March 31, 2018

The Supreme Being handed over these Twelve Economics Commandments

Comment on Barkley Rosser on 'Anniversary of Yeshua bin Yusuf dying on a cross'

Blog-Reference

The Supreme Being ― which is by logical necessity absolutely indifferent with regard to galaxy, planet, gender, age, race, nation, religion/sect, party, tax bracket ― spoke out of the clouds and handed over these Twelve Economics Commandments:

1. Never cite the Bible or other religious texts in an economic argument.

2. Maintain the strict separation of science and religion under all circumstances.

3. Maintain the strict separation of science and politics under all circumstances.#1

4. Do not dabble in Psychology, Sociology, Anthropology, History, Political Science, Philosophy, Theology, Social Philosophy, or any other of the so-called social sciences.

5. Do not believe: prove.

6. Figure out how the actual economic system works and communicate your results in the format of a materially/formally consistent theory.

7. Absolutely refrain from storytelling, metaphors, analogies, narratives, gossip, insinuation, filibuster, sermonizing, propaganda, foretelling, disinformation, and other rhetorical means.

8. Do not apply Methodological Individualism/microfoundations/partial analysis.#2

9. Do not moralize, the subject matter of economics is IS not OUGHT. How the Good Society can be realized has to be determined in the political sphere by the Legitimate Sovereign. See 3.

10. Be, first of all, aware that there are knowledge and opinion, science and non-science, scientific standards/ethics and anything-goes, true and false with nothing in-between. The ethics of science is objectivity, i.e. material and formal consistency. The goal of economics is the true theory.

11. Rest assured that those who violate scientific standards/ethics go to hell and will be tortured in all eternity with the senseless blather of Walrasianism, Keynesianism, Marxianism, Austrianism, and Pluralism.#3

12. Make no mistake: alone scientists will go to heaven. As everyone can easily imagine, the Supreme Being will NOT share eternity with morons, imbeciles, political agenda pushers, blatherers, trolls, believers, impostors, the bigots of common sense, and failed/ fake scientists.

Egmont Kakarot-Handtke


#1 The strict separation of the scientific realm and the political realm is necessary because politics always and everywhere corrupts science. This point has been made abundantly clear by 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.” For details see
Throw them out! Orthodox and heterodox economists are unfit for science
#2 If it isn’t macro-axiomatized, it isn’t economics
#3 Economics is not a science, not a religion, but proto-scientific rubbish

***
REPLY to Barkley Rosser on Mar 1

Economics claims since Adam Smith/Karl Marx to be a science. Yet, everybody who has a rough idea of what science is all about and looks closer into the matter comes to the conclusion that economics is a failed science. Economics consists of four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― which are mutually contradictory, axiomatically false, and materially/formally inconsistent.

Economics has to this day produced NOTHING of scientific value. This is the track record: provably false
• profit theory, for 200+ years,
• Walrasian microfoundations (including equilibrium), for 140+ years,
• Keynesian macrofoundations (including I=S/IS-LM), for 80+ years.

Economics needs a Paradigm Shift because the pluralism of false theories is untenable. Heterodoxy is provably false, just as Orthodoxy.#1 Economists do not know to this day how the price- and profit mechanism works. Economic policy guidance has no sound scientific foundation since 200+ years.

Economics is what Feynman called a cargo cult science, economists are failed/fake scientists, the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel is a deception of the public.  Economics is one of the worst cases of failure/fraud in the history of modern science.

Gresham’s Law says that bad money crowds good money out of circulation. Something similar holds for economics which has become over the years the venue of incompetent scientists, agenda pushers, cranks, scammers, and useful political idiots.

Two typical exemplars of this species are Barkley Rosser and Andres. Barkley Rosser does to this day not understand the difference between the foundational concepts profit and income, has busily produced peer-reviewed papers but contributed nothing to the advancement of science, and now spreads idiocy/disinformation on economics blogs.#2 His Yusuf post is a case in point. This self-disqualifying post is a good indicator of the vast proportions the accumulated bullshit has grown into in the last 200+ years of “economic sciences”.*


#For details of the big picture see cross-references Failed/Fake Scientists

*

***
REPLY to Andres on Mar 2

You say: “6. Human beings are irritating creatures. If you make an argument for why they should behave consistently under a given system, they will find some situation to make their behavior inconsistent, if for no other reason than to annoy the economist.”

Obviously, you have not realized that economics is a system science and that there are objective systemic laws. It is long known that there is NO such thing as behavioral laws. Exactly for this reason it is sheer madness to build economics on the behavioral assumption of constrained optimization.

The morons of economics do not know what the scientists in all ages knew: “The bifurcation of motion into two fundamentally different types, one for natural motions of non-living objects and another for acts of human volition ... is obviously related to the issue of free will, and demonstrates the strong tendency of scientists in all ages to exempt human behavior from the natural laws of physics, and to regard motions resulting from human actions as original, in the sense that they need not be attributed to other motions.” (Brown)

For details see

***
REPLY to Andres on Mar 2

It is always a grand spectacle to observe a goldfish brain starting to work and getting into high gear. You just re-discovered behavioral uncertainty: “… we might say that the human factor is the ultimately uncertain and wayward element in social life and in all social institutions.” (Popper, 1960), and change: “Important revolutions have occurred before our time, and since the days of Heraclitus change has been discovered over and over again.” (Popper, 1960)#1

I wonder how long it takes you to discover that the story of “one hapless dude who was nailed to a cross” is fake news since 2000+ years.#2

The true mystery is why the alleged economist Barkley Rosser recycles scientifically long-refuted storytelling on an alleged economics blog. Even goldfishes know by now that the subject matter of economics is the economy and NOTHING else.


#2 YouTube, Richard Carrier

***

REPLY to Barkley Rosser, Andres, ANC Driver on Mar 3

SURGEON GENERAL'S GAGANOMICS WARNING

The continued production of verbal soap bubbles may result in a hazardous lack of oxygen in the brain and in para-scientific hallucinations which inevitably lead via the Yusuf-Syndrome to total mental breakdown and, in addition, cause incurable cognitive disturbances among unsuspecting economics students and explosive vomiting in the scientific community.

March 30, 2018

MMT is dead: An unfriendly critique of Bill Mitchell

Comment on Bill Mitchell on ‘My response to a German critic of MMT ― Part 2’

Blog-Reference and Blog-Reference

Bill Mitchell argues: “The point is that by, initially focusing on and emphasising the intrinsic characteristics of the monetary system, and no other body of work does that, MMT strips way the veil of neo-liberal ideology that mainstream macroeconomists use to restrict government policies. We learn that these constraints are purely voluntary and have no intrinsic status. … MMT thus broadens the understanding of the policy possibilities for those who come into contact with it. It is a body of work that enhances our democracies.”

The task of economics, understood as science, is NOT to enhance our democracies but to enhance our knowledge about how the actual economy works. Economics, though, has lost its scientific mission already with Adam Smith. The Classicals were political agenda pushers and made no secret out of it. To recall, economics started as Political Economy. Economics always tried to become a science but never succeeded because the agenda pushers prevailed. The point when economics began to deceive the general public can be exactly located, it was when the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” was invented.

