June 6, 2018

The Third Way: Towards the happy zero-tax economy

Comment on Tom Hickey on ‘From Wicksell to Le Bourva and MMT’

Blog-Reference

Communism is down the drain and the ― entirely justified#1 ― widespread feeling is that Capitalism will follow next. Quite naturally, there is a lot of discussion about what the core problem is and how the situation can be fixed. New Economic Thinking is all the rage. MMTers are one of the many politically active groups and they have a strong selling point: (almost) all economic problems can be solved with money-creation/deficit spending. This soapbox economics resonates well at the street level.

No doubt about it, rethinking economic theory is indispensable because Walrasianism, Keynesianism, Marxianism, Austrianism is axiomatically false and materially/formally inconsistent. Neither right-wing nor left-wing economic policy guidance ever had sound scientific foundations.

However, MMT is not a real breakthrough, it is bad science and bad politics just like all the rest. Bad science because it is materially/formally inconsistent and bad politics because it claims to promote the cause of the ninety-nine-percenters but in fact promotes the cause of the one-percenters.#2, #3

Yet in all their scientific and political corruption MMTers have intuitively grasped a fruitful transformative idea, i.e. to use fiat money for the construction of an economic system that works better than obsolete communism and capitalism.

All that is needed to make things happen is a well-informed Legitimate Sovereign. There is no use to define the Legitimate Sovereign here in greater detail. This is not the task of economics but of Political Science.

The Legitimate Sovereign is in full control of the process of money creation and destruction.#4, #5 The closed economy is, for a start, in the state of full employment with the macroeconomic budgets of the household sector and the government sector all balanced. The Profit Law for this simplified economy translates from the general Qm=Yd+(I−Sm)+(G−T)+(X−M) to the specific Qm=−Sm+(G−T) with Sm=0 and G=T. Legend: Qm monetary profit/loss, Sm monetary saving/dissaving, G government spending, T taxes.

In the first step, the Legitimate Sovereign simply creates some extra money for continuously buying shares on Wall Street and successively taking over the control of all big corporations.

In the second step, the Legitimate Sovereign cuts all taxes and creates the money for government spending G out of nothing. So, T=0 and G remains unchanged.

Now, two things happen:
(i) The disposable income of the household sector, i.e. Yw−T, increases because of T=0. If the households fully spend this extra money, the price goes up a little (NO inflation) and the household sector as a whole gets the SAME total real output O under the conditions of market clearing and unchanged employment.
(ii) The profit of the business sector increases because of Qm1=C1−Yw in comparison to Qm0=C0−Yw=0 with C1 greater C0. The difference between C1 and C0 is the amount G, i.e. the deficit-spending/money-creation of the government sector.

The real situation of the household sector remains unchanged because the price hike exactly counteracts the nominal demand increase. The situation of the business sector as a whole improves, i.e. monetary profit Qm rises from Qm0=0 to Qm1=G. In other words, Public Deficit = Private Profit.

The real situation of the household sector as a whole does NOT change at all. The whole act is called stealth taxation#6 because the price hike reduces the real quantity the wage income receivers can buy with their increased disposable income. What happens is that the former taxes T are replaced by a one-off price hike. In real terms, the household sector is taxed as before but does not realize anything provided the price hike is small and indistinguishable from a random fluctuation.

Because the greatest misfortune in the life of most people is that they feel to be unjustly forced to pay taxes, it can be safely assumed that human happiness increases enormously with the abolition of taxes and the replacement by money-creation/deficit spending.

Being the Legitimate Sovereign means that the money that has been created out of nothing has to be destroyed eventually. Because the Legitimate Sovereign owns all corporations of the business sector, this is an easy task. All that has to be done is to distribute the full amount of monetary profit, i.e. Qm=G, to the shareholder, which happens to be the Legitimate Sovereign. It is by profit distribution = dividend payment how fiat money is again taken out of the circulation and destroyed.

Needless to emphasizes that the Legitimate Sovereign decides how the total amount of government spending G is allocated to social, military, administrative and other purposes.

Remains only one thing to do: to consolidate the existing public debt overhang. Needless to emphasize that it cannot be redeemed. So it has to be converted into perpetual bonds with an interest rate just a little above zero percent or into current deposits with zero interest.

