Krugman 2003

A Fiscal Train Wreck

By Paul Krugman

March 11, 2003 (NYT) — With war looming, it’s time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.

From a fiscal point of view the impending war is a lose-lose proposition. If it goes badly, the resulting mess will be a disaster for the budget. If it goes well, administration officials have made it clear that they will use any bump in the polls to ram through more big tax cuts, which will also be a disaster for the budget. Either way, the tide of red ink will keep on rising.

Last week the Congressional Budget Office marked down its estimates yet again. Just two years ago, you may remember, the C.B.O. was projecting a 10-year surplus of $5.6 trillion. Now it projects a 10-year deficit of $1.8 trillion.

And that’s way too optimistic. The Congressional Budget Office operates under ground rules that force it to wear rose-colored lenses. If you take into account — as the C.B.O. cannot — the effects of likely changes in the alternative minimum tax, include realistic estimates of future spending and allow for the cost of war and reconstruction, it’s clear that the 10-year deficit will be at least $3 trillion.

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68 Responses to Krugman 2003

  1. Greg says:

    I check in frequently with what the MMR guys are talking about, I think Cullen and Mike always offer interesting posts.

    I too dont really think they are politically neutral I just think they go out of their way to deemphasize the “state theory” or “taxation drives money” aspect of MMT paradigm as well as trying not to call for a JG as some sort of macroeconomic holy grail.

    I support a JG for my own reasons, not necessarilly for the reasons Warren or Randy do because I cant really speak to the things they are analyzing when making their determination. This support of a JG makes out of the MMR camp per se but I think they have lots of stuff worth reading.

    Reply

    WARREN MOSLER Reply:

    thanks, if i had time i’d read it. not enough hours in the day for me right now

    Reply

    djp Reply:

    @Greg,

    Cullen is interesting. Though I think at later stages he at some point started getting confused about a few things — I haven’t really looked at the MMR site, so maybe he’s no longer confused. I do applaud him for his endurance and his arguments are usually pretty clear.

    He certainly valiantly responded to some very hostile posts on pragcap, and was always very civil. He also correctly would not back down on insisting that JG was not a necessity of MMT — in fact, I think that one point was basically what led him to create MMR.

    Thanks for the pointer to MMR.

    Reply

    WARREN MOSLER Reply:

    nothing is a ‘necessity of MMT’ apart from the accounts balancing which is an accounting imperative.

    so i don’t see how that’s a break from mmt as I see it.

    that said, mmt points out that one way or another there will be a buffer stock- gold, unemployed, employed, etc. so it’s ‘pick one’ and in the current set of circumstances I’ve proposed the $8/hr transition job for anyone willing and able to work, etc. as, imho, the far superior choice given out stated goals

    Reply

    Chaz Reply:

    @WARREN MOSLER,

    I guess the rub lies in “our stated goals”. I assume you mean something like full employment of people, max GDP, and low inflation as our stated goals, which is indeed a very broadly supported position.

    But for some wealthy people, their (usually unstated) goal is to maximize their own relative power and wealth. A job guarantee would tend to empower labor, since workers would no longer have to fear unemployment should they be fired, and since they wouldn’t have to accept any job which was worse than the ELR jobs. If one wants to make MMT neutral toward those people’s primary goal, he needs to cut out anything which empowers laborers, so no job guarantee. No matter how low you set the ELR pay rate it will still have at least a small empowering effect.

    Personally I would rather advocate a good message which appeals to most people than a hollowed out message that can appeal to everyone.

  2. Greg says:

    ESM

    How do you create a politically neutral MMT blog? The guys at MMR would say they have. Check them out.

    Reply

    Amileoj Reply:

    @Greg,

    From what I have seen Warren strives to keep his version of the MMT message from foreclosing political possibilities–hence his early and strong emphasis on the payroll tax holiday as the main vehicle for restoring demand.

    But there is something at the very core of MMT that is bound to make it anathema to many contemporary conservatives–the affirmation that a monetarily sovereign government always has the capability to act as a counterweight to a private sector that is unable to right itself.

    This affirmation is a standing rebuke to the core conservative belief that (at least in economic matters) government is always and everywhere the problem. On this understanding, tax cuts are great–provided they arise from and contribute to the overall project of shrinking the public sector.

