The Great Simplification with Nate Hagens - Josh Farley: "Money, Money, Money"

Episode Date: July 27, 2022

Show Summary: On this episode we meet with ecological economist and Professor in Community Development & Applied Economics and Public Administration, Josh Farley. Money. What is it? Where does it come from? How is it created? How is it tethered to our biophysical balance sheet? What is on the horizon with our monetary system? How might we create and use money differently in the future during a source and sink contained system? Josh Farley explains it all - and explains how the links between money, energy, and the economy will become more central in our lives. Click here to listen to Josh and Nate's first conversation. About Josh Farley: Joshua Farley is an ecological economist and Professor in Community Development & Applied Economics and Public Administration at the University of Vermont. He is the President of the International Society for Ecological Economics. For Show Notes and Transcript visit: https://www.thegreatsimplification.com/episode/29-josh-farley

You're listening to The Great Simplification with Nate Higgins. That's me. On this show, we try to explore and simplify what's happening with energy, the economy, the environment, and our society. Together with scientists, experts, and leaders, this show is about understanding the bird's-eye view of how everything fits together, where we go from here and what we can do about it as a society and as individuals. Joining me once again today is my friend and ecological economist Josh Farley of the University of Vermont Department of Applied Economics and Community Development. In our first conversation on this podcast, Josh and I talked about the past, present, and future of human cooperation.

Josh has deep knowledge about many aspects of our coming cultural transition, and today we talk about one of those, money, where it comes from, what is it, how is it created, how is it tethered to our biophysical balance sheet, what is on the horizon with our monetary system, and how might we create and use money differently in the future during a source and sink constrained system? The link between money, energy, and the economy is about to become a lot more central to all of our lives. I hope you enjoy and learn from this educational discussion with my friend and colleague, Josh Farley, on Money. Hey, Josh. Good to see you. So, Josh, my old friend,

do you realize that it will be 18 years coming up where I met you and started my PhD program at the University of Vermont? And you know what I was thinking today on my bike ride? The same entrance essay that I sent to you and the rest of my committee, I believe the same things. I think the same things about energy, money, thermodynamics, ecology, externalities, evolutionary psychology. I know them deeper with some nuance, as do you, but it's kind of the same story, which in some ways makes it robust. And in some ways, it's freaking depressing because the world is, you know, GDP is almost twice as

much as when I started. And, you know, more people are aware of climate and some other things, but the ecological, cultural consciousness is still not really happened. The annual increment the harm is done to our planet is probably growing. Right. So you and I can talk, well, I call you on a Saturday morning and ask you a short question and we end up talking for an hour. So I'm sure we can talk about many subjects that we care about. On our first podcast, we talked about the evolution of cooperation and competition. And one thing that you are a wide boundary expert on, and I think it's a topic that is central to people understanding what's ahead is the concept of money. And so that's going to be the

topic today that I'd like to delve into your wisdom and insight on. I don't know about you, but we both teach college age students. And after my class, of all the things I teach them about the myths underpinning the modern mainstream view of the world, it's what is money and where does it come from is the thing they find hardest to swallow. Is that the case for you too? Yeah, I mean, it's not just my students. I mean, I teach students, for example, that money is loaned into existence by banks.

And econ professors tell the students, that's just not true. Banks can't create money. Yeah. And then I'll send those econ professors, you know, papers from the Central Bank of England explaining that banks create money. So it's not that surprising that students don't get something that are leading politicians and economists also don't understand. Yeah. No, we're going to get to that in depth. But it's almost like sometime when you're a teenager, your parents sit you down and explain where babies come from.

But they never explain where money comes from, which is kind of a... a fundamental aspect of our reality. Okay, so let's start from the top. What is the conventional taught in finance and economics classes, the conventional definition of what is money? All right. So there's two parts of this really that in my PhD program, the only thing I learned is that money facilitates barter and plays no other role.

So they didn't even teach us anything. But in general, when they're going to teach something about money, They'll say money has essentially three purposes. It's a means of exchange, a unit of account, and a store of value. But it's basically neutral. It plays no important role. So all the mainstream theories of economics work just the same in a barter economy. Money is unnecessary for mainstream view.

So did we ever have a barter economy? Is that true? No. So the deal is, I mean, there have been elements of barter economies. But Adam Smith introduced this story that, you know, money evolved to facilitate barter. When anthropologists look at that question, they actually find there was never a bartered economy in the context of, you know, I'm going to give you something now and you're going to give me, you know, something of equal value in exchange immediately. It was always like a reciprocity based economy. When I have a surplus, so, for example, I go out and get an elk and, you know, prior to refrigeration and stuff, that's more food.

than I can use. So really low marginal value to me. But for the rest of my community who didn't get an elk that day, immeasurably high a marginal value. And so I would bring home this elk and I would share it with everybody, low cost to myself, enormous gains to everybody else and really strengthening all our social ties as a community. So the origin of money was almost a part of a social agreement of reciprocity? So it's, you know, it's very difficult to pin down the exact origins of money. And it seems that money evolved several different forms, but it's kind of converged on our current approach. But what I view it as is that we really did have a society in which tracking reciprocity, you know, we're a very social species. And we need to know that if I am doing something

for somebody else, they are in the future going to reciprocity. either to me or to somebody else in my community. And it's really tough to keep track of all those different, you know, reciprocity relationships. Whereas, so my view, and I think it's very, you know, a well-supported view is that money evolved to track those reciprocal exchange. So, you know, I bring home an elk and I give some to you, you give me money. And that means there's nowhere enduring social connections, you know, the money just tracks

that reciprocity immediately. The other big element of money is it allows us to coordinate economic activity with people we don't know or trust around the globe. You don't need trust. I don't need to know if you're going to be a good person and pay me back in the future because you're doing it now. So back in the day, this is another indirect aspect of the agricultural revolution and the industrial revolution is that we started to amass surplus. And before the days of surplus, we didn't need any counter to keep track of the reciprocity because we were all in the same band in Africa. And you could remember Dunbar's number and the associated accounting, who you owed favors to,

and everyone was kind of part of a group. But then once we had this boost of surplus where we had more stuff that we could carry with us and started to have digital representations and stockpiles and vaults of gold, and then claims, paper claims on the gold. We needed some unit of account that people could keep track. Yes? Yeah, yeah. It definitely has to do with that surplus. But it was also just, yeah, and basically that idea is that our society expands in size to the point where it's impossible to keep track on an individual level. We need new mechanisms. But there was an awful lot of effort expended tracking reciprocity back in the, you know, Hunter Gatherer days as well. And if somebody

didn't reciprocate, they could be ostracized from the community. And that was like certain death. There were punishments involved. But that was all done in the head, really. There were no, like, scorecards of that, right? There were no score. Exactly. Exactly. Yep. Okay. So let's dive into it here. This is something that I wrote about and I spoke about. And as my PhD chairman, you're aware of this and where money comes from. And for the longest time, I was like ridiculed until like 2014 when the Bank of England came out with a report and some other writers like Richard Werner explicitly stating where money comes from. But how does money come into existence and how does this differ from what's taught in conventional textbooks?