Bill Mitchell is right with his critique of orthodox economics. And he easily refutes the friendly critique of the political scientist Martin Höpner. Note, first of all, that political science is a euphemism for agenda-pushing in the garb of science. Note, secondly, that genuine scientists keep science and politics strictly apart. Note, thirdly, that politics is the natural habitat of morons. Note finally that science never improves politics but politics always corrupts science.

The political scientist Martin Höpner misses the essence of MMT. MMT is not flawed with regard to the issue of exchange rates, bond yields, monetary/fiscal policy, or inflation but with regard to the issue of distribution.

MMTers got macro badly wrong. To make matters short, the axiomatically correct relationships are given here without further explanation.#1 It holds, with Qm monetary profit/loss, Sm monetary saving/dissaving, I investment expenditures, G government spending, T taxes, X export, M import, Yd distributed profit:
(i) Qm=−Sm in the elementary production-consumption economy,
(ii) Qm=I−Sm in the elementary investment economy,
(iii) Qm=(G−T)+(I−Sm) in the investment economy with government deficit/surplus,
(iv) Qm=Yd+(X−M)+(G−T)+(I−Sm) in the open economy with distributed profit.

From (iv) follows immediately that the foundational MMT balances equation (X−M)+(G−T)+(I−S)=0 is false. Because of this, the whole analytical superstructure of MMT is scientifically worthless.

From (iii) follows that ― given business sector investment I and household sector monetary saving Sm ― Public Deficit = Private Profit. Exactly at this point, Bill Mitchell’s error/fraud happens. He argued elsewhere: “The government deficit is exactly the non-government savings.” No! The mirror image of the government’ deficit is the business sector’s profit.

Public deficit spending, the cure-all of MMT, has been the profit machine of the market economy throughout history.#2 The main effect of MMT policy is on the distribution of income and financial wealth and it is absolutely detrimental to the interests of the ninety-nine-percenters. Clearly, MMT does NOT advance democracy but oligarchy.

Stripped down to the essentials, MMT is a political fraud. And this is what the friendly but stupid political scientist Martin Höpner missed entirely.

Egmont Kakarot-Handtke


#1 Macro for retarded economists
#2 Keynes, Lerner, MMT, Trump and exploding profit

Preceding 'Non-lethal and lethal critique of MMT', following 'MMT vs Neoliberalism: Just another clown show fight'.

Related 'How MMT enlightens Washington'. For the full-spectrum refutation of MMT see cross-references MMT.

March 27, 2018

The curious non-existence of profit in economics

Comment on Brian Romanchuk on “The Curious Household Accounting Of DSGE Models”

Blog-Reference and Blog-Reference

Paul Krugman once put it in a nutshell: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”

Paul Krugman, of course, is an idiot. But he is not the only one, just the opposite, he is the mouthpiece of the stupid majority. To this basket of deplorables belong also Lars Ljungqvist, Thomas Sargent, the rest of DSGEers, Brian Romanchuk, Roger Sparks, Nick Rowe, and the rest of tireless nonsense bloggers.

What unites these folks is scientific incompetence, more specifically, the inability to realize that maximization-and-equilibrium has always been and will always be a methodologically inadmissible starting point. To recall, these are the verbalized neo-Walrasian axioms:
HC1 There exist economic agents.
HC2 Agents have preferences over outcomes.
HC3 Agents independently optimize subject to constraints.
HC4 Choices are made in interrelated markets.
HC5 Agents have full relevant knowledge.
HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states. (Weintraub)

These premises contain three plain NONENTITIES (constrained optimization, rational expectations, equilibrium) and therefore are forever unacceptable. Being incompetent scientists, though, most economists swallowed this inane stuff hook, line and sinker from Jevons/Walras/Menger onward to DSGE.

Every theory/model that contains just one NONENTITY is scientifically worthless.

What has to be realized in addition is that false premises require a pigtail of false auxiliary assumptions. So, in order to be applicable, constrained optimization requires the auxiliary assumption of a production function with decreasing returns. Thus, a silly behavioral assumption determines the physical properties of production in the upside-down world of standard economics.

One auxiliary assumption that is clearly at odds with reality is zero-profit.

“The zero profit attributed to perfect competition does not arise from perfect competition at all, but merely from the assumption that aggregate profit is zero.” (Murad)

“… since it is impossible to have an economy where everyone is making profits. Aggregate profit for an entire (closed) economy must be zero, hence if any firm is making profits, some other firm must be making losses.” (Boland)

“Wherever entrepreneurs make profits … they expand production; wherever they incur losses, production is contracted. In equilibrium, therefore, there are neither profits nor losses. Walras thus created the abstraction of the zero-profit entrepreneur under perfect competition.” (Niehans)

“Profit theory has long been regarded as one of the more unsatisfactory branches of economics. . . . One reason for this is that economists have not asked the right questions about profit.” (Murad)

In fact, economists do not understand since 200+ years what profit is.#1 This includes Walrasians, Keynesians, Marxians, Austrians, Pluralists, DSGEers, MMTers and, last but not least, Brian Romanchuk.

Lars Ljungqvist’s and Thomas Sargent’s DSGE is proto-scientific dreck.* Nobody with more than two brain cells needs three lengthy posts to arrive at this conclusion.

Egmont Kakarot-Handtke


#1 For details see cross-references Profit

***

NOTE on Brian Romanchuk's 'The Curious Notation Of DSGE Models' on Mar 29 and Blog-Reference MNE

You announced a tripartite analysis of an elementary DSGE model and after part 2 you suddenly realize that the notation of DSGE models is “curious”. This tells everyone that you have not understood from the very beginning what you are talking about.

At the end of your second post, I summed up: “Lars Ljungqvist’s and Thomas Sargent’s DSGE is proto-scientific dreck. Nobody with more than two brain cells needs three lengthy posts to arrive at this conclusion.”

Your analysis and critique of DSGE is a pointless exercise. Everybody knows by now that the microfoundations approach is dead. Standard economics is dead. DSGE is dead.

Economics needs a Paradigm Shift because the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are axiomatically false and materially/ formally inconsistent.

Endless recycling of long-dead theories/models is not science.

Economics is what Feynman called a cargo cult science, economists are failed/fake scientists, the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel is a deception of the public.  Economics is one of the worst cases of theory failure in the history of modern science ― and you are part of it.

*

March 26, 2018

Non-lethal and lethal critique of MMT

Comment on Bill Mitchell on ‘My response to a German critic of MMT’

Blog-Reference and Blog-Reference

The friendly critic of MMT is more stupid than friendly because he remains on the surface and never gets to the fundamental error/fraud of MMT. Accordingly, the discussion degenerates immediately into wordplay about to what degree MMT is liberal/statist. This is way beside the point because the question is not political but scientific, that is, whether MMT is true or false, with truth well-defined as material/formal consistency. The rest of the discussion is then wasted on inconclusive blather about flexible exchange rates.

