MMT ― a Wall Street myth

Comment on Chris Dillow on ‘The Deficit Myth: A Review’

Blog-Review and Blog-Reference and Blog-Reference

Chris Dillow’s main point of critique is “For me, Kelton is ― albeit very lucidly ― reinventing the wheel.”

This is, in fact, a spurious compliment because MMT is proto-scientific garbage and Stephanie Kelton is academic fraud.#1

MMT’s macroeconomics is provably false since Keynes, Kalecki, Lerner, etc. So, MMT policy guidance has no sound scientific foundations.

The macroeconomic Profit Law implies Public Deficit = Private Profit. This means that the greater part of the profit in the United States is actually produced by the state. The US economy has been hanging for a long time already on the state ventilator for its survival.

Among all that academic garbage, MMT has the right message for Wall Street. Who is MMT’s first apostle? Right, Warren Mossler, ex-Wall Street. But Stephanie Kelton is, without doubt, the more attractive salesperson. Economics has become part of the entertainment industry long ago and the casting is done in Hollywood where they know best what sells.

The rest is marketing/PR routine. Interviews, book, media hype, No. 1 on the best-seller list, and then, of course, trolling on social media. This is where Chris Dillow comes in: “Dr Kelton explains these ideas wonderfully clearly, so I recommend this book to all non-economists interested in government finances.”

MMT is itself a myth. MMT policy is NOT for the benefit of WeThePeople. MMT is the issuance of counterfeit currency in the form of deficit spending/money creation for the benefit of the one-percenters. Because PublicDeficit = PrivateProfit, MMT is the biggest redistribution program ever. MMT is a political fraud.

“Chris Dillow is a Marxian economist,” says Tom Hickey at Mike Norman Economics. There are historians who claim that Marx was already on the payroll of the financial Oligarchy.

Egmont Kakarot-Handtke


#1 More details

Related 'Wikipedia, economics, scientific knowledge, or political agenda pushing?' and 'Your economics is refuted on all counts: here is the real thing' and 'Dear idiots, MMTers are Wall Street’s agenda pushers' and 'How MMT enlightens Washington' and 'Very busy these days: Wall Street’s agents' and 'Hype does not help: MMT is toast' and 'Mr. Wray goes to Washington' and '#PublicDeficitIsPrivateProfit #MMT #JustAnotherFraud' and 'Links on Liza N. Burby‘s ‘Cutting-Edge Economist Stephanie Kelton Delivers Presidential Lecture’' and 'MMT, Warren Mosler, and the little helpers from Wall Street and Academia' and 'Stephanie Kelton: MMT’s public farce' and 'Occasional Tweets No 201215: The mental collapse of MMT'.

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COMMENT on aragon on Jul 14

You say, “Every unit of currency gets a vote in economics, resulting in efficiency of the transfer of wealth to the top 0.01%.”

And how does this happen practically? This is due to the macroeconomic Profit Law which implies Public Deficit = Private Profit.#1 As a logical consequence, the public debt of WeThePeople is roughly equal to the financial assets of the one-percenters.

You are an economist, and this happens right before your eyes! And you don't see that the MMT policy of deficit spending/money creation is the biggest financial hoax of all time ($3.7 trillion)? And you do not wonder that the “Marxian economist” Chris Dillow applauds the Wall Street agenda pusher Stephanie Kelton? And all you can think of is this Anatole France kitsch?


#1 Profit

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REPLY to aragon on Jul 15

You quote approvingly, “It will be a very long time before the process of creative destruction unleashes fresh growth.”

It is pretty obvious that you have NO idea of how the monetary economy works.

The underlying problem is that the monetary economy (capitalism or communism does not matter) is NOT a self-optimizing equilibrium system but will eventually break down.#1

The Profit Law#3 Qm≡I−Sm tells one that macroeconomic profit is positive in a growing economy as long as the business sector’s investment is greater than the household sector’s saving. If this fails, macroeconomic profit turns into a loss, and the economy breaks down. This must eventually happen; what is unknown is the exact date.#2

However, there is a way to postpone the breakdown. The Profit Law, including the state sector, reads Qm≡(I−Sm)+(G−T), that is, the second component of macroeconomic profit is the state sector’s deficit. It holds Public Deficit = Private Profit.

This tells one that the greater part of profit in the United States is actually produced by the state. The US economy has been hanging for a long time already on the state ventilator for its survival.

The MMT policy of deficit spending/money creation is ultimately a means of postponing the breakdown of the US economy. From a political standpoint, the COVID pandemic provides a good rationale to mute the budget-balancers (Kelton ukase on Twitter: Learn MMT ― shout down the critics) and to blow the deficit up to hitherto unknown proportions.

The volume of the deficit and the popularity of MMT#4 is a good metric for the acceleration of the breakdown.#5 This breakdown has nothing at all to do with creative destruction; it is destructive destruction. And it is very improbable that it “unleashes fresh growth” somewhere in the future.

If you intend to learn economics, I recommend the new textbook Sovereign Economics.#6


#1 Major Defects of the Market Economy
#2 Mathematical Proof of the Breakdown of Capitalism
#3 AXEC143f
#4 Keynes, Lerner, MMT, Trump, etc. and exploding profit
#5 Criminals and the monetary order
#6 Amazon.de or BoD

The real trouble with Capitalism: stupid/corrupt economists

Comment on Chris Dillow on ‘The trouble with capitalism’*

Blog-Reference and Blog-Reference (Link)

Chris Dillow quotes Martin Wolf: “What we increasingly seem to have … is an unstable rentier capitalism, weakened competition, feeble productivity growth, high inequality and, not coincidentally, an increasingly degraded democracy.”

Chris Dillow then sets out to explain the trouble with Capitalism: “The Bank of England has given us a big clue here. It points out that the rising profit share (a strong sign of increased monopoly) is largely confined to the US. In the UK, the share of profits in GDP has flatlined in recent years. Few, however, would argue that UK capitalism is less dysfunctional than its US counterpart. This suggests that the problem with capitalism is not increased monopoly. So what is it? Here, I commend some brilliant work by Michael Roberts. Many of the faults Martin discusses have their origin in a declining rate of profit ― a decline which became acute in the 1970s but which was never wholly reversed.”

