Modern Monetary Theory – A Debate: Randall Wray (Pt 1/4)
Randall Wray, one of the founders of the economic theory known as Modern Monetary Theory (MMT) lays out some of its main arguments. Paul Jay hosts
Randall Wray, one of the founders of the economic theory known as Modern Monetary Theory (MMT) lays out some of its main arguments. Paul Jay hosts
PAUL JAY: Hi. Welcome to The Real News Network. I’m Paul Jay.
With the development of this concept of a Green New Deal, and there’s much more attention being paid to it now that it’s being talked about in the halls of Congress, especially people like Alexandria Ocasio-Cortez, the question of how to pay for a Green New Deal has become to the fore. And part of the Green New Deal is the idea of a full employment plan. These two things have been connected. And it’s of course not new, but far more in the spotlight than before. And one of the ways to pay for it that’s being presented, including by Ocasio-Cortez, AOC has hinted at this, is an idea that has been called Modern Money Theory or Modern Monetary Theory. And if I understand it correctly, essentially it recognizes what is clear, which is the government creates money when it needs it. And many times the government spends money, for example, this new military budget or a massive tax cut, without clearly showing that if you’re taking a dollar from here, you’d better find it from over there.
In fact, the government kind of just makes up the money, the deficit grows, and sometimes austerity hawks scream about it, and other times they seem not to care about the deficit. So the idea of MMT, if I understand it correctly, is this same kind of concept can be applied to the Green New Deal, to developing what would be essentially a full employment program, and that the way to fund it is create the money, but within certain limits. When you start to reach full employment or when inflation starts to get above, say, six percent, one could argue about what the two limits should be, then you need to rein things back in again. But there’s a lot of debate. This theory is being attacked from a more conservative right position, and there’s also a lot of debate amongst left economists about MMT. So we are creating a series of interviews with people that are kind of pro-MMT, people that are critical, and we’re going to put them up and hopefully have some panels and debates, and people can decide for themselves what they think of this.
So now joining us is one of the, I would say, fathers of modern MMT, anyway, Modern Modern Monetary Theory, is Randall Wray, and he joins us. He is Professor of Economics at Bard College, he’s a Senior Scholar at the Levy Economics Institute of Bard College. He’s the author of many books, including Modern Money Theory: A primer on of macroeconomics for sovereign monetary systems. Thanks for joining us.
L. RANDALL WRAY: Hi, thanks for having me on.
PAUL JAY: OK. Now that I probably butchered the explanation of what MMT, is you can tell us. OK, so give us the basics.
L. RANDALL WRAY: OK. Well, if we’re going to talk about the Green New Deal, what is important is the resource availability. If we have the resources available, if we have the technology that we’re going to need, then we should be able to find a way to finance that. Finance is supposed to help us do the things we want to do, and if we’ve got all the technical capacity that we need, there’s no reason why we shouldn’t be able to find a way to finance it.
PAUL JAY: OK. So did I have it right, that essentially the way this works is, for example, you need to pay for, I don’t know, a hundred thousand windmills and you want to convert a bunch of factories that are making something else and convert them to windmill manufacturing, but it’s going to take some public money to make this happen. You can create the money on this and other such programs, you can even have a job guarantee program for everyone–which is part of your program, which you developed the idea for before there even was this whole talk about Green New Deal–but a guaranteed job for everyone who wants to work, with a minimum wage of at least the minimum wage; in theory, a living wage, 15 bucks or whatever it is. And the limit of being able to create this money is reaching a point of inflation and/or when you get the full employment and you start seeing inflation go up as a result of wages going up. At that point, you kind of hold back. So explain how this works. What is the limits to being able to just create money?
L. RANDALL WRAY: Yeah. Well, if we’re talking about a sovereign government that issues its own currency, there is no financial limit. The limit is the real resources, that’s what you’ve been implying. If we have the technology and we have the resources that we can make available to the Green New Deal, then we can certainly financially afford it. What we need to do is budget for the federal government spending and go ahead and spend the same way that we spend on anything else. We don’t need to create any new forms of spending to allow the federal government to afford the Green New Deal projects. What we need to worry about is whether we can make available the resources. And as you suggested, a large part of the Green New Deal is going to be shifting resources around, taking them away from current destructive uses and putting them into constructive new uses to implement the Green New Deal.
