December 31, 2018

Wage rate and employment: the basics

Comment on Brad DeLong on ‘Would Small Minimum Wage Increases Raise or Have No Effect on Employment?’

Blog-Reference

There are three approaches to answer the fundamental question of economics about the relationship between wages and employment.

(i) “That is the current question ― would (small) minimum wage increases have no effect on employment because labor-supply curves are steep, or would they boost employment by curbing employers with monopsony power from pushing both wages and employment below their competitive equilibrium values?”

This mainstream/microfounded approach is false because no such things as supply curves, demand curves, and equilibria exist. These things are NONENTITIES like unicorns, the tooth fairy, or dancing-angels-on-a-pinpoint.

The representative economist, though, has not realized anything to this day. Accordingly, the answer to the questions is: one school finds that a higher wage reduces employment, the other finds little effect.

(ii) The second approach is to rely on some apparently qualified journalist: “… because a career spent working at the New York Times has drilled into him the idea that he must be ‘fair’, and ‘fairness’ means (a) finding a position usually attributed to Democrats, (b) finding a position usually attributed to Republicans, and (c) presenting them both even-handedly, without affect or winky-winky as to which is most likely to be correct.”

Again, the answer is inconclusive.

(iii) The third way is to forget all this incompetent blather and to do some serious scientific homework.#1 The outcome of a macrofounded analysis is the Employment Law.#2

From the non-behavioral, objective-systemic Employment Law follows: An increase in the factor cost ratio ρF=W/PR leads to higher employment. So, as a matter of fact, overall employment INCREASES if the average wage rate W INCREASES relative to average price P and productivity R and vice versa. This is the OPPOSITE of what the economics textbooks say.

The Employment Law consists of measurable variables and is testable. Obviously, this is the scientifically correct way to definitively answer the question.

Right policy depends on true theory: “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)

After 200+ years, orthodox and heterodox economists do NOT have the true employment theory and get the most critical relationship of economics wrong.

Time to retire these incompetent folks.

Egmont Kakarot-Handtke


#1 Mass unemployment: The joint failure of orthodox and heterodox economics
#2 Wikimedia, Employment Law

For details of the big picture see cross-references Employment/Phillips Curve.


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REPLY to Vincent J. Geloso, Graydon, JEC on Jan 2

You are merely playing ping-pong with worn-out slogans.

It is incumbent upon me to inform you that the microfoundations approach is long dead and buried. Its incurable methodological defect is well known, it is the Fallacy of Composition. Only imbeciles still argue within the analytical framework of supply-demand-equilibrium or General Equilibrium.

Microfoundations have to be replaced by macrofoundations. This methodological operation is known as paradigm shift.

From the correct macrofoundations follows a POSITIVE relation between wage rate and employment for the economy as a whole.

False theory leads to false policy guidance. With their defective microfounded employment theory, economists bear for 140+ years the political responsibility for the social devastation of mass unemployment.

December 27, 2018

#DrainTheScientificSwamp

Links on Nick Rowe’s ‘Explaining S=I: Inventories vs Adding up Individuals’ on Dec 18

Blog-Reference

Macroeconomics is one of the most embarrassing failures in the history of modern science. Fact is that economists do NOT understand to this day that I=S is provably false since Keynes.

Egmont Kakarot-Handtke


Related 'Flawed logic' and 'Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It'.

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REPLY to Roger Sparks on Dec 27

I is NEVER equal to S. Therefore, it is a futile exercise to ‘explain’ I=S with some silly examples.

Here is the proof.

The elementary production-consumption economy is given with three macroeconomic 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 expenditures C is equal to price P times quantity bought/sold X.

In the elementary production-consumption economy, three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Yw, (ii) C is less than Yw, (iii) C is greater than Yw.
  • In case (i) the monetary saving of the household sector Sm≡Yw−C is zero and the monetary profit of the business sector Qm≡C−Yw, too, is zero. The product market is cleared, i.e. X=O in all three cases. Accordingly, the market clearing price as the dependent variable is given by P=C/X=W/R.
  • In case (ii) monetary saving Sm is positive and the business sector makes a loss, i.e. Qm is negative. The market clearing price P is less than W/R.
  • In case (iii) monetary saving Sm is negative, i.e. the household sector dissaves, and the business sector makes a profit, i.e. Qm is positive.

It always holds Qm+Sm=0 or Qm=−Sm, in other words, the business sector’s profit is equal to the household sector’s dissaving and the business sector’s loss is equal to the household sector’s saving. In still other words, saving is NOT equal to investment because there is NO investment in the elementary production-consumption economy.

Under the condition that the price remains constant, the market does not clear if saving is greater than zero, i.e. O−X>0 if Sm>0, i.e. the business sector’s inventory increases. The valuation of the inventory is NOT predetermined. For example, if it is valued with zero, then inventory investment is zero and I is NOT equal to Sm. If it is valued higher, then inventory investment is positive but still unequal to Sm.#1

Keynes started macroeconomics with false premises and ended with false conclusions: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)

Keynes’ premise income = value of output is false. From the correct macroeconomic axioms follows:
(1) Qm=−Sm in the elementary production-consumption economy,
(2) Qm=I−Sm in the elementary investment economy,
(3) Qm=Yd+I−Sm in the investment economy with profit distribution,
(4) Qm=Yd+I−Sm+(G−T)+(X−M) in the general case with government in an open economy.

Simple algebra tells everyone that saving is NEVER equal to investment. Both orthodox and heterodox economists are too stupid for the elementary mathematics that underlies macroeconomic accounting.#2


#1 Primary and Secondary Markets
#2 For more details see cross-references Refutation of I=S

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REPLY to Roger Sparks on Dec 29

Nick Rowe writes: “It’s easy to teach students the arithmetic showing that actual saving must equal actual investment (S=I).” and “S=I is an accounting identity, and accounting identities are true by definition.”

Fact is that “S=I is an accounting identity, and accounting identities are true by definition.” is one of the most stupid statements in the history of the failed/fake science of economics.#1, #2, #3 And the fact that all student generations since Keynes parrot this manifest arithmetic garbage is a metric of the desperately low IQ of economics students.

Take notice that the correct accounting identity for the elementary investment economy reads Qm=I−Sm, that is, monetary profit Qm is the difference of investment expenditures of the business sector I and monetary saving of the household sector Sm.

Saving has never been nor will ever be equal to investment. So, ‘explaining’ I=S is not easy, just the opposite, it is impossible.

The fact that economists still claim ― 80+ years after Keynes committed the lethal blunder ― that I equals S is due to their utter scientific incompetence. This thread is the very proof that Nick Rowe and Roger Sparks and the rest (except Jamie, who got it: “This makes me want to scream in frustration”) are too stupid for the elementary mathematics that underlies macroeconomic accounting.#4, #5


#1 Wikipedia and the promotion of economists’ idiotism
#2 MMT and the single most stupid physicist
#3 Truth by definition? The Profit Theory is axiomatically false for 200+ years
#4 A crash course in macro accounting
#5 For details see cross-references Accounting

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REPLY to Nick Rowe on Jan 1

You write: “Here’s the arithmetic of S=I: Define Y as market value of newly-produced final goods (and services). In a closed economy … we divide Y into consumption goods C and investment goods I, so Y=C+I. And we define saving S as S=Y−C. Substitute the first equation into the second to get S=Y−C=C+I−C=I, so S=I.”

This is Keynes’ argument of GT p. 63. It is false because Keynes got macroeconomic profit wrong: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

Let this sink in: the economist Keynes NEVER understood the foundational concept of his subject matter. And After-Keynesians NEVER spotted Keynes’ blunder.

In order to get the “arithmetic” right, one has to go back to the most elementary macroeconomic configuration, that is, the elementary production-consumption economy which consists of the household and the business sector.

In this elementary economy, three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Yw, (ii) C is less than Yw, (iii) C is greater than Yw.

  • In case (i) the monetary saving of the household sector S≡Yw−C is zero and the monetary profit of the business sector Q≡C−Yw, too, is zero. The product market is cleared, i.e. X=O, i.e. there is NO change of inventory.
  • In case (ii) monetary saving S is positive and the business sector makes a loss, i.e. Q is negative.
  • In case (iii) monetary saving S is negative, i.e. the household sector dissaves, and the business sector makes a profit, i.e. Q is positive.

It always holds Q+S=0 or Q=−S, in other words, at the heart of the monetary economy is an identity: the business sector’s surplus (deficit) equals the household sector’s deficit (surplus). In other words, profit is the counterpart of dissaving and loss is the counterpart of saving. This is the most elementary form of the macroeconomic Profit Law.

For the elementary investment economy the Profit Law reads Q=I−S. As everyone can see, there is NO such thing as an accounting identity I=S or an equilibrium of saving and investment.

Since 80+ years, I=S is a monument of economists’ mathematical incompetence and “S=I is an accounting identity, and accounting identities are true by definition.” will forever stand out as one of the most idiotic statements in the history of so-called economic thought.