The whole intellectual/moral misery of economists is contained in this paragraph. Chris Dillow’s explanation starts with the “share of profits in GDP” and ends with the “rate of profit”. Not only are these entirely different things but macroeconomic profit is not defined, to begin with. The simple reason is that neither Chris Dillow nor Martin Wolf nor Michael Roberts knows what profit is.#1 This sad fate they share with Walrasians, Keynesians, Marxians, Austrians, and MMTers. The dirty secret of economics is that since Adam Smith/Karl Marx economists do not know what profit is.#2, #3 And this means that economics is proto-scientific garbage but economists have not realized it to this day.

To make matters short, the axiomatically correct macroeconomic Profit Law is given by Q≡Qm+Qn with Qm≡Yd+(I−Sm)+(G−T)+(X−M) Legend: Qm monetary profit/loss of the business sector, Yd distributed profit, I investment expenditure, Sm monetary saving/dissaving of the household sector, G government expenditures, T taxes, X exports, M imports. Total profit Q is the sum of monetary and nonmonetary profit/loss. Roughly speaking, monetary profit Qm is determined by the excess of business sector investment over household sector saving, the government’s deficit and the excess of exports over imports. All variables are measurable with the precision of two decimal places. The Profit Law is testable and this settles all questions and ends all blather.

In the elementary case of the production-consumption economy, the Profit Law reduces to Q≡−S, i.e. the mirror image of household sector saving S is business sector loss (-Q). The mirror image of household sector dissaving (-S) is business sector profit Q. The point to grasp is that profit for the business sector as a whole depends on the deficit-spending of the household sector and NOT on the behavior or achievements of Capitalists. Because capital is zero in the elementary production-consumption economy, the concept of a profit rate is senseless.#4

With regard to the State, the Profit Law boils down to Q≡(G−T), i.e. Public Deficit = Private Profit. Public deficit-spending/money-creation is a free lunch program for the Oligarchy. The fact is that the so-called free 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.

Despite the fact that Chris Dillow neither understands what profit is nor how the economy works he ends up with an almost correct summary: “Sadly, though, one effect of capitalism’s crisis has been, as Martin says, to so degrade democracy as to take intelligent economic policy off the agenda.” The fact is, though, that there NEVER has been such a thing as an “intelligent economic policy” because the Profit Theory is false for 200+ years. And this is alone the fault of scientifically incompetent economists.

Egmont Kakarot-Handtke


* Stumbling and Mumbling and Financial Times, Martin Wolf
#1 Profit analysis ― another exercise in economic deception
#2 The dirty secret of Capitalism: Economists have NO idea how Capitalism works
#3 For details of the big picture, see cross-references Profit
#4 There is NO such thing as a “labor share of income”

Related 'Links on “Capitalism. Time for a reset.”' and 'Econogenics in action' and 'Economists’ silly kindergarten games' and 'Macroeconomics: Economists are too stupid for science' and 'Econ 101: Economists flunk the intelligence test at the first hurdle' and 'Circus Maximus: Economics as entertainment, personality gossip, virtue signaling, and lifestyle promotion' and 'There is NO such thing as “smart, honest, honorable economists”' and 'The irrelevance of economics'.

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AXEC123e

Marxism is one of four instances of proto-scientific garbage

Comment on Chris Dillow on ‘In defence of conservative Marxism’

Blog-Reference and Blog-Reference

Economics is a failed/fake science. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/ formally inconsistent, and all got the foundational concept of the subject matter ― profit ― wrong.

As a result, since Adam Smith/Karl Marx economic policy guidance NEVER has had sound scientific foundations.#1 This, of course, holds also for Marxism.

• Marx’s profit theory is provably false.#2
• As a consequence, the concepts of exploitation and classes are false.
• Marx lacks the concept of cross-over exploitation.#3, #4
• Because the foundational concepts are false, Marx’s whole analytical superstructure is false.
• Because the theory is defective, Marxian economic policy guidance was bound to fail from the very beginning.
• After-Marxians have not spotted Marx’s foundational blunder to this day.#5
• Marxians are scientifically incompetent just like non-Marxians and all together are only employable as clowns and useful idiots in the political Circus Maximus.

Forget the whole Capitalism/Socialism/Communism thing. Neither left-wing nor right-wing economists ever knew what profit is and how the actual monetary economy works. Economics has no scientific truth-value, only political use-value.

Egmont Kakarot-Handtke


#1 Karl Marx, fake scientist
#2 Profit for Marxists
#3 Capitalism, poverty, exploitation, and cross-over exploitation
#4 If we only had classes
#5 Economists simply don’t get it

No doubts about wage-led growth

Comment on Chris Dillow on ‘Doubts About Wage-led Growth’

Blog-Reference and Blog-Reference on Sep 12

Chris Dillow asks: “The question here, then, is: can we have wage-led growth, whereby higher wages trigger growth and productivity improvements? Or do we need profit-led growth, in which firms are induced to invest by high profit margins?”

The question shows that Chris Dillow lacks true employment and profit theory. Therefore, there is not much use to refute his wish-washy in great detail.

To cut the meticulous formal derivation short, an elementary version of the axiomatically correct systemic Employment Law is shown on Wikimedia AXEC62: #1, #2, #3, #4

From this equation follows inter alia:
(i) An increase in the expenditure ratio ρ_E leads to higher employment L (the Greek letter ρ stands for ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase in the factor cost ratio ρ_F≡W/PR leads to higher employment.

The complete Employment Law is a bit longer and contains in addition profit distribution, the public budget, and import/export.

Items (i) and (ii) are familiar since Keynes. But Keynesian macroeconomics is incomplete. The correct employment multiplier is composed of the expenditure ratio and the factor cost ratio. The ratio ρ_F as defined in (iii) embodies the price mechanism. It works such that overall employment INCREASES if the average wage rate W INCREASES relative to average price P and productivity R.