    If instead the tax cut in questions seems to affirm the utility of having a monetary sovereign actively ‘steering’ the economy, it will be resisted, mightily. Hence dogged GOP resistance to the very notion of a payroll tax cut.

    Reply

    Jose Reply:

    @Amileoj,

    We can shrink the state sector and still keep a sufficiently high – if not higher – budget deficit.

    Say taxes are 38% of GDP while govt expenditures (G) are 40%.

    Over the years lower G to 30% of GDP but cut taxes even more – to 25% of GDP.

    The state sector will have become much smaller while becoming more effective than before at performing its essential function: to provide NFAs for the private sector in order to feed a growing economy at its full potential.

    Conservatives will thus be happy – and enjoying the fruits of MMT.

    Reply

    Amileoj Reply:

    @Jose,

    I understand that this is a technical possibility, so far as MMT is concerned. But the ‘problem’ with MMT, from a conservative perspective, is that nothing in it bars the complementary possibility (e.g., increase G and keep T as is, or even reduce T, but without reducing G).

    MMT teaches, if I understand it correctly, that the choice between these paths is fundamentally a political one–that there is no economic necessity favoring the path of a smaller public sector. It is simply a matter of how generous a provision of public goods one wants, relative to resources reserved for private goods.

    It is this conceptual ‘legitimation’ of the possibility of a large, activist public sector that, I believe, makes MMT anathema to the standard contemproary conservative perspective.

    In other words, it is precisely MMT’s ‘neutrality’ that is the ‘problem’, so far as appeal to conservatives is concerned. Hence the anxiety of the MMR folks to invent a version of MMT that is (in my view, quite artificially) non-neutral, but instead inherently anti-government.

    Walid M Reply:

    @Jose, Warren’s approach to MMT in keeping all options and operational possibilities open is what makes it compelling . I would have a hard time sticking around MMT if Warren was imposing his biases and constraining MMT to a view only he holds ….(as do Krugman types , politicians and other sophists )

    WARREN MOSLER Reply:

    anything happening there? haven’t heard from them in quite a while. Did they call this last stock market rally?

    Reply

    ESM Reply:

    @Greg,

    Oh, hadn’t heard about MMR. Thanks for the tip. I see that Beowulf posts there, which is a good sign. Offline for a bit, but I’ll have a reply to some of the other stuff later.

    Reply

    Jose Reply:

    @Greg,
    Maybe we could apply to MMR that old saying:

    It is a theory that is both original and good; however, the good part is hardly original while the original part does not seem very good.

    Reply

    Amileoj Reply:

    @Jose,

    Perfect.

    Reply

    Brian Reply:

    @Greg,

    How do you create a politically neutral MMT blog? The guys at MMR would say they have. Check them out.

    That’s an interesting claim since I just read an article there about targeted killings of terrorists.

    http://monetaryrealism.com/taking-do-not-call-list-to-the-next-level/

    Reply

    Ed Rombach Reply:

    @Greg,

    “How do you create a politically neutral MMT blog? The guys at MMR would say they have. Check them out.”

    I don’t think it would be viable nor desirable to have a politically neutral MMT blog. Regardless of how pro-MMT the bloggers are, the moment you have two or more people participating you will have differences. Already it is easy to see left-wing and right-wing MMT sentiment on this website. So let the let the differences come to the surface with all due decorum and be tested in debate.

    Reply

  3. Walid M says:

    Krugman when good is good for MMT and when bad is good for MMT ..
    He has changed his mind since 2003 as many of us have since coming across MMT …so maybe he is an MMT poster child !!

    Reply

  4. Jose says:

    I don’t see any inconsistency in Krugman. He’s a neo-keynesian, IS-LM guy. His model reasons and prescribes in about the same way as MMT in those periods when the economy is stuck in a recession, at near zero interest rates. According to Krugman’s model the LM curve stays put and flat as recession nears, so that only fiscal policy (the IS curve)can move the economy forward.

    When the economy starts picking up and approaches full potential the shape of the LM curve changes and fiscal policy becomes more and more innefective (and dangerous). This is one reason Krugman got so upset at budget deficits in the Bush II era.

    So Krugman is an objective ally of MMTers in our present, recessionary moment. He himself has recognized this in his blog, where he has repeatedly stated that he does not wish to engage in too many polemical arguments with MMT fellow travellers such as James Galbraith because (his words) “we’re on the same side of the political debate” (against austerity).

