Effective Constraints on Sovereign Borrowers

Krugman traces the idea masquerading as theory ("Modern Monetary Theory") to Abba Lerner’s “functional finance” doctrine from 1943:

His argument was that countries that (a) rely on fiat money they control and (b) don’t borrow in someone else’s currency don’t face any debt constraints, because they can always print money to service their debt. What they f…