Grubstakers - Episode 35: Money, Modern Monetary Theory, & Why the Rent is Too Damn High

Episode Date: October 3, 2018

On this special episode we dive into Modern Monetary Theory, debunk some myths about inflation and currency, and look at the woke new Goldman Sachs CEO.

Today on Grubstakers, we're going to talk to you about modern monetary theory, why the rent is too damn high, and a woke CEO at Goldman Sachs who is enabling genocide. So buckle up, because it's coming for you now. I think we disproportionately stop whites too much. I taught those kids lessons on product development and marketing, and they taught me what it was like growing up feeling targeted for your race. I am proud to be gay. I am proud to be a Republican. You know, I went to a tough school in Queens, and they used to beat up the little Jewish boys.

You know, I love having the support of real billionaires. Hello, hello, and welcome to Grubstakers, the podcast about billionaires. Sean P. McCarthy here, joined as always by my friends... Andy Palmer. Yogi Poliwal. Steve Jeffries. And we got a special episode for you today a special episode we are recording for the first time in yogi's brand new apartment uh it's beautiful our cointelpro checks finally cashed our work discrediting and disgracing

and creating internal divisions in the left i am so glad we held back on sorrows and didn't reveal the truth about pizza. Well, the check cleared. That's all I care about. It has bought us this beautiful 30th floor view of Brooklyn. The kind of view that you really only get when your father helped overthrow a Latin American government. And we're here. We're taking it all in.

And we're excited to be back with you. And so we've done this podcast about billionaires for a little while, and we're taking a bit of a different tact this episode in that we've covered billionaires, but we should also probably talk about what money actually is and these kinds of things. And Stephen was just recently at a modern monetary theory conference, the MMT. And so we'll talk about that a little bit. And then after that... You see, with all these apartment moves, like I'm moving in with Stephen in a week, we thought it would be appropriate to address

how the rent is too damn high. Rent is too damn high. Indeed. And why the rent is too damn high. Are you trying to say something? And the fact that none of us can live alone without

our dad making Excel. Yeah, that seems about fair. But when he does, why wouldn't you? No, I'm not saying you shouldn't. My dad only made PowerPoint, so I had to live with roommates. What if it came out that the rent is

too high guy was actually a landlord? The damning political scandal of the century. But yeah, so Steve will talk about modern monetary theory and his experience at the conference and uh and all these kinds of uh important questions uh and just left economics in general or economics in general if you prefer and then also once we get through that i basically i found three articles in Vanity Fair, all by the same author, William Cohen,

where three different headlines where he refers to the new CEO of Goldman Sachs as woke. And I almost had a brain hemorrhage reading that today. So I thought after we do a bit of a modern monetary theory discussion, we'll do a article excerpt analysis series, which is unrelated to any other segment on any other popular podcast. But I will just, I will read a couple excerpts from these new woke Goldman Sachs CEO articles and then we'll comment on them

so you can hear about... What the fuck is up with the lexicon? Goldman Sachs woke? It makes no sense. Merrill Lynch's Bay? At what point is the new age lexicon going to stop proliferating financial journalism? Right.

As soon as I heard that, Goldman Sachs woke, I just started imagining a fraudulent foreclosure notice covered with clap emojis. Give your house to banks. This inflation is not supreme enough. London whale magic or something.

But so we'll get to that. And we don't mention it enough on this podcast, but Steve Jeffries, our esteemed co-host, has a master's degree in economics. So he actually knows things. And I think this episode would be an exciting opportunity for us to kind of go through Economics 101 in a sense. And why the rent is too damn high.

Exactly. And it all gets back to why the rent is too damn high. But so I guess, Steve, first of all, if you could just give a brief explainer of modern monetary theory, and then we'll go into more depth shortly, and then we can get to the conference. Sure. Well, very briefly, MMT, modern monetary theory, is built upon a concept that there are certain countries that have a fiat currency, and that fiat currency is not backed by any other currency or another commodity. It's not on a fixed exchange rate or anything. It's just floating. And that's opposed to like gold-backed currency or currency-backed.

Yeah, as opposed to like a country that runs a currency board or it's gold-backed or something like that. Or backed by the dollar. Yeah, or dollarized. Yeah. So the U.S., Japan, U.apan uk and in fact most places in the world operate under this type of system so they call it modern money monetary theory um and there are some implications for that that that fact um one is that the budget deficits and uh federal budget deficits and national debt don't mean the same thing that you hear in mainstream economics textbooks.

They're the same as personal credit card debt, right? You and I have hard budget constraints in our spending that we have to meet because we are only the users of a currency, whereas the federal government is not like a household at all. It's the currency issuer so they make that distinction because they they want to say that like the only reason any of us have u.s dollars is because at some point the state spent out more than it taxed away right so like how is you might be asking like all right if you if they have like essentially unlimited dollars to spend out how does it retain its value so monetary modern monetary people say

that taxes drive money it's uh there's that is to say we all have a tax obligation imposed by the state and or if not taxes then fines and fees they're only payable in the U.S. dollar. So those three things, the fact that you can only pay them in U.S. dollars gives you a reason to need the currency. Yeah, they didn't like when I tried to throw my feces at them for this public disorder ticket. Yeah, you can go out and get as much Bitcoin as you want, but ultimately you'll have to convert it back in the U.S. dollars in order to pay your taxes.

And a lot of the misconceptions about money seem to stem from the early history of money that we were talking to on our own off mic before this. But like some of it's this big misconception about money, which is covered in David Graeber's book, Debt, the First 5,000 Years, and we're trying to have him on. I messaged him on Face. They're on Twitter. He did not reply. Steve Zahn, let's not forget. We're also trying to get Steve Zahn to come on the podcast. He's David Graeber's bae. Point of clarification. Before you start thinking

Andy is smart, he listened to the audiobook. He didn't read it. Yeah, no, I'm functionally illiterate. Don't medium shame. If you follow me on Twitter, you, I'm functionally illiterate. Don't medium shame. If you follow me on Twitter, you know I'm functionally illiterate. I just kind of mash buttons and autocorrect as the work. Basically, there's this longstanding myth, essentially, or fantasy that I'd bought into that early pre-monetary economies were barter-based,

that people would just exchange one item for another, you know, a chicken for a bag of corn or whatever. You got bread, I got a duck, let's make something happen. Yeah. Wompum for slaves. I mean, I do that, but most people wouldn't. And it turns out that anthropologists haven't been able to find a single...

