Why MMTers permanently explode "myths of public deficits"

Comment on Crispin Savage on ‘Visiting economist explodes myths of public deficits’*

Blog-Reference

More than 200 years ago, economics started as Political Economy. Those were honest times, and the Founding Fathers identified themselves openly as political agenda pushers. John Stuart Mill, the philosopher of Liberalism, was from 1823 to 1858 on the payroll of the British East India Company. #1 Things changed with Jevons, who renamed Political Economy to Economics and claimed to do science.

So, there are 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.

Despite their commitment to science, economists have 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 of profit wrong.

Economics is proto-scientific garbage but advertises itself as science. Economists deceive the general public. The “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is a fraud.

Economics is propaganda for the benefit of the Oligarchy. MMT is just the latest example. Stephanie Kelton is currently the most popular proponent of the false MMT message ‘Deficits Are Good For You’.

“Professor Kelton will deliver the annual Harcourt lecture ― The Deficit Myth ― Modern Monetary Theory and the Birth of the People’s Economy ― at the University of Adelaide on Tuesday 14 January to a packed audience. The event was sold-out almost as soon as it was announced.”

“Her much-anticipated book, The Deficit Myth: Modern Monetary Theory and Creating an Economy for the People (to be published on 9 June 2020), will show how to break free of the thinking that she says has hamstrung policymakers in Australia and around the world.”

Now, the plain scientific fact of the matter is that the MMT policy of deficit-spending/ money-creation is bad for WeThePeople and good for the Oligarchy. #2, #3

According to the macroeconomic Profit Law, #4, MMT deficit-spending/money-creation has serious negative distributional effects:
(i) The Law implies Public Deficit = Private Profit.
(ii) The greater part of private profit is invested in government securities and earns interest, which is taxed from WeThePeople as long as the debt is rolled over. #5
(iii) A growing public debt can be rolled over for a very long time, but at some future date has to be redeemed. This will cause severe economic problems. #6, #7

The communicative task of MMT academics is to brush all negative distributional effects and the inevitable future problems aside: “Government deficits are normal and even necessary to the health of most economies ― that’s according to one of the world’s most influential economists, Professor Stephanie Kelton, who will be a Visiting Professor at the University of Adelaide this month.”

Economics students are expected to swallow proto-scientific garbage and brain-dead propaganda without turning an eyelid. After all, that is what they have done since the founding fathers. #8

The fact of the matter is that public deficit-spending/money-creation is a free lunch program for the Oligarchy. #9 The fact is that the so-called market economy is on the life support of the State, and Wall Street is on the life support of the Central Bank. Macroeconomic profit is in the main produced by public deficits. Financial wealth grows in lockstep with public debt. The Oligarchy, in turn, uses the opulent free lunches to corrupt what remains of the State’s legislative, executive, and judiciary institutions and, not to forget, academia. #10

Egmont Kakarot-Handtke


* University of Adelaide
#1 “The company ended up seizing control of large parts of the Indian subcontinent, colonised parts of Southeast Asia, and colonised Hong Kong after a war with Qing China.” (Wikipedia)
#2 For the full-spectrum refutation of MMT, see cross-references MMT
#3 Exploding the Household Fallacy
#4 Qm≡Yd+(X−M)+(G−T)+I−Sm Legend: Qm monetary profit/loss, Sm monetary saving/dissaving, I investment expenditures, G government spending, T taxes, X export, M import, Yd distributed profit.
#5 Stephanie Kelton sells children into debt slavery
#6 How to pay for the war and to be bamboozled by economists
#7 Some nasty MMT surprises behind the time horizon
#8 Econ 101: Economists flunk the intelligence test at the first hurdle
#9 MMT: The fusion of Wall Street and Academia
#10 Stephanie Kelton: MMT’s public farce

Related 'The Kelton-Fraud' and 'Stephanie Kelton’s legendary Plain-Sight-Ink-Trick' and 'Down with idiocy!' and 'The sectoral balances obfuscation: stupidity or corruption?'  and 'Dear idiots, MMTers are Wall Street’s agenda pushers'.

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Twitter Jan 13, Deficit-spending/money-creation is Capitalism's elixir of life

Source: Twitter

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Switch of threads at this point.

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REPLY to Ahmed Fares on Jan 3 and Blog-Reference

You say: “For a closed economy, such as the global economy as a whole:

Government Deficit = Non-government Surplus.”

This is false. #1, #2 The axiomatically correct macroeconomic relationships read with increasing complexity and simplified notation:

(1) Q≡−S in the elementary production-consumption economy,

(2) Q≡I−S in the elementary investment economy,

(3) Q≡Yd+I−S in the investment economy with profit distribution,

(4) Q≡Yd+I−S+(G−T)+(X−M) in the general case with government in an open economy.

For the three sectors (business, household, government) of a closed economy, this boils down to Q≡(G−T)−S (I=0, Yd=0), and for two sectors (business, government) to Q=(G−T), i.e., Public Deficit (G−T) = Private Profit Q.

This tells one that MMT’s policy of deficit-spending/money-creation is a free-lunch program for the Oligarchy, and that Warren Mosler is a Wall Street agenda pusher and that his White Paper is proto-scientific garbage. #3

For the detailed refutation of Peter Cooper, enter his name in the search field at AXEC.

#1 Stephanie Kelton’s legendary Plain-Sight-Ink-Trick

#2 The sectoral balances obfuscation: stupidity or corruption?

#3 Why MMTers permanently explode myths of public deficits

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REPLY to Brian Romanchuk on Jan 4 and Blog-Reference

You summarized the White Paper: “Mosler answers the question ‘What is MMT?’ as follows. MMT began largely a description of monetary operations, which are best thought of as debits and credits to accounts kept by banks, businesses, and individuals.” and “To give further background, Warren Mosler is successful fixed income investor who developed the ideas around MMT independently of the other founders, …”

The problem is this: Warren Mosler’s approach is microeconomic and institutional. Now, we know from methodology that ALL microfounded approaches run into the Fallacy of Composition. NO way leads from the description of the institutional/operational details of the Fed or other banking systems to the understanding of how the monetary economy works. Monetary Theory has to be macrofounded.

Because Warren Mosler gets the analytical starting point wrong, he gets the determination of the price level and the key interest rate wrong.

From the correct macrofoundations follows the correct balances mechanics, i.e., the interdependence of the balances of the business, household, and government sector. From the mathematically correct balances analysis (= macroeconomic accounting) follows that MMT’s sectoral balances equation is false.

So, both Warren Mosler’s microfoundations approach and the post-Keynesian macrofoundations approach are provably false. And when the foundations are false, the whole analytical superstructure is false.

Conclusion: Forget the White Paper, forget MMT, and stop blathering about the absolutely irrelevant institutional/operational details of Fed/Treasury/Private Bank interactions. The lethal blunder of economics is that the macrofoundations are false since Keynes, because economists are too stupid for the elementary algebra that underlies macro.

People love hands-on practitioners like Warren Mosler and love to get lost in operational details, and regard Mosler as an expert because he has made tons of money on Wall Street. Nothing wrong with this, except that economics is above Warren Mosler’s intellectual pay grade. The proof is in his White Paper.

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REPLY to Matt Franko on Jan 4

You say: “Egmont you here: ‘Public Deficit (G−T)’ G doesnt include Transfer Payments so that is not the ‘Deficit’... at least not in Cash Basis Accounting ...”

Right, transfer payments have been left out of the picture here. But you can easily apply the analogous case, which has been dealt with elsewhere. #1 Just substitute transfers for Yg.