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REPLY to Roger Sparks on Jan 1

You say: “You can see that business would control the pricing of the products consumed but households would control whether consumption (the second exchange) would occur and when.”

What I indeed see is that you are one of those undereducated blatherers who overpopulate economics. The point at issue is the macroeconomic “arithmetic” and not human behavior/control. More specifically, the point at issue is the refutation of the brain-dead assertion: “S=I is an accounting identity, and accounting identities are true by definition.”

The point at issue is that I=S is mathematically false and by NO means “true by definition” and that economists are too stupid for macroeconomic accounting#1 and that they, after 200+ years, still do not understand what profit is.

Make no mistake, I=S is not only disqualifying for you and Nick Rowe but for the entire profession.#2

In the elementary production-consumption economy, the price is under the condition of market clearing, i.e. X=O, and budget balancing, i.e. C=Yw, the dependent variable, i.e. P=W/R. If the condition of market clearing is dropped and the firm sets the price then the market is NOT cleared and the change of inventory is given by O−X.

All these cases have been dealt with elsewhere#3 and they are NOT relevant for the point at issue. So, they can be left out for the moment. Again, the point is that investment is NEVER equal to saving and that Nick Rowe’s attempt to explain I=S is 200+ light years beside the point, as usual.#4

This is the state of economics: Walrasian microfoundations are false and Keynesian macrofoundations are false. There is NO economics that satisfies the criteria of science, only senseless blather.


#1 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
#2 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
#3 Primary and Secondary Markets
#4 Cryptoeconomics ― the best of Nick Rowe’s spam folder

December 25, 2018

The failure of Post-Keynesianism

Comment on V. Ramanan on ‘Michal Kalecki On The Effect Of Wages On Employment’

Blog-Reference and Blog-Reference

Kalecki is quoted as follows: “… a wage rise … leads ― contrary to the precepts of classical economics ― to an increase in employment. Conversely, a fall in wages … leads to a decline in employment.”

This statement is correct, however, the underlying macroeconomics is defective. More precisely, Kalecki’s profit theory is provably false. Because of this, the rest of his analytical superstructure is false. Kalecki provides an example of the phenomenon that true statements apparently follow from false theories. In order to sort things out, though, one needs the true theory.

For details see
► NAIRU: an exhaustive dancing-angels-on-a-pinpoint blather
► Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
► The key relationship between employment and growing/shrinking debt
► Why Post Keynesianism Is Not Yet a Science
► Truth by definition? The Profit Theory is axiomatically false for 200+ years
► Cross-references Kalecki

Egmont Kakarot-Handtke


Related 'Kalecki and Keynes: The double macroeconomic false start' and 'The magic circuit and how economists got it wrong' and 'Forget Keynes'. For details of the big picture see cross-references Keynesianism and cross-references Refutation of I=S.

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Wikimedia AXEC138

December 23, 2018

MMT sucks

Comment on the Principles of MMT

Blog-Reference

For everyone interested in MMT and the current state of the debate, Bill Mitchell and Warren Mosler have provided a “fairly precise account” of the “essence of MMT”.#1 This account is used here as a canonical reference for the final refutation of MMT. The following is a concise verbal summary, formal proofs have been given elsewhere.#2

1. MMT is bad theory


The fatal analytical blunder is to be found under the heading “Principle 3: The Public Debt story.” It goes as follows: “In trying to understand, the issuance of public debt, we note that funds spent by the State into the non-government sector (for goods and services) is either lost to the economy when taxes are paid, or remains in the economy as savings until used to pay taxes. That is just a matter of accounting. The ‘savings’ are stored as financial assets in various forms. As a matter of accounting between the sectors, a government fiscal deficit … adds net financial assets (adding to non-government savings) available to the non-government sector and a fiscal surplus has the opposite effect.”

The whole MMT blunder/fraud sits in the term “non-government sector”, sometimes also referred to as “private sector” or “private domestic sector”.

There is NO such thing as the “non-government sector”, there is the business sector and the household sector and the balance of the household sector is saving/dissaving and the balance of the business sector is profit/loss. And both cannot be lumped together to “saving of the non-government sector”. Methodologically, this is called the Humpty Dumpty Fallacy. This fallacy makes macroeconomic profit disappear. Notice that the word profit ― the pivotal magnitude of economics ― is not to be found in Mitchell’s/Mosler’s canonical summary of MMT principles. This alone is disqualifying for economic theory.

MMT gets macroeconomic accounting wrong. Both MMTers and anti-MMTers do not understand the elementary mathematics that underlies macroeconomics. They are scientifically incompetent. The representative economists cannot tell to this day which of the two macroeconomic relations is true/false: (i) (I−S)+(G−T)+(X−M)=0 (ii) (I−S)+(G−T)+(X−M)−(Qm−Yd)=0.

Eq. (i) represents a zero profit economy and constitutes the formal foundation of MMT. Obviously, MMT academics do not know what they are talking about. MMT is proto-scientific garbage, i.e. a bunch of inconsistent slogans with an emotionally reinforced common-sense plausibility.

2. MMT is bad policy


With regard to the government’s budget, the axiomatically correct sectoral balances equation (ii) boils down to Public Deficit = Private Profit, i.e. (G−T)=Qm. This piece of pure economic analysis translates into the political insight that MMT’s policy of deficit-spending/money-creation is nothing but a free lunch for the Oligarchy.

Politically, self-styled MMT Progressives claim to promote the cause of WeThePeople. This claim is false. The ultimate purpose of the MMT policy of deficit-spending/money-creation is to keep the Oligarchy on life-support. MMTers are false saviors of humanity.

3. MMTers are bad people


At least, one could say, MMTers care for the unemployed, vulnerable, and poor. Not really. The MMTer resembles a man who prints counterfeit money, say a million, and distributes it with great fanfare among the poor of the town. The media praise him as a fine example of social responsibility and charity. The economic effect of the matter, though, is that the workers are the real benefactors who unwittingly are made to share their real income with the poor. The redistribution of output is effected by a barely noticeable price hike. In real terms, the ostensible MMT do-gooder does in fact NOTHING. MMT’s social policy is a hot-air PR stunt.

In addition to social hypocrisy, MMTers are guilty of violating scientific standards, suppressing/blocking/censoring critique/refutation/exposure in the econoblogosphere, of disinformation, and of phrase-mongering.

Finally, MMTers not only deceive the general public but actively try to subvert the genuine social grassroots movements.

4. Delete MMT ― Paradigm Shift ― New Paradigm


Being indefensible, MMT goes straight down the drain. However, “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug) Mere critique of MMT does not help much. Macroeconomics, including the Theory of Money, has to be reconstructed from the ground up.

The new paradigm is the final nail in the coffin of MMT.

Methodological rule No 1: One has to start with the simplest possible economic configuration. The elementary production-consumption economy is defined with this set of macroeconomic 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 (1), 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.

The price is determined by the wage rate, which takes the role of the nominal anchor, and the productivity. From (1) follows W/P=R (2), i.e. the real wage is equal to productivity. Ultimately, productivity determines the real value of money.

If one wants absolute price stability in the elementary production-consumption economy from beginning to eternity one has to apply the simple rule: change of wage rate = change of productivity. This prevents both inflation and deflation.

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, or Qm=−Sm, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing, total monetary profit is zero.

In the analytical beginning, there is no state and no central bank. The firm pays the monthly wages with a standardized IOU and declares that this conveniently denominated title will be unconditionally accepted at the firm’s store. The employees accept that the IOUs discharge their wage claim against the firm. Since the household sector’s budget is balanced by the initial condition C=Yw, whatever the firm issues, returns until the end of the period under consideration. The firm creates IOUs and destroys them again within a short time span, i.e. a month. No IOUs are carried over to the next period. The firm’s IOU is a pure transaction medium that is continuously created out of nothing and then again destroyed. There is NO such thing as a fixed physical Quantity of Money.

The firm’s rule for IOU-creation is IOU=kYw, i.e. the nominal volume of IOUs is strictly proportional to the wage bill. The creation of money is NOT tax-driven but wage-driven.

As a result, one has a fiat money economy with absolute price stability. No taxes are needed to force the workers to accept the firm’s privately created money. If all stick to the rules, they get an inflation-free fiat money economy and if the productivity increases over time, the real wage of the workers increases.

Problems arise, of course, if corruption sneaks in. For example, if the firm issues IOU’s in excess of the wage bill and the money is spent by a third party. This causes a price hike (NO inflation) and the real wage falls below the productivity. The business sector makes a profit which is equal to the excess IOUs. This is what MMT’s policy of deficit-spending/ money-creation amounts to when the smokescreen of political slogans is taken away.

In the next step, the creation of the firm’s private IOUs is replaced by the creation of public money by the central bank. The role of the state is to define the legal framework for the smooth and corruption-free functioning of the fiat money system.

