Very busy these days: Wall Street’s agents

Comment on Kaivey on ‘Presidential Lecture Series: Stephanie Kelton’

Blog-Reference

Matt Franko cites Bill Mitchell: “I mean by that, that while MMT provides a clear lens for viewing the system, to advance specific policy platforms, one has impose a value system (an ideology) onto that understanding.” and resumes “They are not politically neutral... they are Democrat/Labour allied....”

NO!

MMT is NOT a clear scientific lens but an obscure political smoke-screen. Science tells everyone that Public Deficit = Private Profit and this follows straight from the TRUE sectoral balances equation (X−M)+(G−T)+(I−S)−(Q−Yd)=0 which compares to the FALSE MMT balances equation (X−M)+(G−T)+(I−S)=0 which obviously LACKS/HIDES macroeconomic profit.

The scientific content of MMT is ZERO. Looking at the economy through the MMT lens is as enlightening as looking through the toilet seat.

Of course, MMT is NOT politically neutral. Just the opposite. MMT is plain political agenda pushing, and it is NOT for the cause of WeThePeople but against it. MMT is an attempt to capture genuine grassroots movements in the US and the UK. Under the banner of Progressives, MMTers pretend to overtake the traditional Left and to be the true Friends-of-the-People.#1…#7

Bill Mitchell resumed his recent meeting with John McDonnell in London: “I said that the social democratic parties had let the progressive side of politics down in recent years and that it was good to see this oppositional left capacity coming back into British politics to give people an effective choice.”

Isn’t it a bit curious that an academic from Australia tours around the world and lectures the Labour Party? It is NOT curious if one sees Bill Mitchell and Stephanie Kelton as fake scientists and agents of Wall Street.

Bloomberg hypes Warren Mosler as a “hedge fund guy Lefties can love” and Tom Hickey sells MMT on this blog as modern Marxism. This is more than naive because Alternative History has in the meantime arrived at a conclusion that “Karl Marx is, and always was, a double agent working for bankers and industrialists.”#8

Economics has finally gotten rid of 200+ years of political BS. The scientific and historical fact of the matter is: deficit-spending/money-creation is and has always been a program for the self-alimentation of the Oligarchy.#9

Bill Mitchell reports: “JMD [John McDonnell, British Labour's Shadow Chancellor] began the meeting by asking me ‘What are we getting right?’” My guess is that Bill Mitchell told him that British Labour still has some way to go to meet Wall Street’s strategic goals.

Egmont Kakarot-Handtke


#1 MMT: agenda-pushing and money-making for the Oligarchy
#2 MMT and the promotion of Wall Street's idea of social policy
#3 MMT, Warren Mosler, and the little helpers from Wall Street and Academia
#4 The Kelton-Fraud
#5 MMT, Bill Mitchell, and the lack of basic scientific integrity
#6 MMTers are NOT Friends-of-the-People
#7 For the full-spectrum refutation see cross-references MMT
#8 Reddit
#9 MMT = proto-scientific garbage + deception of the 99-percenters

Related 'Mission impossible: economists join WeThePeople' and 'Dean Baker: progressive agenda pusher for the Oligarchy' and 'MMT = Modern Monetary Trash' and 'Smart! How to make people fund their brain-washing' and 'Good news for the one-percenters' and 'Both Mainstreamer and MMTer are either stupid or corrupt or both' and 'Forget mainstream economics, scrap MMT, move on to the new paradigm' and 'Both mainstream economics and MMT are axiomatically false' and 'MMT and the single most stupid physicist' and 'MMT: How the Oligarchy communicates with WeThePeople' and 'Why the British Labour Party should NOT adopt MMT' and 'MMT-Progressives: stupid or corrupt or both?' and 'How Bill Mitchell stalks Jeremy Corbyn' and 'Links on Liza N. Burby‘s ‘Cutting-Edge Economist Stephanie Kelton Delivers Presidential Lecture’' and 'The page where Stephanie Kelton gets macroeconomics wrong' and 'MMT and the overall political corruption of economics.'

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REPLY to Matt Franco, Andrew Anderson, Ralph Musgrave on Oct 22

Lest the crucial point gets lost: Stephanie Kelton, Bill Mitchell, and the other MMT loudspeakers push ― intentionally or unintentionally doesn’t matter ― the agenda of Wall Street#1 and you are ― intentionally or unintentionally doesn’t matter ― obscuring this fact with your waffling about the Job Guarantee. Therefore, you are ― intentionally or unintentionally doesn’t matter ― complicit in political fraud.


#1 For details of the big picture see cross-references MMT

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Wikimedia AXEC122b

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Twitter Aug 1, 2020

Twitter Oct 10, 2022

Stephanie and Noah ― economics at the intellectual zero lower bound

Comment on Stephanie Kelton/Noah Smith on ‘Just When Should We Start Worrying About Deficits?’

Blog-Reference and Blog-Reference

This is the point at issue: “The Congressional Budget Office just said it expects the deficit to top $1 trillion in 2019, a record. Should we be worried?”

This is an open invitation for Stephanie Kelton to enthusiastically push the agenda of the oligarchy:#1

• “What I find interesting is … the fact that Republicans added roughly $2 trillion in stimulus at a time when nearly everyone said it shouldn’t be done, citing proximity to full employment. ‘You don’t do stimulus at full employment,’ was basically the argument. Well, here we are well into the experiment and ... what’s the problem? Inflation remains in check, unemployment has ticked down a bit further, small business confidence is at a 45-year high and growth has accelerated.”

• “And, as you note, they helped without raising inflation, which tells me they didn’t overstimulate, which further tells me there may be room to do even more. Tax Cuts 2.0, anyone?”

• “And so while critics use terms like, ‘blowing up the deficit’ or ‘drowning in red ink’ to describe what’s happening to the government’s finances, Republicans seem more interested in the fact that their deficits will improve the private sector’s finances, especially the biggest corporations and wealthiest people in America. In other words, the GOP seems to understand that the government’s red ink is our black ink!”

