Episode 124 – The Race to the Bottom with Fadhel Kaboub and Bill Black

To unpack the confusion around the push for state-based vs federal programs, it’s necessary to understand the race to the bottom. So this is where Steve Grumbine begins his interview with Bill Black and Fadhel Kaboub. The inequities among the Eurozone nations have their parallel in the US. At both the global and national levels, the race to the bottom affects labor standards, environmental regulations, tax rates, and basic services. To understand this, we always turn to the MMT explanation of the difference between a currency issuer and a currency user.

The federal government can afford to provide healthcare, infrastructure, environmental protection, childcare, and other necessary services. When it abdicates its responsibilities, it shifts the burdens to individuals who can’t afford them as well as to states and municipalities who, by definition, don’t have the resources and must compete with each other to attract businesses like fracking companies, pipelines, Amazon headquarters, or whatever they can get. When a state needs more revenue, as it inevitably will, raising corporate taxes will drive these businesses to a “friendlier” location. Ultimately the end result is neglect of community needs and full-bore pain for its citizens. Lost opportunities and negative consequences have been compounding over decades of the neoliberal project.

Virtually every state has a constitutional or statutory requirement either limiting or prohibiting running a deficit. However, even without these restrictions, states can’t run substantial deficits without experiencing a sharp increase in the interest rates on their debt and, of course, cannot issue currency to pay those interest rates. 

Because of vastly different tax bases and competition between the states, the guests make clear that the progressive agenda will be hobbled if we try to apply it piecemeal. Funding major programs like health care at the state level is not only impossible for the majority of US states, but counterproductive to the national Medicare for All movement. The federal government can “wait and see” as state-based initiatives inevitably fail, all of which gives ammo to the “we can’t afford it” argument, and ultimately hurts everyone.

Some American progressives have become beaten down with despair, losing hope that such comprehensive plans can ever be achieved. In desperation, they are mobilizing for state-based healthcare programs. Even if these are achievable in a few states, it is not the solution for most and is dissipating the energy that should be focused on a comprehensive agenda. 

The episode closes by honoring their work while offering specific suggestions for effectively mobilizing targeted action at the local level capable of uniting rather than fracturing the movement. By organizing, educating and empowering people to fight for the right policies, we can consolidate the efforts of the state-based groups across the country into a unified voice for universal health care and other massive programs, funded at the federal level, in lieu of 50 groups fighting separate battles.

Bill Black is a professor of Economics and Law at the University of Missouri – Kansas City (UMKC) and the Distinguished Scholar in Residence for Financial Regulation at the University of Minnesota Law School. He is a serial whistleblower and authored The Best Way to Rob a Bank is to Own One.

Dr. Fadhel Kaboub is an Associate Professor of Economics at Denison University and President of the Global Institute for Sustainable Prosperity. Follow him on Twitter @FadhelKaboub.

Macro N Cheese – Episode 124
The Race to the Bottom with Fadhel Kaboub and Bill Black
June 12, 2021

[00:00:04.450] – Fadhel Kaboub [intro/music]

When you have 50, 60 city councils across the country passing resolutions, calling on the federal government to do something about a particular issue, not only will you get media attention, but you’ll mobilize other progressive movements to push in the same direction because 70 percent of people in this country want Medicare for All. Why are we not getting it?

[00:00:28.830] – William “Bill” Black [intro/music]

We won’t pay for prevention, but if you don’t pay for prevention, you just get the full blast pathology and you can’t avoid paying for that because you pay for it in your kids’ lives.

[00:01:35.220] – Geoff Ginter [intro/music]

Now, let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

[00:01:43.080] – Steve Grumbine

All right, everybody, it is Steve with Macro N Cheese. Got a double for you. I’ve got Professor Bill Black and I’ve got Professor Fadhel Kaboub, two friends of mine, two frequent guests of the show. And two people who I feel are infinitely skilled and able to address the subject that we’re going to touch on today.

And for those of you out there who have ever wondered about the differences between the federal government and the state governments, sometimes this stuff seems like it’s a no-brainer. And once you learn, it really is a no-brainer and we’re going to get through that stuff and some of it will be a little technocratic, some of it will just be just the way it is. Right.

And so with so many things happening in the world around us, we haven’t seen our Congress act on our behalf. We haven’t received a lot of the things that we have demanded and clearly, we haven’t demanded of them in the right way or we would have them. And without further ado, I’m going to find out not only why that is, but why, in fact, the federal government is more apt and able to supply the needs of various bold progressive agenda ideals and policies, but also what that impacts.

What is the actual cause and effect of funding at state and local levels versus at the federal government? And ultimately, we’re going to tie this up, understanding what we will call the race to the bottom. So with that, let me welcome my guests, Fadhel Kaboub and Bill Black. Welcome, sirs.

[00:03:24.330] – William “Bill” Black

Good to be back. Thank you.

[00:03:26.040] – Fadhel Kaboub

Thank you for having us.

[00:03:27.390] – Grumbine

Absolutely. Fadhel,

[00:03:29.580] – Kaboub

Yeah.

[00:03:30.550] – Grumbine

Let’s start with you. Can you tell us a little bit about who you are and your credentials?

[00:03:36.240] – Kaboub

Sure. So my name is Fadhel Kaboub. I teach Economics at Denison University in Ohio. I went to grad school in Kansas City at the University of Missouri, Kansas City, and I also run the Global Institute for Sustainable Prosperity. And I’ve been honored to be on this show a few times, and I’m even more honored today to share the stage with Bill Black.

[00:03:59.600] – Grumbine

What a great guy. Thank you very much, Fadhel. Bill, welcome again. Tell us who you are and what are your credentials.

[00:04:07.390] – Black

OK, I’m Bill Black. I’m an associate professor of economics and law at the University of Missouri, Kansas City. Fadhel’s one of our stars from that program. I’m also the distinguished scholar in residence for financial regulation at the University of Minnesota Law School. And when there was such a thing, ran the Institute for Fraud Prevention.

You can see that was really successful. In economics relevant to this discussion, I have for over a decade taught public finance and at UMKC, public finance emphasis is on state and local as opposed to federal finance. And I’m a recovering litigator as well and a white-collar criminologist.