5 Conclusion


A fiat money economy with perfect price stability and full-employment is possible in principle. This economy, though, is institutionally different from the runaway economy that has historically developed. The actual economy functions only because of a permanently growing public debt. The role of the state is defined by the Profit Law Public Deficit = Private Profit. The very survival of the capitalistic economy depends on the state. The idea of a state-free efficient supply-demand-equilibrium capitalistic economy that maximizes overall welfare is a figment of the imagination. The Invisible Hand of the market economy belongs to the state who hands out overall profit and thus indefinitely postpones the breakdown of the system.

Progressive economic policy consists of creating new institutions that guarantee a crisis-free functioning of the fiat money economy.

MMT is a falsified economic theory. It is scientifically unacceptable and has to be fully replaced by a new macroeconomic approach. The best thing that can be said of MMT is that Walrasianism, Keynesianism, Marxianism, Austrianism are even worse.

Egmont Kakarot-Handtke


#1 When two original MMT developers get together to discuss their work
#2 For the full-spectrum refutation of MMT see cross-references MMT

Related 'MMT: The fusion of Wall Street and Academia' and 'Economics: A pointless left-right wrestling show' and 'Are economics professors really that incompetent? Yes!' and 'MMT: Time to say goodbye'.

Immediately preceding MMT Progressives: The knife in the back of WeThePeople.

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REPLY to Noah Way on Dec 23

You say: “My guess is that this would not serve your purpose as you are seeking personal advancement in a narrow, largely non-scientific academic field and that nothing else matters.”

You can speculate until you are blue in the face. What matters is facts and proofs. Fact is that MMT is refuted on all counts.

Your bad luck is that there is nobody at the MMT troll school who can read a simple economic equation and explain to you what refutation means.

Refutation means that MMT is out and that MMTers are out. As Hume said, “... when the road ends at a coal-pit, he [the traveler] doesn’t need much judgment to know that he has gone wrong, and perhaps to find out what has led him astray.”

However, with your mind-reading capabilities, you can perhaps make a spectacular career move from troll to soothsayer.

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REPLY to Clint Ballinger on Dec 25

You cite me: “The employees accept that the IOUs discharge their wage claim against the firm” and ask: “Why would they do that?”.

It is a bit schizo that you have left the discussion already three times with: “Anyway, can quit wasting my time now at least.” and then come back with some silly question.

When you go to the supermarket you end up with a heap of various items. You, like everybody else, do not carry the items home one by one but put them in a shopping bag and henceforth handle the bag and forget the individual items until you unpack the bag again. Although each step in the process is rather simple, a lot of things can go wrong between packing and unpacking and what arrives at home is sometimes not the same as what has been bought.

For the person of a delivery service, it is completely irrelevant what items are in the bags and parcels and containers which they transport from A to B.

It is analogous in methodology. It makes good sense to put a heap of details in a conceptual bag and then forget the details for a while and operate with the bag. This logical operation is called abstraction. Many people fail already at this first step and fall into the Fallacy of Insufficient Abstraction.

The statement: “The employees accept that the IOUs discharge their wage claim.” is a conceptual bag. In a post, one uses many conceptual bags because it is neither desirable nor necessary to deal with the implicit details.

For the question of how the monetary economy works it is NOT necessary to unpack the behavioral bag and to elaborate on the question of why people do what they do. What is more, to deal with motives and mental processes is the proper business of psychology/ sociology and NOT of economics.

For the economist, it is sufficient to know that the worker accepts a token as wage, e.g. an entry on his electronic account at the central bank, and it is useless to exhaust oneself with psycho-sociological speculation about why he does so.

The problem of economics is that people love to speculate about other peoples’ motives and behavior despite the fact that already the ancient Greeks knew that this is a futile exercise. This is how the representative economist got lost in the wood of utility maximization and became a proto-scientific laughing stock.

Economics is a system science and therefore the whole PsySoc stuff is put into a conceptual bag that functions like a black box where only input and output are of interest.

The difference between the competent and the incompetent scientist is that the latter gets lost in motivational and behavioral speculation which is triggered by the WHY question.#1 Needless to emphasize that the PsySoc-WHY never leads to an objectively verifiable answer but only to the clueless blather that is the hallmark of economic debates.

The issue of economics is how the economic system works and NOT why people prefer strawberry yogurt over raspberry yogurt. The answer to the first question is (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 and it is testable with the precision of two decimal places.

So, my answer to your silly question “Why would they do that?” is, pick it out of your nose.


#1 YouTube, Richard Feynman on Why Questions


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REPLY to Clint Ballinger on Dec 25

You say: “Why would someone work all day for a token that is not usable in their general society? And what would make a token usable in general society (not just the Firm’s store)? ”.

The analysis starts, for good methodological reasons, with one giant firm. This is, obviously, an analytical limiting case. Therefore, the analysis proceeds by differentiation, that is, by splitting the business sector successively into two and more firms. Differentiation is the inverse operation to aggregation. Differentiation is methodologically superior because it avoids the Fallacy of Composition.

With more firms, it becomes obvious that private IOU’s become exponentially more awkward and that a public IOU a.k.a. money is needed as a transaction medium.

In science, you have to identify the logical origin and NOT the historical origin. Physicists, for example, do not figure out the laws of thermodynamics by asking who invented the fire and why and how and when and where did it happen. Science and History are different things.

Being storytellers, though, MMTers try to give a psycho-social historical account. This is pointless.

If you were a bit smarter you would have googled all the answers#1 and thus avoided to expose yourself as a dumb and lazy troll.


#1
► Essentials of Constructive Heterodoxy: Money, Credit, Interest
► Exchange in the Monetary Economy
► Reconstructing the Quantity Theory
► The ultimate ― analytical ― origin of money
► Money: from silly stories to the true theory

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REPLY to Clint Ballinger on Dec 26

Let us sum up:
1. MMT is bad theory
2. MMT is bad policy
3. MMTers are bad people
4. MMT has been replaced by the new macrofounded paradigm
5. Conclusion

MMT is another falsified economic theory. Its material/formal inconsistency is proved according to universally valid scientific criteria. Needless to emphasize that MMTers do not understand this, after all, they have not realized to this day that their foundational sectoral balances equation is mathematically false. In this respect, they are not different from their mainstream colleagues who have not realized for 140+ years that supply-demand-equilibrium is proto-scientific garbage.

MMTers are unable to follow the logical steps of proof and cannot accept refutation. They have never risen above the level of storytelling. Clint Ballinger, in particular, has not realized to this day that there is a difference between an argument and verbal diarrhea.#1

Get it, MMTers, you are refuted once and for all. Your sectoral balances equation (I−S)+(G−T)+(X−M)=0 is false and has been replaced by (I−S)+(G−T)+(X−M)−(Qm−Yd)=0.

Now, stop your desperate blathering and bury yourself in a footnote in the already over-embarrassing history of so-called economic thought.


#1 The creation and value of money and near-monies

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REPLY to Clint Ballinger on Dec 26

As Keynes said, the proper starting point for economic analysis is the monetary theory of production. The elementary production-consumption economy consists of the household sector and the business sector which in turn consists initially of one giant fully integrated firm. Starting with the simplest configuration, money then evolves logically (NOT historically) as follows.

(i) The worker Y produces 5 pieces of stuff and gets at the end of the day a slip of paper saying: Firm X owes Mr. Y 5 pieces of stuff. Worker Y goes to the firm’s store, presents the slip of paper, takes the stuff, goes home and consumes all with his family. This repeats day after day. Worker Y has no reservations accepting the firm’s IOU but complains that it is a bit inconvenient that he has to personally go to the firm’s store and to identify himself.

(ii) The firm increases fungibility by changing the text on the IOU to Firm X owes the bearer of this slip of paper 5 pieces of stuff. Now, Mr. Y’s wife or children or anybody else can go to the firm’s store and get the stuff. Needless to emphasize that this opens the door to counterfeiting and that the firm has to take measures to prevent abuse.

(iii) Because the firm introduces the division of labor, nobody can tell any longer how much the individual worker has produced. The overall productivity increases and on the average each worker produces now, say, 20 pieces of stuff. The firm changes to paying wages. The text on the IOU changes to Firm X owes the bearer of this slip of paper 100 $. Worker Y goes to the store and buys 20 pieces of stuff for the price of 5 $ each.

(iv) The economy grows and the number of firms and products multiplies. The mutual acceptance of private IOUs becomes a complexity problem. Therefore, private IOUs are replaced by universally acceptable central bank IOUs. The text on the note says now The National Central Bank owes the bearer of this note 100 $. Each worker and each firm accepts central bank money. Central bank money is created out of nothing with the firms’ wage payments and destroyed with the firms’ repayments which are equal to households’ consumption expenditures. The notes are 'backed' by the business sector’s output. The real value of money is determined by the productivity, it holds W/P=R with W wage rate per hour, P price of one unit of stuff in $, R productivity stuff per hour.

(v) In the final step, notes are abolished and worker Y gets at the end of the day the four characters 100 $ on his central bank account. He pays for stuff by swiping a card and authorizing the transactions. The central bank handles all transactions, i.e. paying wages and buying stuff.

