MMT and the inflation-red-herring

Comment on Richard Murphy on ‘Modern monetary theory provides the best mechanism for controlling inflation we now have’

Blog-Reference and Blog-Reference

Inflation theory is wrong, it is essentially the commonplace Quantity Theory that is at the back of peoples’ minds.#1

The lethal flaw of MMT policy is NOT inflation but distribution.#2 The government can replace taxation and, in addition, increase spending at any time for any consumptive purpose by deficit-spending/money-creation. This has two effects

• The household sector = ninety-nine-percenters is taxed in real terms by a one-off price hike (NOT inflation). Open taxation turns into stealth taxation, and in real terms, NOTHING changes.
• Because Public Deficit = Private Profit, the one-percenters enjoy an immediate profit boost. In addition, part or all of the increased public debt can become a long-term source of interest income depending on whether and how the public debt is consolidated.

The replacement of taxation by deficit spending clearly benefits the one-percenters. In essence, MMT argues that public deficit is good for the ninety-nine percenters and for democracy. The fact of the matter is that public deficit is good for the one-percenters and the Oligarchy.#3

The whole inflation issue has never been anything else than a red herring.#4

Egmont Kakarot-Handtke


#1 Economists never understood how the price mechanism works
#2 Gov-Deficits do NOT cause inflation
#3 Keynes, Lerner, MMT, Trump, and exploding profit
#4 For the full-spectrum refutation of MMT see cross-references MMT

Related 'The Third Way: Towards the Happy Zero-Tax economy' and 'Gov-Deficits do NOT cause inflation' and 'Attention: there are THREE types of inflation' and 'A la recherche de l'inflation perdue' and 'Deficit-spending/money-creation is ALWAYS a bad deal for WeThePeople' and 'Inflation: back to basics' and 'How some MMTers got inflation wrong'.

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REPLY to Tom Hickey on Apr 15

You cite Marx “In studying such transformations it is always necessary to distinguish between the material transformation of the economic conditions of production, which can be determined with the precision of natural science, and the legal, political, religious, artistic or philosophic – in short, ideological forms in which men become conscious of this conflict and fight it out.”

The philosopher and sociologist Marx never understood the “material transformation of the economic conditions of production, which can be determined with the precision of natural science”, that is, how the price- and profit mechanism works.#1, #2, #3

Marx was a soapbox economist and this excludes him forever from science and any scientific debate. The same applies to the philosopher Tom Hickey.


#1 Capitalism, poverty, exploitation, and cross-over exploitation
#2 Profit for Marxists
#3 For the basic economic Laws see Wikimedia AXEC112c.

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Twitter Oct 27, 2022

MMT vs Keynesianism: Nothing to chose

Comment on Thomas Palley on ‘Modern Money Theory (MMT) vs. Structural Keynesianism’

Blog-Reference and Blog-Reference and Blog-Reference

MMT and Keynesianism are macro approaches. The fact of the matter is that macrofoundations were intended to replace microfoundations but this did not happen and cannot happen because both approaches are axiomatically false which means that they are both beyond repair and that nothing less than a paradigm shift will do.

As a result, to compare MMT and Keynesianism is to compare a rotten apple to a rotten banana.

Fact is: MMT policy proposals are NOT based on sound scientific foundations.#1* MMTers do NOT understand how the price- and profit mechanism of the monetary economy works. The lethal flaws are:
• MMT has NO consistent macrofoundations,#2
• MMT’s profit theory is false,
• MMT’s sectoral balances equation is provably false,
• MMTers are too stupid for the elementary mathematics of National Accounting,
• MMTers violate scientific standards on a daily basis,
• MMT is political agenda pushing in a scientific bluff package.#3

MMT claims that public deficit is good for the ninety-nine-percenters and for democracy while the fact of the matter is that because of Public Deficit = Private Profit MMT policy is good for the one-percenters and for oligarchy.#4

With rather insignificant differences in detail, all these points hold also for Keynesianism.#5

Egmont Kakarot-Handtke


#1 See cross-references MMT
#2 Rectification of MMT macro accounting
#3 MMT is dead: An unfriendly critique of Bill Mitchell
#4 Keynes, Lerner, MMT, Trump and exploding profit
#5 See cross-references Keynesianism

* Wikimedia AXEC121i

Economics is NOT about what Happiness is but about what Profit is

Comment on Barkley Rosser on ‘Unresolved Issues In Happiness Economics From The Conference Honoring The Retirement Of The Field’s Founder’

Blog-Reference and Blog-Reference on Jul 27 adapted to context and Blog-Reference

The common methodological blunder of orthodox and heterodox economists and the ultimate reason why economics is one of the worst scientific failures of all times consists of defining economics as a social science.

