Comment on Bill Mitchell on ‘MMT and Power ― Part 2’*
MMT's sectoral balances equation has been refuted #1-#3 but Bill Mitchell stubbornly repeats the foundational blunder. This, of course, is long known as unscientific behavior: “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)
In the section Description and Theory, Bill Mitchell states: “Another example of the ‘description’ story is that MMT is just about accounting relationships ― for example, deriving sectoral balances from the National Accounting framework and then concluding that a government deficit (surplus) must equal the non-government surplus (deficit).
In part, MMT certainly exploits accounting consistency to assemble an analytical framework This is part of the stock-flow tradition in heterodox economics that ensures consistency between flows of things and the stocks they flow into, period to period. …
So the statement: the Government deficit (surplus) equals the non-government surplus (deficit) dollar-for-dollar is a truism and must be true.”
Not at all, it is only true for the scientifically incompetent. MMT gets even the most elementary economic truism wrong. It all depends on what MMTers put in their “non-government” top hat.
Axiomatically correct macroeconomics says for the 2- and 3-sector economy:
- Q≡−S i.e. profit of the business sector Q is trivially equal to dissaving/deficit-spending of the household sector −S, and loss of the business sector −Q is trivially equal to saving of the household sector S. The balances add up to zero, that is the accounting truism for the most elementary case.
- Q≡(G−T) i.e. profit of the business sector Q is trivially equal to the budget deficit of the government sector T−G<0.
- Q≡(G−T)−S is the general case, i.e. profit of the business sector Q is trivially equal to the combined deficit of the household and government sector. In other words: the profit of the business sector equals the combined deficit of the non-business sector and vice versa, the loss of the business sector equals the combined surplus of the non-business sector.
The “non-government” sector is an MMT construct that makes profit disappear. Isn't it a bit strange that Bill Mitchell applies in his post the foundational sociological concept of power but not the foundational economic concept of profit?#4 Except in this summarizing complaint: “I have seen many social media attacks on our work that claims that we are just part of the establishment and want to shore up profits.”#5
Yes, indeed. That's what MMT is all about. It is trivially true that the macroeconomic Profit Law implies Public Deficit = Private Profit. MMTers introduce the redundant non-government sector in order to hide macroeconomic profit from WeThePeople. The remarkable fact is that the rest of academic economics does not realize anything.
If there is a scientific hell, Bill Mitchell and his MMTers will spend an eternity there for political fraud.#6 The rest of academic economics will be there for negligence/complicity.
Egmont Kakarot-Handtke
Related 'Political fraud and the silence of academia'. For details of the big picture see cross-references MMT.
For more about Bill Mitchell see AXECquery.