(vi) The central bank/state can allow private banks to create fiat money and to carry out transactions.

It goes without saying that each step of the progressive abstraction of physical money to pure information processing requires institutional/legal precautions. The acceptance of IOU’s/fiat money is the precondition of doing business/participating in the economy. The alternative is working in the garden and bartering parts of the output.

Taxation is NOT needed to get a monetary production economy going. The state is indispensable, though, for implementing the institutional/legal framework.

***
REPLY to Noah Way on Dec 27

You say: “You just have to love how Egmont bashes Keynes and then uses him as the basis for bus economic analysis.”

Keynes saw the necessity of a paradigm shift#1 but he messed up the move from microfoundations to macrofoundations.#2 He has to be praised for the former and bashed for the latter. No contradiction here.

MMT has to be praised for debunking mainstream monetary theory but bashed for messing up macrofoundations.#3 No contradiction here.


#1 “The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight — as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.” (GT)
#2 Keynes and the logical brilliance of Bedlam
How Keynes got macro wrong and Allais got it right
Keynes, the methodologist
What Keynes really meant but could not really prove
#3 Wikipedia and the promotion of economists’ idiotism

***
REPLY to Clint Ballinger on Dec 27

You quote: “private IOUs are replaced by universally acceptable central bank IOUs” and ask “What makes them ‘universally acceptable’?”

With one firm, which is a logical limiting case, the creation/destruction of money according to the ‘needs of trade’ (Banking School term) in the form of private IOUs is no problem.

With multiple firms/products, the need for money changers arises if the worker of firm A wants to spend his wage=IOU of A on the stuff of firm B which pays its workers with B-IOUs. So, there has to be an intermediary exchange of A-IOUs against B-IOUs. This is a bit awkward and becomes prohibitive if the number of private money issuers increases.

So, if the state steps in and changes the monetary order within a certain geographical territory and issues public IOUs people rejoice because the transaction costs fall precipitously.

There are NO taxes needed to force public IOUs=fiat money upon the people because they appreciate the huge gains of transaction efficiency.

Problems with fiat money arise only with abuse/corruption, that is, with MMT’s deficit-spending/money-creation.#1


#1 MMT is ALWAYS a bad deal for the 99-percenters

***
REPLY to Noah Way on Dec 27

You say: “Please cite previous/existing implementations of MMT and their bad effects on the 99%.”

MMT policy boils down to deficit-spending/money-creation. This policy is not new,#1, #2 only the progressive social fig-leaf and the permanence are new. Roughly speaking, MMT adds social deficit-spending to military deficit-spending. According to the macroeconomic Profit Law, i.e. Public Deficit = Private Profit, MMT’s permanent deficit policy amounts to a permanent free lunch for the Oligarchy, stealth taxation for the 99-percenters, and a heavily skewed distribution of income and financial wealth.#5

Roughly speaking, most of what is sick with the economy and in particular distribution is a direct or indirect result of the long-standing policy of deficit-spending/money-creation.#6

MMT’s social policy is just another political fraud and you are, wittingly or unwittingly does not matter, part of it.#7


#1 Keynes, Lerner, MMT, Trump and exploding profit
#2 Keynesianism as ultimate profit machine
#3 MMT, money creation, stealth taxation, and redistribution
#4 The profit effect of a Job Guarantee
#5 Profit and the decline of labor’s nominal share (I)
#6 Full employment through the price mechanism
#7 MMT and the promotion of Wall Street socialism

***
REPLY to Clint Ballinger on Dec 28

You ask: “Why are there Firms in your model? Where do they come from?”

Taken to its logical end, all evolutionary questions ultimately arrive at the Big Bang as first cause. However, for the purpose of analysis, usually a more recent event is taken as a logical starting point. In science, the premises of analysis are clearly stated as a set of axioms.

For example, the Walrasian program is “organized around the following hardcore propositions: HC1 There exist economic agents, HC2 …” (Weintraub)#1

Thus, the question “Why are there humans in your model? Where do they come from?” is not answered at all by neoclassical economists. Of course, it could be answered by any kindergartner with: because my parents had sex. However, instead of saying that humans come from the equilibrium of supply and demand of sex, economists cut the infinite regress short by axiomatizing “HC1 There exist economic agents”. Nobody, except perhaps Clint Ballinger, has any qualms with accepting the first neoclassical axiom. In fact, the trouble comes with the rest of microfoundations HC2 to HC6.

Likewise, the set of macrofoundations that fully replaces microfoundations is introduced by (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.”#2

This is how the firm comes axiomatically into existence: “The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen)#3

Of course, one can always regress further back in the direction of the Big Bang. And if you were not so stupid/lazy you would have found out that this has already been done.#4, #5

Roughly speaking, the reorganization of multiple individual labor inputs to a phased division of labor/specialization results in a productivity increase. Remember Adam Smith’s story of the pin factory? The organizational entity that realizes the intricate division of labor for the production and marketing of stuff is called firm. In a second step, the firms that make up the business sector are more specifically defined as legal entities. Analysis proceeds from the simple to the complex.

Note that the logical origin of the firm is something quite different from the historical origin. Economic theory deals with the logical origin of the abstract entity firm. The historical evolution of the corporation in country X or Y is an entirely different matter.

Of course, most people prefer historical storytelling to axiom-based analysis. And this is why economics is still at the proto-scientific level. MMTers, for example, have not realized to this day that their sectoral balances equation is false. Needless to emphasize that the MMTer Clint Ballinger never asks where his incompetence comes from.


#1 The creative destruction of Wren-Lewis
#2 True macrofoundations: the reset of economics
#3 Why economists know nothing
#4 Matter Matters: Productivity, Profit, and Non-Marginal Factor Prices
#5 Nietzsche, entropy, full employment, and NO class war

***
REPLY to Clint Ballinger on Dec 28

You hallucinate: “But also ‘the money that has been created out of nothing has to be destroyed eventually.’ Your money would not have value without taxation, in your own words.”

In the most elementary case, the central bank creates money out of nothing as deposits for the business sector on the liability side of its balance sheet which is exactly balanced by overdrafts of the business sector on the asset side.#1, #2

The deposits are then transferred as wages to the household sector.

The deposits then return to the business sector because consumption expenditures are, for a start, equal to wage income.

The return of the deposits amounts to repayment and successively reduces the overdrafts of the business sector until both sides of the central bank’s balance sheet are again zero.

Money (= central bank deposits) has been created and destroyed by the autonomous transactions between business and household sector. No taxes are involved. The real value of money is determined by the productivity of current production, i.e. W/P=R, NOT by taxation.


#1 The Fisher Effect ― another piece of nincompoop-economics
#2 MMT: Just another political fraud

***
REPLY to Clint Ballinger on Dec 28

You hallucinate: “The business sector makes a profit and provides goods and services. You believe the business sector/(firms’) profit comes from deficit spending and both deficit spending and business profit should be done away with via a 100% tax on business profit (which also gives value to your ‘currency’). You want to nationalize all businesses basically.”

I do not “believe” that the business sector/(firms’) profit comes from deficit spending but I PROVE that Public Deficit = Private Profit. A fact that is deliberately obfuscated by MMTers.#1

I do not “believe” that “business profit should be done away with via a 100% tax on business profit. You better re-read my ‘The Third Way: Towards the happy Zero-Tax Economy’#2 were the feasibility of a Zero-Tax economy is demonstrated. This logical limiting case shows also that the value of money does NOT depend on taxation because taxes are zero.

To show the feasibility of a Zero-Tax economy is NOT to propose 100% taxation of profits. If you do not understand anything do not recount it in your confused Pidgin but simply post a link to the original. This is a tried and tested method to exclude misrepresentation.

You say: “There is a reason there is a business sector. Private organizations can often produce more than the sum of all of its individuals’ production.” Yes, welcome to economics, this is common knowledge at least since Adam Smith’s pin factory. And yes, I have dealt with the productivity effect of collaborative production elsewhere.#3

You say: “How this increased production is distributed is a political question, not an economic question.” No, in the elementary production-consumption economy holds W/P=R. By consequence, any productivity increase translates directly into a real-wage increase. Take notice that profit for the business sector as a whole does NOT AT ALL depend on productivity.#4 This is the Fallacy of Composition, the mass grave of imbeciles.

And so your hallucinations and misrepresentations go on and on. Every single argument of yours is false and has already been refuted elsewhere. Any smart kindergartner can google it and make up their own mind.#5

MMT is refuted. MMT is a political fraud. MMT is scientifically indefensible. Your senseless filibuster only confirms what everybody knows already.


#1 MMT and the magical profit disappearance
#2 The Third Way: Towards the happy Zero-Tax Economy
#3 Matter Matters: Productivity, Profit, and Non-Marginal Factor Prices
#4 The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?
#5 For the full-spectrum refutation of MMT see cross-references MMT

***
REPLY to Clint Ballinger on Dec 29

You say: “Egmont writes ‘All that has to be done is to distribute the full amount of monetary profit, i.e. Qm=G, to the...Sovereign.’ That is a 100% Tax on profits.”