[00:05:01.920] – Grumbine

Well, all that to say, folks, we’ve got a great show in store for you today and hopefully, the veracity of what we’re about to tell you comes with an understanding that it’s from a place of love and a place of knowledge, earned knowledge. So with that, I started out the conversation raising the issue of the race to the bottom and the disparities between the various states and the US.

And you can see the same dynamic, quite frankly, in Europe, where you have the northern European countries doing quite well, all of them that exporters. And then you have the southern European countries who are in quite bad economic shape and they share a common theme between our states and the United States as well.

And that is that they have no ability, so to speak, to print the national currency. They are now currency users as opposed to currency issuers, and that presents a whole series of problems. So with that in mind, why don’t I let you guys parse out your definition of the race to the bottom? Let me start with you, Bill.

[00:06:10.050] – Black

Well, in their different races, you raised the international context. You raised the domestic context. Internationally it is a good example. Yes. It’s quite true that the south in Europe was in horrific shape. In a number of years, a number of places, the great financial crisis was actually more severe than the Great Depression was in terms of unemployment and in terms of length of time.

And because they didn’t have their own currency, their own sovereign currency, by they I mean, the individual nations. And because the euro isn’t a true fully sovereign currency, because it lacks the fiscal side, it’s just a central bank system, there really was this imposition that was a true race to the bottom of austerity. That there is no alternative, TINA, to austerity, we had to balance budgets and all those types of things.

That was a race to the bottom and it had enormous social consequences. The US had weak to modest stimulus relatively briefly before President Obama notoriously said we needed to pull in our belt. But even that modest amount meant that by 2011, we had recovered in GDP terms to where we were before we went into the great financial crisis.

In Europe, the recovery came about 2018 even to that level and a number of the southern states that you’re talking about. I’m talking about states like Italy and Spain and Greece. It still hadn’t come because they hadn’t by the time covid hit gotten out of that situation. If you want a state example of it, it’s right next door to Missouri. It’s Kansas that decided it was going to do the Laffer Curve nonsense that if you simply cut your taxes, there would be such an incredible burst of economic growth that you would actually end up with more tax revenue.

And they came very close to bankrupting the state out of that ideology, but they then politically and I observed this personally, ran a huge ad campaign, this being the Republicans in Missouri, saying we must emulate Kansas and follow the exact same strategy or we’ll lose all of our businesses. And then, of course, the logic went, everybody had to do that. So, yes, there is a dynamic along these lines. It’s not all the time everywhere, but it’s a serious danger.

[00:09:20.660] – Grumbine

Agreed. Fadhel.

[00:09:22.640] – Kaboub

Well, this race to the bottom phenomena is global and local, as you both know, so at the global level, one thing I want to add to everything that Bill has just said is the race to the bottom in terms of labor standards, in terms of environmental regulations, in terms of tax rates. And this is driven by a neoliberal economic development, extractive model that forces developing countries essentially to attract as much foreign direct investment, as much tourism as possible.

And when you’re competing on cost, who gets the short end of the stick? It’s labor, it’s the environment. It’s the most vulnerable people. And we see this in this country, in state by state, where states are competing to attract companies’ headquarters to create jobs. And they see one of the ways they can attract companies is by offering them tax breaks. And you have the situation that you’ve seen in Kansas in recent years, but also across the country.

When you talk about states thinking about raising taxes at the local level, corporate taxes or whatever kind of taxes, the immediate response you get is we’re going to pack up and move to the state next door and you’ll lose their jobs and you’ll deal with the consequences, which raises the importance of the role of the federal government and the context of the United States, meaning that if the federal government abdicates its power, its authority, its capability to spend and create jobs and build infrastructure, and you abdicate that authority to local municipalities and states and you ask them to compete with each other, what you get is the race to the bottom.

So this is really the problem that we deal with when it comes to wages, when it comes to actual infrastructure investments in education and health. And you fast forward three or four decades and you have so much in terms of lost opportunities and so much of the negative consequences of all of this neglect that has accumulated over time.

And now we’re dealing with all of that cumulative effect in the context of a global pandemic, in the context of a climate crisis, in the context of the inequality crisis, socioeconomic exclusion crisis. So we have all of these multiple problems that have accumulated and they’re in front of us right now. And we have very little time to react effectively. The IPCC gave us globally less than 10 years now to act on a massive scale on top of all the other issues that I just mentioned.

So a race to the bottom is destructive for everybody in the US and globally. And we need to get out of the race to the bottom. And I think the only feasible framework for this cannot be based on decisions made at the municipal level, the city level or the state level. This is where the federal government plays a key transformative role in resetting the standards and creating a different dynamic for the country.

[00:12:40.180] – Grumbine

Very well said. What I want to do is take a moment and point out a few things that I think most of our listeners will be well aware of. In Detroit, in Flint, Michigan, we have seen large industry flee from the area, leaving deserts of people without local tax revenue base. And we’ve witnessed the absolute theft of the history of Detroit through receivership and through plunder, if you will, from these private equity firms that are coming in there to make their debts go away.

And you look down at Puerto Rico, who got devastated by horrible hurricane. Instead of their debt being forgiven, the predators are picking it apart and finding ways to cash in on their misery. And you can go up further in places like Pittsburgh, when the steel mills closed, in Buffalo as well, each of these groups had significant capital flight.

And then you have the entire Rust Belt where manufacturing left the country and left islands of people and no tax base. And so this is what a lot of America looks like, a lot of America that isn’t in these major sexy metropolitan areas where they’ve got huge tax bases, very wealthy people, huge businesses like Amazon and that whole movie business down in California.

And then in New York, obviously you have Wall Street. So a lot of these very large metro futuristic areas have the ability to do things that many of the other states do not. And I think it can paint a false positive here. I guess my question to you is, what is causing that to happen? What is the business model or the thought process that goes into this whole thing and set the stage for the larger conversation? Start with you, Fadhel.

[00:14:40.020] – Kaboub

Well, I think what you’re describing here, this dynamic is not new, obviously, it started in the 70s and 80s with severe budget cuts that were accelerated with the Reagan generation and unfortunately continued under Democratic administrations. The idea that the federal government should pursue sound finance approach and balance the budget under Clinton, even run a surplus.

And the idea that states and municipalities need to shift more of the burden as a result to individual families. Think of it in terms of education. A generation ago, who paid for their college education versus today we’re talking about upwards of $1.6, $1.7 trillion worth of student debt. Medical debt also accumulating over the last couple of decades, it’s one of the leading reasons for bankruptcies, the leading sources of bankruptcy for individuals and families in the US.

