February 15, 2020

MMTers: too stupid for simple math

Comment on Peter Cooper on “Politicians Who Want Us to Live Beyond Our Means”#1


Peter Cooper asserts: “Here is a simple accounting relationship. It is an identity, true by definition: Government Balance + Domestic Private Sector Balance + Foreign Balance = 0.

This identity composes a nation’s economy into three broad sectors. The government sector spends and taxes. The domestic private sector spends (households consume, businesses invest) and receives income. The foreign sector receives payments from and makes payments to, domestic residents.

A sector is in surplus (its financial balance is positive) when its total spending is less than its income or revenue. Conversely, a sector is in deficit (its balance is negative) when its total spending exceeds its income or revenue. The accounting identity shows that the balances of the three sectors must sum to zero. If one sector maintains a surplus, at least one of the other sectors must be in deficit.”

Matt Franko echoes: “‘Here is a simple accounting relationship. It is an identity, true by definition: Government Balance + Domestic Private Sector Balance + Foreign Balance = 0’ if it was that ‘simple!’ then everybody would understand it …”.

Good point. MMTers definitively do NOT understand it. Neither does the rest of the basket of deplorables who have completed Econ 101 with an academic degree.

Eric Tymoigne, for example, asserts#2: “First, regarding the identity itself, for a domestic economy, we have, in terms of economic flows: GFB + PDFB + RWFB ≡ 0.

With PDFB the private domestic financial balance, RWFB the financial balance of the Rest of the World, and GFB the government financial balance. This identity holds all the time, in any domestic economy (in a world economy RWFB disappears). For economic analysis, it is insightful to arrange this identity differently in function of the type of monetary regime. In a country that is monetarily sovereign the federal government has full financial flexibility. By monetary sovereignty, one means that there is a stable and operative federal/national government that is the monopoly supplier of the currency used as ultimate means of payment in the domestic economy, and that the domestic currency is not tied to any asset (like gold) or foreign currency.” and “This means that, for a monetarily sovereign country, the most insightful way to arrange the national accounting identity is: −GFB ≡ PDFB + RWFB or −GFB ≡ NGFB.

Where NGFB is the non-government financial balance (the sum of the financial balance of the private domestic sector and the Rest of the World). This way of arranging the identity shows well that the government sector (through its federal branch) is the ultimate provider/holder of domestic currency: government fiscal deficit (surplus) is always equal to non-government financial surplus (deficit).”

All this is provably false.#3-#8 

To begin with, the number of sectors is four: household sector, business sector, government sector, and Rest of the World. Accordingly, the axiomatically correct balances equation reads (X−M)+(G−T)+(I−S)−(Q−Yd)=0. Legend: Q macroeconomic profit, S household sector saving, G government expenditures, T taxes.

The sectoral balances equation reduces to −SQ (i.e. Q+S=0) when the economy is reduced to the household and business sector. And it reduces to (G−T)Q when the economy is reduced to the government and business sector, that is Public Deficit = Private Profit.

Note that neither Peter Copper nor Eric Tymoigne ever tells one anything about macroeconomic profit Q which is the balance of the business sector. One would think that this balance plays a central role in any description of the monetary economy. Obviously, it does NOT and this tells one something important about economics and economists: economics is failed/fake science, and economists are either stupid or corrupt or both.

Egmont Kakarot-Handtke

#1 heteconomist
#2 New Economic Perspectives, Another Take on the Financial Balances
#3 The sectoral balances obfuscation: stupidity or corruption?
#4 Wikipedia and the promotion of economists’ idiotism (I)
#5 Wikipedia and the promotion of economists’ idiotism (II)
#6 Rectification of MMT macro accounting
#7 Economists cannot do the simple math of profit — better keep them out of politics
#8 Truth by definition? The Profit Theory is axiomatically false for 200+ years

Related 'Deficit cheerleaders ― the Oligarchy’s useful idiots' and 'Wikipedia, economics, scientific knowledge or political agenda pushing?'

For more about sectoral balances see AXECquery.

REPLY to Matt Franko on Feb 16

You say: “‘that is Public Deficit = Private Profit.’ Egmont the libertarians will N_E_V_E_R accept that... they just will not....”

Economics is a science according to its self-definition since the founding fathers. Science runs on the criterion true/false with true/false defined by material/formal consistency and NOTHING else. In science, it is a matter of indifference to what libertarians think or accept or do not accept. Libertarians are political agenda pushers and NOT scientists. The opinions of anti-scientists/politicians/trolls are irrelevant in science. Science is about knowledge, and politics is about opinions. Opinions are worthless, and politicians are known to be utterly stupid creatures.

Money does originally NOT come into the economy by government deficit-spending. Imagine that the balances of the government and the household sector are zero for a start, that is, all sectoral balances are zero, does this means that no money comes into the economy? NO! It is the Central Bank that issues the transaction money, i.e. finances the wage bill Yw with C=Yw and G=T and Q=0.#1-#5

Scientists listen to what the math says and NOT to what political agenda pushers say. And the math says that the MMT sectoral balances equation is false. MMT is refuted on all counts.

#1 The ultimate ― analytical ― origin of money
#2 How money emerges out of nothing ― the functional account
#3 Basics of monetary theory: the two monies
#4 The right and the wrong way to bring money into the economy
#5 Criminals and the monetary order

Wikimedia AXEC118d The false and the true macroeconomic relationship between sectoral balances