Keynes, Lerner, MMT, Trump, Biden, and exploding profit

Comment on Lars Syll’s ‘If only Trump had read Abba Lerner!’

Blog-Reference and Blog-Reference Dec 23

Lars Syll quotes Abba Lerner approvingly: “The first financial responsibility of the government (since nobody else can undertake that responsibility) is to keep the total rate of spending in the country on goods and services neither greater nor less than that rate which at the current prices would buy all the goods that it is possible to produce. If total spending is allowed to go above this there will be inflation, and if it is allowed to go below this there will be unemployment. The government can increase total spending by spending more itself or by reducing taxes so that taxpayers have more money left to spend. It can reduce total spending by spending less itself or by raising taxes so that taxpayers have less money left to spend …”

There are several errors/mistakes/blunders in this argument but the key point is that there is no such thing as the suggested symmetry of budget deficits and surpluses such that both cancel out over a reasonable time span. If this were the case nobody would worry about public deficits. But this, obviously, does not happen, public debt increases incessantly and this, not deficits per se, makes people think that there must be something fundamentally wrong with the economy and with economics. And they are right.

Roughly speaking, the growing public debt has not eliminated unemployment and not increased inflation but has caused the explosion of profits and huge changes in the distribution of income and financial wealth. No surprise, then, that Mr. Trump is an enthusiastic proponent of deficit-spending/money-creation.#1 More surprising is perhaps that the one-percenter Trump and the champions of the ninety-nine-percenters Keynes/Lerner/MMT are on the same page. The explanation for this weird coincidence is that Mr. Trump’s instinctive grasp of profit is better than that of economists.#2

In order to fully appreciate the proto-scientific state of both orthodox and heterodox economics, one needs the axiomatically correct theory. Because economics is a failed science it has to be reconstructed from scratch.

As the new analytical starting point, the elementary production-consumption economy is defined with this set of macroeconomic axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Y_w=WL wage income Y_w 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=Y_w in each period, the price is given by P=W/R, i.e. the market-clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. For the graphical representation see Wikimedia.#3

The price is determined by the wage rate, which takes the role of the nominal numéraire, and productivity.

Monetary profit for the economy as a whole is defined as Q_m≡C−Y_w and monetary saving as S_m≡Y_w−C. It always holds Q_m≡−S_m, in other words, the business sector’s profit (loss) equals the household sector’s dissaving (saving). This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing, total monetary profit is zero.

So that profit comes into the world, the household sector must run a deficit. This means, first of all, that profit for the economy as a whole has NOTHING to do with productivity, exploitation, risk-taking, innovation, monopoly power, etcetera. The familiar profit theories are nothing but an embarrassing Fallacy of Composition.

The axiomatically correct Profit Law is given for the general case as Q_m≡Y_d+(I−S_m)+(G−T)+(X−M). Legend: Q_m total monetary profit, Y_d distributed profit, I investment expenditures, S_m monetary saving, G government expenditures (consumptive), T taxes, X exports, M imports. Neither Walrasians, Keynesians, Marxians, nor Austrians got profit right until this very day. This is why economics is a failed science.

From the general macroeconomic Profit Law follows Q_m=G−T if Y_d, I, S_m, X, M = 0, that is, Public Deficit = Private Profit.

From false economic theory follows false economic policy. What Keynes,#4 Lerner, MMT,#5, and the other proponents of public (and private) deficit spending have in effect achieved ― whether intentionally or unintentionally does not matter ― is the profit explosion of the last decades. It is absurd that scientifically incompetent economists see themselves, or at least present themselves, as Friends-of-the-People.#6 Nothing could be farther away from fact or truth.

Egmont Kakarot-Handtke


#1 Source

Source: Twitter

#2 Austerity and the idiocy of political economists
#3 Wikimedia AXEC31 Elementary production-consumption economy

#4 Keynesianism as ultimate profit machine
#5 MMT: The one deadly error/fraud of Warren Mosler
#6 MMT is ALWAYS a bad deal for the 99-percenters

Related 'The true nature of economists' confusion' and 'Debt and other unsolved economic problems' and 'The biggest scientific mistake of the last centuries, and it has much to do with academic economists' and 'Links on Austerity' and 'From austerity talk into deficit overdrive' and 'Inequality, wage and profit' and 'The memorable Kelton/Trump victory against WeThePeople' and 'Cross-references Refutation of I=S'.

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REPLY to Matt Franko, Tom Hickey, Kaivey, Greg, Calgacus on Dec 25

Public Deficit = Private Profit. This is what the axiomatically correct Profit Law tells us. It is known that neither Keynes, Lerner, Mosler nor the rest of MMTers ever understood how the profit- and price mechanism works. So, this bunch of retards who call themselves economists and propagate deficit-spending as the cure-all in effect pushes the agenda of the one-percenters and is responsible for the observable skewed distribution of income and wealth.

It is a nice try to obscure this fact with your silly blather about soap-making and Darwinism and Hitler and Mussolini and Venezuela and Zeitgeist and garbage collection and philosophy and spirituality and so on towards the infinite horizon of endless stupidity.

If you really want to do something to promote Good Society or Science take the remote control and never stop again looking at sitcoms.

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REPLY to Kaivey on Dec 25

You say: “Are you able to write in a few paragraphs, either on your site or here, how your system will redistribute wealth to the poor and solve the problem of the One Percent …” and “I’ve looked at your site and I think you need to write a lay man’s explanation and if it takes more than a few paragraphs, that’s fine.”

Either you cannot read or have not looked at my site. See How the 99 percent can bring overall profit of the 1 percent legally down to zero in 2017

Your post convinces me that it would indeed be best for folks like you to take the remote control and never stop again looking at sitcoms.

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REPLY to Kaivey on Dec 26

You ask rhetorically: “Do we really want the most cold scientific economic system for mankind, which would produce the most inhumane working system ever?”

No, for heaven's sake, “we” want Stephanie Kelton’s Job Guarantee Program which is composed of Care for the Environment, Care for the Community, Care for the People.#1

Is Stephanie Kelton a politician who wants our votes? No, she is an economist. That’s excellent because I don’t trust politicians. She certainly has a plan on how to finance the program? Yes, she is an MMT economist and says that the program is paid for by a government deficit financed by central bank money creation.

What kind of economics is this? Has she never heard of the Profit Law, i.e. Public Deficit = Private Profit, or stealth taxation?#2

No, she shows a graphic that proves that a government sector deficit increases the net financial wealth of the non-government sector and assures that we are all better off.#3

Genial.

Yes, except for the fact that the sectoral balances have been tampered with.#4 Government deficits increase the net financial wealth of the business sector and not of We-the-people.#5

This cannot be, Stephanie Kelton cares for the people and not for the one-percenters.

Of course, she does, she is only an abysmally incompetent economist.

Perhaps, but she cares for the environment, the community, and the people, and you care only for science.

This is what an economist is supposed to do: “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.” (J. S. Mill)

MMTers are not scientists but political agenda pushers.#6


#1Twitter

#2 MMT, money creation, stealth taxation, and redistribution
#3 MMT: The one deadly error/fraud of Warren Mosler
#4 MMT and the magical profit disappearance
#5 The profit effect of a Job Guarantee
#6 MMT and the promotion of Wall Street's idea of social policy

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Twitter Sep 26 and evonomics Keynes Was Really a Conservative

Twitter Oct 26, 2021 Mr. Biden and what "the market" wants

Twitter/X Dec 30, 2023