The sense of economics is agenda-pushing for the Oligarchy

Comment on Lars Syll on ‘Making sense of economics’

Blog-Reference

We know that economics has a science problem. The history of economic thought is the history of scientific failure. The major approaches — Walrasianism, Keynesianism, Marxianism, Austrianism, MMT — are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong. To this day, economists are NOT scientists but clowns/useful idiots in the political Circus Maximus.

Economics: failure, fake, fraud

Egmont Kakarot-Handtke

What is economics? (II)

Comment on James Galbraith on ‘What is economics?’*

Blog-Reference and Blog-Reference

James Galbraith claims that

• economics is a policy discipline,
• economics co-evolves with circumstances, and is historically contingent,
• economic theories are a byproduct of the social order that spawns them,
• the economy is a complex system, appropriate generalizations, simplifications, heuristics, and principles are to be derived from a study of the actual world,
• mathematical systems are inadequate when they start from the dead dogmas of the neoclassical mainstream: ex nihilo nihil fit,
• the history of economic thought/hallucination crashed against the wall of reality with the Great Financial Crisis 2007-09 and the Pandemic of 2020.

Without going into details the sum is: economics as a policy discipline is scientifically worthless from the founding fathers onward to this day. The problem is this: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

Lacking sound scientific foundations, economic policy guidance has never been more than personal opinion.#1

However, these things, “… even the dimmest observer of real-existing capitalism already knew.” The point is, again and again: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)

Even the dimmest economist knows by now that it takes a Paradigm Shift to get out of the swamp of cargo cult science. However, this is beyond the means of the representative economist. To this day, neither orthodox nor heterodox economists got the foundational concept of economics ― profit ― right.

Here is the unassailable proof: in his General Theory, Keynes asserted: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63) This syllogism 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.)#2, #3

So, Keynes never got macroeconomic profit right and neither did pro- or anti-Keynesians to this day. Folks who cannot do the elementary algebra of macrofoundations cannot do the Paradigm Shift. Their contribution to human welfare/progress consists of burying themselves in a dark corner of the Flat-Earth-Cemetery.

James Galbraith maintains: “The purpose of economic reasoning is to inform and buttress political and social choices.” That sounds plausible but is false. It is the credo of the agenda pusher.#4 The credo of the scientist is: “The purpose of economic reasoning is to figure out how the economy works.”

The criterion for the scientist is truth, i.e. material/formal consistency, and NOT usefulness. The scientist produces new knowledge and nobody can know in advance whether and for whom it is “useful”.

Economists never understood this, but genuine scientists did: “At one point in that 100 years, Lord Ernest Rutherford was visited by a minister of the Queen. He proudly and busily demonstrated what he had learned about radio. The minister said that’s all very good, but what is it good for. Lord Rutherford replied that he did not know, but he guaranteed that at some point the government would tax it.”#5

To this day, economists are not scientists but useful idiots for the Oligarchy. This is what “economics is a policy discipline” means. All these fake scientists have to be expelled from the sciences.#6

Egmont Kakarot-Handtke

* RWER blog

#1 Opinion, conversation, interpretation, blather: the economist’s major immunizing stratagems

#2 Finalizing the Keynesian Revolution

#3 Profit: The most powerful formula of economics

#4 Economics ― the science that never was

#5 The scientist and the minister

#6 A rough business plan for science

Related 'What is economics? (I)'

For more about science, see AXECquery.

For more about Paradigm Shift, see AXECquery.

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AXE136f

What is economics? (I)

Comment on James Galbraith on ‘What is economics?’*

Blog-Reference and Blog-Reference on 4 Aug

James Galbraith's first sentence reads: “Economics is a policy discipline” and it is false. Because the premise is false, the rest of his argument is false.

Economics is a science. The first thing to know about science is that it is ontologically different from politics. The strict separation of science and politics is imperative because politics corrupts everything. This happened to economics.#1

There are two economixes: political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda; the goal 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 (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years. Economics is a failed science, or, in Feynman's term, a cargo cult science. The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel is a fraud because there is NO such thing as economic sciences.

Right policy depends on true theory. Economists do NOT have the true theory. So, economic policy guidance (left/center/right does not matter) NEVER has had sound scientific foundations. Economists are NOT scientists but clowns/useful idiots in the political Circus Maximus.#2 James Galbraith is no exception.

Science is defined by material/formal consistency: “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)#3

The fact is: the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, Pluralism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and ALL got the foundational economic concepts of profit/income/value wrong.#4, #5, #6

The fact that economists have, in 200+ years, not gotten their foundational concepts right is disqualifying. To this day, economics is proto-scientific garbage, economic policy has no sound scientific foundations, and in their utter incompetence, economists are a hazard to their fellow citizens.#7

Economists are stupid or corrupt or both. Stupid because Walrasian microfoundations and Keynesian macrofoundations are provably false. And when the foundations are false, the whole analytical superstructure is scientifically worthless. Corrupt, because economists push a political agenda under the guise of science.#8 Of all moral evils, this is the worst.

