Upstream - [TEASER] The Problem with Modern Monetary Theory w/ Doug Henwood

Episode Date: February 8, 2024

You can listen to the full episode with Doug Henwood by subscribing to our Patreon here: https://www.patreon.com/upstreampodcast As a Patreon subscriber, not only will you get access to at least one bonus episode a month, usually two or three, as well as early access to certain episodes and other benefits like stickers and bumper stickers, depending on which tier you subscribe to, but you’ll also be helping to keep Upstream sustainable and allowing us to keep this project going. Find out more at Patreon.com/upstreampodcast or at upstreampodcast.org/support. Thank you. Modern Monetary Theory, or MMT for short — if you haven’t heard of it explicitly or read about it in an economics textbook, you’ve certainly come across some of its theories and ideas out in the wild. Essentially, its proponents argue that, when it comes to the way that money and taxes work, most of us have it all wrong.  MMT is billed by its advocates as a radical new way to understand money and debt. The central idea of modern monetary theory is that governments can and should print—or in today’s world, create with a few keystrokes—as much money as they need to spend. It’s a bit more complicated than that, but that’s essentially it—that the government doesn’t actually have to worry about taxing the rich or borrowing money because it can just create money out of thin air. And this sounds nice, right? We get to bypass that annoying question that we’re often asked on the left, “...but, how will you pay for it?”  But, maybe it’s not quite that easy to bypass that question. Maybe there’s a lot more to the equation that MMT leaves out. And maybe this theory is just a mirage—or, as our guest in today’s episode has written, “a phantasm, a late-imperial fever dream, [and] not a serious economic policy.  So, is MMT a sound theory? Or is it snake oil? That’s the question that we’re going to be exploring in today’s Patreon episode with Doug Henwood, a journalist, author, economic analyst, host of the radio show and podcast Behind the News, and author of the article Modern Monetary Theory Isn’t Helping published in Jacobin.  What does MMT miss? What does it get wrong in its explanations for how taxes, inflation and debt work? And why is it important for Marxists to scrutinize and criticize any monetary theories that say so little about labor, production, exchange, class conflict, and the function of the state? These are just some of the questions we’ll explore in today’s episode. Further Resources: Behind the News with Doug Henwood Modern Monetary Theory Isn’t Helping published in Jacobin Upstream: Universal Basic Income Pt. 1 – An Idea Whose Time Has Come? Upstream: Universal Basic Income Pt. 2 – A Bridge Towards Post-Capitalism?    

A quick note before we jump into this Patreon episode. Thank you to all of our Patreon subscribers for making Upstream possible. We genuinely could not do this without you. Your support allows us to create bonus content like this and allows us to provide most of our content for free so that we can continue to provide political education media to the public and build our movement. Thank you, comrades. Hope you enjoy this conversation. What it boils down to is the idea that the government doesn't need to tax nor borrow

to spend. It can just create money out of thin air with keystrokes. And I thought this was utter nonsense. It drove me crazy. But I didn't really, I hadn't read the literature in detail, I just heard them talking or read an article here and there, but I hadn't gotten into it in depth. And I was just starting with such nonsense, but also so seductive to people who thought, wow, we don't really need to tax or borrow, we could just spend money at it, create it out of thin air, cool. And I thought that was just such a misunderstanding,

not just of capitalism, I don't know, it just seems like a human condition. You know, as Ralph Waldo Emerson liked to say, nothing is God for nothing. And I thought they were forgetting that fact, the fundamental fact. It just all seemed too easy and too painless and free of any kind of class conflict or political conflict. And I just couldn't take it anymore. You're listening to Upstream.

Upstream. Up listening to Upstream. Upstream. Upstream. Upstream. A podcast of documentaries and conversations that invites you to unlearn everything you thought you knew about economics. I'm Della Duncan.

