Not Quite Those Same Recommendations

Kyle Baxter quotes approvingly a letter Ken Rogoff wrote to Joseph Stiglitz in 2002 passionately disputing Stiglitz’ recommendations that developing nations print more money to get out of debt. I can’t say I have a lot of expertise on what developing nations in the early aughts should or should not have been doing about their debt, so I’ll leave that aside. I can’t say I have a lot of expertise on the following either, but I have enough to raise my own dispute. From Kyle:

This [letter] is also worth reading because those same recommendations Stiglitz made for developing nations then are the same ones Krugman et al. are making now for European nations struggling under the heavy weight of their debt.

Not quite. It’s not the heavy weight of debt (as Krugman has posted about at length the past week, most notably in this column) that’s causing European nations to struggle. What’s causing those nations to struggle is their inability (until recently) to finance that debt at any sort of tenable rate (7% or under). The reason those governments couldn’t finance their debt is that investors don’t want to purchase debt that might not be paid back. The reason the debt might not be paid back is that, unlike the case of the United States, Great Britain, Finland, and various developing nations, European countries like Spain, Italy, and yes, Greece, can’t print their own money (their own money being Euros). Therefore, they’re at risk of not being able to pay back their Euro-denominated debt. The United States, on the other hand, will never be unable to print dollars, and will always be able to pay back its dollar-denominated debt.