#11 - Interview with Warren Mosler (Part 1)

Warren Mosler: 0:16

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Adam Rice: 0:33

Hello, everyone, and welcome to episode 11 of the applied MMT podcast. I'm your host Adam rice. Ryan and I have a very special guest on today. If you're familiar with MMT, he likely needs no introduction. If you're not familiar with MMT Our guest today is Warren Mosler, who's considered to be one of the founders of MMT. Warren spent decades working on Wall Street and also ran his own hedge fund and a commercial bank. It was Warren's experience on Wall Street and his observations that led him to form what has now become known as modern monetary theory. So we're very fortunate to have him on the podcast today, we touch on a wide range of topics that we think you'll really enjoy. We actually talk for about 90 minutes. So we're splitting this episode up into two parts. And without further ado, we'll get straight into it. We hope you enjoy the episode and thank you again for listening.

Ryan Benincasa: 1:26

Okay, well, hello, everyone. Welcome once again to the applied MMT podcast. We have a very special guest joining us today. The founder godfather of MMT himself, Warren Mosler. Warren, thank you for joining us today.

Warren Mosler: 1:45

Good to be here. Looking forward to Yeah,

Ryan Benincasa: 1:49

and I just I just really want to start off this conversation. And just to give you an opportunity for a quick little victory lap, thanks.

Warren Mosler: 2:01

economy's not looking, not looking bad.

Ryan Benincasa: 2:08

I'd be added, but I have a habit basically, we connected last fall maybe like late last summer. And I had gone to the levy Institute, taking a seminar there, which was great. Tea and I wrote a paper or excuse me, an op ed in my local paper that was critical of Connecticut Senator Chris Murphy, because he was, you know, the, you know, harping on the deficit and blah, blah, blah. And Adam found it, that was how we connected. And and so then since then, we've been, we were like, hey, you know, this guy Warren Mosler seems to be a little bit on an island about this whole, you know, interest rates. Support demand thing. So we've been talking about this and exploring it and stuff for the last, you know, six or nine months. And it's been remarkable how prescient this has been. So thank you so much for illuminating this. Well,

Warren Mosler: 3:15

it's a lot of people would say, I just have confirmation bias, you know. I mean, look, even, even the academic MMT proponents are still, you know, don't hold me don't share the, my opinions on this, or my conclusion. By now. Yeah, go ahead.

Adam Rice: 3:38

So I've seen, I think, I think Randy did an interview with with Mike Norman. And I think he did another one with real progressives, where he said, he's still expecting, you know, a crash landing as he put it. I don't know if you've, I don't know if you've talked to him about that. But I

Warren Mosler: 3:56

would love to do almost about a year ago, you know, I was in. I was in actually in Portland, Oregon. And he and I met with him and Eric. He's telling me oh, no, it's, you know, the rates are going to crash the economy. And, you know, there's a four year lag or something. Okay. And that will take us across the next fiscal cycle, maybe, but if it doesn't, you know, second habit, but you pointed out the whole thing about its, you know, he talks about Minsky that was his, his professor, who got his PhD with a new well, and he had set up a meeting for me with Professor Minsky, and unfortunately, he died. Not one. Shortly before we used to have met. When I asked Randy at the time, do you think he would have been on board and understood what we're talking about? He said, No, I don't think so. But But anyway, maybe he's changed his mind since. But anyway. You know, I was always hopeful that the people we met would would come on board because, you know, I have a lot of respect for them, too. So but, you know, he operated during a different era, the SNL era, and at a time where, you know, things did go bad. Because of interest rate, sensitivity, there were major sectors of the banking system in the economy that were borrowing short and borrowing at floating rates and lending at fixed rates. And then when rates went up, which was unprecedented under Volcker, and even before that, then they just lost a lot of money and went out of business. I worked for a savings and loan, a savings bank, and we just took in deposits of 5%, and made mortgages at 8%. And everything was fine until rates went up to 10 or 12. And then, then the whole business model doesn't work anymore, and it's gone. So that's, and that was the whole. And I haven't read Minsky, but you know, I've seen some bits of his videos where he talks about, you know, how these interest rate differentials can bring down the economy. And he was absolutely right. But since then, you know, regulation has gotten much more strict on this type of thing, it's focused on it, because it did cause a couple of major crashes. And when I owned my bank, and regulators came in every year, sometimes more than that, they zero right in on our interest rate sensitivity, we have to show them that we were not going to lose money, if rates went up. And we had to model every asset, we had to make sure it wasn't going to lose money, you know, the bank overall was not going to lose money for each one. And then that's how all the banks were regulated, and have been regulated for a long time. So given that my bias would be that, it's going to be you're going to get the odd bank that goes rogue and make some kind of big interest rate bet loses money, but it's not going to happen like systemically. It's last year's battle. And it's not something that I concern myself about at the macro level, at the micro level, and you went back and take yourself down. I don't think the banking systems could kind of take yourself down with that.

