CLASS UNITY  |  TRANSCRIPT

Warren Mosler Discusses MMT, Banking, and Taxing the Rich

Class Unity recently spoke with Warren Mosler—investor, author, and a leading theorist of Modern Monetary Theory (MMT)—for a wide-ranging discussion of money, banking, taxation, and public policy. Mosler presents the currency as a public monopoly and uses familiar examples such as tickets and household coupons to explain why government spending must precede the payment of taxes or the purchase of government bonds. The conversation examines Marxist objections to MMT, tax-driven unemployment, the job guarantee, monetary sovereignty outside the United States, globalization and deindustrialization, inequality, and ways to curb unproductive financial income at its source. It also covers derivatives, the 2008 financial crisis and TARP, Elon Musk’s “magic money computers,” and Michał Kalecki’s argument about the political obstacles to full employment. The original Class Unity video, the accompanying Class Unity post, and Mosler Economicsprovide the recording, further context, and Mosler’s publications and policy proposals.

Class Unity: Hello everyone and welcome to another Class Unity discussion. Today we are very excited to speak to Warren Mosler, who is a leading voice and theorist of Modern Monetary Theory. Warren Mosler spent much of his career in the capital markets as a fund manager and investor founding and operating a successful fixed-income hedge fund. Later he became an author on economics and along with others founded a new school of economic thought that we now know as Modern Monetary Theory or MMT for short. Warren, thank you for joining us. The paper you wrote in 1993 titled Soft Currency Economics was the founding document of MMT. You’ve since expanded many of those ideas into a book titled The Seven Deadly Innocent Frauds of Economic Policy. So just to start, could you explain to us what are the main ideas of Modern Monetary Theory (MMT) that you felt were missing in mainstream economics and in U.S. Economic policy?

Warren Mosler: Okay. So mainstream economics has never modeled the currency itself as a public monopoly with the government as the single supplier of that which it demands for payment of taxes. And what that means is the money, the U.S. dollars used to pay taxes or buy government bonds—indeed, any U.S. dollars going to the government come from the government; they do not come from the private sector first. They originate in the government itself through one of its agents, generally the Federal Reserve Bank as an agent of Congress. This has serious policy ramifications. It overturns all the mainstream models that assume that the government has to get money to be able to spend. It has to tax to get money to spend and if it wants to spend more than it taxes, it has to go out and borrow that money. MMT turns that around.

It points out what’s known by every central banker involved in monetary operations and that is that the government has to spend first to provide the dollars—the credit balances—that are then used to pay taxes or buy government bonds. Once you understand the sequence, the rest follows from there and you know the consequences are profound. If you look at a ticket to a football game, you know, it’s a thing. It comes from somewhere. People will pay thousands of dollars for it and then they go to the game and the guy at the game takes their ticket and tears it up and throws it away. So why is he tearing away something obviously worth thousands of dollars? They’ve been paying for it. Okay. And you know that’s a direct analogy to the currency itself. So first there’s a tax liability in place.

You better get what you need, that tax credit, the dollar, the thing, or you’re going to lose your house and your car and go to jail or whatever you’re going to do for non-compliance. There has to be enforcement. And so, you go to work to get it and you actually get it. You get a credit to your account. You get points on the scoreboard, you know, whatever it is. You might have a ticket to the game, but it’s virtual. It’s just information on your cell phone, right? But you have something—a thing. In that sense it might be intangible, but it’s still, you know, that kind of an object that can be bought and sold and everything else. And then when you use it to pay your taxes, it’s deleted. If it’s paper money, they’ll send it to a shredder. If it’s electronic money, they simply reduce your balance. And so it is a real thing.

And these people who, from an MMT perspective, go around saying it is merely information or a measurement are taking people off track. It is something that you can understand and you have direct experience with it every day when you use tickets or anything else like that. And there’s lots of good historical examples that make it easy to understand. I’ve used Pompeii with their coins and I’ve used Africa with their taxes and I’ve set up currencies at universities—at UMKC, with its buckaroos—and these are real things that you earn, need in order to get your grades, and then give back to the school, which throws them away. Okay. So I prefer not to talk about how different it is. I like to talk about how similar it is, how identical it is to our normal everyday experiences. That’s why I start off in Soft Currency Economics by observing people who say, “Well, the household analogy doesn’t hold”. Well, it does hold.

Soft Currency Economics starts with the household analogy. The parents using coupons to get the kids to do chores. That’s the household analogy where the parents are the issuer and they put the tax on the kids. The kids now need the coupons to not get whipped or whatever happens to them. And so they do chores. Okay. So that’s the household analogy. So how do they start off these MMT proponents? Well, you know, the household analogy doesn’t hold. I tried to do the opposite to show how it does hold. You just have to look at it through the right end of the telescope. Everybody’s got the telescope backwards. But the household analogy holds perfectly. In fact, if you use the household analogy and keep it as a model of the parents and the children, you can explain everything down to what’s happening with the tariffs with ease.

But they start off saying, “Oh, it’s, you know, the government’s not a household.” It’s like, “Yes, it is.” They understand virtual tickets and airline tickets and everything’s on your cell phone and it’s not paper anymore. They’ve gone to paperless everything now. So, we have plenty of analogies to show how it works. You don’t have to have a hard paper ticket for an airline. You can use your cell phone information. You don’t have to have $20 bills. You can use your bank account information. You can use a credit card that just subtracts and adds to your account, you know. So, we’ve got all that now that everybody can understand. They use it every day and we, you know, I’m just suggesting we do that.

It’s a path of least resistance to an understanding because it is analogous to everything else instead of starting off like saying, well, money’s different from everything else, so you’re going to have to rethink everything you know. Not true. It’s all right there like your hand in front of your face to see. And yet the proponents don’t seem to want to go that way. Yeah. They’re overthinking it big time. And it’s because all their heroes like Keynes and Marx and Minsky talked about money as a medium of exchange and it’s this and it’s that and it’s whether it is real or not, whether it is a token and all this stuff. And so they’re trying to like bring this whole thing up through some history of thought instead of just describing what it is, letting somebody else trace it backwards. You don’t have to trace it from the past to now. We know how it works. We know what it is.

It couldn’t be simpler. We know how a subway token or an airline frequent-flyer mile works or whatever. If somebody wants to trace that back to Roman times, fine. But we don’t need to do that to understand what’s going on today.

Class Unity: We read two works for today: Soft Currency Economics and your book The Seven Deadly Innocent Frauds of economic policy.

Warren Mosler: Yes.

Class Unity: We can open it up to questions. If you have one, please join the stack. I can start. Since we are a Marxist organization, we are curious: many Marxists seem hostile to MMT. Anybody who understands double-entry bookkeeping knows that one person’s asset is another person’s liability, and that public deficits are private credits. It is more understandable why people on the right oppose MMT, but why, in your opinion, do we see so much opposition from the left?