Yeah. And so, I mean, there's really kind of two paths by which money comes into existence. We always hear right now about the government printing too much money, which is driving inflation. And that's a red herring. the government actually only the treasury only issues coins so it's not like you know and too many coins are driving inflation the federal reserve issues notes but they are given to banks you know to back up their reserves accounts with the fed and so government money is essentially you could think of as the federal reserve notes or as a central bank note But that's a very, very small fraction of all money available. The vast majority of money is loaned into existence by banks as interest-bearing debt.

And banks are explicitly allowed to lend money they don't have. And there's two ways to think about this. One is that we have fractional reserve banking. That's what the Fed says. That banks essentially have to keep 10% of their money in reserve and can loan out. If I donate $100, if I deposit $100 in a bank, they can loan out $90, but that money gets deposited in another bank, and they can loan out $81, which gets deposited in another bank, which can loan out $72, and that $100 turns into $1,000.

So that story says that if the bank has, you know, wants to make another loan, somebody approaches them with a really good project and can guarantee they'll pay back the loan, the bank won't say, oh, I can't do that because they don't have enough money on reserve with the Fed. actually the Fed targets interest rates, wants to keep interest rates down. So if banks have more people wanting to borrow money than they can make available, that would drive up interest rates. So the Fed will actually loan money to the bank so the bank can make more loans. So the bank is essentially allowed to loan as much money as credible borrowers want to borrow.

So the quantity of money, it's not that my deposits allow banks to loan. It's the demand for loans to create deposits. You know, a business demands a loan, borrows money from the bank, and then that money ends up deposited in another bank. You know, banks are essentially loaning money based on the demand for consumers and investors of good reputation who can repay it. So you're distinguishing between vertical money and horizontal money. And most people think that it's just the government somehow in this shadowy thing between the Treasury and the Federal Reserve that create and destroy all our money. And the reality is that's only three to five percent isish of our total money. And that 95 percent of our money is created from commercial banks when they make loans to people who are credit worthy.

And there is no cap, really, on that money creation. And the other thing that happens at that point is the interest is not created. So when we create money, and it's not quite a lot of people say it's created out of thin, air, that's also not correct because it's based on the productive capacity of the borrower and the viability of the system based on historical productivity of the economy. So it's not truly out of thin air, but it is out of thin air when it's referenced to the ecology of the earth and to the amount of biophysical capital energy materials, minerals that we have available, right?

Well, so I have a couple comments on that. actually is that first of all, most people don't even realize, you know, everybody says, well, the government's got to tax you in order to get money to spend. And so we always have to say, do you need a tax and then spend? What are we taxing? We're taxing money. Where does the money come from? The money has to be created before it can be taxed. So logically, you, governments would need to spend money into existence before they could tax it back. So when governments spend money into existence, it creates it. When they tax it back, it destroys it. When banks lend money into existence, it creates it. When it's repaid, it destroys it. As you point out, though, banks are lending the

principle, but not the interest. The question is, where does that interest come from? And, you know, so we have, the one point I was making, too, is that interest-bearing debt obeys a mathematical law of exponential growth. And money is a claim on real resources. And we watch now debt growing exponentially. and it's several multiples. It's almost four times GDP, either at the national or the global level even. And so this exponential growth of debt can't be matched by a finite planet. What we could do, so if banks collected interest and spent it back into the economy, then it would be available to pay the interest on the principle. But banks tend to reinvest it is more interest-bearing debt.

So that's really problematic. So we get this, it's almost impossible to repay all the debt. without continued economic growth. One more comment I wanted to make quickly is that, you know, I said banks create money out of thin air. You said, well, actually, money is a claim on resources and therefore has to be in some way backed by those resources, so it's not out of thin air. But a lot of money, in fact, the overwhelming amount of money right now, I would argue,

in the United States, is loaned into existence to buy existing assets. And you can bid up the value of existing assets. there's no physical limit to the value of existing assets. What do you mean by existing assets? So, for example, the stock market. You know, when you, so people think when you're buying stocks, you're giving money to corporations to invest in real goods and services. But the fact is that it's only initial public offerings that actually create money for

investment. And, you know, when Exxon stocks are, Exxon's not issuing new stocks. Microsoft is not issuing new stocks to give them new capital. the existing stocks being recirculated. And so there's a kind of a fixed supply of stocks. Not always, though, right? There's secondary offerings when they need new capital. But it's a tiny fraction of the total.

So I think like Tesla's talked about some secondary options, but the vast, overwhelming share of stocks being sold now is, you know, existing stocks. And in fact, over the past 10 years, stock buybacks by corporations have exceeded new issue of stocks by 10 to 1. So really, corporations, stocks are pulling money out of, you know, that could be invested. Why are they doing that? And what is the impact of that? So it's anecdotally, you know, my brother used to be vice president of BFI. William Ruckelshaus, the founder of the EPA was the CEO. And he was telling his stockbrokers, he wanted to invest in real

physical production of waste management. So, you know, more waste sites, more trucks. But the investor said, no, look, if you buy, if you increase the supply of size of the garbage industry, you've increased supply, price goes down. On the other hand, if you buy back stocks, the price goes up. Your investments in real production will make a 7% rate of return. Your investments buying back our stocks will drive up the value of stocks by 16% in the year. And so, you know, stockholders want that 16% rate of return, not that 7% rate of return, even though when you're investing in real physical production, you're creating new wealth. When you're buying back your own stocks, there is, you know, there's no new wealth being created. Well, there's paper wealth. So there's, there's real physical wealth and then there's monetary wealth. And this gets at the core of ecological and biophysical economics is most economists and technologists. view the world from a monetary lens. If we have enough money and the money math works out,

we can do anything. Whereas you and I know, we need energy and materials mostly which are from finite stocks and the environmental sink capacity is also finite and growing or declining. So every time that we create new money, it is a claim on future energy and resources and ecological sinks. So let me go back to that to make sure that this is crystal clear. Can we start with an example? You're at the University of Vermont. So the First National Bank of Burlington, let's say they have $100 million in assets on their account. And you are a handsome, full professor who is very creative and has a stellar credit rating

and you ride your bike to every day to school instead of using a car and all these other things that impress the bank manager. And you want to start some ecological sequestration thing around Lake Champlain. And you want a million dollar loan from this bank. Okay? So walk me through what happens? So I would go to the bank and give them my plan and say, okay, you loan me a million dollars, I'm going to invest it this way, and it's going to generate returns in these ways.

And so the return, you know, from what you're talking about, maybe there'll be payment for ecosystem service programs that will pay me for restoring ecosystems or payment for carbon sequestration. Either way, this gives me the money that allows me to pay back the principal plus interest. And so the, you know, bank loans me the money. But what mechanically happens at the bank, their balance sheet, and yours? So what mechanically happens is the bank says, you know, the bank needs to balance its books. So the bank is going to give me a loan for a million dollars and deposit on my bank account. And that counts is a liability of the bank.

But it counts for me as an asset. On the other hand, I give the bank an IOU. You know, I've got to repay that. That IOU counts as an asset for the bank and a liability for me. So assets and liabilities perfectly balance out for the bank. So on their books, boom, they're balanced. And it perfectly balances out for me, except that I also owe interest. So I've got to pay that.

