Ep105: Nathan Becker: Survival requires hurting others (and, where’d the money go?!) [WRITTEN INTERVIEW]

Link to tweet Welcome to episode 105 of Activist #MMT. Today is my first written interview, which is with Nathan Becker. Nathan is the pseudonym for… well, I've no clue 🙂… but he's a regular presence on Twitter (@netbacker) and secondarily on Reddit (u/ConnedEconomist). Nathan is a computer engineer whose job is to help businesses reduce and outsource their workforce. Like so many of us, we are needlessly forced to hurt others in order to do what's genuinely best for ourselves and our families. We start by discussing this dilemma. With a couple important exceptions, Nathan is almost fully on board with Modern Money Theory (MMT). The first relates to the job guarantee, and the other, interest rates and their effect on inflation. Regarding interest rates, Nathan argues that Warren Mosler's assertion that "they have the interest thing backwards", is itself backwards. I had the opportunity to pose Nathan's assertions directly to Warren. His response, in both written and audio form, can be found at the bottom of this post. Jeff: Thanks so much for talking with me, Nathan. I've come across your name consistently since discovering MMT back in February of 2018, although we've admittedly not had much occasion to speak directly. Your pinned tweet is especially insightful. Can you please introduce yourself? Then, can you please describe your life and thinking before discovering MMT (and potentially economics)? Nathan: Hi Jeff, I am a computer engineering professional with over 30 years experience in this field. Over the last 20 years I specialized into being a systems engineering consultant who helps large and medium enterprises to optimize their IT infrastructure. These organizations bring me in to help them reduce their cost of IT. Typically each of these engagements lasts about 6 months, at the end of which I would have helped them significantly reduce their cost of IT operations. In the initial years (2000 to 2010) these engagements were mostly about outsourcing. In the recent years, there's been a big shift in how these cost reductions and optimizations have evolved. Now it is mostly about automation. So now, I am brought in to automate people's jobs away. In all these engagements in the last 20 years, there is this common theme. The C-Level executives all have the same goal, to reduce the cost of labor. Have you watched the movie, Up In The Air? It sort of summarizes what I do for a living, my contracts are in corporate downsizing. In other words, I am brought in to fire people. Thankfully I don't have to do the firing people part, that's where their HR [Human Resources] comes in, but I help set the stage for this to happen. Looking back at one of my biggest clients who brought me in the times over the past twenty years, I sadly reflect that I played a significant role in reducing their IT staff from over four hundred people to now about ten engineers, while their IT operations and infrastructure has scaled up like 30 times over. Though I enjoy doing the technical part of this job, I don't relish the human side of it. I believe most of these engineers who got let go, have all re-upped their skills to still be in the industry, but there is a significant group of people who were let go who have dropped out of the job market or taken up much lower paying jobs in other industries. Thinking of the number of people's lives I have directly affected, it does leave a bad taste and that's where my interest in economics, public finance and social good comes into play to help me redeem myself. More of this in a bit. I mentioned the C-level executives earlier. Their objective in all these engagements was their short term gains. The client I mentioned earlier, each time I was engaged, I dealt with a different set of C-levels. Because the previous ones moved on after cashing their bonuses based on the savings I helped produce. So each time I was brought in, the baseline from where to reduce the cost was lower than before. So all this ends up with significant reduction in the number of people they employ, while their business size grows multifold year after year. We all have seen charts like these: When the Great Financial Crash hit in 2008, it had a significant emotional impact on me. I had wrapped up multiple projects by then, which meant a significant number of people had just lost their good paying IT [information technology] jobs that I helped move offshore. Some ended up losing their homes as well. The crash didn't impact me professionally or financially, but hearing about all the people who I had worked with, either directly or indirectly, turned me into a mental wreck. Ironically, I was getting more offers from my clients to come in and speed up the downsizing. I couldn't bring myself to go back, so I took a break from the industry at the end of 2008. Now, with lots of time on my hands, I spent it on reading the financial news about the impending doom and gloom. Sites like ZeroHedge, were predicting the US is going to go bankrupt, hyperinflation was coming, yada yada yada. I had accumulated a good amount of savings by then and had liquidated my stock investments, losing quite a big chunk during the crash. I believed in some of these doom and gloom and speculated in the market and lost even more money! That's when it struck me, that I did not know anything about what money really is. Like most people, I thought of money as something physical, so someone's loss had to be someone else's gain. So when I lost all that money, someone else should have gained that from me. Who was it? I couldn't trace that through the online rabbit-holes I was led into :) But whatever I was reading in the financial news talked about money being lost and everyone being the loser. So how could money just disappear? Then came all the news about bailouts and the big Tea-Party rant on CNBC by Rick Santelliz! I had to understand money. I signed up for an online degree in economics, hoping that will help me understand what money is. My mentors recommended doing an MBA instead. I said no, I just want to know the basics about money. I did end up getting an economics degree in 2013, it wasn't a smooth journey. Because my online quest to learn about money was in conflict with what I was learning in my economics lessons in class. Hence my other handle, ConnedEconomist. 