Warren Mosler: That’s a good question. I would agree with you, to the extent that I think the left—what I call the headline left—is the number one reason that we don’t have a progressive agenda as a society. And it’s because they put forth, let’s say, the same policy proposals, but without the understanding of monetary operations, they lose the arguments. I understand—I can’t blame the right for that. They’re supporting the side that they’re on, the conservative side, but those defending the progressive side just refuse to be properly armed with the understandings that would cause them to succeed. And I’ve been watching that for 30, 35 years now. And it’s, you know, been a major disappointment and it continues to be so right up to today.

Class Unity: Would anybody else like to ask a question? Sure. Speaking of progressive agendas, one thing that strikes me is that when I see people invoke MMT, they often do so you know to advance the idea that governments can fund things without having to you know find the money somewhere first. They’re often doing that in support of policies like full employment, right? Policies that we might think of as progressive policies. But at least at first sight, it seems like you could appeal to MMT in very much the same way to support, for example, building an even larger military or, you know, funding even more war, right? Because the government doesn’t need to find the money. And of course, in fact, governments do tend to find the money when they need to, quote unquote, for wars. And this is a common complaint about austerity policies, but then nobody worries about that when it’s time to go to war and so on.

But you do see some people pushing back and saying, well, you know, we need to get out of Ukraine because all that money is going to it and we need the money to run domestic programs, right? Or some people pushing back against calls in the EU or Germany to build up a stronger military or to rearm. Some people are pushing back against that saying they can’t afford to do it and so on. And so it looks at first sight like, you know, someone could draw on MMT and say, “Oh, no, it’s not a problem. We can fund it if we want to.” So, I mean, if appreciating this means you can argue for bad things, that doesn’t mean MMT is wrong, right? But I’m just wondering, is that the situation? Are there differences in like the constraints? Because of course you know MMT does recognize constraints on spending for employment say.

So are there differences in the constraints from an MMT point of view on spending for war or the military versus spending for you know infrastructure projects or whatever.

Warren Mosler: Yeah. So when people start with that, I, you know, again I’m disappointed with the framing but you can’t stop it. People do that anyway. So for example, I think one thing we’ve added to the Marxist school of thought is that tax liabilities per se and by design are the cause of unemployment. Okay? Without the tax liabilities, you wouldn’t have anybody looking for paid work in that currency and we wouldn’t have unemployment as we define it. So rather than be a consequence of some kind of social structure, it’s necessarily first a consequence of public policy to impose a coercive tax payable in a currency nobody has thereby creating immediately from inception and by design people looking for paid work for the further purpose of government being able to hire them.

So when you look at it from that side which is the correct side I’d say I mean it’s how it’s been used for thousands of years of recorded history, and it was understood that way up until maybe 300 years ago. You’ve got the cause of unemployment being government policy. So when someone says like, you know, well, we could end unemployment by spending more or something like that, even a statement that simple misses the point that you end unemployment by hiring the unemployed that government tax liabilities cause to become unemployed. If you don’t want those people to be unemployed in the first place, you would not put that tax liability in place in the first place. And so it is a deeper, more fundamental truth than the accounting identity than even what the MMT proponents do the way they use it like yes government can spend for the military.

Well the idea is well why is government putting on this coercive taxation? Why are they creating sellers of goods and services? Is it to use collective action to make life better, so to speak? You know, build the Panama Canal so we have lower costs for everybody and more real wealth or is it to build a military so we can blow up the Panama Canal just to use the two extremes, right? And so you got to look at the like what’s the purpose of putting the tax liability on in the first place? And that leads to you know spending where spending becomes kind of a derivative of the tax liability. It’s not an assumption that they’re going to be tax liabilities. Now the government has to decide what to do with all these people it created to be unemployed all these goods and services it caused to be offered for sale in exchange for the currency.

You’ve got to have a good reason to put this tax liability on to begin with. But when I talk like that, it does not get picked up—to your original point. It just keeps getting picked up the way that you’ve said and pretty much universally and I haven’t been able to like overcome that. I’m not sure whether they don’t want to overcome it or what it is, but they just can’t get down to first principles and when they talk about it and I’m always up against that every time I talk to somebody or answer questions. The same questions keep coming up, and I have to keep going back to first principles and the arguments can never start with the first principles apparently. I’ll be 76 this year. I may not live to see this argument start with first principles.

Class Unity: What do you feel is the biggest resistance you get or where do you think it comes from whether in academia or at the policy level when you speak to people engaged in economic policy where do you think the resistance comes from?

Warren Mosler: It’s not so much resistance; their biggest issue is trying to reconcile what I say with what they thought they already knew. You know, so I’ll say something like this. They’ll say, “Well, what does that do for the dollar as a reserve currency?” And it’s like, “Oh, no. You know what? You know, we haven’t gotten there yet.” Number one. Number two, what do you even mean by a reserve currency? Usually, they have no idea. It is that type of thing. You know, well, what does that mean for UBI or something, you know? So I get this stuff that’s like trying to reconcile other arguments without first building up from an understanding of the fundamentals.

Class Unity: I wanted to follow up on what you said in response to my earlier question. I’ve heard you lay out that thought before and I think I get it. You know the government effectively creates unemployment by imposing a tax and I think I’ve heard you talk about historical examples like you know the Romans going into somewhere such as Gaul telling everybody they had to pay tribute so you need some of the money we issue and you can earn it by selling us grain, which we buy with otherwise worthless coins.

Warren Mosler: Yeah.

Class Unity: Right. So, I think I get that story, but this is probably a naive question, but hopefully I’m not the only person who’s confused about it, so it will be useful to other people for you to answer it. It isn’t obvious to me how to apply that to, you know, the contemporary United States, for example—

Warren Mosler: Yeah.

Class Unity: If you don’t have a job, you don’t pay income tax, right? So, you don’t

Warren Mosler: Yeah. So the first thing I’ll say is just imagine a property tax because a simple income tax by itself doesn’t drive the model. So you’re absolutely correct. If the government imposed only an income tax and nobody worked, the economy would generate no tax liability and the government wouldn’t be able to buy anything and the money would be worthless. But people do work that generates tax liabilities that have to be then paid to the government. And what they’ll do in a lot of cases is actually impute an income when you’re not actually getting paid. So if you’re an airline employee and you take a free flight, they’ll impute a $500 income from that flight and you have to pay a tax on that because what they’re trying to do is generate tax liabilities, create a shortage of the thing that only they have so that they can then spend it, right?

But transaction taxes—the kind you are talking about—add a dynamic element to taxation. If it’s just a tax on real estate, it’s static. It’s fixed so many dollars. Unless we change the value of your property or change the tax, it’s never going to change. A head tax, never going to change. But a sales tax, it’s changing all the time. And it gets to be countercyclical, procyclical, you have all kinds of issues with those taxes causing the economy to do things you might otherwise not want it to do. So, as the economy expands and we get to full employment, all kinds of taxes like income taxes go up because there’s more jobs, more income, more everything. Tax liabilities then rise even faster than the government can spend the money needed to pay them, and you get a crash. Budget deficit goes down and we crash. That’s what happened in ’08.

