–Tricky Paul Krugman, still no cigar.

Mitchell’s laws:
●The more federal budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor,
which leads to civil disorder.
●Cutting the deficit is the government’s method for taking dollars from the middle class and giving them to the rich.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

●The penalty for ignorance is slavery.

Those of us who sometimes believe Paul Krugman finally, almost, maybe, possibly is starting to understand Monetary Sovereignty (based on occasional comments seeming to indicate a flicker of light behind that beard), are due to be disappointed yet again.

In his article in the December 18, 2012 New York Times, titled A Double Shot of Misunderstanding, he returns to abject cluelessness.

He begins correctly by saying:

One of the enduring fantasies of the pundit class – most dramatically demonstrated by the ludicrous Politico piece on What Insiders Know – is that all we need to fix our economic problems is to get the great and the good together and bypass those pesky elected officials. Business leaders, in particular, are presumed to have the know-how to deal with all the important issues.

But the reality is that the business leaders intervening in our economic debate are, for the most part, either predatory or hopelessly confused (or, I guess, both).

I’d put Fix the Debt in the predatory category; it’s quite clear that the organization (which is yet another Pete Peterson front, this time explicitly dominated by corporate interests) has an agenda more focused on cutting social insurance and corporate taxes than on reducing the deficit per se.

That’s the kind of truth that falsely lifts the hopes of MMT and Monetary Sovereignty adherents. And the article continues on a positive note:

OK, first of all, the fiscal cliff is NOT A DEBT PROBLEM. In fact, it’s the opposite: . . .

Pretty good, right? He’s got it. He’s got it. Oh, wait, here’s the last part of that sentence.

. . . the danger is that with expiring tax cuts, expiring unemployment benefits, and the sequester, we’ll reduce the deficit too fast.

TOO FAST??? He’s saying that he approves of reducing the deficit, but just wants to do it slower!


As a reminder to all, Gross Domestic Product = Federal Spending + Non-federal Spending – Net Imports.

Krugman, you know this fundamental formula as well as I do. So, think. What does reducing the deficit do, Paul? Fast or slow, it reduces Federal Spending and it reduces Non-federal Spending. Deficit reduction reduces the factors that make up GDP. In short, ANY deficit reduction not only is unnecessary (what’s the purpose?) but it is downright harmful.

Whether we move quickly or slowly, applying leeches will kill an anemic patient.

Every depression and nearly every recession has come on the heels of deficit reduction, and all depressions and recessions have been cured with deficit increases. See: Introduction.

Aside from a rare inflation that the Fed cannot control in its usual way (interest rate increases), there never, ever is a good time for federal deficit reduction. NEVER.

So why does Krugman dance around the truth, like a temptress shedding veils? Either he’s ignorant, which I doubt, or he dares not come right out and completely demolish what his, and every other major newspaper owner says. He simply does not have sufficient testosterone to admit that deficit reduction — even a little deficit reduction — is downright nuts.

I mean, after all, Paul Krugman is paid by the upper .1% income group, isn’t he? And no one ever got fired for laughing at the boss’s jokes.

Rodger Malcolm Mitchell
Monetary Sovereignty


Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99%

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports


13 thoughts on “–Tricky Paul Krugman, still no cigar.

  1. Rodger, let’s face it, Krugman actually does both understand and agree to the MMT facts and philosophy, but, he’s also very arrogant and finding it hard to divorce himself from the very kinds of views that his mainstream Keynsian views earned him a Nobel Prize. He can’t bring himself to being honest and abrogating his more traditional economic approach, lest he seem to have spent much of his life preaching a false doctrine. But, let’s face it, he is moving. Someone just needs to involve him in a public debate to overcome this last resistance to truth in real economics as espoused by folks like you and Kelton, et al. There is something in me that believes that he lives in fear of being “back-seated,” like most MMTers, for moving away from the mainstream. He is, essentially, gutless, but would never admit that.


    1. bayardwaterbury,

      I don’t see Krugman as gutless. I see him as a weasel who talks out of both sides of his mouth.

      In my opinion the NY Times tends to have the best-written articles among U.S. newspapers, even when the articles are full of lies. Number Two might be the LA Times.

      Formerly great U.S. newspapers like the Philadelphia Inquirer or the Chicago Tribune are now worthless.

      My point is that Krugman in his NY Times column is writing for a slightly (very slightly) more sophisticated audience whose members sometimes question the need for austerity. And yet, Krugman must also please his Wall Street masters, plus the newspaper owners, plus his fellow faculty at Princeton.

      To please his audience and his masters alike, Krugman must denounce austerity, but not really denounce it. He must hint at the facts of Monetary Sovereignty, but not actually agree with them, since it would erode the power of his masters.

      His is a game of “almost but not quite.” Or, “sort of, but not really.”

      I suppose he thinks his nonsense makes him look clever. After all, he was given a Nobel prize (which makes it official nonsense).


