Paul Krugman, just read this post
Hope all is well. You say you don’t “get” MMT :
Does the same thing hold true for the federal government? Well, the feds have the Fed, which can print money. But there are constraints on that, too — they’re not as sharp as the constraints on governments that can’t print money, but too much reliance on the printing press leads to unacceptable inflation. (Cue the MMT people — but after repeated discussions, I still don’t get how they sidestep the issue of limits on seignorage.)
We don’t sidestep the limits of seignorage. We just recognize the limits of seignorage are the only limits. We recognize the limits of seignorage are self-imposed. There is no bogey-man of insolvency in the closet, waiting to throw extra inflation upon us.
The “unacceptable inflation” of your concern results from the assumption of a possibility of insolvency. Take away the assumption of insolvency, and what remains is inflation. We can observe inflation.
We can debate the proper level of inflation. That level could be 20% or 2% or 200% or 0% or -5%. Personally, I would be very much against a 20% or 200% inflation rate. But 20% inflation will not cause us to go broke, because we cannot go broke! It would just be 20% inflation.
We have a self-imposed inflation constraint. And Inflation is observable.
Here is a crucial distinction for MMT:
…This is just a way of saying that a debt that is affordable at 4% interest may not be affordable at 20% interest, because of the solvency constraint. So using the tool of the printing press is a defacto admission of insolvency, therefore bypassing the bond market must trigger currency debasement. But these two ideas – the interest on the government debt and the debasement of a currency – cannot be linked through solvency, because governments issuing debt in their own currency cannot become insolvent. Therefore, losing access to the bond markets isn’t the cause currency debasement, because the link of insolvency is impossible.
It does’t matter what the interest rate is on government debt, the government cannot become insolvent. It could be 1000000%. There is no point where the yields on bonds cause a run that results in the government not being able to issue more money.
Now, by this point, you must be thinking – why in the hell is he concerned with this difference? Any interest rate of 100000% would be debasing the currency like Zimbabwe on steriods! Why is the Traders Crucible going nuts over how many Angels are dancing[sic “on the head of a pin, and”] about the difference between insolvency and debasement?
Well, we can directly observe the debasement of a currency in an economy through the inflation rate. We can directly observe the process of debasement and loss of value of the currency through inflation.
[Update: Tom Hickey responds too.]
[Update: Mr. Krugman, if you read this, I have a question. What percentage of the text of the culture novels are about the responsibilities of gods? :) ]