All of this neglect is the result of a neoliberal ideology that wanted to produce the smallest possible state, not just in terms of spending, but also in terms of protections and regulations. And that’s the free market ideology that we have today. That’s why the minimum wage has been so low. That’s why we don’t have universal health care like most other advanced countries do. That’s why we have so much neglect for our public infrastructure.

And all of this produces this really narrow vision in terms of costs. And what we’re missing is the massive hidden costs associated with this neglect. Just think of the opioid crisis that we’re dealing with here. There’s a study that was put out by the White House. The study was started under the Obama White House and continued under the Trump administration.

So it was technically released under the Trump administration that looked at the cost of the opioid crisis for the four year period of the study, which was between 2013 and 2017. And it put the total cost at $2.5 trillion. This is massive. And when we say the hidden costs, we’re talking about not just financial costs, but this is what I mean when I say we’re paying for all of these consequences with money, blood and tears, with the social pain and economic pain for individuals and families and communities.

This is just the opioid crisis. Add to it the cost of incarceration. Add to it the cost of pollution in terms of health costs to individuals, lost educational opportunities, lower performance at school for kids. And these things last for a lifetime because it translates into missed performance in terms of educational opportunities, lower graduation rates, and that translates into lower income for a lifetime.

So all of these hidden costs are now accumulating because of the decisions that we’ve been making for the last 30 or 40 years. And now we’re reaching this point of no return, this crisis moment where we can’t continue to neglect these things. It’s socially unsustainable, economically unsustainable, politically unsustainable, ecologically unsustainable. All of these crises are on the table for this generation to deal with.

And I trace all of this back to all of that neglect and that narrow minded position that says it’s not the responsibility of the government to invest in health and education and opportunities. The private sector will do it. Individuals will make the right choices on their own. We just have to give them the right incentives to do that. That’s what we’re living right now. We’re living the consequences of that ideology.

[00:18:36.580] – Grumbine

So when you talk about the federal government basically pushing that responsibility away, we’re not just talking about policies, but we’re talking about the infusion of cash into the economy at different layers, different classes. By spending that money in at a different layer, it solves a lot of other problems, such as inequality, but it also enhances the tax base for the state as well.

And the state, being a currency user is highly dependent on those revenues. Let me take the next part of this to Bill. One of the big things with the race to the bottom is that most states have a balanced budget amendment as well, and they can’t take on certain debt. I’m curious in terms of the legal perspective of the difference between not only the currency user and the currency issuer dynamic, but also in terms of the legality of what states can do versus what they really can’t do.

[00:19:41.730] – Black

So virtually every state has either a constitutional or statutory requirement that they not run a deficit or that deficit be exceedingly small. Now, there are, of course, all kinds of accounting games that are played. So in a number of states, they actually do have a deficit. But that is not like a sovereign currency. That’s like being in Greece where you have no sovereign currency.

And so even if we had no such constitutional limits, no such statutory limits, as an economic matter, the states and the localities simply cannot run very substantial deficits without experiencing a very sharp increase in the interest rates on their debt. And again, they can’t issue currency to pay those interest rates. So to disagree slightly with something that you said earlier, I think you used the phrase a lot of states or many states have the ability to have more Cadillac type programs. I would say a handful of states.

[00:21:00.370] – Grumbine

Right.

[00:21:00.800] – Black

And a diminishing handful of states. And you have to look even within states. So, for example, in Kansas, I think about two thirds of the counties are losing population and have been losing population for the last 15 years. So in addition to looking at the state level, you really have to focus at local levels.

And when you do that, you also have to take into account rates. I was born in Detroit and lived around Detroit until going to university. I don’t think many people in this nation know we’re talking now about the dangers of essentially fascism, having no effective democracy. There was no effective democracy if you were black in Michigan.

[00:21:56.180] – Grumbine

Hum.

[00:21:56.180] – Black

A majority of Black citizens of Michigan lived under emergency orders by a deeply Republican in that era – deeply, deeply conservative, outright racist Republican leadership. And under these emergency decrees, the governor appointed someone who had all powers of your city. And every major city in Michigan that had a large black population was subject to those decrees, including Detroit and Flint.

So if you wondered, why didn’t the local officials do more in some cases in Flint, they literally couldn’t. You could vote for someone, but that person had literally no power. Right? Your mayor literally had no power. All power was held by these appointees. If you look to the great financial crisis, you have massive predation targeted at Blacks and Latinx folks.

If you look at the folks who tried to do everything right, in other words, what professor types have been telling them for decades and decades and their parents and such say buy a home, get a college degree, get married a little later when you can afford it, all that type of stuff. OK, so Latinx households that followed that strategy that had at least a four year college degree. They lost on average during the great financial crisis, 72 percent of their wealth.

[00:23:43.370] – Grumbine

Wow!

[00:23:44.360] – Black

The comparable figure for Blacks was 60 percent. We’re talking about three generations of wealth accumulation being wiped out mostly by that predaction. Now there’s predation outside the home lending, of course, and the classic example of that is the for profit schools. Why for profit schools?

Because the states have slashed their funding of public universities. So you go to these places that are really fraud mills with much worse education and much higher costs. It’s a great trifecta in those circumstances. So these are just catastrophic losses.

This is not comparable in the same way to the four trillion figure that Fadhel gave, but the best estimate of economists in terms of loss of growth of GDP is that over the entire course of the recovery from the great financial crisis, in our jargon, present value terms, the United States will have lost $41.7 trillion with a T in GDP.

[00:25:03.420] – Grumbine

Wow.

[00:25:03.820] – Black

Right. So what Fadhel’s getting at is we won’t pay for prevention, but if you don’t pay for prevention, you just get the full blast pathology and you can’t avoid paying for that. Because you pay for it in your kids’ lives. So life expectancy has actually been falling even before covid. That hadn’t happened in, I think, 70 years in the United States, maybe more.

So we have just whole chunks of the nation that are being written off. And I’ll just hand it back on this note. Look at how many states refuse Medicare expansion even when the federal government will pay for virtually all of it. They are willing to kill their citizens in these circumstances. And back to my rural part, the biggest employer in county after county, city after city in rural America is the hospital.