And I'm Robert Raymond. Modern Monetary Theory, or MMT for short. If you haven't heard of it explicitly or read about it in an economics textbook, you've certainly come across some of its theories and ideas out in the wild. Essentially, its proponents argue that when it comes to the way money and taxes work, most of us have it all wrong. MMT is billed by its advocates as a radical new way to understand money and debt. The central idea of modern monetary theory is that governments can and should print,

or in today's world, create with a few keystrokes, as much money as they need to spend. It's a bit more complicated than that, but that's essentially it. That the government doesn't actually have to worry about taxing the rich or borrowing money because it can just simply create money out of thin air. And this sounds nice, right? We get to bypass that annoying question that we're often asked on the left, but how will you pay for it? But maybe it's not quite that easy to bypass that question. Maybe there's a lot more to the equation that MMT leaves out. And maybe this theory is just a mirage, or as our guest in today's episode has written,

a phantasm, a late imperial fever dream, and not serious economic policy. So is MMT a sound theory, or is it snake oil? That's the question that we're going to be exploring in today's Patreon episode with Doug Henwood. Journalist, author, economic analyst, host of the radio show and podcast behind the news, and author of the article, Modern Monetary Theory Isn't Helping, published in Jacobin. What does MMT miss?

What does it get wrong in its explanation for how taxes, inflation, and debt work? And why is it important for Marxists to scrutinize and criticize any monetary theories that say so little about labor, production, exchange, class conflict, and the function of the state. These are just some of the questions we'll explore in today's episode. And now, here's Robert in conversation with Doug Henwood. Doug, it's great to have you back on the show. Oh, thanks for having me back. Yeah, absolutely. I think many of our listeners are probably familiar with you, if not independently through

your own work, but we've had you on the show a bunch of times, so I'm sure they've heard your voice before. But just in case someone's not familiar with you, I'm wondering if you could introduce yourself or listeners and maybe tell us a little bit about the work that you do. Well, I started the newsletter called Left Business Observer, Cover Economics and Politics from the left back in 1986 when it was a very lonely task. It's amazing how the political environment has changed since 1986. And I kept doing that through 2013 and I just burned out on doing a quasi-monthly newsletter.

But I've written a few books, Wall Street, How It Works and For Whom, After the New Economy, my book about Hillary Clinton. And I do a radio show, which I've been doing since the mid 1990s. It was started in WBAI in New York and now is broadcast on KPFA out of Berkeley. And it enjoys a vigorous afterlife as a podcast. I think most people listen to it as a podcast, but it's still very much structured like a radio show. And I'm kind of pleased with my old fashionedness on that. Nice. And just in case people are wondering, the book on Hillary Clinton, my turn, is a critical book of Hillary Clinton. Yes.

I remember when that came out and I read it and one thing that it introduced me to was the fact that Bill and Hillary's first date was actually crossing a picket line, right? Yes. Yes, the Yale workers were on strike. They often were and are. Bill talked his way into the closed art gallery. He wanted to take Hillary in there, so he convinced the janitor to open it up. I gotta say, the guy is persuasive. He gotta hand that to him. But then their honeymoon was partly, they had a multi-part honeymoon, but part of it was in Haiti and paid for by a guy who worked for a city bank

So that's sort of set the tone for the rest of their life. Yeah, very emblematic Sweet well, we are not here today to talk about Bill and Hillary Clinton Although I'm sure we have we could and there's a lot to talk about we want to inflict that on people but We're here today as as folks probably know from the title of the show and the intro, that we're talking about modern monetary theory and really basing our conversation around a piece that you wrote in Jacobin called Modern Monetary Theory Isn't Helping. So I'm wondering if you can begin by telling us what motivated you to take on the critique

of modern monetary theory. And I'm going to ask you to give us a sort of 101, and I'm sure that will be weaved throughout the conversation today as well. But I think it might be helpful to get some insight first into sort of what drove you to, wanna lift the veil, so to speak. Yeah, well the proponents of this thing are very slippery

about exactly what it is. They'll change their definitions, they'll change their qualifications. They're just very slippery and it's very difficult to argue with them. But what it boils down to is the idea that the government doesn't need to tax nor borrow to spend. It can just create money out of thin air with keystrokes. And I thought this was utter nonsense. It drove me crazy. But I didn't really, you know, hadn't read the literature in detail. I just, you know, heard them talking or read an article here and there, but I hadn't gotten into it in depth.

