Monday, November 12, 2012

Is Paul Krugman Going MMT?

Paul Krugman at a press conference
(Swedish Academy of Science). [A]
Paul Krugman's NYTimes blog links to a little paper ("The Simple Analytics of Invisible Bond Vigilantes", PDF) explaining, with mainstream economic tools, why a country like Greece is indeed vulnerable to the "bond vigilantes", while countries like the US are not:
  1. The US (and the UK and Australia), unlike Greece (and Italy, Portugal, Spain, Ireland), has its own national currency, issued by the American government.
  2. Unlike the EUR, the USD exchange rate fluctuates freely.
  3. The US interest rate is determined, as matter of policy, by the US Fed; the EUR interest rate is determined by the European Central Bank.
  4. The US has virtually no foreign debt denominated in foreign currency. Greece's debt is pretty much entirely denominated in EUR.
If you have mainstream economics training, you should have no difficulty following Krugman's paper: it's brief, to the point and well explained.

At the other hand, if you know something about MMT, you'll find that the 4 points above are all made by MMT.

Pretty please, Australian journalists refer to my friend Heteconomist (here) for a fuller and better discussion than anything I could offer here.

Congratulations, Prof. Krugman.

Image Credits:
[A] Paul Krugman, Laureate of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2008 at a press conference at the Swedish Academy of Science in Stockholm. Wikipedia.


  1. And directly contradicts what he said over 18 months ago

    See Assumption C


    1. Hi Senexx,

      Thanks for the comment.

      Regarding your comment: you may be right, of course, but people can learn and change their mind.

      If Krugman is capable of changing his mind, is there anything wrong with that?

    2. Not at all
      - if that is the case

  2. I do think the winds are changing, wwith neoclassicals having to recognize the logic of MMT/Keen/Post Keynesianism, as I mention here