DSGE and profit―forget it! MMT and profit―forget it!

Comment on Brian Romanchuk on ‘The Curious Profit Accounting Of DSGE Models’

Blog-Reference and Blog-Reference

Everybody knows that DSGE, as the actual version of the microfoundations approach, is dead. From this follows that a Paradigm Shift is needed: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)

One of the most conspicuous blunders of DSGE is the profit theory. Brian Romanchuk observes: “One of the more puzzling aspects of neo-classical economic theory is the assertion that profits are zero in equilibrium under the conditions that are assumed for many models. One should re-interpret this statement as ‘excess profits’ are zero, but there are still some awkward aspects to the treatment of profits in standard macro models.”

Indeed, there has been something deeply wrong with the profit theory since Adam Smith. Conventional ‘wisdom’ asserts: “The consensus to date has been that it is mathematically impossible for capitalists in the aggregate to make profits.” (Keen) And: “But, from the macro perspective of Walrasian general equilibrium, the total profits, in this case, cannot be other than zero (otherwise, we would need a Santa Claus to provide the aggregated positive profit) but this does not preclude the possibility of short-run profits and losses of individual firms canceling each other out.” (Boland) #1

The curious thing is that macroeconomic profit has been greater than zero for most of the time in most of the known market economies up to the present. This is an empirical fact. Obviously, there is something wrong with conventional profit theory, and Brian Romanchuk is not the first to notice it. As the Palgrave Dictionary puts it: “A satisfactory theory of profits is still elusive.” (Desai)

This, indeed, is the most damning verdict about economics, which claims to be a science: after 200+ years, economists still cannot tell what the pivotal magnitude of their subject matter ― profit ― is. This does not only apply to DSGE but to the four main approaches: Walrasianism, Keynesianism, Marxianism, and Austrianism are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the pivotal economic concept of profit wrong.

While Brian Romanchuk notes that DSGE profit theory must be false, he passes over the fact that MMT, the approach he pushes, is not one iota better.

To make matters short, the axiomatically correct relationships are given here without further explanation.#2 It holds, with Qm monetary profit/loss, Sm monetary saving/dissaving, I investment expenditures, G government spending, T taxes, X export, M import, Yd distributed profit:

(i) Qm≡−Sm in the elementary production-consumption economy,
(ii) Qm≡I−Sm in the elementary investment economy,
(iii) Qm≡(G−T)+(I−Sm) in the investment economy with government deficit/surplus,
(iv) Qm≡Yd+(X−M)+(G−T)+(I−Sm) in the open economy with distributed profit.

From (iii) follows that ― given business sector investment I and household sector monetary saving Sm ― Public Deficit = Private Profit. This tells one that the MMT policy of deficit spending/money creation benefits only the one-percenters.

It never follows the MMT tripartite balances equation (I−S)+(G−T)+(X−M)=0. The comparison with the axiomatically correct Profit Law (iv) makes it clear that MMT ― just like DSGE ― in effect deals with a zero profit economy, i.e., Qm, Yd = 0.

Because the foundational sectoral balances equation of MMT is provably false the whole of MMT is worthless, just like DSGE.

Egmont Kakarot-Handtke


#1 Debunking Squared
#2 MMT is idiocy and fraud
#3 Macro for retarded economists

***

REPLY to Brian Romanchuk and Anonymous on Mar 16 and Blog-Reference

Take notice that what you call “normal definition of income” is one of the worst methodological idiocies of economics. Needless to emphasize that the “normal economist” in his incurable scientific incompetence does not realize it.

Here, for intelligent non-economists, the Humpty Dumpty Fallacy in full detail.

In the elementary investment economy, macroeconomic profit Q is defined as the sum of profit in the consumer goods industry, i.e., Qc≡C−Ywc, and the investment goods industry, i.e., Qi≡I−Ywi, that is, Q≡(C−Ywc)+(I−Ywi) or Q≡C+I−Yw (i). Profit Q is greater than zero if the value of output C+I is greater than the total wage income Yw.

Now, Humpty Dumpty introduces a redundant definition by saying that profit may be called “income of the business sector” and that this “income” can be added up with the wage income of the household sector to “total income” Ψ, thus
(a) Ψ≡Q+Yw  and now (i) is rewritten
(b) Q+Yw ≡C+I and then, hey presto,
(c) Ψ≡C+I that is, “total income” is “by definition” identical to “value of output” or in the usual sloppy parlance “income = value of output” which obviously contradicts (i) and ― strangely enough ― makes profit disappear.