The Employment Law tells one that there are multiple policy levers, i.e. independent variables on the right-hand side of the =sign. What has to be done is to combine demand-led and wage-led expansion in order to get out of unemployment. All determinants have to be dealt with separately. Focusing on the macroeconomic price-mechanism, the variable ρ_F tells one unambiguously that the (average) wage rate must grow faster than the combination of price and productivity in order to increase overall employment.#5

Egmont Kakarot-Handtke


#1 Demand-led and wage-led growth
#2 NAIRU, wage-led growth, and Samuelson's Dyscalculia
#3 You have the data, here is the Employment Law
#4 For more details see cross-references Employment/Phillips Curve
#5 Go! ― test the Profit and Employment Law

Economists simply don’t get it

Comment on Chris Dillow on ‘What’s behind the rising US profit share?’

Blog-Reference and Blog-Reference and Blog-Reference on Sep 3

Chris Dillow argues: “Diane Coyle says the fact that different countries have seen different changes in labour’s share of income in recent years ― with it falling in the US but not UK ― shows that ‘institutions are playing a big part’ in driving factor shares. This is true. But it’s only part of the story. I say so for a simple reason. Imagine aggregate wages were to fall for some reason ― technical change, globalization, whatever. Would this raise the profit share? Not necessarily. If every £1 fall in wages causes workers to cut their spending by £1, profits would also fall.”

False, profit would stay the same. The obvious fact of the matter is that economists do not understand to this day what profit is: “A satisfactory theory of profits is still elusive.” (Palgrave Dictionary, Desai, 2008) This is obviously disqualifying for economists in general and Chris Dillow, in particular.#1

Chris Dillow cites Kalecki and derives from “basic national accounts identities … an identity for profits: P=(C−W)+(I−D)+(G−T)+NX (i).”

This, of course, is proto-scientific garbage because economists are too stupid for the elementary mathematics that underlies National Accounting.#2, #3, #4 Distribution theory has always been false because Profit Theory has always been false.

To make matters short, here is the axiomatically correct macroeconomic Profit Law: Q_m ≡Y_d +(I−S_m) + (G−T)+NX (ii). Legend: Q_m monetary profit/loss, Y_d distributed profit, I investment expenditures, S_m monetary saving/dissaving, G government spending, T taxes, NX export minus import. Total profit Q is the sum of monetary profit Q_m and nonmonetary profit Q_n, i.e. Q≡Q_m+Q_n (iii).#5

Eq. (iii) determines the nominator of the so-called profit share and explains why it is rising. Roughly speaking, neither Diane Coyle’s institutions nor market power nor automation account for a rising profit share. The main drivers of increasing overall profit have been in the past decades the increasing deficit-spending of the government- and household sector which translates into ever-increasing public/private debt.#6

As Mirowski put it: “... one of the most convoluted and muddled areas in economic theory: the theory of profit.” No surprise then, that neither Diane Coyle nor Chris Dillow ever understood how the economy works, what profit is, and why the profit share rises. This is the essential prerequisite of trash-blogging.

Egmont Kakarot-Handtke


#1 The Profit Theory is False Since Adam Smith
#2 Profit: after 200+ years, economists are still in the woods
#3 Truth by definition? The Profit Theory has been axiomatically false for 200+ years
#4 Wikipedia and the promotion of economists’ idiotism (II)
#5 For details of the big picture see cross-references Profit
#6 Profit and the decline of labor’s nominal share (I)

Related 'Macroeconomics ― dead since Keynes' and 'Feeble thinkers, feeble rethinkers: The perennial misery of economics' and 'Go! ― test the Profit and Employment Law' and 'MMT and the single most stupid physicist' and 'Kalecki and Keynes: The double macroeconomic false start' and 'Truth by definition? The Profit Theory is axiomatically false for 200+ years'.

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Wikimedia AXEC109i

Lying for money: a generalization

Comment on Chris Dillow on ‘LYING FOR MONEY: A REVIEW’

Blog-Reference and Blog-Reference

Chris Dillow discusses Dan Davies’ history of fraud: “Dan has also a theory of fraud. Also, perhaps we can extend Dan’s work. He discusses outright criminal fraud. But there are similar types of behaviour which are legal ― such as selling snake oil in 19th century America.”

There are not only similar types of behavior that are legal but which are even honored with the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.#1

The situation of economics is this: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

The fact of the matter is that economists do NOT have the true theory. More precisely, economists do not know how the price- and profit mechanism works. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the foundational concept of the subject matter ― profit ― wrong. With the pluralism of provably false theories economics sits squarely at the proto-scientific level.#2

The fact is that economics claims to be a science but is what Feynman called a cargo cult science: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”

Economists ignore/violate scientific standards. Or, as Blaug put it, they are playing tennis with the net down. Morgenstern reminded his fellow economists 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.”

Economics is scientifically unacceptable since Adam Smith/Karl Marx but all factions recycle their stuff with minor cosmetic corrections “as if nothing had happened”.#3

Economics is a failed/fake science because economists (i) are scientifically incompetent, (ii) violate scientific standards/ethics, and (iii), deceive the general public on a regular basis.#4, #5, #6

Since the founding fathers, economic policy guidance never had sound scientific foundations. To this day, economists push their respective political agendas in the bluff package of science.

Egmont Kakarot-Handtke


#1 The real problem with the economics Nobel
#2 Economics: 200+ years of scientific incompetence and fraud
#3 New Economic Thinking, or, let’s put lipstick on the dead pig
#4 The father of modern economics and his imbecile kids
#5 The Kelton-Fraud
#6 MMT: Academic snake oil for the people

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Wikimedia AXEC106l

Does economics matter more for bread or for circuses?

Comment on Chris Dillow on ‘Does economics matter?’

Blog-References and Blog-Reference

Economics claims to be a science but is NOT. 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.

From Adam Smith/Karl Marx onward, economists claim that their economic policy guidance has scientific foundations. This claim is untenable because economists lack the true theory: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum) Scientific truth is well-defined for 2300+ years by material and formal consistency. There is NO such thing as a materially/ formally consistent economic theory.