And I was just starting with such nonsense, but also so seductive to people who thought, wow, we don't really need to tax or borrow. We could just spend money out of, create out of thin air. Cool. And I thought that was just such nonsense and such a misunderstanding. I guess it's not just of capitalism. I know it just seems like the human condition. As Ralph Waldo Emerson liked to say, nothing is God for nothing.

And I thought they were forgetting that fact, the fundamental fact. It just all seemed too easy and too painless and free of any kind of class conflict or political conflict. And I just couldn't take it anymore. So I spent, oh God, I don't know, over a year, I think, really reading their books and their articles and watching their videos and fighting with them on Twitter. They're really tireless on Twitter. I think they've mostly blocked me by now. But there's one person who sent like 200

tweets at me in response to something I'd said. It was, they're just tireless. Well, thank you for diving into the trenches and doing the networks and the rest of us don't have to. And you know, speaking of the trenches, I'm wondering, yeah, if you could maybe give us the 101, you know, modern monetary theory also abbreviated as MMT, what does the theory contend? And do they really believe that the government doesn't need to tax or borrow to spend? Well, as far as I can tell, they do.

I mean, it seems incredible, but I don't know how people believe all kinds of crazy things, so I don't know. It's funny, you know, economics field is, in many ways, has a lot in common with religions. There's a lot of faith. And you can even, I've noticed this in the language that when I was writing my Wall Street book, I noticed a lot of the finance literature touched on articles of faith. It's really, it's kind of funny, but it's, you know, at least, you know, some kind of religions promise you eternal life and redemption. I guess free money is the best we can do on earth, but still that's what they're promising.

I guess it's a kind of salvation. But basically, yeah, that's what they're promising. I guess it's a kind of salvation. But basically, yeah, that's just it. They think that the government doesn't need to borrow money, which it does in vast quantities every day, and it doesn't need to tax. It could just spend by the Federal Reserve or any other national central bank, creating money out of thin air through keystrokes, as they say. It used to be a printing press and now it's just computers that credit the accounts of banks with money created by the Federal Reserve. Now central banks can and do create money every day. There's no question about that. But they do so within certain constraints and they are

expressly forbidden in the U.S. from funding the government's deficit. They can't just have the Treasury issue a bond and then have the Federal Reserve buy it up. That's illegal. The Fed can buy bonds that exist. They're trading in the markets and they did a lot of that over the last decade plus, starting with the 2008 financial crisis and then very intensely during the early months of the COVID crisis. So the Fed expanded its assets enormously by buying up a lot of these treasury bonds. But then we had an inflation and I think it had something to do with the Federal Reserve creating money so liberally. And now they've gone to reverse. They're draining money from, they're not rolling over their bonds. They're letting them mature. And the effect of

that is to draw money out of the system. They spent years pumping five or six trillion into the system and now they're gradually hundreds of billions of dollars are rolling off as they say in the jargon and that's being taken out of the markets. So in theory, that should really lead to much tighter credit conditions, higher interest rates, a slower economy. We'll see if that happens. But the Silicon Valley bank failure last year was a symptom of something that might happen as the Fed is reversing the money printing episode.

But so far, it's been fairly trauma-free. We'll see if that continues. But yeah, the fundamental point of it is that a government doesn't need to borrow. It doesn't need to tax. It can just create the money out of thin air. Now I'll say one problem with this from the outset is that the U.S. government is not like any other government. We issue what is effectively the world's currency.

The U.S. doesn't really have to worry about foreign investments so much. It doesn't have to worry about the exchange rate. We do have an extremely large degree of maneuver that other countries don't have, and Germany would have more than Namibia, but even Germany couldn't get away with just pure money printing if their national character would allow them to do it. This was a clip from our Patreon episode with Doug Henwood on the Problems with Modern Monetary Theory. You can listen to the full episode by becoming a Patreon subscriber.

As a Patreon subscriber, not only will you get access to at least one bonus episode a month, usually two or three, as well as early access to certain episodes and other benefits like stickers and bumper stickers, depending on which tier you subscribe to. But you'll also be helping keep upstream sustainable and allowing us to keep this project going. Find out more at patreon.com forward slash upstream podcast or upstream podcast.org forward slash support. Thank you.