by SCOTT FERGUSON & WILLIAM SAAS
Money on the Left speaks with Pavlina Tcherneva, Professor of Economics at Bard College and leading scholar of–-and advocate for—Modern Monetary Theory (MMT). Many of our listeners will be familiar with Dr. Tcherneva’s contributions to MMT, especially her book, The Case for a Job Guarantee (Polity Press, 2020). She is also Director of Open Society University Network’s Economic Democracy Initiative, instrumental to the publication of a United Nations report on the job guarantee, titled “The Employment Guarantee as a Tool in the Fight Against Poverty.” We speak with Pavlina about her work, and also get her perspective on the causes and conditions of MMT’s movement from the margins of economic discourse toward the mainstream of political economic thought.
Transcript
The following was transcribed by Mike Lewis and has been lightly edited for clarity.
Billy Saas: Pavlina Tcherneva, welcome to Money on the Left.
Pavlina Tcherneva: Thank you for having me.
Billy Saas: We’re very excited to have you, of course, a very accomplished author and researcher, and respected MMT principle theorist. How did you get here, where you are today? And how did you come to MMT?
Pavlina Tcherneva: Oh, how long do you have? It is true that perhaps your audience knows me most with my work on the job guarantee and the recent book that came out in 2020 The Case for a Job Guarantee, but I didn’t actually quite start there. I would say that probably like most MMTers, certainly the initial group. I, too, was caught up by what Keynes called “Babylonian madness”. We all were provoked to look at the history of money because we realized early on that there was one research project that was not fully developed even in heterodox theory. That was the project of understanding money as fundamentally a public institution and as you well know, heterodox theory has long talked about money as a core analytical category in understanding a monetary production economy, a capitalist economy, a market economy. Orthodox approaches had no finance, had no money beyond some very simple kind of assumptions about it being a numeraire. But Post-Keynesian Institutionalists, too, didn’t really have a rigorous program, looking at money as a public institution. We had a lot on endogenous money, on financial instability, on how unemployment is a monetary phenomenon, on all of the important things of capitalism, except I would say the state. This work did exist out there, but I would say that with our work and our introduction to Warren Mosler, getting together with Randy Wray, Matt Forstater, Stephanie Kelton, the familiar names, this is when we all started thinking: well, what’s missing here in the analysis? And there’s one very basic, fundamental, stylized fact that every student knows. Every student knows that the currency is a public monopoly. It’s probably the purest form of monopoly, and yet the profession didn’t have much to say about this. So when I did my internship with Warren Mosler in ’96, that was really the first question: what are the implications of a currency being a public monopoly? In economics, you might find something in mainstream theory, mainstream literature about competing currencies, the efficiency of the chosen numeraire, these kinds of frameworks. Then you will find something about the state usurping power over the monetary unit because it comes from gold and market exchange, all of this really unfounded in history and anthropology and sociology. Nobody tells the stories except economists. But that’s the extent of what we would find in Orthodox theory, that the currency monopoly is somehow the state taking over some innovation that the private market came to. The other thing you would find in mainstream theory is to say, Well, if the government decided to then print its own currency, then of course, it naturally will inflate it, it will abuse it, and can’t do anything good with it. That is just a very thin analysis. But there are deeper, I think, questions to be answered. Some of the very first things that I did, and almost in a playful way, when I was working for Warren was to say: okay, well, can we model this? What could be some of these implications that if the state is the monopoly currency issuer, what are some implications from that basic stylized fact? The very first one is the one that everybody associates with MMT: the government can’t run out and that’s obvious. I think we got to go deeper than just the very obvious that we can’t run out of money. That’s clear. Well, if you’re a monopolist, then you have some unique powers. Pricing power is an important one. I think that is still under-researched, in terms of the MMT project. We have statements, we have made certain claims, but I feel like the literature needs to develop on that front. One of the pricing powers is that you can set the price of money itself. That is, of course, the interest rate. We know very well that the government can do that. The central bank is the one that can set the price of money. The other one is that you can also set the price of how the currency exchanges for other things. You can set a conversion rate. So, if the state is the one that imposes some kind of tax liability, and people need to earn the currency, then what do they need to deliver in exchange and what price would be paid for whatever they deliver? So, those were kind of macro, they were modeling questions, they were as theoretical questions to me, they were very interesting questions because one of the things that I showed with the math model is that if the more you pay as a currency monopolist, the fewer resources you’re going to attract, given a certain tax liability. That was kind of counterintuitive. The more the public sector injects it to the private sector, the fewer resources it might be able to attract given the tax obligation. So that was the first question, but then the second was: Well, how could the state inject currency into the economy? Could the state do it in a way to just always employ unemployed labor? Again, the job guarantee initially was, for me, this very much of a macro question, is there a way for the government to spend in a better way, in a way that it can secure full employment? Very quickly it was clear that full employment and price stability were not competing goals. That, in fact, they were very much part of these inherent powers of the state. So the job guarantee emerged as this alternative to the NAIRU. Heterodoxy, for a very long time, had criticized the NAIRU. It had very thorough, rigorous critique, but I would say, probably not an alternative policy proposal. I think, for me, that very quickly was quite obvious that certainly you can use your pricing powers to anchor prices of a very fundamental, most essential input of production. You can do it to create full employment, and then, of course, you have other tools to deal with inflation and price stability. So as I said, for me, the MMT project was about identifying some kind of essential principles behind the currency rather than some accidental, if you will, aspects to the monetary system, and how we can utilize the monetary system to create more economic stability and full employment. Over time, this project became quite personal. It became personal when I did my dissertation because I was able to observe how a job guarantee or program inspired by the job guarantee proposal was implemented in Argentina. When I was able to visit and see how the program was run, the impact on women, on poor mothers, on communities, I mean, that’s when everything changed. It became just as important that we have a framework for thinking of how macro policy can be implemented, but also to understand the on the ground effects of macro policy. If there is one theme that I think runs through my work, is the question of how can we do things better? That ranges from how to do fiscal policy better, how we can improve on what we’re doing currently, how we can do monetary policy better, and the like. So I would say that that is really the overarching theme. Not so much “Can we pay for it?” Yes, of course we can. But now that we can, what shall we do with these fundamental powers?
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