Egmont Kakarot-Handtke

* RWER issue 96

#1 For details of the big picture, see cross-references Political Economics/Stupidity/Corruption

#2 For details of the big picture, see cross-references Failed/Fake Scientists

#3 For details of the big picture, see cross-references Proto-Science/Cargo Cult Science/Fake Science

#4 Wikipedia, economics, scientific knowledge, or political agenda pushing?

#5 The GDP-death-blow for the economics profession

#6 For details of the big picture, see cross-references Profit/Distribution

#7 Econogenics: economists pose a hazard to their fellow citizens

#8 Political fraud and the silence of academia

Related 'How the Intelligent Non-Economist Can Refute Every Economist Hands Down' and 'Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist' and 'Disgrace again ― is economics really that bad?' and 'Occasional Tweets: What is economics?' and 'As Napoleon said: don’t listen to economists' and 'What is economics? (II)'.

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AXEC172  Scientific incompetence ― the smoking gun proof

MMT has been conclusively refuted and MMTers can do NOTHING about it

Comment on James Galbraith on ‘Who’s Afraid of MMT?’*

Blog-Reference and Blog-Reference and Blog-Reference

James Galbraith summarizes: “What, then, is MMT? Contrary to the claims of King and Rajan, it is not a policy slogan. Rather, it is a body of theory in Keynes’s monetary tradition, which includes such eminent thinkers as the American economist Hyman Minsky and Wynne Godley of the UK Treasury and the University of Cambridge. MMT describes how ‘modern’ governments and central banks actually work, and how changes in their balance sheets are mirrored by changes in the balance sheets of the public ― an application of double-entry bookkeeping to economic thought. Thus, as Kelton writes in the plainest English, the deficit of the government is the surplus of the private sector, and vice versa.”

Yes, indeed that's MMT in a nutshell and the last sentence is provably false because MMTers are too stupid for the elementary algebra that underlies macroeconomic accounting. Neither the followers of Stephanie Kelton et al. nor the critics of MMT ever spotted the blunder in the formal foundations that invalidates the whole approach.

So MMT is scientifically worthless and can be unceremoniously buried at the Flat-Earth-Cemetery. Politically, though, MMT still has some use-value for fooling WeThePeople. As a consequence, only stupid/corrupt agenda pushers defend or criticize MMT. No scientist wastes time with this proto-scientific garbage.

For those who want to check the refutation in greater detail, here are the relevant references

• ad Keynes: Wikipedia, economics, scientific knowledge, or political agenda pushing? Section Provably false/Keynes
• ad Kelton: The page where Stephanie Kelton gets macroeconomics wrong
• ad Mitchell: Proving Bill Mitchell wrong ― burying MMT for good
• ad Mitchell: MMT is dead: An unfriendly critique of Bill Mitchell
• ad Mosler: MMT: The one deadly error/fraud of Warren Mosler
• ad Keen: MMT: fraudsters united
• ad Wray: MMT: Agenda-pushing and money-making for the Oligarchy
• ad Godley: Do economists finally wake up from their methodological delirium?
• ad Kalecki: MMT: How mathematical incompetence helps the Kelton-Fraud
• ad Minsky: Profit is the key
• ad Textbook: Refuting MMT’s Macroeconomics Textbook
• Where MMT got macro wrong
• MMT-Refutation for Dummies
• Quick MMT 101 refutation
• MMT refuted in three easy steps
• Refutation of MMT: All proofs and arguments you ever need
• For details of the big picture, see cross-references MMT
• MMT is refuted ― end of story.

Egmont Kakarot-Handtke

* B&FT Online

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#PointOfProof

#EconBlocker

Economists betray WeThePeople

Comment on Dean Baker on ‘Putting the debt in context’

Blog-Reference

The 3-sector Profit Law Q≡(G−T)+(I−S)+Yd implies that the greater part of macroeconomic profit Q is produced by public deficit-spending/money-creation (G−T). So, a growing public debt secures the permanent self-alimentation of the Oligarchy.#1

Because of Public Deficit = Private Profit, MMT policy is a free lunch for the Oligarchy. Stephanie Kelton's Deficit Myth is scientifically refuted and proven to be agenda-pushing for the advantage of the Oligarchy and disadvantage of WeThePeople. MMTers are scientific nullities and political fraudsters because they pose as Friends-of-the-People.#2-#4

Private financial wealth grows in lockstep with public debt. Financial wealth in turn generates interest income which is taxed from WeThePeople and handed over to the Oligarchy as long as the debt is rolled over.#5, #6

The MMT policy of deficit-spending/money-creation (for consumptive purposes) is economically a bad deal for WeThePeople. Politically, it amounts to the self-destruction of Democracy.#7 The role of the captured state is to produce sufficient macroeconomic profit. The Oligarchy, in turn, uses the opulent deficit-produced free lunches to nudge the state’s legislative, executive, and judiciary institutions in its favor.

Academic economics ― left, center, right does NOT matter ― plays a supporting role in the process as the propaganda arm of the Oligarchy. Scientifically, economics is worse than worthless.

