Ep 325 - Tariffs, Tooth Fairies & Trade with Fadhel Kaboub

Steve Grumbine: 00:00:43

: All right, folks, this is Steve with Macro N Cheese. My guest today is our good friend Fadhel Kaboub.We've had Fadhel on a bunch of times, but this one's really important because it's here and now. We're looking at the stop, start, herky jerky all over the place, Trump trade, tariff policy, the framing that he uses, the fears that he is trying to put into the rest of the world to do business with the US et cetera.It has created many, many externalities, many, many downstream things that I think maybe are not always thought of when you consider the impacts of this kind of erratic behavior. But I figured I'd ask Fadhel because Fadhel has an international perspective and Fadhel is an MMTer that understands power.He really understands power as it relates to Africa and other developing nations. And so I figured I would ask him to come on and explain this through his lens.Fadhel, you are the president of the Global Institute for Sustainable Prosperity, correct?

Fadhel Kaboub: 00:01:46

: Yes. Thank you, Steve. Thanks for having me back on the show. Always a pleasure.

Steve Grumbine: 00:01:51

: Absolutely. And you also have Global South Perspectives for Substack, am I right?

Fadhel Kaboub: 00:01:57

: Yes, absolutely. I post there and it's available for free.

Steve Grumbine: 00:02:00

: These are good stuff, folks. Fadhel is a great resource. I'm sure you've heard him on our friend One Dime and you've heard him on Bri [Briahna Joy Gray] with the Bad Faith Pod.And hopefully you've heard him when he's come here too, because we like to believe we're putting out some good stuff. With that, Fadhel, you heard my intro. Trump has been extraordinarily erratic in the messaging, "Start, stop tariffs. You know, we're going to raise tariffs through the roof."And China pretty much laughing at him saying, "We're not backing down, we don't need you, you need us."And it's really made for some real craziness both in the stock market and people's retirement accounts and a lot of businesses and banks and everyone else are making big decisions and they're watching the news on a minute-by-minute basis to see what Tweet he puts out next, to see what their position's going to be. And some of these decisions have far-reaching impacts. I'm curious. Can you explain the Trump tariff plan or lack thereof?

Fadhel Kaboub: 00:02:57

: Well, let's start from the narrative that the Trump administration is putting forward to justify this disruption. And first thing is to recognize that any policymaker politician will have multiple audiences that they speak to.So there's the domestic audience in the U.S., the voters that will support Trump and the Republican Party and the American public in general.And then there's the international audience, there's the financial markets audience. All of these audiences matter.But let's start with the narrative that dominates the Trump approach, which is, you know, the US Is losing on trade, other countries have been cheating, and the result of which is de-industrialization in the United States and people losing their jobs.And that's the narrative that goes to Trump voters and US working-class people in general, that the President and his administration are going to fix that.And you see it in the visual representation of this narrative with the famous chart that the Secretary of Treasury and other economists working in the Trump administration have been sharing, basically this graph that shows the steady decline in the value-added content of manufacturing in the US and the line is just going down, down, down over the last several decades. And the Trump administration is saying, "We're going to fix this." In other words, we're going to bring those jobs back.That sounds great, except when you use tariffs as a single weapon of re-industrialization, you don't actually get re-industrialization. So let's talk about what are those jobs that will be repatriated supposedly back to the US Economy?And is the US Economy ready to take those manufacturing responsibilities from the US competitors all over the world? And is the labor force prepared to actually take on those jobs?And are corporations ready, willing and able to relocate to go along with this re-industrialization strategy? So that's the big question.When you look at all of these components, you realize that it doesn't add up, that those jobs are not coming back, or at least the kinds of jobs that the Trump narrative is talking about. Now the question is, "Will the US want the jobs to produce T-shirts and jeans and sandals to be repatriated to the US? Those are low value-added manufacturing jobs. So those are not going to reverse that trend that the Trump administration keeps showing in a lot of its supposed justification for this.So high value-added manufacturing is going to be the high-tech stuff, right?It's going to be the more sophisticated manufacturing, which requires a substantial amount of skills, research and development, engineering and machine tooling, all of that technical and vocational and engineering training that has been lacking in the Global North in general, starting in the 1980s when we started to outsource a lot of the manufacturing. You don't have to take my word for it. The Apple CEO was asked specifically about this question: "Why do you produce your iPhone in China? Why not produce it here?"And he said, "The kind of skill that we need for the kind of manufacturing we use requires a critical mass of engineering and vocational training skills that is abundant in China." And he said it very specifically. He said, "We're not going to China because of cheap labor." He said, "The era of cheap labor in China is long gone." He said, "We're there for the skills." And he made a comparison.He said, "If we were to try to organize a meeting and bring all the people who have these skills in the United States", he said, "We wouldn't be able to fill this room." And he was in a relatively large room. He said, "In China, on the other hand, we can fill football stadiums...

Steve Grumbine: 00:06:47

: Wow.

