AXEC: New Foundations of Economics: Bill Mitchell says that economists are fake scientists ― true, but MMTers are NOT different

March 17, 2021

Bill Mitchell says that economists are fake scientists ― true, but MMTers are NOT different

Comment on Bill Mitchell on ‘Why economists kept getting the policies right!’

Bill Mitchell gives an inside report of academic economics: “But if you have been inside the profession all your life, as I have, then you get a pretty good feel for what is going on. And it is not what the rest of you think.”

“Economists are not fellow travellers ‘on a mission from god to do god’s work’ …” … “They are part of the capitalist establishment designed to safeguard capital and its profits and keep the working class in its place so that challenges are confined to disputes about wages and conditions around the margin, but, never question the basis of the system ― the ownership of the material means of production and the capacity of those unequal ownership relations to extract surplus value as profits from forcing workers to work longer than they have to to produce their (social) subsistence.” … “the development of neoclassical economics, from which the modern day Monetarism and New Keynesian economics emerged was no accident ― no scientific event.”

True, since the founding fathers, economists were not so much scientists as political agenda pushers: “Economists were hired by industrialists to come up with a body of work that made capitalism appear fair. It was in the second half of the C19th when Marxist thought was spreading among workers and the intellectual class and manifesting into social and political instability as evidenced by the ― Revolutions of 1848 ― and later, the ― 1871 Paris Commune ― among other uprisings.”

And he concludes: “Economists were part of that conspiracy to obfuscate the inner workings of capitalism. And it has been that way ever since.”

Except …

“Me, I was an aberration. A black sheep. That got through this system because my mathematics and mathematical statistics was first-rate and I could jump their hoops with ease.”

And now it turns out that Bill Mitchell and the MMTers got it right: “The author notes how everyone is jumping on the big deficits bandwagon now and no-one is talking much about the public debt issue any more.”#1

This is true, MMT has now become official doctrine.#2, #3, #4

While Bill Mitchell asserts that economists have always been “… part of the capitalist establishment designed to safeguard capital and its profits …” he tries to make the impression that he and MMTers and Progressives are different.

This is NOT the case.

The 3-sector macroeconomic Profit Law Q≡(G−T)+(I−S)+Yd implies Public Deficit = Private Profit. So, the MMT policy of deficit-spending/money-creation is a free lunch for the Oligarchy. Private financial wealth grows in lockstep with public debt. For public debt holds: #OligarchyOwnsIt and #WeThePeopleOwesIt. Public debt as interest cash cow produces perpetual income for the Oligarchy that is taxed from WeThePeople.#5

COV19 is a godsend for the Oligarchy: more deficit-spending/money-creation produces a profit explosion. Best of all, it can be propagandized as a benefit for WeThePeople. Fact is, though, that in real terms, WeThePeople pay for the economic relief package through stealth taxation.

If anything, Bill Mitchell/MMTers/Progressives are “part of the capitalist establishment”.#6, #7 Like the rest of economists from Adam Smith onward, economists are NOT on a “mission from god to do god’s work”. Economics is failed/fake science. Economists are NOT scientists but clowns and useful idiots in the political Circus Maximus. MMTers are NO exception.

Egmont Kakarot-Handtke

#1 Look, how they jump on the deficit/profit bandwagon

#2 MMT ― now official doctrine

#3 Links on Austerity

#4 Keynes, Lerner, MMT, Trump, Biden, and exploding profit

#5 Twitter, CRFB.org Mar 17, 2021, Federal Government Spending On Interest Payments

#6 Deficit cheerleaders ― the Oligarchy’s useful idiots

#7 Economists are NOT scientists

For more on stealth taxation see AXECquery.

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REPLY to Matt Franko on Mar 17

The deficiency of MMTers in literal language is that they are too stupid for the elementary algebra that underlies macroeconomics: Proof of MMT's inconsistency.

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REPLY to Matt Franko on Mar 18

I said that MMTers (the social media trolls, the academics in general, and Bill Mitchell, in particular) are too stupid for the elementary algebra that underlies macroeconomics and that the MMT sectoral balances equation is provably false. Every MMTer can check the proof.#1-#4

You argue: “Bill is well trained in Mathematics....”

If so, he knows that science is about material/formal consistency and proof. So, he should be able to understand the proof of the inconsistency of the foundational MMT sectoral balances equation. And, as an academic, he should know that science defines itself by the high standards of scientific ethics.

According to these standards, he is obliged to check the proof of the inconsistency of MMT as soon as it comes to his notice and to either point to the exact location of where the proof is faulty or to openly confirm the refutation of MMT so that others are no longer misled.

