Fiscal Sustainability Teach-In: Session 5, Q&A
L. Randall Wray, Professor of Economics, Research Director of CFEPS at the University of Missouri – Kansas City, and Senior Scholar at The Levy Economics Institute of Bard College
Pavlina Tcherneva, Assistant Professor of Economics at Franklin and Marshall College, Senior Research Associate at CFEPS and Research Associate at The Levy Economics Institute of Bard College
[00:54:00] [Joe Firestone] O.K., do we have any further statements from the panel or would you like to open it up...
[Marshall Auerback] Go to the questions.
[Joe Firestone] O.K., over here.
Q: [00:54:17] [Dennis Kelleher, Rebel Capitalist blog] Two things, and I'm not sure you if you wanted to talk about it. And I think our friends at the Cato Institute would appreciate this. A job guarantee would eliminate the need for a minimum wage, correct? I mean a federal minimum wage, you could do away with it because the government is, the government is basically setting the base wage, right? I think they would love that.
[54:42] [Kelleher continues] The other thing is that, I'm curious, I advocate a universal living wage. It's a wage that's based on, since we have this insane policy of waiting ten, twelve years to increase minimum wage, there is a theory, a movement, that says let's pass a universal minimum wage, that says, you know what, instead of having to deal with this issue every seven, ten, twelve years, let's just say we will pass a wage that is indexed to the cost of housing -- not necessarily CPI, but the cost of housing. And HUD has an index it has that does that on a regional basis so it's not straight across the board based on the entire country, it's based on region, the cost of housing in a region. Is it possible to use something like that as a means of a base wage?
A: [00:55:45] [Warren Mosler] Yeah, certainly if the political will is there for that. Certainly there is no objection to that and I'm sure--would support it.
[00:55:55] [Mosler continues] Just wanted to add something I just remembered to Pavlina's. The size of this employed buffer stock, we'd expect it to be much smaller than the pool of unemployed for a given level of price stability. So for right now, if maybe the mainstream would think maybe we needed maybe 4 or 5 percent unemployed for price stability under normal circumstances, this might be only 2 or 3 percent because it's a much better buffer stock than unemployed because labor can actually flow back and forth and so it becomes more of a transitional job between unemployment and private sector employment than it does...there still would be elements of just a career public service job.
[00:56:36] [Mosler continues] In terms of what you want to do politically with it, yeah there's a lot you can do, you can introduce benefits from the bottom up. You could say two weeks vacation and then the private sector would have to have two weeks vacation to compete. You could say child care, you could put anything in it you want and introduce benefits from the bottom up -- health care -- and so competitive markets for courses would move those benefits up the scale.
[00:57:05] [Mosler continues] So what it does is allow us to use competitive market forces to achieve goals, it gives us a tool for that which is the American approach to things so it is a hybrid type of approach that gets rid of the moral hazard aspects of other approaches.
A: [00:57:21] [Bill Mitchell] In the South African case, we've had a really big debate about it, because one of things I've been doing was designing a minimum wage framework for them which would embed in the public works program we've been working on, and over there, of course, you've got...the approach I used, to help out the process, to use poverty lines and nutrition rates and things like that.
[00:57:52] [Mitchell continues] And, of course, then you find out that there's objections from the government: 30% of private employers are paying well below what you've suggested as your minimum wage. And, I said this to the Treasurer of the country, that what you've got to decide in any nation is that aims to be a civilized, sophisticated country is what is the minimum price you want people to be able to do business at? And that minimum price has to be a wage that provides people with an inclusive capacity to interact in society, and if your private sector are paying below that then you don't want them in your country.
[00:58:40] [Mitchell continues] That's the reality. Otherwise, you've got no aspirations to be a sophisticated, civilized country. And so the job guarantee wage is, you don't do away with the minimum wage, it becomes the minimum wage. And then you can add on whatever, like Warren says in political terms, you can add on whatever, in Australia we call them social wage benefits: child care and access to all sorts of other benefits that are outside the direct employment contract. But it is the minimum wage and you have got to set it at a level that you aspire to be the actual living minimum, not some penurious sort of penalty rate.
