Before we even start, I have to say that my best, most educated guess is no, as much as I hate to agree with Sumner.
"As you know, Paul Krugman has been inching inexorably toward MMT. The last stumbling block has been those Vigilantes. Krugman and Brad DeLong have argued that we don’t need to worry about them, now, in the depths of a liquidity trap. And now that we know that the magic 90% debt ratio of Rogoff and Reinhart was a figment of their poor empirical work, Krugman knows that there’s no trade-off of rising debt for low economic growth."
"As you know, Paul Krugman has been inching inexorably toward MMT. The last stumbling block has been those Vigilantes. Krugman and Brad DeLong have argued that we don’t need to worry about them, now, in the depths of a liquidity trap. And now that we know that the magic 90% debt ratio of Rogoff and Reinhart was a figment of their poor empirical work, Krugman knows that there’s no trade-off of rising debt for low economic growth."
"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."
In addition, Wray thinks that Larry Summers is coming around too!! Again, I tend to doubt it. I would say that Krugman has known that there is 'no magic at 90% debt levels' for a long time. The recent errors by R-R have validated him on this but he's been making this pont for 3 years. However, would Krugman agree with this?
"But as I explained last week, the short term rate is completely within the control of the Fed. See here: http://www.economonitor.com/lrwray/2013/05/01/reconciling-the-liquidity-trap-with-mmt-can-delong-and-krugman-do-the-full-monty-with-deficit-owls/. Long term rates depend on the state of liquidity preference plus expectations of future Fed policy. But in any case, the Vigilantes cannot force Treasury to issue long term debt. It can stick to the short end of the maturity structure and then pay whatever rate the Fed targets."
"The real danger is not that the Vigilantes go all vigilant on Uncle Sam, but rather that the Fed decides to do a Volcker (raise the overnight rate to 20%). Congress can stop that by legislating that the Fed cannot act like a Vigilante. Or, alternatively, Treasury can stay on the short end. Both of these are policy choices, completely outside the influence of Vigilantes."
Now I'll be honest and say I'm not entirely sure who's right here though what I like is that in Wray's model, we don't have a Volcker disinflation. To be sure, even if Wray's right, it would take some radical changes in Congress and the Fed to bring us to conducting Fed policy this way.
Still, I'd be shocked if Krugman now believes this. What it amounts to is that Krugman, Delong, Summers and New Keynesians in general believe that fiscal policy ought to be countercylical. We should have high deficits and higher debt levels right now however, when we're in the boom part of the business cycle we should make sure deficits come down then.
Here is Sumner's post. I think he's right about this one. Krugman only approves of deficits during a bad downturn.
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