Neither Bill Mitchell nor any other MMTer has done the right thing to this day. MMTers have disqualified themselves and therefore have to be expelled with shame and disgrace from the scientific community.#5

#1 Wikipedia, economics, scientific knowledge, or political agenda pushing? ⇒ Section Provably False/MMT

#2 Proving Bill Mitchell wrong ― burying MMT for good

#3 Modern Moronomic Theory

#4 Proof of MMT's inconsistency

#5 Wikimedia Fire Economists

Related 'MMT-Refutation for Dummies'.

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REPLY to Peter Pan on Mar 18

You ask: “Bill has never addressed your critique on his blog?”

Obviously, you still do not understand how economics works although Bill Mitchell has given you a clear description. Economics does not work according to the principles of science. And this is long known: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern, 1941)

Economists violate scientific standards from Adam Smith/Karl Marx onward and this is why Walrasianism, Keynesianism, Marxianism, Austrianism, and other long-refuted proto-scientific garbage is still around.#1 What we have is the pluralism of false theories.

Bill Mitchell knows this but claims that MMT is different. That is NOT the case. MMT is refuted but MMTers push it “as if nothing had happened”. Academic economics is politically corrupted and MMT is an integral part of it.#2

#1 The history of economic thought is the history of scientific failure

#2 Political fraud and the silence of academia

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REPLY to Dean on Mar 22

Answers/continuing links to your 3 questions.

1 Capitalists' consumption

Profit follows from the Profit Law. It can be distributed or not. So one gets distributed profit Yd as a part of total income Y=Yw+Yd. Distributed profit, in turn, splits into consumption expenditures and saving of “capitalists”. See section 7 of Essentials of Constructive Heterodoxy: Profit.

2 Cash

You assume “cash on hand to begin with”. In a fiat money system, things start with zero cash. Money is created ex nihilo by the central bank for the financing of the wage bill.

How money emerges out of nothing ― the functional account

3 Investments

You say “investments create fixed capital” and “Investments only create profits because of a time lag between borrowing and repaying”. For the exact relationship of investment expenditures and profits see Squaring the Investment Cycle.

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NOTE on Barkley Rosser on Mar 31

You take toilet paper shortages in Venezuela as proof that they are “corrupt and incompetent”. These two keywords bring us immediately to the current state of economics.

Bill Mitchell gives an inside report of academic economics:#1 “But if you have been inside the profession all your life, as I have, then you get a pretty good feel for what is going on. And it is not what the rest of you think.”

True, since the founding fathers, economists were not so much scientists as political agenda pushers and disinfotainment clowns in the political Circus Maximus.#2

The temporary shutdown of the Suez Canal may trigger physical toilet paper shortages in Western markets. Due to the superiority of Capitalism over Saint-Simonianism, though, this does not affect the production of intellectual toilet paper in US academia.#3

#1 Why economists kept getting the policies right!

#2 Economists are NOT scientists

#3 Macroeconomics ― still dead after 80+ years

Knowledge only — no opinion

Science does not explain everything, but non-science explains nothing.

Neither orthodox nor heterodox economics satisfies the scientific criteria of material and formal consistency.

Economists cannot explain how the economy works. The Profit Theory is false since Adam Smith. There is much opinion and little knowledge.

Opinion is the realm of political economics, knowledge is the realm of theoretical economics.

Political economics is scientifically worthless.

Theoretical economics is built upon clearly stated premises, i.e., upon a set of axioms.

Orthodoxy got the axiomatic foundations wrong and Heterodoxy has none at all.

Economics is a failed science. Economists are incompetent scientists.

Profit

Neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionialists, nor Monetary Economists, nor MMTers, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor EconoPhysicists, nor RBCers, nor New Keynesians, nor New Classicals ever came to grips with profit. Hence, they all fail to capture the essence of the market economy.

Because of this, economists have nothing to offer in the way of a scientifically founded economic policy guidance.

The hybrid science

As a first approximation, one can agree on the general characteristic that the economy is a complex system.

However, with the term system one usually associates a structure with components that are non-human. In order to stress the obvious fact that humans are an essential component of the economic system the market economy should be characterized more precisely as a complex hybrid human/system entity.

The scientific method is straightforwardly applicable to the sys-component but not to the hum-component. While it is clear that the economy always has to be treated as an indivisible whole, for good methodological reasons the analysis has to start with the objective system-component.

In gestalt-psychological terms the economic system is the foreground, individual behavior the background. Common sense wrongly insists that the hum-component must always be in the foreground. This fallacy compares to geo-centrism. The economic system has its own logic which is different from the behavioral logic of humans. The systemic logic is what Adam Smith called the Invisible Hand.