    Also, Krugman is a brilliant thinker. In a moment of inspiration he presented us with a “cross diagram” that made solid MMTers go ballistic with enthusiasm. After picking up the diagram and making a few modifications MMT authorities such as Fullwiler went as far as stating that said (i. e., Krugman’s)cross should be made required reading for students of economics and replace precisely, uh, the IS/LM diagram.

    So perhaps we could put it this way: under conditions of recession or depression Krugman and MMTers say more or less the same. As the economy gets near full employment they diverge.

    Krugman is a competent economist and a sane voice in the present austerian wilderness, but alas, MMT has the more general model that beats at prediction (which is what should count in an emprical subject like economics)as well as description the neo-keynesian model that Krugman cherishes.

    But there is no reason for MMTers to engage in attacks against him right now. That would simply be bad politics. Right now, MMT and Krugman are like the US and the USSR circa, say, 1942. Let’s please wait until 1948 or 1949 to start a cold war against him and his ideological companions, for otherwise we don’t stand a chance at winning against the common austerian enemy

    Reply

    Adam (ak) Reply:

    @Jose,
    IS-LM is simply an invalid model not applicable to the economy with a banking sector. The loanable funds market cannot be described by the simple law of supply and demand because the realised demand for credit generates its own supply of deposits. This is the root cause of all the errors made by the Neo-Keynesians. Krugman’s model of debt deflation is also flawed because there is no banking sector there, just patient and impatient agents.

    But I like his style of writing and he has a nice pet cat.

    Reply

    Jose Reply:

    @Adam (ak),
    Yes, we all know how deeply flawed the IS-LM model is.

    But my point was – we MMTers should not commit the mortal sin of being sectarian. That would condemn us to isolation and irrelevance for ever and ever. In real life we should support rather than attack those (unfortunately few) influential voices that stand against austerity, for otherwise the public at large will think we simply are not reasonable persons.

    Reply

    ESM Reply:

    @Jose,

    “… we MMTers should not commit the mortal sin of being sectarian.”

    I agree, but Krugman is sectarian and partisan. He is not simply making mistakes in diagnosis and prognosis based on a flawed model. His diagnoses and prognoses depend upon who is in the White House, but in any case he will always make the case for higher taxes and more spending, regardless of the circumstances.

    And he writes about much more than economics. It is a very rare column indeed where he doesn’t imply/infer/assume/argue that Republicans are either evil or stupid or both.

    Even if you don’t see him as partisan yourself, I think you have to admit that the vast majority of Republicans and conservatives do, which by definition makes him a polarizing figure and therefore less than useful to MMT.

    This blog is unfortunately becoming populated by a mostly left-wing crowd, perhaps because the prospect of significantly increased government spending is more attractive to progressives than the prospect of larger tax cuts to conservatives, or perhaps because Warren tends to disseminate his message on sites like the Huffington Post or (at least through proxies) Daily Kos and FDL.

    I think MMT has universal appeal, so I think it’s unfortunately that Warren is not striving to create a politically neutral blog.

    Posting some criticism of Krugman is a good start, but there is almost never any discussion here about trying to educate conservative economists. In my opinion, after 13 years of writing a angry semi-weekly column, Krugman is a bitter polemicist and political operative and not an economist anymore.

    Vincent Reply:

    @Jose,
    Krugman should be massively criticizing the white house and former President Clinton right now. Remember, President Obama is against deficits! And, Clinton is on tour touting his four surpluses.

    Greg Reply:

    @Jose,

    ESM

    It makes complete sense that this paradigm would attract the left wing because the left wing by definition is heterodox.

    Look at modern conservatism/republicanism ;

    1) Anti govt to the point of deranged objection to anything suggested or contemplated by the public sector
    2) Over emphasis on absolutely stupid fights about homo sexuals marrying or women being able to choose contraception
    3) A refusal to consider ANY taxation which might make a millionaire angry
    4) Dont even get started on energy issues. Totally in the tank for big oil companies.

    Now there are legitimate discussions needed about the role of public sector and how taxes fit in but only guys like Warren will have them, the modern right wants nothing but complete fealty to Grover Norquist. The modern right has become a cult. Your a reasonable guy but I cant see how you defend modern conservatism at all.

