May 30, 2018

The demise of phony experts: macroeconomics is provably false

Comment on Simon Wren-Lewis on ‘Nominal wages are not real wages, and why it matters in the UK’

Blog-Reference

Simon Wren-Lewis discusses the relationship between UK wage- and profit share, real wage, employment, and the NAIRU in order to bust two myths about immigration and employment. This is a futile exercise because macroeconomics is false since Keynes. After-Keynesians have not realized it until this day.#1

Roughly speaking, economists never got their foundational concepts straight. Here is the evidence from the General Theory: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

This two-liner is conceptually and logically defective because Keynes never came to grips with profit: “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.)

Because the foundational concept profit is false, the whole analytical superstructure is false. Since Keynes, macroeconomics is scientifically worthless.

Macroeconomic profit Qm is not a flow like wage income Yw but the difference of flows, i.e. Qm≡C−Yw in the most elementary case. It is methodologically not admissible to add wage income Yw and profit Qm together and to call the sum total income. This is the Humpty Dumpty Fallacy.#2

Because the Profit Theory is false, Distribution Theory is false and the concept of profit “share” is nonsensical.

From the correct macroeconomic axioms follows the Profit Law as Qm=Yd+(I−Sm)+(G−T)+(X−M). Total income is given as the sum of wage income Yw and distributed profit Yd.

Employment Theory is false by logical implication. The most elementary version of the correct macroeconomic Employment Law is shown on Wikimedia.#3

From this equation follows, inter alia, that overall employment INCREASES if the average wage rate W INCREASES relative to average price P and productivity R. This is the opposite of what standard economics teaches.

As Simon Wren-Lewis argues: “It is often difficult to convince those on the left that weakening labour power over wages can be a good thing, if lower nominal wages are passed on to lower prices. It can be a good thing because it allows the central bank to raise demand and therefore output by more than they otherwise could while keeping inflation stable. It reduces the sustainable unemployment rate: the NAIRU.”

It is difficult to convince microfounded economists, who are hopelessly trapped in the Fallacy of Composition, that the average wage rate must rise relative to price and productivity in order to reduce unemployment and that NAIRU has always been a NONENTITY.#4, #5

Right policy depends on true theory: “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 do NOT have the true theory. Macroeconomics is axiomatically false. Economists do not know how the price and profit mechanism works. Economic policy guidance has no sound scientific foundations since Adam Smith/Karl Marx. There never was such a thing as an economic expert.

Egmont Kakarot-Handtke


#1 Why Post Keynesianism Is Not Yet a Science
#2 For details of the big picture see cross-references Profit
#3 Wikimedia, Employment Law
#4 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#5 For details of the big picture see cross-references Employment

Related 'The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment' and 'The Coherency of Money, Profit, Price, and Distribution' and 'Essentials of Constructive Heterodoxy: Profit'.

May 29, 2018

Austerity and the political games Progressives play

Comment on Peter Dorman on ‘Some Say the Earth Is Flat, British Austerity Edition’

Blog-Reference and Blog-Reference adapted to context

There is the political sphere and there is the scientific sphere. For well-known reasons, both spheres have to be kept apart but economists violate this elementary methodological principle since 200+ years. Economics started as Political Economy and never rose above the level of a cargo cult science.#1

As a result, economic policy guidance never had sound scientific foundations. Economists do not know how the price- and profit-mechanism of the monetary economy works. Because of this, economists do not deal in earnest with the economy but inevitably get lost in meta-communication = gossip: XY, conservative member of the upper chamber of Parliament, the House of Lords, said this; the large mob which includes quite a few journalists, believes this; but economists know that the “argument that denies the very possibility of debt finance in the face of a recession doesn’t make the cut” and so on and on.

The issue of austerity/government deficit spending/public debt is framed for the general public a.k.a. the little man as a moral tale. This applies to the New York Times article on “the effect of almost a decade of austerity on economic and social conditions in England”.

It is a sad story, indeed. Political economics always starts with a sad story. But fortunately, one has not to wait long and some smart economists are presented with their genial solution.#2 And then the political fraud begins.

This time, the fraud comes in the incarnation as MMTers who call themselves Progressives. Their message is, the bad state of the economy is a sadistic political choice of the current government and can easily be overcome with money creation/deficit spending. There is no such thing as a budget restriction and public debt does not matter for a sovereign country.#3

The lethal defect is NOT in the political program as such but lies in the fact that it has NO sound scientific foundations. Any crank is entitled to produce any policy proposal out of thin air, that is what freedom of speech means, but a scientist can not. The decisive argument against MMTers is that their policy proposals have NO sound scientific foundations.#4

To make the argument short, the axiomatically correct Profit Law for the economy as a whole is given as Qm=Yd+(I−Sm)+(G−T)+(X−M) which reduces to Qm=G−T for Yd, I, Sm, X, M = 0. The reduced Profit Law says that the monetary profit of the business sector Qm is equal to the deficit G−T of the public sector, in a nutshell: Public Deficit = Private Profit.#5

From the standpoint of simple self-interest, the one-percenters and their useful academic spokespersons should consistently argue FOR deficit spending and the ninety-nine-percenters and their academic spokespersons should consistently argue AGAINST it.

Accordingly, whoever calls himself a Progressive and argues for deficit spending and assures that debt does not matter is a political fraudster. Fact is that nobody has done more for the one-percenters than deficit-pushing economists.#6

Egmont Kakarot-Handtke


#1 Economics: a science without scientists
#2 How MMT enlightens Washington
#3 Austerity and the utter scientific ignorance of economists
#4 MMT: No sound basis
#5 Profit and the decline of labor’s nominal share
#6 Keynes, Lerner, MMT, Trump and exploding profit

Related 'Austerity: Who takes the little man for a ride?' and 'Intellectual deficit spending' and 'Austerity and the idiocy of political economists' and 'MMT: The joy of public deficit spending' and 'MMT and the magical profit disappearance' and 'Who or what exactly did Keynes save?' and 'Mass unemployment: The joint failure of orthodox and heterodox economics’ and 'MMT is ALWAYS a bad deal for the 99-percenters' and 'MMT: Money-making for the one-percenters' and 'Political economics: Who hijacks British Labour?'

***
REPLY to Barkley Rosser on May 31

You say: “Oh, but it turns out you have no problem yourself indulging in cargo cult political economy with your silly theory, actually coming up with a definite policy recommendation: rich people should like deficit spending while poor people should like balanced budgets (or at least smaller deficits).”

This is what I actually said: “From the standpoint of simple self-interest, the one-percenters and their useful academic spokespersons should consistently argue FOR deficit spending and the ninety-nine-percenters and their academic spokespersons should consistently argue AGAINST it.”

So, if they had (i) the correct profit theory and (ii) could think logically, the ninety-nine-percenters and their academic spokespersons should consistently argue against deficit-spending because it is always a bad deal for the ninety-nine-percenters.#1

The curious fact is that they don’t. Fact is that (iii) MMTers claim to promote the cause of the ninety-nine-percenters, and (iv) argue without exception for money creation/deficit spending.