Q: [0:59:30] [Roger Erickson] I'm Roger Erickson again. Listen to this, I'm reminded again of something in a different field and the question is about policy. What we've heard described here is options for how we could be doing things differently but that's not how we can get this group or this population currently in this country to start exploring or selecting some of these other options. So there are two ways to look at this, one is historically and we have lots of to go on. If you look at small group theory, all these things get worked out through affinity bonds because the group is small enough that everyone is aware of group options as well as individual ones.
[01:00:14] [Erickson continues] The problem is scaling up to large populations. The only thing we've learned, I've learned today, is how we address this is we either have a war or a severe depression. We have to find a mechanism where a population can become self-aware enough to address this kind of...what it's leaving on the table, short of having a major depression or a war, and the only example I can think of, of groups that have done this very large scale, are large military groups and they do what you would expect from any systems theory, they drive interaction and awareness through absolutely political or operational decisions.
A: [01:00:55] [Bill Mitchell] I mean, as Pavlina said, India's got a bigger population than the U.S. and India has introduced the rural Job Guarantee, as a national employment guarantee, it's employed millions of people, already.
Q: [Unidentified] We'd love to hear how they did that.
A: [01:01:11] [Bill Mitchell] They did it because the growth in the Indian economy, which was urban-based in technology and construction...
Q: [01:01:21] [Roger Erickson] I'm sorry to interrupt you but just to make it brief, it's not what they did but how, whoever became aware first got the attention of their politicians.
A: [Bill Mitchell] I'm just explaining how they did that.
[Roger Erickson] OK so...
[01:01:32] [Bill Mitchell] They were faced, the motivation was that they were faced with an urban crisis because the rural poor had no option but to try to flood into the cities to enjoy the growth that was occurring there and they knew that wasn't sustainable for housing and other reasons and so they suddenly realized that the reason this migration is occurring is the lack of jobs in the rural sector.
[01:01:55] [Mitchell continues] Solution: Create jobs. Who's going to do it? The private sector isn't going to do it, we've got to do it and they did it. Millions of jobs have been created in the second largest population in the world.
Q: [01:02:08] [Roger Erickson] So the hundred dollar question is what do we have to do to make the existing Congress aware of things that it has taken them years to become aware of?
A: [Bill Mitchell] That's a good question.
A: [01:02:18] [Unidentified] Well that's a serious political question and I...it's going to take a grass roots effort. It's going to have to come from the grass roots because of, we're talking about, our political system is seriously dysfunctional. To get anything, something like this out of our current political system is just unrealistic. So it will be an incredibly difficult endeavor to do something like this but it doesn't mean we don't undertake the effort to do it and to start advocating this on several needs, several levels.
[01:03:00] [Unidentified continues] You know, conservatives, right-wings have had an incredible noise machine that they have used for several decades now. There's no reason why people on the left can not, don't have to do the same thing and particularly do it on a grass-roots level. You know, we can do it; it's possible. There are certain think tanks out there, progressive think tanks that are hopefully...will get on board with something such as this, soon. But it's going to take a long time. I don't know if I'll see it in my lifetime.
A: [01:03:39] [Marshall Auerback] I disagree, actually. Funnily enough, Warren and I have both talked about this, he's been on the campaign trail so he's had probably more media interaction but, whenever I've presented this idea, and I've presented it at a number of conferences, lot of speeches. I presented it once when I was in a debate with the former Governor of the Bank of Canada and, actually, it got a surprising degree of what I would call bipartisan support. I think as Randy said, a lot of people on the right like the idea that you can legitimize government expenditure by work and, especially when you sell them on the idea that it makes, it's not that we want to eliminate welfare, but you say it makes welfare redundant because you have this program in place it does actually tend to command a lot more appeal.
[01:04:28] [Auerback continues] Funnily enough, a lot of times I get, I've had objections from unions rather than from on the Right because what the unions think is that you're trying to create a slave class of labor that's going to undercut their wages and you have to try to explain you're trying to fill the gap and create a full employment pool which ultimately enhances their pricing power. So, in the first instance it can be a little bit deflationary because if you have someone who's been paid, say, $40 an hour and all of a sudden he's lost his job and he has to go to $8 there is a once off adjustment but then the adjustment mechanism the other way which is much easier. So I actually think this is one of our winning ideas which actually could get much greater political acceptance than you think.
