October 18, 2018

Reverse Alchemy: from scientific gold to political shit

Comment on Barkley Rosser on ‘MBS Must Go’


The key to understanding economics is that there are TWO versions: political economics and theoretical economics. The main differences are: (i) The objective of political economics is to successfully push an agenda, the objective 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 the agenda pushers of political economics. Political economics has NOT achieved anything of scientific value. This is the actual state of economics, provably false:
• profit theory, for 200+ years,
• microfoundations, for 140+ years,
• macrofoundations, for 80+ years,
• the application of elementary logic and mathematics since the founding fathers.

Needless to emphasize that this was not a linear process. There were always economists who were committed to the scientific standards of material/formal consistency but in the end, political agenda pushing retained the upper hand and economics never got out of the proto-scientific swamp.

The vast majority of economists has been devoured by the swamp. Barkley Rosser is a case in point. His post ‘MBS Must Go’ has ZERO scientific content and is plain political agenda pushing.

Since the founding fathers, economics violates the first rule of science, i.e. the strict separation of science and politics.#1 As a result, economics fell prey to the Reverse Alchemy of Communication which means: If transposed from the sphere of science to the sphere of politics, every scientific idea (tentative or well-established through numerous logical and empirical cross-checks), is with absolute necessity perverted/inverted in the process.

As a failed science, economics needs a paradigm shift. Paradigm shift means in methodological terms a change of foundational premises/axioms. Needless to emphasize, that economists also perverted the concept of paradigm shift. Transposed from the scientific sphere to the political sphere of agenda pushing it now means nothing else than a change of policy.

“So how do you change paradigms? Thomas Kuhn, who wrote the seminal book about the great paradigm shifts of science, has a lot to say about that.
• You keep pointing at the anomalies and failures in the old paradigm.
• You keep speaking and acting, loudly and with assurance, from the new one.
• You insert people with the new paradigm in places of public visibility and power.
• You don’t waste time with reactionaries; rather, you work with active change agents and with the vast middle ground of people who are open-minded.”#2

Of course, these tips are the basics of marketing/public relations/rhetoric/ propaganda/ proselytizing/agenda pushing.

To this day, economists do not understand what science and a paradigm shift is all about.#3 Since Adam Smith/Karl Marx, they never rose above the level of useful political idiots.

Egmont Kakarot-Handtke

#1 For details of the big picture see cross-references Political Economics/Stupidity/Corruption
#2 Links to Twitter, Kate Raworth, Club of Rome
#3 The inexorable paradigm shift in economics
From false microfoundations to true macrofoundations
The new macroeconomic paradigm


October 12, 2018

MMT, Warren Mosler, and the little helpers from Wall Street and Academia

Comment on Katia Dmitrieva/Bloomberg/Businessweek on ‘A Hedge Fund Guy Lefties Can Love’


There is the entertainment industry and it is about personalities/emotions. There is science and it is about knowledge/consistency. There are not many people who prefer science over entertainment. In order to appeal to the majority, one has no choice but to gossip about personality.

Accordingly, Warren Mosler is introduced: “He ran a hedge fund, lives in a Caribbean tax haven, and loves fast cars and yachts ― not obvious qualifications for a left-wing guru. But that’s what Warren Mosler is rapidly becoming.”

And this is his message: “Its [MMT’s] main argument is that governments with their own currencies can’t go broke. They have more room to spend than is usually supposed and don’t need to collect taxes (or even borrow) to pay for it. One thing they can, and should, spend money on is a jobs guarantee ― offering work to anyone who wants it.”

All this, of course, is way beside the point. Economics claims for 200+ years to be a science, MMT claims to be a superior scientific theory, so the point at issue is NOT the personality of Warren Mosler but whether MMT is true/false according to well-defined scientific criteria.

The unambiguous answer is: MMT is materially/formally false, MMTers are fake scientists, MMT’s policy proposals boil down to deficit-spending/money-creation and this translates to money-making for the Oligarchy because the macroeconomic Profit Law implicates Public Deficit = Private Profit which follows straight from the axiomatically correct sectoral balances equation (X−M)+(G−T)+(I−Sm)−(Qm−Yd)=0.#1…#7

In sum, MMT is refuted proto-scientific garbage and its social rhetoric is plain political fraud and its effect ― intended or unintended does no matter ― is to undermine genuine grassroots movements. MMT lacks sound scientific foundations and is not more than gossip/entertainment/fraud in the political Circus Maximus.

