[jeffkrol]

Debt, Deficits, and Modern Monetary Theory | Harvard International Review

There are some rare instances where governments have run down their overall stock of debt, like in Australia between 1996 and 2007. The conservative government of the period was enamored of this neoliberal idea that it would get rid of all its holdings of outstanding debt, and so it started running very large surpluses and paying back its debt. After about five years, the public bond markets became so thin—that is, there was such a small amount of debt left in the system—that the big investment banks started to protest, since they relied on government debt as a risk-free asset upon which to benchmark all other risk. Curiously, the Austrialian federal government agreed that even though it would continue to run budget surpluses, it would also continue to issue debt at a certain amount to ensure that the corporate sector would have its risk-free asset. So while the Wall Street Journal runs op-eds condemning the evils of debt, the reality is that the financial sector can’t get enough of it. This is a very beautiful example of the function of debt in modern times.

In MMT, we see public debt as private wealth and the interest payments as private income. The outstanding public debt is really just an expression of the accumulated budget deficits that have been run in the past. These budget deficits have added financial assets to the private sector, providing the demand for goods and services that have allowed us to maintain income growth. And that income growth has allowed us to save and accumulate financial assets at a far greater rate than we would have been able to without the deficits.

The only issues a progressive person might have with public debt would be the equity considerations of who owns the debt and whether there an equitable provision of private wealth coming from the deficits. There is a debate to be had about that, but there is no reason to obsess over the level of outstanding public debt. The government can always honor its debt; it can never go bankrupt. There’s no question that the debt obligations will be met. There’s no risk. What’s more, this debt provides firms, households, and others in the private sector a vehicle to park their saved wealth in a risk-free form.

[Winder]

Never said that exactly. I said what you spend it on is important.. And the number is meaningless.. I owe 1000 dollars to "someone" And I can "print money" I print $1000 Did I ASK YOU for anything???

(I – S) + (G – T) + (X – M) = 0 This is the zero sum formula that you posted. The formula that you said was " basic math and reality" Since it is a zero sum formula it doesn't matter "What you spend it on" because it ALWAYS = 0. Please reconcile your two ideas. Your idea of printing money to pay debt without ramification is beyond words. You should run for office. Start a Youtube channel and get in front of as many people as you can and share the genius.

In your own words why do you think that is incorrect? Economic or Psychological would be a good starting point.. Refute my above articles..

Instead of writing several pages just on how those idea have blown up in actual application, I think I will let history speak for itself. You have to be aware that countries have tried these policies in the past. You have to know what the end result was.

Japan....... except like any nation, once in awhile they 'panic" and have to reinvent the wheel.......... Let's see running debt over 200% , full health coverage for its citizens.. Yen strong..

I love the Japan example. Always fun when people bring it up. Do you think Japan is over 200% debt to GDP because they wanted to be? The reason they "panic" so often is because they have been playing Russian roulette for the past 20+ years. Japan's economy was structured in a very unique way. The famous example is Mitsubishi where you have Mitsubishi bank at the bottom and then vertically you have Mitsubishi Electronics, Mitsubishi Motors, Mitsubishi Mining, Mitsubishi Chemical, Mitsubishi Heavy Equipment (and probably a dozen other companies). When the banks in Japan were on the verge of failure it meant that all the companies that were build on top of those banks were about to fail. Japan had no choice but to embark on a series of huge stimulus injections that left the country with a debt to GDP ratio of over 200% and "The Lost Decade" or 10 years of no growth. The Keynesian response has always been that Japan just did not use a big enough stimulus. Now Japan is in a position where it has to keep a very strong Yen and keep interest rates as low as possible. If interest rates on Japan's debt were to rise 1% the interest payments would exceed the government collected revenue and Japan would be in default. Of course with your scenario Japan should just print off a bunch of Yen (2x GDP) and just pay it off and be done. Why even worry about running deficit. Just print an pay.

[jeffkrol]

The reason they "panic" so often is because they have been playing Russian roulette for the past 20+ years.

And what happened? Is the sky just always falling, yet it never does?????.. best you think about that statement a bit..................I'll get to the rest later....

Taxes don't fund the federal government. Government can wipe out the entire student debt and it wont cost the taxpayers a dime. Government does not have to borrow any money, they can just print what they need.

