Bernie Sanders' 2016 Advisor On Modern Monetary Theory - YouTube

The only potential risk with the national debt increasing over time is

inflation and to the extent that you don't believe the US has a long

term inflation problem you shouldn't believe that the US is facing a long term debt problem.

So I'm not looking for a recession.

I don't think there are very strong indicators that a recession is imminent. I think that the U.S.

economy continues to chug along the way that it has now for about 10

years. Growth is fairly modest but maybe it will pick up a bit in 2019. So the U.S.

economy has shown itself to be extraordinarily resilient and I don't

see reasons to be concerned that in the next year or two things are likely to turn around.

When it comes to headwinds of course anything could happen.

Maybe the Fed moves too quickly. If suddenly the Fed decides that it

wants to get more aggressive than it has previously indicated that

it's looking to get with respect to interest rates that could

certainly pose a potential risk.

You know, the Fed has indicated that it is about at the end of its rate hiking

cycle and you know if there were to be a couple of quarters let's say

in 2019 that came in really strong and they began to worry about an

acceleration in wages or something like that that led them to jump on

another rate hike or two, then I think things could potentially get very different.

I mean unexpected events can always surprise. Maybe even with emerging

markets. You know the global slowdown is a real thing it's just that for right now the U.S. continues

to look pretty strong to me.

So when I look at the Republican tax plan. Is it really a significant

stimulus or is it not?

So that's sort of the question. Right? In terms of the raw numbers, it

looks like a significant stimulus.

I think the latest estimates are that the Republican tax cuts will

add something like 1.9 trillion to deficits over the next 10 years.

But of course for the word stimulus to have much meaning the tax cuts

have to actually produce broader economic activity. They have to do something to jolt the economy.

They have to lead to higher spending more sales, more hiring, more

investment. That's what stimulus is supposed to be.

So because of the way the tax cuts were structured, they

disproportionately benefit the folks at the very top of the income

distribution who probably don't have a very high propensity to

spend. The Republican tax cuts they don't seem to be doing a lot to jolt the economy.

So they helped growth has picked up a bit.

But I don't think that I would call them a giant stimulus in spite of the price tag.

New questions about the sugar high we have seen from corporate tax cuts.

We may be seeing a kind of sugar high.

I think you get a sugar high from a tax cut.

The sugar high thing is a little puzzling to me because this was not a one off.

This was not a one year tax cut event.

This is something that's been phased in and will continue to be phased in.

And so we've got many years ahead where we're going to be feeling the effects of the Republican tax cuts.

I mean people are beginning to file taxes now for the first time under the new tax laws right.

So some people I think are going to turn out very pleasantly

surprised. Other people are gonna be very surprised in a negative way.

Especially some middle income higher middle income folks in blue

states are already discovering that they're paying more, in some cases,

much more than they were paying last year.

So on balance we're going to have to wait and see.

And this is going to be I think a pretty good test year to see how

the Republican tax cuts actually affect the broad swath of Americans.

So I don't think it's a sugar high.

I'm waiting to see how it all nets out after the end of this year and

there's a potential boost in the years ahead.

An unconventional economic theory is gaining some traction thanks to

the policy teams of Alexandria Ocasio-Cortez and Bernie Sanders.

I think the first thing that we need to do is break the mistaken idea

that taxes pay for 100% of government expenditure.

My critics say you know Bernie that's a great idea.

You're into all this free stuff.

How you're gonna pay for it?

So MMT starts with a simple observation and that is that the U.S. dollar is a simple public monopoly.

In other words, the United States currency comes from the United States government.

It can't come from anywhere else.

So what that means is that the federal government is nothing like a

household. In order for households or private businesses to be able

to spend they've got to come up with the money right.

And the federal government it can never run out of money.

It cannot face a solvency problem bills coming due that it can't afford to pay.

It never has to worry about finding the money in order to be able to spend.

So the deficit definitely matters.

So it's just that it matters in ways that we're not normally taught to understand.

Normally, I think people tend to hear deficit and think it's something

that we should strive to eliminate. That we shouldn't be running

budget deficits. That they're evidence of fiscal irresponsibility.

And the truth is the deficit can be too big.

Evidence of a deficit that's too big would be inflation but the deficit can also be too small.

It can be too small to support demand in the economy.