Oh, that's never been the case. That's pretty much never been the case. They find very small exceptions, but the only time that barter actually comes up in a society is when a monetary society collapses and money no longer has value, such as post-Soviet Union Russia. They briefly switched to a barter right society because everything collapsed um so i i read graber's book debt 5 000 years and it was my uh that was kind of my entry point into monetary theory um i had already kind of heard about the theory but like it didn't it wasn't really driven home until i read that book and i was wondering like this doesn't seem very modern at all. Actually, there are examples of

Sumerian debt crises. Really? Yeah. They had very sophisticated monetary systems thousands of years ago. Just to go back to the barter system in post-Soviet Russia, I believe that was based around state assets for not being killed by the mafia.

Yeah. And yeah, and it was basically he persists a new framework, which is that money, instead of replacing barter in terms of exchange, which Adam Smith kind of invented out of whole cloth based on how things were understood at the time he was writing uh what really happened is that basically people would in and say gift-based economies um or you know kind of centrally community governed economies like in um early native american economies or pre-columbian and american economies um they eventually some places got to the point where, you know, someone would loan someone something and that would incur a debt and they needed a way to keep track of debts. And so that kind of money kind of arose as a way of keeping track of debts. And ultimately that shaped the growth of money, which was not through direct exchange per se but because of debt and money is uh essentially an iou um that ultimately

uh came to be closely associated with governments until it kind of became completely associated with governments so we can trace the rise of jeff bezos to tobacco debts basically um but so and i guess like the the uh my big takeaway from mmt modern monetary theory is essentially and please steve correct me if i'm wrong here is that inflation is the only real constriction on government spending essentially like if spending is not inflationary then you know if the debt is 12 trillion it doesn't matter it's completely abstract. And so essentially, like if inflation is the only constraint on monetary policy, then there's lots of programs we could pursue such as job guarantee that are not necessarily going to create inflation in our current environment. And we can circle back

around to that. But I did just want to get your after action report on the MMT conference. Could you just explain for our listeners what the MMT conference was? I know it's the second annual one. What you saw there, these kinds of things. So yeah, it was the second international Modern Mind Trade Conference, which for all our Marxist fans is like not celebrating the second international as it applies to Modern Mind Trade Theory. It was a three-day conference just this past Friday through Sunday. I went to all every day. Like every single luminary from the MMT world and all the activists. There were about 400 people there. They were there.

In fact, when we were all in one hall in the new school, I was like, wow, if they dropped a bomb here, MMT would be finished as a movement. There'd just be nothing left. Well, let's not broadcast that out to listeners. I think the only reason that didn't happen is just disorganization in the Trump White House. Yeah, they're scheduling mishaps, so the bomb didn't. Yeah, so the first day, Stephanie Kelton, one of the main M&T economists, who was the advisor to Bernie Sanders on his campaign, spoke.

A lot of people who had done important work on the federal job guarantee, which is often just linked with MMT, spoke. Second day, I had some great workshops. I participated in three of them. I loved it because it was like, it was linking kind of this abstract sort of nerdy topics of MMT with activists and organizers. Right. And so like, how can we drive this movement forward? And, yeah,

it was a lot of like, just kind of practical political questions. So was it a success? One of the workshops, they teach you how to work the printing press. You just have to do that all day. Was it a success? Yeah, I think it was a success. How to counterfeit. workshop they teach you how to work the printing press. You just have to do that all day. I think it was a success. How to counterfeit. If the government's not going to print money,

here's how you can. Gorilla MMT. Put trillions of counterfeit dollars into circulation. The third component was there's a lot of media there. Joe Weisenthal was just walking around. He's Bloomberg. Bloomberg reporter. He's been MMT friendly for a while. there's a lot of media there like joe weisenthal was just walking around he's like business and no he's bloomberg bloomberg reporter yeah he's been mmt friendly for a while and i saw him there

um okay so let's let's take a step back so um the biggest criticism that you hear when people start talking about mmt is they'll immediately go to 1930s Germany and talk about inflation. Or 1920s Germany, where there was hyperinflation. There's the, you know, probably semi-apocryphal stories of people buying a loaf of bread with a wheelbarrow full of Deutschmarks. You know, things like that. So, M&T relies on a charismatic leader to solve these problems, right? Very distinct facial choices. Let's first look at what is inflation and then what causes inflation. Like, what are the underlying causes of inflation?

And then once we've established that, then we can, I think, maybe show how we can address these concerns and how many of the concerns about inflation are overblown so like what is inflation and uh how is it how is it measured well you hear all the stories about weimar germany or zimbabwe or now venezuela which we'll get back to but yeah like um inflation just simply because it's a it's a general rise in prices. You could print all the money in the world, MMT sometimes says, but if it's not getting spent, there's no inflation. So how our MMT is just looking at kind of what they call the biophysical constraints of the economy. So the real resources, the people, the factories, all that stuff. And looking along supply chains, it finds that inflationary pressure on the supply side is typically where you find inflation. It's not about consumers suddenly buying a lot more particular consumer goods and bidding the prices

up so much as it is finding rigidities in the supply chain where you can't get enough shit to make goods and services. So it's a cost of production issue. Yeah, it's a cost push rather than demand pull. Can you put it in terms of a pizzeria operating? Yes, I can. So let's say it was a demand pull inflation. So more and more people are going to a particular pizzeria or maybe just pizzerias in general.

I don't know. I don't even know why that would happen. There's a pizza boom going on. There's a pizza boom. There's a pizza bubble. Let's say people haven't figured out that artichokes are a disgusting thing to put on pizzas. Yeah. And that when you do that, the pizzas fall apart, and it's nonsense.

I don't know. I think some people realize that most people aren't bitches and can handle a heavy slice of pie, but we're getting ahead of ourselves here. Let's pretend that John Podesta was not exposed, and pizza restaurants are incredibly popular with lines out the door.

Yeah, so you have like Podesta-level pizza inflation going on um so people want more of it the pizzeria would like to supply them all with pizza at maybe the same or maybe higher prices of course um it gets enough stores to do that it gains some market power prices go up because it says i have all this control over control over this newly inflated pizza economy. You see a rise in prices because people don't have a choice to go

elsewhere or something like that. The pizza market's cornered. The owners raise prices. All this demand is coming in, so they raise prices. That would be an example of demand-led inflation. On the supply side, which empirically we find more likely to be the case often. Well, also in this pizza case, because you have an effective monopoly in this one example.