😃😄 During this time (2009 to 2013) I came across MMT and Monetary Sovereignty. I found Mosler's site, Roger Mitchel's mythfighter.com, New Economic Perspectives blog, and on and on.... During this time while I was getting my online Econ degree, I was seeing a big change in the IT landscape as well. The new mantra, "software will eat the world" started becoming the buzzword in my consulting circles. So I pivoted towards that, self teaching myself the new tools of the trade and got on to the AWS (Amazon Web Services) bandwagon very early. "Move to the Cloud" became the new "Outsourcing" model. It paid off well for me. Now instead of shipping people's jobs overseas, I just automate their jobs out of existence. What used to take some 200 engineers in India to maintain, is now maintained by less than 10 people, while scaling out 30 or even 100 times bigger and complex infrastructure. It is amazing to see how the industry has changed. But the real problems are still the same. C-level executives looking to earn their big bonuses by downsizing their workforce. So now I am still a mental wreck, even worse than who I was in 2008 I'd say. I live in two worlds. One in which all this new found knowledge about what money really is, and how the public purse can be put to use to benefit society at large and the other world in which the C-suites are still chasing their bonuses, politicians chasing their campaign contributions from the wealthy while going on television saying, "We are out of money, so can't do much but please continue to vote for us" Hey look! We now have the potential for an actual default by the United States in the coming days, because they cannot come up with the money....... Which one is the real world? I don't know. Jeff: That's a terrible position to be in. The only way to survive is to please those above and crush those below. It's an inherent characteristic of our society. It's impossible to do what's right for you and your family without also hurting those with less, in the process. It's terrible that for-profit companies let people go, but they genuinely need to reduce costs in order to survive. What's worse is that society allows those let go to splat onto the pavement at zero dollars an hour, in abject poverty – which, as we've learned from Pavlina Tcherneva, spreads like a disease through families and communities. Your company and, secondarily, you, are unfairly put in the position of a God; basically, choosing who lives and who dies. (You said you learned from ZeroHedge that "someone's loss had to be someone else's gain". This is truly the case, but only because government sits there passively, allowing its immense powers to lay follow.) You might consider taking a listen to the very end of my interview with Neil Wilson (part one of episode 85, after the closing music). I talk about how I recently thought about this concept, when I purchased my first home just about three months ago. I'm doing exactly what's best for my family and I wonder how many with skin darker than my own were hurt in the process; both to obtain the land my home was built on (in 1893!), and the mortgage to purchase it. Can you talk more about this conflict and how you deal with it? In your response, can you please address these two things: Each time you return to the same company "the baseline from where to reduce the cost was lower than before." What does that mean? Of those jobs eliminated, how many are (software-)automated, and how many are offshored? And how has that ratio changed over time? Nathan: Thank you for pointing me to the podcast with Neil. Neil is a great guy. Have added it to my bookmark and will listen to it in full sometime later. I listened to the part you pointed out and it resonates. You and I are in similar situations. It is a sort of a terrible position to be in. Here you are in the real world working with people who do not understand the real world, especially pertaining to money, and doing what they think is the best course of action without considering the fallout from their actions. So yeah, my wife and I do a lot of charity work and volunteering work on the weekends to "cleanse" ourselves. Like you, we consider ourselves to be lucky too and ever grateful for the grace showered on us. That's why my passion towards understanding the concepts of a nation's currency being their public monopoly and making others understand these concepts is very important to me. I am hoping to be able to take more breaks from fulltime work and volunteer at grassroot organizations and help them understand these concepts so that they in turn can fight for these public goods and services from a point of strength. I did some of that during this past Presidential election cycle. I would like to do more of that in some of the Red States! OK, now to answer your two questions. Each time you return to the same company "the baseline from where to reduce the cost was lower than before." What does that mean? Of those jobs eliminated, how many are (software-)automated, and how many are offshore? And how has that ratio changed over time? Let me see how best to do this without rambling off tangent. Let's say when I was first brought to this client (2005), their IT Operating Budget was $100 million, which in the early 2000s was about 20% of their total Business Operating Budget and they are looking for a 25% reduction. At the end of engagement, I achieve that by basically helping them offshore their IT jobs. Those days it wasn't much about automation, it was just purely replacing bodies. For every US worker they fired, they could get the or even four offshore workers. So they retained 100 and let go of 300 workers in the US and replaced them with 400 workers in India and still ended up reducing their IT operating expense by about 25%. Six years later (2011) they brought me in again. Their business had grown 2x by then, but their IT operating budget is