And evidence of a deficit that is too small is unemployment.

So if you think of the government deficit as the difference between

what the government spends into the economy and what it taxes back out.

Then, imagine a government that spends one hundred dollars into the U.S.

economy but it only taxes 90 of those dollars back out.

We label that a government deficit and we record that on the government's books.

But what we forget to do is pay attention to the fact that there's

now $10 somewhere in the economy that wouldn't have been

there otherwise that is put there by the government's deficit.

In other words, their deficits become our surpluses.

And so when we talk about red ink and the government having all of

this red ink, we have to remind ourselves that their red ink becomes

our black ink and their deficits are our surpluses.

And the question is then should you expand fiscal policy?

Should you run bigger budget deficits in order to boost growth?

So what is the objective? What is the proper policy goal?

And I think the the right policy goal is to maintain a balanced

economy where you're at full employment, your guarding against an

acceleration in inflation risk.

And economists tend to understand that the kinds of things that you

can do to boost longer term growth are investments in things like

education, infrastructure, R&D.

Those are the sorts of things that tend to accelerate productivity

growth so that longer term real GDP growth can be higher.

So there are ways in which the government can make investments today,

that increase deficits today, that produce higher growth tomorrow and

build in the extra capacity to absorb those higher deficits.

So it's impossible really to put a number. Nobody can.

How much debt is too much debt?

If you look at Japan today, you see a country where the debt to GDP

ratio is something like 240%. well above, orders of magnitude

above, where the U.S. is today or even where the U.S. is forecast to be in the future.

And so the question is how is Japan able to sustain a debt of that

size? Wouldn't it have an inflation problem?

Wouldn't it lead to rising interest rates?

Wouldn't this be destructive in some way?

And the answer to all of those questions as Japan has demonstrated now for years is simply no.

Japan's debt is close to 240% of GDP almost a quadrillion.

That's a very big number.

Yen. long term interest rates are very close to zero.

There's no inflation problem.

And so despite the size of the debt, there are no negative

consequences as a result and I think Japan teaches us a really important lesson.

If you think about what happened after World War II. When the US

national debt went in excess of 100% close to 125% of GDP.

If we were talking about it the way we talk about it today. As

burdening future generations. As posing a grave national security risk,

we would have to scratch our heads and say "wait a minute."

Do we think that our grandparents burdened the next generation with

all of those bonds that were sold during World War II? To win the war,

build the strongest middle class, produced the longest period of

peacetime prosperity, the golden age of capitalism.

All of that followed in the wake of fighting World War II, increasing

deficits, massively increasing the size of the national debt and of

course the next generation inherits those bonds.

They don't become burdens to the next generation, they become their

assets. The only potential risk with the national debt increasing

over time is inflation and to the extent that you don't believe the

U.S. has a long term inflation problem you shouldn't believe that the

US is facing a long term debt problem.

So the best defense against inflation is a good offense.

And what MMT does is to try to be I think kind of hypersensitive to the risks of inflation.

I don't see any other macro school of thought pay as careful

attention as we do to the inflation risk question.

And so what we would say is look "if you are Congress and if you are

considering a new spending bill." Instead of thinking about the ways in

which that new spending will add to the deficit or add to the debt,

you should be thinking about the ways in which that new spending has

the risk of accelerating inflation and then avoid doing that.

So instead of going to the Congressional Budget Office and saying

"we'd like to know what this bill will do to the debt and the deficit

over time?" Instead go to the Congressional Budget Office or other

government agencies and say we're considering passing this trillion

dollar investment in infrastructure.

This is our bill would you look at it and we plan to do this spending

over the course of the next five years.

Tell us if that would create problems in the real economy.

Evaluate the inflation risk and come back to us and give us some

feedback. That's the kind of responsible budgeting that I think that

I would like to see Congress begin to move towards.

So the question about "what to do if inflation becomes a problem?" is a

different one.

And I think the first thing you have to do is say what is driving the inflation.

Because to think that the inflation that is going to become important

at some future date is likely to be the result of too much aggregate spending is really hard to believe.

I mean the U.S.

economy hasn't experienced what we might call demand pull inflation for almost a century.

The types of inflation that have been important in the US have almost

always come on the cost side.

What we call "cost push inflation." They come about because of things

like oil price shocks. You might see increases in headline inflation

rates because the housing component or health care.

