July 30, 2019

How MMT disgraces itself

Comment on Bill Mitchell/Tom Hickey on ‘When the Left disgraces itself’

Blog-Reference and Blog-Reference

Tom Hickey argues: “The number of serious critiques of MMT are few and far between and well-informed one are even rarer. In fact, I can’t recall even one that demonstrated familiarity with the body of MMT literature. Sad state of affairs.”

Fact is
  1. The foundational MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 is provably false.#1 Therefore, the whole analytical superstructure of MMT is false.
  2. MMTers purposefully deceive people.#2
  3. MMTers violate scientific standards and systematically block/suppress refutation.#3
  4. MMTers are NOT scientists but agenda pushers for the Oligarchy.
  5. The MMT policy of deficit-spending/money-creation undermines Democracy.#5
The philosopher Tom Hickey is a disgrace for the community of philosophers which defines itself through the voluntary commitment to high ethical standards.

Egmont Kakarot-Handtke

#1 For the full-spectrum refutation of MMT see cross-references MMT
#2 MMTers are false Progressives and false Friends-of-the-People
#3 Economists/MMTers: agenda pushers, distractors, blockers, muters, censors
#4 Very busy these days: Wall Street’s agents
#5 MMT undermines democracy

Related 'Trump and MMT: Make profits great again' and 'The decisive reason to worry about government debt' and 'MMT, voodoo, and dead horse beating' and 'Bill Mitchell ― Wall Street’s hitman keeps an eye on MMT defeatists' and 'How Stephanie Kelton brain-washes a lovely young English girl' and 'Prophet Stephanie divines the seizure of the means of production of currency'. and 'Is MMT good for WeThePeople or for the Oligarchy?' and 'Is MMT Alt-Right? No, it is fake science' and 'Bill Mitchell’s dishonorable discharge from the sciences'.

REPLY to Calgacus on Jul 31

The fact is that the foundational MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 is provably false. Therefore, the whole analytical superstructure is false. Therefore, MMT inflation theory is false by implication.#1-#6 Historical examples are NO substitute for the true theory. Conversely, the true theory is the precondition for understanding history.

#1 Gov-Deficits do NOT cause inflation
#2 Attention: there are THREE types of inflation
#3 Settling the MMT―Inflation issue for good
#4 MMT, money, value, and transcendental Capitalism
#5 Dear idiots, government deficits do NOT cause inflation
#6 Economics as tireless production of proto-scientific garbage: inflation theory as an example

After 200+ years even economics becomes a science

Comment on Ikonoclast on  ‘Bringing science into economics must necessarily entail measurements in the scientific units’

Blog-Reference and Blog-Reference

The characteristic capability of science ― to turn whatever it might touch into knowledge ― obviously has eluded economics.#1 Currently, economists do not understand how the monetary economy works. Walrasianism, Keynesianism, Marxianism, Austrianism, and MMT are mutually contradictory, axiomatically false, materially/formally inconsistent, and all approaches got profit ― the foundational concept of the subject matter ― wrong. Every topic economists take up turns sooner or later into brain-dead blather and invariably ends in the political swamp where “nothing is clear and everything is possible.” (Keynes)#2

Ikonoclast maintains: “The only real science is hard science; namely physics, chemistry and biology. The rest is not science. This is not to insist on mere scientism nor is it to insist that other subjects are worthless.” and “If you are calling for scientific and mathematical precision in economics then you must stick to the scientific units laid out in International System of Units (SI). These are base units; s second time, m metre length, kg kilogram mass, A ampere electric current, K kelvin temperature, mol mole amount of substance cd candela, and derived units … Does anyone see dollars, ‘utils’ or ‘snalts’ in that list?” and “Only real resource considerations are meaningful. Money considerations are completely meaningless. This is if we are being entirely logical and scientific.”

Where is the blunder in this argument? The economy constitutes itself through the interaction of real and nominal variables, therefore ‘money considerations’ are an integral part of economics. After all, monetary profit/loss is a precisely measurable ‘monetary’ variable that does not appear in physics or elsewhere but can be as real as a sack of gold or an entry on the Central Bank’s accounts.

