 This is Jeff Deist, and you're listening to the Human Action Podcast. Ladies and gentlemen, welcome back once again to the Human Action Podcast, the podcast where we are not afraid to read and discuss actual books and to hopefully learn some economics along the way in the process. And I thought this week we might take a little detour in the sense that we are not going to review and discuss the kind of book we normally do, but rather one in which many people in our listenership might find themselves in opposition. And that is Stephanie Keltens, The Deficit Myth, which is kind of the current heavyweight champion in the MMT Modern Monetary Theory School of Thought. Now, this book came out earlier in 2020, and as soon as I saw that it was going to release, I asked our great friend, Bob Murphy, Dr. Robert Murphy, to read the book and provide a review for Mises.org, which he did back in June. It's a thoroughgoing review. It's about 10 pages long. And if you read it, you'll have a really good sense of the book itself, but also the underlying little bit of history and the thinking behind MMT. Now, Bob is particularly suited not only for this review, but also our show today, because he has debated MMT in public forums. He has actually had Warren Mosler, who is one of the modern founders or fathers of MMT on his own podcast. So he understands the back and forth on this. And it really is a fascinating topic. And from my perspective anyway, a bit of a frightening one, because it dovetails, I think, quite well with a lot of the ideological or political movements in this country, which I would characterize as socialist or semi-socialist, and also in the camp of wanting something for nothing. There's an awful lot going around these days at postmodernism, the idea that two plus two might equal five, depending on one's identity or perspective. And so all of this, put it together, creates, I think, a country which might be susceptible to what I would consider false or magical thinking as presented by Ms. Calton, who herself is no firebrand, a relatively likable person, doesn't seem to be angry or full of hate. And so that also might make her book more palatable to the masses. But I'll start with this, Bob. Thanks for your time. And as I went over this book over the weekend on Kindle, it struck me, this is not an academic book. This is almost a book that you could see at an airport. Yeah, exactly. And in the review, that's what I said in the beginning. I kind of made a joke, I'm paraphrasing, but saying there's good news and bad news. The good news is Stephanie Calton has written a very readable, fun book on MMT. The bad news is she's written a very readable, fun book on MMT, meaning that I was when I went into it and saw how inviting it was and punchy and when she has clever little twists and turns here and there's like, oh no, somebody who doesn't have, in my view, a sound background, foundation economics might be easily seduced by this because she presents it in a very fun, quirky way with just enough intellectualism. So it looks like, oh, a smart person wrote this book. But yet, I think very deceptively appealing to people who want the government to spend all kinds of money and not, quote, have to pay for it. Yes. And this is no knock on her. I think she is absolutely smart to write a lay-friendly book or a book actually aimed at a lay audience rather than a technical or academic book. I think she understands the nature of the society we're in, which is based on celebrity and sort of short attention spans and social media. So this is, you know, I think academia is not producing much in terms of, in the public pays attention to, but the public's paying attention to this. Exactly. Right. And I, so I would also, just as a warning, like to Austrian, Austrians and libertarian listeners who might be tempted to dismiss this book and say, oh, come on, MMT, that's for idiots or whatever I'm saying, really in Stephanie Kellan's hands, she does a good enough job where I realized like, that's what you mentioned, how my review was long. I didn't set out to write such a long review. But then when I read the book, I realized I have to because we really need to take this seriously. Again, not because MMT actually is correct, but because I realized that she made a case for it that's way more compelling to the average reader than I had expected going into it. And so yes, you're right. So it's, when I say she wrote a book that's very convincing of the masses, you're right. I don't mean because she would be incapable of something more high brow. I meant this is more dangerous because she went right to the masses instead of just trying to convince, you know, 50 people with PhDs. Well, interestingly about her, she's a prof at SUNY Stoney book for one, but she was also an advisor, a financial advisor to the 2016 Bernie Sanders campaign. And she also worked on the Senate Budget Committee on the Democratic side. So she's got a little bit of a political background. I've noticed though, Bob, over the weekend, Biden has been floating some of his, not only his cabinet picks, but his broader administrative picks and Bernie's not among them. And with some of the economists mentioned for departments like Treasury, for example, I haven't seen Ms. Kelton's name floated either. So I'm not sure what her fortunes might be under a Biden administration. You're right. So I guess I don't have enough of the inside baseball, but my thought would be that yeah, the insiders, the establishment, Bernie Sanders was too nutty for them to, you know what I mean? Like if he got elected, then he might actually put a surtax on millionaires and those are the people making up the establishment. They don't want that. So yeah, I think, I think Kelton's a little bit too much of a loose canon that she might, because you're her personality, I guess you follow around Twitter too. You're right. She's not, she's kind of funny and even self deprecating, or at least she's aware of irony, whereas, you know, some people, they just like Robert Reich, you know, if he understands irony, he doesn't let on. Whereas Stephanie Kelton definitely, you know, she can take a joke, for example. You know, sometimes I troll her a little bit and she at least gets the joke. Well, but I could see this seeming fresh, though, to the AOC end of things. And that's, I think what we have to consider is that there's a lot of people out there hungering for a third way, or a new way, or a new economy, or a new, new do we have to rethink capitalism. And this book is really tailor made for that audience. Let's start with her big sort of initial big picture thought, which is that we shouldn't think about the federal government budget or any government's budget the same way we think about a household budget. So let's just start with that. Sure. So fundamentally, she says that there's a qualitative difference if a government is a sovereign currency issuer, then yeah, this notion that it needs to quote pay for things is completely superfluous. It's missing the point. Because like Uncle Sam, what does it mean to say, oh, if we're going to have like the Green New Deal, can we quote pay for it? Or can we afford it? Or how can we pay for it? And Kelton thinks that's just missing the point. If you go down that path, because again, they can just print up new dollars. So that I mean, as simple as that is, that is the essence of her point. And that's most of the time what she does