An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Monday, May 6, 2013
Randy Wray — By Jove, He’s Got It: Krugman (Finally) Adopts MMT (And so does Summers)
"The sticking point has been “crowding out”—the idea that once we get beyond the liquidity trap and return to a more “normal” ISLM world, government deficits will push up interest rates. And that will then reduce private investment, which tends to lower economic growth. Higher interest rates plus lower growth means the government’s deficit and debt ratios grow beyond “sustainable” levels."
01/11/11 Ballooning Deficit May Not Be A Concern for Bonds: Rombach….. http://reut.rs/p24lML
The interest rates argument is silly as anything but a teaching aid about a possible but non-existent and over-simplified case. To argue from interest rates alone is just silly.
Krugman's sleek conversion to MMT is almost complete. Here he is today: "This is not good news — or not unambiguously good news, at any rate. A deficit falling to probably less than 5 percent of GDP this year and well below that next year is MUCH TOO LOW for an economy whose private sector is still engaged in a vicious circle of deleveraging."
He's got it except for the mutually-exclusive thoughts still in his head with "it".
ReplyDeleteHe has the essence of it. Now he needs to read Scott's paper, "Interest rates and fiscal sustainability." He is still hung up in monetarism.
ReplyDelete"The sticking point has been “crowding out”—the idea that once we get beyond the liquidity trap and return to a more “normal” ISLM world, government deficits will push up interest rates. And that will then reduce private investment, which tends to lower economic growth. Higher interest rates plus lower growth means the government’s deficit and debt ratios grow beyond “sustainable” levels."
ReplyDelete01/11/11 Ballooning Deficit May Not Be A Concern for Bonds: Rombach….. http://reut.rs/p24lML
The interest rates argument is silly as anything but a teaching aid about a possible but non-existent and over-simplified case. To argue from interest rates alone is just silly.
ReplyDeleteLet's see...deficits fund profits...which is the prime motivation for investment...and this discourages investment. Wonderful logic.
ReplyDeleteThen, to make matters worse, in the real world deficits drive interest rates down (see past 30 years...and MMT).
Fail. We really are screwed.
Krugman's sleek conversion to MMT is almost complete. Here he is today:
ReplyDelete"This is not good news — or not unambiguously good news, at any rate. A deficit falling to probably less than 5 percent of GDP this year and well below that next year is MUCH TOO LOW for an economy whose private sector is still engaged in a vicious circle of deleveraging."