You close that hospital. You lose your biggest employer. You lose your high wage, high salary folks. And you make it impossible that people are going to site there because who’s going to move there knowing that it would take you if you’re the pregnant woman or your spouse a 75 minute trip to get to deliver a baby?

[00:26:41.540] – Grumbine

That’s insane.

[00:26:42.530] – Black

And then if your kids get sick again, it’s a 75 minute trip to a real emergency room. So these things build on each other. It becomes a true race. It doesn’t start as a race, right. It starts like a dam fails with little cracks, but it isn’t linear. Right. Eventually, the whole thing just basically blows apart. And we’re getting to the stage in America where time after time we look around and we see it blowing apart.

[00:27:18.520] – Grumbine

This brings me to the desperation when what you laid out there, people are incredibly desperate and there is no meaningful evidence that we have a functioning democracy today. Seventy percent of American citizens want Medicare for All and there is no Medicare for All. There’s not even a vote on it, much less anything else.

Most people want a job guarantee, yet the most we’ve heard was people commissioning a study to study a job guarantee. And these studies tend to go nowhere. And over and over people have just grown desperate. This pandemic just broke out a spotlight and showed the ugly underbelly of the United States and quite frankly, around the world, I mean, even Australia had some really bad responses to the pandemic.

A lot of countries did. But with that in mind, I guess from a standpoint of the U.S., keep it U.S. focus momentarily. People are dying, as you said, Bill. And the cutting out of Medicaid expansion at these states is unconscionable. And austerity is murder. This is the race to the bottom. Pensions, these teachers pensions, the public service, people’s pensions is funded at the state level.

You’ve got unfunded mandates being pumped down upon them from the federal government over and over again, eating up whatever reserves they have. You’ve got places like Pennsylvania where I live, where we have entered into a deal with the devil, with the Marcellus Shale, and we’re trying to fund public works with fracking dollars – improving our roadways with fracking.

What a bargain, right? We just sat there and said we have an existential climate crisis coming down upon us, but the race to the bottom says, OK, Pennsylvania, you need to fund these services, go find some tax dollars. Where are you going to find them? Oh, let’s go ahead and frack.

Fadhel, you’ve witnessed many in the movement who have been taking that desperation and trying to put it toward various state and local initiatives of think globally, act locally. All these are great catchphrases, but they never take into consideration the currency user, currency issuer models and the limitations thereof. And in a panel you and I were on the other day regarding the federal job guarantee, what you did was absolutely masterful.

And I’m hoping that we can get you to recreate that for this podcast. You made the mention of why the Green New Deal is a layer cake, if you will. It’s a bundle and it has to come that way because each thing builds off the other. Could you describe the progressive layer cake or the Green New Deal, Medicare for All job guarantee, just transition and explain the funding mechanism and why that matters.

[00:30:15.800] – Kaboub

Absolutely happy to do that. To answer your question, and this is very important because many people in the progressive movement have been beaten down so badly and have lost hope and having something truly transformative. And we’ve kind of bifurcated our efforts into trying to fight for little bits and pieces that some people are hoping to accomplish at the local level and hoping that eventually the federal forces will take shape.

So this analytical lens that we’re putting on the table, the Modern Monetary Theory perspective, makes a few observations and a few recommendations. The observations are very simple, that the federal government is the sovereign issue of the currency. It’s not constrained in the same way as you and I are constrained or states and municipalities are constrained.

You and I have to work hard, earn an income first in order to spend. We can borrow up to a certain limit, but beyond that, we have to live within our means, so to speak. And the same is true for states and municipalities. They can tax their local residents. They can borrow up to a certain limit. But beyond that, they have to tighten their belts and balance their budgets and pay down their debts. So the federal government doesn’t operate in that space.

The federal government is not constrained by tax revenues or borrowing capacity. The federal government is constrained ultimately in terms of its spending capacity by the risk of inflation. And the risk of inflation from an MMT perspective comes from two things: one is the shortage or lack of productive capacity.

In other words, when we run out of skilled people, machinery, equipment, resources, if we decide to spend more beyond our capacity, then there is a risk of inflation. And the good news about that risk of inflation is that we know how to deal with it with strategic investments in education and infrastructure and technical skills, we can increase our productive capacity and mitigate that risk of inflation with strategic planning and create millions of jobs doing that and create millions of green jobs.

The second source of the risk of inflation, which is something that brings me closer to the world of Bill Black, is the abusive market power that some key players have in this economy. Think of the pricing power of pharmaceuticals, the pricing power of your telecom companies, of the energy companies, oil and gas companies, the Wall Street companies and so on.

And that kind of inflation, price setting power that they have can’t be eliminated with austerity, can’t be eliminated by spending less or by balancing budgets. It can only be eliminated when you tax and regulate their market power out of existence by implementing or enforcing antitrust laws, by going after corruption, essentially. So those are the real constraints for the economy.

Now, if we understand that and if we put this lens for the general public to see the world of possibilities, then we realize who’s truly standing in the way of Medicare for All of a job guarantee of clean investments and green investments and so on. That’s not the lack of money that we have access to at the federal level.

Then we recognize that it’s not really possible for states and municipalities to do all of this transformative stuff. It’s really the federal government that has those capabilities. And now if we believe in the true meaning of democracy, a government of the people, by the people, for the people, then we demand that the 535 people we elect in D.C., that they do their job, which is to spend on the national priorities and tax and regulate market power out of existence.

Now, spending on national priorities. Once we understand this, then here I’m coming to the answer to your question, Steve, which is the three layers of the cake, as you describe it. And this is what the Green New Deal is for me.

Number one, we know that we should and we can afford spending on universal public services, health, education, green infrastructure, universal child care, you name it. A country like the United States can afford all of those priorities. And we design the implementation programs for these with job training and education and the right investments for infrastructure fully funded at the federal level, not a burden on states and municipalities and local residents.

The second layer becomes a job guarantee for people who can’t find work in the private sector or in the main line government sector as described in the first layer, and a job guarantee at decent wages and benefits.

And then the third layer is generous income support for people who can’t work or shouldn’t work for health reasons or other reasons. And this way you’re truly creating a prosperous society that has the right priorities and is not leaving anybody behind.

