Blog-Reference and Blog-Reference
To recall, Kennedy claimed that his administration was the “best and the brightest”. This elitist ambition has turned into the opposite: the rule of the worst and dumbest. A similar development can be observed in academic economics. There seems to be a general pattern in the staffing of top positions.
Outwardly, economics is a science. However, there have always been 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 goal of theoretical economics (= science) is the TRUE theory: “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)
Theoretical economics, though, 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. The major approaches — Walrasianism, Keynesianism, Marxianism, Austrianism, MMT — are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept profit wrong. Economics is a failed science.
To this day, economists lack the true theory and this is why economic debates inevitably degenerate into a clown show. The current Mankiw-Mitchell stand-off is no exception.#1-#4
Mankiw repeats the already refuted standard arguments against MMT and Mitchell pulls off the standard MMT fraud.#5 How can one tell in two seconds that the whole debate is a freak show? Easy, all one has to do is to put the word profit in the Ctrl+F search field: no hit. Two economics textbook writers debate Money- and Employment Theory without once mentioning the foundational economic concept of profit.
Because of the macroeconomic Profit Law, i.e. Qm=Yd+(I−Sm)+(G−T)+(X−M), the MMT policy of deficit-spending/money-creation has an immediate effect on distribution, i.e. Public Deficit (G−T)>0 = Private Profit Qm which means that the Oligarchy’s financial wealth and public debt grow in lockstep. The Profit Law explains the extremely skewed distribution of income and financial wealth between the one- and the ninety-nine-percenters.#6, #7 Obviously, neither Mankiw nor Mitchell knows how the monetary economy works.
There is much social and save-the-world rhetoric in MMT from the Employment Guarantee to the Green New Deal, however, the fact of the matter is that MMT is a free-lunch program for the Oligarchy. However, Mankiw does not mention once MMT’s massive political fraud.
What can one conclude from all this? Both Mankiw and Mitchell are either stupid or corrupt or both. The whole Mainstream vs MMT brawl shows that the Oligarchy has changed the communication strategy: the mainstream loudspeakers Mankiw/Krugman/etc are retired for good and the fake Progressives Mitchell/Kelton/etc take over. The free market economy can only survive with massive deficit-spending of the State, that’s why the Oligarchy has to replace their useful academic idiots.
* Billy Blog (I) (II)
#1 Blowing smoke about bipartisan failure
#2 Krugman vs MMT ― like the blind talking about colors
#3 Paul’s and Stephanie’s economic delirium talk
#4 Neoclassics and MMT ― much like pest and cholera
#5 For the full-spectrum refutation of MMT see cross-references MMT
#6 Gosh! the One Percent have gotten $21 trillion richer: Links on Distribution
#7 Dear idiots, it is deficit spending that creates the distribution people complain about
Related 'The sectoral balances obfuscation: stupidity or corruption?' and 'The end of Mankiw and his Phillips Curve'.
You say: “‘So in terms of MMT, the previous equation is just an ex post accounting identity that has to be true by definition and has no real economic importance. But for the mainstream economist like Greg Mankiw, the GBC represents an ex ante (before the fact) financial constraint that the government is bound by.’ Ok that is an acceptable description of the time domain aspects but what are the cognitive aspects?”
NO, that is NOT an acceptable description, that is is the lethal defect of macroeconomics and the smoking-gun proof that both Mankiw and Mitchell are too stupid for elementary algebra.
Every academic economist who uses or swallows the phrase “just an ex post accounting identity that has to be true by definition” loses automatically his tenure.
Here is the full Mitchell quote that explodes the whole debate:
“The GBC says, in English, that a fiscal deficit equals Government spending + Government interest payments – Tax receipts and, must, in turn, be ‘financed’ (equal) by a change in outstanding bonds (issuing debt) and/or a change in high powered money (‘printing money’).The axiomatically correct accounting identities read with increasing complexity
While the mainstream infer that this statement delivers causality from the financing side to the spending side (as if the currency-issuing government is like a household), in fact, it is merely an accounting statement that is of no particular importance in the MMT framework.
In a stock-flow consistent macroeconomics, as an accounting statement the relationship must always hold. That is, it has to be true if all the transactions between the government and non-government sector have been correctly added and subtracted.
So in terms of MMT, the previous equation is just an ex post accounting identity that has to be true by definition and has no real economic importance.”