To make matters short, here is the lethal error/fraud of MMT: “‘All considerations of deficits and debts must be made from a balance-theoretic perspective’, which means in the language of MMT that context is everything. A government deficit (surplus) equals dollar-for-dollar a non-government surplus (deficit). This is the ‘balance-theoretic’ that Martin Höpner is referring to. The non-government sector is comprised of the external and private domestic sectors. If the external sector is in deficit and the private domestic sector desires to save overall, then the government sector has to be in deficit and national income changes will ensure that occurs.” (Bill Mitchell)

The blunder of MMT consists in misplaced consolidation, more specifically, the error/fraud lies in the words private domestic sector. There is NO such thing as the “private domestic sector”, there are TWO sectors, the business- and the household sector. And the business sector does NOT save. Saving/dissaving is the balance of the household sector, profit/loss is the balance of the business sector. The pivotal economic phenomenon of macroeconomic profit, though, is conspicuously absent in all MMT analysis.#2

The axiomatically correct balances equation reads (X−M)+(G−T)+(I−S)−(Q−Yd)=0, with profit Q and distributed profit Yd greater zero. In marked contrast, the false MMT balances equation reads (X−M)+(G−T)+(I−S)=0. Exactly at this point, MMT drops dead.

The Iron Rule of Methodology says: Every economic theory/model that does not explicitly contain the foundational magnitude profit is scientifically worthless. MMT falls squarely into this category. It does not matter much whether this proto-scientific corpse is decorated with a social, liberal or any other political flag.

Egmont Kakarot-Handtke


#1 Bill Mitchell, MMT’s fake scientist
#2 MMT and the magical profit disappearance

Related 'Richard Murphy: the MMT fraudster dressed up as realist' and 'I is never equal S and even Nick Rowe will eventually grasp it' and 'Is Nick Rowe stupid or corrupt or both?' and 'Keynesians ― terminally stupid or worse?'

***
REPLY to Ralph Musgrave on Mar 27

You say “According to EK-H, there is a fundamental difference between households and businesses: households allegedly save but do not make profits or losses, whereas businesses do. Profit (loss) is the rise (fall) in an entity’s net assets over a period. It would be perfectly possible (contrary to EK-H’s suggestions) to construct a profit and loss account for a household.”

Total profit consists of two components: monetary profit/loss Qm and nonmonetary profit/loss Qn. Monetary profit/loss Qm emerges in the production-consumption economy, nonmonetary profit/loss Qn stems from the revaluation of real and financial assets/ liabilities. Depreciation of capital goods, for example, is part of nonmonetary profit/loss Qn.

Analogous for the household sector. Monetary saving/dissaving Sm relates to the flows of the production-consumption economy, nonmonetary saving/dissaving Sn stems from the revaluation of real and financial assets/liabilities of the household sector.

So, we have axiomatically Q=Qm+Qn and S=Sm+Sn.#1 The whole issue of nonmonetary profit/loss of the business sector and nonmonetary saving/dissaving of the household sector has been dealt with elsewhere.#2

The balances equations (AXEC=true=(X−M)+(G−T)+(I−S)−(Q−Yd)=0 and MMT=false=(X−M)+(G−T)+(I−S)=0) both relate to the flows of the production/consumption/investment/foreign trade economy and therefore deal with monetary profit/loss. Clearly, nonmonetary profit/ loss of the business sector and nonmonetary saving/dissaving of the household sector are NOT an issue at the first analytical stage.

The conclusion “Exactly at this point, MMT drops dead” is not affected by the later inclusion of nonmonetary variables. These extensions make MMT only more dead.

The balances equations consist of measurable variables and therefore are testable in principle. So, all that is needed at this point is an experimentum crucis. What is NOT needed is more confused blather of MMTers in general and you in particular.


#1 Wikimedia, New Foundations of Economics
#2 Primary and Secondary Markets

***
REPLY to Ralph Musgrave on Mar 28

You say “What you call the MMT equation, (X−M)+(G−T)+(I−S)=0 is true by definition (and for that reason it’s not very interesting).”

The question is NOT whether the MMT balances equation is “interesting” but whether it is true or false. Fact is that it is mathematically false just like 2+2=5 is mathematically false. This, in turn, proves, that MMTers are too stupid for the elementary mathematics of macroeconomic accounting.#1, #2

You take the axiomatically correct balances equation (X−M)+(G−T)+(I−S)−(Q−Yd)=0 and simplify by setting X, M, I, S, Yd=0. This gives (G−T)=Q, in plain English, if the budget deficit is $1bn the monetary profit of the business sector is $1bn, i.e. Public Deficit = Private Profit.

You argue “then your equation says that minus $1b=0”. NO, this is your own brain-dead BS.

Because the foundational MMT balances equation is false the whole analytical superstructure of MMT is false.#3 And because the theory is false the policy recommendations are false.#4 More specifically, in their bottomless stupidity MMTers are a danger to their fellow citizens.


#1 Rectification of MMT macro accounting
#2 Down with idiocy!
#3 For the full-spectrum refutation see cross-references MMT
#4 Keynes, Lerner, MMT, Trump and exploding profit

***

REPLY to Ralph Musgrave on Mar 28

You say “… the MMT equation is true by definition (and for that reason it’s not very interesting).”

Both parts of the assertion are incorrect. The equation is (i) provably false and (ii) central to any MMT presentation as you can see at Google Images.#1, #2

The equation is so interesting that Warren Mosler has tattooed it on his forehead.


#1 Google Images
#2 In particular this

***

REPLY to ANC Driver on Mar 30

You say: “Not only ‘is’ there a fundamental difference between households and business, this difference exists by way of how the law treats them and this is all that matters.”

The difference between the business- and the household sector is as real as the difference between production and consumption and the law reflects the underlying reality of the monetary economy.

In order to see this, one has to go back to the most elementary economic configuration, that is, the pure production-consumption economy which consists of the household and the business sector.#1

In this elementary economy, three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Yw, (ii) C is less than Yw, (iii) C is greater than Yw.

• In case (i) the monetary saving of the household sector Sm≡Yw−C is zero and the monetary profit of the business sector Qm≡C−Yw, too, is zero. The product market is cleared, i.e. X=O in all three cases.
• In case (ii) monetary saving Sm is positive and the business sector makes a loss, i.e. Qm is negative. The market clearing price is lower than in (i).
• In case (iii) monetary saving Sm is negative, i.e. the household sector dissaves, and the business sector makes a profit, i.e. Qm is positive. The market clearing price is higher than in (i).

It always holds Qm+Sm=0 or Qm=−Sm, in other words, at the heart of the monetary economy is an identity: the business sector’s surplus = profit equals the household sector’s deficit = dissaving. And vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law.

In a pure fiat money economy, profit materializes as business sector’s deposits on the balance sheet of the central bank and dissaving materializes as household sector’s overdrafts. Both amounts are equal to the penny. The financial assets of the business sector are equal to the liabilities of the household sector. For the economy as a whole, NO real or financial net wealth is created.

Profit is a purely nominal magnitude: NO share of output O corresponds to it. Under the condition of market clearing, output always goes in full to the household sector. The correspondence of profit is an increase of money on the business sector’s account, as every economist could know from Marx’s famous formula M-C-M’, which Keynes verbalized as “to end up with more money than it started with.”

Money, though, is a credit relationship and therefore more money = more deposits = more overdrafts = more liabilities.

If the household sector saves the business sector makes a loss. In this case, the households end up with financial assets and the business sector with liabilities. If this goes on for a while the business sector goes bankrupt and the economy breaks down.

The monetary economy is inherently unstable because C=Yw never happens. This explodes the idea of equilibrium which is at the axiomatic core of standard economics.

The conceptual point to grasp is that the balance of the business sector is called profit/loss and the balance of the household sector is called saving/dissaving. And NEVER makes the household sector a profit or a loss and NEVER does the business sector save/dissave. To muddle the two concepts is the Humpty Dumpty Fallacy or in simple words an idiocy. This idiocy lies at the heart of standard economics and MMT.

