Mr. Wray goes to Washington

Comment on New Economic Perspectives on ‘Wray Appearing Before Congress’*

Blog-Reference and Blog-Reference Nov 18

MMT is two things: a novel theoretical approach that claims scientific superiority compared to the mainstream and political activism with a progressive agenda. This dual strategy violates the principle of the separation of politics and science. This First Principle of Science has been clearly formulated by J. S. Mill#1 but economists of all stripes have it forgotten. Today, economists are, with few exceptions, first agenda-pushers and second scientists.

The strict separation of the scientific realm and the political realm is non-negotiable because science cannot improve politics but politics always and everywhere corrupts science.

Contrary to their progressive appearances, MMTers are agenda-pushers for the Oligarchy.#2, #3, #4 The common denominator of all MMT policy proposals is deficit-spending/money-creation. This amounts to stealth taxation of WeThePeople and free lunches for the Oligarchy.#5

Needless to emphasize that MMTers play down all negative consequences of MMT policy. Here is what Randal Wray is going to tell in Washington: “His goal is to explain a) why we needn’t fear sovereign government deficits and debt; b) why in some important sense, deficits and rising debt are ‘normal’; c) the deficit is in any case largely outside the control of Congress; d) deficits and rising debt ratios will not lead to government insolvency or bankruptcy; e) all government payments can be made on time unless f) Congress forces a default (due to the debt ceiling it imposes).”

It is important to notice that the lethal effect of MMT policy is NOT inflation or bankruptcy. Because Public Deficit = Private Profit, the lethal effect is on the distribution of income and wealth. You will not learn much about distribution in Randall Wray’s testimony.

In essence, Wray tells Congress not to worry about the public debt but to do the bidding of Wall Street and to get out of the way of increasing deficit-spending/money-creation.#6-#9

Egmont Kakarot-Handtke


* New Economic Perspective
#1 “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.”
#2 Is MMT good for WeThePeople or for the Oligarchy?
#3 Deficit cheerleaders ― the Oligarchy’s useful idiots
#4 How MMT enlightens Washington
#5 MMT: A free lunch for the Oligarchy
#6 Dear idiots, MMTers are Wall Street’s agenda pushers
#7 Very busy these days: Wall Street’s agents
#8 MMT: The fusion of Wall Street and Academia
#9 MMT and the overall political corruption of economics

Related 'Deficit-spending, public debt, and macroeconomic profit/loss' and 'No MMT illusions! YOU are going to pay for it' and 'How to pay for the war and to be bamboozled by economists' and 'Some nasty MMT surprises behind the time horizon' and 'Controlled demolition of MMT ― an exercise in elementary logic' and 'Links on Austerity' and 'The state of MMT? Stone-dead!' and 'How Randall Wray takes the piss out of the House Budget Committee'.

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REPLY to Matt Franko on Nov 18

I say: “MMT is a novel theoretical approach that claims scientific superiority compared to the mainstream …”

You say: “Keep dreaming they claim no such thing …”

Bill Mitchell says: “The voodoo, I am afraid is actually on the other foot! There are some fundamental errors in the logic in the article that highlight why MMT is a superior paradigm for understanding how the monetary system actually operates in comparison to the mainstream logic that the author uses against it.”#1


#1 Voodoo economic revisionism abounds – and it is not MMT doing the voodoo

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Twitter Nov 20

Source: Twitter

The state of MMT? Stone-dead!

Comment on Brian Romanchuk/Tom Hickey on ‘The State Of MMT?’*

Blog-Reference and Blog-Reference and Blog-Reference and Blog-Reference

Tom Hickey maintains: “MMT is ‘winning’ because it cuts to the chase instead of wandering in the weeds. People wanting change are provided with direct answers in terms they can understand and relate too. Nor do MMT economists shy from debate about the weeds if it is seriously informed.”

Brian Romanchuk maintains: “The relationship between MMT and Post-Keynesian thinking is currently the largest area of awkwardness I see with respect to MMT. The special issue of the RWER seems to provide evidence for that assessment.”

The scientific fact of the matter is that Post-Keynesianism is proto-scientific garbage#1 and MMT is proto-scientific garbage.#2 The relationship between the two is NOT AT ALL awkward, though, because both approaches share the same foundational blunder. Together with Keynes’ faulty approach, both end up in the same wastebasket.#3

The blunder that brings macroeconomics in general and Post-Keynesianism and MMT, in particular, down is to be found in Randall Wray’s contribution Alternative paths to modern money theory, section The theoretical path to MMT.*

Here it is: “Government spending, like private investment, is an injection that raises income. More specifically, as Kalecki showed, government spending creates profits because it is a source of business revenue but not a cost of production. Taxes are a leakage, reducing household net income and business net revenue. If government spends more than it taxes, this is a net spending surplus ― increasing profits dollar-for-dollar. A net spending surplus by government cannot ‘crowd-out’ private investment ― it creates profits that are likely to boost the desire to invest. A net spending surplus by the US government cannot absorb global savings ― instead it creates net income for the US private domestic sector as well as for the rest of the world.” and “Now, it is true that government spending is not the only injection. Private investment and exports (or, net exports) also create income that can be leaked. Wynne Godley’s sectoral balance approach ― long incorporated within MMT ― shows that the sum of the balances of the government, domestic private, and foreign sectors is identically zero.”

