December 6, 2016

Rethinking MMT

Comment on Bill Mitchell on ‘Our affect is driving us back to a need for continuous fiscal deficits’

Blog-Reference and Blog-Reference

Bill Mitchell is right: mainstream economics is a failed approach and irrecoverably lost in the parallel universe of error, inconsistency, feeble-mindedness, and aberration.

Bill Mitchell is wrong in believing that MMT is on the right track.

MMT is caught in the PsySoc trap by maintaining that economics is about human behavior. The crucial point is that economics deals not primarily with individual human behavior or society at large.#1 This is the realm of psychology, sociology, anthropology, history, political science, social philosophy, biology/Darwinism/evolution theory, etcetera.

The first point to realize is that economics is about the behavior of the economic system. Economics is NOT a social science but a systems science.

The second point to realize is that all variants of Keynesianism suffer from methodological self-delusion. Davidson maintains: “Post Keynesian models are designed specifically to deal with real-world problems.” And Mitchell adds: “In this tradition, MMT ... is not an imaginary approach that deals with imaginary problems. It is about the real world and starts with some basic macroeconomic principles like ― spending equals income.” (See post)

Time to wake up to the fact that this ‘principle’ is provably false since Keynes applied it in the General Theory (2011). Because of this, the whole analytical superstructure of Keynesianism, Post Keynesianism, and MMT breaks apart. From this follows that policy guidance with regard to monetary and fiscal policy has no sound scientific foundations.

What Keynes and After-Keynesians never understood is profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al., 2010)

Because Keynesians/MMTers do not understand profit they do not understand what deficit spending really means: “When government is added to the pure consumption economy then it holds under the condition of zero investment of the business sector and zero saving of the household sector Qm=G−T, that is, the overall monetary profit of the business sector is positive if the government sector runs a deficit and negative if the government sector runs a surplus.”#2 In simple terms: Public Deficit = Private Profit.

Whatever Keynesians/MMTers argue about deficit spending is irrelevant. Because they do not understand the elementary economic relationship between deficit and profit, they de facto initiated the greatest profit boost in the history of humankind. The actual distributional problems are ultimately the handiwork of Keynes/Keynesians/MMTers.#3

The self-delusion of MMTers consists of the fact that they complain about the wedge between real wage and productivity and a perverse distribution of income/wealth while the fact of the matter is that all these phenomena are the direct result of massive public deficit spending, which they propagate.

With regard to economic policy. MMT is not part of the solution but part of the problem.

Egmont Kakarot-Handtke

Kakarot-Handtke, E. (2011). Why Post Keynesianism is Not Yet a Science. SSRN Working Paper Series, 1966438: 1–20. URL
Tómasson, G., and Bezemer, D. J. (2010). What is the Source of Profit and Interest? A Classical Conundrum Reconsidered. MPRA Paper, 20557: 1–34. URL

#1 Economics is NOT a science of behavior
#2 Wikipedia and the promotion of economists’ idiotism
#3 Keynesianism as ultimate profit machine

REPLY to Calgacus on Dec 7

You are caught in a loop and merely repeat yourself: “As I have said, you don’t seem to be too familiar with MMT, in particular with its foundations, which you misidentify.”

In my post, I quoted Mitchell verbatim: ”And Mitchell adds: ‘In this tradition, MMT ... is not an imaginary approach that deals with imaginary problems. It is about the real world and starts with some basic macroeconomic principles like ― spending equals income.’”

For everyone who can read, “spending equals income” is the foundation = basic macroeconomic principle of MMT.

It is pretty obvious that you cannot read, are not familiar with the foundations of MMT, and have severe troubles with elementary logic.

I have given the formal refutation of “spending equals income” elsewhere. Just follow the references.

In sum: Keynes, Post Keynesians like Kalecki, Davidson, Minsky etcetera,#1 all After-Keynesians except Allais, MMTers, and, of course, Calgacus are scientifically incompetent. And this explains why economics is a failed science.

This is not news, Napoleon realized it long ago: “Late in life, moreover, he claimed that he had always believed that if an empire were made of granite the ideas of economists if listened to, would suffice to reduce it to dust.” (Viner)

#1 Heterodoxy, too, is scientific garbage

REPLY to Calgacus on Dec 9

You have serious troubles with logic. You argue: “If I have a store and you spend a dollar there, is this spending of yours equal to this income of mine?”

NO. If I spend one dollar on a product that costs you 5 dollars you make a loss of four dollars. Loss is NOT income, profit is NOT income, only distributed profit is income. Economists in their hereditary stupidity have not figured this out in the last 200 years and this includes MMT and Calgacus.

The rest of your post is as crappy as your “refutation”.

REPLY to Calgacus on Dec 10

When you tell me the sun goes up then I can readily agree to this trivial factual statement. This, though, is NOT the point at issue, because the point at issue is that your underlying theory of the movements of sun and earth is false. In other words, your problem is that you are a flat-earther.