• “The most intuitive way to show this is through the sector financial balances. This becomes clear if you listen to Hatzius explain why he thinks sector-balance analysis can send a signal when the private sector’s financial positions are becoming overly fragile. And because it’s nothing more than accounting, it also tells us that the crowding-out story is 100 percent wrong — a government deficit raises private sector incomes; it doesn’t crowd out private finance.”#2

The economic blunder/fraud is in the reference to MMT’s sectoral balances equation and in the assertion “the government’s red ink is our black ink.” No, it is not OUR black ink but THEIRS = the oligarchy’s black ink.#3

Noah Smith does not spot the lethal fault in Stephanie Kelton’s argument and merely waves with the inflation red-herring: “It seems like you’re agreeing with me that accelerating inflation is a risk of deficits. The question is whether that would come slowly or quickly.”

What, then, is the lethal fault is Stephanie Kelton’s argument? Fact is:

• The MMT sectoral balances equation, i.e. (I−S)+(G−T)+(X−M)=0, is provably false.#4 MMT has no sound scientific foundations.

• Neither Stephanie nor Noah ever mentions the profit effect of deficit-spending/money-creation.#5

• From the axiomatically correct Profit Law Qm≡Yd+(I−Sm)+(G−T)+(X−M) follows Public Deficit = Private Profit.#6

• Therefore, MMT economic policy ultimately boils down to the permanent growth of public debt which is nothing else than the permanent self-alimentation of the oligarchy.

MMT is failed/fake science#7 and the proponents of MMT in general and Stephanie Kelton, in particular, are stupid/corrupt agenda pushers.

Egmont Kakarot-Handtke


#1 MMT: So-called Progressives as trailblazers for Trumponomics
#2 MMT = Modern Monetary Trash
#3 MMT and the single most stupid physicist
#4 Down with idiocy!
#5 Why the MMT benefactors of humanity never talk about profit
#6 Keynes, Lerner, MMT, Trump and exploding profit
#7 For the full-spectrum refutation see cross-references MMT

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REPLY to Ralph Musgrave on Sep 25

Noah Smith asked rhetorically ‘Just When Should We Start Worrying About Deficits?’

Stephanie Kelton answers with the MMT refrain don’t worry, be happy. You parrot her with: “Personally, if my assets exactly equalled my debts, and I got a check from some sugar daddy, I would be LESS WORRIED (silly me) than prior to receiving the check.”

So, nothing to worry about except that what is unfolding in the grand political Circus Maximus is ― to use Stephanie Kelton’s words ― “one of the greatest cons ever perpetrated on the American people.”#1

The facts to worry about are:

• With their plea for deficit-spending/money-creation, Stephanie Kelton, her MMT colleagues, and the social media sales trolls push the agenda of Wall Street.#2

• MMTers claim to promote the cause of WeThePeople (care for jobs, health, education, social cohesion, public infrastructure, environment, etcetera). These issues, though, are abused as talking points and door openers. MMTers call themselves Progressives but de facto undermine the genuine social grassroots movements.#3, #4, #5

• In the Stephanie-Noah fake debate on Bloomberg, Stephanie Kelton does not talk any longer about her care for humanity but straightforwardly pushes for the next round of MMT deficit-spending/money-creation: “Tax Cuts 2.0, anyone?”

• Academic economics has entirely abandoned scientific standards and integrity. Not only MMTers have become full-time media clowns and useful political idiots. Academia, too, has become a failed institution.

• Economically, the point to worry about is that the US economy will drop dead as soon as the growth of public and private debt slows down and eventually reverses. The axiomatically correct Profit Law says: increasing debt ⇒ macroeconomic profit up, decreasing debt ⇒ macroeconomic loss up. To this day, we have only experienced the first half of the debt story.


#1 MMT = Modern Monetary Trash
#2 MMT and the promotion of Wall Street's idea of social policy
#3 MMT and grassroots movements
#4 Political economics: Who hijacks British Labour?
#5 MMTers are NOT Friends-of-the-People

How Bill Mitchell stalks Jeremy Corbyn

Comment on Bill Mitchell on ‘MMT is just plain old bad economics ― Part 2’

Blog-Reference

The general public has no proper understanding of what economics is all about. Therefore, the first thing to do is to distinguish between political and theoretical economics. The main differences are: (i) The objective of political economics is to successfully push an agenda, and the objective 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.

Theoretical economics had been hijacked from the very beginning by the agenda pushers of political economics. Political economics has produced NOTHING of scientific value in the last 200+ years. The major approaches — Walrasianism, Keynesianism, Marxianism, Austrianism, MMT — are mutually contradictory and materially/formally inconsistent. Economics is a failed science. Most people have the impression that economics is, roughly speaking, a fight between the pro-capitalist/anti-communist side against the pro-communist/anti-capitalist side.

This impression is confirmed on all channels of public communication and this shows that the agenda pushers have taken over economics and have weaponized economic theory. Since Adam Smith/Karl Marx, economic policy guidance NEVER has had sound scientific foundations. To this day, economists are not competent scientists who are committed to scientific truth but stupid and corrupt storytellers/agenda pushers.

How does MMT fit into this scheme?

• MMT claims that neoclassical = mainstream economics is garbage. That is provably true.

• MMTers claim, in particular, that their monetary theory is superior. That is correct, especially in comparison to mainstream economics.

• MMT claims to be politically progressive, that is, to promote the cause of the ninety-nine-percenters.

• This seems to imply that MMTers and the Labour Party harmonize with regard to economic policy. This, though, is NOT the case.

• In a speech, John McDonnell, the Shadow Chancellor, said: “Austerity is not an economic necessity, it’s a political choice … We will tackle the deficit fairly and we can do it … Labour’s plan to balance the books will be aggressive … Where money needs to be raised it will be raised from fairer, more progressive taxation.”

