Comment on Simon Wren-Lewis on ‘The dangers of pluralism in economics: the case of MMT’
Blog-Reference and
Blog-Reference
Bill Mitchell writes: “Another point that interests me here is the role of academia. Historically, our role was to bear witness to governments and their behaviour. To provide ‘independent’ scrutiny. That role was one of the reasons that tenure was introduced ― to allow us security of employment no matter what we said about governments or other powerful entities. …These days, academics have largely lost tenure … and are bullied by managerial bosses into virtual silence for fear that Government Ministers will ring up their institutions and damage their prospects if they speak out openly.”#1
Economics always claimed to be a science. It never was. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept profit wrong.
There are political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.
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. And this means, in turn, that economic policy guidance NEVER had sound scientific foundations. Economists have NO scientifically valid knowledge about how the price- and profit mechanism works.#2 There is a total logical DISCONNECT between economic policy arguments and economic theory.#3
The lack of scientifically valid theory, though, never prevented economists from assuming the role of useful political idiots.
What can be observed at the moment is that New Keynesianism and MMT are trying to get hold of Labour’s economic policy lever. New Keynesianism is derived from Walrasianism which is scientifically dead for 150+ years. MMT is derived from Keynesianism which is defunct for 80+ years because Keynes messed the analytical foundations of macro up. So, neither approach has sound macroeconomic foundations.
Apart from this lack of qualification, economists have entirely forgotten that politics and science are ruled by entirely different principles and that both spheres have to be strictly kept apart. As J. S. Mill had it: “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.”
This did not make much impression on the agenda pushers of all colors and this, in turn, explains the fact that economists are for 200+ years fooling around at the proto-scientific level. Scientific failure, of course, does not matter at all in the political sphere where a scientific bluff package has at all times been quite sufficient.#4
Egmont Kakarot-Handtke
#1
billy blog
#2
Mass unemployment: The joint failure of orthodox and heterodox economics
#3
Paul Krugman and economic poultry entrails reading
#4
MMT and grassroots movements
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REPLY to Matt Franko on Mar 3 and
Blog-Reference MM
To debunk Wren-Lewis’ New Keynesianism, as Bill Mitchell has done in his series,#1 is the easy part. Yes, anyone who has said in the last 150+ years that mainstream economics is garbage has been right. The point is that debunking has run its course by now and that the world is tired of Walrasianism, Keynesianism, Marxianism, Austrianism and wants to know what the true economic theory looks like.
Bill Mitchell makes two claims, (i) that MMT is the scientifically correct description of how the actual monetary economy works, and (ii), that MMT’s progressive political agenda promotes the cause of the ninety-nine-percenters.
With regard to the actual political situation in Britain this boils down to (i) New Keynesianism, represented by Simon Wren-Lewis, misleads Labour, (ii) MMT, represented by Bill Mitchell, and Labour are the political dream team.
Both claims are false. MMT does not satisfy the scientific criteria of material/formal consistency. It has been proven that the MMT balances equation is false.#2 So, MMT is NOT scientifically superior to New Keynesianism. Both share the same methodological defect, that is, the foundational economic concepts of profit and income are ill-defined. This is lethal for every economic approach.
The two most popular MMT claims, i.e. deficit spending/money creation easily fixes most economic problems and debt does not matter, are misleading at best. Deficits matter for distribution.#3 More specifically, public deficits are the main drivers of upward redistribution from Keynes onward.#4
The academic Wren-Lewis has been denounced by MMTers as a neoliberal agenda pusher. So, the question is legitimate, what agenda the academic Bill Mitchell is pushing.
Bill Mitchell argues: “Another point that interests me here is the role of academia. Historically, our role was to bear witness to governments and their behaviour. To provide ‘independent’ scrutiny.”