The economic universe contains the physical magnitudes#3 PLUS the foundational economic magnitudes.

The blunder of scientifically incompetent economists is this: microfoundations are given with these verbalized Walrasian axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

Obviously, the Walrasian axiom set contains THREE NONENTITIES: (i) constrained optimization HC2, (ii) rational expectations HC4, (iii) equilibrium HC5. Every theory/model that contains a NONENTITY is a priory false and scientifically worthless.

Keynesian macrofoundations are also provably false.#4 So, what are the true macroeconomic foundations?

This is the correct core of macroeconomic premises, a.k.a. axioms: (A0) The objectively given and most elementary systemic configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X. A graphical representation of the elementary production-consumption economy is given on Wikimedia.#6

These premises satisfy all methodological requirements. The set contains NO NONENTITIES like utils but only the measurable real (L, R, O, X) and nominal (W, Yw, C, P) variables. The real variables are measured in physical units, and the nominal variables are measured in monetary units, e.g. euro, ruble, yuan, yen, dollar, etc.

Ikonoclast’s assertion: “Money considerations are completely meaningless. This is if we are being entirely logical and scientific.” is absolute methodological BS. It only proves again that neither orthodox nor heterodox economists ever understood what science is all about.

Egmont Kakarot-Handtke

#1 Lacking the Midas touch of science
#2 Economics: The greatest scientific fraud in modern times
#3 “Political Economy, therefore, presupposes all the physical sciences; it takes for granted all such of the truths of those sciences as are concerned in the production of the objects demanded by the wants of mankind; or at least it takes for granted that the physical part of the process takes place somehow.” (J. S. Mill, 1874)
#4 Economic methodology for the little guy
#5 True macrofoundations: the reset of economics
#6 Wikimedia AXEC31 Elementary production-consumption economy with market-clearing and budget-balancing

REPLY to Ikonoclast on Jul 31 and Blog-Reference

You cite: “The Buckingham π theorem indicates that validity of the laws of physics does not depend on a specific unit system. A statement of this theorem is that any physical law can be expressed as an identity involving only dimensionless combinations (ratios or products) of the variables linked by the law … If the dimensionless combinations’ values changed with the systems of units, then the equation would not be an identity, and Buckingham’s theorem would not hold.” (Wikipedia)

The economy constitutes itself through the interaction of real and nominal variables. When you start with the correct macrofoundations with consistent real and nominal units of measurement you get the First Economic Law#1 which consists of unit-free ratios and satisfies Buckingham’s π theorem.#2

#1 Wikimedia AXEC06 First Economic Law

Jul 31

Right policy depends on true theory

Comment on Barkley Rosser on ‘Origin of the 2 Percent Inflation Target’

Blog-Reference and Blog-Reference

Barkley Rosser reports: “In the mid-90s the US grew better than it had previously, and in the middle of the decade there was an important moment regarding policy. There was no inflation directive but Fed Chair Greenspan was facing a de facto such directive based on central Fed estimates that there was a known ‘natural rate of unemployment (= NAIRU)’ that must not be passed. As it was then Fed Gov Janet Yellen in the mid 90s convinced Greenspan not to raise interest rates partly because of a paper by her husband, Noblelist George Akerlof.”

The NAIRU Phillips Curve is the centerpiece of standard employment theory. Economists get employment theory wrong for 200+ years now. This has dire consequences for economic policy and ultimately for WeThePeople.

“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

Economists do not have the true theory. By consequence, economic policy guidance has NO sound scientific foundations. This holds from Adam Smith onward to the policy of the Federal Reserve.

