Sunday, March 27, 2011

Who Is Paul Krugman Referring To Anyway?



Paul Krugman wrote two blog aimed at "the modern monetary theory people" recently here and here. See my previous post here for comments. Since Prof. Krugman does not provide a citation, it is unclear to whom he is referring when he says "there’s a school of thought — the modern monetary theory people — who say that deficits never matter, as long as you have your own currency." Krugman italicizes "never," and it is key to his argument. But no professional MMT advocate has ever said "never." They are always careful to specify boundary conditions, that is, availability of real resources otherwise inflation will occur.

One hypothesis is that Prof. Krugman is referring to Dean Baker, who is not associated with MMT. Prof. Krugman recently wrote a column, "But couldn’t America still end up like Greece? Yes, of course. If investors decide that we’re a banana republic whose politicians can’t or won’t come to grips with long-term problems, they will indeed stop buying our debt. But that’s not a prospect that hinges, one way or another, on whether we punish ourselves with short-run spending cuts." Dean Baker, co-director of the Center for Economic and Policy Research, responded with a post, Krugman Is Wrong: The United States Could Not End Up Like Greece, attacking Krugman's position on this issue.

It is possible that Krugman was either responding to this post or to comments by MMT'ers regarding his column, but after scrolling through all 472 comments, I found no MMT'ers and no mention of MMT. So Baker is a strong possibility, unless Krugman just decided out of the blue to attack his erroneous conception of MMT. Maybe someone associated him with "those crazies" and he wanted to clear it up that of course he wasn't?

So the question is, was Prof. Krugman responding to Baker's criticism of his recent column, or was he purposely setting up a strawman to show that he is a Very Serious Person who is concerned about solvency and hyperinflation. Or is there something we don't know about?

By not citing a source, he leaves the question open. Hopefully, he will clear up this mystery and also set the record straight by admitting they he had no source for his statement, "there’s a school of thought — the modern monetary theory people — who say that deficits never matter, as long as you have your own currency." If so, he owes the modern monetary theory people an apology.

On another note, Warren Mosler responds to Dean Baker's criticism of Krugman here.

3 comments:

Matt Franko said...

Tom,

You have 'schooled' a Nobel Prize winner in Economics. Absolutely.

You have such a better grasp on the economics of our current situation than Krugman. He is 'Glenn Beck' to me. Complete waste of time. He is a confusion factor, he has no true insight.

Also, Krugman may be PhD from Princeton, etc... whatever. But he cannot hold a candle to your true respect for scholarship, professional ethics, critical thinking, the correct form and procedure of the dialogos, I could go on... he is a hack.

Tom, your comments on those two posts of his, where you put it all together from Lerner to Godley to Minsky to our current crop of MMT scholars (too many to list!), the body of scholarly work that these people have and continue to put together and document it? ... and he just seemingly ignores it?!??! The nerve of him! ..... you have rendered him defenseless. He is a hack.

Tom I would rather read your posts than his drivel I cannot describe how much more... they are more thorough, referenced, thoughtful, respectful, etc... he is a hack.

He should be embarrassed.

Mario said...

I thought this line from Baker's piece says it all:

"In short, this another case of an empty water pistol pointed at our head."

LOL!!!

Dear God imagine if we really shot ourselves in the head with a REAL gun over such a water pistol!!!

So sad, it's scary. So scary, I have to laugh...if I didn't laugh I think I'd cry.

Mike Norman said...

It was great to see all the MMTers respond to Krugman. MMT is really coming into the mainstream now!