Fadhel Kaboub: 00:06:48

: "With people who have these skills and who actually can do this work." So relocating those jobs to the US means you have to invest for many, many years, not just overnight with the tariffs. Right?Many, many years in research and development, technical, vocational training, education, engineering, all of which requires a very clear-headed vision led by the government to support that process of creating a pipeline that produces these engineers and these technicians. What are we doing instead? With the Trump administration? We're going after universities, right?Harvard, cutting funding for research and development and innovation, closing down the Department of Education, divesting from all the basic building blocks that could eventually create that pipeline of skills that Apple and other high-tech companies are looking for in order to manufacture stuff in the US. Which means the Trump narrative about repatriating jobs is a lie. It doesn't add up. Right? Or it's just, you know, delusion. Right? Because it's not going to happen.So then the question is, "Do I want to believe that the Trump administration is that naive?" I don't think so. Right?They're selling the narrative to the MAGA crowd and the MAGA crowd loves it and they believe it and they're ready to wait decades for it to actually happen. But they like to hang on to that hope.So I think he's confident that no matter what happens to the economy, disruption wise, he can still ride the MAGA wave and win the midterm elections. So I think that's a bet that he's making and he may be absolutely right, given what we've seen in recent times in U.S.social and political landscape, that is actually possible. I'm not gonna discount that. But then we, as analysts, as thinkers, we need to really go beyond that and think, so what is he trying to do?So there's two things. One is as a negotiator, this is pre-Trump entering politics. Trump is known for wanting to get the upper hand in negotiations.And one way you get the upper hand in negotiations is by confusing the hell out of the other side, cornering them, putting them in a situation where they don't know what's coming at them, and they get into a situation where the only options they see coming at them are, you know, one is worse than the other. So completely uncomfortable, backed against the wall, and you have no vision in terms of how do you get out of that situation. And that is true. Trump wants to put every country for different reasons, right?The negotiations or what he wants from different countries are different.What he wants from the Ukraine, what he wants from the European, what he wants from China, what he wants from the DRC, these are very different issues. And all are important from a US perspective. So that's one thing. And the tariffs are actually working.A lot of countries are just confused and lost and have no vision and no way of organizing themselves to get out of this mess. So the disorder is an intentional negotiation tactic. But that still doesn't explain where the end game is, right?So the end game, I think, is quite complicated, and it's actually centered around two things. One is reinforcing the US imperialist-dominant position that is actually being threatened seriously right now, and I'll explain why.And number two, reinforcing his legacy, the MAGA movement, and the supremacy of the Republican Party for years to come.I think these are the ultimate goals, and they do have economic dimensions to them, but they will certainly not serve the interest of the working class in the US or serve the interests of democracy or justice in the US or beyond. So with that, let me explain. When you think of the power of the tech companies in the U.S. and here, when you think tech companies, even when you think Elon Musk, you have to think there's two Elon Musks in the White House.There's Elon Musk, Twitter, and there's Elon Musk, Tesla, and the other tech stuff. The interest that the Trump administration is going to serve is not Tesla.It's going to be the Facebooks, the cloud technologists, and it's going to be what Yanis Varoufakis has brilliantly elaborated on, which is the techno-feudalists who run the world today. So here's my logic the importance of the techno-feudalists is that they don't actually manufacture things, they don't produce things.They control the cloud, they control the mind, they control your feelings, your choices...not just consumer choices, but political social worldviews are controlled and manipulated by social media and by the big data centers that collect and analyze and feed you choices and filter the news and filter information for you. So those companies have been US companies and Trump is very aware of their power during elections for manipulating political and social views.And the era of AI is just enhancing that capability tremendously. Now the US doesn't reign supreme in that territory. There are competitors.And the European Union for the last five to ten years have been increasingly uncomfortable with the monopoly power of the US tech companies in Europe and has been pushing and threatening to break them up to restrict their monopoly power.And the Biden administration did a little bit of pushback against the Europeans, but you know, very gentle and friendly, but that issue wasn't resolved. Trump is going head on against the Europeans saying, "You cannot do this to our tech companies."So part of the pressure back and forth between the US and Europe is on the tech companies. Then it's also related to NATO and the Ukraine and all of that. It's that mix.But here's the thing, even if the Europeans succeed at actually breaking up the American tech companies' power and making their market more competitive, the European Union doesn't actually have the market size or the capacity to create real competitors that can compete with the American social media companies and cloud companies. Their size is too small, their capacity is not there.So they don't actually represent a real threat to the US. So then who has the market size, the engineering capacity and the existing social media and tech companies that can actually compete and out compete with the Silicon Valley social media companies? It's China, right?It's WeChat, it's the TikToks, and it's Alibaba to compete and out compete with Amazon and many, many other companies and Huawei, right, to compete with Apple and beyond.So all of those companies, if you trace back their existence in this world, are not really allowed into the American market, into the European market.And now quite a bit of pressure from the Biden administration even before to convince other third-party countries outside Europe, outside the United States, Canada, OECD countries, developing countries, saying, "Don't you dare give them market access", right? The justification is because they're going to spy on you, right?They're going to manipulate you, they're going to take over your political system and so on which might be true. But what is the alternative?The alternative is to let the other tech companies from Europe and primarily from the United States collect data and spy on you and do all of that, which is from a Global South perspective, the countries who are receiving these messages don't go with the Chinese tech companies for security and privacy reasons.They're saying, "But wait a minute, but you do spy on us."

Steve Grumbine: 00:14:48

: You're already doing that.

Fadhel Kaboub: 00:14:50

: Right? That's a separate issue. This is the real competition. The real competition is between the US And China on this front.So if the US loses this competition globally, then the era of US supremacy is over. And the Trump administration knows this and is doing something about it,clearly.  The Biden administration sort of knew this, but you know, had a different approach to dealing with it. You go after Huawei, you go after TikTok, you ban them and you invest in re-industrializing the U.S.You pass the CHIPS [and Science] Act, you put money on the table for the big tech companies to bring those high-tech jobs back to the US and you create the pipeline for technical and vocational training to reinforce the power of Silicon Valley across the country with tiny, tiny little droplets of money. When it comes to the Chips Act, $50 billion is nothing but it's good money to get you in the right direction.But it wasn't going to be sufficient to catch up with where China is headed. But at least the Biden administration did have a pathway of vision, some coherence in terms of how to re-industrialize the country.And because of the politics of this country, if you remember how the CHIPS act was passed, how the IRA, the Inflation Reduction Act was passed, they couldn't have passed through Congress unless you call them anti-China spending.

Steve Grumbine: 00:16:10

: Right.

