to a discussion about m.m.t. because we really haven't had a proper discussion about it so thank you thank you yes so let's just start with very simply what is and t. and while i'm sure different people may vary on certain specifics maybe you could focus on what most proponents of m.m.t. agree on. sure well lauren m.m.t. for for us that they have to teach economics this is we believe the best way to try to explain how a contemporary modern monetary system actually works and more importantly maybe the policy options that are available and that follow from an understanding of the way the modern monetary system actually works so in other words we often emphasize that m. and t. is about what it's like to live in a world where the government is the issuer of the currency n.-og merely a user of the currency like you and i are so in an empty framework what does it

mean that the government is the issue or what do you think the government should be doing or should not be doing well ok so there are two sides to that question one is the prescriptive side what should the government be doing in the other is the descriptive side and we focus at least as much on the former as we do on the latter . what it means is that the government is not revenue constrained in the way that a household or private business or even a municipality or a state government is the government in the u.s. the government does not need to get dollars from the rest of us in order to spend dollars right that the u.s. dollar comes from the u.s. government and so fundamentally that that's a point that very few people seem to recognize i mean we resort to talk like we think the dollar comes from china and you know in the modern era the u.s.

government is the issuer of the currency it can never run out it can never go broke it can never be forced to make to miss a payment as long as those payments are due in the currency that it and it alone has the legal. authority to create so then should there be a constraint on government spending absolutely and we make this point in in just about everything that we do there are all kinds of constraints on government and one of the most important is just through the normal budgeting process and so just because the government has the capacity to spend dollars as alan greenspan said in an unlimited fashion that there are no constraints on its ability to create the currency it doesn't follow that therefore the government should go out and spend willy nilly on any old project it feels like spending on passing out dollars left and right that hasn't followed it's about recognizing that the government has the

ability to span recognizing that all the issuer of the currency can spend in a counter cyclical way and that is when the economy turns down in the rest of us retrench the government because it is the issuer of the currency can step up and spend counter cyclically and that helps to stabilize economic activity and so it has a very important role to play as the currency assure everyone that the rest of us simply can't play so who decides how much the government should spend or what should constrain government spending in a situation where you think it should be spending. well i mean obviously that's the that's a rule for lawmakers that's what legislators do they put in requests they make a case and then they decide whether or not they're going to fund projects x. y. and z. and it's subject to all the wrangling that goes on on capitol hill and at the state level there as well right i mean so our elected officials are in charge of deciding

which projects and programs to fund or defund but that's part of the democratic process yeah of course so then my question is one thing i've heard with m.m.t. some proponents i've heard say the government should spend until we're at full employment i don't know if this is what you subscribe to so you can obviously say whether you do or don't but in this situation what does that mean exactly and how is that determined well so i think that what what most of us believe is that. it isn't about spending and the government spending until we're at full capacity but it's about recognizing the inefficiency and the waste and the costs both direct and indirect to society of having high levels of unemployment in the economy and unemployment just means they've got people out there who want to contribute they want to work in order to get the dollar but they can't get a job that pays them dollars and so the government is the monopoly issuer of the currency and it doesn't need dollars from us it can relax its fiscal stance when

there's unemployment meaning that it can cut taxes so it can allow the private sector to do most of the heavy lifting here and that's what i think all of us are in favor of you know using having the government use its power to adjust its own spending and tax collection in a way that maximizes the public purpose that achieves a live purpose and then moves the economy to a level of employment where you don't have this vast amount of waste i mean in the u.s. today where we have. three million americans who want full time work and they can't find it and if you actually run the numbers which i did just for fun a little while ago that amounts to something like four point three billion days of work annually or thirty four and a half billion man hours a year the way sammy just imagine the productive uses of things already four

billion hours contribution in the economy so we view it as just terribly damaging and wasteful cost to the economy so then who decides. who should allocate jobs who or what industry should be stimulated is that the job of lawmakers and the scenario well they do that all the time i mean it's not you need to have them tea that's for sure if again if we had a government that could put aside the question of how are we going to pay for it and just recognize that there the issue of the currency in that question is their core off the table and instead say what should we be investing in what do we need what does our country need and prioritize that's what budgeting is about doing need more investment in our schools do we need more investment in infrastructure do we need more investment in energy rank order these things put it out there for the public get public opinion on these things have a set

a national priorities to fund the things that makes sense and like i said there are all kinds of things you can do on the tax side as well that allow the private sector when people have more money to spend they go out sales create jobs and so will and awful lot of that twenty three million is going to be absorbed by the private sector once we get the macroeconomic policy right ok so then i have a question about that so say the government does stimulate they create a budget stimulus and that in turn spurs consumer spending. and so c.v.s. or rite aid or duane reed or whatever they hire more cashiers because they have more customers and they have more people buying things because of this government stimulus but then the government stimulus goes away and so that spending dries up and those people lose their jobs was that a good investment by the government but i'm not sure that's the right question more and i mean maybe the better question is was that