Adam Rice: 7:12

Right. And it also seems just in terms of, you know, environmental changes, it feels like you're the only one pointing out, you know, debt as a percentage of GDP. It's a much different story, in terms of interest payments, where we are okay, and where we work in 30 years. Yeah,

Warren Mosler: 7:28

it's shockingly different, right? Not even 30 years ago, just 10 years ago. Yeah. You know, right in front of the 2008 crisis, when they were raising rates, debt to GDP was maybe 50 55%. And that held by the public was 35. Now it's 120 and 100, or 105, or something like that. So in the debt held by the public is what matters, that's tripled. So the impact of a rate hike has tripled. Now, back then, I was saying that I thought that debt to GDP was, could be high enough so that the interest rates would not have the desired effect. You know, when they cut rates, Bernanke cut rates from five to zero. You know, I was out front saying, look, they just pulled 400 billion of income out of the economy. And I think that could be large enough to offset any of the other effects. And I think that's exactly what happened. And you'd never saw any major stimulus from the zero rate policy because of the effect on the budget deficit. But that was only with a 35% debt to GDP. And people were arguing against me back then. Same thing with Greenspan, when he started, you know, rates were low under Bush coming out of 2000 recession. And I actually was in a meeting with Andrew card at the White House, he was Chief of Staff, who has set up a car company at the time. And one of the guys was the ex General Motors engineer, and he knew Andy Card because he worked with him at General Motors, and set up the meeting for Elizabeth, Annika my wife to go to West Wing and talk to card about the economy, which was bad at the time. And it's okay to be talking about this. Yeah. Okay, good. Good. Yeah. If I'm off track or whatever, just cut me off and pull me back. All right. All right. So so anyway, so we go past all the photographers and they didn't like take, take our picture. Whenever we go into the waiting room, and they have these bowls with these miniature Snickers candy bars in there, and Elizabeth takes a handful and sticks them in her purse for souvenirs. So card is a little late because of his last meeting, but we got started and he kept us there. Overtime, you know, whatever. It was supposed to be half hour, we ran an hour or whatever. And first I explained to him why I didn't think the dropping rates to 1% of the time was going to turn the economy around. And it was because for every dollar borrow, there's $1 saved. And so we were just shifting dollars from between borrowers and savers. We were hoping that the low rates would help the borrowers more than it would hurt the savers. But in addition, the government was a large net payer of interest. And back then again, debt to GDP was 50 ish percent. And we're making the deficit smaller and cutting up all this interest income for people for the last year or so we've been taking away their interest income on a net basis. And so I really didn't expect low rates to help and it hadn't helped. And the administration was in trouble. And I wasn't a partisan supporter of the administration. But when they, you know, President calls and ask you, for your opinion on his elected official, I'm going to tell him what I know. And so, and Andy was a card was a very sharp guy, you know, the X engineering type, so we get along well, and he goes, he goes, Yeah, he says, you know, why would use rate cuts out? That doesn't make any sense? What are we supposed to do? I mean, here's, here's a very quick study on that. And then I showed him the fiscal side. And that is a direct out, he says, Well, how worse is a deficit have to get? I said, I think you're gonna need like 700 billion, which was five or 6% of GDP or something at the time, just like any other cycle that turned it around and says, Well, we don't have much time do it? I said, No. Well, thanks very much. And so after we get out of the meeting, a week later, the President Bush was asked about the deficit. And he said, Look, I don't look at numbers on a piece of paper, you said, I look at jobs. And he proceeded to, and I got a nice thank you note from card, I don't know where it is, it's in a box somewhere. And he proceeded to get through every tax cut he could imagine, okay, including retroactive tax cuts, nobody's ever done that before. And he got through every possible spending bill he could imagine, which included prescription drugs, and the Republicans are still mad at him to this day for having, you know, put prescription drug coverage into Medicare and anywhere else he could. But he was just trying to get the deficit down. And by the third quarter, they had gotten it up to like 200 billion. And the economy turned around and started to improve and it did not, I'll just say it didn't cost him the election, like it would have. Okay, and so, but just to say that back then, I had the same story. I had a lower debt to GDP, but the data will look to me like it was plenty high at that time to have the effect, I thought, but there are still people arguing otherwise, right. Before that, in the Greenspan increases were in the night, early 90s, I think, and same type of thing where he would have an inflation forecast with the low rates, which wasn't happening. And then he decided to raise rates to lead the target. And as you raise rates, inflation went up. They said, Oh, see how good a forecaster this guy is. Okay, my partner cliff, and I used to always joke that is, in recognize that you always knew what m two was because it was the same as the interest rate. Okay, so if they raise rates from three to 5am, to growth, we go from three to five, because it's compounding interest and paying out interest. And so the interest, we always looked at interest expense as a kind of an inflationary bias. And as a driver of, you know, expansion through the interest payments from the government, you know, even with, again, with a lower debt to GDP, so, and just the last part of this a few years ago, Paul Krugman and Stephanie Kelton, were going at it on Bloomberg, I don't know if you remember that. They're having their back and forth, I name it to you. And recruitment was talking about how you can't just go use deficit spending to support full employment, you're gonna get trouble. And I called him and asked him, I said, like, like, what's the problem with this? And he said, Well, if you use deficit spending to support full employment, and the public debt gets too high, you can't raise interest payments to lower inflation, because those interest payments will cause inflation. Right. So this is his