Economics is one of the most embarrassing scientific failures of all time.#1, #2 Economic policy guidance NEVER had sound scientific foundations. And it does not matter at all whether this guidance has been more rightist or more leftist, more capitalist or more communist.

The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong. With the pluralism of provably false theories, economics sits squarely at the proto-scientific level.

Because of this, the discussions of economists of different schools never had any scientific relevance. Economics has no truth value but only some political use-value. Politics itself, though, has at some point in history been swallowed up by the entertainment industry. And this is how economics ultimately became an integral part of the Circus Maximus with economists as political clowns.#3

For proof, one needs not go further than the Stumbling-and-Mumbling blog.

Egmont Kakarot-Handtke


#1 Throw them out! Orthodox and heterodox economists are unfit for science
#2 The real problem with the economics Nobel
#3 Economists: scientists or political clowns?

Related 'Macroeconomics ― dead since Keynes' and 'Delusions of useful idiots' and 'Economics: a science without scientists'.

The perennial conundrum: profit and distribution

Comment on Chris Dillow on ‘Stable Exploitation’

Blog-Reference and Blog-References

The Palgrave Dictionary summarizes: “A satisfactory theory of profits is still elusive” and this is the most damning verdict about economics. After 200+ years economists cannot tell the difference between profit and income. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept of profit wrong. Because the profit theory is false, the distribution theory, too, is false.#1, #2

One of the most crippling blunders since Ricardo is to equate profit with exploitation.#3

The very first thing to do is to get the profit theory right.#4 The axiomatically correct macroeconomic Profit Law is given with Q_m≡Y_d+(I−S_m)+(G−T)+(X−M); Legend: Q_m total monetary profit, Y_d distributed profit, I investment expenditures, S_m monetary saving, G government expenditures, T taxes, X exports, M imports.

The nominal labor share λ is given as the quotient of wage income Y_w and the sum of wage income and monetary profit Q_m, that is, λ=Y_w/(Y_w+Q_m).

This gives one the determinants of λ. Monetary profit Q_m for the world economy as a whole is determined by growth expressed as investment expenditures I, monetary saving/ dissaving S_m, and government deficit/surplus (G−T). This is a testable proposition because all variables are measurable. Roughly speaking, the growth of private and public debt explains the decline of λ in the US. This share has NOTHING to do with the usual suspects (mark-ups, relative productivity, monopoly, monopsony, etc.) which determine only the distribution of overall profit Q_m between firms. To generalize phenomena that can be observed at the microeconomic level is known as Fallacy of Composition.

Egmont Kakarot-Handtke


#1 Profit and distribution: a primer
#2 Profit and the decline of labor’s nominal share
#3 Ricardo and the invention of class war
#4 Ricardo, too, got profit theory wrong

Related 'The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?'

Putting economic policy on scientific foundations

Comment on Chris Dillow on ‘Fiscal policy with a flat Phillips curve’

Blog-Reference

Chris Dillow says: “It’s widely agreed that the Phillips Curve is flat, that low unemployment is not stoking up wage inflation ― though perhaps this has been true for longer than thought.” Perhaps it never has been true.

The fact that the Phillips Curve now seems to be flat only tells one that it has been misspecified all along. Thanks to the scientific incompetence of economists this remained undetected since Samuelson/Solow messed things up. The methodological blunder consists in interpreting the Phillips Curve as a behavioral relationship. What has to be done is to formulate the Phillips Curve as a structural-systemic relationship.

To make matters short here, the elementary version of the correct systemic Phillips Curve is shown on Wikimedia.#1, #2 This relationship consists alone of measurable variables and is therefore identical with the observed Phillips Curve.

The correct relationship covers the familiar arguments about how effective demand affects employment. Secondly, the ratio rhoF embodies the macroeconomic price mechanism. It works such that overall employment L INCREASES if the average wage rate W INCREASES relative to average price P and productivity R and vice versa. This is the opposite of what microfounded employment theory teaches.

The correct systemic Phillips Curve tells one that in the given situation the most urgent policy measure is to set an increase of the average wage rate in motion. Otherwise, the economy gets trapped in a spiral of rising unemployment and deflation.

Egmont Kakarot-Handtke


#1 Wikimedia AXEC36 Structural-systemic Phillips Curve

#2 For the derivation see Sec. 5 to 7 of the working paper Keynes’s Employment Function and the Gratuitous Phillips Curve Disaster.


Related 'Forget Friedman, forget Keynes' and 'The minimum wage debate: a showpiece of economists’ hereditary idiocy' and 'The role of labor and business in a well-organized society' and 'Macrofounded labor market theory' and 'Rethinking the Phillips Curve' and 'Attention: there are THREE types of inflation' and 'Toward a non-Neanderthal employment policy' and 'NAIRU ― letting one more nonentity go' and 'Going beyond No-Idea economics' and 'A la recherche de l'inflation perdue'

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LINKS on Aug 7

Going beyond No-Idea economics
Comment on Noah Smith on ‘Japan Buries Our Most-Cherished Economic Ideas’

A la recherche de l'inflation perdue
Comment on David Andolfatto on ‘Where’s the inflation?’

#Economics #FailedScience #FakeScience #PhillipsCurve

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LINK on Aug 27

Note on Michael Dotsey, Shigeru Fujita, and Tom Stark on ‘Do Phillips Curves Conditionally Help to Forecast Inflation?’

The working paper concludes: “We find no evidence for relying on the Phillips Curve during normal times, such as those currently facing the U.S. economy.”

This is due to the fact that the Phillips Curve is misspecified since Samuelson/Solow. For the correct specification see Putting economic policy on scientific foundations.

On econblogosphere bias

Comment on Chris Dillow on ‘On BBC bias’

Blog-Reference and Blog-Reference

Chris Dillow is concerned: “One fact tells us this ― that the public are horribly wrong about many basic facts. Of course, this isn’t wholly or even mainly the BBC’s fault. But such massive ignorance should alert us to the possibility that the country’s most powerful broadcaster isn’t fulfilling its purpose of informing its viewers and listeners.”

