NEP’s Stephanie Kelton appears on Capital Account

Stephanie appeared on Capital Account with Lauren Lyster on December 11. The topic was MMT’s goals for Full Employment and the government’s deficit.

28 responses to “NEP’s Stephanie Kelton appears on Capital Account

  1. “Inflation is the contraint” Stephanie Kelton

    If the government-backed credit cartel creates 95-97% of the money supply then it certainly is capable of producing a large amount of price inflation too and it certainly has, at least in housing. How do MMT advocates propose to deal with that?

    • F. Beard, you’ve been on this blog’s comment board for over a year. You know damn well your question has been answered in Bill Black’s many posts on what created the housing bubble, and the numerous posts that explain how inflation works. Anyone new has has only to read the archives, or put ‘housing’ or ‘inflation’ into the website’s search field.

      Suggest you do the same; that is, if this time you’re really interested in an answer.

      • You know damn well your question has been answered in Bill Black’s many posts on what created the housing bubble, and the numerous posts that explain how inflation works. MRW

        Ah yes. A return to Glass-Steagall? But how will that stop another housing bubble?

      • I have in fact written a great deal explaining how the epidemic of accounting control fraud hyper-inflated the housing bubble. Huge bubbles can be hyper-inflated by such epidemics even with relatively high market interest rates, e.g., the Southwest commercial real estate bubbles of the S&L debacle.

        I have never argued that the repeal of Glass-Steagall hyper-inflated the housing bubble. Indeed, I have explained that the rise of the secondary market in mortgage instruments was not essential to either the accounting control fraud epidemic or the hyper-inflation of the bubble. Those blaming the crisis on the repeal of G-S typically stress what they believe was the critical role of the secondary market in causing the crisis.

        • I have in fact written a great deal explaining how the epidemic of accounting control fraud hyper-inflated the housing bubble. Professor Bill Black

          Such as “liar loans”? But can’t the banks justify lending ever increasing amounts of money based on rising housing prices alone? Whether the borrower has an income or not? George K. Soros’ “Theory of Reflexivity” in action?

          Huge bubbles can be hyper-inflated by such epidemics even with relatively high market interest rates, e.g., the Southwest commercial real estate bubbles of the S&L debacle. Professor Bill Black

          Ah, thank you very much for confirming that suspicion of mine. So the key to preventing bubbles lies elsewhere than interest rates?

          Btw, thanks for your reply. I’m honored.

        • With Glass-Steagall still in place, investment banks might have failed, but not commercial banks, which would not have been permitted to play in the derivatives market that caused the GFC, right? Thus the investment banks would not have become systemically dangerous. They could fail and take down their cohorts with them, but not touch the people’s banking system.

          Commercial banks still could have failed due to the imprudent loans they made, but without the ability to repackage those loans for sale to the derivatives market, they might not have made them in the first place. And if Fannie and Freddie had maintained their underwriting standards, most of those loans would not have been made because they could not have been sold at all.

          Or, if this is wrong, what did I miss?

          • Sounds pretty sensible. It seems like there were so many loopholes to Glass-Steagall before GLBA in ’99 that it was more of a formality to repeal it at that point. I always thought the CFMA in ’00 should have received more blame for the crisis, this seemed to really push things along and pave the way for shadow banks and things like rehypothecation:

            “In 2007, rehypothecation accounted for half the activity in the shadow banking system. Because the collateral is not cash it does not show up on conventional balance sheet accounting. Before the Lehman collapse, the International Monetary Fund (IMF) calculated that US banks were receiving over $4 trillion worth of funding by rehypothecation, much of it sourced from the UK where there are no statutory limits governing the reuse of a client’s collateral.” (Wikipedia)

            What to say in the face of such absurdity? There aren’t enough hours in the day for me to try and make sense of this maze of unimpeded financial engineering and all its consequences.

            • Yes, but there was still enough teeth in it to make the Travelers-Citi merger illegal, which happened before the repeal. But this signalled that laws are for the lesser people, not Wall Street, no?

  2. As for “creative destruction”, let’s not confuse it with destructive deflation. Enough deflation would destroy near the entire economy.

  3. Great interview for both Stephanie and Lauren Lyster! Stephanie’s a great marketer for MMT. This post already has 70 comments over at Naked Capitalism!

