Monday, April 29, 2013

Russ Huntley — Krugman Legitimizes Modern Monetary Theory (MMT) as a School of Economic Thought

Paul Krugman today in his The Conscience of a Liberal blog in the New York Times discussed whyMonetarism Falls Short mentions Modern Monetary Theory (MMT) as a school of economic thought along with the Keynesian and Austrian schools.
Brad Delong’s use of points made in Warren Mosler’s Soft Currency Economics (the book that started defining Modern Monetary Theory) to win an argument with Krugman was probably pivotal.
Soft Currency Economics
Krugman Legitimizes Modern Monetary Theory (MMT) as a School of Economic Thought
Russ Huntley

17 comments:

Bob Roddis said...

1. Krugman does not mention the Austrian School at all.

2. Krugman's mention of MMT is to mock it by asserting that MMT makes the same false claim as the "austerians" to the effect that Keynesians claim that deficits never matter.

3. Major_Freedom and I have explained the idiocy of claiming that "austerity" has been shown by the evidence to have failed. Keynesians are naturally too dumb to understand the argument, which does not hurt my feelings.

http://consultingbyrpm.com/blog/2013/04/just-the-facts-maam-testing-keynesian-theory.html#comment-62537

geerussell said...

Brad Delong’s use of points made in Warren Mosler’s Soft Currency Economics (the book that started defining Modern Monetary Theory) to win an argument with Krugman was probably pivotal

Anyone know the particulars of this exchange?

Matt Franko said...

gee,

http://delong.typepad.com/sdj/2013/03/bill-black-is-justifiably-irate-monday-hoisted-from-comments-weblogging.html?


rsp

Matt Franko said...

Bob,

Yes he mentions Austerians.... Austrian/Austerian, potahto/potayto... same thing right?

;)

Bob Roddis said...

Yes he mentions Austerians.... Austrian/Austerian, potahto/potayto... same thing right?

It is a preposterous, dishonorable and dishonest argument for Krugman and the Keynesians to suggest that government spending or debt at a somewhat lower rate than the Keynesian “optimum” for filling the non-existent “gap” and/or funny money dilution at less than the alleged Keynesian optimum amounts to “austerity”. Further, it is absurd for them to claim that this has proven that a true slashing of government spending in real terms by 50%, 75 or 90% has been shown by the evidence to have failed or that an ending of funny money dilution and a return to market interest rates has been shown by evidence to have failed.

They have nothing but unmitigated gall to call the government’s 57% of the Keynesian optimum “austerity” and then to try to blame it on Austrians when such an idiotic program inevitably leads to decades of depression (as Austrians predict over and over and over).

57% of Keynesianism is not the Austrian program. It is the typical Keynesian lie to suggest that it is. Apparently, that is the perpetual Keynesian M.O.

JK said...

Bob, how would you go about implementing a true Austrian program? In what order? And at what point would we change from some X% still Keynesian, to a true Austrian program?

F. Beard said...

that an ending of funny money dilution Bobby R

Inexpensive fiat is the ONLY ethical money form for government debts.

But the Austrians would prefer that governments have to buy their favorite shiny metals in order to create money. Cui bono? ans: Gold owners, gold miners, usurers, and deflation-loving money hoarders.

F. Beard said...

And btw, in a true free-market of private money creation, common stock would beat the snot out of precious metals as money. Why? Because common stock could be backed by non-performing assets like PMs but typically it would be backed by performing assets such as factories, stores, service industries, etc. Things which accomplish good instead of gathering dust in a vault.

But what Austrians have EVER mentioned the use of common stock as private money? Is "sharing" anathema to them?

y said...

Dobby and Minor Freedom are at it again, pretending to have "really intelligent" thoughts and getting "really outraged" by silly-billy stuff they make up inside their own little heads.

Go away Dobby.

JK said...

"On the left are the Modern Monetary Theory types, who assert exactly what the austerians like to claim, falsely, is the Keynesian position – that budget deficits never matter (except for their direct effect on aggregate demand)."

obfuscation?

Why does Krugman continue to say that MMTers claim "deficits never matter" ? The imprecision of this language is a disservice. Sure, ok, "no publicity is bad publicity"…

Supposing for a moment that MMTers did say that "deficits never matter" … for Krugman, in what way do deficits matter that he is suggesting MMTers ignore?

Ben Johannson said...

Krugman is rather incoherent on his blog. One day he'll acknowledge the U.S. faces no solvency constraint, another he'll write we must live within our means, eventually. I suspect he's suggesting in this particular post that MMT ignores exchange rates and perhaps also that interest on the debt could be inflationary due solely to rising monetary aggregates.

Matt Franko said...

jk he thinks they matter from the point of view that "they have to be paid back" eventually... this was from his Langone-bash post the other day....

He somehow thinks that the govt has to pay for things twice.... I dont know how his brain works...

rsp,

Tom Hickey said...

PK's one sentence summary of MMT is technically correct but a funny way of saying it, as if the exception is an afterthought instead of central. PK still thinks that is not aggregate demand that is key but rather the interests rate. He says that in a liquidity trap he and MMT agree, but the test will be when the US leaves the trap.

He should have point out that for countries sovereign in their currencies that do not take on external debt, fiscal deficits only matter in relation to their direct effect on aggregate demand relative to output/employment level and inflation/fx rate. Fiscal deficits are endogenous; "budget" deficits are exogenous. So it is the fiscal balance, including transfer payments and grants, that counts with respect to causal transmission to NAD. The projected budget balance is just a number.

I think that PK likely gets this but that is a mouthful, so I can undertstand his taking a short cut. The good thing is that he accords MMT a place at the table. First time, I think. So this is more progress.

JK said...

Tom: "but the test will be when the US leaves the trap."

What test?

It seems like you're saying that he's suggesting that MMT says that Monetary Policy can not stimulate investment and employment by lowering interest rates (when we're not in a liquidity trap).

Does MMT say that?

Tom Hickey said...

What test?

He did not spell it out, but I assume that he believes that the ISLM model is superior to the Krugman cross. Ironic.

See here for references.

Tom Hickey said...

MMT says that Monetary Policy can not stimulate investment and employment by lowering interest rates (when we're not in a liquidity trap)

The monetarist argument that hold everything else equal and adjusting the interest rate will have predictable result on the saving-investment ratio.

Opponents say, only in the model. Firms invest when they have increased business (demand). A change in interest rate (monetary policy) doesn't directly affect demand because there is no direct causal transmission mechanism.

It's a fallacy to think that firms will invest more just because borrowing costs are lower nor will people spend more just because they aren't getting as much interest. In fact, they may spend less because their income is lower.

Fiscal policy does directly increase demand through deficit expenditure that is targeted using multipliers, because there is a direct causal transmission from increased income to increased demand.

y said...

Here's Dobby, Minor Freedom and pals:

http://www.youtube.com/watch?v=7ZHB5mnl6jI