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Jun 27, 2020

An alternate title for this episode could be “Back to Basics.” It reminds us why Randall Wray’s MMT Primer continues to be a definitive resource for the Macro & Cheese community.

This 2017 interview came about when the American Monetary Institute (AMI) published an article critiquing MMT. Randy Wray was mentioned and quoted throughout, so Steve invited him on to set the record straight — and maybe shed some light on AMI and its theory of “positive money.” If you don’t come away with a clear understanding of it, it’s because Randy himself can’t always get to the bottom of AMIs logic. It turns out they have some less than pristine methodology. It’s hard to assess the strength of their theory when you can’t pin down the theory. They don’t even produce balance sheets.

AMI wants the Treasury to print greenbacks because they posit that the Federal Reserve is private and independent, with full control over the US dollar. Randy explains that we do, indeed, have a sovereign currency, and suggests that we read the Federal Reserve Act of 1913. The Fed is a creature of government, under the control of the Congress. Its very limited independence consists of the freedom to set overnight interest rate targets.

It’s easier for Randy to debunk AMI’s critique of Modern Monetary Theory, and a large part of the interview takes us through the fundamentals of MMT — how money is created, the differing roles of the Treasury and the Fed, the causes of hyperinflation, sectoral balances, and why the US will always have a trade deficit. In our lifetimes, at least.

We end with a long discussion of solutions to inequality. Since taxing the rich is politically unfeasible, Randy says a better way to reduce their wealth is to attack it at its source, where vast wealth is amassed. He wants to forbid corporations from buying back their stocks. Corporate CEOs and upper management receive outsized compensation in the form of stock options. Corporations spend more on stock buybacks than on investment in plants and equipment, which would create jobs. The buybacks raise the value of the shares, then the CEOs exercise their stock options for huge amounts of money. There’s no reason to allow it.

This is an episode you’ll want to listen to right before trying to explain MMT to your uncle. Better yet, send him the link.

L. Randall Wray is a Professor of Economics at Bard College and Senior Scholar at the Levy Economics Institute.

Steve Grumbine says this article changed his life. Check it out: