Pushkin from Pushkin Industries. This is Deep Background, the show where we explore the stories behind the stories in the news. I'm Noah Feldman. Our country is facing a genuinely challenging historical moment. There are two major stories that are proceeding right now. The first is the protests, the demonstrations and in some instances looting triggered by the tragic death of George Floyd. We talked about that earlier this week with Finita Kupta, and we're going to continue to cover that story. The second story, which has not gone away, is the coronavirus pandemic and its consequences for the world. Today, we're going to focus on that story. The federal government has said that it's planning to borrow nearly three trillion dollars between a in June of this year to help businesses and workers affected by the coronavirus shutdown. That's a record breaking amount of money. Think of it this way. During the entirety of last year, the government borrowed one point to eight trillion dollars. That's compared to three trillion in three months. How worried do we need to be about the remarkable, indeed astonishing scope of our emerging national debt. In order to explore answers to this question, both mainstream and otherwise, I'm joined by Professor Jason Furman of the Harvard Kennedy School. Jason served as President Obama's Chairman of the Council of Economic Advisors from twenty thirteen to twenty seventeen, effectively serving as the president's chief economist and a member of the cabinet. He's also the best macroeconomist at explaining things that I have ever met. Jason, thank you so much for being here. We're obviously in an unprecedented situation of economic crisis, with forty million people unemployed, that's nearly a quarter of the workforce, and in that context, every economist that I know thinks that it's completely reasonable to spend the money that we're spending now on some combination of a bailout slash life support system for the economy. What I'm curious about is is there a limit? Is there any maximum point beyond which we cannot go? Well, it sounds like you have great taste in the economists that you hang out with, so congratulations on that. I don't think there is a limit to the amount of money that can be spent on effective measures. So I wouldn't think of it as a target, nor would I say this a ceiling. I would ask the question, is what I'm doing going to have a multiplier that's close to one or higher than one, in which case you can definitely do it because it means GDP will go up by more than debt and it will actually help your fiscal sustainability. And then if it doesn't have a multiplier more than one, you still might want to do it because you care about education, you care about protecting a family and need and the like. Don't put a budget constraint on it, but do ask real questions about whether what you're spending is useful, is likely to help the economy or not. When I spoke to Larry Summers, it's now probably almost six weeks ago. He said, Listen, nobody should get the idea that we're passing a stimulus. There's no stimulus here. There's just life support and people need to stay alive, and so you need to spend on life support. That's a little different than the idea that you know this will have a multiplier of one. Yeah, So there is some evidence in the last several weeks that the days that people got checks, for example, from the economic stimulus payments, spending went up at certain big box stores and the like. I think that will be even more true going forward when you're more able to spend money. So, to some degree economists is the nerdy term consumption smoothing. You don't want people to have to radically reduce their consumption and then radically raise it again. You want them to be able to smooth through shocks. If you're helping people smooth their consumption, you're helping them avoid unnaturally large reduction in it, and you're actually helping the economy relative to what would happen otherwise. So I do think unemployment insurance, nutritional assistance money for states and localities. The evidence on all of those is that they do add more than a dollar to GDP per dollar you spend. Now. Does a dollar to GDP get added six months from now rather than now? You know, that's certainly possible. I don't know exactly what the timing is. When does the bill come do for all of this? I mean, the theory behind a multiplier of one or a greater is that at some point the government, if it's the lender or the grant will get its money back. And if it's debt, I suppose it would ask for its debts to be repaid. If it's in the form of grants, there would be more GDP, so we could get tax money and then the government could pay itself back via the taxes. First of all, am I getting that process right? And second of all, is there any time frame on that that's logical or reasonable or do we just say, well, just wait until we can afford it. Yeah. There's two freeish lunch aspects to this, and both of these free ish lunches have constraints on them. The first is that for fiscal sustainability, what you care about is the debt relative to the size of the economy, and so it's debt divided by GDP. If you can do something that raises debt by less than it raises GDP, the denominator goes up more than the numerator and the debt to GDP ratio goes down. We're not in that situation now, though it appears, oh, debt is certainly rising. The question is would debt rise even more if we didn't do some of the fiscal measures we were doing. For some of the fiscal measures we're doing, especially some of the ones that are more effective, I think they're probably in that. The second is what is your interest rate after accounting for inflation. That's called the real interest rate, And right now the real interest rate is negative, which is to say, if the federal government borrows one hundred dollars today, a decade from now, it has to pay back about ninety five dollars adjusted for inflations worth of stuff. So the question you want to ask yourself in that environment is what would you rather have one hundred dollars today or ninety five dollars a decade from now. Most people would answer a hundred dollars today, especially given all the needs we have now, there's a limit on those. If you do things that are ineffective, you don't get that. You could drive up interest rates if you try to do too much, if you try to expand the economy beyond where it wants to be, you could get large and increasing amounts of inflation. So none of that is a blank and unlimited check, but for well designed policies within the regime, wherein there is a freish lunch aspect to what's being done with respect of the second freish lunch. The negative interest rate is that based on a projection of what inflation is likely to be over the next ten years, and if the rates were to change, if there was to be deflation or just much much lower or minimal inflation, would that turn out not to be the case, that lunch would not have been as freeish as it appears. So the government mostly issues what are called nominal bonds, which is they have an interest rate in the interest rate is just the way we normally understand the interest rate. Some of what the government issues are inflation index bonds, and they pay an interest rate, which is, will pay