10 steps to leave cargo cult economics behind for good

Comment on Lars Syll on ‘Seven sins of economics’

Blog-Reference and Blog-Reference

Lars Syll gives a heterodox inventory of all that is wrong with economics. This, in turn, initiates the correct sequence for the next steps to be taken.

(i) Taking stock

The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept profit wrong.

Provable false:
• profit theory, since 200+ years,#1
• Walrasian microfoundations (including equilibrium), since 140+ years,
• Keynesian macrofoundations (including I=S, IS-LM), since 80+ years.#2

This means (1) that both orthodox and heterodox economics is cargo cult science, and (2), that the textbooks from Samuelson to Mankiw and Rodrik are proto-scientific rubbish.#3

(ii) Paradigm shift

Economics is a failed science. The four main approaches are indefensible. The arguments of the representative economist about specific difficulties of his subject matter have to be taken for what they are: as excuses, more precisely, as thoroughly refuted excuses.#4

The fact that an approach is axiomatically false means that it cannot be improved but must be fully replaced.

(iii) System science

The representative economist maintains that economics is a social science. This is a popular misapprehension. In fact, economics is a system science. Economics is about how the economy works and NOT about Human Nature/motives/behavior/action.#5 These issues are left to psychology, sociology, anthropology, history, Political Science, social philosophy, biology/evolution theory etcetera.

(iv) Separation of Politics and Science

The question about the Good Society is a political question that has to be answered in the political realm and NOT in the scientific realm. Already J. S. Mill was quite explicit about the separation of politics and science.#6

(v) True macrofoundations

Fact is that the subject matter of economics is ill-defined or, in methodological terms, that economics is axiomatically false.

A paradigm shift means in practical term that economics has to move from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations because if it isn’t macro-axiomatized, it isn’t economics.#7

(vi) Methodology

The failure of economics is mainly due to the Fallacy of Insufficient Abstraction. In other words, economists cannot rise above the level of storytelling. One storyline is that of supply-demand-equilibrium and the wonderful feats of the Invisible Hand, the other storyline is that of the struggle between the good guys = workers and the bad guys = capitalists. Storytelling is scientific garbage but people like it.

The economy is an abstraction. The correct abstraction to start with is what Keynes called the ‘monetary theory of production’. Scientific theories are defined by material/formal consistency.

The analysis proceeds top down, that is, it starts with macrofoundations which are step by step differentiated, in other words, the analysis advances from the elementary to the complex.

There is no vague blather, no rhetoric, no metaphors, no psychologism, no sociologism, no second-guessing of motives or expectations, no sitcom talk, no narrative and no storytelling. There is nothing but measurable variables, equations and graphs. Because all variables are measurable all conclusions are testable.

(vii) The pure production-consumption economy

The objectively given and most elementary configuration of the (world-) economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.#8 The pure production-consumption economy is formally given by:
• Three macro axioms:
(A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L,
(A2) O=RL output O is equal to productivity R times working hours L,
(A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.
• Two initial conditions: market clearing, i.e. X=O, and budget balancing, i.e. C=Yw.
• Two definitions: monetary saving of the household sector Sm≡Yw-C and monetary profit of the business sector Qm≡C-Yw. For the balances holds Qm+Sm=0.

(viii) The evolving economy

The axioms (A1) to (A3) refer to a period of predetermined length. The variables for one period and the next period are connected by rates of change (deterministic or random). The proper formal representation is not a system of equations but a simulation. The open-ended simulation is given with the Economics God Equation.#9

(ix) The market

It is a must to forget a whole bunch of NONENTITIES: utility, production function, supply function resp. SS-curve, demand function resp. DD-curve, equilibrium/disequilibrium. Supply-demand-equilibrium, the totem of micro/macro, is a NONENTITY. The macroeconomic market is formally defined with the Law of Supply and Demand.#10

(x) Employment and real growth/decline

The pure production-consumption economy has, of course, to be expanded to the investment economy. This yields the Employment Law.#11 This equation shows how employment/unemployment depends on aggregate demand and the price- and profit mechanism, i.e. on the relative changes of wage rate, price, and productivity. The growth/decline of output and changes of the income distribution can be derived from the employment equation. The stocks of inventory, money, and capital are consistently derived from the period flows as numerical integrals.