And so when you think about how to fight inflation if you've got

inflation resulting from energy price increases it's probably not

going to do much to have the Fed raise interest rates or even to have Congress raise taxes.

You've got to do something else that's going to work.

So I reject the idea that MMT is about using taxes to fight

inflation. That's a mischaracterization of pretty much everything we've written.

But people say it all the time.

Hillary Clinton called you the king of debt.

Well, no she didn't call me. I call myself the King of debt.

I'm the king of debt. I'm great with debt.

You know after initially worrying about the national debt. We got 18

trillion in debt. We got nothing but problems.

As a candidate, he talked about the need to possibly negotiate.

You've also renegotiated debt agreements over the years. Do you believe

that we in terms of the United States need to pay 100 cents on the

dollar or do you think there's actually ways that we could

renegotiate that debt?

Yeah, I think- look I've- I've borrowed knowing that you can pay back with discounts.

Now we're in a different situation with the country.

But I would borrow knowing that if the economy crashed, you could make a deal.

And there was a lot of backlash against those comments.

And I think he had a really important conversation with someone and

then he changed his narrative and he came out and he said let me tell

you. You don't have to negotiate with your creditors.

OK I hate to tell you but we print the money.

First of all you never have to default because you print the money. I hate to tell you.

OK.

OK I hate to tell you there's never gonna be a default

But these people are crazy.

This is the United States government.

And he just kept repeating "I hate to tell you. I hate to tell you. We print the money.There's never gonna be a default."

So I think the king of debt figured out that there's a difference

between taking on debt to finance casinos and real estate in your

personal capacity or in your capacity as a business and selling

Treasuries and having a national debt and being able to afford to

make every payment on time in perpetuity.

Well he knew what he wanted to do.

He already had an agenda laid out before the two of us even met

for the first time. He had a 12 point agenda that became sort of the bedrock for his presidential run.

And so I was useful to him where I could be.

But the big policy ideas had taken shape really before I got involved.

Bernie Sanders proposing an estate tax that would be the highest in over 50 years.

Senator Elizabeth Warren's plan to tax the super rich.

Alexandra Ocasio-Cortez is calling on America's uber wealthy to pay a bigger share in taxes.

I think it's a couple of things.

OK. I think that for some of the candidates there is a real desire to

do something on the tax side to impact distribution to say look the

concentrations of wealth and income in the U.S.

today look very much like they did in the late 1920s. That there is a

belief that somehow this is problematic for both economic reasons and

for democracy itself and that there is interest in trying to

rebalance the distribution of wealth and income in this country and

that the tax code is seen by some of these individuals as one way to go about doing that.

So I do think it's got something to do with a desire to impact

distribution. On the revenue side, this gets interesting because the

way the Congress forces itself to operate today and you know the

House has reinstated PAYGO rules recently. Which means that any new

spending has to be fully offset either by finding new revenue or by

cutting some other part of the budget.

And so if you want to do anything you have to quote unquote pay for it.

And because Democrats in particular are starting to think about really

big policy ideas really ambitious stuff the price tags tend to be very large.

And so where do you go when you need a lot of money.

It's sort of natural I think for Democrats to turn to the very

wealthy and to view them in a sense as their pay for.

You've got all the money.

So we've got to come and we've got to raise taxes. Both to deal with

the fact that you've got all the money and to get the revenue that we

need in order to write the legislation, get it to the floor, get a vote and ultimately pass it.

I just look at the field you know of people who have entered so far

and I see Democrats kind of swinging for the fences.

I think that you're seeing more ambitious policy proposals this time

than you would have seen probably if the way hadn't been paved for this kind of thing in 2016.

So there are a lot of people. Senator Booker's got a big proposal for

doing something called "Baby Bonds."

Senator Harris is talking about very big tax cuts for the middle

class. Senator Warren's talking about a Green New Deal.

Senator Sanders has talked about a job guarantee. So there's just all

kinds of big stuff out there and I think there's just going to

potentially be a lot of excitement in the Democratic Party around

some of these big ideas.

Are you working with any of the 2020 candidates on the Democratic side currently?

Yes. Mhmm.

And you'll just leave it at that.

I better because if they don't go public then I don't go public.

OK, Stephanie. Thank you so much.