• To call austerity a political choice is characteristic MMT terminology, however, this does NOT satisfy Bill Mitchell: “So in this framing, the Labour Party was signalling that it would continue to construct the macroeconomic debate within the standard neoliberal (mainstream economics) framework. The language and concepts of that flawed approach would be retained.”

• According to Bill Mitchell, the Labour Party’s economic program hides “the fact that the proponents do not want governments to do what we elect them to do ― that is, advance general welfare.”

• This smacks of treason but is merely incompetence of the current leadership: “In my view, it would be a better strategy, … to spend time reframing the debate away from the neoliberal obsession with deficits and public debt, and, instead, elevating progressive goals of full employment, environmental sustainability, equity etc to the centre stage.”

• “But then the Shadow Chancellor would need to get some better advice.”

• And here Bill Mitchell jumps in: “As I explained … the only appropriate deficit target is whatever is required to ensure the overall savings desires of the non-government sector are achieved at a full-employment level of output.”

• Expressed in a formula, Public Deficit should be equal to Private Saving. What Bill Mitchell in his scientific incompetence/corruption does NOT know/does NOT WANT to know is that the macroeconomic Profit Law clearly states: Public Deficit = Private Profit.#1

• Since “Private Saving” is supposed to be positive most of the time, Bill Mitchell is arguing for permanent deficit-spending/money-creation and a steadily growing public debt.

• What is absolutely unacceptable for Bill Mitchell is that the Labour Party intends to “balance the books” with “more progressive taxation.”

• MMT is for social policy but only for a social policy that is NOT funded by taxes, and NOT by a reduction of military spending, but predominantly by deficit-spending/money-creation which amounts to stealth taxation of the ninety-nine percenters.

So, what MMT is all about is stealing the social image from the Labour Party, undermining the current leadership, and substituting Labour’s economic policy with a program that exactly fits the requirements of Wall Street/City of London.#2, #3

Egmont Kakarot-Handtke


#1 MMT and the magical profit disappearance
#2 Political economics: Who hijacks British Labour?
#3 MMTers are NOT Friends-of-the-People

Related 'The Kelton-Fraud' and 'Richard Murphy: the MMT fraudster dressed up as realist' and 'The Magic Money Tree is real ― too bad that the magic is fraud' and 'Links on Austerity' and 'Dear idiots, government deficits do NOT fund private savings' and 'MMT, Bill Mitchell, and the lack of basic scientific integrity' and 'The economist as useful political idiot'. For the full-spectrum refutation of MMT see cross-references MMT.

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REPLY to Calgacus on Aug 15

You say: “The idea that spending not funded by taxes necessarily amounts to stealth taxation is very neoclassical, commodity theory thinking.”

Axiomatically correct macroeconomics leads to the provable conclusion that deficit-spending/money creation has two certain effects (i) the ninety-nine-percenters are taxed in real terms,#1 (ii) the business sector’s profit increases because the Profit Law states Public Deficit = Private Profit.#2

MMT policy has massive negative effects on distribution.#3 The claim that MMT is progressive is laughable.#4

Scientifically, MMT is garbage and politically it is Wall Street’s attempt to hijack and neutralize genuine social movements.

MMTers are scientifically incompetent and politically corrupt. MMT is refuted on all counts.#5


#1 MMT, money creation, stealth taxation, and redistribution
#2 The Magic Money Tree is real ― too bad that the magic is fraud
#3 Keynes, Lerner, MMT, Trump and exploding profit
#4 MMTers are NOT Friends-of-the-People
#5 For the full-spectrum refutation of MMT see cross-references MMT

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Wikimedia AXEC142c

Hooray! The formalization issue is finally settled

Comment on Lars Syll on ‘Paul Krugman — a math-is-the-message-modeler’ and ‘Krugman’s formalization schizophrenia’

Blog-Reference and Blog-Reference and Blog-Reference on Jun 30 adapted to context and Blog-Reference

Many people think that economics is part of science. This is a superficial impression. Fact is that economics is part of the entertainment industry. One of the performances that feature regularly in the Circus Maximus is ‘The mysterious death of economics: formalism murdered realism ― or was it just the other way round?’

Of course, the question is not answered. The purpose of Circus Maximus is NOT to settle controversies, the purpose is to keep the show running. This is the main task of the impresario: “Paul Krugman, … is the impresario of this new age, a strident but pathologically clear headed critic of the way in which the macroeconomics of the business cycle actually retrogressed after the 1980s.”#1

Circus Maximus, of course, needs more than one impresario. Krugman introduces himself as orthodox loudspeaker: “… most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point ...”. One of the loudspeakers of Heterodoxy is Lars Syll.

The formalization debate is a joint production of Orthodoxy and Heterodoxy that runs since the time of Jevons/Walras/Menger.#2, #3, #4, #5

Lars Syll delivers an almost lethal blow with the realism argument: “So when Krugman and other ‘modern’ mainstream economists use their models — standardly assuming rational expectations, Walrasian market clearing, unique equilibria, time invariance, linear separability and homogeneity of both inputs/outputs and technology, infinitely lived intertemporally optimizing representative agents with homothetic and identical preferences, etc. — and standardly ignoring complexity, diversity, uncertainty, coordination problems, non-market clearing prices, real aggregation problems, emergence, expectations formation, etc. — we are supposed to believe that this somehow helps them ‘to avoid motivated reasoning that validates what you want to hear’ and provide ‘legitimacy’.”

Indeed, nobody can take the foundational assumptions of Orthodoxy seriously.

Lars Syll, though, as an adherent of the Marshall/Keynes tradition of loose verbal reasoning never had much more to offer than common sense blather and storytelling.#6

Paul Krugman does not fail to put the finger on Heterodoxy’s irreparable defect: “I’ve seen quite a lot of what economics without math and models looks like — and it’s not good.”

And that’s it. Heterodoxy easily knocks down Orthodoxy and Orthodoxy easily knocks down Heterodoxy.

