Martin Wolf gets it; why not Paul Krugman?
Martin Wolf is the chief economics commentator at the Financial Times and is one of the most influential economics writers in the world. He’s no radical for sure but today’s article entitled “Time to think the unthinkable and start printing again” could have been written by Abba Lerner himself. It completely debunks the accepted wisdom that we need austerity, that we’re tied to the whims of the financial markets, and that government deficits are some dire problem. Here are key excerpts:
Personally, I would favour … “helicopter money”… Central bank money could pass via the government to the public at large. Alternatively, the government could fund itself from the central bank, directly. Better still, the government could increase its deficits, perhaps by slashing taxes, and taking needed funds from the central bank. Under any of these alternatives, the central bank would be behaving like any other bank, creating money in the act of lending.
In current circumstances, a policy of direct financing of government by the central bank should recommend itself to monetarists and Keynesians.
Some will argue that a policy of direct financing by the central bank must be inflationary. This is wrong. No automatic link exists between central bank money and the overall money supply. Above all, the policy would be inflationary only if it led to chronic excess demand. So long as the central bank retains the right to call a halt, that need be no serious danger.
I’m not sure Wolf fully recognizes the implications, but he’s in effect claiming (rightly) that there’s never an excuse for inadequate demand and that society should take matters into its own hands whenever private wealth holders fail to sufficiently spend and invest. Basic Keynes but hugely subversive as it would represent a tremendous transfer of power away from private wealth.
If someone as connected and conservative as Martin Wolf can channel Lerner and the theories of Functional Finance / Modern Monetary Theory, what’s holding back our crop of “center-left”, “Keynesian” economists? Why is it that Paul Krugman, Brad DeLong, Joseph Stiglitz, Jared Bernstein, etc, etc are unable to exit from their neo-classical financial orthodoxy? Contra Wolf, they mock the idea of printing money and remain tightly bound by the traditional golden handcuffs that see money as a fixed commodity that can only safely be had by borrowing, taxing, or digging it out of the ground. To all calls for direct monetary creation their one word answer is always the same – Hyperinflation. Wolf’s last paragraph in the quote above is certainly pointed directly at them.
Krugman actually links to this article today but completely ignores Wolf’s central point while falsely implying that he and Wolf are somehow fellow travelers. The problem for Krugman is that he’s locked into his standard textbook macroeconomics and can’t see the forest for the trees. As he himself tells us in the very same post:
Throughout this crisis, people like … yours truly have been basing our arguments on standard textbook macroeconomics…
Exactly! The failure of the “progressive” economists to exit their standard conservative cage is a common theme on this blog but it’s a really huge roadblock for those seeking to move toward something better. Prominent center-left economists must continuously be criticized for their conservatism.