Starting in 2006, the budget deficit from the expansion actually fell to 1 percent of GDP. Things started turning south and by 2008 it just all crashed. Same thing in 1998, 1999, and 2000. Same thing, you know, you go all the way back, it has happened every time there’s been a crash. So, yes, those dynamic taxes are highly problematic in terms of analysis and being able to forecast what’s going on and they also make it more difficult for people to visualize, you know, the forces behind the currency. So, I always say just start with the property tax. Once you understand that, I’ll go to an income tax for you and show you the dynamics of it. But it’s the same thing, you know, just with different outcomes, you know, that are dependent on the business cycle. Thanks.

Class Unity: And—

Warren Mosler: Sure.

Class Unity: There are different ways that people make money. Some sell their labor for a wage or salary; others invest. A tax on commercial property may incentivize investment, while a tax on residential property may incentivize employment. Does it matter that these are different activities, and should they be treated differently?

Warren Mosler: Yeah. Yeah. You know, by the politicians just counting the money that comes in, so to speak, politicians who do not understand the sequence, that’s the way they see it, of course. That’s why Trump sees the tariffs as money coming into the government as opposed to new tax liabilities that have to be paid out of spending. But to the larger point you were making, could you repeat the larger point? It slipped my mind for a second.

Class Unity: If some people make money through investment.

Warren Mosler: Yeah. Yeah. Okay. Got it. So, what we’ve done is we’ve set up an institutional structure that allows all that to happen. Without an institutional structure that causes the Treasury to not have an overdraft at the Fed and need to sell Treasury securities, we wouldn’t have them. And we wouldn’t have all those tens of thousands, maybe millions of people making money off of trading Treasury securities. That is a cottage industry created by this institutional structure based on a misunderstanding. To give them the benefit of the doubt, either that or they’re just malicious, but based on a misunderstanding of monetary operations. And we have that everywhere at all levels of society. We can probably increase our real wealth by 50 percent, perhaps even 100 percent by eliminating these inefficiencies. It is deadweight employment.

If you look closely, perhaps 25 percent of the population is digging holes and the other 25 is filling it in and it’s only the other half of the working population that’s providing for everybody else and maybe it’s worse than that today I don’t know because it only takes 1 percent of the population to grow all the food and 7 percent to do all the manufacturing so the other 90 percent is in services it’s up for grabs some of them are valuable medical services and whatnot, teaching, education, and public health. But all the accounting and everything else that we have is which is just there for compliance with laws, institutional structure that do not need to exist and merely create make-work. It’s like criminal. I call it a crime against humanity. And yeah, go ahead, get me started on this. I’ll use up all your time, so I’ll let you go ahead.

Class Unity: I’m finding the topic interesting, too, so perhaps we will return to it. (Class Unity Member), you have a question? I live in Brazil. Although Brazil has a sovereign currency, it needs dollars and euros to import commodities, hardware, and manufactured goods. Even richer countries such as the United Kingdom and Japan need to import oil priced in dollars. Given that few countries have the monetary sovereignty of the United States, how applicable is MMT outside the United States?

Warren Mosler: Okay. This is one of those things that comes from trying to reconcile what you’ve heard from everybody else with what I’ve been saying. Every government seeks to provision itself with a military, a legal system, public health, education, and so on. How does it get people to work for it? It imposes a tax in reais—or whatever the local currency is—that can come only from the government. People therefore need that currency. By imposing the tax, the government creates unemployment—people looking to work for that currency and it can then hire them to provision the government with the services that it wants. Every country can do that. Every country can achieve full employment and keep everyone working full-time and the extent of public-sector employment will be a function of the level of tax liabilities. It can reduce its tax liabilities to create fewer unemployed people, or it can pay more to employ those who remain unemployed, right?

It is just arithmetic and you will not have unemployment. That does not mean you will be wealthy, have enough to eat, or be able to build nuclear weapons or anything like that. But it does mean you will not have unemployment. You can be at full employment tomorrow. So the first thing I want to say is the low-hanging fruit to increase the real wealth and real standard of living of any country is to get to full employment. Okay? You will be hard-pressed to find an emerging-market country that does not have high unemployment and I submit that these are one and the same. Theoretically, you could have full employment and have a depressed, impoverished country in today’s world but I have never seen it.

Perhaps we could force it to happen but, given global market forces and the importance of both goods and services to living standards, you can create an extremely good place to live, with adequate material goods and services, almost anywhere by taking the first step and going to full employment with your fiscal policy. And yet nobody does that. And one of the first steps to do that, of course, is to lower your interest rates to zero because as long as you’re paying high interest rates to people who already have money, you’re now subsidizing you know, a whole demographic that doesn’t need to be subsidized. It’s all dead weight. It’s working against your real wealth. So going to a zero rate policy is imperative. If you look at all the emerging market countries, none of them have done that. The only country that’s done that permanently over the longer term for decades is Japan. And it’s not a bad place to live. Okay?

Nobody calls that an emerging market country. It’s in fact a very nice place to live. They’ve had 2 percent unemployment, low unemployment. They have no natural resources. They have to import all their own energy and everything else. And yeah, maybe the Japanese can’t burn as much energy per capita as a U.S. person can. But does anyone consider them deficient and underprivileged because of that? They have to drive cars that get better miles per gallon. They’re smaller than the Americans who get to drive big SUVs, you know, burn a lot more fuel. Does that mean America is a more prosperous, more advanced place to live than Japan? Not in my book. Okay. So I’m diverging a little bit from what you’re saying. You added several other dimensions concerning imports and exports, so let me address those. Let me just say that when you go to a country like Brazil, the country itself, the government doesn’t do the importing. Okay?

It does some, but when you’re talking about this, you’re talking about an individual. You’re talking about somebody going to the gas station to fill up a car. He’s the one importing the fuel. He’s paying for it in local currency. There’s a price already in local currency, anticipating his purchase, anticipating that the seller of that fuel is going to be selling that currency for whatever currency the Saudis want to save in. It’s not about what they want to get paid in, it’s what they want to save in. Okay. And I get to that in a minute. The dollar is the numeraire. But at the end of the day, if they then sell those dollars to buy euro or something like that because they don’t like what President Trump’s doing, then ultimately that’s, you know, what the exchange rate is going to be all about. It’ll be about reais for euros. It just got an intermediary in there.

I don’t want to get too far off track here, But when someone fills a car with fuel, that person is competing with everybody else fueling up their cars around the world. And that fuel is going to go to the highest bidder globally one way or another directly or indirectly—not necessarily in the very short term, but in the longer term and it means everybody in Brazil might not be able to afford to do that compared to everybody in the United States. In the United States, perhaps 70 percent of the population can afford it; in Brazil, perhaps only 40 percent can or something like that. So you’re going to get that distribution of imports based on price. They will be allocated by price. And again, does that make Brazil a poor or deficient country? In some ways, yes. Same thing in Japan.

