February 15, 2015

The true nature of economists' confusion

Comment on 'The true nature of public debt'

Blog-Reference

Ricardo spoke about war financing in a monetary economy. Merijnknibbe talks about financing dikes. The Neoclassicals have not realized that utility is a nonentity and  let the representative agent, another nonentity, optimize real consumption over time. Pontus declares that consumption does not, by accounting, depend on either debt or taxes. No accountant worth his salt would ever make such a claim.

Lerner famously said 'we' pay interest on public debt to 'ourselves'. But 'we' consist of savers and non-savers. And while income tax and interest payments are indeed equal there occurs a redistribution of income from non-savers to savers that never ends if debt is revolved. This crucial distinction and this real effect is semantically vaporized with 'we' and ‘ourselves’.

The true nature of confusion and mystification is that economists subscribe to the 'anything goes' methodology and are more famous for never ending wish-wash than for logical consequence.

For the formally correct refutation of Ricardian equivalence see the Section “The question of equivalence: three scenarios” in (2015).

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Aggregate Demand. SSRN Working Paper Series, 2564590: 1–22. URL