This definitional idiocy can be traced back to Keynes “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)

Take notice that “income” is NEVER equal to “value of output” and by implication that “saving” is NEVER equal to “investment” because profit is NOT “income”.

In accounting terms, wage income Yw is a flow from the business to the household sector, and consumption expenditures C is a flow in the opposite direction, and profit is the difference between the two flows Q≡C−Yw. To add a flow and a balance together is a category mistake. No accountant worth his salt would ever do it, but economists are Humpty Dumpties who do not even understand the elementary mathematics that underlies accounting. #1, #2

The analogous flow to wage income Yw is distributed profit Yd. It is methodologically CORRECT to add the two flows Yw and Yd together to total income, but it is INCORRECT to add the flow Yw and the balance Q together. #3

All this is way above the head of the “normal economist” who misspecifies the foundational economic concepts of profit/income/saving/distributed profit from Adam Smith onward to DSGE and MMT.

To argue that the “normal economist” treats profit for 200+ years without any qualms as “income” is to confirm that the “normal economist” is an incurable idiot, and this, in turn, explains the indisputable fact that economics is a failed/fake science.


#1 A tale of three accountants
#2 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
#3 How Keynes got macro wrong and Allais got it right

***

REPLY to Brian Romanchuk on Mar 16

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

This exactly is the task of the scientist: to figure out which of the conflicting ‘opinions and conventions’ is true. Economists have badly failed at this task.

Keynes is a case in point. He was entirely clueless: “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.). And: “Keynes related his definition of income expressly to ‘the practices of the Income Tax Commissioners.’ He was in grave doubt whether ‘it might be better to employ the term windfalls for what I call profits.’ But he was quite sure that ‘saving and investment are, necessarily and by definition, equal ― which after all, is in full harmony with common sense and the common usage of the world.’” (Coates) #1

After-Keynesians are no better: Kalecki defined profit as P=Cp+I, Minsky as P=I, and Keen applies the commonsensical but provably false Humpty Dumpty definition of total income = wages plus profits.#2

And so it goes on. Ricardo’s profit theory is false,#3 same as Marx,#4 same as MMT. Your assertion “there is general agreement on how to define profits in simpler cases (such as in a mathematical model)” is laughable.

Nothing shows better the scientific incompetence of economists than the fact that every half-wit applies his own confused definition of profit.

Physics has one definition of energy, and this magnitude is an element of a consistent set of foundational magnitudes. Economics has a wild variety of inconsistent profit definitions. And this is why economists never get above the level of confused blather.

The MMT balances equation reads (I−S)+(G−T)+(X−M)=0, the AXEC balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0. Only one equation can be true. As someone with applied mathematics training, you can certainly spontaneously tell which one.#5


#1 Marshall and the Cambridge School of plain economic gibberish
#2 Heterodoxy, too, is proto-scientific garbage
#3 Ricardo, too, got profit theory wrong
#4 Profit for Marxists
#5 Rectification of MMT macro accounting

***

REPLY to Roger Sparks on Mar 17 and Blog-Reference MNE

DSGE is the most recent actualization of the microfoundations approach, which was kicked off 150+ years ago by Jevons/Walras/Menger. DSGE is based on the neo-Walrasian axiom set: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

The representative economist has not realized it, but methodologically, these premises are forever unacceptable. It should be pretty obvious that the neo-Walrasian hardcore contains three NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5).

Methodologically, the microfoundations approach has already been dead in the cradle. It was Keynes who realized this and tried to move to macrofoundations. However, in his bottomless incompetence, Keynes messed up the Paradigm Shift. This is why the proto-scientific maximization-and-equilibrium rubbish is still around.

But Neoclassicals did not only get the axiomatic foundations of economics wrong, but also the mathematics. The proof has been given by the mathematician Jonathan Barzilai. #1

Whoever discusses in our days a DSGE model proves that he has no grasp whatsoever of science/mathematics. DSGE is the economics analog of the Flat Earth Theory and is considered worthy of discussion only by some simpletons.


#1 See An Open Letter to the President of the American Economic Association and An Open Letter to the President of the Canadian Economics Association

***

REPLY to Roger Sparks on Mar 17

Congratulations! It seems that you have reanimated Brian Romanchuk’s defunct brain cells. And what revolutionary insights they have produced in the shortest time:
• “You need gasoline to power your car; you cannot fill it up with dollar bills and have it run.”
• “… we need to distinguish financial assets from real ones.”

Who has ever thought such bold thoughts? I am looking forward to the continuation of this mind-boggling dialogue of imbeciles.