But the other thing that happened is that now the total balance sheet of that bank is $101 million. And another million dollars of purchasing power in the global economy just came into existence. So from a creditor versus debtor relationship, everything is balanced. Everything is neutral. But from a biophysical perspective, suddenly at that flick of the switch on the bank manager's computer, a million dollars more of potential claims on coal and ocean absorption and energy and timber and everything else came into existence, while those things, stay the same or actually slightly, slightly declined.

So in the example you gave, though, I was actually investing in ecological restoration, which in some ways is rebuilding the system. If instead, though, I had wanted to invest in a coal plant or a talc mine or something that actually does use resources, and that would be very explicitly just to drain or if I could, you know, I want to build cars. They would loan me the money and that would just be a net drain on raw materials and energy and it would increase the claims on that. But quickly getting back to another point, though, what happened right now, land prices

are skyrocketing here. I could go to the bank, borrow money to buy a trunk of land and sit on it for five years doing absolutely nothing and sell it for five years for twice what I paid. And I would now have more money that entitles me to more goods and services without having created any new wealth whatsoever. In fact, I could buy a piece. of farmland, kick the farmer off because there's just too much hassle, and the value of that land would go up and then I would sell it and having created more wealth for myself with less

wealth for society. And that's an awful lot of what's happening today. Well, it was also happening in the 19th century when Thorstein-Vebelin made the distinction between business and industry. Industry makes our shoes and our sandwiches and things like that, whereas business uses money to make more money. And so now that's represented by the fire economy, finance, insurance, real estate. And how big of a portion of our economy is the financial sector? Do you know? So it's growing dramatically. I think right now finance counts for about 8% of GDP,

about quadrupled in the past few decades. Paul Volker commenting on that, former chair of the Fed said, you know, the share of the financial sector is quadrupled. And in that time, the only innovation they've had is the ATM machine. So really, there's not much going on in the way of useful innovations in finance that actually create more value. There's a lot of innovations that allow the financial sector to suck more wealth from the rest of the economy, in my view. So why does money being loaned into existence by commercial banks, why does that matter? And what would a standard economist think about hearing this conversation? So first of all, why it does matter exactly as you point out. There's two reasons it matters. One is when it's loaned into existence to increase productive capacity, let's say I'm borrowing money to build new fracking infrastructure. So that is money that's, you know, there's all the materials required to build the wells. And then I'm pumping out wealth from the soil. And we actually count that I'm draining our net resource stock, yet we count it as pure gain. We don't mention.

and the fact I'm depleting our wealth stocks. But that money loan for production is directly increasing the claims on our finite resource base. And because it's growing exponentially, I have got to get more money in the future. A good example of this, take an extreme example like Brazil, where interest rates might be 40% a year. I borrow money to build a sawmill. I've got to pay off that 40% interest. That gives me a huge incentive to chop down trees growing at 3%, the payoff debt growing at 40%. And so I'm just rapidly depleting.

Okay, we'll get back to your second point. But on this one, how long has inflation been kind of a standard expectation? Because my understanding was if you would have asked an economist in the 1950s, will prices go up next year and it would have been a coin toss? Half the time they went up, half the time they went down. But since you and I have been alive, we've been alive during. a period of pretty much consistent every year inflation. But how long, were there ever monetary regimes where there was very low interest rates or

no interest rates? I don't know a lot about that. Yeah, I'm not a true expert on the history, but interest rates have been a thing for thousands of years. Some societies had like rules where you could charge 10% interest for seven years, which means you're paying back twice what you borrowed essentially, and that was it. Other societies had jubilees periodically, where all that would be canceled because a lot of these traditional societies understood that that exponential growth can't continue.

And if you look at old literature, actually, you'll see they always talk about people's income, read like, you know, the Bronte sisters or something. They'll tell you how much somebody earned or how much things cost. That never happens anymore because every writer now knows that that is useless five years from now, you don't know what that even means. So we did have a long period with kind of inflation-free societies or where inflation was periodic episodes. Now it's kind of built in.

It's expected. Although for many years, I actually never taught my students about inflation because we went about 20 years, you know, without really much worry about it. Where our concern was deflation. And, you know, one of these things is if you're loaning the money and, you know, And you are increasing the production of goods and services, then there's not inflation. So, you know, in fact, if you think about it, when the price of oil skyrocketed. So 2008, July, reached 140 bucks a barrel, lots of firms saying, oh, we want to invest in oil.

So they borrow a lot of money to invest in oil. They increase the supply of oil. And because demand for oil is what they call really an elastic. A small increase supply leads the price to plunge. The price plunged. actually loans for productive capacity can drive deflation in the short run. Of course, it also exhausts our oil sooner. And then, given the importance of oil, that triggers future inflation.

But with a lot of things, loaning money into existence to increase output drives, you know, can drive deflation. Here's the way that I think of it. You know, I got my MBA at the University of Chicago. And people look at the future with financial technology. lens, or if they've taken ecology classes or read books on ecology and energy, it widens the boundaries of how you look at the future. And most people at the business schools around the world have never taken an ecology class. And so I think the models that they're using are correct in a very short-term and narrow boundary

sense during this moonshot of economic growth period where, yes, next year. the economy grows 3% from this year, and therefore this whole econometric logic, Rube Goldberg machine makes sense until the divergence between all the monetary claims on reality that we've created is so distant from a soon-to-be declining amount of energy and materials coming into the economy every year. And then we have, well, we have the onset of the great simplification in my vernacular. What would a standard economist say to debunk of what we're saying right now? What is taught in contrast to what we're saying? Well, one thing I think that is taught is this, you know, you and I believe that resources are finite.

Economists are often accused of being cornucopian. Their argument is as a resource becomes scarce, the price increases, creating an incentive to innovate, substitutes, or demand less. And so technology will always step in and solve the problem. And so far, it's true that empirically, you know, technology always has come up with solutions to our major predicaments. Empirically, the day before Thanksgiving, a turkey has the most evidence that humans are benevolent and kind. Inductive reasoning doesn't always work. No, exactly right.

And that's what you and I are doing with all of our work. It's a few weeks out metaphorically from Thanksgiving for our culture. And we're trying to educate and inspire more people to start looking at how we can. can live better or the same with less because less is probably coming. Because at some point, it very much is a musical chair situation with the amount of, well, here's the other thing is when we have a financial problem and we have to tighten our belts and we have to use less, it's so politically difficult to sell or explain the necessity of using less that we just create more credit.

It's amazing, Josh, to look at the debt ceiling of the last 30 years. It's these like flat lines and then a jump up and then a flat line and a jump up. Every single time we've hit a debt ceiling, there's a bunch of wrangling and political arguing and chicken little dumerism. And then all of a sudden we raise a debt ceiling. And it's almost like the boy who cried wolf because we've been warning about a fiscal Cliff and a debt crisis, you know, some people have been warning for a long time. And it doesn't seem to really matter. What really is the problem with debt? Is debt necessarily a bad thing?