Q: [01:05:16] [Jeff Baum] Yes so, again this is obviously coming to a lot of political questions and I think the big difference between the United States and basically every other country, especially India, is that there's just so much, number 1, there's so much noise and, I mean America is genetically averse to anything that sounds socialist, right? This is a socialist idea, how dare you, we believe in private industry so regardless of the merits of the argument there's all the noise.
[01:05:47] [Baum continues] But following on what you just said, how do you stop, if this becomes the minimum wage, what stops every minimum wage worker saying, "Why should I work in private industry? Why don't I just go work for the government, I can't be fired." And, effectively, that's the kind of argument you'll get from industry is that you're going to compete against private industry and that's going to drive wages down. I'm sorry not drive wages down, it's going to support wages and therefore we're not going to be competitive with government. Where's the argument there?
A: [01:06:18] [Warren Mosler] Look, we're going to have active fiscal policy that keeps, for a given size government, keeps taxes low enough so that the private sector will be able to have the means to hire everybody which means they're going to have to still have the means to pay a higher wage. So if we start off at an $8 an hour, first of all that's not going to be disruptive. I don't think anyone quits their private sector job for that or very few people.
A: [01:06:41] [Warren Mosler] Well yeah. It's full-time work. There are still people who are going to work baby-sitting and whatever. So -- you'll get a few and then we conduct discretionary fiscal policy so that this pool, the private sector hires these people away and maybe they'll have to pay ten or eleven or twelve dollars so it will be some spread but then that spread will stabilize and then that will be the stabilized private sector wage, let's say, unless we over stimulate...we have too much aggregate demand, we allow too much aggregate demand and then our pool of buffer stock workers shrinks to zero then, of course, it's no longer a buffer stock and then you lose control of prices on the upside just like with any other buffer stock.
[01:07:21] [Mosler continues] But if we conduct policy to keep it at two or three percent, whereas before we had unemployment at four or five percent we've actually reduced the public sector because the unemployed are in the public sector. Look the thing is, and don't forget when I told you about my cards in creating, if there's a tax to get out of this room and of, whatever, and then I don't hire enough, I don't offer enough jobs so you can get the money to get out of this room, why did I do it? Something's really wrong with my policy, I should be lowering the tax or giving you more work. Right? I should be increasing my spending or cutting my taxes. We got to get discretionary fiscal policy to the point where these people we've taken out of the private sector and not used in the public sector because either we don't want them, we don't want to spend, whatever, has got to be minimized.
[01:08:18] [Mosler continues] We want to minimize it but we also want to have a buffer stock as a price anchor. Now, every monetary system uses a buffer stock policy, a gold standard is a gold buffer stock, unemployment is an unemployed buffer stock. What we're saying is an employed buffer stock is far superior to an unemployed buffer stock and far superior to a gold buffer stock. It's larger, deeper more flexible, and most important, whatever your buffer stock is, it's always fully employed. There's always a bid for the buffer stock. On a gold standard, gold is always fully employed, you can always take an ounce of gold and sell it to the government and get money for it, you can always monetize it.
[01:08:57] [Mosler continues] In a wool buffer stock, where Bill started, there's always a bid for wool. Sheep are fully employed. [Laughter] No, it's true. So, right now, we use unemployment as a buffer stock, this clearly shows we don't have any idea what we're doing. Not only do we not understand the monetary system we don't understand that, well that's part of it. We don't understand a buffer stock always anchors a monetary system. We should be using an employed buffer stock.
Q: [01:09:21] [Jeff Baum] I get that point, I just think once again from someone who said before...I think that you kind of assume that everyone does because they don't understand it? Or they do understand it, they just don't care and it serves their interest.
A: [01:09:35] [Warren Mosler] Well I'll just just give you the benefit of the doubt for rhetorical purposes. [Laughter]
[Jeff Baum] Well, yeah. well, you tend to do that a lot.
[01:09:40] [Warren Mosler] Privately, I could say a lot of other things that you probably don't want to hear.
[01:09:45] [L. Randall Wray] I wanted to correct a misunderstanding because a lot of people do jump to this. We're going to guarantee a job offer for anyone who is ready and willing to work. And then they say, oh, well then they'll never get fired. No. We never said that.