on Twitter is like retweeting people who are talking about government finances, as if they're talking about a big corporation. And her point is, no, no, no, you're missing the big picture here. The US government prints dollars. And so it doesn't even make sense to say, can they afford something? Of course they can, they can just print the money. So and this goes to a main point in M.M.T., which is that a sovereign government, we have this idea of a currency issuer versus a currency user. And I got bad news for you, Bob. Me and you are on that currency user side of things. It's horrible. I tried getting people to accept the Murphy's, the notes that I printed on my computer, but they didn't like it. Yeah. So the idea here is that a sovereign government, which as we'll get to later is perhaps not as many governments as you think, but a sovereign government can issue its own currency. And so it doesn't need to tax people and it doesn't need to issue debt necessarily to pay for stuff. Right. Exactly. And so there are reasons that they think that taxes are needed for other things, but not the point of taxation in the M.M.T. framework is not so the government can raise funds so that therefore it can go spend money on important things that the government might want to spend money on. That's not the function, as you say, because it issues the currency is that the people need the government to issue the currency so that people can buy things because that's where they get the money from. So it's a you know, when you say it from scratch like that at first, it does catch you off guard like, wait a minute, what, you know, that they're saying it's not that the government needs taxes to afford things because all dollars begin their life cycle in, you know, the bowels of and they're linking that, you know, the government, the Federal Reserve, they're just linking they all together and one is one unified entity for the purposes of this discussion. And so, yeah, their point is that it's the people need the government to issue dollars so people can spend money because any money you have ultimately was created by the government. That's that's the way they're thinking about it. But you point out there's nothing new in this thinking Rothbard and others have talked about basically the three ways government can come up with money. It can print it, which is to inflate, it can borrow it, or it can issue debt. So the idea that she stumbled upon something new, I mean, take us back a little bit through, for example, you've spoken to Warren Mosler whom I mentioned, and then he has a past with functional finance, which which comes from people like Abba Lerner. Can you just talk a little bit about where from whence MMT came? Sure. So as you say, so Warren Mosler and his story, he said he was just working, I think it was in the late 70s, maybe early 80s when his epiphany occurred. But yeah, he was just a financial guy working like in the banking sector on Wall Street, I believe, and was just looking at debits and credits. And then he said he just, you know, he's a very clever guy. He's like an inventor. He makes like boats and new cars and things like that. And I mean, a real clever polymath. And he said he was just, you know, having a thought experiment one day about what, well, gee, like, you know, these credits and debits when this when the central bank does actually because he was like trading bonds or something. And so they always had to watch the news and try to anticipate if the Fed does such and such with this many bond purchases, what's that going to do prices? And we want to be ahead of that and ahead of the trade and that sort of thing. And he just was wondering, you know, where does this come from? Like, where do these debits and credits come from? And that's, as he says, he just kind of invented what we now call MMT on his own. And then it was only as it was established, he started getting more followers and other like Randall Ray and people like that started, you know, joining forces with him. Then, you know, other historians of economic thought kind of placed it in context and said, you know, there's a long tradition as you say, Jeff, what's called functional finance, people like Abba Lerner going back that is very similar. So, so Warren Mosler claims it was an independent discovery. But you're right, this, this idea, it was summed up famously in Abba Lerner's phrase about how, you know, as long as the government, as long as the debt we owe it to ourselves, it's not a burden, right? So that was, you know, a doctrine that Mises even addresses in human action. So this stuff goes way back. And again, the idea being, there's something they tell us that's qualitatively different about a government that it has the ability to inflate. And then as you say too, Jeff, since this doctrine from the people who think it's a great insight that makes government spending, you know, have more to say for it than one might initially suppose, since that goes way back, also the free market economist rebuttals to that go way back. And Rothbard and Man economy and state, for example, I quote from that in the review, saying that I mean, this is standard stuff. I remember this when I was a teenager learning this kind of stuff, saying, Hey, there's three ways government gets money to finance stuff, either through taxation, borrowing, or inflation. And so, you know, there's taxation, borrowing is just sort of like future taxation and inflation is like a hidden tax. When the government runs the printing press, that still redirects resources from the private sector into government hands. And price, you know, people still are impoverished, relatively speaking, because now their money is worth less. So they can, you know, they can command less in the marketplace. So the government really has transferred purchasing power from the people to the government when they run the printing press. So this idea that, you know, oh, this is a better way to finance things because unlike taxation, it's not taking from the people that's that's just not correct. And people, you know, free market economists have known about this, the MMT years aren't bringing anything new to the table with this insight that, oh, wait a minute, a sovereign currency issuer can always afford stuff by running the printing press that that's that's not something that surprises free market economists. They've known about that for decades. So in the MMT conception, we have the sovereign currency issuer that that issuer cannot default on its own currency by definition. So we get to this next corollary that it's only limited in this process by inflation. And if inflation becomes a problem, we can remove excess money from circulation by taxation. So that's that's sort of the next argument is that A, their sovereign and B, you can do this as long as there's not inflation. So I talk about that. And then I'd like you to address this concept of slack in the economy. Okay, sure. So obviously stated as boldly as we just did a minute ago about MMT rest on the insight that a government that issues its own currency can always afford stuff like or use you say, it never needs to default, right? There's never a scenario in which the US Treasury is going to say, oh, no, we have all these outstanding bonds that are coming do. We just can't come up with the dollar bills to pay you off because, you know, our finances are, no, they can just print them up. If somebody