#7 - Interview with Bijou Smith of MMT Macro Trader

Bijou Smith: 0:16

The content of this podcast is for informational purposes only and should not be construed as financial or investment advice. The views and opinions expressed in this podcast are those of the hosts and their guests. They do not necessarily reflect a position of any associated employers or organizations.

Adam Rice: 0:33

Hello, everyone, and welcome to episode seven of the applied MMT podcast. In today's episode, we have BJ Smith of MMT macro trader join us be sure his background is in physics. In this episode, we touch on a wide array of topics and we hope you enjoy it. Thank you again for listening. If you are enjoying the podcast, please subscribe. And with that we'll get started. Hello, everybody. We have a special guest on the podcast today we have from MMT macro trader. We have Douglass's counterpart Biggio, big, thank you very much for joining us today.

Bijou Smith: 1:09

No problem. Good to be here. Yeah,

Adam Rice: 1:12

we're excited to have you on and I think my you know, my first question for you is, we'd love to hear more about your background. You know, go feel free to go as deep or as not deep as shallow as you'd like. But I'd love to hear about your professional and your educational background, academic background. Well, yeah.

Bijou Smith: 1:32

Maybe I am a special needs guest. I don't know. I'm usually pretty reticent to just talk about myself. But obviously, it'll provide you some context. So I will try to give you some sort of version of this. Let's get this go back to when I was a physicist. And this is, as a student, I was always interested in all sorts of things physics, physics, II, and had very broad interests as well, as well as you know, everyone wanting to solve the whole, the whole puzzle of unification of the forces and everything the holy grails of physics, quantum gravity, you know, that every young physicist wants to do wants to solve those problems. You know, I think most physicists also just get their kicks in, out of being pretty good at mathematics and sort of thinking they can analyze things. Sort of, like masters, Masters of the Universe, sort of sort of stuff, just just in your own imagination. And so, whenever any fed or new research comes along, you tend to just get sidetracked and get interested in it. One of the big things when I was growing up was chaos theory, dynamical systems, it sort of made classical mechanics, you know, sexy again. So it was part a part of that is like, you know, we you apply chaos theory and dynamical systems theory. And economics, of course, was a fairly natural complex system that you might think about applying it to, but quite different to the weather. So, economic system is, you know, dominated by politics and policy. And I don't even think people at the time really understood that. So that was one little, just a little side thing that I was interested in. And so I did come across Santa Fe Institute, and all the studies on complexity. And of course, they had huge, diverse range of researchers, interdisciplinary is pretty wild. And they've been very successful over the years. But economics has proven to be one of the really hard things to crack. Brian Arthur is one of them, who was doing all this stuff on increasing returns, you know, that your fix of how you get technological lock in, and the best products don't always win. You know, the markets don't work efficiently, so forth. And I remember thinking, you know, as this young, arrogant physicists, like, she had the economists they don't know what they're talking about. And, but I did look into a little bit of economics. And even earlier, when I was a lot younger, my father was an accountant and a politician for a short term anyway, he exposed me to a little bit of economics. And I remember thinking like, this is way back, when I was really young. And I started reading one of these textbooks, one of the standard textbooks back in the 60s, I think, setting your thing or something like that wasn't sending someone someone similar. And just had the arrogant attitude a year that it looked to me like interest rates should increase prices, right. This is the story that we're talking about with Warren a couple of weeks ago, and that, you know, even all Lehman tears. Now, it's pretty famous story that interest rates probably have these perverse effects, but in a sense, they're not even perversely just pretty natural. And I also thought about the unemployment question and what the IS LM curves and all that were doing? That just seemed like nonsense to me? Just just seemed all backwards. So I didn't know that I was like a nine year old, he moved here at the time. So, but I wasn't ever really interested in money and politics and things like that. So it was always just going to be physics for me for a long time. Yeah. And then that brings us up to like, the era, that financial crisis and everything. First of all, I guess, the.com bubble was very interesting to nerds. Right. And then, and then the, then the global financial crisis and, and that's when I started, also some career change, career changes, where I was teaching and so forth. I just had some reasons to go back and look into economics a little bit. And because I was still trying to do research, research, it was based in mathematics and statistics and so forth. It was pretty natural. I think I came across Steve Kean pretty quickly. And had a look at his modeling. And, and then I came across the seven deadly innocent frauds of economic policy by some banker of all things, you know, that's how Galbraith introduces and then, you know, hedge fund manager. What, what is that to me? I don't know what that kind of species is. So I put this book aside, right, put it aside, because I'm thinking this has got to be some guy with his, you know, crazy sort of theory. But it was because of Galbraith you see, so my father was a Labour Party politician back in New Zealand. And he'd always been really very, like, don't don't, JK Galbraith is one of his heroes, I guess you could say. And that stuck with me, right? There's like, a gal bright sun. Talking about this, this banker was spitting good dude from nowhere, right? And so eventually, I just decided to sit down one lunchtime, started reading and couldn't stop, right? It all just made sense. Just like as a kid again, it's like, oh, yeah, this, this, this economics make sense to me, I can understand money. And that's how I got into it. And since then, so why I sort of changed because, to me, macro economics is, is like the base structure that you've got for political economy. And understanding money is essential, you know, so this is all the stuff that I that I learned from Steve and from Warren and Stephanie, and Randy and Bill Mitchell. They were all just telling the story, like I thought it should be told, and it was clear that a lot of the political policy decisions then that get layered on top of your monetary system, you know, dominated by culture. And so this was fascinating to me, you know, it wasn't just like, a math model of the economy. And this is sort of roughly how how things work in the real world, barring a little bit of noise? No, it was, it was much more nuanced and full of these different systems, that it all worked together in a, in a very unpredictable way. And, and, you know, part of the policy space that you've got available, once you understand the mean, T, there's just so important, right? And, and it's just so much of your nation's culture is going to determine a lot of that policy, you know, for good or for bad. And MMT is the system underneath it, that that runs things and, and to, to, to appreciate, finally, that people being unaware of that theory, sort of mundane, you know, monetary layer, unaware of what that allows a government or people a democracy to do was just, you know, pretty astonishing, really, because I'd always thought, you know, pre the global financial crisis that the economists, you know, they may, I may have thought they, they got things wrong, but I understood, you know, I was an arrogant young physicist, you know, he thought he knew better than economists who were who thought they were good at maths, but had no idea about about, you know, dynamical systems. Turns out, they didn't know really, and they, there's a huge opportunity there. And so it was damn, you know, this was like, crazy. Turn my world upside down a little bit. Because how can you ignore that? And how was any work that I was ever going to do, from here on in physics, going to have as big an impact as I could as a sort of economic justice advocate or activist or someone who is aware of routines trying to push and educate people. So I immediately Well, I guess it took a few years, but it's been sliding, sliding and moving slowly, but more into education on economic justice, as well as physics and the physics is now Almost now almost a hobby. And it's like, I can't justify working too much on physics. Now, if there's a good economics project to work on and not having credentials, back, or economics or political economy, I'm just sort of scrapping around, you know, trying to find things to do. And so that's when I got ahold of Douglas. And they just enjoy listening to you guys. And anything he made tea out there that has a sensible sane angle on economic policy. That's a pretty that's a bit longer than I probably should. interesting background. Yeah. How it got got in touch with Douglas yet, but yeah, you got questions.