Accordingly, MMT boils formally down to the sectoral balances equation (I−S)+(G−T)+(X−M)=0. This equation is provably false.#4, #5 The mistake lies in the sentence: “Government spending … is an injection that raises income.” No! Government spending … is an injection that raises profit. And profit is a balance, i.e. the difference of flows, and NOT a flow like wage income. So, profit is NOT income. Economists not only confuse stocks and flows but also balances and flows.

In the elementary case, the monetary saving/dissaving of the household sector is defined as S≡Yw−C. The monetary profit/loss of the business sector is defined as Q≡C−Yw. Ergo Q≡−S, that is, the balances of the household and business sector ad up to zero.

Only when profit is distributed it becomes income of the household sector. So, total income Y is wage income Yw plus distributed profit Yd and NOT wages Yw plus profits Q. The difference between profit Q and distributed profit Yd is retained profit Qre.

Neither profit Q, i.e. the balance of the business sector, nor distributed profit Yd appear in the MMT sectoral balances equation. Because it lacks the balance of the business sector the MMT balances equation is false.#6 Therefore, the whole analytical superstructure of MMT is false. By the ultimate consequence, MMT policy guidance is false.

“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)

So, all one needs to know about MMT is that MMT is NOT the true theory. Scientifically, it is stone-dead.

Egmont Kakarot-Handtke


* Refers to RWER, real-world economics review, Issue no. 89, Modern monetary theory and its critics
#1 Why Post Keynesianism Is Not Yet a Science
#2 For the full-spectrum refutation of MMT see cross-references MMT
#3 Keynes ― the poster boy for the weakness of the economist’s mind
#4 Controlled demolition of MMT ― an exercise in elementary logic
#5 Wikipedia and the promotion of economists’ idiotism (I)
#6 The axiomatically correct sectoral balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0.

Related 'The Levy/Kalecki Profit Equation is false' and 'Truth by definition? The Profit Theory has been axiomatically false for 200+ years' and 'Macroeconomics and the fake History of Economic Thought' and 'The sectoral balances obfuscation: stupidity or corruption?' and 'Profit'

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REPLY to Brian Romanchuk on Oct 8 and Blog-Reference

You say: “Given that one of the defining characteristics of the scientific method is that theories need to be convincing to other people, said isolated individual(s) are operating outside scientific practice.”

NO! To convince “other people” is the goal of political agenda pushing. Science is about true/false and nothing else: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)

The fact of the matter is that the MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 is provably false.#1 Randall Wray argues: “Government spending … is an injection that raises income. More specifically, as Kalecki showed, government spending creates profits because it is a source of business revenue but not a cost of production.” However, profit ― the balance of the business sector and the pivotal magnitude of economics ― does NOT appear in the MMT balances equation.

Either MMTers are too stupid for the elementary math that underlies macroeconomics or they are intentionally hiding macroeconomic profit. It is the latter as I have shown elsewhere.

In his post, MMT: REPORT FROM THE FRONT Randall Wray reports “Fifth front: the blogs. I was skeptical of their usefulness ― but Bill and Stephanie recognized that they were the future. They were right. You’re reading this one, created by Stephanie and then taken over by Bill Black. Blogs spread MMT outside academia and official policy circles. And then came videos and tweets. There are tens of thousands of followers now. This helped to foam the runways to the seats of power. No one can afford to ignore MMT any longer. The viral movement, as well as a few fearless candidates ― Bernie and AOC ― brought MMT out of the shadows.”#2

“Tens of thousands of followers” is a respectable propaganda success. So, the money of Wall Street funders was well-spent. This, however, does not change the fact that MMT is proto-scientific garbage. Science is NOT about “convincing other people”, i.e., brainwashing imbeciles. The number of followers is absolutely irrelevant to the question of whether a theory is true or false.

The macroeconomic Profit Law says Public Deficit = Private Profit. So MMT deficit-spending/money-creation is for the benefit of the Oligarchy and NOT of WeThePeople. Scientifically, MMT is garbage, and politically, it is a fraud.


#1 The axiomatically correct sectoral balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0.
#2 New Economic Perspectives

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AXEC118d

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#PointOfProof

Oct 8

before

after

Controlled demolition of MMT ― an exercise in elementary logic

Comment on Randall Wray on ‘JAPAN DOES MMT?’*

Blog-Reference and Blog-Reference (Link)

Randall Wray analyses the current situation in Japan: “From the MMT perspective, what Japan needs is a good fiscal stimulus, albeit one that is targeted. Japan has three ‘injections’ into the economy: the fiscal deficit (which has fallen from 7% of GDP to about 5% over the past few years ― still a substantial injection), the current account surplus, and private investment. But what it needs is stronger growth of domestic consumer demand ― which would also stimulate investment directed to home consumption.”

