Category Archives: Scott Fullwiler

Krugman, Helicopters, and Consolidation

By Scott Fullwiler and Stephanie Kelton

Paul Krugman has a new post that explains why the debate over money- vs. bond-financing of government deficits is really much ado about nothing.  In it, he essentially echoes longstanding MMT-core principles, as we will show below.  Indeed, MMT blogs have written as much many times previously (for example, see here, here, here, and here).

Krugman’s post looks at two alternative scenarios:

Case 1: The government runs a deficit, selling bonds to offset the shortfall, while the Federal Reserve does QE

Case 2: The government runs a deficit but does not sell bonds, instead financing all of its spending by “printing money” (i.e. with newly created base money)

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Modern Money and Public Purpose Seminar 6

The latest in the MMPP Seminars at Columbia feature NEP’s Scott Fullwiler. The topic of this seminar is Interactions Between Monetary and Fiscal Policy. You can watch below or visit MMPP’s site.

THE PERMANENT FLOOR 2004

By Scott Fullwiler

The discussion over the permanent floor has led to a (in my view) fantastic post from Steve Randy Waldman.  His key conclusions regarding how interest on reserve balances works are the following: Continue reading

Understanding the Permanent Floor—An Important Inconsistency in Neoclassical Monetary Economics

By Scott Fullwiler

I’ve written numerous times already about how a deficit “financed” by bonds vs. “money” doesn’t matter in terms of inflationary effect.  Notwithstanding my views there (which are not discussed in this post), the point of this post will be to explore the neoclassical paradigm on this matter, since this is at the core of the recent debate between Steve Randy Waldman (see here, here, and here) and Paul Krugman (see here and here) on the so-called “permanent floor.”  (It might be of interest to some that I explained how a “permanent floor” would work back in 2004.)

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Functional Finance and the Debt Ratio—Part V

By Scott Fullwiler

[Part 1] [Part 2] [Part 3] [Part 4] [...]

This five part series will explore at length (warning!) and in detail (another warning—wonk alert!) the MMT perspective on the debt ratio and fiscal sustainability.  While the approach suggests a macroeconomic policy mix and strategies for both fiscal and monetary policies that most neoclassical economists currently believe are unsustainable, ultimately the MMT preference for a significant role for fiscal policy in macroeconomic stabilization is shown to be consistent with traditional neoclassical views on fiscal sustainability.

This fifth and final (!) part applies functional finance to CBO’s projections of the government’s long-term budget outlook and then offers concluding remarks for the entire series. Continue reading

Functional Finance and the Debt Ratio—Part IV

By Scott Fullwiler

[Part 1] [Part 2] [Part 3] [...] [Part 5]

This five part series will explore at length (warning!) and in detail (another warning—wonk alert!) the MMT perspective on the debt ratio and fiscal sustainability.  While the approach suggests a macroeconomic policy mix and strategies for both fiscal and monetary policies that most neoclassical economists currently believe are unsustainable, ultimately the MMT preference for a significant role for fiscal policy in macroeconomic stabilization is shown to be consistent with traditional neoclassical views on fiscal sustainability.

This fourth part integrates the content of the first three parts with the functional finance strategy for fiscal policy.  Warning again—this part is the longest and most detailed of the four. Continue reading

Functional Finance and the Debt Ratio—Part III

By Scott Fullwiler

[Part 1] [Part 2] [...] [Part 4] [Part 5]

This five part series will explore at length (warning!) and in detail (another warning—wonk alert!) the MMT perspective on the debt ratio and fiscal sustainability.  While the approach suggests a macroeconomic policy mix and strategies for both fiscal and monetary policies that most neoclassical economists currently believe are unsustainable, ultimately the MMT preference for a significant role for fiscal policy in macroeconomic stabilization is shown to be consistent with traditional neoclassical views on fiscal sustainability.

This third part discusses the historical behavior of US interest rates on the national debt in the context of fiscal sustainability. 