PAUL JAY: Now what do you mean by resources? Because in my head, resources are the wealth that’s been created by the society, by the economy, and that wealth is in very few hands. What is it, six families control 50, 60 percent of the wealth? I can’t remember the exact stats, but a large amount of resources are in very few private hands. So to me, you want to shift resources around. Part of that shifting is getting some of the wealth out of those hands, and doesn’t that mean taxation?
L. RANDALL WRAY: Well, I think we have to deal with inequality. And part of the Green New Deal is going to be tackling that, both by raising the incomes and wealth at the bottom, and also by taxing away some of the income and wealth at the top.
In my mind, that has nothing to do with implementing, say, the job guarantee program or converting to carbon neutral energy production. Those have to do with putting real resources to work. So that is, I would say, a different issue from the problem of excess inequality, of incomes and financial wealth. So you’re right that the wealth distribution is highly skewed, and that could possibly create a problem in trying to move the resources–and I’m talking about real resources, I’m talking about the plant and equipment and the labor–away from the destructive uses, and putting them into the constructive uses. So we have to figure out how we’re going to go about accomplishing that.
PAUL JAY: But most of that plant and most of the machinery is privately owned. I mean, all of it in the United States is virtually all privately owned. So how do you move it when it’s privately owned? Don’t you get back to the issue of you’ve got to deal with the wealth and the private ownership of these things? I mean, in some ways, you’re almost talking about a planned economy, which in principle is not something I’m against, it’s sacrilegious to say that in the United States. But how do you move these resources around when the people that own the resources are very happy the way things are?
L. RANDALL WRAY: Well, they are privately owned. A lot of those are public companies. And what we’re going to have to do is, say, shift out of mining coal and producing energy by burning coal into windmills and solar panels and so on. And so, I’m not trying to minimize the very significant changes that have to be done. We do live in a planned economy. The question is, who is doing the planning? Right now, it’s being done by megacorps and by the financial institutions that provide the finance to them. And it is going to require more planning, I think, at the government level, than what we have been doing for the past 30, 40 years. It will be, I would say, more equivalent to what we did in the early post-war period, where the federal government played a pretty big role in sort of private planning, cooperating with the big corporations, and also with what we did in World War II.
I look at the challenges that we face right now as being probably even greater than the challenges that we faced in the 1930s and 1940s, and I think that this is the way that the Green New Deal promoters, or formulators, and I was not one of them, are thinking about these challenges. I’ve become convinced that they’re right. We need to tackle this the same way that we tackled World War II. It is going to take a massive effort and cooperative effort among the government, labor unions, so far as they still exist, and private corporations. It’s going to require planning. We can’t rely on an invisible hand to solve this tremendous climate problem that we have in addition to other problems, including inequality and so on. The invisible hand is not going to solve these problems, the invisible hand created these problems.
PAUL JAY: Now, Gar Alperovitz, and there may be others, but I heard it from him, he suggested–and I don’t know where he stands on the whole MMT theory, but he suggested you could use this kind of mechanism to, for example, essentially buy the fossil fuel companies. Like you want to change the policy of Big Oil, take over Big Oil. Like especially wait for the next big recession or big dump in oil prices. I mean, is this part of what you’re thinking about?
L. RANDALL WRAY: Well, I think that we’re definitely going to have to phase out fossil fuel production and use, absolutely, and it is going to take leadership from the government to do that. The private sector is not going to shut that down on its own. I know that people think the carbon tax and so on can play a big role in that. I’m not taking a position on that, maybe carbon taxes are a start. I’m not convinced that you can rely on a market mechanism to solve a problem that was created by the markets. It’s going to take other mechanisms. So carbon taxes could be part of the solution, but I’m not convinced that you can rely on a market mechanism like taxes to solve a problem created by the markets. We’re going to need other mechanisms to completely emanate the use of fossil fuels. That has to be a goal.
