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Fiscal Sustainability Teach-In: Session 1, Panel Discussion and Q&A

SESSION 1 - PANEL DISCUSSION

[Randy Wray] [00:49:54] I want to deal with one issue that always comes up when we talk about "the government can always afford to buy or hire any resources that are not being used," and so one response will be "yeah, but the government is always less efficient than the private sector" so I want to deal with that issue. Bill mentioned that we can look around and we can tell that there are... probably the most important resource that any society has is chronically underutilized: that's labor. So there are plenty of people out there who want to work and the private sector does not want to hire them. Until you get to full employment, the efficiency issue is completely irrelevant. Because if you put them to work, and you get any production whatsoever, it's an improvement. You only need to raise the efficiency issue once you're at full employment, and now the government is actually taking resources that the private sector is already using. And then you could raise the question: Is the government putting these people to a more efficient use than the private sector was doing? In that case, it's perfectly legitimate to question whether the government ought to be hiring people away from the private sector, and other resources too. Of course, then you have to ask the question about the private use versus the public use, the private purpose versus the public purpose, and we can ask those questions once we get to full employment. But outside of World War II, true full employment really never occurs, so the efficiency question is completely beside the point. Let's get to full employment and them we can talk about efficiency. We can talk about maybe we want to release some resources from the public sphere so that the private sphere can use those. But until that point, there's never a question of efficiency.

[00:52:00] [crosstalk]

[Marshall Auerback] [00:52:08] Just as a general point, because I approach this more from the point of view of being a market practitioner rather than an academic economist, as a number of the people I saw in the Huffington Post responded, we're just all "a bunch of pointy-headed academics." I actually approach this like Warren Mosler does, as someone who has been in the markets for almost thirty years, and the reason why the theory interested, intrigued, and finally convinced me was not because it was a theory at all, but because it was an operational reality, because debiting and crediting bank accounts electronically is what I see on the screen every single day. That's basically the way it works, in that you don't actually see capital flowing from one country to another in the way you did under a gold standard system, in that some guy pushes a button in Brazil and another guy pushes a button in the US and numbers change on both sides of the ledger, but there's no actually capital that moves. And as for the argument that you would see that reflected in the exchange rates, I sort of say, "well no, not really." The exchange rates move up and down for a number of reasons. People can decide one day, I might decide one day that I don't like the Japanese yen and I might decide to short it and it might have nothing to do with any particular reason that I've seen out there because of capital flowing in or out. There's any number of decisions that go into a currency movement and a private portfolio preference is not something that can be encapsulated into some sort of basically economic theory. So I think that's one of the main points that I think is key to understand, that people say always that we don't really understand realities and markets, but actually many of us spend time, a lot of time, working in the markets, and seeing this on a day-to-day basis. And that's I suppose why we're not intimidated by a lot of the junk that you hear coming out of the media every day, because our own experience is very, very different. And some of us have actually made money off the lack of understanding of public reserve accounting as well, so I'll leave it at that.

[00:554:32] [inaudible]

[Warren Mosler] [00:54:48] I'd just like to add something to what Bill was saying, and it's probably because he hasn't watched Fox News quite long enough. One of the other things that's being said on TV is that it's wrong for the government to be out there spending and hiring people when the private sector is pulling back, saying. "everybody's hurting except the government, so it's time the government needs to cut back also," so Bill, I just want to add that to one of your lists of absurdities. You probably ran out of patience watching before you heard them say that one. And look, there's a reason why nobody on this panel is a household word in the United States, or anywhere in the world, and that's because if we were, we wouldn't be having this crisis. The idea that there is such a thing as fiscal, I like to call it, what Bill was talking about, I like to call it fiscal responsibility, but it's the same thing. The idea that there is a solvency issue, that the government has run out of money, there is nobody out there that's got it right. I don't know, does anybody here see anyone, anywhere? If there was, it wouldn't exist, the problem would go away immediately. We don't have a whole lot of work to do, we only need to get one person who has the national media attention to understand this, and I think the whole thing changes very, very quickly. Because government checks don't bounce, and we'll get into some of our other things, so, thank you, go ahead.