Fadhel Kaboub: 00:16:11

: Or anti-inflation spending. Right? But you couldn't call them real industrial policy, investing in jobs and people.You have to justify it as an anti-thing to get both Democrats and Republicans to say, "Oh yeah, this is an important priority." That's a side note about how messed up the politics is here. We're talking about natural interest.It can't be justified unless you create an anti-China rhetoric around it. So that brings us back now to the real reasons behind these tariffs.It's not going after the jobs that need to be repatriated to the US. That is not going to be part of the equation at all.It's about reinforcing the power of the United States to continue to dominate globally, which has not been dominating by producing sandals and T-shirts. Right? [Right.] And to reinforce the position of the Trump movement, the MAGA movement, the Republican Party,because if you solidify your protection of these tech companies on terms that are determined by the President and his team, it's very likely that those terms will be favorable to the social movement, the political movement that he started and continues to build. In the meanwhile, the Democrats in Congress have no alternative vision.They're nitpicking at tiny things around the edges that have nothing to do with the big vision.And the unfortunate thing is that the rest of the world, and here, I'm not talking about China, I'm talking about the developing countries in particular, and to some extent Europe, they are completely confused because they don't understand the economics of these tariffs. They don't make any sense.They're confused because they don't even know what to negotiate for, because he's not telling them what the ultimate goal of this strategy is. They think it's about jobs, it's about tariff this and tariff that, but it's about bigger issues.So their comeback to negotiate is off topic and irrelevant, which means unacceptable. So that makes them even more confused, which means Trump continues to get the upper hand in all of these negotiations.What the US has to offer the rest of the world, under the current system, is that the US has a big consumer market with strong purchasing power. And all of you out there depend on having access to the US market.And all of you are dependent on using the dollar for your central bank reserves and for international transactions. And that is according to the Trump administration narrative and his economist and Secretary of Treasury,all of that stability that the dollar has offered to all of you countries out there is costing us money, right? Because we have to police the world. We have to provide this safe asset for all of you to enjoy. And now you're going to have to pay for it, right?Because you've enjoyed that privilege. We police the world for you. We provide a stable currency for you.And you took advantage of us and took our jobs to produce sandals and T-shirts in your countries. So that is the Trump narrative. The problem is two things.One is developing countries in particular, who have potentially, right, if they actually reach a development level, an industrialization level, have collectively the largest market on the planet with a bigger purchasing power than the US, potentially.But that potential has not been unleashed, and to some extent is not allowed to be unleashed, because we know what happens when you actually industrialize and have the global majority with the largest market on the planet. That's a failure of developing countries to recognize their collective potential. So what are they doing?They're negotiating one-on-one. Good luck getting a deal out of the Trump administration or any other country. If you negotiate one-on-one with a country or with a second party that's much bigger, much more dominant than you.So you're not going to get anything. But collectively you could create an alternative position.Collectively, you can also decide we're going to partner with the rising economic power, right, which is clearly China, that happens to have all the technology and now happens to have the international payment system that could displace the dominance of the dollar, of SWIFT payment systems and so on.If you've followed what the Chinese government has been doing lately is the Chinese central bank created a digital yuan that is now accessible to other countries. So the ASEAN [Association of Southeast Asian Nations] countries in Asia are now plugged into that payment system that the Chinese central bank developed.And the oil rich countries of the Middle East, because they trade so much with China, have also joined the digital yuan payment system. And several African countries have expressed interest in joining that too.So you have a completely different international payment system that completely bypasses SWIFT, bypasses Europe, and of course bypasses the use of the dollar. It's not dominant yet. It's still a baby system, but everybody's interested in the alternative.Because the US has repeatedly now, under Biden and under Trump, weaponized the dominance of the dollar against all kinds of countries. First weaponized against Russia, of course, with the sanctions, but now it's been weaponized against everybody, right? Friends and foes.And that is becoming increasingly uncomfortable, to say the least, for all countries to accept. So if the Trump strategy to dominate the world fails, then what he's created is basically an accelerant for the decline of the US supremacy.And that is a big bet.And when you are a dominant empire like the US, economically, militarily, geopolitically, and you make bets that are exclusively based on power rather than technology, innovation, research and development, education, a growing prosperous middle class, history tells us that you will eventually fail. And that's the ugly reality. So that's my take on this, and I hope it makes sense.I could be completely wrong, of course, but the other narratives don't add up. And I think this has at least some logical explanation.I'm happy to have other people pick at it and unpack and see if we can learn from each other what the hell is going on.

Steve Grumbine: 00:22:28

: You know, the question I have coming back to the US, we used to do all kinds of great things in this country, like go back to FDR, go to the Marshall Plan, go even to the Manhattan Project, even though that may be not the greatest example, but it is an example. Why is it that we always forget?  And I don't know if we forget or it's just taboo.Why is it we always forget that we can do these things while the other things are going on?What would prevent the US from doing what China did in heavily investing in domestic infrastructure, heavily investing in productive capacity, heavily investing in supply chain and power grid and all the other elements, bridges, whatever the elements are?Why is it that that is always we're going to punish everybody else in the world that's doing the right thing and we're still not going to do that part of it, though?We're just going to go out there with this dilapidated system, with this great empire of Armies and Navies and Air Forces and Marines, and we're just going to yell and scream around the world instead of domestically investing, investing, investing. I don't know why we can't walk and chew gum. Obviously, as an MMT person, you know, we've been screaming big fiscal, big fiscal, big fiscal.But then you had the price gouging and all the other things, the sellers' inflation and the supply shocks that occurred from the pandemic, et cetera, that have been. "Well, so you had your MMT moment." Well, no, that wasn't an MMT moment. Not at all.

Fadhel Kaboub: 00:23:53

: Yeah, absolutely.

Steve Grumbine: 00:23:54

: I am always dumbfounded that we would rather lash outward than build. I mean, we're constantly building mega churches. Why can't we build mega supply chains? Why can't we build mega power grids?Why can't we build high-speed rail? Where is the ideological framework that is creating the "We can't do those things."