This independence never existed. Economics started as Political Economy and only wrapped itself at some point in history in the cloak of science. In fact, the majority of economists never rose above agenda pushing. As a consequence, economics never reached the heights of scientific independence, objectivity, and truth. From this follows: “So we really ought to look into theories that don’t work, and science that isn’t science.” (Feynman)
What do we see when we look closer into MMT? Bill Mitchell argues: “A rising fiscal deficit is neither good nor bad. It all depends on the saving and spending desires of the non-government sector and the state of capacity utilisation. A rising deficit associated with a growing economy and full employment with stable prices is to be desired.”#5
The MMT swindle lies in the word non-government sector. There is NO such thing as the “non-government sector”, there are TWO sectors, the business- and the household sector. And the business sector does NOT save. Saving/dissaving is the balance of the household sector, profit/loss is the balance of the business sector. The word profit, though, does not appear once in Bill Mitchell’s analysis. Why? Because it holds Public Deficit = Private Profit which means that Bill Mitchell does not really care about poor Britain but about the wellness of the one-percenters.#6
#1
The New Keynesian fiscal rules that mislead British Labour
#2
Rectification of MMT macro accounting
#3
Deficits matter for distribution
#4
Keynes, Lerner, MMT, Trump and exploding profit
#5
Oh poor Britain …
#6
MMT: Academic snake oil for the people
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REPLY to Matt Franko on Mar 3
Bill Mitchell makes the distinction between the government sector and the non-government sector. I say, there is the government sector on the one side and the household and the business sector on the other.#1 You say “I’m sure you agree the govt institutions exist?” Are you sure that you don’t have Alzheimer's? I say that the household and the business sector cannot be analytically lumped together to the “non-government sector” because this makes profit invisible.#2 I have called this elsewhere the Humpty Dumpty Fallacy.
You say: “Bill is not in any way shape or form a tool of the 1%ers...”. I am in no way involved in the inner life of fellow economists. What alone matters is what they express on their blogs, in papers, and in books. Because MMTers propose deficit spending as a cure-all and because the macroeconomic balances equation tells one that
Public Deficit = Private Profit, MMT policy OBJECTIVELY benefits the one-percenters. Whether this is an unintended effect of a well-meant measure for the ninety-nine-percenters or whether this is the intended outcome is open to motive speculation which is known to be entertaining but irrelevant.
It is, in any case, wrong to claim that MMT policy benefits the ninety-nine-percenters when axiomatically correct macroeconomic analysis proves that it benefits the one-percenters.#3 Scientifically, the matter is settled.
#1 Foreign trade is left out of the picture. For more details see
Rectification of MMT macro accounting
#2
MMT and the magical profit disappearance
#3
MMT is ALWAYS a bad deal for the 99-percenters
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REPLY to Matt Franko on Mar 4
I say, Bill Mitchell’s NON-government sector does not exist and that from the macroeconomic balances equations logically follows
Public Deficit = Private Profit and you ask “I’m sure you agree the govt institutions exist?”
Your attention span is obviously extremely short.
The point is that the government sector is instrumentalized for boosting the overall profit of the business sector aka one-percenters. MMTers sell this as a care package for the ninety-nine-percenters. How cranky is this?
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REPLY to Tom Hickey on Mar 4
Your philosophical blather about convenience, pedagogy, and ontology is way beside the point. What you call consolidation is either stupidity or fraud, on a par with 2+2=5. What Bill Mitchell and the rest of MMT commits is the Humpty Dumpty Fallacy.
In the elementary investment economy, macroeconomic profit Q is equal to the difference of business sector investment I and household sector saving, i.e. Q=I−S (i).
Now, Humpty Dumpty introduces a redundant definition by saying that profit may be called “saving of the business sector” and that this “saving” can be added up (= consolidated) with saving of the household sector to “total saving” Σ thus
(a) Σ≡Q+S and now (i) is rewritten
(b) Q+S=I and then, hey presto,
(c) Σ≡I that is, “total saving” is “by definition” identical to investment or in the usual sloppy parlance “saving equals investment” which obviously contradicts (i) and ― strangely enough ― makes profit invisible.
This definitional idiocy can be traced back to Keynes “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT p. 63)
The axiomatically correct complete balances equation reads
(I−S)+(G−T)+(X−M)−(Q−Yd)=0. And the false MMT balances equation reads (I−S)+(G−T)+(X−M)=0
The MMT balances equation is FALSE and this has NOTHING to do with ontology but with the elementary mathematics of macroeconomic accounting.
Science is about proof and measurement. MMT is provably false.
