January 18, 2019

MMT: Not a joke but a fraud

Comment on Michael R. Strain on ‘Modern Monetary Theory’ Is a Joke That’s Not Funny’

Blog-Reference and Blog-Reference

Michael R. Strain opens the argument: “First, let’s start with the confusion over what it is. The answer seems to depend on which advocate of MMT is being asked. It is sometimes a theory of money. MMT is also being discussed in the context of a political program to justify huge increases in social spending. Finally, there is its role as a prescription for macroeconomic policy. … Even as just an economic theory, it is not settled or fully developed. … The bedrock observation of MMT is correct: Any government that issues its own currency can always pay its bills.”

What is specific to MMT is the claim that almost all economic/social problems can and should be solved by deficit-spending/money-creation. MMT is advertised as a potent medicine that benefits the ninety-nine-percenters and that has no serious short- or long-term negative side effects. MMT claims further that orthodox economics is provably false and that orthodox policy is counterproductive.

MMT is three things: theory, policy, activism. These three elements are constantly mixed in the public debate and this guarantees inconclusive blather in all eternity which keeps soapbox economists, journalists, agenda pushers, propagandists, social media trolls, and the rest of the Circus Maximus employed and fed.

MMT theory is provably false, i.e. materially/formally inconsistent. Because of this, MMT policy proposals have no sound scientific foundations. This, though, does not matter much for the MMT activists because these folks present themselves as the can-do good guys, the real Progressives, the benefactors of WeThePeople who care for the unemployed, the vulnerable, the poor pensioners, the indebted students, and the environment. The activists use MMT as a grab bag of arguments without any concern for consistency, truth, or scientific validity.

The lethal negative effect of permanent deficit-spending/money-creation is NOT on inflation but on distribution.#1 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 benefits the one-percenters and not the ninety-nine-percenters.

Expressed as a parable. The MMTer resembles a person who prints counterfeit money, say a million, and distributes it with great fanfare among the poor of the town. The media praise her as a fine example of social responsibility and charity. The economic effect of the matter, though, is that the workers are the real benefactors who unwittingly are made to share their real income with the poor. The redistribution of output is effected by barely noticeable price hikes. In the end, the counterfeit money ends up as profit of the business sector as a whole.

The undeniable charm of MMT policy is that apparently there are only winners. Fact is, though, that MMT is proto-scientific garbage and political fraud#2 and that, at the end of the day, the ninety-nine-percenters hold the bag.#3, #4

As a rule of thumb, the financial wealth of the Oligarchy grows in lockstep with the public debt of WeThePeople.

Egmont Kakarot-Handtke

#1 Keynes, Lerner, MMT, Trump and exploding profit
#2 Stephanie Kelton’s legendary Plain-Sight-Ink-Trick
#3 MMT = proto-scientific garbage + deception of the 99-percenters
#4 Deficit-spending, public debt, and macroeconomic profit/loss

Related 'Warren Mosler: scientific dilettante and political fraudster' and 'How MMT makes everybody happy' and 'MMT is NOT bold policy but spineless fraud'. For the full-spectrum refutation of MMT see cross-references MMT.


REPLY to Bob Roddis on Jan 18

You ask: “Do I have that right?”

No, you don’t get anything right. Bad Austrian karma.

Imagine for a start an elementary production-consumption economy with a balanced household sector budget in the initial period, i.e. C=Yw.#1

Now, if the government runs a deficit in period 1, total expenditures are C+G, the market-clearing price rises (no inflation), and the business sector makes a profit Q=G. Taxes are zero, i.e. T=0.

The banking system consists alone of the central bank. So, profit takes the form of deposits at the CB. The business sector’s deposits are equal to the government’s overdrafts. For a start, there is no interest on deposits/overdrafts.

If the government decides to issue bonds in order to consolidate their overdrafts at the central bank and the business sector buys these bonds then both overdrafts and deposits go again to zero. Money = deposits at the CB vanishes. The business sector now holds interest-bearing bonds. The government has to tax the household sector in order to pay interest to the bondholders.

The government’s debt took first the form of overdrafts and then the form of bonds (liabilities). The business sector’s profit took first the form of deposits and then the form of bonds (assets).

#1 Deficit-spending, public debt, and macroeconomic profit/loss