November 16, 2018

How MMT makes everybody happy

Comment on Clint Ballinger on ‘MMT & the Fourth Spark Plug: Descriptive vs. Prescriptive revisited’

Blog-Reference and Blog-Reference

Clint Ballinger explains how MMT works: “Just as with the mechanic, there is no way to look at an otherwise well-running four cylinder car that is running needlessly on 3 cylinders and not mention “Errr,,,you know…it would run amazing if you simply connect that cable back, which I can do for free in 10 seconds.” … Another way to say this: In this case there is in effect a “free lunch”. There is almost no effort involved in plugging the fourth cylinder in, but a massive gain that is currently being foregone for no reason.”

The key words are “almost for free”. People like to get things “almost for free”. Fraudsters know this, and since the ancient gold makers, they promise ‘something for nothing.’ MMTers are no exception.

Let’s see how it works.

The elementary production-consumption economy is for a start defined by three macroeconomic axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (profit/loss Q≡C−Yw, saving/dissaving S≡Yw−C). Legend: Yw wage income, W wage rate, L employment, O output, R productivity, C consumption expenditures, P price, X quantity bought/sold.

It always holds Q+S=0 or Q=−S, in other words, the business sector’s surplus = profit equals the household sector’s deficit = dissaving and, vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law.

Given the two conditions, the market clearing price is derived for a start as P=W/R. So, the price P is determined by the wage rate W, which has to be fixed as a numéraire, and the productivity R. This is the macroeconomic Law of Supply and Demand.

Unfortunately, the elementary production-consumption economy is in the state of unemployment and nobody has any idea of how to fix the problem.

Now, the smart MMTer Clint Ballinger talks to the unemployed: “My park has been devastated, I offer each of you the current wage W if you clean up the mess. Your work is appreciated as a valuable contribution to environmental protection.”

The hitherto unemployed happily agree and start to work while Clint Ballinger vanishes in the basement of his house and prints the extra wage sum Ywu. The money is indistinguishable from central bank money.

The income of the household sector increases to Yw+Ywu. If the households fully spend their income, consumption expenditures increase and the price goes up a little (NO inflation). The household sector as a whole gets the SAME total real output O under the conditions of market clearing. The hitherto unemployed now get a share of the output of the business sector. Correspondingly, the hitherto employed get less in real terms. Their real wage falls unnoticeable.

The profit of the business sector increases because Q1=C1−Yw is greater than Q=C−Yw=0 because C1 is greater than C. The situation of the business sector improves. It holds: the business sector’s profit is equal to Clint Ballinger’s counterfeit money creation Ywu.

That’s a real win-win solution, isn’t it? Clint Ballinger gets his park tidied up for free, the unemployed are productively employed, and the business sector’s profit increases.#1, #2 The question is: Who holds the bag? Could it be WeThePeople?

Egmont Kakarot-Handtke

#1 MMT: Money-making for the one-percenters
#2 MMT, money creation, stealth taxation, and redistribution

Related 'MMT: A free lunch for the Oligarchy'. For the full-spectrum refutation of MMT see cross-references MMT.

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