Egmont Kakarot-Handtke

#1 The U.S. economy hangs on the state ventilator for its survival

#2 The page where Stephanie Kelton gets macroeconomics wrong

#3 Proving Bill Mitchell wrong ― burying MMT for good

#4 Warren Mosler: scientific dilettante and political fraudster

#5 From the debt economy to the gift economy: how America is brainwashed to love budget deficits

#6 How to view public debt ― good for the Oligarchy, bad for WeThePeople

#7 MMT undermines democracy

Related 'Where economics went wrong (II)' and 'The representative economist ― a cargo cult clown' and 'Economics is Not a science, economists are NOT scientists' and 'Since the founding fathers, economics is NOT science but political agenda-pushing' and 'The fatal effect of MMT policy is NOT on inflation but on distribution' and 'Political fraud and the silence of academia' and 'MMT: The fusion of Wall Street and Academia' and 'The representative economist ― a cargo cult clown'. For details of the big picture, see cross-references Failed/Fake Scientists and cross-references Political Economics/Stupidity/Corruption.

For more on Dean Baker, see AXECquery.

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AXEC108l

Putting the Quantity Theory of inflation to rest

Comment on Blair Fix on ‘Energizing exchange: Learning from econophysics’ mistakes’

Blog-References

Macroeconomics is provably false since Keynes.#1 The correct macrofoundations are given with this set of axioms: (A0) The objectively given and most 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) 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) E_c=PX consumption expenditure Ec is equal to price P times quantity bought/sold X.

Under the conditions of market-clearing X=O and budget-balancing E_c=Y_w in each period, the price as dependent variable is given by P=W/R, i.e., the market-clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. For the graphical representation, see AXEC31a

The macroeconomic price is determined by the wage rate W, which takes the role of the nominal numéraire, and the productivity R. The quantity of money is NOT among the price determinants.

Monetary profit for the economy as a whole is defined as Q_m≡E_c−Y_w and monetary saving as S_m≡Y_w−E_c. It always holds that the sectoral balances add up to zero, i.e. Q_m+S_m=0. In other words, the business sector’s deficit=loss equals the household sector’s surplus=saving and vice versa, the business sector’s surplus=profit equals the household sector’s deficit=dissaving. This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget-balancing E_c=Y_w, monetary profit is zero.

What is needed next is two things (i) a Central Bank which creates money on its balance sheet in the form of deposits, and (ii), a legal system that declares the Central Bank’s deposits as legal tender. These conditions define a fiat money system without commercial banks as intermediaries.

Deposit money is needed by the business sector to pay the workers who receive the wage income Y_w  per period. The need is only temporary because the business sector gets the money back if the workers fully spend their income, i.e. if E_c=Y_w.

Overdrafts are needed by the household sector for consumption expenditures if the households want to spend before they get their wage income. This time sequence is no problem for the Central Bank because the temporary overdrafts vanish with wage payments.

For the case of a balanced budget C=Y_w, the idealized transaction sequence of deposits/overdrafts of the household sector at the Central Bank over the course of one period is shown on AXEC98:

The household sector’s deposits/overdrafts are zero at the beginning and end of the period. The business sector’s transaction pattern is the exact mirror image. Money, that is, deposits at the Central Bank, is continually created and destroyed during the period under consideration. There is NO such thing as a fixed quantity of money. The central bank plays an accommodative role and simply supports the autonomous market transactions between the household and the business sector.

From this follows the average stock of transaction money as M=κY_w, with κ determined by the transaction pattern. In other words, the average stock of money M is determined by the autonomous transactions of the household and business sector and created out of nothing by the Central Bank. The economy never runs out of money.

The transaction equation reads M=κY_w=κE_c=κPRL in the case of budget balancing and market clearing, and this yields the commonplace correlation between the average stock of money M and price P for a given employment level L and productivity R, except for the fact that M is the dependent variable. If P doubles, M doubles, and P doubles if W doubles, with the real variables L and R fixed.

Inflation ensues under the conditions of market-clearing and budget-balancing if the wage rate rises faster than the productivity, and deflation ensues in the opposite case. Under the condition of L and R constant, one always gets the commonplace correlation between the average stock of money M and price P, with the causality running from P to M.

For the general case, the elementary macroeconomic price formula states P=ρ_EW/R with ρ_E≡E_c/Y_w. ρ_E>1 represents deficit-spending, and this implies that a period deficit produces a one-off price hike. So, if ρ_E=1 in the initial period and ρ_E=2 in the next period, then the price doubles.

The transaction equation reads for the general case M=κ sup {Y_w, E_c} or M=κ sup {1, ρ_E}Yw and this means that if E_c is greater than Y_w then E_c determines the quantity of transaction money. So, if E_c doubles, i.e., ρ_E=2, then M doubles. In this case, the old Quantity Theory correlation between P and M reappears.

However, this does NOT lead to inflation as a process over multiple periods. If ρ_E=2 again in the next period, then the price P remains at the elevated level but does not rise further. So, the continuous deficit spending of the household sector does NOT cause inflation. (Only successive increases of the expenditure ratio ρ_E lead to successive price hikes.)