The Employment Law proves that the market economy is inherently unstable and delivers the levers for effective policy measures.

Egmont Kakarot-Handtke

#1 The Profit Theory is False Since Adam Smith
#2 Economics: 200+ years of scientific incompetence and fraud
#3 The father of modern economics and his imbecile kids
#4 Failed economics: The losers’ long list of lame excuses
#5 Economics is NOT about Human Nature but the economic system
#6 Economics: the emancipation of science from politics
#7 First Lecture in New Economic Thinking
#8 For the verbal description see ‘How the intelligent non-economist can refute every economist hands down’
#9 Wikimedia, The Economics God Equation
#10 Wikimedia, The Four Basic Economic Laws
#11 Wikimedia, Employment Law, Investment economy

Forget Friedman, forget the Quantity Theory

Comment on David Glasner on ‘Milton Friedman and the Chicago School of Debating’

Blog-Reference

In economics, there are two starting points, microfoundations and macrofoundations. Both are provably false. Orthodoxy went micro: “… most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point” (Krugman). Keynes went macro: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (GT, p. 63)

Because both the axiomatic foundations of Walrasianism and Keynesianism are provably false their analytical superstructures are also false. This means, inter alia, that profit theory, price theory, employment theory, and money theory are false. Friedman never realized the necessity of a paradigm shift but remained faithful to a paradigm that had, strictly speaking, already been dead in the cradle 100+ years ago. As spokesperson for Monetarism, he incarnated the central tenet “that money causes prices”.

Because economics is a failed science it has to undergo a paradigm shift. Economic analysis has to be based on entirely new macrofoundations and the fundamental questions have to be put again at the top of the agenda.

Economics has to be reconstructed from scratch. As new analytical starting point, the pure production-consumption economy is defined with this set of macro axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

Under the conditions of market clearing X=O and budget balancing C=Yw in each period the price is given by P=W/R, i.e. the market clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. For the graphical representation see Figure 1.#1

The price is determined by the wage rate, which takes the role of the nominal numéraire, and the productivity. The quantity of money is NOT among the price determinants. This puts Friedman’s Quantity Theory to rest.

Monetary profit for the economy as a whole is defined as Qm≡C-Yw and monetary saving as Sm≡Yw-C. It always holds Qm+Sm=0, in other words, the business sector’s deficit=loss (surplus=profit) equals the household sector’s surplus=saving (deficit=dissaving). This is the most elementary form of the Profit Law. Under the condition of budget balancing total monetary profit is zero.

What is needed for a start is two things (i) a central bank which creates money on its balance sheet in the form of deposits, and (ii), a legitimate sovereign who declares the central bank’s deposits as legal tender.

Deposit money is needed by the business sector to pay the workers who receive the wage income Yw per period. The need is only temporary because the business sector gets the money back if the workers fully spend their income, i.e. if C=Yw.

Overdrafts are needed by the household sector for consumption expenditures if the households want to spend before they get their income. This time sequence is no problem for the central bank because the temporary overdrafts vanish with wage payments.

For the case of a balanced budget C=Yw the idealized transaction sequence of deposits/ overdrafts of the household sector at the central bank over the course of one period is shown in Figure 2.#2

The household sector’s deposits/overdrafts are zero at the beginning and end of the period. The business sector’s transaction pattern is the exact mirror image. Money, that is, deposits at the central bank, is continually created and destroyed during the period under consideration. There is NO such thing as a fixed quantity of money. The central bank plays an accommodative role and simply supports the autonomous market transactions between the household and the business sector.

From this follows the average stock of transaction money as M=kYw, with k determined by the transaction pattern. In other words, the average stock of money M is determined by the autonomous transactions of the household and business sector and created out of nothing by the central bank. The economy never runs out of money.