Yeah. So in the other case, in the cost. Wait a minute, Andy. Are you implying to me that economic models are not always accurate and reflective of the real world? Again. I'm sorry. Go on, Steve. real world again i'm sorry go on steve uh in the other more more likely case of cost push inflation um the demand for pizza is about the same but the place where they make the pizza ingredients

has a political instability and suddenly their ability to produce those things is very limited a work coup if you will yeah like Like for pasta sauce. Of course. So that eventually makes its way up the supply chain back to the pizzeria. The pizza inflation that followed the takeover of the black shirts in Italy in the 1920s. Or workers go on strike

for better conditions. And other pizzerias have to fill in that gap, but they can't really do it because they don't have the productive capacity. One thing I've heard, there have been several debates about the United States in the 70s because there was something of a mild inflationary crisis. It's very fun to blame it on jimmy carter uh and so i do and uh so besides the fact that it was entirely jimmy carter's fault uh it looks like uh much of that had to do with um oil prices and the saudi oil embargo that almost triggered a united states invasion of Saudi Arabia. But then also you have this other side of it where the central bank, which has in their statement of purpose or whatever it is, they have two targets,

which is employment and inflation or two, two things they control. So also in the 1970s, Paul Volcker under Jimmy Carter said that in order to get inflation under control, Americans had to be willing to lower their own standard of living by basically what became known as the Volcker Shock, where he just jacked up interest prices and kind of crashed the economy for a minute to keep inflation under control but is is the is the um essentially in the pizza example that they would say one slice per two people instead of one slice per one person i guess yeah but then also is is it a fair assessment that uh inflation was driven largely by the saudi oil crisis or uh i mean or at least that plus several factors similar to that as opposed to jimmy carter Carter being willing to negotiate with terrorists?

Yeah, yeah. I mean, so there's that. And, like, I do think this stagflation story is very important because essentially that's marked as the start of the neoliberal era. Right. The 79-80 transition from New Deal liberalism to modern neoliberalism. But just, and Steve would know more about this, but one thing I did look up, and essentially I did a bit of research on stagflation,

and the general mainstream consensus, mainstream economics, whatever, is that spending on the Vietnam War and the Great Society was creating minor inflationary pressure on the U.S. economy to the point where Nixon in 1971 took us off the gold

standard. And then in 1973-74, you had the oil embargoes that Andy mentioned. And then 79-80, you had both the Iran Revolution and the Iran-Iraq War, which was another oil shock. So stagflation, as far as I can tell, really emerged out of these oil shocks. But there was arguably some minor amount of inflation before that. And now when you say inflationary pressure from the Great Society and the Vietnam War, how does that fit into our model of... Pizzas. Or pizzas, or just in general, how does that fit into our model of inflation that we've

discussed? Well, that's what Steve is here for. I would take basically all of the phenomenon you mentioned and say is it was almost everywhere a supply-led phenomenon okay so like volcker's volcker's response to u.s consumers to basically spend less was wrong-headed because i mean people were basically demanding what they would always demand right Right, right. But we have these supply chain rigidities from going all the way back to oil that we're suddenly having to deal with because of all the political instability. Do you know how Vietnam played into this?

It's okay if you haven't studied that particular instance. I mean, that was another cause put forward for sure. Do you know the mechanism? Well, you need a lot of oil to wage war. Okay, so it came down to oil that eventually came, that you would trace back to Saudi Arabia? Also during the 70s. Other inputs from Southeast Asia. Oh, okay, so that would also increase the supply side prices. Do you think inflation was caused by the governmental decision

to instead of putting gasoline in cars, drop it over the countryside of Southeast Asia? And please frame that in terms of Jimmy Carter being a pussy. And pizza shops. And frame it as a question as well. But so essentially like, and I think that's relevant

because essentially you see this sometimes and I think you will see it again, the conservative argument is that these lyndon johnson great society poverty programs in the vietnam war and government spending created inflationary pressure whereas the mnt are jimmy carter not standing up to the soviet union the other argument is that it's a supply issue but um uh yes and just a couple statistics from this time so we mentioned the two big oil shocks are really what caused stagflation which to define that term is essentially no economic growth and inflation which is before this time traditional Keynesianism from John Maynard Keynes's

school of thought predicted that when unemployment went up inflation would go down and then stagflation kind of proved, yeah. And so up until that time, generally the democratic economic policy teams favored aggregate demand management techniques. So you run a budget deficit in order to build roads, bridges, or something like that, or direct job creation programs like in the 30s and 40s, with the WPA and the CCC.

Right, right. So that changed after the stagflation crisis, because there's kind of a crisis in economic thought about what to do. Why do we have both, basically? Why do we have a recession and inflation? Because usually we thought they were, like, diametrically opposed. Like, either you have inflation or you have unemployment. Right. Yeah.

And that led an opening for a group of economists called the Monetarists to basically advise the Federal Reserve on how they should try to control inflation better by controlling the money supply. Milton Friedman was like, have you thought about killing the Democrats? Throwing them out of helicopters. Yeah.

Have you considered a coup? Is that? But yes. We have fighter jets. Those could bomb Congress. As Steve mentioned, Milton Friedman was probably the most famous of the monetarists. And because Paul Volcker in jacking interest rates up to about 20% at their peak, managed to tame inflation while also causing a recession that put unemployment

up to 10%. He managed to tame inflation for the until now, I mean, it hasn't really been seen again in the United States. And so this was was like this became the real mainstream triumph of milton friedman and monetarism which is this idea that you can control inflation and also control recessions and business cycles by just managing the money supply but what they found out i think that the the other part of that story that doesn't get told nearly nearly as much is um when they were you know you have a bunch of monitors advising the federal reserve now so they say you need like bank lending

bank credit is one part of the monetary supply and the federal reserve controls interest rates or it did up until that time and let they control it it shows an interest rate they wanted and they let the money supply be wherever it needs to be in order to support that interest rate so they're all all day long the federal reserve is buying and selling treasury securities in order to make to achieve that target basically for short-term interest rates so So the monitor said, no, actually, you should invert that, and you should try and maintain a certain level of money supply, and then the interest rate should be wherever it needs to be to support that. And when you say buying and selling treasury securities,

that basically means buying and selling bonds that are essentially, there's a promise that they will be repaid, essentially backed up by both the Treasury and I guess more or less United States force. Yeah, pretty much. But put it in terms of a pizza restaurant. Yes, yes. Our listeners consume media. I don't know if I can do that at this point.

