The dawn of a new economic paradigm?

Adam Keily: [00:00:52] Hello, welcome to comedian versus economists, we demystify the world of money and help you get a handle on the bigger picture. My name is Adam and I'm joined, as always by my older brother and real-life economist, Thomas Thomas. How are you? [00:01:05][12.7]

Thomas Keily: [00:01:06] Good, thanks. How are you doing? [00:01:06][0.9]

Adam Keily: [00:01:07] Very well, thank you. Happy New Year. Oh, and to you. Oh, thanks very much. I was mentoring you at Christmas and I didn't. So, you [00:01:14][6.5]

Thomas Keily: [00:01:14] know, I was busy too. Had the big one, you know. [00:01:16][2.1]

Adam Keily: [00:01:17] All right, good chat. I look, we're almost at the end, Thomas, of the introductory series, which is exciting. So big. Thanks for joining us so far. If this is your first time tuning in, then make sure you go back and check out the first seven episodes of the series. We're going to leave them. There is a bit of you know, hopefully, something that people can come back to. As we press on and discuss more news and current events in the world of economics, something can come back to you to get a handle on some of the fundamentals around economics. But before we get started on this week's episode, we have had a couple of emails which really appreciate people who have sent us some email to cve@equitymates.com. You can also find us on the website at equitymates.com/cve. We would love to hear from you if you have got questions. A couple of emails I wanted to mention, Thomas. The first one is from a guy called Sean Sheraz. Do you Sean. I'm already a big fan of Sean because he's calling you out which I love. You said that you couldn't negatively gear shares, but he reckons maybe you can. True or not true? [00:02:27][69.9]

Thomas Keily: [00:02:29] Not true. Sean's on the money with that one. Yeah, no, it's talking about it's not not as common as negatively gearing an investment property, but it is true that you can borrow to invest in shares and your interest payments. You can offset that against if you're making a loss, if you earn less in dividends and you pay interest, then you can claim it as a tax deduction. So Sean's on the money with that. Jussara, I'll be a good reminder not to take your tax planning advice from two guys on a podcast. [00:02:57][28.8]

Adam Keily: [00:03:00] Right. And I don't know, would you like to apologize to the listeners. [00:03:04][3.3]

Thomas Keily: [00:03:04] Yes, yes. I'm very sorry. [00:03:06][1.6]

Adam Keily: [00:03:09] And to me for misleading me. I've just, I've just been lapping up everything you've said. Oh no. Treating it as gospel. [00:03:15][6.2]

Thomas Keily: [00:03:16] Turns out after two weeks you could have been negative gearing your share portfolio and you dismissed that. What a waste. [00:03:23][7.7]

Adam Keily: [00:03:25] Well, thanks anyway, short for clearing that out early. Appreciate it. So if you don't pick anything else up, then be sure to let us know. But hopefully, hopefully most of this is true and factual. We also had an email from Joe Joe. I had a bunch of questions. Really appreciate that, Joe, some of which we're going to cover off in some of the later episodes. I think so. I don't want to I don't want to spoil the good stuff now. But one of the ones that stood out was Joe's asking what is the economic benefit of volunteer work and how is it measured? Like what would happen if we all just stopped volunteering? And I'm kind of curious about this one because I do a bit of volunteering myself. Thomas is a top bloke. [00:04:03][38.0]

Thomas Keily: [00:04:04] Yeah. [00:04:04][0.0]

Adam Keily: [00:04:06] Anyway, what would happen? What's what's the economic benefit and what would happen if it's stopped? [00:04:10][3.7]

Thomas Keily: [00:04:12] Well, the economic benefit is there is none is technically speaking. Well, it depends, again, because I was about to get a reference point. Ah, but we're talking about GDP. Volunteering is not counted in the measure of GDP. So the labor hours and what you produce as a volunteer that's not captured in our GDP measure. So GDP only captures what's in the market economy. So the headline stats that you're going to see on the news and whatever, that none of volunteering is just not included in any of that. So if we all stop volunteering tomorrow, initially would have no economic impact. You wouldn't see that in the stats, but obviously. You know, they have [00:04:51][38.7]

Adam Keily: [00:04:51] to cover the cost, though, as I mean, I volunteer down to the surf club as surf lifesaving and all the stuff down there, and if I stop doing that, then someone would have to pay someone to do these things so that there's an impact there, isn't it? [00:05:05][14.0]