The transaction equation reads M=kPO=kPRL in the case of budget balancing and market clearing and this yields the commonplace correlation between average stock of money M and price P for a given employment level L, except for the fact that M is the DEPENDENT variable. If P doubles, M doubles. The commonplace correlation does NOT hold if L doubles and M doubles and P remains constant.

Inflation ensues under the condition of market clearing and budget balancing if the wage rate rises faster than the productivity and deflation ensues in the opposite case. Under the condition of L;R=const. one always gets the commonplace correlation between the average stock of money M and price P with the causality running from P to M.

This axiomatically correct kernel of the theory of money#3, which immediately makes it clear why the FED cannot reach the inflation target, fully replaces Friedman’s proto-scientific rubbish.

Egmont Kakarot-Handtke

#1 Wikimedia, Pure production-consumption economy
#2 Wikimedia, Idealized transaction pattern, household sector, balanced budget
#3 For more details see ‘Reconstructing the Quantity Theory (I)’


Related 'Fact of life: your econ prof is scientifically incompetent' and 'Milton Friedman, fake scientist' and 'Forget Friedman, forget Keynes' and 'NAIRU and the scientific incompetence of Orthodoxy and Heterodoxy' and 'Friedman and the cluelessness of fake scientists' and 'Will economics ever become a science?' and 'Common non-sense' and 'How money emerges out of nothing ― the functional account' and 'Indeed, Keynesianism and Monetarism are basically the same proto-scientific rubbish' and 'Clueless about money and profit' and 'Objective determinants of profit and interest' and 'Going beyond Wicksell, Keynes, and MMT' and 'Interest and profit' and 'How MMT got inflation wrong' and 'Inflation: back to basics' and 'Attention: there are THREE types of inflation'.

Profit and the decline of workers’ nominal share

Comment on Noah Smith on ‘Why Workers Are Losing to Capitalists’

Blog-Reference and Blog-Reference

Every economist can know from the Palgrave Dictionary that the profit theory is false (Desai, 2008). Or, as Mirowski put it, “... one of the most convoluted and muddled areas in economic theory: the theory of profit.” In other words, economists have NO idea what the pivot of their subject matter is.#1

Without the true profit theory, there is no true distribution theory. The axiomatically correct Profit Law is given as Qm=Yd+(I-Sm)+(G-T)+(X-M) [1] and this reduces to Qm=(I-Sm)+(G-T) [2] for Yd, X, M=0; Legend: Qm total monetary profit, Yd distributed profit, I investment expenditure, Sm monetary saving, G government expenditures, T taxes, X exports, M imports.

The nominal labor share l is defined as quotient of wage income Yw and the sum of wage income and monetary profit Qm, that is, l≡Yw/(Yw+Qm) with Qm given by [1] above.

Noah Smith concludes: “In other words, the two most conventional explanations for rising inequality and falling wages might both be correct. A perfect storm of robots and free trade … could be shifting power from the proletariat to the capitalists.” This conclusion is based on the traditional=false profit theory.

Fact is that market power and automation cannot account for a falling nominal labor share l. The MAIN drivers of increasing overall profit have been in the past decades the increased deficit spending of the household- and the government sector. Market power and automation can only account for the distribution of overall profit Qm among firms but NOT for the total amount.#2

Traditional distribution theory is merely a stubborn Fallacy of Composition.

Egmont Kakarot-Handtke

#1 See ‘The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?’
#2 For details see cross-references Profit


Related 'Profit and the decline of labor’s nominal share' and 'Austerity: Who takes the little man for a ride?' and 'The abject failure of orthodox and heterodox distribution theory' and 'Intellectual deficit spending'.

Solving Mill’s starting problem

Comment on Peter Cooper on ‘State Monies are Fundamental to Modern Monetary Economies’

Blog-Reference

After 20 posts about the MMT balances equations and the income-expenditure model, Peter Cooper gets second thoughts and asks himself: “What is the most appropriate entry point to the study of a monetary economy.” And he concludes “There is no ‘natural’ field in economics that is anything like the natural sciences.”

Each science starts in the middle of a swamp: “We are lost in a swamp, the morass of our ignorance. … We have to find the roots and get ourselves out! … Braids or bootstraps are necessary for two purposes: to pull ourselves out of the swamp and, afterwards, to keep our bits and pieces together in an orderly fashion.” (Schmiechen)

The starting problem is as old as economics. J. S. Mill put it thus: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.”