PAUL JAY: Well, do you see that as one of those mechanisms, that essentially using MMT theory, create the money to take over sectors of the fossil fuel industry, for example. Like essentially nationalism, you buy the shares and so forth.
L. RANDALL WRAY: I think what I am more comfortable doing is explaining how you can use the fiscal powers of the sovereign government to accomplish what you think are good ideas. That could be a good idea. I’m not taking a position on whether it’s good to buy them out or just shut them down, but something must be done.
PAUL JAY: But within the realm of MMT theory, that would be something one could do.
L. RANDALL WRAY: Sure. I mean, if the question is could the federal government afford to buy the fossil fuel companies and shut them down, the answer is yes, of course it could. You have to think about the consequences. If the government is going to be spending billions and billions buying real assets out in the markets, the question will be, what will be done with all the revenue from the sales of those things? If the investors then turn around and invest in solar power and in wind power, then that’s sort of the ideal consequence of the government purchasing the fossil fuel companies and shutting them down. That’s exactly what you want to do. So what we need to do is to focus investment on creating capacity to replace the fossil fuel sector. We’re going to replace it with alternative energy sources, and we need to get the investment there.
PAUL JAY: So I guess the major critique of MMT that I’ve heard, especially on the left, is that once you reach these limits of full employment and inflation, at that point, you do need to tax. Otherwise, you get into this kind of inflationary spiral. And I understand, to some extent, moving resources around, but if you’re hitting inflationary target and full employment target, one of those mechanisms that needs to kick in will be taxation, and one assumes it’s taxing the wealthy most, certainly undoing some of the big tax cuts that have come recently.
So one of the criticisms is that proponents of MMT don’t talk about that enough, that there needs to be more of a conversation within the context of MMT of both cuts to the military budget and cuts to the increase in taxes on the wealthy, and not just from the point of view of inequality or opposing militarism–which I know most MMT advocates oppose militarism and they want to reduce inequality–but also from just a point of view of the theory itself, there’s going to be inflation, if there isn’t at this point, of full employment taxation, so why not talk about that more as part of the discourse. Because I have heard advocates of MMT talk about it in a way that you almost never reach that point. The idea of having to tax and cut the military budgets is just for moral reasons, not for economic reasons.
L. RANDALL WRAY: Well, I think we need to back up. First, what we hear is these hysterical numbers. The Green New Deal is going to cost 93 trillion dollars, so that’s been floated around. And so, then the response is, well if you’re going to spend 93 trillion on the Green New Deal and you’re going to try to do that with no tax increases, and you’re going to do that over a period of 10 years, adding 10 trillion of spending per year to our current economy has got to be inflationary. And well, yeah, that could possibly be true. The problem with those analyses is that they’re not sitting down and looking at what is the net spending. So the big items in that 93 trillion are the Job Guarantee and Medicare for All. Well, these are not going to be expensive programs.
Medicare for All is probably going to actually reduce total medical spending in the United States. Now, there will be some additional use of healthcare providing resources, but we’re going to have a huge reduction of insurance provisioning, of administration, of billing; lots of resources are going to be released by moving to Medicare for All. The net of that is going to be resource reduction. We’re going to free up resources by moving to Medicare for All.
The job guarantee, the gross number looks very big, but the net impact is very small. Here at the Levy Institute, we did a simulation of a fifteen dollar an hour job guarantee program with generous benefits, and the net impact to the federal government’s budget is about 400 billion a year. But the program increases GDP by about 500 billion a year and creates four million private sector jobs. The net impact of inflation, according to the simulation, is far under one percentage point increase of inflation, practically negligible at the very beginning of the program, and that gradually tapers down to nearly zero after a four year phase in. So these numbers, the 93 trillion boost to spending, are just hysterical. They’re wrong. We need to look at the net demand on resources, and it’s going to be nothing like 93 trillion dollars.