[01:09:56] [Wray continues] They don't show up, they show up drunk, they don't do their work they are fired. Anything that the private employer can do, legally do to their employees, the employers in this program will do. And socialist, I think if you tell most Americans what we're going to do, we're going to require that people who ought to be working, define disabilities I think very narrowly, they're going to have to work instead of welfare. And you ask them, "What would you call that system?" All Americans are going to call that, "Oh, that's capitalism." They wouldn't call it socialism.
Q: [01:10:39] [Jeff Baum] Didn't they all ready say they converted from welfare to workfare? I don't know exactly what that meant but wasn't that Clinton's big thing?
A: [1:10:45] [L. Randall Wray] Well...but without the jobs.
A: [01:10:47] [Warren Mosler] At a minimum, you have to sell your time and that has value. And look, we're not talking about the government owning the means of production. We're talking about the government providing for public infrastructure. Public infrastructure is all the things you hire people for and then you've got this transition pool where you facilitate the transition from...back to the private sector and that's what this does. What, we're 750,000, I think out of the 2 million in Argentina 750,000 went to private sector unemployment within two years. People who never would have done this before, was it more than that?
[Pavlina Tcherneva] Yeah, I think it was more.
[01:11:22] [Warren Mosler] More like half, a million, that's enormous. These are people who had never been in the private sector, never held a private sector job. The biggest service this did to the economy, well one -- all the direct things, but secondarily it allowed the economy to expand at very high rates without labor bottle necks. It's an extreme facilitation of the private sector, where right now private labor does not flow from unemployment to the private sector very well at all. It takes a lot of demand pull to get that done which is to everyone's disadvantage, to the detriment of all of us.
A: [01:11:56] [Bill Mitchell] Just in terms of your concern about the business sector. I've been on about this for, what is it, thirty-two years now, since I was an undergraduate.
[Warren Mosler] Since the second grade.
[01:12:13] [Bill Mitchell] Well as Warren said, I got the idea sitting in my fourth year at Melbourne University and I was sitting in an agricultural economics class and at that time the Australian government was running what's called the wool price stabilization scheme. And it worked by the federal government when the private market didn't want to buy as much wool as was put onto the market the government bought it up and stored it in big sheds. And when the markets were strong the government wanted to stabilize the price, it just released the wool out of the sheds and back into the market. And it was very successful, it was used to satisfy the rural lobby to stabilize their income so they weren't fluctuating. It was very successful. And I remember sitting in this very cold winter day in Melbourne, in Victoria, where I grew up, thinking well I didn't really care about...it seemed like a full employment of wool scheme. Every bit of wool that was produced was employed, either in the shed or in the private sector somewhere. And at that time Australia was just going into very high unemployment, it was 1978, and I said I don't really care about wool so much but I care about labor and we could use a buffer stock to do that for workers.
[01:13:31] [Mitchell continues] But the point about business is, I often give talks to the business community and they're as right wing in Australia as they are here and I've given talks in the Netherlands where they are as right wing as they are in South Africa and elsewhere and its more to Warren's point. I ask them the question, they're all in suits and what have you, and I say where are the unemployed now? And its a question they'd never really asked I don't think and eventually I get them to admit or understand that the unemployed are all ready in the public sector. Now you are having debates in Congress somewhere down there or up there, I'm not sure of the direction, about extending unemployment benefits. Well, that's a recognition, and you'll obviously do that again, given the skull and the crosses I would imagine, but in Australia we have the unemployment benefits guaranteed. But that tells you where the unemployed are, they're in the public sector. So then I say to the assembled businessmen, typically men, I say, "Well what are they doing in the public sector?" And I can get them to chant, "Nothing." And then I say, "Well are you happy about that?" And I can get them to say, "No. The bastards." [Laughter]
[01:14:47] [Mitchell continues] And I say, "Well wouldn't you rather they'd be doing something productive in the public sector?" And they say, "Yes." And once you go through this logic you can sneak up on them. [Laughter] And in the end they become supporters of the job guarantee doing community-based development work, doing environmental care services, doing aged care services, because they would rather, their ideologies and their prejudices would rather see them doing something than nothing. It's very easy to persuade them.
[01:15:22] [Unidentified] I would like to echo what Marshall was talking about. It kind of surprised me and woke me up. I have right wing friends, I'm sure you do, too but there's one thing that does echo with them, "Put them to work and they'll pay taxes." And believe me, they agree with me on nothing else and they think it is a good idea. Believe it or not...