Unpacked that a little bit. Yeah. This is a big topic. So debt itself, it does, you know, if we go into debt with interest bearing debt, that means our future obligations continue to expand, which in and of itself is highly problematic, would a lot of economists worry about with debt? They compare governments to households, and they think, well, the government can't repay the debt. What they forget is that the government is the sovereign issuer of money. You know, it says in our Constitution that the Congress is the right to coin money, we could at any time issue a coin equal to our entire outstanding debt and pay it all off. That could lead to too much money chasing few goods and services, which is inflation. But the government is not going to go bankrupt.

Modern monetary theorists harp on this constantly, and they say as long as we have unused resources, by which they mean labor and capital, and firms operate typically with about 25% excess capacity, even now with really low unemployment, it's still like 3% or 4%, probably, which is quite a number of people. So they argue the government can spend money to employ those unused resources, without driving inflation at all. What the modern monetary theorists forget, though, is we don't have unused ecological capacity. We have vastly overused ecological capacity. And when the government spends more money on things that create demand for oil and raw materials, that is growing our ecological debt, which is easy to hide. Because if you have a huge forest, you can keep cutting it

down every year and without really noticing in your income stream. So like if you inherit a huge trust fund, you can spend it out pretty fast and you don't, you live well until it's gone. You know, you have to live on the interest, not the capital. Well, that's a microcosm for our culture. We're like a 12-year-old who inherited large amount of money and is spending it down as if it were interest when it's actually capital. Okay, so on MMT, modern monetary theory, you said that one of the things that's in their view

that is flawed is they ignore the ecological debt. I would argue two other things are problematic with MMT. Number one is as we issue more and more debt to pay off our claims, like a trillion dollar coin, like you said, that's true domestically, but it sends a signal to people internationally that our currency may not be trustworthy forever. So there's that. And then the larger issue is it's energy blind, like so many things today. So we have a hundred billion barrel of oil equivalents per year of fossil carbon and hydrocarbons we're extracting. We only pay for the cost of extraction, not the cost of creation nor the pollution. So we have basically a labor force of 500 billion human worker equivalents added to our global economy. And as those retire and it's more costly

to wake new ones. And we go from 500 billion helpers to 450 to 400 to 300. As we're creating more monetary claims in a Keynesian sense, our workers, you know, 5 billion of us real humans and 500 billion of these energy armies, they're getting weaker or are less productive over time. And that, you can't print that. You can only extract it faster. So I get the point by MMTers that you can't go bankrupt.

The difference between a person having a four to one debt to income ratio and a government having a debt to ratio four to one is, yes, the government can print the money. The individual cannot. And by the way, there aren't that many countries that can actually do that. I mean, the U.S. can, Japan can, China can. But a lot of countries in Europe can't because, you know, Slovakia, or some of the satellites, they have to look to Germany and France to call the shots on the euro. Out of all the aspects of the story that I've put together with your help over the last 20 years,

it's the disconnect between our monetary expectations of reality and our actual physical situation is probably one of the most underappreciated, under-recognized risks to the next decade. because we are growing our debt as a world. We're doubling our debt every eight to eight and a half years. And we're growing our economy or we're doubling our economy like every 20 to 25 years. And that's before energy starts to decline. So we have a massive financial recalibration coming in the future, in my opinion. And it could be the very new future or it could be five to ten years.

years from now, I don't know. So let's just briefly talk about that before I forget. Before and after the Great Depression, we had a similar situation that before 1929 and after we had the same productive capacity in the economy. So what happened in the early 1930s with money and productive capacity and could that be an analog for what's ahead? Yeah. So, I mean, prior to the Great Depression, most money was not being loaned to increase a productive capacity. It was being loaned to invest in existing stocks. And because, as I said, the supply of stocks, you know, it's not totally fixed, but it's very rigid. So the price of stocks is determined by demand.

Demand is determined primarily by how much credit is available to buy those stocks. So banks were loaning money hand over fist to buy stocks. stocks were collateral on the loans, the value of the stocks was going up. So the bank saw themselves as making very, very safe loans. Same thing happened with a housing bubble, you know, 2005 through 2008. The more money you loan to buy stocks, the more money you loan to buy land, the more demand there is for those, the higher the prices, the more collateral you have for the loans, until eventually you reach a point where people get too overly optimistic. They're borrowing too much to buy too much. They can't find a seller. As soon as they,

they can't find a seller for the land or the stock, then they can't pay off their loan. And so as soon as a few people can't find sellers, they have to start selling their assets. And as soon as the supply of assets for sale goes up, the price plunges. And this is known as debt deflation. So that, you know, when you loan a huge amount of money to buy stocks, all these people owe money to the banks, contingent upon rising stock prices. Stock prices start to fall. People can't repay the banks. Banks, therefore, stop making loans.

And they stop making loans not only to the speculators, but also to the real investors. So people who need money to borrow money to make payroll or to buy the goods to do real production, banks stop making those loans as well. The amount of money circulating in the economy tends to go, you know, it really goes down. And so we have a banking system that exacerbates bubbles and exacerbates, It's busts. So it's a cyclical. When you really want one that's pro-cyclical, you want one that when the economy is doing poorly,

you put more money out there to stimulate investments. And when the economy is booming, you want one that reduces the amount of money to, you know, stop the overheating of the economy. And overheating, in my view, is, you know, extracting too many resources faster than the planet can sustain. Well, in that case, we're already on fire. You were on fire. Yeah. But the other thing you said.

is kind of what we've done, right? In 2009 and in 2020, the Treasury and Federal Reserve came in and printed bazookas worth of stimulus and guarantees and everything because we otherwise we would have tipped into a depression. Here's the other thing people never really think about. You know, the Federal Reserve is amalgamation of private banks that have paid in capital. And the amount of paid in capital, like if you were to start a bank in Burlington, there would be some investors that put together capital to create the bank. Then you start loaning out and you get paid higher interest on your loans. Then you pay out to your depositors.

So over time you make money and the whole model is leveraged. So you do well. The Federal Reserve has 50 billion or so in paid in capital. And their balance sheet now is $8 trillion. Or I haven't looked in the last month or two, but they're the most leveraged. hedge fund in the world. The European Central Bank is even worse as far as leverage ratio. But since it's government, quasi-government, no one really worries about that.

But at some point in the future, when we have all this vast amount of paper and electronic claims on reality, and we start to call those in on real reality, houses and money in my own bank account and things like that, there really is a musical chair situation. And my belief is contrary to 2009 when we had a too big to fail situation, the next crisis there will be a too big to save situation where some country, some entity, the Bank of France or something will be need so much money to be bailed out that all the other central banks in the world won't be able to do it. And that will cause some sort of a recalibration, currency reform, Bretton Woods, three, something like that is coming because when we have a financial crisis,

like in 2009 or 2020, we have options, right? We could say we've consumed beyond our means. We need to tighten our belts. There's going to be some austerity for a few years. We're going to let companies fail that we're not doing well, or we're going to add some non-renewable tax to save and marshal our natural resources and our ecosystems. Any one of those options could have been taken. But instead, we wanted to make everyone whole and people that were gaming the system with the PPP loans and things like that. And so we had this Monty Hall campaign of just massive stimulus and central bank

artificial guarantees, low interest rates, negative interest rates. And what that did was you're solving a credit crisis with more credit, which cannot, who was it that Hyman Minsky said that that can never happen in the long run? So it's bizarre to me that we are so deep into this, yet no one even thinks about it. And I think it's because it's happened twice now in 2009 and 2020 and no big deal. Look, we came out of it, but I think this is central to our future. One thing I'll say is that if you think about it, you know, what we often do when there's a recession, we lower interest rates with the argument that this is going to lead firms to invest to new production, hire people, create more goods and services, create more wealth and the recession.