(1) Qm≡−Sm in the elementary production-consumption economy,
(2) Qm≡I−Sm in the elementary investment economy,
(3) Qm≡Yd+I−Sm in the investment economy with profit distribution,
(4) Qm≡Yd+I−Sm+(G−T)+(X−M) in the general case with government in an open economy.#1,#2, #3
So, in terms of elementary algebra, the economics textbooks of both Mankiw and Mitchell are proto-scientific garbage and their debate is a lowest-level academic clown show.
#1 MMT and the magical profit disappearance
#3 For more details see cross-references Accounting
You say: “He [this AXEC guy] makes statements like ‘this is garbage’ and never attempts to explain anything.”
Take notice that MMT is refuted on all counts. If you had more than two brain cells you would have looked up the explanations.
Economics is about how the economy works. The foundational question of macroeconomics is about how the balances of the different sectors are related. There are at least two answers to this question (notation standardized)
a) MMT (I−S)+(G−T)+(X−M)=0
b) AXEC (I−S)+(G−T)+(X−M)−(Q−Yd)=0.
Only one equation can be true. Which one is it? Both Mankiw and Mitchell cannot answer the foundational question of economics because they are too stupid for elementary algebra.
So, the world is waiting for your answer. Is it a) or b) or c) (→ fill in your equation)?
There can be no progress in economic theory and consequently in economic policy before the foundational macroeconomic question is answered.
“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)
The fact is, you have nothing to offer but brain-dead blather.
You say “… business profits don’t necessarily mean cash in vault or deposits in bank account.”
Total macroeconomic profit/loss Q consists of monetary and non-monetary profit Q≡Qm+Qn with Qm≡Yd+(I−Sm)+(G−T)+(X−M) Legend: Qm monetary profit/loss of the business sector, Yd distributed profit, I investment expenditures, Sm monetary saving/dissaving of the household sector, G government expenditures, T taxes, X exports, M imports. Non-monetary profit Qn has been dealt with elsewhere. Monetary profit Qm is as tangible/real/ testable as cash in a vault or deposits in a bank account.
You say “Businesses very often spend their profits before the accounting period is over.”
Under the condition that accounting is complete, this spending is for example recorded as Yd distributed profit or I investment expenditures. Accounting refers to a period of a given length and records ALL transactions during that period.
You say “Egmont doesn’t understand that monetary profit doesn’t fit in the same kind of frame as deficit spending. Monetary profit is calculated. It is not an accounting statement. A company can receive monetary profit but this doesn’t mean household sector dissaving in the same amount like Egmont says.”
Incorrect. The Profit Law boils down to Qm≡−Sm in the most elementary case of a production-consumption economy with the balances Qm≡C−Yw and Sm≡Yw−C. If the household sector’s budget is balanced, i.e. C=Yw, then monetary saving Sm and monetary profit Qm are both zero. If monetary saving is greater than zero, the business sector makes a loss, i.e. profit is less than zero. If monetary saving is less than zero, the business sector’s monetary profit is greater than zero. C and Yw are recorded transactions, the balances Qm and Sm are calculated.
Sectoral balances add always up to zero, i.e. Qm+Sm=0, this is the Fundamental Law of Macroeconomic Accounting.#1
All this is nothing but elementary algebra. The thing is that economists are too stupid for it from freshmen to Nobel laureates, including you, of course.
#1 For more details see cross-references Accounting
You say “Monetary profit is not an accounting statement as you think.”
I do NOT think that monetary profit is an accounting statement, I clearly stated that “C and Yw are recorded transactions [= accounting statements], the balances Qm and Sm are calculated.”#1
You say “So theoretically business sector profit could be 100 and household sector saving could be 0 (not -100 like you think) government budget is assumed to be in balance. This could happen if businesses invested all (100) profits during the accounting period.”
For the elementary production-consumption economy holds Qm≡−Sm. If the household sector gets a wage income of Yw=1000 and spends C=900 then monetary saving is 100 (Sm≡Yw−C) and monetary profit is −100 (Qm≡C−Yw).
For the investment economy, the Profit Law boils down to Qm≡I−Sm (see equation (2) above Dec 25). Clearly, if I=100 and Sm=0 then Qm=100. Your example does NOT refute the macroeconomic Profit Law but CONFIRMS it.
You are the living proof for the stupidity of the representative economist.#2
#1 A tale of three accountants
#2 No future for the representative economist