Fadhel Kaboub: 00:24:14

: It's because we have a political system that believes in tooth fairies. Right?And the tooth fairy story here is that the deficit and the debt are the most dangerous things for the federal government and they're going to bankrupt the country and they're going to cause hyperinflation. "So we need to be fiscally responsible," they say.And when I say they, it's not just DOGE and Trump and Elon Musk, it's the Democratic Party that believes in this tooth fairy story, which says basically we have to sit on our hands and balance our books and try to pay off the national debt. Because this is part of the narrative also that Trump and DOGE are using.

Steve Grumbine: 00:24:52

: Yes.

Fadhel Kaboub: 00:24:53

: They're saying, "We're not able to spend more on health or education or U.S. AID [Agency for International Development] programs in other countries, so we're going to have to cut our spending and balance the books," which means divest from the building blocks of development and prosperity for the next hundred years. So this is not a Trump innovation. This has been going on for decades.Democrats and Republicans have jointly participated in this and have led us here. So that is a fact that we have to understand. So now what is the MMT alternative?If we reject the tooth fairy story, then we have to explain to the public, as opposed to lying to them about tooth fairies, that there is actually a way for a democratic society with the government of the people, by the people, for the people to actually have a large deficit and a large and rising national debt. All of which can be anti-inflationary. Right? Because the assumption is that larger deficits cause inflation.It can be spent in an anti-inflationary way. Sort of like IRA, Inflation Reduction Act. Right?But with a clear vision that says, "Here's what we're going to do. First, we're going to identify where the inflation pressure points are coming from, whether it's health or education or real estate or eggs." Right?You had an excellent episode a couple of weeks ago illustrating how inflation and that one particular small, tiny pressure point, just eggs, for God's sake. Right? We couldn't solve the eggs inflation. And now we're talking about all the other big inflation pressure points.But if you identify an inflation pressure point, then there's two things you have to do.One is you spend strategically to increase the productive capacity, which in many cases the addition of productive capacity is actually hijacked and withheld intentionally by two or three guys, by two or three companies.And this is true in many countries in order to create artificial shortages, in order to have the choke point hijacking and blackmailing the public essentially and saying, "You pay up," right? "Or else we'll starve you from eggs and chicken." Right? Then two things. You increase the productive capacity.So your deficit spending is anti-inflationary. But that's not sufficient.Number two, you have to go after the abusive market power with antitrust regulation that hasn't been updated in the US for decades. Which means your 535 elected officials in DC have to have the political courage to go after that abusive market power. They're the lawmakers.They make the laws right? Which means they have the jurisdiction to regulate. And this is the failure of the federal government.Not Trump, not Elon Musk, but generations of politicians in Washington D.C. who ignored the abusive market power of corporations, not just in the egg sector, but in every other sector.So MMT is telling us if you really want to build a prosperous, equitable, just society, you can, but you can't do it just with deficit spending. You have to do the deficit spending strategically targeted in those inflation pressure points.And you have to complement that deficit spending with aggressive regulation in order to eliminate the abusive market power of those key individuals, key corporations, who are holding those choke points on the economy and blackmailing the political side, blackmailing the public into submission.In other words, you need to democratize your economy and literally democratize your political system, which has been hijacked and blackmailed by the super PACs [political action committees] that are backed by these corporations.So this is totally within the realm of possibilities in the US but you're not going to go there and actually convince the public and the political system to move in that direction if you continue to repeat the tooth fairy story every time you're given a microphone as a politician and continue to insult the intelligence of your public, even though you know privately that the tooth fairy doesn't exist, but you are told that your public, you know, all of these grown individuals who, some of them have PhDs and master's degrees and lived rich and productive lives, all of them don't have the intelligence to understand how government finance works. So what you need to do, if you, you want them to vote for you, you need to repeat the tooth fairy story for them.And then you have to rewire your entire economic vision, which might be progressive and generous and everything.You have to rewire it to explain to them, "How are you going to pay for health?" "How are you going to pay for education?" and then kind of vaguely describe the power of the oligarchs and the billionaires and the billionaires and the billionaires, and then say, "Well, we're going to have to tax them." Well, good luck taxing Elon Musk because he runs the country now, right? He's not going to let you tax his power out of existence.

Steve Grumbine: 00:29:57

: I don't see the "resist the oligarchy" stuff. You know, if we could vote them out, we would have done it by now, right?I mean, seriously, all jokes aside, it's like there is a perverse desire to pretend that we have a democracy, a functioning democracy, that we can just simply source the vote, etc. But think about this.Biden allowed a parliamentarian to block him from doing the PRO Act, which tells me he never wanted to do the PRO Act to begin with. And he allowed Roe v. Wade to fall without stacking the court, which tells me, "Hey, maybe it was good for fundraising to allow Roe v. Wade to fall."Everything that we think we care about, everything we talk about, unfortunately it just ends up coming back as a failure, a complete failure. Now you're watching Donald Trump. Now I will say this. Donald Trump doesn't allow the parliamentarian to get in his way.But that's also because I believe that the two sides do this little dance. I believe that the Democrats job is to pretend like they're fighting big corporations while simultaneously failing. But "We gave it a good fight."While the Republicans pretend to not have power to stop corporations and just simply do whatever they're going to do to make corporations, they don't even hide it. So the two are still fighting for the same capital order, if you will.But just one has a different faux strategy of incompetence and the other one just simply does whatever it's going to. I mean, Trump just gave the finger basically to a 9-0 ruling of the Supreme Court about a person that was deported.So when we talk about the rule of law, we talk about regulations and we talk about the power of Congress, all these things are true, at least on paper. But in reality, when you look and see who they serve, I don't believe that it's just donors. I believe it's deeper than donors.I believe it's bigger than that. I think on a global scale, understanding how capital operates makes it very challenging to see this in any kind of charitable way.Literally that they're giving up the golden goose because that's what the oligarchs that they represent want.And when I say they want, there may be some good people that walk through the door accidentally into Congress that stumble into this world, but I believe the vast majority, especially the Pelosi's and others of the world that have run this thing, they're in lockstep. They serve capital, they don't serve us. They serve finance capital. They serve those folks and they put on a show to pretend like they're serving us.But in reality, that's not their job in their mind. I don't think they think that it's their job to serve us. Am I wet behind the ears?

