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FULL VIDEO (w/ Cory Doctotow) (Patreon)

Published:
2022-06-09 17:18:01
Imported:
2026-06
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Content

Watch the premiere on YouTube now (1PM EST) and join the live chat convo.


I’ll see you tonight at 8PM EST on Callin. Don’t forget to like/subscribe/share!


B

Files

Previews only

Supp-Lie Demand

This week, journalist, activist, & blogger Cory Doctorow destroys right wing (and lib) lies about inflation, explains what can and should be done about gas and food prices, and offers one of the most digestible explanation of how the US budget actually works. This is one episode you're going to want to send to that one uncle. Listen to or watch the full episode at https://www.patreon.com/badfaithpodcast.

Comments

Eric Smith

If you really belive that federal spending is not tied to federal taxes why do federal taxes exist? The argument being made here is that the IRS employes 75k people in order to ensure that everyone is either paying their taxes or thrown into a concrete cell.....just to then "annihilate that money"?? If it's all made up, just zeros on a spreadsheet, why enforce an income tax?

Eric Smith
>>85520189

"If you try to buy all the pokemon cards in America with public spending, the price (of pokemon cards, I assume) will go up. A lot. But if you use the public spending to build a pokemon card factory because you think that there aren't enough pokemon cards in circulation and for some reason you've decided it should be public policy for everyone to have pokemon cards then that public spending will not be inflationary. That public spending will contribute to matching demand with supply." Assuming you spend the same quantity of money building the production facility as you do buying the product: don't you, instead of raising the price of pokemon cards, just end up raising the price of the materials used in production of the cards? Sure you haven't pumped the price of pokemon cards, but haven't you just pumped the price of concrete, machinery, etc. instead?

Anonymous
>>85520189

Taxes "drive the currency". They give the currency its value. As MMT founder Warren Mosler puts it, taxes turn litter into money. This goes back to the origins of state money, approximately 5000 years ago in Mesopotamia, where coin currencies were issued alongside a tax, payable only in the the state currency, in order that the government (monarchy or otherwise) could provision itself.

Anonymous
>>85520189

Federal taxes are also used as a check on inflation. If the economy is running too hot, taxes are one of many ways of drawing down aggregate demand. They're not always the most appropriate way of doing this, but they're one of many mechanisms for inflation control.

Anonymous
>>85520189

Lastly, federal taxes can be used to curb bad behaviors or discourage harmful industries (i.e., cigarette taxes, taxes on the cruise industry, etc.), and are/should be used, to bolster democracy by reducing concentrations of wealth among elites. And there they are, the 4 reasons federal taxes exist. States and municipalities, on the other hand, aren't currency issuers like the federal government. They're currency users and must therefore tax in order to spend. The federal government spends first, then taxes. State and local governments do the reverse. Please pick up a copy of Stephanie Kelton's The Deficit Myth. It's a great MMT primer.

Anonymous
>>85520189

The MMT Podcast is also an immense resource. It's definitely broadened my economic understanding.

Anonymous
>>85520189

This is what I don't understand about MMT. Do you believe adding trillions to the money supply over the last couple of years has contributed to inflation? And if so, would MMT suggest increasing taxes right now to address inflation? What are the other "many mechanisms" for bringing down this inflation?

Eric Smith
>>85520189

@Ian If the issuance of a currency is not related to taxation, how does taxation provide value to a currency? Specifically, why is an income tax necessary for this process? Seemingly everything you described can be accomplished with import/VAT taxes.

