February 12, 2018

Economics: a comedy of errors full of intrigue and aberration

Comment on Paul Krugman on ‘Fraudulence of the Fiscal Hawks’

Blog-Reference and Blog-Reference

Paul Krugman tells the story that people like to hear: “There have been many ‘news analysis’ pieces asking why Republicans have changed their views on deficit spending. But let’s be serious: Their views haven’t changed at all. They never really cared about debt and deficits; it was a fraud all along. ... However, pretending to care about the deficit served several useful political purposes. It was a way to push for cuts in social programs. It was also a way to hobble Obama’s presidency.”

Paul Krugman tells the old story of sneaky/corrupt politicians and effectively distracts from the incompetence/corruption of political economists.

The essential point about deficit spending/public debt is this: the axiomatically correct macroeconomic Profit Law is given as Q≡Yd+(I−S)+(G−T)+(X−M) which reduces to Q=G−T for Yd, I, S, X, M=0. The simplified macroeconomic profit equation says that the profit of the business sector Q is equal to the deficit G−T of the public sector. It holds Public Deficit = Private Profit.

So, from the standpoint of simple self-interest, the one-percenters and their useful academic/journalistic spokespersons should argue FOR deficit spending, and the ninety-nine-percenters and their academic/journalistic spokespersons should argue AGAINST it. Curiously, just the OPPOSITE happens. So, either economists are stupid and do not know how the economy works or they are complicit in a communicative charade.

“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

Economists lack true theory. The four main approaches ― Walrasianism, Keynesianism, Marxianism, and Austrianism ― are mutually contradictory, axiomatically false, materially/ formally inconsistent and all got the pivotal economic concept of profit wrong. Because economists do not have the true profit theory their economic policy guidance lacks sound scientific foundations. Worse, their public policy proposals are in effect counter-productive for the social groups they claim to speak for. It is sheer political schizophrenia that nobody has done more for the one-percenters than the left-wing/liberal/progressive enthusiasts of deficit spending who claim to promote the cause of the ninety-nine-percenters.#1

There is not much use to speculate about the true motives of the loudspeakers in the political Circus Maximus. The fact of the matter is that ― because Public Deficit = Private Profit ― the one-percenters have achieved their goal hands down by simply letting scientifically incompetent spokespersons of the ninety-nine-percenters like Paul Krugman or Stephanie Kelton brilliantly perform their roles as communicatively useful idiots.

Egmont Kakarot-Handtke

#1 Keynes, Lerner, MMT, Trump and exploding profit

Related 'The economist as stand-up comedian' and 'The real problem with the economics Nobel' and 'Economics: a hereditary mental disease with scientific incompetence as father and political fraud as mother' and 'Economists: The Trumps of science' and 'Econblogosphere: The flawed Top 101' and 'MMT: miscommunication, mistakes, misdirection'. For details of the big picture see cross-references Failed/Fake scientists.

REPLY to SDB on Feb 13

You ask “How exactly would lower deficit spending, or no deficit spending, or a deficit surplus, be in the interest of the 99%ers? Aren't profitable businesses the ones doing the employing of the 99%ers? Wouldn't starving the business sector of profits cause a recession and therefore cause unemployment to increase? ”

There are two issues here. Note first of all that proposing better healthcare, education, full employment etcetera is NOT economics but politics. MMT presents itself as a beneficial social movement. But MMT also claims to be an economic theory that explains how the monetary economy works.

My argument is NOT that the social goals are wrong but that MMT does not satisfy the scientific criteria of material/formal consistency. More specifically, because MMT’s foundational balances equation is false the whole analytical superstructure is false, which in turn means that MMT policy guidance has NO sound scientific foundations.

As a consequence, popular MMT slogans like The Debt Doesn’t Matter are false and misleading. Deficit spending has huge distributional effects.

There are many other social movements that argue for higher spending on healthcare or education. But when asked how to pay for it they answer cut military spending or raise taxes. The unique selling proposition of MMT is to run a deficit and print money.

This is the crucial point. Why? Because with increased deficit spending the household sector is taxed in real terms without noticing it and the business sector’s profit increases because the axiomatically correct economic theory tells us that Public Deficit = Private Profit.

For the household sector = ninety-nine-percenters, deficit spending is in real terms NOT superior to taxation but for the business sector it is indeed.#1 Conclusion: MMT is a social bluff package that ultimately benefits the one-percenters.

Right policy depends on true theory. MMT is NOT the true theory but is refuted on all counts.#2 MMT is soapbox economics.

The obvious problem is that the average person can only determine whether she likes/dislikes the proposal of a party/movement but not whether the underlying economic theory is true/false.#2 Fact is that deficit spending is the most idiotic measure to attain social objectives. To be sure, that is NOT to say that the objectives are wrong.

Mr. Trump is executing the MMT policy and this should give everyone pause to wonder what MMT is all about.

#1 MMT, money creation, stealth taxation, and redistribution
#2 For the full-spectrum refutation see cross-references MMT

REPLY to SDB on Feb 14

You ask “‘Because with increased deficit spending the household sector is taxed in real terms without noticing it...’ How? By way of inflation?”

I have answered this question already and given the link above.#1 No, real taxation is NOT by inflation but by an imperceptible one-off price hike. Inflation is the big red herring.#2, #3 The disastrous effect of growing public debt is NOT on inflation but on the distribution of income and wealth.

You say “Seems that you may be assuming a full-employment economy when you state without qualification that deficit spending taxes the household sector in real terms.”

No, I don’t. For the axiomatically correct employment theory see #4.

You say “Let’s set aside your beef with Macroeconomic theory.”

No. Right policy depends on true theory. MMT is NOT the true theory but is refuted on ALL counts. The blogging MMT imbeciles (Ralph Musgrave, Matt Franko, MRW, Brian Romanchuk, Calgacus, Tom Hickey, etcetera) have known this very well since October 2016.#5 And the MMT spokespersons know it, too.#6

Make no mistake, to propagate a false and definitively refuted theory is scientific fraud. And to promise social goodies that are paid for in real terms by stealth taxation of the ninety-nine percenters while boosting profit through deficit spending is a political fraud.

#1 MMT, money creation, stealth taxation, and redistribution
#2 Gov-Deficits do NOT cause inflation
#3 How some MMTers got inflation wrong
#4 Full employment through the price mechanism
#5 The final implosion of MMT
#6 Cryptoeconomics ― the best of Bill Mitchell’s spam folder