But I think the pizzeria has served its purpose analytically yeah and but well just a couple other statistics did you know that uh pizza restaurants now they don't make their money from pizza but from selling loans to buy the pizza oh really there are pizza back securities um but just a couple illustrative uh statistics from this stagflation period inflation in the united States peaked at about 14.8% in 1980. It averaged 12.4% in 1980. So it is interesting. Like when we talk about terrible inflation in the United States, I mean, that's really nothing globally.

And you just looked it up that the actual definition of hyperinflation is 50% per month, for one month average. So we didn't, it's's literally you can't even call it hyperinflation and uh and then the other two uh phenomenon from that time are both the phillips curve again is this kind of let's say keynesian idea that unemployment and inflation move in opposite directions and then there's the non-accelerating rate of unemployment which is a concept we are still uh stuck with which is the idea that below a certain point unemployment the if the unemployment rate goes below most people

say five or six percent it'll create inflation but clearly we're already at like 3.8 and we don't see it and the assumption the underlying assumption of that is also that inflation is demand created is that right there yeah this is like a heavy emphasis on like, oh no, people's incomes are rising too fast. And so they'll spend more money. Or their wealth is increasing, so they'll spend more money. And they'll create problems. I want to go back to the Phillips curve. Because that was kind of, I don't remember for sure, but I think the Phillips curve.

That's a curve with four sides instead of two, right? It was a... I think it was first published in late 40s, early 50s by an Australian economist. And they had like a really long sort of gestation period before the rest of economic thought in the U.S. caught on to it. Really? And eventually it was put into practice as the non-accelerating inflation rate of unemployment.

Try to say that three times. At the Federal Reserve. So it's basically, the Phillips curve says there's a trade-off between unemployment and inflation. So, like, on the one hand, you could have very high inflation but low unemployment or vice versa. And it just kind of smoothly transitions from that. Hence the curve. And NARU is an application of that theory for the Federal Reserve saying that they need to estimate where they can safely keep inflation. Well, first of all, they need to assume that they can control inflation. And then after they make that assumption, they need to assume that there's a rate, there's a non-inflationary rate of unemployment where you can just keep things and keep the machine running smoothly.

Yeah. So equivalently that if employment gets, you know, to a certain level under 5% that eventually by the supply and demand of the workforce, wages will go up, which will force employers to then have to, you know, pay employees more to basically compensate for that, which is kind of shown to be bullshit because we have almost full employment and wages aren't going up because they're just able to manipulate it that way. But the argument is that then when wages go up, that creates a corresponding increase in prices on the supply side because they're putting more money into labor.

And that would cause inflation. So why is that a crock of horse shit? Well, inflation is really dynamic, right? So there's lots of second order effects that would come out of a general rise in incomes for consumers. So it wouldn't just be if everyone in your neighborhood is suddenly making more and you're a business owner, you might start thinking about investing in, say, another pizzeria, just to get back to that, in order to meet their demand. And so you would have supply effects in that you could suddenly hopefully service all of their extra demand for pizzas

because they're going out to eat more or something like that. So basically it's going to... I mean, higher income could lead to higher investment. Because everyone's getting more money. And your productive capacity to meet that demand. So there's more money that's able to invest. And wealthier people save more of their income than poorer people, right? If you give a dollar to someone making $20,000, they're more likely to spend it than someone making a million.

So there would be like investment choices made by the wealthy people that would have other effects on asset prices. So all that's to say it's really complex. And to have like a linear, you and to have like a linear sort of thought process when it comes to inflation. Is there anything in inflation that is linear? Is there anything about it that seems to be tried and true at this point? The way it's

measured gives like the indication that it's linear almost and that's like a problem with reporting on inflation. And how is it measured? For the listeners. Well there's a variety From the tip. It's most and that's like a problem with reporting on inflation and how is it measured it's listeners well there's a variety from the tip it's uh well there's something called the consumer price index and the federal reserve uses the core cpi to measure where it thinks inflation is and it's like a it's like a basket of goods and services and assets, asset prices that they weight differently based on

what they think is important. Sort of what the average American will use on a regular basis. Yeah, and so you can slice and dice that up into very, like you can exclude like energy use and

other prices that move around a lot and are volatile. So you get more of like where is like the center of mass i guess for prices so like where are relative prices going for the average person so and well just one other thing steve you were mentioning uh you've said this a couple times to us but essentially like we've seen generally about two percent or even under that for since 2008 inflation uh but even that say two percent about half of that inflation is just rising rents or house prices or these sorts of things was that your contention right yeah circling back to the rent being too damn high yes so like they have they've had general target at the federal reserve

of two percent inflation not because there's anything really special about that number but it's just where they have a long-run average of what they assume is the non-accelerating inflation rate of unemployment and that's where they believe it to be although they've been continually revising it down because we keep going closer and closer towards what they consider to be full employment but we just go past it and there's still no inflation. So non-accelerating, does that mean that after inflation reaches a certain point, it kind of snowballs? Yeah, that's the idea of it.

Okay. So there'll be like, yeah, it's kind of like the way, the way inflation is reported and the way it's kind of discussed by, by economists, even in the public realm, it's like this linear thing, like a trade-off. But you see that they're trying to take into account some dynamic effects. Because they say that there will be like a feedback effect where if you leave it beyond 2%, it'll snowball, like you said. Okay. Yeah. And so, again, circling back to the rent being too damn

high uh so inflation has only been two percent and but um and from what i understand um included it just hit 2.1 it just hit 2.1 after years of trying to get there and included in the um consumer price index are the prices of um housing the prices of healthcare, and the prices of education. Notoriously cheap in the United States. Notoriously cheap. So those are all very obviously increasing, housing probably being the fastest increasing. How does that square with the historically low levels of inflation? Well, so you have consumer goods and services in the CPI.

