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Paul Krugman still needs to read the Traders Crucible

July 11, 2011

Paul says he agrees with one of the core components of MMT – that sovereign governments cannot go bankrupt.

“I think Dean Baker and I are converging on deficits and independent currencies. He asserts that having your own currency makes a big difference — you can still end up like Zimbabwe, but not like Greece right now. I’m fine with that.”

But he still thinks that fiscal solvency is a problem:

“All I’m saying is that dollar or no dollar, fiscal solvency is still an issue — not now, not for some time to come, but not something we can always ignore.”

Mr. Krugman, read this post about the no-Ponzi assumption, and you will change your mind. We can and should always ignore fiscal solvency.

The beating heart of the Intertemporal Government Budget Constraint – and the reason you think fiscal solvency is an issue – is unknowable and not useful.

Just a reminder – there is a great reason why understanding this is so, so important.  Once governments are not budget constrained, the only concerns are inflation and unemployment.  We can see these and react to them in real time.

Once we dispense with any fears of going broke, we can sleep soundly that we’re doing the best for the economy, with no monsters to reach out from beneath our bed and grab our feet.

Do you think it would be possible to form an MMT mob and get him to read it?


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  1. wh10
    July 11, 2011 at 7:27 pm

    I’ll join the mob! And I’d say it’s possible! We’ll have him read your links and offer Scott’s “Interest Rates and Fiscal Sustainability Paper” as a scholarly bonus.

  2. Max
    July 18, 2011 at 12:22 pm

    There are conservative economists who are closer to MMT than Krugman. Recall the Stephen Landsberg dustup a while back (Landsberg presented an argument that “you can’t tax a miser”, and Krugman responded that the purpose of taxes is to provide the government with money!)

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