Likewise, when you tell me that if you give me a dollar I have one dollar more in my pocket and you have one less. This is not trivial, this is brain dead. What is at issue in economics is the definition of the foundational concepts of income and profit.

If you give a beggar a dollar this is neither income nor profit but a transfer. An economist should know the difference between these concepts.

Again: For the economy as a whole (= macro) the statement spending equals income is FALSE.#1 This is the point at issue and NOT your silly one-dollar micro-story.

Flat-earthers/commonsensers/imbeciles are a problem in all sciences but particularly in economics and John Stuart Mill said already all there is to say: “People fancied they saw the sun rise and set, the stars revolve in circles round the pole. We now know that they saw no such thing; what they really saw was a set of appearances, equally reconcileable with the theory they held and with a totally different one. It seems strange that such an instance as this, ... , should not have opened the eyes of the bigots of common sense, and inspired them with a more modest distrust of the competency of mere ignorance to judge the conclusions of cultivated thought.”

Needless to emphasize that the bigots of common sense did not grasp that what Mill told them was the polite version of Piss off!

One outstanding characteristic of the bigots of common sense is to maintain that definitions are more or less arbitrary.#2 This, of course, is NOT the case as scientists are well aware of. Economics, though, is NOT science but what Feynman famously called cargo cult science.

You give me the advice to “focus on areas of agreement and then build on that.” Note that there is NO area of agreement between a false and a true theory. Falsified theories are simply thrown into the wastebasket.#3 This applies to MMT.

You ask me now: “So what do you think money is?” Above you said: “I have not looked at your stuff”. It seems that your attention span is that of a fruit fly. The point at issue is that the formal foundations of MMT are defective and NOT the entirely different issue what money is.#4

I said above that economists in their hereditary stupidity have not figured out the difference between profit and income in the last 200+ years.

I should have added “with the honorable exception of Allais.”#5 But this addition does not save economists from scientific hell because it proves that the intellectual Lumpenproletariat is not only unable to solve fundamental conceptual problems but does not even see the solution when it is written in an unassailable formula on the blackboard before their eyes.

The fact of the matter is (i) that Keynesianism/Post Keynesianism/MMT is based upon a set of foundational concepts that is PROVABLE false, and (ii), that the bigots of common sense have not realized this in the past 80 years.

The urgent problem of economics is how to get rid of the intellectual Lumpenproletariat/ bigots of common sense/throng of superfluous economists and, last but not least, Calgacus.

Egmont Kakarot-Handtke

#1 How the Intelligent Non-Economist Can Refute Every Economist Hands Down
#2 Humpty Dumpty is back again
#3 Methodology 101, economic filibuster, and the mother of all excuses
#4 Reconstructing the Quantity Theory (I)
#5 How Keynes got macro wrong and Allais got it right

REPLY to Calgacus on Dec 11

You say: “MMTers disagree with you about what the foundations of MMT are. What you are calling ‘the formal foundations’ is not as important as you think. The definition of money is what is important to the MMTers.”

You are wrong and it is easy to prove. Go to the top of this page to the section labeled Links and then click MMT Primer.#1 You get the TOC of Randy Wray’s book Modern Money Theory and, lo and behold, after the Introduction the next heading reads The Basics of Macro Accounting.

And this is EXACTLY the topic of this thread. And here is the bottom line: The formal foundations = basics of macro accounting of MMT are PROVABLY false.

Your attempt to draw attention away from the pivotal point is ridiculous. Yes, MMTers have written about many other things but this is IRRELEVANT. Because when the formal foundations are false the rest of the argument is scientifically WORTHLESS although it may contain many commonsensical truths to which everybody can readily agree.

This applies also to Keynes who messed up the formal foundations of Keynesianism in a two-liner on page 63 of the General Theory.#2 This two-liner invalidates Keynesianism to this day.

Note that ALL false theories in the history of science have been very commonsensical, which, by the way, is the secret of their persistence. This starts with Aristotle’s theory of motion which is more commonsensical than Newton’s theory. Every bigot of common sense can immediately refute Newton’s First Law which states “an object either remains at rest or continues to move at a constant velocity” and corroborate Aristotle, who said that an object seeks its natural place of rest, by simply throwing a stone.

A theory can NEVER be judged by its commonsensical or ‘realistic’ elements. A theory is judged by the criteria of material and formal consistency. MMT is formally inconsistent.

Everybody can check the proof. This is how science works. Everybody who does their scientific homework agrees that the formal foundations of Keynesianism/Post Keynesianism/MMT are inconsistent. That MMTers do not agree shows only that they are incompetent scientists.

Or, as James Kwak put it on another occasion: “Economism is a logical fallacy ... Intelligent economists know this. Those who don’t realize it are unintelligent. So take your pick between liar and moron.” Or, even better, take both.

#1 MMT Primer
#2 What Keynes really meant but could not really prove


Macroeconomics for dummies on Dec 12
Comment on heteconomist on ‘Short & Simple ― Total Spending Equals Total Income’