However, the average stock of transaction money increases continuously.#2 The transaction pattern in the case of continuous dissaving is shown on AXEC99

As a mirror image, the deposits of the business sector at the Central Bank increase continuously because the profit of the business sector is equal to the dissaving/deficit-spending of the household sector. So, the average quantity of money in the system increases continuously but the price remains stable at the elevated level for a given ρ_E. There is NO proportionality between M and P and this means that the commonplace Quantity Theory is refuted.

Egmont Kakarot-Handtke

#1 Macroeconomics without Keynes

#2 Money and time

Additional link: Michael D. Bordo and Mickey D. Levy, Do Enlarged Fiscal Deficits Cause inflation: The Historical Record

MMT refuted in three easy steps

Comment on Asad Zaman on ‘ABC’s of Modern Monetary Theory (MMT)’

Blog-Reference and Blog-Reference

(1) MMT claims to be science. Roughly speaking, science means material and formal consistency of a theory. The proof has been given that the macroeconomic foundations of MMT are defective. Because the foundations are false the whole analytical superstructure is false.#1 So, MMT policy guidance has NO sound scientific foundations. It is just political agenda-pushing.

(2) For lack of scientific content, the economic policy arguments of MMTers consist of simple assertions or commonsense truisms e.g. the government never runs out of money. This is trivially true for a fiat money system but holds also for the counterfeiter. The essence of MMT policy is deficit-spending/money-creation for every calamity between unemployment and climate change. Deficit-spending has a positive impact on macroeconomic profit. The macroeconomic Profit Law implies Public Deficit = Private Profit. So, MMT causes present and future distributional problems.#2

(3) MMTers present themselves as progressive Friends-of-the-People. This is a political fraud because deficit-spending/money-creation ultimately benefits the Oligarchy and NOT WeThePeople.#3

MMTers cannot refute (1)-(3) in a scientifically valid manner. So they resort to the usual rhetorical tricks: denial, evasion, distraction, blocking, and shit-throwing. MMTers are NOT scientists but clowns and useful idiots in the political Circus Maximus.#4

Egmont Kakarot-Handtke

#1

► Wikipedia, economics, scientific knowledge, or political agenda pushing?

⇒ Section Provably False/MMT

► Quick MMT 101 refutation

► MMT and the magical profit disappearance

► Refuting MMT’s Macroeconomics Textbook

► MMTers: too stupid for simple math

► The MMT fraud in slow motion, so that even economists can get it

► Proving Bill Mitchell wrong ― burying MMT for good

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

► For the full-spectrum refutation of MMT see cross-references MMT

#2

► Mad but true: 200+ years after Adam Smith economists still have no idea what profit is

► Keynes, Lerner, MMT, Trump, Biden, and exploding profit

► The Levy/Kalecki Profit Equation is false

► Dear idiots, it is deficit spending that creates the distribution people complain about

► MMT: Distribution is the drawback NOT Inflation

► Cross-references Profit/Distribution

#3

► Links on MMTers push Wall Street’s agenda

► MMTers are false Progressives and false Friends-of-the-People

► MMT: The fusion of Wall Street and Academia

► Political fraud and the silence of academia

► Cross-references Political Economics/Stupidity/Corruption

#4

► Occasional Tweets #210315: Proof of MMT's inconsistency

► Occasional Tweets #210310: Not so smart, those MMT agenda pushers

► Occasional Tweets #210304: MMT has always been a scientific non-starter

► Occasional Tweets #210303: Very busy ― the MMT troll brigade in action

► Occasional Tweets #210225: How the MMT fraud works

► Occasional Tweets #201224: Employment and allocation

► Occasional Tweets #210223: The Kelton Myth

► Occasional Tweets #201218: The sectoral balances equation

► Occasional Tweets #201215: Mental collapse of MMT

► Occasional Tweets #210117b: MMTers hide macroeconomic profit in order to deceive WeThePeople

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#PointOfProof

Dec 20 submission

Dec 25 missing

MMT works just fine (for the Oligarchy)

 Comment on Editor on ‘U.S. billionaires and the pandemic’*

Blog-Reference

The macroeconomic 3-sector ProfitLaw Q≡(G−T)+(I−S)+Yd implies Public Deficit = Private Profit, meaning that the MMT policy of deficit-spending/money-creation is a free lunch for the Oligarchy.#1, #2

The COV19-triggered acceleration of deficit-spending/money-creation will result in the biggest profit explosion ever. Thus, COV19 is a godsend for the Oligarchy. Politically, this is old stuff in a new package.#3

MMT policy works just fine ― for the Oligarchy.#4

Egmont Kakarot-Handtke

* RWER

#1 MMT: A free lunch for the Oligarchy

#2 Deficit cheerleaders ― the Oligarchy’s useful idiots

#3 How Keynesians, Lernerians, MMTers make the Oligarchy great

#4 Dear idiots, MMTers are Wall Street’s agenda pushers

Related 'Wikipedia, economics, scientific knowledge, or political agenda pushing?' and 'A battle for hearts and minds ― economics redefined' and 'Keynes, Lerner, MMT, Trump, etc. and exploding profit' and 'Profit' and 'MMT ― now official doctrine' and 'MMT: fraudsters united' and 'MMTers hide macroeconomic profit in order to deceive WeThePeople'. For the full-spectrum refutation of MMT see cross-references MMT.