no longer 20% of their business operating budget, it is about 15% - the new baseline. So even though they have grown in size their IT operating budget is still around the same dollar number, about $112 million which means, they have been operating with not much excess slack that can be easily cut this time around. But my contact was again to reduce their operating expenses by 25%! Fortunately for me the technology has changed for the better in these six years. Virtualization and Hosted services are the new buzzwords. So this time around, my recommendation is around optimization of the infrastructure. Get rid of their inhouse data centers and server rooms and consolidate them using virtualization and have it hosted by some 3rd party hosting companies, like Rack Space. I did manage to squeeze out the savings they wanted by having them reduce their US staff to about 40 and the offshore staff to around 200 people. Third time around, in 2018, the new buzzword is Cloud. Amazon Web Services(AWS) has changed the entire IT landscape, It was all about automation and pay-per-use. But the ask from the client is still the same: get them a 25% savings on the operating budget. AWS makes it easy to do this if done right. You basically re-imagine the IT infrastructure as something that can be rebuilt on the fly and then rebuilt often using software automation. At the end of this engagement, the client ended up having like five people in the US and about 10 or so offshore while their business had grown to 15x of what it was in 2011 and 30x of what it was in 2005. Their IT infrastructure is more complex now, but with automation, they don't need that many eyes and hands to keep things running. Listening to Neil, it looks like he has the opposite problem of mine :) He is brought in to advise how to streamline or optimize government systems, but then they don't take his advice. That's one reason why I stayed away from government contracts. Jeff: It's fascinating, one of the sparks of your journey towards understanding the economy, was an interest in tracing with precision where your lost money went. If it's truly zero sum – if money really is a commodity – then to whom did your losses go? They had to go somewhere! So you tried to do that tracing. Before realizing it was a fools errand, where did that lead you? (It reminds me of misunderstanding a book or piece of code in a dream, not realizing you're asleep, but determined to figure it out. Since it's a dream, at least for me, the text keeps changing and I get frustrated.) Can you talk about the experience of attempting, or thinking about, that tracing, and how it led you to want to understand money, and ultimately to real world economics and MMT? What other sparks were there on your journey? Nathan: OK, trying to recall the sequence of rabbit-holes from 10 years ago is a challenge now. The sequence may be incorrect, but it mostly went like this... I knew a little bit of what fiat currency meant. I also knew that we were no longer on the gold standard. Did not know the implications of what these two meant. Ok, to back up a little bit, some more background about myself. I used to be a libertarian and being from California and earning a big paycheck, looking at the amount of taxes I paid, like every other Libertaraian, I hated the government for taking my "hard earned money" away. Taxation is theft made sense then. So my journey on what is money led me to the Libertarian writings. Listening to Goldbugs hyperventilating about the coming hyperinflation etc, I speculated in the Stock Market and lost a lot more money. Also during those days I had a long commute to work and used to carpool with a couple of other guys. They mostly listened to conservative talk radio shows. Everyday was about how Obama and the Fed was going to destroy the US economy and how the imminent collapse was coming. But the stock market was defying their views and I was losing money shorting the market. This again was where the theory did not meet the reality. So onward on my search to find the truth. I started reading more about the origin of the Federal Reserve and the conspiracy theories about the Banking cabal etc. led me nowhere. So I started looking for articles that were the opposite of what the goldbugs and Libertarians were preaching. That's when I came across sites like Rodger Malcolm Mitchell's and his blog. That was an eye opener. Initially, I was a sceptic, questioning and ridiculing him to the point of annoying him. The typical "First They Ignore You, Then They Laugh at You" phase of discovery. The light bulb moment wasn't instantaneous. I think it took a couple of years for all this to really sink in. During this time, I found more sites and people on Twitter who were expressing these views about money. So I came across resources like the blogs of Mike Norman and Bill Mitchell, and New Economics Perspectives. I also discovered people like Mosler, Ms. Kelton, Wray and many others. The Debt Ceiling drama in 2011 helped solidify my understanding of fiat money as being a public monopoly. Another resource I used in the early years was this google group called understanding money. There were some very smart people on that list. In all these years of "research work" I had accumulated quite a few lists of blogs and commentators who knew what they were talking about. These include a few conservative commentators who understand economics but their political views override their views. One such is this guy - Scott Grannis. He understood Fed QE and all the nonsense about the Fed printing money. This guy is a Supply Sider/Reagan worshipper who hates Liberals and "big government". In the same blog where he correctly explains what US treasuries are (safe assets) he would also say the US debt is a burden and unsustainable, or say things like the public sector is not productive and public workers don't add value to the economy etc. I use his site just for the economic data and insights and ignore his political rant. I tried arguing with him initially, but soon realized why risk getting banned from his site if I can get useful information from him ;) Why kill a golden goose with a foul