Intermission: 00:32:25

: You are listening to Macro N Cheese, a podcast by Real Progressives. We are a 501c3 nonprofit organization. All donations are tax deductible. Please consider becoming a monthly donor on Patreon, Substack, or our website, realprogressives.org. Now back to the podcast.

Fadhel Kaboub: 00:32:41

: This is related to the tooth fairy story.Because if you truly believe in the tooth fairy story, then you believe the government doesn't have money and doesn't have the capacity to spend and that you as a politician, your power and existence in office is dependent on finance contributions for your campaign from the oligarchs and that even the good things that you want to deliver to your people in your district are dependent on their money and permission to let you have better education or better health is dependent on either them, through their foundations and tax exempt trusts, to invest in your district. So you're constantly begging them to come to your district as opposed to the other district which a lot of politicians do.Or you're begging them to contribute to your party so that you can get elected so you can pass the laws to protect your people.Or you're hoping that somehow you can tax them or borrow money from them in order to invest in the things that you care about and your people care about. So your entire worldview is dependent on them.No matter how progressive you are, whether you like them or dislike them, you want their money and their permission to implement whatever vision you want, which means they own you, right? And that is because you believe in the tooth fairy. So you stop believing in the tooth fairy all of a suddenyou realize that you represent the sovereign government and that they, the billionaires, are the result of a policy failure. Like when you get that blue screen on your computer. There's a fundamental error in the script here, right? So you need to debug your code and reprogram your brain to move forward. Otherwise you're stuck staring at a blue screen. That's exactly where the political system is staring at that 404 blue screen.And that's what MMT is saying, saying we have the alternative script to debug the system and allow you to be in charge of the program so you can write the script that democracy compels you to write for your people. And that's where we are. The tooth fairy is pushing us into that blue screen. 404 error.And Republicans and Democrats are sitting on their hands staring at the screen and yelling left and right about issues that will not debug the script.

Steve Grumbine: 00:35:06

: You know, the people are literally lulled to sleep by propaganda. And so when they hear the stuff that's going on, I think some people are waking up.But I think a lot of them, they genuinely think the banks are over the government. They think that the businesses and corporations are over the government.And simultaneously they kind of give into that like "There is no alternative" as well. Regular people buy into this as well. The fairy tale is like national amnesia or national psychosis.And to sit there and watch all these things are Inevitable, right? They paint them as inevitable because I'm all about nationalizing absolutely everything under the sun, man.I am so over the arrangements of predatory business models that I'm there, man, let's nationalize whatever. I'm good for it. I'm sure not all things should be national. Maybe they should, I don't know.But I will say this, that the illusion that the government is feckless and incapable of serving people, you have to kind of go back to the fact that capital is large and in charge because of if you believe it, then it is right? I mean, whatever you speak into existence in this case, it becomes manifest by allowing this fraud to have legs and a heartbeat.It takes on its own persona. And aside from just telling people, "Hey guys, federal spending is not by your tax dollar, it's just pass a law.And Article 1, Section 8 of the Constitution gives power to Congress. They really have the power." Aside from saying that over and over again, I genuinely don't believe the system wants to be reformed.You know, I mean, I don't believe that the politicians want it to be reformed. I believe that this arrangement is just fine for them.I mean, watching even Bernie Sanders basically ignore the cops taking away people that were protesting for Palestine. I mean, we're talking fascism right there, right? We're talking about all the things he said."I'm anti-oligarchy, anti-fascism, blah, blah, blah, anti-Trump." I mean, you look around, lots of people at a rally is not the same thing as teaching them something.He's not telling them the truth about the important stuff. I mean, AOC is not.She's out there peddling the same stories about, "Oh, yeah, who'd have thought that if you cut taxes on billionaires, you wouldn't be able to pay for things? Who'd have thought it?" Nina Turner constantly talking about it. Where does this end? I mean, can it end? Do they want it to end?Or are they part of the cog? Are they part of the machine that says, "Yeah, this is the way we do it?"

Fadhel Kaboub: 00:37:35

: Yeah. Clearly Bernie Sanders reached almost the presidency, right?

Steve Grumbine: 00:37:38

: Yeah.

