October 2, 2017

Why is MMT so false?

Comment on Simon Wren-Lewis on ‘Why is MMT so popular?’

Blog-Reference and Blog-Reference and Blog-Reference and Blog-Reference on Oct 3

Simon Wren-Lewis positions himself as follows: “Policymakers following austerity when they clearly should not annoys me a great deal, and I am very happy to join common cause with MMT on this. By comparison, the things that annoy me about MMT are trivial, like a failure to use equations and their wordplay.”

When the all-pervasive cloud of blather is blown away the hard formal core of MMT emerges in the form of the familiar sectoral balances equations.#1 These equations can be traced back to Keynes’ General Theory and they are provably false since then. Here is the mother of all false macro relationships: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (p. 63)

Being scientifically incompetent, After-Keynesians did not spot the lethal blunder in this two-liner. Fact is that Keynes got macroeconomic profit wrong. Because the formal core as given with the two-liner is false the whole analytical superstructure of Keynesianism, Post Keynesianism, New Keynesianism, and MMT is false. All share the same foundational defect. This means that MMT policy proposals are plucked out of the thin air of common sense and populism.

For the general public, the essential points are:
• MMT has NO sound scientific foundations,#2
• MMT’s sectoral balances equations are mathematically false,
• MMTer violate scientific standards on a daily basis,
• MMTer camouflage the profit effects of their economic policy agenda,#3
• MMT policy advances the cause of the one-percenters,
• MMT is political agenda pushing in a scientific bluff package.#4

Egmont Kakarot-Handtke

#1 Wikipedia, Modern Monetary Theory and Sectoral balances
#2 For the full-spectrum refutation see cross-references MMT
#3 MMT and the magical profit disappearance
#4 MMT: Just political heat, no scientific light

***
ADDENDUM on Oct 3, also on MainlyMacro

In their Working Paper No. 37 ‘The Natural Rate of Interest is Zero’ Warren Mosler and Mathew Forstater state:

“The government budget deficit is also ‘normal’ in the sense that it is the mirror image of the non-Government surplus in the basic macroeconomic accounting identity:

Government deficit = non-Government surplus

where non-Government surplus includes both the domestic (or resident) private sector and the foreign (non-resident) sector, which includes foreign firms, households, and governments. It is therefore equivalent to the well-known identity:

(G–T) = (S–I) + (M–X)

Government budget deficit = domestic private sector surplus + foreign sector surplus where the foreign sector surplus is another way of expressing the trade deficit. The government budget deficit permits both the domestic private sector and the foreign sector to ‘net save’ in the government’s unit of account. Only a domestic government budget deficit permits the domestic private sector and foreign sector to actualize their combined desired net saving.” (p. 8)

Let us ignore foreign trade here, i.e. M, X = 0, then MMT asserts

Government deficit = non-Government surplus

This is false because non-Government consists of the household sector and the business sector. Therefore, for any given level of household sector saving/dissaving holds:#1

Government deficit = Business surplus or Public Deficit = Private Profit.

Because the fundamental balances equation of Mosler/Forstater is false most of the paper’s content is worthless or misleading or mere descriptive/historical storytelling.

#1 Rectification of MMT macro accounting


Immediately following 'Saving NEVER equals investment'
Also following 'MMT was always right: Gov-Deficits do NOT cause inflation'
Immediately preceding 'MMT: Just political heat, no scientific light'