July 24, 2017

Forget Hayek

Comment on David Glasner on ‘Hayek, Deflation and Nihilism’

Blog-Reference

There are TWO economixes: 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 consists of four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― which are mutually contradictory, axiomatically false, and materially/formally inconsistent.

A closer look at the history of economic thought shows that theoretical economics had been hijacked from the very beginning by the agenda pushers of political economics. Smith and Ricardo fought for Liberalism, Marx and Keynes were agenda pushers, so were Hayek and Friedman, and so are Krugman and Keen.

Political economists have achieved NOTHING of scientific value in the past 200+ years. Hayek was a political economist and utterly incompetent scientist. His foundational error/mistake/blunder consisted the assumption that the economy is inherently stable and heals itself. This has never been more than an assertion. No proof has ever been given. Worse, it can be proved that the market economy is inherently unstable.

Economics is a system science. Accordingly, the correct approach is not microfoundations but macrofoundations. The elementary version of the correct (objective, systemic, behavior-free, macrofounded) employment equation is shown on Wikimedia.#1

From this equation follows:
(i) An increase of the expenditure ratio rhoE leads to higher employment L (the Greek letter rho stands for ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase of the factor cost ratio rhoF=W/PR leads to higher employment.

Item (i) and (ii) cover the familiar arguments about aggregate demand. The factor cost ratio rhoF as defined in (iii) embodies the price mechanism. Fact is that overall employment INCREASES if the AVERAGE wage rate W INCREASES relative to average price P and productivity R. This is the OPPOSITE of what microfounded economics teaches.#2

Hayek’s vacuous theoretical blather in the 1930s boiled down to the proposal of flexible wage cuts: “Hayek viewed deflation as potentially beneficial if it would break the rigidities obstructing adjustments in relative prices.”

Hayek obviously had no idea how the market system works. The correct employment equation shows that a reduction of the wage rate W reduces employment L. This means that the market economy is inherently unstable. The commonsensical reaction to unemployment is a fall of the wage rate, but this increases unemployment.

The lethal methodological blunder of microfounded employment theory consists in the Fallacy of Composition, i.e. the illegitimate transfer of truths that hold for one firm/market onto the economy as a whole. False theory leads to false policy guidance. Scientifically incompetent economists bear the intellectual responsibility for the social devastation of mass unemployment.

“Late in life, moreover, he [Napoleon] claimed that he had always believed that if an empire were made of granite the ideas of economists, if listened to, would suffice to reduce it to dust.” (Viner)

Hayek was one in the long line of scientifically incompetent political economists who actively participated in the dustification of the market economy. He will find his ultimate proto-scientific resting place in the close neighborhood of flat-earthers.

Egmont Kakarot-Handtke

#1 For details see ‘Essentials of Constructive Heterodoxy: Employment
#2 For details see cross-references Employment

How money emerges out of nothing ― the functional account

Comment on Peter Cooper on ‘Short & Simple 10’

Blog-Reference

“Money is historically an emergent market phenomenon establishing a commodity money, but nearly all contemporary money systems are based on fiat money.”#1

“In MMT, ‘vertical’ money enters circulation through government spending. Taxation and its legal tender power to discharge debt establish the fiat money as currency, giving it value by creating demand for it in the form of a private tax obligation that must be met.”#2

Economists are storytellers, not scientists, and because of this, they explain economic phenomena historically. This is a bit dilettantish, just like physicists trying to derive the phenomena and laws of thermodynamics by recounting the history of major events from the Great Fire of Rome in AD 64 to Great Fire of London in AD 1666. Methodological fact is that the historical approach does NOT work in science. It explains NOTHING.

Therefore, money has to be derived FUNCTIONALLY within an analytical framework that is defined in detail by:
(i) Macrofoundations.#3
(ii) National Accounting, which determines the relationship between the nominal flows (wage income, consumption expenditures) and balances = differences of flows (saving/dissaving, loss/profit).#4
(iii) The relationship between the flows and balances of National Accounting and the changes of the stock of money/credit at the central bank.