***

REPLY to Tom Hickey

You ask: “I wonder whether Nordhaus ever responded.”

Wrong question.

Right question: What follows from Jonathan Barzilai’s proof that economists never understood the mathematics they applied?

Right answer: Mr. Nordhaus is the representative of an association of failed/fake scientists. Whether he answered the Open Letter is a matter of indifference. Being the co-author of a supply-demand-equilibrium economics textbook tells everyone that he never had anything worthwhile to say.#1


#1 The father of modern economics and his imbecile kids

***

REPLY to Brian Romanchuk, Roger Sparks on March 19, and Blog-Reference MNE

Brian Romanchuk characterizes the DSGE profit equation: “The firm’s pure profit (Π) in real terms is given by (16.2.17): Π(t)=F(t, kb, n)−r(t)kb(t)−w(t)n(t), where w is the real wage, and r is the rental cost of capital.”

Because both of you have never understood what profit is, you do not know that there is no such thing as “profit in real terms”. Take notice that profit is a feature of the monetary economy and that it cannot be captured by a real model.

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 of the household and the business sector.#1

In this elementary economy, three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Yw, (ii) C is less than Yw, (iii) C is greater than Yw.

• In case (i), the monetary saving of the household sector Sm≡Yw−C is zero, and the monetary profit of the business sector Qm≡C−Yw, too, is zero. The product market is cleared, i.e., X=O in all three cases.
• In case (ii), monetary saving Sm is positive, and the business sector makes a loss, i.e., Qm is negative. The market-clearing price is lower than in (i).
• In case (iii), monetary saving Sm is negative, i.e., the household sector dissaves, and the business sector makes a profit, i.e., Qm is positive. The market-clearing price is higher than in (i).

It always holds Qm+Sm=0 or Qm≡−Sm, in other words, at the heart of the monetary economy is an identity: the business sector’s surplus = profit equals the household sector’s deficit = dissaving. And 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.

Profit is a purely nominal magnitude: NO share of output O corresponds to it. Under the condition of market clearing, the output always goes in full to the household sector. The correspondence of profit is an increase of money in the business sector’s cashbox, as every economist knows from Marx’s famous formula M―C―M’.

That no share of output corresponds to profit is logically obvious because the correspondence of loss would be a negative share of output, and that is a NONENTITY.

There is no such thing as a “real” profit. Profit is a nominal variable and the counterpart of dissaving. The DSGE concept of profit is as brain-dead as can be, and one has to be a brain-dead economist to take it seriously for more than one second. #2, #3


#1 The elementary production-consumption economy is given by three macro axioms: (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.
#2 The Profit Theory is False Since Adam Smith
#3 How the intelligent non-economist can refute every economist hands down

***

REPLY to Brian Romanchuk on Mar 19 and Blog-Reference MNE

You say: “In this case, all that it done is divide through by the price level. As long as prices are non-zero, that is a legitimate mathematical operation.”

This is simply NOT the case. Nobody, in fact, divides anything by the price level. The DSGE profit equation reads Π(t)=F(t, kb, n)−r(t)kb(t)−w(t)n(t) where F(·) is the “real” production function, where w is the “real” wage, and r is the “real” rental cost of capital. There is NO nominal variable in the equation and NO division through P.

The “real” DSGE profit formula is pure methodological BS and only good for the demonstration of the galactic dimension of economists' scientific incompetence.#1 Because you cannot even read the profit equation, you do not realize that it is all in real variables, while profit is a nominal variable that has to be determined by National Accounting.

Nobody in their right mind applies a Cobb-Douglas production function to determine profit.


#1 The futile attempt to recycle Sraffa

***

REPLY to Roger Sparks on Mar 19 and Blog-Reference MNE

You say, “I think the logical gaps between our three positions are very wide.”

Then, we have to determine in earnest who is right and who is wrong. As Popper said, if statements contradict, this shows that they are not all true.

You do not even understand the problem of macroeconomic profit. Marx did: “How can they continually draw 600 p. st. out of circulation, when they continually throw only 500 p. st. into it? From nothing comes nothing. The capitalist class as a whole cannot draw out of circulation what was not previously in it.”

This led to the conclusion: “The consensus to date has been that it is mathematically impossible for capitalists in the aggregate to make profits.” (Keen) And this zero-profit conclusion is obviously NOT in accordance with the empirical evidence for 200+ years.

Exactly at this point resides the logical gap = black hole of economists in general, and you and Brian Romanchuk in particular.

The mathematical solution to Marx’s problem of the very existence of macroeconomic profit reads Q≡−S, that is, the business sector as a whole can only draw more out of circulation if the household sector throws more into it; in plain English, profit = dissaving.