While it is trivially true that human behavior plays an important role in how an economy develops, this is NOT the subject matter of economics but of psychology, sociology, anthropology, history, political science, social philosophy, biology/evolution theory etcetera.

Imagine a passenger plane flying at high speed at high altitudes. Now, one can ask two entirely different questions about this phenomenon, i.e. (i) behavioral, or (ii), physical.
• Behavioral questions relate to the motives of travel, social status e.g. 1st/2nd class, feelings/fear of flying/claustrophobia/euphoria, satisfaction with comfort/service/ entertainment, trust in pilots/crew/airline, uncertainty about value-for-money, etcetera.
• Physical questions relate to the laws of aerodynamics, thermodynamics, material stability of the craft, weather conditions, navigation, remaining fuel supply, etcetera.

The theory of flight abstracts from the concrete human beings and leaves all Human Nature issues to so-called social scientists, that is, to people who can endlessly waffle about utility/happiness but will NEVER get a plane or anything else off the ground.

Analogous for the subject matter of economics. Economics has to focus on the systemic aspects of the economy, in other words, economics is NOT a social science but a systems science.

Unfortunately, economics took the wrong turn at the very beginning because it defined itself as Political Economy. Politics, though, is the very antithesis of science.#1

The most important scientific contribution an economist can make is to reveal how the actual economy works. This contribution takes the form of the true theory with truth well-defined as material and formal consistency.

The crucial step on the way to the true theory is to move from the naive description of reality to abstraction: “Since, therefore, it is vain to hope that truth can be arrived at, either in Political Economy or in any other department of the social science, while we look at the facts in the concrete, clothed in all the complexity with which nature has surrounded them, and endeavour to elicit a general law by a process of induction from a comparison of details; there remains no other method than the à priori one, or that of ‘abstract speculation’.” (J. S. Mill)

Needless to emphasize that abstraction can go badly wrong. By getting stuck with Human Nature/motives/behavior/action economists committed the Fallacy of Insufficient Abstraction. And this is why economics is a failed science.#2

Economists got lost in the woods with folk-psychological and folk-sociological blather about utility/happiness and can to this very day NOT tell what profit is and how the price- and profit mechanism works. Walrasianism, Keynesianism, Marxianism, Austrianism is proto-scientific garbage but the former editor of the Review of Behavioral Economics, the Cargo Cult Scientist Barkley Rosser, has not got it and will never get it.

Happiness is a new bluff package for economists to sell their proto-scientific garbage. After all, nobody can argue against happiness.

Egmont Kakarot-Handtke


#1 Yes, orthodox economics is poor science, but can Heterodoxy raise hope?
#2 Economics: 200+ years of scientific incompetence and fraud

Related 'Economists: Jacks-of-all-trades ― except economics' and 'The Science-of-Man fallacy' and 'How incompetent are economic methodologists? Very!' and 'The problem with economics as a discipline' and 'Economics ― the science that never was' and 'MMTers are false Progressives and false Friends-of-the-People'. For details of the big picture see cross-references NOT a Science of Behavior.

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Wikimedia AXEC140

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REPLY to Barkley Rosser on Apr 11

You say: “Profit is an important topic in economics, and a few economists … have agreed with you that it is the most important topic. But the vast majority do not, including me.”

The vast majority of economists including you is scientifically behind the curve just as badly as any Flat-Earther ever was.

Take Keynes as an example. Here is the proof from the General Theory: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

This two-liner is conceptually and logically defective because Keynes never came to grips with profit. “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.)

The economist Keynes had NO idea what profit is. Neither had those who came before him or after him, including Barkley Rosser.

How absurd is this? What are economists waiting for? That psychologist will eventually tell them what profit is while economists tell psychologists in turn what happiness is?