argument against sustainable when this was in the New Keynesian model. nicer? Well, I completely agree with you, but I think we're already there. So it's kind of a moot argument. Because, you know, 50 60% debt to GDP, that's more than enough to dry them out. And he disagreed, he thought we could still raise rates to fight inflation, therefore, we don't want to lose that tool, therefore, we shouldn't sustain full employment. That's like, okay, you know, he's entitled to his opinion, I guess. And so that was only a year or so before the COVID spending. So then after the COVID spending hit, or up to two debt to GDP is up 205% elbow public or 100%? Have I you know, I, I emailed him at that time. So well, do you think its debt to GDP is high enough for this to happen now? And he said no, he didn't think so. So then I asked him about you We're in the model, would it? Would it be high enough to happen? And he said, Well, I don't you know, I don't remember this conference, I said, we've had this conversation. He said he didn't remember the conversation. And, you know, he doesn't. He doesn't know what I'm talking about, about his model having this in there. And but, so let me, let me give you one more, as long as we're doing this. So a year ago, it was Elizabeth and I get invited to because one thing leads to another to Argentina, to meet with the central bank there. And we met with the head of central bank, or I met with a central bank, and the guys probably down there. And the first thing he says is, oh, you know, you don't need to introduce an introduction. I've been following you for 10 years. So that was good. And then they understood what I was saying. And they agreed, and I had one of his research guys, there, starts reading something for me from I don't know, 1987, or something, some mainstream thing, maybe Sergeant Wallace or somebody about how in the model, if the debt to GDP is high enough, the rates are going to be right, the fiscal effects gonna dominate it. And in Argentina, they were, the debt to GDP wasn't so high, it was maybe 20 to 30% of pesos, but their interest rate was 30%. So that meant the peso interest expense was 8% of GDP, which was very high. And, and I said, Okay, well, that money is most pesos are going to, people who already have pesos don't want any more. Obviously, your savings desires have been satiated a long time ago, and they just sell them in the FX market, the currency goes down, that raises the inflation rate that you report, the cut through the import prices, right go up, domestic prices go up. And so you raise rates again, and you're just feeding these pesos into the FX machine that's going down continuously, and generating inflation that's causing additional rate hikes. So he didn't disagree with me, but they said, We've got to pack for the IMF, we can't do that, you know, we're still gonna keep a real rate. And it just it was, it was more like it's, you know, courageous thing about failing conventionally, versus succeeding unconventionally, they just weren't going to do it. So since we left, at the time, let me just use some round numbers, but inflation was 25, and rates were 30, then, you know, inflation went to 35. So rates went to 40, inflation goes to 45. And rates go to 50. And in the last I checked and rates for over 75, or 80, and inflation had gone to 100. Okay, but if you look at it, unemployment has been coming down, the economy's been strong. You know, I've put his good. And the trade pictures, good course. And they, and it's like, you know, so how does it end. So if we're on that path, now, with debt to GDP as high as it is, and as rates go up, it becomes a larger, larger number, right? And it makes it, you know, adds to the deficit. And so we go up to six or 7%, because the economy is strong and CPIs, lingering around five or six, or they want to keep a real rate. Now, all of a sudden, you know, we're driving up demand and, and inflation just higher, so the rates drift higher, we're up to 810 12. You know, how does it end? Do we just follow Argentina up to 100% or more before anything happens, unemployment set a 50 year low after a year, where we were supposed to be in recession with the Fed got severely criticized for engaging in policy, which is going to increase unemployment create all this misery. Instead, you know, it creates record low unemployment, and they're not getting credit for that. In fact, they're apologizing for it because it's to create higher unemployment right there. It's their failed policy. This this unprecedented prosperity is a failed policy. Okay, I think they think the other MMT proponents are equally torn because they don't particularly want to give the Fed credit for having brought on the most successful economy we've had in the last year. And it's obscenely regressive, right? It can't be any more regressive on interest payments go only to people who already have money and proportionate to how much they already have a trillion and a quarter dollars larger than all the COVID stimulus. Instead, a couple of guys at the Fed have unilaterally decided to to give all these people trillions of dollars a year to fight inflation. Utter absurdity of it, Congress and everybody agrees, and they're getting criticized for like, not having done enough soon enough, and, you know, being wimping out. You know, unlike Volker who just, you know, got the job done. By the way If that didn't act isn't actually how it cut down, they get that history all wrong anyway. But that I don't want to get into that right now. But so the thing is, where does this end? So here we are, we had a little ripple in the banking system in March due to liquidity crisis. And now we see bank earnings are coming through stronger than ever. And there's no economic reason for any bank crisis. Liquidity is a technical reason, you know, flaw in the regulatory process that causes it's got nothing to do with earnings or growth or asset quality or anything else. It's kind of a random, arbitrary landmine that regulation is thrown into the banking system. But we've got through that they've got a couple of band aids on it. But these lending facilities, you know, it probably is going to happen, again, just gotten behind us. And so that was going to bring down the economy, do the Feds work for them, right by weakening aggregate demand through fear and fear migrate through through any monetary or fiscal, but it didn't work, or it didn't happen. And so now we're back on path. Even even manufacturing today came back. Okay. We had a little ripple unwinding, but that seems to have not had any effect on a macro economy. And, and so, okay, so let's say the boom continues. Why? Do they just keep going? It kind of looks like it, doesn't it?