presents a bond saying, you owe me $1,000, they can just go have the Fed electronically created and give it to them. Well, you know, there's nothing legally stopping them from doing that. They can issue an incident amount. And that's the sense in which saying, can we afford it is wrong, is a nonsense question. So the obvious retort to that is, well, are you guys out of your mind? If you pay for things just by running the printing press, we're going to have runaway inflation, the dollar is going to collapse. What are you thinking? So Kelton gets very frustrated with that. She, you know, she bends over backwards several points in the book to say, we know about that. We know inflation is the problem. All we're saying is, so the MMT will say emphatically, we're not saying we just made it a magical money tree where everything is not, you know, there's an infinite number of resources the government can send people to Pluto, and it won't crimp our lifestyle. They acknowledge there are real resource constraints, but they're saying that's the issue. The point is, when we wonder, can the government afford Medicare for all, stop saying, how are we going to pay for it? Instead say, if we do finance it, then will that cause unacceptably high price inflation because there's not enough real resources to go around? That's kind of what they're saying is we're just reframing the question to be more accurate when it comes to public discussions about what programs should the government fund. And Kelton says, for instance, going back to the crash of 07 and 08, that Obama was too reticent and should have created much larger stimulus bills. And the reason for that, we don't have to worry about inflation, at least right now, and I know that you would say this in 2020 under the COVID economy, we find ourselves, that there's all this slack in the economy. So inflation's the least of our worries. So what does she mean by slack in the economy? Yeah, you're exactly right. So, you know, again, the next element after they try to reframe it and say, we're not saying the government has an infinite amount of resources or this is magic. We're just saying the real issue is, you know, a real resource constraint, not can we quote afford it? Can we come up with enough dollar bills? So then, you know, the next issue is, okay, fine. So the government can't afford this. Like, if you thought that they did have to finance the way a corporation would, and we can see that, no, the public really can't tolerate higher taxes, and they're already borrowing trillions of dollars a year, we probably don't want to press that anymore, right? The MMT people say, no, by running the printing press, look at inflation, by which they mean like increases in consumer and the consumer price index. They're saying, look, that's not been a problem. You right wingers have been warning about hyperinflation for a decade now, ever since QE started. And it's not like gasoline's $20 a gallon or bread's $5 a loaf. And so what are you talking about your crying wolf? Let's at least go ahead and start paying for these important things, give people the health insurance they need, you know, fix our infrastructure, all these other pressing problems where government spending they claim would really help. And yeah, sure, if price inflation does start to get out of hand, then we'll take our foot off the gas. But right now, you guys are just, you know, you don't want these programs, just admit it for theological reasons, and you're coming up with excuses. Clearly, inflation is not our worry right now, that's what they would claim. And so Murphy's response to this uses Austrian business cycle theory to say, hey, look, all this slack or what we might call idle capacity doesn't just fall out of the sky. It's something that was caused by previous boom bus cycles, which were themselves incurred because of money and credit expansion. So they doing more of that just means that we're going to have weird slack down the road. Yeah, so I would make two main responses to that, you know, the words I just put in Kelton's mouth, but I hope the people trust me that I was being fair to her that is what they say. So you're right. Well, one thing, Jeff, as you've mentioned is to say, in the Austrian view, what causes the boom bus cycle in the first place is precisely monetary injections into the credit markets, you know, so this monetary inflation that then distorts interest rates and causes entrepreneurs to make mail investments. So that's why at any given moment, we might have a lot of quote, idle capacity or excess capacity or slack in the system is because it's we're still washing out the after effects of the mail investments from the previous boom period. And so by the MMT logic of just saying, well, as long as there's slack, let's just go ahead and create trillions of new dollars and through inflation and have the government spend it on what we would say are boondoggle projects because they're not, you know, the market wouldn't justify them. That's just going to set us up for another boom bust cycle. And we're just going to keep doing that forever with an increasing amplitude to make it because you got to print more each cycle to get out of the rut you've put yourself in from the last time. But then even beyond that, even just on their own terms, forget the business cycle. Still, like in other words, in the MMT logic, they're saying, oh, look at we created trillions of dollars under the various QEs under Bernanke and CPI didn't go through the roof. Okay. And so that means if they hadn't done all those QEs, then prices actually would have fallen. People might remember CPI was actually falling in late 2008. So yeah, it's true right now gasoline is not $20 a gallon, but had it not been for all the rounds of QE gasoline might have been 75 cents a gallon right now. Because remember, with all the fracking and things like that, I mean US crewed output went through the roof. Like, you know, the US become the world leader in energy sufficient or independent, you know, to use the old phrase. And so that, you know, people didn't think that in the 70s or 80s, they thought the US had to get off of oil and the fact that now we're leading the world. That's that's amazing. So in a normal world, you would have expected gasoline would be a lot cheaper now rather than just kind of bouncing around the same. And yet that didn't happen. So it's still true. When the government creates trillions of dollars that that transfers purchasing power from the private sector to the political or public sector, or government sector, let's call it, regardless of the absolute so called price level, regardless of what CPI does. So even though it's true, we don't have hyperinflation right now, that doesn't mean that QE was benign. No, people who had saved and had dollar denominated assets are poorer now, because in the counterfactual prices would have come down. I mean, historically in the 1800s, that was the typical business cycle prices would go up during the boom, and then they would come down during the bust. And that's how when, you know, currencies were tied to gold, they maintain their purchasing power over the long stretch. It's because they would, you know, the purchasing power would fall and then rise. And yet now we never get the rise we always get it's just a matter of how much is the currency going to be the base this year. It's not a question of might it strengthen a lot. So