Krugman debates Galbraith on Deficit Limits

Both Krugman and Galbraith agree that there is no deficit problem right now.

The difference is, Galbraith essentially says the deficit is virtually incapable of being a serious problem in comparison with other serious problems we face (like unemployment, Global Warming).  A sovereign state which runs it's own currency cannot go bankrupt or become insolvent, and he explains the reasons why.  There is risk of inflation, but Galbraith sees regular inflation as normal and not an important problem.  The only serious problem like that would be hyperinflation, and Galbraith (and other economists, btw) say that risk is very low, it requires very special circumstances which are not applicable to America in the foreseeable future.

Krugman takes a more standard Keynesian counter-cyclical view that when the economy heats up again, the government should back off to minimize inflation.  But neither he (nor other economists I read) sees this as a problem.  Even if somehow Congress can't shut the money off, the Fed has (and will use!) tools to prevent or stop inflation once the economy heats up again.

In this earlier blog entry, Krugman gives a more wonkish rebuttal to Galbraith. (Note that previous link was essentially Galbraith's response to this one.)

Funny that self-proclaimed Saltwater economist Krugman stoops to using rather crude Freshwater "quantity theory of money" formula to prove his point.

But perhaps I'm even framing the issue wrong.  Here's a defense of Galbraith's MMT/neo-Chartalism which rephrases what Galbraith has said (e.g. to Congress).

Galbraith's main point is that the horror scenarios such as bankruptcy and insolvency are impossible, not that inflation is impossible.  As an aside, most economists I read say that hyperinflation, another horror scenario, is extremely unlikely (and doesn't happen very often) for the USA in the foreseeable future.

What Wikipedia says about Galbraith.