Thus stock-flow consistency is secured. The pivot between stocks and flows is the positive or negative nominal balances.

In order to reduce the monetary phenomena to the essentials, it is supposed that all financial transactions are carried out (at first without costs) by the central bank. The stock of money then takes the form of current deposits or current overdrafts. From this follows quantity of money = debit side of the central bank’s balance sheet = current deposits.

In the initial period the conditions of market clearing and budget balancing hold. The central bank provides the transaction medium and creates money out of nothing. Loosely speaking, it finances the business sector’s payroll, whatever it is.

By sequencing the initially given period length of one year into months the idealized transaction pattern that is displayed on Wikimedia#5 results. It is assumed that the monthly income Yw/12 is paid out at mid-month. In the first half of the month, the daily spending of Yw/360 increases the current overdrafts of the households. At mid-month, the households change to the positive side and have current deposits of Yw/24 at their disposal. This amount reduces continuously towards the end of the month. This pattern is exactly repeated over the rest of the year. At the end of each sub-period, and therefore also at the end of the year, both the stock of money and the quantity of money is ZERO. Money is present and absent depending on the time frame of observation.

In period 2 the wage rate and the price are doubled. Since no cash balances are carried forward from one period to the next, there results no real balance effect provided the doubling takes place exactly at the beginning of period 2.

The transaction pattern looks the SAME if employment L is doubled and productivity R, wage rate W, and price P remain unchanged. So, only the REAL variables employment L and output O double, but the transaction pattern is identical with a doubling of the NOMINAL variables wage rate W and price P. This tells one immediately that the commonplace Quantity Theory is false.

From the perspective of the central bank, it is a matter of indifference whether the household or the business sector owns current deposits. The pattern of transactions#5 translates into the AVERAGE amount of current deposits. This average stock of transaction money depends on income according to  the transaction equation M=kYw.

The variable M is a straightforward period average which results from the AUTONOMOUS transactions between the business and the household sector in the pure consumption economy. The central bank enables the average stock of transaction money to expand or contract with the development of wage income. Analytically (not historically), money emerges from autonomous market transactions. In order that money comes into the world a central bank is needed which issues transaction money in parallel with expanding/ contracting wage income.#6 There is NO commodity like gold and no deficit spending government needed.

Both the Quantity Theory of Money and the Chartalist Theory of Money are figments of the historical imagination.

Egmont Kakarot-Handtke

#1 Wikipedia Money
#2 Wikipedia MMT
#3 Macrofoundations are given by (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) 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. The nominal variables Yw and C reappear in National Accounting.
#4 See Wikimedia National accounts (a) balanced budget, (b) saving, (c) dissaving
#5 Wikimedia Idealized transaction pattern
#6 For more details see ‘Essentials of Constructive Heterodoxy: Money, Credit, Interest’ and ‘Reconstructing the Quantity Theory (I)


Related 'Macro for dummies' and 'A crash course in macro accounting' and 'Where MMT got macro wrong'

July 23, 2017

The myth of economics knowledge

Comment on Simon Wren-Lewis on ‘The politics of ignoring knowledge’

Blog-Reference

Simon Wren-Lewis muses about the psychology of the Brexit vote and then generalizes: “I do not think this ignorance and hubris is confined to the UK’s role in the world. It also extends to an attitude to knowledge of all kinds, and I suspect it is possible to date when this began to the revolutionary zeal of the right under Thatcher.”

This explanation implies that there is valuable scientific knowledge of economists which is thrown to the wind by ignorant politicians. This is not how economic policy works. There is, to begin with, NO such thing as valid economic knowledge, only a rummage table of opinions from which politicians pick one for giving the impression that their measures have the blessing of science. This is not different from selling toothpaste with the testimonial of a white-coated dentist.

Here is the snag: “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)

It is well-known that economists do not have the true theory. This is their scientific track record: provably false
• profit theory, since 200+ years,
• Walrasian microfoundations (including equilibrium), since 140+ years,
• Keynesian macrofoundations (including I=S, IS-LM), since 80+ years.