This recommendation is based on the “sectoral balance perspective”. This perspective is clearly defined by the sectoral balances equation which is given by (I−S)+(G−T)+(X−M)=0. The very characteristic of the MMT balances equation is that it does not contain the balance of the business sector, i.e. profit/loss. Accordingly, the word profit does not appear once in Randall Wray’s post. An economic model without profit, though, is like Hamlet without the prince or physics without the concept of energy.

The question is why does macroeconomic profit not appear in the sectoral balances equation? The short answer is because economists in general, and MMTers, in particular, are scientifically incompetent.

What MMT policy guidance lacks is the underlying true macroeconomic theory. Here it is.#1, #2

The elementary production-consumption economy is defined with this set of macroeconomic axioms: (A0) The economy consists of the household and the business sector which, in turn, consists initially of one giant fully integrated firm. (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.

Under the conditions of market-clearing X=O and budget-balancing C=Yw in each period, the price as the dependent variable is given by P=W/R. The elementary production-consumption economy is shown on Wikimedia.#3

Elementary production-consumption economy

The focus is here on the nominal/monetary balances. For the time being, real balances are excluded, i.e. it holds X=O. The condition of budget balancing, i.e. C=Yw, is now skipped. The monetary saving/dissaving of the household sector is defined as S≡Yw−C. The monetary profit/loss of the business sector is defined as Q≡C−Yw. Ergo Q≡−S.

The balances add up to zero. The mirror image of household sector saving S is business sector loss −Q. The mirror image of household sector dissaving (-S) is business sector profit Q. Q≡−S is the elementary version of the macroeconomic Profit Law.

It is the definition of macroeconomic profit, i.e. Q≡C−Yw, where the logical blunder of MMT sneaks in. A definition ≡ is a one-way operator: a new variable (= definiendum) is introduced as a relationship of variables that are given by the axioms (= definiens).#4 While in an equation y=x−z it is possible to bring z to the left side, i.e. y+z=x, this is NOT admitted in a definition. The case is analogous to the prohibition of division through 0.

The operator ≡ defines a one-way relationship, the operator = defines a two-way relationship. The methodological failure of economists consists of not keeping these logical relationships properly apart.

Macroeconomic profit has above been defined as a relationship of axiomatic variables, i.e. Q≡C−Yw. Now, the representative economist comes along and performs the inadmissible operation Q+Yw≡C and introduces one more definition, i.e. Q+Yw≡national income≡NI. This reduces to NI≡C which is an improper definition because it applies TWO terms for the same thing, i.e. the terms “national income NI” and “consumption expenditures C” are interchangeable. This is like saying the words “apple” and “orange” apply to the same thing. So, the definition of “national income NI” is redundant, leads to economic gobbledygook, and therefore has to be cut off with Occam’s Razor.

The same holds for the investment economy. Profits for the two sub-sectors are given by Qc≡C−Ywc and Qi≡I−Ywi. Total profit Q is defined as the sum of sub-sectoral profits, i.e. Q≡Qc+Qi≡C+I−Yw. GDP is defined as GDP≡C+I, so Q≡GDP−Yw. The definition of GDP is admissible but the definition of national income NI≡Q+Yw is inadmissible. Therefore, NI≡GDP, or Keynes’ Income = value of output (GT p. 63), is economic gobbledygook. It leads to I=S and IS-LM and all the other falsehoods of After-Keynesian macroeconomics.

The axiomatically correct sectoral balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0.#5, #6

Ramifications: The Wray Curve, the Kelton See-Saw#7, the Krugman Cross#8, and the rest of MMT is proto-scientific garbage.

Egmont Kakarot-Handtke


* New Economic Perspectives
#1 True macrofoundations: the reset of economics
#2 The canonical macroeconomic model
#3 Wikimedia AXEC31 Elementary production-consumption economy
#4 Wikipedia Definition
#5 Wikipedia and the promotion of economists’ idiotism (I)
#6 Wikipedia and the promotion of economists’ idiotism (II)
#7 Stephanie Kelton What Happens When the Government Tightens its Belt?
#8 Scott Fullwiler The Sector Financial Balances Model of Aggregate Demand

Related 'Accounting for dummies' and 'The Common Error of Common Sense: An Essential Rectification of the Accounting Approach' and 'How the Intelligent Non-Economist Can Refute Every Economist Hands Down' and 'Humpty Dumpty is back again' and 'The Humpty Dumpty methodology' and 'Is Nick Rowe stupid or corrupt or both?' and 'Profit, income, and the Humpty Dumpty Fallacy' and 'Mad but true: 200+ years after Adam Smith economists still have no idea what profit is' and 'Keynesians ― terminally stupid or worse?'. For details see also cross-references Accounting and cross-references MMT.