The NAIRU Phillips Curve has always been proto-scientific garbage.#1 The correct (macrofounded, systemic, behavior-free, testable) employment theory boils down to the structural-systemic Phillips Curve which is shown on Wikimedia.#2

The equation says that unemployment u is the dependent variable and the expenditure ratio ρE≡C/Y, the factor cost ratio ρF≡W/PR, investment expenditures I, (average) productivity R, and (average) price P in the consumption and investment goods industries are the independent variables. The variables ρE and I are, in turn, influenced by interest rates. Translated into policy, the equation says that in order to control employment the independent variables have to be controlled.

From the macroeconomic Employment Law follows:
(i) An increase in the expenditure ratio ρE leads to higher employment L.
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase in the factor cost ratio ρE≡W/PR leads to higher employment.

The complete Employment Law contains in addition profit distribution, the public sector, and foreign trade.

Item (i) and (ii) cover the familiar arguments about aggregate demand/deficit spending. The factor cost ratio ρF as defined in (iii) embodies the macroeconomic price mechanism. The fact of the matter is that overall employment INCREASES if the average wage rate W INCREASES relative to average price P and productivity R. Or, the other way round, overall employment DECREASES if the average price P INCREASES relative to average wage rate W with productivity R unchanged. Roughly speaking, price inflation is bad for employment, and wage inflation is good.

This is the exact opposite of what standard economics teaches: “We economists have all learned, and many of us teach, that the remedy for excess supply in any market is a reduction in price. If this is prevented by combinations in restraint of trade or by government regulations, then those impediments to competition should be removed. Applied to economy-wide unemployment, this doctrine places the blame on trade unions and governments, not on any failure of competitive markets.” (Tobin)

The testable Employment Law tells one that the best policy to stabilize employment on a high level is price inflation of zero and wage inflation equal to productivity increases. The 2 percent inflation target has always been political idiocy.

Egmont Kakarot-Handtke

#1 For details of the big picture see cross-references Employment/Phillips Curve
#2 Wikimedia AXEC36 Structural-systemic Phillips Curve

REPLY to Barkley Rosser on Jul 31

Continuing your theatrical performance you exclaim: “Oh, Egmont, in the end you say all this is empirically testable, but you simply do not cite a single empirical test that has been done, …”

From Samuelson’s bastard ‘Phillips’ Curve to the NAIRU ‘Phillips’ Curve economists got employment theory wrong.#1, #2, #3

There were tons of tests of these misspecified curves but there never was a test of the correct structural-systemic Phillips Curve for the simple reason that economists had no idea of it.#4 More specifically, economists never realized that the macroeconomic relationship between employment and (average) wage rate is positive despite the fact that this is what the original Phillips Curve said based on “more than a century’s worth of data for the United Kingdom” (Phillips).

Because economists without exception tested misspecified ‘Phillips’ Curves it is impossible for anyone to cite a valid test. For the same reason, you cannot cite a single test that refutes the objective-structural-systemic-behavior-free-macrofounded Phillips Curve which implies the positive relationship between employment and wage rate of the empirically derived original Phillips Curve.#5

Note that Samuelson’s ‘Phillips’ Curve is a fake.#1 Phillips “had not made an explicit link between inflation and unemployment” (Ormerod). Phillips had empirically found a link between wage rate and unemployment that reappears in the structural-systemic Phillips Curve.

So, the original Phillips Curve delivers the strongest empirical support for the structural-systemic Phillips Curve that is available at the moment.

#1 NAIRU, wage-led growth, and Samuelson’s Dyscalculia
#2 NAIRU and the scientific incompetence of Orthodoxy and Heterodoxy
#3 NAIRU: an exhaustive dancing-angels-on-a-pinpoint blather
#4 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#5 Go! ― test the Profit and Employment Law

REPLY to Barkley Rosser on Aug 1

You say: “… the original Phillips Curve was a negative relationship between the rate of unaemployment and the rate of change of wages, not the level of wages.”