mouth, all I care about is the egg. Lol So, at this stage of my journey I had a good understanding about MMT, but like many others who came across MMT, I found it difficult to convince others to see the MMT point of view. This is still a challenge, especially with the trolls on Twitter ;) I got called being in a cult a few times and that hurt. So I began a new journey to find credible critics of MMT. So far, there aren't many on that list. Most just build a straw-man of MMT and then keep attacking that strawman and not address the actual weakness in MMT. Having said that, I'd say I am not fully on board with MMT (not a MMT cult member!). I still have questions and in this journey, I formulated my own amalgamation of all these theories that made sense to me about what Money is. This is made up by borrowing concepts from MMT, Monetary Sovereignty and Credit Theory of Money. I summarize all this in my Twitter profile simply as "Economic policy encourages credit use and discourages the repayment of debt. That's how we in the private sector got so indebted." To me this is the root cause of our economic ailment. Jeff: I got called being in a cult a few times and that hurt. ...not a MMT cult member! I know you're joking, but this issue is a big one for me. Not just as it relates to MMT, but bullying and exploitation in general: I reject the idea that agreeing fully with MMT (as I do, as much as one can understand it after 3.5 years) means you have no agency but merely blind unthinking allegiance to certain personalities. Also, the term cult is not truly meaningful, but more a dog whistle to sound legitimate and neutral but indirectly and subtly encourage others to discriminate against a minority that dares to call the majority wrong. Like "fake news". Sure. Maybe their reporting is inaccurate or misleading. Maybe. But much more than that, the term is implicit permission from the powerful, to the less powerful, to discriminate against those who challenge their power – regardless the accuracy of their reporting. I also strongly disagree with mocking the insulting (dog whistle) term and who said it. It's just stooping to their level and making it worse, when we should be coming up with something better to replace it - or rejecting the assertion outright. - - - As a brief aside, the other anonymous interview I did was accompanied by a (non-anonymous) interview with a friend who came to MMT as a former libertarian. (Who is coincidentally joining me for dinner tomorrow night as I wrote this 🙂.) My cynical interpretation of libertarianism is, "I got mine, screw all y'all." I'm pretty sure that among those truly destitute, there are not many hard-core libertarians. I also suspect the goldbug prediction of imminent collapse is not a prediction but a wish and a goal. Kicking the ladder to prevent government action desperately needed by the poor but they say will cause Armageddon. I respect conservatives – and even racists – who publicly embrace the descrptive aspects of MMT, but still want to do terrible things. This is in contrast to those who say "we have to" do terrible things "because how're you gonna pay for it???" The former are honest about their hatefulness, the latter pretend they're not and hide behind myths. - - - You can respond to any of the above as you like, then here's a specific question for you: "I am not fully on board with a MMT" I assume you agree with the core of MMT's descriptive elements. What do you disagree with? Nathan: Oh, yes! I absolutely agree with the core of MMT's descriptive elements. I sometimes joke about it and say, MMT's basic elements are "good enough for government work." meaning at a high level MMT is a good enough description of our current monetary system. I just looked up that phrase and learnt that ironically this term now has the exact opposite meaning from what it was used for originally. Quoting from one of the web sources: The phrase "close enough for government work" is generally believed to have originated during World War II. At that time, the phrase meant that a product met the highest standards of quality because the product would not be accepted by the U.S. military unless it met such exacting standards. Over time, popular culture began using the phrase in an ironic sense. Eventually, that ironic and sometimes disparaging usage of the phrase changed the common meaning from something that meets the highest standards to something that is just good enough to "get the job done". MMT says most national governments are currency issuers, which is true. No one can dispute this MMT claim. MMT then says a currency issuing government cannot run out of their own currency, which is also true. But this is where the naysayers and trolls jump in and set up their straw-mans about Zimbabwe, Weimar Germany etc. Ignoring them for a moment, here again no one can dispute the claim that one cannot run out of one's own IOUs. Finally MMT says, the only way to get hold of a government's currency is for that government to somehow issue them first. I saved a snippet from one of Bill Mitchel's interview from years ago where he says: You first have to ask yourself the question, "Where do you get the money to pay taxes and buy government bonds?" And the answer is that we can't get our hands on the currency until the national government spend it. Spending is the prior act in a fiat monetary system; taxing and borrowing are following acts. In effect, the government is only taxing what it has already spent, and it is only borrowing back money that it has already spent. Once you start pursuing this logic, you realize that most of the propositions that are occupying the current debate around the world are based upon false premises. In my view, this snippet solidifies and summarizes MMT's core. For anyone to "break into" MMT with that "light bulb" moment they need to fully assimilate what Prof Mitchel said. If one cannot overcome their mental block over this, then one can never understand MMT. This is also the core message in Prof Kelton's book, The Deficit Myth, where she introduces - How the Currency Issuer Spends: S(TAB) = Spending before Taxing and Borrowing and credits