you the inflation rate plus blank or will play you the inflation rate minus blank. Right now, the interest rate on those inflation index bonds is negative. So quite literally, the government, no matter what happens to inflation, if it wanted to issue more of those bonds, and you know, might change the interest rate on them. If you tried to issue too many, but at least on those bonds right now, you could lock in negative interest rate. But I don't want to push this too far. You're certainly right, you know, interest rates could change in the future. You know the FED could stop trying to keep them low, etc. I've spent thirty five years watching every single interest rate forecast anyone has made has been too high, and interest rates have come in below it rather than above it. But that doesn't you know, just because my whole adult life has been like that doesn't mean it's the timeless truth that we should count on. How long does this large debt overhang have to last and how big does it have to be? The certain economic theory that says it's actually the standard one that when you get shock hits, your debt's going to be higher as a result of it, and you actually it's okay if you lock in at that new higher level of debt. In this case, I think it's completely plausible that a decade from now the United States would have a debt to GDP ratio of one hundred and fifty percent, which is higher than we've ever had in our history, but something that the UK had for centuries and centuries and centuries while it was the world's pre eminent power, And so one hundred and fifty percent of GDP may be okay, it may be something that we're able to get used to. It would depend on interest rates staying below the growth rate to make it at all feasible to stay at that level, there'd still need to be some adjustment, some additional revenue or spending cuts to even stabilize add one hundred and fifty percent of GDP. But I think we're going to find ourselves a decade from now that's going to probably look perfectly reasonable, when if you'd told people even a year ago, they would have thought it was nuts. The British Empire example, I have to say it makes me a bit nervous because it was at least the theory of the British Empire during this period of huge debt that the reason they were borrowing that money is they were in the process of conquering the known world, which they were in fact doing. You know, that was exactly the period in which the British Empire came to be the empire over which the sun didn't set, and the British were very explicit that the goal of their empire was to enhance their commercial opportunities and success. They took over a country or in one case, a whole subcontinent with a specific goal of exploiting it for its resources. In the case of India textiles. Roughly speaking, in the case of Africa, they didn't make it over the whole continent, but minerals they saw that debt as an engine of growth. I'm wondering if you think there's anything even slightly comparable for the US in this period. I mean, we wouldn't have, let's say, a business plan for very substantial growth that would justify borrowing that money. In our case, it seems more like we're borrowing that money now to overcome with the shock. Yeah, so first of all, lesson learned. Never bring up history with somebody that knows history. You know, the UK also had debt. Britain had debt, you know, often two fifty three fifty percent of GDP over that period of time, So this would even be a decent amount below it. But I certainly agree with you that adding to debt is much much more appealing when you're adding to debt in order to help economic growth than when you're adding to debt to, for example, give tax cuts to high income households so they can consume more in the present. We'll be back in a moment. I want to turn out to a topic which when I bring up with our economics colleagues at Harvard and MIT, people get red in the face, And I want to bring it up in a way so that nobody has to get red in the face. But I think it's important because it's in the public discourse now, and that's MMT or modern monetary theory now. As recently as a year or two ago, if it even came up in conversation, my anecdotal report is that people just rolled their eyes and said, this is a crackpot theory, no reason to worry about it too much. And yet now out in the public discourse there has become a kind of trope of people saying, oh, well, we're all MMT people now, we all think that the government can always print money to get itself out of any deck crisis that it's in. And that's a wildly oversimplified account of what the theory is. And even just saying that again makes our economist colleagues go a little crazy. So I wonder if you would do the flying for us. It's hard to ask somebody to summarize of you that he may think is completely wrong, but would you at least give us a caricatured version of what people mean when they say, oh, we can print money to get out of this, and would you give us some one oh one account of why that's wrong? If indeed it is sure, and I should say that, I personally think MMT is like a stopped clock that's right twice a day at this moment. It's roughly right. Lots of other theories would have gotten to us to the same place. But that's broadly speaking, my take. So what's the theory that's right twise a day? Number one? MMT says that rather than have the FED be the first line of defense in business cycles, the treasury should be the first line of defense in business cycles. That's one thing that MMT says. So if the treasury is the first line of defense, what should the treasury do in a business cycle downturn? The treasury should cut taxes in a downturn. The Treasury should increase spending in a downturn, and the treasury should keep doing that until it sees inflation rising. And then if inflation is rising where it above where it wants to go, then you stop that process and maybe even reverse it a little bit by raising taxes and cutting spending. So, you know, the thing we normally think of the FED raising and lowering interest rates in order to keep the economy on track. MMT has that primarily happening with the Treasury and the Congress raising and lowering taxes and spending. A second thing in MMT is the idea that there's no constraint on what the government does in terms of people being unwilling to lend to the government, because ultimately the central bank can always print the money if it wants to, and so you don't need to worry about will anyone lend. You don't need to worry about will government spending drive up interest rates? All the traditional concerns. Instead, the only thing you should worry about is that if you spend too much, you'll get inflation. That part is the part that sounds very counterintuitive to sort of the very simplified idea that when governments get into trouble because they owe too much money and try to print money to get out of it and pay their debts, that that then drives a cycle of hyperinflation that gives you Argentina or Germany between the wars. So their MMT is denying that intuition, right. I think one of the problems with MMT is it presents itself as a timeless truth, and a lot of the people that support it, you know, will point to all sorts of identities and equations and they're like the law of