It is pretty obvious that this bunch of cargo cult scientists never understood what methodology is all about. Aristotle put it thusly: “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.”

The fact of the matter is that both Walrasian microfoundations and Keynesian macrofoundations are NOT “certain, true, and primary”. Methodology tells us that if the premises are false the whole analytical superstructure is false.

Formalization is just another word for what Aristotle described as the scientific method or what is called the axiomatic-deductive method: “I mean by this that formalization eliminates provincial and inessential features of the way in which a scientific theory has been thought about. … Formalization is a way of setting off from the forest of implicit assumptions and the surrounding thickness of confusion, the ground that is required for the theory being considered. … In areas of science where great controversy exists about even the most elementary concepts, the value of such formalization can be substantial.” (Suppes)

Fact is that both Orthodoxy and Heterodoxy got the most elementary concepts of economics, i.e. income and profit, badly wrong.#7, #8 This is like medieval physics before the concept of energy was clearly defined and fully understood. Faulty conceptualization, not formalization, is the ultimate cause of failure.#9

Premises have to be clearly stated and conclusions have to be derived in a logically unbroken chain. This minimum requirement applies to all branches of science. But economics is NOT a science but a clown show of confused orthodox and heterodox agenda pushers.

Both Orthodoxy and Heterodoxy got formalization wrong. Both Paul Krugman and Lars Syll are incompetent scientists. Time for the final curtain, time for the impresarios to get out of economics, time to make economics a science.

Egmont Kakarot-Handtke


#1 Gruen A lucky boy from a golden age of economics
#2 Coming to terms with formalization
#3 Mathiness and the Ur-Blunder
#4 Putting the production function back on its feet
#5 For details of the big picture see cross-references Math/Mathiness
#6 Marshall and the Cambridge school of plain economic gibberish
#7 Profit: after 200+ years, economists are still in the woods
#8 Do first your macroeconomic homework!
#9 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It

Related 'Beware of the moralizing economist' and 'Why is economics such a scientific embarrassment?' and 'The stupidity of Heterodoxy is the life insurance of Orthodoxy' and 'Economics: 200+ years of scientific incompetence and fraud' and 'Enough! Economists, retire now!' and 'Truth by definition? The Profit Theory has been axiomatically false for 200+ years'. For details of the big picture see cross-references Failed/Fake Scientists.'

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Wikimedia AXEC121f

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REPLY to Dave Marsay on Jul 2

You say: “My assumption is that, as in GTE, Keynes intended his economic work to be interpreted by reference to his Treatise.”

Just the opposite. Keynes clearly distanced himself from the ToM.

“The relation between this book and my Treatise on Money … is probably clearer to myself than it will be to others; and what in my own mind is a natural evolution in a line of thought which I have been pursuing for several years, may sometimes strike the reader as a confusing change of view.”

“But my lack of emancipation from preconceived ideas showed itself in what now seems to me to be the outstanding fault of the theoretical parts of that work (namely, Books III and IV [of ToM]), that I failed to deal thoroughly with the effects of changes in the level of output.”

“The above definitions of income and of net income are intended to conform as closely as possible to common usage. It is necessary, therefore, that I should at once remind the reader that in my Treatise on Money I defined income in a special sense. … For this reason, and also because I no longer require my former terms to express my ideas accurately, I have decided to discard them—with much regret for the confusion which they have caused.”

There is no use to interpret Keynes for x-th time. Keynesianism is dead for 80+ years but After-Keynesians have not realized it. For details see cross-references Keynesianism.

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REPLY to davetaylor1, Dave Marsay on Jul 3

In the preface of the GT, Keynes stated clearly how he wanted the book to be interpreted with reference to the Treatise on Money but he says no word that refers to the Treatise on Probability.

So, Dave Marsay’s statement is false independently of whether he refers to ToP or ToM. 

As the quotes from the GT above show, Keynes wrestled with the definition of income/saving and this has nothing to do with probability.

This is the key statement from the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

This two-liner is conceptually and logically defective because Keynes never came to grips with profit.

“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., 2010)

Because Keynes got the foundational concepts profit/income/saving wrong the whole analytical superstructure of Keynesianism is scientifically worthless, and no reinterpretation in the light of ToP or anything else can save it.

Keynesianism is dead for 80+ years. Walrasianism is dead for 150+ years. Asad Zaman is right: “a radical paradigm shift is required.”

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LINK for userfriendlyyy on Jul 3

Kalecki’s profit equation is long dead. See Profit: after 200+ years, economists are still in the woods.

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REPLY to Dave Marsay on Jul 3

There is science, and it is binary true/false with NOTHING in between. Truth is well-defined since 2000+ years by formal and material consistency. And there is the large swamp of cargo cult science where, as Keynes said, “nothing is clear and everything is possible.”

In the swamp, vagueness, indeterminacy, inconclusiveness, confusion dressed up as complexity, unresolved contradictions, storytelling, filibuster, gossip, finicky scholasticism (Popper), known/unknown unknowns, nonentities, and the Humpty Dumpty Fallacy are the prevailing components of communication.

Keynes was a swampie and a defender of the Cambridge tradition of loose verbal reasoning.#1 On rare occasions, Keynes wrote down an unambiguous syllogism, e.g. “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)

Too bad that this rather elementary two-liner is provably false. This is sufficient to refute Keynesianism. Inconsistency is lethal in science. Fortunately for Keynes and After-Keynesian swampies, economics is only a titular science.#2 Because of this, people can have conversations about ‘What Keynes really meant’ until they are blue in the face. Zero outcomes guaranteed.#3

#1 Marshall and the Cambridge School of plain economic gibberish

#2 Tricky business

#3 Forget Keynes

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REPLY to Craig on Jul 4

You say: “Macro-economics will never solve the problems it has correctly identified because they aren’t looking in the right places to solve them …”

There is no point any longer in bashing or reinterpreting macro or micro.#1, #2 Orthodoxy, Heterodoxy, and Pluralism are provably false. More specifically, they are axiomatically false, that is, beyond repair.