Because Public Deficit = Private Profit the academic spokespersons of MMT are either committing a logical error or a political fraud. De facto, that is, independently of what they think and say, MMTer are pushing the agenda of the one-percenters.

So, MMTers are either stupid or corrupt or both. In any case, they are NO scientists. This characteristic they share with Walrasians, Keynesians, Marxians, Austrians and Barkley Rosser.

You argue: “So, higher deficit spending under FDR and LBJ clearly was associated with greater income equality while higher deficit spending under Reagan and George W. Bush did just the opposite for very obvious reasons, although ones you deem to be unimportant. How do you reconcile these hard facts with your ridiculous theory, Egmont?”

The axiomatically correct macroeconomic Profit Law as stated above consists exclusively of measurable variables and is therefore readily testable. So you could easily refute me by applying the Profit Law to the macroeconomic data from FDR over LBJ over Reagan to GWB. This is what a scientist is supposed to do.

Note that there are two issues here (i) the classical macroeconomic issue of the relative magnitudes of profits and wages [To determine the laws which regulate this distribution, is the principal problem in Political Economy (Ricardo)] and (ii) the issue of the distribution of wages among workers and of profits among firms.#2

It is pretty obvious that economists from Smith/Ricardo via Keynes to MMT and finally to Barkley Rosser never understood what macroeconomic profit is and by consequence thoroughly messed up Distribution Theory.

However, as MMT clearly demonstrates, the lack of the true theory never stopped economists from agenda pushing and serving as useful political idiots.

I wonder how it could escape your attention that the sectoral balances equation MMTers proudly present on any occasion#3 is proto-scientific garbage and that macroeconomics is provably false since Keynes.#4


#1 MMT is ALWAYS a bad deal for the 99-percenters
#2 Essentials of Constructive Heterodoxy: Profit
#3 Down with idiocy!
#4 The demise of phony experts: macroeconomics is provably false

***
REPLY to ANC Driver on May 31

You ask: “What if all deficit spending by the monetary sovereign were via equal fiat distributions to all citizens?”

In this case, two things happen:
(i) If all households spend this helicopter money, the price goes up a little (NO inflation) and the household sector gets the SAME total real output under the conditions of market clearing.#1,#2
(ii) The profit of the business sector increases because of Qm1=C1−Yw in comparison to Qm0=C0−Yw with C1 greater C0. The difference between C1 and C0 is the amount of helicopter money.

The real situation of the household sector remains unchanged because the price hike counteracts the nominal demand increase. The situation of the business sector as a whole improves, i.e. monetary profit Qm is higher.

All these political movements (MMT, Helicopter Money, Magical Money Tree, Functional Finance, and good old Keynesian Deficit Spending) amount ultimately to the self-financing of the one-percenters via the state.#3, #4, #5

Whether MMTers are aware of it or not does not matter. De facto, the political fallout of MMT’s economic policy guidance is a weakening of democracy and a strengthening of oligarchy.


#1 MMT: academic snake oil for the people
#2 MMT, money printing, stealth taxation, and redistribution
#3 Clueless about money and profit
#4 Helicopter money — a free lunch for the one-percenters
#5 The Emergence of Profit and Interest in the Monetary Circuit

***
REPLY to Barkley Rosser on Jun 1

You say: “So, in fact, your claim that that top income people always gain (or ‘should’ do so) when deficit spending increases, is simply empirically false: under the budget policies of the 1930s-40s and 1960s, exactly the opposite happened. You are just plain wrong.”

This is what I actually said: “To make the argument short, the axiomatically correct Profit Law for the economy as a whole is given as Qm=Yd+(I−Sm)+(G−T)+(X−M) which reduces to Qm=G−T for Yd, I, Sm, X, M = 0. The reduced Profit Law says that the monetary profit of the business sector Qm is equal to the deficit G−T of the public sector, in a nutshell: Public Deficit = Private Profit.”

For anyone who can read an equation, it is obvious that the positive effect of a government deficit G−T on macroeconomic profit Qm can at any time be counteracted by negative effects of the other variables, i.e. Yd, I, Sm, X, M.

Whether this has been the case in the 1930s-40s and 1960s can be established by testing the complete equation. There is no way around it, in order to refute the Profit Law you or some qualified econometricians have to do the testing. This is how science works: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)

Fact is that you do not have realized in your whole career as cargo cult scientist that the MMT balances equation (X−M)+(G−T)+(I−S)=0#1 and the Keynesian I=S#2 are logically inconsistent and that, by consequence, all IS-LM models are false from Hicks to Krugman.#3 Macro is proto-scientific garbage for 80+ years.

You have not realized either that your academic colleagues, the MMT money printers and deficit spenders, are deceiving the general public by obfuscating the profit effect of public deficit spending.#4

Macroeconomics is provably false since Keynes, academic economists push the agenda of Wall Street by telling people that public debt does not matter#5, and Barkley Rosser, an economist who never understood what profit is, entertains the audience with the Happiness Curve, how the Saudi crown prince tortures fellow princes, with the assassination of MLK and JFK, the death of Yeshua bin Yusuf, and the infighting of the Bolsheviks back in the 1920s.

Whatever you are doing, it is NOT economics and NOT science.#6


#1 Rectification of MMT macro accounting
#2 How Keynes got macro wrong and Allais got it right
#3 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
#4 MMT and the magical profit disappearance
#5 How MMT enlightens Washington
#6 Economics: communication without content

May 28, 2018

Does economics matter more for bread or for circuses?

Comment on Chris Dillow on ‘Does economics matter?’

Blog-References and Blog-Reference

Economics claims to be a science but is NOT. Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years.

From Adam Smith/Karl Marx onward, economists claim that their economic policy guidance has scientific foundations. This claim is untenable because economists lack the true theory: “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) Scientific truth is well-defined since 2000+ years by material and formal consistency. There is NO such thing as a materially/ formally consistent economic theory.

Economics is one of the most embarrassing scientific failures of all times.#1, #2 Economic policy guidance NEVER had sound scientific foundations. And it does not matter at all whether this guidance has been more rightist or more leftist, more capitalist or more communist.

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. With the pluralism of provably false theories, economics sits squarely at the proto-scientific level.

Because of this, the discussions of economists of different schools never had any scientific relevance. Economics has no truth value but only some political use value. Politics itself, though, has at some point in history been swallowed up by the entertainment industry. And this is how economics ultimately became an integral part of the Circus Maximus with economists as political clowns.#3

For a proof, one needs not go further than the Stumbling-and-Mumbling blog.

Egmont Kakarot-Handtke


#1 Throw them out! Orthodox and heterodox economists are unfit for science
#2 The real problem with the economics Nobel
#3 Economists: scientists or political clowns?

Related 'Macroeconomics ― dead since Keynes' and 'Delusions of useful idiots' and 'Economics: a science without scientists'.