Yes, indeed, and Samuelson messed the whole thing up: “The original curve was transformed by Samuelson with the simple formula: rate of inflation = rate of wage growth − rate of productivity growth (Samuelson and Nordhaus, 1998, p. 590); in our notation P'=W'−R'. This formula, according to Samuelson an ‘important piece of inflation arithmetic’, says that price inflation runs in tandem with wage inflation and that both have basically the same effect on employment respectively the rate of unemployment. The difference between the original and the bastard Phillips curve consists of a 1 percent productivity growth. This naïve arithmetical exercise led to the far-reaching policy conclusion that there exists an exploitable trade-off between inflation and unemployment.”#1 page 13, #2

The correct relationship between the rates of change is W'/P'R' which roughly says that an increasing wage rate W' increases employment/decreases unemployment and that price increases P' reduce employment/increase unemployment. This means that there is NO trade-off between inflation and unemployment, just the opposite. The complete formula is derived in #1.

The axiomatically correct structural-systemic Phillips Curve (i) refutes the Bastard/NAIRU Phillips Curve, (ii) contains NO methodological idiocies like rational expectations, (iii) consists exclusively of measurable variables, (iii) is testable.

From the fact that economists have not yet tested the correct curve follows only that economists are either stupid or corrupt or both. Of course, if you are NOT committed to scientific standards you are free to ignore the refutation and to stay at the proto-scientific level and to continue to mislead students and to give counter-productive policy advice and remain a hazard to your fellow citizens.

#1 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#2 NAIRU, wage-led growth, and Samuelson’s Dyscalculia

July 29, 2019

MMT undermines democracy

Comment on Lars Syll on ‘Everything you want to know about MMT’

Blog-Reference and Blog-Reference

Lars Syll maintains: “One of the positive contributions of MMT, especially from a european point of view, is that it makes it transparently clear why the euro-experiment has been such a monumental disaster.” and “The problems ― created to a large extent by the euro ― may not only endanger our economies, but also our democracy itself.”

This is actually NOT the case for the simple reason that MMT is a scientifically failed approach just like Walrasianism, Keynesianism, Marxianism, Austrianism.#1, #2 The major approaches are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit ― the foundational concept of the subject matter ― wrong. More specifically, the foundational MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 is provably false. The most important balance ― the profit of the business sector ― is missing. It is pretty obvious that a defective economic theory cannot explain anything.

Lars Syll is an incompetent scientist who has not realized that macroeconomics is ill-defined from Keynes onward to MMT. More specifically, he is too stupid to understand the elementary mathematics that underlies macroeconomics.#3

The macroeconomic Profit Law entails Public Deficit = Private Profit which means that the Oligarchy’s financial wealth and public debt grow in lockstep. The very characteristic of late Capitalism is that the so-called free-market economy is on the full life support of the state. Profit is in the main produced by the government through deficit-spending/money-creation. The Oligarchy, in turn, uses the opulent free lunches to corrupt what remains of the state’s legislative, executive, and judiciary institutions.

Clearly, the MMT policy of permanent deficit-spending/money-creation benefits the Oligarchy and not WeThePeople.#4 Lars Syll’s assertion that MMT is good for both economy and democracy is a continuation of economists’ long tradition of political fraud.#5

Egmont Kakarot-Handtke

#1 MMT: fundamentally false
#2 For the full-spectrum refutation of MMT see cross-references MMT
#3 Lars Syll ― a particularly stupid/corrupt fake scientist
#4 Is MMT good for WeThePeople or for the Oligarchy?
#5 You know you are in the political Circus Maximus when economists talk about Democracy/Liberty/Freedom

Related 'Trump and MMT: Make profits great again' and 'The real trouble with Capitalism: stupid/corrupt economists' and 'MMT: A new myth for WeThePeople' and 'Economists betray WeThePeople'.

July 27, 2019

Circus Maximus: Economics as entertainment, personality gossip, virtue signaling, and lifestyle promotion

Comment on Michael Roberts on ‘The world’s scariest economist?’*

Blog-Reference and Blog-Reference

A closer look at the history of economic thought reveals that there are TWO economixes: 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.