In economics, there are two starting points, microfoundations and macrofoundations. Both are provably false. Orthodoxy went micro: “… most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point” (Krugman). Keynes went macro: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” MMT followed Keynes into the macro woods.

The methodologically correct solution consists in new macrofoundations.#2 Here they are:
(A0) The objectively given and most elementary systemic configuration of the (world-) economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.
(A1) Yw=WL wage income Yw is equal to wage rate W times working hours L,
(A2) O=RL output O is equal to productivity R times working hours L,
(A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

These macro axioms satisfy all methodological requirements. The graphical representation of the elementary production-consumption economy is shown on Wikimedia.#3

The condition of market clearing is X=O and of budget balancing C=Yw. From non-clearing and non-balancing follow the phenomena of inventory changes (O-X greater than 0 or less than 0) and of monetary saving/dissaving (Sm≡Yw-C greater than 0 or less than 0) and of monetary profit/loss (Qm≡C-Yw greater than 0 or less than 0). It always holds Qm+Sm=0 or Qm=-Sm, in other words, loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the Profit Law.

The Profit Law tells us immediately that the Keynesian macrofoundations and the MMT balances equations are false. And because the axiomatic foundations are false the whole analytical superstructure of MMT is false.#4

Poincaré once remarked: “The essential thing is to learn to reason with the axioms once admitted. Uncle Sarcey, who loved to repeat himself, often said that the audience at a theatre willingly accepts all the postulates imposed at the start, but that once the curtain has gone up it becomes inexorable on the score of logic.”

It is just the same in economics but economists in general and MMTers, in particular, neither got the foundational postulates right nor the subsequent logic. What unfolds before the audience's eyes is an absurd proto-scientific farce.

Egmont Kakarot-Handtke

#1 Getting out of the economics swamp
#2 The new macroeconomic paradigm
#3 Wikimedia: The pure production-consumption economy
#4 For more details see cross-references MMT

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REPLY to Matt Franko on Sep 20

You say: “Accounting is its own science... here in the US the good schools award a Bachelor of SCIENCE in Accounting.”

Obviously, MMTers got their BSAcc from Trump University.#1

You say: “If you are in business, You may use a Cash Basis accounting method and someone else might use an Accrual Basis, you can’t say ‘your accounting is false!’ to the other guy using Accrual...”

I do NOT say such nonsense. Both methods lead ultimately to the same result.#2 Cash Basis accounting is merely a practical relief for small firms that shifts profits BETWEEN periods but does NOT alter the sum of pre-tax profit over all periods. The difference between the business accounting methods plays NO role for macroeconomics. As a matter of principle, profit is NOT produced by accounting only measured, just like speed is NOT produced by the speedometer only measured. Different methods of measurement do NOT affect a vehicle’s speed and should always give the SAME result (+- a tiny inaccuracy). If they do not, something is wrong with the measurement tools.

Macroeconomic profit is clearly defined, i.e. as Qm≡C–Yw in the most elementary case, and measurable with the accuracy of two decimal places. The macro balances equations of MMT are mathematically false#3 and this has NOTHING AT ALL to do with the practical determination of taxable profit of an individual firm.

If accounting and money transactions were fully computerized and all firms apply the accrual method the sum of all firms’ profits/losses is necessarily equal to macroeconomic profit Qm and everyone could look this number up in real-time on the internet. Cash Basis accounting is not “false” it is merely a stone-age method for the mom-and-pop store. As a matter of principle, National Accounting is as good a measurement tool as any simple tool in physics.

Fact is that neither orthodox nor heterodox economists have noticed the macro accounting blunder until this day. Economics is a failed science because economists are scientifically incompetent and do not even get the elementary mathematics of macro accounting right.#4

Make no mistake, what Mitchell, Tcherneva‏, Mosler, Wray, Kelton, Fullwiler, Forstater, and the other MMTers propagate is Trump University economics.