Anonymous

Steve and Eric. Great questions, both of you. And the responses deserve way more time and explanation than I can offer here. So, to start, if either of you want to DM me on Instagram (@ianmagargee) or on FB messenger (I should be the only Ian Magargee, but I seldom check FB), I'll be happy to set up a zoom or messenger chat, etc, where we can give this the hour or so that it deserves. I'm pretty passionate about this stuff and I really want good people (i.e., Bad Faith listeners) to get it, b/c when the left doesn't have a good foothold in understanding monetary systems, they end up making huge mistakes like, for instance, joining the Eurozone or the ANC allowing a fully independent central bank to be established in post-apartheid South Africa. But for a quick reply, Steve, there are many many tools for dealing with inflation that don't involve cutting spending. The clearest (and possibly only) example in recent history of "too much spending" creating excess aggregate demand would have been the monumental spending of the federal government during WW2. Keeping in mind that inflation occurs when too many dollars are chasing too few goods and services, our industrial output was largely going to the war effort, which put a strain on day-to-day consumables domestically (steel was going to tanks and guns, fabric and leather to uniforms, grain and meat to feeding soldiers across Europe, etc.). This strained supply of commodities and shortages of labor (due to the draft) required that the American populace withhold consumption dramatically while, simultaneously, trillions of dollars were being pumped into the domestic economy. Strategies were developed to curb consumption such as the issuance of war bonds, not to fund the war effort (we were off the gold standard at this point, so Congress simply funded the war by having the fed spend the dollars into existence), but to encourage saving. A massive campaign encouraging people to "buy war bonds" resulted in much of the new wartime income not being spent on new cars or excessive meals out, etc, but going into these savings instruments. There was also rationing. You could only buy so much bread as your ration card allowed, and so on. Price controls were also implemented by the OPA, preventing forms of gouging by everyone from agricultural producers to landlords. The list goes on, but in short, it's likely that the only time the US risked inflation due to excessive spending, matched by a REAL constraint on our resources (from labor to food to steel and so on), was combated not by restricting spending, but by controlling prices and demand in other ways. A central feature (and the only actual policy prescription) from MMT is the Federal Jobs Guarantee. It would act as automatic stabilizer to stave off inflation through a full employment program (stabilizing wages during the boom bust cycle, and the prices volatilities that ripple out from that). An enormous amount of scholarship has been written about FJG, but I find it's most clearly discussed by MMT co-founder and socialist Australian economists Bill Mitchell. Be sure to check out his writing and/or videos about it. Also, for a specific discussion of current inflation, give episode 128 of The MMT Podcast a listen. The guests are great, powerful voices in the MMT world: https://pileusmmt.libsyn.com/128-l-randall-wray-yeva-nersisyan-whats-causing-accelerating-inflation-pandemic-or-policy-response

Anonymous

Thanks for the response. I appreciate you taking the time. Forced rationing and creating a large government agency to centrally control prices seems like a plan that will fly for a short period of time, when we are all united against Nazis, but unlikely in most other scenarios. Inflation after the war, when price controls were dropped, went to something like 20%. So it seems that unless it's a permanent plan, it will just temporarily restrain inflation at a great cost to individuals. And if it is a permanent plan, then we are talking about ditching markets altogether. Other than taxes, I don’t see any other (non-wartime) tool in the MMT toolbox to fight inflation. I find issues with the FJG as well, but you’re right that this would be a very long conversation. On your statement that buying war bonds didn’t fund the war effort, congress just spent the dollars into existence. And the statements about the relationship between taxes and government spending - There is a money supply. Thats a total number we can measure. Collecting $2 trillion in taxes and spending $3 trillion, means $2 trillion has been siphoned out of the money supply and then re-injected. This seems to obviously tie taxes to spending. The same with war bonds. Savings of individuals are being given to government in return for promises of future payment. That money is coming out of the existing money supply, going to the government, and being spent for war purposes. Any money in excess of taxes collected and bonds sold, would need to be created out of thin air and added to the money supply. Maybe this is just semantics. If I give the government a dollar, they then burn it and print another dollar to spend, in my mind the two actions are connected the same way they would have been if the government just used the same dollar I gave them. Same applies if it’s a keystroke instead of a dollar. If MMT says that taxing is important to take money out of the economy, isn’t that an implicit recognition of the connection between taxes collected and money spent? The government is trying to control money supply so there must be a relationship between how much is taken out and how much is put in. Even if the amount put in is in excess of the amount taken out.

Anonymous

Cory is making MMT arguments. Fantastic. More people should learn this. Consider having Fadhel Kaboub on the show to talk about MMT.

Anonymous
>>85630569

Hi Steve. This is awesome. I love that you're really engaging with this. And I totally get your concerns. I was asking very similar questions when I first encountered MMT. Unfortunately, my evenings are packed lately (got a new cat and she's VERY demanding) and work is nuts, so I've got to be actually brief with this one. Long story short, MMT economists tend not to worry themselves with the concept of the "money supply" too much, whether it be M1, M2, etc. That's because they largely don't consider "too much money" to be a driver of inflation. Instead, they look at the resource side of the equation - from labor supply to raw materials, etc. Also, seeing as how the vast majority of "money" in our economy is endogenously created, i.e. credit or bank money loaned into existence by FDIC insured banks (commercial banks don't actually loan out of their deposits, they loan dollars into existence based solely on their customer's credit-worthiness), tracking the money supply is kind of futile. It's a bit like trying to quantify the total molecules of water in a river. I can't do these concepts justice right now, but here's a real good discussion of what I'm trying to describe above. The important thing to remember is not to think of money in material terms at all. That's a relic of the gold standard days. Our currency is fiat, non-convertible (i.e., no gold standard) and on a floating exchange rate. While the consequences of its use are very material, it's also entirely abstract. It can and should be thought of, before all else, as credit, i.e., here's a dollar, this is a "tax credit" from the government. Sorry. I probably just over complicated things. Give this a listen. Sam Levy is wonderful: https://pileusmmt.libsyn.com/43-sam-levey-understanding-endogenous-money I'll keep checking back in periodically if you'd like to keep the convo going.