The inclusion of transfers does NOT change the crucial relationship Public Deficit = Private Profit, so there is no need to bring transfers in at this point.


#1 Q: How are you going to pay for it? MMT: By stealth taxation!

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REPLY to Brian Romanchuk on Jan 5

I said: “Now, we know from methodology that ALL microfounded approaches run into the Fallacy of Composition. NO way leads from the description of the institutional/operational details of the Fed or other banking systems to the understanding of how the monetary economy works. … Because Warren Mosler gets the analytical starting point wrong, he gets the determination of the price level and the key interest rate wrong.”

The Fallacy-of-Composition argument does NOT relate to monopolistic money creation but to the determination of the price level. The price level is NOT determined à la Mosler by the government “setting one price” but by total output and total spending of all households and the government taken together. If in the limiting case, government spending is zero, the price is still determined.

For the production-consumption economy without government, the macroeconomic Law of Supply and Demand says for the elementary case that P=W/R.

The government is neither needed for the determination of the price level nor for bringing money into the economy. #1

From Warren Mosler’s ‘operational core’ follows NOTHING about the price level or other macroeconomic variables. Obviously, Warren Mosler has NO idea what macroeconomic profit is, and this alone is proof that the White Paper is proto-scientific garbage.


#1 The right and the wrong way to bring money into the economy

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REPLY to Matt Franko on Jan 5

You ask: “What basis of Accounting are you using? Cash? Accrual? Modified Accrual?”

Obviously, you do not remember that this question has already been discussed and settled in 2017. #1

All macroeconomic variables relate to the same period, and all transactions are settled with fiat money in the same period, as you can see from the transaction patterns. #2

So, the question of different accounting methods does NOT arise at this point because the variables G, T, Q in the algebraically determined macroeconomic relationship Public Deficit (G−T) = Private Profit Q relate to the same period.

Your repeated attempts to obscure with irrelevant technicalities the plain fact that MMT is a free-lunch program for the Oligarchy are futile. This only makes you part of a manifest political fraud.

#1 Just enter “accrual” into the search field at AXEC.

#2 Money and time

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REPLY to Brian Romanchuk on Jan 5 and Blog-Reference

You say: “Woah, buddy, you’re jumping all over the place. Your first comment referred to ‘accounting’, and that only makes sense in the context of discussing the monopoly issuer status of the central government. Now you are pretending you are just talking about price level determination ― which your accounting mumbo-jumbo tells us nothing about.”

The fact is that I start with well-defined macrofoundations. #1 From these macrofoundations follows the price level as P=W/R and the elementary balances equation (which is the algebraic counterpart of macroeconomic accounting) as Q≡−S. In plain words: macroeconomic profit of the business sector Q is equal to dissaving (= deficit-spending) of the household sector −S.

For the government sector, follows analogously Q≡(G−T), i.e., private profit Q is equal to public deficit (G−T), i.e., equal to the deficit-spending of the government sector.

For the household and government sector combined, this gives Q≡(G−T)−S. This equation replaces the false MMT slogan “Government Deficit = Non-government Surplus.” #2

From Warren Mosler’s “operational core” follows NOTHING about the price level or about macroeconomic profit. Accordingly, the word profit does NOT appear once in your discussion of the White Paper.

Profit also does NOT appear in MMT’s foundational sectoral balances equation. We have (I−S)+(G−T)+(X−M)=0 in the MMT textbook #3, and this contrasts with the correct equation (I−S)+(G−T)+(X−M)−Q=0, which contains the balance of the business sector Q.

From Warren Mosler’s “operational core” follows NOTHING about the macroeconomic balances.

You say: “In any event, your entire theory is based on you doing macro accounting in wacky fashion that nobody agrees with.”

Of course, NO MMTer agrees with it because the axiomatically correct algebra implies (i) Public Deficit = Private Profit, (ii) MMTers are too stupid for elementary math, (iii) MMT’s policy of deficit-spending/money-creation is a free-lunch program for the Oligarchy, (iv) Warren Mosler is an agenda pusher/useful idiot for Wall Street, (v) Brian Romanchuk is Warren Mosler’s applause troll, (vi) MMTers are NOT scientists but political fraudsters because they deceive WeThePeople about the present and future negative effects of the MMT policy of deficit-spending/money-creation.

#1 Macrofoundations are, for a star,t defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw), and two definitions (Q≡C−Yw, S≡Yw−C) in simplified notation.

#2 Down with idiocy!

#3 Refuting MMT’s Macroeconomics Textbook

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REPLY to Brian Romanchuk on Jan 9

The macroeconomic price, aka the price level, is in the elementary case given by P=ρ_E W/R. This is the macroeconomic Law of Supply and Demand. Extensive explanations have been given elsewhere.

The price level follows logically from macrofoundations, which are, for a start, defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw), and two definitions (Q≡C−Yw, S≡Yw−C)

The equation is composed of measurable variables and is therefore testable in principle, i.e., as an integral part of the complete and more complex price equation.

From Warren Mosler’s “operational core” follows NOTHING about the price level. #1


#1 Why MMTers permanently explode myths of public deficits

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Graphic AXEC152

Blowing smoke about bipartisan failure

Comment on Brian Romanchuk on ‘A Skeptics Guide To Mankiw’s Skeptic’s Guide To MMT’*

Blog-Reference

Brian Romanchuk summarizes: “I would paraphrase Mankiw’s criticism of MMT as follows: if we assume that neoclassical theory is correct, MMT is either incorrect (where it contradicts neoclassical theory) or trivial. This is an obviously true statement, but it begs the question: is neoclassical theory correct? As my earlier discussion noted, one of core topics of discussion of the MMT literature are critiques of neoclassical theory. We need to investigate whether those MMT critiques are out to lunch.”

NO, there is absolutely NO need for further investigations of neoclassical economics: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)

Neoclassical economics is dead for 150+ years. Is MMT the valid new theory? Again NO, MMT, too, is refuted on all counts.#1 Therefore, the comparison of standard textbooks of both approaches, i.e. Neoclassics vs MMT, is an exercise in smoke blowing.#2-#4 More specifically, both approaches get the foundational macroeconomic balances equation wrong which proves that they are too stupid for elementary algebra.

Because the conceptual foundations are false the whole analytical superstructure is false and, as a result, the respective textbooks are scientifically worthless.#5-#11 Neither Neoclassical nor MMT policy guidance has sound scientific foundations. Neither mainstreamers nor MMTers have something worthwhile to say about how the monetary economy works.

Egmont Kakarot-Handtke


* Bond Economics
* Gregory Mankiw A Skeptic’s Guide to Modern Monetary Theory
#1 For the full-spectrum refutation of MMT see cross-references MMT
#2 Get it econ suckers: behavioral microfoundations ⇒ false, systemic macrofoundations ⇒ true
#3 Neoclassics and MMT ― much like pest and cholera
#4 Heterodoxy ― an axiomatic failure just like Orthodoxy
#5 To this day, economists have produced NOT ONE textbook that satisfies scientific standards
#6 Refuting MMT’s Macroeconomics Textbook
#7 The father of modern economics and his imbecile kids
#8 False on principle
#9 Economics textbooks ― tombstones at the Flat-Earth-Cemetery
#10 CORE: more lipstick on the dead economics pig
#11 Macroeconomics and the fake History of Economic Thought

The state of MMT? Stone-dead!

