December 10, 2018

MMT: Time to say goodbye

Comment on Clint Ballinger on ‘Tim Worstall ― The End Game Of Modern Monetary Theory’


The case against MMT is settled. MMT does NOT satisfy the scientific criteria of material and formal consistency. It is faulty macroeconomics and, as a consequence, bad politics.

The macroeconomic Profit Law reads Qm≡Yd+(I−Sm)+(G−T)+(X−M) and has been derived from consistent macrofoundations a.k.a. axioms. The Law is testable with the precision of two decimal places. With regard to the government’s budget, the Profit Law boils down to Public Deficit = Private Profit. This piece of pure economic analysis translates into the scientific insight that the MMT sectoral balances equation is false and into the political insight that MMT’s policy of deficit-spending/money-creation is nothing but a free lunch for the Oligarchy. In other words, that “progressive” MMT policy is a political fraud.

Conclusion: Because MMT is provably false and its proponents are either stupid or corrupt or both, MMT has to be expelled from science/academia. Its proper habitat is the political swamp.

More is not to say about MMT, but Clint Ballinger cannot understand or accept this unassailable conclusion. So, he goes off-topic.

(i) “Egmont’s entire tower of babble (his own) is built around his ‘pure consumption economy’. This model is (extremely) simplified …”

In fact, the elementary production-consumption economy is the simplest possible macroeconomic configuration. ALL economic analysis has to start from the absolute analytical minimum and then proceed with ever-increasing complexity. This methodological procedure  is standard for more than 2300 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)

The elementary production-consumption economy is SUFFICIENT to prove that the MMT sectoral balances equation is false.#1, #2 This means, that MMT is scientifically dead already at the most elementary level.

From methodology, everyone could know: “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 MMT is axiomatically false, the whole analytical superstructure is false. So, there is NO NEED to refute every MMT argument individually. If the premises are false, the whole theory is dead. Simple.

(ii) “Egmont states (regarding banking) that “These practical details are not forgotten but can be reintroduced at any time”. And yet he of course never does this.”

This is provably false. Money and banking have been treated extensively in working papers and blog posts, e.g. #3, #4 Any kindergartner can google this.

(iii) “Good economics has gone about as far as is possible in that direction, E.g., (Monetary Economics An Integrated Approach to Credit, Money, Income, Production and Wealth. Godley W., Lavoie, M. ) By far the most sophisticated and realistic effort in that direction is the ongoing Minsky Project by Steve Keen.”

Godley/Lavoie and Keen have been treated elsewhere and refuted.#5, #6 Any kindergartner can google this.

(iv) “He is better than the neoclassicals here, but only succeeds in creating a simplistic view of the monetary system that does not begin to approach the accuracy of MMT and circuit theory in this regard. He doesn’t seem to fully understand the role and importance of credit-money in the economy, and also believes there is a ‘fractional reserve system’ (there is not) which further implies a belief in loanable funds (another fallacy).

This is provably false. I “believe” neither in the fractional reserve system nor the loanable funds theory.#7, #8 Any kindergartner can google this.

In this style, it goes on. In the main, Clint Ballinger plays the silly rhetorical game of abstraction vs realism. This does not work.#9, #10 With their description of operational details, which MMT’s chief realist Warren Mosler trumpets as MMT’s chief merit, MMTers never got above the level of an information brochure of the FED’s PR department. Monetary Theory, though, deals with the function and effects of money in the economy as a whole. Monetary theory presupposes macroeconomics. And the fact of the matter is that MMT gets the foundational macroeconomic relations wrong. The lengthy description of the organizational details of Treasury/Central Bank operations cannot make up for the theoretical blunders. MMT blindly repeats the Fallacy of Insufficient Abstraction.#11

When Clint Ballinger’s smokescreen of irrelevant arguments is taken away, the whole issue reduces to the all-decisive question of which of the two macroeconomic relations a.k.a. sectoral balances equations is true/false:
(i) (I−S)+(G−T)+(X−M)=0 (MMT)
(ii) (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 (AXEC).

This question can be empirically decided. So, why does the MMT community, which certainly does not lack academics with free access to macroeconomic data and generous support/funding from the ultimate beneficiaries of MMT policy, not carry out this econometric study?

The obvious answer is that the MMT community’s real business is NOT science but quite ordinary political agenda-pushing. THIS is the point at issue but Clint Ballinger tries to filibuster away the fact that the “End Game Of Modern Monetary Theory” has already been lost.

So, there is nothing left for MMTers in general, and Clint Ballinger, in particular, other than to say goodbye.

Egmont Kakarot-Handtke

#1 Macro for dummies
#2 Wikipedia and the promotion of economists’ idiotism
#3 Essentials of Constructive Heterodoxy: Money, Credit, Interest
#4 Reconstructing the Quantity Theory
#5 The Emergence of Profit and Interest in the Monetary Circuit
#6 Where advanced Heterodoxy — represented by Steve Keen — took the wrong turn
#7 Basics of monetary theory: the two monies
#8 Fixing the loanable funds blunder
#9 Richard Murphy: the MMT fraudster dressed up as realist
#10 Bagehot’s wisdom and the silliness of modern economists
#11 Economics and the Fallacy of Insufficient Abstraction

Immediately preceding Economics: A pointless left-right wrestling show


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