That’s in this article in the Telegraph entitled “Drink deep from the fountain of debt at your peril, my American friends.”
His article is actually aimed against the new and relatively relaxed attitude to rising government debt, an attitude which of course MMT supports under specific circumstances. Thus while MMT gets several mentions in the article, the article is not aimed SPECIFICALLY at MMT. Anyway….
First he seems to suggest MMT favours printing near limitless amounts of money and spending it on various goodies. That’s where he says "Everything can be paid for on the never-never: a Green New Deal, "Medicare for All", free university, and higher pensions backed by helicopter money fom the US Fedral Reserve when needed.”
Well the reality is that MMTers have said over and over that inflation places a constraint on the amount of money printing. Indeed, and ironically, Evans-Pritchard himself actually refers to the fact that MMTers are aware of the inflation constraint!
That is, later in the article he says, "They accept that there can be an inflation constraint on deficit spending, but neglect the risk that foreign funding can dry up in a world of open capital flows. Nobel economist Paul Krugman - usually a deficit dove - says the MMT brigade fail to grapple with the problem of "snowballing debt", when interest rates rise above the trend growth rate of the economy. "As debt gets every higher people will demand ever increasing returns on holding it." he wrote.”
As for Krugman’s latter criticism of MMT, that’s no better than Evans-Pritchard’s. To illustrate, if interest on the debt is 1% and growth is zero, what of it? The fact that interest on the debt is larger than growth does not bring about a “snowball” effect. All that happens is that year after year, taxpayers have to pay for interest on the debt. Big deal. That situation is perfectly “sustainable” to use the fashionable phraseology.
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P.S.
I forgot to include a response to Krugman’s above claim about “As debt gets ever higher people will demand ever increasing returns on holding it” when I put the above article online earlier today.
Anyway, the answer to the latter “high return” point is that there is an all important distinction between where increased debt is used for legitimate reasons (e.g. to bring the economy up to capacity) and in contrast, where the economy is already at capacity, but politicians are incurring more debt simply to ingratiate themselves with voters.
Politicians are always tempted to fund public spending via debt rather than taxes because voters tend to be more aware of tax increases than any rise in interest rates that might be caused by more public borrowing. David Hume, writing 300 years ago was aware of that temptation: see 5th para of his essay “Of Public Credit”. Nowadays economists sometimes refer to that temptation as the “deficit bias”.
To illustrate the legitimate use of debt, let’s assume interest on the debt is 1%. If there is excess unemployment in that scenario, that simply means the private sector is doing too much saving (i.e. stocking up on 1% government bonds) rather than spending (which would create jobs).
The solution, as Keynes explained, is for the state to spend more (net of tax), and that can be funded by issuing more “1% debt” or simply by printing money (which equals 0% debt). There is no reason why those who clearly want more “1% debt” should demand 2%. As already indicated, debt holders are hoarding 1% debt: i.e. if offered more of the stuff, they’ll grab more of it. So in that scenario, Krugman’s point doesn’t work.
In contrast, if the economy is already at capacity, and government borrows and spends more, one effect will be excess inflation (because the economy is at capacity). In that scenario, government or central bank will have to implement some sort of deflationary measure to counter the excess inflation, like raising interest on the debt. Among other effects, raised interest on the debt will tend to dissuade debt holders from trying to spend away what they regard as an excess stock of debt.
I forgot to include a response to Krugman’s above claim about “As debt gets ever higher people will demand ever increasing returns on holding it” when I put the above article online earlier today.
Anyway, the answer to the latter “high return” point is that there is an all important distinction between where increased debt is used for legitimate reasons (e.g. to bring the economy up to capacity) and in contrast, where the economy is already at capacity, but politicians are incurring more debt simply to ingratiate themselves with voters.
Politicians are always tempted to fund public spending via debt rather than taxes because voters tend to be more aware of tax increases than any rise in interest rates that might be caused by more public borrowing. David Hume, writing 300 years ago was aware of that temptation: see 5th para of his essay “Of Public Credit”. Nowadays economists sometimes refer to that temptation as the “deficit bias”.
To illustrate the legitimate use of debt, let’s assume interest on the debt is 1%. If there is excess unemployment in that scenario, that simply means the private sector is doing too much saving (i.e. stocking up on 1% government bonds) rather than spending (which would create jobs).
The solution, as Keynes explained, is for the state to spend more (net of tax), and that can be funded by issuing more “1% debt” or simply by printing money (which equals 0% debt). There is no reason why those who clearly want more “1% debt” should demand 2%. As already indicated, debt holders are hoarding 1% debt: i.e. if offered more of the stuff, they’ll grab more of it. So in that scenario, Krugman’s point doesn’t work.
In contrast, if the economy is already at capacity, and government borrows and spends more, one effect will be excess inflation (because the economy is at capacity). In that scenario, government or central bank will have to implement some sort of deflationary measure to counter the excess inflation, like raising interest on the debt. Among other effects, raised interest on the debt will tend to dissuade debt holders from trying to spend away what they regard as an excess stock of debt.
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