ALL theories/models that contain profit, maximization-and-equilibrium, or I=S/IS-LM are a priori false and this is more than 90 percent of the content of peer-reviewed economic quality journals and 100 percent of textbooks of renowned authors since 1947, as well as 100 percent of what orthodox or heterodox or pluralistic economics professors teach beyond commonsensical trivialities.

It is, first of all, of utmost importance to distinguish between political 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 has to be judged according to the criteria true/false and NOTHING else. The history of political economics from Adam Smith to Keynes and Arrow can be summarized as utter scientific failure. Economics never had any truth value, only political use value.

Egmont Kakarot-Handtke


Related 'New Economic Thinking: the 10 crucial points' and 'Delusions of useful idiots' and 'Why Hayek was not a scientist' and 'Economics: Two ages of scientific incompetence'

Why don’t you do what Joan Robinson told you to do?

Comment on Lars Syll on ‘When ignorance is bliss’

Blog-Reference

The geniality of Joan Robinson is engraved in everlasting granite with this verdict about economics: “Scrap the lot and start again.”

To her fellow economists, she referred as “throng of superfluous economists”. Indeed, this is their track record: provably false
• profit theory, since 200+ years,
• Walrasian microfoundations (including equilibrium), since 140+ years,
• Keynesian macrofoundations (including I=S, IS-LM), since 80+ years.

ALL theories/models that contain profit, maximization-and-equilibrium, or I=S/IS-LM are a priori false and this is more than 90 percent of the content of peer-reviewed economic quality journals and 100 percent of textbooks of renowned authors since 1947.

The student of economic theory is taught supply-demand-equilibrium. This is proto-scientific rubbish, but “Before he ever does ask, he has become a professor, and so sloppy habits of thought are handed on from one generation to the next.” (Joan Robinson)

Thus, the propagation of silly orthodox economics goes on and on and the silly heterodox critique, too, goes on and on and 100 percent of what orthodox or heterodox or pluralistic muddle headed economics professors teach is provably false.

Joan Robinson realized this and told the world. High time now to do draw the logical consequence.*

Egmont Kakarot-Handtke

* See also
You are fired!
Joan Robinson and the ‘throng of superfluous economists’
Let’s do it
A science without scientists
Habermas, Albert, Robinson, Syll are right — now scrap the crap
The overdue public clarification of economics’ actual scientific state
Will economics ever become a science?

July 21, 2017

Minimum wage ― a fatal error in economic reasoning

Comment on NYT on ‘Minimum Wage and Job Loss: One Alarming Seattle Study Is Not the Last Word’

Blog-Reference

Economics suffers from the fact that the subject matter is ill-defined. Economists think that they are doing economics while they bungle amateurishly in sociology and psychology. What economists overlook is that their subject matter is the structure and behavior of the economic system and that all questions about Human Nature/motives/behavior/action are NOT their business.

Economics is a system science. Accordingly, the correct approach is not microfoundations but macrofoundations. The elementary version of the correct (objective, systemic, behavior-free, macrofounded) employment equation is shown on Wikimedia.

From this equation follows:
(i) An increase of the expenditure ratio rhoE leads to higher employment L (the Greek letter rho stands for ratio).
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase of the factor cost ratio rhoF=W/PR leads to higher employment.

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

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

“If the price of bananas is kept too high in relation to the price required to balance supply and demand there will be a surplus of bananas. If the price of bananas is below the market clearing price there will be a shortage. The same applies to labour. If the price ― i.e. the wage ― is too high there will be a surplus of workers, i.e. unemployment. If it is kept too low there will be a shortage of workers … Workers do sell their services just as banana producers sell their bananas.” (Brittain)

The banana theory of the labor market is just that: bananas. The lethal methodological blunder of microfounded employment theory consists in the Fallacy of Composition, i.e. the illegitimate transfer of truths that hold for one firm/market onto the economy as a whole.