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Functional Finance and the Debt Ratio—Part II

By Scott Fullwiler

[Part 1] [...] [Part 3] [Part 4] [Part 5]

This five part series will explore at length (warning!) and in detail (another warning—wonk alert!) the MMT perspective on the debt ratio and fiscal sustainability.  While the approach suggests a macroeconomic policy mix and strategies for both fiscal and monetary policies that most neoclassical economists currently believe are unsustainable, ultimately the MMT preference for a significant role for fiscal policy in macroeconomic stabilization is shown to be consistent with traditional neoclassical views on fiscal sustainability.

This second part discusses interest rates on the national debt in the context of a currency issuer operating under flexible exchange rates. Continue reading

Functional Finance and the Debt Ratio—Part I

By Scott Fullwiler

[...] [Part 2] [Part 3] [Part 4] [Part 5]

This five part series will explore at length (warning!) and in detail (another warning—wonk alert!) the MMT perspective on the debt ratio and fiscal sustainability.  While the approach suggests a macroeconomic policy mix and strategies for both fiscal and monetary policies that most neoclassical economists currently believe are unsustainable, ultimately the MMT preference for a significant role for fiscal policy in macroeconomic stabilization is shown to be consistent with traditional neoclassical views on fiscal sustainability.

This first part defines the correct measure of the national debt and then looks at the mathematics of debt service and the debt ratio. Continue reading

Krugman’s Flashing Neon Sign

By Scott Fullwiler

Update: Paul Krugman has posted a reply to this post that is a straw man.  He and Nick Rowe are viewing this all through the lens of the old Monetarist/Keynesian debates in which there was a choice b/n interest rate targets and monetary aggregate targets; the Monetarist critique assumed the Keynesians were going to keep interest rates at the same level forever and not change them.  Once John Taylor came up with his “rule,” everyone agreed an interest rate target could work. 

What we are talking about here is operational tactics–the CB can only target an interest rate.  It cannot target a reserve balances or the monetary base directly.  But that is different from strategy–that is, WHERE the CB puts its target and WHEN it chooses to change the target.  There is NOTHING in anything I’ve ever said or anything any PK’er, MMT’er, etc., has ever said that suggests the CB can’t set the target wherever it wants whenever it wants.  The point is that whatever the target is, THAT is what its daily operations defend directly, not a monetary aggregate, not the monetary base, not reserve balances.  There is nothing in anything I’ve said that would preclude the CB from running a Taylor’s Rule type strategy, for instance, that responds at any point in time endogenously to the state of the economy.  That is, the target rate is an exogenous control variable (i.e., it is necessarily set by the CB) that it sets endogenously in response to economic events.

The debate between Paul Krugman and my friend Steve Keen regarding how banks work (see here, here, here, and here) has caused me to revisit an old quote.  Back in the 1990s I would use Krugman’s book, Peddling Prosperity (1995), in my intermediate macroeconomics courses since it provides a good overview of what were then contemporary debates in macroeconomic theory as well as Krugman’s criticisms of various popular views on macroeconomic policy issues from that era.  One passage near the very end of the book has always remained in the back of my mind; in it, Krugman critiques a popular view that was and still is highly influential regarding productivity and trade policy.  He writes: “So, if you hear someone say something along the lines of ‘America needs higher productivity so that it can compete in today’s global economy,’ never mind who he is or how plausible he sounds.  He might as well be wearing a flashing neon sign that reads:  ‘I DON’T KNOW WHAT I’M TALKING ABOUT.’” (p. 280; emphasis in original)

In his latest post in this debate (which Keen replied to here), Krugman demonstrates that he has a very good grasp of banking as it is presented in a traditional money and banking textbook.  Unfortunately for him, though, there’s virtually nothing in that description of banking that is actually correct.  Instead of a persuasive defense of his own views on banking, his post is in essence his own flashing neon sign where he provides undisputable evidence that “I don’t know what I’m talking about.”

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