April 3, 2019

MMT is an economic policy fraud

Comment on Lars Syll on ‘Job Guarantee and inflation control’

Blog-Reference and Blog-Reference

Lars Syll quotes from the new MMT macroeconomics textbook: “There can be no inflationary pressures arising directly from a policy where the government offers a wage to any labour not wanted by other employers … Instead of a buffer stock of unemployed being used to discipline the distributional struggle, the JG [Job Guarantee] policy achieves this via compositional shifts in employment through transfers in and out of the JG pool. JG policy anchors the general price level to the price of an employed labour buffer stock, and can produce useful output with positive supply side effects.”

The general point to notice upfront is that the new Mitchell/Wray/Watts textbook has already been refuted.#1 In the following, the focus is on the defects of the MMT JG.

For a start, the elementary production-consumption economy is clearly defined by three macroeconomic axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw), and two definitions (Q≡C−Yw, S≡Yw−C).

Given the two conditions, the market-clearing price is derived as P=W/R (1). So, the macroeconomic price P is determined by the wage rate W, which has to be fixed as a numéraire, and the productivity R. This is the macroeconomic Law of Supply and Demand. It implies W/P=R (2), i.e. the real wage is always equal to the productivity no matter how the wage rate W is set.

So, in the most elementary case, the general price level P can be anchored by setting the (minimum) wage rate W. There is no JG needed, only a rule for setting the (minimum) wage rate. In order to avoid both inflation and deflation, the rate of change of W has always to be equal to that of R.

If there is unemployment the already employed can be taxed with the amount T and the money can be spent on those in the JG program so that the government budget is balanced, i.e. G=T. The disposable income of the already employed is Yw−T, and the total income Y remains unchanged because of Y=(Yw−T)+Yg and Yg=G=T. Total expenditures C remain unchanged because of C=Yw+Yg.

So, price stability and full employment can, as a matter of principle, be realized with a balanced government budget.

Now, MMT comes in. MMT’s unique selling proposition is deficit-spending/money-creation. This means in the simplest case tax T is zero and the government deficit is (G−T)=G. As a consequence, total income increases Y=Yw+Yg=Yw+G. Under the condition of budget balancing, i.e. C=Y, household sector spending increases. As a result, there is a one-off price hike (NO inflation) and the business sector makes a profit Q equal to the government deficit G. It holds Public Deficit = Private Profit.

In sum, the crucial point is whether the full-employment Job Guarantee is realized with (i) a balanced government budget or with (ii) deficit-spending/money-creation.

In real terms, both alternatives are absolutely identical for the ninety-nine-percenters. Alternative (ii), though, is better for the one-percenters.

So, the specific characteristic of the MMT JG is that it benefits the Oligarchy. Instead of open taxation in the case of a balanced budget, there is stealth taxation via the price mechanism. On closer inspection, it is obvious that MMT commits political fraud for the benefit of the Oligarchy.#2

Egmont Kakarot-Handtke

#1 Refuting MMT’s Macroeconomics Textbook
#2 For the full-spectrum refutation of MMT see cross-references MMT

Related 'Gov-Deficits do NOT cause inflation' and 'MMT vs Mainstream: examining proto-scientific garbage in detail' and 'The Third Way: Towards the happy Zero-Tax Economy' and 'MMT and the promotion of Wall Street's idea of social policy' and 'Windmill economics' and 'MMT: fundamentally false' and 'Meet the MMT smart arses' and 'MMT is better than mainstream economics but still not good enough' and 'Controlled demolition of MMT ― an exercise in elementary logic' and 'Why MMTers permanently explode myths of public deficits'.