But in reality, when there's a recession, firms can't sell what they're already producing. They have no incentive in producing an additional, investing in additional consumption. What they tend to invest in is speculation. So it's like March 23rd, 2021 Powell, you know, as the stock market is plunging, he says, I'm going to make credit available to prevent asset prices from collapsing. And people interpreted that as if necessary, he would actually buy stocks. He ended up purchasing bonds traded in the stock market. I don't understand a lot of this stuff, to be honest.

But it triggered the biggest 50-day increase in the price. of stocks because the price of stocks is determined by the demand for stocks, which is determined by credit availability. And this didn't in any way, you know, it didn't create more jobs. It actually triggered one of the biggest increases in inequality we'd ever seen where billionaires were just getting phenomenally richer at the same time that people were losing their jobs and living in misery. So this idea that we can reduce interest rates to stimulate the economy during a recession, If you can't sell what you're already producing, you're not going to invest in more production. You're going to invest in speculation.

And if you can't speculate in the U.S., we'll go speculate in Brazil or South Africa or Turkey or India, as we did in following the quantitative easing in response to the 2008 crash. So getting back to this core question, because I know people listening to this, there's a lot of big words here. And our fundamental point that we're trying to make is that commercial banks create. most of the money in our world when they make a loan. And the loan, they're not loaning out someone else's money from their bank. They're actually creating the money. And when that happens, there's no reference to ecology or how much oil we have. So what would a Larry Summers or a standard economist, what would be their core argument saying that we're wrong? You know, so first of all,

according to all their models, it doesn't matter where money comes from. Money is neutral. So they say, you know, that there's who creates or destroys money has no impact on the economy, which in my view is absolute nonsense. The right to create money is incredibly powerful. And we have turned, you know, our Constitution says it's reserved for Congress to coin money. We've interpreted that as, oh, only Congress can make coins, but banks can essentially loan money into existence, which I think is a misinterpretation of the Constitution personally. And so when I did my PhD, none of this stuff was even mentioned. and still a lot of economists buy into this idea that bank service intermediary between savers and borrowers. So I put my money in the bank.

I get 3% interest from the bank. They loan it at 6%. They keep 3%. And they're just an intermediary. In reality, they're ignoring the fact that 95% of the money is created by the banks. So that's largely just ignored. And as I said, this has come up in my university with students coming to me saying, you told us that banks create money. our other econ professor says, no, they don't. If they did, I'd be a banker. And so there's just a

certain amount of ignorance. It's amazing. And we're going to make sure to put in the show notes the hard references from the Bank of England and other places explaining exactly how this works. But you know that I talked to mostly retired politicians, some current politicians, they don't know this either. They interviewed politicians in England and found that 85% did not know that banks could create money. So how you make decisions about economy, not. understanding the basics is beyond me. So money is not neutral.

Can you describe why money is not neutral? Yeah, I mean, the fact that if you can create money out of thin air and loan interest, interest rates are higher than the growth rate of our economy. And the debt is growing faster than our economy. And I don't know the exact numbers. I've tried to look it up. But if our debt right now is 360% of GDP, which it might be a little bit more than that, but you can find that on the Federal Reserve sites and we can post that in the notes.

And let's say the average interest rate was, you know, a little under 5%. That means 15% of our our GDP is being transferred to the bankers every year. And typically, as we get technological innovation and advancement in a sector of the economy, like computers or cars, they become cheaper and cheaper. And you get more for your buck. In finance, it's the opposite. You know, there's no innovations that are saving our money. Instead, we are, spending more and more and more of our GDP is flowing to the banking sector. One of the reasons that debt hasn't been a front page issue is we just crossed 30 trillion in government debt.

Of course, our debt, in reference to our underlying resources, isn't just government debt. You have to add personal debt, household debt, corporate debt. And so there's lots of claims that add up to around like, you. you said, between 360 and 400% of GDP, which would be the equivalent as an individual if you made $50,000 a year and you had to pay taxes on it, but you owed the bank 180 grand a year in debt. At some point, the bank is going to say, you know what, Josh, you're a good guy, but I can't continue to loan this money to you. You need to pay this back.

So what happens from a biophysical perspective if the profits from our aggregate economy are not enough or are less than the interest? Yeah. So, I mean, what basically happens is, you know, as we say, we have money growing exponentially faster in the economy as a whole, which really does mean we have way more money chasing a finite pool of resources, you know, barring, you know, these magical technological low. Which are possible, but nothing that I see is happening right now in that level. And ultimately, it boils down to inflation. And so I actually, people are stressed out about this current, you know, inflation crisis. What they fail to acknowledge is that household debt right now is 80% of GDP. That means if we get 7% of inflation, and inflation is a general increase in the price of goods and services,

and we've actually seen wages for the poor are rising faster than inflation. The last couple years, yeah. The last couple years. But basically, to the extent that wages accompany inflation, the real value of debt is going down by 7% per year, which is 5.6% of our GDP. That's just for household debt alone, what we owe. That's a massive transfer of resources from creditors,

creditors who are the rich to debtors. Unpacked that a little. I didn't understand that. real value of debt is 7%. What do you mean by that? Yeah, a student loan of $50,000. But if we have inflation, that means prices of wages and goods and services are going up. So with 7% inflation, overall, you could expect your income to be rising 7% faster per year than otherwise would be. If your income is rising faster, your ability to pay off your debt is rising faster. Because your debt is capped at 50,000 and you just have to pay the interest.

Yeah. Or actually, your debt has interest, but if the interest rate is 5% and inflation is 7%, the real value of your debt is going down. But in general, the value of the actual principal you owe goes down with inflation. And, you know, so there's some kinds of inflation are absolutely terrible, like when a lot of corporations right now are just using their market power to jack up prices and making record profits. So across, we see tons of corporations. corporations who are jacking up their prices right now making record profits. They're not jacking up prices because they need to to stay afloat. They're just doing it because they have market power. But the general phenomena of inflation, so the fact is that, you know, we have exponentially growing debt, finite pool of natural resources on which that debt is a lien. And basically, when the demand exceeds supply, you have two choices, actually. We can just go and deplete the hell out of our supply. We can chop down all the forests, fish out the ocean. suck dry the oil wells in the short term and then kick the can down the road is the phrase you like to use and, you know, delay that.

And when we actually make more credit available at low interest rates, that facilitates that. That's what we have been doing. That's what we have been doing exactly what we have been doing. And what's the other option? And the other option is just to acknowledge that we have too much debt. And really we need essentially, as they used to do in the past, a Jubilee. but what people don't pay attention. I lived in Brazil during a hyperinflation, and you can, 50% a month.