False theory leads to false policy guidance. Scientifically incompetent economists bear the intellectual responsibility for the social devastation of mass unemployment.*

Egmont Kakarot-Handtke

* For details see cross-references Employment


Related 'The minimum wage debate: a showpiece of economists’ hereditary idiocy' and 'How economists murdered the economy and got away with it'

July 20, 2017

Economics: math-adorned incoherent blather

Comment on Jason Smith on ‘What mathematical theory is for’

Blog-Reference

Jason Smith asserts: “The primary purpose of mathematical theory is to provide equations that illustrate relationships between sets of numerical data.”

This is a bit shallow and does not reach the level of Wikipedia: “Mathematics is the study of topics such as quantity (numbers), structure, space, and change. … Rigorous arguments first appeared in Greek mathematics, most notably in Euclid’s Elements. Since the pioneering work of Giuseppe Peano, David Hilbert, and others on axiomatic systems in the late 19th century, it has become customary to view mathematical research as establishing truth by rigorous deduction from appropriately chosen axioms and definitions.”#1

Why mathematics is so admirably appropriate to the objects of reality is not fully understood: “I find it quite amazing that it is possible to predict what will happen by mathematics, which is simply following rules which really have nothing to do with what is going on in the original thing.” (Feynman) see also (Wigner) and (Velupillai)

How does this relate to economics? Walrasian economics, too, is axiomatized, the hard core premises are verbally given as follows: “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)

It should be pretty obvious that the Walrasian axiom set contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every model that contains a nonentity is A PRIORI false. And this is why mathematics does not work in economics and why economics is a failed science or what Feynman famously called a cargo cult science.

In practical terms, it follows immediately: as soon as the word equilibrium/disequilibrium appears in an economic paper or textbook it can be thrown into the waste basket. The same holds for all other nonentities. Note well that this holds also for Jason Smith’s information equilibrium.

The decisive insight for the role of mathematics in economics is: “If it isn’t macro-axiomatized, it isn’t economics.”

The natural math of economics is the elementary math of accounting. This is the formalism to start with and NOT SS-function-DD-function-solution.#2 The problem with economists is that they grab a piece of math from the math department and apply it without deeper understanding.

The cargo cultic methodologist Jason Smith asserts: “A big step in using math to understand the world is when you’ve collected several different empirically successful models into a single paradigm or framework. That’s what Newton did in the seventeenth century. He collected Kepler’s, Galileo’s, and others’ empirical successes into a framework we call Newtonian mechanics.”

And how does Newtonian mechanics start? Yes, with the axioms of motion, see Axiomata Sive Leges Motus at the very beginning of Principia.#3

Physicists got the axioms right and this is why math works, economists messed up the axioms (first and foremost with HC5, i.e. equilibrium), and this is why the representative economist became a scientific laughing stock. The economist-turned-physicist Jason Smith is no exception.#4

Egmont Kakarot-Handtke

#1 Wikipedia Mathematics
#2 Macro for dummies
#3 Wikipedia Newton’s laws of motion
#4 You are fired!


For details of the bigger picture see cross-references Math/Mathiness

***
REPLY to Neil Wilson on Jul 21

You say: “Physics envy again. … Changing the framework in physics doesn’t fundamentally alter the behaviour of the elements studied ― even in quantum physics. It does in social sciences and economics ― because they involve people with brains and emotions that change their mind.”

This is not a case of physics envy but of social science delusion. Economics is a system science, i.e. about the structure/behavior of the economy, and NOT a social science, i.e. about Human Nature/motives/behavior action. This is the subject matter of psychology, sociology, political science, etcetera.

Economists are simply at the wrong party and have not realized it since the founding fathers.

Standard economics is based on behavioral axioms (constrained optimization, rational expectations, equilibrium) and mathematics simply does NOT work with nonentities. The calculation that when three angels and four angels dance on a pinpoint then the total is seven angels is not applied arithmetic but brain-dead crap.

