Scientific ignorance is political strength

Comment on Lars Syll on ‘Radical uncertainty ― a question of economic methodology’

Blog-Reference and Blog-Reference and Blog-Reference on Apr 14

Economics is a scientific failure for 200+ years. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, and their derivatives ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the foundational concept of the subject matter ― profit ― wrong. Methodologically, economics can be described as pluralism of provably false theories.

Economists have many explanations/excuses about why they have not achieved much of real scientific value. Here is the classical answer: “Years ago I heard Mr. Cobden say at a League Meeting that ‘Political Economy was the highest study of the human mind, for that the physical sciences required by no means so hard an effort’.” (Bagehot, 1885)

In Lars Syll’s modern parlance, the chief difficulty is: “Radical uncertainty is feature of a complex adaptive system a chief characteristic of which is emergence. Emergence is at the heart of evolution theory. Emergence in this context means that there is no way to predict what will emerge from a complex adaptive system based on investigation of the past and present state of the system.” and “It’s long past time to admit that Keynes and Knight were correct …”

The fact of the matter is that it is sheer scientific incompetence that explains the persistent failure of economists. Uncertainty and complexity are, of course, real, but economists abuse them as excuses. It is particularly painful when cargo cult scientists, who have not managed in 200+ years to get their foundational concepts right, blather about methodology.

But lack of knowledge about how the economy works is not seen as a disgrace among economists; just the opposite, it is taken as proof that laissez-faire is the best economic policy. After all, who knows nothing cannot do anything.

For details see
► Failed economics: The losers’ long list of lame excuses
► How Keynes got macro wrong and Allais got it right
► To this day, economists have produced NOT ONE textbook that satisfies scientific standards
► Ontological uncertainty is NOT the problem but economists’ ontological stupidity
► What is dead certain in an uncertain world: economists’ abysmal incompetence
► Uncertainty: ‘Whereof one cannot speak, thereof one must be silent’
► Economists: Either stupid or corrupt or both
► Opinion, conversation, interpretation, blather: the economist’s major immunizing stratagems
► Economics as storytelling and entertainment for the masses
► Still beyond the reach of economists: The Holy Grail of Science
► Econogenics in action

Egmont Kakarot-Handtke

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LINKS on Lars Syll’s ‘John Maynard Keynes — an introduction’ on Apr 12

► How Keynes got macro wrong and Allais got it right
► Macroeconomics ― dead since Keynes
► From Keynes’ fatal blunder to the true economic model
► The general theory of scientific incompetence
► Dear idiots, time to get saving and investment straight (II)
► From Keynes’ fatal blunder to the true economic model

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#PointOfProof

Apr 11

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How a Swedish professor cares about the Oligarchy’s financial well-being

Comment on Lars Syll on ‘Sweden as a case of MMT’

Blog-Reference and Blog-Reference and Blog-Reference on Apr 11

Lars Syll argues: “What the Swedish experience shows is that a government’s ability to conduct an ‘optimal’ public debt policy may be negatively affected if public debt becomes too small. To guarantee a well-functioning secondary market in bonds it is essential that the government has access to a functioning market. If turnover and liquidity in the secondary market become too small, increased volatility and uncertainty will, in the long run, lead to an increase in borrowing costs. Ultimately there’s even a risk that market makers would disappear, leaving bond market trading to be operated solely through brokered deals. As a kind of precautionary measure against this eventuality, it may be argued – especially in times of financial turmoil and crises ― that it is necessary to increase government borrowing and debt to ensure ― in a longer run ― good borrowing preparedness and a sustained (government) bond market.”

This is one of the lousiest pieces of economics ever produced in Sweden. In order to see this, one has to do some elementary macroeconomics.

The MMT cure-all is deficit-spending/money-creation. 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). Deficit spending on current production causes a one-off price hike (NO inflation) and the business sector ends up with macroeconomic profit Q≡(G−T). The government creates a free lunch for the Oligarchy.

(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 interest rates on both sides of the CB’s balance sheet are for a starter set to zero.

