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View Diary: Why deficits don't matter - the reality of government finance (116 comments)

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  •  Hey Doc, I'd approach the Krugman vs. MMT this (4+ / 0-)
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    arendt, hestal, psyched, jellyyork

    way:  They agree about the really important basics from a non-economist's point of view -- like me.

    Krugman agrees that we're not on the gold standard.

    He agrees that every dollar is both a public liability and a private asset.

    He agrees that the US is  a currency sovereign of a fiat currency with a floating exchange rate.

    What made the MMT vs. Krugman debate even more confusing is that he began arguing with MMT, then argued with Steve Keen, the king of private bank credit creation.

    So you might want to google Steve Keen as well.  In simple terms, he studies the ways in which private banks create money and it's impact on the economy.

    The problem with classical economics (which Krugman fits into) is that it ignores things like money and banking.  Really.  Weird.  But there you have it.

    Steve has given many interviews and video presentations, he's a pretty clear speaker.

    Be warned:  You'll at first think MMT is weird cuz you've been conditioned to think within a gold standard paradigm, and being a psychologist, you know how difficult it is for the brain to accept a paradigm shift.

    However, once those new connections are formed, then MMT makes obviouse sense -- at least in it's fundamentals.

    Like --  The US can never go broke.  Seems odd considering  all the talking heads exploding over our debt crises.  But then.....  just like you could never go broke if you had a dollar making machine in your kitchen, neither can the US.

    •  THANKS! (1+ / 0-)
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    •  Krugman's a deficit dove (3+ / 0-)
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      Zwackus, katiec, psyched

      He believes in long-term deficit reduction. He just doesn't want to start now.

      The MMT deficit owls believe that fiscal policy needs to be measured by its concrete impacts on real things like full employment, price stability, poverty, crime rates, family disintegration, innovation, inequality, community development, and other aspects of public purpose, and this means that long-term plans aimed at reducing the deficit or creating surpluses are fiscally irresponsible because they aren't aimed at anything that matters in itself. They're just improper criteria for evaluating fiscal performance in light of the fact that governments with sovereign fiat currencies have no limits when it comes to money creation.

      •  Yes, that's it exactly (2+ / 0-)
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        katiec, psyched

        Taxation is not a source of funds, it's a tool to manage economic behavior and destroy dangerous accumulations of wealth.

        A budget deficit is not a problem, it's a tool to create macroeconomic demand.

        A budget surplus is not a goal, but a tool to deflate an over-heating economy.

        The national debt is not a problem, it's a tool to regulate the capital markets.

        Inflation is not a problem, it's a tool, though one rarely needed.

        Deflation, however, is pretty much always a problem.

        `Under my command, every mission is a suicide mission.`

        by Zwackus on Sat Nov 10, 2012 at 09:57:06 PM PST

        [ Parent ]

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