Krugman claimed in 2011 that if government ran a deficit of 6% of GDP when the economy was at capacity, then government might “lose access to the bond market”. Well the economy is either at, or pretty much at capacity right now, and there’s a 5% deficit. Any sign of losing access to the bond market? Nope.
I got that info thanks to Stephanie Kelton:
Interesting to look back on this column from 2011. CBO currently projects deficits will rise to more than 5%. Pretty close to the scenario outlined below. How many on the left would worry about the U.S. "losing access to bond markets"? pic.twitter.com/x799zzOnTt— Stephanie Kelton (@StephanieKelton) 17 September 2018
Moreover, MMTers do not advocate big deficits when the economy is at capacity. The latter policy is clearly daft. Thus if bond markets take a dim view of a government, like Trump’s, which is behaving in a daft manner, and charge that government extra interest, that says nothing about MMT.
And finally there is no such thing (as implied just above) as “losing access to the bond markets”. If a government behaves irresponsibly, lenders will charge more for lending to such a government. But as long as the interest rate is sufficiently attractive, they will nevertheless lend. Robert Mugabe, Argentina, Greece etc can always borrow – at a price.
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