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 for 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 has 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 guy 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 had 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 of MMTers who call themselves Progressives. Their message is, that 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. The fact is that nobody has done more for the one-percenters than deficit-pushing economists.#6
#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 'Deficit-spending/money-creation is ALWAYS a bad deal for WeThePeople' and 'MMT: Money-making for the one-percenters' and 'Political economics: Who hijacks British Labour?' and 'Links on Austerity' and 'Deficit cheerleaders ― the Oligarchy’s useful idiots'.
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. The 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, MMTers 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 as a 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 Deficit-spending/money-creation is ALWAYS a bad deal for WeThePeople
#2 Essentials of Constructive Heterodoxy: Profit
#3 Down with idiocy!
#4 The demise of phony experts: macroeconomics is provably false
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 creation, 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
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)
The fact is that you do not have realized in your whole career as a 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
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