    Adam (ak) Reply:

    ESM,

    I actually totally agree with you and your comment adds a lot of value. MMT is a repackaged and modernised Chartalism of Knapp, Functional Finance of Abba Lerner and Post-Keynesian macroeconomics of Michal Kalecki.

    Kalecki was a 100% socialist. Lerner also had left-wing leanings.

    Bill Mitchell who is one of the original contributors to MMT has very well defined political and moral views:
    http://bilbo.economicoutlook.net/blog/?page_id=2

    My score is exactly at the centre of the “left libertarian” quarter so I would agree with Bill in a lot of what he says.

    I would put it that way – I see a lot of value in socialist and syndicalist ideas however I am very sceptical whether they can be implemented without coercion.

    I recently asked my (obviously left wing) Israeli friend about kibbutzim – the longest running experiment in running cooperatives. It worked remarkably well for 2 generations but the 3rd generation people simply weren’t interested… they converted most of them into normal enterprises. Of course one may claim that there was outside pressure on these people but I think that this is how it is – the “free-loaders” look over.

    I also understand that in some cases people have no alternative but to defend their community using the force against the enemies. This has nothing to do with supporting militarism but for example I may support certain drastic actions taken against the terrorists. I was born in Poland so I am not naive …

    Being sectarian means only one thing in 2012 in the West – an absolute failure to reach a wider audience. It is very easy to write a bankers-bashing rant but this adds no value to the debate. These 1% (claiming to be the avant-garde of 99%) have actually been converted already. Preaching to the converted is a waste of time.

    To me the purpose of participating in this debate is to restore the sanity in thinking about macroeconomics because I identify myself to some extent with the Western liberal tradition and I don’t want the Western civilisation to fail.

    What is your view on this book?
    http://www.amazon.com/The-Righteous-Mind-Politics-Religion/dp/0307377903
    http://righteousmind.com/about-the-book/introductory-chapter/

    So what to do next? I am working on a proposal but it will take some time…

    WARREN MOSLER Reply:

    not to mention soft currency economics, the source of mmt, was done independently of prior literature

    ESM Reply:

    @Jose,

    @Greg:

    “It makes complete sense that this paradigm would attract the left wing because the left wing by definition is heterodox.”

    I don’t think that’s true anymore. I think progressives are actually reactionary – trying to reanimate or continue failed ideas from the 20th century, from TR to FDR, culminating in the Great Society programs of LBJ. Not to mention (although I just did) the horrible collectivist ideas that led to over 100MM deaths in the 20th century. Human beings will have to keep learning over and over again I guess that collectivism and state planning don’t work at large scale. It’s a part of human nature that such things don’t work, but it also seems to be part of human nature to forget that they don’t work.

    “Look at modern conservatism/republicanism ;
    1) Anti govt to the point of deranged objection to anything suggested or contemplated by the public sector
    2) Over emphasis on absolutely stupid fights about homo sexuals marrying or women being able to choose contraception
    3) A refusal to consider ANY taxation which might make a millionaire angry
    4) Dont even get started on energy issues. Totally in the tank for big oil companies. ”

    You really should read more conservative literature. The points above are mostly lefty propaganda about the right.

    1) The federal government is almost 25% of GDP right now. I don’t think that even the most extreme Tea Partier is proposing to cut it back much below 18%. In any case, much of the argument is about federal vs state power. This country has drifted far away from its origins with respect to having a federal government of limited power.

    2) I’ll admit that gay marriage has been used cynically by Republicans to garner votes, but liberals are the ones who blew up such a small social tweak (affecting a small fraction of 3% of the population?) into an issue which dominates the media. Conservatives are not against gays having equal rights, by the way. Gay marriage is a tough pill for social conservatives to swallow, but everybody knows that it’s inevitable.

    3) They’re against increasing income taxes which are too high already. It has nothing to do with millionaires getting angry. This is a principled position because, in fact, increasing taxes on the top 5% of the population is rather popular with the other 95% (strange that).

    4) I would say that liberals are in the tank for green energy scam artists. Conservatives have no love (or hate) for oil companies; they just want to see the most efficient energy resource be exploited to the optimal extent. People tend to forget how miraculous a substance oil really is. 150 years ago, we had windmills and a form of solar power (growing wheat to feed to work animals), and we were still sending out whaling ships to kill sperm whales to get oil. Now we can just suck it out of the ground, but liberals want to go back to windmills and solar power.

