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.