#1 See ‘The Common Error of Common Sense: An Essential Rectification of the Accounting Approach’
#2 See ‘MMT ― the economics moron as problem solver’
#3 Rectification of MMT macro accounting
#4 For the details see cross-references MMT

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REPLY to Matt Franko on Sep 20

(i) Wordplay does not help. 2+2=5 is mathematically false. The same holds for the MMT balances equations. For the proof see #1.

(ii) Monetary profit is measured by accounting and if the accounting is properly done for an elementary production-consumption economy profit in the books is numerically identical with cash in the box.#2 Auditors carry out this check routinely. The macroeconomic Profit Law is testable just like the Law of the Lever. There is NO room for ambiguity and wordplay.

(iii) You say: “You can have production (real terms) without any accounting but you can’t have profit without accounting.” So what? Counting the inventory is part of the year-end profit determination.

(iv) Profit is not ‘created’ by accounting but by private and public deficit spending. For the economy as a whole, it holds Public Deficit = Private Profit.

(v) Profit does not appear in the MMT balances equations.#3 How weird is this? The MMT balances equations hold only for a zero profit economy. How weird is this?

(vi) Macro profit does not appear in macro models. It is absent in all I=S/IS-LM models since Keynes/Hicks. How weird is this?#4

(vii) Folks who cannot handle the pivotal concept of their subject matter and are too stupid for the elementary mathematics of accounting get economics diplomas and academic tenure. How laughable is this?

#1 Rectification of MMT macro accounting
The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
#2 A tale of three accountants
#3 MMT and the magical profit disappearance
#4 Heterodoxy, too, is scientific junk

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REPLY to Matt Franko on Sep 21

You argue “You say public deficit is private profit then you say the System of National Accounts doesn’t include profit: system of national accounts has G-T so there is your profit...”

I said “Public Deficit = Private Profit” and then “Profit does not appear in the MMT balances equations.” I did NOT say that the “System of National Accounts doesn’t include profit”.

You have obvious difficulties with understanding simple sentences.

The macro Profit Law has been derived from the set of macro axioms. This is the methodologically correct way. The question of Cash Basis or Accrual Basis accounting is absolutely irrelevant in the given context.

If C is total consumption expenditures during a given period, e.g. the calendar year, and Yw is total wage income during the same period, then total period profit is defined as Qm≡C–Yw. C and Yw reappear as the sums of all faithfully recorded transactions between Jan 1 and Dec 31 in the accounting system. The profit definition is a formal expression of what the accountants call striking a balance which is something quite different from recording a transaction.

The big question is: Why does that balance ― the pivotal balance of the monetary economy ― not appear in the balances equations of MMT?

My hypothesis is that MMTers are extremely stupid and your silly posts confirm this hypothesis.

The new macroeconomic paradigm

Comment on Brian Romanchuk on ‘DSGE Wars (Again)’

Blog-Reference and Blog-Reference adapted to context and Blog-Reference

(i) Every economist knows by now that DSGE is a failed approach. Strictly speaking, the microfoundations approach has already been dead in cradle 140+ years ago.

(ii) The microfoundations approach is defined by this axiom set: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states. (Weintraub) Fact is that every model that contains just one of the axioms is false.

(iii) Because the microfoundations approach is axiomatically false a paradigm shift is imperative. Methodologically it holds: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle) The paradigm shift consists of the replacement of false premises, i.e. microfoundations, by true premises, i.e. macrofoundations.#1

(iv) This is the correct core of macroeconomic premises:#2
(A0) The objectively given and most elementary systemic configuration of the (world-) economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.
(A1) Yw=WL wage income Yw is equal to wage rate W times working hours L,
(A2) O=RL output O is equal to productivity R times working hours L,
(A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

These premises are certain, true, and primary, and therefore satisfy all methodological requirements. The set of premises is MINIMALISTIC, that is, it cannot be reduced further, only expanded. The graphical representation of the pure production-consumption economy® is given on Wikimedia.#3, #4