Needless to emphasize that all this is far beyond the ant horizon of Ralph Musgrave.


#1 The elementary production-consumption economy is given by three macro axioms: (A1) Yw=WL wage income Yw 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.

Note on “Era of Austerity coming to an end...”

Blog-Reference

Because Public Deficit = Private Profit the one-percenters and their useful academic/ journalistic spokespersons should consistently argue FOR deficit spending and the ninety-nine-percenters and their academic/journalistic spokespersons should consistently argue AGAINST it.

Therefore, a self-styled progressive MMT spokesperson who claims that deficit spending benefits the ninety-nine-percenters is either an idiot or a fraudster.

The headline “Schumer Celebrates Omnibus Bill: ‘Era Of Austerity’ Coming ‘To An End’” is true as far as macroeconomic profit and Schumer as a spokesperson for the one-percenters is concerned. There is nothing to celebrate for the ninety-nine-percenters. For details see:

Egmont Kakarot-Handtke


#Economics #FailedScience #FakeScience #CargoCultScience #BogusScience #ScientificIncompetence #Economists #PeakStupidity #Econ101 #OrthodoxEconomics #HeterodoxEconomics #Pluralism  #MicroFoundations #MacroEconomics #ProfitTheory #Austerity #DeleteEconomics #NewEconomicThinking #ParadigmShift #Science #MacroFoundations #Axiomatization

End of the Lump-of-Labor sitcom

Comment on Sandwichman on ‘LOLFF on TED’

Blog-Reference

Economists are storytellers, they do not answer any economic questions and put them to rest but merely recycle silly narratives ad infinitum. A classical example is the Lump-of-Labor Fallacy.

The story starts as follows: “It was a British economist, David Schloss, who gave it this name in 1892. He was puzzled to come across a dock worker who had begun to use a machine to make washers, the small metal discs that fasten on the end of screws. And this dock worker felt guilty for being more productive. …”

This, of course, is the kindergarten version of the theory of employment, and this blather is neither worth to be discussed nor debunked. That economists are not ashamed of recycling this proto-scientific garbage tells one all about their substandard IQ.

The elementary version of the axiomatically correct (objective, systemic, behavior-free, macrofounded#1, #2) Employment Law is shown on Wikimedia.#3


From this equation follows:
(i) An increase of the expenditure ratio ρE leads to higher employment L (the Greek letter rho ρ stands for ratio). An expenditure ratio ρE greater than 1 indicates a budget deficit = credit expansion, a ratio ρE less than 1 indicates credit contraction.
(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.

The complete employment equation contains in addition profit distribution, the public sector, and foreign trade.

Item (i) and (ii) cover Keynes’ familiar arguments about aggregate demand. The factor cost ratio ρF as defined in (iii) embodies the macroeconomic price mechanism. The fact of the matter is that overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to average price P and productivity R.

With regard to an increase in average productivity R then follows (under the initial condition of I given and ρE=1) that overall employment L DECLINES. In order to prevent this and to keep employment at the given level, the factor cost ratio ρF=W/PR has to be kept constant. So, either the average wage rate W has to rise in lockstep with productivity or the average price P has to fall.

This follows straightforwardly from the macroeconomic Employment Law. Of course, nothing at all ever follows from the recycling of the pseudo-psychological crap of the dock worker who felt guilty for being more productive.

False theory leads to false policy guidance. With their defective employment theory and their endless pseudo-psychological sitcom blather, economists bear the full responsibility for the social devastation of mass unemployment.

Egmont Kakarot-Handtke


#1 The macrofoundations approach starts with three systemic 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) Yw=WL wage income Yw 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. For a start it holds X=O.
#2 For details of the big picture see cross-references Employment
#3 Wikimedia, Employment Law

Related 'The role of labor and business in a well-organized society' and 'False and true economic laws' and 'Unemployment is the outcome of political economics'.

March 22, 2018

Futile beatification and canonization of an economics Flat-Earther

Comment on Barkley Rosser on ‘The Father Of “Market Failure” Analysis Dies’

Blog-Reference

Science is about truth/knowledge, politics is about belief/opinion. Science appeals to logical/empirical proof, politics appeals to emotion and good guy/bad guy moralizing. Economics is a failed science on one level with the Flat Earth Theory, economists are fake/cargo cult scientists. Walrasianism, Keynesianism, Marxianism, Austrianism has NO truth value, only some political use value.

Standard economics is built upon this set of foundational propositions, aka neo-Walrasian 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)

These premises contain three plain NONENTITIES (constrained optimization HC2, rational expectations HC4, equilibrium HC5) and therefore are forever unacceptable. Being incompetent scientists, though, economists swallowed this inane stuff hook, line and sinker from Jevons/Walras/Menger onward to DSGE.

In methodology it holds, when the axiomatic foundations are false the whole analytical superstructure is false. So, General Equilibrium, Pareto Optimality, the Welfare Theorems, the Coarse Theorem, the concept of Market Failure are all elements of what is an economic Flat Earth Theory.

Make no mistake, whoever accepts only one axiom of the set HC1/HC5 proves that he is a scientific deadhead.*

Since Newton made faux humility popular with his “If I have seen further it is by standing on the shoulders of Giants” all intellectual dwarfs desperately try to convince the general public, which simply cannot assess genuine scientific merit, that they are standing on the shoulders of geniuses.

This is where attention managers, cheerleaders, and claqueurs like Barkley Rosser have to bring in their talents. Being himself a Flat Earther he simply cannot resists to award the fake Nobel posthumous to a fellow fake scientist like Francis Bator whose claim to the title of useful idiot rests on the fact that he is best known “as an economic and national security adviser to LBJ in the 1960s.”

To abuse an obituary for great-man myth creation is a tried and tested ― but nonetheless forever reprehensible ― PR stunt. Fact is that standard economics is a scientific failure and no orthodox/heterodox economist will ever be accepted to the pantheon of science.

Egmont Kakarot-Handtke

Related 'Are economists natural born scientific failures?'. For details of the big picture see cross-references Failed/Fake Sciences.

*

***
COMMENT on Peter Dorman on Mar 23

You say: “My view is that Bator’s list of canonical market failures leaves out perhaps the most important of all, nonconvexities and multiple equilibria.”

Equilibrium is one of the neo-Walrasian axioms (see HC5 above). It is a lethal methodological blunder to put equilibrium into the premises. This idiocy/fraud is known since antiquity as petitio principii.#1

Joan Robinson put it thus: “Economic theorists should not make such a production about taking a rabbit out of a hat after having put the rabbit into the hat in full view of the audience.”

Equilibrium is not a feature of economic reality, it is the rabbit which has been put into the hat as an inadmissible axiom. Because equilibrium does not exist, general equilibrium does not exist, and multiple equilibria, too, do not exist.

Methodologically, multiple equilibria are analogous to the epicycles of Geo-centrism.

The fact of the matter is that the market system is inherently unstable. It either explodes or implodes, albeit in slow motion and overlaid by cycles, so that the underlying instability is normally imperceptible.