[01:15:45] [Marshall Auerback] By the way work-fare, work-fare with the state-administered program and one of the reasons why it didn't work goes back to the old argument that states don't create currency so it creates, there was an external constraint. But even at that it did reduce the welfare rolls for a time when you had employment being created, but it can administered on the local and state level but it has to be funded at the federal level. That's a key point.
[01:16:18] [Bill Mitchell] I meant to say something about work-fare, in Australia, we call it "work for the dole." And its nothing like a job guarantee because it's... a job guarantee is an unconditional offer, the government sets the price and says we'll take anybody. Work-fare and "work for the dole" are compliance programs to force people to do sort of like Shylock in the Merchant of Venice. The government wants you to do something for the pittance of welfare they offer. It's typically not anything like a living wage. It's a program, not an entitlement. It's usually short term projects not doing very much at all. Whereas a job guarantee is an ongoing guarantee and people say to me, "Well what if someone wanted, liked working in the job guarantee?" And I say, "Well, what's wrong with liking your job? It sounds to me like a good thing if you actually settled into the job guarantee for life and made it a career move. What's wrong with that?"
[01:17:24] [Mitchell continues] Most people won't do that but some people might. And then it's up to the private sector to restructure their jobs, and their wages and conditions offered to make themselves competitive. What's wrong with that, that's going to increase productivity.
[01:17:43] [Pavlina Tcherneva] Just one final note on the work-fare. It was considered a success only because of the reduction in welfare rolls but when you look at the actual conditions of the recipients, poverty did not change and, in fact the income they received was less than if they had remained... The income was through jobs was less than what they would have gotten on welfare. So it was considered a great success through the Clinton Goldilocks years, right? But now it is a whole different ballgame. And so you have also these additional issues if you would like to facilitate this transition from the public to the private sector as well, you also have to provide certain protective services if you will. You gotta provide some sort of transportation, day care services that will facilitate this transition into the private sector so there are things to do.
[01:18:37] [Joe Firestone] You have a question.
Q: [01:18:38] [Unidentified] Yes. I want to ask, well not a job guarantee related question. I have a friend, an Australian economist and he told me he had to give up on his academic career because he had not mainstream views. So I want to ask did you have to hide your true views in order to advance in your, obviously you're professors so you teach students? Did you have to initially hide your true vision in economics in order to get the jobs?
A: [01:19:25] [L. Randall Wray] I don't think anyone here did but we were special cases. Let's say that our goal was to get a position at Harvard, Yale yes, you absolutely would have to hide this and wait until you had tenure and then you could finally promote this and write the kinds of things, I mean the things related to this. But none of us made that choice.
A: [01:19:49] [Stephanie Kelton] But we know lots of people who have suffered the slings and arrows, these kinds of things. We've seen university departments, economics departments implode over differences between those who hold these kinds of views and those who hold the more conventional views. And I think we all know people...yeah at Notre Dame.
[Unidentified] The Fighting Irish, literally. [Laughter]
[Joe Firestone] We have a question back here.
Q: [01:20:15] [Unidentified] This is more of an idea than a question but just on the question of how do we kind of implement getting this idea on to the mainstream, I think everyone knows the President's debt commission is going on right now, I don't know if everyone knows that since they have no budget they're actually outsourcing their roles to the Pete Peterson Foundation, including the listening tour is actually going to be the listening tour that America Speaks is putting together that the Pete Peterson Foundation is paying for. The Foundation went to America Speaks with a bag of money to do it all themselves and they said they wouldn't do it if it were just the Peterson so they got MacArthur to lend their name but it's all Peterson money. We know what Peterson wants to do with it. There are twenty hearings around the country on June 26 and the thing is they're all open to the public.
[01:21:10] [Unidentified continues] So this is the exact type of thing that if there is a coordinated effort, if we can get people into those meetings then we can raise this and at least pull the discussion to a more balanced place than where Pete Peterson wants it and he paid millions of dollars to make sure they end up with the recommendations that he wants. So, again, the organization is America Speaks and I feel like this is something that this group could do by email and try to get folks into as many of those meetings as possible with this idea offered up as something that the people want.