And if I had had a million dollars in debt at a fixed amount of money, at an interest rate, and they weren't expecting hyperinflation, so it was like at a 5% interest rate, the value of that debt, you know, my salary was going up by 50% a month. So if I had a fixed amount of debt, the value of that debt would have been plunging at the end of one year, it essentially would have been a Jubilee, except that what people do is they build in expectation. So there's a lot of debt contracts out there right now with fixed interest rates at low levels. They're actually in negative interest rates. If you're paying a negative interest rate, the value of your total debt is going down.

All right. So this is not a question I had planned to ask. But I think you consuming less and telling our society that we have to use less is, in my opinion, a viable cultural direction to go. It's just never going to happen. So we are going to try to inflate our way out of this debt eventually. And so what you're kind of saying is if that is the problem, the correct game theoretical response is actually to go into debt that would be at a fixed level, expecting there to be inflation that the real value of the debt declines while you do something productive with that money. I'm not recommending that as an outcome of the

conversation, but I could see how that would be a logical way to think about this. What's wrong with that idea? I mean, I'm not calling for more debt. I'm just calling for the inevitable fact that when we have exponentially growing debt and therefore exponentially growing demand on a non-growing supply, you know, you end up with too much money chasing too few resources. So I view inflation as unavoidable. Since inflation is unavoidable, we should manage it. in a way that really helps transfer credits or resources from creditors to debtors, from the rich to the poor, essentially use it to reduce the value of debt. What Powell is suggesting right now and what Volcker did back in the 80s is raising interest

rates higher and higher and higher, which means that any new debt will be at those much higher interest rates and therefore will be growing exponentially even faster, which I believe exacerbates the problem. You know, I think we need other ways to manage overuse of resources than just raising interest rates. So kind of the way that I look at it, not from a near-term perspective, but from a longer-term perspective, the main input to our economy is the non-renewable carbon pulse sort of materials. And as our energy return on investment declines from 50 to 1 back in the day to 20 to 1 for most of the last 30 years to 15 to 1 now, you know, down to 10 to 1. As EROI declines society-wide, inflation is the inverse of that.

So as in EROI is going up, we're going to have very little inflation because the productive capacity is so boosted by this fossil pixie dust we're adding to the system. But as that stuff gets harder to extract, it's going to act as a tax on all. of society. You see it right now. People are posting pictures on Facebook. It costs them $130 to fill up their truck. Yes, oil is only $110 right now, but the refined products from oil because of some refinery glitches for diesel and gasoline is effectively the same as if oil was $150, which is where it was in 2008. So I think inflation and the inability of poorer people to afford basic things is very much in our future. So on that topic,

is there a difference between good inflation and bad inflation? Yeah. So, and here's where I think that bad inflation, in my view, is what Powell triggered in March 2021 when he actually encouraged people to invest in the stock market. So last year, we saw the price of the stock market increased by 30% to like twice total GDP. So really we saw this massive increase in wealth. So the wealth of billionaires increased by like 50% of GDP, you know, just in response to rising stock prices. And I see that.

And same with land prices, skyrocketing land prices. When you increase the demand for assets that are available in a fairly fixed quantity, that's really bad inflation. We don't even count it as inflation. So, you know, when we see the stock market going up, everybody cheers vigorously. When we see even land and housing prices going up, people cheer. Not the people trying to get a house right now. But we have always treated that as good inflation, but it is inflation.

It's more money chasing the same amount of goods and services, and that leads to a higher value. What's interesting about that, though, is that as soon as those people who own stocks, and we saw this with Elon Musk, he sold $5 billion worth of Tesla, and the price of Tesla falls. So as soon as the owners of those stocks, try to liquidate that and turn that the value of their stocks into real purchasing power on goods and services, as soon as they start to sell in large enough numbers, the price plunges. So it's absolutely impossible to realize that wealth.

But in the meantime, it does give people this enormous claim at the margin to more and more goods and services, but it's simply redistributed wealth. So I think of that as bad inflation. I think of corporations with market power rising their prices because they can, making record profits is bad inflation. But I think inflation that reduces the overall value of money and hence the demand on our finite supply of goods and services is good inflation. And inflation that deflates the value of debt and therefore transfers resources essentially

from creditors to debtors is good inflation. And it's pretty complicated. You have to manage it carefully. But I think it's also, we have unavoidable inflation locked in. You know, we just can't possibly allow, and we just have too much demand for too few resources. And one quick comment to say, though, that in response to what you were saying earlier is that this idea of selling lower consumption is untenable. You know, we invest like a trillion dollars a year through advertising to convince people they

buy to buy stuff they don't want to impress people they don't like. And to spend all their time working like hell to do so at the expense of time with their friends and family and community. Because you can't make money advertising people to work less, buy less and spend more time doing the things that really makes life good. So we could spend a trillion dollars in Madison Avenue marketing on the exact opposite message. And it might actually at this point wake people up. Or make advertising illegal or at least not tax deductible. Let me probe that a little bit because I've watched some of your, and I've sat in some of your lectures on money. How does money itself change the way that we behave?

And so that's very, very important. If you think about it back in the day before there was money, and we get old, we get decrepit, we got to rely on others at some points in our lives. In a pre-monetary economy, you better be damn nice to people your whole life so that when you're old and decrepit, they'll take care of you. In a monetary economy, you're not building up. You don't need to build up this goodwill. You don't need to build up social relationships. You better have a bank account, though. You better have a bank account, right, which might be sketchy in the future too.

And I'm not super confident about any of my retirement. You have a lot of friends and neighbors, though. I have a lot of friends and neighbors. But I think that money, you know, the idea that every monetary transaction, you know, the social relationship ends. I go to the store. They give me something. I pay them. over and done. I don't write them a thank you note. I don't owe them anything. On the other hand,

when my neighbor does something nice for me, I feel an obligation to do something nice for them. I feel stronger social bonds. Every interaction strength in social ties. And overwhelming evidence is social ties really are what give us meaning and value in life. When there's a new study, I'm reading a book right now arguing that our brain used our pain mechanisms to avoid bodily harm to also the same mechanisms to avoid social harm. So when we're having social problems or not connecting, well, we feel like almost physical pain, same part of our brain, which is one of the reasons opium just takes care of all that. Well, if I was a politician, either local or national, and I had to describe that money is created

from a pen stroke in commercial banks and that we are in a musical chair sort of situation with the amount of monetary claims relative to our underlying ecological and natural resources, I would feel social pain from telling my constituents that story, which is probably one of the reasons it's not being spoken. Well, the story I would actually tell is that right now we are allowing in the private sector to loan money into existence in the pursuit of profit. And you make profit pumping out oil. You make profit, you know, building things.

You don't make profit sequestering carbon or restoring ecosystems or in, investing in, you know, right now there was an article recently in the New York Times saying that businesses that want to invest in alternative energy and green technologies can't compete with crypto or, you know, NFTs, non-fundable tokens. So right now, the decisions about who gets money is based in the profit motive. The problems we face aren't likely to be solved by the profit motive. If I was a politician, I would say it's time for the state to reclaim the right to issue money, which we gave up to the private sector. And then we can dedicate new money towards actual social good, kind of like the state bank of North Dakota, which they use their bank to meet the needs of the state.