    Greg Reply:

    @Jose,

    ESM

    Thanks for the response

    I dont think progressives are any more reactionary than a lot of modern conservatives. Im not sure its quite fair to blame “collectivism” for the 100MM deaths, it was simply giving too much power to an individual. We seem to also have the bad habit of looking for saviors and hero worship, of which the right is particularly fond of. From JesusChrist to Ronald Reagan. My brand of collectivism, if you will, involves giving lots of people input and not having a unitary executive.

    “1) The federal government is almost 25% of GDP right now. I don’t think that even the most extreme Tea Partier is proposing to cut it back much below 18%. In any case, much of the argument is about federal vs state power. This country has drifted far away from its origins with respect to having a federal government of limited power.”

    As a frequenter of this MMT site you should realize that setting rules like spending being 18% of GDP is a s dumb as a balanced budget amendment. Spending is determined before anyone knows what GDP will be!! What the govt should do is simply decide what we need by whatever process we have to decide that, agree on an amount to compensate the people for doing the job that is asked, and if it comes out as 25% of GDP one year and 19% the next because of variations in the private sector level of GDP contribution who the hell cares! Just because the Govt contribution to GDP is 25% vs 18% doesnt mean they have any more power, thats just a measurement of the relative contributions of private vs public sector spending.

    ” I’ll admit that gay marriage has been used cynically by Republicans to garner votes, but liberals are the ones who blew up such a small social tweak (affecting a small fraction of 3% of the population?) into an issue which dominates the media.”

    So now its the liberals fault that the conservatives have a gay problem ……. cmon. I expected a little more of you. Yes the media would rather talk about this than the real issues like individuals being able to purchase elections via Citizens United but its not like anyone made the conservatives hate gays…… they did that all by themselves.

    ” They’re against increasing income taxes which are too high already. It has nothing to do with millionaires getting angry. This is a principled position because, in fact, increasing taxes on the top 5% of the population is rather popular with the other 95% (strange that).”

    Well you should know that as an MMTer I support tax cuts……. but under the current paradigm our officials insist on operating under taxes should be raised on the rich, they are the only ones with money to spare, so to speak. You should also know that many of the GOP operatives(Cheney,Laffer) understand and practice MMT when they are in power they just play politics with deficits when out of power. Krugman may not have been totally consistent with his defict cries but our fiscal economic situations were very different in 2003 and 2009, by HIS paradigm he may have been being consistent.

    ” I would say that liberals are in the tank for green energy scam artists. Conservatives have no love (or hate) for oil companies; they just want to see the most efficient energy resource be exploited to the optimal extent. People tend to forget how miraculous a substance oil really is.”

    Look, every day enough energy from the sun reaches the earth that is more than humanity has consumed in its entire existence. Finding the best way to harness that, to turn every house that is in the right part of the sun belt into its own power station should be a no brainer. If oil is so efficient then take away every subsidy it gets OR subsidize solar to the same level and let the consumer decide. Thats what a freedom loving conservative should support. Unfortunately they are mostly bought off by big industry. Oil is an incredible compound and it will always play a role it should just play a much smaller role HERE. This shouldnt even be controversial.”

    “150 years ago, we had windmills and a form of solar power (growing wheat to feed to work animals), and we were still sending out whaling ships to kill sperm whales to get oil. Now we can just suck it out of the ground, but liberals want to go back to windmills and solar power.”

    The costs of sucking it out of the ground are becoming higher and higher and we arent making oil companies truly pay them. Again as far as household electricity production its stupid not to take advantage of solar as much as possible.

    djp Reply:

    @Jose,

    @ Greg
    (1)

    So now its the liberals fault that the conservatives have a gay problem ……. cmon. I expected a little more of you. Yes the media would rather talk about this than the real issues like individuals being able to purchase elections via Citizens United but its not like anyone made the conservatives hate gays…… they did that all by themselves.

    Hard to imagine this started out with. “I expected a little more of you.” A bit ironic. Btw, conservatives don’t hate gays. If you’re in a large metropolitan area, you can probably find a conservative gay group nearby to straighten you out.

    (2)
    You imply, or maybe assert, that the US heavily subsidizes oil. References? Ever hear of windfall profit taxes? Or the administration trying to renege on lease agreements?