In this situation, the representative economist has only these options left: (i) to work on the Paradigm Shift, or (ii), to throw himself under the bus.

Science is binary true/false with NOTHING in between.

#1 Stop beating mainstream economics ― it is long dead

#2 The miracle cure of economists’ micro-macro schizo

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REPLY to Craig on Jul 7

You violate the first rule of science: Do NOT apply religious/spiritual concepts in an economic argument.#1

Scientific truth is well-defined by material/formal consistency. The rest of human communication is just brain-dead blather.

#1 The Supreme Being handed over these Twelve Economics Commandments

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REPLY to davetaylor1 on Jul 9

You say: “Forget Adam Smith’s invisible hand at your peril, but do realise it is a metaphor for a control system. A much less mystical metaphor… has long been available in the theory and practice of navigation, i.e. Cybernetics. As an economist, Keynes did not think of that, but like a baby taking its tentative first steps, he did go some way to re-inventing it for steering economies.”

Take notice that Keynes got the whole thing wrong and Post-Keynesians blindly followed him. Methodologically, economics is a systems science but economists second-guess for 200+ years Human Nature/motives/behavior/action.

To this day, economists have been unable to give a consistent description of how the monetary economy works. Economists do not even know what profit is. This is like medieval physics before the concept of energy was consistently defined and fully understood.

For this compelling methodological reason, a paradigm shift is necessary which means practically that Walrasianism, Keynesianism, Marxianism, Austrianism, is buried at the Flat-Earth Cemetery

Here are the correct systemic foundations of economics.#1, #2 The elementary production-consumption economy is, for a start, defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (monetary profit/loss Qm≡C−Yw, monetary saving/dissaving Sm≡Yw−C). From this follows Qm=−Sm, that is, macroeconomic profit comes in the most elementary case from the growth of household sector debt.#3

Capitalists don’t know this. Workers don’t know this. Orthodox economists don’t know this. Heterodox economists don’t know this. And davetaylor1, too, does NOT know the most elementary fact about the economic system.

#1 Do first your macroeconomic homework!

#2 Wikimedia AXEC137 New Foundations of Economics

#3 Wikimedia AXEC143  Macroeconomic Profit Law and Balances Equation

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REPLY to Dave Marsay on Jul 10

You say: “Egmont, I think of science as having two types, the theory and application, rather like economics. The theory has to be definite and may appear dogmatic, as you suggest. But surely a dogmatic application of a theory to a real domain is just pseudo-science?”

NO, there are NOT two types of science but science is defined by material AND formal consistency. BOTH!

This is why Gauss, long before Hilbert, tested Euclidean geometry: “One of the most famous stories about Gauss depicts him measuring the angles of the great triangle formed by the mountain peaks of Hohenhagen, Inselberg, and Brocken for evidence that the geometry of space is non-Euclidean.” (Brown)

Genuine scientists, which excludes both orthodox and heterodox swampies, have very thoroughly thought about what distinguishes science/truth from blather, i.e. the demarcation problem: “So the idea of truth (of an ‘absolute’ truth) ... is our main regulative idea.” and “Although nowadays we have given up the idea of absolutely certain knowledge, we have not by any means given up the idea of the search for truth.” (Popper)

Scientists do not claim that a theory represents the absolute truth about a subject matter but that it is the best mental representation of reality that is humanly possible. This leaves the door open for anybody to come forward with an even better theory.

Neither orthodox nor heterodox economists ever understood this and that is why economics is a failed science or what Feynman called a cargo cult science.#1, #2, #3

Luckily for economists, scientific failure does not prevent a career as a useful political idiot.

#1 Axiomatics — the heterodox bugbear

#2 Don Lars and the axiomatic windmill

#3 Economics between truth and blather

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REPLY to Dave Marsay on Jul 10

You say: “I suspect (as I do with Lars) that our underlying thoughts and intentions are compatible, but our expressions are infected by our backgrounds and experience. I hope so!”

No, our underlying thoughts are definitely NOT compatible.

For example, you put Keynes, Russell, Whitehead in one row. So you give Keynes the status of a scientist who was seriously committed to material/formal consistency. Keynes’ inconsistency, though, was a running gag among contemporaries: “If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions.” (Churchill)

So, what you are in effect trying is to erect a False-Hero-Memorial. Keynes was not a scientist but a political agenda pusher and an adherent of the Cambridge School of Lose Verbal Reasoning: “Another danger is that you may ‘precise everything away’ and be left with only a comparative poverty of meaning. . . . Such a problem was avoided, said Keynes, by Marshall who used loose definitions but allowed the reader to infer his meaning from ‘the richness of context’.” (Coates)

Between the Treatise on Probability, which applies with an entirely un-Keynesian consequence the axiomatic-deductive method (pp. 133-135) and the General Theory there is a plain methodological contradiction: “In the early thirties he [Keynes] confessed to Roy Harrod that he was ‘returning to an age-long tradition of common sense’.” (Coates)#1

Thus, Keynes became the idol of the anti-math crowd: “From his discussions with Wittgenstein, Keynes was well aware of the significance of vague concepts and the possible trade-off between precision and accuracy: This led him to conclude that formalization runs the risk of leaving behind the subject matter we are interested in. Formalization thus also runs the risk of increasing rather than decreasing muddle.” (Coates)

Keynes’ own muddle can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

Unfortunately, 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.)

The economist Keynes never understood the foundational concept of his subject matter. Because profit is ill-defined the whole analytical superstructure of Keynesianism is false.#2 Fact is that Keynes’ little syllogism is inconsistent and that, by consequence, all I=S/IS-LM models are false from Hicks to Krugman and beyond.#3

The problem with economics is NOT, as you argue, that a true theory is misapplied in a crisis but that there is no true theory, to begin with.#4 Economics is a cargo cult science. Macro is proto-scientific garbage for 80+ years and neither the mathematician Dave Marsay nor the heterodox economist Lars Syll has realized it to this day.