This is the core of the life formula of the economic system we happen to live in. Needless to emphasize that neither you, Brian Romanchuk, Walrasians, Keynesians, Marxians, nor Austrians ever understood it.

***

REPLY to Brian Romanchuk

To take DSGE seriously for longer than one minute and to wonder whether market-clearing is assumed (of course, this defines equilibrium in GE) is a sure indicator of substandard intellectual performance.

***

REPLY to Roger Sparks on Mar 20 and Blog-Reference MNE

You repeat the core of the axiomatically correct Profit Law, profit = dissaving, and then you go on saying, “Profits do you no good unless they can be used to improve your life and (hopefully) the life of others.”

You obviously do not grasp the implication of what I called the “life formula of the economic system we happen to live in”. Since profit is the very condition of the functioning of the economy, the life formula also tells you when the economy we happen to live in will break down.

This is something that neither DSGE nor MMT nor any other approach will tell you because economists do not know what profit is since economics was established as a proto-science by the silly blatherer Adam Smith.#1

The market economy breaks down as soon as macroeconomic profit turns into loss, and this is, in the most elementary case, when dissaving stops. The macroeconomic Profit Law for the general case reads Qm=Yd+(X−M)+(G−T)+(I−Sm), and you can figure out for yourself the conditions that turn profit eventually into loss.

If you do not understand the life-and-death formula of the monetary economy, there is no need to stop emanating blatant nonsense ― you can still have an absolutely senseless conversation about the crappy DSGE profit formula with Brian Romanchuk or, what amounts to the same, channel your grandma.


#1 Mathematical Proof of the Breakdown of Capitalism

***

REPLY to ANC Driver on Mar 24 and Blog-Reference MNE

To sum up. In their DSGE textbook, Recursive Macroeconomic Theory, Lars Ljungqvist and Thomas J. Sargent define macroeconomic profit in real terms. This is methodologically as idiotic as one can get because profit is a nominal variable. The DSGE model suffers from a dimensional inconsistency. Alone, for this reason, it is scientifically worthless.

Neither DSGEers themselves nor their critics have realized that the whole approach is proto-scientific garbage. On second thought, however, this is not really astounding because the representative economist swallows garbage like utility maximization and supply-demand-equilibrium already for 150+ years as if it were manna.

The alternative to microfounded DSGE is macrofounded Post-Keynesianism. It is not one iota better. The macro profit theory is provably false since Keynes.#1 This is the false MMT balances equation (X−M)+(G−T)+(I−S)=0, and this is the true equation (X−M)+(G−T)+(I−S)−(Q−Yd)=0 with profit and distributed profit greater zero.#2

Will Lars Ljungqvist, Thomas Sargent, Brian Romanchuk, Roger Sparks, and the rest of the mentally retarded microfounded macroeconomists ever get it? No chance, these folks have been lost in vacuous proto-scientific space for centuries.


#1 Forget Keynes
#2 True macrofoundations: the reset of economics

***

REPLY to Brian Romanchuk on Mar 25 and Blog-Reference MNE

You say, “The equation has been divided through by the price level … that’s a valid mathematical operation.”

The problem is that you are a substandard mathematician. Because of this, you do not realize that DSGE is materially and formally flawed.

The analytical superstructure of DSGE is based upon this set of hardcore propositions a.k.a. axioms:
HC1 There exist economic agents.
HC2 Agents have preferences over outcomes.
HC3 Agents independently optimize subject to constraints.
HC4 Choices are made in interrelated markets.
HC5 Agents have full relevant knowledge.
HC6 Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states. (Weintraub, p. 109) #1

HC3 introduces marginalism, which is the all-pervasive principle of standard economics. There are two methodological flaws here: (i) HC3 is an idiotic behavioral assumption, and (ii) constrained optimization of an ordinal preference order is an invalid mathematical operation, as the mathematician Jonathan Barzilai has proven (link has been given above).

Marginalism has been proto-scientific garbage from the very start.#2 DSGE is proof that economists are so stupid that they have not realized in 150+ years that their axiomatic foundations HC1/HC6 are invalid on all methodological counts.

The microfoundations approach is dead. Standard economics is dead. DSGE is dead. Nothing less than a Paradigm Shift will do. Methodologically, it holds: If it isn’t macro-axiomatized, it isn’t economics.