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REPLY to Calgacus on Mar 5
As everybody knows, there are inadmissible operations in mathematics, e.g. division by zero. Likewise, there are inadmissible operations in the process of the definition of a subject matter, e.g. giving two names to the same thing. Trivially, if you are a witness and tell the police that Maria crashed the car against the wall and one minute later that Josef crashed the car and when the police officer remarks there is a contradiction and you answer no, not at all, its the same guy I only call him sometimes Maria and sometimes Joseph you are not regarded as a reliable witness but as a moron or worse, as an economist.
So, one more time in slow motion.
The elementary production-consumption economy is for a start given by two sectors, i.e. household- and business sector, and defined by three macro axioms (Y
w=WL, O=RL, C=PX), two conditions (X=O, C=Y
w), and two definitions (Q≡C−Y
w, S≡Y
w−C).
Wage income Y
w is a flow from the business to the household sector. Consumption expenditures C is a flow from the household to the business sector. Profit/loss is the DIFFERENCE between these two flows Q≡C−Y
w and saving/dissaving is the exact mirror image S≡Y
w−C.
Because we have TWO sectors we have TWO balances and if we “consolidate” the two sectors we get Q+S=0, that is, trivially, for the economy as a whole, there is NO balance. “Consolidation” destroys the information about profit/loss and saving/dissaving that we have gained by splitting up the economy into two sectors.
So, we have the flow wage income Y
w and the difference of flows (= balance) profit/loss Q and saving/dissaving S. Note that a flow is always positive, while a balance can be either positive or negative. A smart macro accountant knows that to lump a flow and a balance together is a category mistake.#1 Economists commit this methodological blunder since Adam Smith. They still do not realize that by saying total macroeconomic income is the sum of wages and profits they are exposing themselves as incurable incompetent scientists.
From the definition Q≡C−Y
w follows by mindless symbol manipulation Q+Y
w≡C, so the sum of Q and Y
w is already implicitly defined by the initial definition of profit/loss.
To introduce an ADDITIONAL definition of the sum of wages and profits is forbidden by the methodological rule called Occam’s Razor. So, Ψ≡Q+Y
w is INADMISSIBLE and leads to Ψ≡C which says that two symbols are used for the same thing. The formula states that the word total income (symbol Ψ) and the word consumption expenditures (symbol C) can be used interchangeably.
Obviously, this is semantic madness. However, in the formulation total income is equal to the value of output is sounds like a deep economic insight. And so this Humpty Dumpty stuff became the foundation of Keynesianism: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)
Post Keynesians, Anti-Keynesians, and MMTers have not realized until this day that they are caught in a methodological delirium. Because the foundational balances equation of MMT is proto-scientific garbage the whole of MMT is proto-scientific garbage, that is, brain-dead political agenda pushing for the one-percenters.
#1
A tale of three accountants
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See also MMT presentation charts at
Google Images MMT Sectoral Balances
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| Source: What You Know For Sure That Just Ain't So |
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| Source: What You Know For Sure That Just Ain't So |
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Question: Why do MMTers not show the balances of the household- and the business sector separately but, in most cases, only the balance of a construct called the "non-government sector" or "private sector"?
Answer: Because they try to convince the audience that public deficits are good for "us" aka "the ninety-nine percenters".
Fact: The MMT balances equation is provably false.
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REPLY to Calgacus on Mar 5
There is political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.
Scientific standards are well-defined since 2000+ years: “Research is, in fact, a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)
Anybody is entitled to push any agenda and to talk as much incoherent BS as she/he likes. But nobody is entitled to claim that she/he is doing science when she/he is, in fact, pushing a political agenda. This is plain fraud.
The ethics of science consists in the free/voluntary commitment to the highest standards of material/formal consistency. MMT does not satisfy these standards and MMTers violate scientific standards on a daily basis.
You are simply pleading for anything-goes: “Other people are not bound to your definitions. Other people are not bound to be saying what you are saying. If they don’t want to talk about profit, however defined, that is their prerogative. Giving two names for the same thing is not such a serious ‘error’ and is not usually considered ‘inadmissible’.”
Nothing new here, this is the modus operandi of the Humpty Dumpties of political economics: “As some one has said, it would seem that even the theorems of Euclid would be challenged and doubted if they should be appealed to by one political party as against another.” (Fisher, 1911)
There is NO problem with people who claim to fight for the ninety-nine-percenters and in fact push the agenda of Wall Street. That is politics and more is not to say about it. The problem of economics is that academic economists claim to do science and in fact push an agenda. This applies to Walrasians, Keynesians, MMTers, Marxians, Austrians, and Pluralists.
