In recent days both Brad DeLong and Paul Krugman have written good pieces arguing against the austerity marketed by deficit hyperventilators. We can thank Thomas Herndon’s muck-raking that pushed the topic front and center, showing that there is no empirical evidence in support of the austerian’s claim that big government debts slow growth. (See my previous blogs here and here)....
Note, both of them raise additional good arguments against the R&R results and against austerity more generally. I am focusing in on the one point about the liquidity trap for the purposes of this blog simply because it seems to be the sticking point that prevents them from fully embracing MMT. From the perspective of Krugman and DeLong, MMT is fine for the liquidity trap, but wrong for the normal situation—when deficits will matter....Economonitor — Great Leap Forward
Reconciling the Liquidity Trap With MMT: Can DeLong and Krugman Do the Full Monty With Deficit Owls?
L. Randall Wray | Professor of Economics, UMKC
Tom,
ReplyDeleteWhen I asked "what test?" in a previous comments section, I now understand what you were referring to. Wray explain it in this piece. I think the "test" is whether or not the bond vigilantes or the Fed determines U.S. government borrowing costs.