Ryan Benincasa: 21:38

Well, I was, you know, I was saying like, literally right before we came on to Adam, I actually think that this banking crisis, potentially does give the Fed political cover for for, you know, pausing a little bit on on the regressive rate hikes.

Warren Mosler: 21:59

Well, suppose they do that they're certainly not going to cut. And with a seven or 8% deficit, now we're, we're at the edge of like, over stimulating over and over again, you know, whether they pause or not. All right, it's a question. They're not going to cut to 2% and get rid of the fiscal stimulus from the interest rates. Right. So and a lot of them from I think there's thinking one more hike. So just, let's push the deficit up just a little bit more. Maybe another 10 billion for Ukraine to just, you know, make sure that thing heats up enough. And, yeah, so that they might do that. But I don't think that removes this, not even long term, but maybe medium term, pressure, like, based on their theory, or the way they see it to keep raising rate, and to not become the next Miller, but to be the next Volker. And if you remember that saga, or you've heard about it, but the is predecessor at the Fed, was saying exactly what you're saying. And then things started picking up again. And so Volcker came in and just said, you know, just put the hammer down and raise rates up to I remember Fed funds 28 bid no offered on one Wednesday. And that, and that did not slow anything down. I mean, everybody's earning 20% on their CDs and their money. You know, it's gasoline on the fire until the real public debt collapse by 6%. To the inflation and that, that deflationary fiscals by a stance of, you know, it's what crashed everything. And it came out, nobody was looking forward at all the same way. Today, nobody's looking for rates to be adding to the aggregate demand. Back then nobody was looking for the inflation to be in subsequent reduction in real public debt of something like six or 7%, which is like running a 6% budget surplus. Nobody looked at that as a deflationary contractionary bias. But it did it just crashed everything. Right, in a book, they credited Volcker for raising rates, I guess you could say, the rate increase healthy inflation, which then causes real public debt. Also, indirectly, I guess rate increases could be given. So Warren credit question for you. Yeah.

Adam Rice: 24:18

Do you get the sense that anyone in the Fed is thinking like this, or do you think, you know, it's all conventional monetary policy thinking there? Okay, so

Warren Mosler: 24:29

I think it's all convention policy, at least, at least at the FOMC level. At the analyst level. I talked about this to people who I think are still there. I think there's a guy named David Wilcox is still there in research. This was back when they started doing QE I was at a small meeting. They just wanted to know what the financial sector thought about QE. And, you know, I said, I'm not so much worried about to leaving money printing or anything like that, but I we are seeing fed profit 90 billion going back to the Treasury, and that's 90 billion net income that the economy would have had. So you know, I see it kind of as a, as a deflationary bias rather than an inflationary bias. And we're having a nice matter of fact, pouring back and forth And that just hit some kind of live wire and he goes, he just like, like somebody changed the channel or something I don't know. And he goes, Look, we have one whoever. And it's interest rates, and we believe, you know, lower rates or expansion is bearish. expansionary. And that's our story. It's like, okay, sorry, I asked you, it seems to me like that must have stemmed from some kind of internal discussion. And they decided that this is their official position. And there's no more talk about it. Somehow, I don't know how but and those are different people back then. You know, we went through, you know, and then Paul Wilson says, so by so, but he's still around. And this guy named Jim class is still around, I used to talk to him about it all the time. And they had a guy who only liked a couple of years ago, Steve owner, who used to study the propensity to consume the differences between borrowers and savers, to see how much what the effect of rate hikes would be. Because, you know, they all know that. I mean, these guys are good. They know, cash flows. They know that when you raise rates, for example, you're shifting money from borrowers to savers in the oil, and the only way they'd be in effect from the private sector, apart from the government spending thing would be if borrowers were hurt more than savers were helped. In other words, borrowers cut back more than savers added, the propensity to consume interest income was lower for savers than it is for borrowers. And he would study that I mean, PhDs, real serious, smart, you know, not, you know, by not a partisan person or anything like that very nice guy. And he said, you know, we believe that there's a difference, and that, you know, the high rates will affect the borrowers more than they will, then the response we'll get from the Savers, he says, But you know, I've been doing the econometrics for a while now. And I just haven't been able to detect. Okay, so they, they're certainly aware of it. They've got people assigned to look at it. Now I was at I did a presentation with a large pension fund to Canada. About a week ago, they just same thing we're talking about. One of the things I asked him, I said, Look, you're covered by every research. They've got hundreds of billions under management, you're covered by every research firm in the world. Is it just me saying this? Or is there someone else out there? And they said, No, it's just you. So that's also partially answering your question. Anecdotally.