(v) If the government's deficit spending continues deposits grow. Since deposits bear no interest the Oligarchy’s desire for a safe investment opportunity becomes more urgent.

(vi) Now, the government consolidates its 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. After issuance, the bonds are traded on the secondary market which grows continuously.

(vii) In order to pay the interest on bonds, the government taxes the household sector and hands the money over to the bondholders, i.e. the Oligarchy. The disposable income of the taxpayers' decreases and that of the bondholders' increases.

(viii) This income redistribution from WeThePeople to the Oligarchy goes on as long as the debt is rolled over.

So, Lars Syll’s MMT policy of permanent deficit-spending/money-creation entails some real benefits for the Oligarchy, i.e. (i) a free lunch because of Public Deficit = Private Profit, (ii) permanent ultra-safe interest income on a growing public debt, (iii) a liquid secondary bond market.

It is really astonishing how an academic who calls himself a Progressive and pretends to be committed to the public interest pushes the agenda of the Oligarchy and deceives the Swedish people.#3

Egmont Kakarot-Handtke


#1 The new macroeconomic Paradigm
#2 From MMT misunderstandings to the true Theory of Money
#3 Deficit-spending/money-creation is ALWAYS a bad deal for WeThePeople

Related 'The public-debt and private-profit pushers' and 'Dear idiots, it is deficit spending that creates the distribution people complain about' and 'MMT is an economic policy fraud' and 'Where MMT goes off the rails' and 'The public-debt and private-profit pushers' and 'How Keynesians, Lernerians, MMTers make the Oligarchy great' and 'Lars Syll, fake scientist'.

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REPLY to Kaivey on Apr 10

You say: “Are for advocating a type of free market communism, Egmont.”

Fine, but first get out of economics. Economics is a science and there is NO place for political agenda pushers. The mission of economics is to figure out how the monetary economy works and nothing else.

And this brings us back to the point at issue.

You have NO idea how the economy works. Neither has Lars Syll and neither has the rest of MMTers. But all are advocating deficit-spending/money-creation. Because the macroeconomic Profit Law implies Public Deficit = Private Profit, Lars Syll and the rest of MMT academics are actually pushing the agenda of the Oligarchy. Worse, they are telling people that the MMT policy is for the benefit of the ninety-nine-percenters.

This is a political fraud.

Clearly, what I am advocating is NOT free market communism but to expel Lars Syll and all the other political agenda pushers and fraudsters from the scientific community.

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#PointOfProof

Apr 9

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

Comment on Lars Syll/Tom Hickey on ‘Mainstream theories of income distribution’

Blog-Reference and Blog-Reference and Blog-Reference

David Ricardo defined the task of economics back in 1821: “To determine the laws which regulate this distribution [between rent, profit, wages], is the principal problem in Political Economy.” (Principles, p. 5)

Yet, the scientifically incompetent Ricardo himself messed distribution theory up and so it remained to this day.#1, #2

The economist Lars Syll sums up: “As has become abundantly clear to students of economics these days, mainstream textbook economics has pretty little in common with the real world in which we actually live. Especially when it comes to the mainstream theories of income distribution, the gap between theory and reality is ocean wide.” and “History has over and over again disconfirmed the close connection between productivity and remuneration postulated in mainstream income distribution theory. Neoclassical marginal productivity theory is obviously a collapsed theory from both a historical and a theoretical point of view, as shown already by Sraffa in the 1920s, and in the Cambridge capital controversy in the 1960s and 1970s.”

The philosopher Tom Hickey sums up: “This necessitates an investigation of power and its operation in a society as a social system (complex adaptive system). This was initiated by the classical economists in their investigation of economic rent, continued by Karl Marx, taken up by Veblen and the institutionalists, and subsequently shunted over to sociology … and political science since the advent of marginalism explained economic rent away based on idealistic models of a market economy based on near perfect markets. Conventional economists know about market imperfection, rent, rent-seeking and rent extraction but they have avoided dealing with it as a socio-economic factor. Now rising social dysfunctionality is forcing a return to investigating distribution and the causes of increasing inequality of income and wealth.”