Fadhel Kaboub: 00:37:39

: And failed because he didn't have a compelling narrative about how to pay for a Green New Deal. How do you pay for health care?And he did have access to Stephanie Kelton, to MMT economists, knew the alternative narrative and made the decision not to go that route. Made a decision to go to his voters and tell them about the tooth fairy, the progressive tooth fairy that will tax the billionaires, right?And that's a choice that he has made.And you know, I'm not going to blame necessarily the AOCs and other kind of smaller players in the progressive movement, but he had the keys to the future in his hands and he decided not to use them. So that's on him.I want to add something else to this because people will hear this conversation and say, "Oh, but it's not really the government that creates all this money, it's the banks. They create most of the money."I think it's very important for us to always provide the full explanation of how banks create money and who gives them the right to do it and all of that.And I think here the work of our friend and colleague [and 11-time Macro N Cheese guest, Robert] Bob Hockett in that piece that he co-authored now almost 10 years ago called the Finance Franchise. It's a big piece, it's academic, it's complex, but it delivers the correct message.He co-authored it with his colleague at Cornell Law School, Saule Omarova.And what the framework that they both outline in this excellent research is basically saying, "Look, the US Federal government is a sovereign issuer of the currency, and it decided a long time ago to outsource the money creation power under certain rules and conditions to private banks for specific purposes to serve the public purpose under rules and conditions." And that is to allow banks to issue credit backed by the legal system, right?So when you borrow money to start a business or to build housing development, you sign a promissory note to the bank and you sign a promissory note saying, "I promise to pay you back a million dollars over the next 10 years, 20 years, or whatever the terms are," under certain terms and conditions. That bank will take that promissory note and it becomes on the asset side of their balance sheet.So now they have an asset worth a million dollars. It's a piece of paper that says, "I promise to pay you back." Right? It's an IOU.But that piece of paper is just as good as money because the courts will reinforce it. If I don't pay back, the courts will go after me, take my property, take my liberty and make me pay, essentially.That's why it's worth a million dollars on the asset side of the balance sheet. On the liability side of the bank's balance sheet, they have a million dollars because that's a liability.They put it in my bank account and I'm going to start spending it right away to hire workers and build those houses.So all of a sudden, because they have the power to issue credit to boost economic activity for the public purpose, in this case housing, they are able to, out of thin air, right? Increase both the asset side and the liability side of their balance sheet by a million dollars.And the system we've created with giving them a mission to do this for the public purpose is that they can do $100 million, $200 million, it doesn't really matter how much. What matters is they do their due diligence to make sure that I'm actually going to build housing, right?That I'm actually creating value in the economy, creating jobs. And I'm actually creating jobs and value in a way that allows me to generate revenues to actually pay them back like I promised.But if they give me money to go gamble and speculate, then they're not doing their due diligence, then I'm going to default. Then the whole system collapses.So the role of the regulators is not to micromanage every loan, but to regulate banks so that they do their due diligence, so that they prioritize real productive investments to serve the public purpose as opposed to speculative investments. So that's how banks are allowed to create money.So we forgot that the sovereign federal government has given them that license to create money for the public purpose.And if they violate the public purpose, if they don't do their due diligence, if they finance speculation rather than productive investment that will actually enhance our productive capacity logistics, now, you can think about this as it relates to inflation too, right? Then they're doing their job and they keep their license.But we forgot that we don't need their money or their permission for the sovereign government that gave them that right, the banking license, that if they violate the trust that the federal government gave them and they finance speculation and they finance unproductive investments or whatever, then we can take away that license and shut them down and give that license to another institution that will actually serve the public purpose. That institution could be the post office for all I care, or it could be a public bank, right? At the state level or at the federal level.So our 535 elected officials forgot that they have not only the power of the purse, that they are the sovereign government, the sovereign issuer of the currency, but they actually have the power to take away the banking license from Wall Street banks who have misused and abused the power and trust that they were given when they were giving a banking license, to the point that our federal officials believe that they need loans from those banks to fund the public purpose, that they need to borrow from those banks to fund the public purpose, that they need the permission of the oligarchs and the billionaires who are made into billionaires by failed public policies, in order to have a better infrastructure. That is the wake-up call. That, number one, the 535 elected officials need to recognize.But number two, for us, the general public, like the people to call them out on this insanity, that this mythology of the tooth fairy is a smokescreen for the biggest robbery in the history of the universe that's been concocted by the elites that manage to convince everybody, including elected officials, that they depend on their money and their permission and their power to the point where we have the richest man in the world going into the government and further destroying whatever is left of social protection for the people. That's how dangerous the tooth fairy narrative is.

Steve Grumbine: 00:44:13

: It really is.And, you know, I want to just quickly jumping back to an old, old pod, you and I did one of the first ones we ever did about xenophobia and the fact that the government can fund a Federal Job Guarantee could do these things to offset all the engineering expertise in China as we're in the midst of sweeping everyone out and deporting people and going on trains and asking everyone, "your papers?" I mean, we are literally turning into like a Gestapo nation overnight, with ICE really stepping up their work.I mean, they've always been bad, but now it's really bad. But you think about it, it's like we don't have the expertise in this country. What has MMT always said?MMT has always said, "You need the real resources. What are real resources? Trained professionals, trained people, good services, raw materials, whatever."We don't have the real resources in this country because we stopped funding education. We're in the process of gutting education. So how would you maybe do that?You probably end up having to ask Chinese people to risk their lives to come into the cesspool called the US to do those jobs if you're trying to staff them. What am I missing there? I mean, it just seems like every bit of this just seems absurd to me now.I do remember very well your complex theory of Trump's 10D chess game here, right? But in reality, you still need real research. You still need people that can do these jobs, and we don't have that anymore.We have stopped training people, we have stopped making that kind of person. This fundamentally is a role of government, is it not? It's not job creation, it's job training. It is literally ensuring for national security.For national security purposes. We need expertise.We need to be able to develop some of these things for a host of reasons, have nothing to do with imports as a benefit, exports as a cost, or any of the other things that go into this, strategic reasons. Even without the MMT story, that just seems so unbelievably basic, why is that lost?