A brief synopsis is all that is needed.. Why, does a country w/ the unlimited ability to print it's own currency need to "borrow"???? It really IS that SIMPLE..The paper and links I posted go into more detail of why one might want to do it (stimulus, spending money into the economy) but clearly since it is backed by NOTHING it is unnecessary in a financial level.. psychologically , that is another story.. social engineering.. not economics..

"The Lost Decade" or 10 years of no growth

is misconstrued and was their lost decade any worse than our lost5 or so years???

We should be so lucky to have their "lost decade" at least for the majority........

THE Japanese say they suffer from an economic disease called “structural pessimism”. Overseas too, there is a tendency to see Japan as a harbinger of all that is doomed in the economies of the euro zone and America—even though figures released on November 14th show its economy grew by an annualised 6% in the third quarter, rebounding quickly from the March tsunami and nuclear disaster.

Look dispassionately at Japan’s economic performance over the past ten years, though, and “the second lost decade”, if not the first, is a misnomer. Much of what tarnishes Japan’s image is the result of demography—more than half its population is over 45—as well as its poor policy in dealing with it. Even so, most Japanese have grown richer over the decade.

In aggregate, Japan’s economy grew at half the pace of America’s between 2001 and 2010. Yet if judged by growth in GDP per person over the same period, then Japan has outperformed America and the euro zone (see chart 1). In part this is because its population has shrunk whereas America’s population has increased.

Though growth in labour productivity fell slightly short of America’s from 2000 to 2008, total factor productivity, a measure of how a country uses capital and labour, grew faster, according to the Tokyo-based Asian Productivity Organisation. Japan’s unemployment rate is higher than in 2000, yet it remains about half the level of America and Europe (see chart 2).

http://www.economist.com/node/21538745

I suppose you have some right wing Nobel winner to refute this.........

People with attitudes like yours are truly wrecking the country for the masses.......

Mr Weinstein says they suffer from “diminished-giant syndrome”, nervously watching the economic rise of China. If they compared themselves instead with America and Europe, they might feel heartened enough to make some of the tough choices needed.

Yet the author doesn't quite get it either.........

Yep, Japan.. just terrible isn't it

[jeffkrol]

funny.......
Macro.Intro.

In the U.S., for example, it is widely recognized that the savings rate is quite low (low S) and that substantial investment spending (large I) holds the key to future growth. If we add to this the fact that the government is running a substantial deficit (BDEF>0), then the only way to sustain this situation is if the country runs a substantial foreign trade deficit (X -M < 0). In Japan, on the other hand, a high savings rate has traditionally produced savings that were more than enough to finance investment spending (S > I) and offset any budget deficit (G + T >0). Given these domestic imbalances, Japan will run a trade surplus. Thus the trade and budget deficits are inextricably interrelated, although not in a direct relationship where a change in one will necessarily involve an adjustment in the other. What we can expect is that American leaders will continue to blame the trade deficit with Japan on restrictive trade policies while the Japanese will continue to blame the imbalance on the low saving rate and the high budget deficits in the US.

As to the equation.. IF the gov. "spends" and that spending encourages "savings" then what happens??

Macro.Intro.

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&ved=0CD4QFjAD...tugRyxrpwaj78A



Let's just do a thought experiment.. say the gov. builds 6 new oil refineries using fiat (no tax money) and "donates" it to industry to run and profit from.. good or bad thing for "us"??

Say the gov takes the same amount of money and funds an overseas war, throwing it all at "mercenaries".. good or bad thing for "us"..

Which do you believe would be more "stimulative" to more of OUR OVERALL economy?

another example.. say the Fed relieves the states of any "burden" of Medicaid.. thus allowing the states to cut taxes/banace budgets.. good or bad for the people?
say it takes the same amount of money and sets up a colony on the moon.. which one is more "stimulative" to more people???

BEST essay I can find and recommend.........

http://bilbo.economicoutlook.net/blog/?p=7864

Month 4 – the neo-liberals invade

One night when the kids are safely sleeping I read some neo-liberal economics literature on the Internet. I had stumbled on a WWW site called billy blog but decided he was nuts and found other sites that were relating things I had read in the paper and heard on the news. It was credible stuff.
The accumulated budget deficits that I had been running in the first three months started to send shock waves down my back. Cut backs were obviously required.
The literature was telling me that I would have to pay higher interest rates on my debt; that inflation would rise; and that the national debt would choke the initiative out of the economy because they would require higher taxation in the future. My plans to help my kids would fail. They would refuse to work and probably turn to drugs.