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#PointOfProof

Jun 6

before

after

How to pay for the war and to be bamboozled by economists

Comment on Randall Wray on ‘How To Pay For The War’*

Blog-Reference and Blog-Reference (Link)

Randall Wray puts the issue into perspective: “I’m going to talk about war, not peace, in relation to our work on the Green New Deal ― which I argue is the big MEOW — moral equivalent of war ― and how we are going to pay for it. So I’m going to focus on Keynes’s 1940 book ― How To Pay for the War …” and “Our analysis (and the MMT approach in general) is in line with J. M. Keynes’s approach. Keynes rightly believed that war planning is not a financial challenge, but a real resource problem.” and “We’ve timed our GND to be completed by 2030. We have 10 years to make Keynes’s vision become reality. The alternative is annihilation.”

What Randall Wray has not grasped, though, is that Keynes got macroeconomics wrong and because of this, Keynesianism and its derivatives up to MMT are scientifically worthless. So, in order to avoid annihilation, the proto-scientific garbage of macroeconomics has to be fixed first.#1

Macroeconomic foundations

The production-consumption economy is defined by the following set of macroeconomic axioms:#2 (A0) The elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Y_w=WL wage income Y_w 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.

Under the conditions of market-clearing X=O and budget-balancing C=Y_w in each period, the price as the dependent variable is given by P=W/R. The price is determined by the wage rate W, which takes the role of the nominal numéraire, and the productivity R. This is the macroeconomic Law of Supply and Demand.

The focus is here on the nominal/monetary balances. For the time being, real balances are excluded, i.e. it holds X=O. L is set at full employment.

The condition of budget balancing, i.e. C=Y_w, is now skipped. The monetary saving/ dissaving of the household sector is defined as S≡Y_w−C. The monetary profit/loss of the business sector is defined as Q≡C−Y_w. Ergo  Q≡−S.

The balances add up to zero. The mirror image of household sector saving S is business sector loss −Q. The mirror image of household sector dissaving (-S) is business sector profit Q. Q≡−S is the elementary version of the macroeconomic Profit Law.

With additional sectors, the complete macroeconomic Profit Law is given by Q≡Y_d+(I−S)+(G−T)+(EX−IM). It is here reduced to Q=(−S)+(G−T) which says that profit Q is determined by the household sector’s and government sector’s deficit spending.

Scenario_0

With employment L and wage rate W given, wage income is Y_w=100 monetary units [e.g. trillion $]. Productivity R and output O remain constant throughout. Consumption expenditures C are equal to wage income, i.e. C=Y_w. As a consequence, the profit of the business sector is zero. The household sector consumes the whole output. The required stock of transaction money is provided by the central bank and is here left out of the picture.

Scenario_1 War with full taxation

The government needs part of the current output O in period t=1. The need is legitimate and undisputed, e.g. war. The government taxes the wage income, i.e. T=10. Disposable income is reduced from 100 to 90. The households reduce consumption expenditures in lockstep from 100 to C_h=90. The government fully spends the income tax of 10 units, that is, total consumption expenditures C=Ch+G remain unchanged and the market-clearing price P remains constant. Both, the household sector and the government sector fully consume their respective shares of output O_h and O_g, i.e. O=O_h+O_g. The real war consumption Og is fully paid for by taxes. The government’s budget is balanced, i.e. G=T. The household sector’s budget is balanced, i.e. C_h+T=Y_w. In real terms, the households pay Og for the war effort, in nominal terms T.

In period 2, the war is over and income tax is again zero, and everything else is like in the initial scenario_0.

Scenario_2 No taxation, household sector saving, government deficit spending

The government imposes no income tax. The household sector reduces consumption expenditures voluntarily from 100 to C_h=90 in period 1. Through saving of 10 units the household sector’s current deposits at the central bank increase. At the same time, the government spends G=10 and takes up overdrafts at the central bank. Both sides of the central bank’s balance sheet are equal. Households’ deposits = government’s overdrafts. Total consumption expenditures, i.e. C=C_h+G, and the market-clearing price P remain unchanged. The government runs a deficit, i.e. G−T=10 with T=0. Profit is zero because of G−T=S.

The war is over in period 2 and no changes happen in periods 2, 3, 4. The households keep the deposits and the government keeps the overdrafts. Interest payments are left out of the picture. The household sector’s financial assets are equal to the public debt. Seen in isolation, the household sector is wealthier after the war. This, of course, is an illusion that stems from ignoring the public debt which is psychologically nobody's debt.

In period 5 the government is supposed to pay back the overdrafts. The wage income of Y_w=100 is taxed with T=10 units. Disposable income is reduced to 90. The government uses the 10 units of income tax to reduce its overdrafts at the central bank to zero. At the same time, the household sector dissaves 10 units, i.e. reduces its deposits to zero. Consumption expenditures C are then equal to disposable income 90 plus dissaving 10, i.e. C=100. The balance sheet of the central bank at the end of period 5 is again zero as in the initial period. Deposits (= money) and overdrafts are destroyed, i.e. reduced to zero.

What actually happens in scenario_2 in comparison to scenario_1 is that the taxation for the war is shifted from period 1 to period 5. In real terms, there is NO difference at all. Real consumption of the household sector is in both cases reduced in period 1. In other words, the taxes are paid in period 5 with a saving of 10 units from period 1. That’s all if the interest rate is zero. The whole exercise amounts to an indefinite tax deferment.