Adam Rice: 11:02

No, I that was that was great. I think that's a very powerful story. And I think, you know, I think Ryan and I feel as I'm speaking for Ryan here, but I think we feel the same way as that. Once you and I've said this on the podcast before, but once you see MMT, it's very hard to unsee it, and it kind of informs how you think about, you know, a lot of different things.

Ryan Benincasa: 11:23

It's an itch that you can't stop scratching.

Bijou Smith: 11:27

It's amazing how how, you know, that critics will say, it is simple, it's nothing new. It's just accounting. You know, those people who have a superficial understanding of MT is sometimes the worst enemies, because they're this dismissing it. But once once you understand it truly deeply, it has massive repercussions, massive repercussions, and it was only recently out of talking to Warren, I think it was email or DM them on Twitter or something, that he gave me a really golden line that I've been using it almost every live stream I can, which I thought was brilliant. Because you know, the way I blog and write about it MMT is has the money story, the bonds, the price, the price level story, and the you know, employment, unemployment story, buffer stocks, and you know, I can I can lay it out and write about it on my blog. And it all seems pretty, pretty simple and logical. But what Warren said was that this is a one liner write me t is recognition that the currency is a simple public monopoly and the consequences thereof. And when he said that, there was like a credit equals MC squared moment, you know? Yes, dude, that is the most succinct, concise summary of what it is. And it's massive, because all of the consequences thereof. Right, there's so much in that, so much in it.

Adam Rice: 13:00

Yeah, Mosler has a way of a very concisely explaining very complex topics I think he's very good at is

Bijou Smith: 13:11

a little sort of, hopefully genius that he has the he's able to do that. Yeah. It's a quite a gift.

Ryan Benincasa: 13:19

I love his answer when somebody asks them, like, what is money and like, you know, you hear these economists, you know, they'll they'll give all these cockamamie answers. So it's a, it's a, it's a unit of exchange, or it's a unit measure. It's a, you know, whatever, whatever the textbook is, yeah, he just goes like, oh, money to tax credit.

Bijou Smith: 13:43

Think about all the consequences there of use of the tax credit in as a medium of exchange in a market economy. Yeah, of course, it's going to happen. Yeah, he had tried to avoid it, you can't, you'd have to have some draconian laws to stop it from being used as a means of exchange was a store of value. A means of communicating the price level, blah, blah, blah, all that follows from it just being a tax credit.

Ryan Benincasa: 14:10

Right. Right. Right. Attire the

Bijou Smith: 14:13

state. Yeah, by the way, I

Ryan Benincasa: 14:16

just want to say BS you there's nothing arrogant about being skeptical about all what all these economists are saying.

Bijou Smith: 14:24

Oh, yeah, no, the skepticism is pro euro is good. This is probably just to do a healthy just, you know, understanding but the arrogance is the arrogance is cos you know, the physics guy, the physics nerd. He thinks he knows more than, like, like, yeah, once you know, physics, in the back of a physicists mind is in the back of their mind is that is this idea that in principle, physics can explain everything. Okay. In principle, obviously, not in practice. But it fits the psychology of other you know, young physicists nerd who, who's really on top of the mathematics so they're confident in that area. And they like, you know, I know we're the Masters universe, not the Economist. We know we can't, we just can't compute it. The Economist thinks they don't know All the economist thinks they can compute it. That doesn't know everything. Yeah. So it's sort of that sort of arrogance. It's a weird thing that right, because this that sort of arrogance is what led economics astray. I think walrus, you know?

Ryan Benincasa: 15:35

Absolutely. The,

Bijou Smith: 15:37

the idea that they thought they were trying to aid physicists in the particular domain of economics, they thought, in trade exchange in commerce, they could come up with certain laws govern that equilibria. First mistake. The great isn't equilibria. And you know, that whole thing they call it physics end of life. Yeah. Like, why would you? Why would you really want to eight physics, it's, you've got to reach much more riches subject area, why are you trying to sort of reduce it down to a mathematical game? Yet, that is the whole that the whole Enlightenment period of science had on people was the whole idea that you could boil things down to crunching numbers and deterministic systems and so forth? Seems like no one you really understood quantum mechanics then Right? Because quantum mechanics are just telling the physicists, you're putting them back in their place, like, you know, you guys don't know anything. You thought you could solve the two body Newtonian problem. And then, you know, porn core array and the grand say, now you can counsel the three body problem that maybe the two body problem, and then the quantum mechanics that you know, next born born is born. Well, Einstein was in the quantum mechanics revolution. Yeah. So well, they came along and Dirac and everyone says, Well, you can't even solve the two body problem. You can't the joke in quantum mechanics that you can't even solve the zero body problem. You don't you can't calculate the energy of the of the vacuum, vacuum state. Complete case. That's the arrogance of the physicists, right. What not seem to labored joke about the traders thinking They're masters of the universe. You're right, everyone who does who has a bit of knowledge is prone to thinking the you know, Masters of the Universe, a little bit of knowledge is a dangerous thing. Yeah, for sure. The more you accumulate, you know, the more you realize you don't know what you don't know. Right? Definitely. Right. Great, great philosopher runs Bransfield.

Adam Rice: 17:49

So be sure just timing wise. When did you? When did you find most lawyers book?

