October 26, 2019

The sectoral balances obfuscation: stupidity or corruption?

Comment on Andrea Terzi on ‘Euro area sectors’ balances’


In order to determine the sectoral balances, one first needs a description of the elementary production-consumption economy. This economy is constructed from scratch with the following set of macroeconomic axioms: (A0) The objectively given and most elementary 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. For the graphical representation of the analytical starting point see Wikimedia AXEC31.#1

In this elementary economy, three configurations are, under the conditions of market-clearing X=O, logically possible:
(i) consumption expenditures are equal to wage income C=Yw, i.e. the budget is balanced,
(ii) C is less than Yw,
(iii) C is greater than Yw.

In case (i) the monetary saving of the household sector Sm≡Yw−C is zero and the monetary profit of the business sector Qm≡C−Yw, too, is zero. In case (ii) monetary saving Sm is positive and the business sector makes a loss, i.e. Qm is negative. In case (iii) monetary saving Sm is negative, i.e. the household sector dissaves, and the business sector makes a profit, i.e. Qm is positive.

It holds Qm+Sm=0 (1), i.e. the balance of the business sector Qm and the balance of the household sector Sm add up to zero. This is the Fundamental Law of Macroeconomic Accounting.

The causal form of (1) reads Qm=−Sm (2), i.e. if the household sector saves Sm>0 the business sector makes a loss Qm<0 of an equal amount, and if the household sector dissaves Sm<0 the business sector makes a profit Qm>0 of an equal amount. This is the Fundamental Law of Balance Mechanics. In order to stress the causality, (2) is rewritten as Qm⇐−Sm.

When the complexity is increased the macroeconomic Profit Law reads Qm≡Yd+I−Sm+(G−T)+(X−M) (3) or in causal form Qm⇐Yd+I−Sm+(G−T)+(X−M) (4) which says that monetary profit depends on (i) distributed profit Yd, (ii) investment expenditures I, (iii) household sector saving Sm, (iv) government surplus/deficit (G−T), (v) Rest of the World surplus/deficit (X−M).#2 While the items (iii) to (v) are identical to Andrea Terzi’s balances chart, the items (i) and (ii) are thrown together with the balance of the business sector, i.e. profit Qm. This is formally inadmissible because it obscures the causality and makes the foundational magnitude of economics ― profit ― disappear.#3 MMTers apply the sectoral balances equation (I−Sm)+(G−T)+(X−M)=0 (5) which shows neither profit nor distributed profit.#4 Strictly speaking, equation (5) says that profit and distributed profit are always zero which, of course, is brain-dead nonsense.

In reality, profit and distributed profit are different from zero and most of the time greater than zero. This is what most people see as the defining characteristic of Capitalism. The macroeconomic Profit Law (4) consists of variables that are measurable with the precision of two decimal places and is readily testable.

Why, then, is profit missing in the MMT balances equation and in Andrea Terzi’s chart? It could be stupidity but actually, it is fraud.#5

Equation (4) boils down to Qm⇐G−T (6) which says that the public deficit causes the profit of the business sector. MMTers, who present themselves as Progressives, can obviously not tell WeThePeople that their policy of deficit-spending/money-creation benefits the Oligarchy. So they talk instead of the blessings of a Job Guarantee and a Green New Deal.#6

Economics is NOT a science and has NEVER been. Economists in general, and MMTers, in particular, are too stupid for the elementary algebra that underlies macroeconomics. MMTers are neither scientists nor Friends-of-the-People but agenda-pushers for the Oligarchy.

Egmont Kakarot-Handtke

* Twitter and Twitter

Source: Twitter/Andrea Terzi 

#1 Wikimedia AXEC31

#2 Wikimedia AXEC143d

#3 MMT and the magical profit disappearance
#4 Down with idiocy!
#5 The Kelton-Fraud
#6 Criminals and the monetary order

Related 'A tale of three accountants' and 'Rectification of MMT macro accounting' and 'A crash course in macro accounting' and 'Economics: a hereditary mental disease with scientific incompetence as father and political fraud as mother' and 'Wikipedia and the promotion of economists’ idiotism (I)' and 'Wikipedia and the promotion of economists’ idiotism (II)' and 'How Randall Wray takes the piss out of the House Budget Committee' and 'The GDP death blow for the economics profession' and 'The page where Stephanie Kelton gets macroeconomics wrong'.

Twitter Jun 5

Source: Twitter


Source New Economic Perspectives Eric Tymoigne Another Take on the Financial Balances


Source: New Economic Perspectives