The New York Times | Opinion
How We Think About the Deficit Is Mostly Wrong
Stephanie Kelton | former chief economist for the Senate Budget Committee Democratic staff and professor of public policy and economics at Stony Brook University
Thursday, October 5, 2017
Stephanie Kelton — How We Think About the Deficit Is Mostly Wrong
The New York Times | Opinion
How We Think About the Deficit Is Mostly Wrong
Stephanie Kelton | former chief economist for the Senate Budget Committee Democratic staff and professor of public policy and economics at Stony Brook University
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'Perhaps no one is more skilled in the dark art of deficit deception than Representative Paul Ryan, the House speaker. He has described the budget outlook as a “fiscal train wreck,” and he has demanded cuts to programs like Social Security and Medicare in the name of protecting future generations from a “crushing burden of debt.” Stephanie Kelton.
A good article. Hey, no talk of the rich coughing up a bit to help out, or cuts to the military budget! Perhaps it didn't occur to Paul Ryan and his team.
"In a more rational world, lawmakers would abandon the crude C.B.O. scoring model and recognize that the risk of overspending is inflation, not bankruptcy. "
I wonder what is meant by "overspending"...
Amazing! Congratulations, Stephanie!
MMT: Redistribution as wellness program
Comment on Stephanie Kelton/Op-Ed* on ‘How We Think About the Deficit Is Mostly Wrong’
What the layperson and most economists cannot see is that MMT has NO sound scientific foundations. The MMT models are based on Keynesian macro which has been refuted long ago.#1 As a rule of thumb, economic policy proposals of MMTers cannot be taken seriously.
First of all, the false MMT macrofoundations have to be fully replaced. As the correct analytical starting point, the pure production-consumption economy is defined with this set of macro 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 the price is given by P=C/X=W/R (1), i.e. the market clearing price is in the initial period 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
From (1) follows that that the real wage is equal to productivity, i.e. W/P=R (2). The wage income receivers get 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, 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 Profit Law. Under the condition of budget balancing, total monetary profit is zero.
Now, the sovereign government decides, following Stephanie Kelton, that every American shall get a pony for free, or in more abstract terms, that a part of output shall be redistributed. This measure is intended to increases employment and output and to improve the distribution of output.
It is assumed for simplicity that in the next period the business sector doubles initial employment L0, i.e. L1=2L0. The wage rate W remains unchanged and therefore total wage income doubles, i.e. Yw1=W2L0. Under the condition of budget balancing, the household sector’s consumption expenditures, too, double Ch1=Yw1=2WL0.
The market clearing price is again P=W/R and since neither wage rate W nor productivity R change the price, too, remains unchanged, i.e. P1=P0. So does the real wage (2). Again, the wage income receivers get the whole product.
However, if government expenditures in period 1 are Cg1 and taxes are zero then things change. Total expenditures are now C1=Ch1+Cg1=2Ch0+Cg1, that is, are more than double the expenditures in the initial period. On the other hand, output exactly doubles O1=RL1=R2L0. The market clearing price is now P1=C1/X1=(2Ch0+Cg1)/2X0=P0+Cg1/2X0, that is, the market clearing price rises compared to the situation with no government deficit spending. This is a one-shot increase and has NOTHING to do with inflation.#3 The price increase effects the redistribution of output O first between the household and the government sector and ultimately within the household sector. The real wage of the wage income receivers is now lower, i.e. W/P1 instead of W/P with P1 higher than P. The wage income receivers no longer get the whole product. Part of output is transferred via the government to other households. What happens in effect is a redistribution of output without taxation. The wage income receivers are taxed via the price increase.
See Part 2
Part 2
The government runs a deficit, i.e. Cg is greater zero and T is zero. The money comes from the central bank, i.e. is created out of nothing.
The profit of the business sector Qm was zero in the initial period, because of C=Yw, and is now positive, i.e. Qm=Cg1, i.e. equal to the budget deficit. It always holds Public Deficit = Private Profit.
This can go on for an indefinite time with public debt vis-a-vis the central bank rising continuously and with the business sector’s pile of money rising continuously and with the redistribution of output going on continuously and with price stability.
MMT has no valid scientific foundations#4 but achieves four stunning feats of shell-game economics, (i) real redistribution among the households a.k.a. working class via the anonymous price mechanism instead of taxation, and (ii), a profit boost for the business sector, and (iii), safe interest revenues for the business sector in subsequent periods if profits are invested in government bonds which are supposed to consolidate the government’s debt, and (iv), a deflation of indefinite length because of government’s tax financed interest payments.#3
The thing Stephanie Kelton and MMTers are really good at is economic policy marketing for the one-percenters.