Fadhel Kaboub: 00:46:16

: Well, I don't think it's lost because if your worldview is essentially a global slave society where you're at the top of the hierarchy and your slaves can be either working here or working in another country, as long as you can have the power and influence to control and manipulate the global system, then it doesn't matter if the engineers and technicians are in China or in India or in South Africa, as long as you can use them for your purpose. And that's not Trump's vision. That's been the case since the beginning of the neoliberal era, right? The crisis of the 70s.The ultimate victims of that crisis in the US were workers because they were tricked into believing that the big government of the 50s and 60s that built the middle class was the cause of the inflation of the 70s, the crisis of the 70s, even though the problem was really a political conflict in the Middle East, right, had nothing to do with labor unions or the working class and the US but they were made to believe in that narrative that big government is the problem.And the scaling back of big government and destroying the power base of labor unions meant that you have to outsource now jobs because you break the unions and you force them to race to the bottom.And you accelerate that race to the bottom by taking the jobs and moving them to, at the time, poor developing countries like China and India at the time, right?And that's what destroyed the working class, the middle class and the US and now under that system, you were able to stay at the top of the hierarchy because those are, you know, developing countries that are using your technology through your corporate power to produce stuff on the cheap for you. Right? The problem is that countries like China and India in particular had a longer vision for themselves, long-term vision for themselves.And they said, "Okay, this is where we start. We start at the bottom of the food chain, at the bottom of the hierarchy.But by God, we're going to climb out of this not by wishful thinking, but by investing in health and education and infrastructure, in research and development, in doing whatever it takes to acquire technology by producing it ourselves, by copying bits and pieces of it, by copying all of it. But what matters at the end is we build the foundation that allows us not only to catch up, but to innovate and excel."And China in particular managed to do that. You can argue about the pathway, the method, whatever, but the reality is that they did. And now the Biden administration was very uncomfortable with that reality, tried to push back in a reasonable way, by standards that we see today.And the Trump administration is basically continuing the same pattern of applying more and more pressure on China, which started long ago with the Clinton administration, if you remember, about currency manipulation, and then eventually with the Obama administration with the pivot to the East, right, which not just an economic pivot, but, you know, security pivot, and of course with Biden under the CHIPS act, the IRA, which were packaged as anti-China investments in the US economy. And now the Trump administration is continuing upping the pressure and the confrontation.So it's a big mistake to think of the Trump thing as just some crazy thing that just happened out of nowhere. This is a consistent pattern that we've seen one administration building on the other. So I don't see incoherence and inconsistencies here.I see upping of the pressure and the confrontation. And that's been the way the US managed in the past to keep its dominant position.A lot of people forget that at some point, Japan, with the second largest economy in the world and was the biggest threat technologically to the US and in the 1980s, when Japanese companies started to really dominate in manufacturing of electronics and automobiles and so on, and they started to buy real estate in New York, which was unacceptable. Right? And that led to the Plaza Agreement [Accord] in 1985.The agreement was for Japan to stop artificially manipulating the value of its currency, the yen, because Japan was keeping its currency artificially cheap or artificially cheaper, I should say, in order to continue to accelerate its exports globally. Because it's an export-oriented economy, very small, relatively small internal market. So it needed access to the US market.China has been doing the same, more or less, but China is not Japan in terms of size. So Japan didn't have an option.They had to sit down and sign the Plaza Agreement and accept the pressure that President Reagan and the US was imposing on Japan and on European countries too at the time. Coincidentally, the Plaza Agreement is signed at the Plaza Hotel, which I think is owned by the Trump family now, if I'm not mistaken, you know, a side note here as a coincidence. But the pressure that President Clinton started on China to stop manipulating its currency, sort of as a follow up to the Reagan pressure on Japan was simply not going to work. And China has ignored it.You know, China allowed the value of its currency to increase over the last 20, 30 years on its own terms based on its own needs. Right. It wasn't because Clinton and Obama and Bush said. "You have to do that."But China is not in a situation similar to Japan that it can be bullied into signing an agreement on tariffs and currency values. Because the threat at the time to Japan was, "If you don't sign this agreement, we have a trigger price mechanism." Right?Which was tariff retaliations against the Japanese economy, which Japan was not going to survive those tariffs at the time, so they agreed to the deal. The same thing has been happening with China.China is not going to accept the US telling it what the value of its currency is going to be. So the trigger was pulled, which is the tariffs, which were the threat at the time against Japan.And now we're in the middle of the currency and trade war because the trigger has been pulled multiple times in the last few days. And now we see the consequences.Japan wasn't going to survive those triggers at the time because it needed access to the biggest economy, the biggest market, and that's the U.S. so they couldn't survive without access to the U.S. but China today has not only dominated but has diversified its access to the global economy.Yes, the US Is still a significant market, but the share of Chinese exports to the US has been declining rapidly in the last five to ten years, especially the last five years, and probably will continue to decline, especially with these tariffs, which means China's access to markets around the planet is comfortable enough to build an alternative world for its industry.And China has an internal market, by the way, of a rising middle class that is getting wealthier by the day, that will absorb a lot of its industrial production internally. Right? Japan didn't have that option. We have a longer view of what's happening.That this stuff didn't start yesterday with Trump waking up and saying, "I want to re-industrialize the US."That's a very narrow view of the world and misleading to be honest, because then we can't see what the trajectory for the next 50 years is going to be. People are still thinking about the midterm elections. Right? Which is an important part of the conversation.But if you're a US politician and your thinking is just the next, you know, 12 months, then we're doomed.

Steve Grumbine: 00:54:29

: Right. I mean, none of these politicians seem to have any idea of what you're saying, or if they do know they're absolutely... somebody's got them on lockdown and can't say it. I mean, I don't have any faith in this electoral system at all. Zero. But for the off chance that I'm wrong on that. What is your take?I mean, midterm elections, "Yay, great." But they don't have a clue. They're not going to have the right answers.There's just doesn't seem to be any meaningful amount of political either awareness or willingness to do anything differently.

Fadhel Kaboub: 00:55:06

: I mean, even if you have Democrats winning in the midterm elections, it's going to be winning for the wrong reasons.[Yes] Because this is what Democrats usually count on is that people are outraged so much by what's happening without understanding what is really happening, but they're outraged anyway. So they vote against something, they're not voting for something. Right?And that's been the failure of the Democratic Party and the failure of the public to call out the Democratic Party on this nonsensical strategy of status quo reproduction. Because what did Democrats say in the last presidential election? "We have two choices, evil or lesser evil."So blackmailing you into voting for lesser evil because it's better. The lesser evil doesn't have a vision for you. But the lesser evil knows that if you don't vote for the lesser evil, you get hell. And now we got hell.So now you better comply and vote for the lesser evil that doesn't have any vision for you for the future.