Deficit-spending/money-creation has always been a program for the self-alimentation of the Oligarchy#8 and quite naturally enjoys the support of Wall Street in general and Bloomberg in particular.

According to Stephanie Kelton, the MMT snake oil works just fine: “Democrats are beginning to see that all the stories they’ve been told, and that they in fact even repeated themselves, weren’t good stories.”#9

Indeed, but the MMT story isn’t one iota better.#10

Egmont Kakarot-Handtke

#1 MMT: agenda-pushing and money-making for the Oligarchy
#2 Rectification of MMT macro accounting
#3 MMT and the single most stupid physicist
#4 MMT and the promotion of Wall Street socialism
#5 MMT: The one deadly error/fraud of Warren Mosler
#6 MMTers are NOT Friends-of-the-People
#7 For the full-spectrum refutation see cross-references MMT
#8 Keynes, Lerner, MMT, Trump and exploding profit
#9 The Kelton-Fraud
#10 MMT: How WeTheOligarchy communicates with WeThePeople

Wikimedia, AXEC142

REPLY to Kaivey on Oct 14

You say: “Egmont offers no answer, just more poverty for most people.”

The task of the economist as a scientist is to figure out how the economy works. Unfortunately, economists have done nothing of the sort over the last 200+ years because they were preoccupied with agenda-pushing.

As a result, the answers economists have offered from Adam Smith/Karl Marx onward have NO scientific content and have never been more than brain-dead political blather.

Needless to emphasize that people with some scientific instinct have realized this long ago: “What is now taught as standard economic theory will eventually disappear … because it simply doesn’t work: were it engineering, the bridge would collapse.” (McCauley)

But economists have NO scientific instinct. They are clowns and useful idiots in the political Circus Maximus.

This is quite obvious in the case of Warren Mosler. Yes, he gives answers and offers solutions. The humanitarian mission of Warren Mosler, Stephanie Kelton and the rest of MMTers is to end the poverty of the one-percenters by deficit-spending/money-creation.

To be sure, I have no qualms with MMTers pulling off a political fraud.#1 Politics is NOT the issue! What has to be made clear is that Modern Monetary Theory is NO valid theory and that MMT has NOTHING to do with science.

MMT is failed science, MMTers are fake scientists, MMT academics are campaigners for Warren Mosler, Warren Mosler, in turn, is a campaigner for Wall Street.#2

REPLY to Kaivey on Oct 14

You say: “Now, if the government taxes the people and spends it on public services, doesn/t that money also end up the pockets of the rich.”

I have presented the axiomatically correct Profit Law on more than one occasion.#1 It reads Qm=Yd+(I−Sm)+(G−T)+(X−M) and answers ALL your questions. If the government taxes the household sector and thereby balances the budget, then G=T and the profit effect is ZERO. It is deficit-spending/money-creation that produces the macroeconomic profit of the business sector and benefits the Oligarchy immediately and exactly by the same amount. Get it: Public Deficit = Private Profit.

The Profit Law tells one also that it does not matter whether deficit-spending is private or public. The effect on profit is the same.

In the MMT balances equation (X−M)+(G−T)+(I−S)=0 profit does not appear. Isn’t that a bit curious? An economic theory that is completely silent about profit?#2

The MMT balances equation is mathematically false. And exactly at this point, MMT is out of science. If profit theory is false, the whole analytical superstructure is false, including employment theory.#3 A policy that is based on a false theory is a fraud. This holds also for the MMT Job Guarantee.#4

So, the matter is settled. Warren Mosler is a political fraud and MMT academics are his useful idiots.#5

#1 For the full-spectrum refutation of MMT see cross-references MMT

REPLY to Calgacus on Oct 15

Bloomberg presents Warren Mosler as the “guy Lefties can love”.

Calgacus presents himself as a class-fighter who can read the minds of the enemies: “But the purpose and action of such neoliberals and business leaders is NOT to enrich themselves in absolute terms, but rather in relative terms, to keep themselves in the saddle, to create and maintain rigid class divisions.”#1

Bill Mitchell presents himself as a Progressive, i.e. as a true Left who brings the somewhat naive and disoriented Socialist Parties back on the right path.#2

Tom Hickey uses every opportunity to make it clear that MMT is more than macroeconomic accounting and has deep philosophical roots in Hegel/Marx.#3

Stephanie Kelton presents herself as the Mother Theresa of economics who cares about everything between babies and global warming and promises a golden MMT future with “a pony for every American”.#4

All this is crappy personality marketing.