Profit theory is provably false, distribution theory is false, employment theory is false, the theory of money is false, growth theory is false yet Barkley Rosser is blathering about happiness, Yusuf on the cross, the lone nut hypothesis of the JFK and MLK assassinations, and the reproductive behavior of the House of Sa'ud.

It is obvious that the vast majority of economists including Barkley Rosser most clearly failed theme#1 and has now happily arrived at the bottom of the proto-scientific shithole.#2

#1 Capitalism, poverty, exploitation, and cross-over exploitation

#2 Economics has arrived at the bottom of the proto-scientific shithole

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REPLY to Barkley Rosser on Apr 12

The underlying philosophy of economics is Utilitarianism/Darwinism/Malthusianism and it has not changed in the last 200+ years.

What is the bottom-line of the new field of Happiness Economics? You sum it up: “… of course wealthier and higher-income people tend to live longer than those less so. They also tend to be happier on average than others within their societies when asked.”

This is what already Malthus told the world and he left no doubt that the premature death of the poor=unfit is a good=natural thing. The progress in economics consists in the main of applying the methods of modern marketing and in repackaging Malthus’ dismal message as Happiness economics.

Economics never rose above the level of poor philosophy and proto-scientific garbage.

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REPLY to Barkley Rosser on Apr 13

You say “You missed the really important part, which is that he [Malthus] may have been the first economist to note that income and happiness may not be perfectly correlated, even if on average higher-income people are happier at a given point in time in a given society.”

As always, it’s you who badly misses the point. The economist Malthus was by no means the first to note the correlation between wealth/happiness respectively the mirror correlation poverty/premature death but he became notorious as the chief proponent of “‘positive checks’, which lead to premature death: disease, starvation, war, …” (Wikipedia)

‘Positive checks’ by the four blunt tools, also known as the Horsemen War, Famine, Pestilence and Disease, were later-on supplemented by the more subtle tools of medicine and economics. It is not an accident that the economist Keynes was Director of the British Eugenics Society 1937-1944. Economics and Social Darwinism were always joined at the hip. Malthus’ claim to originality derives from the fact that he was the first economist to recommend premature death as a solution to economic problems.

Happiness economics is the botoxed version of the foundational creed of Political Economy: Better a healthy, happy, long-lived exploiter than a sick, unhappy, short-lived exploitee.

Guess what, Barkley Rosser, people came up with this trivial philosophy some thousand years before some silly economists gathered to celebrate “The Retirement Of The Field’s Founder” and to peer-applaud their asinine drivel.

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REPLY to Tom Hickey on Jul 28

Happiness is the subject matter of psychology/sociology/philosophy. How the monetary economy works is the subject matter of economics. Economists, though, do not even know what profit is. People who are so incompetent that they have thoroughly messed up their own discipline are ill-qualified to say something about psychological/sociological/philosophical matters.

You say: “In contemporary terms, ‘living the good life’ means living a life of plenty. For Socrates, Plato and Aristotle ‘living the good life’ meant living a life characterized by human excellence. Thus, the fundamental question was, What does it mean to live a good life in a good society. Marx observed that a society in which capitalism is the mode of production profit is the driver rather than the pursuit of human excellence.”

Take notice that Marx, too, never figured out what profit is.#1 As collateral damage, he messed up the concepts of exploitation and class.#2, #3 As a result, the fake philosopher#4 Marx never had anything worthwhile to say about how the economy works.

That the fake economist Karl Marx is repeatedly advertised by the fake philosopher Tom Hickey is an act of deliberate disinformation and NOT a contribution to the advancement of economics as a science. It is simply the perpetuation of economics as propaganda.

A Good Life in a Good Society presupposes, first of all, that philosophers, economists, and all other cargo cult scientists and agenda pushers are thrown out of science.

#1 Profit for Marxists

#2 Capitalism, poverty, exploitation, and cross-over exploitation

#3 Karl Marx, fake scientist

#4 Note on Amy Willis ‘Can majoring in philosophy make you a better person?’