PAUL JAY: Yeah. I mean, I think I’ve heard much lower numbers as well from certain of the left economists. I think it’s coming a little more from the conservative side, these great big numbers.
L. RANDALL WRAY: Yes.
PAUL JAY: But we’re somewhere–it depends how you define full employment–but somewhere around four percent, which we’re kind of at now. One could argue, is that a real four percent now, so even if one argued in terms of real labor participation rates and other such, maybe it’s actually really higher. But it wouldn’t take that much more spending to get to “full employment” if we’re already at four or maybe even under four. So if you’re already at a point where you’re close to this tipping point where it might become inflationary, and now want to spend a whack more money on a new green infrastructure program, doesn’t that require taxation sooner than later?
L. RANDALL WRAY: At this point, I would say I’m still uncertain that we will need a tax increase. So the way that we’re going to get to full employment is through the Job Guarantee. The Job Guarantee only hires unemployed people. And so, that by itself is not inflationary. You are creating the jobs for people who currently don’t have jobs. We estimate that that will be about 15 million people. Now, those people are available to work in Green New Deal projects. They’re not going to be doing the major infrastructure kinds of projects that require skills, probably union labor and all that, but they can do a lot of the jobs that are being talked about as part of the Green New Deal, very broadly defined, including caregiving and service to the communities. environmental services. So employing those people, we are mobilizing resources that are not now being used and putting them to use in the Green New Deal.
There will be shifting of resources, as we were talking about before, from destructive use to constructive use. Again, that isn’t increasing employment, that is just shifting the employment. Some of those workers are going have to be retrained for the new jobs, so I realize that we will have to devote more resources to education and training. And I do think there will be a net increase in the use of resources. We need to try to get a handle on that. As we phase in Green New Deal programs, we’ll have a better idea of how many new resources are going to be employed. And it could be that we realize that aggregate demand is outpacing our capacity to produce and we will need some tax increases. We may need to employ some of the other methods that were used during World War II.
PAUL JAY: Including price controls?
L. RANDALL WRAY: Including price controls, including rationing. As I said, we should think of this as something equivalent to World War II, where we will probably need a range of methods of tackling price increases.
PAUL JAY: Okay. Well, this is just the beginning of the conversation. What we’re going to do is go back and forth a little bit. We interviewed Jerry Epstein, who is a critic of MMT, and we’re going to show Jerry’s interview to Randall. We’re going to show Randall’s interview to Jerry, and we’re going to get them to respond to each other. I hope we can get some panels together with pro and cons. And as I said to Randall off camera in the beginning, I actually think there’s far more agreement about all of this than there is disagreement, but we’ll try to figure this out.
So Randall, thanks for joining us. I hope you’ll come back and we’ll dig into this deeper. But also, underneath the video, if you’re on our website or on YouTube, ask your own comments and questions about this and I’ll raise them with Randall, and we can interview some of the other people involved in the MMT school of thought, and others, critics. So we want to just start a conversation here about how this new funding is going to happen. Because clearly, for a Green New Deal to transition off of fossil fuels, it’s going to be a real restructuring of the economy. And the part we didn’t talk about in this interview very much, but we can in the future, there’s going to have to be a real change of who has power. Because both in terms of the power of the fossil fuel industry, which is very interlinked with the power of finance, and there’s no way that most capitalists want full employment. Whether they believe it’s inflationary or not, unemployment gives people that own businesses a lot of leverage.
I mean, we’re in Baltimore, and people work in a unionized place, Johns Hopkins, cleaning surgical rooms sometimes for 13, 14 dollars an hour after 14 and 15 years seniority. It only happens because so many people are unemployed and desperate for work. So a lot of questions to unfold here, and we’ll do more. But I just blabbed a lot. Randall, anything else you want to say, finally? And then we’ll pick it up again another time.
L. RANDALL WRAY: OK. Well, yes. Thanks for having me on, and I’d be glad to talk more about the financial aspects, which I’m much more familiar with than sort of the real resource uses that will be required in the Green New Deal.
PAUL JAY: All right, great. Thanks for joining us. And thank you for joining us on The Real News Network.