gravity, they should always hold. And the fact is they hold in certain countries at certain times. So if Argentina tried to do MMT, the results would be abysmal. You know, at various points in history when countries have tried to do it, the results have been abysmal. Maybe the United States can do it right now. But then that begs a question, you know, why is it In some circumstances you can borrow a lot. In other circumstances, you can't borrow a lot. And MMT doesn't have a whole lot to say an answer to that question, because it presents itself as a timeless truth. So you're coming to the third component. Yeah, And the third component of MMT is generally a belief that the economy is persistently, for very long periods of time, operating below its capacity, with excess slack, with excess unemployment. And so it's not just when you're in a recession or coming out of it that you can do fiscal stimulus, extra tax cuts, extra spending increases. But if you're planning a health system, you know, single pay or whatever it is for the next twenty years, you can even plan ten or fifteen years from now to do definite it's spending, because ten or fifteen years from now we're probably going to need fiscal stimulus. Also because the unemployment rate is almost always too high. Is there a single identifiable analytic error here, or is it a series of claims that aren't empirically born out. Is this the kind of thing where one can say MMT is wrong because and is the because in the nature of an analysis of the world, or is it in the nature of an analysis of economic principles? I mean, MMT shifts around a lot, so it's a little bit hard to pin down. Is not clear what evidence you could give to an mm tier that would cause her him to change their mind. And you know, just to go back to the three things I said, who should take the lead in fighting recessions? Think for a normal garden variety recession, the Fed. Actually it's okay for the central Bank to take the lead raising and lowering interest rates. Right now, interest rates are at zero, so you do need the Treasury and the Congress. So MMT is right for the moment, that doesn't mean it's always right. You know, we've already talked. MMT says no constraint on borrowing. Argentina faces a lot of constraints on borrowing, so that's not a timeless truth. That is something situational. And finally, the claim that we're below full employment, that's certainly true right now. I think that's going to be true to you from now. If you're making a health plan that's going to last for the next fifty years, I think it would be really rash to assume that's going to be the case for the next fifty years, since so you don't ever need to pay for that health plan. On the constraints on borrowing, which is also thematically where we began, I'm trying to understand from a conceptual standpoint, how we should think about constraints on borrowing. I mean, the ordinary intuition that people have is you can borrow as much money as people will rationally lend you if they have enough information to make the prediction that you'll pay it back. The intuition is that borrowing is not at all about a free lunch, because at some point it must be paid back under the terms of the lunch. You can get a really good deal, which makes it, as you said, a free ISSH lunch, but it's not a free lunch in the sense that something must be paid back, and that thing which must be paid back is essentially that which has been agreed to paid back upfront. In your view, is there any escape from that idea or is that closer to a law of gravity in the context of borrowing. I think that's broadly right, I tend to think. And this is not based on incredibly strong evidence. This is based on sort of common sense, and that's a little bit worrying to have to rely on that. It also depends on the circumstances. If every one of the rich countries in the world is borrowing more, then you know, people aren't going to say the United States is irresponsible. If the United States is the only country in the world doing it, they'll say, you know what, we don't want to buy US debt. We'd rather buy European debt, We'd rather buy Japanese debt. So there's a little bit of a strength in numbers, and this is what this is a constraint on individual countries. We actually do see an individual country in Europe has a harder time borrowing to get out of a downturn because people can shift away from lending to that country to another one. You see the same thing with US States. So it's a little bit of a safety in numbers. There's a little bit of you know, if it looks like you're borrowing because you needed to because something bad happen to you, or you needed to do someth think about something bad, that that's okay. Whereas if the United States had woken up there was no pandemic and we just went nuts and decided we're going to increase our debt two hundred and fifty percent of GDP to build a big monument to the leader or something like that, financial markets might have been more punishing of that type of debt and then finally a trajectory. If they knew we were stabilizing in one hundred and fifty percent of GDP for debt, maybe people would have patience with that. If they could see no end in sight and it was going to two hundred, three hundred, five hundred one thousand percent of GDP, maybe they wouldn't like it. So I do think borrowing is who's willing to lend to you. Who's willing to lend to you depends on circumstances. Are you in good company, are you doing it for good reason? And do you have some plausible exit strategy from all of it. The reason I asked this, even though maybe it sounds two elementary, is that it's sort of the back of my mind. I always have this desire not to be what the ordinary non economist would probably have been. When the world gradually went off the gold standard. The ordinary person, the non economists intuition was, well, this is just necessary. There has to be something of value, and unless everything is in reference to that thing of value, the whole system will break down. And of course that turned out just not to be true for me. One of the takeaways from that historical takeaway is the ordinary non economist should not completely trust intuitions about questions like this, which is exactly why I'm asking you about it. Is there on the horizon a similar kind of intuitive error that ordinary people are making about the economy, you know, similar to the old intuition that of course there had to be a gold standard or a sterling standard. Just the notion that when times are tough, you should tighten the belt. It's just a very very powerful one. President Obama used that line a few times in speeches in you know, maybe it was two thousand and nine or two ten. He understood these issues incredibly well, and you know, was doing or trying to do all of the right things. And were you there in the Council of Economic Advisors waving your arms in the air and saying, don't say that. So some of us were not thrilled with that vocabulary. And it just shows you how powerful the pull of the family. Analogies don't apply at the level of the government, because what the government is trying to do is take a set of people that aren't working instead of factories that aren't utilized, and reconnect them. And with that you go back to the Freish