That the public is horribly wrong about many basic economic facts, though, is mainly the fault of economists. The first fact where the public is horribly wrong is to think that economics is a science. Economists communicate this every year to the public with immense fanfare with the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.

The fact is that there is no such thing as ‘Economic Sciences’. Theoretical economics consists of the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― which are mutually contradictory, axiomatically false, materially/formally inconsistent, and which got the foundational economic concept profit wrong. What we actually have is the pluralism of provably false theories ― a rummage table where everybody can grab a convenient opinion.

Theoretical economics is scientifically unacceptable. And political economics is just this for 200+ years: politics. This is faithfully reflected in the econblogosphere. Since the founding fathers, economists violate the principle of the separation of science and politics. Economics is what Feynman famously called a cargo cult science and neither right-wing nor left-wing economic policy guidance has a sound scientific foundation since Adam Smith/ Karl Marx.

So, is the economics blogosphere fulfilling its purpose of informing the general public about economic matters? Or is it full of proto-scientific crap, incompetent blather, disinformation? Are all comments published as they come or are some made to vanish into nirvana? Are some threads edited ex-post? Does attention and reputation management happen? Is the BBC biased? You bet. Is the econblogosphere biased? You bet. Does Chris Dillow make comments disappear?#1

The paradox of communication is: the information you get is not the one you need, and the information you need is not the one you get. It is much like Sherlock Holmes’ ‘curious incident of the dog in the night-time’.#2

Egmont Kakarot-Handtke


#1 Zero-sum capitalism
#2 Economics, Plato’s Cave and the Silver Blaze Case

Related 'Needed: The Worst of the Worst of economics blogs'. For details of the big picture see cross-references Political Economics.

Zero-sum capitalism

Comment on Chris Dillow on ‘The crisis of positive-sum capitalism’

Blog-Reference and Blog-Reference and Blog-Reference

You say: “Is capitalism a positive-sum or zero-sum game? The answer is both: Smith and Marx both had a point.”

False answer. The correct answer is NEITHER because the profit theory is provably false since Adam Smith/Karl Marx.#1 And this 200+ years old blunder makes that economics will not even appear in a footnote of the history of sciences, or at best as a cautionary example.

In order to see this one has to go back to the most elementary economic configuration, that is, the pure production-consumption economy which consists only of the household and the business sector.

The elementary production-consumption economy is, for a start, defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (Qm≡C−Yw, Sm≡Yw−C) and from this follows IMMEDIATELY that Qm≡−Sm.#2

This equation says that the business sector’s deficit (surplus) equals the household sector’s surplus (deficit). Put bluntly, monetary loss is the counterpart of monetary saving and monetary profit is the counterpart of monetary dissaving. This is the most elementary form of the macroeconomic Profit Law. The elementary production-consumption economy clearly is a zero-sum system, i.e. Qm+Sm=0, but NOT a zero-profit game.

Profit for the economy as a WHOLE has NOTHING to do with productivity, the wage rate, the working hours, exploitation, competition, innovation, capital, power, monopoly, monopsony, waiting, risk, greed, the smartness/stupidity of capitalists, or any other subjective factors. Total profit/loss is in the most elementary case OBJECTIVELY determined with the precision of two decimal places by the change of the household sector’s debt.

The balances of the business sector, the household sector, the government sector, and the foreign trade sector are interrelated as follows Qm≡−Sm+I+Yd+(G−T)+(X−M), and this is the Profit Law for an open economy (X−M) with a government sector (G−T) and with business investment I and distributed profit Yd.

Let Yd, I, X, M be zero for the moment, so Qm≡−Sm+(G−T). Then, the counterpart of an increased public deficit (G−T) is either increased saving of the household sector Sm or increased profit of the business sector Qm or some combination of the two. In the past decades the US households increased their debt, that is, they were dissaving, i.e. Sm was negative (−(−Sm) gives +). So, BOTH the private and public households ran deficits. From the equation above follows that this boosted monetary profit Qm TWICE. And this is exactly what has been observed and criticized as a catastrophic deterioration of the income distribution.

When the pivotal concept of profit is not properly understood, the rest of the analytical superstructure of economics falls apart and there is NO USE AT ALL to stumble and mumble about capitalism as a zero-sum game.#3

Egmont Kakarot-Handtke


#1 The Profit Theory is False Since Adam Smith and Profit for Marxists
#2 For the complete verbal and graphics supported description of the elementary production-consumption economy see How the intelligent non-economist can refute every economist hands down
#3 For the far-reaching implications of systemic zero-sum see Mathematical Proof of the Breakdown of Capitalism.

Related 'Profit theory in less than 5 minutes' and 'Economists: scientists or political clowns?' and 'Profit and stupidity' and cross-references Profit

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COMMENT on Tom Hickey, peterc on Jul 10

Note that capitalism breaks down ― NOT for social reasons but for mathematical reasons.#1


#1 Mathematical Proof of the Breakdown of Capitalism

When institutions go awry

Comment on Chris Dillow on ‘Selecting for groupthink’

Blog-Reference

When Mr. Trump became President most people with not much more than normal TV/Press information knew intuitively that something had gone awry with the institution Presidency.

When Mr. Hoover declared in the late 1940s that there is no such thing as organized crime most people with not much more than normal newspaper information knew intuitively that something had gone awry with the institution Law Enforcement.

When the FED bailed out the too-big-to-fail banks in 2009 most people with not much more than normal media information knew intuitively that something had gone awry with the institution Banking.

When Nobel Laureate Arrow declared in the 1994 Richard T. Ely Lecture: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” most people with not much more than a superficial knowledge of General Equilibrium Theory knew intuitively that something had gone awry with the institution Science.

It is NOT such a rare event that institutions mutate into something that does not conform to, or even contradicts, their original mission statement. Science is defined by its ethics and the principle of self-governance. This works fine as long as everybody sticks to the protocol, which includes accepting a formal/empirical refutation if it so happens.

