Paul Krugman Asked Me About Modern Monetary Theory. Here Are 4 Answers.

There is a doctrine among mainstream economists holding that: (1) government deficits push interest rates higher and (2) rising interest rates crowd out private investment. The government can take more of the economy’s financial resources, but only at the expense of lost private investment. This means that running budget deficits has at least some downside.

Paul Krugman is a believer in this doctrine. I’m not, and he’s asked me to explain why. He is responding to a column I wrote critiquing his view of modern monetary theory.