It is well-known among mathematicians, but not among economists, that not all mathematical structures incorporate “certain aspect of empirical reality”, which means, that there is a “... whole crop of monster-structures, entirely without application.” (Bourbaki)

Standard economics, i.e. supply-demand-equilibrium, is such a monster-structure, entirely without application. This is NOT the fault of mathematics but of abysmally incompetent economists. Count Jason Smith and yourself among them.*

* Incompetence — the original sin in economics

***
REPLY to Neil Wilson on Jul 21

You quote: “Newton’s law of gravity hasn’t changed for eons, Derman said, but human behavior in markets changes all the time, wreaking havoc on even the best models made by scientists.”

WOW, what a revelation! Guess what, this has been known to scientists of all ages except, of course, to retarded economists: “The bifurcation of motion into two fundamentally different types, one for natural motions of non-living objects and another for acts of human volition … is obviously related to the issue of free will, and demonstrates the strong tendency of scientists in all ages to exempt human behavior from the natural laws of physics, and to regard motions resulting from human actions as original, in the sense that they need not be attributed to other motions.” (Brown)#1

Economists, in their ignorance, built economics on a set of BEHAVIORAL axioms with utility maximization at the core. This was 140+ years ago and neither has Orthodoxy abandoned this proto-scientific rubbish nor has Heterodoxy come forward with something better. Economics has never risen above the level of folk psychology and folk sociology and second-guessing other people’s expectations.

Of course, there is NO such thing as a behavioral law or regularity or stable functional relationship, never was, never will be. Being axiomatically false, economics has to be abandonment and fully replaced.

There is no use to criticize Walrasianism, Keynesianism, Marxianism, Austrianism. It is ALL proto-scientific sitcom blather. The only question is how to replace these failed approaches as fast as possible.

The first step to a paradigm shift is to understand that economics is not a so-called social science like psychology/sociology and not a natural science like physics but a system science. The economist’s proper task is to look out for objective systemic laws and to empirically verify/falsify them. Science is about the invariants beneath changes on the surface and not a commonsensical description of what happens here and now. There are NO BEHAVIORAL laws but there are SYSTEMIC laws, and they are as objective, certain, mathematically exact, and eternal like physical laws.#2

#1 The existence of economic laws and the nonexistence of behavioral laws
#2 New Economic Thinking: the 10 crucial points

***
REPLY to Matt Franko, Six, Tom Hickey on Jul 22

Everybody can climb on a soap box and make an economic proposal ― except an economist. In the political realm, anything goes and no qualification is needed, only an emotionally backed opinion and some rhetorical talent. An economist, on the other hand, is supposed to be a scientist and to know what he is speaking about, that is, to know how the economy works.

Economists who have no scientific knowledge are at the same level with political cranks and these morons thrive when the economy is sluggish or worse: “A sure sign of a crisis is the prevalence of cranks. It is characteristic of a crisis in theory that cranks get a hearing from the public which orthodoxy is failing to satisfy. In the thirties we had Major Douglas, and social credit — it can all be done with a fountain pen — and Warren and Pearson who convinced President Roosevelt that raising the dollar price of gold would raise the price of everything else and bring the slump to an end. The cranks are to be preferred to the orthodox because they see that there is a problem. Nowadays we have plenty of cranks taking up the problems that the economists overlook.” (Joan Robinson)

The difference between a crank and an economist is NOT in the political orientation but in the necessity that the proposal of the economist must have a sound theoretical foundation. That is, the economist must be in the possession of the true theory: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

Now, scientific truth is defined by material and formal consistency and the problem of economics is that we know for sure that economics is false: the four main approaches — Walrasianism, Keynesianism, Marxianism, Austrianism — are materially and logically inconsistent.

So, people like Krugman have to be opposed NOT because they are liberal or conservative but because they are scientific fraudsters: they speak in the name of economic science but there is NO such thing as economic science.

How is scientific knowledge established? “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)

And this is the point where math comes in. Math is simply the best available means to establish logical cohesion. And here, in turn, is where the problem of economists with math comes in: as natural born muddleheads and cranks they abhor nothing more than logic. Fact is that economists do not even get the elementary mathematics of accounting right.* Where things become comical is when these folks cover their stupidity by posing as philosophers.