[Warren Mosler] Any bloggers in here?
[Unidentified] One or two.
[Joe Firestone] We got all kinds of bloggers. Not everyone is raising their hands.
[Warren Mosler] Can't hurt, can't hurt.
A: [01:21:57] [Stephanie Kelton] I understand, and Randy and I heard yesterday some things like you're talking about but I understand these are very difficult to penetrate, that the groups are pre-screened. It may be even an invitation-only although it may have the appearance of being open to the public and a mix of everyday common Americans. But my impression is there is a gatekeeper and it might be pretty difficult to penetrate those meetings.
Q: [01:22:33] [Joe Firestone] Just a question. You focused really, wholly on the job guarantee with respect to the policy implications or policy considerations. Could you comment some on the health care issues and the environmental issues and some of the other policy issues where we are not attempting to meet any of our problems due to budgetary considerations? Those considerations always come in first and seem to control the agenda, they're kind of in the background but, this is off the table because it costs too much or that is off the table because it costs too much.
A: [Warren Mosler] I think you just said it all. [Laughter]
[Stephanie Kelton] I was...
[01:23:18] [Joe Firestone] I'd like to hear you say it. I say it all the time but I don't hear you say it [inaudible].
A: [01:23:24] [Stephanie Kelton] I think this comes back to what we've been hammering at all day long which is that there are all kinds of self-imposed constraints. If you say that you're only going to fund Social Security out of the payroll tax and you use, you establish these Trust Funds and you say the Trust Fund must have a positive balance or else we're not going to clear the checks at the level that's been promised then we're only going to be able to meet 77 percent, or so, of promised benefits after some date. I was rereading, I was telling Warren yesterday, I was looking at the Trustees Report from 2009 for Social Security and Medicare and what the Trustees are projecting for the Old Age Survivors Insurance Trust Fund OASI, the Disability Insurance Trust Fund DI and you put them together and you get OASDI and you get what everyone commonly refers to in everyday language as the Social Security Trust Fund.
[01:24:19] [Kelton continued] Those are both projected to go bankrupt at some future date. In the 2009 Report, the day of doom is now 2037 on those two programs. Health Insurance Trust Fund, the Medicare care side is also projected to blow up. That's supposed to go bankrupt. The Supplementary Medical Insurance Trust Fund (SMI) is projected to be solvent into the indefinite future. As far as the Trustees can see, 75 years and beyond, there is no problem with the SMI Trust Fund which is Medicare Part D and Medicare Part B. Why is there this difference? Why are the other three going broke but this one is perfectly fine? And it happens to be that the government has guaranteed to make all payments for Medicare Part D and Medicare Part B out of General Revenue and tied the payment of benefits for other Medicare payments, hospital benefits, and Social Security to the availability of the funds in the Trust Funds. And so, I mean it's crazy, it's right there in the Trustees Report and they say it very clearly that the reason Supplementary Medical Insurance plan is solvent as far as the eye can see is because the government says so. It's as simple as that.
A: [01:25:45] [Warren Mosler] Just to your last question.
Q: [Joe Firestone] So the whole problem with respect to Social Security and also Medicare is just to have the government say so?
A: [Warren Mosler] Yes.
A: [Stephanie Kelton] Exactly, it is an accounting problem, it's not a financial problem.
A: [01:26:00] [Warren Mosler] So look, I think we also tend to agree that unemployment is a large cause of the environmental degradation. Nobody cuts the trees down when they don't need the money and don't need the jobs. So, so many of these things that go on are in the name of creating jobs when that shouldn't be the case, we should be at full employment anyway and then the pressure for that would go away.
A: [01:26:26] [Bill Mitchell] Here's a snippet of policies that are current and that I've written about and that are on my blog. Health care, America has a crazy health care system. It's a dysfunctional health care system and you could be very well advised to look at the Australian system, Universal Health Care. The poorest person in Australia has immediate access to first class health care whenever they want it. And nobody suffers from lack of income in relation to health care. So I think Universal Health Care is something you should aim for. The government will always be able to afford that if there's enough real health care resources available and if there's not, then you could redeploy people who I'm just about to be put out of jobs in the financial sector as doctors and health care professionals.