Capitalism, poverty, exploitation, and cross-over exploitation

Comment on David Ruccio on ‘“Capitalism was built on the exploitation and suffering of black slaves and continues to thrive on the exploitation of the poor”’

Blog-Reference

Since Adam Smith and Karl Marx economists have not figured out how the price- and profit mechanism works. For this reason, they do not understand until this day the relationship between discrimination, profit, exploitation, and poverty.#1

Because economics is a failed science, economists can neither solve economic nor social problems. Economic debate always and everywhere degenerates within a split second into political rhetoric, moralizing, scapegoating, mutual motive speculation, and sitcom blather.

So, what first of all has to be done is to rise above the proto-scientific level of political economics. The utter failure of economics is due to microfoundations. Economics has to be based on macrofoundations.

The elementary production-consumption economy

The macrofoundations approach starts with objective-systemic axioms that define the elementary production-consumption economy: (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.

Under the conditions of market-clearing X=O and budget-balancing C=Y_w in each period, the price is given by P=W/R (1), i.e. the market-clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. It translates into W/P=R (2), i.e. the real wage is equal to the productivity. For the graphical representation see Wikimedia.#2

Monetary profit of the business sector is defined as Q_m≡C−Y_w and monetary saving of the household sector is defined as S_m≡Y_w−C. It always holds Q_m≡−S_m, in other words, the business sector’s surplus = profit equals the household sector’s deficit = dissaving. Vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget-balancing C=Y_w total monetary profit is zero.

Macroeconomic profit depends, in the most elementary case, alone on deficit spending, that is, on the increase of the household sector’s debt. It does NOT depend on labor time, or wages, or productivity, or risk-taking, or monopoly power, or exploitation, or greedy capitalist.#3, #4

In the elementary production-consumption economy, the wage rate for all employees (employees = labor = working-class = blue-collar workers + white-collar workers + management + executives) is equal, labor gets the whole product according to (2), and profit for the business sector as a whole is zero because of C=Y_w.

Obviously, there is NO antagonism of wages and profits in the elementary production-consumption economy. If the wage rate W goes up the market-clearing price goes up according to (1) and the real wage remains unchanged according to (2).

All changes in the system are reflected by the market-clearing price. As a matter of principle, the elementary production-consumption economy can go on indefinitely at any level of employment L.

The living standard of the employees is, with equal labor time per person, alone defined by the productivity. So, poverty in one production-consumption economy is due to the lower productivity compared to the other economy.

Social discrimination

Now the employees are arbitrarily split into two groups of equal size. The wage rate of group 1 is then increased by the factor 1.5 and the wage rate of group 2 is halved thus that the total wage income Y_w=WL=W₁L₁+W₂L₂ remains unchanged. All other things, i.e. output O, consumption expenditures C, and the market-clearing price P remain unchanged.

Accordingly, the real wage of group 1, i.e. W₁/P, increases 1.5 fold and the real wage of group 2 halves. The macroeconomic profit is still zero because of C=Y_w. The unchanged real product O is redistributed among the employees, that is, group 1 is better off at the expense of group 2. The relative poverty of group 2 is due to social discrimination among the employees and has nothing to do with capitalism, here defined as ownership of the business sector/firms.

The profit of the business sector is zero without discrimination and with discrimination. So, it is NOT the case that the capitalist class exploits group 2 but that group 1 of the working class exploits group 2 of the working class. Exploitation and poverty is ultimately an issue WITHIN the working class and NOT between the working class and the capitalist class.

Cross-over exploitation

The business sector is now split into two identical firms and firm 1 is supposed to cut the wage rate W₁ arbitrarily by half. From this follows that the market-clearing price P declines if all other variables are unchanged. Firm 2 is affected because total income Y_w falls and with it consumption expenditures C and the market-clearing price P.

The reduction of the wage rate W₁ increases the profit of firm 1 and produces a loss in firm 2. When we look alone at firm 1 we see what Smith, Mill, Ricardo, and Marx have seen before, to wit, wages down ― profit up. This fits the time-honored stereotype of wages and profits as antagonists.

The error/mistake/blunder of economists since the Classicals has been to generalize what is true for a single firm and this is known as Fallacy of Composition.

If profits have been zero in the initial period because of budget-balancing C=Y_w then firm 2 makes now a loss that is exactly equal to firm 1’s profit. Hence, the arbitrary wage rate cut of firm 1 does NOT increase the profit of the business sector as a whole but only REDISTRIBUTES profit/loss between the firms that constitute the business sector.