There are systemic laws but no behavioral laws. Systemic laws have the same methodological status as physical laws.

Neither Orthodoxy nor Heterodoxy can tell what the systemic laws of the actual monetary economy are.

Whether the outcome of the human/system-interaction is good or bad is a politcal question that lies outside of theoretical economics. Theoretical economics explains how the actual economy works - no less, no more.

Narrative vs.Theory

Psychological, sociological or behavioral assumptionism cannot yield anything other than a gossip model of the world. Second-guessing the agents is not economic analysis.

Science deals exclusively with propositions that can in principle be decided by objective means. The rest is opinion, faith, phantasy, motive speculation, allegation, hallucination, myth, paranoia, ink-blot association, psychology, philosophy, in one word: storytelling.

Storytelling is the original mode of communication in the social realm — except science.

Political economics is storytelling and, by default, the natural habitat of confused confusers. Walrasianism, Keynesianism, Marxianism, Austrianism are social narratives and not scientifically valid representations of reality.

"The truth is, most persons, not excepting professional economists, are satisfied with very hazy notions." (Fisher)

In marked contrast, theoretical economics lives up to the standards of material and formal consistency. A scientific theory is the best mental representation of reality that is humanly possible.

Theory starts with a set of objective and consistent axioms.

Paradigm Shift

"The problem is not just to say that something might be wrong, but to replace it by something — and that is not so easy." (Feynman)

"As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction." (Nell)

"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)

"Is it not a fact, which stares at us from the histories of all sciences, that it is much more difficult for the human mind to forge the most elementary conceptual schemes than it is to elaborate the most complicated superstructure when those elements are well in hand?" (Schumpeter)

"The task of producing knowledge against the grain requires imagination." (Mirowski)

"A new idea is extremely difficult to think of. It takes a fantastic imagination." (Feynman)

"The scientific imagination dreams of explanations and laws." (Peirce)

"It is brilliance of imagination which makes the glory of science." (Evans)

"... we know little more now about ‘how the economy works,’ ... than we knew in 1790, after Adam Smith completed the last revision of The Wealth of Nations." (Clower)

Selftest and to watch for

You apply one of these items

• supply-demand-equilibrium,

• general equilibrium,

• marginal utility,

• well-behaved production functions,

• total income = value of output,

• total income = wages + profits,

• I=S,

• wage rate down - employment up,

• behavioral axioms?

Then you are out of science because of unnoticed material or formal inconsistency.

Every economist who uses the concept of equilibrium is scientifically incompetent because she/he failed to notice that equilibrium is an economic nonentity.

Practically this means: as soon as the word equilibrium appears in an economic text it can be thrown into the waste basket. The same holds for all other nonentities.

The vast majority of economists deals mainly with nonentities. This is why Walrasianism, Keynesianism, Marxianism, Austrianism is scientifically worthless.

Since Adam Smith, economic policy guidance has no sound scientific foundations.

To be replaced (1)

The core premises of Orthodoxy are uncertain and false and this fully explains the failure of the research program.

“As with any Lakatosian research program, the neo-Walrasian program is characterized by its hard core, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

The inescapable Paradigm Shift consists of the move from this obsolete hard core to the superior set of structural axioms.

To be replaced (2)

The fundamental equations of macroeconomics have been formulated by Keynes in two lines.

"Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment."

This elementary syllogism is demonstrably false. The demonstration consists in the proof that Keynes could not solve the Profit Puzzle. Neither did Post-Neo-New-Keynesians.

In the most general terms, the economics Paradigm Shift consists in switching from the behavior-centric bottom-up approach to the structure-centric top-down approach. This is comparable to the Copernican turn from geo-centrism to helio-centrism.

Consensus

Economics is a science without scientists. Because they are ignorant of the elementary difference between profit and income, the present generation of economists has not made and cannot make a significant contribution to the discussion about how the actual economy works.

Every orthodox or heterodox economist can convince himself/herself that their profit theory is defective.

Every non-economist can — by applying elementary logic — convince himself that conventional profit theories are false. See 'How the intelligent non-economist can refute every economist hands down'.

Because the profit theory is false the whole of conventional economic theory has to be rejected.

"What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse." (McCauley)

No scientist will ever accept Walrasianism, Keynesianism, Marxianism, or Austrianism. These approaches are logically and/or empirically refuted. This is the actual methodological state-of-art. Walrasians, Keynesians, Marxians, or Austrians are still at the proto-scientific stage. These approaches cannot be improved, only abandoned.

