Wed 2010-07-21 10:36 EDT
Economist's View: Is Galbraith Right that Deficits are Never a Problem?
Paul Krugman has a "wonkish" post on deficits rebutting Jamie Galraith's [alleged] contention that deficits are never a problem...
wonkish Topic in The Credit Debacle Catalog
Wed 2010-07-21 10:28 EDT
I Would Do Anything For Stimulus, But I Won't Do That (Wonkish) - Paul Krugman Blog - NYTimes.com
...there's a school of thought which says that deficits are never a problem, as long as a country can issue its own currency. The most prominent advocate of this view is probably Jamie Galbraith, but he's not alone...OK, I don't think that's right. To spend, the government must persuade the private sector to release real resources. It can do this by collecting taxes, borrowing, or collecting seignorage by printing money. And there are limits to all three. Even a country with its own fiat currency can go bankrupt, if it tries hard enough...
Credit Writedowns Mon 2010-07-19 12:08 EDT
Misunderstanding Modern Monetary Theory
Paul Krugman wrote a post today regarding MMT called "I Would Do Anything For Stimulus, But I Won't Do That (Wonkish)." The gist of Krugman's post was to refute Modern Monetary Theory's view on money and deficits...Krugman's post mischaracterizes both MMT and Galbraith's statement...Krugman is trapped in a gold standard view of money as he assumes the government must issue bonds to fund itself. He forgets that we live in a fiat world...the problem for deficits is not national solvency but inflation and currency depreciation. That makes me worried about deficits. If that makes me an inflation hawk and anti-deficit, then so be it. Nevertheless, MMT does say the same thing about deficits, namely that they can lead to inflation. But MMT also says that inflation is not a problem when you have an enormous output gap from 17% underemployment. MMT proponents recommend deficit spending to close that gap. But you can't spend at will under MMT; eventually the output gap closes and inflation becomes a big problem...