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Source: RWER

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US Deficit in 2020

Source: Google

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US National Debt by Year

Source: The Balance

Twitter Jan 3, 2020

Twitter Jan 4

Twitter Mar 15 Debt 2021

Twitter Oct 7

Economists’ foundational conceptual blunder

Comment on Editor on “necessities of thought”

Blog-Reference

Editor quotes Einstein: “Concepts that have proven useful in ordering things easily achieve such an authority over us that we forget their earthly origins and accept them as unalterable givens.” And “For that reason, it is by no means an idle game if we become practiced in analyzing the long commonplace concepts and exhibiting those circumstances upon which their justification and usefulness depend, how they have grown up, individually, out of the givens of experience. By this means, their all-too-great authority will be broken. They will be removed if they cannot be properly legitimated, corrected if their correlation with given things be far too superfluous, replaced by others if a new system can be established that we prefer for whatever reason.”

Applied to economics, the conceptual state of affairs is as follows: the lethal defect of economics is that the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and ALL get the foundational economic concept of profit wrong. To get the concept of profit wrong in economics is comparable to getting the concept of energy in physics wrong. Because the foundational concept is ill-defined the whole analytical superstructure of economics is scientifically worthless.#1-#3

For 200+ years, economics is a failed science. Since Adam Smith/Karl Marx, economic policy guidance never has had NO sound scientific foundations.#4

Any critique of or conversation about the main approaches is a waste of time. This proto-scientific embarrassment has without further ado to be buried at the Flat-Earth-Cemetery and forgotten.

The way forward consists of a Paradigm Shift. Economics has to move from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations.#5-#6

The good news is that, while economists were sinking deeper and deeper in the methodological mire, the Paradigm Shift has been accomplished.#7

Egmont Kakarot-Handtke

#1 The GDP-death-blow for the economics profession

#2 Profit

#3 Conceptual blunder

#4 Cross-references Political Economics/Stupidity/Corruption

#5 OMG, after 200+ years, economics becomes a science

#6 Cross-references Paradigm Shift

#7 The Paradigm Shift is an accomplished fact

Related 'Clear thinking in economics: hahaha!' and 'Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist'.

The GDP death blow for the economics profession

Twitter-Reference and Blog-Reference and Blog-Reference on Nov 5

“Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period.” And “GDP can be determined in three ways, all of which should, theoretically, give the same result. They are the production (or output or value added) approach, the income approach, or the speculated expenditure approach.” and “The second way of estimating GDP is to use ‘the sum of primary incomes distributed by resident producer units’. If GDP is calculated this way it is sometimes called gross domestic income (GDI), or GDP (I). GDI should provide the same amount as the expenditure method described later. By definition, GDI is equal to GDP. In practice, however, measurement errors will make the two figures slightly off when reported by national statistical agencies. This method measures GDP by adding incomes that firms pay households for factors of production they hire ― wages for labour, interest for capital, rent for land and profits for entrepreneurship. The US ‘National Income and Expenditure Accounts’ divide incomes into five categories: 

1. Wages, salaries, and supplementary labour income
2. Corporate profits
3. Interest and miscellaneous investment income
4. Farmers' incomes
5. Income from non-farm unincorporated businesses

These five income components sum to net domestic income at factor cost”. (Wikipedia)#1

To reduce matters to the core, the list 1-5 is condensed to the straightforward formula National Income = Wages (1) + Profits (2). This formula looks plausible but, in fact, constitutes the foundational blunder of economics to this day. The conceptual blunder invalidates Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, and Pluralism.#2-#6

The fact of the matter is that economists are too stupid for the elementary algebra that underlies macroeconomics. With regard to scientific incompetence, there is NO difference between Orthodoxy and Heterodoxy ― it is the whole of academic economics.

Macroeconomics has to be based on a set of objective and consistent axioms.#7 This is the correct core of premises

(A0) The objectively given and most elementary systemic configuration of the economy consists of the household sector 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) E_C=PX consumption expenditure E_C is equal to price P times quantity bought/sold X.

The price P follows as the dependent variable under the conditions of budget-balancing, i.e. E_C=Y_W, and market-clearing, i.e. X=O, as P=W/R, i.e. the market-clearing price is for a start equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand.

By lifting the condition of budget-balancing one gets the saving/dissaving of the household sector as S≡Y_W−E_C and the profit/loss of the business sector as Q≡E_C−Y_W. S and Q are the balances of two flows. It holds Q≡−S, that is, the profit of the business sector is equal to dissaving/deficit-spending of the household sector and loss of the business sector is equal to saving of the household sector. This is the most elementary form of the macroeconomic Profit Law.#8-#10

Profit Q is a balance, i.e. the difference of flows, and NOT a flow like wage income Y_W. So, profit is NOT income. Economists not only confuse stocks and flows but also balances and flows. The Flow-Balance Inconsistency makes the whole of established economics proto-scientific garbage.

