MMT is right in pointing out that orthodox economics is false. This, though, is only part of the story. Fact is that the WHOLE of economics is false, i.e. 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. MMT as a Keynesian offshoot is NO exception.
Economics does not satisfy the criteria of science ― material and formal consistency ― and because of this NONE of the economic platforms from the outer left wing to the outer right wing has sound scientific foundations. All of economics is storytelling and a scientific fraud. MMT is NO exception.
Let us have a look at the main arguments.#1
• “All government spending is our income, a government surplus is our deficit (debt) and a government deficit is our surplus (savings). Government spending isn’t just necessary to run our public services it also helps us to increase our wealth.”
This is false. The counterpart of a government deficit is the profit of the business sector or the saving of the household sector or a combination of the two. In the main, it is profit, therefore it is misleading to say that a government deficit ‘helps us to increase our wealth’. “Our wealth” is NOT the wealth of the 99-percenters but of the 1-percenters.
What has been called an absurdly unequal distribution of income and wealth is the DIRECT result of public AND private deficit spending and the exponential increase of public AND private debt.
• “What neoliberals call government debt is in fact savings to the private sector. This is composed of bonds and guilts which are purchased by the population at large…. The reason they are so popular is because they are seen as the safest form of investment.”
This, of course, is true, except for the fact that government securities are not bought and held by ‘the population at large’ but by the 1-percenters. With the promotion of deficit spending, MMT sees to it that the business sector not only enjoys profit but also a risk-free asset and a long term flow of interest. This flow comes in subsequent periods from the taxation of the household sector and is secured by the taxing power of government.
Patricia Pino sums up: “Macroeconomics is a complex subject.” This is true and what the general public needs to know is that economists do not understand it.#2 Economists do not even understand profit which is the pivotal concept of their subject matter. Economics is a failed science and MMT is part of it.
#1 For the comprehensive overview and the point-by-point refutation of MMT see cross-references
#2 First Lecture in New Economic Thinking
You say: “…, of course MMTers & functional financiers understand you points, and treat them at length, and explain how the alternative you may be proposing ― no deficit spending? ― is worse. Sorry to put words in your mouth, but that seems to be your position.”
Time to get above the usual kindergarten blah-blah. My argument is NOT about a specific economic policy but that economic policy has NO sound scientific foundations. In other words, economic theory is scientific rubbish ― including MMT. The result is that economists in their bottomless stupidity ruin the economy.#1
So, my position is the same as Napoleon’s: “Late in life, moreover, he claimed that he had always believed that if an empire were made of granite the ideas of economists, if listened to, would suffice to reduce it to dust.” (Viner)
Note that I am not crazed about the deficit or any other MMT policy issue. The point at issue is that MMT policy proposals have NO sound scientific foundations. MMT is materially and formally inconsistent and just as ill-founded as neoliberalism. Therefore, it is NO alternative to neoliberalism. Scientifically, it is the same crap in a different political package.
I have refuted the theoretical foundations of MMT point-by-point on this blog.#2 The bottom line is this, MMT lacks the true theory and this is lethal: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)
So, whatever MMTers are claiming to do and whatever they think of themselves they are doing does NOT matter. Because the theoretical foundations of MMT are defective and MMTers are in the state of self-delusion, what MMT economic policy OBJECTIVELY amounts to is a wellness program for the 1-percenters.#3
It seems that MMT fell victim to the Law of Unintended Consequences: “The concept of unintended consequences is one of the building blocks of economics. Adam Smith’s ‘invisible hand,’ the most famous metaphor in social science, is an example of a positive unintended consequence. Smith maintained that each individual, seeking only his own gain, ‘is led by an invisible hand to promote an end which was no part of his intention,’ that end being the public interest.”
MMT is the inverse case: it seeks to promote public interest but ends up with promoting private interest.
#1 Mass unemployment: The joint failure of orthodox and heterodox economics
#2 See cross-references MMT
#3 See also ‘Keynesianism as ultimate profit machine’
#4 The Concise Encyclopedia of Economics
Ralph Musgrave cannot resist the temptation to expose himself again as a brainless blatherer. He argues “… I’ll do him a favour and demolish one of his phrases: ‘The counterpart of a government deficit is the profit of the business sector or the saving of the household sector or a combination of the two.’ The mistake there is the popular assumption that a business’s profit (or the profit of the entire business sector) is equal to the increase in it’s stock of cash. That’s nonsense. A business or the business sector can increase its stock of cash during the year, but still make a loss (e.g. because its stock of assets lose a lot of value because of depreciation or obsolescence, or because lots of its debtors turn out to be no-hopers, which was what happened to banks when they realized the NINJA mortgagors they’d lent to were no hopers.)”
WOW, that is rather big news. If Ralph Musgrave were a little smarter than a fruit fly he would have taken a closer look at the full set of macro axioms.#1 The definition of TOTAL profit says that it is the sum of MONETARY profit/loss Qm and NONMONETARY profit/loss Qn. The latter is not an issue in the present context because MMTers do not even understand the concept of monetary profit.
Nonmonetary profit has been dealt with at length elsewhere.#2
#1 Wikimedia, New axiomatic foundations
#2 See cross-references Profit