Profit distribution and taxation are different things. The usual procedure is as follows: (i) the firm calculates its profit at the end of the year, (ii) a decision has to be made whether to distribute all or part of the profit to the shareholders or to retain it, (iii) the dividend is then paid out to shareholders. The total amount of distributed profit is given by Yd=DN with D dividend and N number of shares.

The shareholders are either private persons or other firms or pension funds or charitable trusts or hedge funds or foreign countries, you name it.

It may also happen that local/regional/central government entities are shareholders. In this case, “the state” gets a dividend. This, though, is still profit distribution and NOT taxation. As always, Clint Ballinger gets the essentials of economics wrong.

Retarded MMTers do not realize it, but the Zero-Tax economy is the logical implication of MMT principles. MMT says that taxes are not needed to fund spending. So, let’s do away with it! The budget deficit G−T is then equal to government spending G because of T=0. This is maximum deficit-spending/money-creation, the implicit ideal of MMT.

According to the axiomatically correct macroeconomic Profit Law, it holds Public Deficit = Private Profit, i.e. Qm=G. The business sector makes the maximum profit because the budget deficit is maximal.

Now let us assume for simplicity that profit is fully distributed to the shareholders and that the firms are fully owned by the Oligarchy then, clearly, we have a 100% government feeding of the Oligarchy. That is an economic perversion. To my knowledge, no constitution in the world defines the role of the state as feeding the Oligarchy.

This logical limiting case, though, is the implicit ideal of MMT policy guidance. No problem with this, but MMTers should not call themselves Progressives who care and fight for the people.

However, there is another MMT principle that can be applied: The government can create money out of nothing and buy anything that is for sale.

So, let the government buy all shares of the business sector. Now, the government is the sole shareholder and receives distributed profits. In the 100% case, distributed profit Yd is equal to the public deficit G. There is NO taxation. The government as shareholder gets a dividend. Dividends are NOT taxes.

Although the Zero-Tax economy does not violate any MMT principles, MMTers do not like it. The Zero-Tax economy proves that taxes do NOT drive money and do NOT give value to the currency because of T=0. In addition, as agenda pushers of the Oligarchy, MMTers want profits to be distributed to the Oligarchy and not the state. MMTers need the state only for deficit-spending.

The question is, though, if the government can buy anything with self-created money according to the fundamental MMT principle why should it not buy the stock market?

The economist as a scientist is absolutely indifferent about profit distribution or any other political issue because he knows that this is ultimately an institutional decision of the Legitimate Sovereign. The economist is NOT the Legitimate Sovereign. MMTers, too, are NOT the Legitimate Sovereign but creatures from the proto-scientific gutter.

***
REPLY to Noah Way on Dec 29

In economics, psychobabble does not help. Dunning-Kruger does not help. Only proof counts. Refute this

false (I−S)+(G−T)+(X−M)=0 MMT,
true (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 AXEC.

***
REPLY to Bob Roddis on Dec 30

You say: “There is no ‘profit law’. Every film company on the planet could make a movie in a one year period that flops and costs more than it earns. … There is nothing to argue about here. There simply is no ‘profit law’.”

Take notice that the Profit Law, i.e. Qm=Yd+(I−Sm)+(G−T)+(X−M)#1, is a macroeconomic relation. Needless to emphasize that (i) a single firm on the microeconomic level can make either profit or loss, and (ii), that the business sector as a whole can make either profit or loss. So Profit Law is only an abbreviation of Macroeconomic Profit/Loss Law.

Indeed, the Profit Law tells one in no uncertain terms that the market economy will eventually break down BECAUSE of macroeconomic losses.#2

There is nothing to argue about here: (i) you do not understand the difference between the macro- and the micro-level, (ii) you run straight into the Fallacy of Composition, (iii) you cannot read a simple equation.

You are even more stupid than Clint Ballinger and Noah Way put together. Who would have thought that this is possible?


#1 Wikimedia AXEC143 Profit Law
#2 Mathematical Proof of the Breakdown of Capitalism

***
REPLY to Clint Ballinger on Dec 30

You hallucinate: “He [Egmont] has reinvented Coase, Bravo.”

I reinvent nothing but start axiomatically with (i) there exists a household and a business sector, (ii) the household sector consists of households, (iii) the business sector consists of firms, (iv) at the beginning, the business sector consists of one giant firm.

Coase was committed to methodological individualism which starts with the axiom HC1 There exist economic agents. Because of this, he had to explain the firm. With his phony explanation, Coase goes down the scientific drain together with the whole of Walrasianism.

Microfoundations is a failed approach as even you should have realized by now. This requires a paradigm shift from microfoundations to macrofoundations. And macrofoundations start with (A0) There exists a household and a business sector.

By the way, MMT is macrofounded. The sectoral balances equation (I−S)+(G−T)+(X−M)=0 is a macroeconomic relation, although a logically defective one. It may have escaped your attention, but the elementary analytical units of MMT are sectors and not individuals. MMT neither needs nor has a theory of the firm but simply postulates it. Therefore, to cite Coase in defense of MMT is a bit gaga.

***
REPLY to Bob Roddis on Dec 30

You quote: “Indeed, the Profit Law tells one in no uncertain terms that the market economy will eventually break down BECAUSE of macroeconomic losses.” and exclaim: “That allegation is totally baseless and a bunch of nonsense.”

Let us reduce the Macroeconomic Profit/Loss Law, in short, the Profit Law, to Qm=I−Sm. This equation says, as long as the business sector’s investment expenditures I are greater than the household sector’s saving Sm, the monetary profit of the business sector Qm is positive. If the growth of the capital stock, expressed by I, slows down, macroeconomic profit falls and may even turn negative, i.e. become a loss. This means, firms break down, unemployment increases, and the banking system has to write down debt, which, in turn, may lead to a banking crisis. The process is self-reinforcing and if this lasts longer, the economy breaks down. Every recession gives you a foretaste of what happens if the algebraic sign of Qm switches from positive to negative.

So, roughly speaking, if growth ends, that is, if it goes to zero, the market economy will break down. This is NOT a “baseless allegation” but follows straight from the Profit Law which consists of measurable variables and is therefore testable. Your problem is that you do not know how the economy works and what science is. This you have in common with Clint Ballinger and Noah Way.

***
REPLY to Bob Roddis on Dec 30

You say: “Your statements are nothing but a proposed model, a model that has no relationship to reality and which is not helpful in understanding reality. Your model is certainly is not ‘axiomatic’.”

My guess is that you have looked up the word axiom five minutes ago in some folk encyclopedia.

I am not going to explain the relationship between a set of economic axioms, a model, and reality to a hopeless Austrian blatherer. All the more so because this information has been made publicly available long ago.#1, #2, #3, #4, #5

Axiomatization is the first step of any scientific analysis: “The attempt is made to collect all the assumptions, which are needed, but no more, to form the apex of the system. They are usually called the ‘axioms’ (or ‘postulates’, or ‘primitive propositions’; …). The axioms are chosen in such a way that all the other statements belonging to the theoretical system can be derived from the axioms by purely logical or mathematical transformations.” (Popper)

Needless to emphasize that “statements belonging to the theoretical system” must be empirically testable.

Economics has to be built upon clearly stated premises, i.e. upon a set of axioms.

By the way, what are your axioms? You have none! Yeah, soapbox economists just blather off-the-cuff and need no bloody axioms.


#1 True macrofoundations: the reset of economics
#2 How to restart economics
#3 Don Lars and the axiomatic windmill
#4 AXEC Blogspot Axioms
#5 Wikimedia AXEC137 New Foundations of Economics

***
REPLY to Noah Way on Dec 30

You say: “Axioms only apply to logic and mathematics. As such science does not have any axioms.”

You are dumb as a bag of hammers. Newton’s Principia starts with the famous ‘Axioms or the Laws of motion’.

***
REPLY to Noah Way on Dec 31

Ask you scientific gutter buddy Bob Roddis, even the Austrians apply axiomatization: “The action-axiom is the basis of praxeology in the Austrian School, and it is the proposition that all specimens of the species Homo sapiens, the Homo agens, purposely utilize means over a period of time in order to achieve desired ends.”#1


#1 Wikipedia, Action axiom

***
REPLY to Noah Way on Dec 31

You say: “Newton’s Laws are not axioms. They were theories that became laws because they have been supported by rigorous and repeated testing.”

Good, let’s put methodology aside for a moment and have an experimentum crucis. This is my challenge to MMTers, refute this empirically:
false (I−S)+(G−T)+(X−M)=0 MMT,
true (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 AXEC.

***

REPLY to Noah Way, Clint Ballinger, Bob Roddis, etcetera on Dec 31

Let’s sum up before 2018 ― the year when MMT was refuted on all counts ― ends. MMT is materially and formally inconsistent. The arguments of all sides are before everyone’s eyes for evaluation.