So this way, once we understand the power of the federal government to do this, then we should look back at everything we’ve been doing, shifting all of these burdens and responsibilities on individuals who can’t afford it and therefore end up in neglect and states and municipalities who by definition don’t have the resources and must race to the bottom to attract a little bit more business, either from fracking companies or pipeline companies or Amazon headquarters or whatever you can get.

But that’s clearly not a universal solution you can implement across the country. And that’s what creates this intensifying dynamic of inequality. And a lot of this inequality is racially infused. And as a result, we have what we have today.

So what the MMT perspective does, it shines this bright light on the existing dynamic, and it shows that we have a whole world of possibilities and at the same time identifies who’s standing in the way, be it corporate power or corrupt politicians who have abdicated their power, the power of the purse of the federal government and are asking local states and municipalities to do this.

And then to zoom in on the particular job guarantee piece that you wanted to discuss, Steve, that highlights why we need the whole package, why we can’t just do the job guarantee and ignore all the other work that we’ve been talking about. One of the immediate reactions to the idea of the job guarantee or a couple of the immediate reactions will be, number one, the cost is too expensive.

Number two, for small businesses, they’re going to say, well, if you offer a job guarantee that pays a living wage plus benefits, all of these perks, how can I as a small business, compete with them? Maybe Amazon can compete, maybe Wal-Mart can compete. They’ll just trim their profit margins at the top and CEO pay and all of that and they can actually afford it.

But for small businesses, it’s true for many will struggle to compete immediately with a $15 minimum wage or $25 minimum wage plus benefits and so on. And this is where you start looking carefully at the burden that small businesses are facing. Quite a bit of it is actually the cost of health care that they have to pay, and the employees also have to pay out of pocket – the burden of FICA taxes on small businesses.

From an MMT perspective, we know that the federal government can afford a much more generous Social Security retirement benefits, health care, retirement benefits for everybody. It doesn’t really need the tax (for the benefits). So this is where you can start arguing for a job guarantee and Medicare for All at the same time because you can’t do one without the other.

You have to start unpacking now all the other problems that people who would actually benefit from a job guarantee at the local level, especially in rural areas, will tell you, “Well it’s great. We have a job guarantee and we have a living wage, but there’s no transportation, but there is no child care, but there’s no elderly care. But I’m struggling with a mental health addiction.

How do you want me to take advantage of a job guarantee that offers all these great benefits if it doesn’t include mental health benefits?” So this means that you have to have Medicare for All as part of a jobs package. You can’t shift that burden on individuals or businesses or shove it under the rug as if it doesn’t exist.

So that’s why the whole package of a Green New Deal is the transformative thing we’ve been looking for to address all of these problems simultaneously, because creating a job doesn’t mean that somebody can take that job and push a pause button on their mental health issue, on their transportation problems, on their childcare problems and wait for another five years for somebody to figure out a solution.

All of these things need to happen at the same time. Otherwise we end up automatically excluding people who can’t be part of this transformative effort because we’re telling them we’re only giving you one slice of the cake at a time. You can’t have the whole cake at once.

[00:39:59.770] – Intermission

You are listening to Macro N Cheese, a podcast brought to you by Real Progressives, a nonprofit organization dedicated to teaching the masses about MMT or Modern Monetary Theory. Please help our efforts and become a monthly donor at PayPal or Patreot, like and follow our pages on Facebook and YouTube, and follow us on Periscope, Twitter and Instagram.

[00:40:48.110] – Grumbine

It jumps out at me as you’re talking about this, that you see immigrants coming to this country and being hated because they’re taking our jobs or our resources. They’re stealing our money, all the horrible negative tropes that go with defending the southern border.

And it’s still one of the most important issues that’s not being really addressed meaningfully, but as a state being a non currency issuer and having immigrants come into your state without understanding the currency issuer, currency user dynamic, once again, you’ll have another group of people that will be discriminated against and not just in law, but in perception, hatred, anger and rage and a lot of the blaming and scapegoating in this false scarcity narrative that drives much of our immigration laws.

But as a state, if I happen to have one of those robust economies like California or Washington or maybe New York and people from outside of my state cross the line to come into my state to use my state based stuff, we’re in essence, setting up a situation where you can see let me see your papers as you’re crossing the border from New Jersey into New York.

Bill, help me understand the concept of geography and jurisdiction meeting need in this case, whereas the federal government alone could assuage the issues with a job guarantee and health care for immigrants. But now, once we enter into that state realm where the currency user, what the burden of immigrants without relief at the federal level to do?

[00:42:38.880] – Black

So what goes through is a common theme, most everything we’ve been discussing is that there are a whole series of win- wins available – in econ jargon, positive sum stuff. And the genius in the old days was we were pragmatists. And if we had a win-win, we took a win win, right?

Medicaid expansion is like leaving tens of billions of dollars on the table rather than taking it. So the folks don’t have to come in from out of state, this dynamic, again, exists in the rural versus city divide, in all the places you’ve talked about. Oregon just had this informal vote of five counties wanting to secede to get away from Portland, the successful part, and here you pictured it as they portray it, which is a zero sum, right?

If I get something, it comes at the direct expense of somebody else and netnet society doesn’t gain. But the job guarantee is a classic example of a positive sum, immensely positive sum in which there are winners all over the place. Yeah, it can be more difficult for some folks to compete, but overall, there are huge gains to come from it as soon as it’s a zero sum.

Given the nature of strategic behavior, it becomes negative sum because you’re going to be told if you’re losing in this supposed Zero-Sum that you’re losing because the other person’s getting an unfair break.

[00:44:31.100] – Grumbine

Yup.

[00:44:31.100] – Black

And you already feel bad, especially if you’re male, you’re not making as much or you don’t feel you’re making as much as your dad. And this is the type of thing that really gooses authoritarian movements all over the world, all over history. We don’t have to have unemployment.

[00:44:54.870] – Grumbine

Amen.

[00:44:54.870] – Black

It’s not a good thing. We don’t have to do health care through employment primarily. That’s an incredibly stupid thing.

[00:45:07.110] – Grumbine

Yes.

[00:45:07.580] – Black

Right? And it started as a way to game the price controls in World War II.

[00:45:15.520] – Grumbine

Wow!

[00:45:15.520] – Black

Right. That’s how we have this idiocy. It is bad for business, it is bad for big business. Talk about burning money. We spend twice as much to get slightly less good health care compared to the rest of the developed world.

[00:45:37.950] – Grumbine

Kinda crazy.