[Stephanie Kelton] [00:56:36] For someone who does have a national reputation, and is out there in the mainstream media, who does understand it, I would say Jamie Galbraith, and we were hoping to have him here with us today, but unfortunately his schedule wouldn't permit that. But we need more voices like that, with better penetration, obviously.

[00:57:00] One of the things I wanted to raise, Bill, related to your discussion, that you posed to your students: "What do you think of the of the government deficit? where do you want the government to be?" I do exactly the same thing with my students in Kansas City. I say "Do you want the government to balance its budget, or do you want it to run a surpl---, a deficit?" And they have this in their mind, they think the responsible thing to do is to have the government run a federal budget surplus. And I say "OK, you realize what this means for you?" And they don't. I think this is one of the most effective ways that we can push back against this call for fiscal responsibility and governments to live within their means and balance their budgets is to say that there are two sides to the ledger, and if the government takes the surplus position, guess which side you take. You take the deficit position. You are the non-government sector. And so, by accounting logic, if the federal government is running a surplus, the non-government sector will be in deficit.

[00:58:00] It is no surprise today, that, while the federal government's deficit continues to rise and rise and rise, people are scratching their heads and looking at private saving rise and rise and rise. Right? It's the other side of the ledger. So, ask someone the next time they talk to you about fiscal responsibility, if you want the government to be in a surplus position, that's going to push you in the deficit position.

[00:58:24] [Pavlina Tcherneva] Just to elaborate on this very same point, it's the same thing with the debt. If you're going to look at the debt as the government liability, this is somebody else's asset. So, all of this argument about the government being responsible and paying down its debt just like households need to pay down their debts, just means that every single private sector portfolio is going to lose a very valuable default-risk-free asset.

[00:58:52] And so, once again, you have to look at both sides of the story. Now there are other reasons we can get into: should the government be injecting all of these bonds in the market, for what purpose are they injected, etc, but to the extent that they reside in your portfolios, if you want the government to reduce the debt, you will be losing that asset. Now, what you will be getting is another asset. You'll be getting cash. That is also a government liability. So, you just take your pick. How would you like to save? In the form of reserves - dollar reserves - or in the form of bonds? With or without interest?

[00:59:33] [crosstalk]

[00:59:40] [Kelton] Randy wrote a blog for the blog that we run out of the University of Missouri-Kansas City. Randy did a blog on this point that Pavlina is talking about, and I like this one very much because I hadn't seen it done by anybody else. He said, when you talk we are seeing the national debt clock, and we are hearing, "your share of the national debt, this is the amount that each of you owes." And he said, "Owes? It's not o-w-e, it's o-w-n." It is the assets that each of us, if we were to divide it equally, right, by population, it is the amount that we own. We don't owe. It's not our liability. We aren't responsible for paying back the national debt. It is our asset. It is what we own.

[01:00:27] [Mosler] Let me just relay a quick story. I had to __??__ Citibank for a private client meeting with Bob Rubin back in I think it was the late 90s, maybe 2000, and he, rightly so, indicated, there were about 20 of us, and he said, "this economy could be in trouble because of the low savings rate." And I thought he was correct, because we had just been running a surplus, so I said to him, "Bob," and I was the last question, I said, "does anybody in Washington understand that when the government runs a surplus like we just did, it reduces savings for the rest of us, non-government sectors, by exactly that amount, to the penny?" And he said, "No, when we run a surplus, we buy Treasury securities, and that adds savings and investment to the economy." I said, "No, when you run a surplus, we have to sell our Treasury securities to get the money to pay the tax, and it takes away that much from the economy." He goes, "Well, I think you're wrong." So I said "Ok, what do I care if you think I'm wrong." But the point was no one in Washington understood how that worked. And so there was zero understanding, and I'll submit that there's still zero understanding of that today. There's no understanding now that the large deficits, as we just said, are responsible for the increase in savings. And you can read that savings are too high, people aren't spending enough, it's the highest it's been since 1993. What was 1993? That was the last time we had a deficit that large.

SESSION 1 - Q&A

[01:01:55] [Mitchell] Ok, our chair seems to have disappeared, so as formal speaker for this session I'm now the chair, so I think it's time to have questions, and there's microphones going around, and because you've forced us to name ourselves, you should name yourselves, and identify yourself before you ask the question, please.