Bijou Smith: 17:58

Oh, yeah. Yes, it was, it must have been around 2010 20. Oh, sometime around then. That was when I was changing, teaching at a university to statistics and it instead of physics, but it was for a department. It was business studies. And so you know, I wanted to try to contribute to the department and I totally know, interested in business. And so I was like, maybe I could do some economics and maybe, you know, is there is there a mathematical approach to economics that I could look at, and I remembered all that stuff from the Santa Fe Institute. And the the guys from the physics department who kind of you know, quote, quote, unquote, invented chaos theory, who went on to do trading and became very, very successful. Norman Packard and doing Pharma. And, yeah, I think they kick started fractal market analysis, perhaps after mantel, bro. But yeah, so that was around the time, it just remembered, I was trying to look for some research that I could write up that was in line with what the department was doing. And there was, there was gonna be evening tea, when I came across seven deadly innocent frauds. My whole life like, you know, total frustration ever since. Madness, like into this madness, at least in physics, we have debates about, you know, what sort of theory is describing this kind of system, and everyone understands what the data is saying. You know, you can you can believe in dark energy or not, but you can't deny the observations, they have to be explained. And everyone sort of agrees in all the different theories that are debated, you know, this whole thing about string theory being a whole wasted effort. It's not, it's not a wasted effort. I mean, it was just looking at the physics that we know exists. And it sort of laid down a bit of the DNA in the early I guess, in a way, although it's not, it's not dead yet, right. There's lots of things to still come out of string theory and it's but it's had this remarkable development where it's always proven it doesn't need itself. String theory doesn't need string theory. And everyone agrees you know, there's this agreement because it's a hard science, economics people can't get out of their own way and still want it to be hard science is never going to be a hard science when you've got a currency monopolist who is dictating so much with just with policy. Right? We switched on and off overnight policy rate, just a vote vote. So what's going on there? You know, so there's a lot of behavioral economics that, that MMT is going to say is really, really important. And what was I talking about here? Well, I

Adam Rice: 20:54

asked, I asked when you Wednesday. And then my next question would be when did you end up connecting with Douglas?

Bijou Smith: 21:02

It was very recent. Like I said, I've been just on the sort of annoying Internet activist reply guy street for a long time. And trying to write private physics and, and scrounge around for income here and there and. And think it was Warren, just this was just last year, very late last year. Warren's like, tweeting out I'll have a look at this guy seems to have got it, right. Because one of Warren's frustrations that seems to me is that he's some of the simple stories and stuff but but there's sort of subtle things that he is thinking, you know, a lot of MMT activists are not really emphasizing enough. So he'll he'll emphasize that that's the interest rate story. Douglas, I think did an episode on that. Yeah, I think it's doing episode, it was either interest rate effects or, or just the physical flows. In any case, I had a look at Doug's channel. And my immediate reaction was I Yeah, sort of Ex Finance bro type guy, you know, gay, I never listen to him. And I made a few comments on YouTube. And he was very, very decent in replying said, yeah, you might be right, or I have, I'll ever look at that and got on to Twitter. And it's one of the few people who kind of, you know, gave me a reply. It seems like a decent guy coming in immunity from a very different angle to me, which is through markets and looking at the end, index funds, and so forth. And I thought, That's really interesting. And because, apart from that, I, that I would be just looking at Steve King's models and trying to do them for New Zealand. But I just keep getting interrupted on that project. And it's all voluntary, and it's all just my own stuff. And no one's funding me or anything. I'm not affiliated with the economics department here, although that's all my own fire, and I should be contacting people at the local university and so forth, which I will do eventually, then. So it was it was just a cool opportunity, because he was so open and friendly. And I thought, ah, and he mentioned neural networks, and I've always wanted to try find a way to apply neural networks and so forth machine learning. But I could never really get get interested in a particular topic that would involve it. Because a lot of it is, you know, pattern recognition, and image analysis and speech to text and text to speech and all the stuff that all the good stuff that people doing, you know, chat bots and all that. But that doesn't really interest me at all. Yeah, I'm interested in I'm interested in two things these days, you know, well, maybe three, but I'll stick to two is the quantum gravity. So the very small and the human large size, the macro economics, and economic justice? How do you how do you get that? How do we achieve it? And not much in between? So Douglas is still at the high level, because he was doing isn't p 500. analysis. And that's just sufficiently I think, macro enough, then I might, I might stay interested in it, because it's got this little bit of an immunity angle of attack on it, we think, right, we fret and, but you can't Steve Kean, model it. And so it was pretty attractive, I thought, maybe maybe I could use a dynamical system model for some aspects of a project with Douglas some aspects and but for now, I couldn't think of a way of doing it in a smart way without just you know, brute forcing it with some statistic statistics. And so this is the one angle of area of machine learning that I thought I could maybe tolerate and go down and you know, non boring way thing to do that no one else is sort of doing. So that's that was that was maybe November last year. So still very early days on this project. Right? And As you guys were asking me before we started recording if I could talk about all that. So the answer would be, I can talk about that. And you can fire some questions at me, but it's still very early days. It's like if we were, if we were at a university would just be trying to sort of put together a grant funding proposal sort of thing. That would be holding us up right now. But since Douglas has got some Patreon, he can fund some some research, that's not going to have a direct payoff immediately. And so we're sort of crowd funded, although the crowd is like, I wouldn't call it a crowd a good cause a bit of a little small crowd of people that help support Douglas. And that allows us to do a bit of research without being affiliated to university. And not many universities would would be having a department doing this kind of stuff anyway. So yeah, that's what

Adam Rice: 26:20

maybe, maybe Warren will find you. Yeah, yeah. Yeah.

Bijou Smith: 26:25

I think I think he's quite careful. targeted for this funding? Yeah.

Adam Rice: 26:30

Yeah.

Bijou Smith: 26:33

So yeah, he's also going to fund cancer research, you know, right.