Because the idea of an underlying tendency towards general equilibrium is false, the concept of market failure, which makes only sense in relation to GE, makes no sense at all, it is a self-created pseudo-problem. The market system as a whole is structurally/ functionally defective because it has some positive feedback loops built right into its core.#2

Standard economics is one of the worst cases of theory failure of all times and you are part of it.


March 16, 2018

Bill Mitchell, MMT’s fake scientist

Comment on Bill Mitchell on ‘Where do we get the funds from to pay our taxes and buy government debt?’

Blog-Reference

Bill Mitchell recounts a recent Twitter exchange: “… where a person who says he is ‘all over MMT’… has been arguing ad nauseam that Modern Monetary Theory (MMT) proponents are a laughing stock when they claim that taxes and debt-issuance do not fund the spending of a currency-issuing government. He points to the existing institutional structures in the US whereby tax receipts apparently go into a specific account at the central bank and governments are prevented from spending unless the account balance is positive.”

This, of course, is a straw man and Bill Mitchell easily knocks him down. What people do not understand is that monetary theory is NOT about the operational details of the Treasury/FED interactions. Monetary theory is an integral part of what Keynes called the ‘monetary theory of production’. By sticking to operational details, the average common sense person commits the Fallacy of Insufficient Abstraction.

Bill Mitchell is right: “The problem with this ‘obvious’ argument is that it fails to consider what is actually going on in a fiat monetary system at the level beyond the accounting arrangements.” Monetary theory is macroeconomics and who does not understand macro better takes the remote control and never stops again watching sitcoms.

MMT proponents are NOT a laughing stock because they get the operational details/ accounting conventions of deficit spending/money creation wrong but because they get the essentials of macro wrong.

The error/fraud of MMT consists in misplaced consolidation. Here you have it in a nutshell: “The notion of a consolidated government sector is a basic MMT starting point and allows us to demonstrate the essential relationship between the government and non-government sectors whereby net financial assets enter and exit the economy without complicating the analysis unduly.” And: “At this simple level ― that the currency-issuing ‘government’ comprises the consolidation of the central bank and the treasury functions ― makes it obvious that taxes and borrowing do not fund ‘government’ spending.”

Exactly at this point, Bill Mitchell runs into the Fallacy of Insufficient Abstraction. Independently of all operational/organizational specifics in different countries, proper economic analysis requires the functional distinction between business sector, household sector, government sector, and banking sector which consists initially alone of the money creating central bank. Upfront consolidation of any two sectors is methodologically inadmissible.

In order to go back to the ultimate foundations of economics, the elementary production-consumption economy is for a start defined by three macroeconomic axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (monetary profit/loss Qm≡C−Yw, monetary saving/dissaving Sm≡Yw−C).#1

It always holds Qm+Sm=0 or Qm=−Sm, in other words, the business sector’s surplus = profit equals the household sector’s deficit = dissaving and, vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law. This Law refutes the MMT profit theory. So, the whole of MMT is scientifically dead already at this point.

Money is needed by the business sector to pay the workers who receive the wage income Yw per period (econ-speak for wages + salaries). The workers/employees spend C per period. Given the two conditions, the market clearing price is derived for a start as P = W/R. So, the price P is determined by the wage rate W, which has to be fixed as a numéraire, and the productivity R. This is the macroeconomic Law of Supply and Demand.

As a corollary, this macroeconomic Law kills the commonplace Quantity Theory because the “Quantity of Money” is NOT among the price determinants. The average stock of transaction money follows as M=κYw, with κ determined by the payment pattern. In other words, the “Quantity of Money” M is determined by the autonomous transactions of the household and business sector and created out of thin air by the central bank. The economy never runs out of money. The government is NOT needed to supply the economy with money.

Starting from the elementary production-consumption economy, complexity is then successively increased.To make matters short, the axiomatically correct relationships are given here without further explanation. It holds, with Qm monetary profit/loss, Sm monetary saving/dissaving, I investment expenditures, G government spending, T taxes, X export, M import, Yd distributed profit:
(i) Qm=−Sm in the elementary production-consumption economy,
(ii) Qm=I−Sm in the elementary investment economy,
(iii) Qm=(G−T)+(I−Sm) in the investment economy with government deficit/surplus,
(iv) Qm=Yd+(X−M)+(G−T)+(I−Sm) in the open economy with distributed profit.

From (i)/(ii) follows that saving and investment are NEVER equal and that ALL I=S/IS-LM models are false since Keynes/Hicks and that ALL After-Keynesians are stupid.

From (iii) follows that ― given business sector investment I and household sector monetary saving Sm ― Public Deficit = Private Profit. The government deficit (co-)determines the cumulative stock of financial assets in the business sector.

Exactly at this point, Bill Mitchell’s error/fraud happens. He states: “The government deficit [of $20] is exactly the non-government savings [of $20].” No! The mirror image of the government’s deficit is the business sector’s profit.

The MMT error/fraud lies in the word non-government sector. There is NO such thing as the “non-government sector”, there are TWO sectors, the business- and the household sector. And the business sector does NOT save.* Saving/dissaving is the balance of the household sector, profit/loss is the balance of the business sector. The word profit, though, does not appear once in Bill Mitchell’s analysis.

The Iron Rule of Methodology says: Every economic theory/model that does not explicitly contain the foundational economic magnitude profit is scientifically worthless.#2, #3, #4 MMT falls squarely into this category.

Egmont Kakarot-Handtke


#1 Macro for retarded economists
#2 MMT is idiocy and fraud
#3 DSGE and profit―forget it! MMT and profit―forget it!
#4 Deficits matter for distribution

*

***
REPLY to André on Mar 18

From history you can possibly learn who invented fire. This, though, does not help you much. You still do not understand what fire ‘is’. To figure this out is the task of science, in this case of physics. And, low and behold, these folks have figured out the Laws of Thermodynamics which tell you not only how a match works but also how a jet engine works.

The fact that in the course of history the ‘state’ has issued ‘money’ does not prove that the state is indispensable for money creation in the actual monetary economy or that taxes drive money.

For the theory of money, it is irrelevant who invented money. Science is NOT about historical accidents.

It is pretty obvious that Bill Mitchell is not a scientist who tries to figure out how the economic system works and what the underlying economic laws are but an agenda pusher who tries to enlist the state for a policy of permanent deficit spending. For this political purpose he ― unintentionally or intentionally does not matter ― ignores the fact that the Profit Law states Public Deficit = Private Profit and that, by consequence, MMT policy has grave distributional consequences.#1

Bill Mitchell does not understand the macroeconomic Profit Law. He is not a scientist, neither is Stephanie Kelton ― the Mother Theresa of MMT ― neither are you nor the rest of the deplorable MMT marketing/PR/sales squad.


March 15, 2018

DSGE and profit―forget it! MMT and profit―forget it!

Comment on Brian Romanchuk on ‘The Curious Profit Accounting Of DSGE Models’

Blog-Reference and Blog-Reference

Everybody knows that DSGE as the actual version of the microfoundations approach is dead. From this follows that a paradigm shift is needed: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)

One of the most conspicuous blunders of DSGE is the profit theory. Brian Romanchuk observes: “One of the more puzzling aspects of neo-classical economic theory is the assertion that profits are zero in equilibrium under the conditions that are assumed for many models. One should re-interpret this statement as ‘excess profits’ are zero, but there are still some awkward aspects to the treatment of profits in standard macro models.”