Who cannot be taken seriously in matters of logic cannot be taken seriously in matters of methodology.

#1 A brief history of soapbox economics

#2 Why Post Keynesianism Is Not Yet a Science

#3 Paul Krugman and economic poultry entrails reading

#4 Mass unemployment: The joint failure of orthodox and heterodox economics

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Missing-Link message on Jul 11 Blog-Reference RWER

Reply somehow vanished. For the full text see

https://axecorg.blogspot.com/2018/06/hooray-formalization-issue-is-finally.html

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REPLY to davetaylor1

You say: “Davetaylor1, then, does know something about the economy, having lived in for over eighty years and thought about it for sixtyfive.”

This is very interesting for any sitcom but annoying in a scientific discussion. See  Show first your economic axioms or get out of the discussion.

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REPLY to Craig on Jul 12

Of course, you are right, in my post above I did not mention the cosmos. So here is the enlarged set of foundational propositions.

(A0i) The set of all things and all events is the logical cosmos.

(A0ii) The subset of the logical cosmos that is mentally/physically accessible to earthlings is the empirical cosmos.

(A0iii) The economy is a subset of the empirical cosmos.

(A0iv) 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.

(A0v) For a start,#1 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 expenditure C is equal to price P times quantity bought/sold X.

(A0vi) From the macroeconomic axioms follow models by specification.

(A0vii) The Ur-Model is given by two conditions (X=O, C=Yw) and two definitions (monetary profit/loss Qm≡C−Yw, monetary saving/dissaving Sm≡Yw−C).

The economic Ur-Model tells us two important things: (i) under the condition of market-clearing X=O and budget-balancing C=Yw, macroeconomic profit is zero and independent of employment, productivity, wage rate, etcetera, and (ii), because of Qm=−Sm macroeconomic profit comes in the most elementary case from dissaving, i.e. the growth of household sector debt.#2

From this, in turn, follows immediately that all microfounded (Walrasian) and macrofounded (Keynesian) profit theories are false.

(A1) to (A3) are the correct macroeconomic axioms to start with. The Prime Cosmic Directive says: If it isn’t macro-axiomatized it isn’t economics.

#1 Wikimedia AXEC137 New Foundations of Economics

#2 Wikimedia AXEC143 Macroeconomic Profit Law and Balances Equation

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REPLY on Jul 13

Craig

The Second Law of Thermodynamics is implicit in (A0iii) and has been dealt with elsewhere.#1, #2

Dave Marsay

(i) Your questions have already been answered in the post that has vanished (see link). The punchline is: “Who cannot be taken seriously in matters of logic cannot be taken seriously in matters of methodology.” This refers to Keynes and you.

(ii) You ask: “So, not just as a mathematician, I would like to see how you might tackle Keynes’ microfoundational issues, as in his Treatise on Probability, to justify your macro-economics.” Keynes has been refuted in all dimensions.#3 So, forget Keynes.

In the current situation, the only question of interest is the paradigm shift from false Walrasian microfoundations and false Keynesian macrofoundations to the true macrofoundations.#4 If you have a superior set of axioms then it would be an excellent idea to present them.

(iii) You introduce yourself incessantly as a mathematician. This is irrelevant for the current discussion which deals with the foundations of economic theory and NOT with the CVs of participants. I wonder how it comes that you have not detected the logical blunder in Keynes’ foundational syllogism (GT, p. 63) which is by now 80 years old. Time enough for a mathematician to put things straight, one would think.#5

#1 Nietzsche, entropy, full employment, and NO class war

#2 Matter Matters: Productivity, Profit, and Non-Marginal Factor Prices

#3 For details see cross-references Keynesianism

#4 For details see cross-references Axiomatization

#5 For details about how this is done see Jonathan Barzilai, Scientific Metrics

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Missing-Link message on Jul 13 Blog-Reference RWER

The Reply somehow vanished. For the full text see here.

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REPLY to Craig on Jul 14

You say: “I have said here many times economists ARE NOT LOOKING AT double-entry bookkeeping and so are missing extremely relevant economic insights to be derived from doing so.”

False. Macroeconomic accounting has already been rectified.#1

You say: “You can’t get any more empirical and grounded in the temporal universe than accounting, and it’s not just ‘bean counting’.”

True. For example the macroeconomic Profit Law Qm=−Sm.#2*

#1 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach

#2 For details of the big picture see cross-references Accounting

*  Wikimedia AXEC143d

How economists missed out on the essential relationship of economics

Comment on Nick Rowe* on ‘Public Debt: A Global Perspective’

Blog-Reference

Roughly speaking, science is about relations. Economics, too, abounds with relationships: supply function, demand function, consumption function, the Phillips Curve, IS-LM, the global debt clock,#1 and so on.

Some of these relationships implicate trouble for the future: “As interest rates rise, there are bound to be spillovers from one sector to another with the linchpin being households. As interest rates rise, it is individual households that ultimately pay the debt service costs to government via taxes, pay to service their mortgages and buy the goods and services from corporations that keep the economy humming and allow the corporations to service their debt. It is a lot more inter-connected than you think which is why central bankers should be on edge.” (Nick Rowe)

True, indeed, but a bit trivial. A higher interest rate means more money for the borrowers. This is known for five millennia.#2 To be sure, deficit spending and debt have an impact on the distribution of income and financial wealth.

However, economists talk much about the relationship between deficit spending and inflation or employment but not so much about deficit spending and distribution. The reason is simple: economists know next to nothing about it. The ultimate reason, though, is that economists do not know what profit is.#3 This, of course, includes Nick Rowe.

The fact is that economists are incompetent scientists and they thoroughly messed up macroeconomics.

