Krugman, Keen, Fullwiler and MMT vs. MM

      I've been keeping up with the debate between Krugman and Keen. Lately Fullwiler has also joined against Krugman. It's a very interesting debate that I've already written about a few times.

      I got to admit I'm not always sure what the real punchline of the thing is-what is the policy implications of it though I do believe they are dramatic. The original difference centered around a paper Krugman had written with Eggertsson about Minsky and his theory of debt asset deflation during a major recession-depression.

     For the original links please see http://diaryofarepublicanhater.blogspot.com/2012/03/krugman-stephen-keen-and-minsky.html

     Keen had complained that Krugman new nothing about banking and that by leaving banks out of his model it was totally inadequate. Krugman replied that this was "banking mysticism."

     Then leading MMTer Scott Fullwiler wrote a new post claiming that Krugman is wholly ignorant about this and just doesn't get it:

      "Paul Krugman has posted a reply to this post that is a straw man. He and Nick Rowe are viewing this all through the lens of the old Monetarist/Keynesian debates in which there was a choice b/n interest rate targets and monetary aggregate targets; the Monetarist critique assumed the Keynesians were going to keep interest rates at the same level forever and not change them. Once John Taylor came up with his “rule,” everyone agreed an interest rate target could work."

     "What we are talking about here is operational tactics–the CB can only target an interest rate. It cannot target a reserve balances or the monetary base directly. But that is different from strategy–that is, WHERE the CB puts its target and WHEN it chooses to change the target. There is NOTHING in anything I’ve ever said or anything any PK’er, MMT’er, etc., has ever said that suggests the CB can’t set the target wherever it wants whenever it wants. The point is that whatever the target is, THAT is what its daily operations defend directly, not a monetary aggregate, not the monetary base, not reserve balances. There is nothing in anything I’ve said that would preclude the CB from running a Taylor’s Rule type strategy, for instance, that responds at any point in time endogenously to the state of the economy. That is, the target rate is an exogenous control variable (i.e., it is necessarily set by the CB) that it sets endogenously in response to economic events."

     http://neweconomicperspectives.org/2012/04/krugmans-flashing-neon-sign.html#comment-9429

    What I actually found of interest is Fullwiler's link on what he has written about fiscal policy, where he says that "helicopter drops" are fiscal rather than monetary operations. This is totally at variance with MM. Indeed Lars Christensen went as far as to claim there is not such thing as fiscal policy-it's all monetary by another name. What really interests me more than anything is to finally get what the difference between fiscal and monetary policy truly is.

     For the background of Christensen's argument and my intervention in this discussion please see the following links

    http://marketmonetarist.com/2012/01/18/there-is-no-such-thing-as-fiscal-policy/
http://diaryofarepublicanhater.blogspot.com/2012/01/sumner-and-awesome-obfuscation.html
http://marketmonetarist.com/2012/01/31/christensens-postmodernist-mind-fuck/
http://diaryofarepublicanhater.blogspot.com/2012/01/market-monetarist-mmt-smackdown-20.html
http://diaryofarepublicanhater.blogspot.com/2012/01/lars-chistensen-writes-post-about-me.html


     I did talk to an interesting commentator at Fullwiler's blog, Dan Herwick Yet when I questioned him he said this:

    "I probably sometimes express my position in an extreme way because I am focusing on the role of the Fed in the recent recessionary times. In a more normal economy with higher interest rates, I believe the Fed can help stimulate lending by lowering rates, and help cool down lending in an overheated economy by raising rates."

      Now, of course, Dan was not the one driving the argument-Stephen Keen and then Fullwiler were. But based on Dan's view how much do those going after Krugman right now really disagree with him? And if there is something, how much does it really matter to our understanding of the monetary system? What will it help us to understand/do that we can't right now?