November 23, 2020

Occasional Tweets: MMT is money-making for the one-percenters


November 21, 2020

Occasional Tweets: Confused confusers


November 15, 2020

Economists’ foundational conceptual blunder

Comment on Editor on “necessities of thought”

Editor quotes Einstein: “Concepts that have proven useful in ordering things easily achieve such an authority over us that we forget their earthly origins and accept them as unalterable givens.” And “For that reason, it is by no means an idle game if we become practiced in analyzing the long commonplace concepts and exhibiting those circumstances upon which their justification and usefulness depend, how they have grown up, individually, out of the givens of experience. By this means, their all-too-great authority will be broken. They will be removed if they cannot be properly legitimated, corrected if their correlation with given things be far too superfluous, replaced by others if a new system can be established that we prefer for whatever reason.”

Applied to economics, the conceptual state of affairs is as follows: the lethal defect of economics is that the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and ALL get the foundational economic concept of profit wrong. To get the concept of profit wrong in economics is comparable to getting the concept of energy in physics wrong. Because the foundational concept is ill-defined the whole analytical superstructure of economics is scientifically worthless.#1-#3

For 200+ years, economics is a failed science. Since Adam Smith/Karl Marx, economic policy guidance never has had NO sound scientific foundations.#4

Any critique of or conversation about the main approaches is a waste of time. This proto-scientific embarrassment has without further ado to be buried at the Flat-Earth-Cemetery and forgotten.

The way forward consists of a Paradigm Shift. Economics has to move from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations.#5-#6

The good news is that, while economists were sinking deeper and deeper in the methodological mire, the Paradigm Shift has been accomplished.#7

Egmont Kakarot-Handtke

November 4, 2020

The GDP death blow for the economics profession

“Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period.” And “GDP can be determined in three ways, all of which should, theoretically, give the same result. They are the production (or output or value added) approach, the income approach, or the speculated expenditure approach.” and “The second way of estimating GDP is to use ‘the sum of primary incomes distributed by resident producer units’. If GDP is calculated this way it is sometimes called gross domestic income (GDI), or GDP (I). GDI should provide the same amount as the expenditure method described later. By definition, GDI is equal to GDP. In practice, however, measurement errors will make the two figures slightly off when reported by national statistical agencies. This method measures GDP by adding incomes that firms pay households for factors of production they hire ― wages for labour, interest for capital, rent for land and profits for entrepreneurship. The US ‘National Income and Expenditure Accounts’ divide incomes into five categories: 
  1. Wages, salaries, and supplementary labour income
  2. Corporate profits
  3. Interest and miscellaneous investment income
  4. Farmers' incomes
  5. Income from non-farm unincorporated businesses
These five income components sum to net domestic income at factor cost”. (Wikipedia)#1

To reduce matters to the core, the list 1-5 is condensed to the straightforward formula National Income = Wages (1) + Profits (2). This formula looks plausible but, in fact, constitutes the foundational blunder of economics to this day. The conceptual blunder invalidates Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, and Pluralism.#2-#6

The fact of the matter is that economists are too stupid for the elementary algebra that underlies macroeconomics. With regard to scientific incompetence, there is NO difference between Orthodoxy and Heterodoxy ― it is the whole of academic economics.

Macroeconomics has to be based on a set of objective and consistent axioms.#7 This is the correct core of premises
(A0) The objectively given and most elementary systemic configuration of the economy consists of the household sector 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) EC=PX consumption expenditure EC is equal to price P times quantity bought/sold X.

The price P follows as the dependent variable under the conditions of budget-balancing, i.e. EC=YW, and market-clearing, i.e. X=O, as P=W/R, i.e. the market-clearing price is for a start equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand.

By lifting the condition of budget-balancing one gets the saving/dissaving of the household sector as S≡YW−EC and the profit/loss of the business sector as Q≡EC−YW. S and Q are the balances of two flows. It holds Q≡−S, that is, the profit of the business sector is equal to dissaving/deficit-spending of the household sector and loss of the business sector is equal to saving of the household sector. This is the most elementary form of the macroeconomic Profit Law.#8-#10

Profit Q is a balance, i.e. the difference of flows, and NOT a flow like wage income YW. So, profit is NOT income. Economists not only confuse stocks and flows but also balances and flows. The Flow-Balance Inconsistency makes the whole of established economics proto-scientific garbage.

It is obvious that the business sector’s loss is something quite different from income. Wage income is a flow from the business sector to the household sector. Loss is the difference between the two flows EC and YW. So it is inadmissible to speak of loss as a type of income. This conceptual blunder is called a category mistake. Wage income and profit are NOT two different forms of income. The inexcusable blunder of the representative economist consists of confusing balances and flows.

This blunder carries over to the concept of National Income as given above with 1-5 and thus ruins National Accounting and the concept of GDP. In technical terms: according to standard economics, GDI and GDP should be identical. Because the foundational concepts of macroeconomics ― profit and income ― are ill-defined, the whole analytical superstructure of macroeconomics is provably false. Economics is a failed science for 200+ years now.#11

The inescapable Paradigm Shift consists of the move from false microfoundations and false macrofoundations to the true macrofoundations (A1) to (A3).

Egmont Kakarot-Handtke

#7 “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)
#10 Profit
#11 See Ch. 13, The indelible scientific disgrace of economics, in Sovereign Economics

For more about Flow-Balance (In-)Consistency see AXECquery.
For more about the economics profession see AXECquery.
For more about GDP see AXECquery.
For more about (material/formal) consistency see AXECquery.

Wikimedia AXEC109i

Wikimedia AXEC121i For a start, distributed profit DN can be set to zero


Twitter Aug 25, 2022 GDP and GDI are supposed to be identical ― the lethal blunder

Twitter Apr 20, 2023 Roughly speaking, since according to the macroeconomic Profit Law #PublicDeficitIsPrivateProfit and profit are mistakenly subsumed under total income there is a close "correlation" between GDP and debt which is the numerical integral of deficits

November 2, 2020

Occasional Tweets: Revolutionary profit pushers