(v) The condition of market clearing is X=O and of budget balancing C=Yw. From non-clearing and non-balancing follow the phenomena of inventory changes (O-X greater than 0 or less than 0) and of monetary saving/dissaving (Sm≡Yw-C greater than 0 or less than 0) and of monetary profit/loss (Qm≡C-Yw greater than 0 or less than 0). It always holds Qm+Sm=0 or Qm=-Sm, in other words, loss is the counterpart of saving and profit is the counterpart of dissaving. This is the most elementary form of the Profit Law.#5

(vi) Given the minimalist core propositions (A0) to (A3) one has to proceed top-down by successive DIFFERENTIATION until one arrives at the individual agent. Differentiation is the opposite of bottom-up or aggregation. The bottom-up = microfoundations approach has always been methodologically indefensible because it runs with necessity into the Fallacy of Composition.

(vii) Note that the macro axioms are composed of measurable variables. This is the precondition for testing the derived complex relationships = economic laws.

(viii) The correct systemic macrofoundations FULLY replace the false Walrasian microfoundations and the false Keynesian macrofoundations. There can be NO pluralism of axiom sets. For ALL economic research, the macroeconomic premises (A0) to (A3) are ABSOLUTELY necessary. It holds: If it isn’t macro-axiomatized, it isn’t economics.

Egmont Kakarot-Handtke

#1 Keynes’s macrofoundations are false, see ‘How Keynes got macro wrong and Allais got it right’
#2 For the complete set of macro axioms® see Wikimedia

#3 Wikimedia: The pure production-consumption economy
#4 True macrofoundations: the reset of economics
#5 From the macro axiom set follow the Four Basic Economic Laws®

New Economic Thinking = old scientific garbage

Comment on David Orrell on ‘Economyths: The Five Stages of Economic Grief’

Blog-Reference and Blog-Reference

Myth, well told, is still the most convincing way to explain how the world and humankind came to be in their present form. To recall, Zeus was the god of sky and thunder. He oversaw the universe, assigned the various gods their roles, and was known for his erotic escapades. Zeus was emotional, spontaneous and had a lot of trouble with other gods, goddesses, and humans. To handle his problems, Zeus regularly fell back to chicanery, force, and violence.#1 Since antiquity, everybody “understands” Zeus and his actions.

Not much has changed since the ancient Greeks. Ninety-nine percent of human communication still consists of myth, storytelling, and psychologism. Storytelling and psychologism are scientifically worthless. The “explanation” consists of connecting phenomenological dots by simply imputing a plausible emotional motive (anger, greed, fear, jealousy, hubris, revenge, etcetera) to an assumed actor with extraordinary capabilities.

The characteristic of science is the rejection of storytelling and the insistence on material and formal consistency: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)

The goal of science is the true theory. The true theory is the humanly best mental representation of reality. Economics is a failed science. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concepts profit and income wrong. Neither orthodox nor heterodox economists can explain how the economy works and why crises happen.

The methodologically proper measure to overcome scientific failure is a paradigm shift. This, though, is NOT what David Orrell proposes. Instead, he reinterprets the manifest scientific mess as a psychological problem and advocates therapy: “I’m sure there are plenty of sociologists and psychologists (even grief counsellors probably) who can help.”

Needless to emphasize that David Orrell’s story of sickness and healing appeals very much to the ninety-nine percenters who can only understand what is presented in the accustomed sitcom format. Psychologism is the mode of explanation of morons for other morons. Psychology, to recall, is a so-called social science and the so-called social sciences have been debunked by Richard Feynman as cargo cult science.

Economics is a system science and the functioning of the economic system has to be explained without recourse to psychological concepts like utility or greed.#2

Economics is a failure ― NOT a psychological or communicative failure but a scientific failure ― and the ultimate cause is not some psychological defect but utter scientific incompetence. Both orthodox and heterodox economics has never been more than storytelling. There is neither material or formal consistency. The representative economist can until this very day not tell what profit is.#3 This is like medieval physics before the concept of energy was properly understood.

Economists have no mysterious psychological disorder, they are fake scientists.#4 This scourge cannot be overcome with therapy but only with the immediate expulsion of economists from the sciences.

