L. Randall Wray
speaker
31 appearances
1 recordings
1 series
first heard May 2025
last heard May 2025
L. Randall Wray’s voice in public audio — every appearance, attributed to the second.
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Appearances
You have to remember that if the outstanding debt is $30 trillion, that means we, all of us taken together, have $30 trillion of the safest asset in the world. We are happy to hold that and we get to earn interest on it. It doesn't reduce the value of that debt. A $100 bond will remain worth $100, and it will earn interest for us.
Taxes reduce our net income. That is true. And there are times when you want the government to do that. No, there isn't. No, there really isn't. I don't mean you as an individual. Nobody likes paying taxes. Okay, that's clear. But what I'm saying is there are times when it is in the national interest to increase taxes. And that is related to your point.
That withdraws net income from the non-government sector and reduces inflation pressure. So for example, let's go back to World War II. We're coming out of the Great Depression. We know that we're going to devote a huge portion of our nation's productive capacity to the war effort. It turns out we devoted 50% of all output went to the war effort.
We had to make a transition from a peacetime economy with a very small defense sector, very little military spending, to a massive buildup of our defense sector. And taxes played a very important role in doing that. So we increased taxes, not because the government needs the money. And I can tell you, the government knew this.
The purpose of the tax was not to give the government money because the government can always create the money. It can't create enough output. We had to reduce private consumption. We needed the tires to go to the military, not to civilian cars. And so we reduced people's take-home pay by increasing taxes. In addition, we said, let's get people to save. Let's promote patriotic saving.
Let's sell war bonds. And there was a huge campaign to convince people to buy the war bonds. Now, did the government need to borrow money from households? No, of course not. They knew they didn't need to borrow money. The government can't run out of money. What they wanted was households to save instead of spending so that they didn't compete with the war effort.
So you weren't out there buying tires or nylon stockings. You were saving in war bonds. And there were other methods too. They used wage and price controls. At the end of the war, we're going to ramp down all the production for the war effort. Think of all those factories that were building tanks. Now we're going to convert those back to civilian use. Now we want households to spend more.
So that would be the time to lower taxes and to get people to spend their accumulated savings so they could cash in their war bonds and start buying consumer goods. That's exactly what we did. So you can use tax increases and tax reductions as a way to first move resources to the government sector, and then second, move them back into the private sector.
Okay. First, I want to make clear, when I was describing government spending, I was talking about the federal government. State and local governments are very different. State and local governments really do need tax revenue in order to spend. State and local governments do not have a central bank to make payments for them. They really do need taxes. and they need to borrow in order to spend.
And 48 of the states require a balanced budget. So they do not run deficits as a normal operating procedure. And states and counties and cities can go bankrupt. It has happened. Orange County went bankrupt. And there are severe consequences. They're in a very different situation than the federal government, which is our currency issuer and cannot run out of US dollars.
Well, the future of money is that it will increasingly take an electronic form. Even our paper currency and coins possibly have a very limited future.
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