a good decision to remove that spending if it led to unemployment so you know with case of the payroll tax a lot of people right now say if the payroll tax cut expires and everybody has two percent more taken out of their paychecks come the start of the new year that this is going to lead to less spending in the economy lower job creation every economist i've talked to seems to recognize that so the question is then should we should we be taking two percent more away from people when unemployment is high and it's going to potentially lead to more unemployment so if the private sector can't get there on its own and you know it almost never does i'm all for private sector job creation i'm all for allowing the private sector to innovate and do all the kinds of things that it does and does quite well but i also recognize that only one time in the last thirty five years in this country has there been one job opening

for every job seeker in america so we have this great market system and it can do wonderful things but the one thing it never did never seems to do is sustain full employment so we get there it's fleeting and then we're back to two three three and a half job seekers for every available job and so i think there's just something more of a permanent need and we need to recognize a more permanent role for government to be there to respond with those tax cuts or with the spending for necessary public. investment and project and we're going to go to break real quick but when we get back i want to get a little bit more into that probe a little deeper also talk more about taxes because if the government is the issuer of the currency the monopoly issue or do we need taxes we'll have more with stephanie health and economist university of missouri kansas city after the break still ahead have banks become addicted to what was supposed to be just a crisis measure the facts in our reality check but first your closing market

numbers. culture is that so much in a moment here is what i mean when you say she's mean a lot of people are hearing. this is the stated goal. because it will bring in our justice.

money it's technology innovation all the developments around russia we've got the future covered. more news today violence has once again flared up. and these are the images go world has been seeing from the streets of canada. trying to corporations are only day. olympic gold a. little up. there a little uplift.

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welcome back we're diving into m. and t. today modern monetary theory with stephanie calton economist for the university of missouri kansas city she calls herself a deficit owl from what i understand has coined the term so we're going to continue that conversation now so before the break professor kelton one thing you got into that i wanted to ask about you were talking about government policymakers setting their priorities setting national priorities and investing accordingly in a perfect world i understand that but sitting here in washington and watching the way that policy is actually made especially recently it's hard for me to have faith that that will happen soon or that that can ever happen so in that situation don't you have government investment in stimulus benefiting only certain industries and perhaps not others and in this situation what allows for creative destruction of the sort that allows for innovation and allows for a dynamic changing economy in

a situation where the government is full employment. ok well i mean first the question about stimulus benefiting only certain industries or only certain people to some extent there there is some of that right i mean of course you can pick some winners and losers but when you include things like a payroll tax reduction i mean clearly that's affecting everybody who is working and paying into social security so those benefits are spread across the bass majority of the working population and that's form stimulus as. for your part of that i beat that we have the payroll tax cut and we certainly don't have full employment so i'm imagining that you expect the government to go much further here well we who are advocating for them to go much further you know on the heels of the financial crisis and as soon as it became clear that we were losing five six and

soon eight hundred thousand jobs a month the group in the m.m.t. world we were calling the post sypher asleep for a full payroll tax holiday and we didn't want it just for the workers we wanted it for the employer too so we didn't want to go from six point two to four point two we wanted to go to zero we wanted to do it for the employer as well i still believe that if that had been done that we would not be sitting here talking about how to rein in the deficit what to do about the fiscal cliff and looking at you know eight percent ish on employment all this kind of stuff i think that would have done more to bring about a robust economic recovery than just about anything else you could have done and so then back to the point about how do you allow for creative destruction in a situation where the government is presumably spending and spending and spending to get to full employment as best specially in a situation where you're stimulating there those tax cuts. well again i think there's just a tendency maybe to think about stimulus and we're just focusing on the government

spending side but i keep trying to emphasize that m.m.t. is at least as much and sometimes more about the tax side and so we're not talking about m.m.t. is not advocating that the government go out there and rescue every underwater homeowner and every bank or business sense throw money all over the place simply because it has the capacity to create the currency you're going to have creative just struction with or without m.t.v. implement and implemented to try to achieve all employment so we're just talking about using the government's power to change taxes and change spending and spending is about national priorities it's not about impeding creative destruction. to allow everybody who wants to contribute once to work if we're going to expect people to be self-sufficient and not be on you know government handouts and all this kind of stuff we need to create an environment that has the capacity for these folks to do well so that when they go out and look for a job there's

a job opening for every job seeker we never do that so we're just talking about improving the macroeconomic policy it's not about preventing creative destruction it's not about picking winners and losers it's not about throwing money willy nilly around it's just trying to do some smart things that are economic policy and i share your distrust of what you're observing there in washington i mean you know they were his friends quite frankly and so it is difficult to imagine the the group that we see year after year out on the hill getting together and doing the right thing but this is part of why i think m.m.t. is so important because it empowers people once the people realize that the government has the capacity to do this and that they don't need to be calling on us to share in some sacrifice i'm tired of hearing shared sacrifice every time i. and on the t.v. i'm tired of listening to the president tell us that we need some pain this is going to be painful but we've got to impose this pain on the on the people in the

