January 10, 2019

MMT: The art of shooting oneself in the head

Comment on Kaivey on ‘Michael Hudson: Oligarchy will never cancel the debt’


“Here is maverick economics Professor Michael Hudson on MMT, taken from his book J is for Junk Economics (p.155-7). Hudson is supportive of the theory and the economic policies which it implies.”#1

On the other hand, Michael Hudson maintains: “Every society in history for the last 4,000 years has found that the debts grow more rapidly than people can pay,” he says. “The problem is a small oligarchy of 10 percent of the population at the top to whom all of these net debts are owed to. You want to annul the debts to the top 10 percent. That’s what they’re not going to do. The oligarchy is running things. They would rather annul the bottom 90 percent's right to live than annul the money that’s due to them. They would rather strip the planet and shrink the population and be paid rather than give up their claims. That’s the political fight of the 21st century.” (See Intro)

Michael Hudson is either a lousy economist or schizo.

The macroeconomic Profit Law is given as Q≡Yd+(I−S)+(G−T)+(X−M) and reduces to Q=(G−T) for Yd, I, S, X, M = 0. The reduced Profit Law says that the profit of the business sector Q is equal to the deficit (G−T) of the public sector. In a nutshell: Public Deficit = Private Profit. In other words, permanent deficit spending is a permanent free lunch for the Oligarchy.

Roughly speaking, the MMT policy of deficit-spending/money-creation produces a growing public debt which is, by and large, held by the Oligarchy. And the Oligarchy agrees on rolling over the debt again and again, but does not agree to annul it: “That’s what they’re not going to do.” No, this is the very definition of debt that it has to be repaid eventually. In the meantime, the creditor gathers interest income.

Michael Hudson’s economic schizophrenia consists of promoting MMT and thereby permanently feeding the Oligarchy through deficit-spending and then complaining that 10 percent of society is “running things”.#2

MMTers are too stupid to realize that it is MMT policy itself that empowers the Oligarchy continually.#3

Egmont Kakarot-Handtke

#1 Nick Johnson, Michael Hudson on Modern Monetary Theory
#2 MMT: A free lunch for the Oligarchy
#3 Keynes, Lerner, MMT, Trump, Biden, and exploding profit

REPLY to Kaivey on Jan 11

You say: “The government doesn’t charge interest on the government created deficit money, so people can store it without worrying about the interest. So, what’s the problem with some people using it as their savings, even if they are very rich?”

OK, let us go step by step into the political details.

(i) The government follows MMT advice and initiates deficit-spending/money-creation for some worthy social purpose.

(ii) According to the reduced Profit Law, profit of the business sector Q is equal to the deficit (G−T) of the public sector, i.e. Public Deficit = Private Profit.

(iii) Only the central bank exists. Profit takes the form of deposits at the central bank. The central bank pays no interest on deposits.

(iv) Does the business sector keep idle balances at the CB? Hardly. One possibility is profit distribution. Let us assume that all profits are distributed to the firms’ owners, i.e. the Oligarchy. The business sector’s deposits at the central bank go down, and the Oligarchy’s deposits go up.

(v) Does the Oligarchy keep idle balances at the CB? Hardly. They take the money and finance foundations, media, political parties, universities, think tanks, members of the legislative/executive, charities, and a horde of social media trolls. The Oligarchy does not invest in business but in political power.

(vi) The media/academics/trolls then get very busy and tell the world that MMT is a good thing, that it eliminates unemployment and other social woes, that public debt is an asset, that the state cannot go broke, that budget balancers are either yokels or sadists, that MMTers are the real Progressives, that MMT is a scientific breakthrough, and that nobody has to worry about children and grandchildren because they owe the ever-increasing public debt to themselves.

(vii) Eventually, these political investments bear fruit, managed populism pressures for deficit-spending, the “people” get what they want, and the cycle starts again at (i). The whole thing is a positive feedback loop.

Your idea that the Oligarchy puts their distributed profits as savings on a zero-interest account is, of course, possible in principle. This presupposes, though, that the Oligarchy is even more stupid than you which, however, is an extremely unrealistic assumption.

REPLY to Kaivey on Jan 13

You play dumb: “You say the debt has to repaid one day, but why? Some people even say that government deficit spending is ‘debt free’ money.”

Debt has to be repaid because this is the very definition of debt. Otherwise, it is a gift.

The MMT salespeople are hell-bent on selling deficit-spending/money-creation and when people have second thoughts about exploding public debt they are told that this (i) is not a debt at all but savings, (ii) will not be repaid anyway, (iii) is for a good social purpose and only bad people are against helping the unemployed and the poor and the vulnerable, (iv) that the Oligarchy will never cancel the debt, (v) a debt jubilee will eventually solve all problems.

All this is self-contradictory blather.

Your role as a member of the MMT sales team is to play down the negative consequences of MMT policy for the ninety-nine-percenters and to distract from the fact that the one-percenters/Wall Street/Oligarchy are attempting to get the institutional profit-generator treasury/central bank politically into their hands and to execute the Functional-Finance program of permanent deficit-spending/money-creation which is nothing but a program of permanent self-alimentation.

Take notice all morons from the Walrasian, Keynesian, Marxian, Austrian, and MMT schools, macroeconomic profit does not come from the exploitation of workers or the value creation of entrepreneurs but from deficit-spending of the household and government sector. Your profit theories are false since Adam Smith. Your ideas about Capitalism and Socialism are proto-scientific garbage. Your economic policy proposals are a political fraud.