Mosler for that same insight. According to Mosler, the government spends first and then taxes or borrows. That sequencing turns Thatcher's dictum completely around, reordering the mnemonic to give us S(TAB): spending before taxing and borrowing. By Mosler's reasoning, the government doesn't go around looking for someone else to pick up the TAB, it just spends its currency into existence. Warren saw things that most economists were missing. — Excerpt From: Stephanie Kelton. "The Deficit Myth." Apple Books. The second set of insights that Prof Mitchell brings up is understanding the sovereign currency-issuer and their default-risks. This is also where the non-believers and Trolls setup their straw-mans to attack MMT, and bring up for example, Argentina. Here again, I saved a snippet from Mitchell's blog: Further, to refresh your understanding - the requirements for a sovereign currency-issuer with no default-risk are: Issues its own currency. Floats it on international markets - no pegs, etc. Doesn't borrow in any other currency. Doesn't off any guarantees of convertibility to another currency. To me if a sizeable section of our society including most politicians and policymakers would understand, accept and publicly acknowledge these two core concepts, we should get MMT into mainstream conversations. This is my definition of "good enough for government work." or to rephrase it - Good enough to get government to work for all of us. So, when I said "I am not fully on board with MMT" I meant the other aspects of MMT, especially around the relationship between interest rate and inflation and their nuances on Job Guarantee. These however fall under the "prescriptive" side of MMT. One other "problem" I have with MMT is how they don't give enough emphasis on credit creation and the banking system. I mean they do explain this, but one has to go look for it to find it. You may have seen my Twitter arguments with Cullen Roche about this. He is another resource from whom I learnt a lot about macroeconomics and MMT. He discovered MMT around the same time I did and was initially fully on board and then split from MMT. To me, he is one of the few fair criticsw of MMT. But then, for his own reasons that I haven't yet understand, he too brings up straw-mans against MMT. But to his credit, I learnt a lot about credit from his writings. (See what I did there?) Jeff: Well. Setting aside bank credit, I'm curious to better understand the subtleties you disagree with regarding the job guarantee, interest rates, and inflation. If you're willing to share. I don't think I'm in a position to defend or argue (especially about interest rates), but it'd be nice to get a contrary view to compare MMT to as I learn it more deeply. Nathan: Ok, these topics (JG and the relationship between interest rates and inflation) are my favorites but also where I have at least to some degree disagreements with how MMT describes and prescribes solutions for them. Let's start with the Job Guarantee. As a textbook concept, I am fully onboard with what both Bill Mitchell and Mosler say about Job Guarantee. I mean, as a theoretical concept they have it right: Anyone who wants a job, should find one; and a Job Guarantee can act as a floor for wages while creating a buffer stock of labor. Which is all good. But here's the rub. From what I can tell, JG was the brainchild of Prof Bill Mitchell, who is from Australia. Compared to the US, Australia has much better basic services in place already. The JG proposal has an additional tag line that doesn't get as much attention. Both Bill and Mosler's definition of a JG goes like this: A government job guarantee is a proposed program where the government would provide a job with a basic wage and benefits package to anyone willing and ready to work. The job guarantee is one component of an overall program to stabilize an economy. The job guarantee is financially feasible when a sovereign government's currency uses a floating exchange rate. I am highlighting a phrase in their definition, "and benefits package". This term is sort of brushed aside by most proponents of MMT, including Mosler and others who push the Job Guarantee program. When I say, brushed aside, I mean they take it for granted, especially in the context of the United States, as if it is a given that we have robust basic services in place, where the government can offer benefits like free healthcare for anyone anywhere in the United States. We don't have such a social safety net in the US like what's available in Australia. So implementing a JG to be the wage floor or as a stabilizer of the economy is going to be very difficult in the United States. We just don't have such a support system in the US. So before implementing a Job Guarantee program, my recommendation is to focus on building a better social safety-net, especially related to health care. What we need is at a minimum a fully funded universal primary health care system all across the US that delivers medical care that is free at the point of care for everyone in America. No Red State vs Blue State nonsense. Federally funded primary care facilities based on population density. This by itself would be a massive federal jobs program while we build this all across the nation. This is also where I am split between MMTers and the Basic Income folks. MMT says a FJG(Federal Job Guarantee) is superior to UBI(Universal Basic Income). Every time I have tried to argue with an UBI proponent about the superiority of FJG, I take a lot of heat, understandably. UBIers say the problem is lack of money, so give everyone some money so that they can use it to pay their bills or whatever. So they label MMTers as "ablists" because according to them, MMTers force everyone to work, even those who are unable to work. Of course, MMT does clearly define "anyone who is willing and ready to work". Willing and ready implies able to work as well and no one is being forced. UBI folks also don't want to fix the basic social safety net like primary healthcare to all in America, but want to directly jump to giving everyone a $1,000 basic income, as if that would solve the lack of access to healthcare