Bill Mitchell reports: “I took the UK Guardian’s ― How populist are you? ― quiz yesterday. I thought the quiz was an odd cultural artifact. The Tweet by Ronan Burtenshaw … summarised how these sorts of quizzes reflect underlying biases.
Anyway, I did the quiz and I won’t say who I was most alike because I am actually very much unalike the person (which just shows the categorisation errors in the exercise) but I felt relieved that I did score this outcome: You are least similar to Donald Trump.”
Now, this is curious at least with regard to economics because if one takes away the social populism then MMT is economically identical to Trumponomics, that is to say, it produces exactly the same amount of macroeconomic profit for the Oligarchy.#1
In Bill Mitchell’s words, this “shows the categorisation errors in the exercise.” No, this shows how MMT’s social brainwashing works.
#1 Keynes, Lerner, MMT, Trump and exploding profit
Related 'MMT: A free lunch for the Oligarchy' and 'Stephanie and Noah ― economics at the intellectual zero lower bound' and 'MMTers are NOT Friends-of-the-People'.
Compared to microfounded mainstream economics, macrofounded MMT is a real improvement. While mainstream economics is absolutely false, MMT is half-true. So, Bill Mitchell correctly summarizes “that the Bank of Japan continues to demonstrate the categorical failure of mainstream macroeconomics …”
MMT is correct on these points:
• A growing public debt does NOT cause inflation.
• The limit of growth of public debt is further out than doom-merchants always claimed.
• Fiscal policy is the main game.
• The government has all the firepower it ever needs.
• The Central Bank (CB) can buy any amount of gov bonds without increasing the inflation rate.
• The CB can maintain yields on gov bonds “at whatever level it chooses, at whatever maturity range it targets, and for as long as it likes.”
But then comes the fraudulent MMT sales slogan: “… normally for most countries it will require continuous fiscal deficits of varying proportions of GDP as the overall saving desires of the private domestic sector vary over time.”
What MMTers never talk about are the distributional effects of a permanently growing public debt.
What exactly happens if the government runs a deficit in an elementary production-consumption economy?#1 From the general macroeconomic Profit Law Qm≡Yd+(I−S)+(G−T)+(X−M) follows that Public Deficit = Private Profit if all other variables are taken out of the picture.
So, at the end of the first period, the business sector’s deposits at the CB (= money) are exactly equal to the government’s overdrafts. If deficit spending is repeated period after period, then the government’s debt in the form of overdrafts grows permanently and the same holds for the business sector’s deposits. Under the assumption that the interest rate is zero for overdrafts and deposits at the CB, there is NO interest effect and no interest burden on public debt. The stock of money increases but there is no inflation.
However, things do not stop there. Basically, two liming cases are possible. The government issues bonds and the business sector buys them. Then gov overdrafts at the CB go to zero and the business sector’s deposits go to zero and are replaced by the interest-bearing gov bonds. Both sides of the CB’s balance sheet return to zero. The additional money from deficit spending vanishes. The business sector now earns interest which is taxed from the household sector. This is what Bill Mitchell calls corporate welfare.
The other limiting case is that the CB buys the gov bonds. Then gov overdrafts at the CB go to zero but the business sector’s deposits (= money) remain unchanged. The CB switches on the asset side from overdrafts to long-term interest-bearing bonds. This interest increases the profit of the CB and is later on recycled to the government. So, this variant is distributionally neutral with regard to interest.
Reality is between the limiting cases.
So, while MMT is descriptively correct with regard to many monetary phenomena it lacks sound scientific foundations because it is based on a mathematically false sectoral balances equation. Both MMTers and mainstreamers get macroeconomic profit wrong. This is disqualifying for an economist.
#1 The elementary production-consumption economy is for a start defined by three macroeconomic axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (profit/loss Q≡C−Yw, saving/dissaving S≡Yw−C). Legend: Yw wage income, W wage rate, L employment, O output, R productivity, C consumption expenditures, P price, X quantity bought/sold. It always holds Q≡−S. This is the most elementary form of the macroeconomic Profit Law. The market-clearing price is derived as P=W/R. This is the macroeconomic Law of Supply and Demand.
Related 'MMT and the inflation-red-herring' and 'MMT: agenda-pushing and money-making for the Oligarchy' and 'Why the MMT benefactors of humanity never talk about profit'.
I said: ‘But then comes the fraudulent MMT sales slogan: “… normally for most countries it will require continuous fiscal deficits of varying proportions of GDP as the overall saving desires of the private domestic sector vary over time.” What MMTers never talk about are the distributional effects of a permanently growing public debt.’
You disagree: “This is just not true. They do talk about that, I believe I have given you at least one reference. They just don’t wildly exaggerate them and remove them from context.”
When I talk about distributional effects I refer to the core of distribution theory, that is, the relation of wages to profits or what is called the wage share/profit share.#1
The fact of the matter is that Bill Mitchell talks about the “overall saving desires of the private domestic sector” and by this he makes the profit effect of deficit-spending/money-creation disappear.#2
There is NO such thing as the “private domestic 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 overall saving. Methodologically, this is called the Humpty Dumpty Fallacy, politically this is plain fraud.#3
In the MMT balances equation (G−T)+(I−S)=0 for the closed economy, profit does not appear at all. So, MMT’s distribution theory is a priori false.
The axiomatically correct balances equation reads (G−T)+(I−S)−(Q−Yd)=0. From it follows that Public Deficit = Private Profit. And this tells one that the relation between overall profits and wages, which is generally considered as a distributional scandal, is produced by ― guess who? ― yes by MMTers’ deficit-spending/money-creation.
MMTers NEVER speak about this pivotal distributional effect of their policy because underneath their butoxed social populism they are agenda pushers for the Oligarchy.#4
#1 There is NO such thing as a “labor share of income”
#2 Rectification of MMT macro accounting
#3 Down with idiocy!
#4 Keynes, Lerner, MMT, Trump and exploding profit