February 10, 2018

MMT: miscommunication, mistakes, misdirection

Comment on T Sabri Öncü’s ‘Miscommunicated Monetary Theory’


The problem of MMT is NOT that is miscommunicated but that it is positively false, i.e. a materially/formally inconsistent theory.

For the full-spectrum refutation see cross-references MMT.

MMT is promoted/communicated by the very nice people of Warren Mosler’s sales team who, as a matter of fact, are as incompetent as can be. MMT has NO scientific merits whatsoever, it is just brain-dead political sloganeering.

Egmont Kakarot-Handtke


Wikimedia AXEC131

COMMENT on Tom Hickey on Feb 11

You say “’Money’ can serve as a higher order abstraction rather than only a metaphor or figure of speech. The use of higher-order abstraction is a serious problem in econ owing to ‘terminological inexactitude.’ Many so-called experts cannot deconstruct this level of abstraction properly, but the MMT economists have regarding ‘money’.”

You claim that MMT is particularly good at higher-order abstraction. Warren Mosler, though, told us just the opposite, viz. that the strong point of MMT is superior operational knowledge “So, how am I uniquely qualified to be promoting these proposals? My confidence comes from 40 years’ experience in the financial and economic realm. I would venture that I’m perhaps the only person who can answer the question: ‘How are you going to pay for it?’ My book takes on this issue and encourages the return of economics study to the operational realities of our monetary system.”#1

The fact is that MMT suffers from schizophrenia and the Fallacy of Insufficient Abstraction. The operational details of money creation/destruction can be gleaned from the PR brochures of the FED or any other central bank. Monetary theory, on the other hand, abstracts from the operational details and gives a functional account of money as a part of what Keynes called the “monetary theory of production.” In other words, the theory of money has to be developed in the space of a GENERAL macroeconomic framework.

MMT applies the Keynesian framework. Unfortunately, MMTers have not realized that Keynes is the poster boy for the Fallacy of Insufficient Abstraction. Keynes messed macro up.#2 MMT is based on the Keynesian balances equation which is provably false. As a consequence, the whole analytical superstructure of MMT is false, i.e. scientifically worthless. Correct operational descriptions cannot compensate for mistakes of higher-order abstraction.

The problem of MMT is NOT that its operational descriptions are false or miscommunicated but (i) that it is based on false macroeconomic premises, and (ii), that it suffers from debilitating ‘terminological inexactitude’ with regard to the foundational concepts of profit, income, sectoral balances etcetera.#3, #4

#1 Seven Deadly Innocent Frauds of Economic Policy, p. 12
#2 How Keynes got macro wrong and Allais got it right
#3 See for example Bill Mitchell
#4 See for example Stephanie Kelton

COMMENT on Tom Hickey on Feb 11

You are lost in irrelevant operational details. For the axiomatically correct approach see Fixing the loanable funds blunder.

REPLY to Calgacus on Feb 11

You claim “As I have said, before, I don’t think you understand MMT ― you are focusing on irrelevant operational & other details and mistakenly call them ‘foundations’ and dismissing and ignoring the genuine foundations.
‘MMT is based on the Keynesian balances equation’
No. It. Isn’t.”

Yes, it is.

(i) Go to the head of this blog, look up the section Links, click Modern Monetary Theory-Wikipedia, go to the section Vertical Transactions, read “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 taxes, S is savings, I is investment and NX is net exports.”

(ii) Go to Google Images. Look intensively at this picture, focus first on the sectoral balances formula, then take notice of the MMT actors.

Conclusion: The sectoral balances equation is tattooed on the forehead of every MMTer. It is provably false. Because of this, the rest of MMT is false. For a pertinent example see again Wikimedia 

There is NO miscommunication of MMT. The whole is genuine proto-scientific garbage.

REPLY to Six on Feb 12

You say “The sectoral balances equation is not provably false and is not tattooed on anyone’s forehead.”

Warren Mosler, a founder of MMT, says “Deadly Innocent Fraud No.3: Federal Government budget deficits take away savings. Fact: Federal Government budget deficits ADD to savings.” Or “Any $U.S. government deficit exactly EQUALS the total net increase in the holdings ($U.S. financial assets) of the rest of us ― businesses and households, residents and non residents ― what is called the ‘non government’ sector. In other words, government deficits equal increased ‘monetary savings’ for the rest of us, to the penny. Simply put, government deficits ADD to our savings (to the penny). This is an accounting fact, not theory or philosophy. There is no dispute. It is basic national income accounting.”

This “accounting fact” is no fact at all because you and the founding fathers/mothers of MMT and the rest of the MMT crowd are too stupid for the elementary mathematics of macroeconomic accounting.

You claim that what is presented on Wikipedia and all over the econblogosphere by the spokespersons of MMT is actually not MMT but you cannot tell what the foundational propositions of MMT are.

Note that proposing better healthcare, education, full employment, etc is NOT economics but politics and that the insight that the state can pay for everything by printing/creating money is NOT exactly new “Adam Smith, when he wrote his Wealth of Nations, and Burke, when he produced his famous speech on economic reform, understood by political economy a branch of the science of the statesman or legislator, a theory of practice, the science of the prudent management of the public finances. The growth of the huge debts which weighed on the great military nations would end in proving their ruin. This was especially true of England, which had become immensely in debt through the conquest of her colonial Empire.” (Halévy)

The only thing that is new with MMT is to justify deficit spending, which had worked so fine for centuries in the military realm, for the social realm, and to conceal the accounting fact that Public Deficit = Private Profit, no matter what the printed money is spent on.

The mission of MMT is to lobotomize the general public (Debt Does Not Matter) by promising social goodies. MMT is NOT economics and NOT a scientifically valid theory but a marketing relaunch of the age-old policy of stealth taxation/profit-boosting.#1, #2

#1 Keynes, Lerner, MMT, Trump and exploding profit
#2 MMT, money creation, stealth taxation, and redistribution

Related 'Economics: a comedy of errors full of intrigue and aberration'.

REPLY to Six on Feb 12

You say “’the accounting fact that Public Deficit = Private Profit ...’ This is not some great new revelation, by the way. I studied it in the 80s and it was old news at the time.”

I wonder why you have not told this Warren Mosler, Stephanie Kelton, Bill Mitchell, Tom Hickey, Calgacus, and the rest. They still suffer from the hallucination that Public Deficit = Saving of the private/non-government sector: “Simply put, government deficits ADD to our savings (to the penny). This is an accounting fact, not theory or philosophy. There is no dispute. It is basic national income accounting.” (Mosler)#1

It seems that the old news of the 80s has not yet reached the MMTers. These dull folks are 40+ years behind the curve.

#1 See also Mitchell