[inaudible]

Q: [01:02:31] [___??___] I just recently learned about Modern Monetary Theory and the question that keeps coming back to me - I'm sure you have answers for it, I just haven't seen the answers - What about inflation, is that an issue, and how do you handle it? Bill mentioned taxation as a tool for helping to manage inflation. And the other question, having mentioned that Norway, because of its external account doesn't have any constraints, what about the constraints that are imposed on other countries, the donation of reserve currency by the external account?

[01:03:17] [inaudible; crosstalk]

A: [01:03:29] [___??___] I guess I'll go to Bill's point first, that you don't get inflation until you've used up the resources. And the other thing is, there's a whole question of what is actually inflation and what are just price increases, and in this country we look at CPI.

[01:03:47] What happened in the 70s was we had an external monopolist in OPEC that was raising prices of oil, and it went from $2 to $40 dollars, and those costs were passed through, had nothing to do with monetary or fiscal policy. And in fact, the inflation broke after the cartel broke, which was largely based on, I think, the deregulation of natural gas in 1978. Where it had been capped at below market levels and so no one was producing any natural gas. We lifted the cap, the price went up to two-fifty or -sixty or something, and suddenly natural gas was everywhere, the electric utilities converted, and OPEC tried to sustain prices. They cut production by, I think, over 15 million barrels a day in the early 80s. Finally they couldn't handle it, the price collapsed, and the inflation went away. I don't attribute any of the success in the war against inflation, whatever, to monetary policy at the time, I see it as an underlying thing.

[01:04:47] The other kind of inflation, the kind of inflation that you can get from the monetary system is the demand pull, rather than the cost push, and that, I've frankly never seen that in my 40 years. I'm sure it's possible, and you see it in some countries, occasionally, but you have to get to full employment, run out of resources, and then the government has to continue to be pushing it past that point, and you use the price signals. Right now, we have an enormous output gap by any measures, some might say it's smaller than others, but it's certainly large enough where that's clearly not the problem. I'll let somebody else continue, just to fill in.

A: [01:05:24] [Bill Mitchell] The question about the OPEC is very interesting, because I think Australian experience was similar to elsewhere, but with slight nuance. You've got to understand what inflation is, first of all. A continuous price... a price bubble within a specific asset class, which is... that's not inflation. That's an issue, so a real estate bubble is an issue, but it's not inflation, and the public debate tends to conflate housing booms with inflation. It's a wrong conflation.

[01:06:05] And you've also got a different __??__ as Warren did, the "cost push from the demand pull" type inflation. In the mid 70s, all of our oil-dependent economies had very major cost shocks to the system. The question then was, if you think about what that means, what that means is that there's a real income loss to the domestic economy. That real income loss has to be shared in some way, and then the cost shock just dissipates very quickly. What governments did at that time was to, for political reasons, was to delay the dissipation of that cost shock. And that's where you do, you can get demand-side factors interacting with the supply-side factors.

[Mosler] Through indexation.

[01:07:00] [Mitchell] Yeah, because you don't want to take the crunch, you don't have a distributional consensus in your country, whereby the workers will take a bit of the real wage cut, the bosses will take a bit of the margin cut, and it'll go out of the system fairly quickly.

[Mosler] Your decline in the real terms of trade.

[01:07:27] [Mitchell] That's what I'm saying. So you can get an inflation then feeding on itself if the workers and the bosses have a slug-out fest in a distributional struggle where each of the _____??____ has price-setting power and they can defend their own margin, the real wage and the profit margin, and the government ratifies that through indexation. But that's got nothing to do with using budget deficits to achieve full employment, nothing at all. All that means is that occasionally if you import a raw material, for example, you'll be subject to price shock and you have to work out how to distribute that real income loss, that terms of trade shock, you have to work out how to do that. It's got nothing to do with the fears that are out there in the public domain now about these deficits generating runaway inflation.

[01:08:23] [Mosler] The other thing is, the mainstream model has an assumption that you need low and stable inflation or a conclusion for optimal long-term growth in employment, and if you can't get the inflation right then market forces will work in that direction. But the model's a relative value model. It doesn't include the currency as a public monopoly because it doesn't include taxation as a coercive force. So, they're right, or they may be right, within the context of the model but the assumptions of the model are not the real world conditions, which is that we do have a state currency, we do have the coercion of taxation, which leads to the unemployment and the counter-cyclical policies we're talking about.