Egmont Kakarot-Handtke
#1 How Keynes got macro wrong and Allais got it right
http://axecorg.blogspot.de/2016/09/how-keynes-got-macro-wrong-and-allais.html
#2 Wikimedia, Pure production-consumption economy
https://commons.wikimedia.org/wiki/File:AXEC31.png
#3 MMT was right all along: Gov-Deficits do NOT cause inflation
http://axecorg.blogspot.de/2017/10/mmt-was-always-right-gov-deficits-do.html
#4 For the full-spectrum refutation of MMT see cross-references
http://axecorg.blogspot.de/2017/07/mmt-cross-references.html
I like this tweet by Stephanie:
“Keynesians: Deficits are OK *sometimes* but we must “keep our powder dry” (austerity later)
MMT: You own the gunpowder factory”.
Brilliant!!!
See:
https://twitter.com/StephanieKelton/status/915955384078225409
My only quibble with it is this. Did Keynes himself actually say anything about keeping powder dry? In the letter he sent Roosevelt in 1933 he pretty much just said print money and spend it till the recession is over.
I suspect it was the hangers on and time wasters who came later and who call themselves “Keynsians” who invented the the “keep the powder dry” idea.
Anyone know of any sources / quotes to back up the latter idea of mine?
I suspect it was the hangers on and time wasters who came later and who call themselves “Keynsians” who invented the the “keep the powder dry” idea.
Anyone know of any sources / quotes to back up the latter idea of mine?
Bill Mitchell, Keynes would not support fiscal austerity
Peter Cooper, Balancing the Budget Over the Cycle
Peter Martin, We need to balance the Budget over the business cycle as Keynes suggested, right?
Egmont they do start to call into question the CBO Accounting here...
Thanks Tom. Actually Keynes's phrase "Look after unemployment and the budget will look after itself" strongly implies he didn't believe in keeping the power dry.
MMT deals with the emotional revulsion people have toward money printing in the unit of account in which they save better than K
proper Keynesians because the JG sets the price of labor and anchors slippery slope political proclivities for profilgacy with unpopular tax hikes to constrain inflation. High inflation in MMT means high taxes so voters will punish politicians who get carried away.
I think that Keynes would likely agree with the MMT position that automatic stabilization results in the fiscal balance expanding and contracting counter-cyclically, but that stimulus could be required in certain situations, in which case it would be diminished and withdrawn as conditions indicate.
The basic idea is matching effective demand to economic conditions as needed through fiscal operations. This is "fiscalism."
"Monetarism" is about the central bank affecting the money supply through its monetary policy, inducing interest rates. This channel is assumed to be through private credit expansion and contraction, independently of fiscal policy or to counter "inflationary expectations" engenders by fiscal policy.
Keynes viewed interest rates in terms of affecting both productive investment and propensity to save, but not in terms of saving causing investment. Increasing saving does not increase productive investment. To the contrary, increased saving leads to an uptake in demand leakage which bleeds into unplanned inventory and reduced investment.
Is high taxes the only way to decrease inflation? Why not just cut arms spending or jack up interest rates like Paul Volcker did?
Tyler, I'm sure interest rate hikes constrain demand and inflation. But the big question is: what's the best way to constrain demand (when that needs to be done) - fiscal or monetary policy. Or more generally: what's the best way way of adjusting demand: fisc or mon?
Warren Mosler and Milton Friedman's answer is fiscal. That is, both of them advocated a permanent zero rate. I agree. In other words I think we should chuck monetary policy (though I go along with Friedman's idea that interest rate hikes (i.e. large scale government borrowing) may be justified in emergencies, like war-time.
My reason for saying that is that is that given inadequate demand, the state should certainly run a deficit (i.e. create money and spend it into the private sector, and/or cut taxes). But to get interest rates up IN ADDITION, the state needs to create and spend an EXCESSIVE amount of money and then borrow some of it back so as to raise interest rates. That strikes me as being an entirely artificial interference in the market forces which determine interest rates. Far as I'm concerned, GDP is maximised when prices are set by market forces, unless someone can explain why the free market doesn't work in any particular instance.
What if things start to take off and economists start to say there is "inflation!" meanwhile the deficit collapses?
Then what?