Both Lars Syll and Tom Hickey belong to the heterodox camp. The characteristic of heterodox economists is that they demonstrate for 200+ years now that mainstream economics is false but have not come up in the meantime with something better. The unsurprising result of inconclusive blather is that the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and that all got the foundational concept of the subject matter ― profit ― wrong. Because the profit theory is false, distribution theory is false to this day.

Both Lars Syll and Tom Hickey promote MMT. And at this point, things escalate from scientific incompetence to political corruption.

To make matters short here, the macroeconomic Profit Law is given as Q≡Yd+(I−S)+(G−T)+(X−M).#3 In the most elementary case of the elementary production-consumption economy, this reduces to Q≡−S.

The Profit Law implies: (1) the business sector’s revenues can only be greater than costs if, in the simplest of all possible cases, consumption expenditures are greater than wage income, (2) macroeconomic profit does neither depend upon the agents’ personal qualities, motives, their ideas about what profit is, nor on profit-maximizing behavior, nor on markup setting, nor on risk-taking, (3) in order that profit comes into existence for the first time in the production-consumption economy, the household sector must run a deficit at least in one period, (4) this presupposes the existence of a credit-creating entity, (5) profit/loss is, in the most elementary case, determined by the increase and decrease of the household sector’s debt, (6) monopoly power/rent-seeking is irrelevant for macroeconomic profit and affects only the distribution of macroeconomic profit BETWEEN firms, (7) there is no relation at all between profit, capital, marginal or average productivity, (8) innovation and efficiency are irrelevant for the profit of the business sector as a whole, (9) profit is a factor-independent residual and qualitatively different from wage income, (10) it is an elementary mistake to maintain that total income is the sum of wages and profits, (11) profit is NOT income, i.e. a flow, but a balance, i.e. the difference of flows, (12) distributed profit Yd is income and adds up with wage income Yw to total income, (13) total income is NEVER equal to total spending, (14) in the most elementary case, the difference between total spending of the household sector C and total wage income Yw is saving/dissaving, (15) profit/loss of the business sector is the mirror image of dissaving/saving of the household sector, (16) saving and investment are causally INDEPENDENT and NEVER equal, (17) all I=S/IS-LM models are false since Keynes/Hicks, (18) Keynesianism, Post-Keynesianism, New Keynesianism and all variants are scientifically worthless, (19) the foundational MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 is false because it lacks the balance of the business sector Q, (20) because profit is false, the whole of MMT is false, (21) because the theory is false, MMT policy guidance has no sound scientific foundations.#4, #5

With regard to government spending, the macroeconomic Profit Law boils down to Public Deficit = Private Profit and therefore the Oligarchy’s financial wealth and public debt (currently $22 trillion) grow in lockstep. Roughly speaking, fabulous financial wealth is the mirror image of continuous deficit spending of the household and government sector and has nothing to do with value creation or exploitation.

MMT theory is provably false, MMT policy serves the Oligarchy. From Ricardo onward, economists in both their orthodox and heterodox incarnations are NOT scientists but useful political idiots.#6

Egmont Kakarot-Handtke


#1 Ricardo, too, got profit theory wrong
#2 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
#3 For details of the big picture see cross-references Profit/Distribution
#4 Refuting MMT’s Macroeconomics Textbook
#5 For the full-spectrum refutation of MMT see cross-references MMT
#6 Economists: “a bevy of camp-following whores”

Related 'Keynes, Lerner, MMT, Trump, etc. and exploding profit' and 'Profit and the collective failure of economists' and 'Profit'.

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#PointOfProof

Apr 8

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April 9
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From Keynes’ fatal blunder to the true economic model

Comment on Merijn Knibbe on ‘What’s in a model … (an economic one, that is)’

Blog-Reference

Merijn Knibbe refers to a post of Noah Smith: “This time he however stated: ‘accounting is not a model of the economy’. Which is wrong. The national accounts are a model of the economy. And economists have to learn it is. The way the entities are conceptually defined matters as this also defines the monetary relations we see.”