Indeed, there is something deeply wrong with the profit theory since Adam Smith. Conventional ‘wisdom’ asserts: “The consensus to date has been that it is mathematically impossible for capitalists in the aggregate to make profits.” (Keen) And: “But, from the macro perspective of Walrasian general equilibrium, the total profits in this case cannot be other than zero (otherwise, we would need a Santa Claus to provide the aggregated positive profit) but this does not preclude the possibility of short-run profits and losses of individual firms canceling each other out.” (Boland)#1

The curious thing is that macroeconomic profit has been greater than zero for most of the time in most of the known market economies up to the present. This is an empirical fact. Obviously, there is something wrong with conventional profit theory and Brian Romanchuk is not the first to notice it. As the Palgrave Dictionary puts it: “A satisfactory theory of profits is still elusive.” (Desai)

This, indeed, is the most damning verdict about economics which claims to be a science: after 200+ years, economists still cannot tell what the pivotal magnitude of their subject matter ― profit ― is. This does not only apply to DSGE but to the four main approaches: Walrasianism, Keynesianism, Marxianism, Austrianism are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept profit wrong.

While Brian Romanchuk notes that DSGE profit theory must be false he passes over the fact that MMT, the approach he pushes, is not one iota better.

To make matters short, the axiomatically correct relationships are given here without further explanation.#2 It holds, with Qm monetary profit/loss, Sm monetary saving/dissaving, I investment expenditures, G government spending, T taxes, X export, M import, Yd distributed profit:

(i) Qm=−Sm in the elementary production-consumption economy,
(ii) Qm=I−Sm in the elementary investment economy,
(iii) Qm=(G−T)+(I−Sm) in the investment economy with government deficit/surplus,
(iv) Qm=Yd+(X−M)+(G−T)+(I−Sm) in the open economy with distributed profit.

From (iii) follows that ― given business sector investment I and household sector monetary saving Sm ― Public Deficit = Private Profit. This tells one that the MMT policy of deficit spending/money creation benefits alone the one-percenters.

It never follows the MMT tripartite balances equation (I−S)+(G−T)+(X−M)=0. The comparison with the axiomatically correct Profit Law (iv) makes it clear that MMT ― just like DSGE ― in effect deals with a zero profit economy, i.e. Qm, Yd = 0.

Because the foundational balances equation of MMT is provably false the whole of MMT is worthless, just like DSGE.

Egmont Kakarot-Handtke


#1 Debunking Squared
#2 MMT is idiocy and fraud
#3 Macro for retarded economists

***

REPLY to Brian Romanchuk and Anonymous on Mar 16 and Blog-Reference

Take notice that what you call “normal definition of income” is one of the worst methodological idiocies of economics. Needless to emphasize that the “normal economist” in his incurable scientific incompetence does not realize it.

Here, for intelligent non-economists, the Humpty Dumpty Fallacy in full detail.

In the elementary investment economy, macroeconomic profit Q is defined as the sum of profit in the consumption goods industry, i.e. Qc≡C−Ywc, and the investment goods industry, i.e. Qi≡I−Ywi, that is, Q≡(C−Ywc)+(I−Ywi) or Q≡C+I−Yw (i). Profit Q is greater than zero if the value of output C+I is greater than total wage income Yw.

Now, Humpty Dumpty introduces a redundant definition by saying that profit may be called “income of the business sector” and that this “income” can be added up with the wage income of the household sector to “total income” Ψ thus
(a) Ψ≡Q+Yw  and now (i) is rewritten
(b) Q+Yw ≡C+I and then, hey presto,
(c) Ψ≡C+I that is, “total income” is “by definition” identical to “value of output” or in the usual sloppy parlance “income = value of output” which obviously contradicts (i) and ― strangely enough ― makes profit disappear.

This definitional idiocy can be traced back to Keynes “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)

Take notice that “income” is NEVER equal to “value of output” and by implication that “saving” is NEVER equal to “investment” because profit is NOT “income”.

In accounting terms, wage income Yw is a flow from the business to the household sector and consumption expenditures C is a flow in the opposite direction and profit is the difference of the two flows Q≡C−Yw. To add a flow and a balance together is a category mistake. No accountant worth his salt would ever do it but economists are Humpty Dumpties who do not even understand the elementary mathematics that underlies accounting.#1, #2

The analogous flow to wage income Yw is distributed profit Yd. It is methodologically CORRECT to add the two flows Yw and Yd together to total income but it is INCORRECT to add the flow Yw and the balance Q together.#3

All this is way above the head of the “normal economist” who misspecifies the foundational economic concepts profit/income/saving/distributed profit from Adam Smith onward to DSGE and MMT.

To argue that the “normal economist” treats profit since 200+ years without any qualms as “income” is to confirm that the “normal economist” is an incurable idiot, and this, in turn, explains the indisputable fact that economics is a failed/fake science.


#1 A tale of three accountants
#2 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
#3 How Keynes got macro wrong and Allais got it right

***
REPLY to Brian Romanchuk on Mar 16

“There are always many different opinions and conventions concerning any one problem or subject-matter …. This shows that they are not all true. For if they conflict, then at best only one of them can be true. Thus it appears that Parmenides … was the first to distinguish clearly between truth or reality on the one hand, and convention or conventional opinion (hearsay, plausible myth) on the other.” (Popper)

This exactly is the task of the scientist: to figure out which of the conflicting ‘opinions and conventions’ is true. Economists have badly failed at this task.

Keynes is a case in point. He was entirely clueless: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.). And: “Keynes related his definition of income expressly to ‘the practices of the Income Tax Commissioners.’ He was in grave doubt whether ‘it might be better to employ the term windfalls for what I call profits.’ But he was quite sure that ‘saving and investment are, necessarily and by definition, equal ― which after all, is in full harmony with common sense and the common usage of the world.’” (Coates)#1

After-Keynesians are no better: Kalecki defined profit as P=Cp+I, Minsky as P=I, and Keen applies the commonsensical but provably false Humpty Dumpty definition total income = wages plus profits.#2

And so it goes on. Ricardo’s profit theory is false,#3 same with Marx,#4 same with MMT. Your assertion “there is general agreement on how to define profits in simpler cases (such as in a mathematical model)” is laughable.

Nothing shows better the scientific incompetence of economists than the fact that every half-wit applies his own confused definition of profit.

Physics has one definition of energy and this magnitude is an element of a consistent set of foundational magnitudes. Economics has a wild variety of inconsistent profit definitions. And this is why economists never get above the level of confused blather.

The MMT balances equation reads (I−S)+(G−T)+(X−M)=0, the AXEC balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0. Only one equation can be true. As someone with applied mathematics training, you can certainly spontaneously tell which one.#5


#1 Marshall and the Cambridge School of plain economic gibberish
#2 Heterodoxy, too, is scientific junk
#3 Ricardo, too, got profit theory wrong. Sad!
#4 Profit for Marxists
#5 Rectification of MMT macro accounting

***

REPLY to Roger Sparks on Mar 17 and Blog-Reference MNE

DSGE is the most recent actualization of the microfoundations approach which had been kicked-off +140 years ago by Jevons/Walras/Menger. DSGE is based on the neo-Walrasian axiom set: “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 representative economist has not realized it but methodologically these premises are forever unacceptable. It should be pretty obvious that the neo-Walrasian hardcore contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5).