To make the argument short, the axiomatically correct Profit Law for the economy as a whole is given as Q_m≡Y_d+(I−S_m)+(G−T)+(X−M) which reduces to Q_m=(G−T) for Y_d, I, S_m, X, M = 0. The reduced Profit Law says that the monetary profit of the business sector Q_m is equal to the deficit (G−T) of the public sector, in a nutshell: Public Deficit = Private Profit.

As public debt grows, so does the financial wealth of the one-percenters. The same holds for private debt. And this is what can be observed over the last decades. Everybody has heard the two slogans: the rich get richer, and, the worldwide debt grows exponentially. The exact relationship between the two phenomena is given with the Profit Law.

The Profit Law is the essential relationship for the monetary economy. The curious thing is that economists do not know it.#4 For 200+ years now, the Profit Theory is false and by consequence Distribution Theory. Nick Rowe’s discussion of the potential hazards of public debt shows that he is wandering around in the dark in blissful ignorance of the real threat.

Egmont Kakarot-Handtke


* "That was my post so if the post is ‘trivial’, I am entirely to blame."  Livio Di Matteo

#1 Economist The global debt clock
#2 Business Insider, The 5,000-year history of interest rates shows just how historically low US rates still are right now
#3 For details of the big picture see cross-references Profit
#4 “A satisfactory theory of profits is still elusive.” (Desai, Palgrave Dictionary)

Related 'The demise of phony experts: macroeconomics is provably false' and 'Fact of life: your econ prof is scientifically incompetent' and 'Does economics matter more for bread or for circuses?' and 'Macro imbeciles' and 'The curious non-existence of profit in economics' and 'Profit: The most powerful formula of economics'.

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Source: Twitter

Source: Twitter

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REPLY to Frank Restly, Dean on Jun 4

After Livio Di Matteo’s opening trivialities: (i) the credit markets are interrelated, (ii) there are spillovers, (iii) central bankers should be on edge, some people feel encouraged to come forward with more of this brain-dead stuff.

Frank Restly: “Debt and deficits are not synonymous.”

Dean: “Your equation Q_m=G−T Does not explain rising profit margins from about 1947 to 1969.” The Profit Law says nothing about profit margins but about macroeconomic profit. This should be obvious for everybody who can read an equation. The reduced equation highlights the contribution of public deficits to total macroeconomic profit. The point at issue is the relationship between deficits and distribution.

Frank Restly: “… a productivity boom is sufficient to raise corporate profits”. Macroeconomic profit does NOT AT ALL depend on productivity. This is a microeconomic Fallacy of Composition. You simply do NOT understand what profit is and what the Profit Law says.#1

Dean: “I just have yet to see any clear demonstration of the mechanics of how profits come into existence other than by an increase in financial claims.” You will NOT find this demonstration on the Worthless Canadian Blather blog.#2, #3

Frank Restly: “I believe what Egmont is referring to is retained/accrued profits or some form of marginal propensity to consume among recipients of profit. But his simple equation does not address this.” True, the reduced equation does not address this because the express purpose of the reduced equation is to ISOLATE the effects of public deficits. What you obviously do NOT understand is that the complete equation Q_m≡Y_d+(I−S_m)+(G−T)+(X−M) contains distributed profit Y_d and by implication retained profit. These issues have been treated elsewhere.#4

#1 For details of the big picture see cross-references Profit

#2 The Emergence of Profit and Interest in the Monetary Circuit

#3 Primary and Secondary Markets

#4 The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?

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REPLY to Frank Restly, Livio Di Matteo on Jun 4

Frank Restly: “This is a static equation in that there is no time lag indicated between a government/person going into debt and increases in macroeconomic profits being realized, which is quite unrealistic.”

The time dimension has been left out here in order to focus on the crucial distributional relationship which is given with Public Deficit (in period t) = Private Profit (in period t). Time has been extensively dealt with elsewhere.#1, #2

You maintain: “… if you want to define "macroeconomic profit" this way, that’s your prerogative.”

The foundational concepts of economics have to be consistently defined. This is done by axiomatization. There are no definitional prerogatives in science, this delusion is called Humpty Dumpty Fallacy and it is endemic among brain-dead economists.#3

The Humpty Dumpty Fallacy is one of the main reasons why economics is, after 200+ years, still at the proto-scientific level.

Livio Di Matteo says: “I do not see how deficits are equivalent to profits.” It could be perhaps a good idea to study serious economics#4 and no longer hang out with the econ-clowns of WCI.

Livio Di Matteo says finally: “The view of deficits as profit also does not explain to me why the business community is usually at the forefront of calls for deficit reduction and balanced budgets.” This phenomenon has been addressed several times elsewhere.#5, #6


#1 Essentials of Constructive Heterodoxy: The Market
#2 The Synthesis of Economic Law, Evolution, and History
#3 Profit, income, and the Humpty Dumpty Fallacy
#4 Profit theory in less than 5 minutes
#5 Austerity and the idiocy of political economists
#6 Austerity: Who takes the little man for a ride?

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REPLY to Dean on Jun 5

Your example points in the right direction. However, it suffers from the Fallacy of Insufficient Abstraction.

In order to go back to the ultimate foundations of economics, the elementary production-consumption economy is for a start defined by three macroeconomic axioms (Y_w=WL, O=RL, C=PX), two conditions (X=O, C=Y_w), and two definitions (monetary profit/loss Q_m≡C−Y_w, monetary saving/dissaving S_m≡Y_w−C).#1

It always holds Q_m≡−S_m, in other words, the business sector’s surplus = profit equals the household sector’s deficit = dissaving, and, vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law.

Starting from the elementary production-consumption economy, complexity is then successively increased. To make matters short, the axiomatically correct relationships are given here without further explanation. It holds, with Q_m monetary profit/loss, S_m monetary saving/dissaving, I investment expenditures, G government spending, T taxes, X export, M import, Y_d distributed profit:
(i) Q_m≡−S_m in the elementary production-consumption economy,
(ii) Q_m≡I−S_m in the elementary investment economy,
(iii) Q_m≡(G−T)+(I−S_m) in the investment economy with government deficit/surplus,
(iv) Q_m≡Y_d+(X−M)+(G−T)+(I−S_m) in the open economy with distributed profit.