I thought Warren's explanation for the end of 70s "inflation!" was deregulation of nat gas?
That's correct, Matt, but I can't help but wonder if it was primarily the recession that killed the inflation. I think Dean Baker would argue that the recession was caused by Volcker's rate hike.
Tom Hickey
(i) You maintain “I think that Keynes would likely agree with the MMT position that automatic stabilization results in the fiscal balance expanding and contracting counter-cyclically, but that stimulus could be required in certain situations, in which case it would be diminished and withdrawn as conditions indicate.”
This is fruitless speculation. Fact is that Keynes got macro wrong and, after 80+ years, Post Keynesians and MMTers are still behind the curve.#1
(ii) Stephanie Kelton says: “Perhaps no one is more skilled in the dark art of deficit deception than Representative Paul Ryan, the House speaker.”
In fact, Stephanie Kelton is second to none. In the Pavlovian exchange of worn-out arguments, she avoids carefully to mention the pivotal economic concept profit.
• “Government spending adds new money to the economy, and taxes take some of that money out again. It’s a constant churning of pluses and minuses, and their minuses become our pluses.”
False, their minuses become the pluses of the business sector = overall macro profit.
• “And since many Americans are missing it, too, they end up applauding efforts to balance the budget, even though it would mean erasing the surplus in the private sector.”
For private sector read business sector.
• “When there’s a deficit, some of that new money can be traded in for a government bond. What’s often missed in the public debate is the fact that the money to buy the bond comes from the deficit spending itself.”
Right, the main part of accumulated profit is used for bond buying and getting riskless additional interest revenues courtesy of government’s taxing power. That’s benefit squared for the business sector: profit plus interest on non-distributed profit.
• “… the math always adds up.”
True, it holds Qm=(I-Sm)+(G-T) or Public Deficit = Private Profit.#2
MMTer are the perfect example of ‘How We Think About the Deficit Is Mostly Wrong’.#3
Egmont Kakarot-Handtke
#1 Keynesians ― terminally stupid or worse?
http://axecorg.blogspot.de/2017/08/keynesians-terminally-stupid-or-worse.html
#2 Rectification of MMT macro accounting
https://axecorg.blogspot.de/2017/09/rectification-of-mmt-macro-accounting.html
#3 For the full-spectrum refutation see cross-references MMT
http://axecorg.blogspot.de/2017/07/mmt-cross-references.html
AXEC / E.K-H,
Are you a libertarian? Do you deny that purchases create jobs? A large amount of government spending is just the government purchasing stuff.
"the main part of accumulated profit is used for bond buying"
Egmont,
For the sp500 firms, they make about 1T in earnings, they pay out 500b in dividends and spend another 350b on capex, leaving about 150b retained earnings, so the main part of earnings isn't put into bonds by firms anyway... meanwhile US issues about 600b in bonds....
Tyler, it depends on the type of inflation. Lerner's type I inflation is generated by demand and responds to tax increases or spending cuts. Types II (aggressive income-seeking) and III (expectational inflation) are not a consequence of overspending and require other measures.
"It achieved a rare feat of bipartisan agreement in Washington — worry from the left and the right about the plan’s potential to increase the deficit."
More and more evidence that the misunderstandings about public finance and money are NOT some kind of neoliberal conspiracy.
It's the good and old human ignorance.
" Actually Keynes's phrase "Look after unemployment and the budget will look after itself" "
From what I can gather from long exposure and not a lot of historical reading there are two Keynes.
The first Keynes tried to get things to stabilise by jiggling interest rates. Hence liquidity preference as a theory. The belief system - that you can "depoliticise" the process and stabilise capitalism by changing the price of things - is what persists in Consensus economics and neoliberalism.
that evolved into a later Keynes that realised that process didn't really cut the mustard, and he moved more into the fiscal intervention view. That's where the look after the unemployment line comes from.
It's important to remember that automatic stabilisers didn't really exist when Keynes was writing. They only came into being towards the end of his life.
Lerner then proposed functional finance, which Keynes first rejected and then came around to (allegedly). Then Keynes died.
Once Keynes died his initial monetary stuff was picked up by Samuelson and promoted back up the tree ahead of fiscal intervention. That process led to the Consensus view.
MMT comes from the Lerner viewpoint, and firms that up with the Job Guarantee automatic stabiliser. It's the direct, immediate and spatially aware counter-stabilisation process of MMT that makes it a superior solution to interest rate targeting.