May 25, 2018

Additional proof of MMT’s inconsistency

Comment on Tom Hickey’s ‘Bill Mitchell — A surplus of trade discussions’

Blog-Reference and Blog-Reference

Bill Mitchell argues: “MMT economists are not unique in their focus on real things rather than nominal things, although we certainly differ from the mainstream in that there are situations where the nominal level is crucial to understanding the consequences of a change. … Giving some real thing away is a cost. Getting some real thing is a benefit. That doesn’t equate, as I have been reading the last few weeks, in a conclusion that MMT’s preference is for a nation to have a current account deficit. It just states the obvious fact that exports, by definition, involve sacrificing real resources and depriving a nation of their use. Imports on the other hand clearly involve receiving final goods and services where the real resource sacrifice has been made by the exporting nation.”

This is the real argument. Let us now turn to the nominal argument. MMT’s sectoral balances equation/national income identity is given with (X−M)+(G−T)+(I−S)=0 (i).#1

From equation (i) follows (G−T)=S (ii) for the simplified case X, M, I = 0.

This means: “Based on the national income identity, MMT states that it is possible for the non-government sector to accumulate a surplus [S] only if the government runs budget deficits [G−T greater 0]. As most private sectors want to accumulate a surplus, MMT economists usually advocate for government budget deficits.”#2

From equation (i) follows (X−M)=S (iii) for the simplified case G, T, I = 0.

In nominal terms, a foreign trade surplus [X−M greater 0] is absolutely equivalent to a government deficit. By logical consequence, MMT should not only advocate government deficits but also export surpluses. This is not the case, an export surplus means for MMTers that a “real resource sacrifice has been made by the exporting nation.”

Conclusion: The recent discussion about foreign trade#3 confirms that MMT is logically defective in all dimensions.#4 This means that MMTers do NOT understand how the monetary economy works. This confirms what has already been established elsewhere: MMT is proto-scientific garbage.#5

Egmont Kakarot-Handtke


#1 Down with idiocy!
#2 Wikipedia, Modern Monetary Theory
#3 Steve Keen, MMT’s ignorance of economic thought
#4 Rectification of MMT macro accounting
#5 How MMT enlightens Washington

Related 'Everything you know about MMT is wrong' and 'MMT is idiocy and fraud'.

***

Additional proof of MMT’s inconsistency (II)

Blog-Reference on May 26

The preceding post (I) concluded: “This means that MMTers do NOT understand how the monetary economy works.” More specifically, MMTers have no idea how the real and nominal variables of the monetary economy interact. This inevitably leads to the question, how, then, does the monetary economy work?

Economics is axiomatically false, therefore, it has to be reconstructed from scratch. As the correct 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 (C1) market clearing X=O and (C2) budget balancing C=Yw the price is given by P=W/R, i.e. the market clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. The axioms define the interaction between real and nominal variables. More details and a graphical representation have been given elsewhere.#1

In order to deal with foreign trade, two economies are needed. For a start, it is assumed that we have the USA and Europe. Both are described by the axioms (A1)/(A3) and the conditions (C1)/(C2). Both economies are identical, except for the currency. For a start, we have an exchange rate 1$ = 1€. So, both economies differ only in nominal terms.

Initially, the national accounting balance of the US household sector is balanced, i.e. C=Yw [$]. Now, the consumers decide that they want more stuff and that they want to buy it from Europe.

Things unfold now in the most elementary case as follows:
(i) The US household sector takes a credit at the US central bank of the amount EX $.
(ii) The balance sheet of the US central bank lengthens: household sector’s overdrafts EX are equal to household sector’s deposits.
(iii) The US central bank turns to the EU central bank in order to get Euros.
(iv) The balance sheet of the EU central bank lengthens: US central bank’s overdrafts in $ are equal to US central bank’s deposits at the EU central bank in €, i.e. = EX.
(v) The US central bank switches the US household sector’s $ deposits for € deposits at the EU central bank.
(vi) As a result, the US households have $ overdrafts at the US central bank and € deposits at the EU central bank. On the other hand, the EU central bank has $ deposits at the US central bank.
(vii) Finally, the US household sector spends the € deposits in Europe.

Initially, national accounting in Europe and the USA looked like this: Qm≡C−Yw and Sm≡Yw−C or Qm=−Sm, Legend Qm monetary profit, Sm monetary saving in € resp. $.#2 With the additional spending of the US households this gives for the European business sector Qm=C+EX−Yw or Qm=EX−Sm.

Initially, Qm in the EU has been 0 because of budget balancing, just as in the US. It is now assumed for a start that EU households spend less, i.e. save, thus that Sm exactly compensates the additional spending of US households, i.e. Sm=EX. As a result, business sector’s profit Qm is again zero, just as in the initial period.

At the end of the period, EU households have deposits at the EU central bank and US households have overdrafts at the US central bank. EU households have given up part of the real output O in Europe = Sm in nominal terms. As a mirror image, US households have increased real consumption and gone into debt vis-a-vis the EU households.

Economically, EU households have lent real stuff to US households. On the accounts of the central banks, the whole transaction comes down as an increase of $ assets at the EU central bank.

At some point in time, the whole transaction has to be reversed. That is, the US households have to return real stuff and to redeem their debt. In this case, the US runs an export surplus and EU a deficit. So, at the end of the whole process, all real and nominal balances are balanced. And this is exactly as it should be. The whole process comes down to a time shift of real consumption between two countries.

Needless to emphasize that a lot of practical problems arise if the US cannot, for whatever reasons, achieve an export surplus and finally redeem the debt. No problems arise, of course, as long as the EU central bank holds the debt = $-assets for an indefinite time.

In the case that the EU households do not exactly save the amount the US households spend, i.e. Sm less than EX, the profit of the EU business sector becomes greater than 0, i.e. Qm=EX−Sm is positive. In this case, the market clearing price in the EU rises. The US business sector is neither affected in real nor in nominal terms. There is no loss of employment because of the trade balance deficit.

MMTers neither get the real nor the nominal nor the monetary side of the whole process right. To recall, the MMT balances equation is provably false because MMTers are too stupid to understand the elementary mathematics of national accounting.#3


#1 True macrofoundations: the reset of economics
#2 Rectification of MMT macro accounting
#3 For the full-spectrum refutation of MMT see cross-references MMT

May 22, 2018

Both orthodox and heterodox economists are cargo cult scientists

Comment on Lars Syll on ‘People having bad luck when trying to think’

Blog-Reference

Andrew Lilico wrote in The Telegraph: “But rationality is not an assumption of orthodox economic theory in that sense. Instead, it is what is called an ‘axiom’. No behaviour can prove that people aren’t, in fact, rational, because for an orthodox economist the only kind of explanation of any behaviour that counts as an economic explanation is an explanation that makes sense of that behaviour ― that shows why the behaviour is rational.”

Lars Syll comments on this: “Wooh! Who would have thought anything like that? Build your science on whatever foolish axioms you like ― and since they are axioms no one can really criticize them and show that you are wrong.”