It is obvious that the business sector’s loss is something quite different from income. Wage income is a flow from the business sector to the household sector. Loss is the difference between the two flows E_C and Y_W. So it is inadmissible to speak of loss as a type of income. This conceptual blunder is called a category mistake. Wage income and profit are NOT two different forms of income. The inexcusable blunder of the representative economist consists of confusing balances and flows.

This blunder carries over to the concept of National Income as given above with 1-5 and thus ruins National Accounting and the concept of GDP. In technical terms: according to standard economics, GDI and GDP should be identical. Because the foundational concepts of macroeconomics ― profit and income ― are ill-defined, the whole analytical superstructure of macroeconomics is provably false. Economics is a failed science for 200+ years now.#11

The inescapable Paradigm Shift consists of the move from false microfoundations and false macrofoundations to the true macrofoundations (A1) to (A3).

Egmont Kakarot-Handtke

#1 Wikipedia Gross domestic product

#2 Debunking Squared

#3 Ricardo, too, got profit theory wrong

#4 MIT dilettantes (I)

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

#6 MMT and Marxism ― blather as immunizing stratagem

#7 “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)

#8 Macroeconomics for dummies (II)

#9 Wikipedia and the promotion of economists’ idiotism (II)

#10 Profit

#11 See Ch. 13, The indelible scientific disgrace of economics, in Sovereign Economics

Related 'MIT dilettantes (I)' and 'Wikipedia, economics, scientific knowledge, or political agenda pushing?' and 'Macroeconomics is proto-scientific garbage just like microeconomics' and 'Too stupid for the elementary algebra of macrofoundations' and 'Economists’ scientific incompetence is worse than the plague' and 'Your economics is refuted on all counts: here is the real thing'. For details of the big picture see cross-references Profit and cross-references Accounting and cross-references Refutation of I=S.

For more about Flow-Balance (In-)Consistency see AXECquery.

For more about the economics profession see AXECquery.

For more about GDP see AXECquery.

For more about (material/formal) consistency see AXECquery.

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AXEC109i

AXEC121i For a start, the distributed profit DN can be set to zero

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Twitter Aug 25, 2022 GDP and GDI are supposed to be identical ― the lethal blunder

Twitter Apr 20, 2023 Roughly speaking, since according to the macroeconomic Profit Law #PublicDeficitIsPrivateProfit and profit are mistakenly subsumed under total income there is a close "correlation" between GDP and debt which is the numerical integral of deficits

OMG, after 200+ years, economics becomes a science

Comment on Lars Syll on ‘Studying economics — a total waste of time’

Blog-Reference and Blog-Reference on Oct 17

Lars Syll argues: “It’s hard not to agree with Elster’s critique of mainstream economics and its practice of letting models and procedures become ends in themselves, without considerations of their lack of explanatory value as regards real-world phenomena. The message writes itself: If you’re really interested about what goes on in our economies — stay away from economics!”

This is correct but misses the point altogether. The lethal defect of economics is that the main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and ALL get the foundational economic concept of profit wrong.#1 Economics is a heap of proto-scientific garbage. Because of this, economic policy guidance NEVER has had sound scientific foundations. With regard to scientific content, there is NO difference between left/center/right policy.

So, there is NO such thing as a choice between bad Orthodoxy and good Heterodoxy. Heterodoxy, too, gets profit wrong. As a consequence, both Orthodoxy and Heterodoxy have to be buried for good at the Flat-Earth-Cemetery.#2 What is needed is a new Paradigm.

Mainstream economics is a waste of time and Lars Syll's brain-dead critique of mainstream economics is also a waste of time: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug) In methodological terms: it takes a Paradigm Shift.

The good news for scientists and the bad news for time wasters is that the Paradigm Shift is an accomplished fact. See the new textbook Sovereign Economics.#3

Egmont Kakarot-Handtke

#1 Wikipedia, economics, scientific knowledge, or political agenda pushing?

#2 Let's bury economics now

#3 Sovereign Economics, Amazon.de, BoD, etc.

Related 'After 200+ years even economics becomes a science' and 'Who is really a scientist?' and 'Links on “Capitalism. Time for a reset.”'

The Paradigm Shift is an accomplished fact

Comment on David Ruccio on ‘Limits of mainstream economics today’

Blog-Reference

David Ruccio argues: “On one side are neoclassical economists, who celebrate the invisible hand and argue that markets are the best way to efficiently allocate scarce resources. On the other side are Keynesian economists, who argue instead for the visible hand of government intervention to move markets toward full employment.” And “What mainstream economics includes is the idea that neoclassical and Keynesian approaches establish the limits within which theoretical and policy debates can and should take place. Together, they define what is in the “economic toolkit,” and therefore what it means to ‘think like an economist’.” And “What the definition of mainstream economics excludes is any approach, such as Marxian economics, that is based on a theoretical approach that lies outside the protocols of neoclassical and Keynesian economics.”