* Macro for dummies

***

REPLY to Neil Wilson on Jul 22

The curriculum at British schools is the business of the British people. Likewise for the US. No economist has to tell these or other countries how to organize their education and what to teach. The business of economists is to figure out how the economy = world economy works. Fact is that economists are failed/fake scientists. They do not even know the elementary mathematics of accounting, which, if anything, is the minimum condition of doing economics.*

Economists are a public nuisance because they have an opinion on everything but knowledge of nothing.

* See also ‘A new curriculum for swampies?

Intellectual deficit spending

Comment on Lars Syll on ‘The balanced budget paradox’

Blog-Reference and Blog-Reference on Jul 24

Lars Syll gives a vivid description of the utterly confused state economists are in since 200+ years: “The pros and cons of public debt have been put forward for as long as the phenomenon itself has existed, but it has, notwithstanding that, not been possible to reach anything close to consensus on the issue — at least not in a long time-horizon perspective. One has as a rule not even been able to agree on whether public debt is a problem, and if — when it is or how to best tackle it. Some of the more prominent reasons for this non-consensus are the complexity of the issue, the mingling of vested interests, ideology, psychological fears, the uncertainty of calculating ad estimating inter-generational effects, etc., etc.”

Lars Syll gives the catch-all reason for the failure of economists — complexity of the issue#1 — and thus remains true to the custom of solidarity among fellow economists to avoid the real issue, which is all-around scientific incompetence.

It is not only the question of public debt which is stuck in the swamp where ‘nothing is clear and everything is possible’ (Keynes), it is ALL of economics. The fact is that the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept profit wrong.

Isn’t it curious that in Lars Syll’s comprehensive discussion of public deficit spending and functional finance the word profit does not appear once? The simple reason is that the profit theory is false since Adam Smith, therefore profit either does not at all appear in the models or in misspecified form.

The problem is that economists in general and Lars Syll, in particular, do not understand the elementary mathematics of macroeconomic accounting.#2 Let us make matters short here. The balances of the business sector, the household sector, the government sector and the rest of the world are interrelated as follows: Qm≡-Sm+I+Yd+(G-T)+(X-M). This boils down to Qm≡-Sm+(G-T) for I, Yd, X, M = 0.

So, there are two limiting cases: (i) If the household sector’s saving Sm goes up and the government’s deficit (G-T) goes up by the same amount the monetary profit of the business sector Qm remains unchanged. (ii) If the household sector’s saving Sm remains unchanged and the government’s deficit (G-T) goes up the profit of the business sector Qm goes up by the same amount.

So, the counterpart of an increased public deficit is either increased saving of the households or increased profits of the firms or some combination of the two. Therefore, to say that the counterpart of an increased public deficit is an increased surplus of the ‘private sector’ obscures important real world differences.

What is entirely missing in Lars Syll’s discussion of public debt is that public deficit spending is, first of all, a profit machine.#3 This is not different from private deficit spending. In the past decades the US households increased their debt, that is, they were dissaving. So, BOTH the private and public households ran deficits. From the formula above follows that this boosts profit Qm TWICE. And this is exactly what has been observed and criticized as a catastrophic deterioration of the income distribution.

The interrelation between changes of public debt and profit is obscured by lumping together the business sector and the household sector to the ‘private sector’ and repeating the idiocy ‘We owe the debt to ourselves’.

Egmont Kakarot-Handtke

#1 See also ‘Failed economics: The losers’ long list of lame excuses
#2 ‘Macro for dummies
#3 See also ‘Keynesianism as ultimate profit machine


Related 'New Economic Thinking: the 10 crucial points' and 'You are fired!' and 'Austerity and the idiocy of political economists' and 'Replacing sand by granite' and 'First Lecture in New Economic Thinking' and 'Macrofounded labor market theory' and 'The minimum wage debate: a showpiece of economists’ hereditary idiocy'