“80% of all the income gains since start of recovery have gone to the top 20%”

My final Five Questions interview was with economist Stephanie Kelton, chair of the Economics Department at UMKC and a leading light in the “Modern Monetary Theory” school. Modern Monetary Theory (MMT) is the school of economics that fully recognizes the nature of an economic system that is not based on “hard currency” — exactly the system we’re living with today.

MMT has much in common with David Graeber’s explanation of money in his seminal book DEBT: The First 5000 Years, though there are areas of divergence as well (that link is well worth a read, by the way). There’s a comment on Modern Monetary Theory immediately below. To jump directly to the interview, click here.

“I know you want roads, but where will the money come from?” — a primer

Economist Stephanie Kelton

Economist Stephanie Kelton

A simple question, for those of you curious about today’s money and where it comes from. When a bank loans you a dollar, it changes a number in your account. You can then spend it as cash, or transfer it to another person’s account. So, where did the bank get the money? Answer: It didn’t go anywhere to get it; the Federal Reserve gives it the power to just make it — in other words, to simply change that number. This is why the “money supply” constantly changes.

Seriously, think about that. The Fed doesn’t “print” most of your money — just the money in your pocket, in case you want cash. But is most of your “money” in cash? Is 10% of your “money” in cash? 2%? Or is most of your “money” just a number next to your account number? Banks don’t need “money” to change that number; just permission.

Now apply that idea to government purchases, and you understand why this unrecognized (and politically inconvenient, for both parties) truth is true:

According to modern monetary theory, “governments with the power to issue their own currency are always solvent, and can afford to buy anything for sale in their domestic unit of account[.]”

Bottom line, a government that creates its own currency is always solvent — never broke, by definition — and can have as much of it as it wants, so long as inflation is not excessive (which is entirely true today, and has been true since the 1970s). Think about that when some politician, of either party, tells you:

“Yes, you can have X (retirement benefits; better roads), but where will the money come from? After all, you have to ‘pay for it’ somehow. You have to take the money from somewhere.”

No. You don’t. And the proof? The Pentagon never has to “pay for it somehow” by taking the money from “somewhere.” Never. We give them trillions a year, literally, and where does it come from? The same place your home loan came from. If the Pentagon wants a bomber, or 1000 of them, the government writes a check for a bomber and the entity whose account got credited — Raytheon, say, or Boeing — sends one over. The money to buy it never comes from “somewhere else.” And notice — (a) we’re not broke. And (b) we still run the world, very comfortably so (for us).

What’s true for our military is true for our roads — so long as inflation is not excessive, which again, is entirely true today. So why do you have bad roads, but many excellent bombers? Because “they” — the people who decide what to buy — don’t want the roads, and they do want the bombers. That’s the only reason. If they wanted better roads, you’d have them.

But I digress. I’ll deal with the implications of this “inconvenient truth” — they are huge — in another piece. Now back to Dr. Kelton.

The interview

I interviewed Stephanie Kelton in a (thankfully) quiet room at Cobo Hall in Detroit during this year’s Netroots Nation. She was kind enough to make time during her busy visit to the convention. Listen by clicking below. A guide to the interview follows.

We began, as I did with all of my interviews this year, talking about climate. When I asked “Is there burnable carbon? Do we have a carbon budget we can ‘burn through’ and still be safe?” her answer was striking.

Her reply (a paraphrase) — “We better have a carbon budget, because it doesn’t look at all like we’re going to stop burning it. If there’s no budget left, it’s over.” I hadn’t considered that angle, that the existence of a “carbon budget” might be a blessing and not a curse — curse because it will give false security to the owners of burnable carbon.

(I disagree with that assessment, by the way. As regular readers know, I think there’s no burnable carbon, no budget; and also that it’s not over. But back to Ms. Kelton.)

We also discussed how to put the carbon industry out of business. At 7:40 we hit the phrase — “But these things are costly, so how are we going to pay for them?” That complaint comes up a lot, the “cost” of a climate fix. For the real answer, see above. For the other real answer, consider the cost of returning to hunter-gatherer status for the third age of man, the one where we revert to our uncivilized roots. Now choose which cost to pay.

The “why does 2016 matter?” question comes at 9:15. Her response is straight from the anti-“free market” playbook. Kelton is another economist who sees free-market conservatism and its twin, faux-leftie neoliberal privatization, as a destructive disaster. As Dr. Kelton says, we simply have to “throw overboard” the policies that got us where we are today. Her explanation of why is clear and cogent.

But the prize of the interview comes next. I asked two more questions. First, what would she do if she ran an FDR-style administration — one with FDR’s popular mandate and FDR’s “we’re with you, boss” Congress. I won’t preview the answer here, but it’s stunningly original, at least to me. That part starts at 12:38. If you listen to nothing else, click and jump to that point. It’s in this section, by the way that the headline quote appears:

“80% of all the income gains since start of recovery have gone to the top 20%. … We’ve just shoveling cash into wheelbarrows for these people. … What do they do with it? … They buy art.”

She has an answer to the fact that, sorry to say, those manufacturing jobs aren’t coming back. But not to worry. There is a solution, and the fast food workers are onto it. Her suggestion for even bigger change is so striking, though, that I’ll be expanding on it in the future.

Finally I asked (at 26:00) about her personal path, about what in her background and history brought her first to economics, and second to be “present at the birth” of Modern Monetary Theory. The answer is human and heart-warming. I couldn’t have manufactured a better close to my last interview of the convention.

The segment also includes this comment about Modern Monetary Theory:

“The MMT school is the ‘anti-austerity on steroids’ school. We’re not the sort of ‘soft left’ that says, ‘Well, austerity today is bad, but we’re going to need austerity sometime in the future’.”

In truth, we haven’t needed austerity since Jimmy Carter was president, if then. Keep the phrase “soft left that says, ‘Austerity today is bad, but we’re going to need austerity in the future'” firmly in mind. To coin a phrase, that truth “changes everything.” Again, for a quick look at the implications, click here.

This year’s previous Five Questions interviews also included Democratic Rep. Keith Ellison (here) and strategist Robert Cruickshank (here). I hope you enjoyed them all.


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Gaius Publius is a professional writer living on the West Coast of the United States.

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