lunch type of stuff we were talking about before. That doesn't have an exact analog in the case of a household. Among mainstream economists or people you would consider mainstream economists, is there right now a very active debate or disagreement that you see about what should happen now and over the next several years, or do you think we're in a moment of relative consensus, And I'm after you answer that if you would compare that to the way things looked after the two thousand and eight crisis. So I talked to people who had the job I had under President Obama, under President Bush, and they have pretty similar views in terms of the need to provide large scale relief to families, the importance of relief for state and local governments, the need for large amounts of liquidity for businesses. My perception is there's more consensus now, and in part that's because it's just totally unambiguous that the economy shut down. You know, there's no debate over whether, you know, is growth going to be negative? Is it not going to be negative. There's no debate that the Fed by itself can't handle the problem. The federal Reserve is begging for more tax cuts or government spending increases. And you know, and insofar as there debates among economy now, they just go in lots of different directions. They're economists on the far left and the further right that like crants to businesses as a way to get businesses through. There's other economists that really don't so some of the debates are more scrambled ideologically than they have been in the past. As well. The grants to businesses debate is not breaking down along standard ideological lines. It's not Democrats say give it right to the workers and Republicans say give it to the businesses, or it doesn't roughly follow those lines. Bernie Sanders has co sponsored legislation in the Senate that, in its original version, would have given a lot of money to companies like Disney, not just to pay their furloughed employees, but to cover some of their operating expenses as well. So it is ideologically scrambled in a way that's reassuring. I mean, I suppose it's always challenging to the layman when the experts are disagreeing, but it's nice when they're not disagreeing along relatively familiar or expected partisan lines. That makes it look like it's not being driven by interest politics, but by genuine intellectual disagreement. I think there's a certain amount about that. And I think you know, this, in some ways is a very novel type of economic crisis, and there's some tools that are well trodden and well understood, and as others that people are trying to event to deal with this novel situation, and you know, they hate to say it, but it's sort of interesting at a time like this, And unfortunately, we'll only have a better idea when, you know, people write the wonderful papers about everything that was done a decade from now. What am I not asking you that I should be asking you. We've seen a larger fiscal response in the United States than we've seen in Europe. We've seen a very large one in Europe, but we've seen a very very large one in the United States. The response in the United States has been larger than we've ever done in our past. It's larger than what other countries are doing now. We've also seen a smaller reduction in economic activity in the United States than in Europe. Partly that's that we didn't do as effective a lockdown and we may end up getting bitten by that later on if there's too much virus out there. But in part the evidence is and we sort of hate to ever look at anything positive or good that we did. We must like to lament and talk about everything wrong and change. To date, we have done a decent job protecting American households from a fall and disposable personal income. Too many have fallen through the cracks. It's very, very far from perfect, but compared to almost any recession in the past, households have been better protected from this one, even though it's a much deeper recession, and have been better protected even than households in Europe have been. And that's a good thing. We should pause for a second to celebrate that success, but only for a second because all of that ends at the end of July, and so a lot more is needed to continue with that success. Thank you very much for that very cogent analysis. I can see why they you're in charge of teaching a thousand students economics every year. You're a spectacularly a great explainer. Thank you very much. Maybe because Jason Furman has such a calming voice, when you listen to him, you start to think that very extreme things are actually going to be all right. I certainly hope that that turns out to be the case. Listening to Jason, I was very struck by his suggestion that any amount of money that we borrow is rational provided we can make a credible prediction that borrowing that money will lead to what he called a multiplier of one or close to one, that is, the opportunity eventually to pay it back by virtue of the effects of the borrowing. That sounds sensible logically, but of course the devil is in the details, because it raises the question of just whether we can get our money back over time. Jason emphasized that when it comes to borrowing, there isn't actually such a thing as a true free lunch, because the money will have to be paid back eventually. But as he said, given that it is possible for the government right now to borrow money at negative interest rates under current conditions, even the trillions of dollars of borrowing and the potentially trillions of dollars of debt that we're taking on may actually be affordable and capable of being paid back in the future. With respect to MMT, Jason was pretty clear that he thinks it's just a clock that's right twice a day, which is to say that MMT doesn't express correct principles of economics that are generalizable, but rather might, under certain circumstances, describe events that are the circumstances that exist now. Ultimately, the consensus that currently exists among mainstream economists suggest that we're going to go on borrowing, possibly a lot more, and that more of that will have to take place in July when the current bailout money begins to run out. We will continue to follow the question of borrowing and our economy and its relationship to employment going forward. I promise to come back to you soon with a new analysis. Until the next time we speak, be careful, be safe, and be well. Deep background is brought to you by Pushkin Industries. Our producer is Lydia gene Cott, with research help from zooe Win and mastering by Jason Gambrell and Martin Gonzalez. Our showrunner is Sophie McKibben. Our theme music is composed by Luis Garat special thanks to the Pushkin Brass, Malcolm Gladwell, Jacob Weisberg, and Mia Loebell. I'm Noah Feldman. I also write a regular column for Bloomberg Opinion, which you can find at Bloomberg dot com slash Feldman. To discover Bloomberg's original slate of podcasts, go to Bloomberg dot com slash Podcasts. And one last thing. I just wrote a book called The Arab Winter, a tragedy I would be delighted if you checked it out. You can always let me know what you think on Twitter about this episode, or the book, or anything else. My handle is Noah R. Feldman. This is deep background. I'd like to s