So I need an exit strategy!

So I implement a cut back in spending because I read that increasing taxes would stifle incentives. I now offer only 500 cards of work in Month 4 and have to pay 40 cards on the outstanding bonds. It is clear that the bond-servicing costs are starting to impinge on my ability to spend on other things given I have to as a matter of priority get the budget back into surplus.
The austerity plans delivers me the cherished budget surplus of 60 cards in Month 4. Total income for the kids is now 540 cards which is comprised on 500 labour wages and 40 interest income on their debt holdings. But they are still liable for 600 cards in taxes.
So where do they get the cards from given they are being squeezed in this month? They sell 60 cards worth of bonds back to me to ensure they can meet their monthly tax obligations.
I reduce the national debt by 60 and smile because I am following my neo-liberal plan to a tee. The kids dis-saved by 60 cards in Month 4 (a flow) and “pay for that dis-saving” by running down their wealth by 60.

– I especially study the Greek government profligacy and fail to recognise that my economy is not part of a monetary union and I can spend without revenue constraints.
Anyway, bouyed by my advice I decide that I should wipe out all the national debt. So I extend the fiscal austerity and cut spending to 405 and myMonth 5 – wealth declines
From the neo-liberal perspective, my strategy as the government of the household has been exemplary. I am now generating surpluses and retiring debt. I am no longer living beyond my means.

I fail to notice that the kids’ (private sectors’) wealth is being destroyed and they are unable to work as much as they want. Some Chicago economist wrote that unemployment was voluntary anyway and the kids are probably lazy or just enjoying leisure more now.
I also fail to notice that the kids who hadn’t accumulated any wealth are facing rising debts. They seek to borrow from other kids because their work opportunities are being limited and they have to pay their taxes still.
In Month 5, I also get reinforcement from reading European Central Bank discussion papers; IMF staff papers; World Bank papers; lots of stuff on the Internet from various journalists interest servicing payments on the outstanding debt is also now lower at 34 cards. I keep my tax regime intact and return a great surplus of 161 cards.
The kids’ income is now only 439 cards (405 wages, 34 interest) and have to pay 600 in taxes. As a result, they dis-save by 161 cards (exactly the surplus I run but I don’t make that connection).
To “finance” this dis-saving, they liquidate 161 bonds and I reduce the spreadsheet entry for their wealth by 161. Private wealth is now at 179 cards as I get the debt monkey off my back.

Month 6 – insolvency

By now I am so imbued with neo-liberal logic that billy blog is accusing me of being a “deficit terrorist”. But we all know he is nuts. Anyway, the austerity plan continues because I want to pay down all the national debt.
So I cut my wage bill to 418 cards in Month 6 and almost halve the interest payments on public debt that was outstanding at the start of the month. I keep the tax at 600 cards.
I now achieve a wonderful surplus of 182 cards (the exemplar of fiscal prudence).
The kids now dis-save 182 cards but only have 179 cards in bonds that they can liquidate. They are now technically insolvent (having a cash deficit of 3 cards).
But I call them around the table and tell them how wonderful it is that I have retired all our national debt and am now “saving”. They look at me askance – underemployed and insolvent.

enjoy............

---

Last edited by jeffkrol; 05-02-2012 at 09:33 PM.

[jeffkrol]

Are you Karl????????????

Karl says:
Sunday, February 14, 2010 at 3:22

Idealized models look great in an insular economy in which there are no cross-border flows and no trade.

Of course the real world doesn’t work that way, just as this is the case for those who claim that Keynesian policies “work” – they would, IF you could actually get a politician to run a primary surplus as a means of damping demand (and refilling the treasury) during booms! Since that will simply never happen…

Indeed, the intersection of Keynesian thought and what you’ve written above is the essence of the beliefs of folks like Summers, Krugman, et.al. The government can spend itself to prosperity since it creates final demand though expansion of the money (credit) supply at the primary level.