Comment on Brian Romanchuk/Tom Hickey on ‘The State Of MMT?’*

Blog-Reference and Blog-Reference and Blog-Reference and Blog-Reference

Tom Hickey maintains: “MMT is ‘winning’ because it cuts to the chase instead of wandering in the weeds. People wanting change are provided with direct answers in terms they can understand and relate too. Nor do MMT economists shy from debate about the weeds if it is seriously informed.”

Brian Romanchuk maintains: “The relationship between MMT and Post-Keynesian thinking is currently the largest area of awkwardness I see with respect to MMT. The special issue of the RWER seems to provide evidence for that assessment.”

The scientific fact of the matter is that Post-Keynesianism is proto-scientific garbage#1 and MMT is proto-scientific garbage.#2 The relationship between the two is NOT AT ALL awkward, though, because both approaches share the same foundational blunder. Together with Keynes’ faulty approach, both end up in the same wastebasket.#3

The blunder that brings macroeconomics in general and Post-Keynesianism and MMT, in particular, down is to be found in Randall Wray’s contribution Alternative paths to modern money theory, section The theoretical path to MMT.*

Here it is: “Government spending, like private investment, is an injection that raises income. More specifically, as Kalecki showed, government spending creates profits because it is a source of business revenue but not a cost of production. Taxes are a leakage, reducing household net income and business net revenue. If government spends more than it taxes, this is a net spending surplus ― increasing profits dollar-for-dollar. A net spending surplus by government cannot ‘crowd-out’ private investment ― it creates profits that are likely to boost the desire to invest. A net spending surplus by the US government cannot absorb global savings ― instead it creates net income for the US private domestic sector as well as for the rest of the world.” and “Now, it is true that government spending is not the only injection. Private investment and exports (or, net exports) also create income that can be leaked. Wynne Godley’s sectoral balance approach ― long incorporated within MMT ― shows that the sum of the balances of the government, domestic private, and foreign sectors is identically zero.”

Accordingly, MMT boils formally down to the sectoral balances equation (I−S)+(G−T)+(X−M)=0. This equation is provably false.#4, #5 The mistake lies in the sentence: “Government spending … is an injection that raises income.” No! Government spending … is an injection that raises profit. And profit is a balance, i.e. the difference of flows, and NOT a flow like wage income. So, profit is NOT income. Economists not only confuse stocks and flows but also balances and flows.

In the elementary case, the monetary saving/dissaving of the household sector is defined as S≡Yw−C. The monetary profit/loss of the business sector is defined as Q≡C−Yw. Ergo Q≡−S, that is, the balances of the household and business sector ad up to zero.

Only when profit is distributed it becomes income of the household sector. So, total income Y is wage income Yw plus distributed profit Yd and NOT wages Yw plus profits Q. The difference between profit Q and distributed profit Yd is retained profit Qre.

Neither profit Q, i.e. the balance of the business sector, nor distributed profit Yd appear in the MMT sectoral balances equation. Because it lacks the balance of the business sector the MMT balances equation is false.#6 Therefore, the whole analytical superstructure of MMT is false. By the ultimate consequence, MMT policy guidance is false.

“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)

So, all one needs to know about MMT is that MMT is NOT the true theory. Scientifically, it is stone-dead.

Egmont Kakarot-Handtke


* Refers to RWER, real-world economics review, Issue no. 89, Modern monetary theory and its critics
#1 Why Post Keynesianism Is Not Yet a Science
#2 For the full-spectrum refutation of MMT see cross-references MMT
#3 Keynes ― the poster boy for the weakness of the economist’s mind
#4 Controlled demolition of MMT ― an exercise in elementary logic
#5 Wikipedia and the promotion of economists’ idiotism (I)
#6 The axiomatically correct sectoral balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0.

Related 'The Levy/Kalecki Profit Equation is false' and 'Truth by definition? The Profit Theory has been axiomatically false for 200+ years' and 'Macroeconomics and the fake History of Economic Thought' and 'The sectoral balances obfuscation: stupidity or corruption?' and 'Profit'

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REPLY to Brian Romanchuk on Oct 8 and Blog-Reference

You say: “Given that one of the defining characteristics of the scientific method is that theories need to be convincing to other people, said isolated individual(s) are operating outside scientific practice.”

NO! To convince “other people” is the goal of political agenda pushing. Science is about true/false and nothing else: “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)

The fact of the matter is that the MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 is provably false.#1 Randall Wray argues: “Government spending … is an injection that raises income. More specifically, as Kalecki showed, government spending creates profits because it is a source of business revenue but not a cost of production.” However, profit ― the balance of the business sector and the pivotal magnitude of economics ― does NOT appear in the MMT balances equation.

Either MMTers are too stupid for the elementary math that underlies macroeconomics or they are intentionally hiding macroeconomic profit. It is the latter as I have shown elsewhere.

In his post, MMT: REPORT FROM THE FRONT Randall Wray reports “Fifth front: the blogs. I was skeptical of their usefulness ― but Bill and Stephanie recognized that they were the future. They were right. You’re reading this one, created by Stephanie and then taken over by Bill Black. Blogs spread MMT outside academia and official policy circles. And then came videos and tweets. There are tens of thousands of followers now. This helped to foam the runways to the seats of power. No one can afford to ignore MMT any longer. The viral movement, as well as a few fearless candidates ― Bernie and AOC ― brought MMT out of the shadows.”#2

“Tens of thousands of followers” is a respectable propaganda success. So, the money of Wall Street funders was well-spent. This, however, does not change the fact that MMT is proto-scientific garbage. Science is NOT about “convincing other people”, i.e., brainwashing imbeciles. The number of followers is absolutely irrelevant to the question of whether a theory is true or false.

The macroeconomic Profit Law says Public Deficit = Private Profit. So MMT deficit-spending/money-creation is for the benefit of the Oligarchy and NOT of WeThePeople. Scientifically, MMT is garbage, and politically, it is a fraud.


#1 The axiomatically correct sectoral balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0.
#2 New Economic Perspectives

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AXEC118d

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#PointOfProof

Oct 8

before

after

Refuting MMT’s Macroeconomics Textbook

Comment on Bill Mitchell on ‘Macroeconomics ― MMT Textbook’*

Blog-Reference and Blog-Reference Mar 14 and Blog-Reference

MMT is, of course, accurate as far as the refutation of Orthodoxy/Neoclassics is concerned. Standard economics is scientifically indefensible. There is no need for further discussions about the current state of economics. This is where we stand today: provably false
• profit theory, for 200+ years,
• microfoundations, for 150+ years,
• macrofoundations, for 80+ years,
• the application of elementary logic and mathematics since the founding fathers.

However, the critique of Orthodoxy has run its course: “… it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)

MMT claims to be a new theory that beats Orthodoxy. This is accurate with regard to the shift from microfoundations to macrofoundations. Microfounded approaches are dead already since Walras/Jevons/Menger. The problem is that economists, in their incurable scientific incompetence, messed up the indispensable Paradigm Shift from microfoundations to macrofoundations.

MMT is NO exception. And the proof is in the new MMT Textbook, more specifically in the premises of MMT. It holds what Keynes observed with regard to Orthodoxy: “For if orthodox economics is at fault, the error is to be found not in the superstructure, which has been erected with great care for logical consistency, but in a lack of clearness and of generality in the premises.”

The premises of MMT Macroeconomics are laid out on pp. 13-16 and pp. 83-86.