      1. I’m not sure I detect any real disagreement with what I said. Perhaps I am not perfectly right in my Krugman analysis, but I find it hard to spend a lot of time on him, generally (there are so many more economists far more worthy of my time). So, our disagreements, if any, are relatively subtle, and, probably based upon some minor ignorance on my part. By the way, I don’t have a lot of respect for the Times, a formerly great paper.



    Charles M. Schulz (1922-2000) created the “Peanuts” comic strip featuring characters like Charlie Brown.

    One character named Lucy was notorious for repeatedly holding a football on the ground and inviting other characters to kick it, field goal style. At the last instant, Lucy always snatched away the ball, causing characters to fall painfully on their backsides. No matter how many hundreds of times Lucy did this, the other characters always fell for it. Naturally Lucy had to become more and more verbally creative to overcome others’ distrust of her, but eventually the others always fell for her scam. Always.

    Paul Krugman is Lucy. MMT people are the “Peanuts” characters. No matter how many times Krugman pulls his crap, the MMT types hang on his every word.

    An example is Krugman’s book “End This Depression Now” (April 2012) in which Krugman begins by noting that we need to focus not on the deficit, but on creating jobs. (Kick the ball! Come on!) He says austerity will make things worse, not better. (Kick the ball!) In a recession with a liquidity trap, where the Fed can’t lower its rates any further, the government MUST continue spending money. The alternative, austerity, is destroying Europe. (Don’t worry! I won’t remove the ball!) When the government cuts spending, it cuts jobs. (Kick the ball! You know you want to!) We need more government spending and a higher inflation target. (Trust me! Kick it!) We must do what works, and stop doing what doesn’t. (Go for it! Yeah! YEAH!)

    And so, despite Krugman’s track record, you once again take a chance on believing him, and you run at the ball, thinking this time he will finally admit the facts regarding Monetary Sovereignty.

    But as always he snatches away the ball. Once more you were an idiot for trusting him. Krugman says we need more deficit spending for the moment, but when unemployment eases, we must reduce the budget deficit to “sustainable” levels.

    Of course he never defines what he means by “sustainable” or “unsustainable,” since any definition would leave him wide open to debunking.

    Krugman also throws out gibberish such as the meaningless debt / GDP ratio.

    Later in the book he again becomes Lucy, this time regarding Europe. He says the euro-zone’s problems are caused by the euro currency. (Kick the ball! Trust me!) He says, “The EU claimed that the euro would prevent asymmetric shocks, but what actually happened was the mother of all asymmetric shocks. And it was the creation of the euro itself that caused it.”

    Sounds good, huh? So you run at the ball, thinking that Krugman will finally admit the facts of Monetary Sovereignty. But as always, he snatches the ball away at the last instant.

    Krugman says (get this!) the euro ended the premiums that investors had demanded to compensate for the risks of devaluation and default. Therefore Spanish, Italian and Greek debts were seen as almost as safe as German debt. This cut southern Europe’s borrowing costs, causing huge housing booms which became huge housing bubbles. Local banks did not have enough funds to back all this lending, so they borrowed from other German, French and British banks, spreading the debts and the risks. The result was the crash we see today.

    Huh? If you find that confusing, it’s because you once again fell on your backside. Krugman snatched the ball away. It’s what he does. It’s what he’s paid for.

    If you ask, “Why is slow deficit reduction okay, but rapid deficit reduction not okay?” he will ignore you.

    As Rodger says, “Whether we move quickly or slowly, applying leeches will kill an anemic patient.”

    Yes. Any comment on that, Krugman?

    (No sound but crickets and bullfrogs.)

    And still the MMT-types fall for it.


  3. Rodger,

    Paul Krugman is held in fairly high esteem except by the extreme right. Could a debate/conference be held where MMT and MS proponents have dialog with Mr. Krugman (and perhaps a debt hawk along too) – preferably on TV and the internet? It seems that something of that ilk will be the only way to get away from the debt/cliff hysteria and the panic that “our children will pay for our profligacy” Just wait until the Federal govt. stops maintaining and paying for its myriad of obligations; our kids will have a great future and lots to pay for too.


    1. Fritz Basset asks, “Could a debate/conference be held where MMT and MS proponents have dialog with Mr. Krugman (and perhaps a debt hawk along too) – preferably on TV and the internet?”

      Krugman would happily attend a debate with a deficit hawk (since the hawks are easy to make fools of) or with an MMT person (since they worship Krugman), but he would NEVER attend a debate with someone like Rodger, whose simple questions would undermine Krugman’s whole game.

      Example: “Why is it okay to slowly apply leeches to an anemic patient, but not okay to do it all at once?” Or, “Since debt is not a problem, and the USA is Monetarily Sovereign, why do you object to deficits in the first place? Why do you think that deficits are not necessary?”

      Krugman is smart enough not to debate anyone without first his opponent first. Rodger’s commentary can be found in various places on the Internet, not just this blog.

      Therefore Krugman would turn Rodger down. Absolutely.

