Monday, November 26, 2012

Paul Krugman doubles down on the MMT POV on deficits

This is the NYT op-ed page, not his blog. The big time. And he calls out Pete Peterson by name. The fight is on.

The New York Times
Fighting Fiscal Phantoms
Paul Krugman | Professor of Economics, Princeton University


alittleecon said...


"For we have our own currency — and almost all of our debt, both private and public, is denominated in dollars. So our government, unlike the Greek government, literally can’t run out of money. After all, it can print the stuff. So there’s almost no risk that America will default on its debt — I’d say no risk at all if it weren’t for the possibility that Republicans would once again try to hold the nation hostage over the debt ceiling.

But if the U.S. government prints money to pay its bills, won’t that lead to inflation? No, not if the economy is still depressed."

This could have been written by Randy Wray or Bill Mitchell. PK seems to be inching ever closer to MMT.

STF said...

He's pretty much there except for the real interest rate drives spending position, which is important in an academic setting but not so much in this policy debate.

PeterP said...

Dear Scott,

I would say congratulations, you guys are winning. As a citizen I am supper happy. Although you guys must be a bit peeved that he never credits anybody aligned with MMT. As if he came up with all that himself. Oh well.

He is doing the homework though and creating new toy models weekly to think in terms of, that has to be appreciated.

Chewitup said...

One of the keys to successfully getting people to change is to make it seem like it was their idea. There will be enough credit to go around if the "morons" in charge finally get it right.

Mike Norman said...

And it's EXACTLY what I said in my video.

Jure Jordan said...

Sorry to burst the bubble but Krugman was saying the same thing for last 3 years.
Only addition was "literally can't run out of money"

PeterP said...

Not 3 years ago. He "discovered" that sovereign nations don't see their rates spike only in Nov 2011. Spent the entire 2000s decade warning about interest rates exploding and a "funding crunch".

Matt Franko said...

If you compare PK here to Rattner on the same NYT op-ed page (i guess different days), there seems to be a disagreement:

Because Rattner says: "We need at least $4 trillion of long-term deficit reduction"

Based on what PK writes here I dont think PK would agree...

This will be interesting to see if the NYT will continue to let this disagreement play out on it's op-ed pages, or if they slap down PK...


Jure Jordan said...

PK was saying this same thing since arguing for much better and bigger stimulus in 2009, since before Obama took office. He did not worry about rise in interest rates then, but had a bit, just a bit different reasoning behind it. His reasoning was Keynes words about implications of Zero lower bound for Taylor rule and on sovereign bonds. His reasoning was that in deflation savings skyrocket due to deflation being destructor of profit and nominal asset values. There is nothing to invest in.
But all in all only addition is "literally it can't run out of money". That is a much pinpointed change and it says that he is understanding MMT better, but he will not endorse it yet.
That fact will have a huge effect on other reasoning but give it time.
Untill he writes newly edited textbook with MMT endorsed and mea culpa again no need for hope.

Jure Jordan said...

"or if they slap down PK"
He wrote couple of times that they do not do that, only editing his wordings and make him reinforce the facts with references.
Only way is to remove him from NYT, if that happens then he might switch to Huffington, Attlantic or New Yorker and maybe some of MMT blogs.

STF said...


the difference now is that he's saying we can't have bond vigilantes because we create our own currency so we control interest on our own national debt. as recently as 2011 he wasn't on board with that one, and perhaps more recently than that. this is from his MMT critique back in March 2011:

"And now suppose that for whatever reason, we’re suddenly faced with a strike of bond buyers — nobody is willing to buy U.S. debt except at exorbitant rates."

this is a complete 180 for him on this point, and it changes everything. Lots of people argued for larger deficits 3+ years ago that don't get MMT, including PK back then. He's getting quite close now, especially with this post. so, this IS a big deal.

JK said...

This is fantastic.

Lars said...

The reason Paul Krugman does not cite MMT is because MMTers have been complete jerks to him for 10 years.

You can't kick someone in the shins for 10 years and then demand that he be nice to you.

Matt Franko said...

here is some info from the "Fix the Debt" propaganda outfit website that Krugman mentions:

"Michael Peterson is President and Chief Operating Officer of the Peter G. Peterson Foundation. In addition, Michael is currently President and Co-Founder of GPX Enterprises, LP, a private investment firm focused on the sponsorship, development, and management of selected private equity investments. He worked on the Clinton and Dukakis presidential campaigns, served as a Congressional Aide to Majority Leader Richard Gephardt,.... "

See the "Morons Row" here:

The Democrat Party is 100% Peterson occupied territory as the GOP candidiates didnt even go the Peterson event in Tampa during the GOP convention earlier this year .... if "Peterson Junior" here is any indication, looks like Peterson has left the GOP as I had figured when he chose David Walker as his "CEO" after then beancounter-in-chief Walker had sued then sitting Vice President Dick Cheney for disclosure causing a big hassle for the Bush/Cheney admin.

PK is up against a lot if he has decided that the time has come for Democrat Progressives to take on the newly founded Peterson wing of the Democrat Party...


DaRkJaWs said...

"The reason Paul Krugman does not cite MMT is because MMTers have been complete jerks to him for 10 years.

You can't kick someone in the shins for 10 years and then demand that he be nice to you."

Nonsense, if he wasn't intellectually dishonest and actually cared about the truth more than his own image (god forbid he credit some fringe group...he'll be out on the streets the next day, according to the way he thinks) he would have figured this out a long time ago.

Jure Jordan said...

"And now supose" i also use it to present possibility of a scenario that someone is warning about. I do it in order to prove that such scenario isn't scarry but usefull and and preffered, or acctually to riddikule it.
That is not a proof that it is his position.

STF said...

That's ridiculous. His argument was entirely about the interest rate rising via bond vigilantes and then "printing" money to pay the exponentially rising debt service. I went through it line by line in my reply.

STF said...

to return to this, it was not a "now suppose" as you are suggesting. it was the very scenario he wanted the reader to imagine in order to make his argument. he continues with this:

"I could go on, but you get the point: once we’re no longer in a liquidity trap, running large deficits without access to bond markets is a recipe for very high inflation, perhaps even hyperinflation. And no amount of talk about actual financial flows, about who buys what from whom, can make that point disappear: if you’re going to finance deficits by creating monetary base, someone has to be persuaded to hold the additional base."

vimothy said...


How is he contradicting what he wrote there? The logic of that quote seems very compelling to me and I don't see an argument in the op-ed that would lead me to discount it.