A lower-income person in Japan may not be able to fill a car as readily as someone in the United States. Fine. In the meantime, that person has, you know, superior education. He’s got superior public health. He’s got safe neighborhoods. He’s got, you know, great entertainment. He’s got a good community. He’s got all these other things that the United States doesn’t have. For me, those are much larger determinants of living standards than how much gasoline you can compete for globally, how large a car you can own, or how many miles you can drive in a week. In the scheme of things, services probably make up 70 to 80 percent of our economies. Once you remove the make-work I have described—the compliance costs and institutionally demanded activities that need not otherwise be performed—you can optimize your ability to provide public services by having everybody pitch in to provide them. That is called full employment through a community effort and a public sector.

This is not merely community action, but collective action. To me, the societies with the greatest wealth are those that can bring the most collective action to bear for the benefit of their populations—not to jail people or pursue similar ends, but to provide collective benefits. So, by modern standards, looking at it through my lens at least, you eliminate unemployment, you’ve gone a long way to bringing yourself up to first world standards and beyond.

Class Unity: On that topic, what are your thoughts about the globalization of production and trade, and the distribution of production and supply chains across the globe?

Warren Mosler: Before I forget, let me start. I was with Jan Kregel, an economist friend of mine in Hungary, and they asked about this. They were talking about globalization. They said to me, well, are you against globalization? Because I had said a few things, and I said, “No, what I pointed out to them is that the comparative-advantage model assumes full employment.” Okay? It does not assume the currency is a public monopoly. It doesn’t have money in it. It’s just a barter economy with full employment and it absolutely holds. I’m totally in favor of that except that it does not apply to the world today. We have coercive taxation and so we have unemployment created by government who then doesn’t spend enough to employ the people its taxes cause to become unemployed. And so when you have unemployment, the exact same model, comparative advantage, if you read page two, tells you what you get is a race to the bottom in real wages.

And that’s exactly what we’ve seen. So globalization as we practice it, in the context of global unemployment—which is extremely high in exporting nations compared with importing nations—is exactly what you’d expect out of mainstream economic models. So it’s not that the globalization model where free trade is a major benefit is wrong. It specifically assumes full employment and it also specifically says that if you don’t have full employment and mainstream economists may blame a labor union or something like that which is an obstruction of free markets what they call free markets. Of course coercive taxation is a massive obstruction of free markets. It obviates free markets entirely. They have not gotten to that one yet. But if you tell them about it, they’ll agree that yeah, okay, we have to look at part B in the model here. What happens if we’re not at full employment? What happens if we do have an obstruction?

Then we get a race to the bottom of real wages. And that’s exactly what we have. So globalization per se is an enormous benefit for everyone. Oops, I hit the wrong button. However, our form of globalization, which is in the context of global unemployment, tragic global unemployment, is nothing more than a race to the bottom of real wages and puts most of the world at subsistence levels. So, I don’t know. Does that answer your question?

Class Unity: It answers a lot of questions that I haven’t even thought to ask.

Warren Mosler: Okay, good. I appreciate that. Do I qualify as a progressive economist yet?

Class Unity: I think so. What do you make of the discussion about industrialization? In American politics, both parties often frame the issue competitively. Many people are concerned that production which used to employ American workers has moved abroad, so they see the issue in competitive terms.

Warren Mosler: Yeah. So look, it’s a dynamic world and things move on. Most of the things being produced this year were not produced thirty, forty, or fifty years ago. So things move on. The question is not about your job, but what jobs do you want for your children? Do you want your children assembling cell phones or do you want your children, you know, working as a software engineer for Google or something like that? And if you look at the unemployment rate, which is at 4 percent—yes, it could be lower but nobody in government can make it any lower. So it’s at about as low as we can get it as a society right now because we do not understand monetary operations. But we have not lost jobs overall. If anything what you hear in interviews with businesses is that they cannot find people to hire.

So, you know, maybe we’ve lost some jobs, but we’ve obviously created a demand for more jobs than we have people. Now, if you look at pay, U.S. labor costs are among the highest in the world by large numbers. There might be a few countries like Norway or something that have higher ones, but if you look at certainly the places we’re importing from are a fraction of our labor costs. That concern is largely headline rhetoric that both parties play on. I just saw Schumer and Pelosi on videos from a few years back demonizing China for unfair trade practices. Yet none of them would ever do anything about it. Everybody agreed that was a problem of course except me. Finally, they get Trump, who is doing something about it. So now he’s a big hero for you know killing the goose that is laying our golden eggs. Okay.

If I give him credit for anything, it is for ending the exploitation of emerging markets. And of course nobody’s looking at him as that kind of hero right that’s the irony. It’s the opposite because they don’t have a clue what’s going on. And so you know again everything is misunderstood and happening for the wrong reasons. Moving ahead nonetheless and here we are.

Class Unity: I find that point very interesting because we see many headlines with inflammatory rhetoric about global competitors taking our jobs. We also read quite a few progressive or Marxist economists that are very concerned with de-industrialization. And it seems very important to many economic thinkers that industry specifically and productive industry are the foundation of any healthy economic system. And what I’m hearing from you is, you can correct me if I’m wrong. You don’t need to worry about exactly what goods you could produce and what kinds of goods you produce if you have full employment. And you have full employment through public spending. Is that right?

Warren Mosler: Yeah. Yeah. And look, roughly 7 percent of the population works in, you know, manufacturing. And if it went to 8 percent, this room would be so full of junk we couldn’t hold a meeting, right? We don’t need more stuff anymore. It’s not what it’s about. It’s all about services. As for the last part about what you said there, question slipped my mind when I started answering part A of a two-part question.

Class Unity: Well, I don’t know if it’s a question, but I mean it seems important to you at least that there should be less focus on, you know, what sort of things you make, things you sell, and more on whether you have full employment.

Warren Mosler: Look, we have to consider the strategic importance. You don’t want to be getting your military equipment from the guy you’re going to be going to war with because you’re, you know, you are going to have a problem. You know, maybe you want to keep strategic inventories of vaccines on hand if you’re not developing them yourself or maybe you want to have that capacity in case you think, you know, somebody in, you know, Denmark’s going to develop a vaccine and not give it to you. But if you’ve got a friendly cooperative world, then people who develop something in Connecticut are going to let people in Texas use it. People in Denmark are going to let people in Florida use it. So the more friendly and cooperative the world is, the more we can comfortably depend on people who live a little bit farther away than just our own 50 states to do things for us and specialize in things.