Under the heading Formal Models vs. Guru-Based Theories Noah Smith demanded: “These days, most economic theories are collections of mathematical models. If you want to know what the theory says, you can parse out the models and see for yourself. You don’t have to go ask Mike Woodford what New Keynesian theory says. You don’t have to go ask Ed Prescott what RBC theory says. You can go read a New Keynesian model or a Real Business Cycle model and figure it out on your own. MMT is different. There are many wordy explainers and videos that will explain some of the concepts behind MMT, or tell you some of MMT’s policy recommendations. But that’s different than having a formal model of the economy.”#1

The problem with economics is this: microfoundations are false and because of this, ALL microeconomic models are false. Supply-demand-equilibrium is proto-scientific garbage. However, macrofoundations are also false and because of this, ALL macroeconomic models are false since Keynes. Proofs have been given elsewhere.#2

The question of correct macrofoundations is closely related to macroeconomic accounting. Merijn Knibbe is spot on: “National accounts do use a model of the economy, the accounting identities are based on the fundamental social properties of money and monetary transactions but for the way we measure them a conceptual model is key.”

The problem with both orthodox and heterodox economists is that they are too stupid for the elementary mathematics that underlies macroeconomic accounting.#3, #4, #5

From the overall failure of economics follows that a new theory has to be macrofounded but not Keynesian because Keynes messed things up. What is required is the Paradigm Shift from false microfoundations and false Keynesian macrofoundations to true macrofoundations.

From true macrofoundations follows the macroeconomic Profit Law as Q≡Yd+(I−S)+(G−T)+(X−M). The Profit Law, in turn, yields the correct macroeconomic sectoral balances equation (I−S)+(G−T)+(X−M)−(Q−Yd)=0 which compares to the false Keynesian/Post-Keynesian/MMT equation (I−S)+(G−T)+(X−M)=0. The equations are testable with the precision of two decimal places. Exactly here, macroeconomic accounting is needed in order to settle matters empirically.

Because neither orthodox nor heterodox economists got the foundational concepts, the elementary math, and the basic accounting identities right, ALL macroeconomic models are provably false from Keynes onward to this day.#6

Egmont Kakarot-Handtke


#1 Noah Smith Examining an MMT model in detail
#2 The miracle cure of economists’ micro-macro schizo
#3 Wikipedia and the promotion of economists’ idiotism (II)
#4 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
#5 For details of the big picture see cross-references Accounting
#6 The canonical macroeconomic model

Dear idiots, MMTers are Wall Street’s agenda pushers

Links on Patricia Cohen’s ‘Modern Monetary Theory Finds an Embrace in an Unexpected Place: Wall Street’*

Blog-Reference

MMTers have always pushed the agenda of Wall Street/WeTheOligarchy and NOT of WeThePeople. Wall Street’s open embrace only confirms the obvious. After all, the macroeconomic Profit Law boils down to Public Deficit = Private Profit and thus the Oligarchy’s financial wealth and public debt (currently $22 trillion) grow in lockstep. The so-called free-market economy ― and Wall Street with it ― is on the full life support of the state. MMT is NOT a scientifically valid theory but political agenda pushing for the Oligarchy in a scientific/social bluff package.

► Very busy these days: Wall Street’s agents
► MMT and the promotion of Wall Street's idea of social policy
► MMT = proto-scientific garbage + deception of the 99-percenters
► How MMT enlightens Washington
► MMT, Warren Mosler, and the little helpers from Wall Street and Academia
► MMT: The fusion of Wall Street and Academia
► Secret Champagne for the MMT gods
► Keynes, Lerner, MMT, Trump, Biden, and exploding profit
► MMT Progressives: stupid or corrupt or both?
► MMT: A free lunch for the Oligarchy
► MMT: Academic snake oil for the people
► Deficit-spending/money-creation is ALWAYS a bad deal for WeThePeople
► MMTers are NOT Friends-of-the-People
► The Kelton-Fraud
► Warren Mosler: scientific dilettante and political fraudster
► MMT is an economic policy fraud
► MMTers make Capitalism work

► MMT Progressives: The knife in the back of WeThePeople

► MMT: The fusion of Wall Street and Academia

► MMT and the overall political corruption of economics

Egmont Kakarot-Handtke


* New York Times

Related 'MMT and the canonical macroeconomic model' and 'MMT and grassroots movements'. For the full-spectrum refutation of MMT, see cross-references MMT.

