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.
#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?'
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
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.