And then we can specialize in other things and we can all be ahead by that. Now, to the extent you can’t and you don’t trust them, sure, you’ve got to do this stuff yourself. If you don’t trust the Saudis to send us oil when we need it, then we should have a strategic reserve. But, interestingly, our strategic reserve can only flow 1 million barrels a day outward to our refiners who need 15 million barrels a day. And a lot of what they need is not the stuff we have. It does not have the sulfur content our refineries need. So there’s not much of a match.

So you’d think that if we were truly worried strategically about being cut off from oil, we’d have a strategic reserve that could flow to our refineries at the rate they need to use it and have the right kinds of oil in it that they could use instead of oil that we then have to sell to the rest of the world to get money to buy the oil that they need. I mean, that’s not much of a strategic hedge if you ask me. Now, you know, not that we should be that dependent on oil to begin with, but you know, given that we are, I’m just saying public policy and public thinking at almost every level is highly flawed. I mean, really flawed. And a lot of it is from The Seven Deadly Innocent Frauds. And a lot of it is just political corruption, and I have answers for that as well, but right now they are not being adopted.

And what we have now is a very difficult situation that we create our own problems for the most part.

Class Unity: I wanted to ask a question from a member about political issues, but first I will call on them. Go ahead. You mentioned that progressives do not follow MMT, but Stephanie Kelton advised the Bernie Sanders campaign and is an MMT economist. Is it that they do not understand the theory? Reading your work, I had the impression that you did not want to tax the rich because MMT makes such taxes unnecessary.

Warren Mosler: Wait—I have never said that. I will clarify after you finish.

Class Unity: Okay. Even with Kelton advising the campaign, proposals to pay for the Green New Deal were framed in terms of taxes. What fails to translate when an MMT economist reaches that kind of position? I am not sure how to think through it.

Warren Mosler: Yeah. So, first of all, Stephanie is very good and pretty much has many of the same answers I would give and she’s been at it for 25 years, but she did not grow up in the capital markets. So there are aspects of capital markets with which she—and nearly everyone else I have worked with—is unfamiliar from a nuts-and-bolts trading-level perspective. Look, I was one of the guys in the 80s that created all these derivatives. So when I hear people talking about derivatives and how they work, it’s like, you know, my God, that is not what goes on there. I simply have a unique experience in capital markets which is something that has been separate from the academic world. They’ve looked at it from the outside trying to understand it and some of them have done a very good job and Stephanie has done as good a job as anyone.

But there are things that come up that you know I can give you the answer to immediately. I don’t have to learn it or look it up. I’ve been there and done that. So I have the advantage of fifty years of hands-on experience with it you know as opposed to you know studying different works of academic literature. I’ll defer to them just as I defer to you if I have any questions about what Marx said or what Marx did. It’s not where I’ve spent my time. Now remind me of the first part of your question.

Class Unity: Perhaps you could clarify what you meant about taxing the rich.

Warren Mosler: The taxing issue, right? So look, the way I say it is this. I’m not against taxing the rich at all. I’m not at all against it. What I do know is that historically it doesn’t work. Okay? Okay. If you want the rich to have less money, that is not a bad goal, considering their undue influence over today’s political system. You know, you have the president saying, well, this person’s well-qualified because he’s a billionaire. It’s like, okay, so you know, that just says it all, right, to be secretary or this or that because he’s a billionaire, so he’s qualified for that job. And nobody argues with him. Even now he has 47 percent support of the population. I would like to see that situation change. My emphasis is to cut off their income at source. Okay?

Don’t let them make the money to begin with rather than to allow all this institutional structure that’s going to continuously feed these guys and then try and chase them to take some of it away. Okay? It’s like an exercise in futility. Not against it. It’s not wrong, but it’s not my first choice of where my efforts would go first. So, I recently gave a presentation at Leeds on how to bin off the financial sector, how to eliminate the financial sector. I have a whole presentation on my website about how to get rid of this and that cuts off large chunks of this income that we’re all trying to do something about. Okay? So if you have a permanent zero rate policy, there are no more Treasury bond, Treasury bill traders. There are no more dealers doing that. There are no more, you know, people doing research on it, getting paid millions of dollars a year.

There are no more tax experts and everything else where all these people are getting paid millions of dollars a year. That whole cottage industry just goes away. I have a proposal for the stock market which is probably not worth getting into where if a company becomes public at a price and these are just arbitrary levels $10 a share. It agrees to offer unlimited shares at $20. So the price of the stock can never go above $20. Once it hits $20, people simply buy more shares of the same company. From an investment point of view it’s identical. From a trading and speculative point of view, it makes it not worthwhile to speculate in the stock market.

So, it takes away the whole speculative aspect and it changes the whole analysis of the stock market to which company’s going to do well, which products are going to do well, who’s going to be able to earn profits, who’s going to be able to pay dividends, rather than whether the price is going up or down. That eliminates maybe 90 percent of the income being generated one way or another in the global stock markets. Okay, so these are my kinds of proposals and there’s several of them and they just take away this problematic income at source. So what I’m saying is do that first and you know when the tide goes out we’ll see who’s you know wearing a bathing suit type of thing and then see what the problem is after we’ve done this and I think we’re going to be faced with a much smaller problem—perhaps one nobody even cares about.

I mean, if you got people who win the lottery, is Bernie Sanders against the lottery? It creates all this inequality. I’ve never been able to get a straight answer out of his supporters. I’ve never asked Bernie that, but I did meet him once. I forgot to ask him that question. But, you know, I’m like kind of categorically against the lottery because of how it distorts people and how it distorts the whole society. I had some people say, “Oh, you got to meet our new neighbors. They won the lottery. They’re really interesting people.” It’s like, okay. So it’s you know it’s like so anyway but I guess it’s way down on my list of what to be against. But again that’s to me how you attack the inequality issue that’s actually a problematic issue is to first get rid of it at source then figure out what you want to do about what’s left.

Class Unity: It seems like not only would that be a good way to correct inequality but also a way to promote productive investment.

Warren Mosler: Absolutely, absolutely. So the problem, when you come right down to it, is created by institutional structure. So let’s reverse that structure that’s creating it instead of adding new structure to try and take it away. Now, does that mean I’m against taxing the rich? No. And this I’ve said this exactly over and over again. Yet, the message has gotten through to you that I’m against taxing the rich. So, somehow that’s out there, right? That’s what I mean by reconciling things you’ve already heard and it’s not your fault. This is like how information gets disseminated and gets, you know, altered for somebody else’s purpose.

Class Unity: We have another question. I was just looking at your How to Deep-Six/Bin Off the Financial Sector. I have read only the first few proposals, but your approach seems to address inequality by changing the financial structure at its source. You also mentioned that people sometimes try to explain derivatives to you even though you helped create them. Popular accounts such as The Big Short, and a Class Unity course on the 2008 financial crisis, have given us what we think is a reasonable understanding of derivatives and CDOs. What does the general public—or even people like us, who believe we have a good grasp of what happened—still misunderstand about derivatives and the crisis?