Fact is that MMTers are NOT in any sense Left or social or caring or fighting for WeThePeople. MMT is objectively ― i.e. independently of what MMTers think or say of themselves ― agenda-pushing for WeTheOligarchy.#5 Calgacus is part of it.

REPLY to Kaivey on Oct 15

You say: “Did you watch the Spiders Web video I put out, which was about Britain’s second empire? These are the real issues if today.”

That Britain is NOT a sovereign nation but the annex to the money-making and money-laundering machine called the City of London is a well-known fact since the founding of the Bank of England.

The real issue of today is how economists helped to bring this state of affairs about. The curious fact of today is that Warren Mosler lives in a tax haven and promises full employment for WeThePeople by applying perpetual deficit-spending/money-creation. And he is supported by incompetent academics and brain-dead trolls like Kaivey.

The real issue of today is that the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” has been awarded. This has to be put in perspective.#1 Provably false:
• profit theory, for 200+ years,
• microfoundations, for 140+ years,
• macrofoundations, for 80+ years,
• the application of elementary logic and mathematics since the founding fathers.

For everyone with some scientific instinct it is quite obvious:
• Economics is a cargo cult science,
• Both Nordhaus and Romer are fake scientists,
• The economics Nobel is a fraud.

MMT perfectly fits into the big picture. The political fraud of MMT, the corruption of the British banking system, the agenda-pushing since Smith/Marx are bad, but the worst thing of all is the scientific corruption of economics in all its variants from Walrasianism, Keynesianism, Marxianism, Austrianism, Pluralism, to MMT.

This is the real issue of today

REPLY to Calgacus on Oct 16

You say: “Attacks on deficit spending are almost always on ‘MMT welfare spending’ or ‘New Deal spending’ In that case that Egmont AND the oligarchs attack ― it is VERY clearly the opposite of the truth.”

The smart folks in the kindergarten already know that nobody can give a sh* on what politicians say about deficit-spending or austerity.#1, #2 This has always been propaganda and NOT economics. My argument is NOT about deficit-spending but about the profit effect of deficit spending.#3 It is exactly here, where the MMT fraud sneaks in.#4

You say: “… if there is a Job Guarantee there is no unemployment. Period.” Agree, but that is not the point at issue. There can be a Job Guarantee with a balanced budget and then the profit effect is ZERO. Or, there can be a Job Guarantee with deficit-spending. In this case, the Profit Law tells us that Public Deficit = Private Profit#5 and therefore the Oligarchy benefits biggly from the Job Guarantee. This is a bit ‘irrational’ for a social policy measure.

I have no qualms with the Job Guarantee. This is a political decision of the Legitimate Sovereign which the economist as a scientist does NOT comment on but simply takes as a datum. My point is that the Job Guarantee is abused by MMTers to push the agenda of the Oligarchy. There are distributionally neutral ways to achieve full-employment.#6

The fraud of MMTers consists of promising social benefits and hiding the fact that WeThePeople themselves pay in real terms for every single benefit either through open or stealth taxation and by hiding the fact that deficit-spending/money-creation feeds the Oligarchy.

The social policy of MMT is a fraud. I am NOT arguing against the goals of social policy but against the fraud.#7 Whoever claims that Warren Mosler is a guy WeThePeople can love or that MMT policy benefits WeThePeople is either stupid or corrupt or both.

#7 For details of the big picture see cross-references MMT

October 10, 2018

Where economics went wrong

Comment on Simon Wren-Lewis on ‘Talk on where macroeconomics went wrong’

Blog-Reference and Blog-Reference

Simon Wren-Lewis’ talk is a fine example of what may be called an epicycle explanation. Essentially, like a Ptolemaic astronomer, he argues that it was with the 23rd epicycle where an error sneaked in and this explains why the theory failed.

Simon Wren-Lewis maintains: “The mistake was the revolution part. In the US, DSGE models replaced traditional modelling within almost a decade. In my view DSGE models should have coexisted with more traditional modelling, each tolerating the other.”

No. Both DSGE modeling and more traditional modeling are methodologically defective and the first step on the way forward is to bury both for good at the Flat-Earth-Cemetery. As Joan Robinson put it: “Scrap the lot and start again.”