Thomas Keily: [00:05:05] Yeah, that's true. That's true. And this is one of the critiques about economic growth over the last how many years or whatever. There's a lot of what we're doing is taking stuff that was outside the market economy and pulling it into the market economy. So the other big obvious one is, is child care. So that was happening outside the market. Mothers weren't getting paid for the work that they're doing, very valuable work that they were doing, but what they weren't getting paid for it. And so it wasn't captured in the economy when once we started paying people to do it, even though the same the same amount of children were getting the same amount of care, we've now got an increase in in what way? We're measuring as far as the economy and we're getting a measurable increase in economic growth is actually one of the headwinds that people are talking about going forward is that over the last sort of 50 years or so, we've seen female labor participation rates increase has been a trend increase. But in most of the developed world now that seems to be peaking out. So we're not going to see, you know, as more women join the workforce, expand the productive capacity of the economy, we saw the economy grow and there was a growth dividend out of out of that increased participation. But that's now peaked. It's not going to go down, but it's peak. So we're not going to see any sort of a growth benefit from more women joining the labor force like we saw over the last 30, 40 years. [00:06:26][80.9]

Adam Keily: [00:06:27] Wow. Yeah. Big thanks to Joe and Sean for sending us emails. Don't forget, you can always you can hit us up anytime and we'll try and yeah, we'll try and work through some of those questions as we progress through the series. But for now, big topic today, Thomas. A big topic that I know a lot of people want to know about and probably don't really understand, myself included. We're talking modern monetary theory. And can I just start by asking you, what is it? What is a modern monetary theory? [00:06:54][27.1]

Thomas Keily: [00:06:58] OK, so it's a it's a description of how the economy works, particularly the way money works and the way money flows, specifically between the government, the public sector in the private sector. And so it seeks to be a description of that. That's what the theories about. [00:07:16][17.9]

Adam Keily: [00:07:17] So it's not something that someone came up with like here like normal theories where they're like, we should try this and see if it works. Is it just a kind of a byproduct of a bunch of policy or is it something that is it a plan that someone had to put in place? [00:07:33][16.2]

Thomas Keily: [00:07:34] Now, you probably think of it more like Newton's theory of gravity. [00:07:37][3.5]

Adam Keily: [00:07:39] So I know well, yeah, yeah, I mean, gravity, yeah, [00:07:44][4.3]

Thomas Keily: [00:07:45] but Binyomin mean, like we had a had an idea of how gravity works and the Newton came along and said, well, no, actually gravity works like this. Right. I reckon. And I can prove it. So modern monetary theory is kind of the same way they sound like we think the economy works like this is a bunch of proof to make that case. I mean, it's probably worth just rewinding a little bit like people like to me. Soon as we get into modern monetary theory, I can hear people going is turning off and it gets a bit dull. But right now we're in the middle of a paradigm shift in economics, in the economics discipline, where where it is, things are changing radically. And that and that has radical implications for what we're seeing, particularly the way governments are operating now. And so in the Australian case, you know, here in the beginning of twenty, twenty one, we're talking about going from, you know, borderline surplus budget surplus for the government. We're now talking about a trillion-dollar deficit. So moving in the space of a year or two from pretty much from a zero deficit to a trillion-dollar deficit. [00:08:51][66.9]

Adam Keily: [00:08:53] We had a budget emergency. [00:08:53][0.7]

Thomas Keily: [00:08:54] We did with an emergency. It was an emergency. [00:08:56][1.9]

Adam Keily: [00:08:57] There was there were red flags. There was alarms going off. People were panicking. There was panic in the streets that we had to get back in the black and we had to get back there quickly. And we did Zoidberg was telling us we've got to get back in the black [00:09:09][12.3]

Thomas Keily: [00:09:10] and back on track. [00:09:10][0.7]

Adam Keily: [00:09:11] That's right. And back on track. [00:09:11][0.8]

Adam Keily: [00:09:12] Back in the book. What happened to that wreck that we're trillion dollars in debt. Yeah. Off the tracks as it turns out. [00:09:18][5.8]

Adam Keily: [00:09:20] So why I mean I know that the current climate we're in COVA times and there's lots of things that we can be worried about. But I feel like this might be something we should also be worried about. We shouldn't just. [00:09:30][10.4]

Thomas Keily: [00:09:32] Yeah, yeah. We need to be thinking about it. But it is interesting that, you know, we've gone into such massive there are two things that happen. One is we've we're printing money like it's going out of fashion. So that was a sort of a big economic no-no for a generation or two. And the governments are going into massive debt. [00:09:50][18.8]

Adam Keily: [00:09:51] So what changed the thinking that so it was a big economic no to print money. Then something snapped one day they're like, you know what, we should just start printing money. [00:10:02][10.4]

