“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.


Twitter: @Gaius_Publius
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Gaius Publius is a professional writer living on the West Coast of the United States.

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

  1. sufferingsuccatash says:

    Bravo GaPu Bravo—-Superb interview about MMT and excellent analysis of economic extraction and the effects of income inequality.

  2. GarySFBCN says:

    The median in SF and many other parts of California has increased. The median in SF is over $80,000. In my working-class neighborhood, a two-bedroom POS with no parking, no views, last upgraded in 1992 and about 800sqft just rented for $7,000/month.

    And I don’t make $200,000. I’m lucky – I have a decent landlord and cheap rent. But watching hundreds of people getting evicted each month is heartbreaking. They don’t live in gated communities.

    Back to my point: If the median HOUSEHOLD income in SF is over $80,000 and the average rent for a one-bedroom has risen to $3,500 a month (for a dump), people in HOUSEHOLDS making $92,000 are not socking-away wheelbarrows of money.

  3. Houndentenor says:

    I was laughing because it was so out of touch with reality. I hear this all the time, usually from people who make $200k and think they are middle class because in their gated community people seem to make even more than they do. Yes SF has a high income level and that means the people who do most of the work in SF live somewhere else, meaning that the political boundary of the city of SF helps tell a different story than reality. Now since SF has a higher minimum wage that’s probably a better narrative for your point than most cities, but my point remains. The median income has dropped. Most people are making less and a few people are making a lot more than they were 6-7 years ago. I remember at one point when I lived in NYC and thinking that poor little me just wasn’t making enough money and then looked at where I was in terms of everyone else and I was in fact making more than half the people with jobs in the city. I stopped whining then and figured out how to live on my income.

  4. GarySFBCN says:

    Thanks for the info, although I don’t understand the LOL.

  5. Bill_Perdue says:

    In 2012 non-voters topped 40%.

  6. Houndentenor says:

    It’s been around 50% my whole life. Actually the 2008 turnout was one of the best in my lifetime. The mid-term elections are embarrassingly low and always were.

  7. Bill_Perdue says:

    Those who don’t vote are now the clear majority.

  8. Houndentenor says:

    According to this site inhttp://project.wnyc.org/median-income-nabes/

    NYC the median income citywide dropped about $4,000 a year during the recovery. That doesn’t surprise me at all since most of my friends who were laid off during that time took jobs that paid less than the one they had before (and I was making less and less with each temp contract which was the main reason I left…less money for shittier jobs…buy-bye). Of course the people who make up the bulk of the city other than a few well-to-do neighborhoods don’t count I guess. They never seem to be part of any discussion nationwide about the recovery. As long as the stock market goes up the rest of the country can suck-it. And we re-elect these assholes or watch them on tv? What the fuck is wrong with us?

  9. Houndentenor says:

    LOL. In NYC overall the median income is actually below the national average. In specific neighborhoods it is much higher of course, but most of the city lives on well under 90k. It’s actually a little over 50. http://project.wnyc.org/median-income-nabes/

  10. GarySFBCN says:

    I should add that in San Francisco and elsewhere, there are feeble attempts to make people feel better about working multiple jobs and/or depending upon filthy-rich corporations to help out with problems – as long as that help is tax deductible. Here are today’s examples:

    Uber ‘allowing’ teachers to make more money by providing the opportunity to have a 2nd job with them: “Every day teachers are asked to do more with less, constantly faced with new challenges and limited resources. Uber opens the door for more possibilities and delivers a meaningful impact to the communities we serve.”


    And here is the lamest of videos, promoting “One City”. One City is an initiative bringing together San Francisco’s technology companies and its residents to find common solutions to issues facing our​ ​community​. Rather than accept a divided city, we ​can​ become One City.” Of course, they will dictate the solutions and this is the last step to brainwashing today’s kids that we need to depend upon the benign and friendly oligarchs. Then Soylent Green.


  11. GarySFBCN says:

    I agree that the income/wealth disparity is unjust and threatens our society and something needs to be done with great urgency.

    But the “top 20%” is based upon what – household income? Individual income? Wealth? If it is household income, and the top 20% household income in the US is $92,000 or more, and it is very misleading. In large cities like San Francisco and New York, a household income of $92,000 doesn’t get you much of a life, especially if you are a newcomer. The average household income in San Francisco is over $80,000 and in DC is is over $90,000.

    The ‘wheelbarrows’ of money going to the top 20% who are middle class people living in expensive cities is being spent on rent, food, etc.

  12. Bill_Perdue says:

    Happily for the left, and unhappily for the right, Obama Warren, and Clinton supporters and Republicans, the numbers will be more than enough to fight and win.

    Thousands already are in motion, rejecting Obama’s insulting and rabidly right wing proposal for a minimum wage. Read it and weep. http://www.labornotes.org/2013/12/2013-review-aiming-higher-labor-tries-new-angles-and-alliances

    I’ll make sure to keep you updated this fall when we run in elections from coast to coast and push for a decent minimum wage and to build unions in fast food and at Wal Mart.

  13. emjayay says:

    Or maybe even fight for real change. But actually, probably not all that many of them.

  14. GaiusPublius says:

    Since the interview was conducted, new data. According to (I think) Joseph Stiglitz, 116% of the gains since the recovery went to the top, meaning either 10% or (more likely) 20%. Implies losses below that line.

    Post a link if you find it — I don’t have it to hand. But it’s even worse than we knew when Kelton spoke with me.


  15. Bill_Perdue says:

    Where justice is denied, where poverty is enforced, where ignorance prevails, and where any one class is made to feel that society is an organized conspiracy to oppress, rob and degrade them, neither persons nor property will be safe. Frederick Douglass

    “More than 45 million people, or 14.5 percent of all Americans, lived below the poverty line last year, the Census Bureau reported on Tuesday.” http://www.huffingtonpost.com/2014/09/16/poverty-household-income_n_5828974.html

    “America’s wealthy are richer than they’ve ever been. Big corporations are sitting on more cash they know what to do with. Corporate profits are at record levels. CEO pay continues to soar. … Since the current recovery began in 2009, all economic gains have gone to the top 10 percent. The bottom 90 percent has lost ground. … Another structural change is the drop in the minimum wage. In 1979, it was $9.67 an hour (in 2013 dollars). By 1990, it had declined to $6.84. Today it’s $7.25, well below where it was in 1979. … We’re in the first economic upturn on record in which 90 percent of Americans have become worse off.” http://robertreich.org/post/98668011635

    Globally, the divide gets much more severe. “At least 80% of humanity lives on less than $10 a day. More than 80 percent of the world’s population lives in countries where income differentials are widening. The poorest 40 percent of the world’s population accounts for 5 percent of global income. The richest 20 percent accounts for three-quarters of world income.” http://www.globalissues.org/article/26/poverty-facts-and-stats

    Like climate change and global warming, we are well past the tipping point when it comes to the radicalization of vast numbers of workers and youth who are ready to right for real change.

  16. Indigo says:

    20% seems high to me.

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