What is needed is NOT the repair of the 23rd epicycle but a paradigm shift from false microfoundations to true macrofoundations. Nothing less will do.

This is the state of economics. Provably false:
• profit theory, for 200+ years,
• microfoundations, for 140+ years,
• macrofoundations, for 80+ years,
• the application of elementary logic and mathematics since the founding fathers.

The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism are mutually contradictory, axiomatically false, and materially/formally inconsistent. Because of this, economic policy guidance NEVER had sound scientific foundation from Adam Smith/Karl Marx onward to DSGE and New Keynesianism.

It was Keynes who spotted the fatal flaw of mainstream economics: “For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises.” (Keynes)

In the same vein: “For it can fairly be insisted that no advance in the elegance and comprehensiveness of the theoretical superstructure can make up for the vague and uncritical formulation of the basic concepts and postulates, and sooner or later ... attention will have to return to the foundations.” (Hutchison)

Clearly, it is microfoundations that are false. The Walrasian approach is defined by this axiom set: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub) Every model that is built upon HC1 to HC5 or contains a subset thereof is false.

On the other hand, the Keynesian macrofoundations approach is defined by this set of foundational propositions: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63) Every model that is built upon this elementary syllogism is false, in particular, all I=S/IS-LM models and the whole of MMT.

Because both the microfoundations approach and the macrofoundations approach are axiomatically false, roughly 90 percent of the content of peer-reviewed journals is scientifically worthless.

A paradigm shift is imperative.#1 Who still accepts and applies Walrasian microfoundations or Keynesian macrofoundations or a combination thereof goes straight to the Flat-Earth-Cemetery.

It is known since 2000+ years: “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.” (Aristotle) Economists’ premises have NEVER been certain, true and primary. Economics went wrong from the very beginning.

Egmont Kakarot-Handtke

#1 From false microfoundations to true macrofoundations

For details of the big picture see cross-references Political Economics/Stupidity/Corruption and cross-references Paradigm Shift.

Wikimedia, AXEC144


LINK to The science that never was, Blog-Reference on Oct 12

REPLY to Kien, tom m on Oct 13

Your blather about good intentions and Pareto Optimality is an indicator that you simply don’t get the obvious facts straight:
• Economics is a cargo cult science,
• Both Nordhaus and Romer are fake scientists,
• The economics Nobel is a fraud.

REPLY to Daniel Schiffman on Oct 16

William Nordhaus is the co-author of the textbook Economics. This textbook was “first published in 1948, and it immediately became the authority for the principles of economics courses.” (Amazon, product information)

There is Orthodoxy with microfoundations and there is Keynesianism with macrofoundations. Both Walrasian microfoundations and Keynesian macrofoundations are provably false, i.e. materially/formally inconsistent.

In the Samuelson/Nordhaus synthesis the defective Walrasian micro axioms and Keynes’ defective macro axioms were cobbled together. Needless to emphasize that both halves do not logically fit together.

The Samuelson/Nordhaus textbook has the lowermost scientific content of all textbooks ever written. And nothing substantial has improved in the last 70 years. Supply-demand-equilibrium will forever stand out as the silliest construct in the history of sciences and it is still at the core of economics teaching.

William Nordhaus cannot by any stretch of the imagination be taken seriously as a scientist – except in a cargo cult science. Feynman defined it as follows: “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.”

Indeed, they have not realized for 70 years that economics is proto-scientific garbage and they even award a cargo cult Nobel to the co-author of a cargo cult textbook.

October 5, 2018

If we only had classes

Comment on David Ruccio/Jamie Morgan on “Capital and class’*

Blog-Reference and Blog-Reference

Since Adam Smith/Karl Marx, economists have not figured out how the price- and profit-mechanism works. Because economists do not know what profit is, distribution theory is a mess. Ruccio/Morgan maintain that this is no accident: “Mainstream economics in general tends to deflect attention from the existence of inequality (e.g., by focusing on growth, output, and the price level versus distribution) and from the economic and social problems created by inequality ….”

Fact is, though, that not only orthodox economists but also heterodox economists like Ruccio/Morgan themselves get profit- and distribution theory utterly wrong. The bad news for the general public is that economics is a failed science and economists are fake scientists. For lack of valid scientific knowledge in the past 200+ years, economists have never been helpful in bringing about the Good Society.

The root defect of distribution theory is that economists do not know until this day what profit is. What has to be done is a paradigm shift, that is, the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― have to be buried in the darkest corner of the Flat-Earth-Cemetery.

