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We continue our series of discussions about Modern Money Theory and funding the Green New Deal with host Paul Jay

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PAUL JAY Modern Money Theory, or MMT— is it way to fund the Green New Deal? That’s next on The Real News Network.

Hi, I’m Paul Jay at The Real News. There’s a lot of debate, discussion going on in economic circles about modern money theory and is it the way to fund a big infrastructure program, a Green New Deal program, a full employment program? We’re going to continue our discussion and debate about that. We’ve already done a little bit of that and we’re going to continue to. But today, joining us to have a discussion, perhaps debate about this is L. Randall Wray. He’s a Professor of Economics at Bard College and Senior Scholar at the Levy Economics Institute of Bard. He’s the author of many books, including one of the foundational books of modern money theory, called Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems. Also joining us is Dean Baker. He’s a Senior Research Economist at the Center for Economic and Policy Research (CEPR). Thank you both for joining us.

PANEL Thanks for having me on. Thank you.

PAUL JAY Okay, Randall. Again, give us the very basics of what MMT is. And then we’ll ask Dean to give us his thoughts, and we’ll go from there.

L. RANDALL WRAY Okay. Well we’ve focused on what a difference it makes if a country issues its own sovereign currency, imposes taxes in that currency, collects that currency in payment of taxes, floats the currency and issues debt only denominated in that currency. And we argue that you have to analyze that sort of government very different from the way that you would analyze a household or a firm, which is what is normally done in economics and also by politicians who very often try to use an analogy of the household and apply that to the government’s finances. We argue that the finances are very different. A sovereign currency country, defined the way that I just did, doesn’t need to worry about affordability. It can’t run out of money. It can’t be forced to default on its own obligations. And therefore, what really matters, is resource availability not its constrained finance.

PAUL JAY Okay, Dean?

DEAN BAKER Yeah. I pretty much agree with everything Randall said. This follows from Keynes. I think Randall would agree on that. Basically, the story is that if you’re a country like the United States, that you borrow in your own currency, you print your own currency, your constraints are the resources in the economy. So this idea that we have to bring about the budget deficit, we have to worry about the debt, that doesn’t make sense in a context where we have unemployed resources. So the logic would be, if we want to have a Green New Deal—Well if we’re not up against resource constraints, in other words, we could just go out and spend. You know, we have to figure out what that dollar sum is, but let’s say $500 billion. We could just go out and spend it, as long as we have idle resources.

Now the problem you’d run into is, at the moment at least, I don’t think you have $500 billion of idle resources in the US. In other words, if we just call, here are all these great projects. We want to spend another $500 billion. What I would expect, and maybe I’ll be shown wrong, but what I would expect is we’d start to see a lot more inflation that would create an overly tight labor market. We’d have other resource constraints and we’d start to see higher inflation. Though that would get us in a situation where we do have to do something to slow the economy, presumably raise taxes. Alternatively, we could cut other spending. But if we go back to say 2010, when we had almost 10 percent unemployment, suppose you want to spend another $500 billion or even a trillion a year on a Green New Deal—Sure, we absolutely could have done that. No resource constraints at that point. And you know, I think the tragedy, we can’t relive history. It’s a tragedy that we didn’t make the environment a priority in that recovery, or for that matter, make the recovery a priority in the recovery. But in any case, we had plenty of resources, which could’ve been devoted towards reducing greenhouse gas emissions and saving the environment.

PAUL JAY Right. Randall, so when you said resources, that’s not quite the same way that Dean said because he used the phrase “idle resources.” You’ve been saying resources, so maybe we should start with what the differentiation is there. Because based on if you’re using the term idle resources, then there’s not a lot you can do right now without getting into taxation.

