Paul Krugman tries to criticise MMT.

Normally I agree with Krugman, but his article entitled “MMT, Again” in the New York Times isn't up to much. Incidentally that article was published some time ago, in 2011, so why bother with it now? Well one reason is that the article was cited as some sort of authority in a Zero Hedge article published very recently (entitled “The Disturbing Rise Of Modern Monetary Theory (MMT)”).

Anyway, Krugman’s argument is a joke. He claims that if government plans to have public spending make up a particular percentage of GDP (Krugman choses 27% as an example), but taxes only  amount to 17%, then according to MMTers (so Krugman claims) government and central bank can simply print and spend money to make up the difference, rather than borrow.

Well that is what’s known as a “straw man argument”: i.e. attributing an absurd idea to someone else, demolishing it, and then claiming you’re smarter than the someone else.

The reality is that MMTers have actually cottoned onto the very obvious fact that simply funding public spending via money printing can lead to excess inflation (gasps of amazement). Thus, MMT (just like Keynes) advocates enough stimulus (in the form of “print and spend”) to reduce unemployment as far as possible without inflation rising above the 2% target. 


Conclusion.

If the best criticism that a leading economist and economics Nobel  laureate can put against MMT is a straw man argument, then speaking as an MMT supporter, I am much encouraged….:-)

However, to repeat, I normally agree with Krugman. Ironically he once said that while there are a selection of economists for whom he has plenty of respect, in the case of each of them he said he occasionally sees each of them going right off the rails. The above straw man point was an unusual instance of Krugman going off the rails.