[P2P-F] PAUL KRUGMAN DOES MODERN MONEY THEORY/Wray

Mon Nov 14 10:22:45 CET 2011

MMT will always be incomplete compared with TFE. Moreover, the latter would take a more pragmatic approach. 

RS

From: "ideasinc at ee.net" <ideasinc at ee.net>
To: P2P Foundation mailing list <p2p-foundation at lists.ourproject.org>
Sent: Sunday, 13 November 2011, 14:56
Subject: [P2P-F] PAUL KRUGMAN DOES MODERN MONEY THEORY/Wray

This the link to the original posting, where the embedded links will work.

NYTimes columnist Paul Krugman came across Modern Money Theory several  
years ago and periodically opines that we have something or other wrong.  
(See my response to one of his columns here:  
http://www.huffingtonpost.com/l-randall-wray/paul-krugman-modern-money-theory_b_926757.html)

And other times he adopts MMT without acknowledging the source. Yesterday,  
for example.
For some time he’s been wondering why Japan–with a government debt ratio  
just north of 200%–enjoys essentially zero interest rates, while periphery  
Euro nations suffer under government bond rates of 6%, 7% or more–with  
debt ratios half as high. Of course, MMT has explained the reason for the  
past decade and a half–and correctly predicted the crisis currently  
gripping Euroland. But on 11-11-11 Krugman “discovered” the answer: Euro  
members gave up their currency sovereignty in favor of what is essentially  
a foreign currency–the euro. Who wudduv thought?
Yesterday John Carney at CNBC picked up on the argument made by MMT-er  
Cullen Roche that Krugman is channeling MMT.

  Here’s the link to Carney’s post: http://m.cnbc.com/us_news/45260177

  Here’s the basic argument:
Carney: It seems pretty clear that the school of thought known as Modern  
Monetary Theory has made a big impact on Paul Krugman’s thinking. As  
Cullen Roche at Pragmatic Capitalism points out, just a few months ago the  
spread between bonds issued by Japan and Italy, which have similar debt  
and demographic issues, was perplexing Krugman. (See Cullen’s post here:  
http://pragcap.com/a-puzzle-solved)

Krugman: “A question (to which I don’t have the full answer): why are the  
interest rates on Italian and Japanese debt so different? As of right now,  
10-year Japanese bonds are yielding 1.09%; 10-year Italian bonds 5.76%. …I  
actually don’t have a firm view. But it seems to be an important puzzle to  
resolve.”    (See here:  
http://krugman.blogs.nytimes.com/2011/07/16/italy-versus-japan/)
Yesterday, however, Krugman finally found his answer in MMT (here:  
http://www.nytimes.com/2011/11/11/opinion/legends-of-the-fail.html?_r=1)

Krugman: “What has happened, it turns out, is that by going on the euro,  
Spain and Italy in effect reduced themselves to the status of Third World  
countries that have to borrow in someone else’s currency, with all the  
loss of flexibility that implies. In particular, since euro-area countries  
can’t print money even in an emergency, they’re subject to funding  
disruptions in a way that nations that kept their own currencies aren’t —  
and the result is what you see right now. America, which borrows in  
dollars, doesn’t have that problem.” (end of quote)

Well, live and learn, as they say! Welcome aboard, Paul!

L. Randall Wray UMKC

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