This is descriptively correct but misses the point altogether. The lethal defect of economics is that the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and ALL get the foundational economic concept of profit wrong. Economics is a heap of proto-scientific garbage. Hence, economic policy guidance NEVER has had sound scientific foundations. With regard to scientific content, there is NO difference between left, center, or right policy.  It is all brain-dead agenda-pushing.

So, there is no such thing as a choice between bad mainstream and good Marxian economics. Marx, too, got profit and exploitation wrong.#2 As a consequence, both Orthodoxy and Heterodoxy have to be buried for good at the Flat-Earth-Cemetery. What is needed is the true Paradigm.

The good news is that the Paradigm Shift is an accomplished fact, see the new textbook Sovereign Economics.#3

Egmont Kakarot-Handtke

#1 Wikipedia, economics, scientific knowledge, or political agenda pushing?

#2 Links on Karl Marx

#3 Sovereign Economics Amazon.de, BoD, Amazon.com etc.

Related 'Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist' and 'Ending the pluralism of provably false economic theories with the long-overdue Paradigm Shift' and 'Stop Recycling Dead Economic Theories, Start the Paradigm Shift' and 'The new economic Paradigm requires a new textbook'. For details of the big picture see cross-references Paradigm Shift.

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AXEC106m

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Real-World Economics Review Blog and Physikalische Zeitschrift

Not all academic pursuits are science

Comment on Gerald Holtham on ‘The problems of economics as an academic pursuit have a sociological origin’

Blog-Reference

Gerald Holtham maintains “The problems of economics as an academic pursuit have a sociological origin.” And “This situation has created a strong form of credentialism among academic economists, evidenced by the use in the USA of the term “PHD economist” i.e. distinguishing a ‘real’ economist from an economic journalist or mere informed commentator. This desire to define and secure a profession of economists has led not only to credentialism but to formalism. There must be hoops to jump through, filters to pass, if ‘real’ economists are to be distinguished. An emphasis on mathematical technique is just such a filter.”

First, what is the core problem of economics? The problem is that economics is a failed science. Everybody knows it but nobody knows how to get out of the mess “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)#1

So, economics is fake science or, in the words of Feynman, cargo cult science: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”#2

The lack of scientific competence can hardly be overstated. Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, Pluralism are mutually contradictory, axiomatically false, and materially/formally inconsistent. Economics is a failed science.#3 All the usual signifiers of science, though, from peer review to formalization to the EconNobel are in place. What is lacking is the true theory.

“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

So the “problems of economics as an academic pursuit” are (i) for 200+ years now, economics has not risen above the proto-scientific level#3, #4, and (ii), economists are not scientists but clowns and useful idiots in the political Circus Maximus.

Academic economists are not selected and employed and paid and promoted and honored for scientific achievements but for their political usefulness. The sociology of economics is indeed quite simple: economics has always been agenda-pushing for the Oligarchy.#5

Egmont Kakarot-Handtke

#1 Feeble minds, shaky assumptions, and the inevitable failure of economics

#2 Both orthodox and heterodox economists are cargo cult scientists

#3 Sovereign Economics, Ch. 13, The indelible scientific disgrace of economics

#4 Wikipedia, economics, scientific knowledge, or political agenda pushing?

#5 Cross-references: Political Economics/Stupidity/Corruption

Related 'FakeNews, FakeScience: economics in the information age' and 'Links on the Economics Nobel' and 'Scrap the EconNobel' and 'Economics: stories, narratives, and disinformation' and 'To this day*, economists have produced NOT ONE textbook that satisfies scientific standards'.

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AXEC136g

Let's bury economics now

Comment on Lars Syll on ‘Michael Woodford on models’

Blog-Reference and Blog-Reference Aug 14

Lars Syll argues against Michael Woodford: “This is — sad to say — a rather typical view among mainstream economists today. Defending the use of unrealistic and unsubstantiated models with the argument that models make it ‘easy for others to see what assumptions have been relied upon, and hence to challenge them’ is rather far-fetched.”

Yes, “unrealistic and unsubstantiated models” are indefensible. Yes, mainstream economics is proto-scientific garbage. Yes, mainstreamer are in the “story-telling business”.#1

Yes, yes, yes. All this is known for 150+ years. Yes, economics is failed/fake science. Yes, economists are stupid or corrupt or both. Yes, this applies in equal measure to Orthodoxy and Heterodoxy. It applies to economics in general and to Lars Syll, in particular.#2

The most important thing to realize is that there are theoretical economics and political economics. Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years. Economic policy NEVER has had sound scientific foundations.

Both orthodox and heterodox economists are NOT scientists but clowns and useful idiots in the political Circus Maximus.#3, #4

The representative economist does not understand to this day what science is all about. So, here are eleven plain facts about ‘economic sciences’

1. Science manifests itself in the form of the true theory. 2. Truth is well-defined by material and formal consistency. 3. Logical consistency is secured by applying the axiomatic-deductive method and material consistency is secured by applying state-of-the-art testing. 4. The true theory/model is the humanly best mental representation of reality. 5. “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.” (Aristotle, 300 BC)  6. The main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong. 7. Because the foundations are false the analytical superstructure is false. 8. Economists are too stupid for elementary algebra. 9. Both orthodox and heterodox economics is failed/fake science. 10. Economic policy has no sound scientific foundations. 11. The EconNobel for ‘economic sciences’ is a fraud.