Egmont Kakarot-Handtke


#1 Mathematical Proof of the Breakdown of Capitalism
#2 MMT: The one deadly error/fraud of Warren Mosler
#3 MMT: Money-making for the one-percenters
#4 The ultimate ― analytical ― origin of money
#5 How money emerges out of nothing ― the functional account
#6 MMT, money printing, stealth taxation, and redistribution

Immediately preceding 'Neoclassics and MMT ― much like pest and cholera'.

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REPLY to Tom Hickey on Jun 7

You say: “One reason the so-called US left is not winning is lack of vision and a popular presentation of the vision and plan for actualizing it that is clear, concise and precise enough to avoid the usual objections. … Ultimately, the goal has to be get buy-in by both enough voters to pass the legislation and politicians that understand the plan well enough to present it coherently and convincingly and defend it against objections.”

The subject matter of economics is to figure out how the economy works. Period. Nothing else. Period. The subject matter of economics is NOT to sell MMT to voters and lawmakers.

What the public has, first of all, to clearly recognize is that there are TWO economixes: the real thing and the look-alike. There is theoretical economics and political 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 has produced NOTHING of scientific value since Adam Smith/Karl Marx. What the Classicals have to be credited for is naive honesty. They called themselves Political Economists, that is, they presented themselves as agenda pushers. Naive honesty was the historical epoch before the War Ministry renamed itself to Defense Ministry and a military offensive was re-framed as pre-emptive self-defense. It was the epoch before Orwellian doublespeak became the norm.

The fact of the matter is that economics defined itself 140+ years ago as science but it is still political agenda pushing. The clear separation of the political and the scientific sphere never happened.

Economics consists of four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― which are mutually contradictory, axiomatically false, materially/formally inconsistent, and which got the foundational concept of the subject matter ― profit ― wrong. What we actually have is the pluralism of provably false theories.

MMT is just another instantiation of political economics a.k.a. agenda pushing. Note well: it does NOT matter at all whether one pushes a right-wing or a left-wing agenda. From the standpoint of science, it is roughly the same proto-scientific garbage only dressed up for different target groups. The whole right-left discourse is a ridiculous pygmy wrestling show of useful political idiots in the Circus Maximus.

All that comes under the label of economics is scientifically unacceptable. Because of this, economics has nothing to offer in the way of a scientifically well-founded advice: “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)

Fact is that MMT is NOT the true theory but just another political fraud.

The most pressing problem of economics is how to clean the Augean Stable of the gigantic heaps of axiomatically false models, how to get rid of all failed/fake scientists, and how to advance from a 200+ years old cargo cult science to a genuine science.

Make no mistake, Dante’s famous motto above the Gate of Hell "Lasciate ogni speranza, voi ch’entrate" [Abandon all hope, you who enter here], applies to political economics of ALL denominations and also to MMT.

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REPLY to Andrew Anderson on Jun 7

You say “In the Bible, profit is good but profit taking (and usury) isn’t good.”

Your exegesis is not up to date. What the Bible really says is: profit distribution to private persons is bad, profit distribution to the Legitimate Sovereign is good.

The Bible never ever contradicts the axiomatically correct macroeconomic theory. Believers should know this.

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REPLY to ANC Driver on Jul 8

You say: “This is probably the reason why economics will never be treated as a science because it will reveal the truth.”

Economics is not a science because Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, etcetera are mutually contradictory, axiomatically false, and materially/formally inconsistent ― in two words: provably false.#1

As far as economists do not realize this, they are stupid. As far as they realize it and spread their crappy stuff nonetheless, they are corrupt. To this day, economics is a cargo cult science. The “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is a deception of the general public.#2

The policy guidance of economists NEVER had sound scientific foundations.#3 The stupidity and fraud of economists are destructive to society. This is known since Napoleon: “Late in life, …, 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)#4

All this is not a question of right-wing or left-wing. Economists in general and MMTer, in particular, will never be accepted as scientists but forever be regarded as stupid and corrupt useful political idiots.#5


#1 Economics: 200+ years of scientific incompetence and fraud
#2 The real problem with the economics Nobel
#3 Economics: a hereditary mental disease with scientific incompetence as father and political fraud as mother
#4 Economists and the destructive power of stupidity
#5 For details of the big picture see cross-references PoliticalEconomics