December 17, 2017

Demand-led and wage-led growth

Comment on Peter Cooper on ‘A Notion of Demand-Led Growth’

Blog-Reference

Peter Cooper argues within the Keynesian framework: “The Keynesian or Kaleckian view is that normally the economy is operating inside the ultimate supply limit to a degree that is determined by demand. The economy is therefore regarded as demand constrained under normal circumstances.”

Peter Cooper has not realized that Keynesian and Kaleckian macro is already dead since 80 years.

Keynes defined the formal foundations of the General Theory as follows: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (p. 63) This elementary two-liner is conceptually and logically defective because Keynes never came to grips with profit. (Tómasson et. al) Kalecki’s profit theory is not any better.#1 Because neither pro- nor anti-Keynesians realized the lethal methodological blunder, After-Keynesian employment theory is false until this very day.#2

To cut the meticulous formal derivation short, an elementary version of the axiomatically correct systemic Employment Law is shown on Wikimedia.


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

The complete employment equation is a bit longer and contains in addition profit distribution, public deficit spending, and import/export. The employment equation is composed of measurable real and nominal variables and is therefore testable.

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

So, there are two policy levers and what has to be done is to combine demand-led and wage-led expansion in order to get out of unemployment. The post-Keynesian preoccupation with demand is ultimately ineffective because each increase in the expenditure ratio can be counteracted by a decrease in the factor cost ratio. Therefore, economic policy must control both ratios.

The bottom line is that Peter Cooper’s post is a senseless repetition of arguments that were already false 80 years ago.#3

Egmont Kakarot-Handtke

#1 What is Wrong with Heterodox Economics? Kalecki’s Profit Theory as an Example
#2 Keynes’ Employment Function and the Gratuitous Phillips Curve Disaster
#3 For details see cross-references Employment


Related 'Robots, exploitation, and the reproducible economy' and 'Settling the Phillips Curve for good' and 'Full employment through the price mechanism'.

December 16, 2017

Robots, exploitation, and the reproducible economy

Comment on David Ruccio on ‘Don’t worry?!’

Blog-Reference

David Ruccio maintains “Sure, new forms of automation might lead to higher productivity and much else that Tyson and Lund find so alluring. But who’s going to benefit? If we go by the last few decades, large corporations and wealthy individuals are the ones who are going to capture most of the gains from the new technologies.” and “When it comes to separating fact from fiction, aside from the embarrassing epistemological positions liberals rely on, where are the statistics that might help us make sense of what is going on out there ― numbers like the Reserve Army of Unemployed, Underemployed, and Low-wage Workers or the rate of exploitation.”

This blather proves that heterodox economists, too, have no idea how the economy works.#1

In order to fully appreciate the proto-scientific state of both orthodox and heterodox economics one needs the axiomatically correct theory. Because economics is a failed science it has to be reconstructed from scratch.

As the new analytical starting point, the pure production-consumption economy is defined with this set of macroeconomic axioms: (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.

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

The price is determined by the wage rate, which takes the role of the nominal numéraire, and the productivity.

From (1) follows W/P=R, i.e. the real wage is equal to the productivity. So, for a start, labor gets the whole product.

Monetary profit for the economy as a whole is defined as Qm≡C−Yw and monetary saving as Sm≡Yw−C. It always holds Qm+Sm=0, or Qm=−Sm, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing total monetary profit is zero.

In order that profit comes into the world, consumption expenditures C must be greater than wage income Yw, that is, the household sector must run a deficit. This means, first of all, that profit for the economy as a whole has NOTHING to do with productivity. From the fact, that an individual firm can increase profit by increasing productivity does NOT follow that this is true for the economy as a whole. What we have here is the built-in blunder of microfounded economics, i.e. the Fallacy of Composition.

The axiomatically correct Profit Law is given for the GENERAL case as Qm=Yd+(I−Sm)+(G−T)+(X−M). Legend: Qm total monetary profit, Yd distributed profit, I investment expenditures, Sm monetary saving, G government expenditures, T taxes, X exports, M imports. Neither Walrasians, nor Keynesians, nor Marxians, nor Austrians got profit right until this very day.#3 This is why economics is a failed science and why economists have always been such a threat to their fellow citizens.