[01:09:10] [___??___] I want to add something, and then the second question wasn't answered yet. When we're talking about, so far, whether the government can afford to hire underutilized resources or to buy them, we're not saying that the government should spend without limit. Those are two completely different things. We're saying the affordability is not a question, the government can always afford to buy anything for sale in terms of dollars in the United States. That doesn't mean that how much the government spends, or what it spends on, doesn't matter for prices. That's a completely different question, and we will be addressing that question as we go along: what form should the government spending take, and can that make a difference to help hold down price pressures? So we will deal with that.

[01:10:00] But we didn't address your question about the reserve currency. Well, it probably is true that when pension funds around the world decide to add your currency to their portfolio, as they did with the Australian dollar, that it increases the ability of your country to run current account deficits, trade deficits. You probably will run trade deficits if the rest of the world is trying to net save in your currency. They're trying to accumulate dollar assets, they're going to try to sell you output so that they can get the dollar assets. So it probably enhances your ability to run current account deficits, but it makes no difference to affordability within your country. Your government can always afford to buy anything for sale in terms of your own currency whether you're a reserve currency or not. It doesn't impact your ability to spend domestically, even if the rest of the world has no desire to add your assets to their portfolios.

[01:11:11] [Lynn Parramore, Roosevelt Institute] I have a question that has to do with both substance and messaging. I feel like we're talking about the Copernican revolution in a sense here, because it's so counter-intuitive, many of the things that we're describing, to what ordinary people walk around are thinking about. For example, on the 15th, when people pay their taxes, I would guarantee if you ask the first 10 people on the street "What did you pay your taxes for? Where did the money go?" they would say, "Well, it went to pay for things, the government needed my money to pay for things, to build things, etc." So, as unpleasant as the fact was that they were paying their taxes, they felt some consolation in knowing that it was funding government expenditures. And I feel like I'm not 100% sure what the narrative is that we're trying to get across here. The taxation affecting aggregate demand, I'm not sure that that's something the average person on the street can hang their hat on, and I wonder, from a messaging point of view, if there's something more you can say about that. And another thing is, what is the psychological impact on that kind of thinking about taxation? Is there, I wonder, a fear, that if people really knew what their taxes were being paid for, they wouldn't want to pay them? So I don't know, if you could comment on some of those issues, it would be great.

[01:12:47] [Mosler] OK, we'll take turns. The way I say it is that the government takes away our money to make room for them to spend without creating inflation. It has to take away some of our spending power to make room for them to spend, because if they didn't, it would just be inflation. I think of it as we're all shopping in the same department store, think of the economy as one big department store, and if we all spent all the money we earned and the government spent all the money they wanted to spend, it would be way too much spending for what's for sale in the store. It would just blow the roof on prices, we'd just be competing, it just be a mess. So the government has to take away some of our spending power, so that we have the right amount of spending power between the two of us to go into that store and shop so that everything gets sold, but not too much so we drive up prices fighting over the goods with each other, and things don't go unsold and we have unemployment. So the idea is to balance the economy correctly so that when we all go shopping, we have the right amount of spending power in the store. As Bill said, that's going to change from year to year as personal spending decisions change.

[01:13:54] [Mitchell] The narrative that I use is I ask people, "Look, do you want to get into your car in the morning and drive down to the corner and negotiate a contract with the private owner of that road; and then turn the corner into the next road and negotiate another contract to access their road; and then on and on until you get to work? Or do you want to take those road resources off the private provider and have the government providing the roads, where you just drive, except for toll roads, you mostly just drive?" It's very easy, I think, to understand the difference between public use of resources for public benefit and private use of that, which could be the same resources and same infrastructure provision in the private hands.

[01:14:43] People in Australia are so pissed off now about the private tollways in our capital cities that the successive neoliberal governments have implemented. What's happening in Sydney, for example, is the government's buying back all the toll roads, because people have become so hateful toward the private ownership of roads. Its a very easy story to tell, that public provision has its place. And as Warren said, you're competing for those resources, so you're got to take those resources off the private sector.