Lars Syll clearly suffers from the methodological delusion that ‘axiom’ means ‘beyond critique’. This is sheer nonsense and every scientist worth his salt knows this.

Every scientific analysis needs a well-defined starting point: “The attempt is made to collect all the assumptions, which are needed, but no more, to form the apex of the system. They are usually called the ‘axioms’ (or ‘postulates’, or ‘primitive propositions’; no claim of truth is implied in the term ‘axiom’ as here used). The axioms are chosen in such a way that all the other statements belonging to the theoretical system can be derived from the axioms by purely logical or mathematical transformations. (Popper)

Or, as Aristotle put it 2000+ years ago: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.”

Or, as J. S. Mill put it: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.”

No methodologist ever claimed that axioms cannot be criticized or changed. As a matter of fact, the move from one set of axioms to a new one is known as paradigm shift. Keynes famously advocated such a shift: “Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”#1

Newton put his PHYSICAL axioms on the first pages of Principia. In methodological analogy ECONOMIC axioms have been laid down by economists. The core of orthodox economics is given with this verbalized set of 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)

It is pretty obvious that the neo-Walrasian axiom set contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every theory/model that contains just one NONENTITY is a priori false. And when the axioms are false the whole analytical superstructure is false.

The axioms of orthodox economics are NOT “certain, true, and primary” and because of this, the whole analytical superstructure is scientifically worthless.

Economists never grasped what science is all about: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.” (Feynman)#2,

What economics is missing to this day is the formally and materially consistent set of axioms. Heterodox economists like Lars Syll are methodologically just as incompetent as orthodox economists.#3

Egmont Kakarot-Handtke


#1 Show first your economic axioms or get out of the discussion
#2 Why is economics a total scientific failure?
#3 True macrofoundations: the reset of economics

For details of the big picture see cross-references Scientific Incompetence and cross-references Failed/Fake Scientists.

May 21, 2018

How MMT enlightens Washington

Comment on Zach Carter’s ‘Stephanie Kelton Has The Biggest Idea In Washington’

Blog-Reference

Anybody with an IQ around room temperature counts as a genius in Washington. Against this benchmark, Stephanie Kelton’s MMT policy proposals look like a rather big idea.

MMT promises to reconcile “the trifecta of growth, employment and price stability”. Note, first of all, that distribution is not mentioned. For good reasons. Distribution is the lethal flaw of MMT.#1

“Adoption of policy based on MMT analysis should keep the economy operating close to optimal output and employment … with the JG playing the dual role of providing a price anchor, on one hand, and on the other, mopping up residual unemployment after the application of functional finance to fiscal policy based on stock-flow consistent macro modeling.”

And here exactly lies the problem. MMT analysis and macro modeling is anything but consistent. Because of this, MMT policy guidance never had valid scientific foundations. MMT is soapbox economics. MMT’s foundational macroeconomic balances equation is provably false and this settles the matter once and for all.#2

According to the axiomatically correct macroeconomic Profit Law, it always holds Public Deficit = Private Profit. Therefore, MMT is a program for the one-percenters and has never been anything else.

The Job Guarantee is the banner that Stephanie Kelton and the rest of the MMT sales team enthusiastically waves in order to cover the one-percenter-agenda. The Huffington Post’s attempt to sell Stephanie Kelton as the incarnation of the triumph of the working class/ninety-nine-percenters over Wall Street/one-percenters is a bad joke.#3

Egmont Kakarot-Handtke


#1 Keynes, Lerner, MMT, Trump and exploding profit
#2 Down with idiocy!
#3 MMT vs Neoliberalism: Just another clown show fight

Related 'MMT and the promotion of Wall Street socialism' and 'MMT: The one deadly error/fraud of Warren Mosler' and 'MMT = proto-scientific junk + deception of the 99-percenters' and 'MMT and grassroots movements' and 'Political economics: Who hijacks British Labour?' and 'Full employment through the price mechanism'. For the full-spectrum refutation of MMT see cross-references MMT.

***
REPLY to Konrad, Calgacus, Kristjan, Tom Hickey on May 21

Sandwichman has compiled the key statements of Zach Carter’s portrait of Stephanie Kelton over there at EconoSpeak. Here is the copy/paste:

“Everybody wants a piece of Kelton these days because a simple, radical idea she has been workshopping her entire career is the next big thing in Democratic Party politics. She calls it the job guarantee... “

“Once an outsider, her radical economic thinking won over Wall Street. Now she’s changing the Democratic Party.”

“A onetime college dropout at California State University in Sacramento, Kelton has managed to earn the esteem of both Sanders and an oddball clique of multimillionaire Wall Street traders.”

“If you listen to Kelton long enough, you notice that she never refers to “bankers” or “Wall Street” with the derisive tone common among her political allies. She talks instead about “the financial community.””

“After all, Wall Street took her under its wing before Democrats took her seriously.”

“Her career had changed tracks. She wasn’t just a clever economist with some quirky ideas anymore. Her credibility with Wall Street began to register as academic clout.”

“There are thousands of left-wing economists. But it’s hard for the economically inexpert to distinguish brilliant creativity from quackery. Kelton’s social credentials with Wall Street helped her stand out.”

In other words, MMT pushes the agenda of the one-percenters and Stephanie Kelton is the ideal person for emotional social marketing and hijacking the political grassroots movements. The Job Guarantee serves as a door opener for the MMT salespeople. Wall Street’s ultimate goal, though, is deficit spending and the perpetual growth of public debt. #1, #2, #3, #4, #5

Poor Bernie Sanders, his supposedly left-wing economic platform has been written by Wall Street operatives.


#1 MMT: Just another political fraud
#2 MMT: So-called progressives as trailblazers for Trumponomics
#3 Bill Mitchell, MMT’s fake scientist
#4 MMT: academic snake oil for the people
#5 MMT = proto-scientific junk + deception of the 99-percenters

***
REPLY to Tom Hickey on May 22

You seem to have lost orientation: “Trump syndrome? The crazy seem to be going over the top everywhere, and the news is all gaslighting.”

No, not at all, it’s economics as usual. The whole UBI-JG discussion is pointless because economists in general and MMTers, in particular, lack the true Employment Theory since Keynes wrote the General Theory of Employment, Interest, and Money.#1, #2

Keynes also messed up the Profit Theory.#3

So, neither MMT, nor Keynesianism, nor Walrasianism, nor Marxianism, nor Austrianism has any scientific merits.

This, though, does not matter much because in economics it is NOT the scientific truth value that counts but the political use value. To recall, economics started as Political Economy 200+ years ago and is a cargo cult science since then.

Economists are not scientists who try to figure out how the monetary economy works but agenda pushers. This is pretty obvious in the case of MMT and Stephanie Kelton. As Zach Carter plainly states: “After all, Wall Street took her under its wing before Democrats took her seriously.”

This is a good old tradition since Engels took Marx under his wing and Cowles took Koopmans, Arrow, Debreu, etcetera under his wing and it is kept alive by the Koch brothers, George Soros, and “an oddball clique of multimillionaire Wall Street traders” (Carter).