Now, we let robots in the pure production-consumption economy. The immediate effect of improved organization/machinery/robots is an increase in productivity.

From (1) follows that if the productivity increases over time the market clearing price falls. So, in order to avoid deflation, the wage rate has to rise with the same rate as productivity. Output O increases according to axiom (A2) O=RL. The real situation of the household sector, measured in output, improves continuously with increasing productivity R and employment L. Let L here denote full employment. The workers get the whole product O and profit Qm is zero because the budget is balanced C=Yw. The bottom line for the elementary production-consumption economy is that robots need not pose any problems with regard to underemployment or exploitation.

The problems come from another direction. Increasing output O (i) requires more raw materials/energy, and (ii), may run against the point of satiation/bliss point. So, there are limits to growth.

At the bliss point O* the economy switches from ascent to gliding, that is, the implicit causality of O=RL has to be changed to L=O*/R, that is, total labor time L is reduced with increasing productivity. In other words, the productivity increase translates at the bliss point O* into an increase of leisure.

The challenge is, how to reduce total labor input L without creating unemployment for a part of the labor force. The sustainable economy behind the bliss point works as follows: with productivity R up, L goes down and L per worker goes down proportionally, the wage rate goes up with the rate of productivity increase, the price remains constant, the real wage is always equal to the increasing productivity, the budget is balanced C=Yw, the market is cleared X=O, leisure increases across the board, L goes asymptotically to zero.

In the end, it holds “… in the long run leisure is an economic summum bonum.” (Georgescu-Roegen) The growth of material consumption is only an interim phase.

Egmont Kakarot-Handtke

#1 Heterodoxy and Pluralism, too, is proto-scientific junk
#2 Wikimedia, Pure production-consumption economy
#3 Profit for Marxists

December 15, 2017

Austrian idiocy ― the case of Hayek

Comment on David Glasner on ‘Hayek’s Rapid Rise to Stardom’*

Blog-Reference

At some point in history, economics left science for good and became part of the entertainment industry. Perhaps this was in 1931 when Hayek became the star of the London School of Economics.

The economic problem then was the Great Depression. Economists were expected to come forward with diagnosis and therapy. This expectation, indeed, was delusional because economists had no idea how the monetary works. Hayek was one them.#1

In order to fully appreciate the proto-scientific state of Austrianism one needs the axiomatically correct theory. Because economics is a failed science it has to be reconstructed from scratch.

As the new analytical starting point, the pure production-consumption economy is defined with this set of macroeconomic axioms: (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.

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


The price is determined by the wage rate, which takes the role of the nominal numéraire, and the productivity. The quantity of money is NOT among the price determinants. This puts the commonplace Quantity Theory forever to rest. The Quantity Theory, to recall, was one leg Hayek stood on.

From (1) follows that if the productivity increases over time the market clearing price falls. So, in order to avoid deflation, the wage rate has to rise with the same rate as productivity. The problem is that, when deflation and depression come together, the wage rate tends to fall, thus worsening the situation.

The critical insight at this point is that the market economy does NOT stabilize itself neither does it return to some acceptable equilibrium ― just the contrary. The price mechanism DESTABILIZES the economy. Needless to emphasize that Hayek and the other supply-demand-equilibrium storytellers never arrived at this insight. Hayek’s narrative of the market system as a superior information processor stands forever as a monument of utter scientific incompetence.

Monetary profit for the economy as a whole is defined as Qm≡C−Yw and monetary saving as Sm≡Yw−C. It always holds Qm+Sm=0, or Qm=−Sm, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the macroeconomic Profit Law. Under the condition of budget balancing total monetary profit is zero.

The Profit Law makes it immediately clear that saving is NEVER equal to investment.#3 There is NO such thing, as Hayek argued, as an “equilibrium relationship between savings and investment, investments being financed entirely by voluntary savings, …”.