in the US. My proposal to MMT and UBI proponents is to first implement an Universal Basic Services program and then assess the need for either a Job Guarantee or a Basic Income program to stabilize the economy. I have plenty of Twitter threads where I have proposed my vision of Universal Basic Services: Healthcare that's free at the point of care; Public Education that doesn't require taking out loans which invariably can't be repaid; affordable housing and world class mass transportation accessible to all. So to summarize, I get the concept of a Job Guarantee, while it is well intentioned and meets the overall goal of MMT as a price stabilizer, there are a lot of practical hindrances to get it going by itself, especially in the context of the US economy. That's why I am on the side of the critics of MMT's JG program, even though I don't agree with the critics, hardly any of them have brought this up in their criticism of FJG. Jeff: Interesting and reasonable. I'd prefer to not go much further into this particular topic, but I'll just say that my view is, here in the US, we don't have basic services because we have a terribly unstable economy because we don't have basic services because we have a terribly unstable economy*. So, the answer is not just implement a JG or just implement basic services, but to fight for both. There are plenty who want to fight for a JG (me), plenty who want to fight for basic services (you), and likely plenty who want to fight for both. Let em all loose and whichever route is successful, then all those simultaneous efforts can only be a good thing. *(My 15-year-old was virtual all school year last year. He frickin' wore pajamas all school year long. So he created a community for himself with tweens through the internet. Now he doesn't go outside because there's nothing there for him because he doesn't go outside because there's nothing there for him. It's quite a challenge. I probably need to think about this similarly as I just suggested to you in the JG/basic services context.) Nathan: Moving on to the next disagreement I have with MMT, is their view on the relationship between interest rate and inflation. Again, on paper, I get Mosler's point of view about interest rate and inflation, where he says, "the government is the net payer of interest, which adds to the incomes of people. Thus, higher rates are inflationary because it increases the spending power of people." To me, this may have been true in the 50s, 60s and even early 70s, where average Americans had significantly higher savings, such that a higher interest rates would fetch them higher disposable incomes. From what I can gather, the savings rate of bottom 80% of Americans are significantly lower or even non-existent today. Hence, those with the propensity to spend, have less opportunity to take advantage of higher interest incomes. [A full response to this concern of Nathan's, by Warren Mosler (in both written and audio form), can be found at the bottom of this post.] The other point Mosler makes about higher interest rate is the "forward pricing channel" where the cost to business increases with a higher interest rate. Again, I can see this also happening to a certain extent, but my view is that the cost of finance is already very high on businesses and even households or individuals because of our over-reliance on credit. As I say on my Twitter profile, we encourage taking on credit, but discourage paying down debt. The fact that businesses, households and individuals are all overextended on credit, any increase in interest rate has a negative effect on overall spending, thus not as inflationary as MMT proposes it would be. When it comes to interest rate and inflation, I prefer Rodger Mitchell's view, which is: The Fed's target rate of inflation is maintained by interest rate control, which controls the demand for, and purchasing power of, U.S. dollars. Increasing the demand for dollars reduces inflation; decreasing the demand for dollars encourages inflation. When annual inflation drifts above or below the Fed's 2% target, the Fed quickly raises or lowers interest rates, i.e. raises rates to combat inflation; lowers rates to stimulate inflation. When you look at the last 40+ years of data, this view is more realistic than what MMT proposes about interest rate and inflation. This brings me to another issue I have with MMT, they do not discuss the significance of credit more often or more widely. They focus too much on government money creation while not giving equal importance to credit expansion in the non-government sector. This is one of the issues Cullen Roche also has with MMT. Jeff: I don't have my head fully around the topic of CB interest rates, but it's concerning that someone has it completely backwards! I find the subject confusing partially because of all the different angles interest can be viewed from. It could be the cost of a loan (a cost for borrowers – negative), or higher income on an account (income for the account holder – positive). Both of these things can also be viewed from both sides of the transaction. the payer of the interest and the receiver (positive for one, negative for the other). I also don't know enough about the specific pathway of the Fed's interest payments, how banks respond to it, and how that flows out to the real economy. Regarding banks, that seems to be the criticism that 97% of all money creation is bank money, so it's as, or more important than government-created money. Bank-created money always puts someone in debt, and the borrower is not out of debt until all the money's gone (fully paid back). Government-created money is the only kind that can create wealth (net financial assets). So even though it's much less, it's enormously important. The fact that bank-created money is almost all, is also a consequence of not enough government-created money (the lank of fiscal policy). Conversely stated, there is way too much freedom for the banks. I think you're suggesting some more subtle things than that but that's how I understand the issue. I'm not they familiar but I'm not convinced that the subject is neglected in the MMT scholarship. You