Methodologically, the microfoundations approach has already been dead in the cradle. It was Keynes who realized this and tried to move to macrofoundations. However, in his bottomless incompetence, Keynes messed the paradigm shift up. This is why the proto-scientific maximization-and-equilibrium rubbish is still around.

But Neoclassicals did not only get the axiomatic foundations of economics wrong but also the mathematics. The proof has been given by the mathematician Jonathan Barzilai.#1

Whoever discusses in our days a DSGE model proves that he has no grasp whatsoever of science/mathematics. DSGE is the economics analog of the Flat Earth Theory and considered worthy of discussion only by some simpletons.


#1 See An Open Letter to the President of the American Economic Association and An Open Letter to the President of the Canadian Economics Association

***
REPLY to Roger Sparks on Mar 17

Congratulations! It seems that you have reanimated Brian Romanchuk’s defunct brain cells. And what revolutionary insights they have produced in the shortest time:
• “You need gasoline to power your car; you cannot fill it up with dollar bills and have it run.”
• “… we need to distinguish financial assets from real ones.”

Who has ever thought such bold thoughts? I am looking forward to the continuation of this mind-boggling dialogue of imbeciles.

***
REPLY to Tom Hickey

Yous ask: “I wonder whether Nordhaus ever responded.”

Wrong question.

Right question: What follows from Jonathan Barzilai’s proof that economists never understood the mathematics they applied?

Right answer: Mr. Nordhaus is the representative of an association of failed/fake scientists. Whether he answered the Open Letter is a matter of indifference. Being the co-author of a supply-demand-equilibrium economics textbook tells everyone that he never had anything worthwhile to say.#1


#1 The father of modern economics and his imbecile kids

***

REPLY to Brian Romanchuk, Roger Sparks on March 19 and Blog-Reference MNE

Brian Romanchuk characterizes the DSGE profit equation: “The firm’s pure profit (Π) in real terms is given by (16.2.17): Π(t)=F(t,kb,n)−r(t)kb(t)−w(t)n(t), where w is the real wage, and r is the rental cost of capital.”

Because both of you have never understood what profit is you do not know that there is NO such thing as “profit in real terms”. Take notice that profit is a feature of the monetary economy and that it cannot be captured by a real model.

In order to see this, one has to go back to the most elementary economic configuration, that is, the pure production-consumption economy which consists of the household and the business sector.#1

In this elementary economy, three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Yw, (ii) C is less than Yw, (iii) C is greater than Yw.

• In case (i) the monetary saving of the household sector Sm≡Yw−C is zero and the monetary profit of the business sector Qm≡C−Yw, too, is zero. The product market is cleared, i.e. X=O in all three cases.
• In case (ii) monetary saving Sm is positive and the business sector makes a loss, i.e. Qm is negative. The market clearing price is lower than in (i).
• In case (iii) monetary saving Sm is negative, i.e. the household sector dissaves, and the business sector makes a profit, i.e. Qm is positive. The market clearing price is higher than in (i).

It always holds Qm+Sm=0 or Qm=−Sm, in other words, at the heart of the monetary economy is an identity: the business sector’s surplus = profit equals the household sector’s deficit = dissaving. And vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law.

Profit is a purely nominal magnitude: NO share of output O corresponds to it. Under the condition of market clearing, the output always goes in full to the household sector. The correspondence of profit is an increase of money in the business sector’s cashbox, as every economist could know from Marx’s famous formula M-C-M’.

That no share of output corresponds to profit is logically obvious because the correspondence of loss would be a negative share of output and that is a nonentity.

There is NO such thing as a “real” profit. Profit is a nominal variable and the counterpart of dissaving. The DSGE concept of profit is as brain-dead as can be and one has to be a brain-dead economist to take it seriously for more than one second.#2, #3


#1 The elementary production-consumption economy is given by three macro axioms: (A1) Yw=WL wage income Yw 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.
#2 The Profit Theory is False Since Adam Smith
#3 How the intelligent non-economist can refute every economist hands down

***

REPLY to Brian Romanchuk on Mar 19 and Blog-Reference MNE

You say: “In this case, all that it done is divide through by the price level. As long as prices are non-zero, that is a legitimate mathematical operation.”

This is simply NOT the case. Nobody, in fact, divides anything by the price level. The DSGE profit equation reads Π(t)=F(t,kb,n)−r(t)kb(t)−w(t)n(t) where F(·) is the “real” production function, where w is the “real” wage, and r is the “real” rental cost of capital. There is NO nominal variable in the equation and NO division through P.

The “real” DSGE profit formula is pure methodological BS and only good for the demonstration of the galactic dimension of economists' scientific incompetence.#1 Because you cannot even read the profit equation you do not realize that it is all in real variables while profit is a nominal variable that has to be determined by National Accounting.

Nobody in his right mind applies a Cobb-Douglas production function to determine profit.


#1 The futile attempt to recycle Sraffa

***

REPLY to Roger Sparks on Mar 19 and Blog-Reference MNE

You say: “I think the logical gaps between our three positions are very wide.”

Then, we have to determine in earnest who is right and who is wrong. As Popper said, if statements are contradicting, this shows that they are not all true.

You do not even understand the problem of macroeconomic profit. Marx did: “How can they continually draw 600 p. st. out of circulation, when they continually throw only 500 p. st. into it? From nothing comes nothing. The capitalist class as a whole cannot draw out of circulation what was not previously in it.”

This led to the conclusion: “The consensus to date has been that it is mathematically impossible for capitalists in the aggregate to make profits.” (Keen) And this zero-profit conclusion is obviously NOT in accordance with the empirical evidence since 200+ years.

Exactly at this point resides the logical gap = black hole of economists in general and you and Brian Romanchuk in particular.

The mathematical solution of Marx’s problem of the very existence of macroeconomic profit reads Q=−S, that is, the business sector as a whole can only draw more out of circulation if the household sector throws more into it, in plain English, profit = dissaving.

This is the core of the life-formula of the economic system we happen to live in. Needless to emphasize that neither you, nor Brian Romanchuk, nor Walrasians, nor Keynesians, nor Marxians, nor Austrians ever understood it.

***
REPLY to Brian Romanchuk

To take DSGE seriously for longer than one minute and to wonder whether market clearing is assumed (of course, this defines equilibrium in GE) is a sure indicator of substandard intellectual performance.

***

REPLY to Roger Sparks on Mar 20 and Blog-Reference MNE

You repeat the core of the axiomatically correct Profit Law, profit = dissaving, and then you go on saying “Profits do you no good unless they can be used to improve your life and (hopefully) the life of others.”

You obviously do not grasp the implication of what I called the “life-formula of the economic system we happen to live in”. Since profit is the very condition of the functioning of the economy, the life-formula tells you also when the economy we happen to live in will break down.

This is something that neither DSGE nor MMT nor any other approach will tell you because economists do not know what profit is since economics was established as a proto-science by the silly blatherer Adam Smith.#1

The market economy breaks down as soon as macroeconomic profit turns into loss and this is, in the most elementary case, when dissaving stops. The macroeconomic Profit Law for the general case reads Qm=Yd+(X−M)+(G−T)+(I−Sm) and you can figure out for yourself the conditions that turn profit eventually into loss.