Matt Franko
Thank you for the numbers. You say “so the main part of earnings isn’t put into bonds by firms anyway.”
You probably overlook two things
• accumulated profit means NOT the total profit per period (= flow) but the sum of non-distributed profits = retained profits (= stock),
• so the number under discussion is the ratio of stock of bonds to the sum of retained profits for the business sector as a whole.
The comparison of the business sector’s retained profits per period to the total stock of bonds makes no sense. This stock is mainly held by foreigners, pension funds, insurance companies, banks, etc.
I have clarified the sentence thus “a certain part of the accumulated = non-distributed profit is used for bond buying …”
Egmont Kakarot-Handtke
Neil Wilson
Keynes got the paradigm shift from microfoundations to macrofoundations wrong. His methodological blunder can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (p. 63)
This two-liner is conceptually and logically defective because Keynes did not come to grips with profit: “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.)#1, #2
Keynes NEVER grasped what macroeconomic profit is. That is disqualifying for an economist.
The axiomatically correct relationships are:
Qm=−Sm in the case of the pure production-consumption economy,
Qm=I−Sm in the case of the investment economy,
Qm=(I−Sm)+Yd+(G−T)+(X−M) in the general case.
Legend: Qm monetary profit, Sm monetary saving, I investment expenditures, Yd distributed profit, G government expenditures, T taxes, X export, M import.
Therefore, all I=S and IS-LM models are provably false#3, Post Keynesianism and MMT, too, is false. Macroeconomics is proto-scientific rubbish since Keynes. Macro policy guidance is based upon materially and formally inconsistent economic theory.
Egmont Kakarot-Handtke
#1 How Keynes got macro wrong and Allais got it right
https://axecorg.blogspot.de/2016/09/how-keynes-got-macro-wrong-and-allais.html
#2 The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2489792
#3 For the details of the bigger picture see cross-references Refutation of I=S
http://axecorg.blogspot.de/2015/01/is-cross-references.html
all my numbers are flows...
AXEC / E.K-H,
I don't listen people who make bold claims that are not backed by some kind of empirical evidence (as flawed as empirical evidence may be).
People who know only to ascertain bold claims and put in the text some links to their own articles (that just repeat the bold claims in a lot of different ways, without any kind of empirical evidence) as if it was academic don't deserved to be read. They are a waste of time to everyone.
André
Best to give such people a pat and tell then to run along and play.
André
You say: “I don’t listen people who make bold claims that are not backed by some kind of empirical evidence.”
Obviously, you have never heard that bold claims are the very essence of science.*
Take notice that economics is about how the economy works and NOT in need of silly announcements to whom a retarded blogosphere blatherer prefers to listen.
Egmont Kakarot-Handtke
* Wikipedia
https://en.wikipedia.org/wiki/Bold_hypothesis
AXEC / E.K-H,
All your “theory” boils down to that big claim: “The most elementary economic configuration is the pure consumption economy” (and variants of that sentence).
You do have some other kinds of bold claims, like “The subject matter of theoretical economics is not human behavior but systemic behavior” and “the AXEC Project which applies a superior method”. Says who? You?
You ignore the fact the “most elementary economic configuration” will at least involve a government or some kind of central authority. There is no way to have any kind of elementary economic configuration without a state at its center. What do you think of that big claim? I’m claiming that. Why is your claim “superior” to mine? I will tell you why my big claim is superior to yours: because it is based on empirical evidence. And I’m sure it also predicts much better the future of economies around the world.
When faced with criticism, all you do is (1) answer with a lot of references (#1, #2, #3…) that is just you self-referencing your own papers, that just repeat nonstop the same hypothesis, without actually giving any kind of empirical evidence, and (2) be very aggressive, using words like “retarded blogosphere blatherer” (which is actually funny, I may use that term some day). I guess you somehow feel more academic or scientific with that references you put in your texts, but I may be wrong. If that’s the case, you should know that’s not real science at all. Guess what? I will not waste my time reading your references, because I know that behind the 5.000 words or more there is just the same thing repeated.
When you ignore empirical reference, you are just like any mainstream economist. You just assume that the world works like your theory – and it doesn’t really matter if it doesn’t, you never will change your mind. You will defend your theory with all your strength.
André
You say: “Guess what? I will not waste my time reading your references.”
That’s OK. But why do you waste so much time parading as moron in the economics blogosphere?
Science consists of two essential elements: “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) Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-the-art testing.