If you exclude the three categories you mentioned, it's closer to about 1.3% or 1.4% inflation right now. Okay. Which is huge. Right, right. three or 1.4 percent inflation right now okay which is huge right yeah because i mean it's taking uh if they were if they're talking about volatile prices like they exclude energy a lot of times they get the core measure uh if they also excluded those three things we're i mean still arguably in deflationary environment yeah and so that that essentially means that uh really the consumer prices are more or less staying the same and what's happening is that a greater proportion

of our paycheck even if our paycheck were pinned to inflation like of all the um consumer goods or of all of the things that we spend money on just a greater and greater fraction of it is going into housing education and health care yeah and like with housing like another another distinction that kind of gets lost in talking about cpi is like that between asset values and the price of consumer goods and services right so like with consumer goods and services you know when the price goes up you typically want less of it but with an asset you want more of it right so there's a lot of investment yeah yeah flip this house and that kind of stuff yeah exactly so like housing is is one of those things so the cost of it is going up so what happens is then there's kind of a rush on the

market from um from basically people with money uh investors in housing to buy as much of it as they can, which props the price up more. And the result is that housing, but then what happens downstream is that it just ends up raising rents in order for the investors to get returns on their investments. And so it just becomes kind of its own snowball effect, but it's separate from uh more standard consumer goods

like your nintendo or what have you yeah so one of the one of the mmt sort of takeaways from getting more into like the dynamics of inflation is like the the federal reserve's primary mechanism that they believe can control inflation is by raising interest rates in order to make it relatively more expensive, they think, to finance investment and whatnot and try to cool things down. But MMT is saying this is all dynamic. If you have, under certain initial conditions, raising the interest rate very well could overheat things.

So like right now, for instance. Oh, because it's like consumer goods are basically flat, but certain assets are inflating and people have, uh, they're raising rates, which, uh, makes bonds relatively more,

um, valuable per se for like medium and longterm investing than the stock market. Cause there's like an inverse trade-off between bonds and stocks right right so you could very well inflate them further by increasing the interest rate because people are still willing to buy into inflating house values right okay like they're willing their um risk appetite has changed because they they have different expectations now would Would it also lead to more investment in housing securities

since the interest rates on those would be going up as well? On housing securities like mortgages and that sort of thing? Well, Sean brought up rental-backed securities a while ago. Right. So those are a thing now.

And rents generally, like, newer. So there's a bit of a construction boom emerging again after a while. And newer housing stock generally goes to richer people, whereas we all, three of the members of this pod get the old stock, the hand-me-downs. Right, right. But eventually but eventually though if there's enough of a boom in housing that still reaches um you know rents for the rest of us so actually in a way if the federal reserve was really serious about fighting inflation and had like a better

theory of it they should be using rent control because the rent control would be a much more effective way to fight inflation right because then rent control would be a much more effective way to fight inflation right because then that would help the kind of uh investment gold rush right on housing right so it's very counterintuitive but only if you're like schooled in the you know the nairu phillips curve you know story right right because if you're on like reddit's neoliberal are neoliberal they'll tell you that it's all supply and demand and that rent control decreases supply. And so then that increases prices. Andy, you sound like a racist nimby who hates the global poor.

I just want the listeners to know that I thought this episode was going to be about helium. Yeah. But yeah, no, I mean, it is a complicated topic. It's actually going to be about helium. Yeah. But yeah, no, I mean, it is a complicated topic. It's actually going to be about the early universe. Okay. Sorry we can't get to all of it. We'll talk about it in flight. Yeah. Jules Jorn found helium 150 years ago

in France, and there is a shortage, but the shortage is actually how much we're allocated to use per cycle. Most helium is used for MRI scans and welding, and balloons don't really matter. Oh, is used for MRI scans and welding, and balloons don't really matter. Oh, is that for making superconductors and the magnets? Listen, this episode's not about helium.

It could be, though. It is. Oh, nice, nice. I thought it was mostly used for doing silly voices when recording podcasts. We have open source software for that now. It's created a real demand. It's what saved the helium shortage. That's why all those helium manufacturers committed suicide in mass.

You notice how all of the monetarist discussion we've had was basically presupposing that fiscal policy, that is federal spending and taxation, is somehow impotent to the problem? Yeah, so there's like a general turn away from fiscal policy towards monetary policy to control things. Right. Well, there's also the political question,

which is like Congress, gridlock, all that bullshit. Yeah. Whereas it's kind of been outsourced to the Federal Reserve entirely. Yep. So then why can't we just print a bunch of money? Like, why can't the pizzerias just make a whole bunch of pizzas, you know? We did, essentially.

Like, quantitative easing in the 2008 financial crisis, they printed or created whatever you want to call it, something like four and a half trillion, and then they lent another seven or eight trillion through the discount window, the low interest rate loans that banks get access to. So, I mean, it's like, and then people argue this didn't create inflation because essentially the banks kept it on their balance sheets mostly.

But essentially we did print trillions of dollars with no visible inflation. But let's get back at the task at hand, though. How does this benefit billionaires the most? I mean, I know that we've been talking about money this entire time, but I do want to get down to brass tacks on so i want to address something so actually so people often talk about the distinction between the federal reserve and the treasury saying the federal reserve doesn't print money but essentially if you look at it um i'm realizing now that when people talk about the federal

reserve creating money essentially by selling a u.s bond that bond is guaranteed to be bought for a specific amount of money and so even if it's not physical dollars that bond is money that was created out of thin air and then put into the united states uh this ties into yogi's questions about like why like fundamentally what how are billionaires where they get out of this right so the federal reserve and the treasury are working together to implement monetary policy. And one of the main ways they do that is by buying and selling Treasury securities on the open market, called open market operations. And that works closely in conjunction with the Board of Governors at the Federal Reserve

who decide what their interest rate policy is going to be. So kind of a combination of them just simply stating each month where they think interest rates should go, and then the open market people accommodating that target rate by clearing up the market for treasury securities makes it so you have a stable that keeps upward pressure on interest rates to be wherever they need it to be to hit their target so what does that mean for billionaires and and rich people generally right uh it's basically saying like whatever cash whatever cash billionaires and millionaires uh have socked away and they don't know what to do with it for whatever reason.

They have an almost cash equivalent, they call it, in the form of treasury securities. So it's vertically, they call it the risk-free rate of return sometimes. Right. Whatever, like, the one through five-year treasury security would be. Because there's, I mean, mean for them for any of us really it's essentially like if you have so you have your checking account and you have your treasury account moving more money from your treasury account to treasury securities is essentially like moving money from your checking account to your savings account would you would you call

yourself suddenly richer per se right when you do that no but over time you earn the stable interest rate for no risk okay yeah so for billionaires who have enough money to live off of only capital gains it just makes it that much easier for them to do that yeah that makes sense uh so i have two questions for you steve and then uh we can move on unless you two want to jump in but first of of all, at the MMT conference, did you see anybody get really fucked up? Of course. Because...