You know, good cheap loans for their students, you know, cheap loans to rebuild areas destroyed by disasters. You know, you change the goals of your monetary system. And instead of the money flowing to the financial sector, you know, interest payments would flow to the state. It would function just like taxes. You could cut other taxes because if the bank, the state bank is accumulating all the interest, that's just a flow of money that it, you know, it's essentially destroys money or you could think of it is giving the state that money to spend.

Is that the only bank in the U.S. that does things that way? government bank? So there's a lot of other states talking about it right now, but I think right now the only state bank is in North Dakota. I'm an advocate of municipal state and national banks, but all so the publicization of banks, not the nationalization, but making them public, and ending all subsidies for the private banking sector. No more bailouts, no more guaranteed, you know, deposits or anything for the private banks. Integrating ecological economics, anthropology, and the biophysical models, what in your opinion might be some more sustainable monetary models going forward?

You had told me once, and I forgot the example of some province in Brazil where they would issue money that could be used for something. Can you unpack that a little bit? Joe, I think the core point about money is the reason I accept money is I have to pay taxes. If I don't pay taxes, I go to jail. And I've got to pay taxes in the national currency, so I accept money, so I don't go to jail. And because I accept money, money is backed by my productive capacity. So this creates a lot of opportunities for banks to create new, for governments to create new types of money.

One I'm exploring right now is Brazil's Atlantic Forest is maybe 20% forest cover right now. The ecologists say that if they don't get forest cover up to 30%, the system's going to collapse. So there's going to be a massive die-off of biodiversity. You know, it's going to affect water flow. It's going to affect, you know, huge numbers of things. So the government of Brazil, I'm suggesting, could create a new currency. The Atlantic Forest in Brazil is Matatlansica, so the Matatlansica Reserve currency or the mark. They would say, we're going to institute a new tax only payable in this currency.

And they could tax carbon emitters. They could tax wealth. They could tax activities they don't want. and only make it payable in this currency to get this currency, you actually have to restore the Atlantic Forest. And it would be geo-referenced. It's very easy to say, if you claim this currency exists, I can look on a map and see its georeference point.

So it's very verifiable. And that would allow the government to essentially use monetary systems to achieve specific goals. And there's a lot of evidence psychologically that people prefer if you're being taxed that actually you can see exactly the benefit from it. So that's one type of option. There's a lot of ways money could be used to achieve other goals. That would be not only would that maybe work, but I don't know what percentage of the population would also feel like they're doing something of meaning instead of just frivolous consumption and, you know, Netflix and deep dish pizzas. They're actually working and getting paid for their work in something that improves the ecology of their area.

And other people are doing it too. Everyone's doing it. They have to because that's where the money comes from. Could that model work in the United States towards all sorts of non-just GDP as a metric of how much stuff we burn? Ecological restoration, community restoration, that there's a parallel currency, that we have to pay a certain percentage of our taxes every year. this XYZ Farley dollars to help our future. And so that everyone has to get paid in those, at least a portion of their income. Are people working on this? Is this a crazy idea? There are people who have suggested it. So Bernard Leotero is one of the architects of the euro,

and I have my concern to the euro, but he has a book called Money and Sustainability, The Missing Link, which lays out some of these ideas. And the modern monetary theorists advocate for a job guarantee. So we'll just print money to pay people. You could have variations of that. Like, so, you know, as I say that I think modern monetary theorists don't pay enough attention to the ecological limits and therefore say, well, we can just create, you know, more and more debt, you know, without respect for ecological limits. But I think what we could do is have a jobs guarantee with people investing in, you know, regenerative agriculture and alternative energy. And they could potentially be paid in carbon credits that correspond to the amount of carbon they sequester. and you could tax, you can impose taxes in those carbon credits that would drive the value up to

a living wage. So, you know, if you're working in regenerative ag, you're going to get paid in this carbon credit and the taxes will be high enough in that carbon credit that the amount you are paid gives you a living wage and allows you to meet your basic needs, which then, of course, obviates the need for minimum wage because if you have a job guaranteed living wage, then every firm would have to match that. And you're actually alleviating ecological constraints. I swear, I think I understand our monetary system and its relationship to ecology and

human behavior. But I still learn from you every time we talk. And this is just a horribly Byzantine complex subject, money. Seriously. It's so central to our lives and it's so fraught with confusion. And to me, it's clear that our current monetary system is. system is unsustainable. And so there's two things that have to happen. One is the little avalanche guns and the Alps that do the mini avalanches so that there's not a huge one. We need

something like that. And we're going to have to navigate this musical chairs moment in the next decade where the amount of financial claims versus the underlying reality, there's a great depression-ish event on our horizon. So that has to be dealt with. And then in the next century, we have to have some more sustainable and more tethered to some other outcome other than just GDP monetary systems because exponential growth, because the interest isn't created, is embedded in our system right now and has been for a long time. Here's one thing that the gold bugs were punked saying that, oh, the 1970s we went off the gold standard and that's when we started to decouple from sound money practice.

That's not true because they're only talking about the vertical money from the governments. They're not talking about the 95%, which is created from commercial banks basically out of thin air. And that's happened ever since the early 1900s when the Fed came into existence. I think it's happened since before that. I mean, you know, some of the theories are some of the early banks were goldsmiths who had safes for storing gold. People would deposit it. You know, rich people would put their gold there for safekeeping and then get a certificate entitling them to that gold.

But then the goldsmiths would lend out some of that gold, knowing that the certificates circulated, you know, independent of the gold. So you kind of created that loaning money into existence. So they figured if I have, you know, no more than 10% of the people will come demanding their gold for me so I can loan out 90% of the gold on deposit. And that functions like our current banking system. So what would be a more sustainable system? Let's ignore for the time being this Wiley Coyote moment we have on the horizon.

Once we make it through that, what would be something more sustainable, meaning that it would be a, I mean, if you look at the average length of a fiat currency, fiat currency being something that's not backed by something physical, it's around 30 or 40 years. That's how long they last. So what would be something that would be longer lasting? How could we tether our monetary claims, how we keep track of things to something that would be, that would last for a long time, either as a nation or as a world? Do you have any speculation on that? Yeah. And this is challenging. And I'm not even sure. So these are where the things get really difficult. So inflation, as I said, I think is kind of necessary. If you had enough inflation to create a debt jubilee, the deal is people, as you pointed out, people lose trust in the currency.