[01:15:25] [___??___, ___??___] I want to thank you all, everybody, for being here. very much. I want to raise the issue, if I could, of voluntary constraints. We talk about voluntary constraints as if they're things that all we have to do is just involuntarize them. And I don't think that there's enough of an explanation as to how voluntary constraints manifest themselves in real economies. I guess I would say, "Are we a monopoly issuer of currency in our country, when Goldman Sachs is creating things that serve as money?" And why can't we have a list of the voluntary that exist, and that need to be undone, in order for us to move into a place where Modern Monetary Theory becomes Modern Monetary Reality?

[01:16:20] [__??__] Let me just start with the first one, which is the President of the United States has said more than once we've run out of money; now there's a voluntary constraint. That's not true. Number two, we see our Administration, Secretary of State, Treasury, flying over to China to negotiate with out bankers to make sure we can fund Afghanistan and health care; those are voluntary constraints. That's completely not necessary either; that's a mistake. They know it, and they play us for complete fools, of course, so those are the top two, I think. Any body else have anything?

[01:16:54] [Kelton] The debt ceiling is a voluntary constraint, and when you want to get through that constraint, you put a bunch of guys and gals in a room, and they raise their hand, and they vote to raise the debt ceiling, and you avoid that constraint as well. I do have some discussion of this in my presentation coming up, and a list of the voluntary constraints, and what we can do.

[01:17:17] [___??___] Let me add one that is really important, because sometimes, when you finally get through to somebody, and they understand what we're saying, "The government can always afford to buy anything for sale," they say, "Uh oh, we gotta constrain those guys!" Well, yes, you do, but the way you constrain the government is by budgeting. They've got to go through the process. They say, "OK, we need this program, we're going to budget for it." Not because we couldn't afford to spend more, but because we want to hold them accountable. We want to make sure that the funds aren't just disappearing into the pockets of somebody. So yes, budgets, budgets are absolutely necessary and that is how you constrain spending. First we have the approval process, make sure it goes through Congress, Congress decides, "This is a program we want, " and then we're going to hold people accountable, to make sure the program gets done without wasting a lot of real resources, which would be a problem.

[01:18:15] [____??____] Also, inflation is a big constraint, because even now, with unemployment 22% if you measure it the old way, you see no uproar over the idea that the Fed might have to raise interest rates soon. That's just common discussion, it's understood, and why? Why isn't there any? Because people are against inflation, rightly or wrongly, the American population would rather see unemployment than inflation. So we've got that built-in constraint in our psychology.

[01:18:48] [Mitchell] To put a finer point on that, Australia now boasts that we've got thirteen and a half percent labor under-utilization, either i unemployment or underemployment. Thirteen and a half percent. Under-24s: twenty-six percent of them are unemployed or underemployed. And we boasted that we were the first to put up interest rates in the current crisis. Our central bank's now put them up three times, next month it'll put them up for the fourth time. We're boasting about that, yet inflation's at the bottom of their so-called "target range."

[01:19:25] [Roger Erickson (sp??)] I want to make a response, and a comment, and a suggestion to the idea things are not intuitive. I want to make issue with that. I'm an operations person, and what I see here is an operational problem. To make a state change in a complex system like a national policy, you always only need to get the key information to the key people in the key institutions, and two great examples of that are World War II and Reagan's big run-up in the budget deficits. [unintelligible] when there is a compelling reason, people change their minds very quickly. The other point about what's plausible is, if we had people in the audience here that were cultural anthropologists, for example, studying tribes, nations, and history of cultures, or biologists that studied ant nests and termite nests, or cellular biologists, just to name a few, my point is, there are wide ranges of people that understand this intuitively, and would say, "Duh! What are we talking about here?" The point is, I've looked into that, and I've made it a habit, the last six months, of contacting people outside economics and asking these questions., and the almost-universal response is, "We thought people in economics knew what they were doing, so we cede the territory to them." The next response is, "Alright, if they don't, we have to start firing people, heads have to roll." The outcome of that is very antagonistic, so my point is, operationally, one of the things we have to plan for is you can't win by pushing this upstream as a fight totally within the economics profession. If you go outside, to other areas, I think you'll find much faster responses, and if you get the information to the right people, even if it does have to be grassroots, that will cause a state change faster than carrying this argument within economics.