What is needed in a monetary economy is two things (i) a central bank which creates money on its balance sheet in the form of deposits, and (ii), a legal system which declares the central bank’s deposits as legal tender.

Deposit money is needed by the business sector to pay the workers who receive the wage income Yw per period. The need is only temporary because the business sector gets the money back if the workers fully spend their income, i.e. if C=Yw.

Overdrafts are needed by the household sector for consumption expenditures if the households want to spend before they get their income. This time sequence is no problem for the central bank because the temporary overdrafts vanish with wage payments.

For the case of a balanced budget C=Yw, the idealized transaction sequence of deposits/overdrafts of the household sector at the central bank over the course of one period is shown in Figure 2.#4


The household sector’s deposits/overdrafts are zero at the beginning and end of the period. The business sector’s transaction pattern is the exact mirror image. Money, that is, deposits at the central bank, is continually created and destroyed during the period under consideration. There is NO such thing as a fixed quantity of money. The central bank plays an accommodative role and simply supports the AUTONOMOUS market transactions between the household and the business sector.

From this follows the average stock of transaction money as M=κYw, with κ determined by the transaction pattern. In other words, the average stock of money M is determined by the autonomous transactions of the household and business sector and created out of nothing by the central bank. There is NO such thing as a monetary policy.

The transaction equation reads M=κYw=κPX=κPRL in the case of budget balancing and market clearing and this yields the commonplace correlation between the average stock of money M and price P for a given employment level L, except for the fact that M is the DEPENDENT variable. If employment is doubled the average stock of transaction money M doubles. If the average wage rate rises with productivity the price remains constant, no matter how much the economy and the average stock of transaction money expands. Money is absolutely neutral in the elementary case of the production-consumption economy.

So much for the basics of the production-consumption economy and the basics of economics. With the investment economy things get a bit more complex.#5 The takeaway though remains the same: in order to get out of deflation and depression, the wage rate must rise faster than productivity. This does NOT happen spontaneously. The market system is NOT self-adjusting. Hayek’s fundamental premise is provably false. Because of this, the whole analytical superstructure of Austrianism is false.

Hayekian policy prescriptions lack sound scientific foundations and have only one effect: they worsen the situation. Hayek will be remembered as one of the imbeciles about which Napoleon spoke: “Late in life … he 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)

Egmont Kakarot-Handtke

#1 For details see cross-references Failed/Fake scientists
#2 Wikimedia, Pure production-consumption economy
#3 For details see cross-references Refutation of I=S
#4 Wikimedia, Idealized transaction pattern, household sector, balanced budget
#5 Full employment through the price mechanism

* See also Brad DeLong 'Must-Read: Samuel Bowles, Alan Kirman, and Rajiv Sethi: Reflections on Hayek'


Related 'Forget Hayek' and 'The myth of economics knowledge' and 'Equilibrium and the violation of a fundamental principle of science' and 'Hayek and other informationally retarded proto-economists' and 'The Law of Economists’ Increasing Stupidity' and 'Proof of the inherent instability of the market economy' and 'Iatrogenic economics' and 'Forget Krugman, forget Keynes, forget economists' and 'What Keynes really meant but could not really prove' and 'How to overcome the manifest silliness of Econ 101 and save the economy' and 'Could we, please, all focus on the key question of economics?'.

December 14, 2017

Throw them out! Orthodox and heterodox economists are unfit for science

Comment on Rethink Economics on ‘33 Theses for an economics reformation’

Blog-Reference

“Economics is broken.” The first three words of the heterodox Declaration are absolutely right. The fact to note is, though, that ‘economics’ includes BOTH orthodox AND heterodox economics. So, more to the point, both orthodox and heterodox economics is broken, and both orthodox and heterodox economists have to be speedily expelled from the sciences because of proven incompetence. There is nothing to reform in economics but all to replace. The call for a Reformation itself is proof of a hallucinatory mindset. In economics, nothing less than a Scientific Revolution will do.#1

The state of economics


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.