Speaker 3: [00:10:03] But he said, [00:10:04][0.7]

Adam Keily: [00:10:04] let's give it a go, see what happens and what it worked. And now, like, I mean, why is it working now? And it so frowned on that for that period. And then why is it okay to print money? [00:10:18][13.4]

Thomas Keily: [00:10:18] Now, let's jump back and let's look at why it was a bad thing. [00:10:21][3.3]

Adam Keily: [00:10:22] So I like can I rephrase the question? Do deficits matter [00:10:28][5.7]

Thomas Keily: [00:10:33] Yeah, yes. But probably not in the way that we've been conditioned to think that they matter is probably right. Is probably where we're landing. And it's probably worth stressing like we were in the middle of a paradigm revolution. Like I mentioned, that [00:10:47][14.4]

Adam Keily: [00:10:47] it was a shift before. Now it's the revolution. Revolution. I'm not even sure what the word paradigm means is it sounds like it could be some kind of shape [00:10:54][6.2]

Thomas Keily: [00:10:55] from the inside is a different angle, though, with two sides. [00:11:03][8.2]

Thomas Keily: [00:11:08] So Karl Popper has this idea of scientific revolutions. And so we have this idea that science and knowledge advance incrementally, that we learn little things, that we grow, we grow the knowledge, understanding, and that's how knowledge advances. But Kaupapa is a philosophy says that's not really how science work works. You have a view. You have a paradigm, a way of thinking about things. And everyone holds onto that view for a long time until the evidence against it becomes overwhelming. And then very suddenly you have a shift. Right. And the thing changes. And so like so the movement from flat earth to around Earth. And that idea, you know, for a long time it was a flat earth and it became a heresy to say anything different. But then eventually the evidence against it became overwhelming and then suddenly it flipped. And then everyone's all about the round earth. Yeah. But there's this sort of phase that as that shifting, that it's contested. The truth is contested. There's a contested paradigm. There's a contest for how the way we think about things. And that's happening right now in economics. And that's why it's it's a really fascinating time right now and particularly as real-world implications, because, you know, with trillion dollar deficits, one hundred billion out of the RBA in six months, this money printing like we haven't done this before. [00:12:30][82.8]

Adam Keily: [00:12:31] I mean, we were always weren't we always taught that the government was managing the economy? In the same way that we should be thinking about managing the household budget. If I was in the equivalent of my house of a trillion-dollar deficit, I'm calling lots of people to try and help me get out of it. I'm calling financial advisors. I'm calling, you know, the banks because I got some serious debts going on. No one's calling the government, are they? Now everyone's just like, oh, that's fine. Government is this got heaps of cash that you're printing because they're protecting their own. [00:13:08][37.0]

Thomas Keily: [00:13:08] Yeah, that's that's the big difference between you and the government is that the government is issuing a currency, issuing differences. [00:13:14][6.0]

Adam Keily: [00:13:15] Yet it is irresponsible of them to use they use the household budget analogy. And wasn't it. [00:13:21][5.4]

Thomas Keily: [00:13:21] Yeah. I mean, it's not it wasn't a mistake. It was sound bite politics. You know, people you could sell the idea that good economic management of an entire nation, which is a very complex task, boiled down to something as simple as running a surplus or running a deficit. And it's it was never true, but it was good sound bite politics and the whole debt and deficits disaster and all of that like it were it wasn't driven by anything other than just sort of soundbites and. Right. And it's not to say the deficit. [00:13:52][31.0]

Adam Keily: [00:13:53] It was easy to say. It was easy to understand. [00:13:54][1.3]

Thomas Keily: [00:13:54] Easy to understand. Yes. It's a metaphor isn't easy because people people are running their household. They know what happens when you run out of money. They're very afraid of running out of money. It's a very it's a strong fear point that you can leverage off. And that's what politicians of all stripes have done for the decades. But it's just not that it's wrong. It's just it's just much, much more complex picture than that. And there are two really interesting, interesting differences that the modern monetary theory is pointing to and saying why this metaphor is just wrong, that this you don't run the nation the way you run a household. The first is that you're printing money so that you can just if you run out of money, you can just print more money. And the Australian government has that capacity because it's a currency issuer. So it never can never really run out of money. It just it can just print more money. The other key insight from modern monetary theory, which I think is really interesting, is the way you run into a deficit is that you spend more than you earn. So typically, you know, the way you go where it works is the money comes in, you get paid, and then you spend the money. Monetary forces, [00:15:09][74.2]

Adam Keily: [00:15:10] I spend the money, but I borrow some more money to spend money I don't [00:15:13][2.7]