      Krugman cannot afford to have his foolishness exposed.


  4. Walking both sides of the fence allows a person to claim, “That’s what I always have said,” no matter what happens.

    Reminds me of the brokers who make hundreds of predictions about the market, then boast about the ones that proved right.

    There’s an old scam like that: Mail 1000 letters to random people; 500 letters say team “A” will win; 500 say team “B” will win.

    After the game, send letters to the people who received the correct prediction, 250 say Team “C” will win; 250 say Team “D” will win. Continuing the process, works down to about 30 people receiving five consecutive correct calls.

    You write those 30, telling them to send you money, and you will send them another correct call. The people feel they are dealing with a genius, so send their money.

    I wonder whether Krugman has thought of that.


  5. Budget deficits go up and down as a response to economic activity. A sufficient deficit will stimulate demand enough to lower the deficit through reduction in the automatic stabilizers and an increase in tax liabilities.
    May we assume Krugman was thinking along those lines? He has advocated a larger deficit all along. Since he has been coming along so nicely, I’m willing to give him that benefit.


    1. Robert Kelly writes, “Budget deficits go up and down as a response to economic activity.”

      I disagree. With the U.S. government, budget deficits go up or down more as a result of political activity than economic activity, since the President and Congress decide how much to spend into the economy, and how much to tax out of it. If they wish, they can create a large and healthy deficit. Or they can go the other way and shrink the deficit to zero, as did Clinton and a compliant Congress. (Clinton’s balanced budget would have caused a depression had it not been for the dot-com bubble, followed by the housing bubble, plus Bush’s wars. Today we have the depression after all.)

      Looked at another way, during a severe recession, if the President and Congress do not increase federal spending, then there will be little economic activity, and thus little federal tax revenue. The point is that these are political decisions.

      Robert Kelly writes, “A sufficient deficit will stimulate demand enough to lower the deficit through reduction in the automatic stabilizers and an increase in tax liabilities. May we assume Krugman was thinking along those lines? He has advocated a larger deficit all along. Since he has been coming along so nicely, I’m willing to give him that benefit.”

      On the contrary, Krugman has not advocated a large deficit all along. Instead, Krugman advocates a temporary increase in the deficit until unemployment eases, after which Krugman wants deficit reduction. RMM’s question is what difference will it make if we apply leeches to an anemic patient rapidly or slowly? Either way we kill the patient. As RMM has explained (with data from the Fed) every depression and nearly every recession has come on the heels of deficit reduction.

      Krugman wants eventual deficit reduction because, according to him, deficits are ultimately “unsustainable.” How does he define “unsustainable”? He doesn’t. If he tried define it, he would be forced to speculate about inflation and / or the national debt, two areas where he could not defend himself.

      The bottom line is that the U.S. government’s deficit is the public’s surplus, and the U.S. government’s surplus is the public’s deficit. Krugman refuses to admit this is true. He is a con man; a shill for the 1%. He pretends to be a populist, but by insisting that the deficit must eventually be eliminated, he sustains the core myth that the 1% and their population depend on, namely that the U.S. government is like a household, and has a “debt crisis.” Therefore we must have less spending on social programs, and more dependence on Wall Street and the 1%.

      As RMM has noted, Krugman is paid by the 1%, and is simply serving his masters. If Krugman were to become truly honest, then he would lose his position at Princeton, and his column at the NY Times.


  6. “Either he’s ignorant, which I doubt, ..”

    C’mon Rodger! … Come on… he doesnt GET IT (fully) yet… yes he is getting there… too slowly but he is getting there…

    Rodger, Give yourself some credit and give some thanks for being able to see all of this correctly… Krugman is not there yet… maybe he will get there, maybe not …

    Not everybody can see these truths… I know YOU think this is easy… but it is manifestly NOT easy or everybody would already know it…

    Hang in there!!!!! AND keep up the pressure…. rsp, matt


    1. Okay Matt, you disagree with Rodger and me. You say that Krugman does not work for the 1%, and does not intentionally distort the truth.

      Instead, you say Krugman “doesn’t get it.”

      That’s what MMT people say about the U.S. President, plus 535 members of Congress, plus all the people involved in the Fed and the Treasury, plus all the media pundits, plus all the academicians like Krugman, plus the 1%.

      They are all good and honest folk who simply “misunderstand.” Every one of them. Even the people directly in charge of government spending “misunderstand” government spending.

      For me, this MMT view is worse than silly. It is insulting. For me, any praise of Krugman is part of the same insult.

      But that’s just me.


  7. “He simply does not have sufficient testosterone to admit that deficit reduction — even a little deficit reduction — is downright nuts.”

    I have to take issue with this. The deficit is all fine and dandy, but if we’re running at full capacity with low unemployment the deficit can become a problem. The only constraint is inflation, and that’s the point where you’d have to start watching it.

    Krugman may not have it all right, but is he probably the loudest voice who is advocating almost exactly what we want done. It may not be ideal, but it’s the reality.


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