Adam Rice: 26:39

So I would love to hear, you know, for for the, let's say, for the layperson, just what you guys are doing with your machine learning efforts and what you're trying to model? If you could explain that, that'd be great. Yeah,

Bijou Smith: 26:54

okay. Well, it's not going to be fun stuff, unless you're a super geek. Like I see, so I'm not gonna be able to create any jokes on us. Well, I'll try to, but it's not going to be easy. So the, the, like I said, me t, what my, my interest is in education, and aiming at activism, and social justice and so forth. But from a very sort of, you know, had had leftist sort of perspective, we sort of get rid of all the cultural, cultural layers, and open open policy space up for people to debate intelligently, so that we have intelligent debates on on how governments can operate and spend. And so. So that's my angle. And and Douglass's project is just a way to, to maybe, maybe help further some of that education effort, because we're thinking, you know, if we can attract finance people, they're an important part of the MMT community, right? It is so diverse in terms of people who can can't accept it, because it's ideologically neutral. So you're violating GX sort of maxim that you were your most ideological, where you say, you've got no ideology. But yeah, MMT is not a person. So you can't say that about a knowledge lens or a framework like MMT. So Unity is ideologically neutral, but no one who understands MMT is themselves ideologically neutral. So we think, you know, we can attract some finance people and get them on board, or although I don't know, remains to be seen whether that'll happen. But also, for the physics geeks, anyone interested in analysis, that's beyond statistics. So the thing about using something like the s&p 500 is it's an index fund, right? And it's, it's what you might call quite macro. I actually don't care how many stocks index in the fund, right? I don't care that it's large enough that it can be sensitive to macro economic variables and parameters. Right, so if you know a bit of MMT, you know that MMT is pretty obsessed about stock flow consistency. That's, that's if you've got a bank account being credited. Something else is debited, they got a balance, it's got it all net to zero eventually, even if you've got a monopoly issue of a currency, have the fiat currency that mining stuff out of the ground. And even if they were, that's only a commodity that they're going to pig, the price level to steal that monetary system operates with credits and debits, always. And that's just how humans have evolved. It's not metaphysical. It's like just by design from going back to when whenever double entry bookkeeping was created, but it goes back even further. Right. Sorry, I'm not talking about neural networks, but I'll get to that I'll get to this goes back even further. anthropologically, right when money itself was quote, unquote, invented, or if you like, discovered it's just social obligations. You You owe someone a favor. So if you can't redeem it, you're right, they will hire you. So that you don't have to redeem it immediately. Because maybe you can't. That's money, right? That's, that's all credits and debits. So for those who are new to me tea, this is one key component of post Keynesian and MMT. Economics is that if you loosen the system up, so that money becomes just some sort of variable variable that you can stick in your model, you don't keep things consistent that the credits match the debits all the time, you have got a system there that is kind of wild, wild west, it's like, you're essentially permitting counterfeit. Right? But, but this is just an a model. So for a physics person interested in listening in, I would say, you know, you could have a model of a electric dynamical system, and you want it to conserve energy. If you if your model doesn't conserve energy, then your equations could for a time look physics physical, but over time, they might diverge, you only need small divergence, right? So if you if you allow, if you don't have the constraint of conservation of energy, your equations could, and this is like could as is most likely, it could get quite wild and untamed. So the way you make make a system physical in a physics model is you use conservation laws, because they're a very, very powerful way of getting things to act more physical. So same in macroeconomics, if you don't balance the books and your model, and you just use it, use a neoclassical model like DSGE, or something, which is statistical. And, you know, curve fitting, if you don't constrain the way you fit your curve to the data using a conservation principle, it can be very wild, you could very soon just be in wild unphysical territory, or in this case on Annie, an actual economic system territory, the MMT knows about those constraints, because we know money. And the macro funds, macro index funds, sort of all Douglas and I think that they're sensitive to this, right. So although the stock market is that there's an open system, you can put money in, you can take money out. It might be the index, the big macro index, or what you call them, people do do macro trading, they're not trading individual stocks are trading a whole basket of stocks called it's called an index, it may be sensitive to some of the big stocks of flows. So for that, what we're doing is looking at government balance sheets, because if you look at the government balance sheets, it's it's it's a very, very much Warren Mosler view, right, you've got government and everything else. So it's not even a three, three sector model, it's just the two sector model government and non government, the non government would be the foreign sector and your domestic sector, private sector. And if you look at flows in and out of that, if if if a decent chunk of the currency injection from government sector is going into stocks, we reckon that might the stock prices might be sensitive to that may not any individual stock price, unless the government is like this, you know, for example, the government, excuse me, unless, you know, for example, you know, the government is about to spend massively on, you know, Lockheed Martin and Raytheon. You know, why? Because there's some war, right. So that that may be of huge interest to you government policy decision if you're interested in particular stocks. But that's very, very sensitive to all sorts of micro economic factors, and so forth. So what we're trying to do, if you're going to use MMT, I think you have to use it at the macro level, you're not going to be able to use it to determine relative prices. Those are all micro economic market decisions. It's very, very complex. You can build these models and try to do it, but we're thinking we're kind of lazy. It's like, you know, now we'll just, if we want to put you know, quote, unquote, prove MMT we'll do it. We'll do it at a macro level or as as macro level as we can. The problem is, there's no, there's no particular fund that you can trade with that. That is totally macro. Never will be either, right. Like, I guess you could say, Treasuries are US pet pets. Yeah. Anyway. So that's the first bit that's, that's the background to what we're doing and that that's what Douglas was doing well before I joined up with him. But he didn't have the training and statistics and your networks or dynamical systems. So I quickly got him up to speed on that. The tails are remarkable. I mean, yeah, I think right. And you mentioned you, you're not, you know, deeper deep into the mathematics, but if you want it to be, you could easily get up to speed pretty quickly with this stuff. It's amazing. I got to feel like, you know, Douglas, a student in three months, I've trained him how to use Python, how to automate his, you know, Excel, you know, and this is a major accomplishment is to get off Microsoft Excel, and it's like, my work is done here. Like, I could I could retire. Yeah, he's gotten further, more extreme than me is He's like, he's like, Wow, I can't be it's a bit of a cowboy. I have to say, Douglas, sorry, if you're listening, he'll he'll just take, take a horse and ride it and just go with it. Whereas I'm much more conservative, and, you know, careful in my approach, that he's got no problem, taking a tool going off and just, you know, bashing it on something, seeing if it works, right. And so, so once he learned a bit of Python and neural networks, he's like, ah, yeah, so this is AI stuff that you could use it, you give it a prompt, it gives you an answer. So he's trying it out? Turns out, the answers are pretty good. You can actually write code using these automated code generators. And so amazing. Yeah, that's cool. It's like, he has no idea what the code is doing. But he doesn't need to write it. So solving a problem that he needs solved. So it's like having a little assistant. So I'm here, I'm here, get that gives me huge amount of freedom to think. Right. And, you know, to be honest, I haven't thought too much in the last three months, human thought is pretty slow, turns out, but he could automate a whole lot of cogeneration. And then I could just, you know, check in and play around with it. So it was a really cool little collaboration is I'm pretty sure people are gonna end up wasting using up a lot of electricity on these tools, eventually, they might it might be actually become like a little bit coin problem. Much you're like, what, once people realize they can actually do their homework, solve, you know, trivial problems, this is not going to solve really, really complicated problems. If you've got a really complex software project to do, it's not going to help too much, you're still going to have to know know what your system is doing yourself. But, but for like doing the experiments on the Treasury statement data, and the well, there's a few there's a few data sets, we use the basically the government's balance books, and also the tax data and a few other sources. They're all the macro data, that's what's coming out of the government or into the government and some of that some of that money has to be sloshing around and in bonds, because you know, the interest rates higher now. So people are going into bonds. And that's going to be siphoning off a little bit from the stocks. But also, because the government keeps keeps wanting to inject money. Some of it has to be going into stocks as well. And we think you know, there are signals there. So going back to them the technical aspects that some of your listeners might be interested in. You might naively think if you're coming from physics or somewhere that you could build a model for that. Of course, you could easily you can use statistics to brute force anything to build, build a statistical model to do pretty much anything. Anything that's not just noise, the trick with statistics is to remove the noise. But you could imagine maybe doing something more deterministic. So something that that predicts ahead of time, not just using a statistical probabilistic guess, but it's actually like a mechanical model. And those are called differential equations. That's what Steve Cain uses to do his level of analysis. But that's very, very macro. So he's looking at variables that are very high level, totally, totally aggregated, like unemployment and output, economic output. How do you build those for like, the stock market where you can't really but for an aggregate like the s&p 500, or the NASDAQ or in New Zealand, the MPX or wherever you want to go in any way if we've got enough Enough stocks or instruments that are aggregated together, and that are fairly stable, you know, they're not changing the aggregate day to day, it gives you sort of chance to maybe, maybe build some mechanical aspects to that, that are not just purely statistical models. So, so if you know, you know, like a statistical model is kind of dumb, it's just taking a polynomial or some function, some curve and fitting it to the data. So the coefficients of the model, the variables that you stick into, to change the function to change the curve, it has dials that you're tweaking, here and there to try and find out which set of dials and, and which coefficients produce a curve that best matches the data. But since that's just a purely statistical approach, you've got no guarantee that it's going to work in the future, like even a day ahead, there's no no reason for it to be a good promo or a day a day ahead. So it's good for him to interpolating data. So it's good if like, you've got a gap, and you can fill the gap using a function, it's going to be pretty accurate. As long as as long as what you're trying to predict is sort of smoothly varying over time. Doesn't doesn't have too many wild jumps. Like, for example, a good example against that would be like tax return, which is very jumpy, right, there's the certain days of the year when the tax return goes up. And so it's, it's like someone messing with your bathtub effect the whole bathtub as the economy and the government injection, through payments, to hiring labor contractors, and so forth as the as the tap, fill it filling up the bathtub, and taxes the bottom of the drain, where you got to have this crazy system where the the tap, you know, sort of fairly smoothly injecting money into the, into the economy, at least, you know, with pension payments sort of regular every month. So it's like a big chunk comes in, and then a big chunk comes in fairly periodically. And then the bottom that the plug in the bathtub, you know, you've solid pulls it out, you know, suddenly every every every now and again with a tax day do and then what's to stop it back out and then pull it out and back end through jerky kind of acceleration. It's not smooth system, in that sense. So so it's pretty, pretty hard to do that. You can imagine modeling the macro economy that way, but but not the what I call the miso economic level, the in between level that sort of high enough that maybe MMT ideas could could give you an advantage. Or them. I mean, not not just a man, just just necessary, we have to worry about the stock flow consistency where the money is going. Right. Yeah,