If you do not understand the life-and-death formula of the monetary economy there is no need to stop emanating blatant nonsense ― you can still have an absolutely senseless conversation about the crappy DSGE profit formula with Brian Romanchuk or, what amounts to the same, channel your grandma.


#1 Mathematical Proof of the Breakdown of Capitalism

***

REPLY to ANC Driver on Mar 24 and Blog-Reference MNE

To sum up. In their DSGE textbook Recursive Macroeconomic Theory, Lars Ljungqvist and Thomas J. Sargent define macroeconomic profit in real terms. This is methodologically as idiotic as one can get because profit is a nominal variable. The DSGE model suffers from a dimensional inconsistency. Alone for this reason, it is scientifically worthless.

Neither DSGEers themselves nor their critics have realized that the whole approach is proto-scientific garbage. On second thought, however, this is not really astounding because the representative economist swallows garbage like utility maximization and supply-demand-equilibrium already since 140+ years as if it were manna.

The alternative to microfounded DSGE is macrofounded Post-Keynesianism. It is not one iota better. Macro profit theory is provably false since Keynes.#1 This is the false MMT balances equation (X−M)+(G−T)+(I−S)=0, and this is the true equation (X−M)+(G−T)+(I−S)−(Q−Yd)=0 with profit and distributed profit greater zero.#2

Will Lars Ljungqvist, Thomas Sargent, Brian Romanchuk, Roger Sparks, and the rest of mentally retarded microfounded macroeconomists ever get it? No chance, these folks are lost in vacuous proto-scientific space already for centuries.


#1 Forget Keynes
#2 True macrofoundations: the reset of economics

***

REPLY to Brian Romanchuk on Mar 25 and Blog-Reference MNE

You say “The equation has been divided through by the price level … that’s a valid mathematical operation.”

The problem is that you are a substandard mathematician. Because of this, you do not realize that DSGE is materially and formally flawed.

The analytical superstructure of DSGE is based upon this set of hardcore propositions a.k.a. axioms:
HC1 There exist economic agents.
HC2 Agents have preferences over outcomes.
HC3 Agents independently optimize subject to constraints.
HC4 Choices are made in interrelated markets.
HC5 Agents have full relevant knowledge.
HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states. (Weintraub, p. 109)#1

HC3 introduces marginalism which is the all-pervasive principle of standard economics. There are two methodological flaws here: (i) HC3 is an idiotic behavioral assumption, and (ii), constrained optimization of an ordinal preference order is an invalid mathematical operation as the mathematician Jonathan Barzilai has proven (link has been given above).

Marginalism has been proto-scientific garbage from the very start.#2 DSGE is the proof that economists are so stupid that they have not realized in 140+ years that their axiomatic foundations HC1/HC6 are invalid on all methodological counts.

The microfoundations approach is dead. Standard economics is dead. DSGE is dead. Nothing less than a paradigm shift will do. Methodologically it holds: If it isn’t macro-axiomatized it isn’t economics.


#1 Weintraub, E. R. (1985). General Equilibrium Analysis. Cambridge, London, New York, NY, etc.: Cambridge University Press.
#2 Putting the production function back on its feet


***

Compilation: AXEC Profit Law (with increasing complexity) and Balances Equation ®

March 14, 2018

The objective value of money

Comment on David Glasner on ‘Is “a Stable Cryptocurrency” an Oxymoron?’

Blog-Reference

David Glasner recalls: “One of my first posts after launching this blog was called ‘The Paradox of Fiat Money’ in which I posed this question: how do fiat moneys retain a positive value, when the future value of any fiat money will surely fall to zero? This question is based on the backward-induction argument that is widely used in game theory and dynamic programming.”

This train of thought is based on microfoundations, or as Krugman put it: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.” This subjective-behavioral starting point is axiomatically false and has to be replaced by objective-systemic macrofoundations. Walrasian microfoundations and Keynesian macrofoundations have to be scrapped. This affects also the theory of money.

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) Yw=WL wage income Yw 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=Yw in each period the price is given by P=W/R (1), 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 Figure 1.#1

The price is determined by the wage rate, which takes the role of the nominal numéraire, and the productivity. The quantity of money is NOT among the price determinants. This puts the commonplace Quantity Theory to rest.

So, what is the ‘value of money’? What can one dollar of wage income buy in the elementary production-consumption economy? All we have to do is to divide the wage rate by the price. From (1) follows W/P=R, i.e. real wage = productivity.

Monetary profit for the economy as a whole is defined as Qm≡C−Yw and monetary saving as Sm≡Yw−C. It always holds Qm+Sm=0 or Qm=−Sm. Under the condition of budget balancing total monetary profit is zero.

What is needed for a start is two things (i) a central bank which creates money on its balance sheet in the form of deposits, and (ii), a legal system which declares the central bank’s deposits as legal tender. Without the central bank, money takes the form of an IOU of the business sector.

Deposit money is needed by the business sector to pay the workers who receive the wage income Yw per period. The need is only temporary because the business sector gets the money back if the workers fully spend their income, i.e. if C=Yw.

Overdrafts are needed by the household sector for consumption expenditures if the households want to spend before they get their income. This time sequence is no problem for the central bank because the temporary overdrafts vanish with wage payments.

For the case of a balanced budget C=Yw, the idealized transaction sequence of deposits/overdrafts of the household sector at the central bank over the course of one period is shown in Figure 2.#2


The household sector’s deposits/overdrafts are ZERO at the beginning and end of the period. The business sector’s transaction pattern is the exact mirror image. Money, that is, deposits at the central bank, is continually created and destroyed during the period under consideration. There is NO such thing as a fixed quantity of money. The central bank plays an ACCOMMODATIVE role and simply supports the AUTONOMOUS market transactions between the household and the business sector.

From this follows the average stock of transaction money as M=κYw, with κ determined by the transaction pattern. In other words, the average stock of money M is determined by the AUTONOMOUS transactions of the household and business sector and created out of nothing by the central bank. The economy NEVER runs out of money.

The transaction equation reads M=κYw=κPX=κPRL in the case of budget balancing and market clearing and this yields the commonplace correlation between average stock of money M and price P for a given employment level L, except for the fact that M is the DEPENDENT variable.

Money comes into existence on the balance sheet of the central bank as soon as the central bank enters an overdraft for the business sector on the asset side and a deposit of equal amount on the liability side (step 1). This deposit is then transferred to the household sector as wage payment (step 2) and returns in the form of consumption expenditures (step 3).

In the elementary production-consumption economy, money is a means of transaction and nothing else. The stock of money is zero at the beginning and the end of a period. Strictly speaking, money itself has no value.

The workers accept money from the business sector in the form of wage income because they can be reasonably sure that the business sector, in turn, accepts the money and hands over the consumption good output. This cycle has usually the length of one month. The real value of money is under the conditions of budget balancing and market clearing exactly equal to the productivity.

Over time, productivity changes and therefore the ‘value of money’ changes. The price is kept absolutely constant over time if the rate of change of the wage rate W in each period is exactly equal to the rate of change of the productivity R.

The ideas that the ‘value of fiat money’ depends on convertibility into gold or the taxing power of the state or that it will surely fall to zero are crackpot ideas of folks who never rose above the proto-scientific level.

Egmont Kakarot-Handtke


#1 Wikimedia, Elementary production-consumption economy
#2 Wikimedia, Idealized transaction pattern, household sector, balanced budget