“By placing government, as the currency issuer, at the centre of the monetary system, the MMT approach immediately focuses on how a government spends, and how this spending influences … macroeconomic aggregates …” (p. 13)

This is methodologically false. Macroeconomics starts with what Keynes called the ‘monetary theory of production’. The most elementary economy consists of the household sector, the business sector, and the central bank. Government and foreign trade are included at a later stage. For the central bank holds that it “can never run out of its own currency.”

“One of the most basic propositions in macroeconomics that MMT emphasizes is the notion that at the aggregate level, total spending equals total income and total output.” (p. 14)

Unfortunately, the most basic proposition in macroeconomics is false since Keynes and MMTers have not realized it to this day.

Here is the short proof that economists in general and MMTers, in particular, get the elementary mathematics that underlies macroeconomics wrong.

(i) The elementary production-consumption economy is given by three macroeconomic axioms: (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) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

(ii) The focus is here on the nominal/monetary balances. For the time being, real balances are excluded, i.e., X=O.

(iii) The monetary profit of the business sector is defined (in simplified notation) as Q≡C−Yw,

(iv) The monetary saving of the household sector is defined as S≡Yw−C.

(v) Ergo Q≡−S.

The balances add up to zero. The counterpart of the household sector's saving S is the business sector's loss −Q. The counterpart of household sector dissaving (-S) is business sector profit Q. Both Q and S are measurable with the precision of two decimal places.

For the elementary investment economy holds Q≡I−S.

For the elementary investment economy, the government holds Q≡(I−S)+(G−T). If I and S are taken out of the picture for a moment, one gets Public Deficit = Private Profit.

In sum: (1) profit is NOT income, i.e. a flow, but a balance, i.e. the difference of flows, (2) distributed profit Yd is income and adds up with wage income Yw to total income, (3) total income is NEVER equal to total spending, (4) in the most elementary case, the difference between total spending of the household sector C and total wage income Yw is saving/ dissaving, (5) profit/loss of the business sector is the mirror image of dissaving/saving of the household sector, i.e Q≡−S, (6) saving and investment are causally INDEPENDENT and NEVER equal, (7) all I=S/IS-LM models are false since Keynes/Hicks, (8) Keynesianism, Post-Keynesianism, New Keynesianism and all variants are scientifically worthless, (9) the foundational MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 is false because it lacks the balance of the business sector Q, (10) because profit is false, the whole of MMT is false, (11) because the theory is false, MMT policy guidance has no sound scientific foundations. #1

MMT theory is provably false. MMT policy serves the Oligarchy. Since Samuelson started the textbook industry in 1948, economists have produced NOT ONE textbook that satisfies scientific standards. #2 For generations, economics students swallow proto-scientific garbage without batting an eyelid. Not very smart, these folks. #3

Egmont Kakarot-Handtke


* Mitchell, Wray, Watts Macroeconomics
#1 For the full-spectrum refutation of MMT, see cross-references MMT
#2 The father of modern economics and his imbecile kids
#3 There is NO such thing as “smart, honest, honorable economists”

Related 'Macroeconomics: Drain the scientific swamp' and 'The miracle cure of economists’ micro-macro schizo' and 'Is Nick Rowe stupid or corrupt or both?' and 'Keynesians ― terminally stupid or worse?' and 'MMT = Modern Monetary Trash' and 'Both mainstream economics and MMT are axiomatically false' and 'DSGE and profit―forget it! MMT and profit―forget it!' and 'Fact of life: your econ prof is scientifically incompetent' and 'Dear idiots, time to get saving and investment straight (II)' and 'Both mainstream economics and MMT are axiomatically false' and 'The Levy/Kalecki Profit Equation is false' and 'Wikipedia and the promotion of economists’ idiotism (I)' and 'Wikipedia and the promotion of economists’ idiotism (II)' and 'Wikipedia, economics, scientific knowledge, or political agenda pushing?' and 'MMT and the magical profit disappearance'. For details of the big picture, see cross-references Econ 101/Old Curriculum/New Curriculum and cross-references Accounting.

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REPLY to Brian Romanchuk on Mar 14

You ask: “Have you managed to convince anyone that your definition, oops, “axiom,” [sic.] of profits is correct?”

The ‘axiom of profits’ exists only in your confused mind.

The macroeconomic AXIOMS are enumerated above under (i). The profit DEFINITION is given under (iii). There is a difference between an axiom and a definition. #1

There is also a difference between ‘to refute’ and ‘to convince’. Bill Mitchell and you are REFUTED, and whether you are convinced of it is a matter of indifference. Nobody has any ambition to convince methodologically undereducated Flat-Earthers. #2 Refutation is sufficient.


#1 From false micro to true macro: the new economic paradigm
#2 Post Keynesianism, science, and universal idiocy

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REPLY to Brian Romanchuk on Mar 15

You ask: “So, you have no links to *anyone* who agrees with you? These paradigm shifts are pretty darn slow, eh?”

The point at issue is: “One of the most basic propositions in macroeconomics that MMT emphasizes is the notion that at the aggregate level, total spending equals total income and total output.” (Mitchell et al., p. 14)

This “most basic proposition” is provably false. #1 Because of this, the whole analytical superstructure is false. Because of this, MMT is proto-scientific garbage. Because of this, MMT policy has NO sound scientific foundations. Because of this, MMT is a political fraud.

The ‘most basic propositions’ are called axioms in methodology: “The attempt is made to collect all the assumptions, which are needed, but no more, to form the apex of the system. They are usually called the ‘axioms’ (or ‘postulates’, or ‘primitive propositions’; …). The axioms are chosen in such a way that all the other statements belonging to the theoretical system can be derived from the axioms by purely logical or mathematical transformations.” (Popper) #2

As Aristotle put it: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.”

This was 2300+ years ago; however, economists in general and you, in particular, still don’t get it. Indeed, pretty darn slow, these economists.

The point at issue is that MMT is proto-scientific garbage and that MMTers are either stupid or corrupt or both. The new MMT Macroeconomics Textbook is the incontrovertible proof.

It holds as a general rule: The time it takes economists to realize that they are refuted on all counts is a simple metric of their scientific incompetence. #3

#1 Macroeconomics for retarded economists

#2 How to restart economics

#3 The clock runs down on economics

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REPLY to Brian Romanchuk on Mar 16

There is only one question to answer: Which sectoral balances equation is true/false?

(i) (I−S)+(G−T)+(X−M)=0

(ii) (I−S)+(G−T)+(X−M)−(Q−Yd)=0

If you cannot answer this question, you are unfit for economics/science. This, of course, also holds for the authors of the new MMT Macroeconomics Textbook.

There is no need for you to wreck your tiny brain with writing “a text that may be labelled a ‘review’”. Here is the final evaluation of William Mitchell, L. Randall Wray, and Martin Watts’s Macroeconomics: proto-scientific garbage.

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Graphic AXEC152

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Graphic AXEC128, AXEC129mch The Humpty Dumpty Fallacy

Economics: How to stop mental pollution and global dumbing

Comment on Brian Romanchuk on ‘DSGE Macro “Proves” There Are No Financial Constraints On Government’

Blog-Reference

Brian Romanchuk announces what he is going to do: “… I am describing DSGE models in this article. There is a desire among neoclassicals to ‘make MMT more rigorous’ by attempting to cast them in a DSGE model. If we look at the MMT academic literature, it is a subset of the post-Keynesian literature. It seems safe to say that every single behavioural assumption embedded in DSGE models is viewed as incorrect by at least one post-Keynesian. Making a literature ‘more rigorous’ by ignoring the actual contents of said literature is a very curious position for a scholar to take.”

The current state of economics is this: the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational concept of the subject matter ― profit ― wrong.