And this is the cause of the mess: economists have since the founding fathers consistently violated the separation of science and politics. In hashtags

#LawOfTheExcludedMiddle

#TheScientistIsNoActivist

#TheActivistIsNoScientist

#PoliticsCorruptsScience.

All this is known and needs no repetition. The consequence is: Economics and economists go directly to the Flat-Earth-Cemetery.

What next? Craig thinks he has a brilliant idea: “Paradigms, especially extremely relevant and urgently needed new paradigms are everything.” Yes, this is also known for a long time: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al. 1990)

Except that the Paradigm Shift from provably false Walrasian microfoundations and provably false Keynesian macrofoundations to true macrofoundations is an accomplished fact.#5

And now, Lars Syll and all the other agenda-pushers/activists lead your own funeral cortege!

Egmont Kakarot-Handtke

#1 The economist as storyteller (II)

#2 Lars Syll is refuted on all counts. See blog query for details

#3 The tragedy of economics: stupid/corrupt economists

#4 Economics: The greatest scientific fraud in modern times

#5 Sovereign Economics BoD

Related 'Separation of politics and economics'.

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AXEC136g

Price theory — more than beating the dead horse again and again

Comment on Blair Fix on ‘Supply and demand deconstructed’

Blog-Reference and Blog-Reference

Blair Fix summarizes “… Jonathan Nitzan demolishes the neoclassical theory of prices. It’s a master lesson in how to deconstruct a theory.”

Mainstream economics, though, does not need another deconstruction. Mainstreamers have admitted failure long ago “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990)

Clearly, everybody knows by now for sure that supply-demand-equilibrium is proto-scientific garbage. Back in 1954, Schumpeter found it still necessary to diffuse doubts about the scientific status of the supply-demand-equilibrium approach “The primitive apparatus of the theory of supply and demand is scientific. But the scientific achievement is so modest, and common sense and scientific knowledge are logically such close neighbors in this case, that any assertion about the precise point at which the one turned into the other must of necessity remain arbitrary.”

So, the right thing to do is to bury and forget the “Totem of the Micro”: “If neoclassical theory is bunk, then what explains prices? Jonathan Nitzan, together with Shimshon Bichler, argues that prices are inseparable from power.”#4

With this, though, everything remains in the old economics-is-a-social-science paradigm. The behavioral assumption of price-taking is replaced by the assumption of price-setting. To remain in the psycho-sociological sphere is the lethal blunder of the power approach because economics is a systems science.#5

Here are the basics of the macrofoundations approach. 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 (1a). The price is determined by the wage rate W, which takes the role of the nominal numéraire, and the productivity R. This is the most elementary case, i.e. when the economy gets more complex the price equation becomes longer.*

The macroeconomic Law of Supply and Demand (1a) implies W/P=R (1b), i.e. the real wage is always equal to the productivity no matter how the wage rate W is set or how long the individual or aggregate working time L is. Full employment is possible, the workers always get the whole product O. The workers' living standard depends ultimately on productivity.

The logical next steps are (i) to skip the conditions of market-clearing and budget-balancing and to allow for price-setting, (ii) to differentiate the business sector into multiple firms and markets and to determine the price structure.#6

Egmont Kakarot-Handtke


#1 There is NO such thing as supply-demand-equilibrium
#2 How to Get Rid of Supply-Demand-Equilibrium
#3 The Law of Supply and Demand: Here It Is Finally
#4 This echoes Macht und ökonomisches Gesetz (Power and Economic Law), Schriften des Vereins für Socialpolitik, 1972.
#5 Your economics is refuted on all counts: here is the real thing
#6 See Ch. 3 Market interdependence in Sovereign Economics

Related 'Economists never understood how the price mechanism works' and '10 steps to leave cargo cult economics behind for good' and 'Primary and Secondary Markets' and 'Hayek and other informationally retarded proto-economists' and 'How to overcome the manifest silliness of Econ 101 and save the economy' and 'Why you should NEVER use supply-demand-equilibrium' and 'Traditional Heterodoxy’s paradigmatic impotence' and 'Essentials of Constructive Heterodoxy: The Market' and 'Understanding Profit and the Markets: The Canonical Model' and 'Major Defects of the Market Economy' and 'How to finally hammer down the nails in the coffin of Monty Python economics' and 'Get it econ suckers: behavioral microfoundations ⇒ false, systemic macrofoundations ⇒ true' and 'Econ 101: Economists flunk the intelligence test at the first hurdle' and 'The monstrous utility-supply-demand-equilibrium failure' and 'To this day, economists have produced NOT ONE textbook that satisfies scientific standards' and 'Ch. 9, Price mechanism vs quantity mechanism in Sovereign Economics, BoD'.

“Totem of the Micro” has been coined by Axel Leijonhufvud.

* E.g. AXEC64

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#PointOfProof

Aug 29

post missing