Not naming names, but yeah, sure. I had the image in my head of somebody like tripping at the MMT conference and seeing hundreds of printing presses going all at once. And what booth had the booth babes? I really hope one person thought it was the DMT convention and just really missed the boat on all of the things. They just came in and they're like,

oh man, money is just an item for dead. My wall is full of IOUs. I'm going to die. The second international DMT conference. There was like a snappy there. Steve's like wondering, Steve's standing there like, why is Joe Rogan a keynote speaker here?

A lot of talk about chakras at this MMT event. So in quantum mechanics, it's shown that you really can't have money and have money at the same time. So when I was smoking weed with Musk. And then just the other thing i wanted to address like very briefly because i know this is we got a little long here but essentially um we've kind of addressed like the uh the right wing uh framing of uh why mmt is bad which is usually involves venezuela or zimbabwe or

hyperinflation or all that but i did just just want to kind of briefly mention socialist critiques of MMT because MMT has become very prominent among socialists and to a lesser extent liberals and these sorts of things. And so Matt Brunig is an economist that I enjoy and I read his work at the People's Policy Project. But basically, he deletes all his tweets, but he did have two tweets. He deletes all his tweets because he got fired for tweeting, which is an understandable reason.

He called Neera Tanden a scumbag, and then he got fired. He used to work in the Beltway, and he kind of burned his bridges there. Wow. Yes, we've talked about money. So if you're wondering why you would install a tweet-deleting program, it involves losing a $100,000 a year think tank job.

But yes, so Matt Bruning of the People's Policy Project is a socialist. He is a socialist economist. And his whole thing is like he talks a lot about the Swedish model or the Nordic model. And essentially he said... Some good models. Right. He says high taxes and social welfare states, sovereign wealth funds, these sorts of things. But he's voiced some critiques of MMT.

So I just wanted to kind of from the left, because MMT is relevant to socialists, just give you these. So basically, here's two of them. Bruning says, quote, Put more bluntly, a lot of MMT fans on Twitter think that the theory says that the government can get a bunch more purchasing power than it currently has. Would you say that's an unfair reading? Purchasing power?

Yeah, I mean, essentially just like a bunch more money than is currently available. available uh that's he should know better than to say that since he says that he um constantly is uh reading looking up nmt stuff online right but i mean we can there's a lot of fiscal policy space that is underutilized, certainly for leftist causes. Democrats, liberals, and even socialists, when they do their economic policy work, they're just playing in a small corner of what's possible, basically. Right. And politically, they're linking the question of, we want to tax rich people, which is good and and with the other question of we want to pay for shit yes but there's no operational link between the two right and i would argue it's politically inadvisable to do that can you can you uh explain why there isn't a link because i think

in um in the popular understanding of it uh the idea is that, you know, it's basically the idea that taxes fund the government, you know, money in, money out. And so I guess the question is then, like, why isn't the deficit so bad? The deficit's not bad because if you look at it from an accounting sense, every federal budget deficit is logically a non-government private surplus. So can that be inflationary? Sure, for the reasons that we already mentioned. Like if you're at full employment, if all of your factories are running and everything, yeah, if you keep spending beyond that, it could be inflationary so what bruning is kind of implying is that like oh people people mmt fans say you can just keep printing money and nothing will happen no we do think budget uh deficits or we but we do think budget deficits and the national debt can eventually

be a problem under certain circumstances so inflation can happen if you're printing money that doesn't that doesn't do anything but if the money can do something then there won't you won't be likely to see inflation in other words like if you don't have full employment there's and there's underutilized production that needs just money redirected to it and that can be accomplished by printing money that won't necessarily be inflation causing but if you just can't you know dig any more minerals out of the ground or farm any more wheat yeah if you have if you have so like what we're kind of framing here is like the idea of too much too much money chasing too few goods yes

and so if there is still capacity to create to do useful stuff and provide useful things for people, then in theory, that is still not inflationary. So wherever the budget deficit basically needs to be in order to accommodate full employment, MMTers often say that's where it should be. It's not like there's like, oh, the national debt hit 200% of GDP. That's bad. MMTers would be like, can you explain why that's bad? Why is that number in particular so rough? And the MMTers have a framework that tells them that, like, it's not so much where the debt or the national deficit lies that's the problem.

It's like, what are we doing with the deficit? So are we doing useful stuff with it, or are we bombing Yemen? You can have those questions, basically. I have realized Neera Tanden does have a chance to rebrand and say that she got him fired because of his opposition to MMT. We mentioned the right wing, but I'm paraphrasing this other Matt Brunig Twitter quote, but he basically says, how come MMT then like we mentioned the right wing but uh i'm paraphrasing this other matt brunig twitter quote but he basically says how come mmt didn't work for venezuela which again a very socialist critique

if there ever was one he literally venezuela'd us right that's like that's like an indicator that he's not even really a socialist actually right yeah no i mean it's the same uh argument known used by a noted socialist charlie kirk yeah yeah it is he also said workaround cooperatives are utopian um and there was a lot of hand-wringing to make that statement true but man that was so i don't know i mean to to me like you should get him fired from the people's policy project his His People's Policy Project, I was initially really intrigued. And in fact, I was actually donating some money to them for a while. Yeah, I am too. I'm still donating on Patreon, I think.

I can't see how I could bring myself to do that anymore based on the way he treats MMTers. You're not down with PPP? Not anymore. Because like, well, one, because of his behavior. And then two, because he's not in a paradigm. He can't talk about money, basically. So I don't even know how you can effectively advocate for socialist policies unless you understand how money works and how you understand modern monetary theory.

The answer was, yeah, you know me. But let's move on. He did call Marx a scumbag, though. Marx is a scumbag, though. Marx is a scumbag. Yeah. But yeah, so I want to move on to this Vanity Fair article excerpt series. But it should just... Wait, first let's stop on Venezuela.