can address some of the above, or perhaps give me a taste of what I'm missing. After that, I‘d like to discuss your Winnie the Pooh pinned tweet. Can you describe it and discuss its significance? Both financially and than politically. Nathan: Yes, interest rates and their impact on inflation is a much debated topic with no agreed upon conclusions. To me, as long as we continue with the "Let Them Eat Credit" policies, wherein policymakers push the working class into taking on more and more consumer debt to maintain their standard of living, we would be stuck in this low interest rate regime to encourage consumption. My preferred solution is to encourage paying down debt while also increasing the disposable incomes of the working class using higher wages combined with single-payer healthcare and debt-free higher education. This would help clear the pent up demand for goods and services in our economy as consumers are unable or unwilling to make purchases to satisfy the demand at the present time. Initially this may be inflationary, but it would come with higher GDP, hence a positive for the economy. Yes, you are right about bank created money, aka credit, it always puts someone in debt. I would like MMT to focus more on this and explain to people how government-created money, via deficit spending, helps the working class to rely less on bank created money. I frequently tweet a meme that says "They want you to worry about the National Debt (represented by a feather); so you will meekly submit to Private Debt (represented by a ball and chain tied to the US map). Now about my pinned tweet. It basically asks a simple question: "The Federal government's General Fund supports about 1000 federal agencies. Only Social Security and Medicare benefits are limited by tax collections. No other federal agencies are limited this way. Why?" The thread then explains "The military isn't limited by tax collections. Payments for the Supreme Court aren't limited by tax collections. Nor are payments for Congress, the White House, the FBI, the CIA, the NSA and the rest of the government." And finally I ask again "Give me one good reason why Social Security and Medicare benefits are under constant pressure from those who quack about "sustainability," "balanced approaches," "fixes" and "reforms."" My hope here is that anyone who visits my profile and clicks through this pinned tweet would also ask themselves these questions and begin their search for the answers which hopefully will lead them to MMT. From a financial and political point of view, this should open up people's minds about government budgets not being like a household budget, which seems to be a very common belief among most Americans, reinforced by people like Obama himself, when he famously said on prime time television "Families across the country are tightening their belts and making tough decisions. The federal government should do the same." This is wrong in so many ways and the damage that has been done is immeasurable. Unlearning this ingrained message is a tough walkback. But if we have to make MMT mainstream, this is the first step towards redemption. I end that tweet thread with "Social Security and Medicare cannot run short of dollars unless Congress and the President wants them to run out of dollars." The responses to these tweets are an interesting mix. Either it is people calling me a socialist or this special one "Did you think money grows on trees?" Shows we have so much more work to do to spread the basic understanding of MMT. Jeff: My preferred solution is to encourage paying down debt... Curious what that means, "encourage". Actually just a PR campaign, or something policy related? Otherwise agree, of course. The wrong message has an overwhelming head start and advantage, as any social media post by Ted Cruz will make clear. Jumping into those comments is probably not the way to win people over. They're so conditioned with hatred, paranoia, and scarcity, there's something much deeper that must be dealt with before just telling them the basics of MMT. (At the same time, if people have the patience to do that, and WANT to do it, then more power to them. I'm not going to join them 🙂) You mentioned to me elsewhere about wanting to branch out to things that are not so familiar or comfortable, in order to avoid talking in an echo chamber, and spreading the word more effectively. Nathan: Yes, encourage paying down debt using policies. Today's tax policies encourage taking on large amounts of debt by allowing you to deduct interest on your mortgages and loans like student loans and even business loans. Even though the interest rates are low, the cost of finance is too high. And that's why it encourages the financial industry to come up with various "innovations" to extract as much dollars as they can while offering solutions to reduce the cost of finance. I'd like to see us move away from "Let Them Eat Credit" and towards, "Let Them Have More Disposable Income" policy. I am encouraged to see Biden's Build Back Better plans has lots of things in there that moves us towards that direction, but unfortunately the negotiations with the "moderates" is resulting in dilutions of these proposals. We may end up where we began, the middle class not getting the help they need from their federal government in the foreseeable future. Yeah, after almost 10 years on Twitter fighting MMT trolls and MMT fanatics alike, I want to see how I can make my Twitter presence more meaningful. I am glad that Stephanie Kelton now has a newsletter where she writes more nuanced MMT points that have a better reach and acceptance. I want to learn her style of addressing the problem and also responding to MMT critics. Just yesterday, where I tried to bridge the differences on a long thread of back-n-forth with other MMT supporters and him. I would also like to collaborate with people like you and others who have a platform where we can have more good-faith discussion on critiquing MMT and getting the critics to agree to accept the core principles of MMT. As I mentioned on Twitter, November is going to be a very busy month for me at work, as we scale up to meet