The historical fact is that 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: Walrasianism, Keynesianism, Marxianism, Austrianism, MMT are mutually contradictory, axiomatically false, and materially/formally inconsistent. Political economists are NOT scientists but clowns/useful idiots in the political Circus Maximus.

Economics claims to be science and, consequently, the economist has to uphold scientific standards. Scientific standards are well-defined since antiquity: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)

However, since Adam Smith, the primary task of economists is to deliver some scientifically looking justification for already decided upon policies. Last time it was Friedrich Hayek who acted as a useful academic idiot for Prime Minister Thatcher/President Reagan and the advancement of neoliberalism. Lately, things have changed.

Rockefeller called the university the best investment he ever made. The habit of billionaires to prioritize economics among the sciences for sponsoring (remember that Marx was sponsored by Engels) continues since then. Well-known examples of founding/funding are institutions like the London School of Economics, the Cowles Commission, or the University of Chicago. This, though, is only the historical tip of the iceberg.

Economics is failed science but economists have made a good job as propagandists.#1, #2, #3, #4, #5 As Keynes quipped: “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” Note well that it is a matter of utter indifference whether an economist identifies himself as left/center/right. These are only labels for addressing different target groups.#6

It seems that economists have been given a new communication strategy which roughly runs as follows: science ⇓ entertainment ⇑, theory ⇓ narrative/storytelling ⇑, solution-oriented debate ⇓ jolly game show ⇑, promotion of knowledge ⇓ agenda-pushing/ disinformation ⇑, objective authority ⇓ subjective empathy ⇑, clarity/precision/ consistency ⇓ swampiness/anything-goes ⇑, logical analysis ⇓ emotional moralizing ⇑, globalism ⇓ nationalism ⇑, towards the true theory ⇓ towards the pluralism of provably false theories ⇑.

Some pictorial examples (Source Twitter):

Note that the above-mentioned economists have NO idea about what profit ― the foundational concept of economics ― is and how the monetary economy works. They lack sound scientific foundations yet dole out economic policy advice.

Economists have always been a hazard to their fellow citizens.#7 For more about econogenics see AXECquery.

Egmont Kakarot-Handtke

* Michael Roberts Blog
#1 If religion is opium of the people, economics is crack of the people
#2 Economics as storytelling and entertainment for the masses
#3 Scientists and science actors
#4 How to spot economics trolls
#5 The economist as storyteller
#6 Mission impossible: economists join WeThePeople
#7 Econogenics in action

Related 'Economics debate ― just another variant of hardcore wrestling' and 'Economics: A pointless left-right wrestling show' and 'Economic policy and the skirmishes of failed/fake scientists' and 'Economists’ silly kindergarten games' and 'Economics between cargo cult, farce, and fraud' and 'If religion is opium of the people, economics is crack of the people' and 'As Napoleon said: don’t listen to economists' and 'Urgent: Taking politics out of economics' and 'There is NO such thing as “smart, honest, honorable economists” and 'Entertainment vs. Science' and 'And the answer is NCND ― economics after 200+ years of Glomarization' and 'Economics and the weapons of mass distraction' and 'Economics as fool’s paradise' and 'Unemployment is the outcome of political economics' and 'You know you are in the political Circus Maximus when economists talk about Democracy/Liberty/ Freedom' and 'Delusions of useful idiots' and 'Economics ― nothing but claptrap, twaddle, drivel, slip-slop, wish-wash, waffle, and proto-scientific garbage' and 'The economist as second-guesser, mind reader, and folk psychologist' and 'A battle for hearts and minds ― economics redefined' and 'Economists: scientists or political clowns?' and 'Economics ― from attention and reputation  management to science' and 'Baillie Gifford' and 'Economics: communication without content' and 'Economic policy advice has never had sound scientific foundations' and 'Economic narratives are for the scientific garbage dump' and 'Scrap the EconNobel' and 'Your economics is refuted on all counts: here is the real thing'.

Jul 29

See also
Twitter Jan 19, 2023 The futile attempt to recycle Adam Smith (XVII)