Ryan Benincasa: 27:43

Well, I would, I would, I would just add to that, you know, Adam and I are doing our best over here to you know, amplify that message out into the universe for who so

Warren Mosler: 27:57

you've been, you've been marginalized. You've been marginalized yourself.

Ryan Benincasa: 28:07

Misery loves company, right?

Warren Mosler: 28:08

Yeah. Yeah. Yeah. So, look, it's always been this way. Right? Stephanie Kelton tells a story about when she first met Randy. And he told her about, I said the government has the money to pay taxes come from the government have to spend first that, you know, she didn't believe it. And she went out and did a research paper on it. He told me to a research paper, she researched and looked it up and discovered that yeah, that's how it works. But point being that it's not like the first time you hear it till the lights go on for everybody. It says something about it. That's even more than counterintuitive. It's it just doesn't make sense. At some fundamental level. Where it doesn't that happened to me once. It was on a trade, Merrill Lynch years ago. I have some POS, guys capital markets, guys, I don't even know.

Ryan Benincasa: 29:00

I work at a hedge fund in New York we okay do credit inequity. So but not not much rates. Okay,

Warren Mosler: 29:09

so these were interest only. They had taken Ginnie Mae aid, and split up the cash flow. So one tranche or seven cent whatever it was, was the the I O, which got only the interest payments, and the other one was the P O, which got only the principal payments. And so they just allocated all the interest to one investor group and all the principal payments, another group. So it was the first time they had divided mortgages up into IOCP apps. And I said, Well, how much do they cost? And he said, well, the IOs are 55 and the POS are 55. And and how much are the Ginnie Mae hit? He says, What rhetoric power right now. So I said, okay, so you're like 10 points. showing it to me. I said, I can't imagine there's anything left in this for me. So I think I'll just pass it was a big, biggest, biggest mistake of my life. Because, you know, as it turns out, the bios for profit were 75 P It was 25. So even with a huge markup, and I'm sure somebody just realized that final POS from 55. I mean, all the items, and you don't pay 20 points, but I didn't, because I just looked at the macro and said, Okay, you're trying to make 10 points off of me, I'm not gonna do this. Right. Yeah. So I can understand how people can just see something and dismiss it, which I did. You know, I saw this and just dismissed it on the surface. And I think it's the same mental process that causes people to dismiss some of these other things I've been saying for a long time, you know, and that keep coming up and read.

Adam Rice: 30:56

What's shocking to me. And Ryan and I have talked about this a lot. It's just, you know, we've been hearing for over a year now that this recession is coming, and all the data keeps coming back positive. But no one's even changing their opinion in light of the data.

Warren Mosler: 31:10

It's just confirmation bias. Confirmation bias. Yeah. It's the biggest case of confirmation bias you'd probably ever see in your life, if it turns out to be correct. You know, so you're living through, you know, interesting times, as I say, where you're seeing the whole world completely wrong on something that's simple. I have to

Ryan Benincasa: 31:30

say, it's just me insane.

Warren Mosler: 31:31

Yeah. Yeah. Yeah. No discussion, right.

Ryan Benincasa: 31:36

It's none. I tried to bring it up at work. I mean, literally, Warren yesterday. Yeah. My, my boss is founder of our firm is smart guys been in capital markets for 34 years. And he just got back from Argentina, and was talking about how they have 100% inflation. And, and, you know, the interest rates are at 1%. Like, you don't think that those those are somehow connected? Yeah.

Warren Mosler: 32:07

What are they going to do about it? While the raise raise 220?

Adam Rice: 32:12

It'll come down eventually. Right?

Warren Mosler: 32:15

Just keep drilling holes in the boat till all the water goes out. The thing is your economy's doing well, though, right. Real terms?

Ryan Benincasa: 32:30

Yeah. I mean, well, that's what he sees it. Like everyone has a job. A lot of people have to work jobs. But yeah, but you know, no one can, by the way, says that no young people can afford to buy a house. Everyone looks at their parents. I'm hearing that I'm just like, it sounds like they need to build more houses.

Warren Mosler: 32:47

Yeah, well, but you know, I don't know how true that is. Because they're saying the same thing here. So I'm not sure how much that's about their interest rate policy under inflation policy, as it is about, you know, there are other policies. Right,

Ryan Benincasa: 33:02

right. District income distributions and stuff.

Warren Mosler: 33:06

Yeah, no, just just the rest of the institutional structure.