Ryan Benincasa: 43:02

I that's so funny, because I forget where I read this, but there's an old Wall Street adage, Sell in May and go away. And I read that that, you know, because in the US you pay tax days, April 15, that that is just a direct function of the of, you know, the aftermath of the tax drain. In that historically, that's why, you know, the markets have been weaker during that period of the year. It's just it's just gonna sound sensible to me.

Bijou Smith: 43:33

Are you telling me that people didn't understand? No,

Ryan Benincasa: 43:36

no, it's not. It's not talked about at all. And further, I would Yeah, and further, I would say, cuz there's like a, there's another sort of tax drain, I think that happened in the US was like a, like corporate tax payments. There'll be a bit like a big inflow, usually mid September. And I think that that's happened for a long time. If you think about, like, the big stock market crashes, it's always like, October, November, right? Like it comes on the heels of these periods with big tax drains. So there's, there's just this, it's very curious, like, why, you know, why is it this? Like, it seems something related to like, the seasons or something, but no, it's just this institutional structure of yeah, this is when you know, the big tax rains come and, and so, you know, you kind of get this big sort of liquidity drain out of the financial system.

Adam Rice: 44:35

And it's it's what's what's crazy to me is it's so obvious when you hear it kind of the way BS you're just put it like if you if you think about it, like a bathtub, it's so obvious, like obviously a contributing factor. But all of the time is spent on talking about interest rates. And what the Fed is gonna do.

Ryan Benincasa: 44:55

It's just crazy. It's completely crazy.