This does not work in economics since the Marginalists took over 150+ years ago. Morgenstern reminded his fellow economists 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.”#1

Economics has stabilized itself institutionally as a cargo cult science which Feynman defined thus: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”

What is missing in economics is the true theory. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, and materially/formally inconsistent.#2 The current pluralism of false theories is the proof of institutional failure, which is intuitively clear to most people with not much more than a normal historical understanding of what science is all about.

The snag is: it is not clear to the representative economist.

Egmont Kakarot-Handtke


#1 Feynman Integrity, fake science and the econblogosphere
#2 Profit and stupidity

Marx, the moron

Comment on Chris Dillow on ‘Why libertarians should read Marx’

Blog-Reference and Blog-Reference and Blog-Reference and Blog-Reference on Jul 4 adapted to context and Blog-Reference

There are political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, and 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 consists of the major approaches of Walrasianism, Keynesianism, Marxianism, and Austrianism that are mutually contradictory, axiomatically false, and materially/formally inconsistent. All got the foundational economic concept of profit wrong.

Marx, clearly, was NOT a scientist but a political agenda pusher. However, after the scientific triumphs of Copernicus, Kepler, Galileo, Newton, Laplace, Leibniz etcetera agenda-pushing had to be dressed up as science. This gave rise to what Feynman called cargo cult sciences.

What Marx did was sociology, history, storytelling, prophecy, and agenda-pushing. He had NO idea of how the monetary economy works because he never figured out what profit is.#1 That is rather bad for an economist but what is worse is that After-Marxians did not spot and rectify Marx’s blunders to this very day.

What we actually have is the pluralism of provably false theories. Walrasianism, Keynesianism, Marxianism, and Austrianism look antagonistic on the surface but have one essential thing in common: they are all fake science.

Egmont Kakarot-Handtke


#1 Profit for Marxists

Related 'Economics: 200+ years of scientific incompetence and fraud' and 'The end of political economics' and 'Profit and stupidity' and 'Economists: scientists or political clowns?' and 'Wikipedia, economics, scientific knowledge, or political agenda pushing?' and 'The activist is no scientist, the scientist is no activist'. For details of the big picture see cross-references Failed/Fake Scientists.

For more about Karl Marx see AXECquery.

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REPLY to Tom Hickey on Jun 30

Your profit theory is false and because of this your whole economic theory is false and, as a consequence, all your policy proposals are worthless or even counterproductive. For details see
Profit and stupidity
Economists: scientists or political clowns?

***

COMMENT on Jun 30

Why libertarians should NOT read Marx ― and vice versa ― and why both should get out of economics and switch on the TV and look at sitcoms instead:
Profit and stupidity
Economists: scientists or political clowns?

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REPLY to B. L. Zebub on Jul 1

“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)

Economists do NOT have the true theory. The four major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and ALL got the pivotal economic concept of profit wrong.#1

Economics is scientifically worthless. Marx and Smith and the rest are storytellers: “… in fact he [Adam Smith] disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter). Same with Marx.

Economics claims to be a science but is NOT. Economists claim to know how the economy works but do NOT. Neither Libertarian nor Marxian economic policy guidance ever had sound scientific foundations. From the Wealth and the Capital up to the present economic texts have less scientific content than the Beatles’ Songbook.#2


#1 Economists: scientists or political clowns?
#2 For details of the big picture see cross-references Political Economics/Stupidity/Corruption

Economics and the high art of kicking the can down the road

Comment on Chris Dillow on ‘Wages & Productivity’

Blog-Reference and Blog-Reference and Blog-Reference

Chris Dillow asks: “Would higher wages boost economic growth?” And he answers: “They might, if the marginal propensity to spend out of wages is higher than that out of profits. However, Ben Chu suggests a different mechanism ― that higher wages might stimulate growth via the supply-side rather than demand-side.”

Note first of all that there is NO such thing as spending out of profits, there is only spending out of distributed profits. Profit and distributed profit are quite different things but economists have not realized this in the past 200+ years. Anyway, this does not matter much because the ambition of economists is NOT to solve problems but to kick them down the road and ultimately to bury them in the swamp where it is deepest.

Swampiness is what Popper called an immunizing stratagem. Accordingly, Chris Dillow throws in a host of additional issues (capital-labor substitution, investment, retraining, business expansion, fiscal stimulus, Verdoorn’s law, uncertainty, management quality, fear of competition, credit constraints, the Phillips curve, weak profits, etc) and ends with this climax: “The question is: is capitalism cooperative or conflictual?” Needless to say, neither this nor any other question is answered.

Nobody, except economists, can take this clueless and inconclusive blather seriously.

So, here without much ado the elementary version of the correct (objective, systemic, macrofounded) Employment Law Wikimedia AXEC62: #1

From this equation follows:
(i) An increase in the expenditure ratio ρ_E leads to higher employment L (the Greek letter ρ stands for ratio). An expenditure ratio ρ_E greater than 1 indicates credit expansion, and a ratio ρ_E less than 1 indicates credit contraction.
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase in the factor cost ratio ρ_F≡W/PR leads to higher employment.

The complete Employment Law contains in addition profit distribution, the public sector, and the trade balance.

Items (i) and (ii) cover Keynes’ familiar arguments about aggregate demand. The factor cost ratio ρ_F as defined in (iii) embodies the price mechanism. The fact of the matter is that overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to average price P and productivity R. This is the opposite of what standard economics teaches.

The systemic Employment Law contains measurable variables and is therefore readily testable. As always in science, a test decides the matter.

The simple answer of the correct Employment Law to the simple question “Would higher wages boost economic growth?” is unambiguous YES.

Egmont Kakarot-Handtke


#1 For details of the big picture see cross-references Employment

Note on Chris Dillow on Salient Identities

Blog-Reference

The most annoying trait of the run-of-the-mill economist is that he dabbles in sociology, psychology, political science, social philosophy, history, theology, anthropology, biology, Darwinism/evolution theory, etcetera but has no idea of what profit is.