ana me it's empowering for the people to know that that isn't the case that the government is after start pursuing austerity now and i just want to get any real quick i don't really have much time left i only have a minute i do want to ask you if there's any economy currently where you see an empty philosophy being implemented what is the best comparison that exists well again so much of m.m.t. is about describing how things work now most governments don't take advantage of all the fiscal space that they have this currency issue works and what we see unfortunately is kind of a girl gone mad chasing the austerity train down the track so when i know the comparisons and more of a state capitalist system where the government is spending a lot. well they're spending a lot but it certainly doesn't look like any model that i think any m.m.t. here would advocate in terms of figuring out what you need national priorities if all you're doing is building a bunch of buildings that sit empty and so forth this is not this is not compatible

with anything that we would advocate so i don't see people getting it right anywhere at the moment now there have been examples where governments have done some job creation programs that have and that have had some success that have been modeled on something like a job guarantee you'd like some into yours have proposed over the years but on a grand scale i'm afraid nobody's come close to getting it right and quickly before we go is inflation a constraint and what about in a situation where there is stagflation where you don't have all your productive capacity being used it you have high inflation where the government have to accept it cannot create full employment in that environment absolutely inflation is the constraint we always say this this is the constraint to constrain is on the real side of the economy it's not on the financial side because we've already demonstrated the government hasn't got a a revenue constraint it's not about affordability but there are certainly real resource constraints are very real and so if you try to run your economy beyond the

capacity of course you're going to get inflation in the case of stagflation that like so much of the serious inflation the countries have experienced over the years came not from trying to run your economies at full employment but from supply side shocks oil and other sorts of things so that's is to completely different beast that inflation is not the result of the government trying to do the kinds of things that i've been describing which are achieve full employment but would you have to do is stop with those goals if you had that type of inflation absolute ok inflation is the constraint ok stephanie calton thank you so much for being on the show i wish we had more time not to have you want to get i hope you'll come back thanks so much economist for the university of missouri kansas city thank you.

ok we have a reality check tonight today the senate voted to consider a bill that will temporarily extend the transaction account program known as tag it's a vote that could determine the future of many small banks as well as money market funds and here's what it is so tag as it's known was created as an emergency measure in two thousand and eight when the f.d.i.c provided unlimited guarantees for non interest bearing deposits of a two hundred fifty thousand dollars these are checking accounts for example now the program guarantees more than one point four trillion dollars in deposits according to those who have done the figures and it was originally intended to last two years but in two thousand and ten it was extended to the end of two thousand and twelve and now the bill today proposes extending it for yet another two years here's one hitch the congressional budget office reviewed the bill and they determined that the fees collected by the f.b.i. see would not offset the full risk of the additional insurance coverage and that

enacting this bill would have a net cost to the f.d.i.c over the next ten years it's not how the f.d.a. sees opposed to work at least not as i understand it now recently we have seen a number of groups come out strongly for or against this bill groups including the blue ridge forum the republican national policy committee the tea party w.d.c. and the american enterprise institute signed a letter sent to congress stating that it is especially ironic that congress is contemplating raising tax rates for those making above two hundred fifty thousand dollars and tad further encourages the wealthy to sit on their money rather than invest in new job creating businesses and some claim that tag is the poster child for too big to fail bank subsidies and that the guarantee basically gives them. subsidy but if that's the case then why do we see had lines like this one of the largest lobbies for tag is the independent community bankers of america there it is right there tags must be extended to protect community banks so the community banks

the banks have benefited by attracting deposits that previously went to larger banks which are seen as safer according to a.p. small banks are worried that there will be an outflow of money from their institutions to large banks or to big money market mutual funds now the wall street journal reports that larger banks many of which offer money market funds in addition to deposit accounts have not taken a public position on the issue this is interesting because according to c.b.s. the largest institutions are the ones that hold the majority of the deposits insured by tad over eighty percent so too big to fail subsidy or community bank subsidy it really just shows the unintended consequences we think of even temporary subsidy measures in a crisis where the medicine meant to treat a disease becomes an addiction and in this case it looks like an addiction like many others that we're still trying to break four years after the crisis and that's

our reality check. oh and that is all we have time for unfortunately we do not have time for loose change but i assure you we will be back tomorrow with more of that that is all for our show today but you know that you can come back tomorrow and see a full week of a mazing show is in the meantime you know you can follow me on twitter at lauren lyster you can like us on our facebook page there is the address right there you can see it you can get any of the shows you missed at youtube dot com slash capital account you can go there you can give us your feedback you know that i respond to you on fridays this friday will absolutely be no exception you can also catch all of our interviews they're playing any you missed we have a web extra with kevin phillips author of seven hundred seventy five which if you haven't seen you may want to go and check that out now tomorrow of course is the f o m c minute meetings results ben bernanke has a presser jim rickards author of currency wars will be here with his insights he's

always amazing on the fed you can watch us and h.d. on hulu there's the address right there and forever in here at capital account thank you so much for watching and have a great night. live

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