[00:45:37.950] – Black

Our median wage in real terms, median, that’s middle, not the average, the median, is essentially the same as it was in 1970.

[00:45:51.120] – Grumbine

Wow! No wonder we don’t have inflation.

[00:45:54.460] – Black

That is 50 years, right? Now, there’s a huge group, of course, that is shooting to unprecedented wealth. What does that do to power dynamics and how people feel? The people at the top, they become the funders and these foot soldiers become the folks who are convinced that they’re not getting a job because the damn government’s giving it to Blacks.

[00:46:22.050] – Grumbine

Um, um, um.

[00:46:22.050] – Black

I told you, I grew up right around Detroit and such. George Wallace won the Democratic primary when I was a kid, or a young man. So these dynamics are not new. I would add my wife’s area of expertise June Carbone, the family.

[00:46:42.170] – Grumbine

Love June.

[00:46:42.500] – Black

To exactly what Fadhel was talking about. The job guarantee is a superb system for helping families, and families in all kinds of configurations of families at all stages of their life. It’s overwhelmingly women, of course, who are trying as 60 year olds to give care to 85 year old mothers.

It’s disproportionately women that find that they can’t go back for a job, it just costs them too much in childcare. They would actually net lose money. It’s also why lots of people don’t get married who would like to get married. It is just too tenuous. Right?

[00:47:37.890] – Grumbine

Um hum.

[00:47:37.890] – Black

Even if the person you’re going to marry would bring in additional income. Yeah, but what if they trip walking down the stairs? What if they drink too much one night and get in a car crash? The family cannot survive economically. We have a good 40 percent of our population that is one trip on a stair, one slightly worse than a fender bender away from financial crisis, 40 percent of Americans. That is obscene.

[00:48:14.030] – Grumbine

Criminal.

[00:48:15.170] – Black

And we can fix it and it would be good for other people. Many of our choices at best are simply historical. Why do we fund education overwhelmingly through local taxation which is the worst possible way to do it . . .

[00:48:39.380] – Grumbine

Absolutely.

[00:48:39.950] – Black

In terms of inequality, right, and locking in massive inequality, there’s nothing that says we have to do that. And why do we do that? Well, in part, again, it’s just that’s how it happened historically. But in part, it’s because we’re America and it’s race.

If you were in a rich suburb, by God, you wanted it to be local-financed. Your kids would do great. So we know how to succeed. We are not, as Fadhel said, money constrained. We are propaganda constrained such that even President Obama when the exact opposite is true, actually goes in a State of the Union address and says American households in the great financial crisis are pulling in their belts, so it’s our job as a government to pull in our belts when every competent economist would say, “No.”

That’s precisely when you have to do the opposite. You don’t want more and more people taking what’s already inadequate demand and making it worse. Now, in all fairness, that insanity didn’t even come from Larry Summers and Larry Summers is plenty crazy on this issue with them.

[00:50:04.240] – Grumbine

Yes!

[00:50:04.240] – Black

Right? That came from Tim Geithner.

[00:50:07.580] – Grumbine

He’s just as bad.

[00:50:09.290] – Black

Oh, he’s

[00:50:10.190] – Grumbine

Worse?

[00:50:10.560] – Black

He’s he’s worse because he fundamentally knows nothing about economics and was put in charge of Treasury to run the IRS because he had cheated on his taxes.

[00:50:23.960] – Grumbine

Wow!

[00:50:24.860] – Black

And refused to pay the money back the first time around. When he became Fed president in New York, he was confronted with the fact that he had failed to pay appropriate taxes. And he was told how much he should have paid, but then he was told this much is past the statute of limitations.

They said, OK, we’ll pay that. And it was only when he was nominated to be treasury secretary that it became too embarrassing to continue that process that he finally paid the money back.

[00:50:59.970] – Grumbine

Part of that blew away . . .

[00:51:03.030] – Black

Actually, he had to change his party registration because he had never really been a Democrat.

[00:51:08.500] – Grumbine

He just played pool, like . . . [laughter] Alright, I got to flip over to Fadhel. This to me is an opportunity to really open this up. I have goals here, and that is that for as long as I’ve been involved in activism, I have seen people get frustrated at organizing at the national and reduced down to the state and local in a noble, yet misguided attempt to do a lot of different things.

And I guess the big issue is MMT, which is really now coming into its own, and people are starting to really understand what’s going on or at least have an idea. I shouldn’t say, really interesting, because I see a lot more not understanding, but listening. But with that in mind, what I’m witnessing is a lot of emotional appeals as opposed to logical appeals in terms of understanding what is being talked about here.

And from a MMT activist perspective, it’s incredibly challenging because the arguments are among allies and they tend to focus on, well, you just don’t want us to have health care or a job. And it’s always these emotional pleas as opposed to hearing that, no, I want those things, but you’re going about the funding mechanism in the wrong way. And here’s why.

I guess my question to you is, if you were talking to a movement and you are by the way, if you were talking to a movement right now and you had a bunch of people come up to you, very well-meaning people wanting to have Medicare for All in their state, or a job guarantee in their state without it being at a federal level, how might you talk to them in a way that both honors them for trying to fight, but yet at the same time advising them where the error in their ways are? How would you approach that?

[00:53:12.270] – Kaboub

Well, I completely understand the level of despair that many people are facing in the movement across the country, but that shouldn’t stop us from mobilizing, organizing and educating and empowering people to fight for the right policies. So at the local level, I would work towards a multipronged activist approach that fights primarily to elect the right candidates for federal office to apply pressure on representatives and senators from your states.

But at the micro local level, even municipal city council level, even though those entities don’t really have any capacity to implement anything at the federal level, obviously, but they do have the capacity to issue non-binding resolutions calling on the federal government to do its job and educating the public, the local media that they at the local level, as municipalities and cities and states are ready, willing and able to do their part in the implementation and the execution of federal policy.

But they need the funding to come from the federal government. They can pass resolutions calling on the federal government to tax and regulate abusive market power when it comes to the power of pharmaceuticals. What can a city do to multinational corporations and the pharmaceutical industry or the energy industry?

So these are the kinds of things that you can do at the local level to raise awareness about the power structure, because the power structure is not just at the local level, it’s much, much bigger than that, but also declare that you and your city and state are ready for implementation of these federal policies.