If the government issues bonds with a volume of 10 units in period 2 the household sector’s deposits are reduced to zero and so are the government's overdrafts. The central bank’s balance sheet reduces to zero. The household sector holds bonds instead of deposits and the government switches overdrafts into bond liabilities. The central bank is out as an intermediary and there is a direct creditor-debtor relationship between the household and the government sector in the form of bonds or similar types of government securities.

The interest on bonds is taxed from the household sector and paid to the bondholders. There is a redistribution of disposable income as long as the public debt is rolled over. This redistribution is normally not for the benefit of WeThePeople but for the benefit of the Oligarchy. The lower the interest rate the smaller the redistribution from the ninety-nine-percenters to the one-percenters.

In period 4, the whole securitization transaction is exactly reversed. The government sector takes up 10 units of overdrafts and redeems the bonds. Accordingly, the household sector’s stock of bonds is reduced from 10 to zero and the deposits go up from zero to 10.

In period 5 the households are taxed, they dissave and the government fully repays the overdrafts.

In period 6 everything is again as it was in the initial period.

Scenario_2 fully replaces Ricardian Equivalence.

Scenario_3 No taxation, no saving, government deficit spending

The government spends G=10 on war but the households do NOT reduce consumption expenditures, i.e. C_h=100, and accordingly, their deposits are zero at the beginning and the end of period 1. The government takes up overdrafts at the central bank and spends these 10 units IN ADDITION to the households, so total consumption expenditures are now C=C_h+G=110. Since total output remains unchanged the market-clearing price now rises and the business sector makes a profit of Q=10 which is equal to the government’s budget deficit, i.e. G−T=10 with T=0. At the central bank, the business sector’s deposits are 10 and government overdrafts are also 10 at the end of period 1. The redistribution of current output O between the household and the government sector does not happen via the income tax or saving but via a one-off hike of the market-clearing price P. There is NO inflation.

In real terms, there is again NO difference between the scenarios. The difference compared to scenario_2 is that the business sector now has 10 units deposits instead of the household sector because the households do not save and the business sector makes a profit of 10 units. Business sector’s deposits = money = government’s overdrafts.

In the next period, the war is over, the government’s war spending stops, and the market-clearing price falls back to the initial level. The business sector can hold its deposits indefinitely and the government can keep its overdrafts indefinitely. Alternatively, the government sector can sell bonds to the business sector which takes the central bank out of the loop and establishes a direct credit relationship between the business sector and the government sector.

As long as the government does not tax the households, everything remains unchanged for an indefinite time. So, the whole issue of war financing can simply be pushed beyond the time horizon and forgotten. The trouble comes here in period 5 when the disposable income is reduced due to taxation from 100 to 90 and consumption expenditures fall also to 90 because now there is no dissaving. In this case, the market-clearing price falls and the business sector makes a loss of 10 units which reduces its deposits to zero. The one-off price hike of period 1 is reversed in period 5. Summed over all periods, macroeconomic profit is zero.

The government is now in the possession of 10 units of deposits from taxation which can be used to redeem the bonds/overdrafts. Everything is then again as it was in the initial period.

Comparison

In scenario_1, the households pay income tax in period 1 and NO credit relationships ensue. In scenario_2, the tax payment is deferred via saving in period 1 and dissaving in period 5. In scenario_3 we have instead of the saving/dissaving of the household sector profit in period 1 and loss in period 5. Summed over all periods profit and loss cancel out. In scenario_2, profit is zero over all periods.

In REAL terms and with an interest rate of zero, there is absolutely NO difference between the scenarios. In real terms, the war is paid for in period 1 by the household sector. The significant difference is between the saving/dissaving scenario and the profit/loss scenario.

In the real world, a mixture of the three scenarios happens. The war is paid for in nominal terms by a combination of taxation, household sector saving, and government deficit spending.

Summary

From the perspective of WeThePeople scenario_1 is the best. It entails budget balancing. Scenario_2 brings additional taxes for the payment of interest on the public debt. From the perspective of the Oligarchy, scenario_3 is the best. This scenario produces the macroeconomic profit of the business sector. In other words, the MMT policy of deficit-spending/money-creation is the Oligarchy’s profit booster.

The households pay in real terms for the war through a reduction of real private consumption in period 1. In nominal terms, the question is how long is taxation deferred? The central bank can extend the deferment in principle until eternity by buying the government securities and keeping them on the asset side. Otherwise, the households are taxed for interest payments on the public debt in all eternity for the benefit of the Oligarchy.

Neither in war nor in peace the MMT policy of deficit-spending/money-creation is ultimately in the interest of WeThePeople. When it comes to the debate about the Green New Deal ― allegedly the moral equivalent of war ― people should be aware that economists are scientifically incompetent or/and morally corrupt. The proof is in the actual distribution of financial wealth and the amount of public debt (about $22 trillion and counting). When MMTers talk about physical annihilation it should be realized that people live already for a long time in a state of deferred financial annihilation.