#1 Weintraub, E. R. (1985). General Equilibrium Analysis. Cambridge, London, New York, etc.: Cambridge University Press.
#2 Putting the production function back on its feet

***

AXEC143d Profit Law (with increasing complexity) and Sectoral Balances Equation ®

MMT: How mathematical incompetence helps the Kelton-Fraud

Comment on Brian Romanchuk on ‘Primer: The Kalecki Profit Equation (Part I, II)’

Blog-Reference and Blog-Reference

Under the title “Kalecki Profit Equation”, Brian Romanchuk presents 5 equations of increasing complexity referring to monetary economies of increasing complexity. This approach is obviously based on two of my posts. #1, #2 Insofar as it is correct, however, Brian Romanchuk still gets some essentials wrong. #3, #4 As a result, with his mathematical incompetence, he in effect helps the Kelton-Fraud. #5 Needless to emphasize that a mathematician is supposed to detect and correct logical errors/ contradictions and to secure formal consistency by strictly applying the axiomatic-deductive method.

To make matters short, a concise formal summary of the main points, which have been elaborated at length elsewhere, is given under the label of Graphic. #6

• Macroeconomic profit has to be derived from consistent macrofoundations. All microfounded profit theories are a priori false. #7

• First of all, the distinction between monetary profit (coll. money-in-the-cashbox/bank = tangible/measurable balance) and nonmonetary profit (coll. paper profit) is essential. Eq. (i)

• To speak of the “Kalecki Profit Equation” is utterly misleading. Kalecki’s equation is formally defective, and this has been demonstrated already in a 2011 working paper. #8.

• Eq. (iv) refutes all Keynesian and After-Keynesian I=S/IS-LM models from Hicks to Krugman and beyond. #9

• From the axiomatically correct Profit Law for the open economy with government and profit distribution, eq. (vi), follows the AXEC balances equation, eq. (vii), (I−S)+(G−T)+(X−M)−(Q−Yd)=0, which directly compares to the defective MMT balances equation (I−S)+(G−T)+(X−M)=0.

• The MMT balances equation features prominently in MMT presentations #10 for hiding the macroeconomic fact that Public Deficit = Private Profit. #11

Whether Brian Romanchuk does not realize that his Model 5 equation is inconsistent with the MMT balances equation or whether he intentionally obfuscates the issue is a matter of indifference. What counts at the end of the day is that he is in effect promoting the scientific and political fraud of MMT. #5

Egmont Kakarot-Handtke


#1 DSGE and profit―forget it! MMT and profit―forget it!
#2 Rectification of MMT macro accounting
#3 Profit: after 200+ years, economists are still in the woods
#4 The first to leave the sinking MMT ship?
#5 The Kelton-Fraud
#6 Graphic AXEC143d Profit Law and Balances Equation
#7 The Profit Theory is False Since Adam Smith
#8 What is Wrong with Heterodox Economics? Kalecki’s Profit Theory as an Example
#9 Keynes’s Missing Axioms
#10 Down with idiocy!
#11 MMT and the magical profit disappearance

Related 'Bill Mitchell, MMT’s fake scientist' and 'MMT: Academic snake oil for the people' and 'Cryptoeconomics ― the best of Bill Mitchell’s spam folder' and 'Political economics: Who hijacks British Labour?' and 'MMT: another case of inverted economics' and 'Truth by definition? The Profit Theory has been axiomatically false for 200+ years'.

***

REPLY to Joe Leote on Jul 7

You say: “Applying a national accounting model with specified ‘heroic’ assumptions Minsky uses the Kalecki profit identity to conclude that profits = investment.”

Yes, Kalecki came up with his profit definition and Minsky with his, and Keen with his, and anybody else with theirs. #1

As the ancient Greeks already observed: “There are always many different opinions and conventions concerning any one problem or subject-matter…. This shows that they are not all true. For if they conflict, then at best only one of them can be true.” (Popper)

The fact is that NONE of them is true. To this day, economists do not get the foundational concept of their subject matter straight.


#1 Heterodoxy, too, is proto-scientific garbage

***

REPLY Joe Leote on Jul 7

You say, “The majority of statements are neither true nor false.” True, indeed, 99.9 percent of statements are just brain-dead blather. The 0.1 percent is science.

Every layperson who is confronted with the statement: Mr. A has been murdered and you are the murderer, understands immediately the concept of scientific truth. Truth is (i) a binary concept, i.e., there is only true/false with NOTHING in between, and (ii) truth is objective, that is, provable in principle, and (iii) that it is worth every effort to find out the truth even if we cannot be absolutely sure that we will be successful.

Scientific truth has been well-defined for 2300+ years by formal and material consistency. However, there is a large swamp of cargo cult science (Feynman) where, as Keynes said, “nothing is clear and everything is possible.”