Because every economist could know from the Palgrave Dictionary that the profit theory is false (Desai, 2008) he can be defined as a moron who does not know what the pivotal phenomenon of his subject matter is#1 but keeps on blathering about every political/social issue that crosses his empty brain.

Egmont Kakarot-Handtke


#1 For details see cross-references Incompetence

Economics is indefensible

Comment on Chris Dillow on ‘On defences and attacks on economics’

Blog-Reference and Blog-Reference

Economics is a failed science, that is, the major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory and axiomatically false. More specifically, it is not only so that orthodox/standard/mainstream economics is false as Heterodoxy ritually asserts, but traditional Heterodoxy, too, is false and never provided a valid alternative. What we actually have is the pluralism of false theories.

The current state of economics is that of a cargo cult or fake science. The point is this: “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, 1991)

Economists do NOT have the true theory. Lacking the true theory, in turn, means that economists do not understand how the monetary economy works, and from this follows finally that they are, as a matter of principle, in NO position to give economic policy guidance.

Scientific truth is well-defined by material and formal consistency. The argument that economists have not predicted the 2008 crash is somewhat beside the point because ― as a matter of principle ― scientists do not predict the future.#1 This is the business of political charlatans.

Chris Dillow argues “Quite simply, economists were not, for the most part, responsible for the 2008 crash ...“ This is true but they are indeed responsible for the enormous social devastations of mass unemployment since the Great Depression because unemployment is ultimately the result of a provably false labor market theory.#2

To argue against economists that they have not predicted crises is a mere distraction from the fact that economists are scientifically incompetent and that economics as a whole is a failed science. ALL explanations of failure are mere excuses.#3

Egmont Kakarot-Handtke


#1 Science does NOT predict the future
#2 The one stone that kills orthodox and heterodox employment theory
#3 Failed economics: The losers’ long list of lame excuses

Related 'The united tribe of the scientifically incompetent' and 'Nothing to choose between Orthodoxy and traditional Heterodoxy' and 'Post Keynesianism, science, and universal idiocy' and 'Economists’ last Hurrah' and 'Where advanced Heterodoxy — represented by Steve Keen — took the wrong turn' and 'Economics: The pluralism of false theories is over'

The economist as storyteller (I)

Comment on Chris Dillow on ‘Why not full employment?’

Blog-Reference and Blog-Reference on Apr 26 and Blog-Reference on Apr 28 adapted to context

The average person dislikes an objective explanation (e.g. the thunderbolt is an electromagnetic phenomenon subject to physical laws) and likes a subjective explanation (e.g. Zeus threw the thunderbolt because he was angry/vengeful/authoritarian). The scientific explanation takes the form of a theory, and the non-scientific explanation takes the form of a narrative. Almost all societal communication consists of storytelling/blather/ wish-wash/truisms, and only a tiny part has scientific content.

Economics claims to be a science, yet it has never risen above the level of storytelling. Accordingly, the subjective explanation of unemployment (UE) takes the following forms.

Psychologism: the unemployed actually enjoy UE, are indifferent, have resigned, suffer. Darwinism: UE’s are unfit, unqualified, lack motivation, and are beyond help. Moral hazard: UE is the result of a wrong incentive structure or perverted rewards/punishments, UE’s game the system. Mind reading: leisure is rationally preferred by UE’s over working at the given wage. Moralizing: the UE’s deserve their fate. Blaming: UE is a self-inflicted blowback of irrational behavior, i.e. of sticky wages, strikes, and shirking. Historicism: today’s unemployment is the result of known adverse external shocks and identifiable wrongheaded measures of DEMs/REPs/FED/GOV since WWII. Sociologism: the UE’s do have not enough leverage for changes in their favor; they are brainwashed into acceptance of everything. UE is deliberately created by capitalists/oligarchs/one-percenters/government as a means of social control. UE’s are the losers in a rigged power-play.

Within this tiny intellectual box of folk psychology, folk sociology, folk history, and folk politics economic storytelling has taken place since Adam Smith: “He ... disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter)

The time travel fantasies about Harlem, Haight-Ashbury, Paris, or Surbiton above show that economics has stagnated since Adam Smith. Clearly, from retarded storytellers, no solution to any economic problem is ever to be expected.

While dabbling in the so-called social sciences, economists overlooked that economics is a systems science and that it is their task to explain how the actual monetary economy works. To this day, economists still need to understand what profit is. It should be evident that they will never find it out by second-guessing and interpreting and understanding human behavior. This is NOT how science works. What is currently discussed among economists as employment theory is sitcom garbage.

Storytelling is not prohibited, of course, and neither is the pluralism of any number of false theories, but there is no place for storytellers in the sciences. So, economists have to stop pretending to do science and have to be expelled from the sciences because of proven incompetence for more than 200 years.

Egmont Kakarot-Handtke


Related 'Why do workers not tar and feather economists?' and 'Economics, methodology, morals ― a creepy freak-show' and 'The economist as storyteller (II)' and 'Economics as storytelling and entertainment for the masses' and 'Narrative economics and the imperatives of the sitcom' and 'If religion is opium of the people, economics is crack of the people' and 'Economics: Stories, narratives, and disinformation' and 'Economic narratives are for the scientific garbage dump' and 'Media-fake-farce-fraud-storytelling-macro'.

For details about the axiomatically correct employment theory see cross-references Employment.

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Wikimedia AXEC139e

Why do workers not tar and feather economists?

Comment on Chris Dillow on ‘Why not full employment?’

Blog-Reference and Blog-Reference

Economists nowadays wonder “... unemployment not only has an economic cost in terms of lost output, but a massive psychological cost because the unemployed are significantly unhappier than those in work.” Does anybody remember that economics always claimed that the market system produces full employment?

“From the time of Say and Ricardo the classical economists have taught that supply creates its own demand; — meaning by this in some significant, but not clearly defined sense that the whole of the costs of production must necessarily be spent in the aggregate, directly or indirectly, on purchasing the product. .... Evidently, this amounts to the same thing as full employment.“ (Keynes, quoted in Baumol, 1999, p. 200)

It seems that employment theory urgently needs rectification. To cut the meticulous formal derivation short (2015; 2014; 2012), the most elementary version of the axiomatically correct Employment Law for the economy as a whole is given on Wikipedia AXEC62.