Nice thought – now tell me why it didn’t work in Japan (which has spent 20 years practicing this policy.) The reason is that Japan, like all other nations, do not live in an idealized, insular economy with a bubble around their borders preventing all cross-border flows. This is allegedly accounted for in the above but fails to recognize that the central premise – that the government has effective control of monetary value (via the tax and legal tender function) **becomes void at the border of that nation.**

When one begins with a postulate that ignores the confounding factors one comes to the wrong conclusions. This is the same error (although expressed differently) as arguing that the classical economic equation MV = PQ is correct, where “M” is money supply. Bzzzzt – in all modern economic systems “M” is **CREDIT** supply, and the proof of same is trivially found in every person’s wallet, yet we still have economics texts and classes that teach utter nonsense.
I’m on vacation this weekend but that’s the short version… if this filters to the top of my stack come next week I’ll back to it

…

Tom Hickey says:
Sunday, February 14, 2010 at 11:06

Karl:Indeed, the intersection of Keynesian thought and what you’ve written above is the essence of the beliefs of folks like Summers, Krugman, et.al.

Would it were so. There are no mainstream economists or politicians either in the media or close to policy-making that get even this simple model (but profound) model. Or if they do, there are hiding the fact very well.

Our concern here is with “the last mile,” that is, getting this distinction between government as sovereign currency issuer and non-government as currency users, including trading partners doing business with the country, to the people who shape public opinion and have a role in policy-making, as well as getting them to understand the policy implications in terms of options. Based on what they say publicly, virtually all those being taken serious in the media, government and finance neither understand this distinction nor its policy implications, at least the way the MMT presents it as a development of functional finance (Abba Lerner), and stock-flow consistency (Wynne Godley). There is a body of literature elaborating this.

Anyway, welcome aboard. Hopefully, you will acquaint yourself with what the debate is here and join it, instead of dissing the view being put forward here without understanding it while summarily declaring your point of view to be obviously correct. That would get you a troll rating if there were one to give.

[Winder]

Jeff... You should compare Japan to Haiti and Botswana and it looks even more impressive, but not any more relevant. Since GDP includes the massive stimulus injections by the government you are not looking at real growth. GNP fell from just less than 4% to .5% for most of the 90's. If you want to look at relative data look at Japan prior to the bubble. The loss is not based on how it compared to the USA, EU, or any other country on the plant. The only thing matters is how much Japan would have grown had they not had a bubble. The difference between 3.5-4% growth in GNP and .5% over 10 years is staggering. Japan was at 1% unemployment in 1968 and stay under 2% up until 1990 when it jumped up to 5% and stayed there. Comparing unemployment across countries with drastically different employment laws, different economies, and different cultures represents several problems. Japan is culturally every different and very homogeneous. Japan has never had a growing welfare class, and immigration laws into Japan are considerably different than what you will find in the USA or Europe.

But let's not worry about the details. You have uncovered a grand conspiracy that has been purported for the last 20+ years. There never was a crash in Japan, and there is no such thing as the lost decade. All of the hundreds of academic works is part of a vast fraud orchestrated by the Cubans, the Mafia, the CIA, the military industrial complex, the Soviets, and the guy on the grassy knoll. The entire operation was ran from a secret location in the Nevada desert. You caught us.

[Wheatfield]

But let's not worry about the details. You have uncovered a grand conspiracy that has been purported for the last 20+ years. There never was a crash in Japan, and there is no such thing as the lost decade. All of the hundreds of academic works is part of a vast fraud orchestrated by the Cubans, the Mafia, the CIA, the military industrial complex, the Soviets, and the guy on the grassy knoll. The entire operation was ran from a secret location in the Nevada desert. You caught us.

Apparently when you have lost an debate you turn to the old mock the person with the stronger argument method. It's an old and not much respected debating technique used by losers.

[jeffkrol]

Jeff... You should compare Japan to Haiti and Botswana and it looks even more impressive, but not any more relevant. Since GDP includes the massive stimulus injections by the government you are not looking at real growth. GNP fell from just less than 4% to .5% for most of the 90's. If you want to look at relative data look at Japan prior to the bubble. The loss is not based on how it compared to the USA, EU, or any other country on the plant. The only thing matters is how much Japan would have grown had they not had a bubble. The difference between 3.5-4% growth in GNP and .5% over 10 years is staggering. Japan was at 1% unemployment in 1968 and stay under 2% up until 1990 when it jumped up to 5% and stayed there. Comparing unemployment across countries with drastically different employment laws, different economies, and different cultures represents several problems. Japan is culturally every different and very homogeneous. Japan has never had a growing welfare class, and immigration laws into Japan are considerably different than what you will find in the USA or Europe.