Warren Mosler: Okay. I can talk to you about a couple of things from 2008. First, the whole teaching moment was lost of what caused it and how to prevent it from happening again. And so we’re back to running into it again. And I can talk to you specifically about the TARP program, how everybody got that wrong, including people I talked to at the Fed and everywhere else. They are five-minute stories. They’re kind of long. I do not know which one you want first. Which one do you like first?

Class Unity: Give us the general case first.

Warren Mosler: Okay. So you know, the general misunderstanding of what caused 2008 centered on lending standards, the banking crisis, and housing fraud, and all these things happened. There’s no question about it. But in the middle of ’08, I was screaming, not that anybody was listening, we need a payroll tax holiday. I don’t know if anybody remembers that. You probably didn’t hear me at the time, but maybe later would have heard about it. By then, every bad loan had already happened and the losses had already occurred and the average working couple making $50,000 a year was paying $325 a month into FICA for Social Security.

And I said, “We need to suspend that, a full payroll tax holiday so that their take-home pay would go up by $650 a month per family because if we do that and if we stop taking money from them—to use the conventional imagery, stop deducting it from their paychecks.” First of all, there’s no moral hazard because these are people who are actually doing the work and getting paid for real work. Without them, we have nothing. They’re growing the food and building the cars and you know cleaning the streets and doing everything we need, working in our hospitals and working in our schools. These are working people. Nobody pays FICA who’s not working. That’s a working tax. And so we are totally dependent on these people for absolutely everything. So for them to make more money is not like moral hazard.

It’s not like they’re going to go quit and retire because they’re getting $650 a month and so we’re going to lose our workforce. All right. They would have been able to make their car payments and make their house payments and there would have been no banking crisis. We would not have bailed out any car companies. Car sales wouldn’t have gone from 17 million to 9 million in one month. Unemployment wouldn’t have gone up by five or 10 million in a couple of months. It all happened because people were suddenly getting laid off, losing their jobs, and banks couldn’t lend anymore, which is another story. It wasn’t the fact that they lost money, it’s that they could not continue to lend. So, credit drives a lot of spending and without that spending, people lose their jobs. So, we suddenly had 8 million unemployed people, you know, out of nowhere and so we’re bailing out banks and we’re bailing everybody else out.

Okay. The real lesson here is that if we had done this payroll tax holiday, it was a $1 trillion tax cut. It was the biggest tax cut ever proposed, I think, by anybody. These people would have had enough money to pay this stuff and we wouldn’t have had the unemployment rate go up. The economy would have recovered, okay? And we wouldn’t have allowed a financial crisis to spill over into the real economy. We had a financial crisis. We had debits and credits gone awry on balance sheets. You can always correct the debits and credits on balance sheets, put people in jail if they broke the law, and you can do that without moral hazard, but you don’t have to make it so that you know people can’t go to work, build cars and drive, go to work, grow food and eat it, go to work, teach school, and have smart kids.

You don’t have to interfere with the real economy when you’re fixing up balance sheets. And you do that with a fiscal adjustment. And that was the obvious fiscal adjustment. They did not do a single fiscal adjustment until sometime into ’09, the first quarter, maybe March, they just let it all go. Okay? And once the economy fiscally adjusted itself the ugly way, higher unemployment compensation and lower tax collections because people are out of work, the budget deficit did get up to 9 or 10 percent of GDP. And the economy then turned around from that fiscal adjustment. It was a long, painful fiscal adjustment. And none of the other stuff they did mattered. It was only the fiscal adjustment that turned things around. Okay. So what’s the analogy? The analogy is we’re driving a car down the road and it’s a good car and it’s really well aligned and it’s a good highway and so it stays in its lane pretty nicely.

Okay. But the driver, you know, falls asleep at the wheel and the car keeps going for a while. But even the most perfect road we can build or the best car we can build, at some point the car will veer off to one side. Eventually there will be some irregularity in the road and it’ll crash into the guardrails. And the analysts come afterwards and look and they say, “Oh, we see what happened. This car was doing real well, but there was a low spot in the road. The engineers didn’t build it right. It caused the car to dip. It turned off to the right and then it crashed. Okay. So next time we’re going to build the road better so that it’ll keep going straight down the road, you know, whereas I look at it and say the driver fell asleep at the wheel. He could have like if he was awake, yeah, there was an undulation.

He could have moved to the side, but he could have kept that car on the road. It didn’t have to crash. And yeah, it’s a great idea to fix the road. I’m all in favor of that. Okay. So what we had was the economy crashed because Congress was asleep at the wheel. The wheel is fiscal policy. They could have cut taxes, increased public spending, and avoided the crash. Okay? And they didn’t do it. And instead, the lesson we learned is, oh well, we can fix the road and make it better. We can change this banking regulation so that the banks when they crash don’t lose as much money and the bailout’s smaller and we don’t have to bail out car companies. We’ll have banks with more capital.

But, you know, they go on and on about how we’re going to fix the roads and make the car steer better instead of, you know, telling Congress, you know, like you’re sleeping at the wheel. Fiscal policy is your steering wheel. That’s how you keep the car on the road. Okay. And so, they did do all that stuff. And the car has been sort of on the road for a while. And then when COVID hit, they did use the steering wheel. They went into massive fiscal adjustment, $5 trillion. And now we’re crashing the car again off both sides of the road. And they’re arguing over taxes and spending as if they miss the whole point of fiscal policy being the steering wheel to keep the car on the road. Now that could have been learned during 2008, but it wasn’t. So that’s my story about the massive teaching moment that was totally lost in ’08 and that we didn’t learn.

We didn’t learn from that and instead we diverted attention away from that to all these other reforms which are you know moving deck chairs on the Titanic: it is still going to hit the iceberg. Now, TARP—I don’t know whether you remember that situation—I don’t know how old you are—but what happened was Citibank’s capital fell below regulatory requirements. Suppose the required capital ratio is 10 percent. In a simplified example, a bank has $100 in assets, funded by $90 in deposits and $10 of its own capital. Then it loses a dollar. One of your loans goes bad. So that’s your own money you just lost. So you still have $90 in deposits, but now you have only $9 of your own money, which isn’t enough. You are supposed to have $10. So, you’re in violation because the value of your loans went down. So, your net worth went down, your own money went down and so here you are.

So, what do you do? Now, notice it doesn’t matter if you go from 10 to nine. I would say the requirement was only eight and you had eight, then you go to seven. It’s the same thing. If you had three and it goes to two, it’s the same thing. Requiring banks to hold more capital does not keep a bank from failing if its capital falls below the applicable threshold. It may reduce the government’s obligation to depositors, but it does not remove the threshold problem. Suppose you began with $10 of your own capital, fell to $9, and then suffered a larger loss. Now all of a sudden you have only $5 of your own capital. So now your capital ratio has fallen from 10 percent to 5 percent. You are in deep trouble; you are toast. And so Sheila Bair, head of the FDIC, fires up the bulldozer. She heads toward the Citibank building and is about to bulldoze it.

