There is political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal 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 political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/ formally inconsistent and all got the foundational economic concept ― profit ― wrong. In other words, there is NO such thing as scientifically valid economics.
This holds also for MMT. MMT is refuted on all counts.#1
Scientifically, MMT is dead and buried, however, it has still some use-value in the political Circus Maximus where nobody ever cared for scientific validity and where useful idiots are in strong demand.#2
Accordingly, Ben Hunt does not waste a split-second on a scientific refutation of MMT but psychoanalyses: ”Modern Monetary Theory ― which is neither modern nor a theory ― is a post hoc rationalization of political expediency and power-expanding action. It makes us feel better about all the bad stuff we’ve done with money and debt for the political efficacy of Team Elite.”
With this, the whole issue is outside of science and in the bottomless swamp of politics. This swamp is the habitat of brain-dead blathers, agenda-pushers, entertainers, storytellers, propagandists, media trolls, and fraudsters.
Ben Hunt’s main arguments against MMT are: “MMT is the theoretical justification for the economic policies of Trump and his Wall Street fellow travelers alike, who want nothing more than to keep the market punchbowl in place and well-spiked with pure grain ZIRP alcohol forever and ever, amen. MMT is the theoretical justification for the economic policies of every potential Democratic presidential candidate in 2020. Because with MMT, you CAN have it all. You can pay for wars without end. You can pay for universal single-payer healthcare. You can pay for everyone to go to college. You can pay for a universal basic income.”
The political sovereign can, as a matter of principle, have any combination of war, healthcare, education, basic income, interest payments for existing debt, and easy money, given the production potential of the country. This is the very definition of sovereignty. The crucial question is: does all this happen (i) with a balanced budget or (ii) with deficit-spending/money-creation?
The pivotal trait of MMTers is that they abhor budget-balancing over any time span and promote permanent deficit-spending/money-creation. This translates into an ever-increasing public debt and the interest thereon.
The lethal negative effect of permanent deficit-spending/money-creation, though, is on distribution.#3 According to the macroeconomic Profit Law [Q≡Yd+(I−S)+(G−T)+(X−M) → Q≡(G−T)], it holds Public Deficit = Private Profit and this means that MMT policy ultimately benefits the one-percenters and not the ninety-nine-percenters. To pay for social benefits with deficit-spending/money-creation is simply a political fraud.#4 Permanent deficit-spending is a permanent free lunch for the Oligarchy.#5
Ben Hunt, with his silly blather about Dr. Strangelove, Edward III, and Lysenko, obviously misses the full implications of MMT.#6
Economics is not a science but political agenda pushing. MMT, too, is NOT a valid theory but a political fraud for the benefit of the one-percenters.#7
#1 For the full-spectrum refutation of MMT see cross-references MMT
#2 The end of political economics
#3 MMT, money creation, stealth taxation, and redistribution
#4 MMT: Not a joke but a fraud
#5 MMT: A free lunch for the Oligarchy
#6 Deficit-spending, public debt, and macroeconomic profit/loss
#7 Stephanie Kelton’s legendary Plain-Sight-Ink-Trick
REPLY to Andrew Anderson on Jan 19
You say: “Suppose the population of a country is increasing but the money supply does not grow at least proportionally? Then wages and prices, to the extent they utilize labor, can be expected to fall forever as more and more workers must compete for a fixed money supply.”
That is not correct for a fiat money system.
As the analytical starting point, the elementary production-consumption economy is defined with this set of macroeconomic axioms: (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.
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). The price P is determined by the wage rate W, which takes the role of the nominal numéraire, and the productivity R.
What is needed for a start is two things (i) a central bank which creates money on its balance sheet in the form of deposits, and (ii), a legal system which declares the central bank’s deposits as legal tender.
Deposit money is needed by the business sector to pay the workers who receive the wage income Yw per period. The need is only temporary because the business sector gets the money back if the workers fully spend their income, i.e. if C=Yw. Overdrafts are needed by the household sector for consumption expenditures if the households want to spend before they get their income.
For the case of a balanced budget C=Yw, the idealized transaction sequence of deposits/overdrafts of the household sector at the central bank over the course of one period is shown on Wikimedia.#1
The household sector’s deposits/overdrafts are ZERO at the beginning and end of the period. Money is continually created and destroyed during the period under consideration. There is NO such thing as a fixed quantity of money. The central bank plays an accommodative role and simply supports the autonomous market transactions between the household and the business sector.
From this follows the average stock of transaction money as M=κYw, with κ determined by the transaction pattern. In other words, the average stock of money M is determined by the autonomous transactions of the household and business sector and created out of nothing by the central bank. The economy NEVER runs out of money.
The transaction equation reads M=κPRL (2) in the case of budget balancing and market clearing. If employment L is doubled, the average stock of transaction money M doubles. In a fiat money economy, growth is NOT hampered by a lack of the transaction medium.
As long as the central bank finances the wage bill Yw=WL with money creation out of nothing, and with wage rate W and productivity R fixed, the price P does not move one iota according to (1). The average quantity of money M increases/decreases according to (2) but there is no inflation/deflation. The creation of fiat money for the payment of wages is the correct way of bringing money into the economy. MMT deficit-spending is the incorrect way.
There is neither government spending nor taxation needed to get the elementary production-consumption economy going and growing.
#1 Wikimedia AXEC98 Idealized transaction pattern