The new paradigm starts with three macroeconomic axioms which consistently define the elementary production-consumption economy: (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.#1, #2

Under the conditions of market clearing X=O and budget balancing C=Yw in each period, the price is given by P=W/R (1), i.e. the market clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. It translates into W/P=R (2), i.e. the real wage is equal to the productivity.

Monetary profit/loss of the business sector is defined as Qm≡C−Yw and monetary saving/dissaving of the household sector is defined as Sm≡Yw−C. It always holds Qm+Sm=0, or Qm=−Sm, in other words, the business sector’s surplus = profit equals the household sector’s deficit = dissaving. 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. Under the condition of budget balancing C=Yw, total monetary profit is zero.

In the elementary production-consumption economy, workers get the whole product and profit is zero at any level of employment. The wage rate W can be doubled or halved, this does not matter, the real wage is always equal to the productivity. So, where does profit come from?

Macroeconomic profit depends, in the most elementary case, alone on deficit spending, that is, on the increase of the household sector’s debt. It does NOT depend on labor time, or wages, or productivity, or risk-taking, or monopoly power, or exploitation, or on psychological factors like greed or utility maximization.#3

In the elementary production-consumption economy, the wage rate for all employees (employees = labor = working class = blue collar workers + white collar workers + management + executives) is equal, labor gets the whole product according to (2), and profit for the business sector as a whole is zero because of C=Yw. This is as equal as one can get for a start.

Obviously, there is NO such thing as an antagonism of wages and profits in the elementary production-consumption economy. If the wage rate W goes up the market clearing price goes up according to (1) and the real wage remains unchanged according to (2).

Now, the employees are arbitrarily split into two groups of equal size. The wage rate of group 1 is then increased by the factor 1.5 and the wage rate of group 2 is halved thus that the total wage income Yw=WL=W1L1+W2L2 remains unchanged. All other things, i.e. output O, consumption expenditures C, and the market clearing price P remain unchanged.

Accordingly, the real wage of group 1, i.e. W1/P, increases 1.5 fold and the real wage of group 2 halves. The macroeconomic profit is still zero because of C=Yw. The unchanged real product O is redistributed among the employees, that is, group 1 is better off at the expense of group 2.

The profit of the business sector is zero before and after wage discrimination. So, it is NOT the case that the capitalists, defined as owners of the firm, are better off through wage discrimination. The redistribution of output O happens WITHIN the working class. There is NO exploitation of workers by capitalists.

Now, the business sector is split into two identical firms and firm 1 is supposed to cut the wage rate W1 arbitrarily by half. From this follows that the market clearing price P declines if all other variables are unchanged. Firm 2 is affected because total wage income Yw falls and with it consumption expenditures C and the market clearing price P.

The reduction of the wage rate W1 increases the profit of firm 1 and produces a loss in firm 2. When we look alone at firm 1 we see what Smith, Mill, Ricardo, and Marx have seen before, to wit, wages down ― profit up. This fits the time-honored stereotype of wages and profits as antagonists. Exactly at this point, the idea of class war strikes the naive observer with the force of a revelation.#4, #5

The error/mistake/blunder of economists since the Classicals has been to generalize what is true for a single firm and this is known as Fallacy of Composition.

If profit has been zero in the initial period because of budget balancing C=Yw, then firm 2 makes now a loss which is exactly equal to firm 1’s profit. Hence, the arbitrary wage rate cut of firm 1 does NOT increase the profit of the business sector as a whole but only REDISTRIBUTES profit/loss between the firms that constitute the business sector.

Seen from the perspective of a single firm, the antagonism of wages and profits is real. This, though, is parochial realism. The complete picture reveals that firm 1 is better off to the disadvantage of firm 2 and the workers of firm 2 are better off to the disadvantage of the workers of firm 1 because at a lower market clearing price they absorb a bigger share of output O with their unaltered income. The situation of the business sector as a whole is unchanged and the same is true for the household sector as a whole. If there is exploitation it happens WITHIN the sectors.

For the economy as a whole, the antagonism of wages and profits is an optical illusion. The concept of exploitation of the working class by the capitalist class has to be replaced by the concept of cross-over exploitation WITHIN the classes.