L. RANDALL WRAY Well, what we will be doing is shifting some resources from destructive use to constructive use. So they’re not currently idle, but they’re going to be made idle as you phase out, say, fossil fuels. As we, and I know Dean has done work on this too, as we move to Medicare for All, we’re going to be idling a lot of resources. The question is, how many resources will be made idle as we transition to the green economy? How many resources do we have that are already idle? We add those two things together, that’s a potential supply. The problem is that the resources are not all perfectly suitable to the new uses. We may have to devote more resources to retraining and education, and so on. And we have to be careful to phase it in at a pace that doesn’t exceed the number of resources we’re freeing up or bringing into the labor force, in the same way that we did in World War II.

So I’m glad Dean mentioned Keynes, because Keynes did write about how you do this in his book How to Pay for the War. He laid it all out, I think, in a way that’s perfectly consistent with MMT. He even had a comment in that book in which he said, you know, the problem is not finance; the problem is resources. Of course a government that has its own central bank and can control the banking system, can get all the finance it needs. The problem is resource availability.

PAUL JAY But the thing is—I’ll ask Dean, but you may want to respond to this too, Randall. You say phase out fossil fuel, move to Medicare for All. These are major political wars that are going to go on to do such things. So I’ll ask Dean first, but don’t you still get to the issue of taxation pretty quickly in the process of all of that?

DEAN BAKER I would say you probably will at this point in the economy. So again, if we are at the 2010 level, we could have just gone to these things pretty quickly, gone into Medicare for All. I mean, there I shouldn’t say that. There’s plenty of issues with Medicare for All, even apart from issues of taxation, but that aside, could we have done a Green New Deal in 2010? Almost, certainly. Today, [inaudible] into this. I mean, we have people in, say, oil transport, putting in the pipelines. Well, they may not be well-suited. We’ll make those people idle as we shift to a Green New Deal, but those people may not be well-suited at the moment for constructing and installing solar panels. It doesn’t mean they couldn’t be, but if we just go tomorrow, you lost your job. Okay, now we want you to be putting in solar panels. Well, you’re out in North Dakota putting in the pipeline, you need the solar panels in New York and Los Angeles, maybe you don’t let them move there. We can’t do that. It’s just not an overnight story. So that would be my concern, that we can’t do these things overnight and people are being displaced. Those people putting in pipelines are pretty well-paid workers. They’ve been doing that in many cases 10, 15, 20 years. They don’t want to give up those jobs. Again, there are priorities. We have to address global warming. So that’s the tradeoff there, but I’d say that’s not something that’s trivial.

PAUL JAY So Randall, one of the critiques of MMT is that it creates the idea, and even amongst some of the politicians that are very much behind the Green New Deal, that there’s not a real big political struggle to accomplish all of this. Because of the sovereign currency, you can kind of just create the money. But in the previous interview I did with you, and to some extent this, but you do understand this. I know you do because you said so, that this is a real struggle. Like you’ve talked about, you need practically World War II kind of mobilization with a focus on a Green New Deal. You even mentioned the possibility of price controls. And so, it’s not just like, let’s make up some money and la, la, la, we’re going to have a Green New Deal.

L. RANDALL WRAY Well, of course. I think that everything that Dean just said is perfectly consistent with the argument that we’re making. At first, of course, we can’t shut off fossil fuel immediately. We’re going to have to phase it out over time and release those resources. We also can’t build the solar panels and put them all in place all at one time. It’s going to be very gradual. We need to look at a 10-year period. That’s sort of what we’re costing out right now. I’m pretty confident on the, say, 10-year projection of the resource needs that will be required. In the short run, we probably will put some pressure on resources. Over the long run, I don’t think that what we face is really that big of a challenge in terms of resources, in terms of the financing. In terms of the politics, of course, it’s huge. And we’re not—

PAUL JAY But Dean says in this economy, you get inflationary pressures rather soon if you start doing this, which means again, the need for taxation sooner than later. And one of the critiques has been, advocates of MMT don’t talk very much about the role of taxation. I know you raise it. Some others, barely mention it.