  4. That owl was strategically placed?

  5. Washington Post !! oo-rah !!

  6. Talking about stagflation vs. demand-pull inflation, Stephanie explained that stagflation episodes were caused by supply shocks, not by government pursuing full employment goals. Then Lauren asked

    “Would you have to stop with those goals if you had that type of inflation”

    And Stephanie answered

    “Absolutely, inflation is THE constraint”

    Was Stephanie talking about inflation caused by supply shocks? Or were they misunderstanding each other? I hope MMT would not abandon its full employment goals in the face of supply shocks.

    • I hope MMT would not abandon its full employment goals in the face of supply shocks. Golfer1John

      At some point, a general increase in the price level requires an increase in the money supply – either more net bank credit creation or deficit spending by the monetary sovereign. Bank credit creation alone could easily make it impossible for the monetary sovereign to deficit spend without price inflation. What does MMT say about that? Are specualtors fueled with bank credit to be allowed to thwart the monetary sovereign?

      • “thwart”? If the government deficit is endogenous, then dissaving by the non-government sector would mandate a government sector surplus. The size of the deficit is not a proper target. Inflation and unemployment (or size of JG workforce) are. But what to do when inflation and unemployment are both too high, due to a supply shock? I think a tax cut. Or in the case of oil, maybe a release of the strategic reserve, or government conservation efforts, maybe cut back on Air Force pilot training, temporarily, things like that. The “shock”, by definition, is a transient condition.

        • But what to do when inflation and unemployment are both too high, due to a supply shock? I think a tax cut. Golfer1John

          A tax cut would help the population afford the higher prices caused by a supply-shock EXCEPT credit-fueled commodity speculators, anticipating the recovery in employment, might easily negate that help for the population by driving prices even higher.

    • MMT says to never abandon full employment. Always have the Job Guarantee in place. This will automatically take care of garden variety inflation. IMHO much better than the MMT academics usually say, and of course much better than the government forcing unemployment on people. But if you are in a rare sudden supply shock, oil shock like the 70s, then the government has other tools to diminish inflation (fiscal (tax hikes, spending cuts), monetary, price controls, WIN buttons 🙂 ). The point of the JG is that they will NOT create unemployment. The other tools would just at worst have the effect of moving people out of higher paid private (or public) employment, onto the JG.

      The countries that tried to maintain full employment – weathered the inflationary 70s better than the ones that didn’t. And another point is that the USA foolishly got rid of commodity buffer stocks in the late 60s, ones that it had maintained since the 30s. There was also the Russian wheat purchase and other inflationary commodity shocks in the 70s, which they would have helped ameliorate.

  7. This moderating of MMT that Golfer1 pointed out in order to winn the day will cause a lot of headache later on.

  8. Bravo to Stephanie Kelton for an excellent (and high speed!) explication of the basics of MMT and in particular its policy implications. And Kudos also to Lauren Lyster for asking good questions and then getting out of way and letting Dr. Kelton answer them. More like this please!

  9. There’s plenty of moderating going on but I didn’t see any here.
    The JG scheme is designed exactly to pick up workers laid off, whatever the reason. If that is down to supply side shocks or as a result a monetary policy at full capacity it doesn’t matter surely ?
    The Full employment comittment is via the JG.

  10. There is not much coverage of MMT here in the UK, so I always look out for any media appearances by MMT experts. I thought that Stephanie came across well – certainly much better than a previous MMT expert on Capital Account. It was very encouraging that Lauren Lyster said that she wished that there had been more time to discuss MMT and that she hoped that Stephanie would come back for further appearances.

    However, I was still left with a sense of frustration. MMT experts seem to be very poor at SELLING the BENEFITS of MMT. Here are a few suggestions in three areas. These are intended to be helpful to your cause.


    MMT’s key benefit here is that it includes a thorough and realistic description of how the economy works. Mainstream economics does not include such a description.

    We wouldn’t expect a medical doctor to diagnose and cure a disease without a thorough and realistic description of the human body. We wouldn’t expect a car mechanic to diagnose and cure a problem with a car engine without a thorough and realistic description of how a car engine works. So why do we accept the views of economists who don’t have a thorough and realistic description of how the economy works?

    MMT experts always focus on the details of the description itself (e.g. role of government, money) rather than the benefit. Note that it’s almost impossible to argue against this benefit and it differentiates MMT in a good way. It also invites an interviewer to ask for details of the description in a follow-up question, or to ask incredulously about the lack of such a description in mainstream economics. Either way, you are home free.