when I was in Brazil during their hyperinflation, people lost trust in the currency. So they introduced a new currency at two currencies at the same time. One with hyperinflation, one with deflation. And that actually worked quite well. And it remains, that was done in 1994, and the real remains the most stable currency or the strongest currency in Latin America. But so, you know, there's things, well, maybe with the way our system currently works, you know, we could inflate away debt and then issue, you know, some kind of insurance or

inflation backed. bond, which would be, you know, inflation proof. So you could have two currencies. One would erode away. And I'm not, you know, these, these are, this is speculation. But my main view is that finance is kind of essential to the way our economy currently works. You need to get money to invest in things to later generate returns. But the focus on all money being loan for the profit motive, which is built into a private banking sector, I think is fundamentally destructive. We don't need, you know, what we need to invest in is things that have collective benefits, public goods, the individual doesn't get the benefit society does, like ecological restoration,

you know, regenerative agriculture. So, you know, I think a very powerful tool we could use is, it's already legal, but public banking solves so many of our problems. And the problem is people don't understand it well enough. But if you had public banks, then, you know, the public sector would loan money into existence or give it out as grants. They could adjust interest rates according to, you know, the societal benefits being generated. You invest in a coal mine, 50% interest, invest in ecological restoration, negative 10% interest. I mean, you could have a lot of flexibility. And even then when you're loaning money, even if you're loaning it into existence is interest bearing debt, the interest gets paid back to the government who then spends it back out,

allowing the debtors to get that money and pay their interest. You don't need continually generation of more money. I think that's a fascinating idea, granted, quite speculative. Realistically, how would something like that come to being? Because you would almost have to have all the research, all the constituency built many years before some sort of crisis where it would have to be implemented. For instance, you have Democratic Congress and a Democratic president right now, They got elected and they took the mantle from Trump and the Republicans, but they were too busy playing whackamol since moment one. And it seems like we're going to perpetually be playing whackamol no matter who wins the elections. So how could something like you just described actually come into existence?

Yeah, it's not that difficult. I mean, it's already legal. There's other approaches that would take major legal changes. But already, any state can start its own state bank. I'm pretty sure any city could start its own city bank, you know, or a municipal bank. So this is an option that already exists. It doesn't need to be done at the federal level. It can be led at the state level.

We put forward a proposal to the Vermont state treasurer to do this. And, you know, she was skeptical. I think the main problem is overcoming people's total lack of understanding of how the banking system works and how it systematically transfers resources. I mean, if interest-bearing debt, the rate of return on it exceeds the growth rate of the economy, and the debt exceeds the size of the economy, I mean, this is, you know, it's a Ponzi scheme for transferring resources to the, you know, to the financial sector. So we don't need legal changes. We need mental changes.

We need people to be aware of what the possibilities are. At next semester, I'm doing a course, part of which we'll look at outlining what a public bank would look like for Vermont and presenting that to the new state treasurer. The old one just retired. And a lot of other states are talking about state banks right now. I think that's awesome. Okay. If you were benevolent dictator and had no personal status risk or danger from doing so, what would be the one thing you would implement regarding money or advertising or our system to help our future?

So having to do with money, what I would actually do is essentially create a national bank that functions like a conventional bank, except that, you know, the, with the interest rate and everything accruing to the government, and remove all support for the private banks. So we would, you know, right now we need a financial sector. When they do stupid things, they know they'll be bailed out. If you took away the guarantee that they would be bailed out, first of all, they wouldn't do stupid things. Second of all, people would be much less confident about investing in private banks or putting their money in private banks, where it's not really backed up versus investing in a public bank, which is backed by the full

liquidity and full government. So I think that alone would switch from, would move us to a system of public banking, although if the goals of the public bank managers were exponential growth and profit, it wouldn't make a bit of difference. You know, they would have to have goals that align with a socially just sustainability transition, which is another thing. Well, on that note, I just think that cities and counties and regions, states are going to have to try that model and people are going to have to see that it works. And then it might happen at a larger level. It's just my opinion. Okay, go on.

What would you do generally, not money related, if you were benevolent dictator? Perhaps here's what I would do. If I was going to do one thing, I think perhaps the most powerful tools are disposable right now for affecting culture are social media. Unfortunately, social media is entirely driven by the profit motive. And this means that the algorithms that determine what we see are designed to get us to spend more and more time looking at advertisements, which means they're promoting consumption. And what gets us to spend more time is polarizing content, you know, extremist views. So at a time we need global cooperation, our most powerful corporations are driving consumerism through polarization, exactly the opposite of what is required. So if I was going to call for one thing, I would actually call for making all knowledge required

for a socially just sustainability transition. I would make all that knowledge free on the condition that no improvements were patented. And this creates a knowledge commons that would also include a common control over social media. Instead of public sector control, that's used too much to manipulate and to push propaganda. but I look at a common sector as being transnational across the knowledge institutions like universities. And if they were in control of social media, it was directed at reducing polarization, reducing consumerism, educating people on the real causes of the problem, that would begin to change our culture in profound ways. You would be getting advertising saying, spend more time with your family and friends, you know, take a break from your work. You don't need a bigger car.

You don't need, you know, that it would just be really changing our goals. Could you imagine if we had advertisements like that? Spend time with your family and friends. Don't go to the store and buy a bunch of crap you don't need. A public servant's announcement brought to you from the anti-polarization commons. And interestingly, you know, when we first gave the airwaves to the corporations, it was on the condition that they provide public service announcements. Then Ronald Reagan said, nope, well,

actually just give our airwaves away worth billions and billions of dollars to private corporations to use as they like. And all the private corporations, the messages, you know, what we see is driven by advertising. And ultimately, advertising is geared towards making you feel crappy about your life unless you go out and buy this thing. Yeah. So they're really focused on undermining our quality of life. And we gave the airwaves away to the private sector so they could undermine our quality of life is one way of looking at it. I think I gave a presentation to your students maybe six or seven years ago where I said the single best invention ever by humans was a golden retriever and the single worst

was marketing and advertising or something to that effect. So on that note, as a college teacher, Josh, what advice do you give students after learning about all this stuff about money and climate and our Wiley Coyote moment and everything? I know you struggle with it like I do, but on our first podcast, I didn't ask you that. And I just wanted to hear what, what do you generally tell your kids as you push them out the door at the end of the semester? So first off, I actually tell them that throughout the course, I tell them at the beginning and at the end that if what you learn in an economics course doesn't help you understand reality, it's useless. If it's contradicted by reality, it's wrong. It's your job to test all the theories you learn in this class against reality.

and I also say that I am far from infallible. The fact I'm standing up in front of you doesn't make me right. If you took a course in the econ department, you'd be learning totally different things. So you are the ones who kind of have to decide what's right. But I also say that to solve the problems we face with overshoot, it's going to be much, much more difficult than a lot of you hear from the mainstream. It's not going to be technology stepping in and solving everything. It will be very, very challenging. but the impacts on your life, I say one of the things that gives people the most satisfaction

in life is cooperating with friends and community, overcoming difficult challenges. And, you know, working your endless hours at some job to buy more crap has very little to increase your benefit so that the sacrifices we have to make to achieve sustainability are far less than you believe. We're sacrificing our well-being on the altar of endless growth and consumption. And so it's going to be a huge lift. But that actual lift of collaborating and working with people to achieve those goals could be the most fulfilling moments in your whole life. And it will be challenging.

But, you know, it's doable. And we have to take that approach that these things can be done. So based on your last three minutes, that is evidence of why I chose you to be my PhD chairman and why you're one of my best friends 18 years later. So thank you again, Josh, for your time. Our first podcast was about cooperation. This one was about money. Thanks so much, Josh. All right.

Good see you, Nate. If you enjoyed or learned from this episode of The Great Simplification, please subscribe to us on your favorite podcast platform and visit thegreat simplification.com for more information on future releases.