    As a bit of a non-sequitur, here’s an amusing oil story from LA — all about corrupt politicians and stealing funds that should have gone to the state of LA — see I’m not even against having the state get funds from oil recovery:
    http://www.fox8live.com/story/18067615/lee-zurik-investigation-dirty-deeds-cost-louisiana-hundreds-of-millions

    http://www.fox8live.com/story/18131352/lee-zurik-investigation-what-will-state-do-about-its-dirty-deeds

    http://www.fox8live.com/story/18152338/lee-zurik-investigation-sl-340-just-the-tip-of-the-dirty-deeds-iceberg

    http://www.fox8live.com/story/18169793/lee-zurik-investigation

    Greg Reply:

    @Jose,

    Djp

    Thanks for the response

    Yes, my comment was sloppy, implying that ALL conservatives hate gays, which of course isnt true but there is much loathing of gays on the social conservative side that is completely unprompted. The presence of some conservative gay groups is NOT a counter to the charge that modern republicans have real trouble dealing with men who do icky things like kiss other men, especially if they arent mostly keeping it hidden. Its no secret that guys like Larry Craig and that right wing pastor form Colorado Springs are conservative gays…..NOW….. it was only a secret before they “sinned”.

    Windfall profit taxes do not offset the 10s of billions in subsidies oil companies get. Windfall profits are just that, windfalls from happening to own something that spikes in value, they are not part of subsidies. They are like winning a lottery. Solar and other renewables receive about 1% of the subsidies of oil.

    Corrupt politicians?…….in Louisiana? Cmon you gotta be kidding?!

    Its certainly true that at some point the rich/powerful have to screw each other over since theyve extracted everything from the rest already

    ESM Reply:

    @Jose,

    @Greg:

    I don’t want to continue this line of discussion on gay rights for too long, as it is most certainly tangential to economics, but my experience with conservatives (and I’ll admit they’re mostly of the highly educated variety) is that they’re very accepting of gay people. Those that are against gay marriage (and I’m not, although I do think it is an issue appropriately decided by legislatures and not by the courts) are against it because they sincerely see it as a slippery slope towards the undermining of an important social institution. If you expand the definition of marriage, you open a new debate about where that boundary should really be.

    For example, not only is polygamy not recognized by any government in the US, it is actually banned outright. Why is that? I don’t think there is actually any moral justification for a ban on polygamy, but there is a practical social reason. That being said, I think gay marriage actually has social benefits, and it is pretty easy to maintain marriage as a monogamous insitution constrained to consenting adult human beings, but I wouldn’t call those who sincerely disagree “haters” in any sense.

    As for oil company subsidies, the only explicit subsidies I’m aware of are the depletion deduction (which is not unlike accelerated deductions for investment that most industries have) and the special treatment of losses passed through to passive partners in an oil/gas drilling limited partnership. These subsidies are really bupkis in the grand scheme of things.

    There is an implicit subsidy in that oil is not taxed highly enough to account for all of the externalities (mainly, the money the US government spends to keep the oceans free of pirates and hostile navies), but that subsidy is only partially captured by the oil companies.
    The subsidies for green energy are orders of magnitude higher in terms of percentage of revenue.

    djp Reply:

    @Jose,

    @Greg

    “Corrupt politicians?…….in Louisiana? Cmon you gotta be kidding?!”

    Haha. Yes. As I mentioned, a non-sequitur. What’s surprising to me is not that there was corruption. What was surprising was the magnitude and duration.

    I agree with ESM that there are few if any subsidies for oil. Certainly no direct ones as there are for alternative energy — unless you want to claim the DOE or EIA is somehow a subsidy for the oil industry. I don’t think you meant the cost of the US Navy (though it would only be partly for oil). Making the great blue a safe haven is a much larger benefit for the world than most probably realize.

    Jose Reply:

    @Adam (ak),

    “MMT is a repackaged and modernised Chartalism of Knapp, Functional Finance of Abba Lerner and Post-Keynesian macroeconomics of Michal Kalecki”.