Thomas Keily: [00:15:13] have. Yeah, let's let's leave the borrowing to the other side for the moment at that low later. [00:15:19][5.9]

Adam Keily: [00:15:20] I'm tired of I'm trying to envision spending money that I haven't got without borrowing. And that doesn't make any sense. [00:15:27][7.0]

Thomas Keily: [00:15:27] No, no, no, it doesn't. [00:15:28][0.9]

Thomas Keily: [00:15:29] But Motoman says that's in practice. That's not actually how what happens for the government. The government spends the money first and then takes it back out of the economy through the taxation system. Right, so the government isn't waiting for you to pay your taxes before it starts paying its public servants and spending money on infrastructure and stuff like that, it's not waiting for that money to come in before it spends it lucky. Yeah, in practice, what happens is it spends it and then takes it back out of the system through taxation. And there's a little bit chicken and egg because it's kind of drawing points in a circle. But it's sort of an important distinction because it's the the the spending happens, the money is created and introduced into the system first and then taken out on the other side. [00:16:18][48.8]

Adam Keily: [00:16:19] And so it's borne out by later. [00:16:21][1.7]

Thomas Keily: [00:16:22] Yeah, yeah, yeah. You should invest in it. [00:16:24][2.4]

Adam Keily: [00:16:25] The government don't have to pay. [00:16:27][1.0]

Thomas Keily: [00:16:27] Just told you it was popular. [00:16:32][4.9]

Thomas Keily: [00:16:33] Yeah, yeah, yeah, yeah. So with, with a monetary sovereign nation is that this is a concept monetary monetarily sovereign. So you have the ability you monetary sovereignty, you have the ability to print your own money and create your own money as the Australian government does, and your debts are mostly or entirely issued in your own currency. So that's a case, that's a key thing, that's a key thing, yeah. So, yes, if you start printing money, it starts to devalue your currency. But if you start to devalue your currency, you know. Like looking at sort of the external trade balance and leaving the internal economy to the side for one moment, if it starts to devalue a currency, then and your debts denominated in another currency like so, for example, like a lot of developing countries issue debts in American dollars. So large companies say, look, I'm not going to lend to you to lend you money, Argentina, because I don't know that your money's worth it. But I'll lend it to you if you promise to pay back X number of US dollars at the end of it. Right. So if I start devaluing their currency, that means that their debt start escalating. They become more and more expensive to the point where they can't pay for them anything. And this is and this is this is typically what's what was the big bugbear? The big fear point around money printing is that you create this kind of debt disaster and you think about what happened in Germany, in the Winmar Republic, and the hyperinflation. It's like, I don't know if you heard about this, but this is a [00:18:11][98.0]

Adam Keily: [00:18:11] yes, yes, yes. It's an interesting story about the Winmar republic, that's for sure. [00:18:17][6.3]

Adam Keily: [00:18:19] Yeah, I know. Yeah, well, we'll cover the ground. But let me just ask you. I'm sick of hearing about it. [00:18:24][5.1]

Adam Keily: [00:18:24] We way wave our republic. This was not a republic that [00:18:29][5.5]

Adam Keily: [00:18:32] just humor me. I remember Zimbabwe. That's like more recent, isn't it? Yes, but we had a lot. [00:18:36][3.9]

Thomas Keily: [00:18:37] Yeah, same thing, but like the German hyperinflation was is the classic hyperinflation case, and it's sort of the thing that everyone sort of points to and what happened there is that they were printing they were printing money, but they owed all the money to the allies after World War One. That was that they had to pay in gold. And so the more money that they printed, the more money they had to get to buy the gold, to pay the allies back. And it spiraled out of control and the currency became more and more worthless. Yeah. Mhm. Yeah. And like it was like the stats are kind of crazy, like in like the Ren of the years. Exactly. But in like 1929 you could buy a loaf of bread for two hundred and thirty marks or something and then in three years it cost two hundred and thirty trillion marks or something, [00:19:25][47.6]

Adam Keily: [00:19:27] just got totally out of control. All right. [00:19:31][4.4]

Adam Keily: [00:19:34] That's crazy. [00:19:34][0.3]

Thomas Keily: [00:19:35] Hmm. And this probably wouldn't wouldn't have been such a huge problem for them if their debt weren't denominated in a different currency, [00:19:42][7.4]