I think that will be more effective, and this way you can replicate this effort across the country when you have 50, 60 city councils across the country passing resolutions, calling on the federal government to do something about a particular issue. Not only will you get media attention, but you’ll mobilize other progressive movement across the country to push in the same direction, because as you said earlier, 70 percent of people in this country want Medicare for All. Why are we not getting it right?

It seems so obvious. All the 535 people we have in D.C. seem to disagree with 70 percent of the people. Who do they agree with? They agree with their lobbyist. They agree with the super PACs that fund their campaigns, with the media companies that spin their stories. Well, that’s not what democracy was supposed to be, right?

So we really have to untangle all of these pieces at once. And we can’t just put our heads down and try to focus on something relatively minor, no matter how vital the issue is, such as health care. We all agree that it’s vital, but it’s much more complicated than just trying to fight for one small slice of the bigger pie, when to some extent the powers that be are waiting for those experiments to fail. We’re making their job easier, actually, to dismiss those efforts and to weaken them.

[00:56:32.310] – Grumbine

You’re saying that by fighting these battles in the way that many do at the local level, they, in essence take the pressure off of the national level and they can take more of a wait and see look as opposed to feeling the pressure directly on them?

[00:56:49.410] – Kaboub

Yeah, and I don’t think we can afford that. I think we need to consolidate efforts across the country and work in this way that allows us to turn to local authorities as echo chambers for our demands, calling on the federal government to do the right thing, especially on health care, because it’s a no brainer.

The evidence is there. Everybody wants it. Republicans, Democrats, independents, even the conservative think tanks and their studies have produced numbers that show that it’s actually cheaper and it delivers better health care than the current system that we have.

And it’s the craziest thing to observe, right, that the progressive think tanks, the conservative think tanks, the general public, Democrats, Republicans, centrists, everybody’s on the same page except those 535 people we have in DC and the people who surround them. That’s not democracy.

[00:57:44.550] – Grumbine

No. No, it’s not. Not at all. And, Bill, let me ask you, as Fadhel has laid out this vision for progressives who might be fighting for this stuff, obviously, we know watching your work in terms of elite control fraud and the backstopping that the Federal Reserve and our federal government has done to bad actors, bad corporations and all manner of destruction.

What do you think it would take to not only wake up the people that their state based initiatives are in jeopardy because of this, but they’re also an understanding of the fraud that’s underlying all this, that makes this race to the bottom that much more lethal.

[00:58:32.360] – Black

So two things, one, to tag with what Fadhel has just talked about, the key advantage the federal government has is the sovereign currency in the fact that it can fund. Right now, it’s also, of course, controlled by an administration that is at least somewhat friendly to a number of the initiatives, but obviously that changes periodically in quite the opposite direction.

But now, there should be all kinds of state and local effort. And in particular, in West Virginia, in Arizona calling for categorical grants to do things against opioids, to do things that are green and such. So the money can come from the federal government and the localities or the states where they’re willing to join in can take on these efforts. Right.

The second thing, it’s a moderate source of revenue all other things considered, but it’s a huge source of information to the public in changing the way it views things is to bring these civil RICO actions – so this is Racketeering Influence Corrupt Organization. These were the huge settlements out of tobacco and coming from opioids.

Now, the key was getting the legal discovery to show that this really was honest to God from the top of a number of the top pharma companies, a deliberate strategy to get millions of people who shouldn’t be on opioids, to be on opioids, to claim that it was perfectly safe.

It’s invaluable what has come out on McKinsey, the world’s leading business consultancy. I think the word they used was they created the plan to supercharge opioid sales by the cyclers.

[01:00:47.430] – Grumbine

Wow!

[01:00:48.270] – Black

Right. And it was a hugely successful plan. And what they did is they said, “Look, we got to target the sleaziest physicians because talk about race to the bottom, the bottom five percent of physicians write 80 percent of the opioid prescriptions.

[01:01:07.070] – Grumbine

Oh, my goodness.

[01:01:07.070] – Black

Right? And so they targeted those people. And already the sales were huge and they just took off enormously in those circumstances. So those do triple duty. Eventually, they bring in some money, but they bring facts that are hidden by these corporations, we can invoke what’s called the fraud crime exception often and get the materials even from their lawyers, showing that they’re dirty as well.

The third thing is it just changes public perception of what’s going on and how much we need to fight back. Those actions were originally brought largely by the states. So the state AGs where there are states willing to take on pharma, big food, now it looks like important parts of Silicon Valley, as Fadhel was talking about, there’s actually some hope in antitrust law for the first time in a number of years to be able to bring some of these things.

So there are some legal actions we can bring. But as I say, I would really come up with well thought out, categorical grant proposals on green, on health and such, where the federal government would do the funding and you would try, right? Let’s see if this works.

And try different variants, use those laboratories of experimentation that Brandeis talked about and so that once we do get major federal funding, we’ll have a better idea of what works best. Let’s try a bunch of different variants of job guarantees funded by the federal government through categorical grants in particular areas.

[01:03:02.720] – Grumbine

Interesting.

[01:03:03.740] – Black

They’re going to be a lot of things to work out, folks. Job guarantee is a brilliant idea, but we’re going to have to, for example, be able to fire people. You hire somebody and they molest people instead of helping them. That’s not just wrong.

If you allow that to persist, to create scandals that destroy the program, there are real practical administrative problems and there’s not going to be a perfect solution, but if you try a bunch of different things and find out what works best through experiments, that’s a really good thing. Instead of “Oh, I know, we’ll just do it this way.” Nationwide, boom. Nothing could go wrong with that.

[01:03:44.580] – Grumbine

[Laughter] No, nothing, nothing, never. Let me ask this final question. This will close us out. I know that there was revenue sharing between the states years ago. The federal would subsidize states and there was a revenue sharing to help ensure that states stayed flush.

[01:04:04.830] – Black

Obama proposed it and the Democratic conservatives in league with Republicans, but mostly from the Democratic conservatives, the Blue Dogs, as they were called, killed it.

[01:04:17.850] – Grumbine

Damn.

[01:04:19.400] – Black

Right at the beginning, that was actually their target for the first three weeks of the battle and the Obama administration decided that it couldn’t fight it effectively. I think that was a mistake. I would make them kill it by vote as opposed to just dropping it.

[01:04:35.780] – Grumbine

Right.

[01:04:36.070] – Black

Which is what they did.