Seen from the perspective of a single firm, the antagonism of wages and profits is absolutely real. This, though, is parochial realism. The complete picture reveals that firm 1 is better off to the disadvantage of firm 2 and the workers of firm 2 are better off to the disadvantage of the workers of firm 1 because at a lower market clearing price they absorb a bigger share of output O with their unaltered income. The situation of the business sector as a whole is unchanged and the same is true for the household sector as a whole. If there is exploitation it happens within the sectors. A partial wage rate change leads only to a redistribution of profits between the firms and of output between the workers. A global wage rate change leads under the condition of budget balancing and market clearing only to a price change in the same direction.

For the economy as a whole, the antagonism of wages and profits is an optical illusion. The concept of exploitation of the working class by the capitalist class has to be replaced by the concept of cross-over exploitation WITHIN the classes. This makes the idea of class struggle obsolete.

When Capitalism is roughly defined as ownership of the firms that make up the business sector by profit-seeking capitalists then the capitalists taken as a whole cannot increase overall profit by discrimination among the workers according to race, religion, gender, nationality or any other social criterion. Only the individual capitalist can increase his profit through discrimination at the expense of the other capitalists. The individual capitalist’s pursuit of profit does NOT increase the profit of capitalists as a whole. The inner contradictions of capitalism lie within the classes and not between them. In the strict sense, classes ― defined by a common class interest ― do not exist.

Overall monetary profit cannot be increased by social discrimination among the employees but is given by the macroeconomic Profit Law Q_m≡Y_d+(I−S_m)+(G−T)+(X−M). So, exploitation or other social pathologies are NOT a feature of the capitalist economy per se but of pathological individuals. The major defects of the market system lie elsewhere.#5

Egmont Kakarot-Handtke


#1 Ricardo and the invention of class war
#2 Wikimedia AXEC31 Elementary production-consumption economy

#3 The profit theory is false since Adam Smith
#4 Profit for Marxists
#5 Major Defects of the Market Economy

Related 'Making the economy the focus of the economists’ dialogue' and 'Karl Marx, fake scientist' and 'No exploitation, no classes' and 'Mathematical Proof of the Breakdown of Capitalism'. For details of the big picture see cross-references Profit.

Economics has arrived at the bottom of the proto-scientific shithole

Comment on Simon Wren-Lewis on ‘Brexit and Corbyn: how our media fails the people’

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.

Economics claims to be a science but is NOT. Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers).

The true economic theory tells one how the economic system works. The economist needs the true theory, i.e. the humanly best mental representation of reality: “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 a true theory but they have opinions for all seasons. Actually, economists have long ago given up science and turned to the shaping of public opinion.

These, for example, are the latest posts of Simon Wren-Lewis
• Brexit and Corbyn: how our media fails the people,
• The media and Attitudes to Austerity,
• Is Trump about race and Brexit about culture?
• Jeremy Corbyn cannot end Brexit,
• The Output Gap is no longer a sufficient statistic for inflationary pressure,
• Beliefs about Brexit,
• A road to right-wing authoritarian government.

Six of the seven posts are about how corrupt UK media distort reality, and only one post is about economics proper. It is a fair summary to say that Simon Wren-Lewis is primarily in the PR/propaganda/journalism business and only superficially engaged in science.

Simon Wren-Lewis’ expertise consists of educated common sense and academic majority opinion but lacks sound scientific foundations because he has not realized that standard economics in its current incarnation as DSGE is proto-scientific garbage.

The vast majority of economists have entirely lost any scientific instincts, which would tell them to keep science and politics strictly apart,#1 and have joined the crowd of clowns and useful idiots in the political Circus Maximus.

Everyone can know from history that science cannot improve politics but that politics inescapably corrupts science, or as Schumpeter put it: “The first thing a man will do for his ideals is lie.” Much more so, if he has no ideals.

Economics was captured 200+ years ago by political agenda pushers and this is why it has become the most embarrassing failure in the history of modern science.

Egmont Kakarot-Handtke


#1 “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (J. S. Mill)

Related 'Orthodoxy vs. Heterodoxy: the squabbling of quacks' and 'Cranks? What cranks? That’s economics!' and 'MMT: Academic snake oil for the people'. For details of the big picture see cross-references 'Failed/Fake Scientists.