again, even on their own terms, they're not proving that it's benign. It's still a redistribution of wealth from the private into the government hands. Well, in Kelton's ideal system then, the issuer issues, now that whether that's the central bank or I suppose in her preferences, the treasury itself with the issuer issues, and there's no need for bond debt. But of course what we've seen since 0708 is lots and lots and lots of bond debt. Some of it's held by the Fed. So the Fed is in effect monetizing the debt of the US Congress or even when it's not monetizing it by buying it up, it is providing an implicit backstop for other people who buy treasuries foreign foreign banks, you know, pension funds, hedge funds, whatever, because the Fed is sort of out there as the buyer of last resort. So I guess my question is since 0708, haven't we in effect had a sort of roundabout version of MMT in effect as actual monetary policy? Yeah, I would say so. So I think strictly speaking, the MMT people, and it's funny when you say modern, based on some discussions, I had thought for a while that what they meant was ever since 1971, when all the world's major currencies were no longer linked to gold, that they were saying, okay, now we're in the MMT world, not the old school gold standard. But apparently, what the word modern refers to is like having a nation state issue its own currency. And it's based on some quote from John Maynard Keynes, I think, when he says in the modern age, by which he means with the modern nation state. So I think they would say, no, we've had MMT the whole time. But yes, I understand what you're saying, Jeff, that I would say for sure. Since the rounds of QE, there have been, there were certain years where, yeah, when you look at the increase in federal debt and how much the Fed has expanded its balance sheet, it did come close to a full monetization, depending on what period, time period you're looking at. And so yes, there are middlemen involved, as you say, it's legally speaking, the Fed is not allowed to just directly take treasury debt and buy it. They have to go through the private dealers first. But that's a formality and the private dealers and the auctions, if they know the Fed's waiting in the wings to absorb it, then they have no problem lending money to the government, to the treasury to get the bonds, then turn around and sell it to the Fed, earning a little bit of the cut going through the transactions. So yes, we have had that. And what's ironic is I would say, okay, even on its own terms, it's not like anybody thinks the economy has been doing great since 2008. So it is funny how, to the extent that we could say, all right, they kind of sort of have been doing what you guys wanted for the last decade or so. Does anyone think this is a great economy? And their answer as always is, oh, well, it wasn't enough. That's always the solution. Or the answer is yes, even though we've done an unprecedented amount of the kind of thing we're recommending, it just so happens that this was the time period that really needed our medicine. And so it wasn't enough medicine. But trust us, if we had just done a little bit more, then you would have seen how great it would have been. Well, in her perfect system, would the full implementation of MMT mean the end of central banking and monetary policy? In other words, everything would simply become fiscal and we wouldn't need monetary economists anymore? So here I have to be a little bit careful because I've read different things from different MMT economists. So I might be conflating her with someone else. But yes, in general, I think they are okay. They think it's very confusing in just a shell game. I think it would just be a lot cleaner to just say, you know, hey, here's the spending we want. I'm pretty sure this is in her book and I'm not mixing her up with somebody else. But to say like, hey, we want this spending proposal. Now let's look at the benefits. And then the downsides are let's go look at like how much slack is in the economy and what are the real resource constraints, you know, that sort of thing, as opposed to looking at how much did we spend and what's revenue this period, like the way a corporation would look at its books to see, you know, what's the bottom line? Are we in the red or are we in the black? In her mind, those figures don't have any meaning when it comes to a currency issuer. And so yes, I think you're right, Jeff, that she would say it'd be a lot simpler just to get rid of the Fed has had the treasury directly monetizing the deficit every year and just deciding for each spending program, you know, does this thing, is it merited or not based on stuff like slack in the economy and, you know, whatever the ostensible benefits are. Well, let's just hope Stephanie Kelton and these MMT years are at our next end, the Fed rally, because we need these people on our side. But I would like to walk through some of your tough questions and that you lay out in your review of her book at Mises.org, some tough questions for the MMT people in some places where you think they're simply wrong about money. And let's start with this. You know, that her whole premise is monetary sovereignty, right? The issuer, presumably a centralized national government is sovereign over its own currency and can produce as much of it at will as it cares to. Well, it turns out, as you point out, there's not that many sovereign countries, right? I mean, in terms of their own dollar, look at, we have big countries like France and Germany, which are part of the Eurozone and do not in a sovereign fashion completely control the issuance of their own currency, not to mention lots and lots of small, poor countries that use other currencies or whatever. So it's not so clear how one becomes monetarily sovereign and how one maintains that. Right. And so here, let me just read a brief excerpt. So this is from pages 18 and 19 of her book, because the way she puts it, I think is very revealing. So she says, as you say, Jeff, it's not actually enough, even though the newcomer might think the issue is just, hey, print your own money. Don't use some other government authorities' currency, but you're right, Jeff. That's not enough. And so she says, to take full advantage of the special powers that accrue to the currency issue where countries need to do more than just grant themselves the exclusive right to issue the currency. It's also important that they don't promise to convert their currency into something they could run out of, example, gold or some other country's currency, and they need to refrain from borrowing in a currency that isn't their own. All right. And so there, so what she's getting at just to make sure the listeners understand the issue, there are countries like Venezuela or something that they might even have their own currency and, you know, it's not convertible and I think it's not like they promise to redeem it for dollars or that, you know, they're on a gold standard and yet they clearly get into trouble, you know, and there's runs on the currency. And what happens there, the MIT people says, oh, see some of these countries, they foolishly have a lot of foreign debt that's denominated in foreign currencies rather than borrowing in their own currency. But if you have a country that not only issues its own currency, that's completely fiat, you know, not convertible anything by pledge and all of their debts or the