[01:04:37.810] – Grumbine

Well, this question of revenue sharing, we come to a point now where the inequality between the states is tied directly to whether it be the rich people that live in their state, their local jurisdiction, enough rich people live in their jurisdiction. It comes down to which businesses are there and how did you lure that business in. Are they going to leave if you change your tax structure, are they going to pick up and go again?

[01:05:07.870] – Black

Yeah, I would not use revenue sharing at this point, that’s why I called for categorical grants.

[01:05:13.450] – Grumbine

Absolutely agree. But that brings me to a closing point with the race to the bottom is ultimately the states are so beholden to the wealthy in this country, and that furthers that belief that we need rich people’s tax dollars to make things happen.

It is ultimately a capitulation to wealth and to the deifing of wealth by keeping this structure in place and by putting it to the federal government where it’s truly public money, where it’s our money. It allows us to create not just the funding mechanism, but the real genuine belief in shared ownership. Fadhel, What are your thoughts on that?

[01:06:01.150] – Kaboub

Right, and this is what Stephanie Kelton means, when she says, “Money doesn’t grow on rich people,” as far as the federal government is concerned. That when the federal government abdicates its responsibility to spend on health and education and infrastructure and abdicate that responsibility to states and municipalities, that is currency users, you force them into that mode of thinking.

And as a result, you force them into the race to the bottom and you force them into trying to attract as many billionaires to their jurisdiction so they can tax them a little bit to get whatever they want. But the thing is, if you tax them too much, they’re going to move to the next jurisdiction that gives them the better tax breaks or move to some other tax haven around the globe.

So that’s what reinforces the race to the bottom. So MMT, we highlight the importance of decoupling the spending and taxing at the federal level. We spend on national priorities, as I said earlier, universal public services, job guarantee, generous income support, all the things that we need as a democratic society, all those priorities.

But then you tax for reasons that are completely irrelevant to generating tax revenues, so to speak, to the federal government. So you tax to reduce inequality. You tax to reduce pollution. You tax to reduce speculation. You tax to decarbonize the economy. You tax to reduce the abusive market power that some key players have in the economy.

You tax to reduce inflationary pressure. You tax and regulate the economy for strategic purposes that have very little to do with funding public services such as health or education and so on. Education at the local level in this country is funded via property taxes, which fuels inequality and socio economic exclusion.

There is no reason for it to be this way, right? The federal government can fund public education K through 12 and higher public education without having to shift the burden on families in terms of student debt, on local authorities to raise tax revenues and to race to the bottom to fund the basic needs for the economy.

So the MMT lens is the only economic approach that we have that shifts the narrative and highlights a world of possibilities that we have available to us that we’re not even considering. And any effort to shift away from the MMT narrative and to stay consistent with the dominant narrative is tantamount to shooting ourselves in the foot by saying we need to raise tax revenues, we need to tax the rich in order to fund this, because then you’re giving them more power and influence.

As a result, you want the rich and powerful to be even richer and more powerful so you can tax a little bit of their money to have a little bit of your health care and a little bit of your education. So the more generous public services you demand, the more wealth and power you need to have for those individuals and corporations, which means they’ll never give it to you and then they’ll have more political influence to deny you those services and to deny you all the things that we’ve been fighting for.

[01:09:21.990] – Grumbine

This has been absolutely fantastic, and I got to tell you, as soon as we close this off, I’ll probably have 400 more questions, but I guess to close us out, I want to give each one of you a chance to take a shot at one thing that maybe we didn’t touch on today and to just tease it out and leave us with some thoughts as we go forward. And, Bill, let me start with you. What have we missed today? What could we have brought into this that would have made this more rich?

[01:09:49.350] – Black

I don’t know that we’ve missed it, but it’s a sort of a summary of what we’re saying, and that is we can succeed. That it’s really much more a matter of will than anything else. And we can succeed even against many of the things in the filibuster giving what they are able to do through sequestration.

[01:10:12.390] – Grumbine

Very good. And Fadhel, how about you? Anything that we missed or that you want to put a clarifier on?

[01:10:17.950] – Kaboub

I’d like to amplify what Bill just said, which is a better world is within reach. It is totally possible, but we’re not going to get there if we’re unable to educate, empower, organize and mobilize our collective efforts under an MMT lens to shine this bright light on this world of possibilities that is right there within reach.

And the real obstacles, whether it’s risk of inflation, whether it’s the people who are behind the risk of inflation, the abuse of market power, the corruption, and then we can look at each other and start sharpening those pitchforks and go into this fight with a well-informed and coherent vision so that we’re pushing in the right direction.

Otherwise, we’ll remain under this veil of artificial constraints and we’ll surrender to the idea that we’re doomed and that there is no alternative. That’s the whole TINA concept, that there is no alternative. That’s the narrative that dominates today. And that’s the narrative that we’re trying to undo.

[01:11:21.800] – Grumbine

Very good, gentlemen, thank you so much. And from my perspective, I just want to say this race to the bottom is something that I feel must be constantly talked about – the power dynamics between the states and the government, whether we start organizing governors to work together, whether we start trying to find some way to bring about a representative body to attack our Congress in whatever populist way we can do it.

I think we need to get creative in terms of how we organize. But you guys have made the exclamation point and closed the book on the funding concept and the overall dynamics behind the race to the bottom. So, folks, I hope you enjoyed this podcast. It’s a challenging one for sure. It’s definitely a paradigm shift for many. And I hope that you will take the time to listen, learn, research, ask tough questions, and otherwise don’t make MMT and funding issues the last thing you think of.

Place them in the forefront so we understand how to frame our arguments all together. And with that, I’d like to thank my guests Bill Black and Fadhel Kaboub for joining me. As usual, this is Steve Grumbine with Macro N Cheese. We’re out of here.

[01:12:40.560] – Ending credits

Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts and promotional artwork by Mindy Donham. Macro N Cheese is publicly funded by our Real Progressives Patreon account. If you would like

Mentioned in the podcast:

Laffer Curve 

Predatory Lending 

Fracking – Marcellus Shale 

Marcellus Shale Coalition 

FICA Taxes 

Positive Sum Theory 

Positive Sum Design 

June Carbone 

Timothy Geithner 

McKinsey Business Analysts 

Brandeis laboratories of experimentation 

• Download Audio (mp3)