Egmont Kakarot-Handtke


* New Economic Perspectives
#1 For the full-spectrum refutation of MMT see cross-references MMT
#2 The canonical macroeconomic model

Related 'What comes first: eco-self-destruction or oeco-self-destruction?' and 'How to solve almost any problem' and 'The true nature of economists' confusion' and 'MMT and the Green New Deal: Where is the snag? (I)' and 'MMT and the Green New Deal: Where is the snag? (II)' and 'Stephanie Kelton sells children into debt slavery'.

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Twitter Dec 22

Twitter Jan19, 2021

Economics: The proto-scientific mob embroiled in just another gang war

Comment on William Black on ‘The Day Orthodox Economists Lost Their Minds and Integrity’

Blog-Reference and Blog-Reference

William Black tells the world: “Something extraordinary happened yesterday. Orthodox economists, frustrated by their inability to intimidate progressive elected officials, have launched a coordinated assault on MMT in hopes of making it politically dangerous for elected officials to embrace MMT. Yesterday brought three remarkable revelations about orthodox economists’ willingness to engage in naked intellectual dishonesty in their desperation to find something to discredit MMT.”

This, of course, is risible because economists’ “naked intellectual dishonesty” is nothing new. In fact, it is their modus operandi for 200+ years now.#1, #2, #3 The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal concept of the subject matter ― profit ― wrong. There is NO scientific truth in economics.#4

And there are no joint efforts to do serious research and to develop the true theory about how the economy works but there is endless meta-communication.#5

• “The orthodox ‘scholars’ have found it impossible to quote MMT scholars writing something that is demonstrably false. It is child’s play …, however, for an orthodox economist to create a strawman claim that is obviously, demonstrably false.”

• “Yesterday, dozens of orthodox economists, many of them prominent, collectively lost their minds and their integrity. They coordinated their actions to create a show trial that would have warmed Stalin’s spleen.”

• “The results of that natural experiment are spectacular ― a large group of the world’s prominent economists failed the test of honesty and competence even though the test set such a low bar that they should have passed it without discernible effort.”

• “Wolfers’ dishonesty spurred Paul Krugman to tweet a level of calculated dishonesty that exceeds the term ‘disgraceful’.”

• “Every aspect of Krugman’s chutzpah is logically false, dishonest, immoral, and wackiness of epic proportions.”

This is a lot of hot air. The fact of the matter is that BOTH orthodox New Keynesians and heterodox MMTers are scientifically incompetent. Krugman has not realized that IS-LM is false since Keynes/Hicks.#6 MMTers have not realized that their foundational sectoral balances equation is false since Keynes.#7, #8

William Black is right with regard to Krugman et al.: orthodox economists are stupid/ corrupt. The same, though, holds for MMTers.#9

Egmont Kakarot-Handtke


#1 The retirement of a fake scientist and real agenda pusher
#2 There is NO such thing as “smart, honest, honorable economists”
#3 Feynman Integrity, fake science, and the econblogosphere
#4 Links on capital-T Truth, stupidity, corruption
#5 Opinion, conversation, interpretation, blather: the economist’s major immunizing stratagems
#6 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
#7 Refuting MMT’s Macroeconomics Textbook
#8 Paul’s and Stephanie’s economic delirium talk
#9 For the full-spectrum refutation of MMT, see cross-references MMT

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AXEC144b

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#PointOfProof

Mar 18

before

after

Some nasty MMT surprises behind the time horizon

Comment on Eric Tymoigne on ‘“What You Need To Know About The $22 Trillion National Debt”: The Alternative Interview’*

Blog-Reference and Blog-Reference

To the question, how are you going to pay for it? MMTers have a simple answer: deficit-spending/money-creation.

To the question, how are you going to repay the public debt? MMTers have a simple answer: “In terms of tax rates, the public debt will never be repaid. We have not been burdened with higher tax rates to repay the public debt created at the time of our grandparents; our children and grandchildren won’t be burdened by higher tax rates to repay the public debt created today. We may raise tax rates in the future but not with the goal of repaying the public debt. There is no reason to do so, and doing so would be harmful to the finances of households, banks, firms and other for the reasons I just provided. The public debt will keep piling up to accommodate the needs of our growing economy and the US government will keep paying it on time. The US government does not, has never, and ought not to, manage the public debt in the same way you and I manage our private debts.”

MMTers simply shove the answer beyond the time horizon. The public-debt rabbit is put into the cylinder and then is gone out of sight. Everybody is well aware that this is a trick. The question is how does it work?

The process goes schematically as follows:#1, #2

(i) The initial economic configuration is the elementary production-consumption economy. The initial state is characterized by budget-balancing of the household sector C=Yw, i.e. consumption expenditures C are equal to wage income Yw, and zero profit of the business sector Q≡C−Yw=0.

(ii) The government deficit spends. Deficit D is defined as public spending G minus taxes T, i.e. D≡G−T. T is set to 0. Deficit-spending on current production causes a one-off price hike (NO inflation) and the business sector ends up with macroeconomic profit Q=G.†

(iii) The business sector fully distributes profit. The distributed profit Yd goes to the Oligarchy and takes initially the form of deposits at the Central Bank. The CB’s balance sheet shows government overdrafts on the asset side and the Oligarchy’s deposits on the liability side. Both sides are equal to the penny.

