Thoughts on Modern Money Theory – Episode 094

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[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, this is No BS Money Guy Todd Strobel for the Prosperity Podcast. Once again, we’ve got bestselling financial author Kim Butler here today, and we’re going to have some fun. I must admit I have been under the weather and was too sick to get out of bed, but I saw an article in a newspaper that I just could not, not read, even if it killed me. And it was about a new economic theory called Modern Money Theory. And it basically states that deficits are good, debt is good, as long as you control

[00:57] the currency that pays the debt. So in the United States, we have seen our money supply grow substantially. We have seen our national debt grow substantially, although it’s doing much better now than it has been. But the question is, is that would it make sense to lower people’s taxes, even though we have a lot of debt, to increase or continue to give out more and more benefits, to reduce the sale of bonds, because bonds again creates more debt on the government side, and simply just inject more money and more money into the money supply as a way of keeping the economy stable? I don’t know, Kim. What do you think? Well, it’s an interesting question for sure, and I really want to turn it to our listeners

[01:56] and see if anybody has opinion on this. But what I do when I hear about stuff like this is always try to equate it to my own personal economy, because that’s the only way I can really understand all the issues. And it’s a very helpful tool, this ability to translate ideas from the big picture world economy down to the U.S. economy, down to our own personal level. And we see this in opportunity costs. You know, many, many people learned about opportunity costs at the business level, but they never learned about them at their own personal level. And consequently, they made mistakes. And so I see this kind of thing in the same way. So if we bring it into our own personal economy and we say, all right, as a

[02:40] family, we’re going to basically control our money supply, which is our earned income. And we’re going to increase our debt and then try to increase our earned income to somehow give ourselves more benefits so that we can make our situation better. And there are families that do this. There are families that take out credit card debt, car loan debt, mortgage debt in larger and larger amounts. And then they are set up in such a way that they can earn more income. Maybe they’re in sales and they have commission or they have stock options that they can start to sell and create additional income or what have you. But I never really see those families get ahead if they use that as a long term strategy.

[03:31] All right. I got to turn this one on you, because I think I got you on this one. Oh, tell me. OK, now those critters that you raise and make wool with. Yes, it’s called fiber, alpaca fiber, alpaca fiber, which is absolutely wonderful, beautiful stuff. So let’s say that every year you committed that you would have more alpaca fiber as a way of paying for something. And you continue to breed alpacas and increase your alpaca for output or yarn output each year. Wouldn’t you stabilize your economy? I think that you could in the short run. And that’s the point that I’m making is that all of this money theory that’s in this article that you’ve read can absolutely work short term. And yet I don’t know that it’s sustainable long term.

[04:29] And knowing that we’re just having a fun discussion here and probably neither one of us really knows the answer, I’m happy to have you play devil’s advocate on it. But let’s think about this. By increasing the animals, which then increase the fiber, we also increase our costs. We have more hay costs, more food costs, grain as specifically. We might even have more labor costs and time because right now we’re able to deal with the 19 animals that we have. But last year, I actually stopped breeding them because I didn’t want to have any more animals. Now, this year I have a black girl and a white boy, and I really want a gray one. So I put the two together. We’ll see what we get. I’ll keep you posted on that.

[05:08] It’s a year away. They have a 350 day gestation period, but think about it long term. If we kept breeding, having more and more animals, then we’ve got more costs that can stabilize for a while if we’re able to increase income, but there’s a point in time where that can, I think, turn on itself. And the lesson that I turned back to is from Art Laffer’s curve, the Laffer curve it’s known as, which was part of Reaganomics, where he, Reagan, had with his advisors help the U.S. economy reduce its taxes. And because of that, there was more production that occurred. And you can see the benefit of that. If you take a Truth Concepts cash flow calculator and you play through the tax brackets, when you go down to about a

[06:04] 15% rate, now we know in the media that a lot of the flat tax proponents are talking about a 15% flat tax, that you get a more efficient overall environment than you do if you have a 20 or a 30 or a 40 or a 50% tax rate, because you end up at the 50% tax rate literally killing the goose that is creating the golden egg. So by equating these two things together, can we learn something from this? I think so, because I think if we go back to the alpaca example, there’s a certain amount of demand for alpaca fur. And as the supply increases, we would see a decrease in the value of the individual alpaca fur at some point that would tip exactly what you’re saying. So by continuing to add, we would, in fact, decrease the

[07:01] value of what our future earnings were. And I think that’s what we’re seeing in especially international economies is the fact that there is only so much production and value that is there. And once you surpass that, you’ve created something that no longer has as much value. So it decreases in value. Did I say that right? Well, potentially. And it’s an interesting thought, because I don’t think that we’re limited in our ability to produce either as individuals or as families or as countries or as companies. You know, there is a scarcity mentality out there that would say that we’re tapped out production wise. But I disagree with that. Now, arguably, some people are in a fixed job income and that’s what they earn, period.

[07:47] But it doesn’t mean that they can’t go get part-time work as an example of increasing their personal economy. So as we relate this to the theory of what controls the marketplace, and we can even hint for a show that I know we’re going to be having in the future about a book by Matt Ridley called The Evolution of Everything, we need to really look at what does cause evolvement, what creates things and escalates things and makes things better. And I have to be committed to the free market economy and the idea that lack of control is, and you know, that’s kind of sad because one of our principles is control, but now I’m talking about control from the government, not control of ourselves. So lack of control from the government is

[08:37] what creates good. And when there is a central bank, so back to this article, when there’s a central bank that’s trying to control things, that’s when areas of the economy, whether we’re talking internationally or just our own personal economy, get messed up. And if we would leave the central banks out of the equation and leave the governments out of the equation, human ingenuity and technology and prosperity oriented thinkers would overcome the problems that we see that the central bank is trying to fix. Actually, I completely agree. And I think the point is, is that at some point you’re no longer controlling, you’re manipulating. And I believe there’s a name for those manipulators, aren’t there?

[09:29] I think so, but I can’t get what you’re hinting at. What would you call them? Kenzian, I believe is Kenzian versus Austrian economist. I believe is we have talked about that. Yep. I think you’re right on that. So it’ll be interesting to hear what our listeners have to say. And please shoot us an email, your thoughts on this. And Todd, maybe we can have the article that you read linked into the blog. So if we butchered it, people can get their own read on it. I absolutely will. Like I said, this is something that’s being taught at colleges now. It was in Bloomberg magazine just here. March 2016. So a relatively new thing, but I will make sure that we have a link to that. And again, would love to hear from listeners.

[10:17] We may spawn a few different shows off of this, but in the meantime, we’ve got the book, Financial Planning Has Failed. Is that correct? Yes. Financial Planning Has Failed, available at partnersforprosperity.com slash ebook. And there’s an audio book there as well. So invite everybody to go download that for free. Some fantastic principles there. Today, I think we were kind of just having more fun than anything. I just can’t imagine how having your own printing press at home to print money would make that money worth more every time and what make increasing debt make sense. But I will continue to kick that around in my mind. And again, this is an OBS Money Guy, Todd Strobel saying take care, everybody.

[11:05] Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.