Ryan Benincasa: 33:09

Right, because I'm

Warren Mosler: 33:11

certainly the government, or whatever can you know, the GDP is up. So that GDP allocation, geo QP, could be in more housing if they want it to be? So there's GDP is up doing some things, right, there's some activity, that's everybody's working, there's full employment, the output is at full employment levels, it's just a question of the what that output is, right, right. What's the distribution of the output, how much of it is going into housing versus how much it's going into, you know, accountants for the banks or something, whatever. You know, whatever it is people doing down there, and I'm sure there's like, like, if it's anything I hear, you got, you know, have to at least a quarter of the people digging holes and another quarter filling them in, it's just, you know, all these unnecessary compliance jobs created by the institutional structure that are just in the service sector, just bogging everybody down. And, and so there's nobody left to build houses and do these other things. Right. So Right. It's gotta be that, yeah, it's gotta be that. Yeah.

Ryan Benincasa: 34:15

I mean, I talked with my, my contractor, we had some, some work on our house done. It's just, it's just hard to find people with the real skills to do the jobs that that that, you know, at the quality that people demand, right, if you can't just hire guy off the street to do you know, to do some some of these jobs, you're a licensed contractor, you know, you have no, they have real liability. If if, you know, they screw something up, or if, you know, like, you know, you cover up the wrong gas pipe person or something else, right? It's not, they're not just a handyman. So it's just it's difficult to find people with the real experience and skills to do that. And I'm just thinking to myself, I'm like, well, that's clearly because we had this elevated level of unemployment for so long. And it's we have a real skills deficit, because we because we because of the high unemployment, right,

Warren Mosler: 35:09

and the markets part of it, you know, they'll say, oh, you know, I'd have to, you know, we're paying $40 An hour and we can't find anybody Who can live with on 40 hours an hour today? You know, $50 an hour's $2,000 a week, $100,000 a year. If you have a family, you know, and you're making $100,000 a year, you're your wife has to work, right. And, you know, you're not driving around a Mercedes and flying on private jet. You know, with all the insurance costs and everything else, and you're just scraping by. And there hasn't been an adjustment in at that level yet. So in that case, the demand isn't actually there. Right? If the demand was there, you'd see construction workers at $100 an hour. So the,

Ryan Benincasa: 36:01

the, if the market were really clear, yeah,

Warren Mosler: 36:04

the wages are paying paying tells you what the actual demand is. Ah, god, okay. It's like, yeah, it's like, yeah, everybody wants to, but nobody wants to pay the guy where he can live with this same standard of living, you know, that the guy that the homeowner is living at, right? Right can't afford, we can't afford to live in the house, he's building for somebody else. If you if you are, if you start paying people enough so that they can afford to live, you know, in a nice house, you'd get a lot of people in that. And it would turn around. So it's a it's a market right now responding to like what's called true demand. And actually low levels of aggregate demand, or aggregate demand is relatively low. You can imagine, if you look at when I, in the 1970s, I started working 1973. And the year before we had had, like 2.6 million housing starts nearly 200 million people. So today, that would be the equivalent of 4 million housing starts, right. So today, we have one point 4,000,001 point, well, even during the boom, we have maybe 2 million housing starts with 50% more people. And it was an unsustainable bubble. It's like how did that happen? Right? It's like, it's obviously not, it's just our institutional structure. And the finance sector, you know, used to be 5% of s&p profits. And now it's 30%. Right? And it's, it's not adding anything, you know, fire they call it finance, insurance, real estate. It's not adding any real useful output to anywhere. It's just people digging holes, and people filling it in, it just grows. And it's absorbing our standard of living, you know, that's what's holding us back. Our real standard of living back, that's what's that's why we don't have any buddy with any skills to do construction. But But nobody's connecting those dots. Right, right. Yeah, yeah. There are two, the duck to obscure dots to be connected. I don't know connecting the dots just out, obviously. But if you look at the real compliance costs of income tax, how many people are tied up in all the record keeping that everybody has to keep to make sure they're keeping proper tax records, individuals and businesses and all the legal that companies spend that taxes and tax compliance and where to locate and corporate structures and all that people going to school? Get educated for that, and although the whole legal system for enforcement, and, you know, I suggested it was probably 10, or 15% of GDP that's tied up just in tax compliance in the US. And I had a friend that University Chicago business professor, he goes up, I asked him if that was a reasonable numbers as well. Maybe he said, I think it may be higher. Alright, so we got 15% of our workers, let's say, which is, it's not exactly linear thing, but we're just involved in tax compliance for income taxes, sales taxes, when you add sales taxes, state local trip, all the transaction taxes said it probably is 20%, or whatever he thought it was. Alright, you know, so if you just went to a straight property tax, right now, state local property taxes, or maybe 1% of value, you jumped out to whatever it takes to have, you know, base for currency demand. So let's say it's 10% flat property tax, your compliance costs basically go to zero. I mean, you already know who you don't have to know who owns a house, you don't have to know who's working. If your house doesn't pay its tax, you sell it, you don't even care who the owner is. Right. So it's already done. The local governments already already have a system for foreclosing on houses for property taxes. Right? Okay. You just freed up 20% of the working population, which is 25 or 30 million people, right? Do something to do something else, and whatever they do is going to add to the standard of living. And so whose standard of living are they going to add to it? They're not going to add to anybody at the top because they're not going to go from three meals a day to four meals just because they have more money or something. And they've already got medical care, right and they've already they're not going to stay spend more Retirement, your private jet anything. So the consumption of the tax not going to change. But if it goes into high quality public services, and, you know, health care and things like that universal health care, it'll all go to the lowest income groups, you know, the people from the bottom up will be the highest beneficiaries. And you'll see anywhere from a 50 to 100% increase in their real standard of living, for free for free, at nobody's expense. It's all it's all new wealth, you know, of 30% of GDP added to the economy, which now would be, you know, seven and a half trillion dollars of new real wealth added. Not a cost, but a net gain in real estate. Which is staggering, right. And that's just by getting rid of the income tax, I wouldn't be in favor of that. Yeah, now, back to, when I made that presentation, Stephanie Kelton had me to a presentation in a class. And a lot of left leaning people kids in the class, let's say, they're kind of hard, they were kind of horrified by this whole thing, because they said, you know, that's a very regressive thing, because all these rich people need to pay their share for taxes. And, and with this, you're not going to be paying anything. And you know, it's, you know, so they just, they're just kind of like against it from a social equity point of view. And I'm trying to point out from a social equity point of view, the real consumption in the economy is going to shift dramatically to the lowest income groups from the highest income groups, regardless of any one individual's nominal increase, he's just gonna have as much stuff to buy, it's not gonna be out there, the stuff is gonna be public transportation and healthcare stuff that he's not set for sale for him to buy. Right, right. But they just couldn't get that far. Right. And, and they just walked away, and they would not even touch this thing. So yeah, it was a 10 foot pole, is the most progressive thing they could possibly do. And they even like, pretend it's an option.