Because BOTH logical AND empirical consistency are needed it is sufficient for a refutation to prove EITHER logical OR empirical inconsistency.
What has been proven is that the formal foundations, i.e. the balances equations, of MMT are false.#1 Because of this, the whole analytical superstructure of MMT is false.
This is the big claim: “Neither Classicals, nor Walrasians, nor Marshallians, nor Marxians, nor Keynesians, nor Institutionialists, nor Monetary Economists, nor MMTers, nor Austrians, nor Sraffaians, nor Evolutionists, nor Game theorists, nor EconoPhysicists, nor RBCers, nor New Keynesians, nor New Classicals ever came to grips with profit. Hence, they all fail to capture the essence of the market economy.” (see also Palgrave Dictionary, Profit, Dessai, 2008)
Guess what, you do neither understand the significance of this claim nor can you refute it.#2 And this brings us back to the point at issue: How Stephanie Kelton and the rest of MMT thinks about the deficit is mostly wrong because they, too, got profit wrong. For the proof see the cross-references.#3
Egmont Kakarot-Handtke
#1 Rectification of MMT macro accounting
https://axecorg.blogspot.de/2017/09/rectification-of-mmt-macro-accounting.html
#2 10 steps to leave cargo cult economics behind for good
https://axecorg.blogspot.de/2017/09/ten-steps-to-leave-cargo-cult-economics.html
#3 Cross-references Profit
http://axecorg.blogspot.de/2015/03/profit-cross-references.html
AXEC / E.K-H,
"BOTH logical AND empirical consistency are needed". Yes, MMT has both. You have just logical consistency, not empirical consistency.
As I said before, I will not waste my time reading #1, #2 or #3, because there is nothing there, just big claims without any real content.
I can also add that I and everyone that have discussed with you around here knows that "the formal foundations, i.e. the balances equations, of MMT" are not "false" as you claim. Again, you just make that big claim, and offer no evidence at all.
It's just your crazy words and nothing more. It's just "the elementary" or "pure production-consumption economy" that you created, and the accounting rules that you created, and not a single empirical evidence.
And you claim that MMT "formal foundations" are "provable false" without proving it. That's funny. I'm sure that you are no mathematician. You wouldn't be able to pass the first undergratuate exam in a mathematics course.
André
You say: “As I said before, I will not waste my time reading #1, #2 or #3, because there is nothing there, just big claims without any real content.”
MMT is a scientific failure because MMTers are incompetent. And you are one of the worst examples for the absence of logic and the lack of scientific standards.
The proof that the MMT balances equations are false has been given here #1 and at some other places #2. Because you do not waste time reading references you missed it. You do not read the proofs, not to speak of understanding them, you just idiotically repeat that proofs have not been given.
The proof that the Keynesian macro equations, on which MMT is based, are false has already been given by Allais (Nobel Prize 1988).#3 Because you do not waste time reading references you missed it.
The proof that economists in general are too stupid to get the foundational concept of profit right has been given here #4. Because you do not waste time reading references you missed it.
That the profit theory is false since Adam Smith is plainly stated in the Palgrave Dictionary: “A satisfactory theory of profits is still elusive.” (Desai, 2008). Because you do not waste time reading references you missed it.
Because you can neither read nor think you do not understand anything. You say “I can also add that I and everyone that have discussed with you around here knows that ‘the formal foundations, i.e. the balances equations, of MMT’ are not ‘false’ as you claim.” This tells you only that your MMT buddies are just as far behind the curve as you are.
That the foundational MMT equations are false is not a claim but a mathematical proof. And neither you nor any other MMTer has refuted the proof. If you had more than MMT-buddy-blah-blah you would certainly present it, wouldn’t you?
The question of the empirical proof of the objective macroeconomic axioms has been dealt with elsewhere at length.#5 Because you do not waste time reading references you missed it.
MMTer are not only too stupid to understand a plain mathematical proof but violate scientific standards by not properly responding to it: “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.” (Morgenstern)
The issue has been decided: the MMT balances equations are formally refuted. MMT is scientifically dead. Whether you realize, understand, or accept it is a matter of indifference. People who do not ‘waste time’ following references and take notice of an indisputable refutation are the worst possible advocates of MMT. The living proof of the failure of MMT are MMTers.