    I would add the sectoral balances approach of Godley-Lavoie, the Minskyan financial instability hypothesis and – last but certainly not least – the analysis of post gold standard monetary operations inaugurated by Warren Mosler and followed later on by Wray, Bell-Kelton, Fullwiler and so on

    Reply

    WARREN MOSLER Reply:

    best to say those priors contain elements of mmt

  5. Steve says:

    Just think of the immediate credibility these economist would have if they could just find the intellectual courage to fully admit there mistakes and explain the lessons learned, but they rarely do.

    The world would be a much better place if people could leave their ego at he door and commit to a life of intellectually honest thoughts.

    Special thanks to Warren for helping with my personal journey of truth discovery.

    Reply

  6. J.Berg says:

    In mar. 2003 10yr rate was 3.8% , unemployment 5.8%. It might have been reasonable to anticipate inflationary effects from war expenditures.

    Reply

  7. Steve says:

    From the move “Lawrence of Arabia”:

    “I am surrounded by cattle.”

    Reply

  8. FIN says:

    Ron Paul wants to go back on a gold standard…wouldn’t be a good choice.

    Reply

  9. roger erickson says:

    What if someone offers to pay Krugman to say some thing different? ala Greenspan?

    Reply

    Ed Rombach Reply:

    @roger erickson,

    What do you reckon his going rate is these days?

    Reply

    Adam (ak) Reply:

    @roger erickson,
    I think that Krugman acts in a good will and he is more sophisticated than some people think. I haven’t met him and may never have a chance to see him in person but this is my guess.

    Krugman didn’t like the invasion of Iraq and in that regards he was right. He couldn’t say – guys it is just wrong and politically stupid to go there. He is an “economist” so he used “econo-speak” to raise his objections.

    That his words taken at a face value didn’t make any sense – it is a separate issue. I remember debates among Marxist intellectuals in the late 1980s right before the collapse of the system In order to say something in the mainstream media people needed to use a special language: “new-speak” (think about G.Orwell) So we read articles about the next phase of the market socialist economic reforms and similar rubbish. What it was all about was how to fatten the class of communist apparatchiks so that they could become the new bourgeois.

    In that context real negative interest rates pop up again to my mind. If you had good connections money was dispensed to you at a negative rate. The company I used to work for was grown as a “student cooperative” and one guy had good connections in the district committee of the communist party so they got money at negative interest rate (due to high inflation).

    Anyway… if we are to read Krugman we need to read “between the lines” …

    Reply

    Vincent Reply:

    @Adam (ak),

    I think you are actually too kind to Paul. If he were a good man, he would discontinue his column, acknowledging that he actually knows very little. His sycophant readers would be forced to find a new paradigm, with any hope MMT.

    Reply

  10. Dan Lynch says:

    Funny.

    I’ve changed my thinking on deficits since 2003, thanks to people like Warren. As Keynes said, “When the facts change, I change my mind. What do you do, sir ?”

    Reply

  11. Kristjan says:

    Thanks Warren, :)

    Reply

  12. Alexander says:

    God helps us if Krugman gains a position at the Federal Reserve.

    As long as Americans vote for either Romney or Obama, then the economy will continue to be managed for the benefit of the banking cartel and not the American middle class.

    If you want change vote for Ron Paul at minimum or better just vote directly for the libertarian party.

    Reply

    Harold Reply:

    @Alexander, God help us if Ron Paul becomes president. His gold standard thinking is far worse than anything Krugman has dished up.

    Reply

    Ed Rombach Reply:

    @Harold,

    When it comes to gold backed money and/or budget deficits, Ron Paul and Warren Mosler are about as far apart on political economy as can be. But, when it comes to the subject of taxes I would say they are much more closely aligned. If you want to see a spike in traffic flow to this website and expose a lot more people to MMT thinking, it would not be the worst thing in the world for this website to feature more critique and discussion of the Ron Paul phenomenon with regard to money, the Fed, taxes, regulation and economic stimulus. I think this space represents fertile ground for intellectual cross pollination and I say this as someone with one foot in MMT, another in Supply Side economics as well as a hand in the Ron Paul Liberty movement which appeals to a lot of young people. Of course it may be that I am a hopelessly deranged and intellectually conflicted individual but I think not. Nor do I think that I am a fluke. I think there is a grand unified field theory in this area waiting to be discovered. I wonder what John Carney at CNBC would have to say about this?

