Blog-Reference and Blog-Reference
On the back cover of People, Power, and Profits, the applause troll Paul Krugman is cited under the heading Praise for Joseph E. Stiglitz: “[Joseph Stiglitz] is an insanely great economist.”
The first thing to notice is that Paul Krugman is an insanely little economist because he proudly presents himself as ‘sorta-kinda maximization-and-equilibrium guy’, that is, he has not realized to this day that maximization-and-equilibrium is dead for 150+ years.#1, #2
From Adam Smith/Karl Marx onward to the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel economics claims to be science but has never been anything else than brain-dead political agenda-pushing. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational concept of the subject matter ― profit ― wrong.#3, #4
There are 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. Economics is a failed science.#5 Because all variants of theoretical economics are provably false, economic policy guidance NEVER has had sound scientific foundations.
Because both microeconomics and macroeconomics are based on inconsistent concepts the respective models are scientifically worthless and economic policy guidance is not different from tea leaves reading.
What, then, are Joseph E. Stiglitz’s policy proposals? “The prescription follows from the diagnosis: It begins by recognizing the vital role that the state plays in making markets serve society. We need regulations that ensure strong competition without abusive exploitation, realigning the relationship between corporations and the workers they employ and the customers they are supposed to serve. We must be as resolute in combating market power as the corporate sector is in increasing it.”
Those prescriptions are (i) the stock of the left in the US and elsewhere, (ii) miss the point because the underlying profit/distribution theory is false.
Roughly speaking, Joseph E. Stiglitz believes that profit comes from market power. This is proto-scientific common sense. In other words, the economist Joseph E. Stiglitz does not know what profit is. This he has in common with his academic colleagues.
To make matters short here, the macroeconomic Profit Law is given as Q≡Yd+(I−S)+(G−T)+(X−M). In the elementary case of a pure production-consumption economy, this reduces to Q≡−S, i.e. the mirror image of household sector saving S is business sector loss (−Q). The mirror image of household sector dissaving (−S) is business sector profit Q. The point to grasp is that profit for the business sector as a whole depends on deficit spending and nothing else. With regard to the state, the Profit Law boils down to Q≡(G−T), i.e. Public Deficit = Private Profit. Obviously, macroeconomic profit has NOTHING to do with exploitation.#6
The reduced macroeconomic Profit Law Q≡(I−S)+(G−T) tells one that profit in the monetary economy is positive (i) if business sector investment I is greater than household sector saving S, and (ii), if the state runs a deficit, i.e. (G−T)>0.
Case (i) is characteristic of early Capitalism and case (ii) is characteristic of late Capitalism. Currently, the so-called free-market economy is on the full life support of the state. The macroeconomic Profit Law boils down to Public Deficit = Private Profit and thus the Oligarchy’s financial wealth and public debt grow in lockstep.
This distribution problem CANNOT be solved by increasing wages or by reducing market power because these factors affect only the distribution of profit between firms while the profit for the business sector as a whole is determined by deficit spending.
Joseph E. Stiglitz titles his new book People, Power, and Profits and does not know what profit is and how it is determined. Because of scientific failure, his policy proposals are at best useless. This he has in common with the rest of academic economists.#7
The fact of the matter is: so-called free-market economies like the USA have long been on full life-support of the state. The continuous creation of financial wealth has become the first and foremost economic task of the state. The Oligarchy is continuously fed by deficit-spending/money-creation. Roughly speaking, the Oligarchy’s financial wealth is equal to accumulated Public Debt (with WeThePeople as ultimate bagholders).
Capitalism and Socialism are both monetary economies. The macroeconomic Profit Law is the same for both.#8 Economists like Paul Krugman and Joseph E. Stiglitz have not realized it to this day and this tells one that they are insanely stupid.
* Michael Roberts Blog
#1 Paul Krugman and economic poultry entrails reading
#2 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
#3 The Profit Theory is False Since Adam Smith
#4 Dear idiots, Marx got profit and exploitation wrong
#5 Macroeconomics: Economists are too stupid for science
#6 Capitalism, poverty, exploitation, and cross-over exploitation
#7 Econogenics in action
#8 No future for Socialism and Capitalism
Related 'There is no like/dislike button in science' and 'Here is the long-overdue scientific death certificate for Marx and Marxists' and 'Proﬁt for Marxists' and 'Economists cannot do the simple math of profit — better keep them out of politics' and 'Wikipedia, economics, scientific knowledge, or political agenda pushing?'. For details of the big picture see cross-references Methodology.
Twitter Apr 28
You ask “… if it turns out that the Scandinavian system is the most efficient, could that be proven with your equations?”
Before you can prove anything you need an accurate formal representation of the system in question. The usual economic squabbling is pointless, it proves nothing.
The macroeconomic Profit Law is ONE element of the scientifically valid description of the monetary economy. There are more elements, to be sure.#1 Because the Scandinavian economies are monetary economies the Profit Law holds also for them.
Needless to emphasize that the general equation has to be specified for the national economy under consideration. This is the step from theory to model. For example, if government expenditures G are differentiated into military spending Gm and social spending Gs, i.e. G=Gm+Gs, then one gets wildly different numbers for the USA and for Norway but, of course, this does NOT affect the general Profit Law in any way. It’s just like putting different masses into the Law of Gravity.
Again, the macroeconomic laws are the same for Capitalism and Socialism, and anything in between. Only the values of the variables differ.
#1 Go! ― test the Profit and Employment Law