November 9, 2019

A beginner’s guide to MMT

Comment on Peter Coy, Katia Dmitrieva, Matthew Boesler on ‘Warren Buffett Hates It. AOC Is for It. A Beginner’s Guide to Modern Monetary Theory’*

Own post, no external Blog-Reference

MMT is political agenda-pushing for the benefit of the Oligarchy. Of course, it cannot be sold as such to the general public. Because of this, MMTers apply a double strategy, i.e. they claim (i) that MMT is a better policy for WeThePeople, and (ii), that Modern Monetary Theory is better science compared to mainstream economics.

Both claims are false. MMT theory is proto-scientific garbage just like mainstream economics, and the MMT policy of deficit-spending/money-creation ultimately serves the interests of the Oligarchy.#1

That the Bloomberg article is a propaganda piece that aims at the basket of deplorables is immediately clear from the title “Warren Buffett Hates It. AOC Is for It.” Love and hate are the fundamental categories of politics. The fundamental categories of science are true/false.#2 Science, though, is by definition beyond the deplorables of all walks of life.

With this in mind, the MMT propaganda has to be put straight.

(1) “A good place to start is with a simple description that you can carry in your pocket: MMT proposes that a country with its own currency, such as the U.S., doesn’t have to worry about accumulating too much debt because it can always print more money to pay interest. So the only constraint on spending is inflation, which can break out if the public and private sectors spend too much at the same time. As long as there are enough workers and equipment to meet growing demand without igniting inflation, the government can spend what it needs to maintain employment and achieve goals such as halting climate change.”

What MMT does here is to mix two different issues (i) unemployment and (ii) budget allocation. What MMT says is: We can do all the good things, i.e. reduce unemployment, provide healthcare, improve education, save humanity from global warming with deficit-spending/money-creation without inflation and any bad economic consequences for future generations. So, if you agree to the goals, and any good person does, you can also agree to the MMT policy of deficit-spending/money-creation.#3

This argument is incorrect insofar as the lethal effect of MMT policy is NOT on inflation but on distribution today and for future generations.#4, #5 In principle, all the good things people want can be achieved with a balanced government budget. For example, redirect military spending to environmental protection with a given budget and given taxes. Such things, of course, are anathema to MMTers. The devil in the MMT parallel universe is the Swabian Housewife with her Black Zero Budget.#6

(2) “If you’ve absorbed that much, you’re already ahead of a lot of the critics. Because MMT is associated with the Left, some people assume it favors soaking the rich to pay for social programs. In fact, MMT breaks with liberal orthodoxy by saying that while taxes on the wealthy are good for lessening inequality, they aren’t essential to pay for government spending.”

Because MMTers pursue the Oligarchy’s agenda they are not at all enthusiastic about taxing the rich.#7 They prefer taxing WeThePeople in the indirect form of deficit-spending/ money-creation.#8, #9

(3) “Another misconception is that MMT says deficits never matter.”

Of course, MMTers do not make such silly claims. But strawmen like these are good for endless filibustering and social media trolling

(4) “MMT claims to be the legitimate heir to the theories of Britain’s John Maynard Keynes, who created the field of macroeconomics during the Great Depression.”

True, but Keynes, unfortunately, got macroeconomics badly wrong. MMTers have not realized Keynes’ blunders to this day.#10

(5) “Keynes coined the term ‘paradox of thrift.’ His insight was that while any single household can dig itself out of a hole by cutting spending when its income falls, the economy as a whole cannot. One household’s spending is another’s income, so if everybody cuts back, no one gets paid.”

Half-true. The correct relationship reads Q≡−S, i.e. the household sector’s saving S is equal to the business sector’s loss −Q. Keynes was too stupid for the elementary algebra that underlies macroeconomics. His successors are no better.

(6) “In MMT’s reckoning, Keynesianism was gutted in the following decades by successors such as Paul Samuelson, who unrealistically tried to make economics like physics, playing down the role of fundamental uncertainty.”

True. After-Keynesian macro is proto-scientific garbage.#11

(7) “MMT also draws on the ‘functional finance’ work of the Russian-born British economist Abba Lerner, who wrote in the 1940s that government should spend what’s required to achieve its goals, deficits be damned.”

True, except for the fact that Lerner, too, got macro wrong.#12

(8) “Godley developed the concept of sectoral balances, which focuses on the accounting truth that when the government runs a deficit, the nongovernment sector must run a surplus, and vice versa.”

True, except for the fact that Godley got the sectoral balances wrong.#13

(9) “MMT rejects the modern consensus that economies should be steered primarily by the raising and lowering of interest rates. MMTers believe that the natural rate of interest in a world of fiat money is zero and that pegging it higher is a giveaway to the investor class.” and “MMTers argue that economies should be guided by fiscal policy ― government spending and taxation.”