Anonymous
>>85630569

No rush. I am ok with a casual pace to this convo. Gives me something interesting to think about when I have downtime. I take your point on the money supply. An economist, given the right info, can give you a rough estimate, just like a chemist or physicist, given the length, width, and depth of that river, can give you a rough estimate of the total molecules. (Some of my conservative friends might argue that the money supply estimate would be the larger of the two, after the pandemic spending). And I pretty much understand the way in which money is created (though it is a tough concept). I would just point out that ‘largely not considering” the money supply and not considering it at all, are two importantly different statements. If we allow for a limit on the amount of money that can be spent into existence, then we have to do cost benefit analysis on every expenditure. We may conclude we can “afford”to spend a lot more, but that doesn’t mean there are no constraints. Would creating $50 trillion in the next year be an inflation disaster? Ok, what about $20 trillion, or $10 trillion? It seems MMT just disagrees on the number, not necessarily on the principle that inflation can be caused by excess money. Even if it predicts supply side issues as the most likely cause. The problem I have is that there isn’t really a good idea of how much is too much, and the only brake to pull once inflation is realized is a tax increase. So I guess it’s the (almost) complete lack of concern about demand side inflation, paired with no realistic remedy. Forced rationing is not realistic. Government cost controls are not realistic. A sudden increase in savings rate is not realistic. Raising taxes is not realistic (can you imagine how a proposal to raise taxes would go over right now). I grant you that interest rate hikes are not the best tool either, but those are at least paired with more constraint on money creation than MMT would prescribe. One of the scariest and hardest to pin down problems is inflation. Governments seem to have very little control over it, so I am hesitant to take such a cavalier attitude with what could be one of the causes (large scale unfunded government spending).

Anonymous
>>85630569

Hi Steve. Great reply. Trying to be relatively quick again so I apologize for sloppiness. Those few mechanisms I named for controlling inflation were only limited to my limited knowledge of WW2 price controls, savings schemes, etc. The thing to remember about WW2 is that the government wasn't able to easily address the supply side of the equation, specifically because so much of our productive capacity was going towards the war effort. This is where the other side of inflation fighting comes in - through more spending. I'm specifically referring to targeted spending, which I can get into in a minute. But to start, considering what the ideal spending level would for a government to engage in is relative to how it's spending. For instance, Japan has been running a debt to GDP ratio of over 200% (pretty sure it's well over 250% these days) for decades and are still stuck in a slow but consistent deflationary drip. Along with doing QE, the EU engaged in high deficit spending during the post 2008 recovery, but were chronically unable to achieve a desired 2% inflation target. Somehow, all the additional spending resulted not only in little to no inflation, but even deflation. This has less to do with monetary policy and everything to do with strong fiscal policy. The short of it is, so long as spending is targeted towards your country's (or Eurozone's) actual material needs, i.e., housing, healthcare, agriculture (specifically pursuing food sovereignty, planting commodity crops in much greater proportion than cash crops), energy, education, and transportation, you can spent enormously and actually encourage deflation. When paired with strong government regulation that curbs the price-setting power of oligopolies and monopolies that currently use their outsized market share to determine prices (i.e., price controls that are privately enforced on the behalf of shareholders rather than publicly enforced on behalf of the general public), those new dollars spent into the economy have somewhere to go, specifically somewhere that's both essential to our citizen's well-being (stuff people have to and will continue to buy, regardless of income) and towards commodities and services are within reach (i.e., not priced by monopoly price-setters). Think new, safe housing that's been publicly built and maintained as opposed to housing owned by shell corporations of private equity groups. Sorry, that explanation was pretty awful. I'm skimping on syntax for the sake of time. BUT, this conversation directed me to an ep of Bad Faith that was subscriber only that I'm now finding is publicly available on YouTube. Fadhel Kaboub, a personal favorite, is the guest. He explains this latter concept of deflationary spending incredibly well. He explains everything incredibly well, which is why I love the guy. And since you're already a BF listener, you'll probably enjoy. Hope this helps: https://www.youtube.com/watch?v=E6TeHWZ7US4

Anonymous
>>85630569

No this was good. I will get more specific and ask a question I haven’t heard answered in the handful of MMT podcasts I have listened to. Do you see MMT as a set of changes that need to occur simultaneously? Or do you think they can be done piecemeal? The popular (AOC soundbite) version of MMT seems to promote going forward with the major government spending portion of the theory without first securing the political will and government control necessary to use the other tools you describe.

Anonymous

Listening to stuff like this boggles my mind unable to understand how people can be so smart and organized enough to make time for so much. Anyway, I need to listen to this again.