Pushkin from Pushkin Industries. This is Deep Background, the show where we explore the stories behind the stories in the news. I'm Noah Feldman. Our country is facing a genuinely challenging historical moment. There are two major stories that are proceeding right now. The first is the protests, the demonstrations and in some instances looting triggered by the tragic death of George Floyd. We talked about that earlier this week with Finita Kupta, and we're going to continue to cover that story. The second story, which has not gone away, is the coronavirus pandemic and its consequences for the world. Today, we're going to focus on that story. The federal government has said that it's planning to borrow nearly three trillion dollars between a in June of this year to help businesses and workers affected by the coronavirus shutdown. That's a record breaking amount of money. Think of it this way. During the entirety of last year, the government borrowed one point to eight trillion dollars. That's compared to three trillion in three months. How worried do we need to be about the remarkable, indeed astonishing scope of our emerging national debt. In order to explore answers to this question, both mainstream and otherwise, I'm joined by Professor Jason Furman of the Harvard Kennedy School. Jason served as President Obama's Chairman of the Council of Economic Advisors from twenty thirteen to twenty seventeen, effectively serving as the president's chief economist and a member of the cabinet. He's also the best macroeconomist at explaining things that I have ever met. Jason, thank you so much for being here. We're obviously in an unprecedented situation of economic crisis, with forty million people unemployed, that's nearly a quarter of the workforce, and in that context, every economist that I know thinks that it's completely reasonable to spend the money that we're spending now on some combination of a bailout slash life support system for the economy. What I'm curious about is is there a limit? Is there any maximum point beyond which we cannot go? Well, it sounds like you have great taste in the economists that you hang out with, so congratulations on that. I don't think there is a limit to the amount of money that can be spent on effective measures. So I wouldn't think of it as a target, nor would I say this a ceiling. I would ask the question, is what I'm doing going to have a multiplier that's close to one or higher than one, in which case you can definitely do it because it means GDP will go up by more than debt and it will actually help your fiscal sustainability. And then if it doesn't have a multiplier more than one, you still might want to do it because you care about education, you care about protecting a family and need and the like. Don't put a budget constraint on it, but do ask real questions about whether what you're spending is useful, is likely to help the economy or not. When I spoke to Larry Summers, it's now probably almost six weeks ago. He said, Listen, nobody should get the idea that we're passing a stimulus. There's no stimulus here. There's just life support and people need to stay alive, and so you need to spend on life support. That's a little different than the idea that you know this will have a multiplier of one. Yeah, So there is some evidence in the last several weeks that the days that people got checks, for example, from the economic stimulus payments, spending went up at certain big box stores and the like. I think that will be even more true going forward when you're more able to spend money. So, to some degree economists is the nerdy term consumption smoothing. You don't want people to have to radically reduce their consumption and then radically raise it again. You want them to be able to smooth through shocks. If you're helping people smooth their consumption, you're helping them avoid unnaturally large reduction in it, and you're actually helping the economy relative to what would happen otherwise. So I do think unemployment insurance, nutritional assistance money for states and localities. The evidence on all of those is that they do add more than a dollar to GDP per dollar you spend. Now. Does a dollar to GDP get added six months from now rather than now? You know, that's certainly possible. I don't know exactly what the timing is. When does the bill come do for all of this? I mean, the theory behind a multiplier of one or a greater is that at some point the government, if it's the lender or the grant will get its money back. And if it's debt, I suppose it would ask for its debts to be repaid. If it's in the form of grants, there would be more GDP, so we could get tax money and then the government could pay itself back via the taxes. First of all, am I getting that process right? And second of all, is there any time frame on that that's logical or reasonable or do we just say, well, just wait until we can afford it. Yeah. There's two freeish lunch aspects to this, and both of these free ish lunches have constraints on them. The first is that for fiscal sustainability, what you care about is the debt relative to the size of the economy, and so it's debt divided by GDP. If you can do something that raises debt by less than it raises GDP, the denominator goes up more than the numerator and the debt to GDP ratio goes down. We're not in that situation now, though it appears, oh, debt is certainly rising. The question is would debt rise even more if we didn't do some of the fiscal measures we were doing. For some of the fiscal measures we're doing, especially some of the ones that are more effective, I think they're probably in that. The second is what is your interest rate after accounting for inflation. That's called the real interest rate, And right now the real interest rate is negative, which is to say, if the federal government borrows one hundred dollars today, a decade from now, it has to pay back about ninety five dollars adjusted for inflations worth of stuff. So the question you want to ask yourself in that environment is what would you rather have one hundred dollars today or ninety five dollars a decade from now. Most people would answer a hundred dollars today, especially given all the needs we have now, there's a limit on those. If you do things that are ineffective, you don't get that. You could drive up interest rates if you try to do too much, if you try to expand the economy beyond where it wants to be, you could get large and increasing amounts of inflation. So none of that is a blank and unlimited check, but for well designed policies within the regime, wherein there is a freish lunch aspect to what's being done with respect of the second freish lunch. The negative interest rate is that based on a projection of what inflation is likely to be over the next ten years, and if the rates were to change, if there was to be deflation or just much much lower or minimal inflation, would that turn out not to be the case, that lunch would not have been as freeish as it appears. So the government mostly issues what are called nominal bonds, which is they have an interest rate in the interest rate is just the way we normally understand the interest rate. Some of what the government issues are inflation index bonds, and they pay an interest rate, which is, will pay