Adam Keily: [00:19:43] because that's that's one of the things I've heard about modern monetary theory. I haven't heard a lot about it. But one of the things I have heard is that money printing causes inflation, creates inflation. And so you're saying it only creates inflation if your debts are denominated in another currency, as long as the debts that we're printing money to pay in Aussie dollars, then we should be good. That's the only it's the only kind of risk for preventing inflation. [00:20:12][28.2]

Thomas Keily: [00:20:14] No, no, no. So let's separate out that inflation question. That's a different question. We're not going to go we're not going to default on the lenders are overseas lenders. The Australian government is not going to go bankrupt, um, and be unable to pay back the people who lent to it. OK, you know, so that's a whole problem, like, you know, we can't borrow from overseas, that creates a whole bunch of stories. Inflations is sort of a different, different kettle of fish, but also very important. [00:20:42][28.4]

Adam Keily: [00:20:44] Well, let's talk about inflation now, then. [00:20:45][1.2]

Thomas Keily: [00:20:46] Yeah, so so so the old old paradigm view, you know, this, which we can still call the Orthodox view, is that's still what most economists believe, is that money printing creates inflation. So the more money goes into the system, the more money people have to buy stuff. It bids up the price. Everyone's got a lot more money than there's got more money to spend on a limited number of goods that bids the price of those goods up. The price of those goods goes up and up. Everything goes up and up and up. And the value of your currency, which is the, you know, the reciprocal of that, that's going down and down and down. So you currencies becoming worth less and less. And you get that inflation and inflation has a whole bunch of negative consequences. We want to run a certain level of inflation, but we don't run to run it too hot. [00:21:33][47.5]

Adam Keily: [00:21:34] Yeah. So we talked about it in an earlier episode, how the government tries or governments across the world and try to control the level of inflation through various levers. [00:21:45][10.4]

Thomas Keily: [00:21:46] Mm. Yeah, that's right. Do we want we want it to be running, you know, the conventional thinking is around two to three percent a year. That's a good level of inflation. We want to hit something like that. So the conventional the conventional wisdom was that, yeah, the money printing creates inflation. Now, there's there's an important nuance that the modern monetary theory adds to this story. And it's saying that it can create inflation or it might not. But where it creates inflation, that only happens where there are constrained sectors of the economy. So right where the economy is unable to meet the increase in demand that has come through money printing. [00:22:29][43.2]

Adam Keily: [00:22:30] OK, so if there are not enough things to go around, then inflation is going to get like it, you know, whatever it is. Cause if there's not enough if there's not enough cars, we can't make cars fast enough, then the price of cars is going to skyrocket. But if everyone wants to if everyone wants Tic Tacs, then we sort of. [00:22:48][18.6]

Thomas Keily: [00:22:49] Yeah, yeah, yeah. That's right. That's right. So yeah. So you can imagine like if everyone if the government suddenly goes, we've got next week we're giving every Australian taxpayer hundred thousand dollars to buy a car next week. [00:23:00][11.2]

Adam Keily: [00:23:01] Yeah. It's going to be a good week. Good week. Yeah. [00:23:03][2.0]

Thomas Keily: [00:23:03] But like there's only so many cars available for sale right now in Australia. And so but everyone's got money to spend. So the price of cars is going to is going to explode. Yep. So that's how money printing can create inflation. But if you've got something like, yeah. Tic Tacs, presuming there's surplus capacity at the Tic TAC factory, [00:23:24][20.5]

Adam Keily: [00:23:25] just automatic tax like, [00:23:27][1.9]

Thomas Keily: [00:23:29] you know, cheap electronics from China or Asia where there's surplus capacity ready to come online, you can increase demand without creating you induce supply, you induce a supply response. And so you don't get a price response. Yeah, okay. Supply increases to match price. So supply increases to match demand and prices remain steady. Right, and so what what modern monetary theory, the insight that modern monetary theory offers is saying that money printing can create inflation, but only in sectors where there are capacity constraints. [00:24:06][37.6]

Adam Keily: [00:24:07] How do you control it, though? How does the government control if they start printing money and injecting the money into the economy, then how do they know what what people are going to how the money is going to be spent or how it's going to be used in the economy and that they don't know that if it's going to be used on cars or if it's going to be used on cheap electronics from somewhere that can mass-produce them. [00:24:32][25.0]

Thomas Keily: [00:24:32] So how do they know? Yeah, they don't. They don't. Yeah. And it's it becomes an interesting political question about right. Because what we saw, what we saw after the GFC and this is sort of where what you're talking about, like with this scientific revolution, is that the evidence has been mounting against the Orthodox theory for a decade or so. So after the GFC in America leading the way, but also in Europe and other places, interest rates went as low as they could go and that the Fed ran out of firepower, they couldn't do anything more. With interest rates to stimulate the economy, interest rates had gone to zero. So what they did then is they moved to what they called quantitative easing, easing the quantity of money in the economy, which was just printing money. [00:25:23][50.7]

