Krugman vs. MMT

     I did a bit more research and it turns out that Krugman and the MMTers have been at it off and on for a while.

    One real concrete debate between the two has been whether or not deficits ever matter. The MMT position is because we have a fiat money system we can always print more dollars and so it doesn't matter ever. Krugman argues that it can under certain circumstances though he is very clear that they don't matter now. In a way then MMT agrees with Cheney... LOL

    Here is Krugman: "Right now, deficits don’t matter — a point borne out by all the evidence. But 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. "

  "I wish I could agree with that view — and it’s not a fight I especially want, since the clear and present policy danger is from the deficit peacocks of the right. But for the record, it’s just not right."

   "The key thing to remember is that current conditions — lots of excess capacity in the economy, and a liquidity trap in which short-term government debt carries a roughly zero interest rate — won’t always prevail. As long as those conditions DO prevail, it doesn’t matter how much the Fed increases the monetary base, and it therefore doesn’t matter how much of the deficit is monetized. But this too shall pass, and when it does, things will be very different."

    http://krugman.blogs.nytimes.com/2011/03/25/deficits-and-the-printing-press-somewhat-wonkish/

    In other words right now with Treasury's the number one investment because of safety there is no danger to yields rising. However if and when we get out of this-not to be pessimistic-investors will no longer flee to Treasurys and we won't be in a liquidity trap.

   But just the same, when these current conditions no longer prevail the big drag in causing the deficit-the drop in tax receipts and the rise in automatic stabilizers-will no longer prevail either. It is hard to discuss things with the MMTers as you never know if you understand them properly. Or do I understand Krugman properly here? In any case we'll look into more of this as while I don't know that I agree with them-how could I when I don't wholly get or ever largely get their point?-the idea that monetary theory changes qualitatively and that most theorists don't adjust for that since the move from the gold standard to the fiat money system is a thought-provoking idea, though I don't know if it's true or not.