majority of their debts are denominated in that currency, well then, and only then do you enjoy the special status where you don't need to worry about being able to afford anything because you can always just print more, you know, the bondholders coming, you can always just pay them off. And so as I point out, you know, and that's why I wanted to read the excerpt there just so people could realize we're not putting words in Kelton's mouth there. She didn't say, oh, unfortunately, a lot of countries don't have the ability to take advantage of this because of blah, blah, blah. No, she was saying, here's what they need to do. And so my question was, well, gee, if it's this easy, why doesn't every country in the world do it? And in fact, why don't you as a household do it? You know, why don't I issue Murphy's and you issue dice? If it's just a matter of that, and you think about it for two seconds, you realize why? Because real small countries, nobody's going to accept their currency, just like no one would accept Murphy notes, no merchant would take those. And then, you know, why is it that the Venezuelan government couldn't just borrow in its own currency? Because in lenders would know, I don't trust this government. If I have debt denominated their currency, they might just debase it. So that's why they would only, you know, lend them money denominated in dollars or euros or whatever. And so, you know, once you see that, you realize this is what's happening is it's only a select few countries like the United States and Japan that enjoy this status because they have been so responsible over time, at least relative to every other major government. And so, that's why they have this privilege. And if they abuse it, they would lose that privilege, right? So ironically, I argue, if the US government really did take her advice, and as you're right, Jeff, in practice, they basically had been doing the MMT advice the last 10 years, after a while, they would no longer be the monetary sovereign. After a while, if people start worrying about the US government just printing up dollars to pay off debt, then they would start insisting on, okay, you know, it will lend to you, but only if it's denominated in euros or whatever. And so, it's sort of a self-defeating thing. It's not just this glib, oh, just borrow in your own currency, duh, how come no one else thought of that? Right. And it's not just the profligacy of maybe the MMT spending, it's also the productive capability and relative wealth of a country. In other words, poor countries like the former Rhodesians and Bobway went through its own currency crisis. And it wasn't just because they were borrowing in foreign currencies or allowed exchange or whatever it might be, it's because they just didn't have a lot of productive capability or build up capital in their country and started jacking up the printing presses. So I get her point that all you have to do is not borrow in foreign currency and issue your own and you'll be okay, but that's, I guess, my thought, Bob, is that's easier said than done. I mean, look at Turkey, after the crash of 0708 in the early 2010s, Turkey was being hailed as this miracle with, you know, seven to 10% annual GDP growth. And what was happening though was that the Turkish government was borrowing often in dollar or euro denominations and building out big infrastructure projects, which boosted up its GDP. But now you fast forward eight or 10 years later, and Turkey's had a terrible currency crisis because it has all this foreign debt. So the idea that governments can just do what Kelton prescribes easily requires a discipline which seems inherently at odds with MMT itself. Yeah, I exactly agree with that, Jeff. And you're right, it's, it's, they're overlooking all of the reasons that those countries resorted to those issues. Because again, even not stopping at the country level, a corporation, you know, why don't they just issue things in their own currency, you know, that like JCPenney says, I don't know, are they still in business? I forget all the retailers. Barely. But yeah, but they, when they borrow money, instead of borrowing it in dollars, issuing bonds, they could just issue it in terms of store credit at JCPenney. And why don't they do that? And the answer, of course, is because the terms they would get for that would be terrible, right? They could get better terms by promising to pay people back in dollars. And so you're right, it's sort of dodging all of the really tricky problems that's ignoring the issues that are actually facing, you know, it'd be sort of like saying to people who have to resort to payday lenders, just to say, no, just, just go ahead and take out a bank account and just, you know, build up six months of saving and then go, and that's true if they could do it. But the point is people resorting to payday lenders, they're in a dire straits right now. And that's why they're doing what to other people looks like very reckless moves. And so likewise here, yeah, the reason only a few governments can quote be monetary sovereigns, the way she's saying is because they've been doing things the old standard, you know, the old school gold standard way for a long time and they built up this reputation and that's why they can get away with borrowing in their own currency. Again, ironically, because they have been such fuddy duddies and conservative financially, at least with, you know, relative to everybody else. Well, let's talk about this chicken and egg problem, the idea that revenue has to proceed spending, or that in fact, the opposite is true that government funds taxpayers and currency gets its value from this, you know, the requirement that you pay taxes in it. So which is it? Does government fund us or do we fund government? Right. So here's, as I said in the beginning of this discussion, Jeff, this is one of the areas where when you first hear the MMT logic, it's strangely compelling. And you're like, yeah, that's a weird, you know, that's the opposite of what I used to thinking what the experts talk about, the gurus, the conventional wisdom. And it sounds strangely compelling. So as she says, you know, normally you think, oh, why do we have to have taxes? Oh, because the government wants to pay for spend things, spend on things and where's it going to get the money? It's got to tax it. Otherwise, how's the government going to afford anything? And yet, as she points out, no, every dollar starts with the government, you know, and so from that perspective, its households need government spending because in the MMT view, how does a dollar enter the economy? It's through government spending. And then how does a dollar leave the economy? It's through government taxation. And so as you alluded to earlier, Jeff, for the MMT people, the only real, well, there's like two functions of taxation. One is in case like things are overheating and they could just, you know, sop up purchasing power that way. But even more fundamentally, as you say, they think the bedrock for why it is that the currency has any value at all. Why, you know, why do people toil to obtain dollars? How does that maintain itself? That's that's strange system where people give up valuable things for green pieces of paper that in and of themselves really aren't useful for much. And the MMTers explained it because of taxation, that, oh, the reason people toil or sell valuable items to get these dollar bills, if