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AXEC143d Macroeconomic profit ― the AXEC Profit Law ©®

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Twitter Apr 7 An indirectly related lockstep

Source: Holger Zschaepitz

Felix Salmon The upside of printing money Axios Apr 8,

Message: "For the time being, the government should keep on spending, even if it doesn't raise taxes. The economy — and the market — will only benefit as a result."

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#PointOfProof

Apr 7

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MMTers: too much thought-reading, too little thinking

Comment on Bill Mitchell/Tom Hickey on ‘ECB denial is just embarrassing’

Blog-Reference and Blog-Reference

Tom Hickey recounts the highlights of his spiritual development: “There as been a running debate for some time here in the comments over whether the drivel about about MMT that appears in the corporate media from so-called experts in economics and finance is owing to ignorance or a desire to malign and marginalize MMT, or perhaps a combination thereof. I have taken the position that experts are expected to know better, so the presumption is bad faith and malicious intent. However, I have had to change my mind on this. Now it seems to me that what I have been reading is a matter of ignorance and that the supposedly top people in economics and finance, who should know the realities of what they dealing with, e.g., the relevant institutional arrangements and accounting, don’t. They are almost uniformly clueless. Worse, many don’t want to know, since their minds are already made up.”

This follows immediately Bill Mitchell’s lengthy psychological study about groupthink among mainstream economists.#1 And somebody recently asked Why does everyone hate MMT?#2 Not surprisingly, as shrewd psychologists, MMTers put forward a plausible explanation: MMT is rejected because of “ignorance or a desire to malign and marginalize MMT, ….” This exemplary psycho-social diarrhea is the main constituent of economic debates since time immemorial.#3

True, there is a lot of BS in the media about MMT but this does NOT justify answering it with counter-BS. What one has to realize is that the whole Mainstream vs MMT blather is way beside the point. As Schumpeter admonished his mentally retarded co-economists long ago: “Remember: occasionally, it may be an interesting question to ask why a man says what he says; but whatever the answer, it does not tell us anything about whether what he says is true or false.”

The point is NOT whether MMT is loved or hated but whether it is true or false. This whole psychological/motivational mind-reading exercise is nothing but a distraction from the scandal that both Mainstream and MMT are proto-scientific garbage.

The fact is that MMT has been refuted on all counts.#4, #5, #6, #7, #8 More specifically, it is a mathematical fact that the MMT sectoral balances equation is false.#9 Because the foundations are false the whole analytical superstructure and the economic policy guidance are false.

It is a curious fact that MMTers do not answer to the proof of material/formal inconsistency. Instead, they do what they accuse the Mainstream of denial, PsySoc filibuster, blocking, and censoring. Applying Tom Hickey’s mind-reading to MMT itself: “Most of the these people are heavily invested reputationally in a wrong paradigm and admitting this would be disastrous for them. So at least some self-protection is also likely involved.”

In combination with the proven material/formal inconsistency of the MMT approach, this leaves but one psycho-social conclusion: MMTers are stupid or corrupt or both.

Egmont Kakarot-Handtke


#1 Fake surveys and Groupthink in the economics profession
#2 Love and hate in economics: the PsySoc shell game
#3 The economist as second-guesser, mind reader, and folk psychologist
#4 The final implosion of MMT
#5 Refuting MMT’s Macroeconomics Textbook
#6 MMT: fundamentally false
#7 The canonical macroeconomic model
#8 For the full-spectrum refutation of MMT see cross-references MMT
#9 The MMT equation (I−S)+(G−T)+(X−M)=0 is false, the AXEC equation (I−S)+(G−T)+(X−M)−(Q−Yd)=0 is true. The equations are testable with the precision of two decimal places.

