Blog-Reference and Blog-Reference
MMT claims to be a new paradigm. It is NOT. A paradigm is defined by its foundational propositions and Paradigm Shift means, in methodological terms, to change the axiomatic foundations. Applied to economics, this requires throwing the provably false Walrasian microfoundations and the false Keynesian macrofoundations out of the window and replacing them with an entirely new axiom set.
MMT is NOT a new paradigm because it merely recombines Walrasian and Keynesian axioms that are known to be false.
(1) Walrasian Orthodoxy is defined by these axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)
The Walrasian hardcore contains three NONENTITIES ― HC2, HC4, HC5. To take equilibrium into the premises and then to establish the properties of general equilibrium is a methodological blunder that is known since antiquity as petitio principii.#1
Because equilibrium is a NONENTITY, all equilibrium models fly out of the window ― including MMT. There is NO such thing as a macroeconomic equilibrium.
(2) Keynesianism, too, is built upon false premises. The formal core of the General Theory is given with: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)
Keynes’ lethal blunder is in the premise Income = value of output. The same blunder reappears in the textbooks since 1948: “GDP, or gross domestic product, can be measured in two different ways: (1) as the flow of final products, or (2) as the total costs or earnings of inputs producing output. Because profit is a residual, both approaches will yield exactly the same total GDP.” (Samuelson et al.) And finally, this blunder reappears in MMT: “Total Output = Total Spending.”#2, #3
Because the premises of MMT are false the WHOLE analytical superstructure is false, which means that MMT policy guidance has no sound scientific foundations. The proponents of MMT ― Cooper, Hickey, Mosler, Wray, Mitchell, Fullwiler, Kelton, Forstater, and so on ― are scientifically incompetent. MMT is soapbox economics.#4
#1 'There is NO such thing as supply-demand-equilibrium' and 'Essentials of Constructive Heterodoxy: The Market' and 'Ground Control to David Glasner' and 'Petitio principii — economists’ biggest methodological mistake' and 'Why you should NEVER use supply-demand-equilibrium' and 'Traditional Heterodoxy’s paradigmatic impotence' and 'All models are false because all economists are stupid' and 'The Law of Supply and Demand: Here It Is Finally' and 'How to Get Rid of Supply-Demand-Equilibrium
#2 Peter Cooper, Short & Simple 17
#3 For the full-spectrum refutation of MMT see cross-references MMT
#4 MMT is NOT an alternative to neoliberalism
Related 'Economics: a hereditary mental disease with scientific incompetence as father and political fraud as mother' and '10 steps to leave cargo cult economics behind for good' and 'The profit effect of a Job Guarantee' and 'Down with idiocy!'.
The topic of this thread is NOT scarcity or surplus or subsistence. Peter Cooper presents in Short & Simple 17 two vital elements of the MMT approach: macroeconomic equilibrium and the national accounting identity Y=C+I+G+X–M.
The proof has been given
(i) that equilibrium is a NONENTITY, that is, there is NO such thing as a microeconomic or macroeconomic equilibrium.#1 ALL equilibrium models are false.
(ii) that the national accounting identity is false.#2
Key insight: the MMT approach is proto-scientific garbage.#3
#1 There is NO such thing as supply-demand-equilibrium
#2 A tale of three accountants
#3 Cross-references Refutation of MMT
You say: “If there is truly a general surplus then prices should fall across the board to an equilibrium level where all resources are employed and there is no longer a surplus.”
These are the old delusional slogans from Econ 101 and they demonstrate an utter lack of understanding of how the economy and the labor market in particular works.
The elementary version of the correct (objective, systemic, behavior-free, macrofounded) Employment Law is shown on Wikimedia AXEC62:
(i) An increase in the expenditure ratio ρE leads to higher employment L (the Greek letter ρ stands for ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase in the factor cost ratio ρF≡W/PR leads to higher employment.
Item (i) and (ii) cover the familiar arguments about aggregate demand. The factor cost ratio ρF as defined in (iii) embodies the price mechanism. It works such that overall employment L INCREASES if the average wage rate W INCREASES relative to average price P and productivity R and vice versa.#1, #2
Your statement “prices should fall across the board to an equilibrium level where all resources are employed” is Neanderthal economics. Just the opposite holds for the aggregate labor market. And, by the way, there is NO such thing as a microeconomic or macroeconomic equilibrium in economics. Equilibrium is a NONENTITY.
#1 For details see cross-references Employment/Phillips Curve
#2 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster