March 7, 2019

The clock runs down on economics

Comment on Stephanie Kelton on ‘The Clock Runs Down on Mainstream Keynesianism’*

Blog-Reference

Almost everybody knows by now that mainstream economics is dead. As a matter of fact, mainstream economics was already dead in the cradle 150+ years ago. The real wonder is why it is still around and why failed scientists like Paul Krugman are still producing proto-scientific garbage. For some reason, the basic methodological principle of science, i.e. to discard falsified theories, does not work in economics. The simple idea of scientific progress is that theories that have been proven materially/formally inconsistent are unceremoniously buried at the Flat-Earth-Cemetery and the attention turns to a more promising research program.

Applied to economics, this means that mainstream folks like Krugman are done.#1 However, there is a snag: “… it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)

Stephanie Kelton claims that MMT is the new theory that hammers the final nail in Paul Krugman’s coffin: “No economist is going to get everything right. But the odds of getting things right improve dramatically when you’re working with a macro framework that doesn’t lead you astray. The IS-LM framework is a gadget that will often align with sensible real-world analysis. It may perform better than a stopped clock, but it is no match for MMT.” and “The [IS-LM] model remains the workhorse for many mainstream Keynesians. MMT considers it fundamentally flawed.”#2

On this point, Stephanie Kelton is absolutely right: IS-LM is refuted on all counts#3 and only stupid or corrupt economists still apply it.

However, therefrom this does not follow that MMT is the long-awaited replacement for mainstream economics. Although MMT is way better than IS-LM it is still flawed. The curious thing is, that IS-LM and MMT share the same foundational blunder which can be traced back to Keynes’ General Theory.#4

From the methodological standpoint, both New Keynesianism and MMT are empirically/ logically inconsistent and not much more than commonsensical storytelling. Neither Paul Krugman’s nor Stephanie Kelton’s policy guidance has sound scientific foundations.

In order to make her point, Stephanie Kelton cites Galbraith: “There are two ways to get the increase in total spending that we call ‘economic growth.’ One way is for the government to [deficit] spend. The other is for banks to lend. For ordinary people, public budget deficits, despite their bad reputation, are much better than private loans. Deficits put money in private pockets…This is called an increase in ‘net financial wealth’… In contrast, when a bank makes a loan, the cash is not owned free and clear.”

This is a hard to disentangle analytical half-truth and a full political fraud. Because it holds Public Deficit = Private Profit, MMT deficit-spending/money-creation puts money in the pockets of the Oligarchy. The fundamental law of Capitalism is the macroeconomic Profit Law and it says Q≡Yd+(I−S)+(G−T)+(X−M) which boils down to Q≡(G−T), i.e. profit Q is equal to the government’s deficit spending G>T.

The claim that MMT policy is for the benefit of WeThePeople is provably false. Because MMT gets the foundational concept of profit wrong, the whole theory is scientifically worthless. Politically, MMT is for the benefit of the Oligarchy.#5, #6 In the final analysis, MMTers are either stupid or corrupt ― just like mainstream economists..#7, #8, #9

The clock runs down not only on Paul Krugman’s New Keynesianism but also on Stephanie Kelton’s MMT.

Egmont Kakarot-Handtke


* BloombergOpinion, The clock runs down and BloombergOpinion, 4 Answers
#1 Enough! Economists, retire now!
#2 How to finally hammer down the nails in the coffin of Monty Python economics
#3 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
#4 Krugman vs MMT ― like the blind talking about colors
#5 Keynes, Lerner, MMT, Trump, etc. and exploding profit
#6 MMTers make Capitalism work
#7 The Kelton-Fraud
#8 MMT: The one deadly error/fraud of Warren Mosler
#9 Bill Mitchell, MMT’s fake scientist

Related 'Paul’s and Stephanie’s economic delirium talk'

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Short version: The clock runs down on economics

Blog-Reference Mar 8

Almost everybody knows by now that mainstream economics is dead. As a matter of fact, mainstream economics was already dead in the cradle 150+ years ago. The real wonder is why it is still around and why failed scientists like Paul Krugman are still producing proto-scientific garbage. For some reason, the basic methodological principle of science, i.e. to discard falsified theories, does not work in economics. The simple idea of scientific progress is that theories that have been proven materially/formally inconsistent are unceremoniously buried at the Flat-Earth-Cemetery and the attention turns to a more promising research program.

Applied to economics, this means that mainstream folks like Krugman are done.#1 However, there is a snag: “… it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)

Stephanie Kelton claims that MMT is the new theory that hammers the final nail in Paul Krugman’s coffin.

For the full 3618-character post see here

The claim that MMT policy is for the benefit of WeThePeople is provably false. Because MMT gets the foundational concept of profit wrong, the whole theory is scientifically worthless.

The clock runs down not only on Paul Krugman’s New Keynesianism but also on Stephanie Kelton’s MMT.

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LINKS on Mario Seccareccia/Marc Lavoie’s ‘Sir John and Maynard Would Have Rejected the IS-LM Framework for Conducting Macroeconomic Analysis’ on Mar 11

Keynes messed up macroeconomics. IS-LM is proto-scientific garbage for 80+ years. For details see
► How Keynes got macro wrong and Allais got it right
► Dear idiots, time to get saving and investment straight
► Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
► Getting out of IS-LM = Getting out of despair
► Where modern macroeconomics went wrong
► John Hicks, fake scientist