L. RANDALL WRAY Look, almost everyone I know, Dean does not do this, but almost everyone thinks we need to raise the money. And what we’re arguing— and you need to start raising it now in advance of your spending, and so on. That is just completely wrong. We can start spending immediately. When do we need to raise the taxes? We need to raise the taxes when we have to release resources, so it makes no sense to raise taxes in advance of the spending. We may need to start raising taxes. I don’t think it’s a foregone conclusion that we will have to raise taxes. Our estimate is that over the 10-year period, we’re talking about a net demand on resources equal to about 5 percent of GDP. I don’t know what Dean’s number is on that. I know his numbers on Medicare are about the same as ours. We’re going to release about 3.3 percent of GDP worth of resources by going to Medicare for All, through the savings through the health care system.

Now, are all of those workers well-suited to the kinds of jobs we’re gonna be creating? Well, there will be a lot of administrative work that will need to be done with the Green New Deal projects, so they can do some of those jobs. But the point is, the net demand is probably somewhere around 5 percent. If we immediately phased everything in, perhaps we might need a 5 percent reduction of consumption. But if we’re phasing this in over time, the time to raise the taxes wouldn’t be now, and we certainly wouldn’t want to reduce consumption by 5 percent right now. It’s going to be two or three years of phase-in.


DEAN BAKER Well I’m fine with not doing it preemptively. I think it is important to acknowledge that we almost certainly will have to raise taxes. The other part of the mix is that, of course, if we were to just say spend, how much would phase-in over a year or two? A hundred billion, $200 billion, $300 billion a year. Let’s say, 1.5 to 2 percent GDP. It almost certainly would be inflationary. The other thing we do of course, the Fed would almost certainly raise interest rates and that would slow the economy and release resources as well. So, that’s another way to go. Maybe not the way Randall would prefer, but that is another option.

But again, just saying, sitting down, okay, we want to have a Green New Deal or we’re going to have to raise taxes. I would expect that we would. And again, I wrote a piece on this saying, look, the Republicans have been going around for years saying we’re going to have big tax cuts and then you go, well, how are you going to offset that? And they just say, gobbledygook. So from politics, I mean I’m not running for office, but if I were a politician saying, oh let’s have a Green New Deal. So, how are you going to pay for it? And I’ll say, well we’ll cross that bridge when we come to it. That doesn’t strike me as an outrageous thing to say but if you were to say, absolutely, we don’t have to raise taxes. Well, that is an outrageous thing to say.

PAUL JAY Okay. So we’re going to— this is just the beginning of the conversation. We’re going to have a lot more of these discussions, debates. So in the comments section, under the video here, if you have questions you want us to ask of Dean, of Randall, and other people, other economists we’re going to bring on, please do. You can also write us, email, contact at The Real and we’ll follow that thread. And we’re gonna keep this conversation going because the question in the elections, whether it’s Medicare for All, whether it’s the Green New Deal, any of the programs people are talking about, of course, the question always is, how you’re going to pay for it? So we’re going to keep debating and discussing this question about how to pay for it. So I thank you, Dean. Thank you, Randall.

L. RANDALL WRAY Thank you.

DEAN BAKER Thanks for having me on.

PAUL JAY And thank you for joining us on The Real News Network.

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Dean Baker

Dean Baker is co-director of the Centre for Economic and Policy Research

L. Randall Wray

L. Randall Wray is a Professor of Economics at the University of Missouri-Kansas City, a Senior Research Associate at the Center for Full Employment and Price Stability, as well as a visiting Senior Scholar at the Jerome Levy Economics Institute of Bard College. He is a past president of the Association for Institutionalist Thought (AFIT) and has served on the board of directors of the Association for Evolutionary Economics (AFEE). He is developing policies to promote true full employment, focusing on Hyman P. Minsky's "employer of last resort" proposal as a way to bring low-skilled, prime-age males back into the labor force. Wray's research has appeared in numerous books and journals including Journal of Post Keynesian Economics, Journal of Economic Issues, Review of Political Economy, Review of Social Economy.