When Capitalism is roughly defined as ownership of the firms that make up the business sector by profit-seeking capitalists then the capitalists taken as a whole cannot increase overall profit by lowering wages. Only the individual capitalist can do this at the expense of the other capitalists. On closer inspection, it turns out that there is NO capitalist class with a common class interest.

The understanding of the phenomenon of cross-over exploitation quite naturally leads to the conclusion that it would be institutionally advantageous to have classes. Imagine, there is an institutionalized capitalist class that represents the interests of the business sector as a whole. From the class standpoint, it makes NO sense at all that one firm increases its profit by slashing wages and at the same time reduces the profits of the rest of the business sector. This is a silly zero-sum game. The fundamental construction defect of historically evolved capitalism is that it does NOT function according to class interest but according to the myopic interest of individual capitalists. This does NOT lead to an optimal outcome for the economy as a whole.

It would be much better to have a capitalist class that embodies the interests of the business sector as a whole and a working class that embodies the interests of the employees as a whole and to let them negotiate all economic issues and to solve all economic problems. The socially most destructive effect of the current institutional order is the phantasmagoric class war that is produced by the Fallacy of Composition.

Economists have always been the sand sacks on the way to the Good Society because in their bottomless scientific incompetence they never understood the concepts of profit, classes, and cross-over exploitation.

Retarded folks like Ruccio/Morgan are still trapped in the Fallacy of Composition: “And it is important to remember that the growth of corporate profits is both a condition and consequence of the stagnation of workers’ wages.” False! Instead, it is important to remember that the growth of corporate profit is the mirror image of the growth of government sector and household sector debt. There has NEVER been an antagonism between overall wage income and macroeconomic profit.#6

Profit- and distribution theory are false since Adam Smith. Economists ― both orthodox AND heterodox ― have a 200+ years track record of incompetence/stupidity/corruption and are the main obstacle on the way to the Good Society.

Egmont Kakarot-Handtke

* Real-World Economics Review

#1 Capitalism, poverty, exploitation, and cross-over exploitation
#2 Wikimedia, Elementary Production-Consumption Economy
#3 For details of the big picture see cross-references Profit
#4 Ricardo and the invention of class war
#5 Profit for Marxists
#6 There is NO such thing as a “labor share of income”

Related 'The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?' and 'Major Defects of the Market Economy' and 'Income Distribution, Profit, and Real Shares' and 'The Coherency of Money, Profit, Price, and DistributionWhat is Wrong with Heterodox Economics? Kalecki’s Profit Theory as an Example' and 'Debunking Squared' and 'When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism' and 'The Emergence of Profit and Interest in the Monetary Circuit' and 'How the Intelligent Non-Economist Can Refute Every Economist Hands Down' and 'Truth by definition? The Profit Theory is axiomatically false for 200+ years'.

Wikimedia, AXEC109i

October 4, 2018

Brian Romanchuk’s Post-Keynesian idiocy

Comment on Brian Romanchuk on ‘Primer: Post-Keynesian Inflation Theory Basics’#1

Blog-Reference and Blog-Reference

Brian Romanchuk defines the starting point of Post-Keynesian analysis as follows: “The defining characteristic of workers is that they are paid a wage, which is normally fixed nominally …. If we assume that all output is the result of wage labour, we can arrive at the identity (due to Weintraub): P=κW/R (i), where: κ is the average markup; W is the nominal wage rate; R is the output per worker.” (symbols altered from p, w, y to P, W, R)

He then argues: “The argument in Post-Keynesian Economics is that markups cannot rise forever, as that would imply an ever-rising profit share of national income. … Instead, we need to look at the first two terms: how much greater wage growth is than output per worker…. The analysis then leads to: why will wage gains outstrip productivity? The post-Keynesian answer is that this will happen if workers’ bargaining position increases relative to that of business owners.” “By most accounts, the bargaining position of labour has been crippled as a result of structural changes imposed since the early 1980s. From this standpoint, the deceleration of inflation is no accident.”

The inexcusable fault of Post-Keynesianism is that the economy is ill-defined.#2 The scientific incompetence of Brian Romanchuk consists of failing to realize that the lethal blunder of Post-Keynesianism lies in the inconsistency of foundational macroeconomic relationships.

To make matters short here is the correct core of macroeconomic premises:#3
(A0) The objectively given and most elementary systemic configuration of the production-consumption 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.

