September 22, 2021

MMT vs Mainstream ― a proto-scientific clown show

Comment on Bill Mitchell on ‘ECB researchers find fiscal policy is very effective and more so if central banks buy up the debt’ and ‘They never wrote about it, talked about it, and, did quite the opposite ― yet they knew it all along!’*

In these two pieces, Bill Mitchell argues in great detail that mainstream economics is proto-scientific garbage. And he correctly identifies the foundational methodological blunder: “Consequently, treating macro as if it is micro means there is a tendency to conclude that what applies at the individual level also applies at the aggregate level, which is demonstrably false.” Indeed, this is the well-known Fallacy of Composition.#1

As far a the critique of mainstream economics goes, Bill Mitchell is on firm ground. However, the death and burial of mainstream economics at the Flat-Earth Cemetery is NOT news, and repeating the non-news is not exactly a contribution to scientific progress. Also, the suggestion that the provable falsity of mainstream economics somehow implies the correctness of MMT is misleading.#2-#4

While MMT's policy intuition is superior to that of the Sargent/Wallace crowd.#5, the underlying theoretical foundations are also provably false. So, this is the current state of economics: the Walrasian microfoundations of the mainstream are false and the Keynesian macrofoundations of MMT are false.#6-#10

Bill Mitchell concludes:
(i) “So far in more than 25 years of doing this stuff, I have not been systematical wrong about my predictions, which are quite converse relative to the mainstream predictions.”
(ii) “So it matters how you come to a conclusion, which might be similar to a conclusion that the rival paradigm reaches. The surrounding body of knowledge is what matters.”

It turns out that (i) is true with regard to fiscal and monetary policy. It is NOT true with regard to macroeconomic profit, distribution, the advantages for the Oligarchy, and the disadvantages for WeThePeople. The problem-solving capacity of MMTers is basically that of counterfeiters.#11

Yes, from the standpoint of science “it matters how you come to a conclusion” and the “body of knowledge is what matters”. The fact is that both mainstream and MMT are based on provably false axiomatic foundations and because of this, all policy advice lacks sound scientific foundations. Actually, mainstream policy guidance is plucked from the vacuum of five behavioral axioms.#12

Economics has to advance beyond the mainstream and MMT.

Egmont Kakarot-Handtke

* Bill Mitchell's blog here and here
#1 For more about the Fallacy of Composition see AXECquery
#5 “When I started studying economics in the mid-1970s, this was a raved about paper. I read it and couldn’t believe how asinine it was.”

Related 'Mainstream vs MMT ― another clown show' and 'Swabian housewife vs Wall Street loan shark' and 'The not so funny MMT vs Neoliberalism slapstick' and 'Post Keynesianism vs MMT: a Zombie debate' and 'MMT vs WSJ: Another futile exercise in moron bashing' and 'Krugman vs MMT ― like the blind talking about colors' and 'MMT vs The Rest of Economics ― a Punch and Judy show' and 'MMT vs Keynesianism: Nothing to chose' and 'MMT vs Neoliberalism: Just another clown show' and 'Orthodoxy vs Heterodoxy: the squabbling of quacks' and 'Storytelling vs Theory = Politics vs Science' and 'Confused Orthodoxy vs confused Heterodoxy' and 'Economists vs Economics' and 'Sales talk vs Science' and 'Knowledge vs Belief' and 'Around the world: storytelling vs science' and 'Economics vs Sociology' and 'First Fundamental Law vs Fundamental Theorem of Income Distribution' and 'Agenda pushers and hijackers vs scientists' and 'Politics vs Science' and 'Entertainment vs Science' and 'Opinion vs Knowledge.