Economics claims to be a science but is NOT. Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years.#2

From Adam Smith/Karl Marx onward, economists claim that their economic policy guidance has scientific foundations. This claim is untenable because economists lack the true theory: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum) Scientific truth is well-defined since 2000+ years by material and formal consistency. There is NO such thing as a materially/ formally consistent economic theory.

Only one way out: the paradigm shift


Fact is that there is NO greater embarrassment in the history of modern science than economics. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the foundational concept of the subject matter ― profit ― wrong.

What we actually have is the pluralism of provably false theories. What is needed is the true economic theory. In methodological terms, this means that economics needs a paradigm shift. Both failed orthodox and failed heterodox economics has to be buried in the wastebasket, and both incompetent orthodox and heterodox economists have to be expelled from the sciences.

Heterodoxy’s failure consists in being content with critique and trivial suggestions for improvement and in being unable to develop the true economic theory. Traditional Heterodoxy is a futile dog and pony act: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)

Pluralism of false theories = the great coalition of scientific failures


Fact is that economics has by now degenerated to pure political agenda pushing. Both, Orthodoxy and traditional Heterodoxy violate the principle of the separation of science and politics. A short glance at the 33 Theses suffices to realize that the aim of Heterodoxy is NOT to fully replace the already debunked Orthodoxy with the true theory but to get more academic sales space for the already debunked self-made proto-scientific stuff.

Scientific ethics and political corruption


The strict separation of the scientific realm and the political realm is necessary because politics always and everywhere corrupts science. This point has been made abundantly clear by J. S. Mill: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.”

Retarded busybodies and political agenda pushers, of course, have done just the opposite and that is why economics is proto-scientific junk over the whole spectrum from DSGE to MMT. Economics is what Feynman called a cargo cult science.#3

The subject matter of economics


The mission of economists is (i) to figure out how the economic system works, and (ii), to figure out how the goals that have been set in the political realm by the legitimate sovereign can be achieved. The agenda pushing economist has to be expelled from the sciences. Agenda-pushing has to take place in the political realm. Economics has to get rid of political economics. Political economics in all variants from right-wing to left-wing is scientifically unacceptable. Economics is a systems science.#4

The 33 Theses do not advance science:


(i) Heterodoxy’s main complaint is the “unhealthy intellectual monopoly of mainstream economics.” This is true, of course, but beside the point. The point is that mainstream economics is provably false, i.e. materially and formally inconsistent, i.e scientifically forever unacceptable. Mainstream economics has to be fully replaced because it is axiomatically false.

(ii) Heterodoxy maintains that a “more pluralist approach can help economics to become both more effective and more democratic.” No, the goal of economics is the true theory and not the pluralism of false theories.#5

(iii) The subject matter of economics is the economic system as a whole. Psychology, Sociology, Behaviorism, Political Science, Geopolitics, History, Anthropology, Biology/Darwinism, Institutionalism, Law, Ethics, Philosophy are NOT economics. The valid results of these independent disciplines are taken into economics by way of multidisciplinary cooperation if needed. For 200+ years, economists have dabbled in almost all disciplines but have until this very day not figured out what profit is. Thus, both orthodox and heterodox dilettantes have become a scientific laughingstock.#6

(iv) Economics is NOT about Human Nature/motives/behavior/action. NO way leads from the second-guessing of individual/social behavior to the understanding of how the economic system works. The microfoundations approach had been doomed to failure from the very beginning. Heterodoxy has never supplied a valid alternative to Walrasian microfoundations. Keynesian macrofoundations, too, are provably false.

(v) Heterodoxy has not the capacity/ambition for developing the true economic theory but seeks ― for whatever reason ― to uphold the existing plurality of false theories: “A good economics education must offer a plurality of theoretical approaches to its students. This should include not only the history and philosophy of economic thought, but also a wide range of current perspectives – such as institutional, Austrian, Marxian, post-Keynesian, feminist, ecological, and complexity.” A good economics education has to offer the true economic theory and NOTHING else.