Bijou Smith: 44:58

I mean, how often those interest payments get made on Treasury bonds that's it that's a that's a tip that they keep turning on right. Whenever they see get inflation, hysterics. Yeah, you're right. That's really hilarious and amusing to be to hear to hear you say that. I mean, I don't even know I mean, okay, so Douglas Douglas has has probably told me that a few times in the past but yeah, I'm like, yeah. Okay, so what, you know, I guess I guess I haven't asked Douglas. So people didn't know that already. To hear you say that, right? It is, it is a kind of a funny thing to be that, yeah. But it's like, it's like, if they're listening to us, like, if they're a classical, well, I'll qualify that in a second. You know, they'd be mad not to just go and go and do what we're doing. I mean, they've probably got massive resources, they could do it a lot quicker than Douglas and I can, you know, beat us to the punch, so to speak. Although there might, there might be some houses, right, you might know this more than I there may be some people who are using immunity in this way already. And they're just not open and public about it like us, you know, maybe we're the idiots here, you know, give our whole research agenda. But like I said, Douglas is very nice, open guy, you know, and, and I want to see good policy prevail. So anything that gets up to the political idiots, you know, who have all the levers of power? You know, I just like them to know that they don't have to be funded by oligarchs. Right? Then at least their moral compass can kick in at the moment, it can't. They cannot act morally, because they're constrained by a false perception that they need their donor fundings. And they'll do the donors bidding. messes up politics really seriously. So if they just understood that, this sort of happy I'd like go you go to the Virgin Islands and retire? Well, actually, I wouldn't go hang out with Moser. He wants to come over here. It's just that his his family are there. So he's like, I'd come over to New Zealand and heartbeat, but Zealand's a place to be the future to climate is gonna get better here.

Ryan Benincasa: 47:29

Well, I've heard I've heard about New Zealand. It was so cool about is you can literally go like skiing and surfing all in one day. Like you could you could go skiing and one part and then and then you drive a few hours and go like that. I'm not really a skier or a surfer. But But I very much endorse, like the that concept.

Bijou Smith: 47:51

I do think of it too. Yeah, yeah. People do that. The only reason more people don't do that is because of austerity.

Ryan Benincasa: 47:58

Exactly. If people just understood MMT, then we just ski and surf all the time. Well, what's what's wrong with that?

Bijou Smith: 48:05

I need to build the tools trap, it'd be to use a framework for analysis. It doesn't give you anti austerity unless you politicians decide. No, but you're at me and Douglas. We're on about where we're totally trying to develop the 1515 hour workweek. Is that right? Yeah, yeah. Two day or three day workweek. It's totally possible. totally possible. John Maynard Keynes was right. About that. Long. Yeah. We don't need to be doing all this work. A lot of bullshit jobs. Yeah,

Adam Rice: 48:42

I've kind of I've been making that argument for a while, you know, because a lot of times, I'll hear people talk about the canes quote, and ask why that hasn't happened yet. But you look at what people do day to day and like, people are spending most of their day on Twitter, even if they're at their office. So I think we're there but

Ryan Benincasa: 48:58

or deleting emails.

Bijou Smith: 49:01

But we're titled denial and making. Exactly,

Adam Rice: 49:05

exactly. I mean, you have people you know, playing video games professionally. So I would say we're we're putting together

Ryan Benincasa: 49:12

right? Yeah. Perfect. Yeah. That kind of reminds me of Bj you talking about with with Douglasville tonight on the stream, how the job guarantee would increase the efficiency of capitalism and I think that is so well set though. It's so

Bijou Smith: 49:32

don't tell anyone Paksas. My god, I'm ruining my lifters credentials here totally. Shush with it, right? We'll talk okay. Now, it increases like so what I keep telling Dave was although he keeps refusing to Well, no, he does acknowledge it is such a nice guy as there's a difference between Marx's conception of capitalism and your on my conception. So first, capitalism could be just confined to like monetary system and markets. And like, you know, I got no problem with it. Right? It's it's what is governing it what's running the markets? What's regulating them to make them fear? That is not capitalism. It's neither capitalism nor socialism. It's, it's just whatever culture can tolerate or whatever culture you happen to get from your democracy or semblance of democracy. So you can think of narrow capitalism in those terms as as well, okay, a currency and monetary economies existed forever, like 4000 years ago. It's not capitalism, per se. But capitalism has can be considered private as private enterprise. And some sort of free markets, although you want them to be fair, not necessarily free. I mean, the word free is very ambiguous. It allows rich people to get richer, you don't want that, right. You want it to be fear. Now, that is not what a Marxist refers to as capitalism, which refers to cabinet as a system of relations, social relations, workers and bosses. And the bosses are in a powerful, powerful position, they can screw over the workers. As Warren Mosler says, it's an answer, the labor market is an unfair game, it cannot have a fear free labor market, that the workers need to work to eat. And the employers have total discretion about who they want to hire, and you can get racist to the bottom, and so forth. So what, what the job guarantee does, is it it helps labor out a little bit? A little bit, right, depending on the government policy, because it's got to be the government, the monopoly issuer of the currency? Who runs a job guarantee? Because they're the only ones who can afford it? Right? There's no question about financing a job guarantee, it's just a question of how you run it just just purely a policy choice as to how Healthier You make the job guarantee, you could do it like we used to, in the past, in New Zealand with like the doll, you'd make you make it punitive, like, you know, you're punishing the unemployment, unemployed, but you know, you have to, you have to do some sort of job in order to earn your unemployment benefit, used to be that way. Or you can have a very, very liberal, and it can like the decision on what you want to do. For a wage can be up to you to decide. And that's what most I think MMT is would say the job guarantee should be there. It's a buffer. It's using employment and an unemployed, labor buffer that rather than unemployed, so is it? Is it boosting capitalism? I don't know. I, I think it just boosts whatever system you've got to write. If you want to manage your economy system, it doesn't matter what it is, doesn't matter what it is. Personally, yeah, I might, I might like, private, some private enterprise. So I wouldn't have the government or the state dictate what people do, I would leave a hell a lot of that up to the individuals to decide and their community. So if they think e gaming, or eSports is a useful public utility, you know, like an entertainment, like a circus circus, then you could even tolerate people egaming, you know, professional on the job guarantee, right? It could be a public service. I don't know if you'd want that yourself. I mean, I don't personally get any enjoyment about, I don't watch, you know, professional sports too much these days. But you know, you could have that as, as part of a public sector job. Or if you don't want it to be public sector job, it could be a job guarantee job. Because the job guarantee is, like I said, it's a buffer, it's not really supposed to be the government, dictating what work you do. So it's more like you choose what work you want to do. The government guarantees you the wage, they pay the wage bill to keep you employed to keep you useful for the site society in some way. But it doesn't have to be the government dictating what you do. So is it capitalism versus socialism? I think both capitalists and socialists would like to claim that as their own, if they were sensible, they would. Like, you know, there's our system known as ours. Now, it sounds to me, like at the middle, I don't care. It's like, its benefits humanity.