The stupid oligarchs spend their money more on porn stars, the smart oligarchs spend it more on economists. There is nothing to be confused about.


#1 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#2 Full employment through the price mechanism
#3 How Keynes got macro wrong and Allais got it right

***
REPLY to Tom Hickey, Andrew Anderson, Matt Franko, Noah Way, Carlitos, Calgacus

There is political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years.

Political economics is easy to identify. It applies emotionally charged keywords like democracy, freedom, liberty, slavery, serfdom, poverty, exploitation, inequality, happiness, alienation, capitalism, socialism, Nazi, Commie, WeThePeople, etcetera.

Political economics, clearly, is NOT science. The Original Sin of economics is that science and politics have never been kept properly apart. As a result, economics stagnates since 200+ years at the proto-scientific level. And this means, in turn, that economic policy guidance NEVER had sound scientific foundations.

This holds for Walrasianism, Keynesianism, Marxianism, Austrianism. This, of course, holds also for MMT. MMT is NOT a valid scientific theory, MMTers, like the rest of orthodox and heterodox economists, do not even understand what science is all about.#1 Worse, as the Huffington Post’s portrait of Stephanie Kelton clearly shows, MMT is Wall Street-sponsored agenda pushing for the one-percenters dressed up as progressive social policy.

“The basic idea is that the government can’t run out of money. It creates money just by spending.” (Stephanie Kelton) Because the macroeconomic Profit Law says Public Deficit = Private Profit, MMT’s social policy in effect co-creates the most unequal distribution of income and financial wealth in the history of mankind.

Since Adam Smith/Karl Marx, economics is a scientific fraud and MMT is an integral part of it.#2 Let’s face it, bloggers like you keep economics ― intentionally or unintentionally does not matter ― firmly in the bottomless swamp of political economics.#3 With your senseless blather, you do not contribute to the solution of any economic problem. As useful political idiots, you ARE the problem.#4


#1 Both orthodox and heterodox economists are cargo cult scientists
#2 MMT is idiocy and fraud
#3 Yes, economics is a bogus science
#4 For details of the big picture see cross-references Failed/Fake Scientists

***
REPLY to Konrad on May 23

This is the sectoral balances equation, Stephanie Kelton, Warren Mosler and the rest of the MMT salespeople present on any occasion (X−M)+(G−T)+(I−S)=0.#1, #2

This equation is provably false because the balance of the business sector = profit is missing. It is lethal for the foundational macroeconomic equation not to contain the pivotal economic magnitude profit.

This is the axiomatically correct balances equation (X−M)+(G−T)+(I−S)−(Q−Yd)=0. As you can easily see it contains profit Q and distributed profit Yd.

Whoever does not understand the economic content of the two equations is out of economics.

To sum up the thread ‘Stephanie Kelton Has The Biggest Idea In Washington’:
  • Stephanie Kelton is an agenda pusher for the one-percenters.
  • MMT’s social policy proposals ― the Job Guarantee in particular ― are a political bluff package.
  • It is an unassailable scientific fact that Public Deficit = Private Profit.
As far as MMTers do not understand the Profit Law they are stupid. As far as they understand it and nonetheless claim to promote the cause of the ninety-nine percenters, they are corrupt.

Whatever counts in Washington as “biggest idea” is with absolute certainty both stupid and corrupt.


#1 Down with idiocy!
#2 MMT: The one deadly error/fraud of Warren Mosler

***
REPLY to Matt Franko on May 23

You say: “The academe has a major defect in this discipline... the undergraduate degree program is not rigorous enough in applied mathematics and scientific methods .... this is not a 'hijacking!' you are drifting into conspiracy theory.”

I said: “Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers).”

This is a historical fact.#1, #2, #3, #4 The current curriculum is an entirely different matter.#5

MMT is agenda pushing for the one-percenters. The T=Theory in MMT is a misnomer because it refers to science. Science, in turn, is defined by material and formal consistency. MMT’s sectoral balances equation, though, is inconsistent. So, MMT is storytelling cross-dressed as science. In other words, in the case of MMT, political economists (= agenda pushers) have hijacked theoretical economics (= science).#6

The task of theoretical economics is to figure out how the monetary economy works. MMTers have no idea how the price- and profit-mechanism works because they do not even know what profit is.#7


#1 Agenda pushers, hijackers, and scientists
#2 Scientific suicide in the revolving door
#3 Funny folks in the big omnibus
#4 Economics: a science without scientists
#5 See cross-references Econ 101/Old Curriculum/New Curriculum
#6 The end of political economics
#7 Rectification of MMT macro accounting

***
REPLY to Matt Franko on May 24

You say: “The MMT elites HATE the one-percenters...”

Hate/love are soap-opera criteria. They do NOT apply to science. The criteria that apply here are true/false with truth defined as material and formal consistency.

So, it is a matter of indifference what the MMT elites hate.

Fact is that the sectoral balances equation MMT is built upon is provably false.#1 Because of this, the whole analytical superstructure = theory is false. This is quite compatible with the observation that some MMT propositions are correct or trivially true, just as some propositions in Greek mythology or Grimms fairy tales are correct or trivially true. But the fact that Baker Street exists does not change the meta-fact that Sherlock Holmes is a NONENTITY.

MMT’s sectoral balances equation (X−M)+(G−T)+(I−S)=0 describes a zero-profit economy. Clearly, a zero-profit economy is a NONENTITY.

The MMT elites can tell exciting stories about who they hate or love. That is cheap sales talk. The economic fact of the matter is that according to the macroeconomic Profit Law it holds Public Deficit = Private Profit. Whether they are aware of it or not does not matter, MMTers de facto promote the cause of the one-percenters.#2

The MMT elites are either stupid or corrupt. In any case, they are NO scientists.


#1 Rectification of MMT macro accounting
#2 Keynes, Lerner, MMT, Trump and exploding profit

May 20, 2018

Progressive shell games

Comment on Sandwichman’s ‘Jobs, Jobs, Jobs ― GUARANTEED!’

Blog-Reference and Blog-Reference

Sandwichman reports what Kalecki, Keynes, Beveridge, Collins, and many others have said about full employment, unemployment, leisure, and the general strike. This historical review is pointless because it tells us only what people have hallucinated about the labor market. Never do we get the scientifically correct answer how overall employment is determined.

Neither Kalecki, nor Keynes, nor the rest of gossip economists ever understood how the price- and profit-mechanism works.#1, #2 Because of this, their policy guidance never had valid scientific foundations and never rose above the trivialities of common sense, folk psychology, and populism.

MMT is not different in this respect.#3

The noteworthy feature of the MMT Job Guarantee proposal is NOT that it is particularly innovative or institutionally superior but that it is financed by deficit spending. And exactly at this point, the political fraud comes in.

According to the axiomatically correct macroeconomic Profit Law, it always holds Public Deficit = Private Profit. Therefore, MMT is a program for the one-percenters and NOT for the ninety-nine-percenters, or the working class, or the proletariat. It is NOT the Job Guarantee that is specific to MMT but money creation/deficit spending.