    MMT’s key benefit here is the use of innovative diagnostic tools such as the symmetrical sector balance charts. These charts are an iconic part of MMT. They provide a unique perspective and they emphasise the benefits of a realistic description (where the various balances add up to zero). They are also very visual and easy to understand for a casual viewer, and they challenge the viewer’s prior beliefs.

    MMT experts rarely mention diagnosis. In this interview, Stephanie said that MMT was part description and part prescription – but didn’t mention diagnosis. However, it’s vital to understand the diagnosis in order to explain the prescription. Without the diagnosis, MMT prescriptions can come across as being the result of political bias – which is one of the main reasons there are so many critical comments on videos.

    As an aside, I’ve been looking on the internet for examples of sector balance charts for different countries. This is a chore. I have managed to find a number of charts but they all look different from each other and some of the images are blurred. It would be great if there were a single place on the internet where interested viewers could find a set of up to date diagrams for different countries with each diagram produced in a consistent style. This one simple action would be the best way of helping people like me to explain MMT to friends and to emphasise its relevance to real problems such as the Euro debacle and the government debt debacle in the UK.


    This is the area of MMT which confuses me. MMT is a toolset which can be used to help formulate logical prescriptions for economic problems. At minimum, it helps exclude prescriptions which definitely won’t work. However, I am not clear whether MMT experts think that the MMT toolset can be used by people with different political beliefs, or whether they think that MMT is some sort of proof that progressives are right and that conservatives are wrong. It’s also not clear whether all MMT experts share the same views on prescription or whether there are different MMT prescriptions.

    The biggest threat to MMT is that people reject what they see as a very specific set of MMT policy prescriptions and then throw out MMT’s description and diagnosis elements due to their association with this prescription. I’d go so far as to suggest that you should give the description/diagnosis and prescription elements different names so that people can say “I really like MMT-DD. It helps me to think about the economy more clearly. However, I’m still not sure about MMT-P”.

  11. Bryan Van Namen

    Stephanie-Wondering if in response to the final question regarding which states are utilizing MMT, it wouldn’t have been useful to highlight the QE’s and their direct benefit in recapitalizing banks without the ill effect of inflation? I feel like monetary policy by the authorities is already practicing MMT and that the task with the JG and public infrastructure investment is to do the same with fiscal policy.

    • QE only creates excess reserves in the banking system, and paying interest on excess reserves is a subsidy to banks which does help their capital position, but at 0.25% … The big effect on bank capital was the “bailout”, when the Fed bought up their bad paper, to the extent that the Fed overpaid for the assets. I’ve seen various opinions about whether there was an actual overpayment, but if there was not then what was the point? I’ve also heard it said that even now some of the largest banks are still insolvent, if they marked their assets to market. QE has nothing to do with MMT, and has no effect on the real economy. I think the idea was to encourage the banks to make more loans, but that is misguided and hasn’t happened.

      • Fine so include the bailouts, it’s the same effort and believe a return, though not as large as could have been extracted, was gained. Also, not sure where the bad paper stuff is coming from? Would expect if you were commenting here that you know it’s not about whether the Fed overpaid or what the assets were worth when the goal was increasing liquidity. Why do they care it’s only money?

        All I’m saying is the logic behind the QE’s which as you say is to encourage lending and its effects, should be incorporated into the argument for the JG and public goods investment. I feel like QE’s are a substitute for direct public financing. Besides pinning public purpose against the interests of the finance sector is always going to go down well and people can appreciate the comparison.

        • But QE had no effect. Increasing reserves does not recapitalize banks, and does not increase lending.

  12. The problem is there are a lot of people out there (most of whom seem to watch Capital Account) who have been hoodwinked by the whole austrian ‘government is bad, deflation is good, gold is the only real money’ crap.

    Someone on the MMT side needs to go on the program and just demolish that whole nonsensical narrative.

  13. We as a people have entrusted a money monopoly to the government of the United States, on the condition that money is created ‘by and for’ the people via the government. Why on earth then, are private banks profiting off this money monopoly by creating loans out of thin air and charging usury on them? They are literally getting something out of nothing. We the people are exchanging years of backbreaking labor so that we can pay interest to a bank that did nothing more than take 5 seconds to type 200 000 dollars into a bank account. Does anyone else think that this pure exploitation through fraud? If we entrusted the monopoly to the government, shouldn’t they be creating it, and distributing it directly to the citizens bank accounts or spending it directly on public benefit (roads education medical)? Who gave banks the right to privately profit off of creating the peoples fiat money out of thin air?