we're talking about the US context, obviously, is because every April 15th, you got to hand over a bunch of these green pieces of paper to the tax man. And so that's why you go bust your butt to obtain these things because you don't want to go to jail. So there's at least two problems with that narrative. So one is just historically it's wrong. We can go look historically and see, is it the case that dollars were invented when they come into existence when the US government decided to start deficit spending when it decided one year, let's spend 100 billion more than we took it in taxes. And that's how the first 100 billion dollars came into it. No, that's just historically not true. I mean, it involves gold and silver and the Spanish failure they called the dollar. And so you go back in time and how the dollar was originally defined in terms of gold and silver. And it was only gradually as I'm sure many listeners of this podcast know that the people were weaned off of gold and silver to just be left with fiat money. So just historically, when the MTAs explain this is where money comes from, they are simply wrong demonstrably wrong. And then also to with the taxation stuff. I mean, we have examples that there's a famous one in the POW camps in World War Two, where the cigarettes became money, right? So we have seen in real time the Carl Manger story of how money emerges spontaneously from a state of barter. Not only do I argue that that matches the historical facts for, you know, actual money, but even like in a sort of laboratory experiment, we've seen how it emerges out of barter. And so again, they're just they're not correct. And another thing too is you can look in the 80s when they did the the Kemperoth income tax rate reductions, the value of the dollar rose sharply on the foreign exchange market. And I think everybody realized, yeah, that's because with lower tax rates on the margin, getting into US assets made sense. And so people did that, and that made the dollar go up. So are you saying if we got rid of all taxation of US assets, that all of a sudden the dollar would crash and go to zero because no one needs dollars anymore? No, the dollar would actually soar if we lowered tax rates. So this idea that because you're getting taxed in dollars makes the dollar stronger. No, I would say if anything, it's the opposite. Well, she even has this strange excursion, though, questioning whether money arose out of a market demand to solve the inefficiency of barter. She says, well, there's never really any, there's no real evidence that these barter societies ever existed. Did you catch that? I mean, that struck me as as something that historians could go back and look at and maybe prove her wrong. Yeah, I did catch that. And so I don't remember if she explicitly mentioned him, but this goes back to if you remember the guy David Graber, who was a Marxist, I think he just died. I could be wrong about that. Don't quote me. But he was I think he's literally a Marxist. I'm not using that as a slur. Anthropologist, who he has that he had this book, like called debt the first 5000 years or something like that. And yes, he made a very strong case in that book, arguing that the way economists and he mentioned Manger by name and Adam Smith, the way they try to explain the emergence of money is just wrong, that it wasn't that there was this period of barter. And then because of the inefficiencies, they've, you know, blah, blah, blah, came up with indirect exchange. He said that it started with debt and then, you know, money flowed out of that as a way of like systematizing the process. And so in Graber's account, it's, you know, oh, you can go back to these Sumerian priests and look at their temples and see these abstract markings. So I went and looked at that. And part of the issue, Jeff, is it's kind of like trying to find a society that didn't have language or something. You know, I mean, like it's almost like there wouldn't be a civilization to leave such remnants, you know, to find a primitive society that just had barter, they wouldn't have lasted long. And I don't mean they would have collapsed and starved. I mean, they would have quickly developed money. And so that's why I think you don't see a lot of evidence. So it's kind of hard to piece it together. But what's interesting is when I went and reviewed Graber's work, the very ancient cultures he points to as evidence of this is how fiat money emerged first, all of the money there, it was tied to it was like temple offerings that were quoted as like shekels of silver. And so as I pointed out, I said, well, if they could have just used arbitrary numeraires, why didn't they just pick, you know, grains of sand or something? Isn't it funny that they tied it to silver, which would limit what they could do? And so to my mind, clearly what had happened is the merchants had first developed silver is something that was valuable in a medium of exchange, and then the temple priests piggybacked their quote fiat system on top of that. Because in general, if you were just arbitrarily coming with a unit of account, you wouldn't have picked something scarce like silver. Why would you have done that if you could have picked anything? You know, Bitcoin's not based on silver. So why would this ancient and so I think that even though she's arguing that Jeff that no, the when you go actually look at the record, I think it still is consistent with like the mangarian story. Because again, it was the precious metals that these ancient priests used, not some abstract unit of account, which according to their story, they could have done just as well. Well, another mistake you claim that MMT years make is that they confuse debt with money. And there's this idea which Kelton promulgates that all the debt, the $27 trillion or whatever of federal government debt is simply money that federal government has given us. And in other words, put into the economy without taking away from us in taxes because it was debt issuance. So what's the story here with their conflation of debt and money? Sure. So yeah, here I got a quote right in front of me just to make sure the listeners get what she means. And this is kind of what I mean where it's very clever and seductive at first. Well, yeah, I never thought of it like that. But then the more you think about it like, wait a minute, that doesn't make any sense. That's crazy. So here's Kelton. She's trying to diffuse the hysteria over the national debt. Like she just thinks this is like the epitome of what's wrong with our conventional US politics where we have committees worried about the debt and what are we going to do about the debt? And so for people who don't know, in New York City, on West 43rd Street, there's this big electronic display showing what the national debt is. And obviously, it's really big and it shows it in real time, increasing to try to scare everybody. And so here's Kelton's commentary on that. She says, the truth is we're fine. The debt clock on West 43rd Street simply displays a historical record of how many dollars the federal government has added to people's pockets without subtracting, taxing them away. Those dollars are being saved in the form of US treasuries. If you're lucky enough to own some, congratulations, they're part of your wealth. While others may refer to it as a debt clock, it's really a US savings clock. So you see what she's doing there is relying on this MMT