Related 'Economics: the honeypot for know-nothingers' and 'Ditch scientific incompetence!' and 'Economics is NOT a social science' and 'Social science is NOT a science but a sitcom' and 'Economics is NOT about Human Nature but the economic system' and 'Overreach: Economists have their fingers in every pie except real economics' and 'How to get rid of the silly Queen' and 'New economic thinking = old political fake' and 'PsySoc — the scourge of economics' and 'Disoriented and lost in folk psychology' and 'How economists became the scientific laughing stock' and 'Opinion, conversation, interpretation, blather: the economist’s major immunizing stratagems' and 'The economics Cargo Cult Prize' and 'Failed economics: The losers’ long list of lame excuses' and 'Meet the MMT smart arses' and 'Economists/MMTers: agenda pushers, distractors, blockers, muters, censors'.

The canonical macroeconomic model

Comment on Noah Smith on ‘Examining an MMT model in detail’

Blog-Reference (Link) and Blog-Reference

Under the heading Formal Models vs. Guru-Based Theories Noah Smith demands: “These days, most economic theories are collections of mathematical models. If you want to know what the theory says, you can parse out the models and see for yourself. You don’t have to go ask Mike Woodford what New Keynesian theory says. You don’t have to go ask Ed Prescott what RBC theory says. You can go read a New Keynesian model or a Real Business Cycle model and figure it out on your own. MMT is different. There are many wordy explainers and videos that will explain some of the concepts behind MMT, or tell you some of MMT’s policy recommendations. But that’s different than having a formal model of the economy.” and “I want to be able to read a concrete, formal, well-specified model like the Tcherneva model above, and answer these questions myself.”

The problem with economics is this: microfoundations are false, and because of this, ALL microeconomic models are false. Supply-demand-equilibrium is proto-scientific garbage. However, macrofoundations are also false, and because of this, ALL macroeconomic models are false since Keynes, including MMT. Proofs have been given elsewhere.

However, critique of Mainstream or MMT has run its course: “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)

From the overall failure of economics follows that a new theory has to be macrofounded but not Keynesian because Keynes messed things up. What is required is the Paradigm Shift from false microfoundations and false Keynesian macrofoundations to true macrofoundations.

So, let us forget methodological individualism and kick off the “concrete, formal, well-specified” macrofounded 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. The elementary production-consumption economy is shown under the label Graphic. #1

What is needed for a start is two things: (i) a central bank which creates money on its balance sheet in the form of deposits, and (ii) a legal system which declares the central bank’s deposits as legal tender.

Deposit money is needed by the business sector to pay the workers who receive the wage income Yw 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 C=Yw. Overdrafts are needed by the household sector for consumption expenditures if the households want to spend before they get their income.

For the case of a balanced budget C=Yw, the idealized transaction pattern of deposits/overdrafts of the household sector at the Central Bank over the course of one period is shown under Graphic. #2

The household sector’s deposits/overdrafts are zero at the beginning and end of the period. Money 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 supports the autonomous market transactions between the household and the business sector. From this follows the average stock of transaction money as M=κYw, with κ determined by the transaction pattern.

If employment L is doubled, the average stock of transaction money M doubles. In a well-designed fiat money economy, growth is not hampered by a lack of a transaction medium. Money is endogenous and neutral.

The general price level P can be anchored by setting the wage rate W. In order to avoid both inflation and deflation, the rate of change of W has always to be equal to the rate of change of R. The Quantity Theory is dead because M is not a price determinant.

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.

Ramifications: (i) The State is needed for the institutional setup of the monetary order, (ii) the State is NOT needed for injecting money into the economy, (iii) what is needed is an accommodative Central Bank, (iv) neither the State nor the Central Bank interferes with the autonomous transactions of the household and business sector, (v) money is a generalized IOU, (vi) money is created and destroyed by the transactions between the household and the business sector, (vii) the value of money is given by W/P=R (1b), i.e. is equal to the productivity, (viii) the value of money does NOT depend on the (average) stock of money M, (ix) the functionality of monetary institutions and the value of money does NOT depend on the taxing power of the State.

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 the 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.

Ramifications: (i) Because the mirror image of saving is loss, Keynes’ I=S is false, (ii) ALL IS-LM models are false, (iii) Post Keynesianism in ALL variants is false.

