Stephanie Kelton On MMT and the Inflation We're Seeing Today

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

Tracy, what are the big topics for you at? We're at the Milken Conference out in Beverly Hills.

What would you say are some of the big topics you've heard?

Tracy Alloway (0:24)

I think it's inflation. I mean, I gotta say, I was on a credit markets panel, and it was called Credit Markets and Inflation.

So that kind of tells you everything you need to know.

Joe Weisenthal (0:34)

No, that's obviously a big thing. I saw Ken Griffin of Citadel. He was talking a lot. He was actually kind of optimistic about it, though. Like, he wasn't that worried. He had a lot of criticisms about this administration and policy and all that.

But of all the things, I was actually a little bit surprised. Like, he didn't seem that concerned about inflation or as much as all the media is talking about it. He thinks it'll moderate towards the end of the year, or he thinks there's a chance anyway, give the Fed some flexibility. So some interesting different views.

Tracy Alloway (1:02)

Well, yeah, I mean, the thing that I've learned from the past year is that people feel very, people have strong opinions about inflation. Like it's a very emotional topic.

Joe Weisenthal (1:12)

Sure, and it's really striking that we've had this incredible labor market recovery. We have sub 4% unemployment, and yet it appears that because inflation is high, that explains why consumer sentiment is so bad.

Although I think there's more to it than just inflation.

Tracy Alloway (1:30)

Well, so this is the other thing that I think we've learned, which we've talked about before, but it feels like more people care about inflation than people care about the unemployment rate. That's what it feels like to me, because inflation affects everyone, whereas the unemployment rate is this kind of abstract thing. You can go up to people and say, oh, unemployment is just 4% and they'll be like, well, I've been employed for the past 10 years and all I know is that the cost of living is going up.

Joe Weisenthal (1:57)

Yeah, exactly right. So even during periods of high unemployment, most people hold on to their jobs over a given cycle, but everyone kind of feels rising prices.

And so there's sort of like this political asymmetry and you think about the Fed and it has to balance the two, but this is the first time we really see like this, like it appears anyway, that the high inflation is coming at a cost of consumer sentiment and so forth.

Tracy Alloway (2:21)

Yeah, I think that's right.

Joe Weisenthal (2:22)

And of course it's highly politicized and people look at different policies. And in particular, they look at the Fed gets some of the blame and transitory shocks, but there's a lot of, I guess, I are directed at the fiscal stimulus. And in particular, that last round that Biden did after he was elected and a bunch of people saying, oh, look, it's proved, it's too much. That was way over there. There was like, there was one line and the other line was a little bit below and that was the output.

But then they spent trillions and it's too much.

Tracy Alloway (2:54)

When are you going to say Modern Monetary Theory?

Joe Weisenthal (2:58)

Okay, so.

I'm waiting for it. Okay, fine, fine, fine. Let's just jump right in. So one of the biggest advocates, not of fiscal stimulus or spending per se, but in getting us to rethink what we can do with fiscal policy, of course, is Stephanie Kelton, who is known as one of the foremost advocates of this way of thinking, Modern Monetary Theory. And she is the author of the book, The Deficit Myth. She is the co-host of the Best Ideas In Money podcast.

And she's a professor at Stony Brook. And she's here with us at Milken. And so we are going to be talking about, actually, you know what we're really gonna be talking about is Modern Monetary Theory to blame for this high inflation. Are you to blame for this high inflation, Stephanie?

Tracy Alloway (3:41)

Oh, he jumped right into it now.

Joe Weisenthal (3:42)

Yeah, I'm just gonna jump right in. Are you to blame?

Stephanie Kelton (3:43)

I think so.

Joe Weisenthal (3:45)

Congratulations.

Stephanie Kelton (3:46)

No, look, I think that you two, probably more than anyone, have done deeper dives into this question over the course of the last, what, 18 months, two years, or whatever, you have been chasing this story in a more sophisticated and persistent way than I think anybody out there. And you've, I think, really forced the conversation to shift. I mean, maybe I've helped shift the conversation on some fronts, but on the inflation front, I really think you've helped to focus attention on issues of pandemic-related supply chain and bottlenecks. Nobody's done more to change the conversation around those things. So-