The basic idea of science is that if it turns out that a theory is either materially or logically false it is unceremoniously buried at the Flat-Earth-Cemetery and the attention turns to alternative approaches or, in Lakatosian terms, from a degenerating to a progressive research program.#1 This does not happen in economics. As Morgenstern observed back in 1941: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.”

This refusal to abandon falsehoods has a fatal effect. Economists not only waste time and mental/physical resources by studying and teaching and communicating their defunct theories, but they also multiply the absurdity by comparing and discussing two defunct theories. This gives rise to heated debates that always end where they have started: everybody goes out with essentially the same garbage in his head with which he came in.

One example of absurd cross-talk is the recent debate between the New Keynesian Paul Krugman and the MMTer Stephanie Kelton.#2 Another example is Brian Romanchuk’s futile attempt to find common ground between DSGE and MMT.

DSGE is known to be dead because ALL microfounded models are dead, ultimately because the Walrasian axioms are provably false. It was Keynes who realized this and tried to advance to macrofoundations: “The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”

The problem with Keynes’ Paradigm Shift, i.e. the move from microfoundations to macrofoundations, was that he messed it up. Unfortunately, Post-Keynesians followed him sheepishly up to MMT’s sectoral balances equation.#3, #4

The question is how can anybody take DSGE still seriously? Does any physicist at the cutting edge of research waste time commenting on the latest arguments of Flat-Earthers? The only interesting question with regard to DSGE is institutional: why are these scientific failures still around and have not been thrown out of academia long ago? Who finances and sponsors and promotes this senseless production of proto-scientific garbage? And why does Brian Romanchuk bring up Ljungqvist/Sargent’s No-Profit-Model? Have all these folks still not realized that there is NO such thing as a No-Profit economy?

It should be pretty obvious that economics can either be based on microfoundations or on macrofoundations. Any synthesis is inconsistent. The microfoundations approach is false and this is known for 80+ years. The scientific methodology requires that falsified theories are buried for good. To teach students supply-demand-equilibrium or DSGE or to recycle this brain-dead garbage again and again in economic debates or in the econblogosphere contributes to global dumbing.

Scientists don’t do this: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)

It means, first of all, that economists who stubbornly recycle refuted theories, i.e. Walrasians, Keynesians, Marxians, Austrians, and MMTers get an immediate and dishonorable discharge from the sciences.

Egmont Kakarot-Handtke


#1 Caught in secular intellectual stagnation
#2 Paul’s and Stephanie’s economic delirium talk
#3 Dear idiots, time to get saving and investment straight (II)
#4 MMT-Refutation for Dummies

Related 'Dead men tweeting' and 'Unsmart allocators' and 'Economists: Either stupid or corrupt or both' and 'To this day*, economists have produced NOT ONE textbook that satisfies scientific standards' and 'Occasional Tweets #210119: True macrofoundations' and 'The new economic Paradigm requires a new textbook'.

Krugman vs MMT ― like the blind talking about colors

Comment on Brian Romanchuk on ‘Functional Finance Versus New Keynesian Economics, Krugman Edition’*

Blog-Reference and Blog-Reference and Blog-Reference on Feb 16 adapted to context and Blog-Reference on Feb 18

The characteristic of economic debates is to talk about everything except the point at issue.

Krugman starts the talk show with: “Well, it looks as if policy debates over the next couple of years will be at least somewhat affected by the doctrine of Modern Monetary Theory, …” Then he realizes that he is not up-to-date but this does not matter because: “The good news is that MMT seems to be pretty much the same thing as Abba Lerner’s ‘functional finance’ doctrine from 1943.” And off he goes parroting the worn-out stuff about inflation and crowding-out with the finale: “The bottom line is that while functional finance has a lot going for it, it’s not the kind of axiomatically true doctrine that Lerner ― and, I think, modern MMTers ― imagined it to be.”

No word about that MMT is just proto-scientific garbage. And, of course, no state-of-the-art refutation of the MMT approach, no proof of material/formal inconsistency.

Brian Romanchuk’s answer remains on the same low level and consists of pointing out that Krugman himself clings to a rather crappy approach: “The fundamental problem with the New Keynesian approach of Paul Krugman, Brad DeLong, Simon Wren-Lewis, etc., is that the model is fundamentally neoclassical rather than Keynesian, only departing somewhat in assumptions but not methodology. This methodology falls into the class of formal (mathematical) rather than empirically based, and it ignores the role of institutions and operations.”

Both parties are spot on in their critique of the other approach. The irony is that both approaches share a common blunder. Krugman refers via the IS-LM model back to Keynes and MMT via the sectoral balances equation, i.e., via (I−S)+(G−T)+(X−M)=0, which boils down to I=S when the public sector and the foreign sector are taken out of the picture for a moment.

The common blunder can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

“His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

Keynes, like his academic colleagues, NEVER understood what profit is and thus ended with I=S ― one of the greatest blunders in the history of modern science. Neither New Keynesians nor MMTers, though, have realized anything for 80+ years. #1 Both are too stupid for the elementary mathematics that underlies macroeconomics.

The correct macroeconomic relations are given by Q≡−S for the elementary production-consumption economy and Q≡I−S for the elementary investment economy, with Q the business sector’s monetary profit, S the household sector’s monetary saving, business sector’s I investment expenditures. From this follows that all I=S/IS-LM models and their derivatives are scientifically worthless. #2

Both New Keynesianism and MMT are provably false.#3 By consequence, the economic policy arguments of both sides have NO scientifically valid foundations. What Krugman advertises as wonkish is just the usual brain-dead blather of failed/fake scientists.

Egmont Kakarot-Handtke


* NYT, Paul Krugman, What’s Wrong With Functional Finance? (Wonkish)
#1 Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
#2 For details of the big picture, see cross-references Refutation of I=S
#3 See cross-references Keynesianism and cross-references MMT

Related '#DrainTheScientificSwamp' and 'Macroeconomics: Drain the scientific swamp'.

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REPLY to Brian Romanchuk on Feb 15

You say: “You’re defining profits wrong.”

Macroeconomic profit is defined for the most elementary case as Q≡C−Yw.

Stop waffling, just write down your definition with 6 or 7 characters. This is what a real mathematician would do.

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REPLY to Brian Romanchuk on Feb 15

Just write down YOUR definition with 6 or 7 characters.

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REPLY to Brian Romanchuk on Feb 16 and Blog-Reference

You say: “The cost of goods sold is itself complicated, since it depends on the valuation of inventory. … Depreciation is also based on the historical cost of capital. In summary, way more complex than the junk you blather on about.”

The alleged complexity is merely a projection of your own confusion.

(i) Total macroeconomic profit Q is composed of monetary profit Qm and nonmonetary profit Qn.

(ii) Nonmonetary profit Qn is the sum of all positive/negative changes of valuation, including depreciation.

(iii) Qn has been dealt with elsewhere and is taken out of the picture for a moment.

(iv) Monetary profit Qm for the one-fully-integrated-macroeconomic firm is defined as Qm≡C−Yw. In your words: Qm is “sales revenue” C minus “cost of goods sold” Yw in the most elementary production-consumption economy with market-clearing, i.e., X=O. Changes of inventory, i.e., X≠O, have been dealt with elsewhere.

(v) The investment economy has been dealt with elsewhere.

(vi) Monetary saving of the household sector is defined as Sm≡Yw−C. Total saving S is the sum of monetary Sm and nonmonetary saving Sn. The latter has been dealt with elsewhere.