It has been proved:
• MMT is bad science,
• MMT is bad policy,
• MMTers are bad people.

MMT is out of science. MMT is political agenda pushing. MMT academics are scientifically incompetent. MMTers deceive the general public about the ultimate effects of their policy on distribution. MMT policy is not progressive as claimed, i.e. for the benefit of the ninety-nine-percenters, but for the benefit of the one-percenters.

***
Twitter exchange

December 18, 2018

Urgent: Taking politics out of economics

Comment on Barkley Rosser on ‘100 Percent Of US Senate Against MbS’

Blog-Reference

The status of economics is this: There is political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

Political economics is mere opinion, theoretical economics is knowledge: “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)

Economists do not have the true theory but they have many opinions. 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.

After 200+ years, the status of economics is this: Economics is a failed/fake science and the vast majority of economists are stupid/corrupt political agenda pushers. Economics is an integral part of the political Circus Maximus. Because economists do not have the true theory they are not entitled to give policy advice.#1

Rather odious examples of soapbox economics are provided by the busy communicators across the political spectrum from Paul Krugman to Brad DeLong to Noah Smith to Simon Wren-Lewis to David Glasner to Mark Thoma to Bill Mitchell to Steve Keen to Barkley Rosser.

Barkley Rosser never understood how the economy works and has swapped economics for foreign policy. His field of interest is now the Middle East in general and Mohamed bin Salman bin Abdulaziz al Sa’ud (MbS), in particular. Barkley Rosser has not enough brain for thinking but still enough for journalism and moralizing. His summary of MbS’ role in the Khashoggi affair is: “He is guilty guilty guuilty” and “I think being prevented from becoming the King of Saudi Arabia will be for him the worst punishment.”

Not one iota of economics or objective analysis left ― what remains is gutter journalism.

There is the political sphere and there is the scientific sphere. The political sphere is about agenda-pushing, the scientific sphere is about knowledge. In the political sphere, every imbecile is entitled to climb on a soapbox and to vomit the content of his dysfunctional brain all over the place. In the scientific sphere, people are supposed to contribute something to the growth of knowledge.#2

The two spheres must be kept apart. The strict separation of the scientific sphere and the political sphere is necessary because politics always and everywhere corrupts science.#3 Schumpeter exactly spotted the ultimate cause of the all too obvious scientific failure of economists: “It is only our inability to divorce research from politics, or our suspicion, all too often justified, that the other fellow cannot analyze with single-minded devotion to truth, which makes problems and party issues out of decisions that do not excite anyone in more fortunate fields of research.”

Economics has never been a field of scientific research but a ridiculous political wrestling show.#4 Yes, economists in general and Barkley Rosser, in particular, are “guilty guilty guuilty” of bad science a.k.a. political economics a.k.a. sitcom blather.

Egmont Kakarot-Handtke


#1 Legitimacy lost
#2 Economists: scientists or political clowns?
#3 The end of political economics
#4 Economics: A pointless left-right wrestling show

Related 'Do first your macroeconomic homework'. For details of the big picture see cross-references Political Economics/Stupidity/Corruption and cross-references Failed/Fake Scientists.

***
REPLY to Barkley Rosser on Dec 20

I do not claim expertise of the family life of the House of Sa’ud but I have seen some Inspector Clouseau movies.

Roughly speaking, the Khashoggi story contains some rather improbable elements. For example

• MbS calls his chief of special operations on the phone and tells him to get rid of Khashoggi. No real-world ruler would do this because he knows that his phone is wiretapped. Instead, he would write his order on a piece of digestible paper which his chief of special operations must eat after reading. After all, the supreme principle of statecraft since Machiavelli is plausible deniability.

• The chief of special operations has learned as rule No 1: only idiots carry out an assassination in an embassy of their own country. Rule No 2: make sure that no CCTV photo of your own surveillance system that shows the target person entering your own embassy is ever published in the media.

• It is pure dilettantism to let your colleagues from the other side take live audio/video recordings of how the target person is cut into pieces.

In view of the utter improbability of the whole story your verdict “He [MbS] is guilty guilty guuilty” seems to be a bit hasty. Which tells everyone that your foreign policy competence is even worse than your economics competence.

Who could have imagined that this would be possible?

***
REPLY to Barkley Rosser on Dec 23

In my post of June 29, 2017, I wrote: “Your true competence has always been insightful comments on the sex life of the House of Sa’ud and other celebrities as demonstrated in … ‘Muhammed Bin Nayef Bin Abdulaziz Al Sa’ud Confined To His Palace’.”#1

On Oct 18, 2018, you demanded: “MbS Must Go”#2 and upon my critique that your comment has nothing to do with economics you answered: “You have been repeatedly lectured on how totally inappropriate your complaints that sometimes people here write specifically about politics or other non-economics issues. We can and do write about what we want to and always have. There is no rule or law that says we cannot, and you declaring that we should not or cannot just mskes you look like the totslly worthless arrogant asshole that you are.”

On Nov 27, 2018, you complained: “Trump More Seriously Kowtows To MbS”#3

On Dec 14, 2018, you jubilated: “100 Percent Of US Senate Against MbS.”#4

Apart from my longstanding methodological reprimand that foreign policy is NOT the subject matter of economists but heavily distracts from the main and still unfinished task to explain how the economy works, I wonder why you are so obsessed with this “worthless and ddisgusting and degraded” MbS who tramples all conventions about the proper treatment of journalists underfoot: “Mr. Khashoggi was dead within minutes, beheaded, dismembered, his fingers severed, and within two hours the killers were gone, according to details from audio recordings described by a senior Turkish official on Wednesday.” (NYT)

This is NOT the stuff for highly sensitive economists. Wouldn’t it be much more rewarding for you and your academic colleagues to do some scientific homework and to figure out what profit is?#5


#1 Economists: scientists or political clowns?
#2 Reverse Alchemy: from scientific gold to political shit
#3 “We have sunk very low”
#4 Urgent: Taking politics out of economics
#5 Do first your macroeconomic homework

***
REPLY to Barkley Rosser on Jan 3

In Zero Hedge I read today: “Khashoggi has wrongly been presented by liberal western media as a sort of hero wanting to liberate his own country from the savagery of its Saudi elite. Conveniently, for leftish journals like the Washington Post this ticks a number of boxes, not least of all how it portrays Trump’s key ally in the Middle East ― the house of Saud ― as a brutal dictatorship. But you couldn’t find a better example of the personification of a fake news operative, who wasn’t even a journalist, than Jamal Khashoggi. The 59-year old columnist, we now know, was planning to create an opposition movement which would overthrow the Saudi rulers, the same rulers who paid him handsomely for over 30 years as one of their own ‘journalists’. He was a Muslim Brotherhood acolyte who was on the Qatari payroll, managed by an American lady, who assisted him with his vociferous, if not spiteful, attacks on Mohammad bin Salman. Khashoggi had big plans, with the help of Qatar, to bring down the House of Saud and he wasn’t particularly bothered about abusing the trust of that 30-year friendship, which trusted him and shared information with him.”

Provided that this is not also disinformation, it confirms my long-standing impression that, in addition to your proven economics incompetence#2, you are NOT qualified as foreign policy analyst/journalist either.


#1 Zero Hedge How The Melting Pot Of Truth And Disinformation Became One
#2 Economists: scientists or political clowns?

December 16, 2018

MMT Progressives: The knife in the back of WeThePeople

Comment on Kaivey on ‘Warren Mosler Tweet ― Lessons for Corbyn in “Lerner’s Law”’

Blog-Reference

Kaivey summarizes: “So simply stated, Lerner’s Law would be something like ‘If you try to present your ideas cloaked in the language of you opponents, it will do your cause great damage’. This offers a lesson to Corbyn and his supporters. Corbyn has manfully tried to present policy ideas that currently sit outside what is thought ‘possible’ within the current orthodoxy. He has done so though while trying to present himself as being enthusiastic about balancing the budget, or at least the ‘current’ budget. He has also talked about how he would ‘pay for’ his policies by raising taxes on the rich. Both of these are examples of disguising ‘new doctrine’ as old as Lerner wrote, and leave him open to attacks from those holding on tight to the old.”

Clearly, “Lerner’s Law” is NOT about how the economy works, i.e. an economic law, but a smart advice for effective propaganda.

The core message of MMT is: Almost all economic problems can be solved by deficit-spending/money-creation. Accordingly, budget-balancing is nothing but the false doctrine of the current Orthodoxy a.k.a. Neoliberals. All arguments against a growing public debt are nothing but fear-mongering of the sadistic ruling elite/one-percenters/Oligarchy.

Note that the core message is NOT that temporary deficit-spending/money-creation is a sensible measure in a recession ― almost all economists agree on that ― but that permanent deficit-spending/money-creation is necessary “to advance our wellbeing”.