you the inflation rate plus blank or will play you the inflation rate minus blank. Right now, the interest rate on those inflation index bonds is negative. So quite literally, the government, no matter what happens to inflation, if it wanted to issue more of those bonds, and you know, might change the interest rate on them. If you tried to issue too many, but at least on those bonds right now, you could lock in negative interest rate. But I don't want to push this too far. You're certainly right, you know, interest rates could change in the future. You know the FED could stop trying to keep them low, etc. I've spent thirty five years watching every single interest rate forecast anyone has made has been too high, and interest rates have come in below it rather than above it. But that doesn't you know, just because my whole adult life has been like that doesn't mean it's the timeless truth that we should count on. How long does this large debt overhang have to last and how big does it have to be? The certain economic theory that says it's actually the standard one that when you get shock hits, your debt's going to be higher as a result of it, and you actually it's okay if you lock in at that new higher level of debt. In this case, I think it's completely plausible that a decade from now the United States would have a debt to GDP ratio of one hundred and fifty percent, which is higher than we've ever had in our history, but something that the UK had for centuries and centuries and centuries while it was the world's pre eminent power, And so one hundred and fifty percent of GDP may be okay, it may be something that we're able to get used to. It would depend on interest rates staying below the growth rate to make it at all feasible to stay at that level, there'd still need to be some adjustment, some additional revenue or spending cuts to even stabilize add one hundred and fifty percent of GDP. But I think we're going to find ourselves a decade from now that's going to probably look perfectly reasonable, when if you'd told people even a year ago, they would have thought it was nuts. The British Empire example, I have to say it makes me a bit nervous because it was at least the theory of the British Empire during this period of huge debt that the reason they were borrowing that money is they were in the process of conquering the known world, which they were in fact doing. You know, that was exactly the period in which the British Empire came to be the empire over which the sun didn't set, and the British were very explicit that the goal of their empire was to enhance their commercial opportunities and success. They took over a country or in one case, a whole subcontinent with a specific goal of exploiting it for its resources. In the case of India textiles. Roughly speaking, in the case of Africa, they didn't make it over the whole continent, but minerals they saw that debt as an engine of growth. I'm wondering if you think there's anything even slightly comparable for the US in this period. I mean, we wouldn't have, let's say, a business plan for very substantial growth that would justify borrowing that money. In our case, it seems more like we're borrowing that money now to overcome with the shock. Yeah, so first of all, lesson learned. Never bring up history with somebody that knows history. You know, the UK also had debt. Britain had debt, you know, often two fifty three fifty percent of GDP over that period of time, So this would even be a decent amount below it. But I certainly agree with you that adding to debt is much much more appealing when you're adding to debt in order to help economic growth than when you're adding to debt to, for example, give tax cuts to high income households so they can consume more in the present. We'll be back in a moment. I want to turn out to a topic which when I bring up with our economics colleagues at Harvard and MIT, people get red in the face, And I want to bring it up in a way so that nobody has to get red in the face. But I think it's important because it's in the public discourse now, and that's MMT or modern monetary theory now. As recently as a year or two ago, if it even came up in conversation, my anecdotal report is that people just rolled their eyes and said, this is a crackpot theory, no reason to worry about it too much. And yet now out in the public discourse there has become a kind of trope of people saying, oh, well, we're all MMT people now, we all think that the government can always print money to get itself out of any deck crisis that it's in. And that's a wildly oversimplified account of what the theory is. And even just saying that again makes our economist colleagues go a little crazy. So I wonder if you would do the flying for us. It's hard to ask somebody to summarize of you that he may think is completely wrong, but would you at least give us a caricatured version of what people mean when they say, oh, we can print money to get out of this, and would you give us some one oh one account of why that's wrong? If indeed it is sure, and I should say that, I personally think MMT is like a stopped clock that's right twice a day at this moment. It's roughly right. Lots of other theories would have gotten to us to the same place. But that's broadly speaking, my take. So what's the theory that's right twise a day? Number one? MMT says that rather than have the FED be the first line of defense in business cycles, the treasury should be the first line of defense in business cycles. That's one thing that MMT says. So if the treasury is the first line of defense, what should the treasury do in a business cycle downturn? The treasury should cut taxes in a downturn. The Treasury should increase spending in a downturn, and the treasury should keep doing that until it sees inflation rising. And then if inflation is rising where it above where it wants to go, then you stop that process and maybe even reverse it a little bit by raising taxes and cutting spending. So, you know, the thing we normally think of the FED raising and lowering interest rates in order to keep the economy on track. MMT has that primarily happening with the Treasury and the Congress raising and lowering taxes and spending. A second thing in MMT is the idea that there's no constraint on what the government does in terms of people being unwilling to lend to the government, because ultimately the central bank can always print the money if it wants to, and so you don't need to worry about will anyone lend. You don't need to worry about will government spending drive up interest rates? All the traditional concerns. Instead, the only thing you should worry about is that if you spend too much, you'll get inflation. That part is the part that sounds very counterintuitive to sort of the very simplified idea that when governments get into trouble because they owe too much money and try to print money to get out of it and pay their debts, that that then drives a cycle of hyperinflation that gives you Argentina or Germany between the wars. So their MMT is denying that intuition, right. I think one of the problems with MMT is it presents itself as a timeless truth, and a lot of the people that support it, you know, will point to all sorts of identities and equations and they're like the law of