Egmont Kakarot-Handtke
#1 Rectification of MMT macro accounting
https://axecorg.blogspot.de/2017/09/rectification-of-mmt-macro-accounting.html
#2 For the full-spectrum refutation of MMT see cross-references
http://axecorg.blogspot.de/2017/07/mmt-cross-references.html
#3 How Keynes got macro wrong and Allais got it right
http://axecorg.blogspot.de/2016/09/how-keynes-got-macro-wrong-and-allais.html
#4 How the Intelligent Non-Economist Can Refute Every Economist Hands Down
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2705395
#5 Just make a search run with ‘testable’ on the AXEC blog
https://axecorg.blogspot.de/
AXEC / E.K-H,
I once read something you wrote, maybe a year ago. I did take my time (waste my time).
I remember that your accounting standard was something unique that you created, and it was different from the usual national or international accounting standards.
Also, you claimed that you could translate your accounting standard to the GDP standard, but then you showed some equation that made clear the fact that you did not understand basic accounting.
At the time I asked you about your accounting standard. Then you just assumed I was criticizing you, or maybe that I was someone else. Instead of discussing the doubt, which could be pleasant to both of us, you reacted with you usual aggressiveness and hatred.
Emotional responses lights a red light in my head. Usually such emotional people can't separate reason from emotion.
For what I remember, what I can tell you is that you desperately need some basic accounting classes. Then you must review your theory and how it compares to GDP accounting. But I will never be sure, because when you started to be violent I stopped reading your material.
If your material is so important as you claim (which I doubt) then someone else will eventually appear and explain it better and more rationally. If not a single soul is capable of seeing something important in your claims, then nothing can be done for you.
André
You do not waste your time reading references and taking notice of proofs, perhaps you can waste a minute on reading your own stuff.
You will realize that in your filibuster there is NOT ONE iota of the point at issue, i.e. that Stephanie Kelton’s policy proposals are based on provably false balances equations.
No living soul is interested in what you have read once and why you disliked it. Like/ dislike is for the gossip on Facebook, true/false is the sole criterion in an economics debate.
Either you can demonstrate that the elementary Law of Profit Qm=−Sm as derived from the objective-systemic axiom set is false or you cannot. Obviously, you cannot, therefore the refutation of Stephanie Kelton’s soapbox economics is final. In sum:
• MMT’s sectoral balances equations are mathematically FALSE,
• MMT’s policy proposal have NO sound scientific foundations,
• MMTer are scientifically INCOMPETENT.
Egmont Kakarot-Handtke
"• MMT’s sectoral balances equations are mathematically FALSE"
No, they are not. You wrongly claim that because you don't know basic accounting.
As typical, Kelton tells us that all we have to fear is inflation itself, but how would she actually operationalize an inflationary constraint?
What level of inflation would be set as the trigger - the level considered by all economists (good luck with that) to be sufficiently harmful or the level that would be sufficient to make tax increases and/or spending cuts politically viable? Maybe the economists decide 4% is harmful but politically we'd have to get to 8-10% before enough Congressional critters would feel pressured enough to increase taxes and decrease spending. If you think that's unlikely, then you're not aware that on the macro level, the real money isn't taxing the two thousand 1%er families, it's in the mass of the 99%ers who vote or will register to vote if you increase their taxes or decrease their incomes.
As any psychologist will tell you it is far easier not to have ever provided a benefit (tax cut as well as spending) than to have provided it and then take it away. Furthermore, given how long a bout of inflation will take to wring its way out of a heated economy, maybe best to take some caution before harmful inflation begins to emerge. Again, is actual inflation likely to provide enough concern, early enough, to motivate voters to demand their government to raise their taxes and cut their incomes to reduce that inflation? If harmful inflation is considered 4% is 3%-and-going-up going to motivate tax increases and spending cuts, or will we instead decide to wait and see, maybe all the way up to 8 or 10%?
Maybe some other indicator related to the possibility of inflation getting to levels of concern is needed? Something that can provoke enough mass hysteria (or Zero Hedge snark) to get people to support tax increases and spending cuts? Hmmm, can any of you smart folks think that something like that could exist? Maybe it already does?
MMTers are smart, but in their rush to convince us, are they wise?
As typical, Kelton tells us that all we have to fear is inflation itself, but how would she actually operationalize an inflationary constraint?
http://www.bondeconomics.com/2017/10/mmt-and-automatic-stabilizers.html
Salsabob
Inflation is a pseudo-issue, see ‘MMT was right all along: Gov-Deficits do NOT cause inflation’
https://axecorg.blogspot.de/2017/10/mmt-was-always-right-gov-deficits-do.html
Egmont Kakarot-Handtke
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