    Reply

    Harold Reply:

    @Ed Rombach, I think the idea of intellectual cross-pollination between MMT and Paulism is a terrible one and will only hurt MMT it it’s attempted. Paul is laughably wrong on so many issues that associating the MMT ‘brand’ with him will only damage it.

    Ed Rombach Reply:

    @Ed Rombach,

    Harold – Interesting that you say that because when I tell my Supply Side and Austrian friends about MMT, they often express the same kind of irritation that you did, which tells me that I must be on to something if I am managing to offend all three camps.

    Harold Reply:

    @Ed Rombach, That’s a logical fallacy, Ed. No wonder you are a Paulite if that’s how you decide what’s true and what’s false.

    I’ll make it simple for you: Your supply-side friends are wrong. The Austrians are wrong. Ron Paul is wrong. MMTers are right.

    Ed Rombach Reply:

    @Ed Rombach,

    Harold – Always nice to be labeled but as already noted I am rather eclectic on on all these fronts. Nevertheless, thank you for making my point.

    Harold Reply:

    @Ed Rombach, You only think I’ve made your point because of your irrational thinking processes. Thanks for making MY point.

    Ed Rombach Reply:

    @Ed Rombach,

    One of my weaker moments I guess.

    Dan Kervick Reply:

    @Alexander, Economists can’t do much harm at the Fed. The real action is in fiscal policy, although we are stuck with a whole lost generation who have been taught otherwise by the current mainstream.

    Reply

  13. Bob Salsa says:

    He may have gone kicking and screaming, and certainly not acknowledging those who’ve pulled him along, but you have to admit he’s come a long long way toward MMT thinking particularly in his latest book.

    Given that, plus his megaphone reaching (and hopefully influencing) people that are far far less along the path of enlightenment, what purpose does it serve to continually tear at him in MMT world?

    Reply

    Harold Reply:

    @Bob Salsa, When a PhD in economics, with a ‘nobel’ prize, tenure, and a post at the NYT knows less about these matters than I do, I feel I have a right to tear at him.

    Your problem is that your standards for the economics profession are far too low.

    Reply

    SteveK9 Reply:

    @Harold, Read people like Cochrane and you may have more tolerance for Paul Krugman.

    Reply

    Harold Reply:

    @SteveK9, I’m well aware that there are far far worse economists out there than Krugman. But that’s not an excuse for Krugman.

    SteveK9 Reply:

    @Harold, What’s with the quotes and lower case on ‘nobel’? If it’s that easy, go get one yourself.

    Reply

    Harold Reply:

    @SteveK9, It’s to reflect the fact that it’s not really a Nobel prize at all. It’s given out by the central bank of Sweden.

    ESM Reply:

    @SteveK9,

    Yes, technically Krugman is a Sveriges Riksbank laureate. But it is legitimately a Nobel prize since the criteria used are the same for the other Nobel prizes, excepting the Peace prize of course, which remains a laughingstock.

  14. Harold says:

    But what’s really scary — what makes a fixed-rate mortgage seem like such a good idea — is the looming threat to the federal government’s solvency.

    I wonder what kind of mortgage he has today?

    Reply

  15. Ryan says:

    He went from Nobel prize glory to being the Rodney Dangerfield of economics in no time.

    Reply

    Harold Reply:

    @Ryan, The Krugman article is from 2003.

    Reply

  16. C. Santiago says:

    Wow, the 2003 version of Krugman sounds so much like the 2012 version of Greenspan! He even got the hedge-your-bets double-speak right: “…but unless we slide into Japanese-style deflation, there are much higher interest rates in our future.”

    Thank you for that :-)

    Reply

  17. jonf says:

    It’s just hard to read this stuff. I feel like we all shoulda turned into pumpkins or something with all that fiscal debt.

    Reply

    ESM Reply:

    @jonf,

    I think it’s quaint the way deficit hawks like Krugman used to throw around 10-yr $1.8T deficit numbers as if $1.8T was a lot of money. Reminds me of the time when Bill Gates thought 640KB was a lot of RAM.

    Reply

    Cesar Reply:

    @ESM,

    It’s funny, your RAM metaphor isn’t actually too bad when you think about it… 640KB was enough for the time but as demand increased through the processing ability of the CPU, RAM requirements increased too – though *all* the RAM would not be utilised *all* the time only under stress.

    Reply

    pebird Reply:

    @ESM, You think we would eventually run out of numbers.

    Reply

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