Radical, progressive, permanent deficit-spenders criticize Corbyn/UK Labour for timid, old-fashioned, cyclical deficit-spending, i.e. long-term budget balancing.

Budget-balancing in any shape or form is anathema to MMT Progressives.#1, #2 MMT Progressives claim to be the true Friends-of-the-People. Nothing could be further from the truth.#3

This is the fact of the matter. The axiomatically correct macroeconomic Profit Law reads Qm=Yd+(I−Sm)+(G−T)+(X−M). With regard to the government’s budget, it boils down to Public Deficit = Private Profit, i.e. (G−T)=Qm. This piece of pure economic analysis translates into the scientific insight that MMT’s foundational sectoral balances equation is false, and into the political insight that MMT’s policy of deficit-spending/money-creation is nothing but a free lunch for the Oligarchy.#4

Progressive MMTers promote the cause of the ruling elite/one-percenters/Oligarchy and NOT of WeThePeople.#5

An additional sign is that MMTers argue consistently against taxing the rich.
• “Do we need the rich’s money?” “No.” (Bill Mitchell)#6
• “The time for pussy-footing with new taxes to extract a little more from the rich is yesterday’s news. There is no time for that. This is the time to create money for change.” (Richard Murphy)#7
• “He [Corbyn] has also talked about how he would ‘pay for’ his policies by raising taxes on the rich. Both of these are examples of disguising ‘new doctrine’ as old as Lerner wrote, …” (Kaivey, above)

The Profit Law tells one that deficit-spending produces profit for the Oligarchy.#8 Permanent deficit-spending produces permanent profit and permanently increases public debt. WeThePeople have to pay interest on this debt via taxes and have to pay back the debt eventually.

MMTers are NOT Friends-of-the-People, just the opposite, they promote the cause of the Oligarchy and actively subvert the genuine grassroots movements in the UK and US.#9, #10

Egmont Kakarot-Handtke


#1 MMT-Progressives: stupid or corrupt or both?
#2 How Bill Mitchell stalks Jeremy Corbyn
#3 MMTers are NOT Friends-of-the-People
#4 MMT: A free lunch for the Oligarchy
#5 MMT: The fusion of Wall Street and Academia
#6 MMT: academic snake oil for the people
#7 You are fighting for life? On all fronts? MMT can save you! Or maybe not?
#8 Keynes, Lerner, MMT, Trump and exploding profit
#9 MMT and grassroots movements
#10 The Kelton-Fraud

Related 'Economics: A pointless left-right wrestling show' and 'Everything you know about MMT is wrong' and 'MMT: Time to say goodbye' and 'Thinking about economic policy for future PM Corbyn' and 'MMT: If you’ve got a problem, I don’t care what it is, let me help'. For the full-spectrum refutation of MMT see cross-references MMT.

Immediately following MMT sucks.

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REPLY to Kaivey on Dec 16

You ask: “Do your equations, Egmont, cover the role played by fractional reserve banking in our economy?”

The AXEC equations prove that the MMT equations are false. Therefore, the rest of MMT’s analytical superstructure including fractional reserve banking is also false. To discuss fractional reserve banking at this juncture would be a distraction from the point at issue, i.e. that MMT is (i) a scientific failure and (ii) a political fraud.

Strictly speaking, MMTers do not qualify for a discussion of a monetary theory that satisfies scientific standards. It is a matter of indifference what Mosler, Mitchell, Lerner, or Keynes ever said about money/interest because their macroeconomics is provably false.

For the relationship between the axiomatically correct sectoral balances equation and the stock of central bank money, which has to be determined first, see
► Money and time
► Basics of monetary theory: the two monies
► The creation and value of money and near-monies
► Nick Rowe’s soapbubbling about money
► Money: from silly stories to the true theory

For more details see the label Money at the AXEC blog and the working papers at SSRN.

As long as the relationship between the sectoral balances and the stock of central bank money is not perfectly clear, there is NO use to discuss fractional reserve banking.

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REPLY to Kaivey on Dec 17

MMTers tell the world that 2+2=5. They are patiently shown that 2+2=4. Yet they simply cannot get their heads around the fact that MMT is scientifically refuted, that Academia (Bill Mitchell and others) and Wall Street (Warren Mosler and others) jointly betray WeThePeople, and that the clueless social media foot-soldiers (Kaivey and others) are part of the scam.

The scam consists of propagating deficit-spending/money-creation as a social benefit for WeThePeople while it is first and foremost money-making for the Oligarchy.#1

Stop hallucinating: “No one kicks a dead dog, …, MMT is a serious threat to them because it is viable.” and wake up to the reality that MMTers are more an annoyance than a threat ― just like a heap of dead cockroaches.

You cannot repudiate the proof of the inconsistency of the foundational MMT sectoral balances equation. The rest is shame and silence.


#1 Keynes, Lerner, MMT, Trump and exploding profit

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REPLY to Bob Roddis on Dec 18

You say: “Egmont Kakarot-Handtke is completely wrong here and has no basis in fact or logic to make this claim: 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 the commonplace Quantity Theory to rest.”

In fact, the flawless logic goes thus.#1, #2

Methodological rule No 1: One has to start with the simplest possible economic configuration. The elementary production-consumption economy is defined with this set of macroeconomic 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 (1), 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.

The price is determined by the wage rate, which takes the role of the nominal numéraire, and the productivity. The real value of money is ultimately given by the productivity. From (1) follows W/P=R (2), i.e. real wage = productivity.

If one wants absolute price stability in the elementary production-consumption economy from beginning to eternity one has to apply the simple rule: change of wage rate = change of productivity. This excludes both inflation and deflation.

In the analytical beginning, there is no state and no central bank. The firm pays the monthly wages with a standardized IOU and declares that this conveniently denominated title will be unconditionally accepted at the firm’s store. The employees accept that the IOUs discharge their wage claim against the firm. Since the household sector’s budget is balanced by the initial condition C=Yw, whatever the firm issues returns until the end of the period under consideration. The firm creates IOUs and destroys them again within a short time span, i.e. a month. No IOUs are carried over to the next period and therefore the IOU is not suited as a store of value. The firm’s IOU is a pure transaction medium.

The firm’s rule for IOU-creation is IOU=kYw, i.e. the nominal volume of IOU’s is strictly proportional to the wage bill.

As a result, one has a fiat money economy with absolute price stability. No taxes are needed to force the workers to accept the firm’s privately created money. If all stick to the rules, they get an inflation-free fiat money economy and if the productivity increases over time, the real wage of the workers increases.

Problems arise, of course, if corruption sneaks in. For example, if the firm issues IOU’s in excess of the wage bill and the money is spent by a third party. This causes a price hike (NO inflation) and the real wage falls below the productivity. The business sector makes a profit which is equal to the excess IOU’s. This is what MMT’s policy of deficit-spending/money-creation amounts to when the analysis is stripped down to the bare bones.

Macrofounded economic theory tells one that the Austrian’s constant polemic against fiat money per se is beside the point. This is where MMT is right. However, the Austrian’s critique of the abuse of the fiat money system for the benefit of the Oligarchy is fully justified.

From the scientific standpoint, though, both MMT and Austrianism is scientifically worthless garbage.


#1 The creation and value of money and near-monies
#2 The ultimate ― analytical ― origin of money

REPLY to Clint Ballinger on Dec 19

You say: “Give us an article of REAL criticism of MMT. There are always details that can be made better in economics. If you think we should not spend more to help the unfortunate, explain why.”

Here it is: MMT is (i) a scientific failure and (ii) a political fraud.#1

Because of Public Deficit = Private Profit, MMT deficit-spending/money-creation does NOT help WeThePeople but the Oligarchy. The lethal effect of MMT is on distribution#2.

The discussion between long-dead Austrianism and recently deceased MMT#3 is nothing more than a groundhog-day troll brawl in the political gutter.

Austrianism is refuted, MMT is refuted, end of palaver.


#1 MMT Progressives: The knife in the back of WeThePeople
#2 Deficits matter for distribution
#3 The final implosion of MMT

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REPLY to Clint Ballinger on Dec 19

Clint Ballinger refers to

Take notice that I have dealt with the Levy/Kalecki profit equations and refuted them. For details see

Conclusion: The whole Keynesian and After-Keynesian and MMT crowd got the Profit Law and the Sectoral Balances Equation wrong.

Get it
False (I−S)+(G−T)+(X−M)=0 MMT see Down with idiocy!
True (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 AXEC.

Bill Mitchell quotes: “In this paper ― The Indispensable Federal Deficit ― published June 2010, the author says: There is a wide range of views on the present role of the federal budget deficit in the economy; … In truth, the economy and profits are entirely dependent on the federal budget deficit, without which not only would expansion be impossible, but the economy itself could not for long function at all … The federal budget deficit has usually been a major profit source in modern history … The support to profits from the federal government will remain a requirement for as long as balance sheets in the private economy are shrinking.”

In my words: The ultimate purpose of the MMT policy of deficit-spending/money-creation is to keep the Oligarchy on life-support.

