September 20, 2018

MMT = Modern Monetary Trash

Comment on Bill Mitchell on ‘Understanding what the T in MMT involves’

Blog-Reference and Blog-Reference and Blog-Reference on Sep 21

In his latest post#1, Bill Mitchell says “… a Tweet the other day reminded me that there was still major misunderstandings of what Modern Monetary Theory (MMT) represents and that it was time to clarify some of those errors in comprehension. Specifically, there is a current out there that considers MMT to be incorrectly labelled because according to the argument there is no theory involved. It’s hard to imagine why anyone would think that but the fact that they do tells me that I should write this blog post. As I noted yesterday, our Macroeconomics textbook to be published by Macmillan Palgrave in February 2019 is full of theory. It has a lot of description, taxonomy, accounting, history, and philosophy, but also a lot of theory that ties some of those other components together in a meaningful way. The T in MMT is not a misnomer.”

Then he goes on to specify what a theory is and how scientific methodology relates to MMT. The first lethal error/blunder of Bill Mitchell is to maintain that economics is a social science. Here, MMT is in full accordance with mainstream economics. The fact of the matter is, though, that economics is a systems science.#2

The second methodological error/blunder is that “There are no ‘laws’ in economics as there are in physics, for example.” This is true only insofar as there are NO behavioral laws. This, however, is irrelevant because economics is a systems science and there are systemic laws of the monetary economy. Systemic laws are invariances (Nozick’s term) like physical laws but do not entail the physicists' notion of causality.

The third methodological error/blunder consists of abandoning the concept of scientific truth which is well-defined for 2300+ years by material and formal consistency and to replace it with congruency.

All this is in line with J. S. Mill’s attempt to establish economics as “separate and inexact science” which, however, has never been anything else but a euphemism for failed/fake science.

Since the founding fathers, economics is a cargo cult science (Feynman’s term) and Bill Mitchell is in a state of self-delusion by maintaining he and his MMT colleagues are “standing on the shoulders of giants”.#3

The fact is that economists do not get the foundational concepts of profit/income/saving straight to this day. MMTers are no exception.#4

Bill Mitchell argues: “An oft-stated claim is that MMT is about accounting relationships. … Those who make that spurious claim about MMT often use the sectoral balances framework to make their point. They note that the basic sectoral balances relationship, which is a core part of the way an MMT economist analyses the world, is, at heart an accounting truism that has to be true because it is derived from a larger accounting framework ― the nation’s National Accounts. That is true so far. While I know there is a debate in accounting about the theory of accounting, we will accept, here, that an accounting truism is one that has to be true (add up in this case) by the way we define it. It is not opinion or conjecture ― it just has to be. So the statement: the Government deficit (surplus) equals the Non-government surplus (deficit) dollar-for-dollar is such a truism. It must be true.”

Unfortunately, it is false.#5 As Schumpeter once put it: “There is no more fertile source of error than apparently trivial premises.” Economics is NO exception: “In fact, the history of every science, including that of economics, teaches us that the elementary is the hotbed of the errors that count most.” (Georgescu-Roegen)

Because the sectoral balances equation is false, the whole analytical superstructure of MMT is false. And because of this, MMT policy guidance has NO sound scientific foundations. Worse, MMT is a political fraud, it claims to promote the cause of WeThePeople but in fact, promotes the cause of the Oligarchy. The proof is in the accounting truism Public Deficit = Private Profit which follows from the axiomatically correct balances equation (I−S)+(G−T)+(X−M)−(Q−Yd)=0.

Just like mainstream economics, MMT is cargo cult science. The difference is that mainstream economics is built upon false microfoundations and MMT is built upon false macrofoundations. MMT is proto-scientific garbage and ― to use Stephanie Kelton’s words ― “one of the greatest cons ever perpetrated on the American people.”#6

Egmont Kakarot-Handtke


#1 Bill Mitchell, Understanding what the T in MMT involves
#2 For details see cross-references NOT a Science of Behavior
#3 Economists ― standing on the shoulders of gnomes
#4 MMT and the single most stupid physicist
#5 Rectification of MMT macro accounting
#6 Smart! How to make people fund their brain-washing

Related 'Stephanie and Noah ― economics at the intellectual zero lower bound' and 'The final implosion of MMT'.

***
Wikimedia AXEC140