November 20, 2019

How Randall Wray takes the piss out of the House Budget Committee

Comment on New Economic Perspectives on ‘Wray Appearing Before Congress’

Blog-Reference and Blog-Reference (Link) and Blog-Reference on Nov 21 and Blog-Reference on Nov 22

In Section 5. Sectoral balances of his testimonial Randall Wray states: “One of the concepts that Modern Money Theory economists use to elucidate the impact of budget deficits on the economy is the sectoral balance identity developed by Wynne Godley (1996). At the level of the economy as a whole, aggregate spending is identically equal to aggregate income ― every dollar spent is received as income. It is useful to divide the economy into three sectors: government (national, state, and local), domestic private (households and firms), and foreign (rest of the world). If one sector spends more than its income (deficit), at least one other must spend less than its income (surplus) to maintain the aggregate identity that total spending equals total income. The balances (income minus expenditure) of the three sectors have to add up to zero since we are adding up all the income in the economy and subtracting all the spending, which are equal by identity. We can then write the aggregate identity as: government balance + domestic private balance + foreign balance = 0. For the US, the government balance taken as a whole is usually negative (government spending is greater than its revenue ― mostly taxes), the domestic private balance is usually positive (approximated as saving is greater than investment ), and the foreign sector balance is positive (the rest of the world has a surplus in relation to the US since our current account balance is a deficit). Figure 7 shows the US sectoral balances, with each sector’s balance presented as a percent of GDP.”#1

The scientific blunder is in the sentence “At the level of the economy as a whole, aggregate spending is identically equal to aggregate income ― every dollar spent is received as income.”

This leads to the false MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0. The true balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0.#2-#5

Because the foundational macroeconomic relationship is ill-defined the whole analytical superstructure of MMT is false. The testimonial of Randall Wray is scientifically worthless.#6

Worse, MMT either ignores or deliberately hides the distributional consequences of the policy of deficit-spending/money-creation: “Although MMT has a set of policy prescriptions to achieve full employment and price stability, what I have discussed here is largely descriptive. MMT allows us to look at the economy through a different lens. While economists and policymakers may advocate for reducing government deficits and debt, MMT cautions that what we might be reducing is economic growth, as well as the private sector’s surpluses and net financial wealth.”

For “the private sector” read “the Oligarchy”. The MMT policy of deficit-spending/money-creation = growing public debt is to the advantage of the Oligarchy and to the disadvantage of WeThePeople ― not only in the present but even more so in the future.#7

Egmont Kakarot-Handtke

#1 Levy Economics Institute Publications
#2 Dear idiots, government deficits do NOT fund private savings
#3 Rectification of MMT macro accounting
#4 Down with idiocy!
#5 The sectoral balances obfuscation: stupidity or corruption?
#6 The state of MMT? Stone-dead!
#7 Gosh! the One Percent have gotten $21 trillion richer: Links on Distribution

Related 'Mr. Wray goes to Washington'


Figure 7 or How the profit rabbit vanishes in the MMT top hat: the household sector and the business sector are merged into the Domestic Private Sector. For more examples see Down with idiocy! See also Stephanie Kelton’s legendary Plain-Sight-Ink-Trick. The crucial point is that there are four sectors (household, business, government, and rest of the world) with saving as the balance of the household sector and profit as the balance of the business sector. By merging the household and the business sector and reducing the four sectors to three macroeconomic profit vanishes. This blunder/fraud invalidates the whole of MMT. MMT policy guidance has NO valid scientific foundations. Needless to emphasize that the House Budget Committee does NOT understand what Figure 7 says but is very impressed by the PowerPoint competence of its economic experts.


REPLY to Mike Norman on Nov 21

You say: “He [Randall Wray] sat there silently as Representative Ralph Norman of South Carolina repeated a laundry list of completely inapplicable and grossly ignorant characterizations of U.S. debt and government finance.”

To be fair, Randall Wray was invited to give his MMT expert testimony and not to fight other participants. Therefore, his testimony has to be judged on its own merits.

True, what the others presented was garbage. But nobody ever expected anything else given the scientific incompetence and the substandard IQ in economics.


Twitter Nov 24

Source: Twitter


Wikimedia AXEC143d Macroeconomic Profit Law (with increasing complexity) and Balances Equation