February 15, 2015

The true nature of economists' confusion

Comment on Lars Syll on 'The true nature of public debt'


Ricardo spoke about war financing in a monetary economy. Merijn Knibbe talks about financing dikes. The Neoclassicals have not realized that utility is a nonentity and let the representative agent, another nonentity, optimize real consumption over time. Pontus declares that consumption does not, by accounting, depend on either debt or taxes. No accountant worth his salt would ever make such a claim.

Lerner famously said 'we' pay interest on public debt to 'ourselves'. But 'we' consists of savers and non-savers. And while income tax and interest payments are indeed equal there occurs a redistribution of income from non-savers to savers that never ends if the debt is revolved. This crucial distinction and this real effect are semantically vaporized with 'we' and ‘ourselves’.

The true nature of confusion and mystification is that economists subscribe to the 'anything goes' methodology and are more famous for never-ending wish-wash than for logical consequence.

For the formally correct refutation of Ricardian Equivalence see the Section “The question of equivalence: three scenarios” in (2015).

Egmont Kakarot-Handtke

Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: Aggregate Demand. SSRN Working Paper Series, 2564590: 1–22. URL

Related 'On the saying “We owe the debt to ourselves”'

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