Full employment, the Phillips Curve, and the end of gaganomics

Comment on David Glasner on ‘The Phillips Curve and the Lucas Critique’

Blog-Reference and Blog-Reference on Apr 6 and Blog-Reference on Apr 10 adapted to context

The utter failure of economics, of which the Phillips Curve is a well-known example, is due to microfoundations. Economics has to be based on objective macrofoundations. This methodological move is called Paradigm Shift.

Reminder: Economics is NOT about what people do, economics is about what the economy does. Economics is NOT a social science but a systems science.

The macrofoundations approach starts with behavior-free systemic axioms which define the elementary production-consumption economy: (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.

Under the ‘classical’ conditions of market-clearing X=O and budget-balancing C=Y_w in each period, the price is the dependent variable and given by P=W/R, i.e. the market-clearing price is always equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand.

As a corollary, this macroeconomic Law kills the commonplace Quantity Theory because the Quantity of Money is NOT among the price determinants.#1 The price is, under the ‘classical’ conditions, determined by the wage rate W, which takes the role of the nominal numéraire, and the productivity R.

If the budget is not balanced, i.e. if the household sector either saves or dissaves, the macroeconomic Law of Supply and Demand takes the form shown on Wikimedia.#2

An expenditure ratio ρ_E greater than 1 indicates dissaving/credit expansion of the household sector, a ratio ρ_E less than 1 indicates saving/credit contraction. The ratio ρ_E provides the link to monetary theory.

The elementary production-consumption economy is the starting point. Subsequently, things become more complex. Under the conditions of market clearing and independent wage rate- and price-setting, employment becomes the dependent variable. The elementary version of the axiomatically correct (objective, systemic, behavior-free, macrofounded) Employment Law is shown on Wikimedia.#3, #4, #5

From this equation follows:
(i) An increase in the expenditure ratio ρ_E leads to higher employment L.
(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 foreign trade. These issues have been dealt with elsewhere.

Items (i) and (ii) cover the familiar arguments about aggregate demand. The factor cost ratio ρ_F as defined in (iii) embodies the macroeconomic 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. Or, the other way round, overall employment DECREASES if the average price P INCREASES relative to average wage rate W with productivity R unchanged.

Roughly speaking, price inflation is bad for employment, and wage inflation is good. The systemic Phillips Curve defines an inverse relation between price P as the independent variable and employment L as the dependent variable. Since all variables of the macroeconomic Employment Law are measurable the systemic Phillips Curve is testable. Note that there is no recourse to ridiculous behavioral assumptions like constrained optimization or rational expectations. Microfoundations are gone for good. Lucasian Gaganomics is over.

In the Employment Law, wage rate W and price P are the independent variables. So, under the condition of wage rate- and price-setting, the relationship between unemployment and wage rate or wage rate and the price is contingent, i.e. there is NO systemic relationship and no stable correlation.

This, in turn, means that there is NOTHING in the economic system that guarantees that the independent wage rate- and price-setting leads somehow to full employment. The market economy is NOT a self-regulating system with an intrinsic tendency to full employment if left alone. Just the opposite, the market system is inherently unstable.

Because the fundamental premise of standard economics is provably false the independent variables have to be taken as policy parameters. Wage rate- and price-setting have to be managed such that ρ_F drives employment towards full employment. Monetary and fiscal policies are unfit for the job.

The well-defined systemic Phillips Curve ends all senseless speculation/blather about whether wages rise if the economy approaches full employment or not but tells policymakers exactly how to set the parameters in order to achieve full employment and zero inflation.#6

Egmont Kakarot-Handtke


#1 Forget Friedman, forget the Quantity Theory
#2 Wikimedia AXEC101 Law of Supply and Demand
#3 Wikimedia AXEC62 Employment Law
#4 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#5 NAIRU, wage-led growth, and Samuelson's Dyscalculia
#6 For details of the big picture see cross-references Employment/Phillips Curve

Related 'Economists never understood how the price mechanism works' and 'Mass unemployment: The joint failure of orthodox and heterodox economics' and 'NAIRU and the scientific incompetence of Orthodoxy and Heterodoxy' and 'Full employment through the price mechanism'.