(iv) The government normally consolidates overdrafts by selling interest-bearing bonds. The bonds are bought by the Oligarchy and paid for with the deposits. The CB’s balance sheet shrinks again. The Oligarchy’s portfolio consists of bonds and money = deposits at the CB.

(v) Here, we ignore step (iv) and assume that zero-interest deposits/overdrafts are simply accumulated. Suffice it to note that interest on public debt has redistributive effects.

(vi) Steps (i) to (iii) are repeated for an indefinite time. Accordingly, public debt in the form of overdrafts grows. On the other side of the CB’s balance sheet, the Oligarchy’s deposits grow in lockstep.

(vii) As a matter of pure logic, this process can go on to infinity. Thus far, MMTers are right.

(viii) The concept of debt, though, logically entails repayment in finite time. So, in some period t the question arises of how to reverse the process of debt build-up. Simple answer: the stock of deposits is revalued to zero uno actu with the government’s debt. Subsequently, things go on with a new currency.

(ix) Step (viii) is a bad surprise for the Oligarchy’s grandchildren. The alternative is taxing away the deposits. In this case, there is tax T but no government spending G, i.e. a budget surplus, and both sides of the CB’s balance sheet go to zero.

(x) Step (ix) is also a bad surprise for the Oligarchy’s grandchildren. So, let us tax WeThePeople instead. Accordingly, consumption expenditures are reduced to C=Yw−T. Government spending G is zero, so there is a budget surplus and the government’s overdrafts are reduced. However, the business sector now makes a loss Q=−T, and its overdrafts increase by the same amount. On the CB’s balance sheet only the composition of overdrafts on the asset side changes.

(xi) The logical end of (x) is a complete replacement of public debt by the business sector’s debt. However, before this happens the economy breaks down because of the continuous losses of the business sector. Step (x) is a bad surprise for ALL grandchildren.

MMTers tell everyone that all is fine for “our” grandchildren because, after all, they owe the public debt to themselves. True, all is fine for someone who falls from a skyscraper until they pass the first floor.

MMTers are fraudsters. They deceive WeThePeople first about the profit effect of deficit-spending/money-creation#3, then about the redistributive effect of interest on public debt, and finally about the nasty surprises behind the time horizon. The rest of the economists either understand nothing or are complicit.#4

Egmont Kakarot-Handtke


* New Economic Perspectives
#1 The new macroeconomic Paradigm
#2 From MMT misunderstandings to the true Theory of Money
#3 Why the MMT benefactors of humanity never talk about profit
#4 There is NO such thing as “smart, honest, honorable economists”

† Deficit-spending on current output and deficit spending on long-lived investment goods are different things. The latter has been dealt with elsewhere.

Related 'Deficit-spending/money-creation is ALWAYS a bad deal for WeThePeople' and  'Austerity and the political games Progressives play' and 'Links on Austerity' and 'On the saying “We owe the debt to ourselves”' and 'Stephanie Kelton sells children into debt slavery' and 'Just one more day: How deficit-spending postpones the breakdown of Capitalism' and 'Q: How are you going to pay for it? MMT: By stealth taxation!' and 'How to pay for the war and to be bamboozled by economists' and 'MMT: The art of shooting oneself in the head' and 'From the debt economy to the gift economy: how America is brainwashed to love budget deficits'.

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AXEC168b

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Worthwhile Canadian Initiative Dec 26, Mathematical idiocy at work: Nick Rowe and infinity

MMT = proto-scientific garbage + deception of the 99-percenters

Comment on Stephanie Kelton and Randall Wray on ‘Answers from the MMTers’

Blog-Reference and Blog-Reference and Blog-Reference

Jared Bernstein posed some ‘Questions for the MMTers’ and offered a welcome opportunity for the loudspeakers of MMT to make their strong points. Needless to emphasize that they also repeated with enthusiasm their foundational error/mistake/blunder/fraud.

It is this: “There are three sectoral balances: a domestic private sector, a government sector, and a foreign sector. While any one of these can run a deficit (or surplus), the sum of the balances must sum to zero ― that is, they balance (for every deficit there is a surplus). In the US, the private sector almost always runs a surplus (“saves”) and the foreign sector has run persistent surpluses (the other side of the coin to our current account deficits) since the days of Reagan. That means ― by simple identity ― that our government sector runs deficits.”

The fact of the matter is that there are FOUR macroeconomic sectors (household sector, business sector, government sector, and Rest of the World) but in the MMT presentations one sector is missing, more specifically, the balance of the business sector = profit is nowhere to be seen.#1

MMT is built upon this 3-sector macroeconomic balances equation (I−S)+(G−T)+(X−M)=0.#2 Why are two sectors ― the household and the business sector ― lumped together into the “private sector”?

Now, the balance of the household sector is saving/dissaving and the balance of the business sector is profit/loss. By lumping the two sectors together profit vanishes from sight.