The three axioms are supplemented by four definitions: expenditure ratio ρE≡C/Yw, sales ratio ρX≡X/O, monetary profit/loss Qm≡C−Yw, monetary saving/dissaving Sm≡Yw−C. This yields the most elementary version of the macroeconomic accounting identity, i.e. Qm+Sm=0 or Qm=−Sm.

Given the conditions of market clearing ρX=1 and budget balancing ρE=1, the market clearing price is derived for a start as P=W/R (ii). So, the macroeconomic price P is determined by the wage rate W, which has to be fixed as a numéraire, and the productivity R.

When the price is not the dependent variable but set by the markup formula (i) things change.

From (A3) C=PX and (i) and the definitions of the sales ratio and expenditure ratio follows for the general case: ρXE. (iii)

This formula says: the business sector can set the markup κ as high as it wants but, given the household sector’s expenditure ratio ρE=1, it cannot sell the whole output, i.e. X<O, i.e. ρX<1. This means that the inventory increases. This means also, that the business sector cannot increase monetary profit because with P up and X down C does not change and monetary profit Qm≡C−Yw remains unchanged. So, the business sector as a whole cannot determine its profit by markup pricing. The necessary condition for profit coming into existence is ρE>1.

Eq. (iii) says in detail:
• If the markup κ is greater than the expenditure ratio ρE, the market is not cleared, i.e. the stock of unsold output increases, which leads eventually to production cuts and decreasing employment.
• If the markup κ is less than the expenditure ratio ρE, the inventory decreases and production is eventually ramped up.

Macroeconomic profit Qm is alone determined by the expenditure ratio Qm≡(ρE−1)Yw and NOT by the markup κ. This means that the workers’ bargaining position is of NO importance for the profit ratio Qm/Yw and this means, in turn, that Post-Keynesian price-, profit- and employment-theory has never been anything else than proto-scientific garbage.

Monetary profit and the relation of profit to wage income depend in the closed economy mainly on the growth of public and private debt. This follows from the axiomatically correct macroeconomic Profit Law Qm=−Sm+Yd+I+(G−T)+(X−M).#4

Egmont Kakarot-Handtke

#1 Preceding: Economics as tireless production of proto-scientific toilet paper: inflation theory as an example
#2 Why Post Keynesianism Is Not Yet a Science
#3 True macrofoundations: the reset of economics
#4 Wikimedia, Profit Law


Wikimedia, AXEC143

October 3, 2018

MMT: agenda-pushing and money-making for the Oligarchy

Comment on Tom Hickey on ‘Randall Wray — Modern Money Theory: How I Came to MMT and What I Include in MMT’

Blog-Reference and Blog-Reference

Randall Wray reports: “Godley taught us about stock-flow consistency and he insisted that all mainstream macroeconomics is incoherent.”

This, of course, is true. MMT’s critique and refutation of mainstream macro and monetary theory are justified in all dimensions. Mainstream economics is dead, however, this does not imply that MMT macro is coherent. Just the opposite: MMT macro is provably false.

The theory of money has to be embedded in a consistent macroeconomic framework or in what Keynes called the ‘monetary theory of production’. MMT gives a historical account of how money came into existence as a creation of the state. This historical account is not false but methodologically it is NO substitute for the theory of money, just as the history of the burning of Rome, London, and San Francisco is no substitute for the theory of thermodynamics.#1

Randall Wray claims: “What we do is Macroeconomics. There is no coherent alternative to MMT.” He summarizes under the 9th bullet point: “The government’s debt is our financial asset. This follows from the sectoral balances approach of Wynne Godley. We have to get our macro accounting correct. Minsky always used to tell students: go home and do the balance sheets because what you are saying is nonsense.”

Unfortunately, MMT’s macro accounting is provably false.#2, #3, #4 And this makes nonsense of all the rest what they are saying.#5 In particular, it is just a silly slogan that ‘taxes drive money’, fact is that deficits/surpluses = dissaving/saving = changes of public/private debt drive money.#6, #7

In his 10-bullet-point summary of what MMT is all about, Randall Wray forgets completely to mention that because of the macroeconomic Profit Law Public Deficit = Private Profit, which follows from the axiomatically correct sectoral balances equation (X−M)+(G−T)+(I−Sm)−(Qm−Yd)=0#8, MMT policy boils down to agenda-pushing and money-making for the Oligarchy.

