That for me is always the important question. I mean, MMTers usually converge on Krugman when certain topics like the Minksy and the banks question recently and I find it interesting. I have a healthy regard for the MMTers-I've already learned a lot from them, and Krugman as well I should add. While I don't agree with them on a lot of stuff I have, in fairness learned a lot from reading Sumner and the MMers. I'm always particularly careful with Sumner and his penchant for concern trolling and other very skillful ruses.
Morgan Warstler-and over the top Tea Party guy at Sumner's Money Illusion is always claiming that Sumner is a Trojan Horse for the liberals and maybe he's right. On the other hand you got to keep your friends close and your enemies closer.
I remember some good food fights between Sumner and the MMTers as well. As far as Krugman, it does sometimes seem they're a little rough on him. I mean he is definitely the best economist at least in the mainstream-even among fellow NKer Delong I think he might be on the level of principle-technically Delong is very strong-a little preferable. Krugman has gone as far as claiming that IS-LM could be superior to DSGE and that the latter is best used as a "check your work device."
He has done more than anything to question the complacency of current mainstream macro-to very bitter recrimination by many neoclassicals. Particulary symptomatic of this kind is Stephen Williams and his nonstop pointless carping on Krugman.
To get an idea of it please see here
So Krugman has come to be Public Enemy Number One for the establishment-AKA, Krugman's Very Serious People. You know the very serious people are very concerned about our children living in a debt-filled world. We however can drop dead. Somehow we can whip inflation and the budget deficit today and live to even see our children.
For more on the Krugman Insurgency see
Nevertheless, because Krugman has moved further from the establishment than other mainstream economists does not in itself mean he's right or that he is not still too much in the establishment in important ways.
I have myself often wondered if the New Keynesians don't accept way too much of the old Monetarist bath water. Now, Greg, just answered my recent post where I tried to question what this debate between Krugman and the MMters is really all about. I argued this way:
" I did talk to an interesting commentator at Fullwiler's blog, Dan Herwick Yet when I questioned him he said this:
"I probably sometimes express my position in an extreme way because I am focusing on the role of the Fed in the recent recessionary times. In a more normal economy with higher interest rates, I believe the Fed can help stimulate lending by lowering rates, and help cool down lending in an overheated economy by raising rates."
"Now, of course, Dan was not the one driving the argument-Stephen Keen and then Fullwiler were. But based on Dan's view how much do those going after Krugman right now really disagree with him? And if there is something, how much does it really matter to our understanding of the monetary system? What will it help us to understand/do that we can't right now?"
Greg gave me a good answer to my question:
"I've been following this debate with interest as well. Guys like Krugman (who I think is basically one of the good guys) need to learn what the hell a bank does and doesn't do. Here is my answer to your last questions."
"I think Krugman generally arrives at the right answers, even if for incorrect reasons, but by staying with the flawed neo liberal models you are just "giving cover to the enemy" so to speak. Loanable funds and money multiplier models are not just incorrect, they continue to perpetuate ideas that lead to slow destructions of our public works. When one can model your govt like a household and ask "How long can you continue to spend more than you take in" without someone laughing and pointing at you...... something is bad wrong. Krugman still believes our (public)debts can be a problem, just further down the road. Yet he sees NO problem from private debts. Frankly, this is insane. Private debts dont simply net to zero and thus are not affecting AD. A bank is not a simple intermediary between saver and borrower. Getting that wrong is like forgetting that govts can issue currency. Banks are better perceived as outside the private sector like the govt is. They create credit money from thin air whenever they want. Difference between bank money and govt money is govt money you pay a tax on bank money you pay interest on. The tax can be removed and you get to keep the money. Even if the interest is removed you still have to pay back the credit money."
Let's hope he's right about that! As far as Krugman basically getting it right but often for the wrong reasons, that's a question of theory. Greg is right, theory is important. Krugman's argument was basically that banking did not matter for the model he was using with Eggertsson. The MMTers think that's absurd. They may be right. Honestly I'm not sure I fully appreciate what's at stake over this banking issue just yet.
I mean there is no question that economic models are always very cursory. You never put all the elements in the real complex economy as this would not be possible and many details don't matter of a basic model and would only serve as "noise"-that is to say confuse matters. So all economists use models where not everything in the economy is laid out. However, different schools of economists always find the models of other schools as leaving out something they believe is essential. This is what MMTers say about Krugman.
When Greg says that we should think of banks as essentially part of the non-private sector that is very provocative. I'd like to understand what he meant by that more.
For me what I want to understand more than anything is the true division between the monetary and fiscal spheres. Fullwiler says that helicopter drops are fiscal rather than monetary operations. What I want is more clarity about this topic for the MMers try to tell us that fiscal stimulus is always wrong, Lars Christensen went so far as to claim that there is no such thing as fiscal stimulus.