But let's not worry about the details. You have uncovered a grand conspiracy that has been purported for the last 20+ years. There never was a crash in Japan, and there is no such thing as the lost decade. All of the hundreds of academic works is part of a vast fraud orchestrated by the Cubans, the Mafia, the CIA, the military industrial complex, the Soviets, and the guy on the grassy knoll. The entire operation was ran from a secret location in the Nevada desert. You caught us.

i have a friend couple that moved to Botswana...why? No work here.. good opportunities in a growing economy there......I'll get you the name of his restaurant if you care to visit..

The only thing matters is how much Japan would have grown had they not had a bubble

Pointless speculation...

Comparing unemployment across countries with drastically different employment laws, different economies, and different cultures represents several problems.

does this mean you can't compare the US to the BRIC's or EU??? Like you like to do........

Again "lost decade" like ANY human occurrence is in the eye of the beholder...I contend the Japanese public suffered MUCH less than we are now.. and in the past considering no "medicare for all" that is a social and human fact.........if ""the "industry are people" suffered.. Well thell them to take two aspirins and call me in the morning.........

Winners of Japan’s lost decade

By Michiyo Nakamoto

A decade lost to deflation has changed the landscape in Ginza, Tokyo’s premium shopping district. On the main street, a Gucci store has been replaced by low-cost fashion outlet XXI Forever. Next door to luxury jeweller Mauboussin, the casual clothes retailer g.u. is doing a brisk business offering cotton maxi dresses for Y990.
Japan has been mired in deflation since 1999, a period known as the “lost decade”. Consumer prices, excluding food and energy, have fallen every year since, with the exception of 2008, when prices were flat. Meanwhile, nominal gross domestic product, which reflects the impact of deflation, has fallen from Y505tn in 1999 to Y468tn ($5.8tn) last year.

“The important thing is to look at the long term,” says Norihiko Saitou, senior vice-president. “Companies which face pressure to produce strong results on a quarterly basis or where the top management changes every few years cannot do what Toray did.”.........“Deflation doesn’t mean that consumers won’t buy anything,” says Mr Nakajima at Fujifilm. “It’s just that they don’t buy wasteful things.”

You can't understand it due to your "ingrained bias"..........

[jeffkrol]

RealClearPolitics - Japan's Lost Decade -- and Ours?

WASHINGTON -- Since the financial crisis, a shadow has hovered over the U.S. economy: Japan. Could what happened there happen to us? The bursting of Japan's real estate and stock bubble in the early 1990s has had lasting consequences: a "lost decade" (actually, two) of meager growth and weak job markets. Though hardly a depression (needed emphasis ), Japan's prosperity has been partial and unsatisfying, enjoyed by some and missed by others (status quo of anything economic).
Let it be said that some economists now think Japan could break from this dismal pattern. Here is John Makin of the American Enterprise Institute in a recent commentary: "After many years of false starts, the Japanese economy may finally be set to boom -- or at least to enter a period of sustained growth with a sharply rising stock market." At about 9,900, Japan's Nikkei stock index is about a quarter of its historical high of 39,915.87 in 1989.

Makin's optimism stems from the recent decision by the Bank of Japan (the BOJ is Japan's Federal Reserve) to ease credit until inflation, now virtually nonexistent, reaches 1 percent. If successful, the BOJ would end periodic bouts of deflation -- falling prices -- that, Makin and other economists contend, hobbled the economy. Falling prices cause people to postpone purchases, expecting items to become cheaper. Deflation also deters borrowing, because debts have to be repaid in more expensive currency.
The BOJ's decision, taken Feb. 14, might reverse these trends. To generate higher inflation, the BOJ would inject money into the economy. (hmm sound familiar?) Some extra cash would go into consumer spending; some would go into the stock market. Lastly, higher inflation could cause the yen to depreciate, reviving exports by making them cheaper

RealClearPolitics - Japan's Lost Decade -- and Ours?

There are parallels with Shirakawa’s situation now. He, too, faces pressure from lawmakers who want his policy board to do more to support growth and says there are limits to what monetary tools can achieve.

maybe you should rethink this position.....

funny.............