Traditional Heterodoxy is a scientific failure just like Orthodoxy. The much-hyped New Economic Thinking of Walrasians, Keynesians, Marxians, Austrians is nothing but the old proto-scientific junk in a new fancy format which is supposed to be more to the taste of the next generation of scientifically unfit economists.

The inevitable paradigm shift in economics consists in the replacement of false Walrasian microfoundations and false Keynesian macrofoundations by true macrofoundations.#7 Both orthodox and heterodox economists have to start a new full-time career as propagandists/ storytellers/trolls in the econoblogosphere or clowns in the political Circus Maximus.#8

Egmont Kakarot-Handtke

#1 Why is economics such a scientific embarrassment?
#2 For details see cross-references Political economics
#3 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#4 Economics is NOT a social science
#5 For details see cross-references Pluralism
#6 For details see cross-references Scientific incompetence
#7 From false microfoundations to true macrofoundations
#8 For details see cross-references The representative economist


Related 'How to restart economics' and 'Brief history of soapbox economics' and 'How the representative economist gets it wrong big time' and 'New Economic Thinking, or, let’s put lipstick on the dead pig'.

***
COMMENT on Tom Hickey on Dec 15

You say: “I see the issue (problem and challenge) as being chiefly ideological but also technical in part.”

You see it wrong. The point is that economics claims to be a science but is NOT. All explanations of failure are lame excuses.#1 Obviously, the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” is a case of intended/unintended deception/fraud.

The general public has to be informed that economic policy guidance has no sound scientific foundations ― and never had since Adam Smith/Karl Marx.

The problem is that Heterodoxy is not a real alternative to long falsified Orthodoxy. With their yearning for pluralism, heterodox economists are de facto the junior partners of intended/unintended deception/fraud.#2

This also holds for MMT. As a propagandist of MMT you are de facto accomplice of intended/unintended deception/fraud.#3

“Economics is broken” yes, this applies to DSGE and MMT and everything in between. Now the time has come to expel all the incompetent scientists and brain-dead agenda pushers from economics and to move ― after 200+ years of confused blather and silly propaganda ― from cargo cult science to science.

#1 Failed economics: The losers’ long list of lame excuses
#2 Why does Heterodoxy not abolish the fake Nobel?
#3 MMT: Money-making for the one-percenters

***
REPLY to Noah Way on Dec 17

Economics each year officially celebrates the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.

You say “'Economics' is not science. It is a system of competing ideologies. … Economics has never been a science ― and it is even less now than a few years ago. ― Paul Samuelson, Nobel Prize winner, Economic Sciences”

You are right, economics is the biggest blunder/fraud in the history of the sciences and Walrasianism, Keynesianism, Marxianism, Austrianism, Pluralism are part of it ― not to forget MMT.#1, #2, #3

#1 The real problem with the economics Nobel
#2 The father of modern economics and his imbecile kids
#3 MMT: The one deadly error/fraud of Warren Mosler

December 7, 2017

Selling public debt with Ricardo’s tear gland rhetoric

Comment on Simon Wren-Lewis’ ‘Government debt phobias, and possible cures’

Blog-Reference

Arguing against all kinds of land-related taxes, Ricardo took an emphatic social stance: “Such taxes, therefore, fall almost always upon the necessitous person, and must, therefore, be very cruel.” (Principles, p. 154) Needless to emphasize that Ricardo knew quite well that land taxes are normally not a concern of poor people but appear very cruel to rich people.

As a rule, economists put the poor widow in the foreground and in the emotional limelight when they lack sound arguments. Simon Wren-Lewis is no exception, he abuses the underpaid nurses in order to argue against reducing the public debt. When nurses or babies or pandas appear in an economic/political argument the odds are that the general public is taken for a ride.

The problem with the debt discussion is that it is macroeconomics and macro is scientific garbage since Keynes. The apex of scientific incompetence is microfounded macro. Keynesian macro, on the other hand, and Post Keynesianism and MMT as the latest reincarnation has been based on provably false balances equations.#1 Roughly speaking, macroeconomic profit theory is false and because of this, the whole analytical superstructure is false, and because of this, economic policy guidance lacks sound scientific foundations.