In the swamp, vagueness, indeterminacy, inconclusiveness, confusion dressed up as complexity, unresolved contradictions, storytelling, filibuster, gossip, finicky scholasticism (Popper), known/unknown unknowns, nonentities, vacuous doubt, silly beliefs, and the Humpty Dumpty Fallacy are the prevailing components of communication.

Economists are swampies. #1, #2 Economics is a failed science. To this day, economists have NOT gotten the foundational concept of their subject matter ― profit ― right. All microfounded (Walrasian) and macrofounded (Keynesian) models are provably false. Economists do not know how the economy works. Economics is a cargo cult science. The “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is a fraud.

To claim that there is no truth is an immunizing stratagem (Popper) of failed/fake/ stupid/corrupt proto-scientific blatherers. #3

You are on the wrong side of the demarcation line between science and non-science.


#1 Lousy scientists
#2 Economists ― medics or barber-surgeons?
#3 Failed economics: The losers’ long list of lame excuses

***

REPLY to Joe Leote on Jul 7

Kalecki’s profit equation is formally defective, and this has been demonstrated already in a 2011 working paper. #1 The correct “Kalecki” equation is given with eq. (v) in the Graphic compilation. #2

The compilation settles the profit issue. #3


#1 What is Wrong with Heterodox Economics? Kalecki’s Profit Theory as an Example
#2 Graphic AXEC143c Profit Law and Balances Equation
#3 For details, see cross-references Profit

***

REPLY to Brian Romanchuk on Jul 8 and Blog-Reference MNE on Jul 9

You say: “From my perspective, the issue is straightforward: do we want to model the operation of the industrial capitalist system that we have? If so, we need to stick with the definition of profit that capitalists use, …”

False! Capitalists know as much about capitalism as fish know about water ― nothing. This is long known: “… these people who live and move among the facts often, or mostly, cannot of themselves put together any precise reasonings about them.” (Bagehot, 1885)#1

This is why scientists redefine everyday concepts rigorously: “The only way to arrive at coherent languages is to set up axiomatic systems implicitly defining the basic concepts.” (Schmiechen)#2

The elementary production-consumption economy is, for a start, defined by three macro axioms (Y_w=WL, O=RL, C=PX), two conditions (X=O, C=Y_w), and two definitions (monetary profit/loss Q_m≡C−Y_w, monetary saving/dissaving S_m≡Y_w−C). From this follows Q_m≡−S_m, that is, macroeconomic profit comes in the most elementary case from the growth of household sector debt.#3

Capitalists don’t know this. Like goldfish, they know only how to swim in their little pond but have no idea where the water comes from.


#1 Bagehot’s wisdom and the silliness of modern economists
#2 How to get out of the swamp of ignorance
#3 Profit theory in less than 5 minutes

***

REPLY Roger Sparks on Jul 10 and Blog-Reference MNE

You say: “It is hard to distinguish whether owner income comes from investment, hours worked, skill, or some other feature associated with ownership.”

This is entirely beside the point. Obviously, you do not understand how macroeconomic profit and microeconomic profit are related.#1, #2

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, risk, greed, choice, etcetera. These factors affect only the DISTRIBUTION of profit between firms. Macroeconomic profit is in the most elementary case, given by Qm≡−Sm, that is, profit comes from the growth of the household sector’s debt.

The crucial point is this: Brian Romanchuk’s Model 5 equation can immediately be transformed into this balances equation (I−S)+(G−T)+(X−M)−(Q−Yd)=0, which directly compares to the MMT balances equation (I−S)+(G−T)+(X−M)=0.

Brian Romanchuk argues: “Now I have no idea what he’s going on about the MMT equation. If I am not mistaken, the MMT equation is a sectoral balances equation, and does not tell us about profit. People who care about accounting identities argue that the ‘senior MMTers’ are pulling some technical legerdemain with the definition of saving used. However, I do not deeply care about accounting identitities, so I really never looked into this alleged controversy.”

So-called accounting identities are elementary algebra. If Brian Romanchuk does not see that his profit equation ⇒ balances equation directly contradicts the MMT balances equation, he is an incompetent mathematician.

Worse, the MMT balances equation obscures the fact that Public Deficit = Private Profit and is used to politically deceive the ninety-nine-percenters.#3 Either Brian Romanchuk is an incompetent mathematician, or he is complicit in the MMT fraud.

Either way, his two posts about the “Kalecki Profit Equation” go down the scientific drain.