sort of accounting tautology to say when the US federal government goes deeper into debt, the accounting flip side of that is people in the private sector now have more net savings or net wealth. Because for the US government to on net owe somebody means somebody who's not in the US government now has another asset. And so they're trying to say so they're saying the private sector can only save on net if it increases the claims it has on the government sector. And so ironically, the deeper Uncle Sam goes into debt, that means the more the rest of us are creditors. Okay, so there is a certain logic to that. And in the review I linked to an earlier Mises.org where I walked through exactly what's wrong about that or to show why that's misleading, it doesn't actually prove what it sounds like it's proving. But I pointed out in the review Jeff that okay, so if she's right, if actually if anything the US debt, meaning the US government federal government debt is a blessing because it shows how much saving there is because that's how many dollars have been issued, you know, spent into existence. Well, then that means if we paid off the debt, there should be no more dollars, right? Because again, that's the logic the M&T people are using is they're saying how does it how do new dollars get into the hands of the public to be held in private coffers? It's only if the government runs a deficit, because then they're spending more into the economy into circulation, than they're taking away through taxation. So and then she's again arguing just I'm just reiterating this that quote I just said. So if that's what a deficit is, then the debt is simply the historical accumulation of all the prior net deficits, that's what the debt means. That's like, you know, the record of all, you know, going back in time, all the deficits over and above all the surpluses and what's left is the debt. And so if that's a positive number, that means their dollar bills still floating around because they haven't been drained away. And so I'm saying if you buy that logic, then that must mean if the debt were ever paid off, there would be no more dollar bills. And yet I pointed out historically, Andrew Jackson did pay off the debt, he didn't just run a surplus, he literally retired the federal debt. And so according to Kelton, the US should have had no dollars at that point. And yet that's not what happened historically. And again, this is because they are simply wrong when they say historically where dollars came from, they're just wrong. And that's why this is also wrong about saying the US debt is like some sort of measurement of how much net saving the private sector has done that just it's just wrong. Well, but just digging a little deeper on this conceptually, there is something to this notion that the federal government's debt is R, meaning the private sector surplus. So I understand that from a balancing, a double entry bookkeeping idea, that seems to make some sort of coherent sense. But they're going a little farther than that, right? They're saying because all capital, all financial assets are denominated in dollars, the source of all of must be the government that issued those dollars. So is she actually saying that the 27 trillion on the US federal debt clock represents all of the wealth the federal government has given us? But there's private wealth in addition and on top of that? Or is she saying the 27 is it? Okay, great question. So I believe the correct MMT position would have to be the 27 trillion dollars represents all of the net private sector saving. And that word net is doing a very it's doing a lot more lifting there than you might think. Because the ideas. So for example, let's say I lend you $100, Jeff. And so I have an IO, you know, I have an IOU from Jeff Dice. So I have an asset that Jeff Dice owes me $100. But they would say that's not net private sector saving because now you have a debt that you owe me. So it's like your negative 100 balances out my positive 100. And so on net, we haven't saved. I saved and you dis-saved. And so you and me put together as our contribution to the private sector don't doesn't make net saving go up or down. But if the government bar, but if I lend $100 to the government by buying a bond, now my saving has gone up 100. No one else's saving in the private sector has gone down by 100. It's just merely the government's saving that has gone down. And so that's the sense in which they want to say there's something special about government debt that allows the private sector to, you know, accrue assets that don't have any counterbalancing debit anywhere in the private sector. So that's what they mean. And but you're, you're right. So what if somebody just owns farmland and it's valued at whatever, a million dollars, that that's an asset, you know, no one could deny that's an asset. And so what I've seen is some mmt people, I think they say, okay, we're talking about financial assets. Okay. And so that's one thing. But even there, it's it's not correct that you can, you know, you can have equity in a corporation. So if, you know, if it's so it's true that if a bunch of people buy bonds from a corporate end, you know, corporation, then there's, then, you know, their wealth and the terms of the bonds is counterbalanced by the corporation's debt. But if instead they buy stock, stock equity is not debt. I mean, by definition, you know, on the balance sheet, equity is not the same thing as a liability or as debt. And so it's not true. So when a corporation raises money by issuing stock, the the the assets held by the new shareholders do not correspond to net indebtedness by the corporation the way it would have if it issued bonds. Okay. And so that's another way that I'm just trying to show that no, their their logic is simply wrong. So here's a case where it's not just that yeah, what they're saying is technically true, it's misleading. It's no, it's just wrong depending on how they they framed it. And so it's, it's not the case. I mean, just in general, you got a bunch of people on a tropical island somewhere and they form a, you know, Rothbardia. And there's no government at all. Those people can save and accumulate and you can check in on them 50 years later and they could have skyscrapers and, you know, big corporations and investment banks. And you wouldn't say, Oh, it's too bad, there's no government to borrow money from them. Otherwise, you know, this is why they can't engage in net saving and have net wealth. That, you know, clearly, there's something crazy about those, that terminology, you know, to make it sound like you're somehow constraining these people because there's not a government to go into debt to them. So even after all the accounting language, all the tautologies, all the something for nothing thinking, I want to just, as we wrap up here, I want to get to the crux of your argument. You have a section in your review of the book called The Fundamental Problem with M.T. So I just want you to summarize, go a little bit deeper on your sentence here. You say, we can succinctly state the fundamental problem with Kelton's vision, Colin. Regardless of what happens to the price level, monetary inflation transfers real resources away from the private sector and into the hands of political officials. So what you're saying is that it's not just tautological. I mean, MMT would actually make us poor, society-wide. Right, exactly. Yeah. So