Blog-Reference and Blog-Reference
There is the political sphere and there is the scientific sphere. It is quite obvious that both are fundamentally different and because of this, it is of utmost importance to radically separate the two. The mixing of the two has been the crippling defect of economics since the founding fathers propagated Political Economy.
The goal of political economics is to successfully push an agenda, the goal of theoretical economics (= science) is to successfully explain how the actual economy works. In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.
The fact is that the political agenda pushers have hijacked economics and messed it up. Political economics has produced nothing of scientific value in the last 200+ years.
MMT, too, violates the first rule of science, i.e., the strict separation of politics and science. This rule is known since J. S. Mill: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.”
Needless to emphasize that all economic schools violate this rule and are in the business of agenda-pushing. This is why economics is a failed science or what Feynman called a cargo cult science.
So, it is not the question of whether what Mitchell/Fazi say about sovereignty and the role of the nation-state is convincing or not. The point is that all questions about the realization of the Good Society have to be discussed and decided in the political sphere. When economists start to talk about liberty and democracy and liberalism and free markets and state intervention and the road to serfdom/freedom they are exceeding their scientific authority and become clowns in the political Circus Maximus.
The really bad fact of the matter is that economists should be able to tell how the actual economy works, yet they are not. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/ formally inconsistent and ALL got the foundational concept of the subject matter ― profit ― wrong. MMT is no exception.
MMT claims on Wikipedia: “Therefore, budget deficits add net financial assets to the private sector; whereas budget surpluses remove financial assets from the private sector. This is widely represented in macroeconomic theory by the national income identity: G−T=S−I−NX where G is government spending, T is tax, S is savings, I is investment and NX is net exports.”#1
For G, T, NX = 0 this equation boils down to Keynes’ famous I=S. The remarkable fact is that neither MMT’s national income identity nor Keynes’ basic formalism says anything about the pivotal economic magnitude profit.#2 It should be obvious that a model/theory which does not explicitly contain the variable profit is a priori false. After all, the concept of profit is for economics what the concept of energy is for physics. So, there is no need at all to occupy oneself with the rest of the theoretical superstructure of MMT. The fundamental methodological rule says if there is an inconsistency in the premises/axioms the whole theory is scientifically worthless.
The axiomatically correct balances equation reads Qm≡G−T+I−S+NX with Qm as monetary profit. And from it follows directly Public Deficit = Private Profit. The preferred policy measure of MMT, i.e. deficit spending, is in effect a profit booster program.
Exactly at this point, political agenda pushing sets in. MMT never talks about the profit of the business sector but says “budget deficits add net financial assets to the private sector” suggesting that private sector = household sector = ninety-nine percenters.#3 In fact private sector = business sector = one-percenters.
With the argument that deficit spending in the form of a Job Guarantee or other social benefits “add net financial assets to the private sector” MMT tries to sell its policy to socialist movements like Sanders/Corbyn.
MMT is NOT a new economic paradigm but political agenda pushing for the one-percenters in a social bluff package.#4 This holds for all of economics: when profit is false the whole theoretical superstructure is false and economic policy guidance has NO sound scientific foundations. MMT is political economics = proto-scientific garbage.
#1 Wikipedia Modern Monetary Theory
#2 How Keynes got macro wrong and Allais got it right
#3 MMT and the magical profit disappearance
#4 For the full-spectrum refutation of MMT see cross-references MMT