MMT vs Neoliberalism: Just another clown show

Comment on Bill Mitchell on ‘My response to a German critic of MMT ― Part 3’

Blog-Reference and Blog-Reference

Bill Mitchell criticizes the MMT critic Martin Höpner: “But I expect researchers, especially those associated with highly credible institutions such as the Max Planck Institute in Köln, to first of all do their research before they make public comment. Many of the issues raised in the Makroskop article have been ‘done to death’ over the last 25 years.”

Indeed, the whole discussion is standard MMT stuff. Over the last 25 years, MMT has conditioned the public parrot with a handful of catchy slogans:
• There is a fundamental difference between currency issuer and currency user.
• The household analogy holds neither in the short nor in the long run.
• Tax revenue is not required to fund public expenditure.
• A currency-issuing government is not financially constrained.
• The government never runs out of money.
• Taxes make people accept fiat money.
• Government spending is the precondition of taxation.
• Inflation can at any time be contained through taxation.
• Public deficits supply the economy with money.
• Public deficits create financial assets for the non-government sector.
• Growing public debt is no problem, the currency issuer can never go bankrupt.

This set of slogans is only 50 percent economically true but 100 percent politically effective.#1

Against the MMT promise of a bright future for the people, Martin Höpner argues psychologically that if the public realizes that the government is not financially constrained all hell will break loose, with the result of reckless spending, inflation, and ultimate economic collapse. This, of course, is soapbox economics. Consequently, Bill Mitchell has no difficulty debunking Martin Höpner as a useful neoliberal idiot.

In essence, MMT argues that public deficit is good for the ninety-nine-percenters and for democracy. The fact of the matter is that public deficit is good for the one-percenters and the Oligarchy.#2 The macroeconomic Profit Law says Public Deficit = Private Profit and here lies the fundamental scientific error/political fraud of MMT.#3

This is why the spectacular MMT vs Neoliberalism wrestling has NOTHING at all to do with economics but only with mob entertainment in the political Circus Maximus.

Egmont Kakarot-Handtke


#1 For the full-spectrum refutation of MMT see cross-references MMT
#2 MMT is dead: An unfriendly critique of Bill Mitchell
#3 Keynes, Lerner, MMT, Trump and exploding profit

Related 'MMT is NOT an alternative to Neoliberalism' and 'MMT and grassroots movements'.

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AXEC135f

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REPLY to ANC Driver on Mar 4

When you cite me you should supply the reference. So: “Overall economic conditions are especially favorable when the households (private and public) dissave (cf. Wray, 1991, p. 962).” (Kakarot-Handtke, 2001, p. 17)#1

You say “It’s a strange feeling knowing that being debt free and always spending less than I earn I am contributing to the instability of employment!”

The point to grasp is that the monetary economy is either exploding or imploding (in slow motion) and this is why the concept of equilibrium is sheer methodological madness and this is why all supply-demand-equilibrium economics is scientifically worthless for 150+ years and this is why one can use almost the whole stock of economic journals/textbooks for winter heating without any loss of valuable scientific knowledge.#2

The other point is that MMT articles/posts in general and Bob Mitchell’s, in particular, is also proto-scientific garbage because MMTers get the relationship of macroeconomic profit/saving for 25 years wrong.

#1 Squaring the Investment Cycle

#2 Could we, please, all focus on the key question of economics?

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REPLY to Kristjan on Mar 5

You ask: “How long have you been parroting this profit bs? Every time I see your comments it is: ‘MMT gets the private profit wrong’ bullshit.”

How long has MMT been proclaiming that public deficit is good for the ninety-nine-percenters and for democracy while the fact of the matter is that Public Deficit = Private Profit is good for the one-percenters and for oligarchy?

How long are Bill Mitchell, Stephanie Kelton, Warren Mosler, and the rest of MMTers presenting a provably false balances equation to the public and pushing the agenda of Wall Street?#1

How long does it take you to stop reading my posts or to understand the clear-cut proof of MMTers scientific incompetence#2 or to return to your cozy couch and never stop again watching Goofy & Friends?

#1 Down with idiocy!

#2 For the full-spectrum refutation of MMT see cross-references MMT