Keynes, Lerner, MMT, Trump and exploding profit

Questions: Why do MMTers deceive the general public and pretend that MMT policy benefits WeThePeople? And why do they actively subvert the genuine social grassroots movements?

MMT Progressives: The knife in the back of WeThePeople

That MMT is NOT science but political agenda pushing is as clear as the day. The one issue that has to be clarified is: Which MMT-academic is sponsored by which billionaire?

#PointOfProof
(This post has been blocked/deleted/censored.)

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Tom Hickey on Dec 19

As official Contributor of the Mike Norman Economics blog (“We seek the truth, …”) you are supposed to make sure that submitted posts do appear.

I urge you to de-block my answer to Clint Ballinger.

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REPLY to Clint Ballinger on Dec 19

You say: “Btw, I am all for no profits, with worker owned co ops.”

I say: “I am all for stopping you to corrupt the Mike Norman Economics blog.”

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REPLY to Clint Ballinger on Dec 19

You say: “Egmont, probably automatic, all the links you always put. Spammy.”

Posts are restricted to about 4000 characters. This is sufficient for the usual brain-dead troll blather but NOT sufficient for a detailed argument or proof. Real arguments for real economists are therefore complemented with references which give the full picture.

For the full-spectrum refutation of MMT see cross-references MMT.

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REPLY to Noah Way on Dec 19

You say: “Check-back question: When did Egmomt as the heterodox chief proponent of pseudoscience last formulate a testable proposition?”

Here: “When Clint Ballinger’s smokescreen of irrelevant arguments is taken away, the whole issue reduces to the all-decisive question which of the two macroeconomic relations is true/false: (i) (I−S)+(G−T)+(X−M)=0 (MMT) (ii) (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 (AXEC). This question can be empirically decided.”#1

Check-back question: When did Noah Way last formulate a testable proposition?


#1 MMT: Time to say goodbye

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REPLY Clint Ballinger on Dec 19

You say: “Egmont, there is nothing original in your work. This two decade old MMT related paper already covers everything you say, and more.”

In fact, the Levy Institute paper ‘Where Profits Come From’ is an update of Levy, S. J., and Levy, D. A. (1983). Profits and the Future of the American Society. Cambridge, Philadelphia, etc.: Harper and Row.

Fact is that the 1983 version has already been refuted together with Keynes’ GT in my working paper of 2011.#1

If I simply parrot the Levy/Kalecki equations (“One of my favourite economists ― Michal Kalecki was one of the early pioneers in developing an understanding of the origins of profits from a macroeconomics perspective.” Bill Mitchell) why, then, does Bill Mitchell block all my contributions since 2016?#2

Let us state the facts that are indeed original in my work: The academic Bill Mitchell continuously violates scientific standards#3, MMT is materially/formally inconsistent,#4 MMT policy is a political fraud, MMTers in general and Clint Ballinger, in particular, are stupid/corrupt agenda pushers.


#1 Keynes’s Missing Axioms
#2 The final implosion of MMT
#3 Cryptoeconomics ― the best of Bill Mitchell’s spam folder
#4 Cross-references MMT

Related 'The Levy/Kalecki Profit Equation is false'

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REPLY to Clint Ballinger on Dec 19

You quote Bill Mitchell who, in turn, quotes Kalecki’s profit equation: “Pn = I + (G – T) + NX + Cp – Sw (i)”

In the Wikipedia entry, MMT asserts: “Therefore, budget deficits add net financial assets to the private sector; whereas budget surpluses remove financial assets from the private sector. This concept is widely represented in macroeconomic theory by the national income identity, G − T = S − I − NX (ii) where G is government spending, T is taxes, S is savings, I is investment and NX is net exports.”#1

1. NO way leads from the profit equation (i) to the balances equation (ii). So, MMT is formally inconsistent.

2. Somewhere between (i) and (ii) profit vanished.#2

3. Equation (i) is false, to begin with. Kalecki, too, got macroeconomic profit wrong.#3

4. The axiomatically correct Profit Law is given as Qm=Yd+(I−Sm)+(G−T)+NX (iii) Legend: Qm monetary profit/loss, Yd distributed profit, I investment expenditure, Sm monetary saving/dissaving, G government expenditures, T taxes, NX=(X−M) X exports, M imports. Total profit Q is the sum of monetary and nonmonetary profit/loss, i.e. Q=Qm+Qn (iv).#4, #5

5. From the correct Profit Law (iii) follows the correct sectoral balances equation (I−Sm)+(G−T)+NX−(Qm−Yd)=0 (v). This equation contains profit and distributed profit while those magnitudes are missing in (ii).

Conclusion: MMT is materially/formally inconsistent and MMT policy is a political fraud.


#1 Wikipedia, Modern Monetary Theory
#2 MMT and the magical profit disappearance
#3 Cross-references Kalecki
#4 The Emergence of Profit and Interest in the Monetary Circuit
#5 Primary and Secondary Markets,  Levy Economics Institute of Bard College Working Paper No. 741
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REPLY to Noah Way on Dec 19

You say: “Maybe a clear statement in common language would be more suitable for explanation and discussion.”

No, if you cannot read a simple equation you are out of economics. An equation is the clearest possible statement.#1

You quote: “budget deficits add net financial assets to the private sector;” and complain about symbolic mumbo-jumbo as proof.

If you do not understand why this statement is false go to AXECorg and google “private sector” and you will get 40 hits.

For example: “There is no such thing as the private sector but there is the business sector and the household sector. Hence, the MMT balances equation is false.”

And now get your dummy and your diaper and go to sleep.


#1 Marshall and the Cambridge School of plain economic gibberish

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REPLY to Noah Way

You say: “… every one of his ‘arguments’ is supported by another one of his arguments.”

This is called deductive reasoning and it secures logical consistency. Consistency, material and logical, is the essence of science: “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)

It is pretty obvious that in your two-digits-IQ world you have never heard of consistency.

Go back to troll school and ask for new slogans. The common-language slogan does not work because everybody knows by now that there is no such thing as a common language of morons and scientists.#1


#1 Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist

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REPLY to Noah Way on Dec 20

You say: “Supporting every one of your arguments with another one of your arguments is a logical fallacy known as circular reasoning.”

This is only true for poorly trained trolls. In science, all reasoning starts with clearly stated axioms: “The attempt is made to collect all the assumptions, which are needed, but no more, to form the apex of the system. They are usually called the ‘axioms’ (or ‘postulates’, or ‘primitive propositions’; …). The axioms are chosen in such a way that all the other statements belonging to the theoretical system can be derived from the axioms by purely logical or mathematical transformations.” (Popper)#1

Go back to troll school and ask for a new slogan. The circularity slogan does not work either.


#1 Both mainstream economics and MMT are axiomatically false

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REPLY to Noah Way on Dec 20

Seems that they have run out of slogans at your troll school.

So let us sum up. The formal foundations of MMT are inconsistent and therefore the whole approach is scientifically worthless. MMT policy has no sound scientific foundations. Politically, self-styled MMT Progressives claim to promote the cause of WeThePeople. This claim is false. The ultimate purpose of the MMT policy of deficit-spending/money-creation is to keep the Oligarchy on life-support. MMT is just another political fraud. MMTers are failed/fake scientists and have to be expelled from the sciences.

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REPLY to Noah Way on Dec 20

You are totally off the mark.

To begin with, economics is NOT a social science but a system science.

You maintain: “Because you don’t find a formal foundation (basis for natural science) in MMT (a social science) you dismiss it.”

I do find a formal foundation, i.e. the Kalecki profit equation and the MMT sectoral balances equation, but both are provably false. So, the rest of MMT is false. You don’t understand this because at the MMT troll school they teach not more than five slogans and not more math than counting to ten.

MMTers don’t get macro right because they are too stupid. However, this is not a disadvantage for political agenda pushing where only useful idiots are needed.

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REPLY to Noah Way on Dec 21

You recount folk-wisdom from the HowToMakeFriends course: “You don’t win arguments by calling people stupid, you win them by making a convincing case.”

It should be quite obvious even to a slow-motion thinker like you that the point of this thread is the refutation of MMT and to make sure that MMTers are thrown out of science. Accordingly, the very idea to convince you or any other MMTer is plainly absurd.

You are beyond hope and you can prove this for yourself by re-reading your stuff.

You say: “Make the case in English”. I have already made the case in English and here it is again: The formal foundations of MMT are inconsistent and therefore the whole approach is scientifically worthless. MMT policy has no sound scientific foundations. Politically, self-styled MMT Progressives claim to promote the cause of WeThePeople. This claim is false. The ultimate purpose of the MMT policy of deficit-spending/money-creation is to keep the Oligarchy on life-support. MMT is just another political fraud. That MMT is NOT science but political agenda-pushing is as clear as the day. The one issue that has to be clarified is: Which MMT-academic is sponsored by which billionaire?

Easy to understand even for the stupid and corrupt folks of MMT La-La-Land.