The point everyone can agree upon is “It makes perfect sense in many situations for the government to increase its debt.” Yes, but it should be added that public debt is always a bad deal for the ninety-nine-percenters.#2 The discussion about deficit spending and inflation is a red herring. The disastrous effect of a growing public debt is NOT on inflation but on the distribution of income and wealth.

Curiously, the word profit does not appear once in Simon Wren-Lewis’ post. Neither does it appear in the contributions of MMTers ― the most outspoken champions of deficit spending and the propagandists of the debt-does-not-matter meme.#3

From axiomatically consistent macrofoundations follows Public Deficit = Private Profit. With deficit spending, the business sector is always better off. The household sector, on the other hand, always holds the bag. It is taxed in real terms in the period of consumptive government deficit spending without realizing it. It is taxed in subsequent periods if interest on government debt is greater than zero, and it is taxed in nominal terms in the indefinite future, i.e. beyond the time horizon, in order to eventually redeem the accumulated government debt.

Neither orthodox nor heterodox economists have figured out how the price and profit mechanism works. Macroeconomics in general and the profit and employment theory, in particular, is provably false since Keynes.

Economists’ care for the poor widow and the unemployed teenager and the underpaid nurse, and the endorsement of popular social agendas is, as a rule, rhetorical window dressing. In particular, if the proposed policy is deficit spending and permanent increase in the public debt. The macroeconomic Profit Law states Public Deficit = Private Profit. MMT policy, in particular, is a wellness program for the one-percenters which is realized with the help of the sovereign money issuing state and paid for in real terms by the ninety-nine-percenters.#4

Egmont Kakarot-Handtke

#1 Rectification of MMT macro accounting
#2 MMT, money printing, stealth taxation, and redistribution
#3 MMT: The one deadly error/fraud of Warren Mosler
#4 For details of the big picture see cross-references MMT


Related 'MMT is ALWAYS a bad deal for the 99-percenters' and 'Austerity and the utter scientific ignorance of economists' and 'Austerity and the idiocy of political economists' and 'Austerity and the total disconnect between economic policy and science'

***
COMMENT on Jure Jordan on Dec 9

You say (i) “State prints its own money. Can you go bankrupt if you could print money?”

No, but that is NOT the issue. Distribution is the issue. If the state/central bank creates new money for the business sector to pay the wages for additional workers and the household sector as a whole spends total income on consumption, i.e. Ch=Yw, then the household sector gets the whole output and the price remains constant if average wage rate and productivity are constant, no matter how much the economy and the average stock of transaction money expands.#1

To produce money in order to enable the autonomous transactions between the business and the household sector is the original task of the central bank, that is, it has to see to it that THE ECONOMY never runs out of money.

If the state issues new money and it is added to consumption expenditures, i.e. C=Ch+Cg, there is a one-off price increase which results (i) in the redistribution of output, and (ii), in the monetary profit Qm=Cg. So, the household sector = ninety-nine-percenters is taxed in real terms via the price mechanism and the business sector = one-percenters makes additional profit. The real distribution and the distribution of financial wealth changes.

One can repeat this feat for an indefinite time without inflation. The central bank finances the deficit, and public debt vis-a-vis the central bank grows steadily if it is not consolidated by issuing interest-bearing bonds or other securities. These financial variants do NOT alter the fact that the wage income receivers are period after period TAXED in real terms without realizing it.

The price mechanism is NOT an information system as Hayek hallucinated but the very tool of stealth taxation/redistribution.

(ii) “No country pays off its debt, ever.”

This is a historical fact. But the indefinite rolling over does not make the debt disappear. The problem is simply pushed beyond the time horizon according to the old policy motto ‘After me, the deluge’. The question is what happens if the debt is eventually redeemed. And the answer is that the market economy breaks down.

(iii) “Debt interest is almost never paid by taxes but by new debt.”