Sandwichman does not get the point and his collection of dead arguments from the long history of economic blathering is at best good as a distraction from the original purpose of MMT, that is, to push overall profit.#4

Will Sandwichman ever understand the Employment Law?#5 This is what he fantasizes about his competence: “I have been on the full employment beat for over 20 years so I think I have a pretty good grasp of the terrain.” After 20 years in the deep woods, there is no hope left for the man.

Egmont Kakarot-Handtke


#1 The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment
#2 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#3 Full employment through the price mechanism
#4 Keynes, Lerner, MMT, Trump and exploding profit
#5 The set screws of overall and individual employment

***
REPLY to Ralph Musgrave on May 21

You ask: “Er ― what about if a deficit takes the form of handing out more to the unemployed or the elderly?”

The macroeconomic Profit Law reads Qm=Yd+I−Sm+(G−T)+(X−M) for an open economy (X−M) with a government sector (G−T), and with business investment I, household sector saving/dissaving Sm, and distributed profit Yd.

It does NOT MATTER AT ALL whether the budget deficit (G−T) is created by handing out more money to the military, the unemployed, the elderly, or for Stephanie Kelton’s program A Pony for Every American.

A budget deficit means ALWAYS a monetary profit of equal amount for the business sector and imperceptible taxation in real terms for the household sector. The social goodies MMT promises are in any case paid for in real terms by the ninety-nine-percenters themselves.#2

Nothing has enriched the rich more in the last decades than public deficit spending and MMT’s political fraud consists in keeping the public debt growing by producing a social smokescreen.#3

Only morons, retarded economists like Ralph Musgrave, and Marxist philosophers like Tom Hickey do not see the correlation between the growth of financial wealth on the one hand and the growth of public/private debt on the other.


#1 MMT, money printing, stealth taxation, and redistribution
#2 MMT is idiocy and fraud
#3 How MMT fools the ninety-nine-percenters

May 12, 2018

Marx’s bicentennial ― nothing to discuss, nothing to celebrate

Comment on Tom Hickey’s ‘Steve Keen — Karl Marx sacrificed logic on the altar of his desire for revolution’

Blog-Reference

What economists produce is not so much scientific knowledge but some mixture of propaganda, how-to-get-rich quackery, disinformation, and entertainment. 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. With the pluralism of provably false theories economics sits squarely at the proto-scientific level.

Economics is one of the most embarrassing scientific failures of all times. Economic policy guidance NEVER had sound scientific foundations. And it does not matter at all whether this guidance has been more rightist or more leftist, more capitalist or more communist. Because of this, the discussions of economists of different schools never had any scientific relevance and have roughly the same entertainment value as a wrestling show.

The irrelevance of Steve Keen’s critique of Marx consists in the fact that both so-called economists have no idea of the foundational economic concept of profit.#1, #2 Everybody knows from methodology that when the premises are false the whole analytical superstructure is false. Or in the words of Aristotle: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.”

Economics started as Political Economy. Marxianism is not so much economics as Sociology, Anthropology, History, Political Science, Philosophy, Psychology, and agenda pushing.#3 Marx got the pivotal concepts profit, exploitation, and class wrong.#4, #5 The axiomatically correct profit theory tells everybody that macroeconomic profit is determined in the most elementary case by dissaving = growth of household- and public sector debt#6 and NOT by exploitation and that there is NO antagonism between wages and profits for the economy as a whole.

Economists of ALL camps are cargo cult scientists and have not gotten their foundational concepts straight in the last 200 years. Nothing to celebrate on Marx’s bicentennial but the persistence of economists’ stupidity and fraud.#7, #8

Egmont Kakarot-Handtke


#1 Profit for Marxists
#2 How the Intelligent Non-Economist Can Refute Every Economist Hands Down
#3 It is not quite clear which agenda Marx was pushing. See Karl Marx, Prussian government agent
#4 Capitalism, poverty, exploitation, and cross-over exploitation
#5 Ricardo and the invention of class war
#6 Keynes, Lerner, MMT, Trump and exploding profit
#7 Economists: scientists or political clowns?
#8 The end of political economics

***


***
REPLY to Tom Hickey on May 19

Schopenhauer called Hegel “A flat-headed, insipid, nauseating, illiterate charlatan.” No wonder that Hegel appealed to Marx and later on to other flat-headed philosophers like Tom Hickey.

The bad luck of philosophers is that philosophy is entirely irrelevant for economics which means for the philosopher Tom Hickey that he is in the wrong place at an economics blog.

MMT, clearly, is a program for the one-percenters.#1 Why do MMTers like Bill Mitchell and Tom Hickey demonstrably wave the Marx flag? Something is wrong here.

Marx is known as a lousy economist#2 and political agenda pusher and, most of all, for his claim that the working class will one day fully replace the capitalist class due to the law of social dialectics. Quite naturally, this sociological/historical hypothesis appeals more to the ninety-nine-percenters than to the one-percenters.

Bill Mitchell, Tom Hickey, and the rest of the sales team use Marx in order to make MMT palatable to the ninety-nine-percenters.#3, #4

An intelligent Marxist/MMTer (who is indeed as rare as a unicorn) would simply create some extra money but NOT for deficit spending, which only boosts macroeconomic profit according to the axiomatically correct Profit Law Public Deficit = Private Profit, but for continuously buying shares on Wall Street and successively taking over the control of all big corporations. No social revolution is needed. In fact, nothing is easier than to abolish capitalism.#5 Why do MMTers waste so much time with the Job Guarantee and other social programs?


May 9, 2018

200 years in the dark ― how Marx got it wrong

Comment on Sandwichman’s ‘200 Years, 200 Dollars!’

Blog-Reference

Sandwichman asks: “In what passage of The Wealth of Nations did Adam Smith commit the lump-of-labor fallacy … and in what passage of Capital did Karl Marx disparage the assumption as dogma and prejudice?”

The Wealth of Nations passage is about the limitationality of the production factors labor and capital which was later on simply defined away with the well-behaved production function and full substitutionality.

The Marxian argument is inconsistent. The Labour Theory of Value says that the lengthening of labor time increases surplus value. By the same logic, it should be advantageous to employ workers to the point of full-employment because maximum labor time = maximum exploitation = maximum surplus value.

Confronted with persistent unemployment in the capitalist economy, Marxians came up with the reserve army argument, that is, unemployment is necessary to prevent wages from rising and profits from falling.