Ryan Benincasa: 54:29

To me, that sounds very Adam Smith in right, this whole, this whole concept of the invisible hand of like, you know, which was, by the way, used in a very specific context in the Wealth of Nations, but it's, you know, this idea that people, you know, are the best, you know, judges of the work that they want to do, and that they want to contribute to their community and stuff and that individuals make are the best ones. You know, just because you were born into a black smith family doesn't mean that you need to be confined to being a blacksmith like you should be able to choose the work that you want to do. And that's why I get very confused with some of some of the texts of like, oh, this is capitalism versus socialism because When I hear about the job guarantee, I'm kind of like, well, that sounds very consistent with what Smith was advocating for was, you know, allowing for creating the space to have people pursue the work that they want to pursue and not be forced to do certain work. Because, you know, someone up on the power chain thinks that that's the most efficient use of resources. No, it should be up to the individual to decide. And the, like we said the government as as a monopoly issue of the currency is the only one who can afford that. So that's essentially how you achieve that end. Yeah. Yeah.

Bijou Smith: 56:00

I kind of have to agree with you. I mean, cool. Smith, Smith also was responsible for a lot of the rot that got into and into economics at the, at the high level. But he got a lot, right. And I'll tell you, you know, it's very interesting, if you if you follow this, if you're inclined to follow this, this theme or this angle, because a lot of it, those classical economists, they came from, you know, a bit of a traditional Christian sort of background. And they had, often they would write on morals as much as they wrote on political economy. Right, and economists have. But economists since then, since then have not really understood that modern economists don't study morality and ethics, because they regarded as not important. But that's changing. And so there's a lot of research now, in behavioral economics that shows, you know, we're not all greedy and selfish. So it actually gets, I don't know where it goes back to I mean, I've only recently just began researching this, look into it, reading about it. Because it's to me, it's always been part of my family, background and culture here that we understand this sort of stuff implicitly. But to that, you know, they call them a stone. So it's an interesting exercise to figure out why they don't have standard.

Ryan Benincasa: 57:22

So I'm actually reading a book right now called Adam Smith's America. Yeah. How a What's the full title? Adam Smith, America, how a Scottish philosopher became an icon of American capitalism. And it's a it was written by Gloria M. Liu. And, and she kind of points this out that that, you know, Smith was really more of a moral philosopher, and it was American institutions, particularly the Chicago school, university, Chicago, economics departments began in the 1930s, that sort of CO opted and distorted a lot of the messaging of, of Adam Smith. And so I'm not I don't want to, you know, speak out at a turn with this, because I haven't finished the book yet. But it's, I just started read, it's very interesting. So that might be one that you want to look up.

Bijou Smith: 58:33

The by the way, whatever I say, is a bit like that. I dip into things, read them, and then I move on. It's like I have a short attention span sometimes. I'm not an expert on these stuff. I'm just, I'm just chit chatting with you guys. But yeah, it's fascinating stuff. Because that gels like that converges with stuff that I've been reading. The the, so the behavioral economics is slowly coming around to it, though, would you believe? I mean, they have to if they if they have any modicum of scientific honesty and integrity, they will eventually rediscover this stuff. So Steve Kinos, he's classic, because because he identifies the right, and how political economy, your politics with, starting with Adam Smith, he got they've got the money story or wrong, you know, but you know, that wasn't really necessary. That's fault. It's just a historical accident that, that he injected some of these terrible ideas. But it goes back to even further though because obviously Smith isn't solely responsible for, for a lot of the right in economics get back to Machiavelli, and others. I don't have the whole list of names in my head, but I'll just say Machiavelli is one of the earliest so they their whole idea, by the way, he Machiavelli isn't that don't read the prince, but I've been told that the one treatises other discourses or something like that, because you know, turns out he wasn't wasn't really a nasty guy or anything. The but the idea was that to run to do good politics, this is the wisdom of the time, right to do good politics. You assume people are greedy, and selfish. Even though you know, it is completely false. Interesting. Yeah. So the way to be a wise governor is to assume people are doing it worse, then you create laws that make good people, even though you know they're already good already. Hmm. Now, think about what that does to your discipline. You're making laws, assuming people the worst, Can you Can you guys imagine that over time? Too much of that is going to make people bad.

Unknown: 1:00:44

You're going to bed? Yeah, putting laws

Bijou Smith: 1:00:47

in place, like, you know, as incentives, monetary incentives, because you got a monetary economy. And there's a whole lot of studies now that show that this is backfires. It's huge backfires. So that, and I can only point to some sort of more sort of lab experiments. It's like writ large, writ large across all civilization, I have to believe this has a huge effect. And it's been a terrible negative effect. Because it removes the moral, the moralities the ethics of spirituality from the economic system. And when you remove that, you don't give people you end up not giving people even a chance to express how good and cooperative altruistic they are. And it's just been a terrible, terrible tragedy. I mean, even today, you can have people arguing about the job guarantee, I know it's fascist. I'm like, What? What Yeah, it could be I suppose if you have a fascist running the job guarantee.

Ryan Benincasa: 1:01:45

Why would you want that? You know, let's say, well, it's like they say there is technically a job guarantee already. It's called the military.

Bijou Smith: 1:01:52

Yeah, exactly. Yeah, I, I do try to point that out if I get the chance. Yeah, true. job guarantee is guaranteed. almost totally. Yeah. But it's not very Yeah, people don't take it for obvious reasons. To want to get shot it. But yeah, this is interesting. I mean, so there are all these examples that they've come up with. And I can only give you some pithy ones that you could say, just micro economics. But I think I think writ large, it actually is, it scales, it scales. So one of the classic studies is these people in Haifa, Israel had this problem that they figured they could study. It's like a real experiment. Because they figured it wasn't going to be too disruptive. And it's had to do with pickup kids picking up kids from primary school. You guys heard about this one? Oh, yeah, that's classic one from behavioral economics. And it just illustrates the point. So they wanted parents to be on time to pick up the kids because kids will get anxious, right hanging around, you know, the appearance and not here. Getting a bit anxious, and it wasn't good. So that school these, these behavioral economists, I think they were anthropologist, ran this experiment. And they said, Well, you know, we'll, there's a you have to pay a little fine of a few shekels or whatever, if you're late picking up your kids. And so they ran this experiment, they had a notice they sort of advertised that everyone understood it was fear. And first, first few weeks, it seemed to have a little bit of an effect, right? People, parents would come and pick up the kids more on time. And then there was this moment, I think it was around the third or fourth week, race, all of a sudden, people. All of a sudden, a whole bunch of parents started arriving late deliberately, right? Deliberately, they'll pay the fine because now they can be late. So when you when you price something, you justify.