[01:21:34] [Mitchell] Just as a comment on that, that's why I think... I know the others here have probably gone through a similar process. I made the decision a few years ago that I would commit myself to writing this blog I wrote. It was an explicit decision, it's not easy to do every day, and something had to give. For example: two years ago I think I put out fourteen refereed journal articles; last year I put out eight. And the six that I didn't put out are my blog, and that's an explicit way that I engage with people that I would never have engaged with before. About thirteen and a half thousand are currently reading my blog, and I don't believe that many have ever read my academic work in the last 30 years.

[01:22:28] [Edward Harrison] I'm a finance blogger at Credit Writedowns. I'm going to make the statement that I do think a lot of this is ideological. I come from a different ideological perspective than probably most of you here. I have a ideological predisposition against government intervention, against government, big government, if you would call it that, so I think a lot of people are probably like that. So when you start making arguments of the government doing X or the government doing Y, I think that you should understand that that's something that's not going to go over with a large population within the United States. I think that's just a given, and I can tell you from my perspective how I feel about that. Now, with regard to the economics of the idea, there are two compelling arguments that you are making, that I think could get your points across that has to do with the accounting. Number one, my deficit is your surplus, if you look at the government, the government having a net deficit is the equivalent of the private sector having a net surplus. If you hammer that point home, over and over again, I think people will understand, in times like these, what is necessary. Second point is, with regard to the government deficit, in terms of how much debt is out there, that the fact that we owe or that we own the debt is a key selling point, I think, to people who want to logically understand we're not passing this on to our children, this debt we actually own, because the debt is the government's debt, if you look at it again from an accounting perspective: my debt is your asset. I think those two pieces of information are very important.

[01:24:31] [____??____] I'd just like to say one thing about big government, and what the government should do. The main point we're trying to make is affordability is not the question. So now we have to have a public discussion, free of the deficit hysteria, about what we want the government to do. And so, what we are arguing is consistent with a small government, it's consistent with a big government. And I think that that is a political question, for the most part. I agree with you, it's an ideological, political question: Do we want the government to do more, or to do less?

[01:25:08] [inaudible]

[01:25:29] [____??_____] I'll be doing that in my presentation. The difference between a federal government and a state and local government, and the mistake we've been making, is that we tend to look at the revenues to decide what government can afford to do. For a state, or a local [government], or a business, that's actually correct. But for the federal government, it doesn't get the revenues, it's just changing numbers down in an account, so it gives you no information. Once you understand that, now you have to drive the model the other way around. Now you say, "Alright, what's the size government we want and then what's the appropriate level of taxation?" Once we know what the government we want is, that's a political decision, then the level of taxation, more often than not, as Bill was saying, is going to be lower than that to provide for the savings so that the private sector will fully employ the resources that the government is not employing. So at the moment, if you look at my proposals, they've been a full payroll tax holiday, for example, to restore the private sector to employing the resources it had been employing in the last few years. Someone else might disagree and want an enormous public sector, or expansion, but those are political decisions.

[01:26:37] [Mitchell] I'll just add to that, and it comes back to the point I made about the ___??___ budget deficits, that in a sense, the private sector determines the size of government, not the other way around. The discretionary impact of government policy is relatively smaller than the cyclical impacts. And so, if you don't like the size of government, then do something about it, or accept the fact the government will do something about it, and limit its own size, and you'll get chronic unemployment and wasted resources. If the private sector thinks the government's too big, then they just have to invest more

[01:27:24] [inaudible]

[01:27:47] [Tcherneva] To carry forward this point, the budget is endogenous in one particular sense. You do have exogenous decisions made in Congress. We sit together, we pass a budget, we decide how much we are going to appropriate for different programs. That is an exogenous decision. But you don't know how many people are going to retire today, or how many people will need to tap into Medicare, so those are endogenous expenditures. You don't know how much you might need today to dedicate to unemployment insurance, because that depends on the cycle. Taxation, however, it's very easy to make the argument that you can set the tax rate exogenously, but the revenue that you get depends on the underlying economy, and how well it is doing. So, it's pretty much misguided for us to be fidgeting with this accounting difference. You need to be looking at the size of the deficit with respect to what is happening to underlying conditions. Trying to hit a particular numerical target is probably not going to be possible anyhow.