So what's the Venezuela situation here? Right, right. That I was going to say, yeah. So the Venezuela thing is... And then MMT perfectly incorporates Venezuela, which is why it's kind of a ridiculous argument for Mr. Brunig to make. But Venezuela had about $50 billion in a non-domestic currency denominated debt. So they essentially couldn't create their own currency in this case. So it wasn't really modern fiat currency conditions and also about 95 percent

of venezuela's exports were oil so of course in 2014 when the price of oil collapsed this is what really set off the inflation and later hyperinflation in venezuela but again like everything steve and other mmt years have told us here it perfectly incorporates that scenario so it's it's just kind of ridiculous for him to bring it up yeah they have foreign denominated debts like many south american countries have had at various times like argentina right now um they can't i mean if you have those debts you have to go out and find the other currency you can't just print it obviously right right and obtain it and then pay back creditors oh so that's why america's debt isn't um as uh vulnerable

because basically america has positioned the dollar to be a kind of international currency and therefore is able to denote its debts in dollars even when they're bought by foreign governments uh that's part that's could be part of like monetary sovereignty strategy, if you want, to a degree. But being able to, quote, do MMT stuff isn't incumbent on you having the world reserve currency or something. Right, right. But I guess the debts that you take out, the more stable ones, would they need to be in your own currency in order to have control over how they're used in an MMT sense? Or yeah, I guess, can you do modern monetary theory type policies using foreign debts?

I don't know how to answer that exactly. I mean, I wouldn't think so, because essentially the entire idea of modern monetary policy is you have fiat currency that is not constricted by the supply of gold or the supply of dollars. The MMT explanation of that, I guess, would be by taking on foreign-denominated debts, you're imposing a future constraint

on your spending capacity that wasn't there before. So, like, if you've reduced your sovereignty, I guess, basically, by taking on those debts. Okay. It's like, in addition, if you're Venezuela, like, in addition to dealing with all of these investment and, like, structural problems, now you have to pay back all of these foreign banks and whatnot in u.s dollars or what have you so so you know we're lucky that just by chance all oil is traded in u.s dollars and any country that tries to change that to euros got invaded in 2003 and we're very lucky very lucky. American troops died for that,

so I will not hear you mock it. But yes, and one other note on Venezuela is that the BBC, for their part, predicted that inflation would reach a million percent per year by the end of this year. That's a lot of percent. Which, if I hadn't read it on the BBC,

I would have been like, this is just a boomer Facebook name, isn't it? You're just making shit up. Yeah, Boomer Broadcasting Corporation. Boomer lives. But we hope we've been able to enlighten you a bit about modern monetary theory. We will certainly continue

discussing it. Obviously it's a big topic we couldn't get to everything but please hit us up on Twitter and everywhere else and we'll answer questions or Steve will, he knows. We'll answer questions and continue talking about it later. But I did just want... Tweet to Steven's Twitter account that does not exist. Oh, I have one.

Oh, you have one now? I forget what the handle is, though. It's at Matt Brunegg. Brunegg fan 99. But so I did just want to briefly read you a little bit about what gave me a huge headache at work today when I was reading this instead of doing my job. William D. Cohen, who we quoted a bit from his Goldman Sachs biography.

Also, David Graeber, please come on and talk about your new book, Bullshit Jobs. That's very good. You added him, right? And he didn't respond? respond or yeah i added him he retweeted me promoting his book and then he didn't respond to me saying hey come on our podcast he motherfucked you i know asshole come on our podcast asshole he's like well i would but uh i don't go on any podcast where uh one of them argues with Matt Brunig. Okay, so William Cohen, he wrote this book about Goldman Sachs,

and I just want to read you three different headlines that he has written for Vanity Fair this year. These are all about the new Goldman Sachs CEO as of yesterday, October 1st, 2018, the new CEO, David Solomon. Three headlines, all from William D. Cohen in Vanity Fair. First one, the next Goldman CEO is one woke dude, March 2018. Can David Solomon, woke DJ, and blank finds heir remake Goldman for the age of Trump, July 2018. And then this one from November 2018 is a long piece, and it's, you can't out Lloyd Lloyd at Goldman Sachs. The David Solomon era begins with a subtle but significant changes. And then the,

uh, sub header is as Solomon succeeds, legendary risk Titan Lloyd blank fine. He faces a slew of challenges, how to sort through the regulatory minefield, pivot to commercial bankings, and maybe even make Goldman a little more woke in the process. it's great that

only state-run media is propaganda but uh those three headlines you have just heard are the problem with access journalism because uh for uh all of the uh basically to get these people to talk about themselves you have to oh sorry yeah i was just gonna say to get these people to talk about themselves you have to write about how one of the most horrific criminal organizations in the known world is woke. And it's not just access journalism. It's the fact that those stories get published in the first place, which is that, you know, when relevant right now which is one thing i heard um from someone kind of familiar with jeff weaver is that uh of the bernie sanders campaign is that like one of the iffy things he did was he bought television commercials even though uh it's

there have been numerous studies showing that television commercials don't sway voters and the reasoning was uh which was explicitly corrupt um, but I guess based on an explicitly corrupt reading of the system, is that if you buy commercials, you're going to get more favorable coverage because basically you're paying their bills. And so that also explains why third party candidates or more marginal candidates don't get any coverage because you know they're not they're not paying keeping the lights on at fox and cnn well uh goldman sachs and uh so i just want to uh do a few little quotes from the most recent profile here you can't outloid lloyd which uh refers to lloyd blankfein got these massive bailouts from the former Goldman CEO before him, Hank Paulson. We talked about this in the last episode. So one other fun quote, he says, Blankfein steered the firm masterfully through the 2008 financial crisis, which again, unacknowledged in that is that Blankfein benefited from state capitalism. They became a bank in like two weeks.

Yes. But so Blankfein is a billionaire. We'll talk about him on a future episode. He did perjury before the Senate by saying that Goldman didn't bet against the housing market, which they very much did. He's been involved in LIBOR, mortgage-backed securities fraud, all these sorts of things. And then now this new guy coming in, David Solomon, is going to be woke. And I just want a couple quick excerpts. But basically, Solomon got his start at Drexel under Michael Milken, who would later go to prison as the junk bond king. He served two years in prison. David Solomon was there from 86 to 1990, and of course left when Michael Milken pled guilty, paid half a billion dollars in fines, and then the firm went under. And so it's interesting where it's like in this Vanity Fair profile, Michael Milken's tutelage

is all about his hard work. And then they devote like one obligatory sentence to his prison conviction. And then, of course, even today, David Solomon is friendly with Milken. And Solomon says, you see him today, you go to his office and there are papers everywhere that he's read and marked up. He's got an incredible ability to digest information and then synthesize it and communicate around it. And I just like the idea of him going there. So he can read. Yeah.