Adam Keily: [00:25:24] So that's a quantitative easing and money printing. Same thing, [00:25:28][3.1]

Thomas Keily: [00:25:28] same thing, yeah, yeah. We can think about quantitative [00:25:30][1.7]

Adam Keily: [00:25:30] easing and modern monetary theory. [00:25:32][1.4]

Thomas Keily: [00:25:33] Different things. Different things. Yeah, yeah, yeah. Yeah. Very clear. [00:25:36][3.8]

Adam Keily: [00:25:37] Yeah. [00:25:37][0.0]

Adam Keily: [00:25:41] Sort of. Yeah. That's, that's, that's good. [00:25:44][2.5]

Thomas Keily: [00:25:44] Yeah. So, so, so the Fed, the Fed started printing money through QE and everyone freaked out and things like wow, Fed's just printing money. There's going to be a huge inflationary shock in the pipeline. There was there was an exodus to gold like a park my money and go because the currency is going to crash. It's going to be a journalist now. [00:26:02][18.3]

Adam Keily: [00:26:03] Bitcoin, everyone's going to see in the Bitcoin price. [00:26:05][2.4]

Thomas Keily: [00:26:06] Yeah. Oh, yeah. Makes total sense. [00:26:08][2.4]

Adam Keily: [00:26:08] The new gold. [00:26:09][0.4]

Thomas Keily: [00:26:09] Yeah, totally. [00:26:10][0.5]

Adam Keily: [00:26:12] I know you're a fan. [00:26:12][0.6]

Thomas Keily: [00:26:16] Yeah. So so everyone was expecting inflation because the Fed was printing a huge amount of money, but it never happened. We never saw inflation in consumer prices. And so remember that when we're talking about inflation, what we're talking about is consumer prices, the consumer price index. So it's the stuff that people are buying as consumers with their consumer hat on. But it's not the stuff that they're buying, as investors say. So we never saw consumer price inflation that just never happened. But that's because the consumption goods, the things that went into the basket of the CPI, they were coming from sectors of the economy that weren't constrained. They were coming from, you know, the consumption goods out of China and Asia and other places where there was excess capacity ready to come online and meet that demand, where there was an excess capacity, was in asset markets. And not all that money printing created a boom in asset prices. Share prices in the US market tripled between 2010 and 2019. [00:27:16][60.8]

Adam Keily: [00:27:18] Yeah, well. [00:27:19][0.2]

Thomas Keily: [00:27:20] And more monetary theory saying that, well, that's because that sector of the economy is constrained, you couldn't just create more, you know, high quality financial assets overnight. You couldn't create more property or land overnight. And so you saw a huge boom. We saw this in Australia, a huge boom in property prices, and he's seen this little world over. And so this is sort of what money, the modern monetary theory is trying to square these absurd facts away, saying, yes, there was massive money printing. It didn't create consumer price inflation, but it did create asset price inflation. And so modern monetary theory is not there really to say whether that's good or bad, but just saying that that's how it's working, that's what's happening. [00:28:05][45.5]

Adam Keily: [00:28:06] So I didn't know that in that incident. No. Well, I guess no one set this up, did they? I mean, they didn't know this would happen. It was a bit of an experiment. It was kind of like, let's give this guy as we've run out of options. We're just going to kind of wing it. Now, let's try. Let's do that. Let's get crazy over in here. Let's do something we've never done before and just see what happens. [00:28:26][19.9]

Thomas Keily: [00:28:26] Totally winging it. Totally winging it. [00:28:28][1.7]

Adam Keily: [00:28:29] Yeah. [00:28:29][0.0]

Thomas Keily: [00:28:29] No, no. Yeah, no, it was there was no playbook for it and no one knew how it was going to play out, but they had to do something. [00:28:36][6.2]

Adam Keily: [00:28:37] Do we know now are we any more versed now, do we sort of have an idea of how this is all going to end, or is it still possible that this could all blow up? [00:28:46][9.2]

Thomas Keily: [00:28:46] It could all end in tears? That that is a possibility. We don't really know how it's going to play out. But you look at how relaxed people have been about the money printing that's happened since covid the huge deficits that developed economies across the world are running. Everyone's really relaxed about it. [00:29:03][17.2]

Adam Keily: [00:29:04] Yes, it's pretty true. You know, [00:29:09][4.9]