Steve Grumbine: 00:56:14

: Terrifying. Absolutely terrifying. Fadhel, real quick as a parting question, what does effective tariff policy look like in general? How might... If I was really trying to use tariffs for the purposes of re-industrializing or protecting a nascent industry that we're growing domestically, what would a smart approach to tariffs look like?

Fadhel Kaboub: 00:56:39

: Well, if the purpose of tariffs is to provide temporary market protection for industries that you want to create or industries that you want to strengthen, then you have to have a comprehensive package. Tariffs by themselves will not create the jobs or the skills or the competitiveness that you want. So tariffs, okay.But then invest in education, infrastructure, vocational and technical training and develop an industrial policy, not an industrial policy defined by corporations on their terms to create abusive market power internally and globally. But you have to create the regulatory framework for those investments.So this is where the mission-oriented industrial policy comes in the work of [Mariana] Mazzucato and others.The entrepreneurial state is not just to provide the financing and protection for entrepreneurs to privatize the gains from research and development and innovation and that tariff protection.So if you want to do that tariff protection and then let private corporations define the terms of that industrialization so that they dominate domestically and internationally, that's an option. You can do that.I wouldn't call that the best option, but a democratic society has the capacity to pre-define the pre-distribution terms of that industrial strategy. And it's not going to happen because of the willingness and the charity of the billionaires to give to the public.It has to be done by the sovereign government and a democratic process. And that is completely absent in the Trump vision.Was somewhat there on a small scale in the Biden four years with the CHIPS Act and the IRA, not really on democratic terms, but on, you know, existing powerhouses that were going to be made more powerful and richer in order to serve the US global interest, but not really to serve the creation and the building of a strong middle class.Yes, there were jobs that were going to be created and so on, but we're talking tiny, small scale compared to the potential for, for the United States.

Steve Grumbine: 00:58:58

: I will never understand the fear. Maybe I will someday. But right now, it's so hard to witness and watch.It's like you're in a passenger seat and the person at the wheel is drunk or their hands are tied behind their back and you're riding around a cliff and it's like, "Dude, please hit the brake. Do something. Stop the car. Move. Ah!" And you just feel like you're going off the cliff with them and you've got no choice but to just die.And it's such a debilitating feeling because everybody that you talk to right now, they're either swept up in the cult of personality. "I love Bernie. I love it, you know this." But they, they don't want to hear the story that you just told. Maybe they do, and I hope they do.I hope people listening to this podcast will take this story and talk to their friends. Because that cult of personality blocked us in 2015, 2016 from talking MMT. It blocked a lot of it in 2020.The same characters, the same people out there, you know, filling up the news cycle, blocked it again. And they're continuing to block it. There's no sign of relief in terms of that kind of barrier to reaching people.It's either cult of personality or you're out there on your own being labeled all kinds of things. So I'm hopeful, but not hopeful. I, you know, I mean, like, I see this and it's like, "I hear you and I'm going, well, I'm hopeful, man."And as soon as I walk away from here, I'll see somebody cheering on that we're gonna end oligarchy by going to parades. And it's like, "Oh, God, I just can't even." I'm all about organizing, but I'd like to see them organized with knowledge.I think Emma Vigeland even was on Majority Report. Somebody asked her about The Deficit Myth and she says, "Yeah, I just don't find it a compelling political case."So she gatekeepered the whole story right there. And this is pretty standard. I mean, she said that too. It wasn't like, you know, you're guessing. I mean, she literally used those words.And so you're like, well, what in the world is it going to take? I'm so glad to see you reach Bri[ahna Joy Gray] because I watched her on her own with Jen Perelman, who I've been working on too.And to hear them talk amongst themselves about MMT. Literally watched Jen Perelman address Kshama Sawant and Jill Stein and say, "Guys, stop saying this stuff." Brought up a job guarantee and other things.There are people slowly seeing it, but I don't see anyone that "would lead an army into Los Angeles or lead an army into Washington D.C.," saying any of these things. They're still saying the same broken mysticism, the same tooth fairy stories.And I don't know, my hope gets rattled when I think about that.

Fadhel Kaboub: 01:01:37

: Yeah, the sad thing about tooth fairy story is that children grow up and they find out and they laugh about it, and they move on.But in this sad story, the children never grow up and never understand that they're being told mythical bedtime stories about the tooth fairy and they move an entire nation towards that cliff.

Steve Grumbine: 01:02:00

: Yes, they do. Yes, they do. All right with that Fadhel. Thank you so much for joining me. I know you are a super busy guy, so making time for me.I really appreciate. Tell everybody one more time where we can find more of your work.

Fadhel Kaboub: 01:02:13

: Well, I'm on social media so you can just find my name on social media and I write on Substack. It's called Global South Perspectives.

Steve Grumbine: 01:02:22

: Very good. All right with that. My name's Steve Grumbine. I am the host of Macro N Cheese. We are a 501(c)3 not for profit.And so we live and die on your contributions. If you think the information we're putting out there is valuable to you, please come to our Patreon, patreon.com/real progressives.We also have our Substack Real Progressives. You can go to our website realprogressives.org and at the top we have a dropdown list. You can click donate.We are desperate for your help and if you're interested in volunteering to help us, see how the soup is made. We'd love to have your help as well with that. On behalf of my guest, Fadhel Kaboub, myself, Steve Grumbine. Macro N Cheese. We are outta here.01:03:14 Production, transcripts, graphics, sound engineering, extras, and show notes for Macro N Cheese are done by our volunteer team at Real Progressives, serving in solidarity with the working class since 2015. To become a donor please go to patreon.com/realprogressives, realprogressives.substack.com, or realprogressives.org.