This argument is false because the axiomatically correct profit theory tells everybody that macroeconomic profit is determined in the most elementary case by dissaving = growth of household sector debt and NOT by exploitation and that there is NO antagonism between wages and profits for the economy as a whole.#1, #2, #3

Because profit theory is false, the whole analytical superstructure of Capital is false. Same for Smith’s Wealth of Nations. Economists in general and Marxians, in particular, did not realize this in the last 200 years. Nothing to celebrate on Marx’s bicentennial but the persistence of economists’ stupidity and fraud.#4

Egmont Kakarot-Handtke


#1 Profit for Marxists
#2 Capitalism, poverty, exploitation, and cross-over exploitation
#3 Ricardo and the invention of class war
#4 Economists: political trolls since 200+ years

Related 'Marx and the curious coexistence of provably false economic theories' and 'Confounding sociology and economics' and 'Note on Amy Willis ‘Can majoring in philosophy make you a better person?’ and 'Note on ‘Duncan Foley On Socialist Alternatives to Capitalism’' and 'Marx’s bicentennial ― nothing to discuss, nothing to celebrate'.

***
REPLY to Sandwichman on May 10

Both, Smith’s and Marx’s employment theories were false. To incessantly recycle this dead stuff#1 and to make a quiz show out of it is an act of anti-scientific disinformation a.k.a. political economics.


#1 End of the Lump-of-Labor sitcom

May 7, 2018

Did economics fail? No! Yes, and everybody knows it!

Comment on Silvia Merler’s ‘Did Economics Fail?’

Blog-Reference and Blog-Reference on May 9

Silvia Merler reports: “The debate about rethinking economics keeps rambling.” True. And the wonderful thing is that we have heard all arguments already multiple times.

The Pavlovian answer to the question Did Economics Fail? goes as follows: “Economics is a strange sort of discipline. The booby traps I mentioned often make it sound as it is all just a matter of opinion. That is not so. Economics is not a Science with a capital S. It lacks the experimental method as a way of testing hypotheses. . . . There are always differences of opinion at the cutting edge of a science, . . . . But they last longer in economics . . . and there are reasons for that. As already mentioned, rival theories cannot be put to an experimental test. All there is to observe is history, and history does not conduct experiments: too many things are always happening at once. The inferences that can be made from history are always uncertain, always disputable, . . . You can’t even count on a long and undisturbed run of history, because the ‘laws’ of behavior change and evolve. Excuses, excuses. But the point is not to provide excuses.” (Solow, 1998)#1

Fact is: “… suppose they [the economists] did reject all theories that were empirically falsified … Nothing would be left standing; there would be no economics.” (Hands, 2001)

Fact is: the main approaches and their variants and derivatives ― Walrasianism, DSGE, Keynesianism, Post-Keynesianism, New Keynesianism, MMT, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept profit wrong.#2 What we actually have is the pluralism of provably false theories.#3

There is political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.

Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years.#4 And this means, in turn, that economic policy guidance has NO sound scientific foundations since Adam Smith/Karl Marx. The gigantic intellectual battle about Capitalism and Socialism has never been more than a pygmy wrestling show.#5

Fact is that economists bear the intellectual responsibility for all economic crises and the resulting social devastation. This is known since Napoleon: “Late in life … he claimed that he had always believed that if an empire were made of granite the ideas of economists, if listened to, would suffice to reduce it to dust.” (Viner)

What failed economics needs is NOT another pointless critique, or one more silly discussions between scientifically incompetent orthodox and heterodox economists, or just another cosmetic reformation or breakthrough ― but a paradigm shift.

Needless to emphasize that the paradigm shift will NOT come from people who swallowed supply-demand-equilibrium hook line and sinker and never realized that what they are doing is cargo cult science.

Egmont Kakarot-Handtke


#1 For the comprehensive list of excuses see ‘Failed economics: The losers’ long list of lame excuses
#2 Why is economics a total scientific failure?
#3 Economics: 200+ years of scientific incompetence and fraud
#4 For details of the big picture see cross-references Political Economics
#5 Profit and the Private-Property-Irrelevance Theorem

Related 'The Law of Economists’ Increasing Stupidity' and 'Both orthodox and heterodox economists are cargo cult scientists' and 'Economics: a science without scientists'.

May 5, 2018

Poor Schumpeter — abused as a testimonial for MMT

Comment on Lars Syll on ‘Schumpeter — an early champion of MMT’

Blog-Reference and Blog-Reference

Lars Syll cites Schumpeter: “The theory to which economists clung so tenaciously makes them out to be savers when they neither save nor intend to do so; it attributes to them an influence on the ‘supply of credit’ which they do not have. The theory of ‘credit creation’ not only recognizes patent facts without obscuring them by artificial constructions; it also brings out the peculiar mechanism of saving and investment that is characteristic of fullfledged capitalist society and the true role of banks in capitalist evolution. With less qualification than has to be added in most cases, this theory therefore constitutes definite advance in analysis.”

Lars Syll, though, fails to cite the sequel: “Nevertheless, it proved extraordinarily difficult for economists to recognize that bank loans and bank investments do create deposits. In fact, throughout the period under survey they refused with practical unanimity to do so. And even in 1930, when the large majority had been converted and accepted that doctrine as a matter of course, Keynes rightly felt it to be necessary to reexpound and to defend the doctrine at length(fn.5), and some of its most important aspects cannot be said to be fully understood even now.”

Fn. 5 says: “There is, however, a sequel to Lord Keynes’s treatment of the subject of credit creation in the Treatise of 1930 of which it is necessary to take notice in passing. The deposit-creating bank loan and its role in the financing of investment without any previous saving up of the sums thus lent have practically disappeared in the analytic schema of the General Theory, where it is again the saving public that holds the scene. Orthodox Keynesianism has in fact reverted to the old view according to which the central facts about the money market are analytically rendered by means of the public’s propensity to save coupled with its liquidity preference. I cannot do more than advert to this fact. Whether this spells progress or retrogression, every economist must decide for himself.”

Keynes’ GT is a clear retrogression. And, as a matter of fact, MMT followed the Keynes of the GT. It should not be too difficult to see this. The MMT balances equations reads (X−M)+(G−T)+(I−S)=0 (i).#1 When simplified to the bare bones, i.e. X, M, G, T, all 0, then we have I=S that is, saving equals investment.

This is the Keynesian Ur-blunder: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)

The axiomatically correct balances equation reads (X−M)+(G−T)+(I−S)−(Q−Yd)=0 (ii).#2 Legend: Q macroeconomic monetary profit, Yd distributed profit.

The comparison of (i) and (ii) tells everybody that Keynes dealt with a zero profit economy. Because a zero profit economy is a NONENTITY the whole of the GT is proto-scientific garbage.#3 Keynes, of course, never realized this, and neither did his dull followers up to the present including Lars Syll and the MMTers. What happened as a practical result is that Keynes and MMT ultimately became the profit machine for the one-percenters.#4

To portray Schumpeter as a forerunner of the analytically brain-dead MMT garbage is an insult of the outstanding scientist Schumpeter who, as an exception#5, clearly saw the defects of Keynesian macro and who spotted exactly where macro and monetary theory took the wrong turn.

Egmont Kakarot-Handtke


#1 Down with idiocy!
#2 Profit and the Private-Property-Irrelevance Theorem
#3 Going beyond Wicksell, Keynes, and MMT
#4 Keynes, Lerner, MMT, Trump and exploding profit
#5 Economists: Standing on the Shoulders of Gnomes

Related 'Poor Wicksell — abused as a testimonial for MMT'. For details of the big picture see cross-references MMT.