Adam Keily: [00:29:10] the good times are here. This is how this whole thing got started. It's like a bunch of people sitting around having a beer and a party at a house, just like we should just print some money, man, like whatever it is, do it. And then caught on. And the general public is [00:29:26][15.8]

Adam Keily: [00:29:26] like, it's cool with that. [00:29:27][1.5]

Adam Keily: [00:29:28] One is money. We're good because. Well, yeah, I don't know. It just seems it's unnervingly relaxed. I would say for me it's a bit of a I don't know if something we've never done before. Like if I was rolling out a new system of some kind, I'd be keeping an eye on it pretty closely. You know, I might install a new sprinkler system in the backyard, the first car a week or two that I'm running, the new sprinkler system. I'm out there every day making sure it's starting at 6:00 a.m. and it's turning itself off and it's not flooding the backyard like. Who's making sure we're not flooding the backyards of [00:30:12][44.3]

Thomas Keily: [00:30:13] the RBA is keeping a very close eye on all the markets and. It's like it's not anyone's just sitting back, taken, taken the rest of the year off like everyone's right [00:30:23][10.7]

Adam Keily: [00:30:24] keeping an eye on watching, but I mean, it sounds sounds too good to be true. And if Mom told us anything, it's that if something sounds too good to be true, then it probably is, because who loses in this? Right. So so we're printing money and no one's losing. Everyone's winning. [00:30:41][16.6]

Thomas Keily: [00:30:42] Well, yeah. I mean, this is again, this is an interesting question. So, like, I think the equity considerations are very interesting. So, you know, the crisis response seems it saves the economy and does that by creating a huge boom in asset prices. You know, so if you own assets, that's great news. [00:31:05][23.4]

Adam Keily: [00:31:06] It's awesome. Thanks. [00:31:07][1.5]

Thomas Keily: [00:31:09] It creates this perverse incentive where it's like, you know what? We should have a crisis, you know, next decade. [00:31:14][5.2]

Adam Keily: [00:31:16] DIAKITE And that Ren crisis [00:31:18][1.4]

Adam Keily: [00:31:18] was always fodder for conspiracy [00:31:20][1.5]

Adam Keily: [00:31:21] theorists, a virus in a military-led police around the world. [00:31:26][5.2]

Adam Keily: [00:31:27] And we're going to be Bill Gates is going to be injected into people through 5G cell towers. So is it just creating a is it just creating is there a risk? It's just creating a big bubble [00:31:38][10.9]

Thomas Keily: [00:31:41] I don't know, bubbles, not the right term because the bubble has it has a specific meaning. And I don't know that's really what's happening. But it does seem to be, you know, exacerbating inequality and inequality got a lot worse through the money printing era that followed the GFC. We saw that happen. It doesn't it does look like it's you know, the crisis response is going to have a pretty similar impact. And it's and and I don't I don't personally think that that's how it's been designed and engineered that way. But the policies that benefit the people who have lots of money there, the policies that tend to get up, [00:32:16][34.9]

Adam Keily: [00:32:18] you know, so if, you know. [00:32:20][2.0]

Thomas Keily: [00:32:20] there might have been a you know, during the GFC overcover, there might have been a voice in the room going, you know, what, if we just radically redistribute wealth to all the poor people? And and that might have been a radical idea that might have had some merit and it probably just wouldn't have gone up. [00:32:36][16.4]

Adam Keily: [00:32:37] Now, I know you've I think you're right because that's I mean, that's another probably a big question, maybe for another time is if we can print all this money, why are we not doing something more with it for humanity rather than boosting asset prices? Why are we not using it to solve world hunger or build hospitals or fix covid, whatever it is? I presume we are putting a lot of money into covid research at the moment, but some of those more he you know, those more human goals, you know, humanitarian goals. Why are we not using it for that left pinko? [00:33:15][37.5]

Adam Keily: [00:33:18] Yeah, well, I told you nothing about economics. No, this this this is this is [00:33:28][9.7]

Thomas Keily: [00:33:28] this is why it is such an interesting time right now, because, you know, the Australian government has just come up with a trillion dollars overnight. Everyone's like, cool, whatever RBA is like, you know, I'm going to throw another hundred billion into the market. [00:33:41][12.2]

Adam Keily: [00:33:41] Several Zarco goes for it. Yeah, that's awesome. You guys are great, [00:33:45][4.0]