#1 Zero-sum capitalism
#2 Capitalism, poverty, exploitation, and cross-over exploitation
#3 Down with idiocy!

The first to leave the sinking MMT ship?

Comment on Brian Romanchuk on ‘Primer: The Kalecki Profit Equation (Part II)’ #1

Blog-Reference and Blog-Reference on Jul 5

Brian Romanchuk asserts: “The Kalecki Profit Equation is an account identity (a statement that is true by definition) that determines the level of aggregate business sector profits in terms of other national accounts variables.”

Brian Romanchuk simply parrots one of the economists’ many brain-dead slogans. Get it, there is NO such thing as a “statement that is true by definition”. In science, the truth of a statement is established by the proof of material and formal consistency.

It has been shown in earlier posts that Brian Romanchuk’s grasp of scientific methodology is rather weak. #2

The good news is that he now gets the macroeconomic profit equation right ― at least for monetary profit. The bad news is that he fails to notice that this equation flatly contradicts the MMT balances equation. The MMT balances equation reads (I−S)+(G−T)+(X−M)=0. From the axiomatically correct profit equation follows (I−S)+(G−T)+(X−M)−(Q−Y_d)=0. #3

Only one of the equations can be true. It is quite obvious that the MMT sectoral balances equation is false. Because Brian Romanchuk is an outspoken promoter of MMT, the interesting question is whether he is now the first to leave the sinking MMT ship. #4

Egmont Kakarot-Handtke


#1 Sequel to Profit: after 200+ years, economists are still in the woods
#2 For an overview, see
The curious non-existence of profit in economics
MMT and grassroots movements
Macroeconomics for retarded economists
The final implosion of MMT
Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?
Mathiness is NOT the problem — scientific incompetence is
Economists: only good at excuses
#3 DSGE and profit―forget it! MMT and profit―forget it!
#4 The Kelton-Fraud

Related 'MMT: How mathematical incompetence helps the Kelton-Fraud'. For the full-spectrum refutation of MMT, see cross-references MMT.

***

Graphic AXEC143d Profit Law (with increasing complexity) and Sectoral Balances Equation ®

Psychologism: how morons explain the world

Comment on Brian Romanchuk/Tom Hickey on ‘Canadian Establishment: "Deficit Myths? Yes, Please!"’

Blog-Reference

Brian Romanchuk explains: “The Canadian economic establishment is very much wedded to sound finance beliefs, courtesy of the Great Canadian Fiscal Crisis of the early 1990s.”

This sounds like an explanation, but is pure blather. First, who is the “Canadian economic establishment” and, second, how can we know to which beliefs this fictitious subject is wedded, and third, is there any way to prove that Brian Romanchuk's statement is true?

This psychological motive-imputation is as far away from science as can be. It is, however, the stuff political propaganda is made of. Read three Trump tweets, and you get the pattern.

Things are bad enough with fresh political events, but they get exponentially worse with historical events.

As usual, Tom Hickey cannot resist jumping headfirst into the poop: “As an aside, Germany still can't get over the Weimar hyperinflation and ignores the turnaround engineered by Reichsbank president Hjalmar Schacht that contributed to the economic success of the Hitler regime through ‘creative finance’.”

Folk psychologist Tom Hickey has “Germany” on his couch and diagnoses a trauma: hyperinflation.  And now it comes, “since the end of WWII, Germany has been firmly committed to ‘sound finance’.” That is hysteresis of the worst sort.

OK, Doctor, got it. Everybody who talks of sound finance is psychologically deranged. In particular, those people who accuse MMT of unsound economic policy. Your psycho-babble proves nothing, but it is good enough for social media trolling.

The first point to realize is: the attempt to explain things historically is bound to fail because, in most cases, we have NO such thing as a historical fact. Everybody could know this since 1440 when Lorenzo Valla “proved that the Donation of Constantine was a forgery.”#1 This can be extrapolated backward to the folks who fabricated the bible and forward to those who wrote the Warren Report, which “concluded that President Kennedy was assassinated by Lee Harvey Oswald and that Oswald acted entirely alone.” (Wikipedia)

Most people are aware that most of what is called history is silly propaganda. For this reason, it is a bad idea to use historical events or mere opinions about those events in an economic argument. History and psychology prove NOTHING. Scientific proof consists of the demonstration of material/formal consistency.

Psychoanalyzing the collective psyche of “Germany” and inflation is a futile exercise. What we know is (i) that hyperinflation does not happen by accident but has to be engineered, (ii) that it ruined the German economy, with the middle class as the primary victim. Given the historical context, the combination of Weimar/Inflation is a signifier of an unprecedented political/economical catastrophe and not for some irrational phobia. Inflation has to be understood less as a mental illness and more as a weapon of economic warfare/subversion.