(vii) Monetary profit Qm and monetary saving Sm are measurable with the precision of two decimal places. There is NOT the slightest ambiguity here. Qm and Sm are as real as cash in the box or as money in the bank.

(viii) From this follows: the macroeconomic Profit Law for the most elementary case of a production-consumption economy with market-clearing reads Qm≡−Sm. This is the irreducible hardcore of the macroeconomic Profit Law.

For the more complex cases, see the overview on Graphic. #1 From this overview follows that the MMT sectoral balances equation is provably false.

That you have not realized anything to this day disqualifies you as a mathematician and economist.


#1 See under the label Graphic AXEC143, Profit Law

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REPLY to Brian Romanchuk on Feb 16

You say: “You missed the entire point. There is no market-clearing in the model I referred to; there are inventories.”

The model you published last week is NOT the point at issue. The definition of macroeconomic profit is at issue. You said: “You’re defining profits wrong.”

The fact is that there are two cases: (i) market-clearing, (ii) inventory changes.

Case (ii) has been dealt with elsewhere.#1 This leaves one with (i). And in this case, macroeconomic profit is in the elementary production-consumption economy Qm≡−Sm. This formula is sufficient to disprove Keynes and MMT, and you. There is NO need to go any further. You got the basics wrong.


#1 Primary and Secondary Markets, Levy Economics Institute of Bard College Working Paper No. 741

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#PointOfProof
Feb 16

before

after

MMT vs The Rest of Economics ― a Punch and Judy show

Comment on Brian Romanchuk on ‘Why Are MMT Critiques Generally Terrible?’

Blog-Reference and Blog-Reference

There is the political sphere where, in principle, everybody is admitted. The currency in the political sphere is opinion. Opinion is different from knowledge, and the fact of the matter is that it is most of the time false or merely commonsensically true.

“There are always many different opinions and conventions concerning any one problem or subject-matter... This shows that they are not all true. For if they conflict, then at best only one of them can be true. Thus it appears that Parmenides ... was the first to distinguish clearly between truth or reality on the one hand, and convention or conventional opinion (hearsay, plausible myth) on the other ...” (Popper)

The discourse in the political sphere has not much to do with truth or reality but with myth, storytelling, gossip, second-guessing, propaganda, belief, paranoia, disinformation, and entertainment.

The very opposite of opinion is knowledge. Science is about knowledge. Science is binary true/false and NOTHING in between. Non-science is the swamp between true and false, where ‘nothing is clear and everything is possible’ (Keynes). The distinction between science and non-science corresponds to the ancient Greeks’ distinction between episteme (= knowledge) and doxa (= opinion).

Science has been defined for 2000+ years by material and formal consistency. Logical consistency is secured by applying the axiomatic-deductive method, and empirical consistency is secured by applying state-of-the-art testing.

“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)

What the general public cannot see is that economists do not have the true theory. The fact of the matter is that the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the pivotal concept of the subject matter ― profit ― wrong. MMT is NO exception.

The lethal critique of MMT is that its macroeconomic foundations are provably false. So, the gigantic opinion/critique/polemic/disinformation bubble about MMT’s deficit-spending/money-creation, inflation, taxation, the debt burden, the Job Guarantee, etc. boils scientifically down to the question of which of the two foundational macroeconomic equations is true, i.e., materially and formally consistent:
• the MMT sectoral balances equation: (I−S)+(G−T)+(X−M)=0 or
• the axiom-based balances equation: (I−S)+(G−T)+(X−M)−(Qm−Yd)=0.#2

Note that this is NOT a question about opinion or political preferences but a clear-cut true/false question that can be unambiguously decided according to well-established scientific criteria.

The answer is that the MMT equation is logically/mathematically false. Because of this, the whole analytical superstructure of MMT is false.#3, #4, #5, #6, #7 This settles the matter. MMT is dead and buried at the Flat-Earth-Cemetery just like Walrasianism, Keynesianism, Marxianism, and Austrianism.

This, though, does not stop Brian Romanchuk, MMTers, and the rest of the economists from blathering as if there were no tomorrow. In order to understand this phenomenon, one has to drop the presumption that economics has anything to do with science or that economists are scientists. For 200+ years now, economics is a fake science and economists are either clowns or fraudsters in the political Circus Maximus.

Egmont Kakarot-Handtke


#1 The economist as stand-up comedian
#2 Wikipedia and the promotion of economists’ idiotism (II)
#3 MMT: How to get out of the infinite meta-communication loop
#4 Brian Romanchuk’s Post-Keynesian idiocy
#5 Economics as tireless production of proto-scientific garbage: inflation theory as an example
#6 Truth by definition? The Profit Theory has been axiomatically false for 200+ years
#7 MMT: How mathematical incompetence helps the Kelton-Fraud

MMT: How to get out of the infinite meta-communication loop

Comment on Brian Romanchuk on ‘MMT In The Newsflow Again’

Blog-Reference and Blog-Reference

Brian Romanchuk observes some communicative delirium: “There have been a number of attempts to ‘explain’ MMT by various American conservatives. As one might expect, those attempts have been pathetic; …” and then heads towards a solution: “There are two angles of attack to this debate.
1. Are MMT policy proposals radical?
2. Is it a radical approach to economic theory?”

This, though, means nothing else than a continuation of the communicative delirium. The point is to get out of meta-communication about MMT and to ask the scientifically relevant question: Is MMT true or false? with truth well-defined as material and formal consistency. Who cares about whether MMT is “radical”?

The scientist’s goal is to definitively settle a given question: “That the settlement of opinion is the sole end of inquiry is a very important proposition.” (Peirce) The blatherer’s goal, on the other hand, is simply to blather on in all eternity. After all, professional windbags, journalists, propagandists, soapbox economists, and trolls seek, like anybody else, long-term employment in a decently paid job.

There is 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.

Theoretical economics (= science) 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. This also holds for MMT. MMT is refuted on all counts. #1 Scientifically, MMT is dead and buried; however, it still has substantial talk-show qualities. #2

Brian Romanchuk brushes off the shallow pseudo-explanations provided by “various American conservatives”: “Modern Monetary Theory is part of a long line of post-Keynesian economics; if you want to understand the theory, there’s a lot of reading to do.”

True. Indeed, there is not only a lot of reading to do for MMTers but ― even more important ― of thinking. What MMTers do not understand to this day is that post-Keynesian economics is scientifically dead since Keynes. Keynes got macroeconomics wrong, and post-Keynesians, including MMTers, have not spotted the blunder. #3

The blunder is baked into the MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0. This equation proves that MMTers are too stupid for the elementary mathematics that underlies macroeconomic accounting.#4

Brian Romanchuk eventually stumbles upon the crucial point: “… my Twitter feed has been filled with condescending comments from mainstream economists who state that MMT has no empirical aspects to it. Firstly, if one does not read the literature, one will not find empirical work. Secondly, how much empirical work can we expect from theory in the first place?”

Good question. What, first of all, has to be done empirically is to decide between the false MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 and the axiomatically correct equation (I−S)+(G−T)+(X−M)−(Q−Yd)=0. And this will settle the matter once and for all. The MMT equation will be empirically falsified ― after it has already been logically falsified ― and with it the whole verbal superstructure of MMT blather/fraud.

Egmont Kakarot-Handtke


#1 For the full-spectrum refutation of MMT, see cross-references MMT
#2 The economist as stand-up comedian
#3 Why Post Keynesianism Is Not Yet a Science
#4 Wikipedia and the promotion of economists’ idiotism (II)

Related 'Stephanie Kelton’s legendary Plain-Sight-Ink-Trick' and 'The page where Stephanie Kelton gets macroeconomics wrong'.

