went up a little bit. I mean, it wasn't a massive boon that was promised, but it was stimulative and it did improve things. Uh. And interest rates didn't

go up. Interest rates have trended down. We had coronavirus, we had a recession. And how did Congress respond with multi trillion dollar packages one after another. The deficits of the past did not impede the ability of Congress to respond effectively, uh in the future, So that those folks

were just simply wrong. And so you know, when you ask um, what would cause me to rethink, you know, my the strength of my convictions, I guess it would be if Congress had authorized uh, you know, multi trillion dollars spending package and somehow the checks bounced, you know, I mean, I'm serious, you know, because we're only explaining that if the votes are there, the money is there.

And this idea that somehow, you know, there are these fiscal constraints or somehow you've got to arrange the financing and you might not be able to uh, something might go haywire, and all of a sudden, you know that the checks don't go out and it just doesn't happen.

I think, first of all, I think that last point or the point that you made about the COVID crisis, showing the myth of like oh, we need to like save up our fiscal capacity is really interesting and probably still underappreciated, because I do think there's still this sort of like, oh, it's so unfortunate that we spent so much during the good times, and then in instant that talking point seems to have gotten disproven because then we

spent a lot more without without a hiccup. I like to do like a sort of like quick lightning round of like common m m T questions before we end. You know, I always see these questions about MMT, and I want to like sort of like get the Stephanie Kelton the quick answer. So if we don't need to worry about devisits, why do we have taxes, why do we need to pay taxes? Well, you know, I'll just point you to uh six article written by Beardsley Rummel, which is a great name, who was the chair then

called Chairman of the New York Federal Reserve Bank. This is not a short answer, Joe, that's all right. Um. Rummel gave us a variety of answers to that question. Why do we have taxes? Taxes are important because taxes are forced subtraction. Taxes remove dollars from our hands so that we don't have them, so that we can't spend them, so that the government can spend some of its dollars

into the economy without creating an inflation problem. So tax has helped to remove spending power from the rest of us and mitigate inflationary pressures. Taxes are important if you want to start up a currency from scratch. And that's a much longer answer, but I'll just leave it with Taxes are the currency is is it is a tax credit.

Taxes are important for redistribution. You might raise or lower in existing tax or introduce a new tax because you care about things like the distribution of wealth and income, and you can use taxes for that purpose. You have taxes because you want to incentivize or disincentivize certain behaviors. So taxes are very useful if you're trying to encourage people to buy energy efficient appliances or electric vehicles or discourage people from smoking or um, you know, polluting the atmosphere.

All right, here's another question. Um, if the government isn't really borrowing, why do we need to have a bond market. Well, we don't technically need to have a on market, but the government has chosen to allow folks to trade their dollars in for interests sparing form of the US dollar, which is a government bond. So it's a very safe way to park on an awful lot of money in a default risk free asset that gives you a yield,

that gives you a return. So you get to a little bit of an interest subsidy from the federal government when you hold US treasuries. All right, here's another one. Is it naive if the mm T view is that the way to fight inflation is either through taxes or perhaps spending or cutting spending, or at least that's one tool. Is it naive to think that politicians would ever actually sort of quote, do what it takes if inflation did

run overly hot. Well, I think the first thing to do is challenge the first part of the question, that it is not the solution to any and all inflation is most definitely not to raise taxes. And what MMT is trying to do is to say, if we're talking about the kind of inflation that results from too much spending chasing too few goods, the demand pull kind of inflation, then let's integrate inflation risk into the federal budgeting process. So the best way to fight inflation is with a

good offense, right. You don't want to create an inflation problem and then try to fight it on the back end once it exists. You want lawmakers to be designing the legislation, writing the legislation with inflation in mind, which, by the way, they do not do today. I worked in the Senate. I never heard a staffer or a member of the Senate raise inflation as even an afterthought when writing multi trillion dollar spending bills. So we want

inflation to be integrated into the process. So that you're thinking, if I were to do this, uh, you know, proposed new spending, what is the likelihood that it would create inflationary pressures? And how do I mitigate those in the legislation before moving forward with a vote. And now I'll just ask the Tracy Alloway question. Is an mm T just a thing that only works for the U S Dollar at the US Well, no, I mean one of the running jokes I think on Twitter is Japan says Hi.

And so you know, so many times people will, um, you know, say, if you run these deficits or you get the debt way up, interest rates are going to go up, inflation is going to go up, and somebody will tweet Japan says Hi. Uh so no okay, but you know, e M okay Japan. Yeah, they're kind of weird.