Thomas Keily: [00:33:46] you know, and we're doing that to save the economy. But it's like and and we and we're going to come out the other side of this. And I think, like all of the things we that Orthodox economics has trained us to be afraid of. So inflation, hyper inflation, debt defaults on an international level, these things aren't going to happen. They're not going to come out of what's happening right now. And then that gives us a whole new playing field. And it is a very interesting question. Like, you know, you know, people might say, well, we just came up with one hundred billion for to bail out the banks. How about we do have one hundred billion for social housing or how about we have 100 billion for protecting the Great Barrier Reef or whatever it is? And the political calculus really changes. It's hard this you know, we can't it becomes much harder to run the line. We just don't have the money. You know, I don't think anyone's going to believe politicians when they cry Chicken Little story about debt and deficits, disasters anymore because we will all like, yeah, I remember when I was a trillion-dollar deficit, like, I'm not too stressed right now. [00:34:50][63.6]

Adam Keily: [00:34:52] We've got to get back in the black. [00:34:53][0.8]

Adam Keily: [00:34:53] That's three trillion dollars away. [00:34:55][1.6]

Adam Keily: [00:34:58] Yeah. There's no there's no back in the black from here is it. That's the thing. Are we ever going to pay off the debt this, this, this money or are we just going to go, you know what, it's really got out of hand where we're just [00:35:08][9.5]

Adam Keily: [00:35:08] we just started doing a little bit and I [00:35:12][3.9]

Adam Keily: [00:35:13] just seemed like everything was going really well. We just kept [00:35:15][2.3]

Adam Keily: [00:35:15] doing. Yeah, I mean. [00:35:17][1.7]

Thomas Keily: [00:35:18] It's again, like when we think about paying this back, it's it's kind of it's in that metaphor of the household and it's not the right winner, for one, because the government owes the money to itself, largely the RBA. The RBA prints money and buys government bonds. That's largely what's happening. That hundred billion dollars. It's all buying government bonds. So that's that's what it's going so. And remember that as we talked about, the RBA is an organ of the Australian government. So the Australian government owes money to itself. I mean, talking about paying it back, it's like whether it just decides to pay itself back or not. So it's not really the right question. [00:35:48][30.7]

Adam Keily: [00:35:49] Yeah, the deck the debt collectors aren't coming when it's yourself, like, you know, knocking on your own door and demanding cash. [00:35:57][7.8]

Thomas Keily: [00:35:57] Yeah, I used to work at the RBA, too. This is not really anyone there who's very scary. [00:36:02][4.4]

Adam Keily: [00:36:02] No one breaks any ankles. The RBA but made the point [00:36:09][7.0]

Thomas Keily: [00:36:09] that the imminent demise is really interesting is that that there are sectoral balances in the economy. So there's the public and the private sector. So if the public sector is running a surplus, it means that you know, there has to be someone on the other side of that equation. That means the private sector is running a deficit. If the public sector is running a deficit, it means that it's borrowing money from somewhere. So it means like the private sector, you know, goes into surplus and it's saving money. And we're told that we want the private sector to be saving. And we have seen a huge boom in household savings since covid started. So maybe that's sort of part of the story as well. Well, I think I think [00:36:47][37.9]

Adam Keily: [00:36:49] all the shops were shut for quite a significant period, which might have helped, but. Yeah, I mean. All right. Well, this actually been quite an interesting conversation. And I'm really keen to see how this plays out in the future, nervously, anxiously awaiting the final result of modern monetary theory. And what what what a what it does to the economy in the long term. [00:37:15][26.4]

Thomas Keily: [00:37:16] But the other thing I would say if you just as a final note is that for a while there, the the the economic discipline and the way the economy is managed is going to be running one way. And most people will be thinking that it's running another way so that potentially, if you get on the right side of that, if you pick a trend, that there might be a lot of money to be made on whether you're interested in money. [00:37:38][21.8]

Adam Keily: [00:37:38] I do like money. And that's how we got started in all this. [00:37:42][3.3]

Thomas Keily: [00:37:42] But so it's this thing like it's something to watch very closely. And I think it's something that we'll keep coming back to because I find it totally fascinating. [00:37:48][6.1]

Adam Keily: [00:37:49] Yeah, I can tell. All right, Thomas, excellent to get your thoughts on modern monetary theory. Appreciate that. And appreciate you out there. The listener listening to our podcast. This is just about the end of the intro series. I think we've got one more episode to come next week, so we hope you come back and tune in for that. Don't forget, as Joe and Sean both do at the top of the show, send us an email at cve@equitymates.com. And yeah, we'd love to hear from you if you've got questions, comments, concerns, anything you like. But you can also head up the website equitymates.com/cve. But for now, that's modern monetary theory and we'll see you again next week. [00:37:49][0.0]

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