Egmont Kakarot-Handtke

#1 A historical misunderstanding
#2 Rectification of MMT macro accounting
#3 Wikipedia and the promotion of economists’ idiotism (II)
#4 For the point-by-point refutation of MMT see cross-references MMT
#5 MMT is dead
#6 The ultimate ― analytical ― origin of money
#7 Money and time
#8 MMT and the single most stupid physicist

Related 'Mission impossible: economists join WeThePeople'.

October 1, 2018

Mission impossible: economists join WeThePeople

Comment on Kaivey on ‘David Dayen: Nancy Pelosi Promises That Democrats Will Handcuff The Democrat Agenda If They Take The House’


Kaivey summarizes: “Warren Mosler recommended this saying it had good quotes from Stephanie Kelton. Some people say that Warren Mosler did not develop MMT for left wing politics, but he seems to like what Stephanie Kelton has to say about public spending. I think we can get rid off the myth that Warren Mosler doesn’t approve of left wing economists like Stephanie Kelton. But are they left wing, they are only proposing a better type of capitalism?”

From the macroeconomic Profit Law follows: Public Deficit = Private Profit. So, clearly, the MMT policy of deficit-spending/money-creation benefits alone WeTheOligarchy. In its naked form, MMT is absolutely unsaleable to WeThePeople. Hence, MMT needs a social fig leaf. It is amply provided by folks like Stephanie Kelton and other self-styled Progressives.#1

Most people have learned by now that, more often than not, politics is a fraud. This holds in any case for MMT. What is made to appear as social policy in the interest of WeThePeople is in effect a policy of perpetual self-alimentation of WeTheOligarchy.

The heavily biased distribution of income and financial wealth, which is with overwhelming clarity before all eyes, is a direct result of continuous deficit-spending/money-creation and the resulting perpetual growth of public debt.#2

The demonstrative care for jobs, health, education, social cohesion, public infrastructure, environment, etcetera is the banner that Stephanie Kelton and the rest of the MMT sales team waves before the peoples’ eyes in order to cover their one-percenter agenda.

As we speak, Stephanie Kelton, her academic fellow campaigners and the hyper-active MMT sales force on the social media pull off “one of the greatest cons ever perpetrated on the American people.”#3

Academic economics has entirely abandoned scientific standards and integrity. Economists over the whole spectrum from Orthodoxy to Heterodoxy, from Paul Krugman to Brad DeLong to Simon Wren-Lewis to Stephanie Kelton to Bill Mitchell to Lars Syll to Yanis Varoufakis are full-time media clowns and useful political idiots.

What we have with MMT is Warren Mosler and other Wall Street folks as promoters of MMT and some academics who provide social credibility and some proto-scientific voodoo.#4, #5

As a matter of principle, it is entirely beyond the capacity of economists in general and MMT, in particular, to make a valuable contribution to the advancement of humanity because economics has no sound scientific foundations to this day.#6

Egmont Kakarot-Handtke

#1 MMT: How WeTheOligarchy communicates with WeThePeople
#2 Keynes, Lerner, MMT, Trump and exploding profit
#3 Stephanie and Noah ― economics at the intellectual zero lower bound
#4 MMT and the promotion of Wall Street socialism
#5 How MMT enlightens Washington
#6 For details of the big picture see cross-references Political Economics/Stupidity/Corruption

Related 'MMT and grassroots movements' and 'How MMT enlightens Washington' and 'How Bill Mitchell stalks Jeremy Corbyn' and 'MMTers are NOT Friends-of-the-People'.

REPLY to Kaivey on Oct 2

You say: “Eventually, in the end, the money might end up in the banks of the oligarchs, but it would have driven much of the economy by then creating jobs and prosperity. If it eventuality ends up in the banks of the oligarchs, then why not have an extra tax on them to get it back again.”

You have some serious problems with logic.
(i) MMT is refuted on all counts.#1
(ii) MMT policy guidance has no sound scientific foundations.
(iii) Because of the macroeconomic Profit Law, the MMT policy of deficit-spending/money-creation enriches WeTheOligarchy.
(iv) The social benefits that are promised by MMT are paid for in real terms via stealth taxation by WeThePeople themselves.
(v) The increasing macroeconomic profit that comes with deficit-spending/money-creation increases the funds available to the Oligarchy for lobbying.
(vi) So, the Oligarchy could spend more money to lobby for an extra tax in order to neutralize the positive effect of deficit-spending/money-creation on their overall profit.

Yes, they could. But even you understand that this will NOT happen in the remaining lifetime of this planet.

#1 See cross-references MMT