And Paulson’s got TARP money that he was supposed to use to buy troubled assets, which couldn’t work, which I said couldn’t work before he did it, which is another story. Remind me to tell you why it couldn’t work. But he still had the whole TARP authorization and could not spend it. He says, “Wait a minute. In our simplified example, I can buy $5 of new stock in Citibank, bringing your capital from $5 back to $10.” Now you are whole and back in compliance, subject to terms and conditions: no dividends, no pay increases, and penalty rates until your capital is restored. So, Congress turns them down at night and the stock market drops a thousand points; a million people lose their jobs, whatever. It was crazy volatility. At 3 in the morning, somehow Congress passes it. I still don’t have the answers. Somebody once began to explain what happened, but I never got a clear account.

In any case, Congress passed it and Citibank was okay the next day. My point is that, functionally, the government did not add risk that it did not already bear. Consider what would have happened if Citibank had continued with only $5 of its own capital. It had $100 in loans and $10 in capital. Some of the loans went bad. Now it had only $5 of its own capital. All the losses are coming out of Citibank’s money, not the government, not the FDIC. If Citibank lost more than its remaining capital, more than the remaining $5, then the FDIC has to pay off the depositors and the remaining loans are not worth enough. That is when the FDIC has to cover the shortfall. So, let’s say Citibank had lost $6. The loans are worth only $89. There’s not enough money to pay off the depositors. They are owed $90.

In the simplified example, the government must cover the final dollar—the equivalent of a billion dollars at the actual scale. Okay. After Paulson puts in $5—in the real case, $5 billion—if Citibank then loses $6 billion, the government still covers the final billion. The only difference is that it comes from TARP rather than the FDIC. Okay? So before he came in, any bank losses that exceeded their capital were going to come out of the FDIC. After he put money in, any losses that exceeded their remaining capital come out of the Treasury. What’s the difference? The FDIC gets all its money from the Treasury. That’s where its account is. Okay? Either way, if Citibank loses more than its remaining capital, the Treasury—or, in conventional language, the taxpayer—pays. Okay? So nothing changed. The government didn’t have five billion more at risk after they put the money in than they did before.

Its risk remained the $90 billion in deposits it had to cover if the loans were insufficient. That doesn’t change. Okay? So all they did was they gave Citibank regulatory forbearance. What they effectively said was: Citibank, we will let you operate with $5 billion of your own capital rather than $10 billion, subject to terms and conditions; once you rebuild your capital to $10 billion, those conditions will be removed. Okay? So Paulson wasn’t using taxpayer money, wasn’t using, you know, and I cringe at that expression, but just for explanation here. And he wasn’t like doing anything. The only thing they were doing was giving Citibank regulatory forbearance, you know, at the macro level to be able to continue running with the capital that it did have, $5 billion rather than $10 billion until it rebuilt it back up with terms and conditions. Okay. But nobody understood that.

Instead, they understood the entire episode as a $750 billion expenditure. $50 billion was going to Citibank to build its capital back up from $50 billion to $100 billion at a huge cost of political capital. Massive meetings in Congress about spending this money. It was described as money taken from healthcare or as something that would worsen the deficit. You know, all kinds of crazy stuff when it was completely inapplicable to the situation, you know, because they were already guaranteeing $900 billion of deposits. It didn’t change that. And Citibank had only $50 billion either way against $900 billion in deposits. So once they lost that, the government’s on the hook for the rest whatever isn’t covered by Citibank, period. No matter what Paulson did with his TARP money. All right. And so I was with a guy named Jim Clouse at the Fed. Really super guy, good guy, smart guy. He’s in monetary operations explaining this.

And he goes, “You’re right.” I said, “Is there anybody in finance, anybody at the Fed? Did anybody understand this?” He goes, “No—nobody at the Banking Committee, not Jamie Dimon at JP Morgan, none of the analysts, nobody on Wall Street. There was absolutely no discussion of the fact that, you don’t have to do this. It’s just regulatory forbearance. We just let Citibank operate with $5 billion rather than $10 billion, subject to terms and conditions. It is the same thing.” There was no discussion of that. It’s not like they discussed it and decided people would understand it better the other way or something. It was nothing anywhere. It was completely absent from the discussion. So, how well do these people actually understand banking? How well do they understand finance? How well do they understand any of that stuff? They don’t. And it’s like none of them. It’s like a big fat zero.

I can give you the same story about the central-bank swap lines where they didn’t understand any, you know, the essence of what they were doing and it’s just happened time and time again. I’ve just seen this for 50 years now and it’s been a long time.

Class Unity: We have one maybe a rhetorical question from a member. So the numbers are all just Kabuki theater.

Warren Mosler: Well, they’re scorekeeping. The Fed is the scorekeeper for the dollar. Would you call the points in a football game Kabuki theater? No. They follow the rules and they are there as a consequence of the rules. We have rules—an institutional structure—that say there is a tax liability of $500 on your house. And then we keep track of that. The scorekeeper will change the numbers in your account and if you do not comply, you go to jail or lose your house or something. So, it’s real. It is intangible, but it’s real. And there’s a difference between tangible, intangible, real, unreal, you know, I think, depending on how we define terms. But these are real tax credits. If you get a tax credit for putting solar in your house, it’s the same as cash when it comes to paying your taxes, right? There’s no difference. It’s all real stuff. The dollar is a tax credit, and it’s transferable.

If you had transferable solar tax credits, they’d be worth the same amount.

Class Unity: That is fair enough. We are coming to the end, but we have a few final questions—one about the current administration and Elon Musk, and another about the political dimensions of full employment. Please let us know if you need to leave.

Warren Mosler: Go ahead.

Class Unity: Let us start with Trump and Musk. Elon Musk seems to have discovered that MMT accurately describes the U.S. financial system, referring to fourteen so-called magic money computers.

Warren Mosler: Yeah.

Class Unity: What should we expect if people such as Musk no longer believe that the government must tax or borrow before it spends?

Warren Mosler: So we’ve seen this happen before. We’ve seen it with a Bernanke interview on 60 Minutes. We’ve seen it with the Greenspan interview and it just doesn’t get picked up by the news. They simply let it die out there and the old message seems to like prevail and get repeated over and over again until the episode is forgotten. It has already fallen out of the news cycle and everybody’s forgotten it already and everybody knows, yeah, you can print money—look at Zimbabwe, you know, that’s all he discovered. It’s a good thing he discovered it so we can stop that from happening. They have not taken the insight any further than that. He certainly hasn’t and I don’t expect him to.

Class Unity: One question concerns an economic thinker this group admires, Michał Kalecki. In Political Aspects of Full Employment, Kalecki argues that the capitalist class would rather accept lower profits than lose political control over the economy, and that this helps explain persistent unemployment.

Warren Mosler: Yeah.