From this equation follows:
(i) An increase in the expenditure ratio ρ_E leads to higher employment L (the letter ρ stands for ratio). An expenditure ratio ρ_E>1 indicates credit expansion, and a ratio ρ_E<1 indicates credit contraction of the household sector.
(ii) Increasing investment expenditures I exert a positive influence on employment, a slowdown of growth does the opposite.
(iii) An increase in the factor cost ratio ρ_F≡W/PR leads to higher employment.

The complete Employment Law is a bit longer and contains in addition profit distribution, public deficit spending, and import/export.

Items (i) and (ii) are familiar since Keynes. What is missing in the Keynesian employment multiplier, though, is the ratio ρ_F as defined in (iii). This variable embodies the macroeconomic price mechanism. It works such that overall employment INCREASES if the average wage rate W INCREASES relative to average price P and productivity R.

This is the very opposite of what standard economics teaches. “We economists have all learned, and many of us teach, that the remedy for excess supply in any market is a reduction in price. If this is prevented by combinations in restraint of trade or by government regulations, then those impediments to competition should be removed. Applied to economy-wide unemployment, this doctrine places the blame on trade unions and governments, not on any failure of competitive markets.” (Tobin, 1997, p. 11)

The explanation of unemployment is given by the fact that the price mechanism does NOT work as the representative economist hallucinates. Ultimately, unemployment is caused by the scientific incompetence of economists, therefore the economic and psychological costs of unemployment can be directly attributed to them.

Egmont Kakarot-Handtke


References
Baumol, W. J. (1999). Retrospectives: Say’s Law. Journal of Economic Perspectives, 13(1): 195–204. URL
Kakarot-Handtke, E. (2012). Keynes’s Employment Function and the Gratuitous Phillips Curve Disaster. SSRN Working Paper Series, 2130421: 1–19. URL
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
Tobin, J. (1997). An Overview of the General Theory. In G. C. Harcourt, and P. A. Riach (Eds.), The 'Second Edition' of The General Theory, Vol 2, 3–27. Oxon: Routledge.

Related 'The economist as storyteller'

For more about iatrogenic economics see AXECquery.

The solemn burial of Marginalism

Comment on Chris Dillow on ‘Limits of marginal productivity theory’

Blog-Reference

In order to tackle the problem of wages, profits, and employment economics has to switch from microfoundations to macrofoundations. The Paradigm Shift is achieved as follows.

(A0) The objectively given and most elementary configuration of the 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.

These premises are certain, true, and primary, and therefore satisfy ALL methodological requirements. The macro axiom set contains NO NONENTITIES like utility, maximization, equilibrium, or a well-behaved production function. For the graphical representation of the absolute formal minimum set, see Wikimedia#1.

At any given level of employment L, the wage income Y_w that is generated in the consolidated business sector follows by multiplication with the wage rate W. On the real side, output O follows by multiplication with the productivity R. Finally, the price P follows as the dependent variable under the conditions of (i) budget balancing, i.e. C=Y_w, and (ii) market-clearing, i.e. X=O. Note that the ray in the southeastern quadrant is NOT a linear production function; the ray tracks ANY underlying production function. Note also that the wage rate W is an AVERAGE if the individual wage rates are different among the employees, which is normally the case. These details are not needed at the beginning but come later with DIFFERENTIATION.

Under the conditions of (i) market-clearing and (ii) budget-balancing in each period the price is derived as P=W/R (1), i.e. the market-clearing price is in the most elementary case equal to unit wage costs. This is the elementary form of the macroeconomic Law of Supply and Demand which, in a later step, has to be generalized for an arbitrary number of markets.

The first thing to notice is that the real wage W/P is invariably equal to the productivity R according to (1). So, for the economy as a WHOLE, the marginal principle does NOT hold. The real wage is NOT equal to marginal productivity — because there is NO marginal productivity — because there is NO such thing as a well-behaved production function. The real wage is equal to productivity in the most elementary case (see Wikimedia#2).

Marginalism MUST ASSUME a well-behaved production function in order to make the green cheese assumption of constrained optimization work. This is methodologically ILLEGITIMATE and known since antiquity as petitio principii. To fool around with assumed NONENTITIES is like kindergarten kids playing with Spiderman, Tooth Fairy, and Easter Bunny.

For the economy as a WHOLE holds: If the wage rate W is lowered, the market-clearing price P falls. If the number of working hours L is increased the price remains constant, provided productivity R does not change. If productivity decreases the price P rises. If productivity increases the price falls. In any case, labor gets the whole product, and profit for the business sector as a whole is invariably zero. So, the next question is where does profit come from? This question has NEVER been answered by standard economics. So economists have NO idea of the most important phenomenon of their subject matter.

All changes in the system are reflected by the market-clearing price. The most elementary economy is REPRODUCIBLE for an indefinite number of periods under the interim condition of no external limitations. With further DIFFERENTIATION one eventually arrives at the axiomatically correct Employment Law #3 and eventually at a single firm, that is, at micro.

What is standard economics? Krugman put it thus: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point”.

And this is why Krugman and the rest of standard economics are a failure. If the premises are false the whole theoretical superstructure implodes with karmic necessity. It is as simple as that: garbage in, garbage out. This methodological truism, though, is forever beyond the ant horizon of marginalist losers.

Egmont Kakarot-Handtke


#1 Wikimedia AXEC31 Elementary production-consumption economy with market-clearing and budget-balancing
#2 The formula for the general case is given on Wikimedia AXEC28.
#3 Wikimedia AXEC62 The structural-systemic Employment Law

Related 'Putting the production function back on its feet' and 'Mathiness and the Ur-Blunder' and 'Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?' and 'Sending Solow’s growth model to the dump of proto-scientific history'.

Immediately preceding Marginalism is the landmark of scientific incompetence.