Nobody Understands Debt

I found Paul Krugman’s article “Nobody Understands Debt” (with the implied “except me and my Keynesian friends”) utterly annoying because it and its companion articles repeat the lack of understanding of the banking system that seems to be common to Keynesians. There’s not even the excuse that it was different in Keynes’ day, by the way.

So anyway I was going to write a caustic piece, only to find that Steve Keen had beaten me to the punch. Go Steve, I say.

Paul Krugman has published a trio of blog posts on the issue of debt in the last week: “Debt Is Money We Owe To Ourselves” (February 6th at 7.30am), “Debt: A Thought Experiment” (same day at 5.30pm), and finally “Nobody Understands Debt” (February 9th in an Op Ed).

There is one truly remarkable thing about all three articles: not one of them contains the word “Bank”.

Now you may think it’s ridiculous that an economist could discuss the macroeconomics of debt, not once but three times, and never even consider the role of banks. But Krugman would tell you why you don’t need to consider banks when talking about debt, and call you a “Banking Mystic” if you persisted.

Well Krugman would be wrong, and you would be right.

Having said all the above, it is terrifying that the people charged with regulating the financial system don’t have the slightest clue about the accounting fundamentals of its operation.

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