Having enjoyed a thorough economic education, Germany” is well-prepared to smell an economic rat. MMTers understandably do not like this and call “Germany” a paranoid Swabian housewife.

All this has nothing to do with economics understood as science. It is just a political shit show. Scientifically, MMT is worthless and politically it is a fraud. Brian Romanchuk is part of it.#2

Egmont Kakarot-Handtke

#1 Wikipedia Lorenzo Valla

#2 For more about Brian Romanchuk, see AXECquery.

Related 'Bill Mitchell cracks the spending whip over the Swabian Housewife' and 'Swabian housewife vs Wall Street loan shark' and 'Links on Austerity' and 'PsySoc — the scourge of economics' and 'Economists cannot properly apply scientific tools' and 'Links on Inflation' and 'MMT has been conclusively refuted and MMTers can do NOTHING about it'. For details of the big picture, see cross-references Not a Science of Behavior.

***

REPLY to Global Markets Training on Sep 17

You say: “When a bank makes a loan they DEBIT the asset named LOANS and they CREDIT the liability named DEPOSITS. Look up any definition of money as M1 or M2 and you will see that loans create deposits hence create M1 or M2 hence create money.”

For all practical purposes and in normal times, central bank deposits and bank deposits are functionally identical. However, in the strict sense, bank deposits are near-money, only central bank deposits/notes are money. #1 This explains the phenomenon of bank runs, i.e., when many people suddenly try to get central bank money/notes for their bank deposits.

You say: “And I audited banks for Ernst & Young. So I think I know something about the debits and credits of which I speak.”

Agreed. But despite the fact that the underlying math is the same, business accounting and macroeconomic accounting are different things. Obviously, you have not yet realized that MMT gets the macroeconomic sectoral balances equation wrong.#2 This foundational blunder makes that MMT as a whole is scientifically worthless.#3

#1 The creation and value of money and near-monies

#2 “And, although a classically trained economist I now fully accept the complete MMT lens.”

#3 Wikipedia, economics, scientific knowledge, or political agenda pushing?

***

REPLY to Tom Hickey on Sep 20

I argued above, “For this reason, it is a bad idea to use historical events or mere opinions about those events in an economic argument. They prove NOTHING.”

For those economists who do not understand how the economy works and habitually try to explain actual problems with a reference to alledged historical precedents some devastating news about history in general just comes in: Almost all you know about history is probably wrong: How Long Was the First Millenium? #1

#1 See also Links on History and Economics

***

Twitter May 17, 2021 History got lost around 1900; what remained is propaganda

Krugman vs MMT ― like the blind talking about colors

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

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

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

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

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

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

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

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

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

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

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

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

Egmont Kakarot-Handtke


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

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

***

REPLY to Brian Romanchuk on Feb 15

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

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

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

***

REPLY to Brian Romanchuk on Feb 15

Just write down YOUR definition with 6 or 7 characters.

***

REPLY to Brian Romanchuk on Feb 16 and Blog-Reference

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

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

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

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

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

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

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

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

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

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

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

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


#1 See under the label Graphic AXEC143, Profit Law

***

REPLY to Brian Romanchuk on Feb 16

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

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

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

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


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

***

#PointOfProof
Feb 16

before

after

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

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

Blog-Reference and Blog-Reference and Blog-Reference

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

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

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

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

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

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

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

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

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

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

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

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

Egmont Kakarot-Handtke


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

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

***

REPLY to Joe Leote, Jerry Brown on Sep 26

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

It would be a good thing if economists could get economic theory right before they pester the world with their brain-dead policy proposals: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum) … or senseless blather.

***

REPLY to Crossover on Sep 26

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

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


#1 Why Post Keynesianism Is Not Yet a Science

***

REPLY to Brian Romanchuk on Sep 28 and Blog-Reference

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

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

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


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

***

REPLY to Brian Romanchuk on Sep 28 and Blog-Reference

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

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

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

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

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

Quod erat demonstrandum.

***

REPLY to stone on Oct 1

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

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

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

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

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

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


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

***

REPLY to Brian Romanchuk on Oct 2 and Blog-Reference

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

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

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

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

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


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

***

REPLY to Brian Romanchuk on Oct 2

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

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

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


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

Economics: How to stop mental pollution and global dumbing

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

Blog-Reference

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

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

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

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

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

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

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

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

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

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

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

Egmont Kakarot-Handtke


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

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