gravity, they should always hold. And the fact is they hold in certain countries at certain times. So if Argentina tried to do MMT, the results would be abysmal. You know, at various points in history when countries have tried to do it, the results have been abysmal. Maybe the United States can do it right now. But then that begs a question, you know, why is it In some circumstances you can borrow a lot. In other circumstances, you can't borrow a lot. And MMT doesn't have a whole lot to say an answer to that question, because it presents itself as a timeless truth. So you're coming to the third component. Yeah, And the third component of MMT is generally a belief that the economy is persistently, for very long periods of time, operating below its capacity, with excess slack, with excess unemployment. And so it's not just when you're in a recession or coming out of it that you can do fiscal stimulus, extra tax cuts, extra spending increases. But if you're planning a health system, you know, single pay or whatever it is for the next twenty years, you can even plan ten or fifteen years from now to do definite it's spending, because ten or fifteen years from now we're probably going to need fiscal stimulus. Also because the unemployment rate is almost always too high. Is there a single identifiable analytic error here, or is it a series of claims that aren't empirically born out. Is this the kind of thing where one can say MMT is wrong because and is the because in the nature of an analysis of the world, or is it in the nature of an analysis of economic principles? I mean, MMT shifts around a lot, so it's a little bit hard to pin down. Is not clear what evidence you could give to an mm tier that would cause her him to change their mind. And you know, just to go back to the three things I said, who should take the lead in fighting recessions? Think for a normal garden variety recession, the Fed. Actually it's okay for the central Bank to take the lead raising and lowering interest rates. Right now, interest rates are at zero, so you do need the Treasury and the Congress. So MMT is right for the moment, that doesn't mean it's always right. You know, we've already talked. MMT says no constraint on borrowing. Argentina faces a lot of constraints on borrowing, so that's not a timeless truth. That is something situational. And finally, the claim that we're below full employment, that's certainly true right now. I think that's going to be true to you from now. If you're making a health plan that's going to last for the next fifty years, I think it would be really rash to assume that's going to be the case for the next fifty years, since so you don't ever need to pay for that health plan. On the constraints on borrowing, which is also thematically where we began, I'm trying to understand from a conceptual standpoint, how we should think about constraints on borrowing. I mean, the ordinary intuition that people have is you can borrow as much money as people will rationally lend you if they have enough information to make the prediction that you'll pay it back. The intuition is that borrowing is not at all about a free lunch, because at some point it must be paid back under the terms of the lunch. You can get a really good deal, which makes it, as you said, a free ISSH lunch, but it's not a free lunch in the sense that something must be paid back, and that thing which must be paid back is essentially that which has been agreed to paid back upfront. In your view, is there any escape from that idea or is that closer to a law of gravity in the context of borrowing. I think that's broadly right, I tend to think. And this is not based on incredibly strong evidence. This is based on sort of common sense, and that's a little bit worrying to have to rely on that. It also depends on the circumstances. If every one of the rich countries in the world is borrowing more, then you know, people aren't going to say the United States is irresponsible. If the United States is the only country in the world doing it, they'll say, you know what, we don't want to buy US debt. We'd rather buy European debt, We'd rather buy Japanese debt. So there's a little bit of a strength in numbers, and this is what this is a constraint on individual countries. We actually do see an individual country in Europe has a harder time borrowing to get out of a downturn because people can shift away from lending to that country to another one. You see the same thing with US States. So it's a little bit of a safety in numbers. There's a little bit of you know, if it looks like you're borrowing because you needed to because something bad happen to you, or you needed to do someth think about something bad, that that's okay. Whereas if the United States had woken up there was no pandemic and we just went nuts and decided we're going to increase our debt two hundred and fifty percent of GDP to build a big monument to the leader or something like that, financial markets might have been more punishing of that type of debt and then finally a trajectory. If they knew we were stabilizing in one hundred and fifty percent of GDP for debt, maybe people would have patience with that. If they could see no end in sight and it was going to two hundred, three hundred, five hundred one thousand percent of GDP, maybe they wouldn't like it. So I do think borrowing is who's willing to lend to you. Who's willing to lend to you depends on circumstances. Are you in good company, are you doing it for good reason? And do you have some plausible exit strategy from all of it. The reason I asked this, even though maybe it sounds two elementary, is that it's sort of the back of my mind. I always have this desire not to be what the ordinary non economist would probably have been. When the world gradually went off the gold standard. The ordinary person, the non economists intuition was, well, this is just necessary. There has to be something of value, and unless everything is in reference to that thing of value, the whole system will break down. And of course that turned out just not to be true for me. One of the takeaways from that historical takeaway is the ordinary non economist should not completely trust intuitions about questions like this, which is exactly why I'm asking you about it. Is there on the horizon a similar kind of intuitive error that ordinary people are making about the economy, you know, similar to the old intuition that of course there had to be a gold standard or a sterling standard. Just the notion that when times are tough, you should tighten the belt. It's just a very very powerful one. President Obama used that line a few times in speeches in you know, maybe it was two thousand and nine or two ten. He understood these issues incredibly well, and you know, was doing or trying to do all of the right things. And were you there in the Council of Economic Advisors waving your arms in the air and saying, don't say that. So some of us were not thrilled with that vocabulary. And it just shows you how powerful the pull of the family. Analogies don't apply at the level of the government, because what the government is trying to do is take a set of people that aren't working instead of factories that aren't utilized, and reconnect them. And with that you go back to the Freish