From (i)/(ii) follows that saving and investment are NEVER equal and that ALL I=S/IS-LM models are false since Keynes/Hicks. In other words, macroeconomics is dead for 80+ years and After-Keynesians have not realized it.

From (iii) follows that ― given business sector investment I and household sector monetary saving S_m ― Public Deficit = Private Profit. The government deficit (co-)determines the cumulative stock of financial assets in the business sector. The sum of public deficits over time accumulates to ever-growing public debt.

Eq. (iv) defines the relationship between deficits, macroeconomic profit, and growing debt. Economists do not understand it from Adam Smith/Karl Marx onward. Economics is the worst embarrassment in the history of modern science and the so-called Worthwhile Canadian Initiative is an integral part of it.#2


#1 Macro for retarded economists
#2 Is Nick Rowe stupid or corrupt or both?

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Wikimedia AXEC109i

“As goes GM, so goes America” — A rather ordinary Fallacy of Composition

Comment on David Ruccio on ‘"For years I thought what was good for our country was good for General Motors, and vice versa"’

Blog-Reference

Let us call it the Marshallian Vice. The vice consists in taking a firm or a sub-sector of the economy, to analyze the basic relationships under the condition of ceteris paribus, and then to generalize the result for the economy as a whole. As a rule, the generalization is false, despite the fact that the conclusions of partial analysis are for all practical purposes correct. Because of this, Walrasian total analysis is — in principle — the methodologically correct way. Marshallian partial analysis is — in principle — misleading and scientifically worthless.

To see this let us make a simple example. Imagine two firms, GM and the rest of America. In the initial period the respective prices are equal to unit wage costs, i.e. GM Pg=Wg/Rg and rest of America Pr=Wr/Rr. Therefore, the profit in both firms is initially zero. The household sector spends total wage income on the two products, so there is neither saving nor dissaving (for details see 2014).

Now GM slashes the wage rate from Wg to W'g. Total employment is kept constant. Thus, total wage income falls. Because total consumption expenditures are equal to total wage income, nominal demand for both firms falls. Because total employment remains unchanged, the output of both firms remains unchanged. Under the condition of market-clearing, the respective prices adapt accordingly — both fall.

GM now makes a profit because the difference between the new price P'g and the lower unit wage costs W'g/Rg is now positive: “And thus we arrive at Mr. Ricardo’s principle, that profits depend upon wages; rising as wages fall, and falling as wages rise.” (Mill, 1874, IV.12)

GM provides the clear-cut empirical proof that the profit theory of all economic half-wits from Ricardo via Marx to Marshall and beyond is true — except for the conclusion ‘As goes GM, so goes America’.

The second firm (= the rest of America) now makes a loss because the new price P'r is lower than the unchanged unit wage costs Wr/Rr. The loss of the second firm is exactly equal to the profit of GM. The overall profit of the American economy is exactly zero, just as it was in the initial period. Because of this redistribution of profit the generalization ‘As goes GM, so goes America’ is patently false. The nuisance with economic half-wits is not that they are downright false but that they are at best half true. This is the fatal methodological flaw of all partial analyses. The proper subject matter of economics is the world economy as a whole and NOT the profit-maximizing firm or the utility-maximizing agent.

In the value-laden language of political economics, the complete picture is as follows. With the wage cut W'g < Wg GM increases its profit and exploits the rest of the American business sector which now makes a loss of equal magnitude. Because output remains unchanged the real situation of the household sector as a whole remains unchanged in real terms. However, the employees of the second firm absorb now a greater part of the total output because of lower prices and an unchanged wage rate. They exploit the employees of GM which can buy less now because of their lower wage rate. So, what we have as a result is a cross-over exploitation WITHIN the business and the household sector. The big picture is entirely different from what simple-minded partial analysis suggests.

What the big picture shows, is that the fundamental concepts of profit, exploitation, and class — which are common to Ricardo, Marx, the president of GM, the union leaders, the Econ 101 students, and all the other half-wits of political economics — are simply false.

When the profit theory is false, then the rest of the economic theory is false, including the theory of international trade. And when economic theory is false, then the economic policy is wrong-headed, and then the economy eventually goes down the drain.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). Profit for Marxists. SSRN Working Paper Series, 2414301: 1–25. URL
Mill, J. S. (1874). Essays on Some Unsettled Questions of Political Economy. On Profits, and Interest. Library of Economics and Liberty. URL

For details of the big picture see cross-references Profit.

The epic ping-pong of empty problem and vacuous solution

Comment on 'Transaction Cost Confusion’

Blog-Reference

You say “Transaction costs were invented by Ronald Coase to help explain why we see business firms littering the economic landscape when orthodox economic theory argues that the marketplace is the superior and unequalled coordinator of economic activity.” (See intro)

That ‘the marketplace is the superior coordinator’ is an assertion that needs proof. No such proof exists. So it is still an open question. Because of this, there is no need at all to invent a new explanation for the existence of the firm.

All the more so, as the correct answer has already been given by Adam Smith. Remember the pin factory? Division of labor and exchange are the two sides of the same coin and reinforce each other. This interaction is the big bang of the market system's vast expansion (see also 2014). Division of labor, clearly, presupposes the firm.

What Coase and Williamson explain is that pigs can fly because they have yellow wings.

“Cunningham in 1891 remarked that in the choice of premises “it is not always easy to tell when a professor of the dismal science is making a joke” and I suspect that Cunningham meant that if the professor was not joking, then he was making a fool of himself.” (Viner, 1963, p. 12)

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). Exchange in the Monetary Economy. SSRN Working Paper Series, 2387105: 1–19. URL
Viner, J. (1963). The Economist in History. American Economic Review, 53(2): pp. 1–22. URL