the demands of online shopping - Black Friday, Cyber Monday, Something Tuesday, Anything Wednesday, Need it Thursday, Want it Saturday and on and on.... Let Them Eat Credit Baby! Jeff: "…encourage paying down debt using policies." Which is only possible by giving people money or a way to obtain it. I'm sure we agree on that. The job guarantee is an obvious solution to achieve this, but I'm unclear if you agree strongly with that. "…you and others who have a platform…" Nice to know someone thinks I have a platform :) I'm really glad you took the time to do this very unusual interview with me. Before we stop, is there anything else you think needs to be said? Nathan: As I mentioned earlier, November is a busy month for me, so I will conclude our conversation with a list of recommended books along with books from MMT authors. These books helped me solidify my understanding of our monetary system and how the self-imposed constraints prevent us from achieving our fullest potential as a nation. The Deficit Lie: Exposing the Myth of the National Debt (1997) Neutering the National Debt: How Reagan Got It Right, and How Today's Left and Right Get It Wrong Freedom from National Debt Six Myths that Hold Back America: And What America Can Learn from the Growth of China's Economy Pragmatic Capitalism: What Every Investor Needs to Know About Money and Finance Understanding Government Finance Modern Monetary Theory and the Recovery 1000 Castaways: Fundamentals of Economics The Financial System And The Econiomy: Principles Of Money And Banking - Eric Tymoigne Money From Nothing: Or, Why We Should Stop Worrying About Debt and Learn to Love the Federal Reserve Debt: The First 5,000 Years, Updated and Expanded The World After Capital Jeff: Nathan, thanks so much for doing this with me. I've always wanted to do a written interview and I think this turned out great. (To readers, this was a good 1.5-month-long conversation via email, starting in late September, 2021.) I'm also glad to hear strong skepticism that's delivered in good faith and with respect, and that also refers to actual MMT, as opposed to something made up, as too many too often do. You clearly accept most of MMT's description. It's been great talking with you and I'll see you back in Twitter and Reddit! :) Nathan: Awesome! I'm looking forward to the finished product :) Appendix: Warren Mosler's full response Below is Warren Mosler's full written response to Nathan's disagreement regarding Nathan's assertion about the relationship between interest rates and inflation. , which comes from episode 104 of Activist #MMT, where Warren answers several patron questions. But first, here's the full audio of Warren's response. It's the first question posed to him in episode 104 (last week). Below is Warren's written response: Nathan's question, written specifically for Warren: While it is true that the federal government is a net interest payer and higher interest rates would lead to the government paying more in interest income; isn't it also true that the majority of Americans do not hold government debt as an asset that would earn them higher income but hold mortgages and other debt instead which have a negative impact with higher interest rates? So wouldn't higher interest rates be less inflationary given these circumstances in the US? What would be your recommendation for controlling inflation while also stimulating economic growth in such a situation? Warren: Households are net savers: Nathan (duplicating from the post proper, above): Moving on to the next disagreement I have with MMT, is their view on the relationship between interest rate and inflation. Again, on paper, I get Mosler's point of view about interest rate and inflation, where he says, "the government is the net payer of interest, which adds to the incomes of people. Thus, higher rates are inflationary because it increases the spending power of people." To me, this may have been true in the 50s, 60s and even early 70s, where average Americans had significantly higher savings, such that a higher interest rates would fetch them higher disposable incomes. Warren: Savings is higher now: Nathan: From what I can gather, the savings rate of bottom 80% of Americans are significantly lower or even non-existent today. Hence, those with the propensity to spend, have less opportunity to take advantage of higher interest incomes. Warren: That's why rate hikes are regressive. Nathan: The other point Mosler makes about higher interest rate is the "forward pricing channel" where the cost to business increases with higher interest rate. Again, I can see this also happening to a certain extent, but my view is that the cost of finance is already very high on businesses and even households or individuals because of our over-reliance on credit. Warren: Nathan: As I say on my Twitter profile, we encourage taking on credit, but discourage paying down debt. The fact that businesses, households and individuals are all overextended on credit, any increase in interest rate has a negative effect on overall spending, thus not as inflationary as MMT proposes it would be. Warren: The GDP data doesn't support his statement. Nathan: When it comes to interest rate and inflation, I prefer Rodger Mitchell's view, which is: The Fed's target rate of inflation is maintained by interest rate control, which controls the demand for, and purchasing power of, U.S. dollars. Increasing the demand for dollars reduces inflation; decreasing the demand for dollars encourages inflation. Warren: This ignores the state as a net payer of interest which increases the supply of net financial assets etc. Rodger Mitchell, continued: When annual inflation drifts above or below the Fed's 2% target, the Fed quickly raises or lowers interest rates, i.e. raises rates to combat inflation; lowers rates to stimulate inflation. Warren: Yes, but it doesn't work. Nathan: When you look at the last 40+ years of data, this view is more realistic than what MMT proposes about interest rate and inflation. Warren: I don't agree. And the Fed says their models are broken. Direct him to Richard Werner's 2017 paper showing interest rates lead inflation.