[01:27:20] [Mitchell continued] Environment, I've written that, and your government is toying with the same sort of nonsense as my government. Emissions trading schemes, market-based trading schemes are ridiculous. You need rules-based schemes. That is you need to identify, in say Australia's case, it's the biggest coal exporter. Coal is not a viable long term industry in environmental terms. Give it twenty years and then close it down. It's a rules-based approach. The sort of emissions trading systems that Europe has been implementing are dysfunctional and will create a worse problem.
[01:27:59] [Mitchell continues] Financial sector, we need radical reform of the banks. Banks need to go back to being financial intermediaries, not speculators. And I would immediately outlaw almost all OTC trading and redirect those workers into other jobs that might help us solve cancer and create environmental care solutions and things like that. The only speculation I would allow is that there can be readily attached to the real sector, for example, forward markets provide a counter-party for a manufacturer who wants to hedge exchange-rate exposure on some manufacturing contract that crosses borders, that's fine. That's speculation that serves a real purpose. Any speculation that doesn't should be outlawed and I would create public sector jobs to provide gambling advice to those that I've outlawed. [Laughter]
[01:29:05] [Mitchell continues] So there's some policy initiatives. I would...The future to our inter-generational challenge dependency ratio challenge is first class education at all levels and public education in my country services, by far, the greatest majority of people and I'm not so sure here but probably secondary school still does here. And I would have massive injections of public spending into education to increase their productivity. As our dependency ratios will surely rise we will be able to get more output per unit of worker and not have to worry about the real resource shortages that might arise. But as we said this morning the irony is the solution we've adopted is to trash our education systems and therefore we are undermining our future when we think we're actually supporting it. So there's a few snippet policies.
[01:30:12] [Joe Firestone] One more question and then I think we're going to have to wrap it up, at least, the formal ceremonies for the day. Can you pass over the microphone before you start?
Q: [01:30:26] [Unidentified] This should be a short question. We've added now three countries as examples of that social unrest provided the impetus to get policy makers' minds focused on this. We all know, most of this audience knows about different parts of the United States so, at least I'm very curious to know, is there any significant difference in the resistance of people to discussing these ideas in Australia as compared to the United States?
A: [01:31:03] [Bill Mitchell] No. With all due respect, the dialog is more civilized in Australia. Fox News couldn't exist in Australia.
Q: [Unidentified] What do you mean? He came that way.
A: [01:31:21] [Bill Mitchell] The boss exists, that's why we got rid of him. [Laughter] But the type of journalism wouldn't survive in Australia, we would think it was a joke. Even the, what I would call the extreme right in Australia is more civilized than Fox News. And one of, we were having a conversation with someone this morning, one of the differences might be I sense there is much more of a religious zeal here than there is in Australia. We don't have the fundamental sort of puritanical origins. We were criminals after all. [Laughter] And I think you've commented, Randy, when you've come across, when you've been interviewed by our press, that you were surprised by the sort of questions the press and the way in which the public discourse and policy discourses is played out. It's more civilized.
[L. Randall Wray] It's more intelligent.
A: [01:32:29] [Bill Mitchell] It's more intelligent Randy's saying. Well I wasn't going to sort of say it [Laughter]. But at the end of the day the neo-liberals invited us too. But our welfare state has been degraded but not destroyed. And I think that they haven't been successful in getting rid of Universal Health Care, they haven't been successful in getting rid of a decent minimum wage system, they haven't been able to completely trash public education. They've tried all of those things, they haven't succeeded in doing that and they never will. It's too culturally embedded in us, in our, we're a more collective society than the U.S., we have a more, we have this concept called mate-ship, and everybody's a mate, even your enemy is a mate in Australia. And that's a very strong collective tradition, goes back to the settlement, goes back to our war efforts, and our ANZAC tradition and all of that stuff. At the end of the day we will not allow a fellow worker to go without health care if they don't have income, we won't allow them to go without housing if they haven't got income, it just wouldn't happen.
[Joe Firestone] There is one last question.
Q: [01:33:56] [Unidentified] Just one. Just to follow-up on that. All my life I've seen the right-wingers arguing for things that are plainly destructive and you just said they were trying it in Australia and they couldn't succeed but what are they doing it for? Why do we have so many people trying to do this kind of stuff?