Egmont Kakarot-Handtke

#1 Wikipedia, Zeus
#2 First Lecture in New Economic Thinking
#3 Why economists don’t know what profit is
#4 CORE: more lipstick on the dead economics pig


Related 'Why is economics such a scientific embarrassment?' and 'Economics: the emancipation of science from politics' and 'What makes economics a failed science?' and 'Hunting down the economics body snatchers' and 'In search of new economists' and 'The myth of economics knowledge' and 'New Economic Thinking: the 10 crucial points'. For details of the bigger picture see cross-references Paradigm shift.

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FACT: The comment above vanished within minutes from the Evonomics blog.

FICTION: This is how the New Economic Thinkers advertise themselves.

MMT ― the economics moron as problem solver

Comment on Zero Hedge on ‘Even Bernie Sanders Thinks ‘Medicare For All’ Would Bankrupt America’

Blog-Reference

MMTers do not know how the profit- and price mechanism works but they offer a one-size-fits-all solution for all economic problems: A sovereign currency issuer has, as a matter of principle, a monopoly on the issuance of the currency and can exercise this monopoly through unrestricted deficit spending for any chosen purpose from basic income to healthcare to warfare.

This, of course, is trivially true and just another wording for what sovereignty entails. Sovereignty, though, is the pivotal concept of Political Science and NOT of economics. The subject matter of economics is how the economic system works and NOT how the political system works.

Fact is, to begin with, that economists do NOT know how the economy works. Economists cannot until this very day tell the difference between profit and income. And these mentally retarded folks, who do not understand the foundational concepts of their subject matter and the elementary mathematics of accounting, tell their fellow citizens how best to organize the economy.

Economists have NOT produced anything of scientific value since Adam Smith but award themselves each year a prize for their non-existing scientific achievements: “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.

Economics is a failed science, and MMT is NO exception:

• MMT’s sectoral balances equations are mathematically false,
• because the formal foundations are false the whole analytical superstructure is false,*
• because MMT is materially/formally inconsistent, MMT policy guidance has NO sound scientific foundations,
• because MMT has no scientific content whatsoever it is nothing more than brainless political blather,
• because it holds that Public Deficit = Private Profit, MMT is a straightforward program for the unabated enrichment of the one-percenters,
• to claim that MMT delivers a scientific underpinning of the political program of Bernie Sanders or Jeremy Corbyn is just one more absurd/fraudulent claim in the long history of the fake science called economics.

Egmont Kakarot-Handtke

* See cross-references MMT


Related 'Solving Mill’s starting problem' and 'Who or what exactly did Keynes save?' and 'Why Bernie Sanders is unintentionally a godsend for the one-percenters' and 'Endtime for soap box economists' and 'Banana economics' and 'Krugman is not an economist' and 'Turning the bananatization of economics around' and 'Hayek was not an economist' and 'Corbynomics' and 'Time to get rid of political economics' and 'The new macroeconomic paradigm'. For details of the bigger picture see cross-references Scientific Incompetence and cross-references Profit.

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REPLY to Matt Franko on Sep 18

The title of my post is ‘MMT ― the economics moron as problem solver’. This, obviously, means you.

You say: “Egmont doesn’t understand Basis of Accounting” and refer to Wikipedia’s entry about the difference between cash basis and accrual basis accounting.#1

You overlook that this difference plays NO role in the present context because, for a start, both accounting methods are synchronized in order not get distracted by the technicalities of shifting profit between periods. So, both accounting methods lead to the SAME result in the present context. The term monetary profit Qm makes it explicit that profit, as it appears in accrual accounting and profit as it appears physically in the cash box, are numerically identical.

If you were not so stupid you would have realized that wage income as it accrues in the period under consideration is actually paid in this period.#2 The same holds for consumption expenditures. Hence it does NOT MATTER AT ALL whether accrual accounting or cash accounting is applied.

Fact is that MMTers got the macro accounting provably wrong#3 and this means that they are either morons or fraudsters. Take your pick.

#1 Wikipedia, Basis of accounting
#2 Economists: just too stupid for counting
Money and time
A tale of three accountants
#3 Rectification of MMT macro accounting