Ryan Benincasa: 42:33

Kind of an Amande. I've been talking about this idea a little bit, and I want to sort of throw this at you sort of stress test it. This this this term I have coined called the real resource dividend. And I've read criticisms of sort of our modern capitalist economy. You know, people will talk about the so called Naked fish nitrification of the economy, right, rather than actually doing manufacturing domestically, you know, Nike will outsource the manufacturing and design process to, you know, countries like China and basically make gigantic margins from from lucrative licensing deals and stuff. Chapter

Warren Mosler: 43:16

Five, chapter five in my seven di F book, right,

Ryan Benincasa: 43:20

yeah, I have right in front of me. So, I guess what, maybe, maybe I'm just, you know, some subliminally regurgitating what you've already written, and I don't even realize it. But, but this idea of okay, well, we just freed up real resources, right, we, you know, all these people can now be employee. So it's like, the private sector has delivered like a real resource dividend back to this public sector. And the public sector refuses to cash the check.

Warren Mosler: 43:52

Yeah, and it's, um, you know, and we have a 50 year low of unemployment. And they say, oh, it's taken away all jobs. What are you talking about? The large countries have more trouble finding jobs in smaller countries. Oh, gee, you know, look at China, how many jobs they have, because they have twice as many, five times as many people is that? Like, the natural state is everybody work? But anyway, um, yeah. So. So we had President Trump decide that Canada wasn't charging us enough for lumber. You know, so he, so he puts a 17% terrifying, right to punish them for not charging us enough. Remember, when you don't, you don't want to send this guy out shopping for you anywhere? Well, yeah, then then president, then President Biden comes in and doubles down. He said, they're still not charging us enough slaps another 70%. Canadian lumber. So this is not partisan politics. They have 95% approval from the electorate. That candidate needs to be punished for not charging us enough as as China and everybody else. And then it's like, Alright, look, building cost, just lumber costs are up for housing. We have an inflation problem. That's, you know, that means MMT doesn't work. I just use the you know, the witch trial in my to fight that. That's what this whole thing is, right? The whole public debate and this whole thing is like that is the blame. Yeah, right. It's like, okay. Like, I know, it's my fault. It's just a question how we phrase it. Whatever happened, it's my fault, or let's get past that. So, yeah, and so that's exactly what you're talking about. So all these things that are enormously to our advantage, they just kill these geese laying golden eggs all the time. And we still do, okay, our productivity is so high. If you look at a real productivity, not too long ago, a couple of 100 years, we couldn't have this conversation because 99% of the people who have to be in agriculture, we're going to start, right, okay. And then that's less than 1% is an agriculture now. And when we export food, we produce like 8500 calories a day per person or something. And so what happened everybody else really all unemployed? No, somehow unemployment straight up. Okay, and so, well, manufacturing, you know, that was everybody for a while, and now it's 7%, or something of employment? You know, is there a shortage of stuff? No. Okay. So if we went to 8%, in manufacturing, you know, our houses would be filled up with junk, nobody could breathe, right? So we don't, we don't need any more productive manufacturing capacity. Obviously, we, you know, it's like, so, well, where's the other 90%? Let's just surfaces. And what's the limit to that? Well, no, and if we just keep, particularly when we keep adding to the institutional structure that requires, you know, all these people digging holes and filling them in compliance people and, you know, the, the legal system and everything else, we've got private healthcare is tying up 5 million people that don't need to be involved in health care, they're on administrative and advertising and marketing and promotion. You know, that's, so we come up with ways to ensure that we can't use this other 90% productively. But it's there to be had, it's there. It's there to be had. Right. You know, and, and to actually, if we got efficient at providing the services we need, we what I was saying before, we probably don't need more than half of it. And the other half could be, you know, adding to our real public services or education, and, you know, everything that's, you know, that's a real quality of life. And it's not happening. In fact, the whole thing about climate change global, that's not happening either. Now, there are some changes taking place, like electric cars, which changed a little bit, but there's no not, you know, there's