Economists are a public nuisance because they have an opinion on everything but knowledge of nothing.

About me

“Bottom line is that your profit law is just a definition you made up nobody else agrees with, nobody. You are all alone with your precious tautology.” Barkley Rosser

“In any event, your entire theory is based on you doing macro accounting in wacky fashion that nobody agrees with.” Brian Romanchuk

"Your stuff is at least original: it's quite cool after a couple of decades at this to see a fresh Economics. But real promises are not advanced: they were around for millennia until the Greeks obscured them with Metaphysics." Chris Cook

"No mate, they're you-blockers. You have all the personality traits of a crank, and the rest of them have tired of you. You could be 100% right, and you'd still die as your only follower." Steve Keen

"What you are doing fills is all with joy, your constructive critique is most welcome!"

Achim Truger,

German Council of Economic Experts,

in a failed attempt to be ironic

"200+ years of thought and yet you are the only one who gets it—or even understands your argument. Thank god we have you, pseudonymous Twitter user. Otherwise no one would know."

William Luther

Assistant Professor of Economics

in a failed attempt to be funny

"Egmonts profit law is the perfect equation that demonstrates this in action. Put the equation into a spreadsheet and then add government spending and watch how it flows into profits. Enter in some debt (-Sm) and watch too how that flows into profits. It can't go anywhere else."

Dean

About the rest of economics

Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, Pluralism are mutually contradictory, axiomatically false, materially/ formally inconsistent. Economics is a failed science.

“There are three classes of people: those who see. Those who see when they are shown. Those who do not see.” Leonardo da Vinci

In economics, the overwhelming majority belongs to Class III. This explains why economics is after 200+ years still at the proto-scientific level.

The obvious task for every economist is to advance from cargo cult science and political agenda-pushing to science. This is absolutely beyond the means of Class III people.

For 200+ years now, economists are not scientists but agenda pushers, useful idiots, clowns in the political Circus Maximus.

Nopopop

This blog does not add to any popular/un- popular opinion.

This blog does not hand out advice about how to avoid taxes, to get rich on the stock market, to be successful in business, to increase the wealth of nations, to run an economy, to maximize welfare, to prevent national/global bankruptcy, to improve the institutional setup of society, to get out of national/global depression, nor about how to save humankind or any subgroup thereof.

This blog is about the true theory of the actual monetary economy.

"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)

Focus

Science is of primary interest and importance. Scientists are of secondary interest.

With regard to science, most people lose focus easily because of a natural preference for anecdotes and gossip over facts or subjectivity over objectivity.

Hence, Schumpeter once considered it necessary to remind his habitually disoriented fellow economists: “Remember: occasionally, it may be an interesting question to ask why a man says what he says; but whatever the answer, it does not tell us anything about whether what he says is true or false.”

Science is about true/false and nothing else.

Disclaimer

Missing Blog-Reference links: AXEC does not guarantee that their comments can at any time be recovered from where they have been posted intitially because the availability depends on the publication policy of the blog owner which is implicitly accepted on entering a debate. See also: 'Economists: Incompetent? Stupid? Corrupt?'

Texts: Parts of arbitrary length of any of the author's texts is and will be used again by the author in papers, books, websites, blogs, and other media without explicit reference. The right to make corrections or minor textual improvements on reutilization is reserved. Therefore, it is always a good idea to double-check for the latest version.

Caution: Do not expect a corroboration of your political view. Neither a refutation. Political economics has been scientifically worthless since Adam Smith. Politics has to be separated from economics because it is categorically different from science. The best science can do and has always done is to prove beyond reasonable doubt that you have been objectively wrong or ignorant until now. Science goes beyond the naive common sense of today and becomes the sophisticated common sense of tomorrow.

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Outlook

To recall, while political economics is storytelling, theoretical economics adheres to scientific standards.

The first task of theoretical economics is to get the axiomatic foundations right. This is what J. S. Mill called the opus magnum. Neither Orthodoxy nor Heterodoxy came up with a reasonable solution to this day. This explains the secular stagnation of economics.

There is no serious alternative to structural axiomatic economics. This is not a matter of opinion but of proof. The sole criteria are material and formal consistency.

All of economics has to be reconstructed from the ground up.

Major economic policy implication

The price mechanism does not work as standard economics hypothesizes. The axiom-based Employment Law states that overall employment increases if the average wage rate increases relative to average price and productivity. This gives one the lever to improve the employment situation all over the world and to fend off deflation without rising debt and without artificial capacity growth. To increase the average price relative to the average wage rate and productivity increases unemployment.

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)

Lacking the true theory, economists promote for more than 200 years opinion instead of knowledge.