A: [01:34:24] [Marshall Auerback] You know I'm Canadian and just a little anecdote. One of the reasons we almost didn't avoid the sub-prime bubble was because AIG came up to Canada when the Harper Tory government come into power in 2006 and they argued for us to liberalize our insurance markets so they could offer programs like Credit Default Swaps that was AIG's doing. And the Tories were no more ideologically predisposed to do this than the previous Liberal government was. Maybe they just wanted to expand their money-making machine across the world and maybe they always want to do that.
Q: [01:35:13] [Unidentified] So is it just like when you have a two year old who can crawl all over you and do terrible things but the reason he does that is because he doesn't know he can hurt you. I mean, are these guys like just children trying to get what they can and do what they want and not know that it has consequences?
[Bill Mitchell] I don't think there are any psychologists on the panel. [Laughter]
A: [Warren Mosler] I think they do it for the funding.
Q: [Unidentified] It seems to me it's somewhat for the fun. To make it more exciting, to make life more interesting.
A: [01:35:50] [L. Randall Wray] But a big part of it is, so you can step back and look at the big picture but there are little stories about each one of these, so each individual firm, each individual sector is trying to get a bigger share. And so, they're advocating for things they see as in their own individual interest and then we can step back and we can say, "When you add all these things together it's a disaster." I think that's part of it. Now, I do believe in conspiracies, too -- but I don't think you have to go there to explain why, if you're Goldman Sachs and you're going to be peddling Credit Default Swaps and you're betting against your customers, you would like to see that allowed.
Q: [Unidentified] There used to be moral, there used to be things you wouldn't do.
A; [Unidentified] Yeah, and there used to be regulation too.
A: [01:36:35] [Warren Mosler] But the other thing is you have a lot of successful people who think that it was because of their own doing and then fund organizations that support self-reliance and all these things we consider right-wing types of things, less government and that type of thing. And you're not going to stop that, it's just human ego.
A: [01:36:56] [Bill Mitchell] Yeah, I think the question about regulations is important. I mean the big difference between Australia to here in the financial sector is we really kept the regulations on the banks. And not one bank went close to failing in Australia. I mean we didn't even have a recession because the financial implications were very muted in Australia. And that's because we still maintained most of the regulations. Like you ditched your 80/20 rule, we didn't have an 80/20 rule we had a 75/25 rule, we didn't ditch it. The modification we had was anybody who wanted to go without a 25 percent deposit had to insure. And the banks had to insure them. And that's a fundamental difference.
[01:37:48] [Mitchell continues] And the other big difference, of course, was that, and I think you've made this point sometimes too, Warren, is that when did the sub-prime crisis become a crisis? When did we get this sort of debt melt down? We got it when we, there was no doubt at the margin that people who should never have got loans. But when did good debt become toxic debt? When people lost their jobs. You could have avoided a whole lot of the bad debt problems if you had an earlier and more substantial fiscal intervention. Whereas in Australia we had a very early fiscal intervention and a relatively large fiscal intervention. And the deficit terrorists were saying, "This is ridiculous. What are you doing? You're going to kill us." But it saved us. And it stopped a lot of the good debt becoming bad debt. You didn't do that here. And that's cultural and, whoa, intelligence, as Randy says, I didn't say it. [Laughter]
[Warren Mosler] When you're upside down the blood goes to your head.
[01:38:57] [Joe Firestone] I'm sorry, I'm afraid we have to stop. It is the time, the witching hour. So I'd like to thank all the panelists who worked so hard on this and who came so far and who really sacrificed a lot in order to do this today. I'd like to thank you all for coming, for all the questions and for all the statements and it's really been a very exciting day and a very satisfying day, especially for me.
[Unidentified] I think we should give Joe a hand. [Applause] Joe created a website, FiscalStability.org And...
[01:39:41] [Joe Firestone] Actually it wasn't I who created it, it was Lambert.
[Unidentified] Lambert. OK, Lambert. And on that website, since conferences like this do cost money, they do cost money, there is a contribution, if you find it in your heart and in your pocketbook, there is a contribution button there in the margin you can click and contribute to help defray...
[Unidentified] And also say other helpers came together to [applause]
[Joe Firestone] And we also want to thank the Department of Management and George Wash...
[01:40:44] END TRANSCRIPT
audio available here