Now, additional sectors can be introduced. The complete macroeconomic Profit Law is given by Q≡Yd+(I−S)+(G−T)+(X−M). #3, #4 In order to focus on the interactions between the household, business, and government sector, it is here reduced to Q≡−S+(G−T). Legend: Q macroeconomic profit, S household sector saving, G government expenditures, T taxes, (G−T)>0 government deficit.

If the government’s budget is balanced, i.e., G=T, and if the households dissave, then the business sector makes a profit, i.e., Q is positive.

If the government’s budget is balanced and the households save, i.e., S≡Yw−C>0, then the business sector makes a loss, i.e., Q is negative.

If the government’s budget deficit, i.e., (G−T)>0, is equal to the household sector’s saving, i.e., (G−T)=S, then macroeconomic profit Q is zero.

If the government’s deficit is greater than household sector saving, then the business sector makes a profit.

If the household sector’s saving is zero, i.e., S=0, and the government deficit is greater than zero, i.e., (G−T)>0, then it holds Q=(G−T), i.e., the business sector’s profit equals the government sector’s deficit. So, if the State deficit-spends in the elementary production-consumption economy, it follows (i) a one-off price hike (NO inflation) under the condition of market clearing, (ii) Public Deficit = Private Profit. Bringing money into the economy by public deficit spending is NOT distributionally neutral, just the opposite: it is a free lunch for the Oligarchy.

MMT’s sectoral balances equation is false. Because of this, the whole analytical superstructure is false. MMT policy guidance has no sound scientific foundations and is harmful to the ninety-nine-percenters. MMT is refuted on all counts.

Any model that lacks true macrofoundations is scientifically worthless. Axioms (A0) to (A3) define the canonical macroeconomic model. The rest of microfounded and macrofounded economics goes down the scientific drain.

Egmont Kakarot-Handtke


#1 Graphic AXEC31 Elementary production-consumption economy
#2 Graphic AXEC98 Idealized transaction pattern
#3 The Profit Law yields the correct macroeconomic sectoral balances equation (I−S)+(G−T)+(X−M)−(Q−Yd)=0, which compares to the false MMT equation (I−S)+(G−T)+(X−M)=0. The equations are testable with the precision of two decimal places.
#4 Refuting MMT’s Macroeconomics Textbook

Related 'MMT vs Mainstream: examining proto-scientific garbage in detail' and 'The Law of Supply and Demand: Here It Is Finally' and 'How to Get Rid of Supply-Demand-Equilibrium' and 'The real trouble with Econ 101' and 'MMT sucks' and 'Where MMT got macroeconomics wrong' and 'Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It' and 'Why Post Keynesianism Is Not Yet a Science' and 'MMT: A free lunch for the Oligarchy' and 'New Economic Thinking: The 10 crucial points' and 'Economics for Economists'. For details of the big picture, see Paradigm Shift, and for the full-spectrum refutation of MMT, see cross-references MMT.

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Graphic AXEC121i

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LINKS on Pavlina Tcherneva’s ‘MMT, Models, Multidisciplinarity’ on Apr 8 and Blog-Reference

Pavlina Tcherneva’s model is NOT false because of some behavioral assumptions but because her macroeconomics is provably false. The model is built upon this defective accounting identity G+I=T+S. For details see

► MMT vs Mainstream: examining proto-scientific garbage in detail

► The canonical macroeconomic model

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REPLY to André on Apr 9

You say: “To understand finance or economics, you need first to understand what currency is (a tax credit). It is a prerequisite. You can’t move one step without it.” and “Send an email to any of them (Bill Mitchell, Warren Mosler, Randall Wray, Stephanie Kelton, Scot Fullwiler, etc) and they will tell that ‘taxes drive money’ is the pillar and integral part of MMT. Also, everything you read in MMT is a direct or indirect consequence of ‘taxes drive money’, 

Take notice that the assertion that taxes drive money is false and has been refuted.

► MMT: fundamentally false

► The Third Way: Towards the Happy Zero-Tax Economy

► The canonical macroeconomic model

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