True, but this is only ‘After me, the deluge’ with a vengeance. What MMT is in effect saying is, don’t worry, we will pay neither interest nor principal but, when the day of reckoning comes, redefine debt as a gift of the central bank.

The MMT debt-does-not-matter argumentation appeals to the corrupt part of the population. In the political realm, this kind of half-truth/trickery/deception/fraud is standard procedure. Economics, though, claims since 200+ years to be a science. The real problem starts when academics ignore the separation of science and politics and become the loudspeakers of Warren Mosler’s MMT sales team.#2

#1 MMT, money printing, stealth taxation, and redistribution
#2 MMT: Money-making for the one-percenters

December 5, 2017

Settling the Phillips Curve for good

Comment on Josh Hendricks’ ‘The Phillips Curve, Again’

Blog-Reference

Josh Hendricks summarizes: “the Phillips Curve is something that people desperately want to believe in, despite the lack of evidence.”

Not so. The Phillips curve has been messed up back in the 1960s by both pro- and anti-Keynesians. Thus it became one of the conspicuous landmarks of the cargo cult science economics. For the axiomatically correct Phillips curve see:
Egmont Kakarot-Handtke

Economists’ rude awakening

Comment on Peter Dorman's ‘The Great Awokening’

Blog-Reference and 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.

Economics claims to be a science but is NOT. Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years.

From Adam Smith/Karl Marx up to the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel” economists claim that their economic policy guidance has ― in contrast to those of politicians, cranks, demagogues, preachers, snake-oil sellers, agitators, impostors, etcetera ― scientific foundations.

Fact is that there is NO greater embarrassment in the history of modern science than economics. The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent, and all got the foundational concept of the subject matter ― profit ― wrong. What we actually have is the pluralism of provably false theories.

Both orthodox and heterodox economics is scientifically unacceptable. Because of this, economics has nothing to offer in the way of a well-founded advice: “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)

Fact is that economics has by now degenerated to pure political agenda pushing. A short visit of the econoblogosphere suffices to realize that economic content has virtually evaporated:
• Tolerance And Terrorism In Saudi Arabia#2
• John Davidson’s Bad Faith Defense of General Kelly#3
• If we treat plutocracy as democracy, democracy dies#4
• Republican Class Warfare: The Next Generation#5
and so on.

Since the founding fathers, economists violate the principle of the separation of science and politics. Economics is what Feynman famously called a cargo cult science.#6

Economics is currently completing its career from failed science to fake science to political fraud.#7 It is time now to expel economists officially from the sciences. The first step is to abolish the fake economics Nobel.

Egmont Kakarot-Handtke

#1 Why is economics such a scientific embarrassment?
#2 EconoSpeak
#3 Uneasy Money
#4 mainly macro
#5 Economist’s View
#6 What is so great about cargo cult science? or, How economists learned to stop worrying about failure
#7 For details see cross-references Political economics


For details of the big picture see cross-references Incompetence and cross-references Failed/Fake scientists and cross-references Debunking the representative economist.

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REPLY to Six on Dec 6

You say “Numbers can never explain ‘how the actual economy works’. They can just give one numerical description after the fact. You need the wordy part of economics to attempt to do the explaining part.”

On Wikipedia, MMT gives this formula for the interdependence of sectoral balances, G−T=S−I−NX, and a verbal description and then draws some economic policy conclusions.#1

The sectoral balances formula is provably false. Because of this, the “wordy part” of MMT is vacuous blather and the economic policy proposals, e.g. a pony for every American, are just silly sales talk.#2

Followers of MMT, of course, do not understand the balances formula but only the pony story. For political purposes the “wordy part” is sufficient.

Economics claims to be a science, and Mitchell, Tcherneva, Wray, Kelton, Fullwiler, Forstater, Kaboub, Tymoigne etcetera claim to do science. They are NOT. MMT is a proto-scientific sitcom and a pseudo-social spoof.#3

#1 Wikipedia, Modern Monetary Theory
#2 For the full-spectrum refutation see cross-references MMT
#3 Austerity: Who takes the little man for a ride?