Post Keynesian idiocy

Comment on Brian Romanchuk on ‘Primer: Post-Keynesian Inflation Theory Basics’#1

Blog-Reference and Blog-Reference

Brian Romanchuk defines the starting point of Post-Keynesian analysis as follows: “The defining characteristic of workers is that they are paid a wage, which is normally fixed nominally …. If we assume that all output is the result of wage labour, we can arrive at the identity (due to Weintraub): P=κW/R (i), where: κ is the average markup; W is the nominal wage rate; R is the output per worker.” (symbols altered from p, w, y to P, W, R)

He then argues: “The argument in Post-Keynesian Economics is that markups cannot rise forever, as that would imply an ever-rising profit share of national income. … Instead, we need to look at the first two terms: how much greater wage growth is than output per worker…. The analysis then leads to: why will wage gains outstrip productivity? The post-Keynesian answer is that this will happen if workers’ bargaining position increases relative to that of business owners.” “By most accounts, the bargaining position of labour has been crippled as a result of structural changes imposed since the early 1980s. From this standpoint, the deceleration of inflation is no accident.”

The inexcusable fault of Post Keynesianism is that the economy is ill-defined. #2 The scientific incompetence of Brian Romanchuk consists of failing to realize that the lethal blunder of Post Keynesianism lies in the inconsistency of foundational macroeconomic relationships.

To make matters short: here is the correct core of macroeconomic premises: #3
(A0) The objectively given and most elementary systemic configuration of the production-consumption economy consists of the household and the business sector, which in turn consists initially of one giant fully integrated firm.
(A1) Y_w=WL wage income Y_w 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) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

The three axioms are supplemented by four definitions: expenditure ratio ρ_E≡C/Y_w, sales ratio ρ_X≡X/O, monetary profit/loss Q_m≡C−Y_w, and monetary saving/dissaving S_m≡Y_w−C. This yields the most elementary version of the macroeconomic accounting identity, i.e., Q_m≡−S_m.

Given the conditions of market-clearing ρ_X=1 and budget-balancing ρ_E=1, the market-clearing price is derived for a start as P=W/R (ii). So, the macroeconomic price P is determined by the wage rate W, which has to be fixed as a numéraire, and the productivity R.

When the price is not the dependent variable but set by the markup formula (i), things change.

From (A3) C=PX and (i), and the definitions of the sales ratio and expenditure ratio follow for the general case: ρ_X=ρ_E/κ. (iii)

This formula says: the business sector can set the markup κ as high as it wants, but, given the household sector’s expenditure ratio ρ_E=1, it cannot sell the whole output, i.e., X<O, i.e., ρ_X<1. This means that the inventory increases. This means also that the business sector cannot increase monetary profit because with P up and X down C does not change, and monetary profit Q_m≡C−Y_w remains unchanged. So, the business sector as a whole cannot determine its profit by markup pricing. The necessary condition for profit coming into existence is ρ_E>1.

Eq. (iii) says in detail
• If the markup κ is greater than the expenditure ratio ρ_E, the market is not cleared, i.e. the stock of unsold output increases, which leads eventually to production cuts and decreasing employment.
• If the markup κ is less than the expenditure ratio ρ_E, the inventory decreases and production is eventually ramped up.

Macroeconomic profit Q_m is alone determined by the expenditure ratio Q_m≡(ρ_E−1)Y_w and NOT by the markup κ. This means that the workers’ bargaining position is of NO importance for the profit ratio Q_m/Y_w and this means, in turn, that Post-Keynesian price, profit, and employment theory has never been anything else than proto-scientific garbage.

Monetary profit and the relation of profit to wage income depend in the closed economy mainly on the growth of public and private debt. This follows from the axiomatically correct macroeconomic Profit Law Q_m≡−S_m+Y_d+I+(G−T)+(X−M).#4

Egmont Kakarot-Handtke


#1 Preceding Economics as tireless production of proto-scientific garbage: inflation theory as an example
#2 Why Post Keynesianism Is Not Yet a Science
#3 True macrofoundations: the reset of economics
#4 Graphic, AXEC143d Profit Law

Related 'Are economics professors really that incompetent? Yes!' and 'The Levy/Kalecki Profit Equation is false' and 'Keynes, Lerner, MMT, Trump, Biden and exploding profit'.

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AXEC143d

Economics as tireless production of proto-scientific garbage: inflation theory as an example

Comment on Brian Romanchuk on ‘Primer: Understanding The Post-Keynesian Rejection Of Mainstream Inflation Theory’

Blog-Reference and Blog-Reference and Blog-Reference

Economics is a failed/fake science, or what Feynman called a cargo cult science. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got profit ― the pivotal concept of the subject matter ― wrong. The pluralism of provably false theories is evidence of the representative economist’s scientific incompetence.

After 200+ years, there is still no such thing as a valid profit-, employment-, or inflation theory; there is always a whole bunch of theories/models and everyone is free to pick the one that suits them politically. This guarantees that economics has remained what it is since the founding fathers: a brain-dead talk show.

Brian Romanchuk gives a vivid description of how economists produce their proto-scientific garbage: “So imagine that your boss tells you to come up with ‘an inflation model’ for some country (which is a pretty common demand for employees of central banks or investment firms). According to the Post-Keynesian theory, the ‘correct’ answer is to respond that inflation is a historical accident. However, I must point out that the theoretically correct answer is also an extremely career-limiting one, so any employee stuck in that particular situation needs to figure out what their superiors want to see, and give them exactly that (even if the model stinks).”

This characterization of the representative economist fits the definition of a pseudo-inquirer: “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. ... A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent.” (Haack)

There is no use in untangling the multiple idiocies in Brian Romanchuk’s treatment of inflation theory. What has to be done is to replace his blather with the scientifically correct approach.

In order to go back to the basics, the elementary production-consumption economy is, for a start, clearly defined by three macroeconomic axioms (Y_w=WL, O=RL, C=PX), two conditions (X=O, C=Y_w), and two definitions (profit/loss Q_m≡C−Y_w, saving/dissaving S_m≡Y_w−C).

Money is needed by the business sector to pay the workers who receive the wage income Y_w per period. The workers spend C per period. Given the two conditions, the market-clearing price is derived for a start as P=W/R (i). So, the macroeconomic price P is determined by the wage rate W, which has to be fixed as a numéraire, and the productivity R.

The average stock of transaction money follows for a start as M=κY_w, with κ determined by the payment pattern. In other words, the quantity of money M is determined by the AUTONOMOUS transactions of the household and business sector and created out of nothing by the central bank. This, to begin with, kills the commonplace Quantity Theory of inflation. #1, #2

The market-clearing price is given in the general case with the macroeconomic Law of Supply and Demand P = ρ_EW⁄R (ii), with ρ_E≡C/Y_w. #3 An expenditure ratio ρ_E greater than 1 indicates credit expansion = dissaving, a ratio ρ_E less than 1 indicates the opposite. In the initial period ρ_E=1, i.e., the household sector’s budget is balanced. The ratio ρ_E establishes the link between the product market and the money/capital market.