lunch type of stuff we were talking about before. That doesn't have an exact analog in the case of a household. Among mainstream economists or people you would consider mainstream economists, is there right now a very active debate or disagreement that you see about what should happen now and over the next several years, or do you think we're in a moment of relative consensus, And I'm after you answer that if you would compare that to the way things looked after the two thousand and eight crisis. So I talked to people who had the job I had under President Obama, under President Bush, and they have pretty similar views in terms of the need to provide large scale relief to families, the importance of relief for state and local governments, the need for large amounts of liquidity for businesses. My perception is there's more consensus now, and in part that's because it's just totally unambiguous that the economy shut down. You know, there's no debate over whether, you know, is growth going to be negative? Is it not going to be negative. There's no debate that the Fed by itself can't handle the problem. The federal Reserve is begging for more tax cuts or government spending increases. And you know, and insofar as there debates among economy now, they just go in lots of different directions. They're economists on the far left and the further right that like crants to businesses as a way to get businesses through. There's other economists that really don't so some of the debates are more scrambled ideologically than they have been in the past. As well. The grants to businesses debate is not breaking down along standard ideological lines. It's not Democrats say give it right to the workers and Republicans say give it to the businesses, or it doesn't roughly follow those lines. Bernie Sanders has co sponsored legislation in the Senate that, in its original version, would have given a lot of money to companies like Disney, not just to pay their furloughed employees, but to cover some of their operating expenses as well. So it is ideologically scrambled in a way that's reassuring. I mean, I suppose it's always challenging to the layman when the experts are disagreeing, but it's nice when they're not disagreeing along relatively familiar or expected partisan lines. That makes it look like it's not being driven by interest politics, but by genuine intellectual disagreement. I think there's a certain amount about that. And I think you know, this, in some ways is a very novel type of economic crisis, and there's some tools that are well trodden and well understood, and as others that people are trying to event to deal with this novel situation, and you know, they hate to say it, but it's sort of interesting at a time like this, And unfortunately, we'll only have a better idea when, you know, people write the wonderful papers about everything that was done a decade from now. What am I not asking you that I should be asking you. We've seen a larger fiscal response in the United States than we've seen in Europe. We've seen a very large one in Europe, but we've seen a very very large one in the United States. The response in the United States has been larger than we've ever done in our past. It's larger than what other countries are doing now. We've also seen a smaller reduction in economic activity in the United States than in Europe. Partly that's that we didn't do as effective a lockdown and we may end up getting bitten by that later on if there's too much virus out there. But in part the evidence is and we sort of hate to ever look at anything positive or good that we did. We must like to lament and talk about everything wrong and change. To date, we have done a decent job protecting American households from a fall and disposable personal income. Too many have fallen through the cracks. It's very, very far from perfect, but compared to almost any recession in the past, households have been better protected from this one, even though it's a much deeper recession, and have been better protected even than households in Europe have been. And that's a good thing. We should pause for a second to celebrate that success, but only for a second because all of that ends at the end of July, and so a lot more is needed to continue with that success. Thank you very much for that very cogent analysis. I can see why they you're in charge of teaching a thousand students economics every year. You're a spectacularly a great explainer. Thank you very much. Maybe because Jason Furman has such a calming voice, when you listen to him, you start to think that very extreme things are actually going to be all right. I certainly hope that that turns out to be the case. Listening to Jason, I was very struck by his suggestion that any amount of money that we borrow is rational provided we can make a credible prediction that borrowing that money will lead to what he called a multiplier of one or close to one, that is, the opportunity eventually to pay it back by virtue of the effects of the borrowing. That sounds sensible logically, but of course the devil is in the details, because it raises the question of just whether we can get our money back over time. Jason emphasized that when it comes to borrowing, there isn't actually such a thing as a true free lunch, because the money will have to be paid back eventually. But as he said, given that it is possible for the government right now to borrow money at negative interest rates under current conditions, even the trillions of dollars of borrowing and the potentially trillions of dollars of debt that we're taking on may actually be affordable and capable of being paid back in the future. With respect to MMT, Jason was pretty clear that he thinks it's just a clock that's right twice a day, which is to say that MMT doesn't express correct principles of economics that are generalizable, but rather might, under certain circumstances, describe events that are the circumstances that exist now. Ultimately, the consensus that currently exists among mainstream economists suggest that we're going to go on borrowing, possibly a lot more, and that more of that will have to take place in July when the current bailout money begins to run out. We will continue to follow the question of borrowing and our economy and its relationship to employment going forward. I promise to come back to you soon with a new analysis. Until the next time we speak, be careful, be safe, and be well. Deep background is brought to you by Pushkin Industries. Our producer is Lydia gene Cott, with research help from zooe Win and mastering by Jason Gambrell and Martin Gonzalez. Our showrunner is Sophie McKibben. Our theme music is composed by Luis Garat special thanks to the Pushkin Brass, Malcolm Gladwell, Jacob Weisberg, and Mia Loebell. I'm Noah Feldman. I also write a regular column for Bloomberg Opinion, which you can find at Bloomberg dot com slash Feldman. To discover Bloomberg's original slate of podcasts, go to Bloomberg dot com slash Podcasts. And one last thing. I just wrote a book called The Arab Winter, a tragedy I would be delighted if you checked it out. You can always let me know what you think on Twitter about this episode, or the book, or anything else. My handle is Noah R. Feldman. This is deep background. I'd like to s