He's like got books everywhere. It's like, yeah, I learned to do this in prison. Wow. But so basically Michael Milken, another billionaire who is trying to get Donald Trump to pardon him. So we will talk about him at a future episode. But so, and then this profile goes on.

He says that, love it or hate it, Goldman Sachs has always displayed a knack for finding the right man at the right time to lead the firm. And then it mentions Steve Friedman, later a national economic advisor,

John Corzine, later a governor and senator, and Hank Paulson, who rescued the firm twice, first as a rainmaker and then as a treasury secretary during the financial crisis in 2008. Each of them found ways for Goldman to make more and more money regardless of the prevailing market conditions.

And again, I think the way that they made money there is by capturing the government and using the printing press to inject money directly into their firm. Regulatory capture is bad, fam. And it's just funny where he just lists all of these Goldman execs who are in and out of government, and then he's like, definitely don't read more into this sentence

than what I have just given you. And then we have a fun story where David Solomon, Woke Bay, goes and meets with Mohammed bin Salman al-Saud, the new crown prince of Saudi Arabia, who is currently carrying out a genocide in Yemen, which is also not acknowledged or mentioned. He goes, and Solomon and MBS had 40 minutes together. He's extremely impressive, Solomon says.

He's got a lot of energy. He's passionate about what he's doing. Starving children in Yemen. He's got a lot of energy. He's passionate about what he's doing. Starving children in Yemen. He's very, very... Literally strafing farmers and bombing fishermen. These are the people who tell us to worry about

inflation. Right. He learned from Michael Milken to wake up at 3 a.m. every day and get the latest body counts from the cluster munitions he is dropping on farm workers. Oh, yeah, Solomon goes on, MBS is very, very engaged in what he's trying to accomplish, and he's trying to change his country, which has an impact on the world for the better. And he just kind of goes on with this kind of bromides. And he says, the day before we met in his office,

Solomon was in Jeddah in Saudi Arabia in a meeting with top Saudi ministers to hear how they intended to meet the 2030 goals, which is Saudi Arabia's supposedly transitioning away from oil and all that. Solomon says, the ministers are very compelling in the story that they articulate. He emailed blank fine after as he headed home on the company's private jet. But you've got to execute,

and the execution's going to be hard. Wow. It's also going to be the crucifixion of a gay man. I was going to say, I'm not sure the execution is the term you want to use in Saudi Arabia. You've got to execute the Shia cleric in order to provoke regional crisis with Iran. You've got to execute the Shia Cleric In order to provoke regional

Crisis with Iran you've got to Execute the woman who looked at A man without a veil over her face And then like I Guess just like the two Last things we get to is that He says he Has one paragraph about diversity

So another of his major priorities as CEO, Solomon says, is to attract more women and people of color to Goldman. While we have made progress in recent years on women's representation and ethnic and racial diversity, there is still significant progress to be made, Blankfein and Solomon wrote in a March memo. But some who understand the dynamics of the firm doubt that Solomon really cares about diversifying the mix at Goldman. Don't believe any of that, one former board member recently told a friend. It's all window dressing.

And this is in the Vanity Fair article where he has spent three articles calling this guy woke. So it's like, why not adjust your fucking headline? If the only quote about diversity you can get is a former board member being like, yeah, it's all bullshit. I mean, he's probably got like a yin and yang tattoo. But yes, it's. And then just like the other last thing about new Goldman CEO, D. Soul is he is a DJ under the name DJ D-Soul. And he recently released a remix to Fleetwood Mac's Don't Stop Thinking About Tomorrow,

which has several hundred thousand hits on YouTube. According to the Vanity Fair, it debuted at number 39 on the Billboard Dance Mix charts. Better than the original for sure, one listener raved on YouTube, where the thumbs up outpaced these thumbs down 10 to 1 and uh if you're wondering if debuting on the billboard dance mix chart is based on merit i have some news for you and the song itself is like not interesting or good or in any way uh but it's like where does this woke idea come from and also the entire concept of wokeness is so meaningless if a corporation is able to rebrand as woke well uh

funding uh dictatorships in saudi arabia genocidal dictatorships funding weapons manufacturing funding global warming and uh and of course the massive foreclosure fraud that was at the center of goldman's government bailout that has made lloyd blank find a millionaire it's a completely meaningless story and uh i'm sure his dj set fucking sucks too oh and uh the last just most horrifying quote from this and uh uh just like put this in perspective as any sort of, if you happen to be an artist or a creative person or even just with empathy for them,

here's what Solomon takes away from his DJ set. In typical fashion, Solomon draws a management lesson from his nightlife being a DJ. Whereas corporate executives used to be, quote, aloof and disconnected in their ivory tower, modern managers need to be willing to be a bit more vulnerable and exposed. It makes us more human and therefore better leaders. So if you're wondering why you should DJ, it is because it is essential.

It is essential to running a modern criminal enterprise that has captured the government in the united states and has ceos and prospective ceos such as gary cone going in and out of government passing tax reform that completely benefits goldman passing bailouts that benefit goldman uh foreclosing on people selling fraudulent mortgage-backed securities, doing LIBOR manipulation, helping the Greek government cook their books. All of this, paying $8 billion in fines with nobody going to prison. All of this is just what you need if you want this kind of DJ skill. And this is why Avicii killed himself. This is the reason.

The billionaires have taken over the DJ scene. EDM is dead. Avicii didn't kill himself. He was murdered by this guy. He was like, if I want to move up 10 spaces on the billboard charts, Avicii's got to go. And that's a sad reality that is capitalism in a modern day world. Oh, God. Well, anyways, this has been Grubstakers.

We hope you've learned all about MMT. We hope you won't stop thinking about tomorrow. And the new woke CEO of Goldman Sachs, David Solomon. But don't think too hard about tomorrow. This is an indication of what it'll be like. But yeah, Sean P. McCarthy here

signing off. Any final thoughts before we leave, gentlemen? I think that's everything. And with that, this has been Grubstickers. My name's Yogi Pollywall. I'm Andy Palmer. Steve Jeffers. The last thing he said to Avicii was do you think you're better off in hell?