***
REPLY to Calgacus on May 6

You say: “MMTers of course know all this. I used to frequently cite this very note of Schumpeter myself. Part of Minsky’s & MMT’s explicitly stated project in the early days was to combine Keynes’s General Theory with his more ‘creditary’ Treatise on Money. I mean, c’mon ― Minsky was Schumpeter’s student.”

All this biographical gossip is irrelevant. The point is that Keynes, Minsky, and MMTers got macroeconomic profit wrong.

Keynes messed up the basics of macro with this faulty syllogism: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)

Minsky built on Keynesian macro but not on I=S: “The simple equation ‘profit equals investment’ is the fundamental relation for a macroeconomics that aims to determine the behavior through time of a capitalist economy with a sophisticated, complex financial structure.” (Minsky, 2008, p. 161)#1, #2

So Minsky ended up with Q=I. The axiomatically correct Profit Law reads Q=Yd+I−S+(X−M)+(G−T) (i) for the open economy with distributed profit. This boils down to Q=Yd+I−S (ii) with government G, T and foreign trade X, M set to zero, this, in turn, boils down to the Keynes of the Treatise Q=I−S, this boils down to Minsky’s Q=I on the one hand and to the Keynes of the General Theory I=S on the other.

Schumpeter realized that there was something wrong with profit: “The concept of windfall profits is now mainly in use for aggregate profits that arise (if for this purpose we may use the terminology of Keynes’s Treatise on Money) from a surplus of investment over saving, so that individual profits that are due to chance tend to drop out of the picture. It might be argued that this arrangement misses the essence of the profit phenomenon and falls below the level attained by Marshall.”

In contrast to Schumpeter, MMTers never realized anything and in particular that there must be something wrong with profit in their pivotal balances equation.#3

You claim: “MMTers of course know all this”. Fact is that MMTers know nothing about the foundational magnitude of economics. MMT is scientifically dead, I mean, c’mon ― it is pretty obvious that debt-does-not-matter MMTers are agenda pushers of the one-percenters. After all, the axiomatically correct Profit Law (i) tells everybody that Public Deficit = Private Profit.


#1 Sitcom economics
#2 Heterodoxy, too, is scientific junk
#3 For the full-spectrum refutation see cross-references MMT

***
REPLY to Matt Franko on May 8

MMTers ARE agenda pushers of the one-percenters. This is not a hypothesis but a fact.

The somewhat skewed distribution of income and financial wealth is the empirical proof of the validity of the axiomatically correct macroeconomic Profit Law [Q=Yd+I−S+(X−M)+(G−T)] which clearly states that Public Deficit = Private Profit.#1

The main task of MMT is pushing deficit spending and sedating the ninety-nine-percenters with the slogan that public debt does not matter. You cannot take the ‘Marx Was Right After All and Give Every American a Job and a Pony’ rhetoric of the self-styled Progressives Tom Hickey, Bill Mitchell, Stephanie Kelton and the rest of the MMT sales team seriously.

MMT is NOT a scientifically valid theory but soapbox economics.#2


#1 Keynes, Lerner, MMT, Trump and exploding profit
#2 Down with idiocy!

May 4, 2018

Why is economics a total scientific failure?

Comment on Simon Wren-Lewis on ‘Why was economics so insular?’

Blog-Reference

Simon Wren-Lewis wonders about “what seems like the never ending stream of popular articles in the UK slagging off economics (or economists).” And he comes up with this explanation: “Here I outlined three potential reasons for this epidemic: people do not understand unconditional macro forecasts, politicians from the right do not like economists spoiling their pet schemes (e.g. Brexit), and many heterodox economists from the left wage endless war against the mainstream. All these complaints get airtime when the economy is bad.”

The explanation why there is an “epidemic” of critique boils down to three points:
  • “The natural reaction when the economy is bad is to criticise economists.”
  • “… economics is an easy target. Historically it has been very insular.”
  • “There is something distinctive about thinking like an economist” which people apparently do not understand/appreciate.
This leads to the solution: “… economists as a collective has to get better at communicating the core insights of economics.”

This argumentation is beside the point and shows that economists have entirely lost sight of what science is all about. No, not communication is the problem but content, or what Simon Wren-Lewis calls “the core insights of economics”.#1

The problem is that there are none: “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 do not have the true theory.

Simon Wren-Lewis gives a correct description of methodology: “… nearly all economics can be derived from the basic axioms of rational choice. For example, the modern macroeconomics of consumption is just the choice between buying apples or pears transformed to the choice between consumption at different times. In that sense economic theory is like an immense tree, where every branch deductively builds on this core.”

The core of standard economics is given with this verbalized set of 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)

The orthodox hardcore contain three NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every theory/model that contains just one NONENTITY is a priori false. And when the axioms are false the whole analytical superstructure is false.

There is nothing wrong with economic methodology except the lack of “certain, true, and primary“ (Aristotle) premises: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.” (Feynman)

Because of the NONENTITIES in the axioms, standard economics is indefensible.#2

The good luck of Orthodoxy has been that it NEVER faced an effective critique of Heterodoxy: “The enemies, on the other hand, have proved curiously ineffective and they have very often aimed their arrows at the wrong targets.” (Hahn)

So, Orthodoxy is a scientific failure but traditional Heterodoxy has not been one iota better.#3, #4, #5 What is needed is NOT the repetitive silly critique of Heterodoxy but a paradigm shift: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)

Orthodoxy has failed, no doubt,#6 but Heterodoxy has failed to develop a superior alternative. As a result, what we have is permanent stagnation at the proto-scientific level.#7 Heterodoxy attacks with silly arguments and Orthodoxy defends itself with silly arguments.

The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the pivotal concept of the subject matter ― profit ― wrong.#8 With the pluralism of provably false theories economics sits squarely at the proto-scientific level.*

Egmont Kakarot-Handtke


#1 Economics: communication without content
#2 Economics: Defending the indefensible
#3 Silly criticism of economics: 11 signs that you are the imbecile
#4 The stupidity of Heterodoxy is the life insurance of Orthodoxy
#5 How Heterodoxy keeps the Naked-Emperor-Zombie alive
#6 Overreach: Economists have their fingers in every pie except real economics
#7 Secular intellectual stagnation
#8 Profit: after 200+ years still elusive

Related 'Economics, methodology, and the Molehill Impossibility' and 'Profit theory in less than 5 minutes' and 'Failed economics: The losers’ long list of lame excuses' and 'Again and again: economists are incompetent scientists' and 'When substandard thinkers dabble in science it is called economics' and 'Economists ― medics or barber-surgeons?' and 'Eclecticism, anything goes, and the pluralism of false theories' and 'Economics has arrived at the bottom of the proto-scientific shithole' and 'What’s the use of economists?'.

* Wikimedia, AXEC141b