to me, the essence of what's wrong with it is, yeah, if we take their advice and we say, come on, let's throw out all this worrying and ringing our hands over, how are we going to pay for it? And let's look at what the debt is and so on. And just spend money on these things by running the printing press that full stop, I don't care what happens to CPI, that is clearly transferring purchasing power from everyone else into the hands of the people who are getting that new money. Just like a private counterfeiter, someone in their basement who configures their laser printer to print up what looks like authentic, quote, legitimate $100 bills and then starts going on buying stuff, that person is stealing from everybody else. Or if you don't want to use the word stealing because you don't trust government money, okay, fine. But there is a sense in which the counterfeiter, the private sector kind of is making everyone else poorer. When you see his house and his Ferraris that he got with $100 bills, he prints it up in his basement, you don't need to go check and see what happened to CPI to know if he somehow got rich off of the labor of others. You know that okay, that house and those Ferraris could have been in somebody else's hands and they would have been or the materials that went into them might have made different products. But clearly, he siphoned those resources away from other people who would have had them, had he not printed up those $100 bills and now he's living in the nice house and has those Ferraris. Full stop, I don't care about CPI. This isn't an empirical issue, like just knowing the nature of scarcity and how things work. Clearly, that's the case. And that's why counterfeiting is wrong. It's not that counterfeiting is wrong when we're at full employment. No, counterfeiting is always wrong, because you're taking resources from other people who are working for a living and you're doing it by printing up fake money. So when you have that insight, nothing changes just by changing it from the guy printing $100 bills in his basement to the treasury issuing the money or the Federal Reserve doing it electronically that if they spend money on fighter jets by creating money out of thin air, the resources that went into those fighter jets would have otherwise gone into other products in the private sector. And now they're not. And so that is the sense in which government inflation takes resources from the private sector and puts it into the public sector. Full stop. And that's the fundamental problem. And no amount of rhetoric can get around that. Well, Bob, I think the problem and what makes MMT and Kelton's book so seductive is that that fighter jet is the scene. We can look at that thing as tangible. It goes and drops bombs or whatever. But what would have come into existence or just increased savings is unseen. Yeah, you're exactly right. And isn't it funny that even as we pick a typical example, it's not even obvious that we want more fighter jets like somebody might get hurt. But in fairness, I think Kelton and other people like AOC and whatnot would prefer to spend that on things that seem more benign. But we could say more Ferraris. Sure. Sure. Or healthcare for all or whatever. And so, yeah, you're exactly right. The problem is that's the scene. So you can see that the benefits or the ostensible benefits from the spending. And then it's hard to know what the downside is. And I understand if there's not hyperinflation, it looks like, well, gee, it's not obvious what the problem is, why don't we try printing another trillion dollars because nothing catastrophic happened, right? And I want to say that we know that, yeah, even if prices would have fallen, then that means people would have been wealthier that way. So you're exactly right, Jeff, that they're not seeing the alternate uses of those resources. And that's part of the issue, too. We don't know. Like if you ask me, okay, well, you're so smart instead of building these fighter jets or instead of, you know, giving Medicare to all, what do you think these resources ought to be doing? What would they have done? We don't know. That's the market allocation mechanism. I'm not a central planner. It's not that I'm a better central planner than AOC. There shouldn't be a central planner. So what we don't know, but what we can say is that those resources, yes, would have gone into other outlets. And again, that's why their use of the idle resources claim is so important because they're going to say, no, they wouldn't have gone into other resources. They just would have sat there and to say, no, prices adjust. And the reason you keep getting these periods of quote, idle resources is precisely because of the policies people like you are implementing. If you did what the Austarians or the fuddy-duddy Austrians wanted to do, the hard money people, then you wouldn't have these periods of boom, bust with all these quote, idle resources. Well, Bob, let's finish with your comment on this. You know, this is an ideological book. It is suffused throughout with talk about fairness and equality and justice and healthcare and all kinds of things. As a matter of fact, the subtitle of the deficit myth is MMT and the birth of the people's economy. So that clearly has an ideological bent. And you know, Austrians free market types are often accused of simply providing intellectual or ideological cover for big business and capitalism. I wonder if that same accusation will be thrown at this book. Yeah, you're exactly right. All of the seemingly neutral arguments about just accounting tautology is that they're not using it to justify spending money on, like we say, even the warfare state. They're doing it on things that left wing readers already wanted to have. And so this provides an excuse or the intellectual cover for them to say, no, let's go ahead and spend the money on all these things that typically the opponents of will acknowledge, oh yeah, in a perfect world, we'd have Medicare for all and we would have the Green New Deal and we'd have new infrastructure. We just can't afford it right now. Let's be realistic and practical folks. And so when the MMTers come along, they're basically saying, look, we have this new way that you can get all the spending you want. And the typical objections, we've got the magic bullet for it now. Just tell those people they're engaged in old school thinking, this is new modern monetary theory. They've got to get with the program. And so yes, it gives cover to that. And I think that explains the popularity of this, is that it gives people a reason to say it's not irresponsible to spend the money on all the things we've wanted to spend that on for the last 30 years anyway. Well, ladies and gentlemen, we are out of time. We will post the review with the show notes both on YouTube and at Mises.org. It's called a review of Stephanie Kelton's The Deficit Myth. It's really a thoroughgoing and comprehensive review by Bob of The Book, The Deficit Myth. So Bob, I want to thank you so much for your time. And ladies and gentlemen, I want to wish each and every one of you a wonderful, happy Thanksgiving holiday week. I hope you get to take some time off. We hope you enjoy the show and we'll see you next week. The Human Action Podcast is available on iTunes, SoundCloud, Stitcher, Spotify, Google Play, and on Mises.org. Subscribe to get new episodes every week and find more content like this on Mises.org.