like, incentives in place. So there's economic incentives in place for that to happen. So it's happening, which is fine. But the, if you look at what happened during COVID, the first week or so, you know, it was the first time you could see China from a satellite, because the air cleared it, all right, suddenly, the emissions are down 50%, or more harmful emissions. And we won, we won the battle against harmful emissions, we won the battle against global warming, right about co2, we won all that stuff. And we did it by eliminating nine essentials. Pretty good. Everybody's got the Nerf clothes, you know, and nobody drove because there wasn't anywhere to go not because there wasn't enough gasoline, it just, you know, we just cut back was pure conservation. And it was, you know, voluntary. People were getting shot for driving or arrested. It was pretty much all voluntary. And so and then we squandered the entire game without even a discussion. The whole discussion was how do we get the economy back to where it was, stimulus checks, and unemployment compensation and all this, getting people back to work and reopening, and a year later, emissions are back to about where they were, and everybody declares victory. So there was like, no discussion about, hey, let's bring this back without bringing back all these harmful emissions. Let's any ideas on how we can do that? I mean, did you hear one iota of discussion from anybody on that? So like, how much of a priority is it? Not much? Not not enough. So when you actually save the world, save the planet, whatever that means. And there wasn't even a discussion about like, hanging onto that victory. Just squandered that whole thing. And then so and now we're talking about maybe we can get down and 30 years to where we were two years ago?

Ryan Benincasa: 49:58

Right?

Adam Rice: 50:00

Yeah, I actually. Yeah, go ahead. I'm

Warren Mosler: 50:04

sorry. I'd say I'm not trying to like push the agenda. Although be nice. I'm just pointing out like just pointing out the reality of where we are.

Adam Rice: 50:13

When I was thinking about a similar thing. In, you know, during COVID, in this push for remote work, and there were a lot of benefits of that, you know, people were moving to towns that you know that there wasn't a lot of activity in these towns previously, and there was affordable housing in these towns, and maybe we can get, you know, if people are working remotely, maybe we can get people moving to these towns and rebuilding these houses and rebuilding these communities. And now the push is just everyone has to be back in the office and cities are getting more and more unaffordable, you know, and that's just a conversation that also isn't being had.

Warren Mosler: 50:47

Yes, right. Right. Yeah. Yeah,

Ryan Benincasa: 50:51

we talked about in the last episode, I mean, so we visit my company, we visited our largest investor up in outside of Hartford in Farmington, Connecticut. And they were talking about, I mean, the vacancy rates in Hartford, it's, it's like, horrifying. It's like 50%, and office buildings. And that's before considering the actual, like, volume, foot traffic that that they're getting. So I'm just thinking to myself, like, what a waste of substantial real resources? Like, why would the government not come in and repurpose that to something useful, you know, make it like a childcare center, or, you know, a public library or something like, it's just, it's just, it's extraordinarily wasteful, and it doesn't really seem like, you know, if there's no bid for that asset, like, you know, that it's not inflationary to, you know, for the government to come in and use up something that's not being used? Well,

Warren Mosler: 51:59

you know, or the private sector can, you know, they repurpose space and shopping malls now, to all kinds of things. Right. Right. So, I don't know what they would do with these office buildings, but I don't know. Just make them into residences, I guess.

Ryan Benincasa: 52:15

Yeah, I know.

Adam Rice: 52:15

I know, New York City. I think the I forget what it was exactly. But I think one of the first major life transformation projects that building I believe either just went under construction or just reopened. They turned a massive office building it used to be the New York Daily News headquarters into residential mansion and see how that you know progresses.

Warren Mosler: 52:41

Sure, sure. So you know, in a large cities are more resource efficient in this rural areas. I think last I saw

Ryan Benincasa: 52:50

in terms of like, energy consumption, sort of catchy Yeah, yeah, per capita. Yeah, that makes sense.

Adam Rice: 52:58

All right, everyone. That wraps up the first part of our two part episode, our interview with Warren Mosler, we hope you really enjoyed the conversation. The next part is just as interesting. So thank you again for listening. If you're not a subscriber, it'd be great if you could subscribe, and we will see you next time.