June 4, 2019

Stephanie Kelton sells children into debt slavery

Comment on Stephanie Kelton/Handelszeitung on ‘Die USA können gar nicht pleitegehen; The USA cannot go broke’*

Own post, no external Blog-Reference

MMT is correct on two points (i) the money creating State cannot go broke, just like any ordinary counterfeiter cannot go broke, and (ii), a government deficit does NOT cause inflation but merely a one-off price hike.

The lethal effect of the MMT policy of public deficit-spending/money creation is on distribution. This distributional effect is ― whether intentionally or unintentionally does not matter ― obfuscated with the slogan “All deficits create net financial wealth for the private sector”, which leads people to falsely associate private sector = WeThePeople. The correct reading is private sector = Oligarchy.#1, #2, #3, #4

The macroeconomic Profit Law entails Public Deficit = Private Profit which means that the Oligarchy’s financial wealth and public debt (currently $22 trillion) grow in lockstep. Hence the MMTers’ arguments for permanent deficit-spending/money-creation have a tangible use-value for the Oligarchy. MMT policy guidance is, contrary to the social/environmental optic, ultimately to the detriment of WeThePeople.#5

Here is schematically how it works.#6

1. The government runs a deficit and according to the macroeconomic Profit Law, the business sector makes a profit Q of equal magnitude, i.e. Q=(G−T).

2. The profit is fully distributed to the owners of the business sector = the Oligarchy, i.e. Yd=Q.

3. The Oligarchy buys interest-bearing government bonds with their distributed profit.

4. The government taxes the wage income Yw and hands the money over to the Oligarchy in the form of interest payments Yi.

5. The consumption expenditures of the wage income receivers are reduced to Cw=Yw−Ti and the consumption expenditures of the interest income receivers are increased by Ci=Yi such that the budget is balanced, i.e. Yi=Ti and total consumption expenditures C=Cw+Ci remain unchanged. In other words, period output O is redistributed from WeThePeople to the Oligarchy.

6. This goes on as long as the public debt is rolled over. Taxation Ti depends on public debt D and the interest rate i, and disposable wage income falls with growing public debt at any given interest rate, i.e. Yw−Ti becomes smaller and smaller. Accordingly, the real income/real consumption of the children and grandchildren and grand-grandchildren of WeThePeople is successively reduced and that of the Oligarchy is increased.

7. This redistribution of real output O becomes gradually more extreme as the public debt increases which happened over the last 200+ years. Obviously, if Yi=Ti grows in comparison to Yw the disposable income Yw−Ti approaches eventually zero and the real consumption of the wage income receivers, too, approaches zero. In this limiting case, the grandchildren of WeThePeople work full time for the grandchildren of the Oligarchy. The limiting case amounts in real terms to slavery. There is NO way to pay back the public debt if the disposable income is zero.

Needless to emphasize that there are ways to push this dire outcome beyond the time horizon of WeThePeople. One possibility is to reduce the interest rate on government debt to zero. The other is to pay interest on government debt by increasing deficit-spending. This ― simple math tells one ― increases public debt exponentially but has no immediate real effect.

Note well, that the public debt has to be repaid eventually which leads to the breakdown of the economy.#7

Solving economic problems by the MMT policy of deficit-spending/money-creation means trading a small problem of the present generation for a big and ultimately insoluble problem of the future generations and lowering WeThePeople’s real income/consumption in the meantime. MMT policy is, in any case, a bad deal for WeThePeople.

MMTers in general and Stephanie Kelton, in particular, are either stupid because they do not understand the elementary mathematics that underlies macroeconomics or they are corrupt agenda pushers for the Oligarchy.#8

Egmont Kakarot-Handtke


* Handelszeitung
#1 Quick MMT 101 refutation
#2 The fundamental MMT sectoral balances equation is provably false, i.e.
MMT=False → (I−S)+(G−T)+(X−M)=0,
AXEC=True → (I−S)+(G−T)+(X−M)−(Q−Yd)=0.
#3 Stephanie Kelton’s legendary Plain-Sight-Ink-Trick
#4 For the full-spectrum refutation of MMT see cross-references MMT
#5 How to pay for the war and to be bamboozled by economists
#6 The economy is an elementary production-consumption economy with employment L, productivity R, and output O constant throughout. The market is cleared, i.e. X=O.
#7 Some nasty MMT surprises behind the time horizon
#8 The promotion of Stephanie Kelton’s new book The Deficit Myth: Modern Monetary Theory and Creating an Economy for the People says on Amazon: “The leading thinker and most visible public advocate of modern monetary theory ― the freshest and most important idea about economics in decades ― delivers a radically different, bold, new understanding for how to build a just and prosperous society.”

Related 'MMT: The fusion of Wall Street and Academia' and 'How counterfeiters save America with an extra profit and make WeThePeople pay for it' and 'MMT was right all along: Gov-Deficits do NOT cause inflation' and 'The MMT-Yawner: Government is not a household' and 'On the saying “We owe the debt to ourselves”' and 'MMT: doom or survival?' and 'Links on Austerity' and 'Stephanie Kelton and the self-destructive stupidity of the super-rich' and 'Just one more day: How deficit-spending delays the breakdown of Capitalism' and 'No MMT illusions! YOU are going to pay for it' and 'MMT is ALWAYS a bad deal for the 99-percenters' and 'The day when WeThePeople sends debt-deranged economists to hell'. For the historical forms of debt slavery, see David Graeber Debt: The First 5,000 Years.

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REPLY to Calgacus on Sep 5, 2020

You say: “Remember him [David Graeber] writing that he sent the drafts of Debt to the MMTers but they neglected to reply and they apologized for not doing so later.”

To recall, Debt: The First 5000 Years is about all forms of debt slavery. For the deficit cheerleaders of MMT, this is not exactly an issue to popularize.