The old joke is that a central banker’s job is to take away the punch bowl just as the party’s getting good. Mr. Mieno removed the punch bowl, the roast beef, the dessert tray, and the noisemakers.

http://blogs.wsj.com/japanrealtime/tag/yasushi-mieno/

As a counterpoint.. The myth busting of the myth of "lost decade"........
http://www.forbes.com/sites/johntamny/2011/04/23/the-myth-about-the-myth-of-...ost-decades/3/

gobbledegook............

The Nikkei is the scoreboard in this regard, so while individuals of all stripes can debate the merits and demerits of Japan’s modern economy, Japan’s stock index tells the real tale. With it down 76% since the late ‘80s, any lingering doubts about whether Japan’s economy actually suffered two lost decades should be put to bed for good.

YES let us trust the oracles of WS.......

Buy the Rumor, Sell the Fact is an old trading rule, but highly misunderstood – the rules dictates that you don’t have to sell the fact and not buy the fact. One obvious point implied in the rule is that the rumor should be bullish: if it is bullish only then you stand a better chance to win – to earn more then reasonable levels. One thing should also be kept in view – any rumor may also have bearish connotations. Following the rule Buy the Rumor, Sell the Fact looks simple, but it requires some practice and agility to monitor and analyze the information coming out of market.

[jeffkrol]

See.. chickened out from the MMT "path"...........

Mieno took the BOJ’s helm in December 1989 in the midst of a boom driven by speculative investment in land and stocks. Within a week, he’d begun raising interest rates. Then, as the economy cooled and headed into the doldrums, he dismissed calls from businesses and politicians for cuts.

Speaking at a farewell press conference in Tokyo in December, 1994, Mieno said he had “no regrets” and had always taken a mid- to long-term view of the economy and aimed to achieve “growth without inflation.”
“When I set monetary policy, I didn’t see the economy in a short-term span, or say, ‘We are in recession, so let’s take measures to spur the economy now,” Mieno said. “I have always tried to rectify the damage caused by the bubble and achieve economic growth without causing inflation.”
Under his leadership, the central bank raised the key rate from 3.75 percent to 6 percent within a year, before switching to reductions from mid-1991. The benchmark rate is currently between zero and 0.1 percent.

Mieno, Governor Who Pricked Japan?s Bubble Economy, Dies - Bloomberg

In 1993, Mieno commented that monetary policy alone wouldn’t kickstart the economy.

worth pondering..............

and funny...........

The old joke is that a central banker’s job is to take away the punch bowl just as the party’s getting good. Mr. Mieno removed the punch bowl, the roast beef, the dessert tray, and the noisemakers.

http://blogs.wsj.com/japanrealtime/tag/yasushi-mieno/

Opp's back to "flat earth".........

“Following the teachings of history, the consequences of the central bank’s huge money supply is uncontrollable inflation,” Shirakawa said in a lecture meeting on April 21 in Washington organized by the French central bank, Banque de France...............Shirakawa said of Japan’s situation: “The (Japanese) people are curbing their spending due to anxieties over the fiscal situation. This spending reduction has become one of the causes of deflation.”.

http://ajw.asahi.com/article/economy/business/AJ201204230038

[GeneV]

So you think Jeff's statement that "AND the fed doesn't have to "bill you" to pay off any defaults.. they can just pay it." And [I]" And -Student loans are not secured by the federal government as reflected in "Taxpayers don't "'Fund" anything anymore.. since the 70's"

According to Jeff debt/deficit spending doesn't matter. Taxes don't fund the federal government. Government can wipe out the entire student debt and it wont cost the taxpayers a dime. Government does not have to borrow any money, they can just print what they need.

. ....

https://www.pentaxforums.com/forums/political-religious-discussion/181551-nyt...inflation.html

And in reference to Spain: One of the very few things I will agree with Krugman on:
&ldquo;Spain and others do have an alternative to endless austerity, one that may be forced on them by events: exit the euro, with all the financial and political fallout that follows. And on the current course, that&rsquo;s what&rsquo;s coming.&rdquo;

I'll let Jeff defend himself but that does not sound like an accurate quote.

I agree with MMT principles in that there is no direct connection between taxes and spending or between "deficits" of the type we have and inflation. That is the relevant point here. The value of a dollar in the market depends upon what others perceive a dollar will buy, and not, necessarily, on a strict calculation of the balance of payments at this level. Investing in a quality, free education might actually raise the value of our money if it makes workers here, paid in dollars, more attractive.

What Prof. Krugman said and what you said are not the same. It is the converse.