True.

(10) “MMT says that, contrary to appearances, banks don’t make loans out of deposits. Rather, they make loans based on the demand for borrowing, then the borrowers stash the proceeds in the bank. Anyone they write a check to simply makes a deposit in another bank. The bottom line is that loans create deposits rather than deposits creating loans.”

True.

(11) “MMT challenges a core principle of conventional economics, which is that an increase in budget deficits will tend to raise interest rates, all else equal. Just the opposite, it says, sounding a bit like the White Queen from Alice in Wonderland.”

True.

(12) “The reason the government doesn’t need to sell treasury securities, or levy taxes, to spend money is that the central bank, under the control of the treasury, can pay for everything by conjuring up electronic money.”

True, except that this is the wrong way to bring money into the economy.#14

(13) “It’s tempting to view MMT’s conception of fiscal policy as essentially similar to that of the mainstream ‘Hey, they believe in taxes, too!’ ― but that’s not quite right. MMTers hold that inflation isn’t primarily the result of excessively strong growth. They blame much of it on businesses’ excessive pricing power. So before trying to choke off growth to kill inflation, they would try to break up monopolies and stop banks from making too many loans.”

True.

(14) “Summers has been making the case that wealthy nations are suffering from ‘secular stagnation’ and require permanently high levels of stimulative deficit spending by governments to keep them out of recession, which is similar to what MMT argues. Yet in a recent Washington Post op-ed, Summers called MMT ‘fallacious at multiple levels.’”

True, except that nobody can take Larry Summers seriously.#15

(15) “As long as they’re out there claiming that standard macroeconomics is all wrong, I guess we need to respond,” Paul Krugman, the Nobel laureate who is a professor at City University of New York Graduate Center, wrote on his New York Times blog.”

True, except that nobody can take Paul Krugman seriously.#16

(16) “MMT’s detractors are skeptical of the idea that the treasury and central bank should work in concert.”

So what? This does not prove that MMT is false theory or bad policy.

(17) “Mainstream economists argue that the correct parts of MMT aren’t new and the new parts aren’t correct.”

True, except that mainstream economists are brain-dead blatherers.

(18) “In any case, the new textbook gives MMT a good slingshot. Samuelson, in the preface to the 1990 edition of his best-selling principles book, wrote, “I don’t care who writes a nation’s laws ― or crafts its advanced treaties ― if I can write its economics textbooks.”

True, except that all economics textbooks from Samuelson to MMT are scientifically worthless.#17, #18

(19) “Stephanie Kelton, an MMTer who was the economic adviser on Vermont Independent Senator Bernie Sanders’s presidential campaign in 2016 and is a Bloomberg Opinion columnist, sees the tide turning. In presentations, the Stony Brook University economist likes to flash up a quote that says, essentially: First they ignore you, then they laugh at you, then they fight you. Then you win.”

Except that Stephanie Kelton is a scientific failure and a political fraudster like the rest of her MMT colleagues.#19

Egmont Kakarot-Handtke


* Bloomberg Business
#1 For the full-spectrum refutation of MMT see cross-references MMT
#2 Love and hate in economics: the PsySoc shell game
#3 MMT: If you’ve got a problem, I don’t care what it is, let me help
#4 Dear idiots, government deficits do NOT cause inflation
#5 How to pay for the war and to be bamboozled by economists
#6 Swabian housewife vs Wall Street loan shark
#7 MMT: Distribution is the drawback NOT Inflation
#8 MMT: Academic snake oil for the people
#9 MMT, money creation, stealth taxation, and redistribution
#10 Keynes ― the poster boy for the weakness of the economist’s mind
#11 Macroeconomics and the fake History of Economic Thought
#12 Keynes, Lerner, MMT, Trump, etc. and exploding profit
#13 The sectoral balances obfuscation: stupidity or corruption?
#14 Criminals and the monetary order
#15 Tribalism is NOT the problem of economics
#16 Paul’s and Stephanie’s economic delirium talk
#17 The father of modern economics and his imbecile kids
#18 Refuting MMT’s Macroeconomics Textbook
#19 Stephanie Kelton’s legendary Plain-Sight-Ink-Trick

Related 'Is MMT good for WeThePeople or for the Oligarchy?' and 'The right and the wrong way to bring money into the economy' and 'The decisive reason to worry about government debt' and 'On economists’ stupidity' and 'The state of MMT? Stone-dead!' and 'Q: How are you going to pay for it? MMT: By stealth taxation!'