[01:28:47] [_____??____] The way I frame that is: the way we do things now is endogenous, because we don't take proactive fiscal policy for the most part. We could. In August of 2008 we could have had a major tax cut so that car sales didn't have to drop from seventeen million to nine million, and we could have sustained demand in the private sector, but we didn't. So, in the absence of policy, the budget deficit was going up, endogenously.

[01:29:23] [___??___] Just an MMT enthusiast (I wrote my question because for me it's easier to place questions in written... I have some difficulties with spoken English). Do you really believe that nobody among the mainstream economists and politicians in the world, both in opposition and in the governments, understand how a monetary system based on fiat money and flexible exchange rate works? And what about the Japanese government, do they do this by accident, or some of you guys gave them some advice, or ...?

[01:30:10] [Kelton] What I think Japan has learned from some of their mistakes of the past, so that when their budget became very expansionary following the bursting of their housing bubble more than a decade ago, they began to recover, and then they made a political decision to try to rein in the deficits. And they began another downward spiral. And so they began another attempt at recovery: they allowed things to expand, and in many ways they expanded endogenously, yet the deficit increased n response to the worsening domestic conditions, and there was another political decision to try to rein in the deficits, and they went down again. So they... I think they're getting it right this time, so far, and I think, to some extent, it's probably that they've learned from some of the mistakes of their own past.

[01:30:57] On the question of whether people out there have any real understanding, Marshall said, "Tell the Eisner story," because I told him this story the other day. Years ago, some of us who are here to day were at a conference in Knoxville, Tennessee, and economics conference, and one of the presenters there was Robert Eisner. Eisner was a professor of economics for decades at Northwestern University, and he was, for a time, Bill Clinton's professor. So, Eisner stood up at this conference and - Eisner wrote a lot about Social Security near the end of his life - and he stood up at the conference and he told us this story. When Bill Clinton was elected President, he invited Bob to the White House, and so Eisner makes the trip to DC, and visits his former student, and President Clinton says, "Well, Bob, what do you think of my economic policies?" And Eisner told him, "On the whole, pretty good, but you've got to know: you're dead wrong on Social Security." And Clinton's response to him was, and I quote, "I know, Bob, but you've got to understand, this is politics." And that was really discouraging for those of us trying to do what we're here today trying to do, which is to help people understand the issues, and the accounting, and the arguments. And because we believe if we could just get people to understand, they'd make the right choices. But, perhaps that not always the case.

[01:32:27] [Auerback] Can I just add to that that sometimes the truth does slip out. I don't know if any of you saw the 60 Minutes interview with Ben Bernanke, last year, when he was interviewed by Scott Pelley and the question arose, "Where did all this money come from? Isn't this money that's going to be taken away from the people that you have to tax later?" And Bernanke basically spilled the beans, "No, this is just electronic debiting and crediting on bank accounts." He actually, literally, did say that. Warren's quoted this many times, I've quoted this many times, and so when it suits them, they do convey the truth. But I see now that he's gone back to the Dark Side, and he's talking about fiscal sustainability again, I think he said that again yesterday.

[01:33:08] It's amusing to me because we were at the Levy Conference last week, and Dick Fisher from the Dallas Fed made a speech, and the first part of the speech was very much restricted to levels of their competencies. He says, "I don't really want to speak about political matters. I just want to speak about monetary policy." And then Social Security came up, and of course then he started going ___??___ about wasteful government spending, and his grandchildren, what they're going to have to pay for. So I thought, "Here we go, spreading into his non-competence in fiscal policy."

[01:33:35] On Japan specifically, because I lived there for five years, and I lived there at the end of the bubble era, and the beginning of the deflation that followed, and even to this day, I don't think many of them really get it. Richard Koo's account of this period is very good. He's not a Modern Monetary Theorist, as Bill has pointed out many times in his blog, but he does, on the factual points, get it right. I've met a number of people at the Bank of Japan and in the Ministry of Finance and about three months ago, someone from the monetary policy... the governing committee of the Bank of Japan actually said, "You know, If we're not careful, we're going to end up like Greece as well." So clearly there are people within the Japanese government, or policy makers, that don't really understand the difference between various currency systems. And I can tell you that the Ministry of Finance itself is full of these deficit hawks, they just hate the notion of government spending. It's still a very large minority view there. [01:34:34]

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