They don't have whatever. What about Egypt, Well, look, you can economists like Scott Fullweiler and fiddle Kaboob and others are working with e m s and working with you know, and I've I've worked I don't know that I should say, I'll just say one developing country president and I've I've worked with him. And so we're we're very much involved in work king in collaboration with UM with governments around

the world, including in emerging markets. MMT is absolutely helpful and the work of photo Kabuba I will say again, UM check that out for sure, uh MMT as we've actually had them on and so you know, you know that that MMT can be helpful in all of these countries. Now, it is true, and Tracy knows this. I I know

she does that. Uh. I mean that MMT is not suggesting that every country has, you know, the sort of expanded policy space that will allow it to easily orient its macro economic policies around, you know, creating a full employment economy. There are challenges for many countries that have debt denominated in foreign currency, that are more vulnerable to swings in their exchange rates, that don't have energy and

food sovereignty and so forth. So, but that's not to say that m MT doesn't have anything to offer by way of policy advice and design and so forth. Stephan and Calton, thank you so much for coming out odd Luck. It was great to be back with you both. Thanks for having me, Stephanie. That was great. Stephan I really appreciate it. Take care of you guys. Tracy. Obviously I like that conversation a lot. Hearing that sort of trajectory, Yeah,

I know, kind of obvious. Hearing the like the story of like that trajectory of like going from like blogging to being invited in to talk to some of the most powerful UM people in the world about ideas is about is to me is about inspiring a story as again, Yeah, I mean it's definitely been an upwards trajectory, like the arrow has moved in the right direction for MMT economists and journalists of course, Joe um So, one thing that always stands out when we speak to Stephanie, like her

point about MMT being a set of descriptive rather than prescriptive policies, Like I think, obviously she's right because she's sort of come up with it, But like my question is still how much does that actually change and if it changes the debate or if it allows us to avoid wasting time on irrelevant discussions like can we actually afford it? Like how much does that actually move the needle?

And I guess like, is there is there going to be a time five or ten years from now when instead of politicians going like, oh but the deficit, we can't afford this, what if they're going like, oh but you know, inflation and fiscal space and I it feels like they could use pretty much anything like as an excuse or as a justifier for something. Yeah, I mean I would saying like, my my sense is like two things, and one is it does seem like a little harder.

I mean, I don't know. I mean, one thing that we know about fighting about or talking about inflation online is that people will see it even if it's not there, right, So it's like the inflation measures can come in very mild, but people will convince themselves that we're living in an age of hyper inflation regardless. So I do think like

that is a good point. In the other hand, maybe it's like not quite as like you know, it's like the bond vigilantees or the kids are gonna have to pay for it and we're gonna become Greece one day. It's like you can never disprove that, right, Like it's like, well we have to you know, something may happen ten years from now. It has been really bad, so we have to do this. So I think it's a little harder.

But I do think also like you know, there are just people are going to have different policy priorities, and there are you know, there are a lot of people who believe that the government should have some sort of single payer healthcare, and there are a lot of people who strongly don't think that and that that's bad and that socialism and I don't think that like, um, that's never gonna go away, like people that are gonna just be But it does feel like at least we can

sort of like move past some of the deficit stuff. It is a more honest political conversation that we can have. On some level, I feel like the problem is forever politics. I think like that's the conclusion to everything that's wrong in the world, Like the problem is politics always and forever. Yeah, but man is a political animal and so yeah, so that will be for thousands of years we will be fighting about how different people feel that they should reshape

the world. Right, And to be fair, we're probably asking a lot of an economic theory to try to fix that problem. Like that's probably a little bit too ambitious. But again, and it goes back to what we were saying, like it does feel like the debate these days. I I think it's it's a little bit more enlightened than it was in two thousand nine, in two thousand ten, so like things do change. And again, it's not I'm not saying it because like, Okay, we got this like

fiscal expansion and that's good or bad. But it does feel like the parameters of the debate, so you look at even critics of the of the stimulus. They're talking about these things like inflation and inflationary pressures and capacity and how do you measure fiscal capacity or inflationary capacity, which wasn't really even like part of the discussion in a meaningful way, you know, like two thousand nine tended anywhere near the same level. So maybe maybe things the

language has certainly changed. Absolutely, All right, um, shall we leave it there. Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Allawait. You can follow me on Twitter at Tracy Allaway and I'm Joe Wisn'tal. You can follow me on Twitter at the Stalwart, and be sure to follow our guest Stephanie Kelton. She's at Stephanie Kelton. The paperback version of her book The Deficit Myth now out. Check that out as well.

Follow our producer Laura Carlson, She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesco Levi at Francesco Today, and check out all of our podcasts at Bloomberg under the handle and podcasts. Thanks for listening.