The axiomatically correct 4-sector balances equation reads (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 with Qm monetary profit and Yd distributed profit. And from this equation follows Public Deficit = Private Profit given the balances of the household sector and the Rest of the World.

The correct equation tells everybody that MMTers' relentless propagation of deficit spending for social purposes is nothing but agenda-pushing for the one-percenters. The problem of MMT policy is NOT overheating or inflation, the real problem is distribution.

MMTers are either stupid because they do not know what profit is, or corrupt because they deceive the ninety-nine-percenters or a mixture of both.#3 Jared Bernstein failed to ask the crucial question.#4

Egmont Kakarot-Handtke


#1 Down with idiocy!
#2 Wikipedia Modern Monetary Theory
#3 MMT and grassroots movements
#4 For the full-spectrum refutation of MMT see cross-references MMT

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TWITTER coincidence on Jan 11

Source: Twitter

Related 'MMT: The one deadly error/fraud of Warren Mosler' and 'MMT and the promotion of Wall Street's idea of social policy' and 'Deficit-spending/money-creation is ALWAYS a bad deal for WeThePeople' and 'MMT is dead: An unfriendly critique of Bill Mitchell' and 'MMT: An overdose of public-debt tranquilizers for WeThePeople' and 'MMT Progressives: The knife in the back of WeThePeople' and 'MMT: The fusion of Wall Street and Academia'.

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REPLY to Ralph Musgrave on Jan 12

You say “Egmont Kakarot-Handtke argues above that because MMTers lump the household and business sectors together into one “private sector”, this hides the alleged fact that the bulk of a public sector deficit flows to the business sector rather than the household sector.”

Actually, I say that the lumping together of the household sector and the business sector to the “private sector” is for macroeconomics what is called an accounting fraud on the firm’s level.#1

Of course, it could also be an error/mistake/blunder but this is improbable because of the hiding of the fact that Public Deficit = Private Profit, i.e. Q_m≡(G−T) given the other balances, is necessary to sell MMT policy measures as a social benefit.#2 And this, in turn, is necessary because MMT is NOT economics but campaign support for Warren Mosler’s candidacy for governor of the US Virgin Islands as announced on Jan 11.

This, of course, holds also for MMT’s alleged full employment policy.#3

So, Ralph Musgrave, Kelton, Mitchell, Tcherneva, Wray, Fullwiler, Forstater, Kaboub, Pettifor, Keen, Tymoigne, Willingham, Grumbine, and all the MMT rest cannot be taken seriously as economists but at best as useful idiots for Warren Mosler.


#1 Down with idiocy!
#2 Keynes, Lerner, MMT, Trump and exploding profit
#3 Full employment through the price mechanism

Related 'Krugman and the scientific implosion of economics' and 'Barkley Rosser, fake scientist'. For details of the big picture see cross-references Failed/Fake scientists and cross-references The Representative Economist.

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REPLY to Matt Franko on Jan 12

You say “All Warren has ever said he wants out of this is a chance to see his nations economy run at its full potential for once in his life”

I am enthusiastic about what Berlusconi, Trump, Mosler, etc. promise to do for the little guy and the forgotten worker but I do not understand why these folks always have to cook the macroeconomic and microeconomic books first.

Perhaps the MMT academics can explain why they violate scientific standards and promote the money-making of the Bunga-Bunga one-percenters?

Corbynomics

Comment on Scott Fullwiler on 'Corbynomics 101—It’s the Deficit, Stupid!'

Blog-Reference

You base your argument on the accounting approach and on standard Econ 101. Because both analytical elements are logically defective your version of Corbynomics has no sound theoretical foundations.

If you want Jeremy Corbyn to succeed you have to supply him with the true economic 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)

For the rectification of the accounting approach and Econ 101 see Modern Moronomic Theory.

To resume the ultimate fatal shortcoming of your approach: the underlying profit theory is provably false.

Egmont Kakarot-Handtke


Related 'How to start off at the right foot'. For details of the big picture see cross-references Profit.

Collateral damage

Comment on ‘What Is Helicopter Money, Anyway?’

Blog-Reference

The function that money, and helicopter money in particular, performs has to be clarified within a comprehensive framework. The concrete details of the central bank's technical operations are secondary and distracting surface phenomena.

The challenge for theoretical economics is, first of all, to explain how the (undifferentiated) product market, the labor market, the secondary market, and the financial market (including money) fits together.

No such framework exists. From their previous dismal analytical performance it can safely be extrapolated that neither Walrasians nor Keynesians can answer the question how helicopter money works.

The key point is that it does not matter much whether helicopter money is handed over to the household sector or to the public sector, it ends invariably up as profit of the business sector. By consequence, proponents of helicopter money produce massive distributional effects as collateral damage. This, not inflation, is the real crux.

The consistent and comprehensive theory of how the various financial markets emerge as integral parts of the monetary circuit which links all markets has been put forward by Constructive Heterodoxy (2015).

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Financial Markets. SSRN Working Paper Series, 2607032: 1–33. URL