Class Unity: His argument is that a full-employment program would weaken employers’ control and therefore encounter political resistance. We would like to see full employment, but sometimes it seems that a political revolution would be necessary first. Realistically, what would it take for the government to act as employer of last resort?

Warren Mosler: So he was talking about a different economy in a different context. I think they were probably on the gold standard. I do not know when he wrote it, but everything was discussed in the context of the gold standard. And unemployment was reduced by what I would call top-down aggregate demand. And under those circumstances he could be correct. There was also a Bretton Woods–style international dimension in which these forces created a race to the bottom in real wages. In a context of unemployment, adding to aggregate demand did not necessarily mean that workers would benefit directly. I would say that his argument may have applied to his time; it was before I was born. I think today’s exporter is Marx’s capitalist: exporters have no interest in the domestic market, except that they want costs kept to a minimum. That is essentially what Kalecki is describing.

Capitalists want to minimize costs when selling into another market, and perhaps at the time they were selling largely to government markets. I do not know to whom they were selling. Contrast this with Henry Ford’s flawed but revealing claim that he wanted people to earn enough to buy his cars. That describes firms serving a domestic market. In the 1960s, one automaker would meet with one union, grant a raise after negotiations, and then the other automakers would grant the same raise and raise their prices. Everybody was fine. Wages in the auto industry were multiples higher than in the rest of the economy. Those employers were perfectly happy to pay it because they lived in an economy where they could sell their entire output. There was enough aggregate demand; they could pass the wage increase through to prices, sell their output, and earn greater profits. Kalecki was a very smart man, and I am sure that what he said applied to his time.

Today, what MMT proponents call the job guarantee serves as the base case for analysis for any economy where you impose a tax liability which creates a certain number of unemployed people and then you hire the people who are looking for work who your tax liability caused to become unemployed. And if there’s still people looking for work, it’s because you haven’t spent enough to cover the need to pay taxes and the desire to save because any money earned in the economy is either going to be used to pay taxes or not by the end of the day. And if it’s not, we call that savings. And so that’s just an identity and that doesn’t have much to do with employers. Okay? So Kalecki’s employer that’s involved in wages and everything else isn’t dealing with this. What he’s dealing with is the residual aggregate demand that’s out there. The government may also want to buy something else, such as jet planes.

So now you’ve got an employer that’s selling jet planes to the government, marking them up, and he knows his cost of labor because the government is paying that wage to everybody. He can get his appropriate markup. The government can decide in its contracting process whether to approve that markup or not and that transaction will take place. The same process will occur with subcontractors and with farmers deciding whether to work at that wage or grow food. Market forces will resolve those choices, and demand for production will be conditioned by the alternative of working for the government at that wage. The government’s only hiring so many people, just enough to cover its expenses. With nothing else changing, I do not see Kalecki’s concern holding in that base case. If the government does not pay enough and unemployment emerges, then the mathematics could produce the outcome Kalecki described.

But more important, we have a new dynamic that’s taking place that I don’t think he was dealing with. And that is people prefer unemployment over inflation and they think there’s a trade-off. Vice President Harris lost the election after inflation became politically salient, even though it had fallen to about 3 percent. People who fear that an MMT understanding would lead to runaway spending and inflation have just seen a change of government over inflation of about 3 percent: it was deemed unacceptable, so voters threw the incumbents out. That is a different dynamic from the one Kalecki described; it is a political dynamic driven by votes. If you can bring unemployment up to six or 7 percent but bring inflation down to zero, you’d probably win the election. Unfortunately, people may prefer some unemployment; it is part of human nature. And it’s partially because of coercive tax liabilities, but I’ll get to that in a second.

When there’s higher unemployment, you can get a plumber right away to fix your house. You know, if you need somebody to cut the grass, there’s people lined up waiting to do it because there’s unemployment. It empowers the roughly 90 percent who remain employed, while the other 10 percent are available to work for them. So you’ve got a 90 percent majority that kind of likes it the way it is. And they get this inhuman attitude because taxation is an ongoing drain, you know, on everybody. It’s an ongoing hole in the economy’s pocket that has to be filled, or else there are severe penalties and it creates this extreme anxiety, psychological anxiety that affects everything from behavior to artwork to music and everything else whether you know it or not. The cultural differences between monetary and non-monetary societies are extreme and these anxieties create all the greed and everything you’re talking about. Without the ongoing tax liabilities, you wouldn’t have that. Okay.

So it is all a by-product of that. So why do we have monetary systems? Well, that’s how you win the war. The ones that can do this can better provision the military, better provision the army, better motivate soldiers, and they tend to win the war over the losers of the war who aren’t as good at doing this ultimately. Otherwise, we wouldn’t have it. So, there’s like a Darwinian aspect to this monetary thing that’s embedded itself, I don’t know, five or ten thousand years ago, and it’s been there ever since in one form or another, dominating any society that it pops up in. That society tends to dominate people around it until it breaks down for some other reason. So that’s my story and I’m sticking to it right now. Maybe you guys can change my mind.

Class Unity: That is really interesting. As a follow-up, I agree that people now prefer low inflation even at the cost of unemployment. But the groups most determined to avoid inflation may be people with fixed incomes—the financial class—while business owners may prefer unemployment. Together, those groups form the capitalist and financial-rentier coalition Kalecki had in mind.

Warren Mosler: Yeah.

Class Unity: Such a coalition could come together to prevent a full-employment policy.

Warren Mosler: Now, I don’t think it would be the case with my base case for analysis—the job guarantee or whatever. I think that changes our dynamics but I don’t know how we get from here to there because nobody is going to take that chance. People are conservative in that sense when it comes to change, and we have a strong bias toward thinking that they are better served by the arrangement you just described.

Class Unity: Kalecki may have been correct in that context. Your point is well taken: he advocated one policy in a particular political and monetary setting, whereas you are proposing a different policy in another setting.

Warren Mosler: Yeah. That is not understood or experienced or felt. You cannot expect people to put themselves in that situation and therefore agree to change things. You know, it’s a very difficult leap of faith for them since there are no examples to point to anywhere.

Class Unity: Thank you so much for joining us, Warren. It was a great discussion, and I enjoyed it very much. Thanks to everyone for being here.

Warren Mosler: Okay. Well, thank you. Thank you all for doing this. It’s been good for me. It helps me, too. I definitely enjoy putting these arguments out there now with somebody who obviously understands them and I look forward to getting the link and putting it out there on social media to get another twenty or thirty thousand people involved and see what they say.

Class Unity: Yeah. And is there any way people can find you online?

Warren Mosler: Oh, I’m on X at WB Mosler, right? And I’m on Bluesky—the same handle. WB Mosler. And I’m on Facebook, but there’s not much there. And my website’s moslereconomics.com. These are all written out in various papers, a lot of them published in journals, actually.

Class Unity: Right. Okay. Well, thanks a lot for talking to us. Good to talk to you.

Warren Mosler: Great.