Now we have deficit spending, i.e., ρ_E greater than 1, which yields a price hike. If deficit spending is repeated period after period, the price remains at the elevated level, but there is NO inflation. No matter how long the household sector’s debt increases, there is NO accelerated price increase. The same holds for the government sector. #4

The macroeconomic Law of Supply and Demand makes it clear that inflation only occurs if the wage rate W increases in successive periods faster than productivity R. This can happen at ANY employment level. It is NOT a precondition that employment is close to the capacity limit. This is merely a false interpretation of the original Phillips Curve. #5

The explanation for the fact that inflation in the USA has been some time below the FED’s target value of 2 percent is that the rate of change of the average wage rate has been lower than the rate of change of productivity. Things become a bit more complex, of course, when foreign trade, investment etcetera are taken into account. This does not change the fact that the core of inflation theory is given with eq. (ii). This tiny equation fully replaces Brian Romanchuk’s gigantic heap of proto-scientific garbage.

Egmont Kakarot-Handtke


#1 Inflation: back to basics
#2 Attention: there are THREE types of inflation
#3 Graphic, AXEC101 Macroeconomic Law of Supply and Demand

#4 Gov-Deficits do NOT cause inflation
#5 NAIRU, wage-led growth, and Samuelson's Dyscalculia

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REPLY to Joe Leote, Jerry Brown on Sep 26

You are obviously deep in the woods. The issue is inflation theory, but now you are at employment theory. The former has already been treated above; for the latter, see
Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
Essentials of Constructive Heterodoxy: Employment

It would be a good thing if economists could get economic theory right before they pester the world with their brain-dead policy proposals: “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) … or senseless blather.

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REPLY to Crossover on Sep 26

You say: “There is also the ‘structuralist’ approach to inflation.” Indeed, almost everybody has an opinion about inflation. The problem is that the goal of science is NOT to have many contradicting opinions but the one materially/formally consistent theory: “That the settlement of opinion is the sole end of inquiry is a very important proposition.” (Peirce)

Post-Keynesianism was refuted long ago, #1, hence there is no use in trying to reanimate post-Keynesian inflation theory or to produce one more roll of proto-scientific garbage.


#1 Why Post Keynesianism Is Not Yet a Science

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REPLY to Brian Romanchuk on Sep 28 and Blog-Reference

You say: “Within modern conventional economics, there is an aversion to discussing the division of national income. (Back when economics was ‘political economy,’ this was not the case.) Standard mainstream models assume that wages and prices are determined by marginal considerations, and so the ratio between wages and prices is fixed by the shape of the production function. Conversely, post-Keynesian economics is entirely based on wage and profit shares. Although I did not discuss pricing in the articles, I would refer the reader back to my (three-part) primer on the Kalecki Profit Equation.”

There are three lethal facts to note with regard to your approach:
• The profit theory is false since Adam Smith, and because of this, the distribution theory is false, too. This includes Post-Keynesianism. #1, #2, #3, #4
• Your ‘very simple economic model, in which there is just a business sector and a household sector’ is a good start except for the fact that ‘Profits are equal to the dividends paid’. #5
• Because profit is ill-defined, income is ill-defined, and as a consequence, saving is ill-defined. Monetary profit, to begin with, is NOT a flow of income like wage income but the difference of flows. Distributed profit is income, but profit is NOT income. Distributed profit and profit are NOT the same thing. By consequence, total income is NOT the sum of wages and profits, which in turn means that there is NO “profit share of income” and by consequence no “wage share of income”. #6

This means that the sequel to your inflation post is also a vacuous blather because all is based on false premises. Your profit theory is provably false. #7 Therefore, your distribution and inflation theory are false, too. What you still have to realize is that Orthodoxy is dead and traditional Heterodoxy, including Post-Keynesianism, is dead, and that the necessary paradigm shift means to leave this heap of proto-scientific garbage behind and move on to Constructive Heterodoxy. #8


#1 The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?
#2 Ricardo, too, got profit theory wrong
#3 The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment
#4 Why Post Keynesianism Is Not Yet a Science
#5 The Emergence of Profit and Interest in the Monetary Circuit
#6 There is NO such thing as a “labor share of income”
#7 Truth by definition? The Profit Theory has been axiomatically false for 200+ years
#8 For details, see cross-references Constructive Heterodoxy

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REPLY to Brian Romanchuk on Sep 28 and Blog-Reference

You say: “Fine. When you can convince the accounting profession that paying dividends is an expense, I’ll re-write my text. Deal?”

I wonder, what makes you think that my mission is to convince economists in general and you in particular? The representative economist is a failed/fake scientist and has to be expelled from the sciences as fast as possible. His final resting place is the farthest corner of the Flat-Earth-Cemetery.

My mission is NOT to convince you of anything but to prove that you are too stupid for the elementary mathematics that underlies profit- and distribution theory.

For the correct treatment of distributed profit in National Accounting, see
The Common Error of Common Sense: An Essential Rectification of the Accounting Approach.

For the correct treatment of profit and distributed profit in distribution theory, see
Income Distribution, Profit, and Real Shares.

Quod erat demonstrandum.

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REPLY to stone on Oct 1

You say: “If there were profit sharing arrangements with workers, then how might that affect inflation?”

If you were a serious researcher, you would have checked Google and found out that your question has already been answered. #1

Distributed profit is itself a source of profit. The Profit Law for the elementary case of the production-consumption economy reads Q_m≡Y_d−S_m. Y_d is the distributed profit. #2

For the case of the investment economy, the Profit Law reads Q_re≡I−S_m, which is known since Allais. #3 Qre is macroeconomic retained profit.

Profit distribution/spending causes a one-off price hike but NO inflation. #4, #5

Just in case you and Brian Romanchuk start to wonder why you are so badly behind the curve, the problem is NOT in economics but in your goldfish brain and the corresponding complete lack of scientific competence.


#1 Enter in the Google search field “distributed profit Egmont Kakarot-Handtke”
#2 Profit Theory in less than 5 minutes
#3 How Keynes got macro wrong and Allais got it right
#4 The Structural Price Mechanism
#5 The final implosion of MMT

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REPLY to Brian Romanchuk on Oct 2 and Blog-Reference

You say: “I forgot what a relable source you are. My bad.”

It is too obvious that you are a fake mathematician. A genuine mathematician does not care at all about “reliability” or “credibility” or other subjective social criteria but alone about objective proof.

If you had done the routine job of a competent scientist, you would have found out two things:
(i) The equation Q_re≡I−S_m is logically true given the correct macroeconomic axioms and is objectively testable because all variables are measurable with the precision of two decimal places.
(ii) That this equation has been derived independently by Allais on a different route. #1

According to Wikipedia, Allais was a major proponent of mathematical economics, and as a winner of the economics Nobel in 1988, he certainly satisfies your standard of “reliability”.

So, what you would have done as a genuine mathematician is to check the references and then to perform a little exercise in elementary algebra. The fact is that you are a scientifically incompetent blatherer.


#1 How Keynes got macro wrong and Allais got it right

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REPLY to Brian Romanchuk on Oct 2

You say: “I suggest that you give this article a rest. Please wait until I write another article before regurgitating your stories.”

There is no need to produce another heap of proto-scientific garbage. Either you present the proof that the Allais/AXEC equation Q_re≡I−S_m is materially/logically inconsistent, or you shut up completely.

Keynesianism and I=S/IS-LM are dead for 80+ years, but the representative economist still doesn’t get it. #1,#2 There is no refutation of the axiomatically correct Profit Law, though. #3 So, what should anybody wait for? Failed/fake scientists are simply left behind the curve. #4


#1 Why Post Keynesianism Is Not Yet a Science
#2 Economists simply don’t get it
#3 Go! ― test the Profit and Employment Law
#4 Forget mainstream economics, scrap MMT, move on to the new Paradigm