Ryan Benincasa: 1:03:56

Aha, interesting. Yeah. If you don't

Bijou Smith: 1:04:00

price, you make it more peer pressure. The morality kicks in, right? If you if you if you expose the cheaters are the ones that are letting their kids suffer, just because you know, they can pay a price for it. Okay? My conscience is clean. You know, it's like an adult, it's like, you know, all the corruption in Christianity, right? Is is very anti religious. This is what I'm trying to impress people, people, especially my religious friends, is a lot of what you say is religious, to me is anti religious. So it's this example, like the indulgences in the medieval period, and so forth. You know, cleaning the slate, wiping away your sins, but just by paying, paying a fine. What do you think that's going to do? That's gonna encourage a whole lot of immoral behavior. Because you clean the slate, you wipe your conscience, pay the fine, it's done. And so these kinds of studies get replicated now all over the place. And it's just a fascinating area to look at, because I think it hasn't affected all of our politics. When you try to make laws, you know, like a neoliberal or someone and impose, impose them on people to try and make make good laws. You make bad people. If you don't, if you don't understand what you're doing if you don't get it right. And such a fascinating area to study and look at, and D. So the convergence of what Ryan was saying just earlier, but the a lot of these classical economists, they had had the right idea. But unfortunately, they also poisoned, poisoned everything with the idea that they could assume people were bad. So that, therefore they were making good what they thought were good laws, but it was only having an effect that was making people amoral, right. And eventually, that becomes immoral, right? All the greed associated with finance and so forth.

Adam Rice: 1:05:55

That's super interesting. I guys, I do have to run in about five minutes. But be sure before we get off, I would love to hear so I really liked one of your posts on your website. Very brief. It's titled capitalism as it exists. Yeah, I thought this was great. So I'm gonna actually read it during our conversation with Doug I'll read it again. It says capitalism, as Marx conceived, it was a fiction. It was important because people believed it to be a reality. And well, before Marx, when people act as it as if it is, as if it is real, then we have a cause of great suffering for the many MMT is a reality that people believe is a fiction, it is important because when we when people act as if MMT is a fiction, then we have a cause of great suffering from the many thought that was great, and very well put

Ryan Benincasa: 1:06:43

very profound, very well done. Thanks, man. I'm trying to

Bijou Smith: 1:06:47

develop the mind of Mozilla here.

Adam Rice: 1:06:51

you're well on your way.

Bijou Smith: 1:06:54

The more pithy the better, I think that but you know, pithy. zionstar was so pithy but not too pithy. Right? It's pithy as needed, but no more pithy. Right. So you can that's the other thing more does really well as he is he doesn't miss out the nuance too much. Stuff like, yeah, these these things are important for people to learn and understand. And if I can, if I can help people learn to understand some of these things a little bit, then I'd be pretty happy. So thanks for inviting me on.

Adam Rice: 1:07:26

Yeah, well, thank you for coming. I'd love to have you back on again, because this was great. You're where where can people find you online? If they want to take a look at your work? Then I

Bijou Smith: 1:07:35

met will suffice as my tweet thing, Twitter thing have Mastodon also, probably that's Smith will suffice. Make matrix joke. Oh, my family name is Smith, by the way. So yeah, Smith will suffice. And I guess with diaspora as well, but I think Mastodon Mastodon is becoming a little bit more of the favored retreat from Twitter. I had the macro economics blog, or hung up PI to GitHub, you could probably just Google that oh H A, in GI space or dash P ai Taddeo Maori word for good economics. I've already got one troll on Twitter telling me you know, MMT thinks the good economics and quotes. So imagine he he went to my website and had a look at it.

Ryan Benincasa: 1:08:29

I think so. Does he realize what I'm really really doing here? Like

Bijou Smith: 1:08:36

even tea is is not is is ideologically neutral. It's the people who understand me too. You have the ideology and so my my angle is spiritual economics definitely. And so that's why I really interested in those classes. So find that book that you Moran is just you have to give me the title the book. I'm, it takes me a while to read things, though. So I'm reading some other stuff from Guy Samuel Bowles who, who did a whole lot of this. Humans are the cooperative species is one of his books, or just called the cooperative species, and the moral economy, one of the more recent books, it's really, really, really, really, really good stuff and compliment them in tea. Well, and then I've got a physics blog, which is called Tea for Gu that's topological for John's Unchained, which is more fun. You know, I don't take it seriously. But I still reckon it's the theory of quantum gravity. It's interested in that stuff. You can ask people questions, they donate to ask me a question. How's that for capitalism? Because I'm not funded by anyone. So and, well, that's really that's probably it. Okay, I'm pretty open on open guy. And I'm lucky lucky enough not to be a celebrity so I don't get hassled so I'm usually able to answer to all emails and questions that come my way. Yeah.

Adam Rice: 1:10:00

Awesome. Well, thank you for coming on BG. I'll be sure to leave some links to your blogs and your Twitter in the show notes. But uh, thank you again for coming on. This was great.

Ryan Benincasa: 1:10:10

Yeah, thanks. Thanks, PS you

Bijou Smith: 1:10:13

and alo I'm an academic a lot of what I write just as a wanting to people is whimsical, I like to inject a little bit of humor if I can and write for the common person, not for the academic. If it gets too geeky, you can definitely let me know. I'll try and spice it up a bit.

Adam Rice: 1:10:31

Awesome. Love it. Same with teaching.

Bijou Smith: 1:10:34

I also love education and teaching and I'm very much into making learning fun. And getting away from tests, tests and standardized tests because with with Chet GPT and stuff allows computers to do your homework for you. It makes it puts a premium on making education relevant, interesting, fun to students. So that's another thing that that's around a passionate topic of mind. Awesome. Thanks for inviting me. Yeah, thank you so much. I wouldn't do too much of the talking.

Adam Rice: 1:11:05

No, no, this was this was great.