The problem with economics is how can society get rid of incompetent/stupid/corrupt fake scientists and political clowns like Paul Krugman, Warren Mosler, Simon Wren-Lewis, Steve Keen, Bill Mitchell, and not to forget you, the philosopher Tom Hickey, Matt Franko, Peter Cooper, Brian Romanchuk and all the rest of MMT trolls, and to move from incoherent blather to material/formal consistency and so finally become a science.#1, #2
Alternatively, simply rename MMT to MMP ― Modern Monetary Party ― and leave science. Mind you, a theory has to be materially/formally consistent and MMT is NOT.
#1
Economists: political trolls for 200+ years
#2 For details see
cross-references Failed/Fake Scientists
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REPLY to Calgacus on Mar 6
Your wordplay does not help. A theory has to satisfy the criteria of material/formal consistency. MMT does NOT. So MMT and MMTers are outside of science. MMT is political agenda pushing in a scientific bluff package, that’s all.
The MMT marketing/sales/PR team consists of characters like Stephanie Kelton who talks about ponies and care for the ninety-nine-percenters, and characters like Bill Mitchell who defines profit away by “consolidating” the business- and the household sector and by redefining profit as “private” or “non-governmental” saving. The MMT agenda pushers are going to great lengths asserting that deficits are good for the people and skating around the basic economic relationship
Public Deficit = Private Profit.
To come back to the core issue. Simon Wren-Lewis’ New Keynesianism is proto-scientific garbage, Bill Mitchell is right on this score. But Bill Mitchell’s claim that MMT is superior is provably false. The fact is, New Keynesianism is based on false microfoundations and MMT is based on false macrofoundations. So both approaches are axiomatically false.
What is common to both approaches is that they got profit theory wrong. And this is the real kicker: after 200+ years, economists of ALL schools do not know what profit is. So, the debate between Simon Wren-Lewis and Bill Mitchell has NO scientific content at all.
As a practical consequence, the best British Labour can do in the current situation is to keep both New Keynesians and MMTers out of their advisory council.#1
You say: “People don’t always have to be talking about profit.” No, but we are not on Facebook where people are supposed to hit the Like/Dislike button like lab rats. An economic theory/model that does not contain the variable profit lacks the most important element of economic reality. And what stupid people “think” about profit is irrelevant. Populism is important in politics but not at all in science. Just the opposite, the common sense people are the worst nuisance for science as already J. S. Mill made clear.
“People fancied they saw the sun rise and set, the stars revolve in circles round the pole. We now know that they saw no such thing; what they really saw was a set of appearances, equally reconcileable with the theory they held and with a totally different one. It seems strange that such an instance as this, ... , should not have opened the eyes of the bigots of common sense, and inspired them with a more modest distrust of the competency of mere ignorance to judge the conclusions of cultivated thought.”#2
What the MMT bigots of common sense say about profit is provably false. Profit is the foundational concept of economics, therefore the whole analytical superstructure of MMT is proto-scientific garbage.
By splitting up the elementary monetary economy into two sectors ― business and household ― two balances become visible: profit/loss and saving/dissaving. These variables are well-defined and measurable with the precision of two decimal places by proper National Accounting. With Bill Mitchell’s “consolidation”, i.e. the lumping together of the business- and the household sector, the balances between the sectors disappear again.#3 MMT’s “consolidation” is a methodologically inadmissible operation and because of this the “non-government sector” does NOT exist, it is a Humpty Dumpty construct.
What MMTers do is either idiocy or fraud.#4 With silly analogies and populistic blather, you are trying to obscure this plain fact. In vain, the proof stands: the tripartite MMT balances equation ― as extensively paraded at Google Images #5 ― is materially/formally inconsistent.
#1
Economists cannot do the simple math of profit — better keep them out of politics
#2
Marshall and the Cambridge school of plain economic gibberish
#3
MMT and the magical profit disappearance
#4
Post Keynesianism, science, and universal idiocy
#5
Google Images *
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| Source: Google Images MMT |
